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1.1 Why Strategic Management Is Important

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  1. 1.1Why Strategic Management Is Important

  2. Why SM is Important • Everyone in an organization plays a role in strategic management • Understanding strategic decisions is important so you can do your job well and have your work valued and rewarded.

  3. Why SM is Important 2 fundamental questions • Why do firms succeed/fail? • Why do firms have varying levels of performance? These questions have guided strategic management researcher for many years.

  4. Why SM is Important Strategic Management: • Makes a difference in the performance of the organization • Higher levels of performance, measured by profits, in companies with SM Important to know if it affects the organizational performance

  5. Reputation Global survey of financial analysts was conducted in 2008, and over 90% agreed reputation affects financial status of the organization. Measured aspects: • Executing strategy • Transparency of information • Strong corporate governance Highest ranking companies included • IKEA, Google, Toyota…

  6. Why SM is Important • Organizations are constantly faced with changing situations both internally and externally and are still expected to meet a certain level of output • Industries never stand still • Operations improve • Markets expand • Competition comes and goes

  7. The way strategy is developed has an effect on performance according to past studies • Companies that collected information and used analytical techniques made more effective decisions than those that did not. • Organizations that use several approaches to developing strategy outperformed those who only used one.

  8. Why SM is Important • Focuses and coordinates different divisions/departments on the same goal • Each division has its own goals for performance • Accounting and revenues, operations and output… • SM helps align these goals with the organizations goals

  9. Strategic ManagementWhat it is? Section 1.2

  10. Defining Strategy Goals directed plans and actions Capabilities and resources (Internal Forces) Opportunities and threats (External Forces)

  11. Strategic Management • Analyzing the CURRENT situation • Propelling the strategy into action. Notice: Changes could or must be made to accommodate strategy in accordance.

  12. Four Characteristics • Interdisciplinary • External Factors • Internal Factors • Future Direction

  13. The Strategic Management Process • 1. Situation Analysis- Current Situation • 2. Strategy Formulation- Designing • 3. Strategy Implementation- Action • 4. Strategy Evaluation- Revisit and Check

  14. Situation Analysis Evaluating the current situation

  15. Strategy Formation • 1. Functional Strategies • Relate to organizational functional area • Example: Production- operations, marketing, finance and accounting • 2. Competitive Strategies • Concerned with how an organization competes in the industry • Examples: Direct Competitors • 3. Corporate Strategies • What business to be in and what to do • Example: acquisitions

  16. The Strategic Management Process • 1. Situation Analysis- Current • 2. Strategy Formulation- Designing • 3. Strategy Implementation- • Strategy in action • 4. Strategy Evaluation- • how it measures to expectation

  17. History of Strategic Management • Strategos- military commander • 1960’s Contingency approach arose

  18. Who’s Involved with Strategic Management • Remember – strategic management is the responsibility of all employees • All organizational levels play a role in developing, implementing, and changing strategy • Lower level employees are concerned with functional strategies • Higher level executives are concerned with strategic issues • Three main groups in the strategic management process • The Board of Directors • The Top Management Team • Other Strategic Managers and Organizational Employees

  19. The Board of Directors • Elected group that represents a company’s shareholders • Legal obligation to protect interests of stockholders • Corporate governance – governing the decisions and actions of the organization • Two different roles a Board plays • Approving Role • Involved Role

  20. The Board of Directors cont… • Approving Role • Older, traditional form of role that a Board plays • Top management keeps board members informed of strategies • Board’s role is to approve these strategies, some of which they may have already given input on

  21. The Board of Directors cont… • Involved Role • More common role of Board’s in today’s business world • Board initiates strategies and oversees the implementation and evaluation of these strategies

  22. The Board of Directors cont… The Board of Directors Key Roles • Review and approve strategic goals and plans • Review and approve organization’s financial standards and policies • Ensure integrity of organization’s financial controls and reporting system • Approve an organizational philosophy • Monitor organizational performance and regularly review performance results • Select, evaluate, and compensate top-level managers • Develop management succession plans • Review and approve capital allocations and expenditures • Monitor relations with shareholders and other key stakeholders

  23. The Role of Top Management • An organizations top manager is typically the Chief Executive Officer (CEO) • The CEO works with other executive or senior managers such as COO, CFO, CCO, CIO etc… • Roles of Chief Executives • Chief Strategist • Strategy Designer • Key Decision Maker • Visionary Leader • Provide Effective Strategic Leadership

  24. The Role of Top Management cont… • Provide Effective Strategic Leadership • Strategic Leadership – the ability to anticipate, envision, maintain flexibility, think strategically, and work with others in the organization to initiate changes that will create a viable and valuable future for the organization • Executive or Senior Level Management provides effective Strategic Leadership with six key dimensions • Determining the organization’s purpose or vision • Exploiting and maintaining the organization’s core competencies • Developing the organization’s human capital • Creating and sustaining a strong organizational culture • Emphasizing ethical organizational decisions and practices • Establishing appropriately balanced organizational controls

  25. Other Strategic Managers and Organizational Employees • Strategy Implementation • Employees put strategies into action • It is not uncommon to see them managing or supervising the work of others and doing work themselves • Evaluation of Strategies • If strategies aren’t helping the organization achieve its goals, they need to be changed • Employees do the evaluating and follow up to top management

  26. 1.4Factors Impacting SM Today • Global economy and Globalization • Corporate Governance • E-business

  27. Global Economy and Globalization • Offers significant business opportunities • Extremely difficult doing business globally • Meant to open up trade, and break down geographical barriers • Openness entails open to both good and bad

  28. Global Economy and Globalization • High interdependence on trade can lead to domino effects during economic upturns/downturns. • WTO- goal is to promote long term economic development and poverty reduction by providing technical and financial support • IMF- promotes international monetary cooperation and provides members with policy advice, loans, and technical assistance to maintain financial stability

  29. Global Economy and Globalization Other challenges in the global economy: • Cultural differences (traditions, history, beliefs) • Ex: Capitalism’s high emphasis on profits and growth are widely accepted in US and Australia, but not so much in France or Scandinavia • Internet and speed of information • Strategic managers must be sensitive to cultural and political differences • How will decisions be viewed? • How will their actions be viewed?

  30. Corporate Governance • Corporate Governance – the way a corporation is governed or the determination of the broad uses to which organizational resources will be deployed and the resolution of conflicts among the myriad participants in organizations • 2001-2002 • Enron, Tyco, Worldcom • Sarbanes-Oxley Act – U.S. law designed to protect investors by improving the accuracy and reliability of corporate disclosures • Mandated two areas • The Role of Boards of Directors • Financial Reporting

  31. Corporate Governance cont… The Role of Boards of Directors • The original purpose of a corporate Board of Directors was to ensure that there was a group, independent from management that looked out for the interest of the owners who were not involved in the day to day operations of the corporation. • Sarbanes-Oxley changed the way publicly traded companies were run through the board members • No more “relationship” between the CEO and board members

  32. Corporate Governance cont… Financial Reporting • Sarbanes-Oxley called for more disclosure and transparency of financial information • Senior Managers must now sign off certifying the accuracy of financial statements • Section 404 • Deals with auditing of internal financial controls

  33. SM in the E-business World • E-business- using information and communication technologies to support all aspects of a business. • E-commerce- retailing side of e-business, selling items over the internet.

  34. SM in the E-business World • E-business Enhanced Organization • Traditional organization that sets up e-business capabilities, while maintaining its traditional structure • Ex: shopping at Wal-Mart in store, or online • E-business Enabled Organization • Uses information and communication technology to perform its traditional business functions better, not for selling anything. • Enables organizations to do their work more efficiently and effectively

  35. SM in the E-business World • Total E-business • Whole approach to business is based on the internet and other information and communication technologies • Ex: Google, Yahoo, eBay, Amazon.com