Chapter 1 The Strategic Management Process

1. Chapter 1 The Strategic Management Process

2. Learning Objectives To understand: • the elements or stages of the strategic management process • the different perspectives on strategy development • the implications of social responsibility, organizational ethics and the increasingly global business environment

3. Strategic Management is the process through which organizations… • analyze and learn from stakeholders inside and outside of the organization, • establish strategic direction, • create strategies that are intended to help achieve established goals, and • execute those strategies…. all in an effort to satisfy key organizational constituencies (stakeholders).

4. Strategic Management Process Internal and External Analysis Strategy Formulation (corporate and business level) Strategic Direction Strategy Implementation and Control Strategic Restructuring

5. THE BROAD ENVIRONMENT global socio-cultural forces global technological forces THE TASK ENVIRONMENT financial intermediaries competitors THE ORGANIZATION owners/board of directors managers employees suppliers customers unions local communities activists government global political/legal forces global economic forces

6. External Environmental Analysis • The external environment of business may be divided into two sectors: • Broad • Task • All trends and stakeholders in the external environment should be analyzed at both the domestic and international level

7. Broad Environment The broad environment consists of domestic and global forces such as • socio-cultural trends (e.g. demographics) • technological trends (e.g. internet) • political trends (e.g. open markets) • economic trends (e.g. growing economy) The broad environment forms the context within which the firm and its task environment exist.

8. Task Environment The task environment consists of external stakeholders -- groups or individuals outside the organization that are significantly influenced by or have a major impact on the organization -- such as\ • Customers • Suppliers • Competitors

9. Internal Environmental Analysis • Internal stakeholders include managers, employees and the owners and their representatives (e.g., board of directors). • Internal analysis includes an evaluation of internal stakeholders and the organization’s resources and capabilities • Purpose of internal analysis to determine • strengths and opportunities for competitive advantage, and • weaknesses and organizational vulnerabilities that should be corrected.

10. Strategic Direction Strategic direction involves • setting long-term goals and objectives, such as mission and vision • defines the purposes for which an organization exists and operates

11. Strategy Formulation • Strategy is an organizational plan of action intended to accomplish goals. • Corporate strategy formulation refers to domain definition, or the choice of business areas. Usually decided by the CEO and the board of directors. • Business strategy formulation involves domain direction and navigation, or how to compete in a given area. Usually decided by division heads and business unit managers. • Functional strategy formulation contains the details of how the functional areas such as marketing, operations, finance, and research should work together to achieve the business-level strategy.

12. Strategy Implementation and Control • Strategy implementation involves creating the functional strategies, systems, structures, and processes needed by the organization in achieving strategic ends. • Strategic control refers to the processes that lead to adjustments in strategic direction, strategies, or the implementation plan when necessary. • Strategic restructuring involves a renewed emphasis on what an organization does well.

13. Alternative Perspectives on Strategy Development Traditional Strategic Management Process • Situation Analysis--Strengths, Weaknesses, Opportunities and Threats (SWOT) • Strategies should take advantage of strengths and opportunities or neutralize or overcome weaknesses and threats • Environmental Determinism--the best strategy involves adapting to environmental, technical and human forces • Strategy is deliberate (always planned and intended by management)

14. Alternative Perspectives on Strategy Development Contemporary Views • Adaptation--strategy involves submitting to existing forces. • Enactment--firms can, in part, create their environments. • Deliberate--intended by management (planned) • Emergent--organizations learn as they go by trial and error. Strategy is the pattern in a stream of decisions. Stakeholder view • Organizations are at the center of a network of contacts • Increasing use of partnering

15. Alternative Perspectives on Strategy Development Resource-based View • Organization is made up of resources: financial, physical, human, general organizational (structure, systems, culture, reputation, relationships with stakeholders). • Sustainable competitive advantage--Comes from a resource that is valuable in the market, possessed by only a small number of firms (rare), and costly or difficult to imitate in the short term. • Effective development or acquisition of organizational resources may be the most important reason that some organizations are more successful than others.

16. The Most Successful Organizations Analyze and Manage Their Stakeholders Well Stakeholder Analysis • Identifying and Prioritizing Key Stakeholders • Assessing Their Needs • Collecting Ideas From Them • Integrating this Knowledge into the Strategic Management Process

17. The Most Successful Organizations Analyze and Manage Their Stakeholders Well Stakeholder Management • Communicating with Stakeholders • Negotiating and Contracting with Them • Managing Relationships with Them • Motivating Them to Act in Beneficial Ways

18. Organizational Ethics Personal Ethics--value system that helps determine what is right. “Ground rules” for behavior. Organizational Ethics--value system that has been widely adopted by members of an organization. • Worth of customers/employees vs. focus on profit • Value of honesty vs. getting the job done • Work ethic

19. SOCIAL RESPONSIBILITY • Economic responsibilities • Legal responsibilities • Moral obligations • Discretionary responsibilities

20. INCREASING NEED FOR ETHICAL BEHAVIOR Global Competition Trustworthy Behavior Increasing Organizational Interdependence Increasing Need for Trust Behavior that Violates Trust and Fairness Technological Complexity

21. INCREASING NEED FOR ETHICAL BEHAVIOR Trustworthy Behavior Good Reputation Committed Effort by Stakeholders Stakeholders Eager to Conduct Business

22. INCREASING NEED FOR ETHICAL BEHAVIOR Poor Reputation Behavior that Violates Trust and Fairness Stakeholders Avoid Transactions When Possible Stakeholders Not Committed to Organization Legal Suits, Walkouts, Boycotts, etc.