Chapter 1 Basic Concepts of Strategic Management Power

Chapter 1 Basic Concepts of Strategic Management Power. Point Slides Dr. Vijaya Kumar Skyline College 1

Strategic Management Defined: Set of managerial decisions and actions that determines the longrun performance of a firm. 2

Business Policy Defined: General management orientation that looks inward for properly integrating the firm’s functional activities. 3

Four Phases of Strategic Management • • Basic financial planning Forecast-based planning Externally-oriented planning (strategic) Strategic management 4

Strategic Management Highly Rated Benefits: • Clearer sense of strategic vision for the firm • Sharper focus on what is strategically important • Improved understanding of a rapidly changing environment 5

Strategic Management Not always a formal process: • Where is the organization now? (Not where do we hope it is!) • If no changes are made, where will the organization be in 1 year, 2 years, 5 years, 10 years? • What specific actions should management undertake? What are the risks and payoffs involved? 6

Challenges to Strategic Management Globalization – Internationalization of markets and corporations • Global (worldwide) markets rather than national markets Electronic Commerce – Use of the Internet to conduct business transactions • Basis for competition on a more strategic level rather than traditional focus on product features and costs 7

Global Issues • European Union (EU) – Economic integration of 15 member countries • North American Free Trade Agreement (NAFTA) – Improved trade among 3 member countries • Mercosur – Free-trade area among Argentina, Brazil, Uruguay, and Paraguay • Association of South East Asian Nations (ASEAN) – Attempting to link members into a borderless economic zone 8

E-Commerce 7 Trends: – Internet forcing companies to transform themselves – Market access and branding are changing, causing disintermediation of traditional distribution channels – Balance of power shifting to the consumer – Competition is changing 9

7 Trends (continued) • Pace of business increasing drastically • Internet purchasing corporations out of their traditional boundaries • Knowledge becoming a key asset and source of competitive advantage 10

Organizational Adaptation How organizations obtain “fit” within their environment: – Theory of population ecology – Institution theory – Strategic choice perspective – Organizational learning theory 11

Adaptation to Changing Environmental Conditions Strategic flexibility: – Demands a long-term commitment to the development and nurturing of critical resources – Demands that the firm become a learning organization 12

Learning Organizations Defined: An organization skilled at creating, acquiring, and transferring knowledge and at modifying its behavior to reflect new knowledge and insights. 13

Learning Organizations Four Main Activities: • Solving problems systematically • Experimenting with new approaches • Learning from their won experiences and that of others • Transferring knowledge quickly and efficiently throughout the organization 14

Strategic Management Model Environmental Strategy Formulation Scanning External Societal Environment General Forces Task Environment Industry Analysis Internal Structure Chain of Command Culture Beliefs, Expectations, Values Strategy Implementation Evaluation and Control Mission Reason for existence Objectives What results to accomplish by when Strategies Plan to achieve the mission & objectives Policies Broad guidelines for decision making Programs Activities needed to accomplish a plan Resources Assets, Skills Competencies, Knowledge Budgets Cost of the programs Procedures Sequence of steps needed to do the job Process to monitor performance and take corrective action Performance Feedback/Learning 15

Basic Model of Strategic Management Four Basic Elements 16

Environmental Scanning Defined: The monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the firm. 17

Environmental Scanning 18

Environmental Scanning Identify strategic factors – SWOT Analysis – Strengths, Weaknesses – Opportunities, Threats – Internal Environment • Strengths & Weaknesses – Within the organization but not subject to short-run control of management – External Environment • Opportunities & Threats – External to the organization but not subject to shortrun control of management 19

Strategy Formulation Defined: Development of long-range plans for the effective management of environmental opportunities and threats in light of corporate strengths and weaknesses. 20

Strategy Formulation Mission Statement – Purpose or reason for the organization’s existence – Promotes shared expectations among employees – Communicates public image important to stakeholders – Who we are, what we do, what we’d like to become 21

Strategy Formulation Maytag Corporation Mission Statement To improve the quality of home life by designing, building, marketing, and servicing the best appliances in the world. 22

Strategy Formulation Objectives – The end results of planned activity • What is to be accomplished • Time in which to accomplish it • Quantified when possible 23

Strategy Formulation Goals vs. Objectives A goal is an open-ended statement of what one wants to accomplish with no quantification of what is to be achieved and no time criteria for completion. 24

Goals & Objectives Corporate goals and objectives include: – Profitability (net profits) – Growth (increase in total assets, etc. ) – Utilization of resources (ROE or ROI) – Market leadership (market share) 25

Strategies Defined: A strategy of a corporation forms a comprehensive master plan stating how the corporation will achieve its mission and objectives. It maximizes competitive advantage and minimizes competitive disadvantage. 26

Strategies 3 Types of Strategy – Corporate strategy – Business strategy – Functional strategy 27

Strategies Corporate Strategy – Stability – Growth – Retrenchment 28

Strategies Business Strategy – Competitive strategies – Cooperative strategies 29

Strategies Functional Strategy – Technological leadership – Technological followership 30

Hierarchy of Strategy Corporate Strategy Business (Division Level) Strategy Functional Strategy 31

Policies Defined: Broad guidelines for decision making that link the formulation of strategy with its implementation. 32

Strategy Implementation Programs Strategy Implementation Budgets Procedures 33

Initiation of Strategy • New CEO • External intervention Triggering event • Threat of change in ownership Stimulus for change in strategy • Performance gap • Strategic inflection point 34