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Chapter 1
The Nature of Strategic Management
Learning Objectives
• Explain the concept of strategic management
• Describe how strategic decisions differ from other decisions that managers make
• Describe the comprehensive model of strategic decision making
• Appreciate the importance of strategic management process
Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its goal and objectives.
Strategic Management – Defined
Strategic Management Critical Task1. Formulate the company’s mission, including
broad statements about its philosophy, and goals
2. Conduct an analysis that reflects the company’s internal conditions and capabilities
3. Assess the company’s external environment, including both the competitive and the general contextual factors
4. Analyze the company’s options by matching its resources with the external environment
5. Identify the most desirable options by evaluating each option in light of the company's mission
6. Select a set of long-term objectives and grand strategies that will achieve the most desirable options
7. Develop annual objective and short-term strategies that are compatible with the selected set of long-term objectives and grand strategies
8. Implement the strategic choices by means of budgeted resource allocations in which the matching of tasks, people, structures, technologies, and reward system is emphasized
9. Evaluate the success of the strategic process as an input for future decision making.
Expectations for the Course: You Will…
• Struggle with figuring out what to do
• Be prepared to participate in planning for your own firms
• Study real business situation
Why is strategic management important?
• Gives everyone a role• Makes a difference in
performance levels• Provides systematic approach to
uncertainties• Coordinates and focuses
employees
Copyright © 2004 South-Western. All rights reserved.
12–9
The Strategic
Management Process
Strategic Leadership and the Strategic
Management Process
Effective Strategic Leadership
Strategic Intent Strategic Mission
Successful Strategic Actions
Formulation of Strategies
Implementation of Strategies
Strategic Competitiveness
Above-average Returns
Shapes theFormulation of
and
Influence
YieldsYields
12–11
Strategic Leadership
• Requires the managerial ability to:– Anticipate and envision– Maintain flexibility– Empower others to create strategic change as
necessary
• Strategic leadership is:– Multi-functional work that involves working through
others– Consideration of the entire enterprise rather than
just a sub-unit– A managerial frame of reference
Strategic Leadership (cont’d)
• Effective strategic leaders:
– Manage the firm’s operations effectively
– Sustain a high performance over time
– Make better decisions than their competitors
– Make candid, courageous, pragmatic decisions
– Understand how their decisions affect the internal systems in use by the firm
– Solicit feedback from peers, superiors and employees about their decisions and visions
Managers as an Organizational Resource
• Managers often use their discretion when making strategic decisions and implementing strategies
• Factors affecting the amount of decision-making discretion include:
– External environmental sources
– Characteristics of the organization
– Characteristics of the manager
Factors Affecting Managerial Discretion
External Environment
Managerial Discretion
External Environment• Industry structure• Rate of market growth• Number and type of
competitors• Nature and degree of
political/legal constraints• Degree to which products
can be differentiated
12–15
Factors Affecting Managerial Discretion
External Environment
Characteristics of the Organization
Managerial Discretion
Characteristics of the Organization
• Size• Age• Culture• Availability of resources• Patterns of interaction
among employees
Factors Affecting Managerial Discretion
External Environment
Characteristics of the Organization
Managerial Discretion
Characteristics of the Manager
Characteristics of the Manager
• Tolerance for ambiguity• Commitment to the firm
and its desired strategic outcomes
• Interpersonal skills• Aspiration level• Degree of self-confidence
Top Management Teams
• Composed of the key managers who are responsible for selecting and implementing the firm’s strategies
• A heterogeneous top management team:
– Has varied expertise and knowledge
– Can draw on multiple perspectives
– Will evaluate alternative strategies
– Builds consensus
Important Definitions
• Strategic Management Process– The full set of commitments, decisions, and
actions required for a firm to achieve strategic competitiveness and earn above-average returns.
Steps in Strategic Management Process
• Step 1: Identifying the organization's current mission, objectives, and strategies– Mission: the firm’s reason for being
• Who we are,• What we do, and • Where we are now
– Goals: the foundation for further planning• Measurable performance targets
• Step 2: Conducting an external analysis– The environmental scanning of specific and general
environments– Focuses on identifying opportunities and threats
19
Strategic Management Process (cont’d)
• Step 3: Conducting an internal analysis– Assessing organizational resources, capabilities,
activities and culture:• Strengths (core competencies) create value for the
customer and strengthen the competitive position of the firm.
• Weaknesses (things done poorly or not at all) can place the firm at a competitive disadvantage.
Steps 2 and 3 combined are called a SWOT analysis (Strengths, Weaknesses,
Opportunities, and Threats)
Strategic Management Process (cont’d)
• Step 4: Formulating strategies– Develop and evaluate strategic alternatives– Select appropriate strategies for all levels in the
organization that provide relative advantage over competitors
– Match organizational strengths to environmental opportunities
– Correct weaknesses and guard against threats
Strategic Management Process (cont’d)
• Step 5: Implementing strategies– Implementation: effectively fitting organizational
structure and activities to the environment– Effective strategy implementation requires an
organizational structure matched to its requirements.
• Step 6: Evaluating results– How effective have strategies been?– What adjustments, if any, are necessary?
Levels of strategy
• What kind of business should we become?
• Are we in the right fields• Are there new competitors• What strategies should we
pursue?• How are our customers
changing?
Adapting to Change – Key Strategic Management Questions
Vision Statement –What do we want to become?
Mission Statement –What is our business?
Key Terms
Opportunities & Threats (External)
Key Terms
Analysis of Trends:
• Economic
• Social
• Cultural
• Demographic/Environmental
• Political, Legal, Governmental
• Technological
• Competitors
Strengths & Weaknesses (Internal)
Key Terms
Typically located in functional areas of the firm
• Management
• Marketing
• Finance/Accounting
• Production/Operations
• Research & Development
• Computer Information Systems
Means by which long-term objectives are achieved
Key Terms
Strategies
ExternalAudit
Chapter 3
InternalAudit
Chapter 4
Long-TermObjectives
Chapter 5
Generate,Evaluate,
SelectStrategies
Chapter 6
ImplementStrategies:
Mgmt Issues
Chapter 7
ImplementStrategies:Marketing,Fin/Acct,R&D, CISChapter 8
Measure &Evaluate
Performance
Chapter 9
Vision &
Mission
Chapter 2
Comprehensive strategic management model