Strategic Management chapt1


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Strategic Management chapt1

  1. 1. Strategic Management Syed Masud Husain Professor Department of Accounting & Information Systems University of Dhaka 1
  2. 2. Introduction Strategic Management can be defined as the art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives. SM focuses on integrating management, marketing, finance/accounting, production/operations, research and development, and computer information systems to achieve organizational success. Strategic Management = Strategic Planning Earlier used term: Business Policy 2
  3. 3. Stages of Strategic Management Strategic Management process consists of three stages: Strategy Formulation, Strategy Implementation, and Strategy Evaluation. Integrating Intuition and Analysis:The SM 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. Based on past experiences, judgment and feelings, most people recognize that INTUITION is essential to making good strategic decisions. 3
  4. 4. Adapting to Change The SM process is based on the belief that organizations should continually monitor internal and external events and trends so that timely changes can be made as needed. The rate and magnitude of changes that affect organizations are increasing dramatically. Example: e-commerce, laser surgery, the war on terrorism, economic recession, the aging population, the Enron scandal, and merger mania. To survive all organizations must adapt to changes. 4
  5. 5. Strategists Strategists are the individuals who are most responsible for the success or failure of an organization. Titles of strategists: CEO, President, Owner, Chairman, Executive Director, Chancellor, Dean or Entrpreneur. Strategists help an organization gather, analyze and organize information. The CEO is the most visible and critical strategic manager. 5
  6. 6. Vision and Mission Statements Vision and Mission StatementsExternal Opportunities and Threats Economic Social Cultural Demographic Environmental Political Legal Governmental Technological Competitive trends and events 6
  7. 7. Internal Strengths and Weaknesses Organization’s controllable activities that are performed especially well or poorly.Long Term Objectives Specific results that an organization seeks to achieve in pursuing its basic missionStrategies The means by which long-term objectives will be achieved May include: geographic expansion, diversification, acquisition, product development, market penetration, retrenchment, divestiture, liquidation, joint ventures….. 7
  8. 8. Annual Objectives Short-term milestones that organizations must achieve to reach long term objectivesPolicies The means by which annual objectives will be achieved (include: guidelines, rules and procedures) 8
  9. 9. The Strategic Management Model Develop vision and mission statements Establish long-term objectives Generate, evaluate, select strategies Implement strategies – Management Issues Implement Strategies – Marketing, Accounting, Finance, R&D, MIS Issues Measure and evaluate performance 9
  10. 10. The Strategic ManagementProcess Benefits of Strategic Management: Financial Non-financial 10
  11. 11. Principal benefit of SM has been to help organizations formulate better strategies through the use of a more systematic, logical and rational approach to strategic choice Financial benefits: More profitable and successful than others High performing firms seem to make informed decisions More than 100,000 businesses fail annually in USA 11
  12. 12. Non-financial benefits It allows for identification, prioritization, and exploitation of opportunities. It provides an objective view of management problems. It represents a framework for improved coordination and control of activities. It minimizes the effects of adverse conditions and changes. It allows major decisions to better support established objectives. It allows more effective allocation of time and resources to unidentified opportunities. 12
  13. 13. Contd….. It allows fewer resources and less time to be devoted to correcting erroneous or ad hoc decisions. It creates a framework for internal communication among personnel. It helps integrate the behavior of individuals into a total effort. It provides a basis for clarifying responsibilities. It encourages a favorable attitude toward change. It gives a degree of discipline and formality to the management of a business. 13
  14. 14. Why some firmsdo no strategic planning? 14
  15. 15.  Poor reward Structure— Fire-fighting— Waste of time— Too Expensive— Laziness— Fear of failure— Overconfidence— Prior bad experience— Self-Interest— Fear of the unknown— Honest difference of opinion— Suspicion— 15
  16. 16. 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 16
  17. 17. Contd….. 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 17
  18. 18. Contd… 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 18
  19. 19. Guidelines for EffectiveStrategic Management“Even the most technically perfectstrategic plan will serve little purposeif it is not implemented. Manyorganizations tend to spend aninordinate amount of time, money,and effort on developing the strategicplan, treating the means andcircumstances under which it will beimplemented as afterthoughts! 19
  20. 20. Change comes throughimplementation and evaluation, notthrough the plan. A technicallyimperfect plan that is implementedwell will achieve more than theperfect plan that never gets off thepaper on which it is typed.” 20
  21. 21. BUSINESS ETHICS AND STRATEGIC MANAGEMENT Business Ethics can be defined as principles of conduct within organizations that guide decision making and behavior. Good business ethics is a prerequisite for good strategic management; good ethics is just good business.No society anywhere in the world can compete very long or successfully with people stealing from one another or not trusting one another, with every bit of information requiring notarized confirmation, with every disagreement ending up in litigation, or with government having to regulate businesses to keep them honest. 21
  22. 22. Comparing Business andMilitary Strategy  A strong military heritageunderlines the study ofstrategic management. Termssuch as objectives, mission,strengths, and weaknessesfirst were formulated toaddress problems ofbattlefield. 22
  23. 23. When Napoleon won, it wasbecause his opponents werecommitted to the strategy, tactics, andorganization of earlier wars. When helost – against Wellington, theRussians, and the Spaniards – it wasbecause he, in turn, used tried-and-true strategies against enemies whothought afresh, who were developingstrategies not of the last war but of thenext. 23
  24. 24. The Nature of GlobalCompetition The Advantages of International Operations The Disadvantages of International Operations 24
  25. 25. Advantages- Foreign operations can absorb excesscapacity, reduce unit costs, and spreadeconomic risks over a wider number ofmarkets.- Foreign operations can allow firms toestablish low-cost production facilities inlocations close to raw materials and/orcheap labor. 25
  26. 26. Contd…-Competitors in foreign markets may notexist, or competition may be less intensethan in domestic markets.- Foreign operations may result in reducedtariffs, lower taxes, and favorable politicaltreatment in other countries.- Joint ventures can enable firms to learnthe technology, culture, and businesspractices of other people and to makecontacts with potential customers,suppliers, creditors, and distributors inforeign countries. 26
  27. 27. Contd….- Many foreign governments andcountries offer varied incentives toencourage foreign investment inspecific locations.- Economies of scale can be achievedfrom operation in global rather thansolely domestic markets. Larger-scaleproduction and better efficiencies allowhigher sales volumes and lower priceofferings. 27
  28. 28. Disadvantages- Firms confront different and often little-understood social, cultural demographic,environmental, political, governmental,legal, technological, economic andcompetitive forces when doing businessinternationally. These forces can makecommunication difficult between the parentfirm and subsidiaries. 28
  29. 29. Contd…- Weaknesses of competitors inforeign lands are often overestimated,and strengths are oftenunderestimated. Keeping informedabout the number and nature ofcompetitors is more difficult whendoing business internationally.- Language, culture and value systemsdiffer among countries, and this cancreate barriers to communication andproblems managing people. 29
  30. 30. Contd…- Gaining an understanding of regionalorganizations such as the EuropeanEconomic Community, the LatinAmerican Free Trade Area, theInternational Bank for Reconstructionand Development, and theInternational Finance Corporation isdifficult but is often required in doingbusiness internationally. 30
  31. 31. Contd….- Dealing with two or more monetarysystems can complicate internationalbusiness operations.- The availability, depth and reliabilityof economic and marketing informationin different countries vary extensively,as do industrial structures, businesspractices, and the number and natureof regional organizations. 31
  32. 32. KEY TERMS AND CONCEPTS Annual Objectives  External Threats Business Ethics  Host Country Code of Business  Internal Strengths Ethics  Internal Weaknesses Empowerment  International Firms Environmental  Intuition Scanning  Long-range Planning Externational  Long-term opportunities Objectives 32
  33. 33. Contd…. Mission Statements  Strategies Multinational  Strategists Corporations  Strategy Evaluation Policies  Strategy Formulation Strategic  Strategy Management Implementation Strategic-  Vision Statement Management Model Strategic- Management Process 33