Introduction to Strategic Management

Lecture Objectives
 By the end of this lecture, students should be able to:
1. Explain the functions of management 2. Define and explain strategy and strategic management 3. Explain why strategic management is important 4. Explain the strategic management process 5. Describe the levels of organizational strategies 6. Discuss the misconceptions about strategy and strategic

management

OBJECTIVE #1 Functions of Management

 Planning, Organizing, Leading; & Controlling (PLOC)  Planning
 defining goals and objectives  deciding what type of activities the company will engage in  determining the resources needed to achieve the organizations goals & objectives.

Functions of Management
 Leading
     Attracting people to the organization. Specifying job responsibilities Grouping jobs into work units Marshalling and allocation of resources Creating good working conditions

Functions of Management
 Organizing
 Directing, motivating, and communication with employees, individually & in groups.  Conflict resolution.

 Controlling
 Monitoring performance of people & units.  Provision of feedback or information about progress.  Identification of performance problems & actions to correct problems.

Disciplinary Focus
 Various disciplines in management emerge from the functions of management:
 Business Policy (formally called Strategic Planning) from the planning function.  Organizational Behavior primarily from the leading function.  Human Resources Management primarily from the organizing function.  Strategic Management, originated from Business Policy, but focuses on overall management PLOC and beyond.

OBJECTIVE #2 Whats Strategy?

 Strategy is managements overall plan and actions for deploying resources and skills taking into consideration opportunities and threats in the environment
 to achieve its mission, vision and objectives  to establish a favorable competitive position.

 Strategy involves:
 An organizations goals  A series of related decisions & actions  Takes into account key internal strengths & weaknesses and external opportunities threats  Analysis, communication, coordination, & action

What is Strategic Management?

 Focuses on how managers formulate and implement, and evaluate strategies aimed at developing and maintaining competitive advantage:
 the reason some firms enjoy higher levels of performance than their rivals or competitors.

 Strategic management is therefore concerned with overall PLOC  Four aspects that set strategic management apart:
    Interdisciplinary External focus Internal focus Future directions
Big picture view of an organization influenced by its external environment

Strategic Managements Uniqueness

 Field of Study
 Macroeconomics  Microeconomics  Strategic Management  Finance  Marketing  Org. Behavior  Human Resource Mgmt.  Operations Mgmt.

 Level of Analysis
        The economy Industries & markets Firms & businesses Investment Projects Products & services Individuals & Groups Tasks & Structure Plants

OBJECTIVE #3 Importance of Strategic Management

 Gives every employee a role to play in making the firm successful
 Applies to all professional employees, not just those in management  Allows decision-making, allocation of resources and management of people to be based on a firms strategic plan  Success as a manager (as measured by your promotion, job security, and pay increases) is often determined by your efforts & departments contribution to overall organizations success

 Makes a difference in performance levels

 Research suggest that successful companies use strategic management concepts & techniques  Success evolves from knowing what youre doing and often implies having a strategic plan

Importance of Strategic Management

 Provides systematic approach to uncertainties that organizations face
 Competitive & global environment are dynamic (changing)  Change, whether significant of minor, must be recognized and analyzed, & dealt with  Strategic management allows for the analysis of the situation (identifying the sources of change in environment)

 Coordinates and focuses employees to achieve organizations goals

 Allows for team effort which is coordinated for firm success  Allows for development of a plan, communication,

OBJECTIVE #4 Strategic Management Process

      Establishing a mission, vision and objectives Environmental Analysis Internal Analysis Strategy Formulation Strategy Implementation Strategic Control and Performance Evaluation

The Strategic Management Process

Internal Analysis

Mission, Vision & Objectives

Strategy Formulation

Strategy Implementation

Strategic Eval. & Control

Environ. Analysis

Mission, Vision & Objectives

 A companys mission is a statement of
 the basic purpose or reason for its existence  its values (role to stakeholders - customers, employees, society, etc.).

 The vision goes beyond the mission statement

 clarifies the long-term direction of the company (where the company is going)  reflects managements aspirations for the company

Mission, Vision & Objectives

 Objectives are yardsticks for tracking a companys performance or end result.
 Financial performance objectives (e.g., ROA, ROI, ROE, Dividend growth, Stock price, etc.).  Strategic performance objectives (e.g., market share, growth, innovation leader, customer service, community & environmental responsibility, etc.)

Examples of Mission & Vision

 Southwest Airlines:
 Mission: To provide high quality service at a lower price in the airline industry.  Vision: Opening air travel to a wider group of leisure travelers while infusing the organization with a sense of fun.

 Apple Computer:
 Mission: To bring the best personal computing products and support to consumers around the world.  Vision: One person, one computer.

Financial & Strategic Objectives

 Alcan Aluminum
 Financial: To outperform the average return on equity of the S&Ps industrial stock index.  Strategic: To be lowest-cost producer of aluminum.

 GE
 Financial: To achieve an average of 10 inventory turns and a corporate operation profits margin of 16% by 1998.  Strategic: To become most competitive enterprise in the world by being #1 or #2 in market share in every business the company is in.

Environmental Analysis
 Involves the evaluation of the business environment of the organization.
 All external influences that impact a companys decision and performance.

 Environment of firm classified by proximity into

(1) Macro-environment; and (2) Micro-environment or task environment.

Environmental Analysis
 The macro-environment consists of
 The international/national economy; changes in demographic structures; social and political trends; technology; and the natural environment.

 The micro-environment consists of

 The industry environment such as competitors, suppliers, customers; unions and employees; owners and shareholders, etc.

Internal Analysis
 Involves the evaluation of the inventory of the firms resources and capabilities.  Resources/Capabilities can be classified as:
 Tangible resources: Financial or physical assets  Intangible resources: brand name, reputation (product & firm), organizational culture, etc.  Capabilities or competencies: managerial ability, specialized skill & knowledge base of employees, etc.

Strategy Formulation
 The strategy formulation process
 involves designing a course of action for addressing strategic issues facing the firm after going through the external and internal evaluation processes.

 Actual strategy of a company involves:

 Planned or Intended Actions (Deliberate & purposeful actions).  Reactive or Emergent Actions (As-need reactions to unanticipated events in firms micro and macro environments).

Strategy Formulation
 Strategy formulation is concerned with the following parts of a company:
 Corporate (whole company) -- Corporate strategies: Deals with businesses company wants to be in & how to manage those businesses  Businesses -- Competitive strategies: How to compete in specific business or industry  Functional areas -- Functional strategies: short goal-directed decisions & actions of an organizations various functional departments.

Strategy Implementation
 Strategy implementation is the process of putting a companys various strategies into action
 development of programs, policies, budgets & procedures.

 It can take several months to years to complete.  Most difficult part of the strategy process.  The job of implementing strategy involves managers at all levels

Strategic Control & Evaluation

 Process by which desired outcomes (mission, vision, & objectives) are compared with realized outcomes to determine if there are gaps.  Initiate corrective actions by monitoring changes in environment - competitor actions, new market opportunities, customer needs & expectations.

Strategic Management Process

 On-going and continuous cycle of
 Situation Analysis : Internal evaluation & Environmental scanning  Strategy formulation  Strategy implementation  Strategy evaluation

Misconceptions about Strategy & Strategic Management

 Strategy & strategic planning are dead
 Every organization needs the focus and direction provided by its strategies and the strategic management process

 Strategy is strictly for top management

 Top management play a crucial role, but everyone in the organization has a part to play.

 Strategy is about planning

 Strategic management process shows that strategy is not only about planning, but also about doing.

Misconceptions about Strategy & Strategic Management

 Strategy is stable and constant
 Organizations compete in dynamic environments. Flexibility and change needed to respond to environmental opportunities & threats, & strength and weaknesses

 Strategic management outlines ultimate destination & route

 It establishes a systematic approach to analyzing relevant information & using it to design, implement, & evaluate appropriate strategies.