Strategic Management

Strategic Management Defined: Set of managerial decisions and actions that determines the long-run performance of a firm.

Strategic Decision Making • Strategic Decisions • Rare • Consequential • Directive

Initiation of Strategy • New CEO • External intervention • Threat of change in • ownership • Performance gap • Strategic inflection point Stimulus for change in strategy Triggering event

Key Strategic Questions Not always a formal process: • Where is the organization now? (Not where do we hope it is!) • If no changes are made, where will the organization be in 1 year, 2 years, 5 years, 10 years? • If the answers are not acceptable, what specific actions should management undertake? What are the risks and payoffs involved?

Four Phases of Strategic Management • Basic financial planning • Forecast-based planning • Externally-oriented planning (strategic) • Strategic management

Strategic Management • Benefits: • Clearer sense of long term vision (strategic direction) for the firm • Sharper focus on what is strategically important • Improved understanding of a rapidly changing environment

Challenges to Strategic Management • Electronic Commerce • Use of the Internet to conduct business transactions • Globalization • Internationalization of markets and corporations • Global (worldwide) markets rather than national markets

Global Issues • European Union(EU) • Economic integration of 15 member countries • North American Free Trade Agreement(NAFTA) • Improved trade among 3 member countries • Mercado Del Cono Sur = Market of the southern cone (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

Strategic Management Process • Strategic Management process is composed of: • Environmental Scanning • Strategic Formulation • Strategic Implementation • Evaluation and Control

Environmental Scanning • Defined: The monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the firm.

Environmental Scanning • Identify strategic factors • SWOT Analysis • Strengths, Weaknesses • Opportunities, Threats • Internal Environment • Strengths & Weaknesses • Within the organization but not subject to short-run control of management • External Environment • Opportunities & Threats • External to the organization but not subject to short-run control of management

Environment • Composed of: • Internal Environment • External Environment • Task Environment • Societal Environment

Environmental Scanning

Internal Environment • Composed of: • Structure • Culture • Resources

Structure • Refers to the way a firm is organized in terms of communication, authority, and workflow • Basic Forms of structures: • Simple structure • Functional structure • Divisional structure

I. Simple Structure Owner-Manager Workers II. Functional Structure Top Management Manufacturing Sales Finance Personnel Basic Organizational Structures: Simple and Functional

III. Divisional Structure* Top Management Product Division A Product Division B Manufacturing Finance Manufacturing Finance Sales Personnel Sales Personnel *Conglomerate structure is a variant of the division structure. Basic Structures of Corporations: Divisional

Internal Environment • Composed of: • Culture • Structure • Resources

Culture • Refers to the pattern of beliefs, expectations, and values shared by a firm’s employees • Distinct attributes of organizational culture: • Cultural intensity • Cultural integration

Cultural intensity • Refers to the degree in which the members of each unit (department or division) in the company subscribe to the same values or norms. As a result, employees in a unit with intensive culture tend to behave the same. • In general, older organizations tend to display more intense culture.

Cultural integration • Refers to the degree in which units (departments and divisions) across a company tend to subscribe to the same set of values and norms. • Units within a companies with integrated culture tend to be more uniformed with other units. As a results, the units in a company with an integrated culture tend to lack subcultures of their own.

Internal Environment • Composed of: • Resources • Culture • Structure

Resources Refers to the assets of the firm including physical assets, skills and knowledge within the functional areas

Task Environment • Composed of: • Groups in environment that directly affect or are affected by the organization’s operations (often refer to as industry) • Competition • Suppliers • Customers (Buyers) • Other interest Groups

Industry Analysis

Societal Environment • Composed of: • General forces in environment • Economic Forces • Sociocultural Forces • Technological Forces • Political-Legal Forces

Economic GDP trends Interest rates Money supply Inflation rates Unemployment levels Wage/price controls Devaluation/ revaluation Energy availability and cost Disposable and discretionary income Technological Total government spending for R&D Total industry spending for R&D Focus of technological efforts Patent protection New products New developments in technology transfer from lab to marketplace Productivity improvements through automation Political-Legal Antitrust regulations Environmental protection laws Tax laws Special incentives Foreign trade regulations Attitudes toward foreign companies Laws on hiring and promotion Stability of government Sociocultural Lifestyle changes Career expectations Consumer activism Rate of family formation Growth rate of population Age distribution of population Regional shifts in population Life expectancies Birth rates Societal EnvironmentImportant Variables

SWOT Analysis • Internal Environment: • Strengths • Weaknesses • External Environment: • Opportunities • Threats

Basic Model of Strategic Management Four Basic Elements

Strategic Management Model Environmental Evaluation and Control Strategy Strategy Evaluation and Control and Control Scanning Formulation Implementation Mission External Reason for Societal existence Objectives Environment General Forces What results to Strategies Task accomplish Environment by when Plan to Industry Analysis achieve the Policies mission & Internal objectives Broad guidelines for Programs Structure Process decision to monitor Chain of Command making Activities performance needed to Budgets Culture and take accomplish corrective Beliefs, Expectations, a plan Cost of the action Values programs Procedures Resources Sequence Assets, Skills of steps Competencies, needed to Knowledge Performance do the job Feedback/Learning

SWOT Analysis • Internal Environment: • Strengths • Weaknesses • External Environment: • Opportunities • Threats

Basic Model of Strategic Management Four Basic Elements

Strategy Formulation Defined: Development of long-range plans for the effective management of environmental opportunities and threats in light of corporate strengths and weaknesses. Composed of: • Mission • Objectives • Strategies • Policies

Strategy Formulation Mission Statement • Purpose or reason for the organization’s existence • Should include the firm’s products / services and it’s target market(s) • Who we are, what we do, what we’d like to become • Promotes shared expectations among employees • Communicates a public image to stakeholders

Strategy Formulation Maytag Corporation Mission Statement To improve the quality of home life by designing, building, marketing, and servicing the best appliances in the world.

Strategy Formulation Objectives The end results of planned activity • WHAT is to be accomplished • Time in which to accomplish it (WHEN) Objectives should be quantified when possible

Strategy Formulation Goals vs. Objectives A goal is an open-ended statement of what one wants to accomplish with no quantification of what is to be achieved and/or no time criteria for completion.

Goals & Objectives Corporate goals and objectives include: • Profitability (net profits) • Growth (increase in total assets, etc.) • Utilization of resources (ROE or ROI) • Market leadership (market share)

Strategies Defined: A strategy of a corporation forms a comprehensive master plan stating HOW the corporation will achieve its mission and objectives.

Strategies 3 Types of Strategy • Corporate strategy • Business strategy • Functional strategy

Hierarchy of Strategy Corporate Strategy Business (Division Level) Strategy Functional Strategy

Corporate Strategies • Corporate strategies deal with corporation’s overall direction and its management of its businesses

Corporate Strategies Corporate Strategy • Growth • Stability • Retrenchment

Growth Strategies • Concentration • Horizontal integration • Vertical integration • Diversification • Concentric diversification • Conglomerate diversification Any of these four growth strategies may be though internal development or external acquisitions, mergers, or joint ventures.

Corporate Strategies Corporate Strategy • Stability • Growth • Retrenchment

Stability Strategies • Pause • Proceed-with-caution • No change • Profit

Strategic Management