Coulter smia6 ppt_01

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Introducing the Concepts

Chapter 1

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

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Chapter One Learning Objectives

1.1 Explain why strategic management is important.

1.2 Explain what strategic management is.

1.3 Explain who’s involved with strategic management.

1.4 Discuss the three important factors impacting strategic management today.


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Learning Outcome 1.1

• Explain Why Strategic Management Is Important– Despite your job function, everyone in the

organization has a role in strategic management

– It enables understanding how strategic decisions are made

– Establishes an understanding of how work is valued and rewarded

– It makes a difference in how well an organization performs


1-4Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Learning Outcome 1.1. – cont’d

• Effective organizations use strategy to

– Impact on bottom line

– Adapting to changing situations, internal & external

– Coping with uncertainties

– Effectively guides organizational decision makers


The Relationship Between Strategic Management & Performance

• Studies of decision making process suggest the way strategy is developed can have an affect on performance

– Decision makers that collected information and used analytical techniques make more effective strategic decisions than those that do not


Corporate Reputations

• A good corporate reputation is critical and surveys support its importance and influence – On financial performance

– Executing strategy

– Transparency and disclosure of information

– Strong corporate governance

• Check Companies with the best reputations– www.reputationinstitute.com/knowledge-

center/hall-of-fame

http://www.reputationinstitute.com/knowledge-center/hall-of-fame




• Explain what strategic management is.

– Definition of Strategy

• Strategy is a series of goal-directed plans and actions that align an organization’s skills and resources with the opportunities and threats in its environment

– Definition of Strategic Management

• This is a process for situation analysis and strategy formulation, implementation, and evaluation


The Four Characteristics of Strategic Management

• Interdisciplinary

– It focuses on the whole organization, rather than any functional part

• External Focus – interaction of organization with external environment

– Economy

– Competitors

– Market demographics


The Four Characteristics of Strategic Management – cont’d

• Internal Focus

– Understands the resources and capabilities the organization does or does not have

• Future Direction of the Organization, includes

– Decisions

– Planning

– Shifts or changes in products or markets



The Strategic Management Process

• A process is a series of interrelated and continuous steps that lead to an outcome

• The Strategic Management Process employs its four characteristics to create a set of strategies used to conduct its business



Situation Analysis

• Situation analysis is required before deciding upon a strategic direction or response and it involves scanning and evaluating

– The current organizational context

– The external environment

– The organizational environment


Strategy Formulation

• Strategy formulation is developing and choosing appropriate strategies, as guided by the situation analysis, and includes three main types of strategies– Functional Strategies (also called operational

strategies)

– Competitive Strategies (also called business strategies)

– Corporate Strategies (these are guiding strategies by which all efforts are aligned)



Functional Strategies

• Functional strategies are goal oriented plans and actions of the functional areas of an organization, they include:– Production-Operations

– Marketing

– Research & Development

– Human Resources

– Financial-Accounting

– Information Technology & Support


Competitive Strategies

• Competitive strategies or business strategies are goal directed plans and actions concerned with how an organization competes in a specific business or industry

– Looks at all aspects of strategies and actions

– Seeks to determine what the company currently can do and what it wants to do

– Focus is on how it might more effectively compete


Corporate Strategy

• Corporate strategies are goal directed plans and actions that are concerned with what business or businesses a firm wants to be in and what to do with those businesses; for example

– FedEx’s decision to acquire Kinko's

– PepsiCo’s decision to spin off their fast-food division


Strategy Implementation

• It is not enough to formulate great strategies, they must be implemented

– Strategy implementation is putting the various stages of strategies into action

– How a strategy is implemented must be considered


Strategy Evaluation

• Strategy evaluation involves evaluating both the outcomes of the strategies and how they have been implemented

– Determine if they produced the expected strategic goals

– Helps with the evaluation of results and, if necessary, any modification of strategies


Strategic Management Process in Action

• The Strategic Management Process is a continual cycle

– It is not a sequential process

– It allows for analysis of the current situation

– Enables adjustments to current strategies as necessary, to pursue and achieve goals


Looking at Strategic Management’s Past

• Strategy’s military roots

– Origin of the word is Greek referring to military commander

– Historical references to the design of plans and actions to gain an edge on the enemy

– The concept involves analyzing the situation and effecting an appropriate response


Academic Origins of Strategic Management

• Strategic management is a relatively young field. The theoretical foundation is from economics and organization studies; with emphasis on

– Rationality

– Predictability

– Similarity


Strategic Planning and Strategic Management Emerge

• During the 1960s, organization theorists searched for explanations of organizational differences in functioning and performance

– Attempts made to determine if there was one best way to manage in all situations

– Contingency approaches emerged when it was determined that each organization was different and the best way to manage depended on the situation




• Explain Who’s Involved with Strategic Management

– The Board of Directors

– The Role of Top Management

– Other Managers and Organizational Employees


Who’s Involved with Strategic Management?

• Strategic management is more than the responsibility of an organization’s top managers

• People at all levels of the organization play a role in strategy

– Developing it

– Implementing it

– Changing it


The Board of Directors

• Usually an elected group that represents a company’s shareholders

– They have a legal obligation to represent and protect the interests of shareholders through corporate governance

– In the past, board participation was viewed as approving strategies designed by management

– With increasing shareholder activism, boards are more involved in the strategic process


Typical Board Responsibilities

• Review and approve strategic goals and plans

• Review and approve organization’s financial standards and policies

• Ensure the integrity of organization’s financial controls and reporting system

• Approve an organizational philosophy

• Monitor organizational performance and regularly review performance results


Typical Board Responsibilities – cont’d

• Select, and compensate top level managers

• Develop management succession plans

• Review and approve capital allocations and expenditures

• Monitor relations with shareholders and other key stakeholders


The Role of Top Management

• Responsible for every decision and outcome, top management plays a most significant role in strategic management process

• Top management includes C-Suite level officers, including– CEO, Chief Executive Officer

– COO, Chief Operating Officer

– CFO, Chief Finance Officer

– CIO, Chief Information Officer



Other Managers and Organizational Employees

• Managers and employees at all levels have strategic responsibilities that include:

– Strategy implementation, putting strategies into action

– Strategy evaluation, determining if the strategies are working

– Adjust the strategies to achieve desired ends




• Discuss the two important factors impacting strategic management today

– The Global Economy and Globalization

– Corporate Governance


The Global Economy and Globalization

• In past twenty-five years, globalization has become a leading focus of company strategies

• Increasing number of companies have revenues coming from outside their country of origin

• Global recession creates strategic challenges– Reduced consumer demand

– Restricted access to capital

– Pressures to reduce costs


Global Economy: Key Mechanisms

• World Trade Organization (WTO)– Helps 153 member countries conduct business

• World Bank Group– Cooperative of 185 member countries that

provides financial and technical assistance, to promote economic development and poverty reduction

• International Monetary Fund (IMF)– Loans and assistance to establish financial stability


Corporate Governance: The Global Perspective – cont’d

• GMI also looks at corporate behavior and social responsibility

– Among the highest ratings went to Ireland, Canada, UK, Australia, USA

– Among the lowest were Indonesia, Mexico, China, Japan


Corporate Governance

• Greater awareness of the value of corporate governance driven by the financial scandals of the past decade

– Destroyed billions of dollars in shareholder value

– Directors of boards failed to find or address organizational problems


Corporate Governance – cont’d

• What is corporate governance?

– The way the a corporation is governed

– The way the board uses organizational resources

– The manner in which conflicts are resolved among multiple participants in the organization

– The sum of how a corporation uses its resources to protect the interests of shareholders


The Role of Boards of Directors

• The original role of the board of directors was to ensure a group, independent from management to look out for investors who

• In practice, the boards developed a “cozy” relationship with the CEO and management

– It resulted in reciprocal “care taking”


Guiding Principles of Corporate Governance

1. The primary duty of the board is to select a CEO and oversee the CEO and senior management in an effort to achieve a competent and ethical operation of the business

2. It is the responsibility of management to operate in an effective and ethical manner to produce shareholder value

3. It is the responsibility of management to produce in a timely manner financial statements that fairly represent the financial condition and results of corporate operations


Guiding Principles of Corporate Governance – cont’d

4. It is the responsibility of the board to engage an independent accounting firm to audit the financial statements, issue an opinion that those statements are in accordance with Generally Accepted Accounting Principles, and oversee the corporation’s relationship with the outside auditor

5. It is the responsibility of the board to play a leadership role in shaping corporate governance

6. It is the responsibility of the board to adopt and oversee implementation of compensation policies for management and CEO performance


Guiding Principles of Corporate Governance – cont’d

7. It is the responsibility of the board to respond appropriately to shareholder concerns

8. It is the responsibility of the corporation to deal with its employees, customers, suppliers, and other constituencies in a fair and equitable manner


Corporate Governance – cont’d

• Sarbanes-Oxley, a US law, was designed to protect investors by improving accuracy and reliability of corporate disclosures

• The law mandates two areas of corporate governance reform

– The role of the board of directors

– The type and scope of financial reporting


The Role of Boards of Directors –cont’d

• Sarbanes-Oxley changed the relationship

– Demanding board members of publicly traded companies be responsible for strategic and financial decisions

– The Business Roundtable, an association of CEOs of leading companies outlined a set of governance principles for boards and top managers that are critical to the effective functioning of corporations and the integrity of public markets


Financial Reporting

• Sarbanes-Oxley also called for more disclosure and transparency of financial information, creating specific requirements for businesses– Certification of the accuracy of financial

statements by requiring senior managers to sign off on them

– Mandated publicly traded firms establish an auditing of internal financial controls through independent auditors

– These mandates have created compliance costs



Concluding Thought

• Strategic management is a business reality

– No matter where in an organization a person works or what their particular job may be, they will be involved with and affected in some way by strategic management
