BME403-T1-Lesson-1 PDF

The Nature of Strategic Management CHRISTIAN ERROL B. BANDALAN MBA-HRM Faculty – College of Hospitality and Tourism Management Southern Leyte State University- Main Campus Sogod, Southern Leyte, Philippines T: +639056801159...

The Nature of Strategic Management CHRISTIAN ERROL B. BANDALAN MBA-HRM Faculty – College of Hospitality and Tourism Management Southern Leyte State University- Main Campus Sogod, Southern Leyte, Philippines T: +639056801159 E: [email protected] Learning Outcomes Gain in-depth knowledge about Strategic Management Described Strategic Management Process Acquire preliminary idea in formulating Strategic Plan. Understand the benefits of Strategic Management.  WORDS TO REMEMBER: COMPETITIVE ADVANTAGE: DEFINED AS ACTIVITY A FORM DOES ESPECIALLY WELL COMPARED TO ACTIVITIES DONE BY RIVAL FIRM, OR ANY RESOURCE A FIRM POSSESSES THAT RIVAL FIRM DESIRE. STRATEGIST: ARE INDIVIDUALS WHO MOST RESPONSIBLE FOR SUCCESS/FAILURE OF AN ORGANIZATION. VISION AND MISSION STATEMENTS: VISION STATEMENT, THAT ANSWERS THE QUESTION “WHAT DO WE WANT TO BECOME ?”. DEVELOPING A VISON STATEMENT IS OFTEN CONSIDERED THE FIRST STEP IN STRATEGIC PLANNING, PRECEDING EVEN THE DEVELOPMENT OF A MISSION STATEMENT. MISSION STATEMENT: ARE “ENDURING STATEMENT OF PURPOSE THAT DISTINGUISH ONE BUSINESS FROM OTHER SIMILAR FIRMS. A MISSION STATEMENT IDENTIFIES THE SCOPE OF A FIRM ‘S OPERATION AND ITS PRODUCT AND MARKET TERMS.  WORDS TO REMEMBER: EXTERNAL OPPORTUNITIES AND EXTERNAL THREATS: REFER TO ECONOMIC, SOCIAL, CULTURAL, DEMOGRAPHIC ENVIRONMENTAL, POLITICAL, LEGAL, GOVERNMENTAL, TECHNOLOGICAL, AND COMPETITIVE TRENDS AND EVENTS THAT COULD SIGNIFICANTLY BENEFITS OR HARM AN ORGANIZATION IN THE FUTURE. INTERNAL STRENGTHS AND WEAKNESSES: ARE AND ORGANIZATION’S CONTROLLABLE ACTIVITIES THAT ARE PERFORMED ESPECIALLY WELL OR POORLY. LONG-TERM OBJECTIVES: DEFINED AS SPECIFIC RESULTS THAT AN ORGANIZATION SEEKS TO ACHIEVE IN PURSUING ITS BASIC MISSION. LONG- TERM MEANS MORE THAN ONE YEAR. STRATEGIES: ARE THE MEANS BY WHICH LONG-TERM OBJECTIVES WILL BE ACHIEVES.  WORDS TO REMEMBER: ANNUAL OBJECTIVES: ARE SHORT-TERM MILESTONES THAT ORGANIZATION MUST ACHIEVE TO REACH LONG-TERM OBJECTIVES. POLICIES: ARE THE MEANS BY WHICH ANNUAL OBJECTIVES WILL BE ACHIEVED.  Introduction When CEOs from the big 3 US automakers-Ford, General Motors (GM), and Chrysler-showed up several years ago w/out a clear strategic plan to ask congressional leaders for bailout monies, they were sent home with instructions to develop a clear strategic plan for the future. Austan Goolsbee, one of Pres. Barack Obama’s top economic advisers, said, “if the 3 auto CEOs need a bridge, it’s got to be a bridge to somewhere, not a bridge to nowhere.” This text gives the instructions on how to develop a clear strategic plan, a bridge to somewhere than nowhere.  What is Strategic Management? “ to gain and sustain competitive advantage”  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.  Based from the definition.. Strategic Management focuses on; 1. Integrating management 2. Marketing 3. Finance and Accounting 4. Research and Development (R&D) 5. Information System Stages of Strategic Management Strategic-Management Process consist of three stages: 1. 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. Stages of Strategic Management 2. 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 includes developing strategy- supportive culture, creating an effective organizational structure, redirecting marketing efforts, preparing budgets, developing and using information systems, and linking employee compensation to organizational performance. Stages of Strategic Management 3. 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. All strategies are subject to future modification because external and internal factors constantly change.  3 Fundamental Strategy Evaluation Activities 1. Reviewing external and internal that are bases for current strategies for current strategies. 2. Measuring performance, and 3. Taking corrective actions. Peter Drucker says the prime task of strategic management is thinking through the overall mission of business— that is, of asking the question, “ what is our business?” this leads to the setting of objectives, the development of strategies, and making of today’s decisions for tomorrow's results. This clearly must be done by apart of the organization that can see the entire business; that can balance objectives and the needs of today against the need of tomorrow; and that can allocate resources of men to key results.  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.  Based on past experiences, judgement and feelings, most people recognized that intuition is essential in making good strategic decisions. Intuition is particularly useful for making decisions in situation of great uncertainty or little precedent. It is also helpful when highly interrelated variables exist or when it is necessary to choose from several plausible alternatives. Some managers and owners of business profess to have extraordinary abilities for using intuition alone in devising brilliant strategies. In a sense, the strategic management process is an attempt to duplicate what goes on in the mind of a brilliant, intuitive person who knows the business and assimilates and integrates that knowledge using analysis to formulate effective strategies.  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 evidences by how the drop in oil prices caught so many firms by surprise. Firms, like organism 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. The need to adapt to change leads organizations to key strategic-management questions, such as “what kind of business should we become?” “are we in the right field?” “should we reshape our business?” “what strategies should we pursue?” “how are our customer changing?” “are new technologies being developed that could put us out of the business?”  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 is low but rising. Product life cycle are becoming shorter. 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 rate are declining in most countries. Global markets offer the highest growth in revenues. New law are passed. Competitors introduces new products. National catastrophes occur. The value of euro is rebounding. The separation between the rich and the poor is growing. Social media networking is greatly expanding. The Russian ruble has dropped 60% in value. The Strategic-Management Model Figure I-I Comprehensive Strategic-Management Model  The important components of comprehensive strategic management model are follows: There must be some clear ideology including the vision, mission and objectives An analyses of internal environment that keep the business save from any issues preventing the business perform at its best. An analyses of external environment and risks existing there A user friendly maps and charts that guide the business in better decision making. Must include definite accountability for the outcomes. An effective comprehensive strategic management model is always flexible to meet all the needs of the business. But, keep in mind the components for the development of strategic plan.  Strategic Business Model Strategic business model is the guideline that guides you how to make the market value of your business. The business model is divided into three distinct. Sales and marketing, planning and manufacture and revenue of management. This is the strategy that tells an organization, how to make effective plans for the success of the business  Benefits Of Strategic Business Model There are many benefits of strategic business which includes the finding of best opportunities for your business. Firm that is engage in the strategic business model are seen to be more profitable and successful as compare to other companies. The strategic business model help in identifying the internal and external threats to the business as well as it helps in increasing the productivity of an employee This model gives the clarity of visions, helps to focus on main issues as well as highlight the directions for your business It helps to better understand the weaknesses and strengths of the business. It also allows you make agreements on long term bases for the successful future of your business. Also provides new opportunities for the productivity of the employee and business.  Components Of Strategic Business Model There are five major components of strategic business model 1-The mission: we start any business with a mission therefore, it includes what is the reason for the existence of the business or” why” the company is established what are the objectives behind it. This guides the employee to make the best decisions for the welfare of the company. 2- Target: next we will move toward target. The company must identify its target for the development of strategic plan. It highlights “where” the company competes. 3-value proposition: it consist of “what” and contain information about the products developed, services provided and the pricing system, 4-Go-to-market: it includes all the planning about the distribution, sales, profit and loss of the company. 5- Organization: in an organization all the functions are organize and includes all the executions make by the employee and partners. It includes all the information about “how” the things will get done according to the strategic plan.  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 activities. The principal benefit of strategic management has been to help organization s formulate better strategies thru the use of a more systematic, logical, and rational approach for decision making. Empower individuals. Ownership of strategies. Participative  Financial Benefits Organizations that use strategic-management concepts are generally more profitable and successful than those do not. Deeper/ Greater Improved The Result Commitment Enhanced Understandin g a. To achieve All Managers Communicatio objectives and n a. Of others Employees a. Dialogue view b. To on a Mission implement b. b. Of what the to Help the strategies Participation firm is doing Firm and why c. To work Succeed hard  Non-financial Benefits Strategic Management offers tangible benefits: Enhanced awareness of external threats Improved understanding of competitors strategies Increased employee productivity Reduced resistance to change Clearer understanding of performance- reward relationship  Why some firms do no Strategic Planning? No formal training in strategic planning No understanding of or appreciation for the benefits of planning No monetary rewards for planning No punishments for not planning Too busy “firefighting” (resolving internal issues) to plan ahead View planning as a waste of time, since no product/service is made Laziness; effective planning takes time and effort; time is money Content with current success; failure to realized that success today is no guarantee for success tomorrow; even Apple Inc. is an example. Overconfident 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 unchartered 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 pitfalls and being prepared to address them is essential to success. Here are some pitfalls to watch for and avoid in strategies 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 not actively supporting the strategic-planning process. Failing to use plans as a standard for measuring performance. Delegating planning to “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. How to Gain & Sustain Competitive Advantages Establish A Clear Vision & Mission Gain & Sustain Formulate Strategies: Evaluate & Monitor Result: Take Corrective Competiti collect, Analyze, Prioritize Using Actions: Adapt to Change ve Data Matrices; Establish A Clear Strategic Advantag Plan e Implement Strategies: Establish Structure; Allocate Resources; Motivate & Reward; Attract Customers; Manage Finances