Stratagic Management Process Chapter 1

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Copyright 2007 Prentice HallCh 1 -1

Why do some organizations succeed

while others fail? Strategy

An action managers take to achieve one or more

of an organizations goals

Strategic management process

The process by which managers choose a set of

strategies that will allow a company to achieve

superior performance


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Superior Performance and

Competitive Advantage Profitability

A measure of a companys return on its invested

capital

Superior performance

One companys profitability relative to that of other

companies in the same or similar business or

industry


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Firm-Specific Performance and

Profitability Competitive advantage

A firms profitability is greater than the averageprofitability for all firms in its industry

Sustained competitive advantage A firm maintains competitive advantage for a

number of years

Business model Managements model of how strategy will allow

the company to gain competitive advantage andachieve superior profitability


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What kind of business shouldwe become?

Are we in the right fields

Are there new competitors?

What strategies should wepursue?

How are our customerschanging?

Adapting to Change Key

Strategic ManagementQuestions


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Vision Statement

What do we want to become?

Mission Statement

What is our business?

Key Terms


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Largely beyond the control of a singleorganization

Key Terms

Opportunities and Threats (External)


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Opportunities & Threats (External)

Key Terms

Analysis of Trends:

Economic

Social

Cultural

Demographic/Environmental

Political, Legal, Governmental

Technological

Competitors


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Process of conducting research andgathering and assimilating external

information

Key Terms

Opportunities & Threats

Environmental Scanning (Industry Analysis)


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Basic Tenet of Strategic Management

Key Terms

Opportunities & Threats

Strategy Formulation

Take advantage of

External Opportunities

Avoid/minimize impact of

External Threats


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Controllable activities performed especiallywell or poorly

Key Terms

Strengths & Weaknesses (Internal)


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Strengths & Weaknesses (Internal)

Key Terms

Typically located in functional areas of the firm

Management Marketing

Finance/Accounting

Production/Operations

Research & Development

Computer Information Systems


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Assessing the Internal Environment

Key Terms

Strengths & Weaknesses

Internal Factors

Performance Metrics

Financial Ratios

Industry Averages

Survey Data


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Mission-driven pursuit of specified resultsmore than one year out

Key Terms

Long-term Objectives


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Long-term Objectives

Key Terms

Essential for ensuring the firms success

Provide direction Aid in evaluation

Create synergy

Focus coordination

Basis for planning, motivating, andcontrolling


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Means by which long-term objectives areachieved

Key Terms

Strategies


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Dynamic & Continuous

More formal in larger organizations

Strategic Management Model

Strategic Management Process


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1. Identify Existing --


Vision

Mission

Objectives

Strategies


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2. Audit external environment

3. Audit internal environment

4.

Establish long-term objectives5. Generate, evaluate & select

strategies

6. Implement selected strategies

7. Measure & evaluate performance



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Benefits of Strategic

Management

Proactive in shaping firms future

Initiate and influence firms activities

Formulate better strategies

Systematic, logical, rational


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Management

Financial Benefits

Improvement in sales

Improvement in profitability

Productivity improvement


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Copyright 2007 Prentice Hall

Ch 1 -21


Management

Non-Financial Benefits

Improved understanding of competitors strategies

Enhanced awareness of threats

Reduced resistance to change

Enhanced problem-prevention capabilities


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Ch 1 -22


Management (Greenley)

1. Identification of Opportunities

2. Objective view of management problems3. Improved coordination & control

4. Minimizes adverse conditions & changes

5. Decisions that better support objectives


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Ch 1 -23


Management (Greenley contd

)

6. Effective allocation of time & resources

7. Internal communication among personnel8. Integration of individual behaviors

9. Clarify individual responsibilities

10. Encourage forward thinking


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Ch 1 -24


Management (Greenley contd

)

11.Encourages favorable attitude toward

change

12.Provides discipline and formality to the

management of the business


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Ch 1 -25

Why Some Firms Do No

Strategic Planning

Poor reward structures

Fire-fighting

Waste of time

Too expensive

LazinessContent with success


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Ch 1 -26

Why Some Firms Do No

Strategic Planning

Fear of failure

Overconfidence

Prior bad experience

Self-interest

Fear of the unknownSuspicion


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Ch 1 -27

Principles of conduct within organizationsthat guide decision making and behavior

Business Ethics & Strategic

Management

Business Ethics defined


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Ch 1 -28

Prerequisite for good strategic management


Management

Good business ethics


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Ch 1 -29

Provides basis on which policies can bedevised to guide daily behavior and

decisions in the workplace


Management

Code of business ethics


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Ch 1 -30

Misleading advertising

Misleading labeling

Harm to the environment

Insider trading

Dumping flawed products on foreign markets Poor product or service safety

Padding expense accounts


Management

Business practices always considered unethical


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Ch 1 -31

Performance in Nonprofit Enterprises

Government agencies, universities, charities

Are not in business to make a profit

Should use their resources efficiently and

effectively

Set performance goals unique to the organization

Set strategies to achieve goals and compete with

other nonprofits for scarce resources


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Ch 1 -32

Levels ofStrategic Management


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Ch 1 -33

The Strategic Planning Process

1. Select the corporate mission and major corporategoals

2. Analyze the external competitive environment to

identify opportunities and threats3. Analyze the organizations internal environment to

identify its strengths and weaknesses

4. Select strategies that build on the organizations

strengths and correct its weaknesses in order totake advantage of external opportunities andcounter external threats

5. Implement the strategy


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Ch 1 -34

Mission Statement

A description or declaration ofwhyacompany is in operation

Provides the framework or context within

which strategies are formulated Has 3 main components:

Mission or vision

Values or guiding standards that drive and shape

the actions and behavior of employees

Major goals or objectives


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Ch 1 -35

The Mission or Vision

What the company is trying to achieve over

the medium to long term

The Boeing Company in 2016:

People working together as a global enterprise

for aerospace leadership

Microsoft:

To empower people through great software, anytime, any place, on any device


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Ch 1 -36

Abells Framework for Defining the

Business


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Ch 1 -37

Major Goals and Objectives

Goal: A desired future state or objective

Four main characteristics of well-constructed

goals:

Precise and measurable

Address crucial issues

Challenging but realistic

Specify a time period


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Ch 1 -38

Profitability

Maximizing returns to shareholders

Importance of balancing short-term returns

with long-term profitability

Pressures to maximize short-term profitability

may result in unethical behavior


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Ch 1 -39

External and Internal Analysis

External analysis Identify strategic opportunities and threats

Industry environment

National environment Socioeconomic or macroenvironment

Internal analysis Identify organizational strengths and weaknesses

Sources of competitive advantage: superiorefficiency, quality, innovation, and responsivenessto customers


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Ch 1 -40

SWOT Analysis and the Business

Model Identifying strategies to align a companys

resources and capabilities to its environment

in order to create and sustain a competitive

advantage Functional-level strategy

Business-level strategy

Global strategy

Corporate-level strategy


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Ch 1 -41

Strategy Implementation

After choosing strategies, managers must put

them into action.

The feedback loopstrategy is ongoing.

Managers must monitor and reevaluate for

the next round of strategy formulation and

implementation.


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Ch 1 -42

Strategic Leadership

Vision, eloquence, and consistency

Commitment

Being well informed Willingness to delegate and empower

The astute use of power

Emotional intelligence


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Ch 1 -43

Emotional Intelligence

Self-awareness

Self-regulation

Motivation Empathy

Social skills


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Ch 1 -44

Strategic Management

achieves a firms success

through integration

Management

MIS

Production/OperationsFinance/Accounting

Marketing

Research & Development


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Copyright 2007 Prentice Hall Ch 1 -45

Vision & Mission

Strategy Formulation

External Opportunities & Threats

Internal Strengths & Weaknesses

Long-Term Objectives

Alternative Strategies

Strategy Selection


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Issues in Strategy

Formulation

New business

opportunities

Businesses to abandon

Allocation of resources

Expansion ordiversification

International markets

Mergers or joint ventures

Avoidance of hostile

takeover


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Strategy Implementation

Annual Objectives

Policies

Employee Motivation

Resource Allocation


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Strategy

Implementation

Action Stage of Strategic

Management

Most difficult stage

Mobilization of

employees & managers

Interpersonal skills

critical

Consensus on goal

pursuit


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Strategy Evaluation

Internal Review

External Review

Performance Metrics

Corrective Actions


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Strategy

Evaluation

Final Stage of Strategic

Management

Subject to future

modificationTodays success no

guarantee of future success

New & different problems


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Cultural differences Norms

Values

Work ethic

The Nature of Global

Competition

Strategy implementation may be difficult


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Advantages of International

Operations

Absorb excess capacity

Reduce unit costs

Spread risk over wider markets

Low-cost production facilities


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Advantages of International

Operations (contd)

Less intense competition

Lower taxes

Economies of scale


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Disadvantages of International

Operations

Difficult communications

Underestimate foreign competition

Cultural barriers to effective management

Complications arising from currencydifferences

Stratagic Management Process Chapter 1

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