Strategic Management

Strategic ManagementChapter 1

2015 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Learning ObjectivesExplain the concept of strategic managementDescribe how strategic decisions differ from other decisions that managers makeName the benefits and risks of a participative approach to strategic decision makingUnderstand the types of strategic decisions for which different managers are responsibleDescribe a comprehensive model of strategic decision makingAppreciate the importance of strategic management as a processGive examples of strategic decisions that companies have recently made2The Nature and Value of Strategic ManagementStrategic management:The set of decisions and actions that result in the formulation and implementation of plans designed to achieve a companys objectives3Nine Critical Tasks of Strategic Management -- Tasks 1-5:Formulate the companys missionConduct an internal analysisAssess the external environment competitive and general contextsAnalyze the companys options by matching its resources with the external environmentIdentify the most desirable options in light of the mission4Nine Critical Tasks of Strategic Management -- Tasks 6-9:Select a set of long-term objectives and grand strategies that will achieve the most desirable optionsDevelop annual objectives and short-term strategies that are compatible with long-term objectives and grand strategiesImplement the strategic choicesEvaluate the success of the strategic process for future decision making5What is Strategy?Large-scale, future-oriented planUsed to interact within competitive environment to achieve company goalsProvides a framework for managerial decisionsReflects a companys awareness of the main elements of competition6Dimensions of Strategic DecisionsStrategic issues require top-management team decisionsStrategic issues require large amounts of the firms resourcesStrategic issues often affect the firms long-term prosperityStrategic issues are future orientedStrategic issues usually have multifunctional or multibusiness consequencesStrategic issues require considering the firms external environment7Multimedia Lecture Support Package to Accompany Basic MarketingLecture Script 6-7Dimensions of Strategic Decisions(in detail)Strategic issues require top-management team decisionsStrategic decisions overarch several areas of a firms operationsUsually only top management has the perspective needed to understand their broad implications Usually only top managers have the power to authorize necessary resource allocations8Multimedia Lecture Support Package to Accompany Basic MarketingLecture Script 6-8Dimensions of Strategic Decisions (contd.)Strategic issues require large amounts of the firms resourcesThey involve substantial allocations of people, physical assets, and moneyStrategic decisions commit the firm to actions over an extended periodIn highly competitive firms, achieving and maintaining customer satisfaction frequently involves commitment from every facet of the firm9Dimensions of Strategic Decisions (contd.)Strategic issues often affect the firms long-term prosperityStrategic decisions commit the firm for a long time, typically 5 years; however the impact lasts much longerOnce a firm has committed itself to a strategy, its image and competitive advantages are usually tied to that strategyFirms become known for what they do and where they compete. Shifting away from that can jeopardize their previous gains.10Dimensions of Strategic Decisions (contd.)Strategic issues are future-orientedThey are based on what managers forecast, rather than what they knowEmphasis is on the development of solid projections that will enable a firm to seek the most promising strategic optionsA firm will succeed only if it takes a proactive (anticipatory) stance toward change11Dimensions of Strategic Decisions (contd.)Strategic issues usually have multifunctional or multibusiness consequences. Strategic decisions have complex implications for most areas of the firmDecisions about customer mix, competitive emphasis, or organizational structure involve a number of the firms SBUs, divisions, or program units 12Dimensions of Strategic Decisions (contd.)Strategic issues require considering the firms external environmentAll businesses exist in an open system. They affect and are affected by external conditions that are largely beyond their control Successful positioning requires that strategic managers look beyond operations and consider what relevant others are likely to do13Levels of StrategyCorporate level: board of directors, CEO & administration [Highest]Business level: business and corporate managers [Middle]Functional level: Product, geographic, and functional area managers [Lowest]14Ex. 1.2 Alternative Strategic Management Structures15

Ex. 1.4 Hierarchy of Objectives and Strategy16

Multimedia Lecture Support Package to Accompany Basic MarketingLecture Script 6-16Characteristics of Strategic Management Decisions: CorporateOften carry greater risk, cost, and profit potentialGreater need for flexibilityLonger time horizonsChoice of businesses, dividend policies, sources of long-term financing, and priorities for growth 17Characteristics of Strategic Management Decisions: FunctionalImplement the overall strategy formulated at the corporate and business levelsInvolve action-oriented operational issuesRelatively short range and low riskModest costs: depend upon available resourcesRelatively concrete and quantifiable18Characteristics of Strategic Management Decisions: Business/SBUHelp bridge decisions at the corporate and functional levelsLess costly, risky, and potentially profitable than corporate-level decisionsMore costly, risky, and potentially profitable than functional-level decisionsInclude decisions on plant location, marketing segmentation, and distribution19Formality in Strategic ManagementFormality is the degree to which participation, responsibility, authority, and discretion in decision-making are specified in strategic management20Forces Determining FormalityOrganizational SizePredominant Management StylesComplexity of EnvironmentProduction ProcessProblems in the FirmPurpose of the Planning SystemStage of Firms Development21Three Modes of FormalityEntrepreneurial Mode most small firmsPlanning Mode most large firmsAdaptive Mode most medium size firms22Entrepreneurial ModeThe informal, intuitive, and limited approach to strategic management associated with owner-managers of smaller firms.23Planning ModeThe strategic formality associated with large firms that operate under a comprehensive, formal planning system.24Adaptive ModeThe strategic formality associated with medium-sized firms that emphasize the incremental modification of existing competitive approaches.25Strategy MakersIdeal strategic management planning process includes decision makers from all three levelsTop managers must give final approvalStrategic decisions coincide with managers responsibilities

26Strategy Makers: The CEOA firms CEO plays a prominent role in strategic planningThe CEOs principal duty is giving long-term direction to the firm The CEO bears ultimate responsibility for the firms success and strategic successCEOs are typically strong-willed, company-oriented individuals27Benefits of a Participative Approach to Strategic ManagementManagers at all levels interact in planning and implementing strategySimilar to participative decision makingAssessing strategy formulation requires looking at nonfinancial evaluations as well as financial onesPromoting positive behavioral consequences enables achievement of financial goals28The Strategic Management ProcessBusinesses vary in formulation and other processes The basic components of the models used to analyze strategic management are similarStrategic management is a processa flow of information through interrelated stages of analysis toward the achievement of some goal29Multimedia Lecture Support Package to Accompany Basic MarketingLecture Script 6-29Ex. 1.5 Strategic Management Model30

Components of the Strategic Management ModelCompany MissionExternal AnalysisLong-Term ObjectivesShort-Term ObjectivesPolicies Empowering ActionStrategic Control & Continuous ImprovementInternal AnalysisStrategic Analysis & ChoiceGeneric & Grand StrategiesAction Plans & Functional TacticsRestructuring, Reengineering & Refocusing31Strategic Management Terms DefinedCompany Mission: The unique purpose that sets a company apart from others of its type and identifies the scope of its operations.Long-term Objectives: The results than an organization seeks to achieve over a multiyear period.

32Strategic Management Terms DefinedGeneric Strategies: Fundamental philosophical options for the design of strategies.Grand Strategies: The means by which objectives are achieved.33Strategic Management Terms DefinedShort-term Objectives: Desired results that provide specific guidance for action during a period of one year or less.Functional Tactics: Short-term, narrow scoped plans that detail the means or activities that a company will use to achieve short-term objectives.Policies: Predetermined decisions that substitute for managerial discretion in repetitive decision making.34Strategic Management Terms DefinedStrategic Control: Tracking a strategy as it is being implemented, detecting problems or changes in its underlying premises, and making necessary adjustments.Continuous Improvement: A form of strategic control in which managers are encouraged to be proactive in improving all operations of the firm.35StakeholdersInfluential people who are vitally interested in the actions of the business36Multimedia Lecture Support Package to Accompany Basic MarketingLecture Script 6-36Key TermsAdaptive modeCompany missionContinuous improvementDynamicEntrepreneurial modeFeedbackFormalityFunctional tacticsGeneric strategiesGrand strategiesLong-term objectivesPlanning modePoliciesProcessesShort-term objectivesStakeholdersStrategic controlStrategic managementStrategy

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