CBM130 Strategic Management PDF

CBM130 REVIEWER MODULE 1: BASIC CONCEPTS OF STRATEGIC MANAGEMENT A. THE STUDY OF STRATEGIC MANAGEMENT Strategic management is defined as that set of managerial decisions and actions that determines the long-run performance of a corporation (Wheelen and Hunger, 1995). Strategic management is...

CBM130 REVIEWER MODULE 1: BASIC CONCEPTS OF STRATEGIC MANAGEMENT A. THE STUDY OF STRATEGIC MANAGEMENT Strategic management is defined as that set of managerial decisions and actions that determines the long-run performance of a corporation (Wheelen and Hunger, 1995). Strategic management is considered to be a continuous activity that requires a constant adjustment of three major interdependent poles: the values of senior management the environment and the resources available It includes environmental scanning (both external and internal), strategy formulation (strategic or long range planning), strategy implementation, and evaluation and control. The study of strategic management therefore emphasizes the monitoring and evaluating of external opportunities and threats in lights of a corporation’s. B. EVOLUTION OF STRATEGIC MANAGEMENT From his extensive work in the field, Bruce Henderson of the Boston Consulting Group concluded that intuitive strategies cannot be continued successfully if 1. the corporation becomes large 2. the layers of management increase, or 3. the environment changes substantially. Phase 1. Basic financial planning: Seek better operational control by trying to meet budgets. Phase 2. Forecast based planning: Seek more effective planning for growth by trying to predict the future beyond next year. Phase 3. Externally oriented planning (strategic planning): Seek increasing responsiveness to markets and competition by trying to think strategically. Phase 4. Strategic management: Seek a competitive advantage and a successful future by managing all resources. Phase 4 in the evolution of the strategic management includes a consideration of strategy implementation and evaluation and control, in addition to the emphasis on the strategic planning in Phase 3. General Electric, one of the pioneers of the strategic planning, led the transition from the strategic planning to strategic management during the 1980s. By the 1990s, most corporations around the world had also begun the conversion to strategic management. B. BENEFITS OF STRATEGIC MANAGEMENT Only a few companies can sustain long-term performances over a period of time; thus, strategic management focuses on sustainability of long-term “high’ performances. A survey of nearly 50 corporations in a variety of countries and industries found the three most highly rated benefits of strategic management to be: 1. Clearer sense of strategic vision for the firm. 2. Sharper focus on what is strategically important. 3. Improved understanding of a rapidly changing environment. Based on the study conducted by Joyce, Nohria, and Roberson and other studies, strategic management is crucial for long-term organizational success. D. CHALLENGES TO STRATEGIC MANAGEMENT Up until the later part of 20th century, business companies were minded their operations on the economic responsibilities of the organizations which was emphasized on profit maximization. These firms were successful without taking considerations on the social and derogatory responsibilities including environmental concerns. Legal constraints were passed to address the pollution issues up until today but business companies believed that it is costly in which should be minimized and avoided. Most of manufacturing companies move to developing countries where less government restrictive measures are being implemented. IMPACT OF GLOBALIZATION AND ENVIRONMENTAL SUSTAINABILITY Globalization has changed the way modern corporations do business. Globalization refers to the breakdown in barriers that prevent the exchange and integration of finances, trade and ideas across the world (Dontigney, 2020). As Thomas Friedman pointed out those jobs, knowledge, and capital are now able to move across borders with far greater speed and far less friction than was possible only a few years ago. For instance, the worldwide availability of the Internet at almost every level and supply-chain logistical improvements, such as containerized shipping, mean that companies can now locate anywhere and work with multiple partners to serve any market. In other words, as more industries become global, strategic management is becoming an increasingly important way to keep track of international developments and position a company for long-term competitive advantage. On the other hand, climate change is playing a growing role in business decisions as global climate change has already had observable effects on the environment today. Environmental sustainability refers to the use of business practices to reduce a company’s impact upon the natural, physical environment. According to Eileen Claussen, President of the Pew Center on Global Climate Change: There is a growing consensus among corporate leaders that taking action on climate change is a responsible business decision. From market shifts to regulatory constraints, climate change poses real risks and opportunities that companies must begin planning for today, or risk losing ground to their more forward-thinking competitors. Prudent steps taken now to address climate change can improve a company’s competitive position relative to its peers and earn it a seat at the table to influence climate policy. With more and more action at the state level and increasing scientific clarity, it is time for businesses to craft corporate strategies that address climate change. The effects of climate change on industries and companies throughout the world can be grouped into six categories of risks: regulatory, supply chain, competitive, litigation, reputational, and physical (Stanny and Ely, 2008, Furrer et al., 2009, Coburn et al., 2011). 1. Regulatory risks. These are mainly associated with the impacts of legislation and government policy on climate change on a business’s operation. For instance, Blyth et al. (2007) indicated that the regulatory risks associated with climate change could be a very significant external aspect which could have an influence on investment decision. Companies in much of the world are already subject to the Kyoto Protocol, which requires the developed countries (and thus the companies operating within them) to reduce carbon dioxide and other greenhouse gases by an average of 6%. 2. Supply Chain risks. Suppliers will be increasingly vulnerable to government regulations— leading to higher component and energy costs as they pass along increasing carbon-related costs to their customers. 3. Product and Technology risks. Carbon-friendly products using new technologies are becoming increasingly popular with consumers. Those automobile companies, for example, that were quick to introduce hybrid or alternative energy cars gained a competitive advantage. Thus, environmental sustainability can be a prerequisite to profitable growth. 4. Litigation risks. These are associated with lawsuits and judicial decisions against businesses with regards to climate change. 5. Reputational risks. A company’s impact on the environment can heavily affect its overall reputation. The Carbon Trust, a consulting group, found that in some sectors the value of a company’s brand could be at risk because of negative perceptions related to climate change. In contrast, a company with a good record of environmental sustainability may create a competitive advantage in terms of attracting and keeping loyal consumers, employees, and investors. 6. Physical risks. The direct risk posed by climate change includes the physical effects of droughts, floods, storms, and rising sea levels or the costs of reclamation after extreme weather events, the cost of new equipment, the potential relocation costs, and among others. Learning-A part of strategic management Strategic management has now evolved to the point that it is primary value is to help the organization operate successfully in dynamic, complex environment. To be competitive in dynamic environment, corporations have to become less bureaucratic and more flexible. In stable environments such as those that have existed in the past, a competitive strategy simply involved defining a competitive position and then defending it. Because it takes less and less time for one product or technology to replace another, companies are finding that there are no such thing as competitive advantage. Corporations must develop strategic flexibility: the ability to shift from one dominant strategy to another. Strategic flexibility demands a long term commitment to the development and nurturing of critical resources. It also demands that the company become a learning organization: an organization skilled at creating, acquiring, and transferring knowledge and at modifying its behavior to reflect new knowledge and insights. Learning organizations avoid stability through continuous self-examinations and experimentations. People at all levels, not just top the management, need to be involved in strategic management: scanning the environment for critical information, suggesting changes to strategies and programs to take advantage of environmental shifts, and working with others to continuously improve work methods, procedures and evaluation techniques. At Xerox, for example, all employees have been trained in small-group activities and problem solving techniques. They are expected to use the techniques at all meetings and at all levels, with no topic being off- limits. Initiation of strategy: Triggering Events A triggering event is something that stimulates a change in strategy. Some of the possible triggering events are: New CEO: By asking a series of embarrassing questions, the new CEO cuts through the veil of complacency and forces people to question the very reason for the corporation’s existence. Intervention by an external institution: The firm’s bank suddenly refuses to agree to a new loan or suddenly calls for payment in full on an old one. Threat of a change in ownership: Another firm may initiate a takeover by buying the company’s common stock. Management’s recognition of a performance gap: A performance gap exists when performance does not meet expectations. Sales and profits either are no longer increasing or may even be falling. Strategic inflection point: is what happens to a business when a major change takes place due to the introduction of new technologies, a different regulatory environment, a change in customers’ values, or a change in what customers prefer. Strategic management consists of four basic elements: 1. Environmental scanning- is the monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the corporation. Management scans both the external environment for opportunities and threats and the internal environmental for strengths and weakness. The following factors that are most important to the corporation’s future are called strategic factors: strengths, weakness, opportunities and threats (SWOT). 2. Strategy Formulation- 3. Strategy Implementation- is a process by which strategies and policies are put into action through the development of programs, budgets, and procedures. This process might involve changes within the overall culture, structure, and/or management system of the entire organization. Sometimes referred to as operational planning; hence, often involves day-to-day decisions in resource allocation. Program- is a statement of the activities or steps needed to accomplish a single-use plan. It makes a strategy action oriented. It may involve restructuring the corporation, changing the company’s internal culture, or beginning a new research effort.  Budget- is a statement of a corporation’s programs in terms of peso. Used in planning and control, a budget lists the detailed cost of each program. Procedures- sometimes termed as Standard Operating Procedures (SOP), are a system of sequential steps or techniques that describe in detail how a particular task or job is to be done. They typically detail the various activities that must be carried out in order to complete the corporation’s program. 4. Evaluation and control- is a process in which corporate activities and performance results are monitored so that actual performance can be compared with desired performance. Managers at all levels use the resulting information to take corrective action and resolve problems. It is also used to pinpoint the weaknesses on the previously implemented plans, thus improving a key driver to improve the process as it begins again. Performance- is the end result of activities. It includes the actual outcomes of the strategic management process. Feedback/Learning Process- As a firm or business unit develops strategies, programs, and the like, it often must go back to revise or correct decisions made earlier in the process. Management needed to reassess the company’s environment and find better opportunities using feedbacks. Strategic decision making Strategic decisions deals with the long-run future of the entire organization and have three characteristics: 1. Rare- Strategic decisions are unusual and typically have no precedent to follow. 2. Consequential- Strategic decisions commit substantial resources and demand a great deal of commitment 3. Directive- strategic decisions set precedents for lesser decisions and future actions throughout the organization. Mintzberg’s modes of strategic decision making According to Henry Mintzberg, the most typical approaches or modes of strategic decision making: Entrepreneurial mode: Strategy is made by one powerful individual. The focus is on opportunities; problems are secondary. The dominant goal is growth of the corporation. Adaptive mode: Sometimes referred to as “muddling through,” this decision-making mode is characterized by reactive solutions to existing problems, rather than a proactive search for new opportunities. Typical examples are of most universities, many large hospitals, a large number of governmental agencies, and a surprising number of large corporations. Planning 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. Logical incrementalism (added by Quinn): A fourth decision-making mode can be viewed as a synthesis of the planning, adaptive, and, to a lesser extent, the entrepreneurial modes. Although the mission and objectives are set, the strategy is allowed to emerge out of debate, discussion, and experimentation. This approach is useful in building consensus before committing to a specific strategy. Making better strategic decisions In most situations the planning mode, which includes the basic elements of strategic management process, is a more rational and thus better way of making strategic decisions (Wheelen and Hunger, 1995). Following eight-step strategic decision-making process is proposed: 1. Evaluate current performance results 2. Review corporate governance 3. Scan the external environment 4. Analyze strategic factors (SWOT) 5. Generate, evaluate and select the best alternative strategy 6. Implement selected strategies 7. Evaluate implemented strategies