Strategic ManagementOrientation & Introduction

Sir godz edingAsst prof 4

Chapter 1 The Nature of Strategic Management

Strategic Management: Concepts & Cases

12th Edition

Fred David

Sir godz edingAsst Prof 4

BankruptcyDownsizingRightsizingReengineeringDivestituresAcquisitionsLiquidations

Philosophy Behind the Strategic Management Course

• Strategic Management is the capstone course for business student majors.

• Students learn new strategy formulation, implementation, and evaluation concepts and techniques.

• Students use this new knowledge, coupled with knowledge acquired from other courses, to chart the future direction of different organizations.

• Strategic Management students analyze firms in different industries, make objective strategic decisions for companies, and justify those decisions through oral or written communication.

• It covers problems & issues on the whole spectrum of business, including finance, marketing, management, management information systems, production operations, economics, and statistics.

• Strategic management is an emerging and rapidly developing discipline.

• Experiential exercises allows students to test the concepts, knowledge learned.

• Cases

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

Vision &

Mission

Chapter 2

Comprehensive Strategic Management Model

Simple & straightforward approachTo strategic planning

Used widely among businesses& academia worldwide

Use to integrate and organizeAll chapters in this text

• Chapter 1 provides an overview of strategic management.

• A practical, integrative model of the strategic-management process is introduced.

• Basic activities and terms in strategic management are defined.

• The benefits of strategic management are presented.

• Important relationships between business ethics and strategic management are discussed.

• The chapter initiates discussion of two themes: global considerations and the strategic implications of the natural environment.

• IF A MAN TAKES NO THOUGHT ABOUT WHAT IS DISTANT, HE WILL FIND SORROW NEAR AT HAND.

• HE WHO WILL NOT WORRY ABOUT WHAT IS FAR OFF WILL SOON FIND SOMETHING WORSE THAT WORRY.

• CONFUCIOUS

Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives.

WHAT IS STRATEGIC MANAGEMENT?

Business Policy

Defined:

General management orientation that looks inward for properly integrating the firm’s functional activities.

Four Phases ofStrategic Management

• Basic financial planning• Forecast-based planning• Externally-oriented planning (strategic)• Strategic management

Strategic Management achieves a firm’s success through integration ––

Management

MIS

Production/OperationsFinance/Accounting

Marketing

Research & Development

Strategic Management

In essence, the strategic plan is a company’s game plan

• Its used synonymously with strategic planning. • It is also used at many colleges and universities as the subtitle

for the capstone course, Business Policy, which integrates material from all business disciplines.

Vision & Mission

Strategy Formulation

External Opportunities & Threats

Internal Strengths & Weaknesses

Long-Term Objectives

Alternative Strategies

Strategy Selection

Decision

issues in

Strategy

Formulation

New business opportunitiesBusinesses to abandonAllocation of resourcesExpansion or diversificationInternational marketsMergers or joint venturesAvoidance of hostile takeover

New business opportunitiesBusinesses to abandonAllocation of resourcesExpansion or diversificationInternational marketsMergers or joint venturesAvoidance of hostile takeover

Strategy Implementation

Annual Objectives

Policies

Employee Motivation

Resource Allocation

It includes developing a strategy-supportive culture, creating an effective organizational structure, redirecting marketing efforts, preparing budgets, developing and utilizing information systems, and linking employee compensation to organizational performance.

“ACTION STAGE”

Strategy Evaluation

Internal Review

External Review

Performance Metrics

Corrective Actions

It’s the final stage in strategic management. Managers desperately need to know when particular strategies are not working well; strategy evaluation is the primary means for obtaining this information.

Peter Drucker: -- Think through the overall mission of a business.

Ask the key question: “What is our Business?”

Prime Task of Strategic Management

Topic Reports

Group 1 Case 2: Bytes Product Inc

Chap 8 Marketing, R&D, CIS

Group 2 Chap 3 Making an External Assessment

Group 3 Chap 4 Making an Internal Assessment

Group 4 Chap 5 Placing Strategies into Action

Group 5 Chap 6 Understanding Strategy Analysis and Choice

Group 6 Chap 7 Dealing with Management and Operations Issues

INTUITION

Henry Sy

Innate intuitionDon’t believe in feng chuiBelieves in common sense

Intuition is the ability to re-pattern

Organizations must monitor events• On-going process

• Internal and external events

• Timely changes

Adapting to Change

Rate & magnitude of change increasing dramatically

Adapting to Change

E-commerce

Demographics

Technology

• What kind of business should we become?

• Are we in the right fields• Are there new competitors?• What strategies should we

pursue?• How are our customers

changing?

Adapting to Change – Key Strategic Management Questions

Chapter 1 The Nature of Strategic Management

Strategic Management: Concepts & Cases

12th Edition

Fred David

Sir godz edingInstructor/Asst Prof 2

• “If we know where we are and something about how we got there, we might see where we are trending-and if the outcomes which lie naturally in our course are unacceptable, make timely

change.” Abraham Lincoln

Your Intuitive Ability

• Scoring: • Total the number of “a” responses on

questions 1, 3, 5, 6, 11: A= _____• Total the number of “b” responses on

questions 2, 4, 7, 8, 9, 10, 12: B=______• Add your “a” and “b” scores A+B= _______• Your intuitive score is _______• 12 HPS and 0 is lowest

Intuition is based on:– Past experiences– Judgment– Feelings

Integrating Intuition and Analysis

Intuition is useful for decision making in:– Conditions of great uncertainty– Conditions with little precedent

“instinctive knowledge or feeling “

The strategic-management process can be described as an objective, logical, systematic approach for making major decisions in an organization. It attempts to organize qualitative and quantitative information in a way that allows effective decisions to be made under conditions of uncertainty.

KEY TERMS IN STRATEGIC MANAGEMENT

1. Competitive Advantage2. Strategists3. Vision & Mission Statements4. External Opportunities & Threats5. Internal Strengths & Weaknesses6. Long-Term Objectives7. Strategies8. Annual Objectives9. Policies

“Anything that a firm does especially well compared to rival firms”

Strategic Management is Gaining and Maintaining 1-Competitive Advantage

1. Adapting to change in external trends, internal capabilities and resources

Achieving Sustained Competitive Advantage…how?

2. Effectively formulating, implementing & evaluating strategies

Strategists – are individuals who are most responsible for the success or failure of an organization . They help an organization gather, analyze and organize information. They track industry and competitive trends, develop forecasting models and scenario analyses, identify business threats and develop creative action plans. Strategic planners usually serve in a support or staff role. Usually found in higher levels of management, they typically have considerable authority for decision-making in the firm.

•Various Job Titles: Chief Executive Officer (CEO)

Chief Strategy Officer (CSO) Executive Director

2

•President•Owner•Board Chair

3 Vision & Mission Statements• Vision statements answer the question: “What do

we want to become?”

• Mission statements are “enduring statements of purpose that distinguish one business from other similar firms. A mission statement identifies the scope of a firm’s operations in product and market terms.” It addresses the basic question that faces all strategists: “What is our business?” It should include the values and priorities of an organization

4 External Opportunities & Threats• Refer to economic, social, cultural, demographic,

environmental, political, legal, governmental, technological, and competitive trends and events that could significantly benefit or harm an organization in the future.

• Are largely beyond the control of a single organization, thus the term external.

• Environmental scanning or Industry analysis is the process of conducting research & gathering & assimilating information.

• Industry is a group of firms that produces a similar product or service

Basic Tenet of Strategic Management

Key Terms 4 Opportunities & Threats

Strategy Formulation

Take advantage of External Opportunities

Take advantage of External Opportunities

Avoid/minimize impact ofExternal Threats

Avoid/minimize impact ofExternal Threats

Tenet – doctrine, principle

5 Internal Strengths & Weaknesses

• Are an organization’s controllable activities that are performed especially well or poorly.

• Identifying and evaluating organizational strengths and weaknesses in the functional areas is an essential strategic management activity.

• Strengths and weaknesses are determined relative to competitors and may be determined by both performance and elements of being.

Strengths & Weaknesses (Internal)

Key Terms

Typically located in functional areas of the firm

• Management

• Marketing

• Finance/Accounting

• Production/Operations

• Research & Development

• Computer Information Systems

Assessing the Internal Environment

Key Terms Strengths & Weaknesses

Internal Factors

Measure Performance

Compute Financial Ratios

Industry Averages

Survey Data Comparing past periods

Objectives - specific results that an organization seeks to achieve in pursuing its basic mission.

more than one year

Long-term Objectives6

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

The means by which long-term objectives are achieved

Key Terms

Strategies6

A strategy of a corporation forms a comprehensive master plan stating how the corporation will achieve its mission and objectives. It maximizes competitive advantage and minimizes competitive disadvantage.

Hierarchy of Strategy

Corporate Strategy

Business(Division Level)

Strategy

FunctionalStrategy

Strategies 3 Types of Strategy

Corporate strategy

Ex. Stability, Growth, Retrenchment Business strategy

Ex. Competitive strategies, Cooperative strategies Apple’s differentiation vs. Alliances by some

airlines/banks Functional strategy Ex. Technological leadership, Technological followership

Pioneer an innovation vs. Imitate products of other companies

Strategies

Key Terms

Some Examples

• Geographic expansion

• Diversification

• Acquisition

• Market penetration

• Retrenchment

• Liquidation

• Joint venture

Short-term milestones that firms must achieve to attain long-term objectives

Annual Objectives7

Policies

Means by which annual objectives will be achieved

8

Dynamic & ContinuousMore formal in larger organizations

Strategic Management Model

Strategic Management Process

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

Vision &

Mission

Chapter 2

Comprehensive strategic management model

1. Identify Existing --

Strategic Management Model

• Vision

• Mission

• Objectives

• Strategies

2. Audit external environment3. Audit internal environment4. Establish long-term objectives5. Generate, evaluate & select

strategies6. Implement selected strategies7. Measure & evaluate performance

Strategic Management Model

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

Vision &

Mission

Chapter 2

Comprehensive strategic management model

Benefits of Strategic Management

• Proactive in shaping firm’s future

• Initiate and influence firm’s activities

• Formulate better strategies

•Systematic, logical, rational

Benefits of Strategic Management

Financial Benefits

• Improvement in sales

• Improvement in profitability

• Productivity improvement

Benefits of Strategic Management

Non-Financial Benefits

• Improved understanding of competitors strategies

• Enhanced awareness of threats

• Reduced resistance to change

• Enhanced problem-prevention capabilities

WHY SOME FIRMS DO NO STRATEGIC PLANNING

1. Poor reward structures2. Fire fighting3. Waste of time4. Too expensive5. Laziness6. Content with success7. Fear of failure8. Overconfidence9. Prior bad experience10.Self-interest11.Fear of the unknown12.Honest difference of opinion13.Suspicion

PITFALLS IN STRATEGIC PLANNING • Using strategic planning to gain control over decisions and resources• Doing strategic planning only to satisfy accreditation or regulatory requirements• Too hastily moving from mission development to strategy formulation• Failing to communicate the plan to employees, who continue working in the dark• Top managers making many intuitive decisions that conflict with the formal plan • Top managers not actively supporting the strategic-planning process• Failing to use plans as a standard for measuring performance• Delegating planning to a “planner” rather than involving all managers• Failing to involve key employees in all phases of planning• Failing to create a collaborative climate supportive of change• Viewing planning to be unnecessary or unimportant• Becoming so engrossed in current problems that insufficient or no planning is

done• Being so formal in planning that flexibility and creativity are stifled

ISO 14000

Natural Environment Perspective

ISO used to gain strategic advantage

Focuses on operating in an environmentally friendly manner. Voluntary standards in environmental fields.

ISO 14001 standard for Environmental Management SystemNot certified can be a strategic disadvantageFirms minimize harmful effects on environment

International Organization for Standardization based in Geneva, Switzerland, Is a network of national standards institutes of 147 countries.

Parent company

Host country

The Nature of Global Competition

International/multinational corporations

Refers to a company investing inInternational operations

It’s the country where that business is conducted

Strategy implementation may be difficult

Cultural differences: Ex. Norms, Values, Work ethic

Co. that conduct business operations across national borders

Advantages of International Operations

Absorb excess capacity

Reduce unit costs

Spread risk over wider markets

Low-cost production facilities

Less intense competition

Lower taxes

Economies of scaleThe decrease in unit cost of a product or service resulting from large-scale operations, as in mass.

Disadvantages of International Operations

Difficult communications

Underestimate foreign competition

Cultural barriers to effective management

Complications arising from currency

differences

Conclusion• All firms have a strategy, even if it is informal, unstructured, and sporadic.

All organizations are heading somewhere, some don’t know…• The Strategic –management process is becoming more widely used by

small firms, large companies, non-profit, government organizations, & MNC. When managers & employees are empowered, it has limitless boundaries.

• Organizations should take proactive rather than reactive approach in their industry; should influence, anticipate, & initiate rather that just respond to events.

• The strategic-management process is logical, systematic and objective approach in determining an enterprise future direction.

THE END

Challenges to Strategic Management

Globalization– Internationalization of markets and corporations

• Global (worldwide) markets rather than national markets

Electronic Commerce– Use of the Internet to conduct business transactions

• Basis for competition on a more strategic level rather than traditional focus on product features and costs

Global Issues• European Union (EU)

– Economic integration of 15 member countries

• North American Free Trade Agreement (NAFTA)

– Improved trade among 3 member countries

• 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

E-Commerce7 Trends:1. Internet forcing companies to transform themselves2. Market access and branding are changing, causing

disintermediation of traditional distribution channels

3. Balance of power shifting to the consumer

4. Competition is changing5. Pace of business increasing drastically6. Internet purchasing corporations out of their traditional

boundaries7. Knowledge becoming a key asset and source of

competitive advantage

Strategic Management

Highly Rated Benefits:• Clearer sense of strategic vision for the firm

• Sharper focus on what is strategically important

• Improved understanding of a rapidly changing environment