STRATEGIC MANAGEMENT STRATEGIC MANAGEMENT AND PLANNING IN A AND PLANNING IN A GLOBALGLOBALENVIRONMENTENVIRONMENT

PLANNING CHALLENGES IN THE 21ST PLANNING CHALLENGES IN THE 21ST CENTURYCENTURY

LEARNING OBJECTIVESLEARNING OBJECTIVES

1.1. Define strategic management and describe its Define strategic management and describe its purpose.purpose.

2.2. Explain the four stages of the strategic management Explain the four stages of the strategic management process.process.

3.3. Identify and explain the components of strategic Identify and explain the components of strategic analysis, as well as explain the value of conducting analysis, as well as explain the value of conducting this analysis.this analysis.

4.4. Explain how an organization can develop a Explain how an organization can develop a competitive advantage.competitive advantage.

5.5. Explain the purpose of strategy formulation and Explain the purpose of strategy formulation and describe the two levels of strategic alternatives.describe the two levels of strategic alternatives.

When you have finished studying, you should When you have finished studying, you should be able to:be able to:

LEARNING OBJECTIVES LEARNING OBJECTIVES (cont’d)(cont’d)

6.6. Explain the role of strategy implementation.Explain the role of strategy implementation.

7.7. Explain the importance of evaluation and control of Explain the importance of evaluation and control of strategy and its implementation.strategy and its implementation.

8.8. Discuss the importance of strategic planning.Discuss the importance of strategic planning.

When you have finished studying, you should When you have finished studying, you should be able to:be able to:

Strategic Planning Strategic Planning • Strategic PlanningStrategic Planning

The process by which an organization makes The process by which an organization makes decisions and takes actions that affect its long-decisions and takes actions that affect its long-run performance.run performance.

Strategic plan: Strategic plan: the output of the strategic the output of the strategic planning process that provides direction by planning process that provides direction by defining its strategic approach to business.defining its strategic approach to business.

• Competitive AdvantageCompetitive Advantage Is a central concept of strategic planning.Is a central concept of strategic planning.Can only be sustained if an organization Can only be sustained if an organization

continues to out innovate competitors.continues to out innovate competitors.

The Strategic Management Process

Key TermsKey Terms• Strategic ManagementStrategic Management

Overall, long-run management.Overall, long-run management.

• Strategic PlanningStrategic PlanningThe process of making plans and The process of making plans and

decisions that are focused on long-run decisions that are focused on long-run performance.performance.

• Strategic PlanStrategic PlanA comprehensive plan that provides A comprehensive plan that provides

overall direction for the organizationoverall direction for the organization..

Key Terms (cont’d)Key Terms (cont’d)• Strategic AnalysisStrategic Analysis

An assessment of the external and An assessment of the external and internal environments of an internal environments of an organization.organization.

• Strategy FormulationStrategy FormulationEstablishing strategy and tactics Establishing strategy and tactics

necessary to achieve the mission of necessary to achieve the mission of the organizationthe organization..

Benefits of Strategic PlanningBenefits of Strategic Planning

• EconomicEconomicOrganizations that plan strategically outperform Organizations that plan strategically outperform

those that do not.those that do not.• BehavioralBehavioral

Identification of organizational and environmental Identification of organizational and environmental conditions that may create problems in the long run.conditions that may create problems in the long run.

Better decisions as a result of the group decision-Better decisions as a result of the group decision-making process.making process.

Participation in the planning process increases Participation in the planning process increases participants understanding of how the plan is to be participants understanding of how the plan is to be implemented and their willingness to change.implemented and their willingness to change.

Strategic Analysis: Assessment in aStrategic Analysis: Assessment in aGlobal EnvironmentGlobal Environment

• The purpose of strategic analysis is to The purpose of strategic analysis is to evaluate the present situation of the evaluate the present situation of the organization.organization.Analysis requires three primary activities:Analysis requires three primary activities:

Assessing the mission of the organizationAssessing the mission of the organization

Internal environmental analysisInternal environmental analysis

External environmental analysisExternal environmental analysis

The Components of Strategic Analysis

SWOT AnalysisSWOT Analysis• The combined internal and external The combined internal and external strategic analysis is referred to as a strategic analysis is referred to as a SWOTSWOT analysis. analysis.SStrengthstrengthsWWeaknesseseaknessesOOpportunitiespportunitiesTThreatshreats

Assessing the Mission of an Assessing the Mission of an OrganizationOrganization

• The mission of an organization reflects its The mission of an organization reflects its fundamental reasons for existence.fundamental reasons for existence.

• Though mission statements vary greatly, every Though mission statements vary greatly, every mission statement should describe three primary mission statement should describe three primary aspects of an organization:aspects of an organization:

1.1. The organization’s primary products or The organization’s primary products or services.services.

2.2. The organization’s primary target markets.The organization’s primary target markets.

3.3. The organization’s overall strategy for The organization’s overall strategy for ensuring long-term success.ensuring long-term success.

Key TermsKey Terms

• Strategic DirectionStrategic DirectionDirection of the organization toward success in Direction of the organization toward success in

the long run.the long run.• VisionVision

The ability to predict opportunities and threats in The ability to predict opportunities and threats in the future.the future.A vision statement is intended to guide the A vision statement is intended to guide the

organization in the future, what the organization organization in the future, what the organization wants to become or where it wants to be.wants to become or where it wants to be.

Vision is derived from a careful analysis of the Vision is derived from a careful analysis of the external and internal environmentsexternal and internal environments

Company’s/Organization’s Mission StatementCompany’s/Organization’s Mission Statement

Our VisionTo become the world’s leading client’s research/knowledge company for innovative products and services.

Our MissionWe are a global family with a proud heritage passionately committed to providing personal mobility for people around the world.

We anticipate client’s need and deliver outstanding products and services that improve people’s knowledge and lives.

Our ValuesOur business is driven by our client’s focus, creativity, resourcefulness, and entrepreneurial spirit.

We are an inspired, diverse team. We respect and value everyone’s contribution. The health and safety of our people are paramount.

We are a leader in environmental responsibility. Our integrity is never compromised and we make a positive contribution to society.

We constantly strive to improve in everything we do. Guided by these values, we provide superior returns to our shareholders..

External AnalysisExternal Analysis• Purpose of External AnalysisPurpose of External Analysis

To identify aspects of the external environment To identify aspects of the external environment that represent either an that represent either an opportunityopportunity for or a for or a threatthreat to the organization.to the organization.

Opportunities: Opportunities: Those environmental trends on which the Those environmental trends on which the

organization can capitalize and improve its organization can capitalize and improve its competitive position.competitive position.

ThreatsThreatsConditions that jeopardize the organization’s Conditions that jeopardize the organization’s

ability to prosper and its competitive position in ability to prosper and its competitive position in the long term.the long term.

External Analysis FactorsExternal Analysis Factors• General EnvironmentGeneral Environment

Includes environmental forces that are beyond the Includes environmental forces that are beyond the influence of the organization and over which it has influence of the organization and over which it has no (or little) control.no (or little) control.

• Task EnvironmentTask Environment Includes environmental forces that are within the Includes environmental forces that are within the

organization’s operating environment and may be organization’s operating environment and may be influenced to some degree.influenced to some degree.

• Economic EnvironmentEconomic EnvironmentThe economic components of the general The economic components of the general

environment.environment.

Dimensions of the Global External EnvironmentDimensions of the Global External Environment

Sample Issues in the General EnvironmentSample Issues in the General Environment

Economic

• Inflation rates

• Unemployment rates

• Wage rates

• Exchange rates

• Stock market fluctuations

• Per capita income

• GDP trends

• Economic development

Socio cultural

• Norms and values

• Demographic trends

• Age groups

• Regional shifts in population

• Household composition

• Diversity

• Ecological awareness

• Life expectancy

Technological

• Spending on research and development

• Internet availability

• Availability of information technology

• Production technology trends

• Productivity improvements

• Telecommunications infrastructure

Political–Legal

• Tax laws

• Environmental protection

• International trade regulation

• Antitrust regulation

• Federal Reserve policy

• Intellectual property and patent laws

External EnvironmentExternal Environment

• General EnvironmentGeneral Environment

Economic factorsEconomic factors

Technological Technological factorsfactors

Socio-cultural Socio-cultural factorsfactors

Political-legal Political-legal factorsfactors

• Task EnvironmentTask Environment

Customer Customer ProfilesProfiles

Competitive Competitive StructureStructure

Resource Resource AvailabilityAvailability

Five Forces Model of Industry AnalysisFive Forces Model of Industry Analysis

Source: Adapted from Michael E. Porter, “How Competitive Forces Shape Strategy,” Harvard Business Review 97, no. 2 (March/April 1999): 137–145.

Internal AnalysisInternal Analysis• Purpose of Internal AnalysisPurpose of Internal Analysis

To identify the assets, resources, skills, and To identify the assets, resources, skills, and processes that represent either processes that represent either strengthsstrengths or or weaknessesweaknesses for the organization. for the organization.

StrengthsStrengthsAspects of the organization’s operations that Aspects of the organization’s operations that

represent potential represent potential competitive advantagescompetitive advantages or or distinctive competenciesdistinctive competencies..

WeaknessesWeaknessesAreas that are in need of improvementAreas that are in need of improvement ..

Internal Factors for AnalysisInternal Factors for AnalysisMarketing OperationsProduct, service Productivity

Brand equity Quality

Market research Facilities

Sales force Supply chain

Market share Technology

Size of market Purchasing

Distribution channels Safety

Price Ecological issues

Promotion

FinanceProfitability

Revenue

Asset utilization

Debt/leverage

Equity

Per unit costs

Profit margins

Cash flow

Human ResourcesSkills

Selection

Training and development

Leadership

Motivation

Communication

Rewards

Other FactorsOrganization culture

Overall control

Information system

Information technology

Organizational structure

Strategy FormulationStrategy Formulation• Answers the question:Answers the question:

““Where does the organization want to be?”Where does the organization want to be?”

• Steps in strategy formulation include:Steps in strategy formulation include:

Casting the vision for the organization.Casting the vision for the organization.

Setting strategic goals.Setting strategic goals.

Identifying strategic alternatives.Identifying strategic alternatives.

Evaluating and choosing strategies that provide a Evaluating and choosing strategies that provide a competitive advantage and optimize the competitive advantage and optimize the performance of the organization in the long term.performance of the organization in the long term.

Casting the Vision for the Casting the Vision for the OrganizationOrganization• The development of a vision for the The development of a vision for the

organization is central to any strategic plan. organization is central to any strategic plan.

• Vision versus Mission Vision versus Mission

A A vision statementvision statement describes what the describes what the organization aspires to be in the long run.organization aspires to be in the long run.

A A mission statementmission statement describes the describes the products, services, and target markets for products, services, and target markets for an organization.an organization.

Setting Strategic GoalsSetting Strategic Goals• GoalsGoals

Are very broad statements of the results that an Are very broad statements of the results that an organization wishes to achieve in the long run.organization wishes to achieve in the long run.

Relate to the mission and vision of the Relate to the mission and vision of the organization and specify the level of performance organization and specify the level of performance that the organization wants to achieve.that the organization wants to achieve.

• SMART goals are:SMART goals are:

Specific…Measurable…Achievable…Results-Specific…Measurable…Achievable…Results-oriented…Timelineoriented…Timeline

Identifying Strategic AlternativesIdentifying Strategic Alternatives

• Strategic AlternativesStrategic Alternatives Are developed in light of the organizational mission Are developed in light of the organizational mission

considering its strengths, weaknesses, opportunities, considering its strengths, weaknesses, opportunities, and threats, and its vision and strategic goals. and threats, and its vision and strategic goals.

• Grand StrategiesGrand Strategies Stability strategies:Stability strategies: intended to ensure continuity in intended to ensure continuity in

the operations and performance of the organization.the operations and performance of the organization. Growth strategies:Growth strategies: designed to increase the sales and designed to increase the sales and

profits of the organization.profits of the organization. Retrenchment strategies:Retrenchment strategies: designed to reverse designed to reverse

negative sales and profitability trends.negative sales and profitability trends.

Identifying Strategic Alternatives Identifying Strategic Alternatives (cont’d)(cont’d)

• Generic StrategiesGeneric Strategies The primary ways in which an organization can The primary ways in which an organization can

compete in its chosen market(s).compete in its chosen market(s).

Cost leadership:Cost leadership: competing on the basis of price. competing on the basis of price.

Differentiation:Differentiation: offering products or services that offering products or services that are differentiated from those of competitors in are differentiated from those of competitors in some way.some way.

Focus:Focus: avoiding competing in broad markets by avoiding competing in broad markets by targeting a narrow market segment.targeting a narrow market segment.

Best-Cost provider:Best-Cost provider: competing on the basis of both competing on the basis of both low-cost and differentiation.low-cost and differentiation.

Generic Strategies MatrixGeneric Strategies Matrix

Evaluating and Choosing StrategyEvaluating and Choosing Strategy

• Portfolio AssessmentPortfolio Assessment Provides a mechanism for evaluating an Provides a mechanism for evaluating an

organization’s portfolio of business, products and organization’s portfolio of business, products and services.services. Academy of Corporate Learning and Innovation (ACLI) Academy of Corporate Learning and Innovation (ACLI)

Growth-Share matrixGrowth-Share matrix ––Business Strength matrixBusiness Strength matrix

• Decision MatricesDecision Matrices A decision matrix provides a method for evaluating A decision matrix provides a method for evaluating

alternative strategies according to the criteria that the alternative strategies according to the criteria that the organization’s leaders consider more important.organization’s leaders consider more important.

Strategy Implementation: Focusing on Strategy Implementation: Focusing on ResultsResults

• The best-formulated strategy is virtually The best-formulated strategy is virtually worthless if it cannot be implemented effectively.worthless if it cannot be implemented effectively. A direct, specific, clear strategy must be developed.A direct, specific, clear strategy must be developed. Strategies must be established at all levels of the Strategies must be established at all levels of the

organization to align each part of the organization organization to align each part of the organization with the organization’s overall mission and goals.with the organization’s overall mission and goals.

The organization’s system must be designed to The organization’s system must be designed to ensure that strategies can be institutionalized in its ensure that strategies can be institutionalized in its culture.culture.

Evaluation and Control: Achieving Evaluation and Control: Achieving Effectiveness and EfficiencyEffectiveness and Efficiency

• Strategic ControlStrategic Control Involves monitoring the implementation of the Involves monitoring the implementation of the

strategic plan to ensure quality and effectiveness in strategic plan to ensure quality and effectiveness in terms of organizational performance.terms of organizational performance.

Feed forward controlsFeed forward controls Are designed to identify changes in the external environment Are designed to identify changes in the external environment

or internal operations that affect organization’s ability to fulfill or internal operations that affect organization’s ability to fulfill its mission and meet its strategic goals.its mission and meet its strategic goals.

Feedback ControlsFeedback Controls Compare the actual performance of the organization to its Compare the actual performance of the organization to its

planned performance.planned performance.

Information Technology and Information Technology and Strategic PlanningStrategic Planning

• PositivePositive The increasing availability of information technology The increasing availability of information technology

has had a tremendous impact on the ability of has had a tremendous impact on the ability of organizations to develop effective strategic plans.organizations to develop effective strategic plans.

• NegativeNegative Many organizations fail to use the information made Many organizations fail to use the information made

available by management information systems to available by management information systems to ensure effective strategic planning.ensure effective strategic planning.

Institutionalizing StrategyInstitutionalizing Strategy

• Every member, work group, department, and Every member, work group, department, and division of the organization must subscribe to division of the organization must subscribe to and support the organization’s strategy with its and support the organization’s strategy with its plans and actions.plans and actions.

There must be a good fit between the chosen strategy There must be a good fit between the chosen strategy and:and: the organizational structurethe organizational structure

the organizational culturethe organizational culture

the organizational leadershipthe organizational leadership

The Importance of Organizational The Importance of Organizational CultureCulture

• Organizational CultureOrganizational Culture

Refers to the shared, emotionally charged Refers to the shared, emotionally charged beliefs, values, and norms that bind people beliefs, values, and norms that bind people together.together.

Helps people make sense of the systems Helps people make sense of the systems within an organization.within an organization.

Guides the behavior of and gives meaning Guides the behavior of and gives meaning to the members of the organization.to the members of the organization.

Organizational LeadershipOrganizational Leadership• The Importance of LeadershipThe Importance of Leadership

If an organization is to implement its strategy If an organization is to implement its strategy effectively, it must have the appropriate leadership.effectively, it must have the appropriate leadership.

Without effective leadership, an organization is Without effective leadership, an organization is unlikely to realize the benefits of its selected strategy.unlikely to realize the benefits of its selected strategy.

Implications for LeadersImplications for Leaders• Understand the realities of the external environment in Understand the realities of the external environment in

which you operate.which you operate.

• Understand the importance of a thorough and accurate Understand the importance of a thorough and accurate assessment of the current situation of the organization.assessment of the current situation of the organization.

• A plan will be only as good as the analysis upon which it A plan will be only as good as the analysis upon which it is based.is based.

• Strategic vision is critical for ensuring a common Strategic vision is critical for ensuring a common strategic direction for the organization.strategic direction for the organization.

• Make sure that the mission statement is a working Make sure that the mission statement is a working document that provides direction for the members of the document that provides direction for the members of the organization.organization.

Implications for Leaders Implications for Leaders (cont’d)(cont’d)• Strategic goals serve as targets for achievement. Make Strategic goals serve as targets for achievement. Make

sure that they are specific, measurable, results oriented, sure that they are specific, measurable, results oriented, and have a established time for their achievement.and have a established time for their achievement.

• Strategy should be designed to provide the organization Strategy should be designed to provide the organization with a distinctive competitive advantage in the long run.with a distinctive competitive advantage in the long run.

• A strategic plan is meaningless if it is not implemented A strategic plan is meaningless if it is not implemented well.well.

• Provide for evaluation and control to be sure that Provide for evaluation and control to be sure that operations are on track for accomplishment of the operations are on track for accomplishment of the organization’s mission.organization’s mission.