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McGraw-Hill/Irwin
McGraw-
Strategic Management, 10/e !
 
 

 
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Learning Objectives
1. Explain the concept of strategic management
2. Describe how strategic decisions differ from other decisions that
managers make
3. Name the benefits and risks of a participative approach to
strategic decision making
4. Understand the types of strategic decisions for which different
managers are responsible
5. Describe a comprehensive model of strategic decision making
6. Appreciate the importance of strategic management as a
process
7. Give examples of strategic decisions that companies have
recently made
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rhe Nature and Value
of Strategic Management

‡ Strategic management:
The set of decisions and actions that result in
formulation and implementation of plans designed
to achieve a company¶s objectives
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Nine Critical rasks of Strategic
Management -- rasks 1-5:
‡ Formulate the company¶s mission
‡ Conduct an internal analysis
‡ Assess the external environment ± competitive
and general contexts
‡ Analyze the company¶s 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 rasks of Strategic
Management -- rasks 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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Ãhat 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 company¶s awareness of the main
elements of competition-how, when, and where it
should compete; against whom it should
compete; and for what purposes it should
compete.
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Dimensions of Strategic Decisions

‡ Strategic issues require 




 
± Strategic decisions overarch several
areas of a firm¶s 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

‡ Strategic issues require large amounts
of the firm¶s 
± 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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Dimensions of Strategic Decisions

‡ Strategic issues often affect the


 

± 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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Dimensions of Strategic Decisions

‡ Strategic issues are
 
± 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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Dimensions of Strategic Decisions

‡ Strategic issues usually have



 or


± 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 firm¶s
SBUs, divisions, or program units
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Dimensions of Strategic Decisions

‡ Strategic issues require considering the
firm¶s 


± 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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rhree Levels of Strategy

‡ !   ! "board of directors,
CEO & administration [Highest]
‡ d   ! " business and corporate
managers [Middle]
‡ P    ! "Product, geographic,
and functional area managers [Lowest]
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Alternative Strategic Management
Structures
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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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Characteristics of Strategic
Management Decisions: Functional
‡ Implement the overall strategy formulated
at the corporate and business levels
‡ Involve action-oriented and 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
‡  costly, risky, and potentially
profitable than corporate-level decisions
‡  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 ‡ Problems in the
Management
Firm
Styles
‡ Complexity of ‡ Purpose of the
Environment Planning System
‡ Production Process ‡ Stage of Firm¶s
Development
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rhree 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
 
‡ Top managers must give final approval
‡ Strategic decisions coincide with
managers¶ responsibilities
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Strategy Makers: rhe CEO

‡ A firm¶s CEO plays a dominant role
in strategic planning
‡ The CEO¶s principal duty is giving
long-term direction to the firm
‡ The CEO bears ultimate
responsibility for the firm¶s 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
‡ Promoting positive behavioral consequences
enables achievement of financial goals
‡ Behavioral effects of strategic management in
strategy formulation improve the firm¶s
welfare
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Benefits of Strategic Management

Enhance the firm¶s ability to choose best available
alternative
The involvement of employees in strategy
formulation improves their understanding of the
productivity-reward relationship in every strategic
plan and, thus, heightens their motivation.
Gaps and overlaps in activities among individuals
and groups are reduced as participation in strategy
formulation clarifies differences in roles.
Resistance to change is reduced.
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ëisks of Strategic Management

‡ Managers¶ time away from other
responsibilities
‡ Unrealistic expectations promised by strategy
formulators
‡ Possible disappointment of participating
subordinates if goal is not reached
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Strategic Management Process

‡ Strategic management is a ²a flow
of information through interrelated stages of
analysis toward the achievement of some
goal.
‡ The basic components of the models used to
analyze strategic management are similar.
Here a model named µ Strategic
Management Model¶ is used.
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Strategic Management Model

It serves three major functions.
a) It depicts the sequence and the relationships of
the major components of the strategic
management process.
b) It is the outline for this book.
c) The model offers on approach for analyzing the
case studies in this text and thus helps the analyst
develop strategy formulation skills.
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Strategic Management Model

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Components of Strategic
Management Model
‡ Company Mission ‡ Internal Analysis
‡ External Analysis ‡ Strategic Analysis &
Choice
‡ Long-Term Objectives
‡ Generic & Grand
‡ Short-Term Objectives Strategies
‡ Policies Empowering ‡ Functional Tactics
Action ‡ Restructuring,
‡ Strategic Control & Reengineering &
Continuous Refocusing
Improvement
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Company Mission
© Unique purpose that sets it apart from other
companies of its type and identifies the scope of its
operations.
© Describes the company¶s product, market, and
technological areas of emphasis in a way that
reflects the values and priorities of the strategic
decision makers.
© Must express how the company intends to contribute
to the societies that sustain it.
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uestions for Discussion

‡ Find a recent copy of d and read the
³Corporate Strategies´ section. Was the main
decision discussed strategic? At what level in the
organization was the key decision made?
‡ In what ways do you think the subject matter in this
strategic management-business policy course will
differ from that of previous courses you have taken?
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uestions for Discussion

‡ After graduation, you are not likely to move directly
to a top-level management position. In fact, few
members of your class will ever reach the top-
management level. Why, then, is it important for all
business majors to study the field of strategic
management?
‡ Do you expect outstanding performance in this
course to require a great deal of memorization? Why
or why not?
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ánternal Analysis
© Analyzing the quantity and quality of its financial,
human, and physical resources.
© Assessing the strengths and weaknesses of its
management and organizational structure.
© Contrasts & comparing the company¶s past
successes and traditional concerns with its current
capabilities in an attempt to identify the company¶s
future capabilities.
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External Environment
‡ A firm¶s external environment consists of all the
conditions and forces that affect its strategic options
and define its competitive situation.
‡ (2) The strategic management model shows the
external environment as three interactive segments:
the remote, industry, and operating environments.