Strategic Management: Nature and Key Terms

Natures of Strategic Management

• Strategic management is both an art and science, involving the formulation, implementation, and evaluation of cross-functional decisions to achieve organizational objectives.
• This approach integrates various functions like management, marketing, finance/accounting, production/operations, R&D, and information systems.
• The terms 'strategic management' and 'strategic planning' are synonymous.

Key Terms in Strategic Management

• Competitive advantage: a benefit that enables an organization to outperform its competition.
• Strategists: individuals most responsible for an organization's success or failure.
• Vision and mission statements: declarations of an organization's purpose and aspirations.
• External opportunities and threats: factors in the external environment that can affect an organization.
• Internal strengths and weaknesses: an organization's controllable activities that are performed well or poorly.
• Long-term objectives: desired results an organization seeks to achieve over an extended period.
• Strategies: potential actions requiring top management decisions and large resource allocations.
• Annual objectives: short-term milestones that organizations must achieve to reach long-term objectives.
• Policies: guidelines or procedures for decision-making.

Strategists

• Commonly hold titles such as Chief Executive Officer, President, Owner, Chair of the Board, Executive Director, Chancellor, Dean, and Entrepreneur.
• The CEO is usually the most visible and critical strategic manager.

Strategic-Management Process:

• Strategy formulation includes creating a vision and mission statement.
• Strategy implementation requires strong interpersonal skills and affects all employees and managers.
• Strategy evaluation is the final stage of strategic management.

Integrating Intuition and Analysis:

• Balances objective, logical approaches with intuition, especially in uncertain situations.
• Strategic management outcomes should have logical, systematic approach for making major decisions within an organization.

External Factors

• Economic factors
• Social factors
• Cultural factors
• Demographic factors
• Environmental factors
• Political factors
• Legal factors
• Governmental factors
• Technological factors
• Competitive trends and events that could significantly benefit or harm an organization in the future.
• These factors consist of identifying the information, monitoring and evaluating opportunities and threats

Internal Factors

• Internal strengths: organization's controllable activities that are performed especially well
• Internal weaknesses: organization's controllable activities that are performed poorly Objectives should be specific results that an organization seeks to achieve in pursuing its basic mission.
• Long-term is defined as longer than one year.

Business Strategies

• Geographic expansion
• Diversification
• Acquisition
• Product development
• Market penetration
• Retrenchment
• Divestiture
• Liquidation

Potential Actions

• Strategies require top management decisions and large amounts of resources.
• Annual objectives are short-term milestones to achieve long-term objectives.

Reasons for Poor or No Strategic Planning:

• Lack of knowledge or experience
• Poor reward structures that punish failure but don't reward success
• "Firefighting" when an organization is too busy resolving crises.
• Perception of planning as a waste of time and resources
• Laziness
• Contentment with success
• Prior bad experience
• Self-interest of those who benefit from the old system
• Fear of the unknown

Strategic Planning Process Guidelines:

• People process centered
• Learning process for all
• Words supported by numbers
• Simple and nonroutine
• Varying assignments
• Challenge the underlying assumptions
• Welcome bad news
• Welcome an open mindeness and spirit of inquiry and learning
• Avoid bureaucracy
• Avoid ritualistic orchestration
• Avoid rigid control
• Avoid jargon and arcane planning language
• Not a formal system for control
• Don't disregard qualitative information
• Not controlled by "technicians"
• Avoid pursuing too many
• Strengthen the "good ethics is good business" policy

Business Mission and Vision

• Peter Drucker is known as "the father of modern management".
• The mission statement answers "What is our business?"
• The vision statement answers "What do we want to become?"
• Profit is the primary corporate motivator.
• King and Cleland recommend developing written mission statements to: ensure unanimity of purpose, provide a basis for resource allocation, and establish organizational climate.

Business Mission and Vision Benefits

• Clarity of purpose
• Basis for strategic planning
• Provide direction
• Focal point for stakeholders

Characteristics of a Succesful Mission Statement

• Customers: Who are the firm's customers?
• Products or services: What are the firm's major products or services?
• Markets: Geographically, where does the firm compete?
• Technology: Is the firm technologically current?
• Concern for survival, growth, and profitability-Is the firm committed to growth and financial soundness?
• Philosophy: What are the basic beliefs, values, aspirations, and ethical priorities of the firm?
• Self-concept-What is the firm's distinctive competence or major competitive advantage?
• Concern for public image-Is the firm responsive to social, community, and environmental concerns?
• Concern for employees-Are employees a valuable asset of the firm?

Qualities of a Mission Statement

• Broad, but not including monetary amounts, numbers, percentages, ratios, or objectives
• Under 250 words
• Inspiring
• Identify products
• Socially responsible
• Environmentally responsible
• Includes all components
• Reconciliatory
• Enduring

External Assessment

• External Audit purpose is to develop a finite list of opportunities that could benefit a firm and threats that should be avoided
• Key External Factors includes 5 categories: Economic Forces, Social, Cultural, Demographic, and Natural Environment Forces, Political, Governmental, and Legal Forces, Technological Forces and Competitive Forces.
• Focuses on identifying key variables that offer actionable responses
• External changes translate to changes in consumer demand.
• These forces influence product development, positioning, market segmentation, services, and business acquisitions or sales
• This directly affects suppliers and distributors
• Enables the development of a clear mission, strategies for long-term objectives, and policies for annual objectives

External Audit Process

• Involving many managers and employees
• Requires gathering competitive intelligence and information about economic, social, cultural, demographic, environmental, political, governmental, legal, and technological trends
• Sources include the Internet, corporate, university, and public libraries
• A manager meeting identifies key opportunities and threats Factors should be important, measurable, applicable to all, and hierarchical
• Functional or divisional areas
• Strategic information available from published/unpublished resources.
• Unpublished sources: customer surveys, market research, speeches
• Published sources: periodicals, journals, reports, government documents
• Internet facilitates information gathering and evaluation

Forecasting

• Educated assumptions about trends/events
• Made complex by events, innovation, competition, priorities
• Managers apply to identify opportunities/threats
• The future permeates every action and every decision

Forecasting Tools

• Quantitative techniques most useful with available historical data
• Qualitative techniques
• Making assumptions on external factors that exert significant impact
• Only for future trends and events that have a significant effect on business
• Checkpoints on the validity of strategies

Industry Analysis

• Allows strategists to summarize, evaluate information
• Allows external factor evaluation (EFE) and the External Factor Evaluation (EFE) Matrix and identifies major competitors
• External and inteneral ratings refer to strengths/weaknesses

Internal Assessment

• Strengths/weaknesses with opportunities/threats and clear statements help basis
• Objectives/strategies capitalize on strengths, overcome weaknesses
• Key Internal Forces uses distinctive competencies that cannot be easily matched
• Strategies improve weaknesses into strengths
• The internal follows the parrallel as the external but uses internal audits/assessments
• Requires gathering information, management, marketing, finance, research development and information systems.

Success Factors

• Process of gaining competitive advantage from a firm with distinct competencies
• Empirical factors contribute to strageties and efficiency
• Rare resources, which cannot be possessed by other organizations and hard to imitate

Organizational Culture

• Pattern of behavior developed in coping with adaptation and integration
• Strategists use what's known as the cultural products to influence, direct strategy formulation and evaluations
• Culture and personality need culture and strategy to work together.

Functions of Management

• Planning that are related to preparing for the future
• Organizing with organizational design, specialization, job descriptions, etc
• Motivating
• Staffing for personnel resources