Strategic Management(1 4)

8/2/2019 Strategic Management(1 4)

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Weru Joshua Nyirasoni Lois

Habinshuti BenjaminNdayisaba Willy


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Definition

yStrategic management is a set of decisions and

actions that result in the formulation and

implementation of plans designed to achievecompany objectives.

yStrategy is a large-scale, future oriented plans

for interacting with the competitive

environment to achieve company objectives.

yStrategy provides a framework of managerial

decisions.


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Critical Tasks in Strategic Magt

yFormulation of vision & Mission statements

yAnalysis of internal conditions and capabilities

yExternal environment analysis including

competitive and general contextual factors

y Identify alternative strategic choices

y Identify the most desirable in light of its

resources and external environment

ySelect long-term objectives and grand

strategies


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Contd

yDevelop annual objectives and short-term

strategies

y Implement strategic choicesyEvaluate success of the strategic process


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Dimensions of Strategic Decisions

yStrategic issues:

yRequires top-mgt decisions /involvement

y

Require large amounts of the firms resourcesyOften affect the firms long-term propensity

y Future oriented

y

Usually have multifunctional/multi-businessconsequences

yRequire considering the firms external

environment


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The three Levels of StrategyyThe corporate level comprising of board of

directors, chief executive and administrative

officers.

yBusiness level comprising of business and

corporate managers at SBUs.

yFunctional level comprised of managers of

product, geographic, and functional areas.


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Characteristics of Strategic management

Decisions

yDecisions at corporate level

yAre of more value, more conceptual and less

concrete.yHave greater risk, cost and profit potential

yNeed greater flexibility and longer time horizon

y

Functional level decisionsyRelatively concrete and quantifiable

yReceives critical attention and analysis


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Contd

yBusiness level decisions

yHelp bridge decisions at corporate and

functional levelyAre less costly, risky, and potentially profitable

than corporate level decisions


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Formality in Strategic ManagementyDegree to which participant, responsibilities,authority and discretion in decision making isspecified. They include:

yEntrepreneurial mode: associated with owner-manager of small firms.

yPlanning mode: associated with large firms thatoperate under comprehensive, formal planning

system.

yAdaptive mode: associated with medium-sizedfirms


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Benefits of Strategic management

yEnhance a firms ability to prevent problems

yGroup decisions drawn from best alternativesyEmployees involvement in strategy formulation

improves their understanding and motivation

yGaps and overlaps in activities are reducedyResistance to change is reduced


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C

omponents of strategic modelyCompany mission

y Internal analysis

yExternal analysis

yStrategic analysis and

choice

y

Long-term objectivesyGeneric and grand

strategies

yShort-term objectives

yFunctional tactics

yPolicies that empoweraction

yStrategic control and

continuous

improvement


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Company Mission


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What is a company mission?

yEnduring statement of a firms intent.

yEmbodies business philosophy, image sought, principal products or service and primary

customer needs to satisfy.

y It answers the question: what business we arein?


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Formulating a MissionyThe mission should state the basic type of

product or service to be offered, the primary

markets or customer groups to serve; thetechnology to be used in production or

delivery; the firms fundamental concern for

survival through growth and profitability; the

firms managerial philosophy; the public imagethe firm seeks; and self-concept those affiliated

with the firm should have of it.


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Vision Statement

yThe vision statement is sometime developed to

express the aspirations of the executive

leadership.

y It presents the firms strategic intent that

focuses the energies and resources of the

company on achieving a desirable future.

yThe vision and mission are frequently

combined into a single statement.


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Board ofDirectorsyThe group of stock-holder representatives and

strategic managers responsible for overseeing

the creation and accomplishment of company

mission.

y In the current business environment, they are

accepting the challenge of shareholders and

other stakeholders to become actively inestablishing the strategic initiatives of the

company that they serve.


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Corporate Social Responsibilityand Business Ethics


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The stakeholder approach to social

responsibilityy In defining company mission, strategic

managers must recognize the legitimate rights

of the firms claimants.

yThese include not only the stockholders and

employees but also outsiders affected by the

firms actions. (stakeholders)yThe mission statement should incorporate:

y Identified stakeholders


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Contd

yUnderstanding of stakeholders claims

yReconciliation of the claims and assignment of

priorities to them

yCoordination of the claims with other elements

of the company mission


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Types of Social Responsibility

yEconomic responsibilities: The duty of managers, as agents of the company owners, tomaximize stakeholders wealth.

yLegal responsibilities: Firms obligations tocomply with laws regulating business activities.

yEthical responsibilities: The strategicmanagers notion of right and proper business

yDiscretionary responsibilities: Responsibilitiesassumed by a business, such as public relations,good citizenship, and full corporateresponsibility


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Corporate Social Responsibility and

Profitability

yCorporate social responsibility is the idea thatbusiness has a duty to serve society in generalas well as the financial interest of stockholders.

yCSR should be viewed as a component in thedecision-making process of business that mustdetermine, among other objectives, how tomaximize profits.

yCSR costs are more than offset in the long-runby an improved company image and increasedcommunity goodwill.


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Corporate Social Responsibility

TodayyThree broad trends are driving businesses to

adopt CSR frameworks. These include;

y

The resurgence of environmentalismy Increasing buyer power with consumers

becoming more interested in buying products

from socially responsible companies.

yThe globalization of business: CSR has become

more complex as companies increasingly

transcend national borders.


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CSRs Effect on the Mission

Statement

y In developing mission statements, managers

must identify all stakeholder groups and weightheir relative rights and abilities to affect the

firms success.

ySocial Audit attempts to measure a companysactual social performance against its social

objectives.


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The nature of Ethics in Business

yEthics is the moral principles that reflect

societys beliefs about the action of an

individual or group that are right or wrong.

yCentral to the belief that companies should be

operated in a socially responsive way for the

benefit of all stakeholders is the belief that

managers will behave in an ethical manner.


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The Future ofCSRyCSR is firmly and irreversibly part of the

corporate fabric. Managed properly, CSR programs can confer significant benefits to

participants in terms of reputation, hiring,motivation, and retention and as a means ofbuilding and cementing valuable partnerships.

yThe challenge for management, then, is to

know how to meet the companys obligationsto all stakeholders without compromising thebasic need to earn a fair return of its owners.


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The Firms External Environment


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External Environment AnalysisyExternal environment refers to factors beyond

the control of the firm that influence its choice

of direction and action, organizational structure

and internal processes.

yThese factors can be divided into three;

yRemote environment

y Industry environment

yOperating environment


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Remote EnvironmentyComprises of factors that originate beyond, and

usually irrespective of, any single firms

operating situation;

yEconomic

y Social

y Political

yTechnological

yEcological factors


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Contdy

Economic factors: these relate to nature anddirection of economy.

yConsumption patterns, availability of credit,

disposable income, interest rates, inflation rates

and growth trend of GDP.

ySocial factors: involves beliefs, values,

attitudes, opinions and lifestyles of persons in

firms external environment.yChange in social attitudes leads to change in

demand of various products.


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ContdyPolitical factors: defines the legal and

regulatory parameters within which the firmoperates.

y

Antitrust laws, tax programs, minimum wagelegislation, pollution and pricing policies etc

yTechnological factors: a firm must adapt tochange in technology to avoid obsolescence

and promote innovation.y Internet and particularly e-commerce have

changed the way of doing business.


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Contd

yEcological factors: relate to threats to natural

environment.

y

Ecology is the relationship among humanbeings and other living things and the air, soil

and water that supports them. Pollution is threat

to ecology due to human activity.

yEcological concerns are global warming, loss ofhabitant and biodiversity, as well as air water

and land pollution.


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Industry Environment

yRefers to general conditions for competitionthat influence al businesses that provide similar

products and services.

y

The five forces driving industry competitionaccording to Porter are;

yDeterminants of entry

yDeterminants of rivalry

yDeterminants of supplier power

yDeterminants of buyer power

y

Determinants of substitution threat


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Barriers to EntryyEconomies of scale deter entry by forcing the

entrants to come in large scale or accept a cost

advantage.

yProduct differentiation creates a barrier byforcing entrants to spend heavily to overcome

customer loyalty.

yCapital requirements creates a need to investlarge financial resources in order to compete.

yCost advantages independent of size


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Contd

yAccess to distribution channels: a new food

product must displace others from the

supermarket shelf via price breaks, promotions

or intense selling efforts.

yGovernment policy: can limit or even close

entry to industry.


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Powerful Buyers

yCan squeeze profitability out of an industry. A

supplier group is powerful if:

yDominated by few companies

y Product is unique

yNot obliged to contend with other products

y Industry is not an important customer to the

supplier group


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Substitute Products

yThey limit the potential of the industry unless it

can upgrade the quality of the product ordifferentiate them.


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Powerful Buyers

yCustomers can drive down prices or demand

high quality if:

y Purchases in large volumes

y Products are undifferentiated or standard

yEarns low profits

yThey buyer pose a threat of integrating

backward

y Product do not save buyer money


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Industry Analysis and competitive

AnalysisyThe firms executives need to address four

questions:

yWhat are boundaries in the industry?

yWhat is the structure of the industry?

yWhich firms are our competitors?

yWhat are the major determinants ofcompetition?


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Operating environment

yThese are factors in the immediate competitive

situation that affect a firms success in

acquiring needed resources.

yThese factors are:

y Firms competitive position

yComposition of its customers

y Its reputation among supplier and creditors

yAbility to attract capable employees


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ContdyC

ompetitive position: includes market share, bread the of product line, relative productquality, financial position, effectiveness ofsales distribution, price competitiveness,

technological position among others.yCustomer profiles: include geographical,

demographic, psychographic and buyerbehavior.

ySuppliers and creditors : dependablerelationship between the firm, creditors and thesupplier is essential. Other factors include

reputation and human resources


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Conclusion

yAssessing the potential impact of changes in

external environment offers a real advantage.

y It enables decision makers to narrow the rangeof the available options and to eliminate

options that are clearly inconsistent with the

forecast opportunities.y It generally leads to the elimination of all but

the most promising options.

Strategic Management(1 4)

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