Chapter 1 The Strategic Management Process. 1-2 Overview Why do some firms succeed while others fail? A central objective of strategic management is.

Chapter 1Chapter 1

The Strategic Management ProcessThe Strategic Management Process

1-2

OverviewOverview

Why do some firms succeed while others fail?Why do some firms succeed while others fail? A central objective of strategic management is to A central objective of strategic management is to

learn why this happens.learn why this happens.

What is strategy?What is strategy? An action a company takes to attain superior An action a company takes to attain superior

performance.performance.

What is the strategic management process?What is the strategic management process? The process by which managers choose a set of The process by which managers choose a set of

strategies for the enterprise to pursue its vision.strategies for the enterprise to pursue its vision.

1-3

Defining the Mission and Setting Top-Level GoalsDefining the Mission and Setting Top-Level Goals

External Analysis of Opportunities and ThreatsExternal Analysis of Opportunities and Threats

Internal Analysis of Strengths and WeaknessesInternal Analysis of Strengths and Weaknesses

Selection of Appropriate StrategiesSelection of Appropriate Strategies

Implementation of Chosen StrategiesImplementation of Chosen Strategies

Strategic PlanningStrategic Planning

Rational planning by top management?Rational planning by top management?

Basic Strategic Planning ModelBasic Strategic Planning Model

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FIGURE 1.1

The Main The Main Components of Components of the Strategic the Strategic Planning Planning ProcessProcess

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Mission and GoalsMission and Goals

MissionMission Sets out why the organization Sets out why the organization

exists and what it should be doing.exists and what it should be doing.

Major goalsMajor goals Specify what the organization hopesSpecify what the organization hopes

to fulfill in the medium to long term.to fulfill in the medium to long term.

Secondary goalsSecondary goals Are objectives to be attained that lead to superior Are objectives to be attained that lead to superior

performance.performance.

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External AnalysisExternal Analysis

Identify Identify strategic opportunities and threatsstrategic opportunities and threats in in the operating environment.the operating environment.

MacroenvironmentMacroenvironment NationalNational

Immediate (Industry)Immediate (Industry)

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Internal AnalysisInternal Analysis

Identify strengthsIdentify strengths Quality and quantity of resources availableQuality and quantity of resources available Distinctive competenciesDistinctive competencies

Identify weaknessesIdentify weaknesses Inadequate resourcesInadequate resources Managerial and Managerial and

organizational deficienciesorganizational deficiencies

1-8

Strengths and WeaknessesStrengths and Weaknesses

Opportunities and ThreatsOpportunities and Threats(SWOT Analysis)(SWOT Analysis)

Strategic ChoiceStrategic ChoiceBusinessBusiness

FunctionalFunctionalGlobalGlobal

CorporateCorporate

SWOT and Strategic ChoiceSWOT and Strategic Choice

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Business-Level StrategiesBusiness-Level Strategies

Cost leadershipCost leadership Attaining, then using the lowest total cost basis as a Attaining, then using the lowest total cost basis as a

competitive advantage.competitive advantage.

DifferentiationDifferentiation Using product features or services to distinguish the Using product features or services to distinguish the

firm’s offerings from its competitors.firm’s offerings from its competitors.

Market niche focusMarket niche focus Concentrating competitively on Concentrating competitively on

a specific market segment.a specific market segment.

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Functional-Level StrategiesFunctional-Level Strategies

Focus is on improving the effectiveness of Focus is on improving the effectiveness of operations within a company.operations within a company.

ManufacturingManufacturing MarketingMarketing Materials managementMaterials management Research and developmentResearch and development Human resourcesHuman resources

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Global-Level StrategiesGlobal-Level Strategies

MultidomesticMultidomestic

InternationalInternational

GlobalGlobal

TransnationalTransnational

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Corporate-Level StrategiesCorporate-Level Strategies

Vertical integrationVertical integration

DiversificationDiversification

Strategic alliancesStrategic alliances

AcquisitionsAcquisitions

New venturesNew ventures

Business portfolio Business portfolio restructuringrestructuring

1-13

Strategy ImplementationStrategy Implementation

Designing organizational structureDesigning organizational structure

Designing control systemsDesigning control systems Market and output controlsMarket and output controls Bureaucratic controlsBureaucratic controls Control through organizational cultureControl through organizational culture Rewards and incentivesRewards and incentives

Matching strategy, structure, Matching strategy, structure, and controlsand controls

Congruence (fit) among strategy, Congruence (fit) among strategy, structure, and controlsstructure, and controls

StructureStructure

StrategyStrategy

ControlsControls

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Managing Strategic ChangeManaging Strategic Change

The only constant is change.The only constant is change.

Success requires adapting strategy and Success requires adapting strategy and structure to a changing world.structure to a changing world.

The The feedback loopfeedback loop in in strategic planning.strategic planning. CorporateCorporate

FunctionalFunctional

BusinessBusinessOperationalOperational

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Strategic ManagersStrategic Managers

General managersGeneral managers Responsible for the overall (strategic) performance Responsible for the overall (strategic) performance

and health of the total organization.and health of the total organization.

Operations managersOperations managers Responsible for specific businessResponsible for specific business

functions or operations.functions or operations.

1-16

Strategic Managers for All LevelsStrategic Managers for All Levels

FIGURE 1.2

1-17

Strategic LeadershipStrategic Leadership

Vision, eloquence, and consistencyVision, eloquence, and consistency

Commitment to the visionCommitment to the vision

Being well informedBeing well informed

Willingness toWillingness to delegate and empower delegate and empower

Astute use of powerAstute use of power

Emotional intelligenceEmotional intelligence

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Strategy as an Emergent Strategy as an Emergent ProcessProcessStrategy making in an unpredictable worldStrategy making in an unpredictable world

Creates the necessity for flexible strategic approaches.Creates the necessity for flexible strategic approaches.

Strategy making by lower-level managersStrategy making by lower-level managers Strategy evolves through autonomous action.Strategy evolves through autonomous action.

Serendipity and strategySerendipity and strategy Accidental discoveries and happenstances can have dramatic Accidental discoveries and happenstances can have dramatic

effects on strategic direction.effects on strategic direction.

Intended and emergent strategiesIntended and emergent strategies Realized strategies are combinations of intended and Realized strategies are combinations of intended and

emergent strategies. emergent strategies.

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FIGURE 1.3

Intended and Emergent Intended and Emergent StrategiesStrategies

Source: Reprinted from “Strategy Formation in an Adhocracy,” by Henry Mintzberg and Alexandra McGugh, published in Administrative Science Quarterly, Vol. 30, No. 2, June 1985, by permission of Administrative Science Quarterly.

1-20

FIGURE 1.4

The Strategic Management The Strategic Management Process for Intended and Process for Intended and Emergent StrategiesEmergent Strategies

1-21

Strategic Planning in PracticeStrategic Planning in Practice

Planning under uncertaintyPlanning under uncertainty Scenario planning for dynamic environmental changeScenario planning for dynamic environmental change

Ivory tower planningIvory tower planning Lack of contact with operational realitiesLack of contact with operational realities The importance of involving operating managersThe importance of involving operating managers Procedural justice in the decision-making processProcedural justice in the decision-making process

Engagement, explanation, and expectationsEngagement, explanation, and expectations

Planning for the present: Strategic IntentPlanning for the present: Strategic Intent Recognition of the static nature of the strategic fit modelRecognition of the static nature of the strategic fit model Strategic intent in focusing the organization on winning by Strategic intent in focusing the organization on winning by

achieving stretch goalsachieving stretch goals

1-22

Improving Strategic Decision Improving Strategic Decision MakingMakingCognitive biasesCognitive biases systematically influence the systematically influence the rationality of decision makers.rationality of decision makers.

FIGURE 1.5

1-23

Groupthink and Strategic Groupthink and Strategic DecisionsDecisionsPitfalls of groupthinkPitfalls of groupthink

Failing to question underlying assumptions.Failing to question underlying assumptions. Coalescing around a single person or policy.Coalescing around a single person or policy. Filtering out conflicting information.Filtering out conflicting information. Developing after-the-fact rationalizations.Developing after-the-fact rationalizations. Having an emotional (nonobjective) Having an emotional (nonobjective)

commitment to an action.commitment to an action.

1-24

Techniques for Improving Decision Techniques for Improving Decision MakingMakingTwo decision-Two decision-making processesmaking processesthat counteractthat counteractcognitive biases cognitive biases and groupthink.and groupthink.

FIGURE 1.6