Strategic Management Chapter 1

Chapter One: The Nature of Strategic Management

• Strategic Management is the art and science of formulating, implementing, and evaluating cross-functional decisions
• These decisions enable an organization to achieve its objectives
• It focuses on integrating key functions like HR, marketing, finance, operations, R&D, and information systems to achieve organizational success
• The prime task of strategic management involves understanding the overall mission of a business (asking "What is our business?")
• The process includes analyzing the current situation, developing strategies, implementing strategies, and evaluating/modifying strategies as needed
• Key elements include environmental scanning, strategy formulation, strategy implementation, and evaluation & control

Definition of Strategy

• Originated from the Greek term "strategos," meaning the art of being a general or "the art of the general."
• A plan to deploy available resources to defeat the enemy; a broad concept for companies for deploying resources to achieve goals
• Strategy is a unified, comprehensive, and integrated plan relating the firm's strategic advantages to environmental challenges. It aims to attain basic objectives of the enterprise. (Guleck, 1980:9)
• Goal-directed decisions and actions matching internal capabilities and resources with environmental opportunities and threats

5 Ps of Strategy

• Plan: A systematic action plan
• Perspective: An encompassing vision
• Position: Ensuring a beneficial place in the market
• Pattern: A consistent, repeated course of action
• Ploy: A specific maneuver to achieve a short-term objective

Characteristics of Strategic Management

• Interdisciplinary: Involves various functional areas
• External focus: Considering opportunities and threats in the environment
• Internal focus: Recognizing internal strengths and weaknesses
• Future direction: Aligning actions with long-term goals

Strategic Management in Action

• Analyzing the current situation: Including situation analysis, organizational context, industry view, resource-based views, external environmental analysis, and internal analysis
• Deciding on strategies
• Putting strategies into action
• Evaluating and changing strategies

The Strategic Management Process (Specifics)

• Situation analysis: Assessing the organizational context, considering both internal and external environments
• Environmental Scanning examines the external environment: economic, social, cultural, demographic, environmental, political, legal, governmental, technological, and competitive trends and events
• External environment analysis: Examining current trends/events (e.g., global economic recession, consumer expectations, global markets, technological advancements).
• Internal analysis: Identifying internal strengths and weaknesses

Levels of Strategies

• Corporate: Defining the overall direction and businesses
• Competitive: Strategies for competing in chosen businesses
• Functional: Utilizing resources to support business functions

Strategy Implementation

• Putting strategies into action
• Establishing annual objectives, policies, and allocating resources
• Developing strategy-supportive culture, restructuring, and using information systems
• It's the most challenging step

Strategy Evaluation

• Assessing strategy success
• Evaluating how the strategy was implemented and its outcomes
• Reviewing external and internal factors, identifying performance, and taking corrective actions
• Crucial due to the dynamic nature of the environment and to avoid complacency

The Strategic Management Process (Cycle)

• A continuous cycle involving situation analysis, strategy formulation, strategy implementation, and strategy evaluation

Importance of Strategic Management

• Globalization
• E-commerce
• Earth environmental issues

Stages of Strategic Management

• Strategy Formulation (strategy planning)
• Strategy Implementation
• Strategy Evaluation

Strategy Formulation

• Developing vision and mission statements
• Conducting SWOT analysis: Evaluating strengths, weaknesses, opportunities, and threats
• Defining the business: Understanding customer groups and needs
• Defining the basic question of "What is our business?"
• Allocation of resources, entering/retaining/divesting/liquidating businesses, joint ventures, expansion/non-expansion, avoiding takeover are part of strategic formulation decisions

Strategy Implementation (Details)

• Establishing annual objectives, policies
• Motivating and allocating resources effectively
• Developing a strategy-supportive culture, restructuring, effective resource allocation, linking employee compensation to performance, and redirecting marketing efforts are essential
• Difficulty of implementation compared to formulation

Strategy Implementation (Tools)

• Programs
• Budgets
• Procedures

Strategy Evaluation (Details)

• Primary means for obtaining information about strategy success
• Three fundamental activities are:
• Reviewing external and internal factors affecting strategies
• Measuring performance
• Taking corrective actions

Environmental Context: Old Economy vs. New Economy

• Key industries, resources, technology, product life cycles, trade patterns, working days, communication media, organization structures, workforce characteristics are contrasted across economies.

Competitive Advantage

• Anything a firm does exceptionally well compared to rivals
• When a firm can do something rival firms cannot or own something they desire

Strategists

• Individuals responsible for organizational success or failure
• Varying job titles: CEO, president, owner, board chair, executive director, etc.
• Crucial to adaptive leadership amid change

Vision and Mission Statements

• Vision statement answers "What do we want to become?"
• Mission statement answers "What is our business?" and describes the firm's purpose, operations, and values

Opportunities and Threats

• Assess economic, social, cultural, demographic, environmental, political, legal, governmental, technological, and competitive trends
• Consider opportunities and threats in a global economic recession
• Examine potential effects of factors like oil prices, debt levels, consumer demand, health services, consumer spending.

Strategic Plan

• Addresses "Where are we now?", "Where do we want to go?", and "How are we going to get there?"

Internal Strengths and Weaknesses

• Internal qualities relative to competitors
• Important to assess relative deficiency or superiority

Long-Term Objectives

• Provide organizational direction, aiding evaluation and creating synergy.
• Must be clear, challenging, measurable, consistent, and reasonable

Strategies

• Potential actions requiring top management decision and substantial resources
• Achieve long-term objectives
• Include geographic expansion, diversification, acquisition, product development, market penetration and retrenchment, divestment, and liquidation

Annual Objectives

• Short-term milestones to achieve long-term objectives.
• Important in strategy implementation
• Basis for resource allocation

Policies

• Guidelines, rules, and procedures supporting stated objectives and used as decision-making guides in repetitive situations
• Often regarding HRM, marketing, finance, operations, R&D, and computer information systems

A Comprehensive Strategic Management Model (Steps 1-8)

• 8 Steps in a more structured approach

Benefits of Strategic Management

• Enhanced communication and participation.
• Deeper understanding.
• Greater commitment.
• Proactive approach.
• Improved profitability.
• Improved employee productivity.

Who's Involved in Strategic Management?

• Board of directors: Stockholder representatives, corporate governance
• Top management team: Responsible for daily decisions and actions.
• Other strategic managers, organizational employees: Responsible for implementation and evaluation

Effective Strategic Leadership

• Determining Organizational Purpose and Vision
• Establishing Appropriate Controls
• Emphasizing Ethical Decisions and Practices
• Creating and Sustaining a Strong Organizational Culture
• Exploiting and Maintaining Core Competencies
• Developing Human Capital

Strategic Management in Today's World

• Globalization
• Corporate Governance
• E-business

Key Terms in Strategic Management

• Competitive Advantage
• Strategists
• Vision & Mission Statements
• External Opportunities & Threats
• Internal Strengths & Weaknesses
• Long-Term Objectives
• Strategies
• Annual Objectives
• Policies

Excerpts from Sun Tzu's The Art of War

• War's importance to states
• Warfare based on deception
• Considering opponent's temperament
• Prioritizing rapid victory over prolonged campaigns
• Policies for dealing with varied situations
• Utilizing knowledge of both the enemy and one's own forces
• Adaptability and strategic positioning