1.1 Why Strategic Management Is Important
Feb 25, 2016
1.1Why Strategic Management Is Important
Why SM is ImportantEveryone in an organization plays
a role in strategic management
Understanding strategic decisions is important so you can do your job well and have your work valued and rewarded.
Why SM is Important2 fundamental questions
Why do firms succeed/fail?Why do firms have varying levels
of performance?
These questions have guided strategic management researcher for many years.
Why SM is ImportantStrategic Management:Makes a difference in the
performance of the organization◦Higher levels of performance,
measured by profits, in companies with SM
Important to know if it affects the organizational performance
ReputationGlobal survey of financial analysts was
conducted in 2008, and over 90% agreed reputation affects financial status of the organization.
Measured aspects:◦Executing strategy◦Transparency of information◦Strong corporate governance
Highest ranking companies included IKEA, Google, Toyota…
Why SM is ImportantOrganizations are constantly faced
with changing situations both internally and externally and are still expected to meet a certain level of output
Industries never stand still◦Operations improve◦Markets expand◦Competition comes and goes
The way strategy is developed has an effect on performance according to past studies
Companies that collected information and used analytical techniques made more effective decisions than those that did not.
Organizations that use several approaches to developing strategy outperformed those who only used one.
Why SM is ImportantFocuses and coordinates different
divisions/departments on the same goal
Each division has its own goals for performance◦Accounting and revenues, operations
and output…SM helps align these goals with
the organizations goals
Strategic ManagementWhat it is? Section 1.2
Defining Strategy Goals directed plans and actions
Capabilities and resources (Internal Forces)
Opportunities and threats (External Forces)
Strategic ManagementAnalyzing the CURRENT situation
Propelling the strategy into action.
Notice: Changes could or must be made to accommodate strategy in accordance.
Four Characteristics
Interdisciplinary
External Factors
Internal Factors
Future Direction
The Strategic Management Process1. Situation Analysis- Current
Situation2. Strategy Formulation-
Designing 3. Strategy Implementation-
Action4. Strategy Evaluation- Revisit
and Check
Situation Analysis
Evaluating the current situation
Strategy Formation1. Functional Strategies
◦Relate to organizational functional area◦Example: Production- operations, marketing,
finance and accounting2. Competitive Strategies
◦Concerned with how an organization competes in the industry
◦Examples: Direct Competitors3. Corporate Strategies
◦What business to be in and what to do◦Example: acquisitions
The Strategic Management Process1. Situation Analysis- Current2. Strategy Formulation-
Designing 3. Strategy Implementation-
◦Strategy in action4. Strategy Evaluation-
◦how it measures to expectation
History of Strategic ManagementStrategos- military commander1960’s Contingency approach
arose
Who’s Involved with Strategic ManagementRemember – strategic management is the
responsibility of all employees◦ All organizational levels play a role in developing,
implementing, and changing strategy Lower level employees are concerned with functional
strategies Higher level executives are concerned with strategic issues
Three main groups in the strategic management process◦ The Board of Directors◦ The Top Management Team◦ Other Strategic Managers and Organizational
Employees
The Board of DirectorsElected group that represents a company’s
shareholders◦ Legal obligation to protect interests of stockholders◦ Corporate governance – governing the decisions
and actions of the organization◦ Two different roles a Board plays
Approving Role Involved Role
The Board of Directors cont…Approving Role
◦Older, traditional form of role that a Board plays
◦Top management keeps board members informed of strategies
◦Board’s role is to approve these strategies, some of which they may have already given input on
The Board of Directors cont…Involved Role
◦More common role of Board’s in today’s business world
◦Board initiates strategies and oversees the implementation and evaluation of these strategies
The Board of Directors cont…The Board of Directors Key Roles Review and approve strategic goals and plans Review and approve organization’s financial standards and
policies Ensure integrity of organization’s financial controls and
reporting system Approve an organizational philosophy Monitor organizational performance and regularly review
performance results Select, evaluate, and compensate top-level managers Develop management succession plans Review and approve capital allocations and expenditures Monitor relations with shareholders and other key
stakeholders
The Role of Top ManagementAn organizations top manager is typically the
Chief Executive Officer (CEO)The CEO works with other executive or
senior managers such as COO, CFO, CCO, CIO etc…
Roles of Chief Executives◦ Chief Strategist◦ Strategy Designer◦ Key Decision Maker◦ Visionary Leader◦ Provide Effective Strategic Leadership
The Role of Top Management cont…Provide Effective Strategic Leadership
◦ Strategic Leadership – the ability to anticipate, envision, maintain flexibility, think strategically, and work with others in the organization to initiate changes that will create a viable and valuable future for the organization
Executive or Senior Level Management provides effective Strategic Leadership with six key dimensions◦ Determining the organization’s purpose or vision◦ Exploiting and maintaining the organization’s core
competencies◦ Developing the organization’s human capital◦ Creating and sustaining a strong organizational culture◦ Emphasizing ethical organizational decisions and practices◦ Establishing appropriately balanced organizational controls
Other Strategic Managers and Organizational EmployeesStrategy Implementation
◦Employees put strategies into action◦It is not uncommon to see them
managing or supervising the work of others and doing work themselves
Evaluation of Strategies◦If strategies aren’t helping the
organization achieve its goals, they need to be changed
◦Employees do the evaluating and follow up to top management
1.4Factors Impacting SM TodayGlobal economy and
GlobalizationCorporate GovernanceE-business
Global Economy and GlobalizationOffers significant business
opportunitiesExtremely difficult doing business
globallyMeant to open up trade, and
break down geographical barriers◦Openness entails open to both good
and bad
Global Economy and Globalization
High interdependence on trade can lead to domino effects during economic upturns/downturns.
WTO- goal is to promote long term economic development and poverty reduction by providing technical and financial support
IMF- promotes international monetary cooperation and provides members with policy advice, loans, and technical assistance to maintain financial stability
Global Economy and GlobalizationOther challenges in the global economy:Cultural differences (traditions, history,
beliefs)◦Ex: Capitalism’s high emphasis on profits and
growth are widely accepted in US and Australia, but not so much in France or Scandinavia
Internet and speed of informationStrategic managers must be sensitive to
cultural and political differences◦How will decisions be viewed?◦How will their actions be viewed?
Corporate GovernanceCorporate Governance – the way a corporation
is governed or the determination of the broad uses to which organizational resources will be deployed and the resolution of conflicts among the myriad participants in organizations
2001-2002◦ Enron, Tyco, Worldcom
Sarbanes-Oxley Act – U.S. law designed to protect investors by improving the accuracy and reliability of corporate disclosures◦ Mandated two areas
The Role of Boards of Directors Financial Reporting
Corporate Governance cont…The Role of Boards of DirectorsThe original purpose of a corporate Board of
Directors was to ensure that there was a group, independent from management that looked out for the interest of the owners who were not involved in the day to day operations of the corporation.
Sarbanes-Oxley changed the way publicly traded companies were run through the board members◦ No more “relationship” between the CEO and board
members
Corporate Governance cont…Financial ReportingSarbanes-Oxley called for more
disclosure and transparency of financial information◦ Senior Managers must now sign off
certifying the accuracy of financial statements
Section 404◦ Deals with auditing of internal financial
controls
SM in the E-business WorldE-business- using information
and communication technologies to support all aspects of a business.◦E-commerce- retailing side of e-
business, selling items over the internet.
SM in the E-business WorldE-business Enhanced Organization
◦Traditional organization that sets up e-business capabilities, while maintaining its traditional structure
◦Ex: shopping at Wal-Mart in store, or onlineE-business Enabled Organization
◦Uses information and communication technology to perform its traditional business functions better, not for selling anything.
◦Enables organizations to do their work more efficiently and effectively
SM in the E-business WorldTotal E-business
◦Whole approach to business is based on the internet and other information and communication technologies
◦Ex: Google, Yahoo, eBay, Amazon.com