STRATEGIC MANAGEMENT

OB/09

THE STRATEGIC MANAGEMENT THE STRATEGIC MANAGEMENT PROCESSPROCESS

Chapter 1

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An Introduction to Strategy

What Is Strategic Management?

Why Is Strategic Management Important?

Who Is Involved in Strategic Management?

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Five Tasks of Strategic Management

Developing a Strategic Vision and Mission Setting Objectives Crafting a Strategy Implementing and Executing the Strategy Evaluating Performance and Initiating Corrective

Adjustments

Why Strategic Management Is a Process?

Chapter Outline

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Definition

An organisation’s strategy consists of the moves and approaches devised by management to produce successful

organisation performance. (Thompson & Strickland)

Strategy is management’s “action plan” to

Attract and satisfy its customers

Run its operations

Compete successfully against rival firms

Achieve organizational objectives and targets

What is Strategy?

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1. Where are we now?( the company’s present situation)

2. Where do we want to go?( business or markets, buyers and groups to target)

3. How do we get there?(the co.’s answer to how to get there is its strategy)

The 3 Big Strategic Management Questions

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- To proactively shape how a company’s business will be conducted.

- To mold the independent actions and decisions of managers and employees into a coordinated, company-wide plan.

- Charts the company’s direction.

Why is Strategy Important?

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Competent execution of a well-conceived strategy is the best test of managerial excellence and a proven recipe for organizational success!

Good Strategy + Good Strategy Execution Good Strategy + Good Strategy Execution

= = Good ManagementGood Management

Strategic Management Concept

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Crafting and executing strategy are core management functions.

Who is Involved in Strategic Management?

Senior Corporate Executives

Managers of Subsidiary Business Units

Functional Area Managers

Operating Managers

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Craft aStrategy

to AchieveObjectives

SetObjectives

Develop aStrategic

Visionand

Mission

Implementand

ExecuteStrategy

Improve/Change

Revise asNeeded

Revise asNeeded

Improve/Change

Recycleas Needed

Task 1 Task 2 Task 3 Task 4 Task 5

Monitor,Evaluate,and Take

CorrectiveAction

The 5 Tasks of Strategic Management

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Developing a Vision & Mission

The first task of strategic management

The first direction setting task

Offers a big picture perspective of “WHO we are, WHAT we do and WHERE we are headed”

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Strategic Vision

Effective strategy making begins

with a vision of where the organisation needs to head.

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Tasks include: Creates a roadmap for the future Provide long term direction Give firm a strong identity

Concerns a firm’s future business path -“where we are going” Markets to be pursued Future technology-product-customer focus Kind of company that management is

trying to create

Forming a vision of the firm’s future in 5-10 years.

Strategic Vision (cont)

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Example of a Strategic Vision

Our vision: Getting to a billion connected computers worldwide,millions of servers, and

trillions of dollars of e-commerce.

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A mission statement focuses on current business activities.

Concerns “who we are and what we do”

Current product and service offerings Customer needs being served Technological and business capabilities

Mission Statement

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Intel’s core mission is being the building block supplier to the Internet economy and spurring efforts to make the Internet

more useful. Being connected is now at the center of people’s computing experience. We are helping to expand

the capabilities of the PC platform and the Internet.

Example of a Mission Statement

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The 2nd Task of Strategic Management

The 2nd Direction Setting Task

Represent managerial commitment to achieve specific & measurable performance targets by a certain time.

Spell-out how much of what kind of performance by when

Direct attention & energy to what needs to be accomplished

Setting Objectives

Establishing objectives converts firm’s mission into concrete performance outcomes

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Provides benchmarks for judging organisational performance

The firm is more focused over what needs to be accomplished

Objectives need to be set for every key result area

Objectives are required both for the long term term and short term

Types of Objectives required: Financial Objectives Strategic Objectives

Setting Objectives (cont)

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Relates to the firm’s financial performance – usually improving the financial performance

Financial performance is critical to firm’s survival

Examples of Financial Objectives:

Grow earnings per share 15% annually Boost annual return on investment from 15% to 20%

within three years Increase annual dividends per share

to stockholders by 5% each year Maintain a positive cash flow every year

Financial Objectives

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Focused on improving long-term, competitive business position

Increase firm’s market share Overtake key rivals on quality or customer service or

product performance Attain lower overall costs than rivals Boost firm’s reputation with customers Attain stronger foothold in international markets Achieve technological superiority Become leader in new product introductions Capture attractive growth opportunities

Strategic Objectives

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Example of Strategic Objective

Domino’s Pizza

To safely deliver a hot, quality pizza in 30 minutes or less at a fair price and a

reasonable profit.

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3rd Task of Strategic Management

3rd Direct Setting Task

A firm’s strategy consists of combined actions that management has taken and intends to take in Achieving strategic and financial objectives Pursuing organisation’s mission

Strategy-making is all about HOW to Reach performance targets Out-compete rivals Achieve sustainable competitive advantage Capture market opportunities Strengthen firm’s long term competitive position Make the strategic vision a reality

Crafting a Strategy

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Strategy involves determining whether to Concentrate on a single business or several businesses

(diversification) Cater to a broad range of customers or focus on a

particular niche Develop a wide or narrow product line Pursue a competitive advantage based on

Low cost or Product superiority or Unique organizational capabilities

Crafting a Strategy (cont)

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Understanding a Firm’s Strategy

Patternof Actions

That DefineStrategy

Actions to strengthen resources & capabilities

Actions to diversify Actions to outcompete rivals

Responses tochanging externalcircumstances

Actions to alter geographic coverage

Actions to form strategic alliances and collaborative

partnerships

How functional activities are

managed

Efforts to pursue new opportunities or defend against threats

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There is always an ongoing need to react to

Shifting market conditions Fresh moves of competitors New technologies Evolving customer preferences Political and regulatory changes New windows of opportunity Crisis situation

Why do Strategies Evolve?

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The 4th Task of Strategy Management

Executing and Implementing Strategy

Taking actions to put a freshly-chosen strategy into place

Supervising the ongoing pursuit of strategy

Improving the competence and efficiency with which the strategy is being executed

Showing measurable progress in achieving the targeted results and objectives

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Building a capable organization Allocating resources to strategy-critical activities Establishing strategy-supportive policies Motivating people to pursue the target objectives Tying rewards to achievement of results Creating a strategy-supportive corporate culture Installing needed information, communication, and

operating systems Instituting best practices and programs for

continuous improvement Exerting the leadership necessary to drive the

process forward and keep improving

What does Strategy Implementation and Execution Include?

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Monitoring, Evaluating and Taking Corrective Actions as Required

The 5th Task of Strategic Management

The tasks of crafting, implementing, and executing a strategy are not a one-time exercise

Customer needs and competitive conditions change New opportunities appear; technology advances; any number

of other outside developments occur

One or more aspects of executing the strategy may not be going well

New managers with different ideas take over Organizational learning occurs

All these trigger the need for corrective actions and adjustments

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Need to do the five tasks never goes away

Strategizing is not isolated from other managerial activities

The big challenge: To get the best strategy-supportive performance from employees, perfect current strategy, and improve strategy execution

Characteristics of the Strategic Management Process

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Guides entire firm regarding “what it is we are trying to do and to achieve”

Makes managers more alert to “winds of change, new opportunities,and threatening developments

Unifies numerous strategy-related decisions and organizational efforts

Creates a proactive atmosphere Promotes development of an evolving business model

focused on bottom-line success Provides basis for evaluating competing budget

requests

HELPS A COMPANY PREPARE FOR THE FUTURE!

Benefits of Strategic Thinking and a Strategic Approach to Managing