Strategic Management Module 1 PDF

CBMEC 2 STRATEGIC MANAGEMENT MODULE 1 STRATEGIC MANAGEMENT MODULE 1 Author GRENELITA DC. BILBAO-FELIPE, MBA P a g e 1 |...

CBMEC 2 STRATEGIC MANAGEMENT MODULE 1 STRATEGIC MANAGEMENT MODULE 1 Author GRENELITA DC. BILBAO-FELIPE, MBA P a g e 1 | 14  CBMEC 2 STRATEGIC MANAGEMENT MODULE 1 UNIT 1 NATURE OF STRATEGIC MANAGEMENT MODULE 1: OVERVIEW OF STRATEGIC MANAGEMENT At the end of the module, the student is expected to be able to: 1. Understand the definition of strategic management; 2. Obtain a bird’s eye view of the nature of the strategic process; 3. Relate strategic management with good business ethics; and 4. Appreciate the benefits of strategic management. WHAT IS STRATEGIC MANAGEMENT? Strategic Management is a process of formulating, implementing, and evaluating cross-functional decisions that enable the organization to define and achieve its mission, and ultimately to create value. The process focuses on a series of fundamental questions about the organization: What is our business? What do we want to become? Who are our customers? What do our customers value? The strategic management process is comprised of five interrelated steps: 1. Establish the vision and mission of the organization: Identify the reason for the organization and what is aspires to become. 2. Perform a situation analysis: Understand the strengths and weaknesses of the organization and scan its external environment. 3. Set objectives and craft a strategy: determine the future direction of the organization and how it will achieve its mission and vision. 4. Implement the strategy: Execute the chosen strategy in an efficient and effective manner. 5. Assess the success of the strategy: Determine whether the strategy has created value for the key stakeholders and provide feedback for corrective action if necessary. P a g e 2 | 14  CBMEC 2 STRATEGIC MANAGEMENT MODULE 1 Figure 1 – 1 The Strategic Management Framework Value Creation The essence of strategic management is the challenge of rewarding key stakeholders, especially customers, employees, and ultimately, owners. Organizations that create value for these stakeholders survive and prosper. Whether the organization is large or small, privately owned or public, for profit or not, the primary focus and the ultimate outcome of successful strategic management is value creation. Table 1-1 Examples of Value Creation P a g e 3 | 14  CBMEC 2 STRATEGIC MANAGEMENT MODULE 1 CUSTOMERS EMPLOYEES OWNERS Quality products and Rewarding jobs, in terms An increasing and services of both financial acceptable return on Perceived value in terms compensation and social financial investment of price paid versus and psychological benefits received benefits Developing a Mission and Vision The first step in the strategic management process is developing a clear understanding of the mission and vision of the organization. The mission statement identifies the enduring purpose of the organization and answers questions such as Who are we? What is our business? Why do we exist? The mission statement is grounded in the present; that is, it focuses on the current markets and customers served by the organization. The vision of an organization is a statement about its future – where the firm is headed, what it aspires to become, how it hopes to be viewed by the public. The vision statement expresses a view of the future that is realistic, credible, and attractive for the organization, and answers the question, What do we want to become? Performing a Situation Analysis The second step in the strategic management process is performing a situation analysis. Before managers can define organizational objectives and chose strategies, they must understand the internal condition of the organization and its external environment. This understanding is gained through a situation analysis, a careful and ongoing assessment of the organization’s external and internal circumstances. The situation analysis is performed in two parts: An internal audit to identify the organization’s strengths and weaknesses (SW) An external audit (environmental scanning) to determine opportunities and threats (OT). Because of their emphasis on identifying strengths, weaknesses, opportunities and threats, the audits are often collectively referred to as a SWOT Analysis. Setting Objectives and Crafting Strategy P a g e 4 | 14  CBMEC 2 STRATEGIC MANAGEMENT MODULE 1 The third step in the strategic management process is setting objectives and making strategic choices. Objectives are set during the strategic management process so that the organization can specify its intended results and track its progress toward achieving its mission and vision. Objectives are specific, measurable standards of performance that the organization seeks to achieve. At this stage of the process, the objectives that are set are long term, meaning that they extend beyond the current year. Annual, short-term objectives are set as part of the implementation phase of the process. Strategy is the organization’s means to achieve its vision, mission, and objectives. While the mission addresses, “who we are”, and the objectives indicate “what we want to achieve”, the strategy states “how we will achieve our mission and objectives”. Choosing or crafting a strategy involves generating feasible alternative strategies, evaluating the alternatives, and selecting a strategy that will create value. Strategies are crafted and not merely selected in the sense that strategic choice is a mixture of both intuition and analysis. Strategies are subjective decisions based on both objective information and behavioral considerations. Level of Strategy The three levels of strategy are: Corporate Level Strategy: It focuses on two major issues: (1) determining the organization’s business scope, that is, in what businesses the organization will compete, and (2) how organizational resources are allocated to these businesses. Business Level Strategy: The strategic decisions are made about how to compete within the industry and how to gain a competitive advantage. Functional Level Strategy: Strategic decisions are also made within the major functions of the organization such as marketing, finance, information systems, human resources, logistics, research and development, and operations and production. Implementing Strategy The fourth step in the strategic management process is implementing strategy. It includes all the steps and decisions necessary to carry out or execute the strategy. Implementation is a complex process. It requires that managers set short- term objectives, reexamine the organization’s structure and corporate culture in light of the new strategy, make the right resource decisions in support of the P a g e 5 | 14  CBMEC 2 STRATEGIC MANAGEMENT MODULE 1 strategy, and manage the human side of the change process. Implementation also depends on a coordination of functions and activities across the organization and between the corporate, business, and functional levels. To carry out strategic choices, managers must make three types of resource decisions: Financing: What resources are needed for the strategy? How much will the strategy cost and how will it be financed? Investing/Resourcing: How will the available resources be allocated? Operations: How will the allocated resources be used? What changes in operations are necessary to support the new strategy? Assessing Value Creation and Providing Feedback The fifth and last step in the strategic management process is evaluating results and providing feedback. An effective strategic management process requires accountability. Not only does the organization need to know where it is going (formulation) and how it will get there (implementation), but whether it is making progress towards its destination. Measuring and evaluating strategic progress is the purpose of the assessment of value creation phase of the strategic management framework. Providing feedback by communicating the results of the assessment is an equally important task so that corrective action may be taken if necessary. THE NATURE OF THE STRATEGIC PROCESS Strategy is based on research and analysis as well as on ingenuity and opportunism. It is both proactive and reactive. It is based on both analysis and intuition. It includes both a rational, logical left-brain orientation and creative and spontaneous right-brain thinking. Henry Mintzberg has developed a model to capture these dynamics of the strategic process. The process begins with a clearly defined intended strategy, the result of a formal and structured planning process. In response to changing conditions inside and outside of the organization, some of the original intended strategy is discarded and some of it is retained. The retained or deliberate strategy combines with a new emergent strategy to produce the realized strategy. Realized strategy is a combination of both deliberate, rational planning and more spontaneous, opportunistic thinking. The concept of realized strategy harks back to the discussion of financing, investing, and operation (FIO) decisions. FIO decisions are the means by which strategy is realized. FIO decisions are made in light of intended strategies and, at the same time, are the true test of realized P a g e 6 | 14  CBMEC 2 STRATEGIC MANAGEMENT MODULE 1 strategy. An organization may espouse any strategy it wishes, but its true or realized strategy is the result of the FIO decisions it actually makes. The focus of this course is strategy at the business and corporate levels. These types of strategic decisions have the following characteristics: Directive: Strategic decisions set or influence the future direction of the organization. Cross-functional: Strategic decisions require the cooperation and coordination of multiple functions and activities across the organization. Resource-dependent. Strategic decisions require resource commitments by the organization. Strategies must be financed (internally or externally), investments are made, and operations are changed in some way. Figure 1 – 2 Intended and Realized Strategies and FIO Players in the Strategic Process P a g e 7 | 14  CBMEC 2 STRATEGIC MANAGEMENT MODULE 1 The Senior Management Team (SMT) and especially the chief executive officer (CEO) or senior manager of the organization are ultimately responsible for the strategy and performance of the organization, but that does not necessarily mean that they are the only ones responsible for strategy. There are different levels of strategy and different managers and employees involved in making those strategic decisions. Another group that plays a critical role in the strategic management process is the organization’s board of directors, the corporate governors of the organization. The role of the board in the strategic management process is primarily oversight and approval of strategies and major resource commitments, as well as supervision of the CEO rather than directs participation in developing strategies. Participation in the Strategic Process Traditional Approach to planning is top-down and suggests that strategy formulation is the sole and exclusive domain of the senior management team. The SMT makes the strategic choices, and then relies on other managers and employees to implement strategy. Direct Participation Planning Approach is achieved by moving away from the top-down, control-oriented traditional model of planning to a process that invites and nurtures the innovative ideas of managers at all levels, as well as front-line employees such as sales representatives, engineers, and operating employees. ETHICS AND SOCIAL RESPONSIBILITY Good business ethics area an absolute requirement for good strategic management. Business strategies have ethical consequences and managers must identify and carefully consider what they are. One of the most pressing issues of corporate social responsibility in the twenty-first century will be the natural environment. Firms will be increasingly scrutinized for their treatment of the environment. More stringent environmental regulations are likely to be enacted, especially if businesses are not willing or able to regulate themselves. Proactive businesses have taken the initiative to go beyond the minimum regulatory requirements to address environmental issues by setting environmental goals and tracking progress toward those goals. BENEFITS OF STRATEGIC MANAGEMENT Some of the most important benefits of strategic management process include: P a g e 8 | 14  CBMEC 2 STRATEGIC MANAGEMENT MODULE 1 More forward-looking, future-oriented thinking results in more effective strategies and better financial performance. Value creation is enhanced. Better internal communication is fostered when managers from different functional areas listen and discuss their views in strategic management meetings. This interaction yields learning and understanding among managers who otherwise may not interact on a frequent basis. Firms become more proactive and less reactive and are better able to anticipate, influence, or initiate changes in the external environment. REFERENCES PORTH, S., 4th Ed. Strategic Management, Pearson Learning Solutions, 2011 WHEELEN, T and Hunger, D., Strategic Management & Business Policy: Achieving Sustainability, Pearson Education South Asia Pte Ltd, 2010 http://www.jnj.ch/fileadmin/user_upload/Downloads/JnJ_Credo_english.pdf https://purpose.nike.com/code-of-conduct P a g e 9 | 14  CBMEC 2 STRATEGIC MANAGEMENT MODULE 1 Name: _______________________ Date: __________ Course/Year/Section: _________________ SAQ 1 Directions: Identify the following. Write your answer on the space provided. 1. Process of formulating, implementing, and evaluating cross-functional decisions that enable the organization to define and achieve its mission, and ultimately to create value. 2. Identifies the major steps in the strategic management process and the relationships between the steps. 3. Essence of strategic management which is rewarding key stakeholders, especially customers, employees, and ultimately, owners. 4. Statement that answers the question, “What is our business?” 5. Statement that answers the question, “What do we want to become”? 6. Assessing the organization’s internal environment for strengths and weaknesses. 7. Determine the organization’s external environment for opportunities and threats. 8. (8-10) Levels of strategy 9. 10. 11-15. Major steps of the strategic management process SAQ 2 Directions: Classify the following examples of decisions as (A) FINANCING, (B) INVESTING, or (C) OPERATING. Write the letters corresponding to the correct answers. 1. Introducing a new discount pricing program 1. C 2. Buying back stock 2. A 3. Paying employee incentives 3. C 4. Purchasing a distribution center 4. B 5. Deciding how much to produce 5. C 6. Issuing additional shares of common stock 6. A 7. Building a production plant 8. Acquiring technology to develop e-commerce 7. B 9. Increasing advertising 8. B 10. Borrowing from banks 9. C 10.a P a g e 10 | 14  CBMEC 2 STRATEGIC MANAGEMENT MODULE 1 ASAQ 1 1. Strategic Management 2. Strategic Management Framework 3. Value Creation 4. Mission Statement 5. Vision Statement 6. Internal Audit 7. External Audit 8. Corporate Level Strategy 9. Business Level Strategy 10. Functional Level Strategy ASAQ 2 1. C 2. A 3. C 4. B 5. C 6. A 7. B 8. B 9. C 10. a P a g e 11 | 14  CBMEC 2 STRATEGIC MANAGEMENT MODULE 1 Name: _______________________ Date: __________ Course/Year/Section: _________________ ACTIVITY 1 Download the Johnson & Johnson Credo and identify its value creation activities for CUSTOMERS, EMPLOYEES, and OWNERS. P a g e 12 | 14  CBMEC 2 STRATEGIC MANAGEMENT MODULE 1 Name: _______________________ Date: __________ Course/Year/Section: _________________ ACTIVITY 2 Download the Nike’s Code of Conduct and identify its different activities that respond to good business ethics and social responsibility. P a g e 13 | 14  CBMEC 2 STRATEGIC MANAGEMENT MODULE 1 RUBRICS Directions: Please refer to the RUBRICS as your guide in answering the activities. CRITERIA EXCELLENT GOOD FAIR POOR Focus: Purpose is clear Shows Shows limited No awareness Purpose awareness of awareness of purpose purpose Main Idea Clearly presents a There is a main Vague sense of No main idea main idea and idea supported a main idea, supports it throughout most weakly throughout the of the paper supported paper throughout the paper Organization: Well-planned and Good overall There is a sense No sense of Overall well-thought out. organization, of organization, organization Includes title, includes the although some introduction, main of the statement of main organizational organizational idea, transitions tools. tools are used and conclusion. weakly or missing Organization: All paragraphs Most paragraphs Some Paragraphs lack Paragraphs have clear ideas, have clear ideas, paragraphs have clear ideas are supported with are supported clear ideas, examples and with some support from have smooth examples and examples may transitions. have transitions. be missing and transitions are weak. Content Exceptionally well- Well-presented Content is sound Content is not presented and and argued; and solid; ideas sound argued; idea are ideas are are present but detailed, well- detailed, not particularly developed, developed and developed or supported with supported with supported; some specific evidence evidence and evidence, but and facts, as well details, mostly usually of a as examples and specific. generalized specific details. nature. Style: Sentences are Sentences are Sentences are Sentences are Sentence clear and varied in clear but may generally clear not clear. Structure pattern, from lack variation; a but may have simple to complex, few may be awkward with excellent use awkward and structure or of punctuation. there may be a unclear content. few punctuation errors. Mechanics: Mechanics reflect A few errors Mechanical Distracting Spelling and careful editing. present, but they errors distract at mechanical Grammar do not distract. times. errors throughout. 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