Part 1 Overview of Strategic Management Chapter 1 The Nature of Strategic Management
Nov 18, 2014
Part 1 Overview of Strategic Management
Chapter 1
The Nature of Strategic Management
“Without a strategy an organization is like a ship without a rudder, going round in circles. It’s like a tramp; it has no place to go”
“He who will not worry about what is far off will soon find something worse than worry”
THE PURPOSE
This chapter provides an over view of
Strategic Management Model of Strategic Management
Process Definition of Basic Activities & Terms Some Important Themes
What is strategic management
All firms have strategy even if it is informal, unstructured & sporadic all organizations do not know where they are heading.
Game plan for sustainable competitive advantage
By adapting to changes
Taking advantage of external opportunities & reduce impact of external threats
capitalize on their internal strengths & eliminate internal weaknesses
Represents a systematic, logical, & objective approach
Multiple functions
Tough managerial choices
Strategic Management Process
Integrating Intuition & Analysis.
An objective, logical, systematic
approach for making major decisions
Three Stages of Strategic Management Process
Strategy formulation Strategy implementation Strategy evaluation
*communication is the key:- understanding, commitment, ownership
Strategy Formulation Includes
Developing a vision & mission Identifying external opportunities &
threats Determining internal strengths &
weaknesses Establishing long-term objectives Generating alternative strategies Choosing particular strategy
Strategy formulation issues
What new business to enter, what business to abandon
Whether to expand operations or diversify, whether to enter international markets
Whether to merge or form a joint venture or Partnering or to buy a business or how to avoid a hostile take over
How to allocate resources Business ethics
Global Vs. domestic operations Vision/Mission Matrix analysis Partnering Competitive analysis Governance & guidelines for conducting an internal/
external strategy assessment
Strategy Implementation (action stage, the most difficult one)
Establish annual objectives Devise policies Motivate employees Allocate resources
Strategy implementation issues includes
Developing a strategy supportive culture Creating an effective organizational structure Redirecting Marketing efforts or introducing new
marketing concepts Outsourcing Preparing budgets & doing financial analysis,
developing new controls Developing & utilizing information systems Linking employee compensation to organizational
performance Business ethics
Strategy Evaluation
Why:- To know Strategies need modification
Three fundamental strategy evaluation activities
Reviewing Internal & External factors
Measuring performance
Taking Corrective actions
The Hierarchical Levels Involved
Corporate level
Divisional or Strategic Business Unit level
Functional
Definition of Key terms & Activities
Competitive Advantage
Strategists
They help gather, analyze & organize information. Track industry & competitive rends, develop forecasting models & scenario analysis, evaluate corporate & divisional performance, spot emerging market opportunities, identify business threats & develop creative action plans.
Vision Statement Mission Statement Opportunities & Threats (external)
Economic Social Cultural Demographic Environmental Political, legal, governmental Technological Customers CompetitorsThese changes create different type of consumer
& consequently need for different type of product, services & strategies.
Strength & Weaknesses (internal) Typically related to functional areas of the firm
(determined relative to competitors) Long Term Objectives
Objectives: - specific results in pursuing basic mission
Long-Term:- more than one year Why objectives:-
Give a direction Helps in evaluation Reveal priorities & create synergies &
coordination Basis for planning, organizing, motivating &
controlling activities
Strategies Means for achieving long term objectives.,
important for formulation Business Strategies include
Geographic expansion (market development) Diversification Acquisition Product development Market penetration Retrenchment Divestiture Liquidation Joint ventures & partnership
Annual Objectives
Short term milestones to reach long term objectives important for strategy implementation, become basis for resource allocation
Established at levels
Set for
Policies Means by which annual objectives are
achieved, important for strategy implementation
Set for Developed at Outlines expectations Guidelines, rules & procedures to support
efforts to achieve the objectives. Particularly includes guides to decision making & address recurring situations
Strategic Management Model
Logical starting point Dynamic & continuous Strategic meetings (retreats )
to update firms’ vision / mission, opportunities / threats, strengths/ weaknesses, strategies, objectives, policies & performance
Formality
External AuditCH-3
Long Term ObjectivesCH-5
Internal AuditCH-4
Generate, Evaluate & select strategiesCH-6
Implement strategies Management IssuesCH-7
Implement strategies: Marketing, fin / Acc, R&D, MISCH-8
Measure & Evaluate performanceCH- 9
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Vision & MissionCh_2
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Benefits of Strategic Management
Financial Benefits Improvement in sales Improvement in profitability Improvement in productivity
.
Non Financial Benefits: More proactive than reactive
Improved understanding of competitors’ strategy
Enhanced awareness of threats Reduced resistance to change Enhanced problem prevention capabilities Enhances interaction
Better strategies for being more systematic, rationale, & logical
Leads to ownership & empowerment
Decentralized line manager planning is replacing centralized staff planning
Guidelines for Effective Strategic Management
1. Ensure implementation 2. People not paper process. Keep it as simple & non
routine, eliminate jargon3. Attend to psychological, social, political,
information, administrative dimensions4. Stimulate thinking5. Open mindedness 6. Subjective factors such as attitudes towards risk,
concern for social responsibility & organizational culture will always affect strategy.
Avoid Pitfalls
Pursuing too many strategies using SM to gain control over decision
& resources doing SM for sake of regulatory
requirements hastiness in formulation failure to communicate intuitive decision making
Lack of top management support failure to measure performance not involving all the managers or key
employees failure to create a supportive climate for
change being over formal in planning that
flexibility & creativity are stifled
Why Some Firms Do Not Do Strategy Planning
Poor reward structure Fire fighting Waste of time Too expensive Laziness Content with success
Fear of failure Overconfidence Prior bad experience Self esteem Fear of the unknown Honest difference of opinion suspicion
Themes
1. Global Considerations Impact Virtually All Strategic Decisions
A necessity A borderless world with global citizens The dynamics of political, economic &
cultural differences `
2. Electronic commerce Has Become A Vital Strategic Management Tool
competitive advantage:- Direct Selling Communication Information B2B Expense, time, distance, space
3. Natural Environment Has Become An Important Strategic Issue
defined as “surroundings in which an organization operates, including air, water, land, natural resources, flora, fauna, humans & their interrelation.” Some burning issues are global warming, bio-terrorism, increased pollution etc
social responsibility & business ethics issues