strategic management defined: set of managerial decisions and actions that determines the long-run...

Strategic Management

Defined:

Set of managerial decisions and actions that determines the long-run performance of a firm.

Strategic Decision Making

Strategic Decisions Rare Consequential Directive

Initiation of Strategy

Triggeringevent

•New CEO

•External intervention

•Threat of change inownership

•Performance gap

•Strategic inflection point

Stimulusfor change

instrategy

Key Strategic Questions

Not always a formal process:

Where is the organization now? (Not where do we hope it is!)

If no changes are made, where will the organization be in 1 year, 2 years, 5 years, 10 years?

If the answers are not acceptable, what specific actions should management undertake? What are the risks and payoffs involved?

Basic financial planning Forecast-based planning Externally-oriented planning

(strategic) Strategic management

Four Phases of Strategic Management

Strategic Management

Benefits:1. Clearer sense of long term vision

(strategic direction) for the firm2. Sharper focus on what is

strategically important3. Improved understanding of a

rapidly changing environment

Challenges to Strategic Management

Electronic Commerce Use of the Internet to conduct business

transactions Globalization

Internationalization of markets and corporations

Global (worldwide) markets rather than national markets

Global Issues European Union (EU)

Economic integration of 15 member countries

North American Free Trade Agreement (NAFTA) Improved trade among 3 member countries

Mercado Del Cono Sur = Market of the southern cone (Mercosur)

Free-trade area among Argentina, Brazil, Uruguay, and Paraguay

Association of South East Asian Nations (ASEAN) Attempting to link members into a borderless

economic zone

Strategic Management Process

Strategic Management process is composed of: Environmental Scanning Strategic Formulation Strategic Implementation Evaluation and Control

Environmental Scanning

Defined:The monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the firm.

Environmental Scanning

Identify strategic factors SWOT Analysis

Strengths, Weaknesses Opportunities, Threats

Internal Environment Strengths & Weaknesses

Within the organization but not subject to short-run control of management

External Environment Opportunities & Threats

External to the organization but not subject to short-run control of management

Environment

Composed of: Internal Environment External Environment

Task Environment Societal Environment

Environmental Scanning

Internal Environment

Composed of: Structure Culture Resources

Structure

Refers to the way a firm is organized in terms of communication, authority, and workflow

Basic Forms of structures: Simple structure Functional structure Divisional structure

Basic Organizational Structures: Simple and Functional

I. Simple Structure

II. Functional Structure

Owner-Manager

Workers

Top Management

Manufacturing Sales Finance Personnel

Basic Structures of Corporations: Divisional

III. Divisional Structure*

Manufacturing Finance Manufacturing Finance

Top Management

Product Division A Product Division B

*Conglomerate structure is a variant of the division structure.

Sales Personnel Sales Personnel

Internal Environment

Composed of: Culture Structure Resources

Culture

Refers to the pattern of beliefs, expectations, and values shared by a firm’s employees

Distinct attributes of organizational culture: Cultural intensity Cultural integration

Cultural intensity

Refers to the degree in which the members of each unit (department or division) in the company subscribe to the same values or norms. As a result, employees in a unit with intensive culture tend to behave the same.

In general, older organizations tend to display more intense culture.

Cultural integration

Refers to the degree in which units (departments and divisions) across a company tend to subscribe to the same set of values and norms.

Units within a companies with integrated culture tend to be more uniformed with other units. As a results, the units in a company with an integrated culture tend to lack subcultures of their own.

Internal Environment

Composed of: Resources Culture Structure

Resources

Refers to the assets of the firm including physical assets, skills and knowledge within the functional areas

Environmental Scanning

Task Environment

Composed of: Groups in environment that directly

affect or are affected by the organization’s operations (often refer to as industry)

Competition Suppliers Customers (Buyers) Other interest Groups

Industry Analysis

Environmental Scanning

Societal Environment

Composed of: General forces in environment

Economic Forces Sociocultural Forces Technological Forces Political-Legal Forces

EconomicGDP trendsInterest ratesMoney supplyInflation ratesUnemployment levelsWage/price controlsDevaluation/ revaluationEnergy availability and costDisposable and discretionary income

TechnologicalTotal government spending for R&DTotal industry spending for R&DFocus of technological effortsPatent protectionNew productsNew developments in technology transfer from lab to marketplaceProductivity improvements through automation

Political-LegalAntitrust regulationsEnvironmental protection lawsTax lawsSpecial incentivesForeign trade regulationsAttitudes toward foreign companiesLaws on hiring and promotionStability of government

SocioculturalLifestyle changesCareer expectationsConsumer activismRate of family formationGrowth rate of population Age distribution of populationRegional shifts in populationLife expectanciesBirth rates

Societal EnvironmentImportant Variables

EconomicGDP trendsInterest ratesMoney supplyInflation ratesUnemployment levelsWage/price controlsDevaluation/ revaluationEnergy availability and costDisposable and discretionary income

TechnologicalTotal government spending for R&DTotal industry spending for R&DFocus of technological effortsPatent protectionNew productsNew developments in technology transfer from lab to marketplaceProductivity improvements through automation

Political-LegalAntitrust regulationsEnvironmental protection lawsTax lawsSpecial incentivesForeign trade regulationsAttitudes toward foreign companiesLaws on hiring and promotionStability of government

SocioculturalLifestyle changesCareer expectationsConsumer activismRate of family formationGrowth rate of population Age distribution of populationRegional shifts in populationLife expectanciesBirth rates

Societal EnvironmentImportant Variables

Environmental Scanning

SWOT Analysis

Internal Environment: Strengths Weaknesses

External Environment: Opportunities Threats

Four Basic Elements

Basic Model of Strategic Management

Evaluation and Controland Control

Strategic Management Model

Strategy Formulation

Strategy Implementation

Mission

Objectives

Strategies

Policies

Feedback/Learning

Environmental

Scanning

Societal Environment

General Forces

Task Environment

Industry Analysis

Structure Chain of Command

Resources Assets, Skills

Competencies, Knowledge

Culture Beliefs, Expectations,

Values

Reason for existence

What results to accomplish by when Plan to

achieve the mission & objectives Broad

guidelines for decision making

Programs

Activities needed to accomplish a plan

Budgets

Cost of the programs Procedures

Sequence of steps needed to do the job

Process to monitor performanceand take corrective action

Performance

External

Internal

Evaluationand Control

SWOT Analysis

Internal Environment: Strengths Weaknesses

External Environment: Opportunities Threats

Basic Model of Strategic Management

Four Basic Elements

Strategy Formulation

Defined:Development of long-range plans for the effective management of environmental opportunities and threats in light of corporate strengths and weaknesses.

Composed of: Mission Objectives Strategies Policies

Strategy Formulation

Mission Statement Purpose or reason for the organization’s

existence Should include the firm’s products / services

and it’s target market(s) Who we are, what we do, what we’d like to

become Promotes shared expectations among employees Communicates a public image to stakeholders

Strategy Formulation

Maytag Corporation

Mission Statement

To improve the quality of home life by designing, building, marketing, and servicing the best appliances in the world.

Strategy Formulation

Objectives

The end results of planned activity WHAT is to be accomplished Time in which to accomplish it

(WHEN)

Objectives should be quantified when possible

Strategy Formulation

Goals vs. Objectives

A goal is an open-ended statement of what one wants to accomplish with no quantification of what is to be achieved and/or no time criteria for completion.

Goals & Objectives

Corporate goals and objectives include: Profitability (net profits) Growth (increase in total assets, etc.) Utilization of resources (ROE or ROI) Market leadership (market share)

Strategies

Defined:

A strategy of a corporation forms a comprehensive master plan stating

HOW the corporation will achieve its mission and objectives.

Strategies

3 Types of Strategy Corporate strategy Business strategy Functional strategy

Hierarchy of Strategy

Corporate Strategy

Business(Division Level)

Strategy

FunctionalStrategy

Corporate Strategies

Corporate strategies deal with corporation’s overall direction and its management of its businesses

Corporate Strategies

Corporate StrategyCorporate Strategy Growth Stability Retrenchment

Growth Strategies

Concentration Horizontal integration Vertical integration

Diversification Concentric diversification Conglomerate diversification

Any of these four growth strategies may be though internal development or external acquisitions, mergers, or joint ventures.

Corporate Strategies

Corporate StrategyCorporate Strategy Stability Growth Retrenchment

Stability Strategies

Pause Proceed-with-caution No change Profit

Corporate Strategies

Corporate StrategyCorporate Strategy Retrenchment Stability Growth

Retrenchment Strategies

Turnaround Captive Divestment Bankruptcy Liquidation

Hierarchy of Strategy

Corporate Strategy

Business(Division Level)

Strategy

FunctionalStrategy

Business StrategyBusiness Strategy

Emphasizes on improving the competitive position of a firm’s strategic business Also referred to as competitive

strategies

Porter’s Competitive Strategies

Competitive Advantage: Lower cost strategy

Design, produce, market more efficiently than competitors

Differentiation strategy Unique and superior value in terms of

product quality, features, service

Porter’s Competitive Strategies Competitive Scope:

Refers to the Breadth of the company’s target market

Compete head to head in large market?

Focus on niche?

Porter’s Generic Competitive Strategies

Porter’s Competitive Strategies

Cost Leadership: Low-cost competitive strategy Aimed at broad mass market Aggressive construction of efficient-

scale facilities Cost reductions/Cost minimization

Porter’s Competitive Strategies

Differentiation: Broad mass market Unique product or service Charge premiums Lower customer sensitivity to price

Porter’s Competitive Strategies

Cost focus: Low cost competitive strategy Focus on particular buyer group or

market Niche focused Seek cost advantage in target market

Porter’s Competitive Strategies

Differentiation focus: Focus on particular group or geographic

market Seek differentiation in targeted market

segment Serve special needs of narrow target

market

Hierarchy of Strategy

Corporate Strategy

Business(Division Level)

Strategy

FunctionalStrategy

Functional StrategyFunctional Strategy

To optimize resource productivityTo optimize resource productivity

Policies

Defined:Broad guidelines for decision making that link the formulation of strategy with its implementation.

Strategy Implementation

Strategy Implementation

Programs

Budgets

Procedures

Programs

A program is a statement of activities or tasks needed to accomplish a single-use plan

Budgets

A budget is a statement of a corporation’s program in dollar terms

Procedures

Procedures refer to a system of sequential steps or techniques that describe in detail how to perform a particular activity or task