Module 1 - Intro to Strategic Mngt PDF

Module 1: INTRODUCTION TO STRATEGIC MANAGEMENT ============================================== 1. Discuss the concept and the benefits of strategic management. 2. Explain the concept of a sustainable competitive advantage. 3. Identify the five most basic strategic approaches for setting a c...

Module 1: INTRODUCTION TO STRATEGIC MANAGEMENT ============================================== 1. Discuss the concept and the benefits of strategic management. 2. Explain the concept of a sustainable competitive advantage. 3. Identify the five most basic strategic approaches for setting a company apart from rivals. 4. Describe the basic model of strategic management and its components. 5. Identify the three tests of a winning strategy. WHAT IS STRATEGIC MANAGEMENT? ============================= - the [art] and [science] of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives. - As this definition implies, [strategic management] focuses on [integrating] management, marketing, finance and accounting, production and operations, research and development (R&D), and information systems to achieve organizational success. - The term [strategic management] in this text is used synonymously with the term *strategic planning*. The latter term is more often used in the *business world*, whereas the former is often used in [academia]. - Sometimes the term [strategic management] is used to refer to [strategy formulation], [implementation, and evaluation], with strategic planning referring only to strategy formulation. The purpose of strategic management is to exploit and create new and different opportunities for tomorrow; long-range planning, in contrast, tries to optimize for tomorrow the trends of today. - A [strategic plan] is, in essence, a company's [game plan.] - is a set of managerial decisions and actions that help determine the long-term performance of an organization. It includes several processes namely: - Environmental Scanning (both external and internal) - Strategy Formulation (strategic or long-range planning) - Strategy Implementation - Evaluation and Control MODELS OF STRATEGIC MANAGEMENT (STAGES OF STRATEGIC MANAGEMENT) =============================================================== ENVIRONMENTAL SCANNING ====================== - External Environment - consists of variables (Opportunities and Threats) that are outside the organization; uncontrollable factors. - Internal Environment - consists of variables (Strengths and Weaknesses) that are within the organization itself; controllable factors STRATEGY FORMULATION ==================== - Mission: Stating Purpose - An organization's mission is the purpose or reason for the organization's existence. - Objectives: Listing Expected Results - Objectives are said to be the end results of planned activity. Some of the areas in which a corporation might establish its goals and objectives are: profitability, efficiency, growth, shareholder wealth, utilization of resources, etc. - Strategy: Defining the Competitive Advantages - A strategy of a business forms a comprehensive master approach that states how the business will achieve its mission and objectives. Companies must address three types of strategy: corporate, business, and functional. - Policies: Setting Guidelines - A policy is a broad guideline for decision making that links the formulation of a strategy with its implementation. Policies provide clear guidance to all people within the organization. - Strategy formulation issues - deciding what new businesses to enter, - what businesses to abandon, - whether to expand operations or diversify, - whether to enter international markets, - whether to merge or form a joint venture, and - how to avoid a hostile takeover - Because [no organization] has unlimited resources, [strategists must decide] which alternative strategies will benefit the firm most. - Strategy-formulation decisions [commit] an organization to specific products, markets, resources, and technologies over an extended period of time. Strategies determine long-term competitive advantages. - For better or worse, strategic decisions have [major multifunctional consequences] and enduring effects on an organization. Top managers have the best perspective to understand fully the ramifications of strategy-formulation decisions; they have the authority to commit the resources necessary for implementation. STRATEGY IMPLEMENTATION ======================= - 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 a 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. - Strategy implementation often is called the "action stage" of strategic management. Implementing strategy means mobilizing employees and managers to put formulated strategies into action. - Often considered to be the most difficult stage in strategic management, strategy implementation requires personal discipline, commitment, and sacrifice. - Successful strategy implementation hinges on managers' ability to motivate employees, which is more an art than a science. - Strategies formulated but not implemented serve no useful purpose. - Interpersonal skills are especially critical for successful strategy implementation. Strategy implementation activities affect all employees and managers in an organization - An element of strategic management focused on putting strategies and policies put into action through the development of programs, budgets, and procedures. Strategy implementation often involves day-to-day decisions in resource allocation. - Programs and Tactics: Defining Actions - A program or a tactic is a statement of the activities or steps needed to support a strategy. - Budgets: Costing Programs - A budget is a statement of a corporation's programs in monetary terms. - Procedures: Detailing Activities - Procedures are sequential steps or techniques that describe in detail how a particular task or job is to be done. EVALUATION AND CONTROL ====================== - 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. - Three fundamental strategy-evaluation activities are - reviewing external and internal factors that are the bases for current strategies, - measuring performance, and - taking corrective actions. - Strategy evaluation is needed because success today is no guarantee of success tomorrow! Success always creates new and different problems; complacent organizations experience demise. - An element of strategic management focused on monitoring actual performance compared with the desired performance. Managers at all levels use the resulting information to take corrective action and resolve problems. - The evaluation and control of performance completes the strategic management model. Based on performance results, management may need to have adjustments in its strategy formulation, in implementation, or in both. THREE TESTS OF A WINNING STRATEGY ================================= THE FIT TEST ============ THE COMPETITIVE ADVANTAGE TEST ============================== THE PERFORMANCE TEST ==================== 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 evidenced by how the drop in oil prices caught so many firms by surprise. - Firms, like organisms, 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 KEY TERMS IN STRATEGIC MANAGEMENT COMPETITIVE ADVANTAGE ===================== - Strategic management is all about gaining and maintaining competitive advantage. This term can be defined as any activity a firm does [especially well compared to activities done by rival firms], or any resource a firm possesses that rival firms desire. - Competitive Advantage is a distinct edge possessed by companies over their rivals in attracting buyers and coping with competitive forces. A company achieves a competitive advantage when it provides buyers with superior value compared to rival sellers or offers the same value at a lower cost to the firm. The advantage is sustainable if it persists despite the best efforts of competitors to match or surpass this advantage. - A good example is Apple. In the case of Apple, the company's unparalleled name recognition, its reputation for technically superior, beautifully designed, "must-have" products, and the accessibility of the appealing, consumer-friendly stores with knowledgeable staff, make it difficult for competitors to weaken or overcome Apple's competitive advantage. Thus, resulting to high admiration coming from customers all over the globe. - Having fewer fixed assets than rival firms can provide major competitive advantages. For example, Apple has virtually no manufacturing facilities of its own, and rival Sony has 57 electronics factories. Apple relies almost entirely on contract manufacturers for production of all its products, whereas Sony owns its own plants. Having fewer fixed assets has enabled Apple to remain financially lean. 2. STRATEGIST - [Strategists] are the individuals most [responsible] for the success or failure of an organization. They have various job titles, such as chief executive officer, president, owner, chair of the board, executive director, chancellor, dean, and entrepreneur. - Strategists help an organization gather, analyze, and organize information. They track industry and competitive trends, develop forecasting models and scenario analyses, evaluate corporate and divisional performance, spot emerging market opportunities, identify business threats, and develop creative action plans. - Strategic planners usually serve in a support or staff role. Usually found in higher levels of management, they typically have considerable authority for decision making in the firm. 3. VISION AND MISSION STATEMENTS - Developing a [vision statement] is often considered the first step in strategic planning, preceding even development of a mission statement. Many vision statements are a single sentence. For example, the vision statement of Stokes Eye Clinic in Florence, South Carolina, is "Our vision is to take care of your vision." - Many organizations today develop a vision statement that answers the question "What do we want to become?" - Mission statements are "enduring statements of purpose that distinguish one business from other similar firms. - A mission statement identifies the scope of a firm's operations in product and market terms."11 It addresses the basic question that faces all strategists: "What is our business?" A clear mission statement describes the values and priorities of an organization. Developing a mission statement compels strategists to think about the nature and scope of present operations and to assess the potential attractiveness of future markets and activities. 4. EXTERNAL OPPORTUNITIES AND THREAT - External opportunities and external threats refer to 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. Opportunities and threats are largely beyond the control of a single organization---thus the word external. - External trends and events are creating a different type of consumer and consequently a need for different types of products, services, and strategies. Many companies in many industries face the severe threat of online sales eroding brick-and-mortar sales. A competitor's strength could be a threat, or a rival firm's weakness could be an opportunity. 5. INTERNAL STRENGHTS AND WEAKNESSES - Internal strengths and internal weaknesses are an organization's controllable activities that are performed especially well or poorly. - They arise in the management, marketing, finance/ accounting, production/operations, research and development, and management information systems (MIS) activities of a business. Identifying and evaluating organizational strengths and weaknesses in the functional areas of a business is an essential strategic-management activity. - Organizations strive to pursue strategies that capitalize on internal strengths and eliminate internal weaknesses. - Both internal and external factors should be stated as specifically as possible, using numbers, percentages, dollars, and ratios, as well as comparisons over time to rival firms. - [Specificity] is important because strategies will be formulated and resources allocated based on this information. The more specific the underlying external and internal factors, the more effectively strategies can be formulated and resources allocated. Determining the numbers takes more time, but survival of the firm often is at stake, so doing some research and incorporating numbers associated with key factors is essential. 6. LONG-TERM OBJECTIVES - Objectives can be defined as specific results that an organization seeks to achieve in pursuing its basic mission. 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. Objectives should be challenging, measurable, consistent, reasonable, and clear. In a multidimensional firm, objectives are needed both for the overall company and each division. THE BASIC STRATEGIC APPROACHES ============================== - [A LOW-COST PROVIDER STRATEGY] - a strategy focused on achieving a cost-based advantage over rivals. Low-cost provider strategies can produce a durable competitive edge when rivals find it hard to match the low-cost leader's approach to driving costs out of the business. - [A BROAD DIFFERENTIATION STRATEGY] - a strategy that seeks to differentiate the company's product or service from that of rivals in order to gain a larger market. In order to sustain this strategy, companies must continuously innovate to stay ahead the competition. - [A FOCUSED LOW-COST STRATEGY] - are strategies that deliver competitive advantage by achieving lower costs than rivals in serving buyers constituting the target market niche. - [A FOCUSED DIFFERENTIATION STRATEGY] - are strategies that deliver competitive advantage by developing a specialized ability to offer niche buyers an appealingly differentiated offering that meets their needs better than rival brands do - [A BEST-COST PROVIDER STRATEGY] - are a hybrid of low-cost and differentiation strategies, incorporating features of both simultaneously. These strategies create competitive advantage on the basis of their capability to incorporate attractive or upscale attributes at a lower cost than rivals  - *Interactive lectures and discussions* - *In your own words, explain what strategic management is and its importance to businesses around the world.* - *List down five local companies and give their respective competitive advantages among rival companies.* - *Among the five basic strategic approaches, what do you think is the best approach to take and why?* - *Why do you believe SWOT analysis is so commonly used by businesses in doing strategic planning?* - *Strategic Management, 14th Edition - Fred R. David* - *Strategic Management: A Competitive Advantage Approach, Concepts and Cases, 18th Edition - Fred R. David, Forest R. David, & Meredith E. David* - *Wheelen, T., Hunger, D., Hoffman, A., & Bamford, C. (2018). Basic Concepts of Strategic Management. In Strategic Management and Business Policy: Globalization, Innovation and Sustainability (15th ed., pp. 37-54). Harlow: Pearson* - *Wheelen, T., Hunger, D., Hoffman, A., & Bamford, C. (2018). Corporate Governance. In Strategic Management and Business Policy: Globalization, Innovation and Sustainability (15th ed., pp. 76- 92). Harlow: Pearson*