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Strategic Management
Defined:
Set of managerial decisions and actions that determines the long-run performance of a firm.
Strategic Decision Making
Strategic Decisions Rare Consequential Directive
Initiation of Strategy
Triggeringevent
•New CEO
•External intervention
•Threat of change inownership
•Performance gap
•Strategic inflection point
Stimulusfor change
instrategy
Key Strategic Questions
Not always a formal process:
Where is the organization now? (Not where do we hope it is!)
If no changes are made, where will the organization be in 1 year, 2 years, 5 years, 10 years?
If the answers are not acceptable, what specific actions should management undertake? What are the risks and payoffs involved?
Basic financial planning Forecast-based planning Externally-oriented planning
(strategic) Strategic management
Four Phases of Strategic Management
Strategic Management
Benefits:1. Clearer sense of long term vision
(strategic direction) for the firm2. Sharper focus on what is
strategically important3. Improved understanding of a
rapidly changing environment
Challenges to Strategic Management
Electronic Commerce Use of the Internet to conduct business
transactions Globalization
Internationalization of markets and corporations
Global (worldwide) markets rather than national markets
Global Issues European Union (EU)
Economic integration of 15 member countries
North American Free Trade Agreement (NAFTA) Improved trade among 3 member countries
Mercado Del Cono Sur = Market of the southern cone (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
Strategic Management Process
Strategic Management process is composed of: Environmental Scanning Strategic Formulation Strategic Implementation Evaluation and Control
Environmental Scanning
Defined:The monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the firm.
Environmental Scanning
Identify strategic factors SWOT Analysis
Strengths, Weaknesses Opportunities, Threats
Internal Environment Strengths & Weaknesses
Within the organization but not subject to short-run control of management
External Environment Opportunities & Threats
External to the organization but not subject to short-run control of management
Environment
Composed of: Internal Environment External Environment
Task Environment Societal Environment
Environmental Scanning
Internal Environment
Composed of: Structure Culture Resources
Structure
Refers to the way a firm is organized in terms of communication, authority, and workflow
Basic Forms of structures: Simple structure Functional structure Divisional structure
Basic Organizational Structures: Simple and Functional
I. Simple Structure
II. Functional Structure
Owner-Manager
Workers
Top Management
Manufacturing Sales Finance Personnel
Basic Structures of Corporations: Divisional
III. Divisional Structure*
Manufacturing Finance Manufacturing Finance
Top Management
Product Division A Product Division B
*Conglomerate structure is a variant of the division structure.
Sales Personnel Sales Personnel
Internal Environment
Composed of: Culture Structure Resources
Culture
Refers to the pattern of beliefs, expectations, and values shared by a firm’s employees
Distinct attributes of organizational culture: Cultural intensity Cultural integration
Cultural intensity
Refers to the degree in which the members of each unit (department or division) in the company subscribe to the same values or norms. As a result, employees in a unit with intensive culture tend to behave the same.
In general, older organizations tend to display more intense culture.
Cultural integration
Refers to the degree in which units (departments and divisions) across a company tend to subscribe to the same set of values and norms.
Units within a companies with integrated culture tend to be more uniformed with other units. As a results, the units in a company with an integrated culture tend to lack subcultures of their own.
Internal Environment
Composed of: Resources Culture Structure
Resources
Refers to the assets of the firm including physical assets, skills and knowledge within the functional areas
Environmental Scanning
Task Environment
Composed of: Groups in environment that directly
affect or are affected by the organization’s operations (often refer to as industry)
Competition Suppliers Customers (Buyers) Other interest Groups
Industry Analysis
Environmental Scanning
Societal Environment
Composed of: General forces in environment
Economic Forces Sociocultural Forces Technological Forces Political-Legal Forces
EconomicGDP trendsInterest ratesMoney supplyInflation ratesUnemployment levelsWage/price controlsDevaluation/ revaluationEnergy availability and costDisposable and discretionary income
TechnologicalTotal government spending for R&DTotal industry spending for R&DFocus of technological effortsPatent protectionNew productsNew developments in technology transfer from lab to marketplaceProductivity improvements through automation
Political-LegalAntitrust regulationsEnvironmental protection lawsTax lawsSpecial incentivesForeign trade regulationsAttitudes toward foreign companiesLaws on hiring and promotionStability of government
SocioculturalLifestyle changesCareer expectationsConsumer activismRate of family formationGrowth rate of population Age distribution of populationRegional shifts in populationLife expectanciesBirth rates
Societal EnvironmentImportant Variables
EconomicGDP trendsInterest ratesMoney supplyInflation ratesUnemployment levelsWage/price controlsDevaluation/ revaluationEnergy availability and costDisposable and discretionary income
TechnologicalTotal government spending for R&DTotal industry spending for R&DFocus of technological effortsPatent protectionNew productsNew developments in technology transfer from lab to marketplaceProductivity improvements through automation
Political-LegalAntitrust regulationsEnvironmental protection lawsTax lawsSpecial incentivesForeign trade regulationsAttitudes toward foreign companiesLaws on hiring and promotionStability of government
SocioculturalLifestyle changesCareer expectationsConsumer activismRate of family formationGrowth rate of population Age distribution of populationRegional shifts in populationLife expectanciesBirth rates
Societal EnvironmentImportant Variables
Environmental Scanning
SWOT Analysis
Internal Environment: Strengths Weaknesses
External Environment: Opportunities Threats
Four Basic Elements
Basic Model of Strategic Management
Evaluation and Controland Control
Strategic Management Model
Strategy Formulation
Strategy Implementation
Mission
Objectives
Strategies
Policies
Feedback/Learning
Environmental
Scanning
Societal Environment
General Forces
Task Environment
Industry Analysis
Structure Chain of Command
Resources Assets, Skills
Competencies, Knowledge
Culture Beliefs, Expectations,
Values
Reason for existence
What results to accomplish by when Plan to
achieve the mission & objectives Broad
guidelines for decision making
Programs
Activities needed to accomplish a plan
Budgets
Cost of the programs Procedures
Sequence of steps needed to do the job
Process to monitor performanceand take corrective action
Performance
External
Internal
Evaluationand Control
SWOT Analysis
Internal Environment: Strengths Weaknesses
External Environment: Opportunities Threats
Basic Model of Strategic Management
Four Basic Elements
Strategy Formulation
Defined:Development of long-range plans for the effective management of environmental opportunities and threats in light of corporate strengths and weaknesses.
Composed of: Mission Objectives Strategies Policies
Strategy Formulation
Mission Statement Purpose or reason for the organization’s
existence Should include the firm’s products / services
and it’s target market(s) Who we are, what we do, what we’d like to
become Promotes shared expectations among employees Communicates a public image to stakeholders
Strategy Formulation
Maytag Corporation
Mission Statement
To improve the quality of home life by designing, building, marketing, and servicing the best appliances in the world.
Strategy Formulation
Objectives
The end results of planned activity WHAT is to be accomplished Time in which to accomplish it
(WHEN)
Objectives should be quantified when possible
Strategy Formulation
Goals vs. Objectives
A goal is an open-ended statement of what one wants to accomplish with no quantification of what is to be achieved and/or no time criteria for completion.
Goals & Objectives
Corporate goals and objectives include: Profitability (net profits) Growth (increase in total assets, etc.) Utilization of resources (ROE or ROI) Market leadership (market share)
Strategies
Defined:
A strategy of a corporation forms a comprehensive master plan stating
HOW the corporation will achieve its mission and objectives.
Strategies
3 Types of Strategy Corporate strategy Business strategy Functional strategy
Hierarchy of Strategy
Corporate Strategy
Business(Division Level)
Strategy
FunctionalStrategy
Corporate Strategies
Corporate strategies deal with corporation’s overall direction and its management of its businesses
Corporate Strategies
Corporate StrategyCorporate Strategy Growth Stability Retrenchment
Growth Strategies
Concentration Horizontal integration Vertical integration
Diversification Concentric diversification Conglomerate diversification
Any of these four growth strategies may be though internal development or external acquisitions, mergers, or joint ventures.
Corporate Strategies
Corporate StrategyCorporate Strategy Stability Growth Retrenchment
Stability Strategies
Pause Proceed-with-caution No change Profit
Corporate Strategies
Corporate StrategyCorporate Strategy Retrenchment Stability Growth
Retrenchment Strategies
Turnaround Captive Divestment Bankruptcy Liquidation
Hierarchy of Strategy
Corporate Strategy
Business(Division Level)
Strategy
FunctionalStrategy
Business StrategyBusiness Strategy
Emphasizes on improving the competitive position of a firm’s strategic business Also referred to as competitive
strategies
Porter’s Competitive Strategies
Competitive Advantage: Lower cost strategy
Design, produce, market more efficiently than competitors
Differentiation strategy Unique and superior value in terms of
product quality, features, service
Porter’s Competitive Strategies Competitive Scope:
Refers to the Breadth of the company’s target market
Compete head to head in large market?
Focus on niche?
Porter’s Generic Competitive Strategies
Porter’s Competitive Strategies
Cost Leadership: Low-cost competitive strategy Aimed at broad mass market Aggressive construction of efficient-
scale facilities Cost reductions/Cost minimization
Porter’s Competitive Strategies
Differentiation: Broad mass market Unique product or service Charge premiums Lower customer sensitivity to price
Porter’s Competitive Strategies
Cost focus: Low cost competitive strategy Focus on particular buyer group or
market Niche focused Seek cost advantage in target market
Porter’s Competitive Strategies
Differentiation focus: Focus on particular group or geographic
market Seek differentiation in targeted market
segment Serve special needs of narrow target
market
Hierarchy of Strategy
Corporate Strategy
Business(Division Level)
Strategy
FunctionalStrategy
Functional StrategyFunctional Strategy
To optimize resource productivityTo optimize resource productivity
Policies
Defined:Broad guidelines for decision making that link the formulation of strategy with its implementation.
Strategy Implementation
Strategy Implementation
Programs
Budgets
Procedures
Programs
A program is a statement of activities or tasks needed to accomplish a single-use plan
Budgets
A budget is a statement of a corporation’s program in dollar terms
Procedures
Procedures refer to a system of sequential steps or techniques that describe in detail how to perform a particular activity or task