CHAPTER 1 Strategic Management

1. CHAPTER 1 Strategic Management

2. Definition of Strategic Management • Strategic management is a process through which: • Organizations analyze and learn from their internal and external environments, • Establish strategic direction, • Create strategies that are intended to move the organization in that direction, and • Implement those strategies • All in an effort to satisfy key stakeholders

3. Stakeholders • Groups or individuals who can significantly affect or are significantly affected by an organization’s activities

4. A Typical Stakeholder Map Competitors Activist Groups Local Communities The Organization Owners/Board of Directors Managers Employees Customers Suppliers The Media Unions Financial Intermediaries Government Agencies and Administrators

5. Three Perspectives on Strategic Management • Traditional Perspective • Resource-based View • Stakeholder View Table 1.1, page 6

6. Traditional Perspective • Analysis of the internal and external environments of the organization to arrive at organizational strengths, weaknesses, opportunities, and threats (SWOT), which form the basis for developing effective missions, goals, and strategies.

7. Resource-based View • Consider the firm as a bundle of resources; firms can gain competitive advantage through possessing superior resources

8. Stakeholder View • Envisions the firm at the center of a network of constituencies called stakeholders; firms can gain competitive advantage through superior stakeholder management

9. Three Perspectives on Strategic Management • Traditional Perspective • Origin • Economics, other business disciplines, and consulting firms • View of Firm • An economic entity • Approach to Strategy Formulation • Situation analysis of internal and external environments leading to formulation of mission and strategies • Source of Competitive Advantage • Best adapting the organization to its environment by taking advantage of strengths and opportunities and overcoming weaknesses and threats

10. Traditional Strategic Management Process Situation Analysis (external environment) Strategic Direction (mission & goals) Strategy Formulation (take advantage of strengths/overcome weaknesses & threats) Strategy Implementation (development & execution of implementation plans)

11. Traditional View Environmental determinism (the best strategy is determined by the environment) Firms should adapt to the environment Strategy is deliberate (intended) Contemporary View Enactment (firms can influence their environments) A firm should pursue actions to make the environment more hospitable Strategy emerges from a stream of decisions as firms learn Strategy Fundamentals

12. Three Perspectives on Strategic Management • Resource-based View • Origin • Economics, distinctive competencies and general management capability • View of Firm • A collection of resources, skills and abilities • Approach to Strategy Formulation • Analysis of organizational resources, skills and abilities. Acquisition of superior resources, skills and abilities • Source of Competitive Advantage • Possession of resources skills and abilities that are valuable, rare and difficult to imitate by competitors

13. The Organization as a Bundle of Resources • General Organizational • Resources • Firm Reputation • Brand Names and Patents • Contracts • Stakeholder Relationships • Financial Resources • Internal and External Sources of Financing • Financial Strength • Physical Resources • Plants and Equipment • Organizational Locations • Access to Raw Materials Organizational Knowledge and Learning • Human Resources • Skills, Background and Training of Managers and Employees • Organization Structure

14. Resources and stakeholders Most of the resources that a firm can acquire or develop are directly linked to a company’s stakeholders.

15. Three Perspectives on Strategic Management • Stakeholder View • Origin • Business ethics and social responsibility • View of Firm • A network of relationships among the firm and its stakeholders • Approach to Strategy Formulation • Analysis of the economic power, political influence, rights and demands of various stakeholders • Source of Competitive Advantage • Superior linkages with stakeholders leading to trust, goodwill, reduced uncertainty, improved business dealings and ultimately higher firm performance

16. A Typical Stakeholder Map Competitors Activist Groups Local Communities The Organization Owners/Board of Directors Managers Employees Suppliers Customers The Media Unions Financial Intermediaries Government Agencies and Administrators

17. Can External Stakeholders Be Managed? Traditionally, at least in U.S., management theory has focused on internal (e.g., employees) rather than external stakeholders

18. Internal Stakeholder Management Nature of Relationship Contractual Physical Location Predominantly inside organization structure, sometimes geographically diverse Motivation to Perform Regular payments, retention, bonuses, common purpose, persuasion Direct Control Schedules, plans, sometimes direct supervision External Stakeholder Management Nature of Relationship Contractual, legal or informal Physical Location Predominantly outside organizational structure; sometimes included Motivation to Perform Regular payments, retention, incentives, bonuses, common purpose, persuasion Direct Control Schedules, plans, less often direct supervision Can External Stakeholders Be Managed?

19. Internal Stakeholder Management Communication E-mail, face-to-face, telephone, memos, directives, policies Involvement in Organizational Decisions Employee involvement varies from organization to organization, but it is increasing Importance of Trust High External Stakeholder Management Communication E-mail, face-to-face, telephone, memos, directives, policies Involvement in Organizational Decisions External stakeholder involvement varies from organization to organization, but it is increasing Importance of Trust High Can External Stakeholders Be Managed?

20. Trustworthy Partnering Behavior Good Reputation Committed Effort by Stakeholders Stakeholders Eager to Conduct Business Trustworthy Behavior Global Competition Need for Trustworthy Partnering Behavior Organizational Interdependence Poor Reputation Stakeholders Avoid Transactions Stakeholders Not Committed Legal Suits, Cancellations, Boycotts, etc. Technological Complexity Behavior that Violates Trust and Fairness

21. A Combined Perspective of Strategic Management • Process • Firms conduct external and internal analysis (situation analysis), which include analysis of stakeholders. On the basis of information obtained, they create strategic direction, strategies, tactics for implementing strategies and control systems • Origin • Traditional, resource-based and stakeholder perspectives • Adaptation vs. Enactment • Influence the environment when it is economically feasible to do so. Take a proactive stance with regard to managing external stakeholders. Monitor, forecast and adapt to environmental forces that are difficult or costly to influence.

22. A Combined Perspective of Strategic Management • Deliberate vs. Emergent • Firms should be involved in deliberate strategy-creating processes. However, they should learn from past decisions and be willing to try new things and change strategic course • Source of Competitive Advantage • superior resources, including knowledge-based resources, superior strategies for managing those resources and/or superior relationships with internal or external stakeholders (which are another type of resource) • Creation of Strategic Alternatives • Develop strategies to take advantage of strengths and opportunities or overcome weaknesses or threats.

23. The Strategic Management Process Situation Analysis Analyze the Environment, Stakeholders and Organizational Resources (Chs. 2 & 3) Establish Strategic Direction (Ch. 4) Formulate Strategies Business-Unit (Ch. 5) Entrepreneurship (Ch. 6) Corporate-Level (Ch. 7) Implement Strategies & Establish Controls (Chs. 8 & 9)

24. Situation Analysis Analysis of stakeholders inside and outside the organization, as well as other external forces

25. Strategic Direction Pertains to the longer-term goals and objectives of the organization; this direction is often contained in mission and vision statements

26. Strategy Formation The process of planning strategies; often divided into the corporate, business, and functional levels

27. Strategy Implementation Managing stakeholder relationships and organizational resources in a manner that moves the organization towards the successful execution of its strategies, consistent with its strategic direction

28. Strategy Formulation in a Multi-business Organization Entire Corporation (Corporate Level: Domain Definition) Business 1 (Business Level: Domain Direction/Navigation) Business 2 (Business Level: Domain Direction/Navigation) Marketing Finance Operations Research Human Resources (Functional Level: Implementation and Execution)

29. Strategic Planning Process vs. Strategic Thinking • The strategic planning process is often rigid and unimaginative, with detailed instructions pertaining to every aspect of the process • Strategic thinking leads to creative solutions and new ideas, more flexible. • The best firms use both!

30. Elements of Strategic Thinking • Intent Focused • Strategic intent--a managerial vision of where the firm is going • Comprehensive • A “systems” perspective. Envisions the firm as a part of a larger system of value creation. • Opportunistic • Seizes unanticipated opportunities • Long-term Oriented • Looks several years into the future at what the firm will become • Built on Past and Present • learns from the past and builds on a foundation of the realities of the present • Hypothesis Driven • Creative ideas are then critically evaluated. Takes risks