Stratma CHAP 1

Strategic management

• is a set of managerial decisions and actions that determines the long run performance of a corporation.

• environmental scanning (both external and internal),

•  strategy formulation (strategic or long-range planning),

• strategy implementation, and evaluation and control.

strategic management includes

strategic management

Originally called business policy,

Phase 1 – Basic financial planning

Managers initiate serious planning when they are requested to propose the following year’s budget.

Phase 1 – Basic financial planning

Projects are proposed on the basis of very little analysis, with most information coming from within the firm

Phase 1 – Basic financial planning

Normal company activities are often suspended for weeks while managers try to cram ideas into the proposed budget.

Phase 2 – Forecast-based planning

As annual budgets become less useful at stimulating long term planning, managers attempt to propose five-year plans.

Phase 2 – Forecast-based planning

At this point they consider projects that may take more than one year.

Phase 2 – Forecast-based planning

In addition to internal information, managers gather any available environmental data—usually on an ad hoc basis— and extrapolate current trends five years into the future.

Phase 3 – Externally oriented (strategic) planning

The company seeks to increase its responsiveness to changing markets and competition by thinking strategically.

Phase 3 – Externally oriented (strategic) planning

Planning is taken out of the hands of lower-level managers

and concentrated in a planning staff whose task is to develop

strategic plans for the corporation.

Phase 3 – Externally oriented (strategic) planning

Consultants often provide the sophisticated and innovative

techniques that the planning staff uses to gather information and forecast future trends.

Phase 4 – Strategic management

• Realizing that even the best strategic plans are worthless without the input and commitment of lower-level managers, top management forms planning groups of managers and key employees at many levels, from various departments and workgroups.

Phase 4 – Strategic management

They develop and integrate a series of strategic plans aimed at achieving the company’s primary objectives.

Phase 4 – Strategic management

• Strategic plans at this point detail the implementation,

  evaluation, and control issues.

Globalization

the integrated internationalization of markets and corporations, has changed the way modern corporations do business.

The worldwide availability of the Internet and supply

chain logistical improvements, such as containerized shipping, mean that companies can now locate anywhere and work with multiple partners to serve any market.

Environmental Sustainability

refers to the use of business practices to reduce a company’s impact upon the natural, physical environment.

Climate change

plays a growing role in business decisions.

Eileen Claussen

“There is a growing consensus among corporate leaders

that taking action on climate change is a responsible

business decision.”

Eileen Claussen

“From market shifts to regulatory constraints, climate

change poses real risks and opportunities that companies must begin planning for today, or risk losing ground to their more forward-thinking competitors.“

Eileen Claussen

“Prudent steps taken now to address climate change can improve a company’s competitive position relative to its

peers and earn it a seat at the table to influence climate

policy.“

Eileen Claussen

“With more and more action at the state level and

increasing scientific clarity, it is time for businesses to craft corporate strategies that address climate change.“

Porter and Reinhardt

“in addition to understanding its emissions costs, every firm needs to evaluate its vulnerability to climate- related effects such as regional shifts in the availability of energy and water, the reliability of infrastructures and supply chains, and the prevalence of infectious diseases.”

Regulatory risks

Companies in much of the world are already subject to the Kyoto Protocol, which requires the developed countries (and thus the companies operating within them) to reduce carbon dioxide and other greenhouse gases by an average of 6% from 1990 levels by 2012.

Supply chain risks

Suppliers will be increasingly vulnerable to

government regulations— leading to higher component and energy costs as they pass along increasing carbon-related costs to their customers.

Supply chain risks

Global supply chains will be at risk from an increasing intensity of major storms and flooding.

Supply chain risks

Higher sea levels resulting from the melting of polar ice will create problems for seaports.

Product and technology risks

Environmental sustainability can be a prerequisite to profitable growth. For example, worldwide investments in sustainable energy (including wind, solar, and water power) more than doubled to $70.9

billion from 2004 to 2006.

Product and technology risks

Carbon-friendly products using new technologies are becoming increasingly popular with consumers. Those automobile companies, for example, that were quick to introduce hybrid or alternative energy cars gained a competitive advantage.

Litigation risks

Companies that generate significant carbon

emissions face the threat of lawsuits similar to those in the tobacco, pharmaceutical, and building supplies (e.g., asbestos) industrie.  For example, oil and gas companies were sued for greenhouse gas emissions in the federal district court of Mississippi, based on the assertion that these companies contributed to the severity of Hurricane Katrina.

Reputational risks

A company’s impact on the environment can heavily affect its overall reputation. The Carbon Trust, a consulting group, found that in some sectors the value of a company’s brand could be at risk because of negative perceptions related to climate change.

Physical risks

direct risk posed by climate change includes the effects of droughts, floods, storms, and rising sea levels. It can also affect other industries, such as oil and gas, through higher insurance premiums paid on facilities in vulnerable areas.

Pascal’s Wager

The same goes for global warming. If you accept it as reality, adapting your strategy and practices, your plants will use less energy and emit fewer effluents. Your packaging will be more biodegradable, and your new products will be able to capture any markets created by severe weather effects. Yes, global warming might not be as damaging as some predict, and you might have invested more than you needed, but it’s just as Pascal said: Given all the possible outcomes, the upside of being ready and prepared for a “fearsome event” surely beats the alternative.

Population Ecology

proposes that once an organization is successfully established in a particular environmental niche, it is unable to adapt to changing conditions. The company is thus replaced (is bought out or goes bankrupt) by other organizations more suited to the

new environment.

Institution Theory

proposes that organizations can and do adapt to changing conditions by imitating other successful organizations.

Strategic Choice Perspective

proposes that not only do organizations adapt to a changing environment, but they also have the opportunity and power to reshape their environment.

Strategic Choice perspective

it is the dominant theory in strategic management because of its emphasis on managers making rational strategic decisions.

Organizational Learning Theory

says that an organization adjusts defensively to a

changing environment and uses knowledge offensively

to improve the fit between itself and its environment.

Organizational Learning Theory

this perspective expands the strategic choice perspective to include people at all levels becoming

involved in providing input into strategic decisions.

primary value of stratma 

helping an organization operate successfully in a dynamic, complex environment.

Richard D’ Aveni

says in his book Hyper competition that any sustainable competitive advantage lies not in doggedly following a centrally managed five-year plan but in stringing together a series of strategic short-term thrusts (as Intel does by cutting into the sales of its own offerings with periodic introductions of new products).

Strategic flexibility

• demands a long-term commitment to the development and nurturing of critical resources.

LEARNING ORGANIZATION

an organization skilled at creating, acquiring, and transferring knowledge and at modifying its behavior to reflect new knowledge and insights.

Organizational learning

is a critical component of competitiveness in a dynamic environment.

Organizational learning

It is particularly important to innovation and new product development.

Chandler

companies spring from an individual entrepreneur’s knowledge, which then evolves into organizational knowledge.

technical skills, functional knowledge, managerial expertise.

three basic strengths of organizational learning

Chandler

points out that once a corporation has built its learning base to the point where it has become a core company in its industry, entrepreneurial startups are rarely able to successfully enter.

Strategic management

is essential for learning organizations to avoid stagnation through continuous self-examination and experimentation.

Environmental Scanning

is the monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the corporation.

SWOT analysis

The simplest way to conduct environmental scanning is through

SWOT

is an acronym used to describe the particular Strengths, Weaknesses, Opportunities, and Threats that are strategic factors for a specific company.

Strategy Formulation

is the development of long-range plans for the effective management of environmental opportunities and threats, in light of corporate strengths and weaknesses (SWOT).

Strategy Formulation

It includes defining the corporate mission, specifying achievable objectives, developing strategies, and setting policy guidelines.

Mission

purpose or reason for the organization’ existence. It tells what the company is providing to society—either a service such as housecleaning or a product such as automobiles.

mission statement

may also include the firm’s values and philosophy about how it does business and treats its employees.

Vision

describes what the organization would like to become.

Objectives

are the end results of planned activity.

Objectives

They should be stated as action verbs and tell what is to

be accomplished by when and quantified if possible.

Strategies

a corporation forms a comprehensive master plan that states how the corporation will achieve its mission and objectives.

Strategies

It maximizes competitive advantage and minimizes competitive disadvantage.

Strategies

The typical business firm usually considers three types of strategy: corporate, business, and functional.

Corporate Strategy

describes a company’s overall direction in

terms of its general attitude toward growth and the management of its various businesses and product lines.

Corporate Strategy

typically fit within the three main categories of stability, growth, and retrenchment.

Business Strategy

usually occurs at the business unit or product

level, and it emphasizes improvement of the competitive position of a corporation’s products or services in the specific industry or market segment served by that business unit.

competitive and cooperative strategies.

Business strategies may fit within the two overall categories

Functional Strategy

is the approach taken by a functional area to

achieve corporate and business unit objectives and strategies by maximizing resource productivity.

Functional Strategy

It is concerned with developing and nurturing a distinctive competence to provide a company or business unit with a competitive advantage. (imitation of the product or innovation).

hierarchy of strategy

is a grouping of strategy types by level in the organization.

Policy

is a broad guideline for decision making that links the formulation of a strategy with its implementation.

policy 

 Companies use this to make sure that employees throughout the firm make decisions and take actions that support the corporation’smission, objectives, and strategies.

3M

says researchers should spend 15% of their time working on something other than their primary project.

Strategy Implementation

is a process by which strategies and policies are put into action through the development of programs, budgets, and procedures.

Strategy Implementation

This process might involve changes within the overall culture, structure, and/or management system of the entire organization.

Program

is a statement of the activities or steps needed to accomplish a single-use plan.

Program

It makes a strategy action oriented.

Program

It may involve restructuring the corporation, changing

the company’s internal culture, or beginning a new research effort.

Procedures

sometimes termed Standard Operating Procedures

(SOP)

Procedures

are a system of sequential steps or techniques that describe in detail how a particular task or job is to be done.

Procedures

They typically detail the various activities that must be carried out in order to complete the corporation’s program.

Evaluation and Control

is a process in which corporate activities and performance results are monitored so that actual performance can be compared with desired performance.

Evaluation and Control

it can also pinpoint weaknesses in previously implemented strategic plans and thus stimulate the entire process to begin again.

Rare

Strategic decisions are unusual and typically have

no precedent to follow.

Consequential

Strategic decisions commit substantial resources

and demand a great deal of commitment from people at all levels.

Directive

Strategic decisions set precedents for lesser

decisions and future actions throughout an organization.

Entrepreneurial mode

strategy is made by one powerful individual. The focus

is on opportunities; problems are secondary.

Entrepreneurial mode

Strategy is guided by the founder’s own vision of di

rection and is exemplified by large, bold decisions.

Adaptive mode

“muddling through” – this decision-making mode is

characterized by reactive solutions to existing problems,

rather than a proactive search for new opportunities.

Adaptive mode

Strategy is fragmented and is developed to move a

corporation forward incrementally.

Planning mode

This decision-making mode involves the systematic

gathering of appropriate information for situation analysis, the generation of feasible alternative strategies, and the rational selection of the most appropriate strategy.

Planning mode

It includes both the proactive search for new opportunities and the reactive solution of existing problems.

Logical incrementalism

synthesis of the planning, adaptive, and, to a lesser

extent, the entrepreneurial modes.

Logical incrementalism

Here, top management has a reasonably clear idea of

the corporation’s mission and objectives, but, in its development of strategies, it chooses to use “an interactive process in which the organization probes the future, experiments and learns from a series of partial (incremental) commitments rather than through global formulations of total strategies.