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Strategic Management New _2

Aug 28, 2014

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Strategic Management Notes A. NATURE OF STRATEGIC MANAGEMENT Definition: Strategic Management is the set of decisions and actions that result in the formulation and implementation of plans designed to achieve a companys objectives. It comprises nine critical tasks. 1. Formulate the companys mission, including broad statements about its purpose, philosophy, and goals. 2. Conduct an analysis that reflects the companys internal conditions and capabilities. 3. Access the companys external environment, including both the competitive and the general contextual factors. 4. Analyze the companys options by matching its resources with the external environment 5. Identify the most desirable options by evaluating each option in light of the companys mission 6. Select a set of long-term objectives and grand strategies that will achieve the most desirable options 7. Develop annual objectives and short-term strategies that are compatible with the selected set of long-term objectives and grand strategies 8. Implement the strategic choices by means of budgeted resource allocations in which the matching of tasks, people, structures, technologies, and reward systems is emphasized 9. Evaluate the success of the strategic process as an input for future decision-making B. DIMENSIONS OF STRATEGIC MANAGEMENT Strategic issues require top management decisions: because strategic decisions overarch several areas of a firms operations, they require top-management involvement. Usually only top management has the perspective needed to understand the broad implications of such decisions and the power to authorize the necessary resource allocations. Strategic issues require large amounts of the firms resources: strategic decisions involve substantial allocations of people, physical assets, or moneys that either must be redirected from internal sources or secured from outside the firm Strategic issues often affect the firms long-term prosperity: strategic decisions ostensibly commit the firm for a long time, typically, five years, however, the impact of such decisions often lasts much longer. Once a firm has committed itself to a particular strategy, its image and competitive advantage usually are tied to that strategy. Strategic issues are future oriented: strategic decisions are based on what managers forecast, rather than on what they know. In such decisions, emphasis is placed on the 1

Strategic Management Notes development of projections that will enable the firm to select the promising strategic options. Strategic issues usually have multifunctional or multibusiness consequences: strategic decisions have complex implications for most areas of the firm. Decisions about such matters as customer mix, competitive emphasis, or organizational structure necessarily involve a number of the firms strategic business unit (SBUs), divisions, or program units. Strategic issues require considering the firms external environment: all business firms exist in an open system. They affect and are affected by external conditions that are largely beyond their control. Therefore, to successfully position a firm in competitive situations, its strategic managers must look beyond its operations. they must consider what relevant others e.g. competitors, suppliers, customers, creditors, government, and labour are likely to do. C. LEVELS OF STRATEGIC MANAGEMENT Corporate Level: this is composed principally of board of directors and the chief executive and administrative officers. They are responsible for the firms financial performance and for the achievement of nonfinancial goals, such as enhancing the firms image, and fulfilling its social responsibilities. To a large extent attitude at the corporate level reflect the concerns of stockholders and society at large. Business Level: this is composed of business and corporate mangers. These managers translate the statements of direction and intent generated at the corporate level into concrete objectives and strategies for individual business divisions, or SBUs. In essence business level managers determine how the firm will compete in the selected productmarket arena. Functional level: this is composed of managers of product, geographic, and functional areas. They develop annual objectives and short-term strategies in such areas as production, operations, research and development, finance and accounting, marketing, and human relation. However, their principal responsibility is to implement the firms strategic plans. D. CHARACTERISTICS OF DECISIONS AT THE VARIOUS LEVELS The characteristics of strategic management decisions vary with the level of strategic activity considered. Decisions at the corporate level tend to be more value oriented, more conceptual, and less concrete than decisions at the business or functional level. Corporate-level decisions are often characterized by greater risk, cost and profit potential; greater need for flexibility; and longer time horizons. Business-level decisions help bridge decisions at the corporate and functional levels. Such decisions are less costly, risky, and potentially profitable than functional-level decisions. Common business-level decisions include decisions on plant location, marketing segmentation and geographic coverage, and distribution channels.

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Strategic Management Notes Functional-level decisions implement the overall strategy formulated at the corporate and business levels. They involve action-oriented operational issues and are relatively short-range low risk. Functional level decisions incur only modest costs, because they depend on available resource. Because functional-level decisions are relatively concrete and quantifiable, they receive critical attention and analysis even though their comparative profit potential is low. E. FORMALITY IN STRATEGIC MANAGEMENT Formality refers to the degree to which participants, responsibilities, authority, and discretion in decision-making are specified. Greater formality is usually required or associated with cost comprehensiveness accuracy as we decide. THREE KINDS OF FORMALITIES In particular, formality is associated with the size of the firm and with its stage of development. 1. Entrepreneurial mode: Some firms especially smaller ones follow this mode. They are basically under the control of a single individual, and they produce a limited number of products or services. Decisions here are informal, intuitive, and limited because it is owner managed. 2. Planning mode: this is the kind of strategic formalities associated with big companies or business. Here, strategic evaluation is made part of a comprehensive formal planning system. Here decisions go through a lot of processes to be implemented. 3. Adaptive mode: This is the strategic formality associated with medium-sized firms that emphasize the incremental modification of existing competitive approaches. This means adaptive mode deals with very few people. People here are normally not creative, but rather copy from others. This is said to be adaptive because the decision-making process is short. F. STRATEGY MAKERS (WHO DECIDES WHAT?) 1. Functional Level: This level demands more technical skills. Supervisors: They are usually engineers. Supervisors here provide input (data) for strategic decisions, and later implement. They develop annual objectives and short-term strategies in such areas as production, operations, research and development, finance and accounting, marketing, and human relations. However, their principal responsibility is to implement or execute the firms strategic plans.

2. Business Level (strategic unit business level):

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Strategic Management Notes General Managers: they develop environmental analysis and forecasting, and establishing business objectives. They develop business plans, which are prepared by staff. In essence, business-level strategic managers determine how the firm will compete in the selected product-market arena. 3.Top Management Level: Their responsibilities are long-term objectives under which we can identify Generic objectives Low cost, Product or service differentiation, Market leadership, focus strategies Grand strategies: Concentration (market penetration, product development, market development) Vertical integration (forward and backward) Horizontal integration etc G. BENEFITS OF STRATEGIC MANAGEMENT Group Decision: people with diverse background will generate lot of information that provides a pool of knowledge, which would lead to quality decision-making, in that best alternatives are likely to be selected. Put differently, group based strategic decisions are likely to be drawn from the best available alternatives. Motivational: the involvement of employees in strategy formulation improves their understanding of the productivity-reward relationship in every strategic plan and, thus, heightens their motivation. Efficiency and Effectiveness: This leads to avoidance of duplicates and reduction of gaps. That is, gaps and overlaps in activities among individuals and groups are reduced as participation in strategy formulation clarifies differences in roles. Commitment: Involvement of employees and subordinates etc in decision-making makes them more likely to accept those decisions, and makes them less resistant to change Implementation: Strategy formulation activities enhance the firms ability to prevent problems. Managers who encourage subordinates attention to planning are aided in their monitoring and forecasting responsibilities by subordinates who are aware of the needs of strategic planning. H. RISK IN STRATEGIC MANAGEMENT PROCESS 4

Strategic Management Notes 1. It is time consuming. The time that managers spend on Strategic management process might have negative impact on operational activities. Therefore, managers are to learn to minimize that impact by scheduling their duties to allow the necessary time for strategic activities. 2. It may be a problem if strategy