Strategic Management – Unit I R.Kannan. 1-2 Overview Why do some firms succeed while others fail? – A central objective of strategic management is to

Strategic Management – Unit I

R.Kannan

1-2

Overview

• Why do some firms succeed while others fail?– A central objective of strategic management is to

learn why this happens.• What is strategy?– An action a company takes to attain superior

performance.• What is the strategic management process?– The process by which managers choose a set of

strategies for the enterprise to pursue its vision.

1-3

FIGURE 1.1

The Main Components of the Strategic Planning

Process

1-4

Mission and Goals

• Mission– Sets out why the organization

exists and what it should be doing.• Major goals– Specify what the organization hopes

to fulfill in the medium to long term.• Secondary goals– Are objectives to be attained that lead to superior

performance.

Copyright © 2001 Houghton Mifflin Company. All rights reserved.

1-5

External Analysis• Identify strategic opportunities and threats

in the operating environment.

MacroenvironmentMacroenvironment NationalNational

Immediate (Industry)Immediate (Industry)


1-6

Internal Analysis

• Identify strengths– Quality and quantity of resources available– Distinctive competencies

• Identify weaknesses– Inadequate resources– Managerial and

organizational deficiencies

1-7

• Strengths and Weaknesses• Opportunities and Threats

(SWOT Analysis)

Strategic ChoiceStrategic ChoiceBusinessBusinessFunctionalFunctionalGlobalGlobal

CorporateCorporate

SWOT and Strategic Choice

1-8

Business-Level Strategies

• Cost leadership– Attaining, then using the lowest total cost basis as

a competitive advantage.• Differentiation– Using product features or services to distinguish

the firm’s offerings from its competitors.• Market niche focus– Concentrating competitively on

a specific market segment.

1-9

Functional-Level Strategies

• Focus is on improving the effectiveness of operations within a company.– Manufacturing– Marketing– Materials management– Research and development– Human resources

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Global-Level Strategies

• Multidomestic• International• Global• Transnational


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Corporate-Level Strategies

• Vertical integration• Diversification• Strategic alliances• Acquisitions• New ventures• Business portfolio

restructuring


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Strategy Implementation• Designing organizational structure• Designing control systems– Market and output controls– Bureaucratic controls– Control through organizational culture– Rewards and incentives

• Matching strategy, structure, and controls– Congruence (fit) among strategy,

structure, and controls

StructureStructure

StrategyStrategy

ControlsControls


1-13

Managing Strategic Change

• The only constant is change.• Success requires adapting strategy and

structure to a changing world.• The feedback loop in

strategic planning. CorporateCorporate

FunctionalFunctional

BusinessBusinessOperationalOperational


1-14

Strategic Managers

• General managers– Responsible for the overall (strategic)

performance and health of the total organization.• Operations managers– Responsible for specific business

functions or operations.


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Strategic Managers for All Levels

FIGURE 1.2


1-16

Strategic Leadership

• Vision, eloquence, and consistency• Commitment to the vision

• Being well informed• Willingness to

delegate and empower• Astute use of power

• Emotional intelligence


1-17

Strategy as an Emergent Process• Strategy making in an unpredictable world– Creates the necessity for flexible strategic approaches.

• Strategy making by lower-level managers– Strategy evolves through autonomous action.

• Serendipity and strategy– Accidental discoveries and happenstances can have

dramatic effects on strategic direction.• Intended and emergent strategies– Realized strategies are combinations of intended and

emergent strategies.


1-18

FIGURE 1.3

Intended and Emergent Strategies

Source: Reprinted from “Strategy Formation in an Adhocracy,” by Henry Mintzberg and Alexandra McGugh, published in Administrative Science Quarterly, Vol. 30, No. 2, June 1985, by permission of Administrative Science Quarterly.


1-19

Strategic Planning in Practice• Planning under uncertainty– Scenario planning for dynamic environmental change

• Ivory tower planning– Lack of contact with operational realities– The importance of involving operating managers– Procedural justice in the decision-making process

• Engagement, explanation, and expectations

• Planning for the present: Strategic Intent– Recognition of the static nature of the strategic fit model– Strategic intent in focusing the organization on winning by

achieving stretch goals


1-20

Improving Strategic Decision Making• Cognitive biases systematically influence

the rationality of decision makers.

FIGURE 1.5


1-21

Groupthink and Strategic Decisions

• Pitfalls of groupthink– Failing to question underlying assumptions.– Coalescing around a single person or policy.– Filtering out conflicting information.– Developing after-the-fact rationalizations.– Having an emotional (nonobjective)

commitment to an action.


2-22

FIGURE 2.1

Stakeholders and the Enterprise

Contributions

Contributions

Inducements

Inducements


2-23

Stakeholder Impact Analysis

1. Identify stakeholders2. Identify stakeholders’ interests and concerns3. Identify resulting claims stakeholders are

likely to make4. Identify most important stakeholders (from

the organization's perspective)5. Identify the resulting strategic challenges


2-24

Mission Statement

• A formal commitment to stakeholders that the firm’s strategy incorporates and recognizes their claims on the organization.

• Mission statement elements:– A declaration of the overall vision, or mission.– A summation of managerial philosophical values.– An articulation of key organizational goals.


2-25

Vision, or Mission

• A statement of purpose (strategic intent) committing the organization to ambitious overarching (stretch) goals.

– Provides a sense of direction and purpose.– Drives strategic decision making

and resource allocations.– Forces the seeking of significant performance

improvements to attain goals.


2-26

Customer Orientation and Business Definition

• Abell’s Frameworkfor Defining theBusiness– Consumer-oriented

versus Product-oriented business definition

FIGURE 2.2

Source: Derek F. Abell, Defining the Business: The Starting Point of Strategic Planning (Englewood Cliffs, N.J.: Prentice-Hall, 1980), p. 17.


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Goals• Good goal characteristics:– Precise and measurable– Address important issues– Challenging but realistic– Time period specified

• The overriding organizational goal:– Maximizing shareholder returns.

• Firms need both short- and long-term goals.

2-28

The Corporate Governance Problem

• On-the-job consumption– Elaborate and expensive

perks for top management.• Excessive pay not linked

to performance– Down markets and upward spirals of executive pay.

Empire building– Buying additional businesses that increase the size of

the company without increasing shareholder wealth.


2-29

Corporate Governance Mechanisms

• Board of directors• Stock-based compensation• Corporate takeovers– Takeover constraints– Corporate raiders– Greenmail

• Leveraged buyouts– Managers offer to exchange equity for debt in

a leveraged buyout (purchase of the company).


2-30

Strategy and Ethics

• The purpose of business ethics– To provide the tools for dealing with moral

complexity in strategic decisions. • Shaping the organization’s ethical climate– Emphasizing the importance

of strong ethical values by top management.

– Including the values in the organization’s mission statement.


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Thinking Through Ethical Problems

• A model of ethical decision making

FIGURE 2.5


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Corporate Social Responsibility• The sense of obligation to include social

criteria in strategic decision making.• Pro:– It is the right way for a firm to behave.– Economic actions have social consequences.– Social behavior affects the firm’s market value.

• Con:– A firm’s primary obligation is to maximize profits

for its stakeholders in open competition.

Documents

Strategic Management – Unit I R.Kannan. 1-2 Overview Why do some firms succeed while others fail? – A central objective of strategic management is to