Chapter Strategic Management © 2015 by McGraw-Hill Education This is proprietary material solely for authorized instructor use Not authorized for sale or distribution in any manner This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part Learning Objectives Explain the concept of strategic management Describe how strategic decisions differ from other decisions that managers make Name the benefits and risks of a participative approach to strategic decision making Understand the types of strategic decisions for which different managers are responsible Describe a comprehensive model of strategic decision making Appreciate the importance of strategic management as a process Give examples of strategic decisions that companies have recently made The Nature and Value of Strategic Management • Strategic management: The set of decisions and actions that result in the formulation and implementation of plans designed to achieve a company’s objectives Nine Critical Tasks of Strategic Management Tasks 1-5: • • • • Formulate the company’s mission • Identify the most desirable options in light of the mission Conduct an internal analysis Assess the external environment – competitive and general contexts Analyze the company’s options by matching its resources with the external environment Nine Critical Tasks of Strategic Management Tasks 6-9: • • • • Select a set of long-term objectives and grand strategies that will achieve the most desirable options Develop annual objectives and short-term strategies that are compatible with long-term objectives and grand strategies Implement the strategic choices Evaluate the success of the strategic process for future decision making What is Strategy? Large-scale, future-oriented plan Used to interact within competitive environment to achieve company goals Provides a framework for managerial decisions Reflects a company’s awareness of the main elements of competition Dimensions of Strategic Decisions • • • • • • Strategic issues require top-management team decisions Strategic issues require large amounts of the firm’s resources Strategic issues often affect the firm’s long-term prosperity Strategic issues are future oriented Strategic issues usually have multifunctional or multibusiness consequences Strategic issues require considering the firm’s external environment Dimensions of Strategic Decisions (in detail)  Strategic issues require top-management team decisions   Strategic decisions overarch several areas of a firm’s operations Usually only top management has the perspective needed to understand their broad implications  Usually only top managers have the power to authorize necessary resource allocations Dimensions of Strategic Decisions (contd.) • Strategic issues require large amounts of the firm’s resources They involve substantial allocations of people, physical assets, and money Strategic decisions commit the firm to actions over an extended period In highly competitive firms, achieving and maintaining customer satisfaction frequently involves commitment from every facet of the firm    Dimensions of Strategic Decisions (contd.) • Strategic issues often affect the firm’s long-term prosperity Strategic decisions commit the firm for a long time, typically years; however the impact lasts much longer Once a firm has committed itself to a strategy, its image and competitive advantages are usually tied to that strategy Firms become known for what they and where they compete Shifting away from that can jeopardize their previous gains    10 Entrepreneurial Mode • The informal, intuitive, and limited approach to strategic management associated with owner-managers of smaller firms 23 Planning Mode • The strategic formality associated with large firms that operate under a comprehensive, formal planning system 24 Adaptive Mode • The strategic formality associated with medium-sized firms that emphasize the incremental modification of existing competitive approaches 25 Strategy Makers • • • Ideal strategic management planning process includes decision makers from all three levels Top managers must give final approval Strategic decisions coincide with managers’ responsibilities 26 Strategy Makers: The CEO • • A firm’s CEO plays a prominent role in strategic planning • The CEO bears ultimate responsibility for the firm’s success and strategic success • The CEO’s principal duty is giving long-term direction to the firm CEOs are typically strong-willed, company-oriented individuals 27 Benefits of a Participative Approach to Strategic Management • • • Managers at all levels interact in planning and implementing strategy Similar to participative decision making Assessing strategy formulation requires looking at nonfinancial evaluations as well as financial ones • Promoting positive behavioral consequences enables achievement of financial goals 28 The Strategic Management Process • • • Businesses vary in formulation and other processes The basic components of the models used to analyze strategic management are similar Strategic management is a process—a flow of information through interrelated stages of analysis toward the achievement of some goal 29 Ex 1.5 Strategic Management Model 30 Components of the Strategic Management Model • • • • • • Company Mission External Analysis Long-Term Objectives Short-Term Objectives Policies Empowering Action Strategic Control & Continuous Improvement • • • • • Internal Analysis Strategic Analysis & Choice Generic & Grand Strategies Action Plans & Functional Tactics Restructuring, Reengineering & Refocusing 31 Strategic Management Terms Defined • Company Mission: The unique purpose that sets a company apart from others of its type and identifies the scope of its operations • Long-term Objectives: The results than an organization seeks to achieve over a multiyear period 32 Strategic Management Terms Defined • Generic Strategies: Fundamental philosophical options for the design of strategies • Grand Strategies: The means by which objectives are achieved 33 Strategic Management Terms Defined • • • Short-term Objectives: Desired results that provide specific guidance for action during a period of one year or less Functional Tactics: Short-term, narrow scoped plans that detail the “means” or activities that a company will use to achieve short-term objectives Policies: Predetermined decisions that substitute for managerial discretion in repetitive decision making 34 Strategic Management Terms Defined • Strategic Control: Tracking a strategy as it is being implemented, detecting problems or changes in its underlying premises, and making necessary adjustments • Continuous Improvement: A form of strategic control in which managers are encouraged to be proactive in improving all operations of the firm 35 Stakeholders • Influential people who are vitally interested in the actions of the business 36 Key Terms • Adaptive mode • Company mission • Continuous improvement • Dynamic • Entrepreneurial mode • Feedback • Formality • Functional tactics • Generic strategies • Grand strategies • Long-term objectives • Planning mode • Policies • Processes • Short-term objectives • Stakeholders • Strategic control • Strategic management • Strategy 37 [...]... [Lowest] 14 Ex 1. 2 Alternative Strategic Management Structures 15 Ex 1. 4 Hierarchy of Objectives and Strategy 16 Characteristics of Strategic Management Decisions: Corporate • • • • Often carry greater risk, cost, and profit potential Greater need for flexibility Longer time horizons Choice of businesses, dividend policies, sources of long-term financing, and priorities for growth 17 Characteristics of Strategic. .. firms 22 Entrepreneurial Mode • The informal, intuitive, and limited approach to strategic management associated with owner-managers of smaller firms 23 Planning Mode • The strategic formality associated with large firms that operate under a comprehensive, formal planning system 24 Adaptive Mode • The strategic formality associated with medium-sized firms that emphasize the incremental modification of... financial goals 28 The Strategic Management Process • • • Businesses vary in formulation and other processes The basic components of the models used to analyze strategic management are similar Strategic management is a process—a flow of information through interrelated stages of analysis toward the achievement of some goal 29 Ex 1. 5 Strategic Management Model 30 Components of the Strategic Management Model... risky, and potentially profitable than corporate-level decisions More costly, risky, and potentially profitable than functional-level decisions Include decisions on plant location, marketing segmentation, and distribution 19 Formality in Strategic Management • Formality is the degree to which participation, responsibility, authority, and discretion in decision-making are specified in strategic management. .. period 32 Strategic Management Terms Defined • Generic Strategies: Fundamental philosophical options for the design of strategies • Grand Strategies: The means by which objectives are achieved 33 Strategic Management Terms Defined • • • Short-term Objectives: Desired results that provide specific guidance for action during a period of one year or less Functional Tactics: Short-term, narrow scoped plans... Policies: Predetermined decisions that substitute for managerial discretion in repetitive decision making 34 Strategic Management Terms Defined • Strategic Control: Tracking a strategy as it is being implemented, detecting problems or changes in its underlying premises, and making necessary adjustments • Continuous Improvement: A form of strategic control in which managers are encouraged to be proactive... Strategic Management Decisions: Functional • • • • • Implement the overall strategy formulated at the corporate and business levels Involve action-oriented operational issues Relatively short range and low risk Modest costs: depend upon available resources Relatively concrete and quantifiable 18 Characteristics of Strategic Management Decisions: Business/SBU • • • • Help bridge decisions at the corporate and. .. of Strategic Decisions (contd.) • Strategic issues are future-oriented They are based on what managers forecast, rather than what they know Emphasis is on the development of solid projections that will enable a firm to seek the most promising strategic options A firm will succeed only if it takes a proactive (anticipatory) stance toward change    11 Dimensions of Strategic Decisions (contd.) • Strategic. .. 20 Forces Determining Formality • • • • Organizational Size Predominant Management Styles Complexity of Environment Production Process • • • Problems in the Firm Purpose of the Planning System Stage of Firm’s Development 21 Three Modes of Formality • • • Entrepreneurial Mode – most small firms Planning Mode – most large firms Adaptive Mode – most medium size firms 22 Entrepreneurial Mode • The informal,... 25 Strategy Makers • • • Ideal strategic management planning process includes decision makers from all three levels Top managers must give final approval Strategic decisions coincide with managers’ responsibilities 26 Strategy Makers: The CEO • • A firm’s CEO plays a prominent role in strategic planning • The CEO bears ultimate responsibility for the firm’s success and strategic success • The CEO’s