Chapter 1

The Nature of Strategic Management

Strategic Management: Concepts & Cases Fred David

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Strategic Management Defined

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

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Strategic Management Defined

Strategic Management is all about identification and description of the strategies that managers can carry so as to achieve better performance and a competitive advantage for their organization. An organization is said to have competitive advantage if its profitability is higher than the average profitability for all companies in its industry.

Strategic Management Defined

"Strategic management is an ongoing process that evaluates and controls the business and the industries in which the company is involved; assesses its competitors and sets goals and strategies to meet all existing and potential competitors; and then reassesses each strategy annually or quarterly to determine how it has been implemented and whether it has succeeded or needs replacement by a new strategy to meet changed circumstances, new technology, new competitors, a new economic environment., or a new social, financial, or political environment." (Lamb, 1984)
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Strategic Management-Defined

Strategic Management can also be defined as "the identification of the purpose of the organisation and the plans and actions to achieve the purpose. It is that set of managerial decisions and actions that determine the long term performance of a business enterprise. It involves formulating and implementing strategies that will help in aligning the organisation and its environment to achieve organisational goals. (Lamb, 1984)
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Strategic management analyzes the major initiatives taken by a company's top management on behalf of owners, involving resources and performance in external environments. It entails specifying the organization's mission, vision and objectives, developing policies and plans, often in terms of projects and programs, which are designed to achieve these objectives, and then allocating resources to implement the policies and plans, projects and programs. A balanced scorecard is often used to evaluate the overall performance of the business and its progress towards objectives. Recent studies and leading management theorists have advocated that strategy needs to start with stakeholders expectations and use a modified balanced scorecard which includes all stakeholders.
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Strategy

is an action that managers take to attain one or more of the organizations goals. Strategy can also be defined as A general direction set for the company and its various components to achieve a desired state in the future. Strategy results from the detailed strategic planning process.
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Features of Strategy
Strategy is Significant because it is not possible to foresee the future. Without a perfect foresight, the firms must be ready to deal with the uncertain events which constitute the business environment. Strategy deals with long term developments rather than routine operations, i.e. it deals with probability of innovations or new products, new methods of productions, or new markets to be developed in future. Strategy is created to take into account the probable behavior of customers and competitors. Strategies dealing with employees will predict the employee behavior.

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Strategy is a well defined roadmap of an organization. It defines the overall mission, vision and direction of an organization. The objective of a strategy is to maximize an organizations strengths and to minimize the strengths of the competitors. Strategy, in short, bridges the gap between where we are and where

we want to be.
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Purpose of Strategic Management

To exploit and create new and different opportunities for tomorrow

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Strategic Management

In essence, the strategic plan is a companys game plan

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Strategic Management Process:

process means defining the organizations strategy. It is also defined as the process by which managers make a choice of a set of strategies for the organization that will enable it to achieve better performance. Strategic management is a continuous process that appraises the business and industries in which the organization is involved; appraises its competitors; and fixes goals to meet all the present and future competitors and then reassesses each strategy.
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4 Stages of the Strategic Management Process

Environment Scanning Strategy formulation Strategy implementation Strategy evaluation

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Environmental Scanning Environmental scanning refers to a process of collecting, scrutinizing and providing information for strategic purposes. It helps in analyzing the internal and external factors influencing an organization. After executing the environmental analysis process, management should evaluate it on a continuous basis and strive to improve it.
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Strategy Formulation

Strategy formulation is the process of deciding best course of action for accomplishing organizational objectives and hence achieving organizational purpose. After conducting environment scanning, managers formulate corporate, business and functional strategies.
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Strategy Formulation
Includes developing Vision & Mission Identifying External Opportunities & Threats Determining Internal Strengths & Weaknesses Establishing Long-Term Objectives Generating Alternative Strategies

Choosing particularly Strategy to Pursue

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Issues in Strategy Formulation

Businesses to enter Businesses to abandon Allocation of resources Expansion or diversification International markets Mergers or joint ventures Avoidance of hostile takeover

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Strategy Implementation (Action Stage)

Strategy implementation implies making the strategy work as intended or putting the organizations chosen strategy into action. Strategy implementation includes designing the organizations structure, distributing resources, developing decision making process, and managing human resources.

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Strategy Implementation Steps

Developing a strategy-supportive culture Creating an operational and effective organizational structure Redirecting marketing efforts Preparing budgets according to requirements Developing an effective and prompt information systems Linking employee compensation to organizational performance
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Strategy Implementation

Annual Objectives Policies Employee Motivation Resource Allocation

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Issues in Strategy Implementation

Action Stage of Strategic Management Mobilization of employees & managers Most difficult stage Interpersonal skills critical

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Strategy Evaluation Strategy evaluation is the final step of strategy management process. The key strategy evaluation activities are appraising internal and external factors that are the root of present strategies, measuring performance, and taking remedial / corrective actions. Evaluation makes sure that the organizational strategy as well as its implementation meets the organizational objectives.
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Strategy Evaluation

Internal Review External Review Performance Measurement Taking Corrective Actions

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These components are steps that are carried, in chronological order, when creating a new strategic management plan. Components of Strategic Management Process

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Prime Task of Strategic Management

Peter Drucker: Think through the overall

mission of a business. Ask the key question:

What is our Business?

This leads to the setting of objectives, the development of strategies, and the making of todays decisions for tomorrows results.

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Integrating Intuition & Analysis

The strategic management process attempts to organize quantitative and qualitative information under conditions of uncertainty

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Integrating Intuition & Analysis

Intuition is based on: Past experiences Judgment Feelings Intuition is useful for decision making in conditions of: Great uncertainty Little precedent Highly interrelated variables Several plausible alternatives
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Integrating Intuition & Analysis

Intuition & Judgment

Involve management at all levels

Influence all analyses

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Adapting to Change

Organizations should continually monitor internal and external events and trends so that timely changes can be made as needed

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Key Terms in Strategic Management

Competitive advantage Strategists Vision and mission statements External opportunities and threats Internal strengths and weaknesses Long-term objectives Strategies Annual objectives Policies
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Strategic Management is Gaining and Maintaining Competitive Advantage

Anything that a firm does especially well compared to rival firms

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Achieving Sustained Competitive Advantage

1. Continually adapting to changes in external trends and events and internal capabilities, competencies, and resources

2. Effectively formulating, implementing, and evaluating strategies that capitalize on those factors

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Strategists

Gather Information Analyze Information Organize Information

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Vision and Mission Statements

Vision Statement What do we want to become?

Mission Statement What is our business?

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External Opportunities and Threats

Analysis of Trends

Economic Social Cultural Demographic/Environmental Political, Legal, Governmental Technological Competitors

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External Opportunities and Threats

Basic Tenet of Strategic Management

Take advantage of External Opportunities Strategy Formulation

Avoid/minimize impact of External Threats

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Internal Strengths and Weaknesses

Controllable

activities performed especially well or poorly relative to competitors

Determined

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Internal Strengths and Weaknesses

Typically located in functional areas of the firm Management Marketing Finance/Accounting Production/Operations Research & Development Management Information Systems

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Internal Strengths and Weaknesses

Assessing the Internal Environment
Ratios

Performance Measures

Internal Factors
Industry Averages

Survey Data

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Long-Term Objectives

Specific results that an organization seeks to achieve in pursuing its basic mission Long-term means more than one year

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Long-Term Objectives

Essential for ensuring the firms success Provide direction Aid in evaluation Create synergy Reveal priorities Focus coordination Provide basis for planning, organizing, motivating, and controlling
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Strategies

Means by which long-term objectives are achieved

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Strategies

Examples Geographic expansion Diversification Acquisition Product development Market penetration Retrenchment Divestiture Liquidation Joint venture
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Sample Strategies

Table 1-1

Best Buy Levi Strauss

New York Times Company

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Annual Objectives

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

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Policies

Means by which annual objectives will be achieved

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Strategic Management Model

Strategic

Management Process Dynamic & continuous More formal in larger organizations

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Strategic Management

Communication

is a key to successful strategic management

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Benefits of Strategic Management

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Benefits of Strategic Management

Nonfinancial Benefits

Enhanced awareness of threats Improved understanding of competitors strategies Increased employee productivity Reduced resistance to change Clearer understanding of performance-reward relationship Enhanced problem-prevention capabilities

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Why Some Firms Do No Strategic Planning

Lack of knowledge of strategic planning Poor reward structures Fire fighting Waste of time Too expensive Laziness Content with success
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Why Some Firms Do No Strategic Planning (continued)

Fear of failure Overconfidence Prior bad experience Self-interest Fear of the unknown Honest difference of opinion Suspicion
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Pitfalls in Strategic Planning

Strategic planning is an involved, intricate, and complex process that takes an organization into uncharted territory

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Effective Strategic Planning is:

A people process more than a paper process A learning process Words supported by numbers Simple and nonroutine Varying assignments, team membership, meeting formats, and planning calendars Challenging assumptions underlying corporate strategy
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Effective Strategic Planning continued

Welcomes bad news Requires open-mindedness and a spirit of inquiry Is not a bureaucratic mechanism Is not ritualistic or stilted Is not too formal, predictable, or rigid Does not contain jargon or arcane language

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Effective Strategic Planning continued

Is not a formal system for control Does not disregard qualitative information Is not controlled by technicians Does not pursue too many strategies at once Continually strengthens the good ethics is good business policy

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Comparing Business and Military Strategy

Strategic planning started in the military Similarity

Both business and military organizations must adapt to change and constantly improve Business strategy assumes competition Military strategy assumes conflict

Difference

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