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Basic Concepts Of Strategic Management

Basic Concepts of Strategic Management

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Basic Concepts Of Strategic Management

  1. 1. Basic Concepts of Strategic Management "Effective managers live in the present – but concentrate on the future." James L. Hayes     
  2. 2. What is Strategy? • A combination of the words stratos, which meant “army”, and agein meaning “to lead”. Greek Language (6th century BC)
  3. 3. What is Strategy? • A strategy is a comprehensive action plan that identifies long-term direction and guides resource utilization to accomplish organizational goals with sustainable competitive advantage.
  4. 4. Strategic Management Process of formulating, implementing, and evaluating, strategies to accomplish long-term goals and sustain competitive advantage.
  5. 5. Strategic Audit 21st Century Challenges in  Strategic Management • Process is more an “art” than  “science” • Should strategies be visible or hidden  from stakeholders • Should process be more top-down or  bottom up
  6. 6. Phases of Strategic Management Basic financial Forecast-based Strategic Strategic planning: planning: planning: management: -little analysis; -more thorough -more thorough -analysis of external analysis; -analysis; and internal environment; -info coming from -internal info + -internal info + within the firm; environmental data; environmental data + -implementation, forecast future trends; evaluation and control; -only managers are -only managers are -made by planning -made by lower level involved; involved; staff (top managers) managers+ + consultants; top managers+ -takes 2-3 weeks; -takes one month; consultants; -meet once a year; -throughout the year; - one year plan -three to five years -plan  - five-year plans  - five-year plans
  7. 7. Benefits of Strategic Management • Clear sense of strategic vision of the firm • Sharper focus on what is strategically important • Improved understanding of a rapidly changing environment
  8. 8. Main Questions • Where is organization now? • If no changes are made, where will the organization be in 1,2,5 years? • If the answers are not acceptable, what specific actions should management undertake? • What are risks and payoffs involved?
  9. 9. Basic Model of Strategic Management Environmental Evaluation Strategy Strategy Scanning and Formulation Implementation Control
  10. 10. Environmental Scanning External: Social Environment External: Task Environment Internal: Structure Internal: Culture Internal: Resources
  11. 11. Environmental Scanning Opportunities & Threats (External) Analysis of Trends: • Economic • Social • Cultural • Demographic/Environmental • Political, Legal, Governmental • Technological • Competitors
  12. 12. Environmental Scanning Strengths & Weaknesses (Internal) Typically located in functional areas of the firm • Management • Marketing • Finance/Accounting • Production/Operations • Research & Development • Computer Information Systems
  13. 13. Strategy Formulation Vision & Mission Objectives Strategies Policies
  14. 14. Strategy Formulation Vision Statement – What do we want to become? Mission Statement – What is our business?
  15. 15. Strategy Formulation Key Strategic Questions by Peter Drucker • What is our business mission? • Who are our customers? • What do our customers consider value? • What have been our results? • What is our plan?
  16. 16. Vision Examples To be the happiest place on earth. To be the world’s best quick service restaurant.
  17. 17. Mission Statement Example We should build good ships here – at a profit if we can – at a loss if we must – but always good ships -- Newport News Shipbuilding (since foundation in 1886)
  18. 18. Mission Statement Example The Bellevue Hospital, with respect,  compassion, integrity, and courage, honors the  individuality and confidentiality of our patients,  employees, and community, and is progressive  in anticipating and providing future health care  services. -- The Bellevue Hospital
  19. 19. WellPont health Network’s Vision and Mission WellPoint redefine our industry: through a new generation of consumer-friendly products that put individuals back in control of their future. The WellPoint companies provide health security by offering a choice of quality branded health and related financial services designed to meet the changing expectations of individuals, families, and their sponsors throughout a lifelong relationship.
  20. 20. Importance of Mission Benefits from a strong mission Unanimity of Purpose Resource Allocation Mission Organizational Climate Focal point for work structure
  21. 21. Products Services Markets Customers Technology Mission Employees Elements Survival Growth Profit Public Image Self-Concept Philosophy
  22. 22. Strategy Formulation Objectives The end results of planned activity: • what is to be accomplished • by when • it should be quantified if possible “…increase profits 10% over last year”
  23. 23. Strategy Formulation Types of Strategies Corp Level A Large Company Division Level Functional Level Operational Level
  24. 24. Strategy Formulation Strategies • Corporate strategy directs the organization  as a whole toward sustainable competitive  advantage.   • Business strategy sets the strategic  direction for a single business unit or product  line.  • Functional strategy guides the use of  resources to implement business strategy. 
  25. 25. Being Better versus Being Different Playing the Game Better Playing the Game Differently  Focus on your existing  Try to identify: strategic position and try to  • new or unexploited customer  improve it and make it better.  segments to focus on (a new  Practices such as  “WHO”) restructuring, refocusing,  • new customer needs that no  process reengineering, quality  competitor is currently satisfying  programs, empowering  (a new “WHAT”) employees, and the like, all  • new ways of producing,  aim to achieve this  delivering, selling or distributing  your products or services (a new  “HOW”) …to be successful, a company must be able to do BOTH!                                                          Constantinos Markides
  26. 26. Strategy Formulation Policies A policy is a broad guideline for decision making that links the formulation of strategy with its implementation.   • Maytag Company: Maytag will not approve any cost reduction  proposal if it reduces product quality in any way. • 3M: Researches should spend 15% of their time working on  something other than their primary project. • GE: GE must be number one or two wherever it competes. • Intel: Intel cannibalizes its own product line with better products  before a competitor does so.
  27. 27. Strategy Implementation Programs Budgets Procedures
  28. 28. Strategy Implementation • A program is a statement of the activities or  steps needed to accomplish a single-use  plan.   • A budget is a statement of a corporation’s  program in terms of dollars.  • Procedures are a system of steps or  techniques that describe in detail how a  particular task or job is to be done. 
  29. 29. Strategy Evaluation & Control Internal Review External Review Measuring Performance Strategic audit
  30. 30. Feedback/Learning Process Internal/External Review Revision of Decisions Corrective Actions
  31. 31. Strategic Decisions Characteristics: • Rare: strategic decisions are unusual and  typically have no precedent to follow • Consequential: strategic decisions commit  substantial  resources and demand a great  deal of commitment from people on all  levels. • Directive: strategic decisions set precedents  for lesser decisions and future actions  throughout an organization.