1.1Why Strategic Management Is Important

Why SM is ImportantEveryone in an organization plays

a role in strategic management

Understanding strategic decisions is important so you can do your job well and have your work valued and rewarded.

Why SM is Important2 fundamental questions

Why do firms succeed/fail?Why do firms have varying levels

of performance?

These questions have guided strategic management researcher for many years.

Why SM is ImportantStrategic Management:Makes a difference in the

performance of the organization◦Higher levels of performance,

measured by profits, in companies with SM

Important to know if it affects the organizational performance

ReputationGlobal survey of financial analysts was

conducted in 2008, and over 90% agreed reputation affects financial status of the organization.

Measured aspects:◦Executing strategy◦Transparency of information◦Strong corporate governance

Highest ranking companies included IKEA, Google, Toyota…

Why SM is ImportantOrganizations are constantly faced

with changing situations both internally and externally and are still expected to meet a certain level of output

Industries never stand still◦Operations improve◦Markets expand◦Competition comes and goes

The way strategy is developed has an effect on performance according to past studies

Companies that collected information and used analytical techniques made more effective decisions than those that did not.

Organizations that use several approaches to developing strategy outperformed those who only used one.

Why SM is ImportantFocuses and coordinates different

divisions/departments on the same goal

Each division has its own goals for performance◦Accounting and revenues, operations

and output…SM helps align these goals with

the organizations goals

Strategic ManagementWhat it is? Section 1.2

Defining Strategy Goals directed plans and actions

Capabilities and resources (Internal Forces)

Opportunities and threats (External Forces)

Strategic ManagementAnalyzing the CURRENT situation

Propelling the strategy into action.

Notice: Changes could or must be made to accommodate strategy in accordance.

Four Characteristics

Interdisciplinary

External Factors

Internal Factors

Future Direction

The Strategic Management Process1. Situation Analysis- Current

Situation2. Strategy Formulation-

Designing 3. Strategy Implementation-

Action4. Strategy Evaluation- Revisit

and Check

Situation Analysis

Evaluating the current situation

Strategy Formation1. Functional Strategies

◦Relate to organizational functional area◦Example: Production- operations, marketing,

finance and accounting2. Competitive Strategies

◦Concerned with how an organization competes in the industry

◦Examples: Direct Competitors3. Corporate Strategies

◦What business to be in and what to do◦Example: acquisitions

The Strategic Management Process1. Situation Analysis- Current2. Strategy Formulation-

Designing 3. Strategy Implementation-

◦Strategy in action4. Strategy Evaluation-

◦how it measures to expectation

History of Strategic ManagementStrategos- military commander1960’s Contingency approach

arose

Who’s Involved with Strategic ManagementRemember – strategic management is the

responsibility of all employees◦ All organizational levels play a role in developing,

implementing, and changing strategy Lower level employees are concerned with functional

strategies Higher level executives are concerned with strategic issues

Three main groups in the strategic management process◦ The Board of Directors◦ The Top Management Team◦ Other Strategic Managers and Organizational

Employees

The Board of DirectorsElected group that represents a company’s

shareholders◦ Legal obligation to protect interests of stockholders◦ Corporate governance – governing the decisions

and actions of the organization◦ Two different roles a Board plays

Approving Role Involved Role

The Board of Directors cont…Approving Role

◦Older, traditional form of role that a Board plays

◦Top management keeps board members informed of strategies

◦Board’s role is to approve these strategies, some of which they may have already given input on

The Board of Directors cont…Involved Role

◦More common role of Board’s in today’s business world

◦Board initiates strategies and oversees the implementation and evaluation of these strategies

The Board of Directors cont…The Board of Directors Key Roles Review and approve strategic goals and plans Review and approve organization’s financial standards and

policies Ensure integrity of organization’s financial controls and

reporting system Approve an organizational philosophy Monitor organizational performance and regularly review

performance results Select, evaluate, 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 ManagementAn organizations top manager is typically the

Chief Executive Officer (CEO)The CEO works with other executive or

senior managers such as COO, CFO, CCO, CIO etc…

Roles of Chief Executives◦ Chief Strategist◦ Strategy Designer◦ Key Decision Maker◦ Visionary Leader◦ Provide Effective Strategic Leadership

The Role of Top Management cont…Provide Effective Strategic Leadership

◦ Strategic Leadership – the ability to anticipate, envision, maintain flexibility, think strategically, and work with others in the organization to initiate changes that will create a viable and valuable future for the organization

Executive or Senior Level Management provides effective Strategic Leadership with six key dimensions◦ Determining the organization’s purpose or vision◦ Exploiting and maintaining the organization’s core

competencies◦ Developing the organization’s human capital◦ Creating and sustaining a strong organizational culture◦ Emphasizing ethical organizational decisions and practices◦ Establishing appropriately balanced organizational controls

Other Strategic Managers and Organizational EmployeesStrategy Implementation

◦Employees put strategies into action◦It is not uncommon to see them

managing or supervising the work of others and doing work themselves

Evaluation of Strategies◦If strategies aren’t helping the

organization achieve its goals, they need to be changed

◦Employees do the evaluating and follow up to top management

1.4Factors Impacting SM TodayGlobal economy and

GlobalizationCorporate GovernanceE-business

Global Economy and GlobalizationOffers significant business

opportunitiesExtremely difficult doing business

globallyMeant to open up trade, and

break down geographical barriers◦Openness entails open to both good

and bad

Global Economy and Globalization

High interdependence on trade can lead to domino effects during economic upturns/downturns.

WTO- goal is to promote long term economic development and poverty reduction by providing technical and financial support

IMF- promotes international monetary cooperation and provides members with policy advice, loans, and technical assistance to maintain financial stability

Global Economy and GlobalizationOther challenges in the global economy:Cultural differences (traditions, history,

beliefs)◦Ex: Capitalism’s high emphasis on profits and

growth are widely accepted in US and Australia, but not so much in France or Scandinavia

Internet and speed of informationStrategic managers must be sensitive to

cultural and political differences◦How will decisions be viewed?◦How will their actions be viewed?

Corporate GovernanceCorporate Governance – the way a corporation

is governed or the determination of the broad uses to which organizational resources will be deployed and the resolution of conflicts among the myriad participants in organizations

2001-2002◦ Enron, Tyco, Worldcom

Sarbanes-Oxley Act – U.S. law designed to protect investors by improving the accuracy and reliability of corporate disclosures◦ Mandated two areas

The Role of Boards of Directors Financial Reporting

Corporate Governance cont…The Role of Boards of DirectorsThe original purpose of a corporate Board of

Directors was to ensure that there was a group, independent from management that looked out for the interest of the owners who were not involved in the day to day operations of the corporation.

Sarbanes-Oxley changed the way publicly traded companies were run through the board members◦ No more “relationship” between the CEO and board

members

Corporate Governance cont…Financial ReportingSarbanes-Oxley called for more

disclosure and transparency of financial information◦ Senior Managers must now sign off

certifying the accuracy of financial statements

Section 404◦ Deals with auditing of internal financial

controls

SM in the E-business WorldE-business- using information

and communication technologies to support all aspects of a business.◦E-commerce- retailing side of e-

business, selling items over the internet.

SM in the E-business WorldE-business Enhanced Organization

◦Traditional organization that sets up e-business capabilities, while maintaining its traditional structure

◦Ex: shopping at Wal-Mart in store, or onlineE-business Enabled Organization

◦Uses information and communication technology to perform its traditional business functions better, not for selling anything.

◦Enables organizations to do their work more efficiently and effectively

SM in the E-business WorldTotal E-business

◦Whole approach to business is based on the internet and other information and communication technologies

◦Ex: Google, Yahoo, eBay, Amazon.com