strategic management prelim

strategic management

the art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives

strategic planning

used synonymously with strategic management as a term

strategy formulation

strategy implementation

strategy evaluation

the strategic-management process consists of three stages:

strategy formulation

includes developing a vision and mission, identifying an organization’s external opportunities and threats, determining internal strengths and weaknesses, establishing long term objectives, generating alternative strategies, and choosing particular strategies to pursue

strategy implementation

requires a firm to establish annual objectives, devise policies, motivate employees, and allocate resources s that formulated strategies can be executed.

strategy evaluation

the final stage in strategic management. the primary means for obtaining information to know what strategies

reviewing external and internal factors

measuring performance

taking corrective actions

fundamental strategies-evaluation activities

edward deming

once said “in god we trust. all others bring data.”

intuition

essential to making good strategic decisions

competitive advantage

anything that a firm does especially well compared to rival firms

continually adapting to changes in external trends and events and internal capabilities, competencies, and resources

effectively formulating, implementing, and evaluating strategies that capitalize upon those factors

a firm must strive to achieve sustained competitive advantage by:

strategists

individuals whoa re most responsible for the success or failure of an organization

vision statements

answers the question “what do we want to become?”

mission statements

enduring statements of purpose that distinguish one business from other similar firms. identifies the scope of a firm’s operations in product and market terms. adresses the basic question that faces all strategists: “what is our business?”

external opportunities and external threats

refer to economic, social, cultural, demographic, environmental, political, legal, governmentla, technological, and competitive trends and events that could significantly benefit or harm an organization in the future

internal strengths and internal weaknesses

an organization’s controllable activities that are performed especially well or poorly.

objectives

defined as specific results that an organiztion seeks to achieve in pursuing its basic mission.

long-term

means more than one year

strategies

means by which long-term objectives will be achieved

annual objectives

short-term milestones that organizations must achieve to reach long-term objectives

policies

the means by which annual objectives will be achieved. include guidelines, rules, and procedures established to support efforts to achieve stated objectives. guides to decision making and address repetitive or recurring situations

where are we now

where do we want to go

how are we going to get there?

three important questions to answer in developing a strategic plan

true

communication is a key to successful strategic management (through involvement in the process through dialogue and participation, managers and employees become committed to supporting the organization

empowerment

the act of strengthening employees’ sense of effectiveness by encouraging them to participate in decision making and to exercise intiative and imagination, and rewarding them for doing so

improvement in sales

improvement in profitability

improvement in productivity

financial benefits of strategic management

1. It allows for identification, prioritization, and exploitation of opportunities.
2. It provides an objective view of management problems.

3. It represents a framework for improved coordination and control of activities.

4. It minimizes the effects of adverse conditions and changes.

5. It allows major decisions to better support established objectives.

6. It allows more effective allocation of time and resources to identified opportunities.

7. It allows fewer resources and less time to be devoted to correcting erroneous or ad hoc decisions.

8. It creates a framework for internal communication among personnel.

9. It helps integrate the behavior of individuals into a total effort.

10. It provides a basis for clarifying individual responsibilities.

11. It encourages forward thinking.

12. It provides a cooperative, integrated, and enthusiastic approach to tackling problems and opportunities.

13. It encourages a favorable attitude toward change.

14. It gives a degree of discipline and formality to the management of a business

nonfinancial benefits of strategic management

lack of knowledge or experience in strategic planning

poor reward structures

firefighting

waste of time

too expensive

laziness

content with success

fear of failure

overconfidence

prior bad experience

self-interest

fear of the unknown

honest difference of opinion

suspicion

reasons why people don’t do strategic management

• Using strategic planning to gain control over decisions and resources

• Doing strategic planning only to satisfy accreditation or regulatory requirements

• Too hastily moving from mission development to strategy formulation

• Failing to communicate the plan to employees, who continue working in the dark

• Top managers making many intuitive decisions that conflict with the formal plan

• Top managers not actively supporting the strategic-planning process

• Failing to use plans as a standard for measuring performance

• Delegating planning to a “planner” rather than involving all managers

• Failing to involve key employees in all phases of planning

• Failing to create a collaborative climate supportive of change

• Viewing planning as unnecessary or unimportant

• Becoming so engrossed in current problems that insufficient or no planning is done

• Being so formal in planning that flexibility and creativity are stifled2

pitfalls to watch for and avoid in strategic planning

strategos - stratos, ago

word origin of strategy

what is our business?

the mission statement answers the question:

what do we want to become?

the vision statement answers the question:

a good mission statement allows for the generation and consideration of a range of feasible alternative objectives and strategies without unduly stifling management creativity

a mission statement needs to be broad to reconcile differences effectively a mong and appeal to an organization’s diverse stakeholders (reconcilatory)

a mission statemement is broad because…

define what the organization is and what the organization aspires to be

be limited enough to exclude some ventures and broad enough to allow for creative growth

distinguish a given organization from all others

serve as a framework for evaluating both current and prospective activities

be stated in terms sufficiently clear to be widele understood throughout the organization

a good vision statement should, according to venn mcginnis…

customers

products or services

markets

technology

concern for survival, growth, and profitability

philosophy

self-concept

concern for public image

concern for employees

nine components of a mission statement

external audit

aims to develop a finite list of opportunities that could benefit a firm and threats that should be avoided

economic forces

social, cultural, demographic, environmental forces

political, governmental, legal forces

technological forces

competitive forces

five broad categories of external forces

important to achieving long-term and annual objectives

measurable

applicable to all competing firms

hierarichal in the sense that some will pertain to the overall company and others will be more narrowly focused on functional or divisional areas

key external factors should be…

industrial organization

competitive intelligence

systematic and ethical procss for gathering and analyzing information about the competition’s activities and general business trends to further a business’s own goals

market commonality

the number and significance of markets that a firm competes in with rivals

resource similarity

the extent to which the type and amount of a firm’s internal resources are compariable to a rival

porter’s five-forces model

a widely used approach for developing strategies in many industries

rivalry among competing firms

potential entry of new competitors

potential development of substitute products

bargaining power of suppliers

bargaining power of consumers

five forces in porter’s five-forces model

identify key aspects or elements of each competitive force that impacts the firm

evaluate how strong and important each element is for the firm

decide whether the collective strength of the elements is worth the firm entering or staying in the industry

three steps to usng porter’s five-forces model

rivalry among competing firms

the most powerful of all the five competitive forces

assumptions

defined as the “best present estimates of the impactof major external factors, over which the management has little if any control, but which may exert a significant impact on performance or th ability to achieve desired results.”

external factor evaluation matrix

allows strategists to summarize and evaluate economic, social, cultural, demographic environmental, political, governmental, legal, technological, and competitive information

competitive profile matrix

identifies a firm’s major competiors and its particular strengths and weakenesses in relation to a sample firm’s strategic position

long-term focused

forward-looking

inspirational

guiding

components of a mission statement

inspiring forward looking

clear purpose and focus

alignment with values and competence

clear purpose

unique

specific

relevant

inspirational

measurable

enduring

characteristics of a mission statement

exploit and create new and different opportunities for tomorrow

purpose of strategic management

long-term planning

tries to optimize for tomorrow the trends of today

vision

mission

objectives

strategies

in the first step of the strategic-management model, you need to identify an organization’s existing..

business ethics

principles of conduct within organizations that guide decision making and behavior

good business ethics

a prerequisite for good strategic management

code of business ethics

provides basis on which policies can be devised to guide daily behavior and dec

internet privacy

emerging ethical issue of immense proportion

misleading advertising

misleading labelling

environmental harm

poor product or service safety

padding expense accounts

insider trading

dumping flawed products on foreign markets

business actions always unethical include..

distinctive competencies

a firm’s strengths that cannot be easily matched or imitated by competitors

financial ratio analysis

exemplifies the complexity of relationships among the functional areas of business

resource-based view

approach to competitive advantage that contends that internal resources are more important for a firm than external factors in achieving the sustaining competitive advantage. organizational performance will primarily be determined by internal resources that can be grouped into three categories: physical resources, human resources, and organizational resources. internal resources should be considered first and foremosti n devising strategies that can lead to sustainable competitive advantage

physical resources

include all plant and equipment, location, technology, raw materials, machines

human resources

include all employees, training, experience, intelligence, knowledge, skills, abilities

organizational resources

include firm structure, planning processes, information systems, patents, trademarks, copyrights, databases, and so on

rare

hard to imitate

not easily substitutable

empirical indicators // what makes a resource valuable, according to resource-based view

organizational culture

a pattern of behavior that has been developed by an organization as it learns to cope with its problem of external adaptation and internal integration, and that has worked well enough to be considered valid and to be taught to new members as the correct way to perceive, think, and feel

cultural products

values, beliefs, rites, rituals, ceremonies, etc. levers that strategists use to influence and directs trategy formulation, implementation, and evaluation activities

planning

organizing

motivating

staffing

controlling

functions of management

planning

the essential bridge between the present and future that increases the likelihood of achieving desired results. the process which one determines whether to attempt a task, works out the most effective way of reaching desired objectives, and preapares to overcome unexpected difficulties with adequate resources

organizing

achieving coordinated effort by defining task an authority relationships. determining who does what and who reports to whom. 

motivating

the process of influencing people to accomplish specific objectives. explains why some pepole work hard and others do not

staffing/personnel management/human resource management

includes activities such as recruiting, interviewing, testing, selecting, orienting, training, developing, caring for, evaluating, rewarding, disciplining, promoting, transferring… etc.

controlling

includes all activities undertaken to ensure that actual operations conform to planned operations. 

establishing performance standards

measuring individual and organizational performance

comparing actual performance to planned performance standards

taking corrective actions

controlling consists of four basic steps:

marketing

process of defining, anticipating, creating, and fulfilling customers’ needs and wants for products and services

customer analysis

selling products/services

product and service planning

pricing

distribution

marketing research

opportunity analysis

seven basic functions of marketing

customer analysis

the examination of consumer needs, desires, and wants

selling

includes marketing activit es— advertising, sales promotion, publicity, personal selling, etc..

product and service planning

includes activities sucha s test marketinng, product and brand positioning, devising warrantieis, packaging, etc..

consumers

governments

suppliers

distributors

competitors

five major stakeholders affect pricing decisions

distribution

includes warehousing, distribution channels, distribution coverage, etc…

marketing research

sthe systematic gathering, recording, and analyzing of data about problems relating to the marketing of goods and services

cost/benefit analysis

involves assessingt he costs, benefits, and risks associated with marketing decisions

investment decision

financing decision

dividend decision

three decisions in the functions of finance/accounting

investment decision/capital budgeting

the allocation and reallocation of capital and resources to projects, products, assets, and divisions of an organization

financing decision

determines the best capital structure for the firm and includes examining various methods by which the firm can raise capital

deviiden decisions

concern issues such as the percentage of earnings paid to stockholders, the stability of dividends paid over time, and the repurchase or issuance of stock

leverage ratios

measure the extent to which a firm has been financed by debt

activity ratios

measure how effectively a firm is using its resources

growth ratios

measure the firm’s ability to maintain its economic position in the growth of the economy and industry

production/operations function

cocnists of all those activities that transofrm inputs into goods and services

management information system

receives raw material from both the external and internal evaluation of an organization

value chain analysis

the procss whereby a firm determines the costs associated with organizational activities from purchasing raw materials to manufacturing products to marketing those products. aims to identify where low-cost advantages or disadvantages exist anywhere along the value chain from raw material to customer service activities.

true

firms should determine where cost advantages and disadvantages in their value chain occur relative to the value chain of rival firms

core competence

a value chain activity that a firm performs especially well

distinctive competennce

when a core competence evolves into a major competitive advantage

benchmarking

an analysitcal tool used to determine whether a firm’s value chain activities are competitive compared to rivals and thus conducive to winning in the marketplace

internal factor evaluation matrix

summarizes and evaluates the major strengths and weaknesses in the functional areas of a business and it also provides a basis for identifying and evaluating relationships among the areas

long-term objectives

represent the results expected from pursuing ceetain strategies

financial 

strategic

two types of objectives especially common in organizations