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

Explore the foundational concepts of strategic management in this quiz. Learn about the formulation, implementation, and evaluation of strategies that drive organizational success. This chapter emphasizes the integration of key functions and the importance of understanding a business's mission.