Chapter 1Chapter 1

The Nature Of Strategic The Nature Of Strategic Management Management

• All heading somewhere, but unfortunately All heading somewhere, but unfortunately some Organizations do not know where they some Organizations do not know where they are going are going

“ “ If you don’t know where you are going, then If you don’t know where you are going, then any road will lead you there” any road will lead you there”

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Notable Quotes Notable Quotes

• Plans are less important than planningPlans are less important than planning

• Where there is no vision, the people perishWhere there is no vision, the people perish

• A strategist’s job is to see the company not as A strategist’s job is to see the company not as it is….. But as it can becomeit is….. But as it can become

• A good strategist plans & controls his/her A good strategist plans & controls his/her plans, while a bad strategist plans & then tries plans, while a bad strategist plans & then tries to control peopleto control people

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What is Strategic Management?What is Strategic Management?

StoryStory

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Thinking StrategicallyThinking Strategically

• Strategic thinking means to take the Strategic thinking means to take the long term viewlong term view and to see the big and to see the big

picture, including the Organization and picture, including the Organization and the competitive environment and how the competitive environment and how

they fit togetherthey fit together

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Strategic Management – Strategic Management – DefinedDefinedArt & science of Art & science of formulatingformulating, , implementingimplementing, and , and evaluatingevaluating, cross-functional decisions that , cross-functional decisions that enable an organization to achieve its objectivesenable an organization to achieve its objectives

The set of decisions and actions used to The set of decisions and actions used to formulateformulate and and implement implement strategies that will strategies that will provide a competitively superior fit between the provide a competitively superior fit between the organization organization and its and its environmentenvironment so as to achieve so as to achieve organizational goalsorganizational goals

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Defining Strategic ManagementDefining Strategic Management

Strategic Management focuses on Strategic Management focuses on Integrating Management, Marketing, Integrating Management, Marketing,

Finance/Accounting, Finance/Accounting, Production/Operations, R&D, Computer Production/Operations, R&D, Computer

info system to achieve Organization info system to achieve Organization Success Success

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Defining Strategic ManagementDefining Strategic Management

• The term The term Strategic ManagementStrategic Management used used synonymously with the term synonymously with the term Strategic PlanningStrategic Planning

• Term Strategic planning is used in Term Strategic planning is used in Business Business worldworld, whereas the Strategic Management is , whereas the Strategic Management is often used in often used in academiaacademia

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Strategic Management Strategic Management

• Refers to Strategy Refers to Strategy Formulation, Formulation, Implementation & Implementation & evaluationevaluation

• Purpose is to exploit & Purpose is to exploit & create new and different create new and different opportunities for opportunities for tomorrow, long-range tomorrow, long-range planningplanning

Strategic PlanningStrategic Planning

• Refers to Strategy Refers to Strategy Formulation onlyFormulation only

• Purpose is to optimize Purpose is to optimize for tomorrow the for tomorrow the trends of today trends of today

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Strategic PlanningStrategic Planning• Originated in the 1950’s Originated in the 1950’s

• Very popular between mid-1960’s & mid 70’sVery popular between mid-1960’s & mid 70’s

• During these years “SP” believed to be the During these years “SP” believed to be the answer for all problems answer for all problems

• Following the ‘boom’ – in 1980’s various Following the ‘boom’ – in 1980’s various planning did not yield higher returnsplanning did not yield higher returns

• 1990’s revival of ‘SP’ the process is widely 1990’s revival of ‘SP’ the process is widely practiced today in the business worldpracticed today in the business world

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PerformExternal

Audit

Chapter 3

PerformInternal

Audit

Chapter 4

EstablishLong-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

DevelopVision

& Mission

Chapter 2

Comprehensive strategic management Comprehensive strategic management modelmodel

Strategic ManagementStrategic Management

Evaluate current • Mission•Goals•Strategies

________________________________

Define New__________________

Implement Strategy via Changes in :•__________•__________•__________•__________

Stages of Strategic ManagementStages of Strategic Management

Vision & Mission

Strategy Formulation

External Opportunities & Threats

Internal Strengths & Weaknesses

Long-Term Objectives

Alternative Strategies

Strategy Selection

Strategy Implementation

Annual Objectives

Policies

Employee Motivation

Resource Allocation

Strategy Evaluation

Internal Review

External Review

Performance Metrics

Corrective Actions

Fundamentals of Human Resource Management 8e,

DeCenzo and Robbins

Competitive Advantage

Internal strengths

& Weaknesses

Vision &

Mission

Strategies

Long Term Objectives

External Opportunities &

Threats

Strategists

Annual Objectives

Policies

Key Terms in Strategic Key Terms in Strategic Management Management

Competitive AdvantageCompetitive Advantage

“ “ Anything that a firm does especially well Anything that a firm does especially well compared to rival firms.”compared to rival firms.”

• Firm sustain Competitive advantage for Firm sustain Competitive advantage for only a certain period due to rival firms only a certain period due to rival firms imitating & understanding the advantageimitating & understanding the advantage

• A firm must strive to achieve sustained CAA firm must strive to achieve sustained CA Continually adapting to changes in external trends Continually adapting to changes in external trends

and events & internal capabilities, competencies & and events & internal capabilities, competencies & resourcesresources

Effectively formulating, implementing & evaluating Effectively formulating, implementing & evaluating strategies that capitalize upon those factors strategies that capitalize upon those factors

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I/O & RBV theories of

organization present

different perspectives on how best to capture and keep

competitive advantage

Strategists Strategists

• Individuals responsible for the success or failure Individuals responsible for the success or failure of an Orgof an Org

• Job titlesJob titles

““All strategists have to be chief learning officers. All strategists have to be chief learning officers. We are in an extended period of change. If our We are in an extended period of change. If our

leaders aren’t highly adaptive & great role leaders aren’t highly adaptive & great role models during this period, then our companies models during this period, then our companies

wont adapt either, because ultimately leadership is wont adapt either, because ultimately leadership is about being a role model”about being a role model”

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CEO, President, Owner, Chancellor, Dean, Entrepreneur

Vision Statement –Vision Statement –What do we want to become?What do we want to become?

Mission Statement –Mission Statement –What is our business?What is our business?

Vision & Mission Statements

Opportunities & Threats Opportunities & Threats (External) (External)

Analysis of Trends:

• Economic

• Social

• Cultural

• Demographic/Environmental

• Political, Legal, Governmental

• Technological

• CompetitorsWireless revolution, population shifts, high gas prices, changing

work values & attitudes, illegal immigration, competition for foreign companies

Changes creating different types of consumer & need for diff types of products/services & strategies

National catastrophe, declining value of dollar, intro of new

product/service by competitor, unrest in the middle East , War

against terrorism

Environmental scanning or industry

analysis

Strengths & Weaknesses Strengths & Weaknesses (Internal) (Internal)

Typically located in functional areas of the firm

• Management

• Marketing

• Finance/Accounting

• Production/Operations

• Research & Development

Organizations strive to pursue strategies that capitalize on internal strengths & eliminate internal weakness

•Surveys developed and administered to examine factors:, Profit Margin, Return on investment, Credit Rating , market share, customer satisfaction, distribution channels, degree of centralization . Info & control system

Means by which long-term objectives are Means by which long-term objectives are achievedachieved

Comprehensive plan for accomplishing an Comprehensive plan for accomplishing an Organizational goals Organizational goals

Plan of action that prescribes resource allocation Plan of action that prescribes resource allocation & the activities for dealing with environment & & the activities for dealing with environment & helping the Org attain its goalhelping the Org attain its goal

Strategy

Long Term ObjectivesLong Term Objectives• Specific results that an organization seeks to achieve Specific results that an organization seeks to achieve

in pursuing its basic missionin pursuing its basic mission

• Long – term means more than one yearLong – term means more than one year

• State direction- aid in evaluation; create synergy; State direction- aid in evaluation; create synergy; reveal priorities; provide basis for effective reveal priorities; provide basis for effective Planning, organizing, motivating and controlling Planning, organizing, motivating and controlling activities activities

• Should be Challenging, Measurable, Consistent, Should be Challenging, Measurable, Consistent, Reasonable & ClearReasonable & Clear

• Established for overall company & for each divisionEstablished for overall company & for each division

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Annual Objectives Annual Objectives

• Short term milestones that Org’s must achieve to Short term milestones that Org’s must achieve to reach long-term objectivesreach long-term objectives

• Should be Measurable, quantitative, challenging, Should be Measurable, quantitative, challenging, realistic, consistent and prioritizedrealistic, consistent and prioritized

• Should be established at the Corporate, divisional Should be established at the Corporate, divisional & functional levels & functional levels

• Set of annual objectives is needed for each long-Set of annual objectives is needed for each long-term objectiveterm objective

• AO important in strategy implementation, AO important in strategy implementation, whereas Long term objectives in strategy whereas Long term objectives in strategy formulationformulation 1-24

Policies Policies • Means by which Annual objectives will be Means by which Annual objectives will be

achieved achieved

• Includes Guidelines, rules & Procedures Includes Guidelines, rules & Procedures

• Policies are guides to decision making and Policies are guides to decision making and

address address repetitive or recurringrepetitive or recurring situations situations

• Established at corporate level & apply to an Established at corporate level & apply to an entire organization—divisional level-operational entire organization—divisional level-operational level level

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No smoking policies are usually derived from annual objectivesReduce medical costs- associated with absenteeism & provide a

healthy work place- healthier WF can more effectively & efficiently implement strategies

Benefits of Strategic Benefits of Strategic ManagementManagement

• Communication is a key to successful strategic Communication is a key to successful strategic management management

– Dialogue & participation are essential ingredients Dialogue & participation are essential ingredients

– Managers & employees become creative innovative when they Managers & employees become creative innovative when they understand & support the firm’s Mission-Objectives & Strategiesunderstand & support the firm’s Mission-Objectives & Strategies

– Empowerment is the act of strengthening employees sense of Empowerment is the act of strengthening employees sense of effectiveness –encourage them-participate in decision making – effectiveness –encourage them-participate in decision making – reward them for initiation & imaginationreward them for initiation & imagination

• Notion of centralized staff planning is being Notion of centralized staff planning is being replaced in ORG by decentralized line manager replaced in ORG by decentralized line manager planning planning

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Allows an ORG to be more proactive than reactive in shaping its future- exert

control over its own destiny

Benefits of Strategic Management

Financial Benefits

• Improvement in sales

• Improvement in profitability

• Productivity improvement

100,000 businesses in US fails annually- bankruptcies, liquidations, foreclosures

Benefits of Strategic Management

Non-Financial Benefits

• Improved understanding of competitors strategies

• Enhanced awareness of threats

• Reduced resistance to change

• Enhanced problem-prevention capabilities

Provides basis on which policies can be Provides basis on which policies can be devised to guide daily behavior and decisions devised to guide daily behavior and decisions in the workplacein the workplace

Business Ethics & Strategic Management

Code of business ethics –Good ethics is

just good business!

Discussion “Ethical Behavior” – “how far is too far”

Importance of integrity & Importance of integrity & charactercharacter

Trees die from the topTrees die from the top” no one should ever become a ” no one should ever become a strategist unless he or she is strategist unless he or she is willing to have his or her willing to have his or her character serve as the model for character serve as the model for subordinatessubordinates””

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Mission StatementOur mission is to operate a chain of restaurants that will prepare & serve high quality food on timely

basis & at reasonable prices

Mission StatementOur mission is to operate a chain of restaurants that will prepare & serve high quality food on timely

basis & at reasonable prices

•Keep corporate debt to no more than 20% of liquid assets for next ten years•Revise computerized accounting system with in five years

•Increase per store sales 5% per year for 10 years•Target & attract two new market segments during next 5 years• Develop new promotional strategy for next year

•Open 150 new restaurants during next five years•Decrease average customer wait by 30 seconds this year

•Implement this year’s promotional strategy•Develop regional advertising campaigns with in 1 year•Negotiate 5 % lower advertising rates next yr

•Implement this year’s promotional strategy•Develop regional advertising campaigns with in 1 year•Negotiate 5 % lower advertising rates next yr

•Competitive payroll system for each restaurant this year•Pay all invoices within thirty days

•Competitive payroll system for each restaurant this year•Pay all invoices within thirty days

•Hire & train new assistant manager•Decrease waste by 5% this year•Implement incentive system within 1 year

•Hire & train new assistant manager•Decrease waste by 5% this year•Implement incentive system within 1 year

•Start or purchase new restaurant•Chain within few years•Provide 14% return to investors for at least 10 years

•Start or purchase new restaurant•Chain within few years•Provide 14% return to investors for at least 10 years

Strategic Goals(President & CEO)

VP-Operations VP-Marketing VP- Finance

Restaurant Manager Advertising Director Accounting Manager

Assignments Assignments

• Integrating Intuition & AnalysisIntegrating Intuition & Analysis

Albert Einstein Albert Einstein

“ “ I believe in intuition & inspiration. At times I feel certain I believe in intuition & inspiration. At times I feel certain that I am right while not knowing the reason. Imagination that I am right while not knowing the reason. Imagination is more important than knowledge, because knowledge is is more important than knowledge, because knowledge is limited, where as imagination embraces the entire world” limited, where as imagination embraces the entire world”

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SM is not a pure science that lends itself to a nice, neat, one-two-three approach

Integrating Intuition & AnalysisIntegrating Intuition & Analysis

• Analytical thinking and intuitive thinking Analytical thinking and intuitive thinking complement each othercomplement each other

• I’ve –already-made-up-mind-don’t-bother-I’ve –already-made-up-mind-don’t-bother-me-with-the –facts mode is not me-with-the –facts mode is not management by intuition; its management management by intuition; its management by ignorance.by ignorance.

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• What kind of business should we What kind of business should we become?become?

• Are we in the right fieldsAre we in the right fields• Are there new competitorsAre there new competitors• What strategies should we pursue?What strategies should we pursue?• How are our customers changing?How are our customers changing?

Adapting to Change – Key Strategic Management Questions (Assignment No.2)

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Standing Plan : Ethical behavior by employeesPolicy : Employees expected to behave ethically in their dealings with suppliers & customersRule : Requires any employee who receives from customer a gift larger than $10 report the giftSOP: recipient of the gift to make disclosure in writing with in 30 days