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Chapter OneScope of Strategic Management
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Major Issues to ConsiderMajor Issues to Consider
Global considerations impact virtually all strategic decisions.E-commerce has become a vital strategic management tool.The natural environment has become an important strategic issue.
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Strategic Management DefinedStrategic Management Defined
Art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives.
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TerminologyTerminology
“Strategic Management”Synonymous with
“Strategic Planning”
• Strategic managementUsed more often in academia
• Strategic planningUsed more often in the business world
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TerminologyTerminology
Strategic managementRefers to:
Strategy formulationStrategy implementationStrategy evaluation
Strategic planningRefers to:
Strategy formulation
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Brief HistoryBrief History
1950sTerm strategic planning originates
1960s – 1970sStrategic planning very popular
Widely viewed as panacea for problems
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Brief HistoryBrief History
1980sStrategic planning cast aside
Planning models did not yield higher returns
1990s–2000Revival of strategic planning
Widely practiced in business world
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StrategicStrategic--Management Process Management Process Three StagesThree Stages
Strategy Formulation
Strategy Implementation
Strategy Evaluation
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Strategy Formulation
Vision & Mission
Alternative Strategies
Long-Term Objectives
Strengths & Weaknesses
Opportunities & Threats
Strategy Selection
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Strategy Implementation
Motivate Employees
Policies
Annual Objectives
Resource Allocation
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Strategy Evaluation
Corrective Action
Measure Performance
ReviewExternal & Internal
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Key Strategic Management Terms Key Strategic Management Terms (Cont(Cont’’d)d)
1. Strategists2. Vision statements3. Mission statements4. External opportunities and threats5. Internal strengths and weaknesses6. Long-term objectives7. Strategies8. Annual objectives9. Policies
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Strategic Management Terms Strategic Management Terms (Cont(Cont’’d)d)Strategists
• Usually found in high levels of management (CEO)
Help organization gather, analyze, and organize information
Track industry and competitive trends
Develop forecasting model
Evaluate corporate and divisional performance
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Strategic Management Terms Strategic Management Terms (Cont(Cont’’d)d)
Vision Statements• Answers the question: “What do we want to
become?”
First step in strategic planning
Oftentimes a single sentence“Our vision is to take care of your vision.”
(Stokes Eye Clinic, Florence, South Carolina).
Southern Polytechnic State University. www.spsu.edu/planassess/strategic.htm
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Strategic Management Terms Strategic Management Terms (Cont(Cont’’d)d)External Opportunities & Threats
• Largely beyond the control of a single organization
EconomicSocialCulturalDemographicEnvironmental
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Strategic Management Terms Strategic Management Terms (Cont(Cont’’d)d)External Opportunities & Threats (cont’d)
PoliticalGovernmentalTechnologicalCompetitive trends & events
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Strategic Management Terms Strategic Management Terms (Cont(Cont’’d)d)
Internal Strengths & Weaknesses• Controllable activities that are performed
well or poorly relative to competitors
Based on functional analysis of activities in the firm’s:
ManagementMarketingFinance/accounting
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Strategic Management Terms Strategic Management Terms (Cont(Cont’’d)d)
Internal Strengths & Weaknesses (Cont’d)
• Based on functional analysis of activities in the firm’s:
Production/operationsResearch and developmentComputer information systems
• Organizations strive to pursue strategies that capitalize on strengths and improve weaknesses
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Strategic Management Terms Strategic Management Terms (Cont(Cont’’d)d)Long-Term Objectives
• Results to be achieved in pursuing the organization’s mission. Time frame is beyond one year.
State directionAid in evaluationCreate synergyReveal prioritiesFocus coordinationProvide basis for effective management
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Strategic Management Terms Strategic Management Terms (Cont(Cont’’d)d)Strategies
• Potential actions that require top management decisions and large amounts of firm’s resources
Mechanisms by which long-term objectives are realizedGeographic expansionDiversificationAcquisitionProduct development
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Strategic Management Terms Strategic Management Terms (Cont(Cont’’d)d)Strategies (cont’d)
• Mechanisms by which long-term objectives are realized
Market penetrationRetrenchmentDivestitureLiquidationJoint venture
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Strategic Management Terms Strategic Management Terms (Cont(Cont’’d)d)
Annual Objectives• Short-term milestones necessary to achieve
long-term objectives.
Represent the basis for allocating resources
Established at corporate, divisional, and functional levels
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Strategic Management Terms Strategic Management Terms (Cont(Cont’’d)d)
Annual Objectives (cont’d)
Stated in terms of accomplishments for:managementmarketingfinance/accountingproduction/operationsresearch and developmentinformation systems accomplishments
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Strategic Management Terms Strategic Management Terms (Cont(Cont’’d)d)
Policies• Important in strategy implementation as the means
by which annual objectives will be achieved
Guide to decision making and address repetitive situationsEstablished at corporate, divisional, or functional levelsAllow consistency & coordination within and between organizational departments
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Comprehensive Strategic Management ModelComprehensive Strategic Management Model
Vision &
MissionStatements
Chapter 2
ExternalAudit
Chapter 3
InternalAudit
Chapter 4
Long-TermObjectives
Chapter 5
Generate,Evaluate,
SelectStrategies
Chapter 6
ImplementStrategies:
Mgmt Issues
Chapter 7
ImplementStrategies:Marketing,Fin/Acct,R&D, CISChapter 8
Measure &Evaluate
Performance
Chapter 9
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Proactive vs. ReactiveInitiate and influence activities
Helps shape firm’s own future
Principal BenefitFormulate better strategies
Systematic, logical, and rational approach
CommunicationKey to successful strategic management
Benefits of Strategic ManagementBenefits of Strategic Management
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Financial BenefitsMore profitable and successful
Improvements in sales, profitability, and productivity
High-Performing FirmsSystematic planning
Fluctuations in external and internal environments
Benefits of Strategic Management Benefits of Strategic Management (Cont(Cont’’d)d)
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Nonfinancial BenefitsEnhanced awareness of external threatsUnderstanding of competitors’ strategiesIncreased employee productivityReduced resistance to changeClear performance-reward relationshipsOrder and discipline to the firmView change as opportunity
Benefits of Strategic Management Benefits of Strategic Management (Cont(Cont’’d)d)
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Why Some Firms Do Why Some Firms Do NoNoStrategic PlanningStrategic Planning
Poor reward structuresFire-fightingWaste of timeToo expensiveLazinessContent with success
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Why Some Firms Do Why Some Firms Do NoNoStrategic Planning (ContStrategic Planning (Cont’’d)d)
Fear of failureOverconfidencePrior bad experienceSelf-interestFear of the unknownSuspicionwww.mindtools.com/plfailpl.html
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Pitfalls to Avoid in Strategic Pitfalls to Avoid in Strategic PlanningPlanning
Using to gain control over decisions & resourcesDoing only to satisfy regulatory requirementsMoving hastily from mission to strategy formulationFailing to communicate to employeesIntuitive decisions that conflict with formal planTop management not supportive of process
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Pitfalls to Avoid in Strategic Pitfalls to Avoid in Strategic Planning Planning (Cont(Cont’’d)d)
Failing to use as standard for performance measurementDelegating to a “planner” vs. involvement of managersFailing to involve key personnelFailing to create collaborative environmentFormality that stifles creativity and flexibility
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Business Ethics & Strategic PlanningBusiness Ethics & Strategic Planning
Defined:Principles of conduct within organizations that
guide decision making and behavior
Good business ethics is a prerequisite for good strategic management
Good ethics is just good business!
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Business Ethics & Strategic Planning Business Ethics & Strategic Planning (Cont(Cont’’d)d)
Strategists responsible for high ethical principlesAll strategic processes have ethical ramificationsFormal codes of ethics are in place for many businessesInternet privacy emerging as ethical issue of immense proportions
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Business Ethics & Strategic Planning Business Ethics & Strategic Planning (Cont(Cont’’d)d)Business actions always unethical include:
• Misleading advertising• Misleading labeling• Environmental harm• Poor product or service safety• Padding expense accounts• Insider trading• Dumping flawed products on foreign markets
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Nature of Global CompetitionNature of Global Competition
Companies conduct business across borders
International or multinational corporationsParent company Host country
Strategy implementation more difficultCultural differences
Norms, values, work ethics
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Advantages of International Advantages of International OperationsOperations
Absorb excess capacityReduce unit costsLow-cost production facilitiesLower labor costsCompetition less intense
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Advantages of International Advantages of International Operations (ContOperations (Cont’’d)d)
Reduced tariffs, lower taxesFavorable political climateEconomies of scale
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Communication difficulties between parent and subsidiaries• Based on cultural, political, social, language,
demographic, and competitive forces
Foreign-based competitors • Strengths underestimated• Weaknesses overestimated
Disadvantages of International Disadvantages of International OperationsOperations
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Planning in Actionhttp://www.planware.org/strategy.htm#1