Strategic Management: Concepts and Objectives

• Strategic management concepts and techniques are widely used by business corporations

• Strategic management is important for large corporations operating in multiple industries to address error risks, costly mistakes, and economic instability

Strategic Management Objectives

• Understand the benefits
• Explain the influence of globalization and environmental sustainability
• Understand the basic model and components
• Understand strategic decision-making modes

What is Strategic Management?

• Strategic management is managerial decisions and actions determining a corporation's long-term performance
• It covers environmental scanning (external and internal), strategy formulation (strategic or long-range planning), implementation, and evaluation
• Strategic management monitors opportunities and threats relative to a corporation's strengths and weaknesses
• Formerly called business policy, it includes strategic planning, environmental scanning, and industry analysis

Phases of Strategic Management:

• Phase 1: Basic Financial Planning
  • When managers propose the following year's budget initiates serious planning
  • Projects are based on minimal analysis, primarily using internal information
  • Environmental information is limited and usually provided by the sales force
• Phase 2: Forecast-Based Planning
  • Managers propose five-year plans as annual budgets becoming less useful
  • They consider projects longer than one year
  • Managers gather available environmental data which is usually ad hoc
  • They extrapolate current trends five years into the future.
• Phase 3: Externally Oriented (Strategic) Planning
  • Top management initiates the planning process to increase responsiveness to market changes and competition
  • Planning is concentrated in a planning staff who develops strategic plans for the corporation
  • Consultants offer sophisticated techniques to gather information and forecast trends
• Phase 4: Strategic Management
  • Top management involves managers and key employees in planning at multiple levels
  • Planning groups form involving various departments and workgroups
  • Integrated strategic plans are developed to achieve the company's main goals

Benefits of Strategic Management

• Focuses on long-term performance
• Enables companies to sustain performance over time vs short-term bursts
• Enables companies to adapt to new markets and changes
• Provides a clearer strategic vision
• Improves focus on strategically important aspects
• Provides improved understanding of changing environment

Questions to Ask for Effective Strategic Management (Formal or Informal)

• Where is the organization now?
• Where will the organization be in 1, 2, 5, or 10 years if no changes are made?
• What specific actions should management take if projected outcomes are unacceptable?

Globalization

• Globalization is the integrated internationalization of markets and corporations
• Strategic management is an increasingly important way to track of international developments and position a company for long-term competitive advantage
• General Electric moved its medical systems division's research lab from Japan to China to develop products for developing economies
• Microsoft's largest research center outside Redmond, Washington, is in Beijing

Environmental Sustainability

• Environmental sustainability reduces a company's impact on the natural and physical environment
• Climate change influences business decisions

Climate Change Risks Categories

• Regulatory: Compliance required by the Kyoto Protocol for reducing greenhouse gases.
• Supply Chain: Impact of government regulations on suppliers, leading to higher costs; risks from storms and rising sea levels.
• Product and Technology: Sustainable practices as a condition for profitable growth
• Litigation: Lawsuits against companies with significant carbon emissions.
• Reputational: Impact on a company's image due to environmental impact
• Physical: Direct risks from droughts, floods, storms, and rising sea levels affecting industries like insurance, agriculture, and tourism

Learning Organization

• Strategic flexibility requires long-term commitment and nurturing resources
• Learning orgs are skilled at creating, acquiring, transferring knowledge, and modifying behavior based on insights
• Organizational learning is important for competitiveness in a dynamic environment
• It is also important for innovation and new product development

Learning Organizations Excel At:

• Solving problems systematically
• Experimenting with new approaches
• Learning from own and others' experiences
• Transferring knowledge efficiently

Basic Model of Strategic Management:

• Environmental Scanning, Strategy Formulation, Strategy Implementation, Evaluation and Control

Environmental Scanning

• Environmental scanning monitors, evaluates, and disseminates information from external and internal environments to key people
• Its purpose is to identify strategic factors to determine a corporation's future
• SWOT analysis identifies Strengths, Weaknesses, Opportunities, and Threats as strategic factors
• External environment variables (Opportunities and Threats) are outside the organization
• These variables are generally beyond top management's control

Internal Environment Variables (Strengths and Weaknesses)

• Internal environment variables are within the organization and beyond short-run control
• They include structure, culture, and resources that form the context of work
• Key strengths form core competencies for competitive advantage

Strategy Formulation

• Strategy formulation develops long-range plans for managing environmental opportunities and threats given corporate strengths and weaknesses (SWOT)
• It defines the corporate mission, specifies objectives, develops strategies, and sets policies

Mission

• The mission is an organization's reason for existence that states what it provides to society
• A mission defines a company's unique purpose, differentiating it from others, and identifies the scope of operations

Objectives

• Objectives are planned activity end results stated with action verbs, quantified, and time-defined

Areas for Corporate Goals and Objectives:

• Profitability (net profits)
• Efficiency (low costs, etc.)
• Growth (increase in total assets, sales, etc.)
• Shareholder wealth (dividends plus stock price appreciation)
• Utilization of resources (ROE or ROI)
• Reputation (being considered a “top” firm)
• Contributions to employees (employment security, wages, diversity)
• Contributions to society (taxes paid, participation in charities, providing a needed product or service)
• Market leadership (market share)
• Technological leadership (innovations, creativity)
• Survival (avoiding bankruptcy)
• Personal needs of top management (using the firm for personal purposes, such as providing jobs for relatives)

Strategies

• It states the plan how the corporation achieve its mission and objectives and maximizes competitive advantage to minimize competitive disadvantage

Types of Strategy

• Corporate: Defines the company's overall direction in the management of businesses and product lines within categories, stability, growth, and retrenchment

• Business: Competitive position improvement strategy at the business unit or product level, either competitive or cooperative

  • Example: Staples using services, such as copying, UPS shipping, and mobile technicians to differentiate its stores
  • Example: British Airways forming an alliance with American Airlines for global service

• Functional: It maximizes resource productivity

  • R&D strategies are technological followership (imitation) and technological leadership (innovation)

• Hierarchy of Strategy: Strategies nested within each other to complement and support one another

Policies

• Policies link strategy formulation with implementation by offering broad decision-making guidelines that support its mission, objectives, and strategies

Strategy Implementation

• Strategy execution comes to life with the help of a process by which strategies get put into action via programs, budgets, and procedures
• It might involve culture, structure, management system changes which are conducted by middle and lower-level managers with supervision by top management
• Strategy execution involves day-to-day decisions in resource allocation via "operational planning"

Elements of Strategy Implementation

• programs: they make strategy action oriented involving efforts like restructuring or changing the company culture
• budgets: it ensures profit performance through hurdle rates and specifies financial impact via pro forma statements
• procedures: they outline step-by-step techniques completing corporation's programs

Evaluation and Control

• Performance results are monitored compared to desired performance for corrective action
• It identifies weaknesses in previously implemented strategic plans prompting entire process to begin again
• Managers must obtain correct information for effective evaluation and control to improve organization's performance

Feedback/Learning Process

• Business must revise or correct decisions made earlier following strategies, programs etc.
• It could also be a variable such as a new competitor was ignored during environmental scanning

Strategic Decision Making

• Strategic decisions deal with long-run future of an entire organization and its emphasis
• they are rare: unusual with no precedent
• they are consequential: commit substantial resources
• they are directive: set precedents for future actions