Chapter 1 The Nature of Strategic Management

Chapter 1 The Nature of Strategic ManagementStrategic Management

Ch 1 -11Derived from

The Greek word strategtiaMeans are and science of directing military forces.

Copyright 2011 Pearson Education, Inc. Publishing as Prentice HallCh 1 -2

Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives

Copyright 2011 Pearson Education, Inc. Publishing as Prentice HallCh 1 -3Strategic Management Defined3Purpose of Strategic ManagementTo exploit and create new and different opportunities for tomorrowCopyright 2011 Pearson Education, Inc. Publishing as Prentice HallCh 1 -4

In essence, the strategic plan is a companys game planCopyright 2011 Pearson Education, Inc. Publishing as Prentice HallCh 1 -5Strategic Management5

Copyright 2011 Pearson Education, Inc. Publishing as Prentice HallCh 1 -6Benefits of Strategic Management6Benefits of Strategic Management

Nonfinancial BenefitsEnhanced awareness of threatsImproved understanding of competitors strategiesIncreased employee productivityReduced resistance to changeClearer understanding of performance-reward relationshipEnhanced problem-prevention capabilitiesCopyright 2011 Pearson Education, Inc. Publishing as Prentice HallCh 1 -7Ch 1 -8Strategic Management ModelStrategy FormulationStrategy ImplementationEvaluation and ControlMissionObjectivesStrategiesPoliciesFeedback/LearningEnvironmental ScanningSocietal Environment General ForcesTask Environment Industry AnalysisStructure Chain of CommandResources Assets, Skills Competencies, KnowledgeCulture Beliefs, Expectations, ValuesReason for existenceWhat results to accomplish by whenPlan to achieve the mission & objectivesBroad guidelines for decision makingProgramsActivities needed to accomplish a planBudgetsCost of the programsProceduresSequence of steps needed to do the jobProcess to monitor performanceand take corrective actionPerformanceExternalInternal4 Stages of the Strategic Management ProcessStrategy formulation . Strategy analysis and choice.Strategy implementation.Strategy evaluation.Ch 1 -9Strategy FormulationThe process of developing long-range plans to deal effectively with environmental opportunities and threats in light of corporate strengths and weaknesses.

Composed of: MissionVision Objectives Strategies Policies10

Copyright 2011 Pearson Education, Inc. Publishing as Prentice HallCh 1 -11Vision & MissionStrategy FormulationExternal Opportunities & ThreatsInternal Strengths & WeaknessesLong-Term ObjectivesAlternative StrategiesStrategy Selection11

Copyright 2011 Pearson Education, Inc. Publishing as Prentice HallCh 1 -12Issues in Strategy FormulationBusinesses to enter Businesses to abandonAllocation of resourcesExpansion or diversificationInternational marketsMergers or joint venturesAvoidance of hostile takeover12

Copyright 2011 Pearson Education, Inc. Publishing as Prentice HallCh 1 -13Strategy ImplementationAnnual ObjectivesPoliciesEmployee MotivationResource Allocation13Strategy Implementation StepsDeveloping a strategy-supportive cultureCreating an effective organizational structureRedirecting marketing effortsPreparing budgetsDeveloping and utilizing information systemsLinking employee compensation to organizational performanceCopyright 2011 Pearson Education, Inc. Publishing as Prentice HallCh 1 -14

Copyright 2011 Pearson Education, Inc. Publishing as Prentice HallCh 1 -15Issues in Strategy ImplementationAction Stage of Strategic Management

Mobilization of employees & managers

Most difficult stage

Interpersonal skills critical15

Copyright 2011 Pearson Education, Inc. Publishing as Prentice HallCh 1 -16Strategy EvaluationInternal ReviewExternal ReviewPerformance MeasurementCorrective Action16Context:Strategic AnalysisContent:Strategic ChoiceProcess:StrategyImplementationThe environmentCulture and stakeholderexpectationsResourcesand strategiccapabilitiesPlanning and allocating resourcesFirm structure and designManaging strategic changeIdentifying strategic optionsEvaluating optionsSelecting strategyComponents of StrategyFunctionalBusinessCorporateGlobalLevels of Strategy1815Hierarchy of StrategyFunctional StrategyBusiness (Division Level) StrategyCorporate StrategyManufacturingFinanceMarketingResearch and DevelopmentHuman ResourcesStrategic Business UnitStrategic Business UnitStrategic Business UnitCorporate Headquarters19Vision Statement What do we want to become?

Mission Statement What is our business?Copyright 2011 Pearson Education, Inc. Publishing as Prentice HallCh 1 -20Vision and Mission Statements20Vision

It is description of something in futureAn organisational charter of core values and principles.A puller into the future.Ch 1 -21MissionThe purpose or reason for the corporations existence. It tells who the company is? what they do? what theyd like to become?22ObjectivesThe end results of planned activity. They state WHAT is to be accomplished by WHEN. They should be quantified, if possible.

Should be specific, measurable and obtainable.23StrategiesA strategy is a comprehensive master plan stating HOW the corporation will achieve its mission and objectives. There are three types:

Corporate - a corporations overall direction and the management of its businesses.

Business - emphasizes improving the competitive position of a corporations products or services in a specific industry or market segment.

Functional - concerned with developing a distinctive competence to provide a company or business unit with a competitive advantage.

24PoliciesBroad guidelines for making decisions.

E.g. - 3Ms policy requiring researchers to spend 15% of their time working on something other than their primary project.25Strategy ImplementationThe process of putting strategies and policies into action through the development of:

Programs - statements of activities or steps needed to accomplish a single-use plan.

Budgets - statements of a corporations programs in dollar terms.

Procedures - systems of sequential steps or techniques that describe in detail how to perform particular tasks or jobs.

26Evaluation and ControlThe process of monitoring corporate activities and performance results so that actual performance can be compared with desired performance.27Specific results that an organization seeks to achieve in pursuing its basic mission

Long-term means more than one yearCopyright 2011 Pearson Education, Inc. Publishing as Prentice HallCh 1 -28Long-Term Objectives

28Essential for ensuring the firms successProvide directionAid in evaluationCreate synergyReveal prioritiesFocus coordinationProvide basis for planning, organizing, motivating, and controlling

Copyright 2011 Pearson Education, Inc. Publishing as Prentice HallCh 1 -29Long-Term Objectives29Means by which long-term objectives are achievedCopyright 2011 Pearson Education, Inc. Publishing as Prentice HallCh 1 -30Strategies30ExamplesGeographic expansionDiversificationAcquisitionProduct developmentMarket penetrationRetrenchmentDivestitureLiquidationJoint venture

Copyright 2011 Pearson Education, Inc. Publishing as Prentice HallCh 1 -31Strategies31Short-term milestones that firms must achieve to reach long-term objectivesCopyright 2011 Pearson Education, Inc. Publishing as Prentice HallCh 1 -32Annual Objectives32Means by which annual objectives will be achievedCopyright 2011 Pearson Education, Inc. Publishing as Prentice HallCh 1 -33Policies33

Ch 1 -34Strategic ManagementCommunication is a key to successful strategic managementCopyright 2011 Pearson Education, Inc. Publishing as Prentice HallCh 1 -35Effective Strategic Planning is:A people process more than a paper processA learning processWords supported by numbersSimple and nonroutineVarying assignments, team membership, meeting formats, and planning calendarsChallenging assumptions underlying corporate strategyCopyright 2011 Pearson Education, Inc. Publishing as Prentice HallCh 1 -36Effective Strategic Planning continuedWelcomes bad newsRequires open-mindedness and a spirit of inquiryIs not a bureaucratic mechanismIs not ritualistic or stiltedIs not too formal, predictable, or rigidDoes not contain jargon or arcane language

Copyright 2011 Pearson Education, Inc. Publishing as Prentice HallCh 1 -37Effective Strategic Planning continuedIs not a formal system for controlDoes not disregard qualitative informationIs not controlled by techniciansDoes not pursue too many strategies at onceContinually strengthens the good ethics is good business policyCopyright 2011 Pearson Education, Inc. Publishing as Prentice HallCh 1 -38Comparing Business and Military StrategyStrategic planning started in the militarySimilarity Both business and military organizations must adapt to change and constantly improveDifference Business strategy assumes competitionMilitary strategy assumes conflictCopyright 2011 Pearson Education, Inc. Publishing as Prentice HallCh 1 -39

Organizations should continually monitor internal and external events and trends so that timely changes can be made as neededCopyright 2011 Pearson Education, Inc. Publishing as Prentice HallCh 1 -40Adapting to Change40Key Terms in Strategic ManagementCompetitive advantageStrategistsVision and mission statementsExternal opportunities and threatsInternal strengths and weaknessesLong-term objectivesStrategiesAnnual objectivesPoliciesCopyright 2011 Pearson Education, Inc. Publishing as Prentice HallCh 1 -41Ch 1 -42THANK YOU