Strategic Management

An Introduction to Strategy

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Learning Outline

What is strategic management? Why is strategic management

important? Who is involved with strategic

management? Strategic management today

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A definition of strategy

Goal-directed decisions and actions in which capabilities and resources are matched with the opportunities and threats in the environment.

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Military influences in strategy

“Strategos” referred to a general in command of an army

The art of the general By 450 B.C. it came to mean managerial skill By 330 B.C. it referred to the skill of employing forces

to overcome positions to create a system of global governance

Carl von Clausewitz “tactics…(involve) the use of armed forces in the engagement, strategy (is) the use of engagements for the object of war” 1838 On War

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Academic influences in strategy

1911 Scientific management (Taylor) – Still in place today (UPS), some consider it micromanaging

HBS requires a class in Business Policy in 1912 Adam Smith’s “invisible hand” (the market) gives way to

Alfred Sloan (GM CEO from 1923-1946) concept of the “visible hand”—middle manager

Chester Bernard influential book “The Executive” argues that managers should pay attention to “strategic factors”

Ronald Coase’s 1937 article “why firms exist” (Nobel Prize in economics) and Joseph Schumpter’s concept of “disruptive technologies” written in 1942 bring in organizational economics

Max Weber warns against bureaucratic organizations but sees a shift toward this way of organizing

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Recent influences in strategy

1960s (Strategy and structure; Corporate Strategy)

• 1963 Harvard business conference leads to SWOT analysis

• BCG founded in 1963 “strategy boutique”• Created the portfolio analysis

• Stars, dogs, cash cows, question marks

1980s (Porter’s 5 forces) 1990s (Resource based view of the firm)

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Why is strategic management important?

Gives everyone a role Makes a difference in performance levels Provides systematic approach to

uncertainties Coordinates and focuses employees

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Why Strategy?

To change, an organization needsBurning PlatformVisionLeadershipStrategic Management Political Management

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Strategy vs. Strategic Management

Strategy A series of goal-

directed decisions and actions matching an organization’s skills and resources with the opportunities and threats in its environment

Strategic management Analyze current

situation Develop

appropriate strategies

Put strategies into action

Evaluate, modify, or change strategy

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Strategy vs. Strategic Management

Strategy involves Organization’s

goals Goal-oriented

action Related decisions

and actions Internal strengths External

opportunities and threats

Strategic management Planning Organizing Implementing Controlling

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Basics of Strategic Management

Four aspects that set strategic management apartInterdisciplinary

• Capstone of the Business degree

External focus• Competition

Internal focusFuture direction

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Strategic Management Process

AnalyzingCurrent

Situation

Decidingon

Strategies

PuttingStrategiesin Action

Evaluating andChanging Strategies

SituationAnalysis

StrategyFormulation

StrategyImplementation

StrategyEvaluation

Chapter 2 Chapter 3

Chapter 4

ExternalAnalysis

InternalAnalysis

Chapter 5 Chapter 6

Chapter 7

Functional Competitive

Corporate

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Strategic Management Process Situation Analysis

Scanning & evaluating context Internal and External environments

Strategy formulation Functional Competitive Corporate strategies

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Levels of strategy

Competitive:How are we going to compete in

our chosen business(es)?

FunctionalWhat resources and capabilities do

we have to support the corporate and competitive strategies?

CorporateWhat direction are we going and

what business(es) are we in or do we want to be in?

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Strategic Management Process

Strategy implementationProcess of putting strategies into

actionConsider implementation at each level

Strategy evaluationWas the strategy effective?“Close the loop”

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Who does strategy?

The Role of the Board of Directors Elected representatives of the company’s stockholders Legally obligated to represent and protect stockholder’s

The Role of Top Management Responsible for decisions and action of every employee Providing effective leadership

Other Organizational Employees Implement— put the strategies into action and monitor

performance Evaluate—do the actual evaluations and take necessary

actions

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The Role of the Board of Directors Review and approve strategic goals and plans Review and approve organization's financial

standards and policies Approve an organizational philosophy Monitor organizational performance and

regularly review performance results Select, evaluate, and compensate top-level

managers Develop management succession plans Monitor relations with shareholders and other

key stakeholders

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Who is on the board of directors? Chairman of the board

Chief Executive officer (CEO) President

Chief Operating officer (COO) Other C’s

Chief Financial officer Chief Information officer

Inside board members Outside board members

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The Role of Top Management

EffectiveStrategic

Leadership

Exploiting andMaintaining

Core Competencies

DevelopingHuman Capital

Creating andSustaining Strong

Organizational Culture

EmphasizingEthical Decisions

and Practices

EstablishingAppropriately

Balanced Controls

DeterminingOrganizational

Purpose or Vision

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Strategic Management Principle

Effective strategy-making

begins with a vision of where

the organization needs to

head!

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Elements of a Strategic Vision

Use the mission statement as a as a starting pointstarting point

Develop a strategic vision that spells out a course to pursue

CommunicateCommunicate the vision in a clearclear and excitingexciting manner

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Characteristics of a Mission Statement

Defines current business activities Highlights boundaries of current

business Conveys

Who we are, What we do, and Where we are now

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Characteristics of a Mission Statement

Company specific, not generic —so as to give a company its own identity

A company’s mission is not to make a profit !

The real mission is always—“What will we do to make a profit?”

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Empower people through great software anytime, anyplace,

and on any device.

Microsoft

Corporation

Examples of Missions

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Otis Elevator

Our mission is to provide any customer a means of moving people and things up, down, and sideways

over short distances with higher reliability than any similar enterprise in

the world.

Examples of Missions

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Examples of Mission

The mission of the American Red Cross is

to improve the quality of human life; to

enhance self-reliance and concern for

others; and to help people avoid, prepare

for, and cope with emergencies.

American Red Cross

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The Ritz-Carlton Hotel is a place where the genuine care and comfort of our guests is our

highest mission.

We pledge to provide the finest personal service and facilities for our guests who will

always enjoy a warm, relaxed yet refined ambiance. The Ritz-Carlton experience enlivens the senses, instills well-being, and fulfills even

the unexpressed wishes and needs of our guests (vision)

Ritz-Carlton Hotels

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Characteristics of a Strategic Vision

Charts a company’s future strategic course

Defines the business makeup for 5 years (or more)

Specifies future technology-product-customer focus

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Communicating the Vision

An exciting, inspirational visionChallenges and motivates workforceArouses strong sense of organizational

purposeInduces employee buy-inGalvanizes people to live the business

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Value of a Well-Conceived Strategic Vision and Mission

Crystallizes long-term direction Reduces risk of rudderless

decision-making Conveys organizational

purpose and identity Keeps direction-related actions of lower-

level managers on common path Helps organization prepare for the future

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Concept of Strategic Intent

A company exhibits strategic intent when it relentlessly

pursues an ambitious strategic objective and concentrates its

competitive actions and energies on achieving that objective!

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Lessons about change: Built to last Understand why superior companies

are better than peer companies which are better than most companies$1 invested in stock market in 1926

yields• $420 in all other companies• $960 in peer companies• $6360 in superior (visionary) companies

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Who are these companies Visionary

3M Boeing GE IBM Motorola Nordstrom P&G Sony Wal-mart

Peer companies Norton McDonnell Douglass Westinghouse Burroughs Zenith Melville Colgate Kenwood Ames

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So what did they find?

Great companies had BHAGBig Hairy Audacious Goals

What ever your values are “stick with it”

Deal with the AND, not the OR Seek Alignment (internally)

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Characteristics of Strategic Intent

Indicates firm’s intent to stake out a particular position over the long-term

Involves establishing a BHAG - ”big, hairy, audacious goal”

Signals relentless commitment to winning

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Example of BHAG

General Electric• All businesses are held to a standard of

being #1 or #2 in their industries as well as achieving good business results

John F. Kennedy• Put a man on the moon and return safely

by the end of the decade

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Crafting a Strategy

An organization’s strategy deals with How to make the strategic vision a reality

and achieve target objectives The game plan for

• Pleasing customers

• Conducting operations

• Building a sustainable competitive advantage

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Take Aways

Strategy has become more important• Information, technology, globalization

Key ideas in the strategy making process Mission (who are we) Vision (where do we want to go) Strategic intent / BHAG (major goal) Strategy (specific plan at different levels) Ethics (code of conduct or values)

Linkage & communication are important Avoid mission creep!

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Take Aways

Where strategy came from Strategic Management Process Who does strategy Next week

Read Airline Simulation Book (1-35) Bring Laptop