Module 1 - Strategic Management Essentials PDF

Module 1 Strategic Management Essentials Defining Strategic Management Strategic management is the art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives. As this definition implies, strategic management foc...

Module 1 Strategic Management Essentials Defining Strategic Management Strategic management is the art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives. As this definition implies, strategic management focuses on integrating management, marketing, finance and accounting, production and operations, research and development (R&D), and information systems to achieve organizational success. The term strategic management in this module is used synonymously with the term strategic planning. The latter term is more often used in the business world, whereas the former is often used in academia. Sometimes the term strategic management is used to refer to strategy formulation, implementation, and evaluation, with strategic planning referring only to strategy formulation. Stages of Strategic Management The Strategic-management process consists of three stages: Strategy Formulation includes developing a vision and a mission, identifying an organization’s external opportunities and threats, determining internal strengths and weaknesses, establishing long-term objectives, generating alternative strategies, and choosing particular strategies to pursue. Cont. Stages of Strategic Management Strategy implementation requires a firm to establish annual objectives, devise policies, motivate employees, and allocate resources so that formulated strategies can be executed. Strategy implementation often is called the “action stage” of strategic management. Implementing strategy means mobilizing employees and managers to put formulated strategies into action. Strategy Evaluation Strategy evaluation is the final stage in strategic management. Managers desperately need to know when particular strategies are not working well; strategy evaluation is the primary means for obtaining this information. Three fundamental strategy-evaluation activities (1) reviewing external and internal factors that are the bases for current strategies, (2) measuring performance, (3) taking corrective actions. Formulation, implementation, and evaluation of strategy activities occur at three hierarchical levels in a large organization: corporate, divisional or strategic business unit, and functional. By fostering communication and interaction among managers and employees across hierarchical levels, strategic management helps a firm function as a competitive team. Integrating Intuition and Analysis Edward Deming once said, “In God we trust. All others bring data.” The strategic-management process can be described as an objective, logical, 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. Adapting to Change The strategic-management process is based on the belief that organizations should continually monitor internal and external events and trends so that timely changes can be made as needed. The rate and magnitude of changes that affect organizations are increasing dramatically, as evidenced by how the drop in oil prices caught so many firms by surprise. Firms, like organisms, must be “adept at adapting” or they will not survive. To survive, all organizations must astutely identify and adapt to change. The strategic-management process is aimed at allowing organizations to adapt effectively to change over the long run. Key Terms in Strategic Management Nine key terms: competitive advantage, strategists, vision and mission statements, external opportunities and threats, internal strengths and weaknesses, long-term objectives, strategies, annual objectives, and policies. Competitive Advantage Strategic management is all about gaining and maintaining competitive advantage. This term can be defined as any activity a firm does especially well compared to activities done by rival firms, or any resource a firm possesses that rival firms desire. Cont. Key Terms in Strategic Management Strategists are the individuals most responsible for the success or failure of an organization. They have various job titles, such as chief executive officer, president, owner, chair of the board, executive director, chancellor, dean, and entrepreneur. Jay Conger, professor of organizational behavior at the London Business School and author of Building Leaders, says, “All strategists have to be chief learning officers. We are in an extended period of change. If our leaders aren’t highly adaptive and great models during this period, then our companies won’t adapt either, because ultimately leadership is about being a role model.” Cont. Key Terms in Strategic Management Vision and Mission Statements Many organizations today develop a vision statement that answers the question “What do we want to become?” Developing a vision statement is often considered the first step in strategic planning, preceding even development of a mission statement. Mission statements are “enduring statements of purpose that distinguish one business from other similar firms. A mission statement identifies the scope of a firm’s operations in product and market terms.” It addresses the basic question that faces all strategists: “What is our business?” A clear mission statement describes the values and priorities of an organization. Cont. Key Terms in Strategic Management External Opportunities and Threats External opportunities and external threats refer to economic, social, cultural, demographic, environmental, political, legal, governmental, technological, and competitive trends and events that could significantly benefit or harm an organization in the future. Cont. Key Terms in Strategic Management Some General Categories of Opportunities and Threats Availability of capital can no longer be taken for granted. Consumers expect green operations and products. Marketing is moving rapidly to the Internet. Commodity food prices are increasing. An oversupply of oil is driving oil and gas prices down. Computer hacker problems are increasing. Intense price competition is plaguing most firms. Unemployment and underemployment rates remain high globally. Interest rates are low but rising. Product life cycles are becoming shorter. Cont. Some General Categories of Opportunities and Threats State and local governments are financially weak. Drug cartel–related violence is increasing in Mexico. Winters are colder and summers are hotter than usual. Birth rates are declining in most countries. Global markets offer the highest growth in revenues. New laws are passed. Competitors introduce new products. National catastrophes occur. The value of the Euro is rebounding. The separation between the rich and poor is growing. Social media networking is greatly expanding. The Russian ruble has dropped 60 percent in value. Cont. Key Terms in Strategic Management Internal Strengths and Weaknesses Internal strengths and internal weaknesses are an organization’s controllable activities that are performed especially well or poorly. They arise in the management, marketing, finance/ accounting, production/operations, research and development, and management information systems (MIS) activities of a business. Identifying and evaluating organizational strengths and weaknesses in the functional areas of a business is an essential strategic-management activity. Organizations strive to pursue strategies that capitalize on internal strengths and eliminate internal weaknesses. Cont. Key Terms in Strategic Management Long-Term Objectives Objectives can be defined as specific results that an organization seeks to achieve in pursuing its basic mission. Long-term means more than one year. Objectives are essential for organizational success because they provide direction; aid in evaluation; create synergy; reveal priorities; focus coordination; and provide a basis for effective planning, organizing, motivating, and controlling activities. Cont. Key Terms in Strategic Management Strategies Strategies are the means by which long-term objectives will be achieved. Business strategies may include geographic expansion, diversification, acquisition, product development, market penetration, retrenchment, divestiture, liquidation, and joint ventures. Strategies are potential actions that require top-management decisions and large amounts of the firm’s resources. Cont. Key Terms in Strategic Management Annual Objectives Annual objectives are short-term milestones that organizations must achieve to reach long term objectives. Like long-term objectives, annual objectives should be measurable, quantitative, challenging, realistic, consistent, and prioritized. They must also be established at the corporate, divisional, and functional levels in a large organization. Annual objectives should be stated in terms of management, marketing, finance/accounting, production/operations, R&D, and MIS accomplishments. Cont. Key Terms in Strategic Management Policies Policies are the means by which annual objectives will be achieved. Policies include guidelines, rules, and procedures established to support efforts to achieve stated objectives. Policies are guides to decision making and address repetitive or recurring situations. Usually, policies are stated in terms of management, marketing, finance/accounting, production/ operations, R&D, and MIS activities. The Strategic-Management Model The strategic-management process can best be studied and applied using a model. Every model represents some kind of process. This model does not guarantee success, but it does represent a clear and practical approach for formulating, implementing, and evaluating strategies. Relationships among major components of the strategic-management process are shown in the model, which appears in all subsequent modules with appropriate areas shaped to show the particular focus of each module. Three important questions to answer in developing a strategic plan are as follows: Where are we now? Where do we want to go? How are we going to get there? Benefits of Engaging in Strategic Management Strategic management allows an organization to be more proactive than reactive in shaping its own future; it allows an organization to initiate and influence (rather than just respond to) activities—and thus to exert control over its own destiny. Small business owners, chief executive officers, presidents, and managers of many for-profit and nonprofit organizations have recognized and realized the benefits of strategic management. Communication is a key to successful strategic management. Communication may be the most important word in management. Empowerment is the act of strengthening employees’ sense of effectiveness by encouraging them to participate in decision making and to exercise initiative and imagination, and rewarding them for doing so. Financial Benefits Organizations that use strategic-management concepts are generally more profitable and successful than those that do not. Businesses using strategic-management concepts show significant improvement in sales, profitability, and productivity compared to firms without systematic planning activities. Business failures Business failures include bankruptcies, foreclosures, liquidations, and court-mandated receiverships. Although many factors besides a lack of effective strategic management can lead to business failure, the planning concepts and tools described in this text can yield substantial financial benefits for any organization Benefits to a Firm That Does Strategic Planning Enhanced Communication Deeper/Improved Understanding a. Dialogue a. Of others’ views b. Participation b. Of what the firm is doing/planning and why Greater Commitment THE RESULT a. To achieve objectives All Managers and Employees on a Mission to Help the Firm Succeed b. To implement strategies c. To work hard Nonfinancial Benefits Besides helping firms avoid financial demise, strategic management offers other tangible benefits, such as enhanced awareness of external threats, improved understanding of competitors’ strategies, increased employee productivity, reduced resistance to change, and a clearer understanding of performance–reward relationships. Strategic management enhances the problem-prevention capabilities of organizations because it promotes interaction among managers at all divisional and functional levels. Why Some Firms Do No Strategic Planning Some firms do no strategic planning, and some firms do strategic planning but receive no support from managers and employees. Ten reasons (excuses) often given for poor or no strategic planning in a firm are as follows: 1. No formal training in strategic management 2. No understanding of or appreciation for the benefits of planning 3. No monetary rewards for doing planning 4. No punishment for not planning 5. Too busy “firefighting” (resolving internal crises) to plan ahead 6. View planning as a waste of time, since no product/service is made 7. Laziness; effective planning takes time and effort; time is money 8. Content with current success; failure to realize that success today is no guarantee for success tomorrow; even Apple Inc. is an example 9. Overconfident 10. Prior bad experience with strategic planning done sometime/somewhere Pitfalls in Strategic Planning Strategic planning is an involved, intricate, and complex process that takes an organization into uncharted territory. It does not provide a ready-to-use prescription for success; instead, it takes the organization through a journey and offers a framework for addressing questions and solving problems. Here are some pitfalls to watch for and avoid 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 Once there were two company presidents who competed in the same industry. These two presidents decided to go on a camping trip to discuss a possible merger. They hiked deep into the woods. Suddenly, they came upon a grizzly bear that rose up on its hind legs and snarled. Instantly, the first president took off his knapsack and got out a pair of jogging shoes. The second president said, “Hey, you can’t outrun that bear.” The first president responded, “Maybe I can’t outrun that bear, but I surely can outrun you!” How does this story captures the notion of strategic management? End of Module 1 Thanks...