INTRODUCTION Strategic Management

Lecture 1

What is Strategy?

Large-scale, future-oriented plan Used to interact within competitive environment to achieve company goals Provides a framework for managerial decisions Reflects a companys awareness of the main elements of competition

The Nature and Value of Strategic Management

Strategic management:
The set of decisions and actions that result in the formulation and implementation of plans designed to achieve a companys objectives

Strategic Management Process

Businesses vary in formulation and other processes The basic components of the models used to analyze strategic management are similar Strategic management is a processa flow of information through interrelated stages of analysis toward the achievement of some goal

Ex. 1.6 Strategic

Management Model

Nine Critical Tasks of Strategic Management - Tasks 1-5:

Formulate the companys mission Conduct an internal analysis Assess the external environment competitive and general contexts Analyze the companys options by matching its resources with the external environment Identify the most desirable options in light of the mission

Nine Critical Tasks of Strategic Management - Tasks 6-9:

Select a set of long-term objectives and grand strategies that will achieve the most desirable options Develop annual objectives and short-term strategies that are compatible with long-term objectives and grand strategies Implement the strategic choices Evaluate the success of the strategic process for future decision making

Dimensions of Strategic Decisions

Strategic issues require top-management decisions Strategic issues require large amounts of the firms resources

Strategic issues often affect the firms long-term prosperity

Strategic issues are future oriented Strategic issues usually have multifunctional or multibusiness consequences Strategic issues require considering the firms external environment

Dimensions of Strategic Decisions (in detail)

Strategic issues require top-management decisions

Strategic decisions overarch several areas of a firms operations Usually only top management has the perspective needed to understand their broad implications Usually only top managers have the power to authorize necessary resource allocations

Dimensions of Strategic Decisions (contd.)

Strategic issues require large amounts of the firms resources

They involve substantial allocations of people, physical assets, and money Strategic decisions commit the firm to actions over an extended period In highly competitive firms, achieving and maintaining customer satisfaction frequently involves commitment from every facet of the firm

Dimensions of Strategic Decisions (contd.)

Strategic issues often affect the firms long-term prosperity

Strategic decisions commit the firm for a long time, typically 5 years; however the impact lasts much longer Once a firm has committed itself to a strategy, its image and competitive advantages are usually tied to that strategy Firms become known for what they do and where they compete. Shifting away from that can jeopardize their previous gains.

Dimensions of Strategic Decisions (contd.)

Strategic issues are future-oriented

They are based on what managers forecast, rather than what they know Emphasis is on the development of solid projections that will enable a firm to seek the most promising strategic options A firm will succeed only if it takes a proactive (anticipatory) stance toward change

Dimensions of Strategic Decisions (contd.)

Strategic issues usually have multifunctional or multibusiness consequences.

Strategic decisions have complex implications for most areas of the firm Decisions about customer mix, competitive emphasis, or organizational structure involve a number of the firms SBUs, divisions, or program units

Dimensions of Strategic Decisions (contd.)

Strategic issues require considering the firms external environment

All businesses exist in an open system. They affect and are affected by external conditions that are largely beyond their control

Successful positioning requires that strategic managers look beyond operations and consider what relevant others are likely to do

Three Levels of Strategy Corporate level: board of directors, CEO & administration [Highest] Business level: business and corporate managers [Middle] Functional level: Product, geographic, and functional area managers [Lowest]

Ex. 1.4 Alternative Strategic Management

Structures

Ex. 1.5

Hierarchy of Objectives and Strategy

Characteristics of Strategic Management Decisions: Corporate

Often carry greater risk, cost, and profit potential Greater need for flexibility Longer time horizons Choice of businesses, dividend policies, sources of long-term financing, and priorities for growth

Characteristics of Strategic Management Decisions: Functional

Implement the overall strategy formulated at the corporate and business levels Involve action-oriented operational issues Relatively short range and low risk Modest costs: depend upon available resources Relatively concrete and quantifiable

Characteristics of Strategic Management Decisions: Business

Help bridge decisions at the corporate and functional levels Less costly, risky, and potentially profitable than corporate-level decisions

More costly, risky, and potentially profitable than functional-level decisions Include decisions on plant location, marketing segmentation, and distribution

Formality in Strategic Management

Formality is the degree to which participation, responsibility, authority, and discretion in decision-making are specified in strategic management

Forces Determining Formality Organizational Size Predominant Management Styles Complexity of Environment Production Process Problems in the Firm Purpose of the Planning System Stage of Firms Development

Three Modes of Formality

Entrepreneurial Mode most small firms Planning Mode most large firms Adaptive Mode most medium size firms

Strategy Makers

Ideal strategic team includes decision makers from all three levels Top managers must give final approval Strategic decisions coincide with managers responsibilities

Strategy Makers: The CEO

A firms CEO plays a dominant role in strategic planning The CEOs principal duty is giving longterm direction to the firm The CEO bears ultimate responsibility for the firms success and strategic success CEOs are typically strong-willed, company-oriented individuals

Benefits of Strategic Management

Managers at all levels interact in planning and implementing strategy

Similar to participative decision making

Assessing strategy formulation requires looking at nonfinancial evaluations as well as financial ones Promoting positive behavioral consequences enables achievement of financial goals

The Vocabulary Of Strategy

(Johnson, Schole & Whittington, Chapter 1)

Challenges of Strategic Management

Prevent strategic drift Progressive failure to address strategic position Deterioration of performance Understand and address contemporary issues

Internationalisation
E-Commerce Changing purposes Knowledge and learning View strategy in more than one way Three strategy lenses Design, Experience, Ideas

Strategic drift
Strategic drift is the tendency for strategies to develop incrementally on the basis of historical and cultural influences but fail to keep pace with a changing environment.

The risk of strategic drift

Exhibit 1.4

Incremental change to avoid strategic drift

Gradual change in alignment with environmental change. Building on successful strategies used in the past (built around core competences)
Making changes based on experimentation around a theme (incremental change built on a successful formula)

This approach is called Logical Incrementalism

The tendency towards strategic drift (1)

Strategies fail to keep pace with environmental change because :
Steady as you go reluctance to accept that change requires moving away from strategies that have been successful.

Building on the familiar uncertainty of change met with a tendency to stick to the familiar.

is

Core rigidities capabilities that are taken for granted and deeply ingrained in routines are difficult to change even when they are no longer suitable.

The tendency towards strategic drift (2)

Relationships become shackles organisations become reluctant to disturb relationships with customers, suppliers or the workforce even if they need to change. Lagged performance effects the financial performance of the organisation may hold up initially (e.g. due to loyal customers or cost cutting) masking the need for change.

A period of flux
As performance declines and the organisation loses track of the environment then a period of Flux occurs typified by:

Strategies that change, but in no clear direction.

Top management conflict and managerial changes. Internal disagreement on the right strategies. Declining performance and morale.

Customers becoming alienated.

Three Strategy Lenses

Exhibit I.v

Three Strategy Lenses: A Summary

Exhibit I.iv

References
Pearce, J.A. & Robinson, R.B. 2013. Strategic Management: Formulation, Implementation & Control, 13th Edition. McGrawHill International edition, Chapter 1. Johnson, G., Scholes, K. & Whittington, R. 2008. Exploring Corporate Strategy, 8th Edition, Prentice Hall. Chapter 1.

Johnson, G., Scholes, K. & Whittington, R. 2011. Exploring Corporate Strategy, 9th Edition, Prentice Hall. Pg. 158-162.

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