Strategic Management Process


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Strategic Management Process

  3. 3. CHARACTERISTICS OF STRATEGIC MANAGEMENT  External vs. Internal Focused  Proactive vs. Reactive  Long vs. Short Term Planning  Comprehensive vs. Functional  Significant Resource Allocation  Uncertainty & Risk
  4. 4. STRATEGIC QUESTIONS  Where is the firm now?  Where should the firm be in the future?  What actions must the firm take to get there?  How will the firm know that it is on course and made the appropriate decisions?
  5. 5. WHERE IS THE FIRM NOW?  Mission  Managerial Values and Attitudes  Internal Analysis  External Analysis
  6. 6. INTERNAL ANALYSIS - COMPANY PROFILE  Management Competence  Organizational Structure  Culture  Functional Areas - HR  Resources - Financial, People, Plant & Equipment
  7. 7. EXTERNAL ANALYSIS  Remote/Social Environment  Industry Environment  Operating Environment
  8. 8. WHERE SHOULD THE FIRM BE?  Strategy Formulation  Long Term Objectives  Choice Strategy - Corporate & Business
  9. 9. Competitive Advantage  Whenever a firm has an edge over rivals in attracting customers and defending against competitive forces » A high quality workforce is often required to compete on market response, product quality, technology
  10. 10. WHAT ACTIONS MUST BE TAKEN?  Strategy Implementation  Annual Objectives  Functional Strategies - HR  Institutionalizing the Strategy
  11. 11. FUNCTIONAL LEVEL STRATEGY  Are we utilizing our resources effectively?  Focus is the maximizing of resource productivity within each functional unit to implement corporate business level strategies
  12. 12. HOW WILL WE KNOW WE GOT THERE?  Evaluation and Control  Long-Term and Annual Objectives  Strategic Controls –Implementation Control –Strategic Surveillance –Premise Control  Operating Controls - Performance appraisal, compensation budget, compra - ratio, selection ratios
  13. 13. Basic Elements of the Strategic Management Process Evaluation Environmental Strategy Strategy and Scanning Formulation Implementation Control
  14. 14. Environmental Analysis Process of monitoring the organizational environment to identify opportunities and threats that may influence the firm’s choice of direction and its ability to reach its goals
  15. 15. Strategic Analysis Strategic Factors:  Issues that have a high probability of occurrence and high probability impact. These are then characterized as:  Opportunities or Threats or Constraints
  16. 16. Opportunities Major favorable situation or trend in a firm’s environment  Overlooked market segment with high demand  Change in level or nature of competition  Anticipated favorable change in regulations  Technological advance  Improvement in buyer and supplier relations
  17. 17. Threats Major unfavorable situation or trend in a firm’s environment - impediments to a firm’s current or desired position  Entrance of new competitors  Slowing market growth  Increasing bargaining power of suppliers and/or buyers  Technological advantages  Unfavorable regulatory changes
  18. 18. Environmental Variables Societal Environment Sociocultural Task Economic Forces Environment Forces (Industry) Shareholders Suppliers Governments Internal Employees/ Environment Special Labor Unions Interest Structure Groups Culture Resoures Competitors Customers Trade Associations Creditors Political-Legal Communities Technological Forces Forces
  19. 19. Some Important Variables in the Societal Environment Economic Technological Political-Legal Sociocultural GDP trends Total government spending Antitrust regulations Lifestyle changes for R&D Interest rates Environmental protection Career expectations Total industry spending for laws Money supply Consumer activism R&D Tax laws Inflation rates Rate of family formation Focus of technological Special incentives Unemployment levels efforts Growth rate of population Foreign trade regulations Wage/price controls Patent protection Age distribution of Attitudes toward foreign population Devaluation/revaluation New products companies Regional shifts in Energy availability and New developments in Laws on hiring and population cost technology transfer from promotion lab to marketplace Life expectancies Disposable and Stability of government discretionary income Productivity improvements Birth rates through automation
  20. 20. Industry Analysis Porter‟s Five Forces  Nature of competition determined by five forces  Collective strength of forces determine profitability of industry  Purpose of strategy is to “cope” with competition
  21. 21. Forces Driving Industry Competition Potential Entrants Threat of New Entrants Relative Power of Unions, Governments, etc. Industry Other Competitors Bargaining Stakeholders Power of Buyers Buyers Suppliers Rivalry Among Bargaining Existing Firms Power of Suppliers Threat of Source: Adapted/reprinted with permission Substitute of The Free Press, an imprint of Simon & Products or Services Schuster, from Competitive Strategy: Techniques for Analyzing Industries and Competitors by Michael E. Porter. Copyright © 1980 by The Free Press. Substitutes
  22. 22. Task/Operating Environment  Competitive position / Competitor profiles  Customer Profiles  Suppliers  Creditors  Human Resources
  23. 23. Task/Operating Environment  Stockholders  Labor Unions  Governments  Special Interest Groups  Trade Associations
  24. 24. Internal Analysis Realistic Analysis of Firm’s Capabilities
  25. 25. Strengths A resource, skill or other advantage relative to competitors and the needs of the markets - a distinctive competence that gives the firm a competitive advantage in its industry » Financial Resources » Buyer/supplier relations » Market research » HR policies/competencies » Patents/production process
  26. 26. Weaknesses Limitation or deficiency in resources, skills and capabilities relative to competitors and which impedes a firms effective performance.  Limited financial capacity  Inappropriate image  Outdated production facilities or processes  Poor quality products  Conservative management team
  27. 27. Core Competencies and Distinctive Competencies Core Competencies  Things a corporation can do exceedingly well Distinctive Competencies  Core competencies that are superior to those of competitors » obtain from employee skills, management
  28. 28. Management Organizational Structure Firm’s Image Overall Control Systems Strategic Planning System Management Personnel Employee Skills and Morale Incentive Effectiveness Employee Turnover Specialized Skills Organizational Culture Organizational Climate Labor Costs Industry Experience Communication Systems HR Policies and Procedures
  29. 29. Finance & Accounting Ability to Raise Short-Term/Long-Term Cash Corporate Resources Cost of Capitol Investor/Owner Relations Leverage Position Price-Earnings Ratio Working Capitol Cost Control Financial Size Tax Considerations Accounting Syst.
  30. 30. Research and Development R&D Budget R&D Mix - Basic, Applied, Product/Process Internal and External R&D Patents, Trademarks Technology Competence R&D Transfer Integration of R&D with Marketing & Production
  31. 31. Information Systems Timeliness of Information Accuracy of Information Relevance of Information to Tactical Decisions Ability of People to Use Information Sufficiency of Information to Manage Quality, Customer Service, Inventory.
  32. 32. 4.6 Corporation Value Chain p. 87 Corporate Value Chain Firm Infrastructure (general management, accounting, finance, strategic planning) Human Resource Management (recruiting, training, development) Support Activities Technology Development (R&D, product and process improvement) Profit Procurement Margin (purchasing of raw materials, machines, supplies) Source: Adapted/repri nted with the permission of the The Inbound Operations Outbound Marketing Service Free Press, an imprint Logistics (machining, Logistics and Sales (installation, of Simon & Schuster, (raw assembling, (warehousing (advertising, repair, parts) materials testing) and promotion, from Competitive handling and distribution pricing, Advantage: Creating and warehousing) of finished channel Sustaining Superior product) relations) Performance by Michael E. Porter, p. 37. Copyright © 1985 by Michael E. Porter. Primary Activities
  33. 33. Selection of Strategies Objective Setting Process  Analyze environmental trends  Establish or revise mission  Develop objectives
  34. 34. Characteristics of Strategic Objectives  Long-term  Specific  Measurable  Reachable  Consistent in long and short-run  Acceptable  Hierarchy
  35. 35. Types or Areas  Profitability  Productivity  Resource levels  Competitive position  Market standing  Technology  Employee relations  Social responsibility
  36. 36. Corporate Analysis  What Business should we pursue?  How do we allocate resources among those businesses
  37. 37. Types of Strategies Intensive (Concentration) Strategies  Market penetration  Market Development  Product Development  Innovation
  38. 38. Types of Strategies Integration Strategies  Forward Integration  Backward Integration  Horizontal Integration
  39. 39. Types of Strategies Diversification Strategies  Concentric  Conglomerate
  40. 40. Types of Strategies Defensive Strategies  Retrenchment  Divestiture  Liquidation
  41. 41. Type of Strategies Cooperative Strategies » Strategic Alliance » Joint Ventures
  42. 42. Business Level Strategy  Howwill each business compete in its industry
  43. 43. Strategy and Competitive Advantage  COMPETITIVE ADVANTAGE exists when a firm’s strategy gives it an edge in » Defending against competitive forces and » Securing customers  Convince customers firm’s product / service offers SUPERIOR VALUE » Offer buyers a good product at a lower price » Use differentiation to provide a better product buyers think is worth a premium price
  44. 44. Porter‟s Generic Competitive Strategies Competitive Advantage Lower Cost Differentiation Cost Leadership Differentiation Competitive Scope Cost Focus Focused Source: Reprinted with permission of The Differentiation Free Press, an imprint of Simon & Schuster, from The Competitive Advantage of Nations by Michael E. Porter, p. 39. Copyright © 1990 by Michael E. Porter.
  45. 45. Porter‟s Generic Strategies Defined  Cost Leadership: A strategy aimed at producing standardized products at low per-unit cost for consumers who are price-sensitive  Differentiation: A strategy aimed at producing products and services considered unique industry- wide and directed at consumers who are relatively price-insensitive  Focus: A strategy aimed at producing products and services that fulfill the needs of small groups of customers
  46. 46. Characteristics of a Low-Cost Provider  Cost conscious corporate culture  Employee participation in cost-control efforts  Ongoing efforts to benchmark costs  Intensive scrutiny of budget requests  Programs promoting continuous cost improvement Low-cost producers champion FRUGALITY while aggressively INVESTING in cost-saving improvements!
  47. 47. Differentiation Strategies Incorporate differentiating features that cause buyers to prefer firm’s product or service over the brands of rivals Find ways to differentiate that CREATE VALUE for buyers and that are NOT EASILY MATCHED or CHEAPLY COPIED by rivals  Not spending more to achieve differentiation than the price premium that can be charged
  48. 48. Types of Differentiation Themes  Unique taste -- Dr. Pepper  Special features -- America Online  Superior service -- FedEx, Ritz-Carlton  Spare parts availability -- Caterpillar  Engineering design and performance -- Mercedes  Prestige -- Rolex  Quality manufacture -- Honda , Toyota  Technological leadership -- 3M Corporation, Intel  Top-of-the-line image -- Ralph Lauren, Chanel
  49. 49. Functional Strategies  Marketing  Finance  Research & Development  Operations  Human Resources  Information Systems
  50. 50. Marketing  Product  Place  Promotion  Price  Distribution
  51. 51. Marketing  Develop competing product (product overlap)  Customized products  Pricing and service mix  Competitive promotion
  52. 52. Research & Development: Technology  Upgrade  Retain  Subcontract
  53. 53. Operations: Quality & Productivity  Teams  Superautomate
  54. 54. Human Resources: Recruitment & Selection  Internal vs external recruitment  Management development systems  Link career path to strategy  Establish specific job skill training
  55. 55. Human Resources: Appraisal & Compensation  Link pay and benefits to strategy  Linkperformance appraisal to strategy
  56. 56. Strategy Implementation  Organizational Structure » Network Organizations  Tasks and Task Design  Selection, Training and Development of Human Resources  Reward Systems  Types of Information and Information Systems
  57. 57. People  Staffing Requirements  Growth - impact on recruitment/selection  Retrenchment - downsizing  Mergers - redundant employees  Knowledge & Skill Requirements  Role Behavior Requirements  Leadership Requirements
  58. 58. Matching Chief Executive “Types” with Strategy Business Strength/Competitive Position Strong Average Weak Growth—Concentration Retrenchment— Save Company Dynamic Industry Expert Turnaround Specialist Industry Attractiveness Stabiltiy Cautious Profit Planner Source: Thomas L. Wheelen and J. Growth—Diversification Retrenchment— David Hunger, “Matching Proposed Close Company Chief Executive „Types‟ with Corporate Analytical Portfolio Strategy.” Copyright © 1991 by Wheelen Manager Professional and Hunger Associates. Reprinted by Liquidator permission.
  59. 59. Strategic Control  Environmental Premises  Implementation  Strategic thrusts  Milestone Reviews (Annual Objectives)  Strategic Surveillance  Objectives
  60. 60. HR Contribution to Strategy  Strategy Formulation  Strategy Implementation
  61. 61. HR Role  Environmental Scanning » Demographics, corporate intelligence  Feasibility of Strategic Options  Implementation of Resource Allocation Decisions  Lead Time for Dealing with Labor Shortages and Surpluses
  62. 62. Factors Affecting HR Integration  Environmental Factors » technology, industry competition  Degree of Diversification  Status of HR Executive  Degree Compensation Linked to Firm Performance  Changing Skill Demands  Changing Composition of Work Force  Mergers Acquisitions
  63. 63. Role Behaviors and Practices  Innovation Strategies Require: creative behavior, longer-term focus, cooperation, moderate concern for quality, equal concern for process and results, risk taking, high tolerance of ambiguity  Quality Enhancement Strategies Require: repetitive and predictable behaviors, long or immediate-term focus, modest amount of cooperation, high concern for quality, modest concern for quantity, high concern for process, low risk taking  Cost Reduction Strategies:repetitive behaviors, short- term focus, autonomous activity, modest concern for quality, high concern for quantity, primary concern for results, low risk- taking, comfort with stability