strategic chapter 1 .ppt

CHAPTER 1

STRATEGIC MANAGEMENT

BASEC CONCEPT

The Study of Strategic Management

Strategic Management:

a set of managerial decisions and actions that determines the long-run performance of a corporation.

Includes:

• Internal and external environment scanning

• Strategy formulation

• Strategy implementation

• Evaluation and control

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Phases of Strategic Management:

• Phase 1: Basic financial planning

It consists of formulating a budget for the following year. The time horizon for financial planning is usually one year.

• Phase 2: Forecast-based planning

It is used for projects that will take longer than one year. Financial planning is less useful for forecasting these projects. Time horizon for forecast-based planning is 3 to 5 years.

• Phase 3: Externally oriented strategic planning

It is conducted by top management in order to formulate long term plans. Consultants are brought in to provide sophisticated and innovative techniques to help forecast future trends.

• Phase 4: Strategic management

Top management brings in planning groups of managers and key employees at many levels to develop and integrate a series of strategic plains aimed at achieving the company's primary objectives. Instead of forecasting the future, these plans emphasize probable scenarios and contingency strategies. Strategic information is communicated throughout the organization and all levels of the organization are involved.

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Benefits of Strategic Management:

• Clearer sense of strategic vision for the firm

• Sharper focus on what is strategically important

• Improved understanding of a rapidly changing environment

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Additional Benefits of Strategic Management:• Improved organizational performance• Achieves a match between the organization’s

environment and its strategy, structure and processes

• Important in unstable environments• Strategic thinking• Organizational learning

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Globalization and Environmental Sustainability: Challenges to Strategic Management

Impact of Globalization:

Globalization:

the integration and internationalization of markets and corporations

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Impact of Environmental Sustainability:

Environmental Sustainability:

the use of business practices to reduce a company’s impact on the natural, physical environment

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Impact of Environmental Sustainability

Risks of Climate Change include:

• Regulatory risk

• Supply chain risk

• Product and technology risk

• Litigation (suing) risk

• Reputational risk

• Physical risk

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Population ecology:

established organizations are unable to adapt to change

Institution theory:

organizations adapt by imitating successful organizations

Theories of Organizational Adaptation

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Strategic choice perspective:

organizations adapt to change and have the ability to reshape their environment

Organizational learning theory:

organizations adapt defensively and use knowledge to improve their relationship with the environment

Theories of Organizational Adaptation

Strategic flexibility:

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

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Creating a Learning Organization

Learning organization:

an organization skilled at creating, acquiring, and transferring knowledge and at modifying its behavior to reflect new knowledge and insights


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Main activities of a learning organization include:

• Solving problems systematically

• Experimenting with new approaches

• Learning from past experience, history and experiences of others

• Transferring knowledge quickly and easily throughout the organization

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Basic Elements of Strategic Management

1. Environmental scanning2. Strategy formulation3. Strategy implementation4. Evaluation and control

Basic Model of Strategic Management

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Environmental Scanning is the monitoring, evaluating and disseminating of information from the external and internal environments to key people within the organization


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Strategy Formulation: the development of long-range plans for the effective management of environmental opportunities and threats in light of organizational strengths and weaknesses (SWOT)

it includes developing a vision and mission, identifying an organization’s external opportunities and threats, determining internal strengths and weaknesses, establishing long-term objectives, generating alternative strategies, and choosing particular strategies to pursue

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Strategy Formulation

1. Deciding what new businesses to enter

2. What businesses to abandon

3. How to allocate resources

4. Whether to expand operations or diversify

5. Whether to enter international markets

6. Whether to merge or form a joint venture

7. How to avoid a hostile takeover

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Mission- the purpose or reason for the organization’s existence

Vision- describes what the organization would like to become

Objectives- the end results of planned activity

– specific results that an organization seeks to achieve in pursuing its basic mission

– long-term means more than one year

– should be challenging, measurable, consistent, reasonable, and clear

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Strategies- form a comprehensive master plan that states how the corporation will achieve its mission and objectives

– Corporate

– Business

– Functional

• Strategies also,

– the means by which long-term objectives will be achieved

– may include geographic expansion, diversification, acquisition, product development, market penetration , retranchement, dévestiture, liquidation, and joint venture

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Con’t

• Policies- the broad guidelines for decision making that links the formulation of a strategy with its implementation

• Policies also,

– the means by which annual objectives will be achieved

– include guidelines, rules, and procedures established to support efforts to achieve stated objectives

– guides to decision making and address repetitive or recurring situations

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Strategy implementation:

the process by which strategies and policies are put into action through the development of:

• Programs

• Budgets

• Procedures

Strategy implementation also:

– requires a firm to establish annual objectives, devise policies, motivate employees, and allocate resources so that formulated strategies can be executed

– often called the action stage

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Some Opportunities and Threats

• Computer hacker problems are increasing.

• Intense price competition is plaguing most firms.

• Unemployment and underemployment rates remain high.

• Interest rates are rising.

• Product life cycles are becoming shorter.

• State and local governments are financially weak.

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Evaluation and control:

the process in which corporate activities and performance results are monitored so that actual performance can be compared to desired performance

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Performance: the end result of organizational activities

Feedback/Learning Process:

revise or correct decisions based on performance

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Initiation of strategy : triggering events

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Triggering(trace) event: something that acts as a stimulus for a change in strategy and can include:

• New CEO• External intervention (interfere from outside)• Threat of change of ownership• Performance gap• Strategic inflection point

Strategic inflection point is a time in the life of business when its fundamentals are about to change. That change can mean an opportunity to rise to new heights. But it may just as likely signal the beginning of the end”

What Makes a Strategic Decision?Strategic decision making focuses on the long-run future of the organization

Characteristics of strategic decision making include:

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Top. M

Top. M

. Business M. Business M

Functional . MFunctional . M

1. Rare ( few, important, long term )

2. Consequential ( effects all management)

3. Directive

(not influenced by higher Management and give clear instruction to The flowers.)

Mintzberg’s Modes of Strategic Decision Making

1. Entrepreneurial mode Strategy made by one individual, proactive and focus in the opportunities, the problems is secondary and the dominant goal is growth. Example amazon.com

2. Adaptive mode the decision is reactive to solve problem not as pre active to search for opportunities, example universities, government agencies, encyclopedia Britannica Inc book shop.

3. Planning mode involve the systematic gathering the appropriate information for situation analysis to generate alternative strategies includes both proactive to get opportunities and reactive to solve problems example IBM.

4. Logical instrumentalism this mode included all the previous modes they use interactive process which is the organization has clear objectives in the future, experiments and learns from series o partial 1-31

Strategic Decision Making Process:

1. Evaluate current performance results2. Review corporate governance3. Scan and assess the external environment4. Scan and assess the internal corporate

environment

5. Analyze strategic (SWOT) factors6. Generate, evaluate and select the best

alternative strategy7. Implement selected strategies8. Evaluate implemented strategies

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Strategic Decision Making

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Strategic Audit : Aid to Strategic Decision Making

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Strategic audit

provides a checklist of questions, by area or issue, that enables a systematic analysis to be made of various corporate functions and activities.

Strategy audit can help determine why a certain area is creating problems for a corporation and help generate solutions to the problems

Discussion Questions

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1. Why has strategic management become so important to today’s corporations?2. How does strategic management typically evolve in a corporation?3. What is a learning organization? Is this approach to strategic management better than the more traditional top-down approach in which strategic planning is

primarily done by top management?4. Why are strategic decisions different from other kinds of decisions?5. When is the planning mode of strategic decision

making superior to the entrepreneurial and adaptive modes?

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strategic chapter 1 .ppt