Strategic Management PDF

Strategic Management: a set of managerial decisions often provide the sophisticated and innovative and actions that determines the long-run performance techniques that the planning staff uses to gather of a corporation. information and fore...

Strategic Management: a set of managerial decisions often provide the sophisticated and innovative and actions that determines the long-run performance techniques that the planning staff uses to gather of a corporation. information and forecast future trends. Includes: Phase 4—Strategic management: Realizing that even the best strategic plans are worthless without the input and Internal and external environment scanning commitment of lower-level managers, top management Strategy formulation forms planning groups of managers and key employees at many levels, from various departments and Strategy implementation workgroups. They develop and integrate a series of Evaluation and control strategic plans aimed at achieving the company’s primary objectives. Strategic plans at this point detail Phases of Strategic Management: the implementation, evaluation, and control issues. Phase 1—Basic financial planning: Managers initiate Benefits of Strategic Management: serious planning when they are requested to propose the following year’s budget. Projects are proposed on Clearer sense of strategic vision for the firm the basis of very little analysis, with most information Sharper focus on what is strategically important coming from within the firm. The sales force usually provides the small amount of environmental Improved understanding of a rapidly changing information. Such simplistic operational planning only environment pretends to be strategic management, yet it is quite Additional Benefits of Strategic Management: time consuming. Normal company activities are often suspended for weeks while managers try to cram ideas Improved organizational performance into the proposed budget. The time horizon is usually Achieves a match between the organization’s one year. environment and its strategy, structure and Phase 2—Forecast-based planning: As annual budgets processes become less useful at stimulating longterm planning, Important in unstable environments managers attempt to propose five-year plans. At this point they consider projects that may take more than Strategic thinking one year. In addition to internal information, managers gather any available environmental data—usually on an Organizational learning ad hoc basis—and extrapolate current trends five years Impact of Globalization: into the future. This phase is also time consuming, often involving a full month of managerial activity to make Globalization: the integration and internationalization of sure all the proposed budgets fit together. The process markets and corporations gets very political as managers compete for larger As more industries become global, strategic shares of funds. Endless meetings take place to evaluate management is becoming an increasingly important way proposals and justify assumptions. The time horizon is to keep track of international developments and usually three to five years. position a company for long-term competitive Phase 3—Externally oriented (strategic) planning: advantage. Frustrated with highly political yet ineffectual five-year Impact of Environmental Sustainability: plans, top management takes control of the planning process by initiating strategic planning. The company Environmental Sustainability: the use of business seeks to increase its responsiveness to changing markets practices to reduce a company’s impact on the natural, and competition by thinking strategically. Planning is physical environment taken out of the hands of lower-level managers and concentrated in a planning staff whose task is to develop strategic plans for the corporation. Consultants Risks of Climate Change include: strategic choice perspective to include people at all levels becoming involved in Regulatory Risk: Companies in much of the providing input into strategic decisions world are already subject to the Kyoto Protocol, which requires the developed countries (and Strategic flexibility: the ability to shift from one thus the companies operating within them) to dominant strategy to another and requires: reduce carbon dioxide and other greenhouse – Long-term commitment to the gases by an average of 6% from 1990 levels by development and nurturing of critical 2012 resources Supply Chain Risk: Suppliers will be increasingly vulnerable to government regulations— leading – Learning organization – an organization to higher component and energy costs as they skilled at creating, acquiring, and pass along increasing carbon-related costs to transferring knowledge and at their customers modifying its behavior to reflect new Environmental sustainability can be a knowledge and insights. prerequisite to profitable growth. Those Main activities of a learning organization include: automobile companies, for example, that were quick to introduce hybrid or alternative energy Solving problems systematically cars gained a competitive advantage Litigation Risk: Companies that generate Experimenting with new approaches significant carbon emissions face the threat of Learning from past experience, history and lawsuits similar to those in the tobacco, experiences of others pharmaceutical, and building supplies (e.g., asbestos) industries. Transferring knowledge quickly and easily Reputational Risk: A company’s impact on the throughout the organization environment can heavily affect its overall Basic Elements of Strategic Management reputation. Physical Risk: The direct risk posed by climate 1. Environmental scanning change includes the physical effects of droughts, 2. Strategy formulation floods, storms, and rising sea levels. Population ecology: established organizations 3. Strategy implementation are unable to adapt to change. For example, 4. Evaluation and control proposes that once an organization is successfully established in a particular environmental niche, it is unable to adapt to changing conditions. Institution theory: organizations adapt by imitating successful organizations. Figure 1–1 illustrates how these four elements interact; Strategic choice perspective: organizations adapt to change and have the ability to reshape their environment. This perspective is supported by research indicating that the decisions of a firm’s management have at least as great an impact on firm performance as overall industry factors. Organizational learning theory: organizations adapt defensively and use knowledge to improve their relationship with the environment. This perspective expands the Figure 1–2 expands each of these elements and serves as the model for this o Policies- the broad guidelines for book. This model is both rational and prescriptive. It is a planning model that presents what a corporation should do in terms of the strategic management decision making that links the process, not what any particular firm may actually do. The rational planning formulation of a strategy with its model predicts that as environmental uncertainty increases, corporations implementation that work more diligently to analyze and predict more accurately the changing situation in which they operate will outperform those that do not. Facebook’s Corporate Mission Statement Basic Elements of Strategic Management “To give people the power to share and make Environmental Scanning is the monitoring, the world more open and connected.” (2017) evaluating and disseminating of information “To give people the power to build community from the external and internal environments to and bring the world closer together.” (New key people within the organization Mission statement) – Empowering people – Enabling community building – Connecting the world 1. This new mission statement was implemented in the midst of data privacy and security issues involving Cambridge Analytica and other parties. 2. The “empowering people” component of Facebook’s mission statement signifies the company’s goal of making its online social networking service a means to make users more Figure 1–3 depicts key environmental variables. They may be capable online. general forces and trends within the natural or societal 3. In addition, the corporate mission shows that environments or specific factors that operate within an this capability is in the form of community organization’s specific task environment—often called its industry. building. Strategy Formulation: the development of long- 4. For example, people can use the social network range plans for the effective management of to facilitate communication and information environmental opportunities and threats in light sharing among members of communities. of organizational strengths and weaknesses 5. Connections are created when users (SWOT) communicate through the social media website o Mission- the purpose or reason for the and its corresponding mobile apps. In relation, organization’s existence the company enables businesses to connect o Vision- describes what the organization with their customers. would like to become o Objectives- the end results of planned Facebook’s Vision Statement activity “People use Facebook to stay connected with o Strategies- form a comprehensive friends and family, to discover what’s going on master plan that states how the in the world, and to share and express what corporation will achieve its mission and matters to them.” objectives – Corporate – Global market scope – Business – Tool for communication – Functional  – Tool for discovery o Procedures, sometimes termed Standard Operating Procedures – Tool for self-expression (SOP), are a system of sequential The “global market scope” component of Facebook’s corporate vision is based on the company’s specification Evaluation and control: the process in of “people” as users, indicating everyone around the which corporate activities and performance world. results are monitored so that actual performance can be compared to desired In addition, the company aims to make its online social performance network a global tool for self-expression. o Performance: the end result of These components of Facebook’s vision statement organizational activities require the company to grow internationally to maintain its leadership position in the multinational social media o Feedback/Learning Process: revise market. or correct decisions based on performance Initiation of Strategy: Triggering Events Triggering event: something that acts as a stimulus for a change in strategy and can include: New CEO: By asking a series of embarrassing questions, a new CEO cuts through the veil of complacency and forces people to question the very reason for the corporation’s existence. External intervention: A firm’s bank suddenly refuses to approve a new loan or A hierarchy of strategy is a grouping of strategy types by level in the suddenly demands payment in full on an old organization. Hierarchy of strategy is a nesting of one strategy within one. A key customer complains about a another so that they complement and support one another. (See serious product defect. Figure 1–4.) Threat of a change in ownership: Another Strategy implementation: the process by firm may initiate a takeover by buying a which strategies and policies are put into company’s common stock. action through the development of: Performance gap: A performance gap exists o A program is a statement of the when performance does not meet activities or steps needed to expectations. Sales and profits either are no accomplish a single-use plan. It longer increasing or may even be falling. makes a strategy action oriented. It Strategic inflection point: Coined by Andy may involve restructuring the Grove, past-CEO of Intel Corporation, a corporation, changing the strategic inflection point is what happens to company’s internal culture, or a business when a major change takes place beginning a new research effort. due to the introduction of new o A budget is a statement of a technologies, a different regulatory corporation’s programs in terms of environment, a change in customers’ values, dollars. Used in planning and or a change in what customers prefer control, a budget lists the detailed Strategic Decision Making cost of each program. What Makes a Strategic Decision?  Strategic decision making focuses on the long-run 1. Evaluate current performance results in terms future of the organization of (a) return on investment, profitability, and so forth, and (b) the current mission, objectives, Characteristics of strategic decision making include: strategies, and policies Rare: Strategic decisions are unusual and 2. Review corporate governance—that is, the typically have no precedent to follow performance of the firm’s board of directors and Consequential: Strategic decisions commit top management. substantial resources and demand a great 3. Scan and assess the external environment to deal of commitment from people at all determine the strategic factors that pose levels. Opportunities and Threats. Directive: Strategic decisions set precedents 4. Scan and assess the internal corporate for lesser decisions and future actions environment to determine the strategic factors throughout an organization. that are Strengths (especially core competencies) and Weaknesses. Mintzberg’s Modes of Strategic Decision Making 5. Analyze strategic (SWOT) factors to (a) pinpoint Entrepreneurial mode: Strategy is made by one problem areas and (b) review and revise the powerful individual. The focus is on corporate mission and objectives, as necessary. opportunities; problems are secondary. Strategy 6. Generate, evaluate, and select the best is guided by the founder’s own vision of alternative strategy in light of the analysis direction and is exemplified by large, bold conducted in step 5 decisions. 7. Implement selected strategies via programs, budgets, and procedures. Adaptive mode: Sometimes referred to as 8. Evaluate implemented strategies via feedback “muddling through,” this decision-making mode systems, and the control of activities to ensure is characterized by reactive solutions to existing their minimum deviation from plans. problems, rather than a proactive search for new opportunities. Planning mode: This decision-making mode involves the systematic gathering of appropriate information for situation analysis, the generation of feasible alternative strategies, and the rational selection of the most appropriate strategy. It includes both the proactive search for new opportunities and the reactive solution of existing problems. A fourth decision-making mode can be viewed as a synthesis of the planning, adaptive, and, to a lesser extent, the entrepreneurial modes. Planning mode: This decision-making mode involves the systematic gathering of appropriate information for situation analysis, the generation of feasible alternative strategies, and the rational selection of the most appropriate strategy. It includes both the proactive search for new opportunities and the reactive solution of existing problems. Strategic Decision Making Process: Strategic audit provides a checklist of questions, by Assures that the corporation is managed in area or issue, that enables a systematic analysis to accordance with state laws, security regulations be made of various corporate functions and and conflict of interest situations activities Role of the Board in Strategic Management Corporate Governance Monitor developments inside and outside the Corporation: a mechanism established to allow corporation different parties to contribute capital, expertise and Evaluate and Influence management proposals, labor for their mutual benefit decisions and actions Corporation is governed by the board of directors Initiate and Determine the corporation’s mission that oversees top management with the and strategies concurrence of the shareholders. Corporate governance: the relationship among the board of directors, top management and shareholders in determining the direction and performance of the corporation Due care: Board of directors are responsible that the corporation is not harmed by members of the board. Directors can be held liable Responsibilities of the Board of Directors Sets corporate strategy, overall direction, mission, or vision Hires and fires the CEO and top management Members of a Board of Directors Controls, monitors, or supervises top Inside Directors are officers or executives employed management by the board’s corporation Reviews and approves the use of resources Outside Directors are executives of other firms but are not employees of the board’s corporation Cares for shareholders’ interests Agency theory problems arise in corporations Nomination and Election of Board Members because top management is not willing to accept Traditional Approach responsibility for their decisions unless they own a substantial amount of stock in the corporation CEO invitation to membership Agency Problem – Shareholders approval in annual proxy statement – Objectives of owners & agents in conflict All nominees usually elected – Difficult for owners to verify agent 97% of U.S. boards use nominating committees to performance identify potential board members Risk Sharing Problem – Staggered boards- only a portion of board members stand for re-election when directors serve more than – Owners & agents risk assessment in one year terms conflict Nomination and Election of Board Members Managers may take less risky decisions to protect their jobs Criteria for a good director include: Stewardship theory as the result of long tenure with – Willingness to challenge management the corporation, insiders (top management) tend to when necessary identify with the corporation and its success. Act in the best interest of the corporation more than self- – Special expertise that is important to interest the company Members of a Board of Directors – Available for outside meetings to advise management Affiliated directors- not employed by the corporation, handle legal or insurance work – Expertise on global issues Retired executive directors- used to work for the – Understands the firm’s key technologies corporation, partly responsible for past decisions and processes affecting current strategy – Brings external contacts that are Family directors- descendents of the founder and potentially valuable to the firm own significant blocks of stock – Has detailed knowledge of the firm’s Interlocking Directorates- useful for gaining both industry inside information about an uncertain environment – Has high visibility in their field and objective expertise about potential strategies and tactics – Is accomplished at representing the firm to stakeholders Direct interlocking directorate- when two firms share a director or when an executive of one firm Approximately 70% of the top executives of U.S. publicly sits on the board of a second held companies hold the dual designation of Chairman and CEO Indirect interlocking directorate- when two corporations have directors who serve on the board Lead Director- is consulted by the Chair/CEO regarding of a third firm board affairs and coordinates the annual evaluation of the CEO Codetermination 96% of U.S. companies that combine the – The inclusion of a corporation’s Chairman and CEO positions had a lead director employees on its board of directors Impact of the Sarbanes-Oxley Act on U.S. Corporate Responsibilities of Top Management Governance Executive leadership is the directing of activities Sarbanes Oxley Act 2002- designed to protect toward the accomplishment of corporate shareholders from excesses and failed oversight of objectives. Sets the tone for the entire boards of directors corporation – Whistleblower procedures Strategic vision- description of what the company is capable of becoming – Improved corporate governance Transformational Leaders provide change and Impact of the Sarbanes-Oxley Act on U.S. Corporate movement in an organization by providing a Governance vision for that change. Evaluating Governance Characteristics include: – Rating agencies such as S&P (Standard CEO articulates a strategic vision for the and Poor) Corporate Governance corporation Scoring System influence credit rating of a company CEO presents a role for others to identify with and to follow Avoiding Governance Improvements CEO communicates high performance – Multiple classes of stock to reduce standards and also show confidence in voting power of ousiders. the followers’ abilities to meet these – Public to private ownership standards – Controlled companies in which a party Managing the Strategic Planning Process controles more than 50% of the shares. Strategic planning staff- supports both top management Trends in Corporate Governance and the business units in the strategic planning process Boards shaping company strategy Major responsibilities include: Institutional investors active on boards Identifying and analyzing company-wide strategic issues, and suggesting corporate Shareholder demands that directors and top strategic alternatives to top management management own significant stock Work as facilitators with business units to guide More involvement of non-affiliated outside them through the strategic planning process directors Social Responsibilities of Strategic Decision Makers Increased representation of women and minorities  Social Responsibility Boards evaluating individual directors  proposes that a private corporation has responsibilities to society that extend Smaller boards beyond making a profit Splitting the Chairman and CEO positions Friedman’s Traditional View of Business Responsibility Shareholders may begin to nominate board  Argues against the concept of social members responsibility Society expects boards to balance profitability  Primary goal of business is profit maximization with social needs of society not spending shareholder money for the general social interest  Urging a return to a laissez-faire worldwide  the goodwill of key stakeholders, that economy with minimal government regulation, can be used for competitive advantage Milton Friedman argues against the concept of  opens doors in local communities social responsibility as a function of business. Friedman thus referred to the social responsibility of  Being known as a socially responsible business as a “fundamentally subversive doctrine” firm may provide a company with social and stated that: capital, the goodwill of key stakeholders, that can be used for There is one and only one social responsibility competitive advantage. of business—to use its resources and engage in activities designed to increase its profits so long  A survey of more than 700 global as it stays within the rules of the game, which is companies by The Conference Board to say, engages in open and free competition reported that 60% of the managers without deception or fraud. state that citizenship activities had led to (1) goodwill that opened doors in local communities and (2) an enhanced Carroll’s Four Responsibilities of Business reputation with consumers. 1. Economic responsibilities Benefits of Being Socially Responsible  produce goods and services of value to  May enable firm to charge premium prices and society so that the firm may repay its gain brand loyalty creditors and increase the wealth of its  May help generate enduring relationships with shareholders suppliers and distributors 2. Legal responsibilities  Can attract outstanding employees  defined by governments in laws that  Can utilize the goodwill of public officials for management is expected to obey support in difficult times 3. Ethical responsibilities Other examples of benefits received from being  follow the generally held beliefs about socially responsible are: behavior in a society  Their environmental concerns may enable them 4. Discretionary responsibilities to charge premium prices and gain brand loyalty (for example, Stoneyfield Yogurt, Whole Foods,  purely voluntary obligations a and Ben & Jerry’s Ice Cream). corporation assumes  Their trustworthiness may help them generate Responsibilities of Business enduring relationships with suppliers and distributors without requiring them to spend a lot of time and money policing contracts.  They can attract outstanding employees who prefer working for a responsible firm (for example, Procter & Gamble and Starbucks).  They are more likely to be welcomed into a As shown in Figure 3–1, Archie Carroll proposed that the managers of business organizations have four responsibilities: economic, legal, ethical, and foreign country (for example, Levi Strauss). discretionary.  They can utilize the goodwill of public officials Responsibilities of a Business Firm for support in difficult times.  Social capital Characteristics of Sustainability  The first step in stakeholder analysis is to identify primary stakeholders.  Primary stakeholders Environmental  have a direct connection with the corporation and who have sufficient bargaining power to directly affect corporate activities Social Economic  include customers, employees, suppliers, shareholders and creditors  The second step in stakeholder analysis is to As pointed out in Chapter 1, sustainability includes identify the secondary stakeholders. much more than just ecological concerns and the natural environment. Crane and Matten point out that  Secondary stakeholders the concept of sustainability should be broadened to  have an indirect stake in the corporation include economic and social as well as environmental but are also affected by corporate concerns. activities Corporate Stakeholders  include NGOs, activists, local  Stakeholders communities, trade associations, competitors and governments  have an interest in the business and affect or are affected by the  The third step in stakeholder analysis is to achievement of the firm’s objectives estimate the effect on each stakeholder group from any particular strategic decision.  Enterprise strategy Stakeholder Input  an overarching strategy that explicitly articulates the firm’s ethical relationship  Once stakeholder impacts have been identified, with its stakeholders managers should decide whether stakeholder input should be invited into the discussion of A corporation’s task environment includes a large the strategic alternatives. number of groups with interest in a business organization’s activities. These groups are referred to as  A group is more likely to accept or even help stakeholders because they affect or are affected by the implement a decision if it has some input into achievement of the firm’s objectives. Which group’s which alternative is chosen and how it is to be interests should have priority? implemented. In order to answer this question, the corporation may Reasons for Unethical Behavior need to craft an enterprise strategy—an overarching  Unaware that behavior is questionable strategy that explicitly articulates the firm’s ethical relationship with its stakeholders.  Lack of standards of conduct Stakeholder Analysis  Different cultural norms and values  Stakeholder analysis  Behavior-based or relationship-based governance systems  the identification and evaluation of corporate stakeholders  Different values between business people and stakeholders  usually done in a three-step process Moral Relativism Encouraging Ethical Behavior  Moral relativism  Code of Ethics  claims that morality is relative to some  specifies how an organization expects personal, social or cultural standard and its employees to behave while on the that there is no method for deciding job whether one decision is better than A code of ethics: another. 1. clarifies company expectations of employee At one time or another, most managers have probably conduct in various situations used one of the four types of moral relativism—naïve, role, social group or cultural—to justify questionable 2. makes clear that the company expects its behavior. people to recognize the ethical dimensions in decisions and action  Naïve relativism  Whistleblowers  based on the belief that all moral decisions are deeply personal and that  employees who report illegal or individuals have the right to run their unethical behavior on the part of others own lives  U.S. corporations have attempted to  Role relativism support whistleblowers  based on the belief that social roles Guidelines for Ethical Behavior carry with them certain obligations to that role  Ethics  Social group relativism  the consensually accepted standards of behavior for an occupation, trade or  based on a belief that morality is simply profession a matter of following the norms of an individual’s peer group  Morality  Cultural relativism  one’s rules of personal behavior based on religious or philosophical grounds  based on the belief that morality is relative to a particular culture, society  Law or community  the formal codes that permit or forbid Kohlberg’s Levels of Moral Development certain behaviors and may or may not enforce ethics or morality Kohlberg proposes that a person progresses through three levels of moral development.  Utilitarian approach  Preconventional level  proposes that actions and plans should be judged by their consequences  concern for one’s self  Individual rights approach  Conventional level  proposes that human beings have  considerations for society’s laws and certain fundamental rights that should norms be respected in all decisions  Principled level  Justice approach  guided by an internal code of ethics   decisions must be equitable, fair and impartial in the distribution of costs and benefits to individuals or groups Cavanagh’s questions to solve ethical problems: 1. Utility: Does it optimize the satisfactions of the stakeholders? 2. Rights: Does it respect the rights of the individuals involved 3. Justice: Is it consistent with the canons of justice? Kant presents two principles (called categorical imperatives) to guide our actions: 1. A person’s action is ethical only if that person is willing for that same action to be taken by everyone who is in a similar situation. 2. A person should never treat another human being simply as a means but always as an end.