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McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
CHAPTER 1
Strategic Management
2
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
Chapter Topics
• The Nature and Value of Strategic Management
• Dimensions of Strategic Decisions
• Formality in Strategic Management
• Benefits of Strategic Management
• Risks of Strategic Management
• Executives’ Views of Strategic Management
• The Strategic Management Process
• Components of the Strategic Management Model
• Strategic Management as a Process
3
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
What is Strategic Management?
The set of decisions and actions that result
in the formulation and implementation of
plans designed to achieve a company’s
objectives.
4
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
Critical Tasks of Strategic Management
1. Formulate the company’s mission
2. Conduct internal analysis
3. Assess the company’s external environment
4. Analyze company’s options
5. Identify most desirable options
6. Select long-term objectives and grand strategies
7. Develop annual objectives and short-term strategies
8. Implement the strategic choices
9. Evaluate success of the strategic process
5
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
What is Strategy?
• Large-scale, future-oriented plan for
interacting with the competitive
environment to achieve objectives
• Company’s “game plan”
• Framework for managerial decisions
6
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
Dimensions of Strategic Decisions
• Strategic issues
• Require top-management decisions
• Require large amounts of the firm’s resources
• Often affect the firm’s long-term prosperity
• Are future oriented
• Usually have multifunctional or multibusiness
consequences
• Require considering the firm’s external environment
7
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
Three Levels of Strategy
1. Corporate level
2. Business level
3. Functional level
8
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
Exhibit 1-2: Single-business Firms
P O M / R & D
s t r a te g ie s
F in a n c ia l/
a c c o u n t in g
s t r a te g ie s
M a r k e t in g
s t r a te g ie s
H u m a n
r e la t io n s
s t r a te g ie s
C o r p o r a t e /
b u s in e s s le v e l
9
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
Ex 1-2: Multiple business Firms
B u s in e s s 1
T y p e t it le h e re
P O M / R & D
s t r a te g ie s
F in a n c ia l/
a c c o u n t in g
s t r a te g ie s
M a r k e t in g
s t r a te g ie s
H u m a n
r e la t io n s
s t r a te g ie s
B u s in e s s 2
T y p e t it le h e re
B u s in e s s 3
T y p e t it le h e re
C o r p o r a te
s t r a te g ie s
10
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
Ex 1-3: Hierarchy of Objectives and Strategies
Ends
(What is to be
achieved)
Means
(How is to be achieved)
Board of
Directors
Corporate
Managers
Business
Managers
Functional
Managers
Strategic Decision Makers
Mission, including
Goals and
philosophy
Long-term
objectives
Annual objectives
Grand strategy
Short-term strategies
And policies
  
  
  
Note:  indicates a principal responsibility;  indicates a secondary responsibility
11
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
Characteristics of Strategic Management
Decisions
Corporate-level
decisions
Greater risk,cost,
and profit potential
Greater need for
flexibility
Longer time horizons
12
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
Characteristics of Strategic Management
Decisions
Functional-
level
decisions
Functional-
level
decisions
Implement overall strategy
Involve action-oriented
operational issues
Are relatively short range
and low risk
Incur only modest costs
13
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
Characteristics of Strategic Management
Decisions
Business-level
decisions
Bridge decisions at
corporate and functional
levels
Are less costly, risky, and
potentially profitable than
corporate-level decisions
Are more costly, risky, and
potentially profitable than
functional-level decisions
14
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
Formality in Strategic Management
• Definition
• Degree to which participants, responsibilities, authority, and
discretion in decision making are specified
• Forces affecting degree of formality
• Size of organization
• Predominant management styles
• Complexity of
• Environment
• Production process
• Problems
• Purpose of planning system
15
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
The Strategy Makers
• The ideal strategic management team includes
• Chief executive officer (CEO)
• Product managers
• Heads of functional areas
• The strategic management team obtains input from
• Planning staff
• Lower-level management and supervisors
• Role of CEO
• Provides long-term direction
• Assumes ultimate responsibility for firm’s success
• Solicits guidance from Board of Directors
16
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
Benefits of Strategic Management
Enhances the firm’s ability to prevent problems
Emphasizes group-based strategic decisions likely to be based on
best available alternatives
Improves employees’ understanding of the productivity-reward
relationship
Reduces gaps/overlaps in activities among employees as their
participation clarifies differences in roles
Resistance to change is reduced
17
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
Risks of Strategic Management
• Time involved may negatively impact operational
responsibilities of managers
• Lack of involvement of strategy makers in
strategy implementation may result in shirking of
responsibility for strategic decisions
• Potential disappointment of employees over
unattained expectations requires managerial time
and training
18
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
Company mission
and social
responsibility
External
environment
Internal analysis
Strategic analysis and choice
Long-term
objectives
Generic and grand strategies
Short-term objectives;
reward systems
Functional tactics
Policies that
empower action
Restructuring, reengineering
and refocusing the organization
Strategic control and
continuous improvement
Possible?
Desired?
Feedback
Feedback
Legend
Major impact
Minor impact
Ex 1-5
Strategic
Management
Process
19
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
Components of the Strategic
Management Model
• Company Mission
• Specifies unique purpose of company
• Identifies scope of operations
• Describes product, market, and technological areas of emphasis
• Reflects values and priorities of decision makers
• Expresses approach to social responsibility efforts
• Internal Analysis
• Depicts quantity and quality of company’s financial, human, and
physical resources
• Assesses company’s strengths and weaknesses
• Contrasts past successes and concerns with current capabilities to
identify future capabilities
20
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
Components of the Strategic
Management Model
• External Environment
• Consists of all conditions and forces affecting firm’s strategic
options and define its competitive situation
• Includes three interactive segments – remote, industry, and
operating environments
• Strategic Analysis and Choice
• Involves simultaneous assessment of external environment and
company profile
• Incorporates screening process based on mission to generate
possible and desired opportunities
• Results in selection of options from which a strategic choice is
made
21
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
Components of the Strategic
Management Model
• Long-term Objectives
– Profitability
– Return on investment
– Competitive position
– Technological leadership
– Productivity
– Employee relations
– Public responsibility
– Employee development
22
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
Components of the Strategic
Management Model
• Generic and Grand Strategies
• Low cost
• Differentiation
• Focus
• Action Plans and Short-Term Objectives
• Translate generic and grand strategies into “action”
• Identify specific functional tactics to be taken in the near term
• Establish a clear time frame for completion
• Creates accountability
• Specify one or more immediate objectives as outcomes of the action
23
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
Components of the Strategic
Management Model
• Functional Tactics
• Involve identifying activities unique to the function to help build
competitive advantage
• Specify detailed statements of “means” to be used to achieve
short-term objectives
• Policies that Empower Action
• Include broad, precedent-setting decisions that substitute for
repetitive or time-sensitive decision making
• Often increase managerial effectiveness by empowering discretion
of subordinates in implementing strategies
24
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
Components of the Strategic
Management Model
• Restructuring, Reengineering, and Refocusing the
Organization
• Involves an internal focus – getting work done efficiently and
effectively to make the strategy work
• Organizational structure
• Leadership
• Culture
• Reward systems
25
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
Components of the Strategic
Management Model
• Strategic Control and Continuous Improvement
• Control
• Tracks a strategy during implementation
• Detects problems
• Involves making necessary adjustments
• Continuous improvement
• Provides another approach to strategic control
• Allows an organization to respond more proactively and timely to
rapid developments
26
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
Implications of the Strategic
Management Process
Changes in any one component will affect other
components
Strategy formulation and implementation are
sequential
Necessity of feedback from institutionalization,
review, and evaluation to early stages of process
Need to regard it as dynamic, involving constant
changes in interdependent strategic activities

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Chapter 1

  • 1. 1 McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. CHAPTER 1 Strategic Management
  • 2. 2 McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Chapter Topics • The Nature and Value of Strategic Management • Dimensions of Strategic Decisions • Formality in Strategic Management • Benefits of Strategic Management • Risks of Strategic Management • Executives’ Views of Strategic Management • The Strategic Management Process • Components of the Strategic Management Model • Strategic Management as a Process
  • 3. 3 McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. What is Strategic Management? The set of decisions and actions that result in the formulation and implementation of plans designed to achieve a company’s objectives.
  • 4. 4 McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Critical Tasks of Strategic Management 1. Formulate the company’s mission 2. Conduct internal analysis 3. Assess the company’s external environment 4. Analyze company’s options 5. Identify most desirable options 6. Select long-term objectives and grand strategies 7. Develop annual objectives and short-term strategies 8. Implement the strategic choices 9. Evaluate success of the strategic process
  • 5. 5 McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. What is Strategy? • Large-scale, future-oriented plan for interacting with the competitive environment to achieve objectives • Company’s “game plan” • Framework for managerial decisions
  • 6. 6 McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Dimensions of Strategic Decisions • Strategic issues • Require top-management decisions • Require large amounts of the firm’s resources • Often affect the firm’s long-term prosperity • Are future oriented • Usually have multifunctional or multibusiness consequences • Require considering the firm’s external environment
  • 7. 7 McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Three Levels of Strategy 1. Corporate level 2. Business level 3. Functional level
  • 8. 8 McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Exhibit 1-2: Single-business Firms P O M / R & D s t r a te g ie s F in a n c ia l/ a c c o u n t in g s t r a te g ie s M a r k e t in g s t r a te g ie s H u m a n r e la t io n s s t r a te g ie s C o r p o r a t e / b u s in e s s le v e l
  • 9. 9 McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Ex 1-2: Multiple business Firms B u s in e s s 1 T y p e t it le h e re P O M / R & D s t r a te g ie s F in a n c ia l/ a c c o u n t in g s t r a te g ie s M a r k e t in g s t r a te g ie s H u m a n r e la t io n s s t r a te g ie s B u s in e s s 2 T y p e t it le h e re B u s in e s s 3 T y p e t it le h e re C o r p o r a te s t r a te g ie s
  • 10. 10 McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Ex 1-3: Hierarchy of Objectives and Strategies Ends (What is to be achieved) Means (How is to be achieved) Board of Directors Corporate Managers Business Managers Functional Managers Strategic Decision Makers Mission, including Goals and philosophy Long-term objectives Annual objectives Grand strategy Short-term strategies And policies          Note:  indicates a principal responsibility;  indicates a secondary responsibility
  • 11. 11 McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Characteristics of Strategic Management Decisions Corporate-level decisions Greater risk,cost, and profit potential Greater need for flexibility Longer time horizons
  • 12. 12 McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Characteristics of Strategic Management Decisions Functional- level decisions Functional- level decisions Implement overall strategy Involve action-oriented operational issues Are relatively short range and low risk Incur only modest costs
  • 13. 13 McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Characteristics of Strategic Management Decisions Business-level decisions Bridge decisions at corporate and functional levels Are less costly, risky, and potentially profitable than corporate-level decisions Are more costly, risky, and potentially profitable than functional-level decisions
  • 14. 14 McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Formality in Strategic Management • Definition • Degree to which participants, responsibilities, authority, and discretion in decision making are specified • Forces affecting degree of formality • Size of organization • Predominant management styles • Complexity of • Environment • Production process • Problems • Purpose of planning system
  • 15. 15 McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. The Strategy Makers • The ideal strategic management team includes • Chief executive officer (CEO) • Product managers • Heads of functional areas • The strategic management team obtains input from • Planning staff • Lower-level management and supervisors • Role of CEO • Provides long-term direction • Assumes ultimate responsibility for firm’s success • Solicits guidance from Board of Directors
  • 16. 16 McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Benefits of Strategic Management Enhances the firm’s ability to prevent problems Emphasizes group-based strategic decisions likely to be based on best available alternatives Improves employees’ understanding of the productivity-reward relationship Reduces gaps/overlaps in activities among employees as their participation clarifies differences in roles Resistance to change is reduced
  • 17. 17 McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Risks of Strategic Management • Time involved may negatively impact operational responsibilities of managers • Lack of involvement of strategy makers in strategy implementation may result in shirking of responsibility for strategic decisions • Potential disappointment of employees over unattained expectations requires managerial time and training
  • 18. 18 McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Company mission and social responsibility External environment Internal analysis Strategic analysis and choice Long-term objectives Generic and grand strategies Short-term objectives; reward systems Functional tactics Policies that empower action Restructuring, reengineering and refocusing the organization Strategic control and continuous improvement Possible? Desired? Feedback Feedback Legend Major impact Minor impact Ex 1-5 Strategic Management Process
  • 19. 19 McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Components of the Strategic Management Model • Company Mission • Specifies unique purpose of company • Identifies scope of operations • Describes product, market, and technological areas of emphasis • Reflects values and priorities of decision makers • Expresses approach to social responsibility efforts • Internal Analysis • Depicts quantity and quality of company’s financial, human, and physical resources • Assesses company’s strengths and weaknesses • Contrasts past successes and concerns with current capabilities to identify future capabilities
  • 20. 20 McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Components of the Strategic Management Model • External Environment • Consists of all conditions and forces affecting firm’s strategic options and define its competitive situation • Includes three interactive segments – remote, industry, and operating environments • Strategic Analysis and Choice • Involves simultaneous assessment of external environment and company profile • Incorporates screening process based on mission to generate possible and desired opportunities • Results in selection of options from which a strategic choice is made
  • 21. 21 McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Components of the Strategic Management Model • Long-term Objectives – Profitability – Return on investment – Competitive position – Technological leadership – Productivity – Employee relations – Public responsibility – Employee development
  • 22. 22 McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Components of the Strategic Management Model • Generic and Grand Strategies • Low cost • Differentiation • Focus • Action Plans and Short-Term Objectives • Translate generic and grand strategies into “action” • Identify specific functional tactics to be taken in the near term • Establish a clear time frame for completion • Creates accountability • Specify one or more immediate objectives as outcomes of the action
  • 23. 23 McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Components of the Strategic Management Model • Functional Tactics • Involve identifying activities unique to the function to help build competitive advantage • Specify detailed statements of “means” to be used to achieve short-term objectives • Policies that Empower Action • Include broad, precedent-setting decisions that substitute for repetitive or time-sensitive decision making • Often increase managerial effectiveness by empowering discretion of subordinates in implementing strategies
  • 24. 24 McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Components of the Strategic Management Model • Restructuring, Reengineering, and Refocusing the Organization • Involves an internal focus – getting work done efficiently and effectively to make the strategy work • Organizational structure • Leadership • Culture • Reward systems
  • 25. 25 McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Components of the Strategic Management Model • Strategic Control and Continuous Improvement • Control • Tracks a strategy during implementation • Detects problems • Involves making necessary adjustments • Continuous improvement • Provides another approach to strategic control • Allows an organization to respond more proactively and timely to rapid developments
  • 26. 26 McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Implications of the Strategic Management Process Changes in any one component will affect other components Strategy formulation and implementation are sequential Necessity of feedback from institutionalization, review, and evaluation to early stages of process Need to regard it as dynamic, involving constant changes in interdependent strategic activities