Strategic Management Slides for Lecture 1 and Lecture 2

1. Intro to the Course
What is Strategic Management?
Lecture 1

2. Getting to know each other
• Contact Details:
irine.guruli.1@iliauni.edu.ge
Mob: +99559960602
• Resources

3. What we shall learn
• The essence of strategic management.
• Basic managerial topics in strategic management.
• Strategic Management – as a process
• Internal and external environmental scanning methods
• The role of company performance
• The types of strategies
• The role of strategic management in formatting successful company
• Control and evaluation mechanisms.

4. Assessment
Form Components Thresholds
Midterm  Home work (case analyses) - 10 points
 Midterm Exam - 30 points
 Group Work (Project) - 30 points
21 points
Final  FINAL exam - Project - 30 points 10 points
Total 100 points

5. • Plagiarism – unacceptable, when presenting homework, presentation
using someone else’s work, idea or opinion without indicating source. In
such cases, lecturer is obliged not to assess the work.
• Cheating– cheating during any activity (homework, exam, report,
presentation) is unacceptable. The lecturer is obliged to not to assess the
work.
• Reexam for midterm assessment – is possible, if a student presents a
reason (sickness, work obligations, business trips). A student has to turn
with a necessary statement to the business school administration. Date
and time for re-exam is proposed by the lecturer. Re-exam does not include
class participation and debates.

6. What is Strategic Management?

7. What is Strategic Management
• Strategic management is a set of managerial decisions and actions
that help determine the long-term performance of an organization.
• It includes: environmental scanning (both external and internal),
strategy formulation (strategic or long-range planning), strategy
implementation, and evaluation and control.
• Originally called business policy, strategic management has advanced
substantially with the concentrated efforts of researchers and
practitioners.
• Today, we recognize both a science and an art to the application of
strategic management techniques.

8. Phases of Strategic Management
• Phase 1—Basic financial planning – proposing next years’ budget; one
year horizon;
• Phase 2—Forecast-based planning – five-year plans with a lot of
environmental analysis involved;
• Phase 3—Externally oriented (strategic) planning - The company
seeks to increase its responsiveness to changing markets and
competition by thinking and acting strategically.
• Phase 4—Strategic management - Rather than attempting to perfectly
forecast the future, the plans emphasize probable scenarios and
contingency strategies. The sophisticated annual five-year strategic
plan is replaced with strategic thinking at all levels of the organization
throughout the year.

9. Benefits of Strategic Management
• A clearer sense of strategic vision for the firm.
• A sharper focus on what is strategically important.
• An improved understanding of a rapidly changing
environment.
It can begin with a few simple questions:
• Where is the organization now? (Not where do we hope it is!)
• If no significant changes are made, where will the organization be in one
year? Two years? Five years? Ten years? Are the answers acceptable?
• If the answers are not acceptable, what specific actions should management
undertake? What are the risks and payoffs involved?

10. Globalization, Innovation, and Sustainability:
Challenges to Strategic Management
• Globalization, the integrated internationalization of markets and
corporations, has changed the way modern corporations do business;
• Innovation, as the term is used in business, is meant to describe new
products, services, methods, and organizational approaches that
allow the business to achieve extraordinary returns.
• Sustainability refers to the use of business practices to manage the
triple bottom line: (1) the management of traditional profit/loss; (2)
the management of the company’s social responsibility; and (3) the
management of its environmental responsibility.

11. Theories of Organizational Adaptation
• The theory of population ecology suggests that once an organization is
successfully established in a particular environmental niche, it is unable
to adapt to changing conditions.
• Institution theory, in contrast, proposes that organizations can and do
adapt to changing conditions by imitating other successful
organizations. The strategic choice perspective goes a significant step
further by proposing that not only do organizations adapt to a changing
environment, but they also have the opportunity and power to reshape
their environment.
• organizational learning theory, says that an organization adjusts
defensively to a changing environment and uses knowledge offensively
to improve the fit between itself and its environment.

12. Learning Organization
• Learning organization—an organization skilled at creating, acquiring,
and transferring knowledge and at modifying its behavior to reflect
new knowledge and insights.
Learning organizations are skilled at four main activities:
• Solving problems systematically;
• Experimenting with new approaches;
• Learning from their own experiences and past history as well as from
the experiences of others;
• Transferring knowledge quickly and efficiently throughout the
organization.

13. Basic Model of Strategic Management
• Strategic management consists of four basic elements:
• Environmental scanning
• Strategy formulation
• Strategy implementation
• Evaluation and control.

14. Environmental Scanning
• Environmental scanning is the monitoring, evaluating, and
disseminating of information from the external and internal
environments to key people within the corporation.
• Its purpose is to identify strategic factors—those external and
internal elements that will assist in the analysis of the strategic
decisions of the corporation. The simplest way to represent the
outcomes of environmental scanning is through a SWOT approach.
SWOT is an acronym used to describe the particular Strengths,
Weaknesses, Opportunities, and Threats that appear to be strategic
factors for a specific company.

15. Strategic Management Model

18. Break for the Case analysis
• Toyota Motors Co;
• Read the case and we will discuss the case related questions during
the seminar.

19. Toyota Motors Co - Qs
• Name and analyze the key Internal Challenges that the company has
faced during the course of the period given in the case;
• Name and analyze the key External Challenges that the company has
faced;
• What strategic choices can you identify for combatting these
challenges?
• How would you characterize Toyota Motors, what type of
organization is it?
• What are some of the key challenges that you believe the
organization will be facing in the near future?

20. ABC of a Strategy
• The goal is sustaining superior performance relative to competitors;
• How to formulate a good strategy?
• You need to Diagnose, create a guiding policy and set coherent actions to
implement the policy.
• The important point here is that strategy is about creating superior value,
while containing the cost to create it, or by offering similar value at lower
cost. Managers achieve these combinations of value and cost through
strategic positioning.
• The key to successful strategy is to combine a set of activities to stake out a
unique strategic position within an industry.
• AFI Framework – Analyze, Formulate, Implement

21. What is not a Strategy?
• Wishful thinking – “We will be No. 1”
• A failure to face a competitive challenge is not strategy.
• Operational effectiveness, competitive benchmarking, or other
tactical tools are not strategy;

22. Strategy Formulation
• Strategy formulation is the process of investigation, analysis, and
decision making that provides the company with the criteria for
attaining a competitive advantage. It includes defining the
competitive advantages of the business, identifying weaknesses that
are impacting the company’s ability to grow, crafting the corporate
mission, specifying achievable objectives, and setting policy
guidelines.

23. Mission: Stating Purpose, Vision and Values
• An organization’s mission is the purpose or reason for the
organization’s existence. It announces what the company is providing
to society—either a service.
• Mission describes what the organization is now; vision describes what
the organization would like to become.
• Values – what commitments do we make, do we put in place to act
both legally and ethically to pursue our mission and vision?

24. Examples
• Tesla’s vision is to accelerate the world’s transition to sustainable
transport.
• Tesla hopes to translate this vision into reality by providing affordable
zero-emission mass-market cars that are the best in class, which
captures Tesla’s mission.
• Custmer vs. product oriented visions.

26. Objectives: Listing Expected Results
• Objectives are the end results of planned activity. They should be
stated as action verbs and tell employees what is to be accomplished
and when, with appropriate metrics. The achievement of corporate
objectives s
• The term goal is often used interchangeably with the term objective.
We prefer to differentiate the two terms. In contrast to an objective,
we consider a goal as an open-ended statement of what one wants to
accomplish, with no quantification of what is to be achieved and no
time criteria for completion.

27. Objectives: Listing Expected Results (2)
Some of the areas in which a corporation might establish its goals and objectives are:
• Profitability (net profits)
• Efficiency (low costs, etc.)
• Growth (increase in total assets, sales, etc.)
• Shareholder wealth (dividends plus stock price appreciation)
• Utilization of resources (Return on Equity (ROE) or Return on Investment (ROI))
• Reputation (being considered a “top” firm)
• Contributions to employees (employment security, wages, diversity)
• Contributions to society (taxes paid, participation in charities, providing a needed product or service)
• Market leadership (market share)
• Technological leadership (innovations, creativity)
• Survival (avoiding bankruptcy)
• Personal needs of top management (using the firm for personal purposes, such as providing jobs for
relatives)

28. Strategy: Defining the Competitive Advantages
• The typical larger business addresses three types of strategy: corporate, business,
and functional.
• Corporate strategy describes a company’s overall direction in terms of growth and
the management of its various businesses. Corporate strategies generally fit within
the three main categories of stability, growth, and retrenchment.
• Business strategy usually occurs at the business unit or product level, and it
emphasizes improvement of the competitive position of a corporation’s products
or services in the specific industry or market segment served by that business unit.
Business strategies may fit within the two overall categories: competitive and
cooperative strategies.
• Functional strategy is the approach taken by a functional area to achieve corporate
and business unit objectives and strategies by maximizing resource productivity. It
is concerned with developing and nurturing a distinctive competence to provide a
company or business unit with a competitive advantage.

29. Policies: Setting Guidelines
• A policy is a broad guideline for decision making that links the
formulation of a strategy with its implementation

30. Strategy Implementation
• Strategy implementation is a process by which strategies and policies
are put into action through the development of programs, budgets,
and procedures. This process might involve changes within the overall
culture, structure, and/or management system of the entire
organization.

31. Programs and Tactics: Defining Actions
• A program or a tactic is a statement of the activities or steps needed
to support a strategy. The terms are interchangeable. In practice, a
program is a collection of tactics where a tactic is the individual action
taken by the organization as an element of the effort to accomplish a
plan.
• A program or tactic makes a strategy action-oriented. It may involve
restructuring the corporation, changing the company’s internal
culture, or beginning a new research effort.

32. Budgets: Costing Programs
• A budget is a statement of a corporation’s programs in terms of
dollars. Used in planning and control, a budget lists the detailed cost
of each program. Many corporations demand a certain percentage
return on investment, often called a “hurdle rate,” before
management will approve a new program.

33. Procedures: Detailing Activities
• Procedures, sometimes termed Standard Operating Procedures (SOP),
are a system of sequential steps or techniques that describe in detail
how a particular task or job is to be done. They typically detail the
various activities that must be carried out in order to complete the
corporation’s program.

34. Evaluation and Control
• Evaluation and control is a process in which corporate activities and
performance results are monitored so that actual performance can be
compared with desired performance.
• Managers at all levels use the resulting information to take corrective
action and resolve problems.
• Performance is the end result of activities.

35. Initiation of Strategy: Triggering Events
• A triggering event is something that acts as a stimulus for a change in
strategy. Some possible triggering events are:
• New CEO;
• External intervention;
• Threat of a change in ownership;
• Performance gap;
• Strategic inflection point.

36. Mintzberg’s Modes of Strategic Decision
Making
• Entrepreneurial mode - Strategy is made by one powerful individual. The focus is on
opportunities; problems are secondary. Strategy is guided by the founder’s own vision
of direction and is exemplified by large, bold decisions;
• Adaptive mode: Sometimes referred to as “muddling through,” this decision-making
mode is characterized by reactive solutions to existing problems, rather than a
proactive search for new opportunities.
• Planning mode: This decision-making mode involves the systematic gathering of
appropriate information for situation analysis, the generation of feasible alternative
strategies, and the rational selection of the most appropriate strategy.
• Logical incrementalism: A fourth decision-making mode can be viewed as a synthesis
of the planning, adaptive, and, to a lesser extent, the entrepreneurial modes. In this
mode, top management has a reasonably clear idea of the corporation’s mission and
objectives, but, in its development of strategies, it chooses to use “an interactive
process in which the organization probes the future, experiments, and learns from a
series of partial (incremental) commitments rather than through global formulations of
total strategies.

37. Strategic Decision-Making Process: Aid to
Better Decisions
• Evaluate current performance results in terms of (a) return on investment, profitability, and so forth,
and (b) the current mission, objectives, strategies, and policies.
• Review corporate governance—that is, the performance of the firm’s board of directors and top
management.
• Scan and assess the external environment to determine the strategic factors that pose opportunities
and threats.
• Scan and assess the internal corporate environment to determine the strategic factors that are
strengths (especially core competencies) and weaknesses.
• Analyze strategic factors to (a) pinpoint problem areas and (b) review and revise the corporate
mission and objectives, as necessary.
• Generate, evaluate, and select the best alternative strategies in light of the analysis conducted in
the previous step.
• Implement selected strategies via programs, budgets, and procedures.
• Evaluate implemented strategies via feedback systems, and the control of activities to ensure their
minimum deviation from plans.

40. Tesla Case

41. Tesla’s strategy
• Musk, Tesla’s co-founder and CEO, describes himself as an “engineer and
entrepreneur who builds and operates companies to solve environmental,
social, and economic challenges.” Tesla was founded with the vision to
“accelerate the world’s transition to sustainable transport.”
• To address the competitive challenge, Tesla’s current guiding policy is to
build a cost competitive mass-market vehicle such as the new Model 3. To
achieve this, Tesla needs a 5 USD billion investment in the lithium-ion
battery plant;
• To accomplish building a cost-competitive mass-market vehicle, Tesla must
benefit from economies of scale, which are decreases in cost per vehicle as
output increases. To reap these critical cost reductions, Tesla must ramp up
its production volume. This is a huge challenge: Tesla aims to increase its
production output by some 20 times, from 50,000 cars built in 2015 to 1
million cars per year by 2020.

42. Reading
• Chapter 1 Introduction to Strategic Management and Business Policy