Strategic Management: An Overview

Strategic Management

• Strategic management encompasses managerial decisions and actions determining a corporation's long-term performance.

4 Phases of Strategic Management

• Basic Financial Planning focuses on operational control to meet annual budgets.
• Forecast-Based Planning aims for effective growth planning by predicting beyond one year.
• Externally Oriented Strategic Planning focuses on operational control to meet annual budgets.
• Strategic Management pursues competitive advantage through implementation, evaluation, and control in strategy formulation.

Strategic Flexibility

• Strategic flexibility involves transitioning between dominant strategies.
• Requires a long-term commitment to developing critical resources.
• Demands evolving into a learning organization.

Learning Organization

• A learning organization excels at creating, acquiring, transferring knowledge, and modifying its behavior.
• Modification supports reflecting new knowledge and insights.

Initiation of Strategy - Triggering Event

• A triggering event is a stimulus for strategy change
• Can include a new CEO, external intervention, or a threat of change of ownership.
• Also includes performance gaps and strategic inflection points.

Basic Elements of Strategic Management

• Environmental scanning, strategy formulation, strategy implementation, and evaluation & control are crucial.

Environmental Scanning

• Environmental scanning involves monitoring and sharing information from both external and internal environments.
• The External Environment includes uncontrollable variables like opportunities and threats.
• The Internal Environment comprises controllable variables like strengths and weaknesses.

Strategy Formulation

• Strategy formulation develops long-range plans to manage environmental opportunities and threats.
• Considers organizational strengths & weaknesses SWOT.
• Includes: Mission, Vision, Policies, Strategies & Objective.

Vision

• An organization's vision describes its desired future state.

Mission

• An organization's mission defines its purpose and societal contribution.
• This is typically expressed in a mission statement.
• Key elements include market served, products/services offered, and technology used.
• Quality, employee concern, public image concern, philosophy, and purpose are also key elements.

Objectives

• Objectives are the end results of planned activity.
• They state what is to be accomplished, by when, and should be quantified.
• Goals are often confused with objectives.
• A goal is an open-ended statement with no quantification or time frame.
• Goal example: Increase Profitability.
• Objective example: Increase Profitability by 30% Within The Next Fiscal Year.

Policies

• Policies are broad guidelines for decision-making, linking strategy formulation with implementation.

Strategy

• A corporation's strategy is a master plan for achieving its mission and objectives.
• Firms consider corporate, business, and functional strategies.

Corporate Strategy

• Corporate strategy defines the overall direction and resource allocation.
• Includes growth, stability, and retrenchment strategies.
  • Growth involves expanding operations.
  • Stability involves maintaining current operations.
  • Retrenchment involves reducing operations for efficiency.

Business Strategy

• Business strategy determines how a business competes in a specific market.
• This includes cost leadership, differentiation, and focus.
  • Cost Leadership involves competing by offering the lowest prices through efficiency and cost control.
  • Differentiation involves competing by offering unique products or services.
  • Focus involves targeting a niche market with a tailored strategy.

Functional Strategy

• Functional strategy optimizes specific departments to support corporate and business strategies.
• Varies by department, enhancing efficiency.

Strategy Implementation

• Strategy implementation puts strategies and policies into action.
• Relies on the development of programs, budgets, and procedures.

Programs

• A program is a statement of activities or steps for a single-use plan.
• It orients strategy toward action.
• It may involve restructuring, changing internal culture, or beginning research.

Budgets

• A budget is a statement of a corporation's programs in dollar terms.
• Used in planning and control, listing the cost of each program.

Procedures

• Procedures, or standard operating procedures (SOPs), are sequential steps for completing tasks.

Evaluation & Control

• Evaluation & control involves monitoring corporate activities and performance.
• Compares actual outcomes with desired goals.
• Strategic management enhances organizational performance via profits and ROI.
• Strategic management incorporates feedback for adjustments based on performance data.

Strategic Decisions

• Strategic decisions deal with the long-run future of the entire organization.
• They are rare, consequential, and directive.
  • Rare decisions are unusual and have no precedent.
  • Consequential decisions commit resources and demand commitment.
  • Directive decisions set precedents for future actions.

Mintzberg’s Modes of Strategic Decision Making

• Entrepreneurial strategy is shaped by a powerful leader, focused on opportunities.
  • Decisions are bold, vision-driven, to allow for rapid growth.
• Adaptive strategy evolves reactively, addressing problems incrementally.
• Planning is a systematic, data-driven approach that proactively and reactively selects the best strategy.
• Logical incrementalism mixes planning and adaptation, with strategies emerging through debate and experimentation.

Strategic Decision-Making Process

• The first step involves evaluating current performance results in terms of ROI, profitability, etc.
• This includes evaluating the current mission, objectives, strategies, and policies.

Corporate Governance

• A corporation allows different parties to contribute capital, expertise, and labor for mutual benefit.
• Corporate governance refers to the relationship among the board of directors, management, and shareholders.
• The board of directors' responsibilities include setting strategy, hiring/firing the CEO, controlling management, reviewing resource use, and caring for stockholder interests.
• The board must direct the corporation's affairs and act with due care, or be held liable.

Role of the Board in Strategic Management

• A board of directors monitors internal and external developments using committees.
• It also evaluates management's proposals, provides feedback, and suggests alternatives.
• It initiates and determines the corporation's mission and strategic options.

Degree of Involvement in Strategic Management

• Phantom boards are passive and uninvolved.
• Catalyst boards take a leading role in establishing and modifying the mission, objectives, strategy, and policies.

Board Members

• Boards of publicly owned corporations include inside and outside directors.

Inside Directors

• Inside directors are part of the company's executive management.
• They have in-depth knowledge of the company operations and participate in decision-making.

Outside Directors

• Outside directors are independent and not part of the executive team.
• They offer an external perspective, oversee management, and reduce conflicts of interest.

Agency Theory

• Agency theory explains the relationship between principals (owners) and agents (managers).
• Assumes managers may act in their self-interest, requiring governance mechanisms.

Stewardship Theory

• Stewardship theory assumes executives prioritize long-term success and shareholder interests over personal gains.
• Emphasizes trust and alignment between managers and owners.

Responsibilities of a Business Firm

• Milton Friedman and Archie Carroll present contrasting views on business responsibilities.

Milton Friedman's View

• Friedman viewed the social responsibility of business as a "subversive doctrine."
• Believed the sole responsibility is to increase profits ethically and honestly.

Archie Carroll's View

• Carroll proposes businesses have economic, legal, ethical, and discretionary responsibilities.

Archie Carroll’s Responsibilities of Business Model

• Economic responsibilities (Must Do) involve creating valuable goods and services.
• Legal responsibilities (Have To Do) are defined by laws.
• Ethical responsibilities (Should Do) align with societal expectations.
• Discretionary responsibilities (Might Do) are voluntary, like philanthropy.
• Business managers have responsibilities beyond economic and legal.
• Social responsibility includes ethical and discretionary responsibilities.

Corporate Stakeholders

• Stakeholders are groups that affect or are affected by a firm's objectives.

Primary Stakeholders

• Primary stakeholders have a direct connection and can directly affect corporate activities.

Secondary Stakeholders

• Secondary stakeholders have an indirect stake but are affected by corporate activities.

Environmental Scanning

• Environmental scanning monitors, evaluates, and disseminates information from external and internal environments to key personnel.
• It helps corporations avoid strategic surprises and ensure long-term health.

Identifying External Environmental Variables

• Strategic managers must be aware of the corporation's natural, societal, and task environments.

Natural Environment

• The natural environment includes physical resources, wildlife, and climate.

Societal Environment

• The societal environment includes social systems influencing long-term decisions.
• This environment involves economic, technological, political-legal, and sociocultural forces.

Task Environment

• The task environment includes groups directly affecting the corporation.
• Groups that affect a corporation are government, local communities, suppliers, competitors and customers.
• Task environment continues with creditors, unions, and special interest groups.
• A corporation's task environment is its industry.
• Industry analysis involves in-depth examination of key industry factors.

STEEP Analysis

• A corporation's societal environment is analyzed by categorizing it into relevant trends.
• STEEP examines Sociocultural, Technological, Economic, Ecological, and Political-legal forces.
• PESTEL is also used for Political, Economic, Sociocultural, Technological, Ecological, and Legal forces.
• Trends significantly impact some industries, but less so on others.

Variables in the Societal Environment

• Economic: GDP trends, interest rates, money supply, inflation rates, unemployment levels, wage/price controls, devaluation/revaluation, energy alternatives and availability, disposable income, currency markets, etc.
• Technological: Government spending for R&D, industry spending for R&D, focus of technological efforts, patent protection, new products, internet and telecommunication infrastructure.
• Political-Legal: Antitrust and environmental regulations, global warming legislation, foreign trade regulations, laws on hiring and promotion.
• Sociocultural: Lifestyle changes, career expectations, consumer activism, growth/age distribution rate of population, pension plans, health care.