Strategic Management PDF

1. Strategic management is a set of managerial 8. The establishment of the Mercosur(Mercosul in decisions and actions that determines the long-run Portuguese) free-trade area among Argentina, performance of a corporation. Brazil, Uruguay, and Paraguay means th...

1. Strategic management is a set of managerial 8. The establishment of the Mercosur(Mercosul in decisions and actions that determines the long-run Portuguese) free-trade area among Argentina, performance of a corporation. Brazil, Uruguay, and Paraguay means that a manufacturing presence within these countries is It includes environmental scanning (both becoming essential to avoid tariffs for nonmember external and in- ternal), strategy formulation countries. (strategic or long-range planning), strategy implementation, and evaluation and control. The Andean Community (Comunidad Andina de Naciones) is a free-trade alliance composed of The study of strategic management, Columbia, Ecuador, Peru, Bolivia, and Chile. therefore, emphasizes the monitoring and evaluating of external opportunities and threats in On May 23, 2008, the Union of South American light of a corporation’s strengths and weaknesses. Nations was formed to unite the two existing free-trade areas Originally called business policy, strategic management incorporates such topics as strategic In 2004, the five Central American countries of El planning, environmental scanning, and industry Salvador, Guatemala, Honduras, Nicaragua, and analysis. Costa Rica plus the United States signed the Central American Free Trade Agreement (CAFTA). 2. four phases of strategic management: The Association of Southeast Asian Nations Phase 1—Basic financial planning (ASEAN)—composed of Brunei Darussalam, Phase 2—Forecast-based planning Cambodia, Indonesia, Laos, Malaysia, Myanmar, Phase 3—Externally oriented (strategic) planning Philippines, Singapore, Thailand, and Vietnam—is Phase 4—Strategic management in the process of linking its members into a borderless economic zone by 2020. Research into the planning practices of effectsof Climatage companies in the oil industry concludes that the Regulatory Risk: Companies in much of the world real value of modern strategic planning is more in are already subject to the Kyoto Protocol, which the strategic thinking and organizational earning requires the developed countries (and thus the that is part of a future-oriented planning process companies operating within them) to reduce carbon than in any resulting written strategic plan dioxide and other greenhouse gases by an average of 6% from 1990 levels by 2012. 3. Globalization, the integrated internationalization Supply Chain Risk: Suppliers will be increasingly of markets and corporations, has changed the way vulnerable to government regulations— leading to modern corporations do business. higher component and energy costs as they pass along increasing carbon-related 4. Environmental sustainability refers to the use costs to their customers. of business practices to reduce a company’s impact upon the natural, physical environment. Product and Technology Risk: Environmental sustainability can be a prerequisite to profitable 5.Climate change is playing a growing role in growth. business decisions. Litigation Risk: Companies that generate 6. Formed as the European Economic Community significant carbon emissions face the threat of in 1957, the European Union (EU) is the most lawsuits similar to those in the tobacco, significant trade association in the world. pharmaceutical, and building supplies (e.g., as- bestos) industries. 7. Canada, the United States, and Mexico are affiliated economically under the North American Reputational Risk: A company’s impact on the Free Trade Agreement (NAFTA). The goal of environment can heavily affect its over- NAFTA is improved trade among the three member all reputation. countries rather than complete economic integration. Physical Risk: The direct risk posed by climate change includes the physical effects of droughts, floods, storms, and rising sea levels.  is to identify strategic factors—those external and The theory of population ecology, for example, internal elements that will determine the proposes that once an organization is successfully established in a particular environmental niche, it is unable f to adapt to changing conditions. o future of the corporation. The external environment consists of variables (Opportunities and Threats) that are outside the o Inertia prevents the organization from changing. organization and not typically within the short-run control of top management. Institution theory, in contrast, proposes that organizations can and do adapt to changing The internal environment of a corporation conditions by imitating other successful consists of variables (Strengths and Weaknesses) organizations. that are within the organization itself and are not usually within the short-run The strategic choice perspective goes one step further by proposing that not only do organizations Strategy formulation is the development of o adapt to a changing environment, but they long-range plans for the effective management also have the opportunity and power to reshape of environmental opportunities and threats, in light their environment. of corporate strengths and weaknesses (SWOT).It includes defining the corporate mission, specifying organizational learning theory, which says that achievable objectives, developing strategies, and an organization adjusts defensively to a changing setting policy guidelines. environment and uses knowledge offensively to improve the fit between itself and its environment. An organization’s mission is the purpose or reason for the organization’s existence. It tells what the strategic flexibility—the ability to shift from one company is providing to society—either a service dominant strategy to another. flexibility demands a such as housecleaning or a product such as long-term commitment to the development and automobiles. Mission describes what the nurturing of critical resources. organization is now; learning organization—an organization skilled at vision describes what the organization would like creating, acquiring, and transferring knowledge and to become. at modifying its behavior to reflect new knowledge and insights. e Some companies prefer to list their values and philosophy of doing business in a separate learning organization—an organization skilled at publication called a values statement. Mmmmm creating, acquiring, and transferring knowledge and at modifying its behavior to reflect new knowledge Objectives are the end results of planned activity. and insights. They should be stated as action verbs and tell what is to be accomplished by when and quantified if Siemens, a major electronics company, created a possible. The achievement of corporate objectives global knowledge-sharing network, called should result in the fulfillment of a corporation’s ShareNet, in order to quickly spread information mission. technology throughout the firm. term goal is often used interchangeably with the o “paths of learning” in which organizational term objective. strengths derive from learned capabilities. A strategy of a corporation forms a comprehensive This organizational knowledge is composed of master plan that states how the corporation will three basic strengths: technical skills, mainly in achieve its mission and objectives. It maximizes research; functional knowledge, such as pro- competitive advantage and minimizes competitive duction and marketing; and managerial expertise. disadvantage. Environmental scanning is the monitoring, three types of strategy: evaluating, and disseminating of information Corporate strategy describes a company’s overall from the external and internal environments to key direction in terms of its general attitude toward people within the corporation. Its purpose growth and the management of its various businesses and product lines. Corporate strategies  typically fit within the three main categories of Procedures, sometimes termed Standard stability, growth, and retrenchment. Operating Procedures (SOP), are a system of se- quential steps or techniques that describe in detail Business strategy usually occurs at the business how a particular task or job is to be done. They unit or product level, and it emphasizes improvement of the competitive position of a e typically detail the various activities that must be carried out in order to complete the cor- corporation’s products or services in the poration’s program. specific industry or market segment served by that business unit. Business strategies may Evaluation and control is a process in which fit within the two overall categories, competitive and corporate activities and performance results are cooperative strategies. monitored so that actual performance can be o Functional strategy is the approach taken by a compared with desired performance. Managers at functional area to achieve corporate and business all levels use the resulting information to take unit objectives and strategies by maximizing corrective action and resolve problems. resource productivity. It is concerned with Performance is the end result of activities.70 It developing and nurturing a distinctive competence includes the actual outcomes of the strate- to provide a company or business unit with a gic management process. competitive advantage. A triggering event is something that acts as a A hierarchy of strategy is a grouping of strategy types by level in the organization. Hierarchy of o stimulus for a change in strategy. strategy is a nesting of one strategy within another Unlike many other decisions, strategic decisions so that they complement and support one another. deal with the long-run future of an entire or- ganization and have three characteristics: e A policy is a broad guideline for decision making that links the formulation of a strategy with 1. Rare: Strategic decisions are unusual and its implementation. Companies use policies to typically have no precedent to follow. make sure that employees throughout the firm 2. Consequential: Strategic decisions commit make decisions and take actions that support the substantial resources and demand a great deal corporation’s mission, objectives, and strate- of commitment from people at all levels. gies. 3. Directive: Strategic decisions set precedents for lesser decisions and future actions Strategy implementation is a process by which throughout an organization.77 strategies and policies are put into action through the development of programs, budgets, and procedures. This process might involve changes Entrepreneurial mode: Strategy is made by one within the overall culture, structure, and/or powerful individual. The focus is on opportunities; management system of the entire organization. problems are secondary. Strategy is guided by the Sometimes referred to as operational planning, founder’s own vision of direction and is exemplified strategy implementation of- ten involves day-to-day by large, bold decisions. The dominant goal is decisions in resource allocation. growth of the corporation. A program is a statement of the activities or steps e needed to accomplish a single-use plan. It makes a Adaptive mode: Sometimes referred to as strategy action oriented. It may involve restructuring “muddling through,” this decision-making the corporation, changing the company’s internal culture, or beginning a new research effort. o mode is characterized by reactive solutions to existing problems, rather than a proactive search for new opportunities. Much bargaining goes on A budget is a statement of a corporation’s concerning priorities of objectives. Strategy is so programs in terms of dollars. Used in planning and fragmented and is developed to move a corporation control, a budget lists the detailed cost of each forward incrementally. program. Many corporations demand a certain percentage return on investment, often called a Planning mode: This decision-making mode “hurdle rate,” before management will approve involves the systematic gathering of appro- a new program. priate information for situation analysis, the generation of feasible alternative strategies, wh small and the rational selection of the most appropriate In a legal sense, the board is required to strategy. It includes both the proactive direct the affairs of the corporation but not to search for new opportunities and the reactive man- age them. It is charged by law to act solution of existing problems. with due care. The board of directors’ continuum shown Logical incrementalism: A fourth decision-making in Figure 2–1 shows the possible degree of mode can be viewed as a synthesis of the planning, involve- ment (from low to high) in the adaptive, and, to a lesser extent, the strategic management process. entrepreneurial modes. In this mode, top management has a reasonably clear idea of the corporation’s mission and objectives, but, in its development of strategies, it chooses to use “an interactive process in which the catalyst organization probes the future, experiments and learns from a series of partial (incremen- tal) commitments rather than through global formulations of total strategies. The strategic decision-making process is put into action through a technique known as the strategic peeing audit. A strategic audit provides a checklist of questions, by area or issue, that en- ables a The boards of most publicly owned systematic analysis to be made of various corporations are composed of both inside corporate functions and activities. and outside direc-tors. ○ Inside directors (sometimes called A strategic audit is a type of management audit management directors) are typically and is extremely useful as a diagnostic tool to officers or executives employed by pinpoint corporatewide problem areas and to the corporation. highlight organizational strengths and weaknesses ○ Outside directors (sometimes called non-management directors) A strategic audit can help determine why a may be executives of other firms but certain area is creating problems for a corporation are not employees of the board's and help generate solutions to the problem. corporation. Agency theory, which states that problems A strategic audit is not an all-inclusive list, but it arise in corporations because the agents presents many of the critical questions (top management) are not willing to bear needed for a detailed strategic analysis of any responsibility for their decisions unless they business corporation. own a substantial amount of stock in the corporation. Stewardship theory proposes that, because of their long tenure with the CHAPTER 2 corporation, insiders (senior executives) Corporate governance refers to the relationship among these three groups in if tend to identify with the corporation and its success. Rather than use the firm for their determining the direction and performance own ends, these executives are thus most of the corporation. interested in guaranteeing the continued life am Board of director responsibilities, listed and success of the corporation. in order of importance: Affiliated directors, who, though not really 1. Setting Corporate Strategy,overall employed by the corporation, handle the direction,mission,or vision legal or insurance work for the company or 2. Hiring and firing the CEO and top are important suppliers (thus dependent on management the current management for a key part of 3. Controlling,monitoring,or supervising their business). top management Retired executive directors, who used to 4. Reviewing And Approving The Use work for the company, such as the past Of Resources CEO who is partly responsible for much of 5. Caring For Shareholder Interests the corporation's current strategy and who  probably groomed the current CEO as his or organization by providing a vision for that her replacement. change. Family directors , who are descendants of the founder and own Significant blocks of CHAPTER 3 stock (with personal agendas based on a The concept of social responsibility family relationship with the current CEO). proposes that a private corporation has Codetermination, the inclusion of a responsibilities to society that extend corporation’s workers on its board, began beyond making a profit. only recently in the United States. Carroll’s Four Responsibilities of Business Interlocking Directorates- CEOs often Economic responsibilities of a business nominate chief executives (as well as board organization’s management are to produce 0 members) from other firms to mem- bership goods and services of value to society so on their own boards in order to create an that the firm may repay its creditors and interlocking directorate. shareholders. ○ A direct interlocking directorate Legal responsibilities are defined by occurs when two firms share a governments in laws that management is director or when an executive of one expected to obey. firm sits on the board of a second Ethical responsibilities of an organization’s I firm. management are to follow the generally ○ An indirect interlock occurs when held beliefs about behavior in a society. two corporations have directors who Discretionary responsibilities are the also serve on the board of a third m purely voluntary obligations a corporation firm, such as a bank. as- sumes. Many of those who prefer that the Chairman Moral relativism claims that morality is and CEO positions be combined agree that relative to some personal, social, or cultural the outside directors should elect a lead standard and that there is no method for director. This person is consulted by the deciding whether one decision is better than Chair/CEO regarding board affairs and another. coordinates the annual evaluation of the ○ Naïve relativism: Based on the CEO. The lead director position is very belief that all moral decisions are goes popular in the United Kingdom, where it deeply personal and that individuals originated. have the right to run their own lives, In response to the many corporate scandals adherents of moral relativism argue uncovered since 2000, the U.S. Congress that each person should be allowed passed the Sarbanes-Oxley Act in June to interpret situations and act on his 2002. This act was designed to protect or her own moral values. shareholders from the ex- cesses and failed ○ Role relativism: Based on the belief oversight that characterized failures at that social roles carry with them Enron, Tyco, WorldCom, Adelphia certain obligations to that role, Communications, Qwest, and Global Crossing, among other prominent firms. Top management responsibilities, r adherents of role relativism argue that a manager in charge of a work unit must put aside his or her especially those of the CEO, involve getting personal beliefs and do instead what things accomplished through and with the role requires, that is, act in the others in order to meet the corporate best interests of the unit. Blindly objectives. following orders was a common Executive leadership is the directing of excuse provided by Nazi war activities toward the accomplishment of criminals after World War II. corporate objectives. Executive leadership ○ Social group relativism: Based on is important because it sets the tone for the a belief that morality is simply a entire corporation. matter of following the norms of an A strategic vision is a description of what individual's peer group, social group the company is capable of becoming. It is relativism argues that a decision is often communicated in the company's considered legitimate if it is common mission and vision statements practice, regardless of other transformational leaders that is, leaders considerations ("everyone's doing who provide change and movement in an it"). A real danger in embracing this  view is that the person may practices, human capital devel- opment, incorrectly believe that a certain social reporting, talent attraction and action is commonly accepted retention, and stakeholder dialogue. practice in an industry when it is not. enterprise strategy—an overarching ○ Cultural relativism: Based on the strategy that explicitly articulates the firm’s belief that morality is relative to a ethical relationship with its stakeholders. particular culture, soci-ety, or This requires not only that management community, adherents of cultural clearly state the firm’s key ethical values, relativism argue that people should but also that it understands the firm’s understand the practices of other societal context, and undertakes societies, but not judge them. This stakeholder analysis to identify the concerns view not only suggests that one and abilities of each stakeholder should not criticize another culture's A corporation’s task environment includes a norms and customs, but also that it large number of groups with interest in a is acceptable to personally follow business organization’s activities. These these norms and customs ("When in groups are referred to as stakeholders Rome, do as the Romans do."). because they affect or are affected by the Kohlberg proposes that a person achievement of the firm’s objectives progresses through three levels of moral Stakeholder analysis is the identification development. Similar in some ways to and evaluation of corporate stakeholders. Maslow’s hierarchy of needs, in Kohlberg’s 1. The first step in stakeholder system, the individual moves from total analysis is to identify primary self-centeredness to a concern for universal stakeholders, those who have a values. Kohlberg’s three levels are as direct connection with the follows: corporation and who have sufficient ○ 1. The preconventional level: This bargaining power to directly affect level is characterized by a concern corporate activities. Primary for self. Small children and others stakeholders are directly affected who have not progressed beyond by the corporation and usually got this stage evaluate behaviors on the include customers, employees, basis of personal interest avoiding suppliers, shareholders, and punishment or quid pro quo. creditors. ○ 2. The conventional level: This 2. The second step in stakeholder ii level is characterized by analysis is to identify the secondary considerations of society's laws and stakeholders—those who have only norms. Actions are justified by an an indirect stake in the corporation external code of conduct. but who are also affected by ○ 3. The principled level: This level is corporate activ- ities. These usually characterized by a person's include nongovernmental i adherence to an internal moral code. organizations (NGOs, such as An individual at this level looks Greenpeace), ac- tivists, local beyond norms or laws to find communities, trade associations, universal values or principles. competitors, and governments. Environmental sustainability. This 3. The third step in stakeholder includes environ- mental reporting, analysis is to estimate the effect on eco-design and efficiency, environmen- tal each stakeholder group from any management systems, and executive particular strategic decision. commitment to environmental issues. Because the primary decision Economic sustainability. This includes criteria are typically eco- nomic, this codes of con- duct and compliance, is the point where secondary anti-corruption policies, corpo- rate stakeholders may be ignored or governance, risk and crisis management, discounted as unim- portant. For a strategic planning, quality and knowledge firm to fulfill its ethical or management, and supply chain discretionary responsibilities, it must management. seriously consider the needs and Social sustainability. This includes wants of its secondary stakeholders corporate citizen- ship, philanthropy, labor in any strategic decision. For ex-  ample, how much will specific 2. Rights: Does it respect the stakeholder groups lose or gain? rights of the individuals What other alternatives do they have involved? to replace what may be lost? 3. Justice: Is it consistent Moral relativism claims that morality is with the canons of justice? relative to some personal, social, or cultural Kant presents two principles (called standard and that there is no method for categorical imperatives) to guide our deciding whether one decision is better than actions: another. ○ 1. A person's action is ethical only if A code of ethics specifies how an that person is willing for that same organization expects its employees to action to be taken by everyone who behave while on the job. is in a similar situation. This is the In addition, U.S. corporations have same as the Golden Rule: Treat attempted to support whistle-blowers, others as you would like them to those employ- ees who report illegal or treat you. For example, padding an unethical behavior on the part of others. expense account would be Ethics is defined as the consensually considered ethical if the person were accepted standards of behavior for an also willing for everyone else to do occupation, a trade, or a profession. the same if they were the boss. Morality, in contrast, is the precepts of Because it is very doubtful that any personal behavior based on religious or manager would be pleased with philosophical grounds. expense account padding, the action Law refers to formal codes that permit or must be considered unethical. forbid certain behaviors and may or may not ○ 2. A person should never treat enforce ethics or morality. another human being simply as a The utilitarian approach proposes that means but always as an end. This actions and plans should be judged by their means that an action is morally consequences. People should therefore wrong for a person if that person behave in a way that will produce the uses others merely as means for greatest benefit to society and produce the advancing his or her own interests. least harm or the lowest cost. To be moral, the act should not The individual rights approach proposes restrict other people's actions so that that human beings have certain they are disadvantaged in some fundamental rights that should be respected way. in all decisions. The justice approach proposes that decision makers be equitable, fair, and impartial in the distribution of costs and benefits to individuals and groups. It follows the principles of distributive justice (people who are similar on relevant dimensions such as job seniority should be treated in the same way) and fairness (liberty should be equal for all persons). The justice approach can also include the concepts of retributive justice (punishment should be proportional to the offense) and compensatory justice (wrongs should be compensated in proportion to the offense). ○ Cavanagh proposes that we solve ethical problems by asking the following three questions regarding an act or a decision: 1. Utility: Does it optimize the satisfactions of all stakeholders?