1 McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Chapter 1 Strategic Management
May 06, 2015
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McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
Chapter 1
Strategic Management
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McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
Chapter Topics
• The Nature and Value of Strategic Management• Dimensions of Strategic Decisions
• Formality in Strategic Management
• Benefits of Strategic Management
• Risks of Strategic Management
• The Strategic Management Process
• Components of the Strategic Management Model
• Strategic Management as a Process
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What is Strategic Management?
The set of decisions and actions that result in the formulation and implementation ofplans designed to achieve a company’s objectives.
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Critical Tasks of Strategic Management
1. Formulate the company’s mission
2. Conduct internal analysis
3. Assess the company’s external environment
4. Analyze company’s options
5. Identify most desirable options
6. Select long-term objectives and grand strategies
7. Develop annual objectives and short-term strategies
8. Implement the strategic choices
9. Evaluate success of the strategic process
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What is Strategy?
• Large-scale, future-oriented plan for interacting with the competitive environment to achieve objectives
• Company’s “game plan”
• Framework for managerial decisions
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Dimensions of Strategic Decisions
• Strategic issues• Require top-management decisions
• Require large amounts of the firm’s resources
• Often affect the firm’s long-term prosperity
• Are future oriented
• Usually have multifunctional or multibusiness consequences
• Require considering the firm’s external environment
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Three Levels of Strategy
1. Corporate level
2. Business level
3. Functional level
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Exhibit 1-3: Single-business Firms
P O M /R & Ds tra te g ies
F in a n c ia l/a cco u n tings tra te g ies
M a rke tings tra te g ies
H u m anre la tio ns
s tra te g ies
C o rp ora te /b u s ine ss le ve l
Fun
ctio
nal
Lev
el
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Ex 1-3: Multiple business Firms
Bus
ines
s L
evel
Fun
ctio
nal L
evel
Corporatestrategies
Corporatestrategies
Business 1Business 1 Business 2Business 2 Business 3Business 3
POM/R&Dstrategies
POM/R&Dstrategies
Financial/accountingstrategies
Financial/accountingstrategies
Marketingstrategies
Marketingstrategies
Human relations
strategies
Human relations
strategies
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Ex 1-4: Hierarchy of Objectives and Strategies
Ends(What is to be
achieved)
Means(How is to be achieved)
Board ofDirectors
CorporateManagers
BusinessManagers
FunctionalManagers
Strategic Decision Makers
Mission, includingGoals and philosophy
Long-term objectives
Annual objectives
Grand strategy
Short-term strategiesand policies
Note: indicates a principal responsibility; indicates a secondary responsibility
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Characteristics of Strategic Management Decisions
Corporate-leveldecisions
Greater risk,cost, and profit potential
Greater need forflexibility
Longer time horizons
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Characteristics of Strategic Management Decisions (contd.)
Functional-level
decisions
Functional-level
decisions
Implement overall strategy
Involve action-orientedoperational issues
Are relatively short rangeand low risk
Incur only modest costs
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Characteristics of Strategic Management Decisions (contd.)
Business-leveldecisions
Bridge decisions atcorporate and functional
levels
Are less costly, risky, and potentially profitable thancorporate-level decisions
Are more costly, risky, andpotentially profitable than functional-level decisions
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Formality in Strategic Management
• Definition• Degree to which participants, responsibilities,
authority, and discretion in decision making are specified
• Forces affecting degree of formality• Size of organization
• Predominant management styles
• Complexity of environment
• Production process
• Problems
• Purpose of planning system
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The Strategy Makers
• The ideal strategic management team includes• Chief executive officer (CEO)• Product managers• Heads of functional areas
• The strategic management team obtains input from• Planning staff• Lower-level management and supervisors
• Role of CEO• Provides long-term direction• Assumes ultimate responsibility for firm’s success• Solicits guidance from Board of Directors
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Benefits of Strategic Management
Enhances the firm’s ability to prevent problems
Emphasizes group-based strategic decisions likely to be based on best available alternatives
Improves employees’ understanding of the productivity-rewardrelationship
Reduces gaps/overlaps in activities among employees as theirparticipation clarifies differences in roles
Resistance to change is reduced
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Risks of Strategic Management
• Time involved may negatively impact operational responsibilities of managers
• Lack of involvement of strategy makers in strategy implementation may result in shirking of responsibility for strategic decisions
• Potential disappointment of employees over unattained expectations requires managerial time and training
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Company missionand social
responsibility
Externalenvironment
Internal analysis
Strategic analysis and choice
Long-termobjectives
Generic and grand strategies
Short-term objectives;reward systems
Functional tacticsPolicies that
empower action
Restructuring, reengineeringand refocusing the organization
Strategic control andcontinuous improvement
Possible?
Desired?
Feedback
Fee
dbac
k
Legend
Major impactMinor impact
Ex 1-6:StrategicManagementProcess
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Components of the Strategic Management Model
• Company Mission• Specifies unique purpose of company• Identifies scope of operations• Describes product, market, and technological areas
of emphasis• Reflects values and priorities of decision makers• Expresses approach to social responsibility efforts
• Internal Analysis• Depicts quantity and quality of company’s
financial, human, and physical resources• Assesses company’s strengths and weaknesses• Contrasts past successes and concerns with current
capabilities to identify future capabilities
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Components of the Strategic Management Model (contd.)
• External Environment• Consists of all conditions and forces affecting
firm’s strategic options and define its competitive situation
• Includes three interactive segments – remote, industry, and operating environments
• Strategic Analysis and Choice• Involves simultaneous assessment of external
environment and company profile • Incorporates screening process based on mission
to generate possible and desired opportunities• Results in selection of options from which a
strategic choice is made
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Components of the StrategicManagement Model (contd.)
• Long-term Objectives Profitability Return on investment Competitive position Technological leadership Productivity Employee relations Public responsibility Employee development
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Components of the StrategicManagement Model (contd.)
• Generic Strategies• Low cost
• Differentiation
• Focus
• Grand Strategies• Comprehensive, general plan of major
actions through which the firm intends to achieve its long-term objectives in a dynamic environment
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Components of the Strategic Management Model (contd.)
• Action Plans and Short-Term Objectives• Translate generic and grand strategies into
“action”• Identify specific functional tactics to be taken in the
near term
• Establish a clear time frame for completion
• Creates accountability
• Specify one or more immediate objectives as outcomes of the action
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Components of the StrategicManagement Model (contd.)
• Functional Tactics• Involve identifying activities unique to the
function to help build competitive advantage
• Specify detailed statements of “means” to be used to achieve short-term objectives
• Policies that Empower Action• Include broad, precedent-setting decisions that
substitute for repetitive or time-sensitive decision making
• Often increase managerial effectiveness by empowering discretion of subordinates in implementing strategies
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Components of the StrategicManagement Model (contd.)
• Restructuring, Reengineering, and Refocusing the Organization• Involves an internal focus – getting work done
efficiently and effectively to make the strategy work
• Downsizing, restructuring and reengineering reflect the critical stage in strategy implementation wherein managers attempt to recast their organization.
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Components of the StrategicManagement Model (contd.)
• Strategic Control and Continuous Improvement• Control
• Tracks a strategy during implementation
• Detects problems
• Involves making necessary adjustments
• Continuous improvement• Provides another approach to strategic control
• Allows an organization to respond more proactively and timely to rapid developments
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Implications of Viewing StrategicManagement as a Process
Changes in any one component will affect other components
Strategy formulation and implementation are sequential
Necessity of feedback from institutionalization, review, and evaluation to early stages of process
Need to regard it as dynamic, involving constant changes in interdependent strategic activities