Basic Concepts of Strategic Management Chapter 1 Welco

Basic Concepts of Strategic Management Chapter 1

Learning Objectives ªUnderstand the benefits of strategic management ªExplain how globalization and environmental sustainability influence strategic management ªUnderstand the basic model of strategic management and its components Copyright © 2015 Pearson Education, Inc. 1 -3

Learning Objectives ªIdentify some common triggering events that act as stimuli for strategic change ªUnderstand strategic decision-making modes ªUse the strategic audit as a method of analyzing corporate functions and activities Copyright © 2015 Pearson Education, Inc. 1 -4

The Study of Strategic Management ªStrategic Management 9 a set of managerial decisions and actions that determines the long-run performance of a corporation Copyright © 2015 Pearson Education, Inc. 1 -5

Basic Elements of Strategic Management Strategic management consists of Two+four basic elements: ªInternal and External Environmental Scanning ªMission, Vision ªObjectives, Scope ªStrategy Formulation (Phases 1, 2 & 3 of SM) ªStrategy Implementation (Phase 4) ªEvaluation and Control (Phase 4) Copyright © 2015 Pearson Education, Inc. 1 -6

External Analysis Environmental Scanning The Strategic Management Process Mission, Vision Objectives, Scope Strategy Formulation Implementation Business Level Corporate Level 1. Vertical Integration Strategies 2. Diversification Mode of Entry? How to Position a Focus is on improving the effectiveness Business of operations within a company. in the Market? 1. 2. 3. 4. 5. Manufacturing Marketing Materials management Research and development Human resources Competitive Advantage Which Businesses to Enter? Internal Analysis Functional/Operational Level Strategies Evaluation & Control 1. Cost Leadership 2. Differentiation 1. Strategic Alliances 2. Mergers & Acquisitions

Basic Elements of the Strategic Management Process Figure 1 -1 Copyright © 2015 Pearson

Strategic Management Model Figure 1 -2 Copyright © 2015 Pearson Education, Inc. 1 -9

Basic Model of Strategic Management ªEnvironmental scanning 9 the monitoring, evaluating and disseminating of information from the external and internal environments to key people within the organization 9 SWOT analysis Copyright © 2015 Pearson Education, Inc. 1 -10

Environmental Variables Figure 1 -3 Copyright © 2015 Pearson Education, Inc. 1 -11

Basic Model of Strategic Management ªMission 9 the purpose or reason for the organization’s existence. This relates to goals, and refers to the overriding purpose of the organization. It is sometimes described in terms of the apparently simple but challenging question: ‘what business are we in? ’. The mission statement helps keep managers focused on what is central to their strategy. Copyright © 2015 Pearson Education, Inc. 1 -12

Basic Model of Strategic Management Mission: A firm’s mission is its long-term purpose. Missions define both what a firm aspires to be in the long run and what it wants to avoid in the meantime. Properly crafted mission statements (1) serve as filters to separate what is important from what is not, (2) clearly state which markets will be served and how, and (3) communicate a sense of intended direction to the entire organization. Copyright © 2015 Pearson Education, Inc. 1 -13

Basic Model of Strategic Management Example Mission Statement Our mission is simple: make technology an asset for your business not a problem. Too many times we have seen other IT consulting firms recommend solutions that are not appropriate for the specific client's business or will not take a business' operations into their planning as they routinely bring down an entire business while they perform routine maintenance on a server. That is unacceptable. We won't bring you down in the middle of the day because it is "a better time for us". We work around your business. We strive to make technology integrate seamlessly with your business so your business can grow. As your technology partner, when your business grows ours will grow with you, therefore, we will work hand in hand with you to support your growth. Copyright © 2015 Pearson Education, Inc. 1 -14

Basic Model of Strategic Management ªVision 9 describes what the organization would like to become This too relates to goals, and refers to the desired future state of the organization. It is an aspiration which can help mobilize the energy and passion of organizational members. The vision statement, therefore, should answer the question: ‘what do we want to achieve? ’. Copyright © 2015 Pearson Education, Inc. 1 -15

Basic Model of Strategic Management Vision: A mission is different from a vision in that the former is the cause and the latter is the effect; a mission is something to be accomplished whereas a vision is something to be pursued for that accomplishment. Goals & Objectives (are the end results): Business goals and objectives are part of the planning process. They are describe what a company expects to accomplish throughout the year. Business owners and Directors usually outline their goals and objectives in their business plans. These goals and objectives might pertain to the company as a whole, departments, employees, customers and even marketing efforts. Goals and objectives are important to the company, as they clarify the purpose of the business and help identify necessary actions. Goals can involve areas such as profitability, growth and customer service. Copyright © 2015 Pearson Education, Inc. 1 -16

Basic Model of Strategic Management ªObjectives 9 the end results of planned activity These are more precise and ideally quantifiable statements of the organization’s goals over some period of time. Objectives might refer to profitability or market share targets for a private company, or to examination results in a school. Objectives introduce discipline to strategy. The question here is: ‘what do we have to achieve in the coming period? ’. Copyright © 2015 Pearson Education, Inc. 1 -17

Basic Model of Strategic Management ª Scope 9 An organization’s scope or domain refers to three dimensions: customers or clients; geographical location; and extent of internal activities (‘vertical integration’). For a university, scope questions are twofold: first, which academic departments to have (a business school, an engineering department and so on); second, which activities to do internally themselves (vertically integrate) and which to externalize to subcontractors (e. g. whether to manage campus restaurants in-house or to subcontract them). Copyright © 2015 Pearson Education, Inc. 1 -18

Basic Model of Strategic Management ªStrategy formulation 9 process of investigation, analysis and decision making that provides the company with the criteria for attaining a competitive advantage 9 includes defining the competitive advantages of the business (Strategy), crafting the corporate mission, specifying achievable objectives and setting policy guidelines. Copyright © 2015 Pearson Education, Inc. 1 -19

Basic Model of Strategic Management ªStrategy 9 forms a comprehensive master approach that states how the corporation will achieve its mission and objectives 9 maximizes competitive advantage and minimizes competitive disadvantage 9 corporate, business, functional Copyright © 2015 Pearson Education, Inc. 1 -20

Hierarchy of Strategy Functional Level Strategy The functional level of the organization is the level of the operating divisions and departments. The strategic issues at the functional level are related to business processes and the value chain. Functional level strategies in marketing, finance, operations, human resources, and R&D involve the development and coordination of resources through which business unit level strategies can be executed efficiently and effectively. Copyright © 2015 Pearson Education, Inc. 1 -21

Hierarchy of Strategy Business Unit Level Strategy A strategic business unit may be a division, product line, or other profit center that can be planned independently from the other business units of the firm. At the business unit level, the strategic issues are less about the coordination of operating units and more about developing and sustaining a competitive advantage for the goods and services that are produced. Copyright © 2015 Pearson Education, Inc. 1 -22

Hierarchy of Strategy Corporate Level Strategy Corporate level strategy fundamentally is concerned with the selection of businesses in which the company should compete and with the development and coordination of that portfolio of businesses. Copyright © 2015 Pearson Education, Inc. 1 -23

Basic Model of Strategic Management ªPolicy 9 a broad guideline for decision making that

Basic Model of Strategic Management ªStrategy implementation 9 a process by which strategies and policies are put into action through the development of programs, budgets and procedures Copyright © 2015 Pearson Education, Inc. 1 -25

Basic Model of Strategic Management ª Evaluation and control 9 a process in which corporate activities and performance results are monitored so that actual performance can be compared with desired performance Evaluation and control consists of the following steps: 1. Define parameters to be measured 2. Define target values for those parameters 3. Perform measurements 4. Compare measured results to the pre-defined standard 5. Make necessary changes Copyright © 2015 Pearson Education, Inc. 1 -26

Basic Model of Strategic Management ªPerformance 9 the end result of organizational activities 9 includes the actual outcomes of the strategic management process ªFeedback/Learning process 9 revise or correct decisions based on performance Copyright © 2015 Pearson Education, Inc. 1 -27

Phases of Strategic Management Phase 1: Basic financial planning Phase 2: Forecast-based planning Phase 3: Externally oriented strategic planning Phase 4: Strategic management Copyright © 2015 Pearson Education, Inc. 1 -28

Benefits of Strategic Management ª The attainment of an appropriate match, or “fit, ” between an organization’s environment and its strategy, structure and processes has positive effects on the organization’s performance. ª Strategic planning becomes increasingly important as the environment becomes more unstable. Copyright © 2015 Pearson Education, Inc. 1 -29

Benefits of Strategic Management ªClearer sense of strategic vision for the firm ªSharper focus on what is strategically important ªImproved understanding of a rapidly changing environment Copyright © 2015 Pearson Education, Inc. 1 -30

Benefits of Strategic Management A vision is something seen in a dream, or trance, especially a supernatural appearance that conveys a revelation Focus ª the centre of interest or activity. ª adapt to the prevailing level of light and become able to see clearly. ª pay particular attention to. Understand ª perceive the intended meaning of (words, a language, or a speaker). ª interpret or view (something) in a particular way. Copyright © 2015 Pearson Education, Inc. 1 -31

Impact of Globalization ªGlobalization 9 the integrated internationalization of markets and corporations 9 has changed the way modern corporations do business Copyright © 2015 Pearson Education, Inc. 1 -32

Impact of Innovation ªInnovation 9 describes new products, services, methods and organizational approaches that allow the business to achieve extraordinary returns ª Innovation is the implementation of potential innovations that truly drives businesses to be remarkable. Copyright © 2015 Pearson Education, Inc. 1 -33

Impact of Sustainability ªSustainability 9 refers to the use of business practices to manage

Impact of Sustainability The triple bottom line involves: 1. the management of traditional profit/loss; 2. the management of the company’s social responsibility; and 3. the management of its environmental responsibility. Copyright © 2015 Pearson Education, Inc. 1 -35

Creating a Learning Organization ªStrategic flexibility 9 the ability to shift from one dominant strategy to another and requires: • Long-term commitment to the development and nurturing of critical resources • Learning organization Copyright © 2015 Pearson Education, Inc. 1 -36

Creating a Learning Organization ªLearning organization 9 an organization skilled at creating, acquiring and transferring knowledge and at modifying its behavior to reflect new knowledge and insights ª Organizational learning is a critical component of competitiveness in a dynamic environment. Copyright © 2015 Pearson Education, Inc. 1 -37

Creating a Learning Organization Learning organizations are skilled at four main activities: ª Solving problems systematically ª Experimenting with new approaches ª Learning from their own experiences and past history as well as from the experiences of others ª Transferring knowledge quickly and efficiently throughout the organization Copyright © 2015 Pearson Education, Inc. 1 -38

The Strategic Audit: Aid to Strategic Decision Making ªStrategic audit 9 provides a checklist of questions, by area or issue, that enables a systematic analysis to be made of various corporate functions and activities Copyright © 2015 Pearson Education, Inc. 1 -39

DISCUSSION QUESTIONS What information is needed for the proper formulation of strategy? Why? In order to properly formulate strategy, it is essential to have information on the important variables in both the external and internal environments of the corporation. This includes general forces in the societal environment as well as the more easy-to-identify groups such as customers and competitors in the task environment. A corporation needs to have this information in order to identify a need it can fulfill via its corporate mission. It is also important to have information on the corporation's structure, culture, and resources. A corporation needs to have this information in order to assess its capabilities to satisfy a customer's need by making and/or distributing a product or service. Information on both the internal and external environments can also help a corporation predict likely opportunities and threats. Long-term strategies can be designed with these in mind. Copyright © 2015 Pearson Education, Inc. 1 -40

DISCUSSION QUESTIONS What is meant by a hierarchy of strategy? A hierarchy of strategy is a term used to describe the interrelationships among the three levels of strategy (corporate, business, and functional) typically found in large business corporations. Beginning with the corporate level, each level of strategy forms the strategic environment of the next level in the corporation. This means that corporate level objectives, strategies, and policies form a key part of the environment of a division or business unit. The objectives, strategies, and policies of the division or unit must therefore be formulated so as to help achieve the plans of the corporate level. The same is true of functional departments that must operate within the objectives, strategies, and policies of a division or unit. Copyright © 2015 Pearson Education, Inc. 1 -41

DISCUSSION QUESTIONS How do the three elements of Globalization, Innovation, and Sustainability impact your understanding of Strategy? Globalization is the integrated internationalization of markets and corporations. As more industries become global, strategic management is becoming more important in keeping track of international developments and positioning a company for long-term competitive advantage. Innovation is meant to describe new products, services, methods and organizational approaches that would position a company to achieve strong returns. Sustainability refers to a set of business practices that focus on the triple bottom line for an organization. Each of these is a new frontier that is impacting the way in which businesses develop and implement strategy. Copyright © 2015 Pearson Education, Inc. 1 -42

DISCUSSION QUESTIONS Why has strategic management become so important to today's corporations? Research indicates that organizations that engage in strategic management generally outperform those that do not. The attainment of an appropriate match or fit between an organization's environment and its strategy, structure, and processes has positive effects on the organization's performance. The three most highly-rated benefits of strategic management are a clearer sense of a firm’s strategic vision, a sharper focus on what is strategically important, and an improved understanding of a rapidly changing environment. As the world's environment becomes increasingly complex and changing, strategic management is used by today's corporations as one way to make the environment more manageable. Copyright © 2015 Pearson Education, Inc. 1 -43