Session 03 - Chapter 2 The Strategic Management Process

Chapter 2: The Strategic Management Process

  • Course: MGMT481

  • Instructor: Ye Dai

  • Institution: Southern Illinois University Carbondale

  • Focus: Strategic management concepts and frameworks for gaining and sustaining competitive advantage.

The AFI Strategy Framework

Overview

  • Parts of Strategy:

    • Analysis: Identifying factors that influence firm strategy and performance.

    • Formulation: Creating strategies based on analysis.

    • Implementation: Executing the strategies.

Parts of the Strategic Management Process

  1. Strategy Analysis: Understanding present and future industry structure and competitive forces.

    • External Analysis

    • Internal Analysis

  2. Strategy Formulation: Developing corporate and business-level strategies.

    • Vertical Integration

    • Diversification

    • Acquisitions and Alliances

  3. Strategy Implementation: Organizational design, governance, ethics, and leadership.

Vision, Mission, and Firm Values

Importance of Vision and Mission

  • Vision and mission are crucial in defining firm strategies and influencing performance.

  • They help in:

    • Directing efforts toward long-term objectives.

    • Capturing organizational aspirations.

    • Motivating employees towards common goals.

Example

  • Building a house analogy: requires clear communication of vision to achieve desired outcome through iterative processes.

Characteristics of Effective Vision Statements

  • Identify long-term objectives.

  • Be forward-looking and inspiring.

  • Encourage a sense of winning and motivate employees.

Vision Example: Ford

  • Henry Ford’s vision: "I will build a motor car for the great multitude..."

Insights from "Built to Last" by Collins & Porras

Key Takeaways

  • Purpose: Defining clear organizational goals and values.

  • Visionary Firms: Characteristics include ideological drive and consistent values.

  • Notable Companies: 3M, American Express, Boeing, etc.

Comparative Performance

  • Investment growth comparison: Visionary companies greatly outperformed others.

  • $1 investment example shows returns of $6,356 versus $955 in comparison firms.

Mission Statement

  • Defines how the vision is achieved and outlines organizational actions.

  • Two Types:

    1. Product-Oriented: Focused on specific products/services.

    2. Customer-Oriented: Emphasizes solutions to customer needs (e.g., Ford’s focus on personal mobility).

Advantages of Customer-Oriented Missions

  • Adapts to changing environments and focuses on solving customer problems.

Strategic Commitments

  • Vision and mission must be backed by credible actions that are:

    • Long-term oriented.

    • Costly and difficult to reverse.

Values

  • Define crucial operational principles and commitments.

  • Support culture, help resolve conflicts, and guide ethical behavior.

Differences Between Vision and Mission

  • Vision: The ultimate goal/aspiration of the company.

  • Mission: An organization's current activities and purpose.

Three Approaches to Strategy Making

  1. Top-Down Strategic Planning

  2. Scenario Planning

  3. Strategy as Planned Emergence

Top-Down Strategic Planning

  • Involves defining mission, conducting SWOT analysis, and formulating strategies.

Scenario Planning

  • Envisions different 'what-if' scenarios and plans contingencies.

Strategy Execution and Levels

Strategy Hierarchy

  • Corporate Strategy: Deciding in which industries or markets to compete.

  • Business Strategy: Implementation at individual business units.

  • Functional Strategy: Specific functions guiding day-to-day operations.

Stakeholder Management

  • Stakeholders: Can be internal (employees, stockholders) or external (customers, suppliers).

  • Balancing the interests of various stakeholders is critical for success.

Externalities in Economic Activities

  • Negative Externalities: Such as pollution.

  • Positive Externalities: Like education benefits that extend beyond individuals to society.

Conclusion

  • Leveraging a comprehensive understanding of strategic management processes, stakeholder engagement, and external influences is vital for achieving long-term business success.