stargic management

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McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
CHAPTER 1
Strategic Management

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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

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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.

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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

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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

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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

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Three Levels of Strategy
1. Corporate level
2. Business level
3. Functional level

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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