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Strategic Management 1

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Strategic Management 1

Strategic Management 1

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  • 1. Chapter 1McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.
  • 2. 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 1-3
  • 3. The Nature and Value of StrategicManagement Strategic management: The set of decisions and actions that result in the formulation and implementation of plans designed to achieve a company’s objectives 1-4
  • 4. Nine Critical Tasks of Strategic Management-- Tasks 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 1-5
  • 5. 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 1-6
  • 6. 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 company’s awareness of the main elements of competition 1-7
  • 7. Dimensions of Strategic Decisions  Strategic issues require top-management decisions 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 1-8
  • 8. Dimensions of Strategic Decisions (contd.) Strategic issues require large amounts of the firm’s 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 1-9
  • 9. Dimensions of Strategic Decisions (contd.) Strategic issues often affect the firm’s 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. 1-10
  • 10. 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 1-11
  • 11. 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 firm’s SBUs, divisions, or program units 1-12
  • 12. Dimensions of Strategic Decisions (contd.) Strategic issues require considering the firm’s 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 1-13
  • 13. 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] 1-14
  • 14. Alternative Strategic ManagementEx. 1.3Structures 1-15
  • 15. Characteristics of Strategic ManagementDecisions: 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 1-16
  • 16. Characteristics of Strategic ManagementDecisions: 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 1-17
  • 17. Characteristics of Strategic ManagementDecisions: 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 1-18
  • 18. Formality in Strategic Management Formality is the degree to which participation, responsibility, authority, and discretion in decision-making are specified in strategic management 1-19
  • 19. Forces Determining Formality Organizational Problems in the Size Firm Predominant Purpose of the Management Planning System Styles Complexity of Stage of Firm’s Environment Development Production Process 1-20
  • 20. Three Modes of Formality Entrepreneurial Mode – most small firms Planning Mode – most large firms Adaptive Mode – most medium size firms 1-21
  • 21. Strategy Makers Ideal strategic team includes decision makers from all three levels Top managers must give final approval Strategic decisions coincide with managers’ responsibilities 1-22
  • 22. Strategy Makers: The 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 1-23
  • 23. 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 1-24
  • 24. Risks 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 1-25
  • 25. 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 process—a flow of information through interrelated stages of analysis toward the achievement of some goal 1-26
  • 26. Ex. 1.6 Strategic ManagementModel 1-27
  • 27. Components of Strategic Management ModelCompany Mission Internal AnalysisExternal Analysis Strategic Analysis &Long-Term Objectives Choice Generic & GrandShort-Term Objectives StrategiesPolicies Empowering Functional Tactics Action Restructuring,Strategic Control & Reengineering & Continuous Refocusing Improvement 1-28

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