nature of Strategic Management

The Nature of Strategic The Nature of Strategic

ManagementManagement

• Strategic Management can be defined as the art and science of formulating, implementing and evaluating cross-functional decisions that enable an organization to achieve its objectives.

• It may also be referred to as “Strategy Formulation” for an organization.

• The purpose of Strategic Management is to exploit and create new and different opportunities for tomorrow.

Strategic ManagementStrategic Management

Strategic ManagementStrategic Management

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

Strategic Management is Synonymous with “Strategic Planning”.

Strategic management is usually used in academia whereas Strategic planning is used more often in the business world.

Important TerminologiesImportant Terminologies• Vision. It is a long term desired status or a general statement of its intended direction that evokes emotional feelings in organization members.

• Mission. Spells out who the company is and what is purpose of its existence.

• Strategy / Strategic Plan. The company’s long term plan for how it will balance its internal Strengths & Weaknesses with its external Opportunities & Threats to maintain a competitive advantage.

• Strategic Management. The process of identifying and executing the organization’s mission by matching its capabilities with demands of its environment.

Important TerminologiesImportant Terminologies• SWOT Analysis. The process of identifying company’s Strengths, Weaknesses, Opportunities & Threats.

• Strategic Control. The process of monitoring and assessing progress toward strategic goals and taking corrective action as needed.

• Competitive Advantage. Any factors that allow an organization to differentiate its product or services from those of its competitors to increase market share.

• Outsourcing. Letting outside venders to provide services or part (s) of a product/equipment/machinery.

• Leveraging. Supplementing what you have and doing more with what you have.

Strategic Management ProcessStrategic Management Process(Three Stages)(Three Stages)

Strategy Formulation

Strategy Implementation

Strategy Evaluation

Objective, logical and systematic approach for making major decisions

Strategy Formulation

Vision & Mission

Alternative Strategies

Long-Term Objectives

Strengths & Weaknesses

Opportunities & Threats

Strategy Selection

Strategy is formulated by the top managers who are in a better position to understand impact of various strategies on the business.

It is “Planning Stage” of Strategic Management; too demanding.

Strategy Implementation

Motivate Employees

Policies

Annual Objectives

Resource Allocation

Also called “Action Stage” of Strategic Management; is most difficult stage.

Strategy Evaluation

Corrective Action

Measure Performance

ReviewExternal & Internal

Also called “Final Stage” of Strategic

Management; is most difficult stage.

A thorough evaluation from planning/start till complete implementation is carried out to know about strong and weak

areas and to learn lessons/take actions.

Integrating Intuition and AnalysisIntegrating Intuition and Analysis

• Intuition is based on past experience, judgments & feelings; helps in making quick decisions.

• More helpful in situations of uncertainty and no precedence.

• Ability to take intuitive decisions vary from manager to manager.

• Although not always correct, most decisions based on intuition prove correct.

• It is not applied in dark – rather based on some symptoms.

Adapting to ChangeAdapting to Change

• Strategic management process is based on belief that Org should continuously monitor Internal & External events and trends – helping in adapting to changing requirements.

• Rate & magnitude of changes are much more than ever before.

• The only constant thing is the change.

• E-commerce, laser surgery, are the causes

• More immigrations, traveling, improved lifestyle

• Ever-growing needs of customers

Key Strategic Management TermsKey Strategic Management Terms (Nine Terms)(Nine Terms)

1. Strategists

2. Vision statements

3. Mission statements

4. External opportunities and threats

5. Internal strengths and weaknesses

Key Strategic Management TermsKey Strategic Management Terms

6. Long-term objectives

7. Strategies

8. Annual objectives

9. Policies

Strategic Management TermsStrategic Management Terms

Strategists:

• Usually found in high levels of management:

Help organization gather, analyze, and organize information

Track industry and competitive trends

Develop forecasting model

Evaluate corporate and divisional performance

Vision Statement:

• Answers the question: “What do we want to become”:

First step in strategic planning

Oftentimes a single sentence – our vision is to take care of your vision.

“Our vision is to be the market leader by the year 2020.”


Mission Statement:

• Answers the question: “What is purpose of our existence”:

Second step in strategic planning

Often a brief – may comprise one or few sentences. Mission statement of Business School could be:

“Our mission is to impart quality business education .”


External Opportunities & Threats:

• Largely beyond the control of a single organization:

Economic Social Cultural Demographic Environmental


External Opportunities & Threats:

Political

Governmental

Technological

Competitive trends & events


Internal Strengths & Weaknesses:

• Controllable activities that are performed well or poorly relative to competitors:

• Based on functional analysis of activities in the firm’s:

Management Marketing Finance/accounting


Conti…

Internal Strengths & Weaknesses:

• Production/operations

• Research and development

• Computer information systems

• Organizations strive to pursue strategies that capitalize on strengths and improve weaknesses.


Long-Term Objectives:

• Results to be achieved in pursuing the mission of the organization. Time frame is beyond one year:

Objectives state direction of organization

Help in evaluation

Create synergy through team work

Reveal priorities – what to do first

Focus coordination – whom to coordinate with

Provide basis for effective management


Strategies:

• Potential actions that require top management decisions and large amounts of firm’s resources.

• Mechanisms by which long-term objectives are realized:

Geographic expansion

Diversification

Acquisition

Product development


Strategies:

• Mechanisms/means to achieve long-term objectives/goals.

• They are potential actions that require top management decisions. Business strategies may include:Market penetration – increase share in present

market and existing products / services through greater marketing efforts.

Retrenchment – reverse declining sales and profits by reducing cost & other assets. Also called turn around or re-organizational strategy.


Strategies:

Divestiture. Selling a division or part of an organization, thereby improving financial health as a short term measure.

Liquidation. Selling all of the company’s assets, in parts for their tangible worth.

Joint venture. Forming of a temporary partnership or consortium by two or more partners for the purpose of capitalizing on some opportunity.


Annual Objectives:

• Short-term milestones necessary to achieve long-term objectives:

Represent the basis for allocating resources

Established at corporate, divisional, and functional levels


Annual Objectives (cont’d)

– Stated in terms of accomplishments for:

Management

Marketing

Finance/accounting

Production/operations

Research and development

Information systems accomplishments


Policies:

• Important in strategy implementation as the means by which annual objectives will be achieved:

Guide to decision making and address repetitive situations

Established at corporate, divisional, or functional levels

Allow consistency & coordination within and between organizational departments.


• Proactive Vs. Reactive:

Initiate and influence activities Helps shape firm’s own future

• Principal Benefit:

Formulate better strategies Systematic, logical, and rational approach

• Communication:

Key to successful strategic management

Benefits of Strategic ManagementBenefits of Strategic Management

• Financial Benefits:

More profitable and successful

Improvements in sales, profitability, and productivity

High-Performing Firms:Systematic planning – fluctuations in

external and internal environments


• Non-financial Benefits:Enhanced awareness of external threats

Understanding of competitors’ strategies

Increased employee productivity

Reduced resistance to change

Clear performance-reward relationships

Order and discipline to the firm

View change as opportunity


• Poor reward structures

• Fire-fighting

• Waste of time

• Too expensive

• Laziness

• Content with existing level of success

Why Some Firms Do ‘Why Some Firms Do ‘NoNo Strategic Planning’ Strategic Planning’

• Fear of failure

• Overconfidence

• Prior bad experience

• Self-interest

• Fear of the unknown

• Suspicion

Why Some Firms Do ‘Why Some Firms Do ‘NoNo Strategic Planning’ Strategic Planning’

• Using to gain control over decisions & resources

• Doing only to satisfy regulatory requirements

• Moving hastily from mission to strategy

formulation

• Failing to communicate to employees

• Intuitive decisions that conflict with formal plan

• Top management not supportive of process

Pitfalls to be Avoided Pitfalls to be Avoided in Strategic Planningin Strategic Planning

• Failing to use standard performance

measurement tools/procedures.

• Delegating to a “planner” without involvement of

own managers

• Failing to involve key personnel

• Failing to create collaborative environment

• Formality that stifles creativity and flexibility

Pitfalls to be Avoided Pitfalls to be Avoided in Strategic Planningin Strategic Planning

• Principles of conduct within organizations that

guide decision making and behavior.

• Good business ethics is a prerequisite for good

strategic management.

• Good ethics is just good business.

• Strategists are responsible for high ethical

principles

Business Ethics & Strategic Business Ethics & Strategic PlanningPlanning

• All strategic processes have ethical ramifications

• Formal codes of ethics are in place for many

businesses

• Internet privacy emerging as ethical issue of

immense proportions

Business Ethics & Strategic PlanningBusiness Ethics & Strategic Planning

Business actions which are always unethical andshould be avoided, include:

• Misleading advertising

• Misleading labeling

• Environmental harm

• Poor product or service safety

• Dumping flawed products on foreign markets

• Mixing poor quality with better one - deception

Business Ethics & Strategic PlanningBusiness Ethics & Strategic Planning

Nature of Global CompetitionNature of Global Competition

• Companies conduct business across borders:Multinational corporations:

Parent company

Host country

• Strategy implementation more difficult:Cultural differences – norms, values, work

ethics.

Advantages of International Advantages of International OperationsOperations

• Absorb excess capacity

• Reduce unit costs

• Low-cost production facilities

• Lower labor costs

• Competition less intense

• Reduced tariffs, lower taxes

• Favorable political climate

• Economies of scale

Communication difficulties between Parent

and Subsidiaries:

• Based on cultural, political, social, language,

demographic, and competitive forces

Foreign-based competitors:

• Strengths underestimated

• Weaknesses overestimated

Disadvantages of International Disadvantages of International OperationsOperations

Assignment # 1Assignment # 1

Q # 1. What do you understand by Intuition;

how & why it should be used by managers to make decisions. (3)

Q # 2. Describe Strategic Management

Process; explain all components, giving suitable example for each. (7)

nature of Strategic Management

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