1 Introduction & Nature Of S T R A T M A N


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1 Introduction & Nature Of S T R A T M A N

  1. 1. Strategic Management Orientation & Introduction Sir godz eding Asst prof 4
  2. 2. Chapter 1 The Nature of Strategic Management Strategic Management: Concepts & Cases 12th Edition Fred David Sir godz eding Asst Prof 4
  3. 3. Bankruptcy Downsizing Rightsizing Reengineering Divestitures Acquisitions Liquidations
  4. 4. Philosophy Behind the Strategic Management Course • Strategic Management is the capstone course for business student majors. • Students learn new strategy formulation, implementation, and evaluation concepts and techniques. • Students use this new knowledge, coupled with knowledge acquired from other courses, to chart the future direction of different organizations.
  5. 5. • Strategic Management students analyze firms in different industries, make objective strategic decisions for companies, and justify those decisions through oral or written communication. • It covers problems & issues on the whole spectrum of business, including finance, marketing, management, management information systems, production operations, economics, and statistics. • Strategic management is an emerging and rapidly developing discipline. • Experiential exercises allows students to test the concepts, knowledge learned. • Cases
  6. 6. External Audit Chapter 3 Internal Audit Chapter 4 Long-Term Objectives Chapter 5 Generate, Evaluate, Select Strategies Chapter 6 Implement Strategies: Mgmt Issues Chapter 7 Implement Strategies: Marketing, Fin/Acct, R&D, CIS Chapter 8 Measure & Evaluate Performance Chapter 9 Vision & Mission Chapter 2 Comprehensive Strategic Management Model Simple & straightforward approach To strategic planning Used widely among businesses & academia worldwide Use to integrate and organize All chapters in this text
  7. 7. • Chapter 1 provides an overview of strategic management. • A practical, integrative model of the strategic- management process is introduced. • Basic activities and terms in strategic management are defined. • The benefits of strategic management are presented. • Important relationships between business ethics and strategic management are discussed. • The chapter initiates discussion of two themes: global considerations and the strategic implications of the natural environment.
  9. 9. Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives. WHAT IS STRATEGIC MANAGEMENT?
  10. 10. Business Policy Defined: General management orientation that looks inward for properly integrating the firm’s functional activities.
  11. 11. Four Phases of Strategic Management • Basic financial planning • Forecast-based planning • Externally-oriented planning (strategic) • Strategic management
  12. 12. Strategic Management achieves a firm’s success through integration –– Management MIS Production/OperationsFinance/Accounting Marketing Research & Development
  13. 13. Strategic Management In essence, the strategic plan is a company’s game plan • Its used synonymously with strategic planning. • It is also used at many colleges and universities as the subtitle for the capstone course, Business Policy, which integrates material from all business disciplines.
  14. 14. Vision & Mission Strategy Formulation External Opportunities & Threats Internal Strengths & Weaknesses Long-Term Objectives Alternative Strategies Strategy Selection
  15. 15. Decision issues in Strategy Formulation New business opportunities Businesses to abandon Allocation of resources Expansion or diversification International markets Mergers or joint ventures Avoidance of hostile takeover New business opportunities Businesses to abandon Allocation of resources Expansion or diversification International markets Mergers or joint ventures Avoidance of hostile takeover
  16. 16. Strategy Implementation Annual Objectives Policies Employee Motivation Resource Allocation It includes developing a strategy-supportive culture, creating an effective organizational structure, redirecting marketing efforts, preparing budgets, developing and utilizing information systems, and linking employee compensation to organizational performance. “ACTION STAGE”
  17. 17. Strategy Evaluation Internal Review External Review Performance Metrics Corrective Actions It’s the final stage in strategic management. Managers desperately need to know when particular strategies are not working well; strategy evaluation is the primary means for obtaining this information.
  18. 18. Peter Drucker: -- Think through the overall mission of a business. Ask the key question: “What is our Business?” Prime Task of Strategic Management
  19. 19. Topic Reports Group 1 Case 2: Bytes Product Inc Chap 8 Marketing, R&D, CIS Group 2 Chap 3 Making an External Assessment Group 3 Chap 4 Making an Internal Assessment Group 4 Chap 5 Placing Strategies into Action Group 5 Chap 6 Understanding Strategy Analysis and Choice Group 6 Chap 7 Dealing with Management and Operations Issues
  20. 20. INTUITION Henry Sy Innate intuition Don’t believe in feng chui Believes in common sense Intuition is the ability to re-pattern
  21. 21. Organizations must monitor events • On-going process • Internal and external events • Timely changes Adapting to Change
  22. 22. Rate & magnitude of change increasing dramatically Adapting to Change E-commerce Demographics Technology
  23. 23. • What kind of business should we become? • Are we in the right fields • Are there new competitors? • What strategies should we pursue? • How are our customers changing? Adapting to Change – Key Strategic Management Questions
  24. 24. Chapter 1 The Nature of Strategic Management Strategic Management: Concepts & Cases 12th Edition Fred David Sir godz eding Instructor/Asst Prof 2
  25. 25. • “If we know where we are and something about how we got there, we might see where we are trending-and if the outcomes which lie naturally in our course are unacceptable, make timely change.” Abraham Lincoln
  26. 26. Your Intuitive Ability • Scoring: • Total the number of “a” responses on questions 1, 3, 5, 6, 11: A= _____ • Total the number of “b” responses on questions 2, 4, 7, 8, 9, 10, 12: B=______ • Add your “a” and “b” scores A+B= _______ • Your intuitive score is _______ • 12 HPS and 0 is lowest
  27. 27. Intuition is based on: – Past experiences – Judgment – Feelings Integrating Intuition and Analysis Intuition is useful for decision making in: – Conditions of great uncertainty – Conditions with little precedent “instinctive knowledge or feeling “ The strategic-management process can be described as an objective, logical, systematic approach for making major decisions in an organization. It attempts to organize qualitative and quantitative information in a way that allows effective decisions to be made under conditions of uncertainty.
  28. 28. KEY TERMS IN STRATEGIC MANAGEMENT 1. Competitive Advantage 2. Strategists 3. Vision & Mission Statements 4. External Opportunities & Threats 5. Internal Strengths & Weaknesses 6. Long-Term Objectives 7. Strategies 8. Annual Objectives 9. Policies
  29. 29. “Anything that a firm does especially well compared to rival firms” Strategic Management is Gaining and Maintaining 1-Competitive Advantage
  30. 30. 1. Adapting to change in external trends, internal capabilities and resources Achieving Sustained Competitive Advantage…how? 2. Effectively formulating, implementing & evaluating strategies
  31. 31. Strategists – are individuals who are most responsible for the success or failure of an organization . They help an organization gather, analyze and organize information. They track industry and competitive trends, develop forecasting models and scenario analyses, identify business threats and develop creative action plans. Strategic planners usually serve in a support or staff role. Usually found in higher levels of management, they typically have considerable authority for decision-making in the firm. •Various Job Titles: Chief Executive Officer (CEO) Chief Strategy Officer (CSO) Executive Director 2 •President •Owner •Board Chair
  32. 32. 3 Vision & Mission Statements • Vision statements answer the question: “What do we want to become?” • Mission statements are “enduring statements of purpose that distinguish one business from other similar firms. A mission statement identifies the scope of a firm’s operations in product and market terms.” It addresses the basic question that faces all strategists: “What is our business?” It should include the values and priorities of an organization
  33. 33. 4 External Opportunities & Threats • Refer to economic, social, cultural, demographic, environmental, political, legal, governmental, technological, and competitive trends and events that could significantly benefit or harm an organization in the future. • Are largely beyond the control of a single organization, thus the term external. • Environmental scanning or Industry analysis is the process of conducting research & gathering & assimilating information. • Industry is a group of firms that produces a similar product or service
  34. 34. Basic Tenet of Strategic Management Key Terms 4 Opportunities & Threats Strategy Formulation Take advantage of External Opportunities Take advantage of External Opportunities Avoid/minimize impact of External Threats Avoid/minimize impact of External Threats Tenet – doctrine, principle
  35. 35. 5 Internal Strengths & Weaknesses • Are an organization’s controllable activities that are performed especially well or poorly. • Identifying and evaluating organizational strengths and weaknesses in the functional areas is an essential strategic management activity. • Strengths and weaknesses are determined relative to competitors and may be determined by both performance and elements of being.
  36. 36. Strengths & Weaknesses (Internal) Key Terms Typically located in functional areas of the firm • Management • Marketing • Finance/Accounting • Production/Operations • Research & Development • Computer Information Systems
  37. 37. Assessing the Internal Environment Key Terms Strengths & Weaknesses Internal Factors Measure Performance Compute Financial Ratios Industry Averages Survey Data Comparing past periods
  38. 38. Objectives - specific results that an organization seeks to achieve in pursuing its basic mission. more than one year Long-term Objectives6 Corporate goals and objectives include: Profitability (net profits) Growth (increase in total assets, etc.) Utilization of resources (ROE or ROI) Market leadership (market share)
  39. 39. The means by which long-term objectives are achieved Key Terms Strategies6 A strategy of a corporation forms a comprehensive master plan stating how the corporation will achieve its mission and objectives. It maximizes competitive advantage and minimizes competitive disadvantage.
  40. 40. Hierarchy of Strategy Corporate Strategy Business (Division Level) Strategy Functional Strategy
  41. 41. Strategies 3 Types of Strategy  Corporate strategy Ex. Stability, Growth, Retrenchment  Business strategy Ex. Competitive strategies, Cooperative strategies Apple’s differentiation vs. Alliances by some airlines/banks  Functional strategy Ex. Technological leadership, Technological followership Pioneer an innovation vs. Imitate products of other companies
  42. 42. Strategies Key Terms Some Examples • Geographic expansion • Diversification • Acquisition • Market penetration • Retrenchment • Liquidation • Joint venture
  43. 43. Short-term milestones that firms must achieve to attain long-term objectives Annual Objectives7 Policies Means by which annual objectives will be achieved 8
  44. 44. Dynamic & Continuous More formal in larger organizations Strategic Management Model Strategic Management Process
  45. 45. External Audit Chapter 3 Internal Audit Chapter 4 Long-Term Objectives Chapter 5 Generate, Evaluate, Select Strategies Chapter 6 Implement Strategies: Mgmt Issues Chapter 7 Implement Strategies: Marketing, Fin/Acct, R&D, CIS Chapter 8 Measure & Evaluate Performance Chapter 9 Vision & Mission Chapter 2 Comprehensive strategic management model
  46. 46. 1. Identify Existing -- Strategic Management Model • Vision • Mission • Objectives • Strategies
  47. 47. 2. Audit external environment 3. Audit internal environment 4. Establish long-term objectives 5. Generate, evaluate & select strategies 6. Implement selected strategies 7. Measure & evaluate performance Strategic Management Model
  48. 48. External Audit Chapter 3 Internal Audit Chapter 4 Long-Term Objectives Chapter 5 Generate, Evaluate, Select Strategies Chapter 6 Implement Strategies: Mgmt Issues Chapter 7 Implement Strategies: Marketing, Fin/Acct, R&D, CIS Chapter 8 Measure & Evaluate Performance Chapter 9 Vision & Mission Chapter 2 Comprehensive strategic management model
  49. 49. Benefits of Strategic Management • Proactive in shaping firm’s future • Initiate and influence firm’s activities • Formulate better strategies •Systematic, logical, rational
  50. 50. Benefits of Strategic Management Financial Benefits • Improvement in sales • Improvement in profitability • Productivity improvement
  51. 51. Benefits of Strategic Management Non-Financial Benefits • Improved understanding of competitors strategies • Enhanced awareness of threats • Reduced resistance to change • Enhanced problem-prevention capabilities
  52. 52. WHY SOME FIRMS DO NO STRATEGIC PLANNING 1. Poor reward structures 2. Fire fighting 3. Waste of time 4. Too expensive 5. Laziness 6. Content with success 7. Fear of failure 8. Overconfidence 9. Prior bad experience 10.Self-interest 11.Fear of the unknown 12.Honest difference of opinion 13.Suspicion
  53. 53. PITFALLS IN STRATEGIC PLANNING • Using strategic planning to gain control over decisions and resources • Doing strategic planning only to satisfy accreditation or regulatory requirements • Too hastily moving from mission development to strategy formulation • Failing to communicate the plan to employees, who continue working in the dark • Top managers making many intuitive decisions that conflict with the formal plan • Top managers not actively supporting the strategic-planning process • Failing to use plans as a standard for measuring performance • Delegating planning to a “planner” rather than involving all managers • Failing to involve key employees in all phases of planning • Failing to create a collaborative climate supportive of change • Viewing planning to be unnecessary or unimportant • Becoming so engrossed in current problems that insufficient or no planning is done • Being so formal in planning that flexibility and creativity are stifled
  54. 54.  ISO 14000 Natural Environment Perspective ISO used to gain strategic advantage Focuses on operating in an environmentally friendly manner. Voluntary standards in environmental fields. ISO 14001 standard for Environmental Management System Not certified can be a strategic disadvantage Firms minimize harmful effects on environment International Organization for Standardization based in Geneva, Switzerland, Is a network of national standards institutes of 147 countries.
  55. 55. Parent company Host country The Nature of Global Competition International/multinational corporations Refers to a company investing in International operations It’s the country where that business is conducted Strategy implementation may be difficult Cultural differences: Ex. Norms, Values, Work ethic Co. that conduct business operations across national borders
  56. 56. Advantages of International Operations Absorb excess capacity Reduce unit costs Spread risk over wider markets Low-cost production facilities Less intense competition Lower taxes Economies of scale The decrease in unit cost of a product or service resulting from large-scale operations, as in mass.
  57. 57. Disadvantages of International Operations Difficult communications Underestimate foreign competition Cultural barriers to effective management Complications arising from currency differences
  58. 58. Conclusion • All firms have a strategy, even if it is informal, unstructured, and sporadic. All organizations are heading somewhere, some don’t know… • The Strategic –management process is becoming more widely used by small firms, large companies, non-profit, government organizations, & MNC. When managers & employees are empowered, it has limitless boundaries. • Organizations should take proactive rather than reactive approach in their industry; should influence, anticipate, & initiate rather that just respond to events. • The strategic-management process is logical, systematic and objective approach in determining an enterprise future direction.
  59. 59. THE END
  60. 60. Challenges to Strategic Management Globalization – Internationalization of markets and corporations • Global (worldwide) markets rather than national markets Electronic Commerce – Use of the Internet to conduct business transactions • Basis for competition on a more strategic level rather than traditional focus on product features and costs
  61. 61. Global Issues • European Union (EU) – Economic integration of 15 member countries • North American Free Trade Agreement (NAFTA) – Improved trade among 3 member countries • Mercosur – Free-trade area among Argentina, Brazil, Uruguay, and Paraguay • Association of South East Asian Nations (ASEAN) – Attempting to link members into a borderless economic zone
  62. 62. E-Commerce 7 Trends: 1. Internet forcing companies to transform themselves 2. Market access and branding are changing, causing disintermediation of traditional distribution channels 3. Balance of power shifting to the consumer 4. Competition is changing 5. Pace of business increasing drastically 6. Internet purchasing corporations out of their traditional boundaries 7. Knowledge becoming a key asset and source of competitive advantage
  63. 63. Strategic Management Highly Rated Benefits: • Clearer sense of strategic vision for the firm • Sharper focus on what is strategically important • Improved understanding of a rapidly changing environment