BA414 Strategic Management Chapter 1 PDF

COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP PROGRAMS through end through end through end result project result project result project under...

COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP PROGRAMS through end through end through end result project result project result project understanding of subject area Each group Most group Some group Few group member made members members members Teamwork 25% contributions contributed to contributed to contributed to to project project materials project materials project material materials and and presentation and and presentation presentation presentation Information is Information is Information is Information is presented with presented with presented with unclear or Presentati 25% knowledge and acceptable limited lacking and is on creativity knowledge and knowledge and presented with creativity creativity little creativity MODULE PACKET MODULE 1 OVERVIEW Welcome to Module 1 – Company’s Direction Setting In this module, we will discuss the fundamentals of strategic management and the stages managers will undergo in strategic management: environmental scanning, strategy formulation, strategy implementation, evaluation and control. Moreover, we will discuss how the company sets direction. You are going to be equipped with the elements of a good vision, mission, goals and hierarchy of objectives of the company. At the end of this module, you are going to revisit the chosen company’s vision, mission, goals and objectives, analyze them and make some recommendations for enhancement through a proposed vision, mission, goals and objectives. For those chosen company which doesn’t have one, craft the vision, mission, goals and objectives. We are now set to conduct a strategic management! Enjoy your strategic management endeavor! AY 2023-2024 Module Packets for BA 411 (Strategic Management) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 19 of 208  COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP PROGRAMS MODULE 1 LEARNING OBJECTIVES: By the end of this module, the students will be able to: 1. Discuss what strategic management is all about and the strategic management process 2. Explain the direction-setting tasks in strategic management. 3. Analyze and formulate vision and mission statements, their important components and criteria of good and well-written mission and vision statements. 4. Identify the hierarchy of objectives and characteristics of good strategic and financial objectives. COURSE CONTENT FOR MODULE 1: COMPANY’S DIRECTION SETTING ACTIVITY DESCRIPTION TIME TO COMPLETE Lecture discussion Fundamentals of Strategic Management 1 hour Question and Question and Answer on the Discussed 30 min. Answer Topic Lecture discussion Company’s Direction Setting 1 hour Company Online Research for Company Exposure understudy and it’s Vision, Mission and 1 hour and 30 min. Data Gathering Goals and analyses Collaborative Findings in the Conduct of Online Learning Research and Company’s Direction 30 min. (Team Discussion) Setting Prepare Assignment on -Company Background for Proposed Demonstration Strategic Management Paper I hour and Facilitation -Analysis of the company’s vision and mission statements and objectives Quiz Module 1 Quiz 30 min. Summative Test for Module 1 as part of Summative Test Midterm Exam AY 2023-2024 Module Packets for BA 411 (Strategic Management) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 20 of 208  COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP PROGRAMS LECTURE DISCUSSIONS 1.1 FUNDAMENTALS OF STRATEGIC MANAGEMENT You’re here starting to study strategic management: its basic concepts and its process. Strategic Management is all about identification and description of the strategies that managers can carry so as to achieve better performance and a competitive advantage for their organization. An organization is said to have competitive advantage if its profitability is higher than the average profitability for all companies in its industry. (https://www.managementstudyguide.com/strategic- management.htm) Strategic management can also be defined as a bundle of decisions and acts which a manager undertakes and which decides the result of the firm’s performance. The manager must have a thorough knowledge and analysis of the general and competitive organizational environment so as to take right decisions. They should conduct a SWOT Analysis (Strengths, Weaknesses, Opportunities, and Threats), i.e., they should make best possible utilization of strengths, minimize the organizational weaknesses, make use of arising opportunities from the business environment and shouldn’t ignore the threats. https://www.managementstudyguide.com/strategic- management.htm) Strategic management is nothing but planning for both predictable as well as unfeasible contingencies. It is applicable to both small as well as large organizations as even the smallest organization face competition and, by formulating and implementing appropriate strategies, they can attain sustainable competitive advantage. https://www.managementstudyguide.com/strategic-management.htm) It is a way in which strategists set the objectives and proceed about attaining them. It deals with making and implementing decisions about future direction of an AY 2023-2024 Module Packets for BA 411 (Strategic Management) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 21 of 208  COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP PROGRAMS organization. It helps us to identify the direction in which an organization is moving. https://www.managementstudyguide.com/strategic-management.htm) Strategic management is a continuous process that evaluates and controls the business and the industries in which an organization is involved; evaluates its competitors and sets goals and strategies to meet all existing and potential competitors; and then reevaluates strategies on a regular basis to determine how it has been implemented and whether it was successful or does it needs replacement. https://www.managementstudyguide.com/strategic-management.htm) One of the major role of strategic management is to incorporate various functional areas of the organization completely, as well as, to ensure these functional areas harmonize and get together well. Another role of strategic management is to keep a continuous eye on the goals and objectives of the organization. https://www.managementstudyguide.com/strategic-management.htm) Strategic management is a set of managerial decisions and actions that determines the long-run performance of a corporation which includes:  Internal and external environmental scanning  Strategy formulation  Strategy implementation  Evaluation and control Phases of Strategic Management 1. Basic financial planning 2. Forecast-based planning 3. Externally oriented strategic planning 4. Strategic Management Benefits of Strategic Management AY 2023-2024 Module Packets for BA 411 (Strategic Management) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 22 of 208  COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP PROGRAMS  The attainment of an appropriate match, or “fit,” between an organization’s environment and its strategy, structure and processes has positive effects on the organization’s performance. Strategic planning becomes increasingly important as the environment becomes more unstable.  Clearer sense of strategic vision for the firm  Sharper focus on what is strategically important  Improved understanding of a rapidly changing environment Impact of Globalization Globalization -- the integrated internationalization of markets and corporations  has changed the way modern corporations do business Impact of Innovation Innovation -- describes new products, services, methods and organizational approaches that allow the business to achieve extraordinary returns  is the implementation of potential innovations that truly drives businesses to be remarkable Impact of Sustainability Sustainability - refers to the use of business practices to manage the triple bottom line The triple bottom line involves: 1. the management of traditional profit/loss; 2. the management of the company’s social responsibility; and 3. the management of its environmental responsibility. Theories of Organizational Adaptation Population ecology – once an organization is successfully established in a particular environmental niche, it is unable to adapt to changing conditions Institution theory – organizations can and do adapt to changing conditions by imitating other successful organizations AY 2023-2024 Module Packets for BA 411 (Strategic Management) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 23 of 208  COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP PROGRAMS Strategic choice perspective – not only do organizations adapt to a changing environment, but they also have the opportunity and power to reshape their environment Organizational learning theory – an organization adjusts defensively to a changing environment and uses knowledge offensively to improve the fit between itself and its environment Creating A Learning Organization. Strategic flexibility. - the ability to shift from one dominant strategy to another and requires:  Long-term commitment to the development and nurturing of critical resources  Learning organization Learning organization. -an organization skilled at creating, acquiring and transferring knowledge and at modifying its behavior to reflect new knowledge and insights Organizational Learning is a critical component of competitiveness in a dynamic environment. Learning organizations are skilled at four main activities:  Solving problems systematically  Experimenting with new approaches  Learning from their own experiences and past history as well as from the experiences of others  Transferring knowledge quickly and efficiently throughout the organization AY 2023-2024 Module Packets for BA 411 (Strategic Management) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 24 of 208  COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP PROGRAMS Basic Model of Strategic Management Strategic management consists of four basic elements:  Environmental scanning  Strategy formulation  Strategy implementation  Evaluation and control AY 2023-2024 Module Packets for BA 411 (Strategic Management) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 25 of 208  COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP PROGRAMS Environmental scanning - the monitoring, evaluating and disseminating of information from the external and internal environments to key people within the organization - SWOT analysis Environmental Variables. Strategy formulation - process of investigation, analysis and decision making that provides the company with the criteria for attaining a competitive advantage - includes defining the competitive advantages of the business (Strategy), crafting the corporate mission, specifying achievable objectives and setting policy guidelines Strategy implementation -is the translation of chosen strategy into organizational action so as to achieve strategic goals and objectives. AY 2023-2024 Module Packets for BA 411 (Strategic Management) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 26 of 208  COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP PROGRAMS - the manner in which an organization should develop, utilize, and amalgamate organizational structure, control systems, and culture to follow strategies that lead to competitive advantage and a better performance. Strategy evaluation and control - is the final phase of strategic management - as significant as strategy formulation because it throws light on the efficiency and effectiveness of the comprehensive plans in achieving the desired results. The managers can also assess the appropriateness of the current strategy in today’s dynamic world with socio-economic, political and technological innovations. - its significance lies in its capacity to co-ordinate the task performed by managers, groups, departments etc., through control of performance. - significant because of various factors such as - developing inputs for new strategic planning, the urge for feedback, appraisal and reward, development of the strategic management process, judging the validity of strategic choice etc. 1.2 COMAPANY’S DIRECTION SETTING “The best visions imply whom the company serves, what it provides, and what distinguishes it from other companies providing the same products and services. Your vision lays out a destination; your destination guides your strategy and chooses action. It’s action that leads to success. In those moments of action, having clear direction is crucial for building momentum. If your organization is like most, you spent weeks debating every word crafting your vision, mission, strategy and goals. But no matter how lofty, if they are not created in a way that provides direction, those statements are little more than high-priced indulgences. Every company means something different by the word “vision” and “strategy”. (https://www.steverrobbins.com/articles/vision-strategy-tactics/) AY 2023-2024 Module Packets for BA 411 (Strategic Management) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 27 of 208  COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP PROGRAMS Mission - the purpose or reason for the organization’s existence Vision - describes what the organization would like to become Objectives - the end results of planned activity Strategy - forms a comprehensive master approach that states how the corporation will achieve its mission and objectives - maximizes competitive advantage and minimizes competitive disadvantage corporate, business, functional Hierarchy of Strategy Policy - a broad guideline for decision making that links the formulation of a strategy with its implementation AY 2023-2024 Module Packets for BA 411 (Strategic Management) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 28 of 208  COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP PROGRAMS Strategy implementation - a process by which strategies and policies are put into action through the development of programs, budgets and procedures Evaluation and control - a process in which corporate activities and performance results are monitored so that actual performance can be compared with desired performance Performance -the end result of organizational activities -includes the actual outcomes of the strategic management process Feedback/Learning process revise or correct decisions based on performance INITIATION OF STRATEGY Triggering event - something that acts as a stimulus for a change in strategy and can include:  New CEO  External intervention  Threat of change of ownership  Performance gap  Strategic inflection point STRATEGIC DECISION MAKING Strategic decisions - deal with the long-term future of an entire organization and have three characteristics:  Rare  Consequential  Directive Rare AY 2023-2024 Module Packets for BA 411 (Strategic Management) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 29 of 208  COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP PROGRAMS - Strategic decisions are unusual and typically have no precedent to follow. Consequential - Strategic decisions commit substantial resources and demand a great deal of commitment from people at all levels. Directive - Strategic decisions set precedents for lesser decisions and future actions throughout an organization Mintzberg’s Modes of Strategic Decision Making  Entrepreneurial  Adaptive  Planning  Logical Incrementalism STRATEGIC DECISION-MAKING PROCESS 1. Evaluate current performance results 2. Review corporate governance 3. Scan and assess the external environment 4. Scan and assess the internal corporate environment 5. Analyze strategic (SWOT) factors 6. Generate, evaluate and select the best alternative strategy 7. Implement selected strategies 8. Evaluate implemented strategies AY 2023-2024 Module Packets for BA 411 (Strategic Management) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 30 of 208  COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP PROGRAMS Strategic audit - aid to strategic decision making  provides a checklist of questions, by area or issue, that enables a systematic analysis to be made of various corporate functions and activities VISION STATEMENT  a document that states the current and future objectives of an organization  intended as a guide to help the organization make decisions that align with its philosophy and declared set of goals AY 2023-2024 Module Packets for BA 411 (Strategic Management) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 31 of 208  COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP PROGRAMS  a roadmap to where the company wants to be within a certain timeframe. - describes what a company desires to achieve in the long-run, generally in a time frame of five to ten years, or sometimes even longer - depicts a vision of what the company will look like in the future and sets a defined direction for the planning and execution of corporate level strategies Key Elements of a Vision Statement  Forward-looking  Motivating and inspirational  Reflective of a company’s culture and core values  Aimed at bringing benefits and improvements to the organization in the future  Defines a company’s reason for existence and where it is heading Example: Microsoft’s Vision Statement “To create local opportunity, growth and impact in every community and country around the world.” Analysis:  forward-looking because delivering growth and impact in every community would conceivably take a lifetime or many lifetimes to achieve AY 2023-2024 Module Packets for BA 411 (Strategic Management) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 32 of 208  COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP PROGRAMS  brings the message of leading to changes and improving the quality of living standards all around the world, which strongly reflect Microsoft’s values of innovation, diversity and inclusion, corporate social responsibility, and environment. An effective vision statement must have following features: a. It must be unambiguous. b. It must be clear. c. It must harmonize with organization’s culture and values. d. The dreams and aspirations must be rational/realistic. e. Vision statements should be shorter so that they are easier to memorize.  In order to realize the vision, it must be deeply instilled in the organization, being owned and shared by everyone involved in the organization. MISSION STATEMENT - defines what line of business a company is in, and why it exists or what purpose it serves.  Every company should have a precise statement of purpose that gets people excited about what the company does and motivates them to become part of the organization. AY 2023-2024 Module Packets for BA 411 (Strategic Management) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 33 of 208  COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP PROGRAMS  A mission statement should also define the company’s strategy and is generally a couple of sentences in length. Example: Microsoft’s Mission Statement “To empower every person and organization on the planet to achieve more.” Analysis:  provides a broad enough scale of scope to explain what the company can do  inspirational – it’s all about empowering people  the kind of statement that people can get excited about  defines Microsoft’s strategy, which is reaching out to the whole world and making an influence on all individuals and organizations - Mission statement is the statement of the role by which an organization intends to serve it’s stakeholders. It describes why an organization is operating and thus provides a framework within which strategies are formulated. It describes what the organization does (i.e., present capabilities), who all it serves (i.e., stakeholders) and what makes an organization unique (i.e., reason for existence). (https://www.managementstudyguide.com/strategy-statement- components.htm) - A mission statement differentiates an organization from others by explaining its broad scope of activities, its products, and technologies it uses to achieve its goals and objectives. It talks about an organization’s present (i.e., “about where we are”). (https://www.managementstudyguide.com/strategy-statement- components.htm) Features/Characteristics of a Good Mission a. Mission must be feasible and attainable. It should be possible to achieve it. b. Mission should be clear enough so that any action can be taken. c. It should be inspiring for the management, staff and society at large. d. It should be precise enough, i.e., it should be neither too broad nor too narrow. e. It should be unique and distinctive to leave an impact in everyone’s mind. AY 2023-2024 Module Packets for BA 411 (Strategic Management) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 34 of 208  COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP PROGRAMS f. It should be analytical,i.e., it should analyze the key components of the strategy. g. It should be credible, i.e., all stakeholders should be able to believe it. GOALS AND OBJECTIVES Goal A goal is a desired future state or objective that an organization tries to achieve. Goals specify in particular what must be done if an organization is to attain mission or vision. Goals make mission more prominent and concrete. They co-ordinate and integrate various functional and departmental areas in an organization. Well made goals have following features: a. These are precise and measurable. b. These look after critical and significant issues. c. These are realistic and challenging. d. These must be achieved within a specific time frame. e. These include both financial as well as non-financial components. (https://www.managementstudyguide.com/strategy-statement-components.htm) Objectives Objectives are defined as goals that organization wants to achieve over a period of time. These are the foundation of planning. Policies are developed in an organization AY 2023-2024 Module Packets for BA 411 (Strategic Management) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 35 of 208  COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP PROGRAMS so as to achieve these objectives. Formulation of objectives is the task of top-level management. Effective objectives have following features: a. These are not single for an organization, but multiple. b. Objectives should be both short-term as well as long-term. c. Objectives must respond and react to changes in environment, i.e., they must be flexible. d. These must be feasible, realistic and operational. (https://www.managementstudyguide.com/strategy-statement-components.htm) AY 2023-2024 Module Packets for BA 411 (Strategic Management) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 36 of 208  COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP PROGRAMS AY 2023-2024 Module Packets for BA 411 (Strategic Management) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 37 of 208  COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP PROGRAMS VISION, MISSION AND HIERRACHY OF GOALS & OBJECTIVES AY 2023-2024 Module Packets for BA 411 (Strategic Management) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 38 of 208  COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP PROGRAMS AY 2023-2024 Module Packets for BA 411 (Strategic Management) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 39 of 208  COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP PROGRAMS HIERARCHY OF OBJECTIVES Corporate Objectives Functional Objectives Operational Objectives Strategic Business Unit (SBU) Objectives AY 2023-2024 Module Packets for BA 411 (Strategic Management) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 40 of 208  COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP PROGRAMS Corporate Objectives - relate to the organization’s overall direction in terms of its general attitude towards growth - managers of the company are likely to be concerned with long-term profitability. (Note: In a not-for-profit organization: to relate to the efficient use of resources rather than profitability.) - to increase operating profit by 30 percent over three years  The method proposed to achieve this objective is by growing market share to 25 per cent of the market  At this corporate level expanding market share becomes a strategy for achieving the organization’s principal objective. Functional Objectives AY 2023-2024 Module Packets for BA 411 (Strategic Management) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 41 of 208  COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP PROGRAMS  At a functional level expanding market share becomes an objective.  Each functional area – finance, human resources, operations and marketing – will develop a strategy to support this objective.  In terms of the marketing function it is concerned about which products/services should be sold into which markets.  At a fundamental level marketing strategy is about products and markets. In this example the strategy at the marketing function’s level is to provide the best facilities for key market segments, provide the best standards of service and ensure that they are adequately promoted Illustrative Example: Goals or targets that must be achieved by the individual functional areas into which a business is divided (e.g. Marketing, Human Resources) to ensure that the overall corporate objectives are met. They must be consistent with, and supportive of, the overall corporate objectives. Business’s overall corporate objective may be to achieve a 10% increase on profit for the year and it may set the following functional objectives to ensure this corporate objective is achieved: Marketing: To increase sales from P45,000 to P50,000 per month; Human Resources: To reduce total average unauthorized absence from 10 days to 2 days per month; Finance: To eliminate the need for a bank overdraft (and, thus interest payments) by reducing the average number of days it takes customers to pay from 73 to 56 days within the next 3 months; Production: To reduce the number of rejects / defective products from 2.5% to 1.5% over the next 6 months. (https://www.apt-initiatives.com/glossary/functional-objectives/) Operational Objectives  At this level the functional level marketing strategy becomes the objective.  Strategies have to be developed for each element of the marketing mix to support these operational objectives. AY 2023-2024 Module Packets for BA 411 (Strategic Management) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 42 of 208  COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP PROGRAMS Illustrative Example: Strategic Business Unit (SBU) Objectives  In an organization with a divisional structure this hierarchy will have an additional level of the business (or SBU) level objectives.  These will be derived from the corporate level objectives and strategy and then feed into the functional level objectives. Illustrative Example: Objectives set out what the business is trying to achieve. Objectives can be set at two levels: a) Corporate level These are objectives that concern the business or organisation as a whole Examples of corporate objectives: For a return on investment of at least 15% at the end of the year To achieve an operating profit of over P10 million on sales of at least P100 million at AY 2023-2024 Module Packets for BA 411 (Strategic Management) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 43 of 208  COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP PROGRAMS the end of the month To increase earnings per share by at least 10% every year for the foreseeable future b) Functional level A functional objective is an objective set for an area/department of a business which contributes to the overall corporate objectives. Examples of functional marketing objectives might include: To build customer database of at least 250,000 households within the next 12 months To achieve a market share of 10% within the next 12 months To achieve 75% customer awareness of our brand in our target markets at the end of the quarter Both corporate and functional objectives need to conform to the commonly used SMART criteria. Business Strategy: the medium-to-long term plans through which an organization aims to attain its objectives Objectives form the basis for decisions on strategy. Such plans include details about what is to be done and the financial, production and personnel resources required to implement the plans. AY 2023-2024 Module Packets for BA 411 (Strategic Management) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 44 of 208