basic concepts of strategic management
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Basic Concepts of Strategic Management
"Effective managers live in the present – but concentrate on the future." James L. Hayes
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• A combination of the words stratos, which meant “army”, and agein meaning “to lead”.
Greek Language (6th century BC)
What is Strategy?
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• A strategy is a comprehensive action plan that identifies long-term direction and guides resource utilization to accomplish organizational goalswith sustainable competitive advantage.
What is Strategy?
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Process of formulating, implementing, and evaluating, strategies to accomplish long-term goals and sustain competitive advantage.
Strategic Management
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Strategic Audit
21st Century Challenges in Strategic Management
• Process is more an “art” than “science”
• Should strategies be visible or hidden from stakeholders
• Should process be more top-down or bottom up
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Basic financial planning:
-little analysis;
-info coming from within the firm;
-only managers are involved;
-takes 2-3 weeks;
- one year plan
Forecast-based planning:
-more thorough analysis;
-internal info + environmental data;
-only managers are involved;
-takes one month;
-three to five years -plan
Strategic planning: -more thorough -analysis;
-internal info + environmental data +forecast future trends;
-made by planning staff (top managers)+ consultants;
-meet once a year;
- five-year plans
Strategic management: -analysis of external and internal environment;
-implementation, evaluation and control;
-made by lower level managers+ top managers+ consultants; -throughout the year;
- five-year plans
Phases of Strategic Management
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• Clear sense of strategic vision of the firm
• Sharper focus on what is strategically important
• Improved understanding of a rapidly changing environment
Benefits of Strategic Management
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• Where is organization now?
• If no changes are made, where will the organization be in 1,2,5 years?
• If the answers are not acceptable, what specific actions should management undertake?
• What are risks and payoffs
involved?
Main Questions
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Environmental Scanning
StrategyFormulation
Strategy Implementation
Evaluationand
Control
Basic Model of Strategic Management
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External: Social Environment
Environmental Scanning
External: Task Environment
Internal: Structure
Internal: Culture
Internal: Resources
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Opportunities & Threats (External)
Analysis of Trends:
• Economic
• Social
• Cultural
• Demographic/Environmental
• Political, Legal, Governmental
• Technological
• Competitors
Environmental Scanning
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Strengths & Weaknesses (Internal)
Typically located in functional areas of the firm
• Management
• Marketing
• Finance/Accounting
• Production/Operations
• Research & Development
• Computer Information Systems
Environmental Scanning
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Vision & Mission
Strategy Formulation
Objectives
Strategies
Policies
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Vision Statement –What do we want to become?
Mission Statement –What is our business?
Strategy Formulation
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• What is our business mission?• Who are our customers?• What do our customers
consider value?• What have been our results?• What is our plan?
Key Strategic Questions
by Peter Drucker
Strategy Formulation
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To be the happiest place on earth.
To be the world’s best quick service restaurant.
Vision Examples
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We should build good ships here – at a profit if we can – at a loss if we must – but always good ships
Mission Statement Example
-- Newport News Shipbuilding
(since foundation in 1886)
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The Bellevue Hospital, with respect, compassion, integrity, and courage, honors the individuality and confidentiality of our patients, employees, and community, and is progressive in anticipating and providing future health care services.
Mission Statement Example
-- The Bellevue Hospital
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WellPoint redefine our industry: through a new generation of consumer-friendly products that put individuals back in control of their future.
The WellPoint companies provide health security by offering a choice of quality branded health and related financial services designed to meet the changing expectations of individuals, families, and their sponsors throughout a lifelong relationship.
WellPont health Network’s Vision and Mission
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Importance of Mission
MissionResource Allocation
Unanimity of Purpose
Organizational Climate
Focal point for work structure
Benefits from a strong mission
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Mission Elements
CustomersMarkets
Employees
PublicImage
Self-Concept Philosophy
SurvivalGrowthProfit
ProductsServices
Technology
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The end results of planned activity:• what is to be accomplished• by when • it should be quantified if possible
“…increase profits 10% over last year”
Objectives
Strategy Formulation
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Types of Strategies
Operational Level
Functional Level
Division Level
Corp Level
A Large Company
Strategy Formulation
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• Corporate strategy directs the organization as a whole toward sustainable competitive advantage.
• Business strategy sets the strategic direction
for a single business unit or product line.
• Functional strategy guides the use of resources to implement business strategy.
Strategies
Strategy Formulation
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Being Better versus Being DifferentPlaying the Game Better
Focus on your existing strategic position and try to improve it and make it better. Practices such as restructuring, refocusing, process reengineering, quality programs, empowering employees, and the like, all aim to achieve this
Playing the Game Differently
Try to identify:
• new or unexploited customer segments to focus on (a new “WHO”)
• new customer needs that no competitor is currently satisfying (a new “WHAT”)
• new ways of producing, delivering, selling or distributing your products or services (a new “HOW”)
…to be successful, a company must be able to do BOTH!
Constantinos Markides
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A policy is a broad guideline for decision making that
links the formulation of strategy with its implementation.
• Maytag Company: Maytag will not approve any cost reduction
proposal if it reduces product quality in any way.
• 3M: Researches should spend 15% of their time working on something other than their primary project.
• GE: GE must be number one or two wherever it competes.
• Intel: Intel cannibalizes its own product line with better products before a competitor does so.
Policies
Strategy Formulation
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Strategy Implementation
Programs
Budgets
Procedures
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• A program is a statement of the activities or steps needed to accomplish a single-use plan.
• A budget is a statement of a corporation’s program in terms of dollars.
• Procedures are a system of steps or techniques that describe in detail how a particular task or job is to be done.
Strategy Implementation
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Strategy Evaluation & Control
Internal Review
External Review
Measuring Performance
Strategic audit
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Feedback/Learning Process
Internal/External Review
Revision of Decisions
Corrective Actions
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• Rare: strategic decisions are unusual and typically have no precedent to follow
• Consequential: strategic decisions commit substantial resources and demand a great deal of commitment from people on all levels.
• Directive: strategic decisions set precedents for lesser decisions and future actions throughout an organization.
Strategic Decisions Characteristics: