Strategic Management Essentials

Strategic Management Essentials

• Strategic management is the art and science of formulating, implementing, and evaluating cross-functional decisions
• These decisions enable an organization to achieve its objectives

Strategic Management vs Strategic Planning

• Strategic management is used synonymously with strategic planning
• Strategic management refers to strategy formulation, implementation, and evaluation
• Strategic planning refers only to strategy formulation

Strategic Plan

• A strategic plan is a company's game plan and results from tough managerial choices among good alternatives
• It signals commitment to specific markets, policies, procedures, and operations

Stages of Strategic Management

• Strategy formulation involves developing a vision and mission, identifying external opportunities and threats, and determining internal strengths and weaknesses
• This stage also includes establishing long-term objectives, generating alternative strategies, and choosing particular strategies to pursue
• Strategy implementation requires establishing annual objectives, devising policies, motivating employees, and allocating resources
• This stage is often called the action stage
• Strategy evaluation involves determining which strategies are not working well
• Three fundamental activities of this stage includes, reviewing external and internal factors and measuring performance

Integrating Intuition and Analysis

• The strategic-management process is an objective, logical, and systematic approach for making major decisions in an organization
• It attempts to organize qualitative and quantitative information in a way that allows effective decisions to be made under conditions of uncertainty
• Strategic management is not a pure science
• Intuition, based on past experiences, judgment, and feelings, is essential to making good strategic decisions
• Intuition is particularly useful for making decisions in situations of great uncertainty or little precedent or when it is necessary to choose from several plausible alternatives

Adapting to Change

• The strategic-management process is based on the belief that organizations should continually monitor internal and external events and trends
• This monitoring ensures timely changes can be made as needed to adapt to the increasing rate and magnitude of changes
• Firms must be adept at adapting to survive

Key Terms in Strategic Management

• Competitive advantage is any activity a firm does especially well compared to rival firms or any resource a firm possesses that rival firms desire
• A firm can sustain a competitive advantage for only a certain period because of rival firms imitating and undermining that advantage
• Strategists are individuals most responsible for the success or failure of an organization and help an organization gather, analyze, and organize information
• A vision statement answers the question "What do we want to become?"
• A mission statement answers the question "What is our business?"
• External opportunities and threats are economic, social, cultural, demographic, environmental, political, legal, governmental, technological, and competitive trends and events that could significantly benefit or harm an organization
• Internal strengths and internal weaknesses are an organization's controllable activities that are performed especially well or poorly determined relative to competitors
• Long-term objectives are specific results that an organization seeks to achieve in pursuing its basic mission.
• Strategies are the means by which long-term objectives will be achieved.
• Annual objectives are short-term milestones that organizations must achieve to reach long-term objectives.
• Policies are the means by which annual objectives will be achieved

The Strategic-Management Model

• The three important questions to answer in developing a strategic plan:
  • Where are we now?
  • Where do we want to go?
  • How are we going to get there?

Benefits of Strategic Management

• Strategic management allows an organization to be more proactive than reactive in shaping its own future
• Benefits for a specific firm that does strategic planning, includes, Enhanced communication, Deeper/Improved understanding, Greater commitment, leading to all managers and employees to help the firm succeed
• Businesses using strategic-management concepts show significant improvement in sales, profitability, and productivity
• Nonfinancial benefits include:, Enhanced awareness of external threats, Improved understanding of competitors' strategies, Increased employee productivity, Reduced resistance to change

Why Some Firms Do No Strategic Planning

• No formal training in strategic management
• No understanding of or appreciation for the benefits of planning
• No monetary rewards for doing planning
• No punishment for not planning
• Too busy "firefighting" (resolving internal crises) to plan ahead
• View planning as a waste of time, since no product/service is made
• Laziness; effective planning takes time and effort; time is money
• Content with current success; failure to realize that success today is no guarantee for success tomorrow; even Apple Inc. is an example
• Overconfident
• Prior bad experience with strategic planning done sometime/somewhere

Pitfalls in Strategic Planning

• Using strategic planning to gain control over decisions and resources
• Doing strategic planning only to satisfy accreditation or regulatory requirements
• Too hastily moving from mission development to strategy formulation
• Failing to communicate the plan to employees, who continue working in the dark
• Top managers making many intuitive decisions that conflict with the formal plan
• Top managers not actively supporting the strategic-planning process
• Failing to use plans as a standard for measuring performance
• Delegating planning to a “planner” rather than involving all managers
• Failing to involve key employees in all phases of planning
• Failing to create a collaborative climate supportive of change
• Viewing planning as unnecessary or unimportant
• Becoming so engrossed in current problems that insufficient or no planning is done
• Being so formal in planning that flexibility and creativity are stifled

Business and Military Strategy

• A fundamental difference between military and business strategy is that business strategy is formulated, implemented, and evaluated with an assumption of competition
• Military strategy is based on an assumption of conflict
• Both business and military organizations must adapt to change and constantly improve to be successful
• Sun Tzu's The Art of War has been applied to many fields well outside of the military
• Much of the text is about how to fight wars without actually having to do battle and gives tips on how to outsmart one's opponent so that physical battle is not necessary
• War is a matter of vital importance to the state and must be studied thoroughly
• Know your enemy and know yourself, and in a hundred battles you will never be defeated
• Skillful leaders do not let a strategy inhibit creative counter-movement