Chapter One

‡ Scope of Strategic Management

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Major Issues to Consider

‡ Global considerations impact virtually all

strategic decisions.
‡ E-commerce has become a vital strategic
management tool.
‡ The natural environment has become an
important strategic issue.

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Strategic Management Defined

Art and science of formulating,

implementing, and evaluating cross-
functional decisions that enable an
organization to achieve its objectives.

3
Terminology
“Strategic Management”
Synonymous with
“Strategic Planning”

• Strategic management
¾ Used more often in academia

• Strategic planning
¾ Used more often in the business world

4
Terminology
‡ Strategic management
¾ Refers to:
ƒ Strategy formulation
ƒ Strategy implementation
ƒ Strategy evaluation

‡ Strategic planning
¾ Refers to:
ƒ Strategy formulation

5
Brief History
‡ 1950s
¾ Term strategic planning originates

1960s – 1970s
¾ Strategic planning very popular
ƒ Widely viewed as panacea for problems

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Brief History
‡ 1980s
¾ Strategic planning cast aside
ƒ Planning models did not yield higher returns

‡ 1990s–2000
¾ Revival of strategic planning
ƒ Widely practiced in business world

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Strategic-Management Process
Three Stages

Strategy Formulation

Strategy Implementation

Strategy Evaluation
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Strategy Formulation

Vision & Mission

Opportunities & Threats

Strengths & Weaknesses

Long-Term Objectives

Alternative Strategies

Strategy Selection

9
Strategy Implementation

Annual Objectives

Policies

Motivate Employees

Resource Allocation

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Strategy Evaluation

Review
External & Internal

Measure Performance

Corrective Action

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Key Strategic Management Terms
(Cont’d)

1. Strategists
2. Vision statements
3. Mission statements
4. External opportunities and threats
5. Internal strengths and weaknesses
6. Long-term objectives
7. Strategies
8. Annual objectives
9. Policies

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 Strategic Management Terms
(Cont’d)
Strategists
• Usually found in high levels of management (CEO)

¾ Help organization gather, analyze, and organize

information

¾ Track industry and competitive trends

¾ Develop forecasting model

¾ Evaluate corporate and divisional performance

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 Strategic Management Terms
(Cont’d)
Vision Statements
• Answers the question: “What do we want to
become?”

¾ First step in strategic planning

¾ Oftentimes a single sentence

“Our vision is to take care of your vision.”
(Stokes Eye Clinic, Florence, South Carolina).

Southern Polytechnic State University

. www.spsu.edu/planassess/strategic.htm

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 Strategic Management Terms
(Cont’d)
External Opportunities & Threats
• Largely beyond the control of a single organization

¾ Economic
¾ Social
¾ Cultural
¾ Demographic
¾ Environmental

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 Strategic Management Terms
(Cont’d)
External Opportunities & Threats (cont’d)

¾ Political
¾ Governmental
¾ Technological
¾ Competitive trends & events

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 Strategic Management Terms
(Cont’d)
Internal Strengths & Weaknesses
• Controllable activities that are performed
well or poorly relative to competitors

¾ Based on functional analysis of activities in the

firm’s:
ƒ Management
ƒ Marketing
ƒ Finance/accounting

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 Strategic Management Terms
(Cont’d)
Internal Strengths & Weaknesses
(Cont’d)
• Based on functional analysis of activities in
the firm’s:
¾ Production/operations
¾ Research and development
¾ Computer information systems
• Organizations strive to pursue strategies that
capitalize on strengths and improve
weaknesses

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 Strategic Management Terms
(Cont’d)
Long-Term Objectives
• Results to be achieved in pursuing the organization’s
mission. Time frame is beyond one year.
¾ State direction

¾ Aid in evaluation

¾ Create synergy

¾ Reveal priorities

¾ Focus coordination

¾ Provide basis for effective management

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 Strategic Management Terms
(Cont’d)
Strategies
• Potential actions that require top
management decisions and large amounts
of firm’s resources
Mechanisms by which long-term objectives are realized
¾ Geographic expansion

¾ Diversification

¾ Acquisition

¾ Product development

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 Strategic Management Terms
(Cont’d)
Strategies (cont’d)

• Mechanisms by which long-term objectives are

realized
¾ Market penetration

¾ Retrenchment

¾ Divestiture

¾ Liquidation

¾ Joint venture

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 Strategic Management Terms
(Cont’d)
Annual Objectives
• Short-term milestones necessary to achieve
long-term objectives.

¾ Represent the basis for allocating resources

¾ Established at corporate, divisional, and

functional levels

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 Strategic Management Terms
(Cont’d)
Annual Objectives (cont’d)

‡ Stated in terms of accomplishments for:

¾ management
¾ marketing
¾ finance/accounting
¾ production/operations
¾ research and development
¾ information systems accomplishments

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 Strategic Management Terms
(Cont’d)
Policies
• Important in strategy implementation as the means
by which annual objectives will be achieved

¾ Guide to decision making and address repetitive

situations
¾ Established at corporate, divisional, or functional levels
¾ Allow consistency & coordination within and between
organizational departments

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 Comprehensive Strategic Management Model

External
Audit

Chapter 3

Long-Term Generate, Implement Implement Measure &

Vision Objectives Evaluate, Strategies: Strategies: Evaluate
& Select Mgmt Issues Marketing, Performance
Mission Strategies Fin/Acct,
Statements R&D, CIS
Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9
Chapter 2

Internal
Audit

Chapter 4

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 Benefits of Strategic Management
‡ Proactive vs. Reactive
¾ Initiate and influence activities
ƒ Helps shape firm’s own future
‡ Principal Benefit
¾ Formulate better strategies
ƒ Systematic, logical, and rational approach
‡ Communication
¾ Key to successful strategic management

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 Benefits of Strategic Management
(Cont’d)
‡ Financial Benefits
¾ More profitable and successful

¾ Improvements in sales, profitability, and

productivity

¾ High-Performing Firms
ƒ Systematic planning
™ Fluctuations in external and internal environments

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 Benefits of Strategic Management
(Cont’d)
‡ Nonfinancial Benefits
¾ Enhanced awareness of external threats
¾ Understanding of competitors’ strategies
¾ Increased employee productivity
¾ Reduced resistance to change
¾ Clear performance-reward relationships
¾ Order and discipline to the firm
¾ View change as opportunity

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Why Some Firms Do No
Strategic Planning
‡ Poor reward structures
‡ Fire-fighting
‡ Waste of time
‡ Too expensive
‡ Laziness
‡ Content with success

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Why Some Firms Do No
Strategic Planning (Cont’d)
‡ Fear of failure
‡ Overconfidence
‡ Prior bad experience
‡ Self-interest
‡ Fear of the unknown
‡ Suspicion
‡ www.mindtools.com/plfailpl.html

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Pitfalls to Avoid in Strategic
Planning
‡ Using to gain control over decisions &
resources
‡ Doing only to satisfy regulatory requirements
‡ Moving hastily from mission to strategy
formulation
‡ Failing to communicate to employees
‡ Intuitive decisions that conflict with formal
plan
‡ Top management not supportive of process

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Pitfalls to Avoid in Strategic
Planning (Cont’d)

‡ Failing to use as standard for performance

measurement
‡ Delegating to a “planner” vs. involvement of
managers
‡ Failing to involve key personnel
‡ Failing to create collaborative environment
‡ Formality that stifles creativity and flexibility

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Business Ethics & Strategic Planning

Defined:
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!

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 Business Ethics & Strategic Planning
(Cont’d)
‡ Strategists responsible for high ethical
principles
‡ All strategic processes have ethical
ramifications
‡ Formal codes of ethics are in place for
many businesses
‡ Internet privacy emerging as ethical
issue of immense proportions

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 Business Ethics & Strategic Planning
(Cont’d)
Business actions always unethical include:

• Misleading advertising
• Misleading labeling
• Environmental harm
• Poor product or service safety
• Padding expense accounts
• Insider trading
• Dumping flawed products on foreign markets

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Nature of Global Competition
‡ Companies conduct business across
borders
¾ International or multinational corporations
ƒ Parent company
ƒ Host country

‡ Strategy implementation more difficult

¾ Cultural differences
ƒ Norms, values, work ethics

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Advantages of International
Operations

‡ Absorb excess capacity

‡ Reduce unit costs
‡ Low-cost production facilities
‡ Lower labor costs
‡ Competition less intense

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Advantages of International
Operations (Cont’d)

‡ Reduced tariffs, lower taxes

‡ Favorable political climate
‡ Economies of scale

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 Disadvantages of International
Operations
Communication difficulties between parent
and subsidiaries
• Based on cultural, political, social, language,
demographic, and competitive forces

Foreign-based competitors
• Strengths underestimated
• Weaknesses overestimated

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Planning in Action
‡ http://www.planware.org/strategy.htm#1

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