Strategic Management - PDF

**CHAPTER 1: STRATEGIC MANAGEMENT** **What is Strategy?** A combination of the words "**stratos**", which meant \"army\", and **agein** meaning \"to lead\". - **Strategy** is a tactical course of action which is designed to achieve long term objectives. [It is an art and science of planni...

**CHAPTER 1: STRATEGIC MANAGEMENT** **What is Strategy?** A combination of the words "**stratos**", which meant \"army\", and **agein** meaning \"to lead\". - **Strategy** is a tactical course of action which is designed to achieve long term objectives. [It is an art and science of planning and marshalling resources for their most efficient and effective use in a changing environment.] Strategy of a business enterprise consists of what management decides about the future direction and scope of the business. It entails managerial choice among alternative action programmes, competitive moves and different business approaches to achieve enterprise objectives. Strategy once formulated has long term implications. It is framed by top management in an organization. In short, it may be called as the ***\'game plan of management\'.*** **Definition of Strategy** ** As per Glueck,** ** As per Alfred D. Chandler,** Allocation of large amount of resources **Strategic Management Concept** Competent execution of a well-conceived strategy is the best test of managerial excellence and a proven recipe for organizational success - **Strategic Management** **Strategic management** is [a set of management decisions and actions that determines the long-run performance of a corporation.] It includes environmental scanning, strategy formulation, strategy implementation and evaluation and control to achieve the objectives of an organization. The study of strategic management emphasizes the monitoring and evaluating of external opportunities and threats in light of a corporation\'s strengths and weaknesses. - - **What does Strategic Management Include?** Determining the mission of the company, including broad statement about its purpose, philosophy and goals. Developing a company profile reflecting internal conditions and capabilities. Assessment of the company\'s external environment in terms of both competitive advantage and general contextual factors. Analysis of possible options uncovered in matching the company with the external environment. Identifying desired options in light of the company mission. Strategic choice of a particular set of long-term objectives and grand stretegies needed to achieve the desired options. Development of annual objectives and short-term strategies compatible with long-term objectives and grand strategies. Implementing strategic choice based on budgeted recource allocations and matching of tasks, people, structures, technologies and reward system. Review and evaluation of the success of strategic process that serves as a basis for control **Dimensions of Strategic Decisions** Strategic Issues require Top-management decisions. Strategic Issues involve the allocations of large amount of company resources. Strategic Issues are likely to Have a Significant Impact on the Long-term Prosperity of the firm. Strategic Issues are Future Oriented. Strategic Issues Usually have Major Multifunctional or Multibusiness Consequences. Strategic Issues Necessitate Considering Factors in the Firm\'s External Environment. ***Strategic Management - Defined*** - **LEVELS OF STRATEGY** 1. At this level, strategic decisions relate to organization-wide policies and are [taken care by top-level management] (BOD) with a vision of determining ***\'Where the company wants to be?\'*** It has two main aspects- ***Formulation of Strategy (strategic planning) and Strategy Implementation*** [The nature of strategy at this level tend to be value-oriented, conceptual and than other levels.] There is also greater risk, cost and profit potential as well as greater need of flexibility associated with this level. *** Major financial policy decisions involving acquisition, diversification and structural redesigning belong to this level.*** 2. Business-level strategy is more likely related to ***a unit within the whole***. It is [concerned with competition in a market.] The concerns are about what products or services should be developed and offered to which markets in order to meet customer needs and organizational objectives. At this level, multifunctional strategies developed at corporate level are formulated and implemented for specific product market in which the business operates. Thus, managers at this level translate general directions and intent into concrete functional objectives. *** Decisions at this level include policies involving new product development, marketing mix, research & development, personnel, etc.*** 3. Functional strategy involves decision-making with respect to specific functional areas- production, marketing, personnel, finance etc. While corporate and business level strategies are concerned with \"Doing the right things\", functional strategies stress on \"***Doing things right\".*** Operating level strategy is concerned with strategic approaches for managing frontline operating units (like plants, sales, etc) and for ***handling day to day tasks of strategic significance (like advertising campaign, purchasing materials, inventory control, maintenance, etc.).*** Thus, it focuses on how the different functions of the enterprise contribute to the other levels of strategy. Thus, functional level strategic management is the management of relatively narrow areas of activity, which are of vital, pervasive or continuing importance to the total organization. **Characteristics of Strategic Management Decisions** **a.) Features at Corporate Level:** -- Corporate level decisions tend to be value oriented, conceptual and less concrete than those at business level and functional level. -- Are characterized by greater risk, cost and profit potentials. -- Longer-time horizons and greater needs for flexibility. -- Examples of decisions include choice of business, dividend policies, sources of long-term financing and priorities for growth. **b.) Features at Functional Level:** -- Involve action-oriented operational issues. -- Are made periodically and leads to the implementation of some part of overall strategy. -- Relatively short-range and involve low risk and modest cost/ dependent on available resources. -- Are concrete and quantifiable and adaptable to ongoing activities. **c.) Features at Business Level:** -- Less costly and risky and potentially profitable than corporate level but more costly and risky than functional level. -- Decisions involve plant location, market segmentation, geographic coverage, distribution channel decisions. **STRATEGIC MANAGEMENT PROCESS** **Step 1: Strategic Intent** - - - **Strategy Formulation** Strategy formulation ***refers to the process of choosing the most appropriate course of action*** for the realization of organizational goals and objectives and thereby achieving the organizational vision. For choosing most appropriate course of action, appraisal of organization and environmental is done with the help of SWOT analysis. - - - - - - **Strategy Evaluation & Control** - - **CHAPTER 2: STRATEGIC MANAGEMENT** **INPUTS** The strategic management process guides you through planning, implementing, and maintaining the strategies that lead to the best business performance. The strategic management approach entails more than just following a set of guidelines. It\'s a way of looking at business from a philosophical standpoint. Upper management must first plan strategically, then put that strategy into action. When everyone in the company understands the strategy, the strategic management process works best. - **Why is the strategic management process important in a business?** A strategic management process ***helps an organization and its leadership to think about and plan for its future existence,*** fulfilling a chief responsibility of a board of directors. Strategic management sets a direction for the organization and its employees. **The five process of Strategic Management** **1.Goal- setting** -- The purpose of goal-setting is to ***clarify the vision*** for your business -- This stage consists of identifying three key facets: First, define both short- and long-term objectives. Second, identify the process of how to accomplish your objective. Finally, customize the process for your staff, give each person a task with which he can succeed. -- Goals must be ***detailed, realistic and match the values of your vision*** **2. Analysis** - Analysis is a key stage because the information gained in this stage will shape the next two stages. In this stage, gather as much information and data relevant to accomplishing your vision. The focus of the analysis should be on ***understanding the needs of the business*** as a sustainable entity, its strategic direction and identifying initiatives that will help your business grow. Make a list of your organization\'s strengths and weaknesses, as well as any dangers or opportunities that may occur along the way. **3. Strategy Formation** - The first step in forming a strategy is to review the information gleaned from completing the analysis. Determine what resources the company currently has that can assist in achieving the set objectives and goals. Identify any places where the company will need to hire outside help. The difficulties that the company is facing should be prioritized. Once prioritized, begin formulating the strategy. Because business and economic situations are fluid, it is critical in this stage to ***develop alternative approaches*** that target each step of the plan. **4. Strategy Implementation** Successful strategy implementation is critical to the success of the business venture. This is the action stage of the strategic management process. Everyone within the organization must be ***made clear of their responsibilities and duties***, and how that fits in with the overall goal. **5. Strategy Monitoring** **Evaluate and Control** Strategy evaluation and control actions include ***performance measurements***, consistent review of internal and external issues and making corrective actions when necessary. Monitoring internal and external issues will also enable you to react to any substantial change in your business environment. If you determine that the strategy is not moving the company toward its goal, take corrective actions. If those actions fail, go through the strategic management process again. Because internal and external concerns are always changing, any information gathered at this point should be saved to aid future initiatives. **DETERMINING COGNITIVE BIASES** **COGNITIVE BIAS** - Leaders gauge progresses, design strategies, and build plans, they need to be mindful of hidden biases which could affect their thinking and put the business at risk. Rather that give way to a one-sided view or to closing off their minds to new situations and ideas, business leaders must actively guard against cognitive biases that affect strategic planning. **Cognitive Bias and Strategy Planning** Here are the top cognitive biases that can lead you astray: **1. Action-Oriented Bias** **2. Anchoring Bias** **3. Confirmation Bias** **4. Dunning-Kruger Effect** **5. Groupthink** **6. Primacy Effect** **7. Sunflower Bias** **1.Action-Oriented Bias** Action-oriented biases can push leaders to act or move to action-oriented discussions too soon or less thoughtfully than they should. Often caused by: - - - - **2. Anchoring Bias** - - - **3. Confirmation Bias** - - - **4. Dunning-Kruger Effect** - - **5. Groupthink** - - - **6. Primary Effect** - - - **7. Sunflower Bias** - - **Ways to overcome biases, promote social responsibility, and sustainability** - - - - - - - **Using of gender neutral phrases:** - - - - - - **How do you promote social responsibility within the company?** Social responsibility **works as a platform for companies and consumers alike to make a positive impact on local and global communities.** Businesses that implement a social responsibility initiative that\'s in line with their values have the opportunity to increase customer retention and loyalty. - - - - - **Ethics, Social Responsibility, and Sustainability** **Business ethics** can be defined as principles of conduct within organizations that guide decision making and behavior. **Social responsibility** refers to actions an organization takes beyond what is legally required to protect or enhance the well-being of living things. **Sustainability** refers to the extent that an organization's operations and actions protect, mend and preserve rather than harm or destroy the natural environment. **Code of ethics** \- a document that provides behavioural guidelines that cover daily activities and decisions within the organization. Ethics training should include: - - - To align ethical and strategic decision making: 1. 2. 3. 4. Whistle-blowing, bribery, and workplace romance have become important strategic issues facing companies. **Whistle-blowing** refers to employees reporting any unethical violations they discover or see in the firm. **Bribe** is a gift bestowed to influence a recipient\'s conduct. **Social policy** concerns what responsibilities the firm has to employees, consumers, environmentalists, minorities, communities, shareholders and other groups. It should be considered during each stage of strategy formulation, implementation and evaluation. **Social Responsibilities on Retirement** -some countries around the world are facings severe workforce shortages associated with their aging populations. Strategies of companies are scrutinized and evaluated from a natural environment perspective. Employees, consumers, governments and society are resentful of firms that harm rather than protect the natural environment. **Sustainability reports**-- reveals how a firm\'s operations impact the natural environment. This document discloses to shareholders information about the firm\'s labor practices, product sourcing, energy efficiency, environmental impact, and business ethics practices. **Environmental strategies could include:** 1. 2. 3. 4. Why Firms should be green? 1. 2. 3. 4. 5. 6. 7. **ISO14000/14001 Certification** **ISO14000** refers to a series of voluntary standards in the environmental field. **ISO14001** is a set of standards adopted by thousands of firms worldwide to certify to their constituencies that they are conducting business in an environmentally friendly manner. Consumers across the country and around the world appreciate firms that do more than is legally required to be socially responsible. But staying in business, while adhering to all laws and regulations, must be a primary objective of any business. One of the best ways to be socially responsible is for the firm to proactively conserve and preserve the natural environment.. Business ethics, social responsibility, and environmental sustainability are interrelated and key strategic issues facing all organizations. **Key Terms in Strategic Management** ** Competitive advantage** -any activity a firm does especially when compared to activities done by rival firms, or any resource a firm possesses that rival firms desire. ** External opportunities and threats**- 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. **Strategists-** individuals most responsible for the success or failure of an organization. **Vision statement**- what do we want to become? **Mission statement**- enduring statements of purpose that distinguish one business from other similar firms. **Internal strengths and weaknesses**- organization\'s controllable activities that are performed especially well or poorly. **Long-term objectives** - 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. ** Strategies** means by which long-term objectives will be achieved. **Annual objectives** - short-term milestones that organizations must achieve to reach long-term objectives. **Policies** - means by which annual objectives will be achieved. **Risk**- uncertainty about the economic gains or losses that will result from a particular investment. **Strategic competitiveness**-is achieved when a firm successfully formulates and implements a value creating strategy. **Average returns**-returns equal to those an investor expects to earn from other investments with a similar amount of risk **Above-average returns** are returns in excess of what an investor expects to earn from other investments with a similar amount of risk. **Hypercompetition** competition that is excessive such that it creates inherent instability and necessitates constant disruptive change for firms in the competitive landscape. **Strategic-management process**-- An objective, logical, systematic approach for making major decisions in an organization. **Stages of Strategic Management** **Strategy Formulation** - **Strategy implementation** - **Strategy Evaluation** - - - **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. **The I/O Model of Above-Average Returns** The **industrial organization (I/O) model of above-average returns** explains the external environment\'s dominant influence on firm\'s strategic actions. The model specifies that the industry or segment of an industry in which a company chooses to compete has a stronger influence on performance than do the choices managers make inside their organizations. The firms performance is believed to be determined primarily by a range of industry, properties, including economies of scale, barriers to market entry, diversification, product differentiation, the degree of concentration of firms in the industry, and the market frictions. The **five forces model of competition** is an analytical tool used to help firms find the industry that is the most attractive for them. It encompasses variables and tries to capture the complexity of competition. These are suppliers, buyers, competitive rivalry among firms currently in the industry, product substitutes, and potential entrants to the industry. 1. 2. 3. 4. 5. **The Resource-Based Model of Above-Average Returns** The **resource-based model of average returns** assumes that each organization is a collection of unique resources and capabilities. The uniqueness of its resources and capabilities is the basis of a firm\'s strategy and its ability to earn above-average returns. **Resources** are inputs into a firm\'s production process, such as capital equipment, the skills of individual employees, patents, finances, and talented managers. **Capability** is the capacity for a set of resources to perform a task or an activity in an integrative manner. **Core competencies** are capabilities that serve as a source of competitive advantage for a firm over its rivals. 1. 2. 3. 4. 5. Organizations should take a proactive rather than a reactive approach in their industry, and they should strive to influence, anticipate, and initiate rather than just respond to events. The strategic- management process embodies this approach to decision making. It represents a logical, systematic, and objective approach for determining an enterprise\'s future direction. The stakes are generally too high for strategists to use intuition alone in choosing among alternative courses of action. Successful strategists take the time to think about their businesses, where they are with their businesses, and what they want to be as organizations and then they implement programs and policies to get from where they are to where they want to be in a reasonable period of time.