Download - Strategic Management Process
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STRATEGIC PLANNING
THE SET OF ORGANIZATIONAL
DECISIONS AND ACTIONS THAT
GUIDE THE LONG-TERM
PERFORMANCE OF THE FIRM
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PURPOSE
TO GET THE FIRM FROM WHERE
IT WANTS TO BE, AND IN THE
PROCESS DEVELOP A
SUBSTANTIAL ADVANTAGE
OVER ITS COMPETITORS
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CHARACTERISTICS OF STRATEGIC MANAGEMENT
External vs. Internal Focused Proactive vs. Reactive Long vs. Short Term Planning Comprehensive vs. Functional Significant Resource Allocation Uncertainty & Risk
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STRATEGIC QUESTIONS
Where is the firm now? Where should the firm be in the future? What actions must the firm take to get
there? How will the firm know that it is on
course and made the appropriate decisions?
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WHERE IS THE FIRM NOW?
Mission
Managerial Values and Attitudes
Internal Analysis
External Analysis
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INTERNAL ANALYSIS - COMPANY PROFILE
Management Competence Organizational Structure Culture Functional Areas - HR Resources - Financial, People, Plant &
Equipment
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EXTERNAL ANALYSIS
Remote/Social Environment
Industry Environment
Operating Environment
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WHERE SHOULD THE FIRM BE?
Strategy Formulation
Long Term Objectives
Choice Strategy - Corporate & Business
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Competitive Advantage
Whenever a firm has an edge over rivals in attracting customers and defending against competitive forces» A high quality workforce is often required to
compete on market response, product quality, technology
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WHAT ACTIONS MUST BE TAKEN?
Strategy Implementation
Annual Objectives
Functional Strategies - HR
Institutionalizing the Strategy
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FUNCTIONAL LEVEL STRATEGY
Are we utilizing our resources effectively?
Focus is the maximizing of resource productivity within each functional unit to implement corporate business level strategies
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HOW WILL WE KNOW WE GOT THERE?
Evaluation and Control Long-Term and Annual Objectives Strategic Controls
– Implementation Control–Strategic Surveillance–Premise Control
Operating Controls - Performance appraisal, compensation budget, compra - ratio, selection ratios
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Basic Elements of the Strategic Management
Process
Evaluation and
Control
Strategy Implementation
Environmental Scanning
Strategy Formulation
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Environmental Analysis
Process of monitoring the organizational environment to identify opportunities and threats that may influence the firm’s choice of direction and its ability to reach its goals
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Strategic Analysis
Strategic Factors: Issues that have a high probability of
occurrence and high probability impact. These are then characterized as:
Opportunities or Threats or Constraints
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Opportunities
Major favorable situation or trend in a firm’s environment
Overlooked market segment with high demand
Change in level or nature of competition Anticipated favorable change in regulations Technological advance Improvement in buyer and supplier relations
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Threats
Major unfavorable situation or trend in a firm’s environment - impediments to a firm’s current or desired position
Entrance of new competitors Slowing market growth Increasing bargaining power of suppliers and/or
buyers Technological advantages Unfavorable regulatory changes
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Environmental Variables
Societal Environment
Economic
Forces
Technological
Forces
Political-Legal Forces
Sociocultural Forces
Internal Environment
Structure Culture
Resoures
Shareholders
Governments
Customers
Creditors
Communities
Competitors
Employees/
Labor Unions
Suppliers
Special
Interest
Groups
Trade Associations
TaskEnvironment
(Industry)
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Some Important Variables in the Societal Environment
Economic
GDP trends
Interest rates
Money supply
Inflation rates
Unemployment levels
Wage/price controls
Devaluation/revaluation
Energy availability and cost
Disposable and discretionary income
Technological
Total government spending for R&D
Total industry spending for R&D
Focus of technological efforts
Patent protection
New products
New developments in technology transfer from lab to marketplace
Productivity improvements through automation
Political-Legal
Antitrust regulations
Environmental protection laws
Tax laws
Special incentives
Foreign trade regulations
Attitudes toward foreign companies
Laws on hiring and promotion
Stability of government
Sociocultural
Lifestyle changes
Career expectations
Consumer activism
Rate of family formation
Growth rate of population
Age distribution of population
Regional shifts in population
Life expectancies
Birth rates
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Industry Analysis Porter’s Five Forces
Nature of competition determined by five forces
Collective strength of forces determine profitability of industry
Purpose of strategy is to “cope” with competition
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Forces Driving Industry Competition
Threat of New Entrants
Bargaining Power
of Suppliers
Bargaining Power
of Buyers
Relative Power
of Unions, Governments,
etc.
Potential Entrants
Threat of Substitute Products or Services
Industry Competitors
Rivalry Among Existing Firms
Other Stakeholders
Buyers
Substitutes
Suppliers
Source: Adapted/reprinted with permission of The Free Press, an imprint of Simon & Schuster, from Competitive Strategy: Techniques for Analyzing Industries and Competitors by Michael E. Porter. Copyright © 1980 by The Free Press.
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Task/Operating Environment
Competitive position / Competitor profiles
Customer Profiles Suppliers Creditors Human Resources
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Task/Operating Environment
Stockholders Labor Unions Governments Special Interest Groups Trade Associations
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Internal Analysis
Realistic Analysis of Firm’s Capabilities
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Strengths
A resource, skill or other advantage relative to competitors and the needs of the markets - a distinctive competence that gives the firm a competitive advantage in its industry» Financial Resources» Buyer/supplier relations» Market research» HR policies/competencies» Patents/production process
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Weaknesses
Limitation or deficiency in resources, skills and capabilities relative to competitors and which impedes a firms effective performance.
Limited financial capacity Inappropriate image Outdated production facilities or processes Poor quality products Conservative management team
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Core Competencies and Distinctive Competencies
Core Competencies
Things a corporation can do exceedingly well
Distinctive Competencies
Core competencies that are superior to those of competitors» obtain from employee skills, management
processes, and systems
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Management
Organizational Structure Firm’s Image
Overall Control Systems Strategic Planning System
Management Personnel
Employee Skills and Morale Incentive Effectiveness
Employee Turnover Specialized Skills
Organizational Culture Organizational Climate
Labor Costs Industry Experience
Communication Systems HR Policies and Procedures
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Finance & Accounting
Ability to Raise Short-Term/Long-Term Cash
Corporate Resources Cost of Capitol
Investor/Owner RelationsLeverage Position
Price-Earnings Ratio Working Capitol
Cost Control Financial Size
Tax Considerations Accounting Syst.
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Research and Development
R&D Budget
R&D Mix - Basic, Applied, Product/Process
Internal and External R&D
Patents, Trademarks
Technology Competence
R&D Transfer
Integration of R&D with Marketing & Production
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Information Systems
Timeliness of Information
Accuracy of Information
Relevance of Information to Tactical Decisions
Ability of People to Use Information
Sufficiency of Information to Manage Quality, Customer Service, Inventory.
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Corporate Value Chain
4.6 Corporation Value Chain p. 87
Support Activities
Primary Activities
Profit Margin
Firm Infrastructure (general management, accounting, finance, strategic planning)
Human Resource Management (recruiting, training, development)
Technology Development (R&D, product and process improvement)
Procurement (purchasing of raw materials, machines, supplies)
Inbound Logistics (raw materials handling and warehousing)
Operations (machining, assembling, testing)
Outbound Logistics (warehousing and distribution of finished product)
Marketing and Sales (advertising, promotion, pricing, channel relations)
Service (installation, repair, parts)
Source: Adapted/reprinted with the permission of the The Free Press, an imprint of Simon & Schuster, from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter, p. 37. Copyright © 1985 by Michael E. Porter.
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Selection of Strategies
Objective Setting Process Analyze environmental trends
Establish or revise mission
Develop objectives
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Characteristics of Strategic Objectives
Long-term Specific Measurable Reachable Consistent in long and short-run Acceptable Hierarchy
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Types or Areas
Profitability Productivity Resource levels Competitive position Market standing Technology Employee relations Social responsibility
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Corporate Analysis
What Business should we pursue?
How do we allocate resources among those businesses
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Types of Strategies
Intensive (Concentration) Strategies Market penetration
Market Development
Product Development
Innovation
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Types of Strategies
Integration Strategies Forward Integration Backward Integration Horizontal Integration
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Types of Strategies
Diversification Strategies Concentric Conglomerate
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Types of Strategies
Defensive Strategies Retrenchment Divestiture Liquidation
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Type of Strategies
Cooperative Strategies» Strategic Alliance
» Joint Ventures
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Business Level Strategy
How will each business compete in its industry
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Strategy and Competitive Advantage
COMPETITIVE ADVANTAGE exists when a firm’s strategy gives it an edge in» Defending against competitive forces and» Securing customers
Convince customers firm’s product / service offers SUPERIOR VALUE» Offer buyers a good product at a lower price» Use differentiation to provide a better product
buyers think is worth a premium price
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Porter’s Generic Competitive Strategies
Source: Reprinted with permission of The Free Press, an imprint of Simon & Schuster, from The Competitive Advantage of Nations by Michael E. Porter, p. 39. Copyright © 1990 by Michael E. Porter.
Differentiation
Bro
ad
Ta
rge
tN
arr
ow
Ta
rge
t
Competitive Advantage
Cost Leadership Differentiation
Cost Focus Focused Differentiation
Co
mp
eti
tiv
e S
co
pe
Lower Cost
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Porter’s Generic Strategies Defined
Cost Leadership: A strategy aimed at producing standardized products at low per-unit cost for consumers who are price-sensitive
Differentiation: A strategy aimed at producing products and services considered unique industry-wide and directed at consumers who are relatively price-insensitive
Focus: A strategy aimed at producing products and services that fulfill the needs of small groups of customers
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Characteristics of aLow-Cost Provider
Cost conscious corporate culture Employee participation in cost-control efforts Ongoing efforts to benchmark costs Intensive scrutiny of budget requests Programs promoting continuous cost improvement
Low-cost producers championFRUGALITY while aggressivelyINVESTING in cost-saving improvements!
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Differentiation Strategies
Incorporate differentiating features that cause buyers to prefer firm’s product or service over the brands of rivals
Find ways to differentiate that CREATE VALUE for buyers and that are NOT EASILY MATCHED or CHEAPLY COPIED by rivals
Not spending more to achieve differentiation than the price premium that can be charged
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Types of Differentiation Themes
Unique taste -- Dr. Pepper Special features -- America Online Superior service -- FedEx, Ritz-Carlton Spare parts availability -- Caterpillar Engineering design and performance -- Mercedes Prestige -- Rolex Quality manufacture -- Honda , Toyota Technological leadership -- 3M Corporation, Intel Top-of-the-line image -- Ralph Lauren, Chanel
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Functional Strategies
Marketing Finance Research & Development Operations Human Resources Information Systems
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Marketing
ProductPlacePromotionPriceDistribution
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Marketing
Develop competing product (product overlap)
Customized productsPricing and service mixCompetitive promotion
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Research & Development: Technology
Upgrade
Retain
Subcontract
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Operations: Quality & Productivity
Teams
Superautomate
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Human Resources: Recruitment & Selection
Internal vs external recruitmentManagement development
systemsLink career path to strategyEstablish specific job skill
training
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Human Resources: Appraisal & Compensation
Link pay and benefits to strategy
Link performance appraisal to strategy
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Strategy Implementation
Organizational Structure» Network Organizations
Tasks and Task Design Selection, Training and Development of
Human Resources Reward Systems Types of Information and Information
Systems
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People
Staffing Requirements Growth - impact on recruitment/selection Retrenchment - downsizing Mergers - redundant employees
Knowledge & Skill Requirements Role Behavior Requirements Leadership Requirements
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Matching Chief Executive “Types” with Strategy
Average
Hig
hL
ow
Business Strength/Competitive Position
Strong
Growth—Concentration
Dynamic Industry Expert
Stabiltiy
Cautious Profit Planner
Retrenchment—Close Company
Professional Liquidator
Retrenchment—Save Company
Turnaround Specialist
Ind
us
try
Att
rac
tiv
en
es
s
Source: Thomas L. Wheelen and J. David Hunger, “Matching Proposed Chief Executive ‘Types’ with Corporate Strategy.” Copyright © 1991 by Wheelen and Hunger Associates. Reprinted by permission.
Me
diu
m
Weak
Growth—Diversification
Analytical Portfolio Manager
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Strategic Control
Environmental Premises Implementation
Strategic thrusts Milestone Reviews (Annual Objectives)
Strategic Surveillance Objectives
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HR Contribution to Strategy
Strategy FormulationStrategy Implementation
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HR Role
Environmental Scanning» Demographics, corporate intelligence
Feasibility of Strategic Options Implementation of Resource Allocation
Decisions Lead Time for Dealing with Labor
Shortages and Surpluses
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Factors Affecting HR Integration
Environmental Factors» technology, industry competition
Degree of Diversification Status of HR Executive Degree Compensation Linked to Firm
Performance Changing Skill Demands Changing Composition of Work Force Mergers Acquisitions
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Role Behaviors and Practices
Innovation Strategies Require: creative behavior, longer-term focus, cooperation, moderate concern for quality, equal concern for process and results, risk taking, high tolerance of ambiguity
Quality Enhancement Strategies Require: repetitive and predictable behaviors, long or immediate-term focus, modest amount of cooperation, high concern for quality, modest concern for quantity, high concern for process, low risk taking
Cost Reduction Strategies:repetitive behaviors, short-term focus, autonomous activity, modest concern for quality, high concern for quantity, primary concern for results, low risk-taking, comfort with stability