lecture 1 intro to sm

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INTRODUCTION

Strategic Management

Lecture 1

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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

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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

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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

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Ex. 1.6 Strategic Management Model

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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

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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

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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

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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

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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

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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.

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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

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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


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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


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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]

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Ex. 1.4 Alternative Strategic Management

Structures

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Ex. 1.5 Hierarchy of Objectives and

Strategy

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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

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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

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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

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Formality in Strategic Management

Formality is the degree to which

participation, responsibility, authority,

and discretion in decision-making are

specified in strategic management

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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

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Three Modes of Formality

Entrepreneurial Mode most small firms

Planning Mode most large firms

Adaptive Mode most medium size firms

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Strategy Makers

Ideal strategic team includes decision makers from all three levels

Top managers must give final approval Strategic decisions coincide with

managers responsibilities

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Strategy Makers: The CEO

A firms CEO plays a dominant role in strategic planning

The CEOs principal duty is giving long-term direction to the firm

The CEO bears ultimate responsibility for the firms success and strategic success

CEOs are typically strong-willed,

company-oriented individuals

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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

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The Vocabulary Of Strategy (Johnson, Schole & Whittington, Chapter 1)

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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

Four strategy lenses Design, Experience, Variety (Ideas), Discourse

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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.

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The risk of strategic drift

Exhibit 1.4

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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

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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

is met with a tendency to stick to the familiar.

Core rigidities capabilities that are taken for

granted and deeply ingrained in routines are

difficult to change even when they are no longer

suitable.

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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.

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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.

Exhibit I.v

Three Strategy Lenses

Exhibit I.iv

The strategy lenses summary

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References

Pearce, J.A. & Robinson, R.B. 2013. Strategic

Management: Formulation, Implementation & Control,

13th Edition. McGraw-Hill 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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lecture 1 intro to sm

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