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Strategic Management. Defined: Set of managerial decisions and actions that determines the long-run performance of a firm. Strategic Decision Making. Strategic Decisions Rare Consequential Directive. Initiation of Strategy. New CEO External intervention Threat of change in ownership

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strategic management

Strategic Management

Defined:

Set of managerial decisions and actions that determines the long-run performance of a firm.

strategic decision making
Strategic Decision Making
  • Strategic Decisions
    • Rare
    • Consequential
    • Directive
initiation of strategy
Initiation of Strategy
  • New CEO
  • External intervention
  • Threat of change in
  • ownership
  • Performance gap
  • Strategic inflection point

Stimulus

for change

in

strategy

Triggering

event

key strategic questions
Key Strategic Questions

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?
  • If the answers are not acceptable, what specific actions should management undertake? What are the risks and payoffs involved?
four phases of strategic management
Four Phases of Strategic Management
  • Basic financial planning
  • Forecast-based planning
  • Externally-oriented planning (strategic)
  • Strategic management
strategic management6
Strategic Management
  • Benefits:
    • Clearer sense of long term vision (strategic direction) for the firm
    • Sharper focus on what is strategically important
    • Improved understanding of a rapidly changing environment
challenges to strategic management
Challenges to Strategic Management
  • Electronic Commerce
    • Use of the Internet to conduct business transactions
  • Globalization
    • Internationalization of markets and corporations
      • Global (worldwide) markets rather than national markets
global issues
Global Issues
  • European Union(EU)
    • Economic integration of 15 member countries
  • North American Free Trade Agreement(NAFTA)
    • Improved trade among 3 member countries
  • Mercado Del Cono Sur = Market of the southern cone (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
strategic management process
Strategic Management Process
  • Strategic Management process is composed of:
    • Environmental Scanning
    • Strategic Formulation
    • Strategic Implementation
    • Evaluation and Control
environmental scanning
Environmental Scanning
  • Defined:

The monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the firm.

environmental scanning11
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 short-run control of management
environment
Environment
  • Composed of:
    • Internal Environment
    • External Environment
      • Task Environment
      • Societal Environment
internal environment
Internal Environment
  • Composed of:
    • Structure
    • Culture
    • Resources
structure
Structure
  • Refers to the way a firm is organized in terms of communication, authority, and workflow
  • Basic Forms of structures:
    • Simple structure
    • Functional structure
    • Divisional structure
slide16

I. Simple Structure

Owner-Manager

Workers

II. Functional Structure

Top Management

Manufacturing

Sales

Finance

Personnel

Basic Organizational Structures: Simple and Functional

slide17

III. Divisional Structure*

Top Management

Product Division A

Product Division B

Manufacturing

Finance

Manufacturing

Finance

Sales

Personnel

Sales

Personnel

*Conglomerate structure is a variant of the division structure.

Basic Structures of Corporations: Divisional

internal environment18
Internal Environment
  • Composed of:
    • Culture
    • Structure
    • Resources
culture
Culture
  • Refers to the pattern of beliefs, expectations, and values shared by a firm’s employees
  • Distinct attributes of organizational culture:
    • Cultural intensity
    • Cultural integration
cultural intensity
Cultural intensity
  • Refers to the degree in which the members of each unit (department or division) in the company subscribe to the same values or norms. As a result, employees in a unit with intensive culture tend to behave the same.
  • In general, older organizations tend to display more intense culture.
cultural integration
Cultural integration
  • Refers to the degree in which units (departments and divisions) across a company tend to subscribe to the same set of values and norms.
  • Units within a companies with integrated culture tend to be more uniformed with other units. As a results, the units in a company with an integrated culture tend to lack subcultures of their own.
internal environment22
Internal Environment
  • Composed of:
    • Resources
    • Culture
    • Structure
resources
Resources

Refers to the assets of the firm including physical assets, skills and knowledge within the functional areas

task environment
Task Environment
  • Composed of:
    • Groups in environment that directly affect or are affected by the organization’s operations (often refer to as industry)
      • Competition
      • Suppliers
      • Customers (Buyers)
      • Other interest Groups
societal environment
Societal Environment
  • Composed of:
    • General forces in environment
      • Economic Forces
      • Sociocultural Forces
      • Technological Forces
      • Political-Legal Forces
slide29

Economic

GDP trends

Interest rates

Money supply

Inflation rates

Unemployment

levels

Wage/price controls

Devaluation/

revaluation

Energy availability and cost

Disposable and discretionary income

Technological

Total government spending for R&D

Total industry spending for R&D

Focus of technological efforts

Patent protection

New products

New developments in technology transfer from lab to marketplace

Productivity improvements through automation

Political-Legal

Antitrust regulations

Environmental protection laws

Tax laws

Special incentives

Foreign trade regulations

Attitudes toward foreign companies

Laws on hiring and promotion

Stability of government

Sociocultural

Lifestyle changes

Career expectations

Consumer activism

Rate of family formation

Growth rate of population

Age distribution of population

Regional shifts in population

Life expectancies

Birth rates

Societal EnvironmentImportant Variables

slide30

Economic

GDP trends

Interest rates

Money supply

Inflation rates

Unemployment

levels

Wage/price controls

Devaluation/

revaluation

Energy availability and cost

Disposable and discretionary income

Technological

Total government spending for R&D

Total industry spending for R&D

Focus of technological efforts

Patent protection

New products

New developments in technology transfer from lab to marketplace

Productivity improvements through automation

Political-Legal

Antitrust regulations

Environmental protection laws

Tax laws

Special incentives

Foreign trade regulations

Attitudes toward foreign companies

Laws on hiring and promotion

Stability of government

Sociocultural

Lifestyle changes

Career expectations

Consumer activism

Rate of family formation

Growth rate of population

Age distribution of population

Regional shifts in population

Life expectancies

Birth rates

Societal EnvironmentImportant Variables

swot analysis
SWOT Analysis
  • Internal Environment:
    • Strengths
    • Weaknesses
  • External Environment:
    • Opportunities
    • Threats
slide34

Strategic Management Model

Environmental

Evaluation

and Control

Strategy

Strategy

Evaluation

and Control

and Control

Scanning

Formulation

Implementation

Mission

External

Reason for

Societal

existence

Objectives

Environment

General Forces

What results

to

Strategies

Task

accomplish

Environment

by when

Plan to

Industry Analysis

achieve the

Policies

mission &

Internal

objectives

Broad

guidelines for

Programs

Structure

Process

decision

to monitor

Chain of Command

making

Activities

performance

needed to

Budgets

Culture

and take

accomplish

corrective

Beliefs, Expectations,

a plan

Cost of the

action

Values

programs

Procedures

Resources

Sequence

Assets, Skills

of steps

Competencies,

needed to

Knowledge

Performance

do the job

Feedback/Learning

swot analysis35
SWOT Analysis
  • Internal Environment:
    • Strengths
    • Weaknesses
  • External Environment:
    • Opportunities
    • Threats
strategy formulation
Strategy Formulation

Defined:

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

Composed of:

  • Mission
  • Objectives
  • Strategies
  • Policies
strategy formulation38
Strategy Formulation

Mission Statement

  • Purpose or reason for the organization’s existence
  • Should include the firm’s products / services and it’s target market(s)
  • Who we are, what we do, what we’d like to become
    • Promotes shared expectations among employees
    • Communicates a public image to stakeholders
strategy formulation39
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.

strategy formulation40
Strategy Formulation

Objectives

The end results of planned activity

  • WHAT is to be accomplished
  • Time in which to accomplish it (WHEN)

Objectives should be quantified when possible

strategy formulation41
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/or no time criteria for completion.

goals objectives
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)
strategies
Strategies

Defined:

A strategy of a corporation forms a comprehensive master plan stating HOW the corporation will achieve its mission and objectives.

strategies44
Strategies

3 Types of Strategy

  • Corporate strategy
  • Business strategy
  • Functional strategy
hierarchy of strategy
Hierarchy of Strategy

Corporate Strategy

Business

(Division Level)

Strategy

Functional

Strategy

corporate strategies
Corporate Strategies
  • Corporate strategies deal with corporation’s overall direction and its management of its businesses
corporate strategies47
Corporate Strategies

Corporate Strategy

  • Growth
  • Stability
  • Retrenchment
growth strategies
Growth Strategies
  • Concentration
    • Horizontal integration
    • Vertical integration
  • Diversification
    • Concentric diversification
    • Conglomerate diversification

Any of these four growth strategies may be though internal development or external acquisitions, mergers, or joint ventures.

corporate strategies49
Corporate Strategies

Corporate Strategy

  • Stability
  • Growth
  • Retrenchment
stability strategies
Stability Strategies
  • Pause
  • Proceed-with-caution
  • No change
  • Profit
corporate strategies51
Corporate Strategies

Corporate Strategy

  • Retrenchment
  • Stability
  • Growth
retrenchment strategies
Retrenchment Strategies
  • Turnaround
  • Captive
  • Divestment
  • Bankruptcy
  • Liquidation
hierarchy of strategy53
Hierarchy of Strategy

Corporate Strategy

Business

(Division Level)

Strategy

Functional

Strategy

business strategy
Business Strategy

Emphasizes on improving the competitive position of a firm’s strategic business

  • Also referred to as competitive strategies
porter s competitive strategies
Porter’s Competitive Strategies
  • Competitive Advantage:
    • Lower cost strategy
      • Design, produce, market more efficiently than competitors
    • Differentiation strategy
      • Unique and superior value in terms of product quality, features, service
porter s competitive strategies56
Porter’s Competitive Strategies
  • Competitive Scope:
    • Refers to the Breadth of the company’s target market
      • Compete head to head in large market?
      • Focus on niche?
porter s competitive strategies58
Porter’s Competitive Strategies
  • Cost Leadership:
    • Low-cost competitive strategy
    • Aimed at broad mass market
    • Aggressive construction of efficient-scale facilities
    • Cost reductions/Cost minimization
porter s competitive strategies59
Porter’s Competitive Strategies
  • Differentiation:
    • Broad mass market
    • Unique product or service
    • Charge premiums
    • Lower customer sensitivity to price
porter s competitive strategies60
Porter’s Competitive Strategies
  • Cost focus:
    • Low cost competitive strategy
    • Focus on particular buyer group or market
    • Niche focused
    • Seek cost advantage in target market
porter s competitive strategies61
Porter’s Competitive Strategies
  • Differentiation focus:
    • Focus on particular group or geographic market
    • Seek differentiation in targeted market segment
    • Serve special needs of narrow target market
hierarchy of strategy62
Hierarchy of Strategy

Corporate Strategy

Business

(Division Level)

Strategy

Functional

Strategy

functional strategy
Functional Strategy

To optimize resource productivity

policies
Policies

Defined:

Broad guidelines for decision making that link the formulation of strategy with its implementation.

strategy implementation
Strategy Implementation

Programs

Strategy

Implementation

Budgets

Procedures

programs
Programs
  • A program is a statement of activities or tasks needed to accomplish a single-use plan
budgets
Budgets
  • A budget is a statement of a corporation’s program in dollar terms
procedures
Procedures
  • Procedures refer to a system of sequential steps or techniques that describe in detail how to perform a particular activity or task