Strategic Management Overview

Overview of Strategic Management

• Strategic Management (SM) is a set of managerial decisions and actions determining an organization's long-term performance
• SM includes environmental analysis, strategy formulation, implementation, evaluation, and control
• SM ensures continuous assessment of internal and external changes
• SM ensures adjustment of competitive approach based on assessment

Definitions of Strategic Management

• SM is a process where top management sets long-term direction and performance goals
• This is achieved through careful strategy formulation, effective implementation, and continued evaluation
• SM involves decisions and actions to formulate and implement strategies
• These strategies are designed to achieve organizational objectives
• SM is both an art and science
• It involves formulating and evaluating cross-functional decisions to achieve objectives

Critical areas of Strategic Management

• Determination of company mission, which is the unique purpose setting it apart
• Scope of operation is identified in product or market terms
• Developing a company profile by analyzing internal performance capabilities based on resources
• Company profile depicts financial, human, and physical resource quality and quantity
• Profile assesses inherent strengths and weaknesses of management and structure

Company's external environment and its assessment

• A firm's external environment includes conditions and forces beyond its control affecting strategic options.
• The external environment has two interactive segments: operating and remote environments.
• The operating environment includes forces and conditions within a specific industry and competitive circumstances
• Changes in the operating environment result from strategic actions of the firm or its competitors
• This also includes consumers, users, suppliers, and creditors
• The remote environment includes forces that are beyond the immediate operating environment of any firm
• It provides the economic, political, social, and technological framework for competing organizations

Strategic Analysis and Choice

• External environment and company profile assessments enable firms to identify attractive interactive opportunities
• These identify avenues for investment.
• It is necessary to screen the list through the lens of company mission
• This then generates possible and desired opportunities
• This selection of a "strategic choice" provides the combination of long-term objectives and grand strategy
• This then optimally positions the firm in the external environment and enables it to achieve its mission
• Long-term objectives are results sought over multiple years
• Grand strategy is a comprehensive plan to achieve long-term objectives in a dynamic environment

Annual Objectives and Short Term Strategies

• Annual objectives are the goals an organization aims to achieve within one year
• These objectives are similar to long-term objectives, but more specific and necessary for short-term goals

Vision

• Vision is a goal-oriented mental construct
• Vision guides people's behavior
• Vision is the picture people are willing to work for, it is a dream of a desired future.
• Vision is what a firm or person wants to become, focusing on a company's view
• The unifying statement and challenge to all units ensures independent objectives are met
• Vision consists of achievable ideas and inspires daily activity
• An indirect way to determine progress in corporate strategic management is the emergence of a vision statement
• Vision evolves after deliberation, brainstorming, and thinking
• To define a vision, management must ask "What business are we in?"
• The firm's size, scope, product/service, and served market should be considered

Characteristics of a Vision

• Focuses on the future
• It is ambitious
• Expressed simply for understanding at all company levels
• Concrete without details
• Does not provide solutions
• Opens space for creative forward thinking via an appealing picture
• Not a secret plan, but an open declaration
• Helps to mobilize people
• Creates momentum and initiative for alignment with the corporate vision

Benefits of having a vision

• Inspiring and exhilarating
• Helps to create common identity and a shared sense of purpose
• Competitive, original, and unique, making sense in the marketplace as practical
• Fosters risk taking and long-term thinking
• Represents discontinuity, a jump ahead so the company knows what it is to be

End Results: Mission and Purpose vs Objectives and Goals

• Organizations are purposeful creations with objectives
• End results may be referred to as 'mission', 'purpose,’ 'objective', 'goal', etc., often used interchangeably
• Differences exist in the context of these terms
• End results are arranged in a hierarchy with enduring reasons for existence at one extreme, and specific individual results at the other

Mission and Purpose

• Mission and purpose are often used interchangeably
• Mission has external orientation relating to society
• A mission statement helps link activities to societal needs and legitimizes existence
• Purpose is also externally focused, but related to the segment of society served
• It defines the business to be undertaken
• A company's mission states what it can do for the country (society in general)
• Purpose suggests how the contribution can be made
• Mission and purpose are generally used interchangeably or jointly

The Need for an Explicit Mission

• Defining a company mission is time consuming and not required by external bodies
• It is a statement of attitude, outlook, and orientation instead of details and measurable targets
• King and Cleland provide six reasons why a company mission is designed:
  • To ensure unanimity of purpose within the organization
  • To provide a basis for motivating the use of organizational resources
  • To develop a basis or standard for allocating organizational resources
  • To establish a general tone or organizational climate
  • To serve as a focal point for those who identify with the purpose/direction and deter those who cannot
  • To facilitate translating objectives and goals into a work structure with assigned tasks

Formulating a Mission:

• Defining a business mission is best understood by thinking about a firm's original inception.
• The mission is based on:
  • Belief that the product/service benefits the customer at least equal to its price
  • Belief that the product/services will satisfy unmet customer needs in specific market segments
  • Belief that with hard work and support, the business can grow and be profitable
  • Belief that technology used in production will offer cost and quality competitiveness
  • Belief that management philosophy will result in a favorable public image and financial/psychological rewards
• Redefining the company mission may be required if business grows/faces competitive pressure
• The revised mission statement reflects the original elements
• It states the product/services offered, the primary market/customer group, technology used, concern for profitability, managerial philosophy, and the public image
• The self-concept of those affiliated with it is also stated

Characteristics of a Mission Statement

• Organizations are legitimized by functions valued by society
• A mission statement defines the basic reason for an organization's existence
• To be effective, a mission statement should possess certain characteristics:
  • Feasible: Aim high, but be realistic, achievable, and credible
  • Precise: Not too narrow, restricting activities, but not too broad as to be meaningless
  • Clear: Lead to action, not platitudes for publicity
  • Motivating: Inspire members and society, to feel working for the organization is worthwhile
  • Distinctive: An indiscriminate statement is likely to have little impact

Examples of Statements

• The mission of the AAU is to transmit, develop, disseminate and preserve knowledge relevant to solve the country's development problem
• This happens through student-centered quality teaching, research, scholarship, application of knowledge and service to the community.
• The mission of Ford Motor Company aims to continually improve products and services to meet customer needs.

General Ends

• Goals are general ends toward which an organization directs efforts.
• Goals derive from the vision and align with the mission.
• Strategic Goal Setting involves:
  • Translating the mission into concrete terms
  • Establishing a statement of desired outcome
  • Defining the benefits to be gained

Examples of Goals

• Marketing should increase sales levels
• Production should cut production costs
• Human Resources should cut absenteeism

Contrast to an Objective

• A goal is an open-ended statement of what one wants to accomplish without quantification or time consideration
• A simple statement of increased profitability is a goal, not an objective, because it lacks specific profit targets or timelines

Objectives

• Objectives are end results of planned activity
• Objectives state what should be accomplished by when
• Objectives should be quantified
• Objectives focus on measurable performance
• Objectives are classified as a short range, or long range and intermediate
• Corporate objectives apply to the entire organization
• Divisional objectives refer to objectives that apply to a certain division
• Functional/departmental objectives apply to functions or department

Characteristics of effective objectives

• Specific and measurable objectives should be expressed qualitatively and numerically
• Challenging but realistic objective should be challenging but not difficult
• The objectives can not be for every aspect of employee behavior or organizational performance
• Managers should identify a few key result areas like four or five for any organizational department or job
• Key result areas contributed most to company performance
• Defined time period should be included

Key Result Areas

• Objectives should be clearly expressed and quantified whenever possible
• Most organizations define objectives in areas such as:
  • Customer service like delivery times ,or customer complaints
  • Financial resources like the capital structure, new issues of common stock and dividend payments
  • Human resources like rate of absenteeism, turnover, grievances, and training programs
  • Markets expressed like market share or volume of sales
  • Organizational structure in terms of organizational changes or projects
  • Product with sales, profitability or target dates for new product development
  • Profitability like profit, return on investment, EPS or profit to sales ratio
  • Social responsibility that includes types of activities, service, or financial contributions

Organization Strategy

• Strategy has entered the field of management more recently
• It was first used within military science
• The word strategy offsets actual or potential actions of competitors
• The word strategy means general ship
• Strategy means the art of being a general
• Strategy is a plan to deploy available resources to defeat the enemy

Strategy Definitions

• Means to achieve an end
• Result of analyzing strengths/weaknesses, and opportunities/threats
• An awareness of how to compete
• The organization's planned response to its environment over time

Why Have Strategies?

• Organizational strategies involve the entire organization
• Strategy is likely to concern the survival of the business as a minimum objective
• Strategy is alsocreation of value added as a maximum objective
• Organizational strategy directs the changing and evolving relationship with its environment
• Organization strategy is central to the development of sustainable competitive advantage

Levels of Strategy

• Three levels of strategy are identified:
  • Corporate Level
  • Business Level
  • Functional Level

Corporate Level Strategy

• Describes a company's direction in terms of growth and management
• It is also a portfolio level strategy
• It is primarily concerned with decisions of top management and boards
• This includes top managment decisions for acquisitions, mergers, and major expansions that add or reduce product lines
• Corporate level officers are responsible for financial performance and non-financial goals

Business Level Strategy

• Found in the middle of the decision-making hierarchy
• Business level strategy is composed of business and corporate managers
• Concerned with a single strategic business unit (SBU)
• Each business attempts to achieve its mission within its chosen area

Functional Level Strategy

• Found at the bottom of the hierarchy
• Composed of those who manage specific product, geographic, and functional areas
• They develop annual objectives and short term strategies
• Implementation and execution are key for strategy

Importance of Strategic Management

• it allows Identification, prioritization and exploitation of opportunities
• It provides an objective view of management problems
• Represents a framework for improved coordination
• It allows major decisions to better support established objectives
• It minimizes the effects of adverse conditions and changes
• It allows for more effective allocation of time and resources
• It allows fewer resources to be devoted to corrective/ ad hoc decisions
• Strategic management creates framework for internal communication among personnel
• Strategic management helps integrate the behavior of individuals into a total effort
• It provides a basis for clarifying responsibilities
• Strategic management encourages forward thinking
• It gives a cooperative and enthusiastic approach to tacking problems and opportunities
• Strategic management also encourages a favorable attitude toward change
• It gives a degree of discipline and formality to the management of a business

Strategic Issues' Dimensions

• Strategic issues require top level management decisions because they concern several areas of the firm's operation
• Issues involve the allocation of large amounts of company resources, committing to extended actions with substantial deployment
• Strategic issues have a significant impact on long-term prosperity; 5 years or longer
• Firms with a competitive advantage are tied to that strategy
• Radically different strategy would jeopardize previous progress as it is future oriented
• Strategic issues typically have multi-functional, multi-business consequences

Strategic Decisions

• Strategic decisions are coordinative
• SBUs, functions, and divisions are affected by resource allocation and responsibility
• Issues necessitate considering factors in the firm’s external environment, as firms operate in an open system and are impacted by external conditions

3-Levels of Strategic Decisions

• Corporate level decisions tend to be conceptual, less concrete
• Decisions involve greater risk, costs, profit potential, need for flexibility and long time horizons
• This includes choice of business, dividend policies, sources of long-term financing, and priorities of growth
• Business level helps bridge corporate and functional
• Decisions are costly and risky, including plant location, market segmentation, geographic coverage, and distribution channels
• Functional level implements the overall strategy formulated at the corporate and business levels
• Functional level involves action-oriented operational issues with short range and low risk and incurs cost

Stakeholders and Corporate Mission

• A stakeholder is any group/individual who:
  • Can affect the achievement of the company purpose
  • Is affected by achievement of the company purpose
• In strategic action, you must recognize and acknowledge legitimate stakeholders’ claims
• Each of the interest group has justifiable reason to expect and demand the company to act in a responsible manner
• This includes investors and employees who are internal influences that affect the company
• Stakeholders management involves a series of trade offs

Generalizing Stakeholder Claims

• Stockholders seek return on investment
• Employees seek job satisfaction
• Customers want value
• Suppliers seek dependable buyers
• Government wants adherence to legislation
• Unions seek benefits for members
• Competitors want fair competition
• The general public want the quality of life to improve

Incorporating Stakeholders' Interests

• Four steps need to be taken to incorporate the interest of stakeholders in the company mission:
  • Identify Key Claimants: Mangsers must identify groups and weight ability to affect success
  • Understand Specific Claims: Managers understand demands to appreciate concerns and initiate clear actions
  • Reconcile and Prioritize: Conflicting concerns must be assigned priorities
  • Coordinate with Elements: Claimant demands constitute inputs to the mission, which should balance with practical considerations to optimize marketplace success

Social Responsibility

• Claimants can be divided as:
  • Insiders: Stockholders or employees
  • Outsiders: Individuals affected by firm actions