The-Nature-of-Strategic-Management-Lesson-2.pptx

The Nature of Strategic Management Benefits to a Firm That Does Strategic Planning  Benefits to a Firm that Does Strategic Panning The process is a learning, helping, educating, and supporting activity, not merely a paper-shuffling activity among top executives. Strateg...

The Nature of Strategic Management Benefits to a Firm That Does Strategic Planning  Benefits to a Firm that Does Strategic Panning The process is a learning, helping, educating, and supporting activity, not merely a paper-shuffling activity among top executives. Strategic-management dialogue is more important than a nicely bound strategic-management document. The worst thing strategists can do is develop strategic plans themselves and then present them to operating managers to execute. Through involvement in the process, line managers become “owners” of the strategy. Ownership of strategies by the people who have to execute them is a key to success! Although making good strategic decisions is the major responsibility of an organization’s owner or chief executive officer, both managers and employees must also be involved in strategy formulation, implementation, and evaluation activities. Participation is a key to gaining commitment for needed changes. Financial Benefit Research indicates that organizations using strategic-management concepts are 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. High-performing firms tend to do systematic planning to prepare for future fluctuations in their external and internal environments. Firms with planning systems more closely resembling strategic- management theory generally exhibit superior long-term financial performance relative to their industry. Nonfinancial Benefits Besides helping firms avoid financial demise, strategic management offers other tangible benefits, such as an enhanced awareness of external threats, an 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. Firms that have nurtured their managers and employees, shared organizational objectives with them, empowered them to help improve the product or service, and recognized their contributions can turn to them for help in a pinch because of this interaction. Greenley stated that strategic management offers the following benefits: 1. It allows for identification, prioritization, and exploitation of opportunities. 2. It provides an objective view of management problems. 3. It represents a framework for improved coordination and control of activities. 4. It minimizes the effects of adverse conditions and changes. 5. It allows major decisions to better support established objectives. 6. It allows more effective allocation of time and resources to identified opportunities. 7. It allows fewer resources and less time to be devoted to correcting erroneous decisions. 8. It creates a framework for internal communication among personnel. 9. It helps integrate the behavior of individuals into a total effort. 10. It provides a basis for clarifying individual responsibilities. 11. It encourages forward thinking. 12. It provides a cooperative, integrated, and enthusiastic approach to tackling problems and opportunities. 13. It encourages a favorable attitude toward change. 14. It gives a degree of discipline and formality to the management of a business Why Some Firm Do NO Strategic Planning? Some firms do not engage in strategic planning, and some firms do strategic planning but receive no support from managers and employees. Some reasons for poor or no strategic planning are as follows: Lack of knowledge or experience in strategic planning—No training in strategic planning. Poor reward structures—When an organization assumes success, it often fails to reward success. When failure occurs, then the firm may punish. Firefighting—An organization can be so deeply embroiled in resolving crises and firefighting that it reserves no time for planning. Waste of time—Some firms see planning as a waste of time because no marketable product is produced. Time spent on planning is an investment. Why Some Firm Do NO Strategic Planning? Too expensive—Some organizations see planning as too expensive in time and money. Laziness—People may not want to put forth the effort needed to formulate a plan. Content with success—Particularly if a firm is successful, individuals may feel there is no need to plan because things are fine as they stand. But success today does not guarantee success tomorrow. Fear of failure—By not taking action, there is little risk of failure unless a problem is urgent and pressing. Whenever something worthwhile is attempted, there is some risk of failure. Why Some Firm Do NO Strategic Planning? Overconfidence—As managers amass experience, they may rely less on formalized planning. Rarely, however, is this appropriate. Being overconfident or overestimating experience can bring demise. Forethought is rarely wasted and is often the mark of professionalism. Prior bad experience—People may have had a previous bad experience with planning, that is, cases in which plans have been long, cumbersome, impractical, or inflexible. Planning, like anything else, can be done badly. Self-interest—When someone has achieved status, privilege, or self-esteem through effectively using an old system, he or she often sees a new plan as a threat. Why Some Firm Do NO Strategic Planning? Fear of the unknown—People may be uncertain of their abilities to learn new skills, of their aptitude with new systems, or of their ability to take on new roles. Honest difference of opinion—People may sincerely believe the plan is wrong. They may view the situation from a different viewpoint, or they may have aspirations for themselves or the organization that are different from the plan. Different people in different jobs have different perceptions of a situation. Suspicion—Employees may not trust management.  Pitfall of 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. Being aware of potential pitfalls and being prepared to address them is essential to success. Some pitfalls to watch for and avoid in strategic planning are these: 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.  Pitfall of Strategic Planning 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 stifled2  Guidelines for Effective Strategic Management Failing to follow certain guidelines in conducting strategic management can foster criticisms of the process and create problems for the organization. Issues such as “Is strategic management in our firm a people process or a paper process?” should be addressed. 1. It should be a people process more than a paper process. 2. It should be a learning process for all managers and employees. 3. It should be words supported by numbers rather than numbers supported by words. 4. It should be simple and nonroutine. 5. It should vary assignments, team memberships, meeting formats, and even the planning calendar.  Guidelines for Effective Strategic Management 6. It should challenge the assumptions underlying the current corporate strategy. 7. It should welcome bad news. 8. It should welcome open-mindness and a spirit of inquiry and learning. 9. It should not be a bureaucratic mechanism. 10. It should not become ritualistic, stilted, or orchestrated. 11. It should not be too formal, predictable, or rigid  Guidelines for Effective Strategic Management 12. It should not contain jargon or arcane planning language. 13. It should not be a formal system for control. 14. It should not disregard qualitative information. 15. It should not be controlled by “technicians.” 16. Do not pursue too many strategies at once. 17. Continually strengthen the “good ethics is good business” policy.  Comparing Business and Military Strategy A strong military heritage underlies the study of strategic management. Terms such as objectives, mission, strengths, and weaknesses first were formulated to address problems on the battlefield. According to Webster’s New World Dictionary, strategy is “the science of planning and directing large-scale military operations, of maneuvering forces into the most advantageous position prior to actual engagement with the enemy.” The word strategy comes from the Greek strategos, which refers to a military general and combines stratos (the army) and ago (to lead).  Comparing Business and Military Strategy The history of strategic planning began in the military. A key aim of both business and military strategy is “to gain competitive advantage.” In many respects, business strategy is like military strategy, and military strategists have learned much over the centuries that can benefit business strategists today. Both business and military organizations try to use their own strengths to exploit competitors’ weaknesses. If an organization’s overall strategy is wrong (ineffective), then all the efficiency in the world may not be enough to allow success.  Comparing Business and Military Strategy Of course, a fundamental difference between military and business strategy is that business strategy is formulated, implemented, and evaluated with an assumption of competition, whereas military strategy is based on an assumption of conflict. Nonetheless, military conflict and business competition are so similar that many strategic-management techniques apply equally to both. Business strategists have access to valuable insights that military thinkers have refined over time. Superior strategy formulation and implementation can overcome an opponent’s superiority in numbers and resources. Both business and military organizations must adapt to change and constantly improve to be successful. LEARNING EXERCISE: Strategic Planning for My College/Institution. Purpose: External and internal factors are the underlying bases of strategies formulated and implemented by organizations. Your college or university faces numerous external opportunities/threats and has many internal strengths/weaknesses. The purpose of this exercise is to illustrate the process of identifying critical external and internal factors. External influences include trends in the following areas: economic, social, cultural, demographic, environmental, technological, political, legal, governmental, and competitive. External factors could include declining numbers of high school graduates; population shifts; community relations; increased competitiveness among colleges and universities; rising numbers of adults returning to college; decreased support from local, state, and federal agencies. LEARNING EXERCISE 1: Strategic Planning for My College/Institution. Internal factors of a college or university include faculty, students, staff, alumni, athletic programs, physical plant, grounds and maintenance, student housing, administration, fundraising, academic programs, food services, parking, placement, clubs, fraternities, sororities, and public relations. Instructions: Step 1: On a separate sheet of paper, write four headings: External Opportunities, External Threats, Internal Strengths, and Internal Weaknesses. Step 2: As related to your college or university, list five factors under each of the four headings. Step 3: Create your porfolio. Step 4: What new things did you learn about your university from the class discussion? How could this type of discussion benefit an organization? LEARNING EXERCISE 2: Strategic Planning at a Local Company. Purpose: This activity is aimed at giving you practical knowledge about how organizations in your city or town are doing strategic planning. This exercise also will give you experience interacting on a professional basis with local business leaders. Instructions: Step 1: Use the telephone to contact business owners or top managers. Find an organization that does strategic planning. Make an appointment to visit with the strategist (president, chief executive officer, or owner) of that business. LEARNING EXERCISE 2: Strategic Planning at a Local Company. Step 2: Seek answers to the following questions during the interview. 1. How does your firm formally conduct strategic planning? Who is involved in the process? Does the firm hold planning retreats? If yes, how often and where? 2. Does your firm have a written mission statement? How was the statement developed? When was the statement last changed? 3. What are the benefits of engaging in strategic planning? 4. What are the major costs or problems in doing strategic planning in your business? 5. Do you anticipate making any changes in the strategic-planning process at your company? If yes, please explain. Step 3: Write your findings to your portfolio.