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Overview of Strategic Management

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Overview of Strategic Management

Learning Objectives:
At the end of this chapter you should be able to: 1. 2. Describe the strategic-management process. Explain the need for integrating analysis and intuition in strategic management. 3. 4. Define and give examples of key terms in strategic management. Discuss the nature of strategy formulation, implementation, and evaluation activities. 5. 6. 7. Describe the benefits of good strategic management. Explain why good ethics is good business in strategic management. Compares business and military strategy

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WHAT IS STRATEGIC MANAGEMENT?

Nowadays the success in business increasingly depends upon providing products and services that are competitive not only on a local basis but more importantly for global market. If the price and quality of a firms products and services are not competitive compared to their competitors, the firm may soon face the extinction. In order to survive they need to have certain strategy and be proactive rather than reactive Every organization needs to have a big picture about where its going and how to get there. These are matters of strategy, strategy plan and strategic management.

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Overview of Strategic Management

An organization needs a mission, a focus that guides its operations and a plan to accomplish the mission. The mission and plan, together known as overall strategy, then must be implemented to achieve success. The terms strategic management and strategic planning are sometimes used interchangeably. However, there is an important difference:

a)

Strategic management can be defined as the art and science of formulating, implementing and evaluating cross-functional decisions that enable an organization to achieve its objectives (Fred R. David)

b)

Strategic management refers to overall, long run management that includes planning, organizing, leading and controlling effectively and efficiently over the long run. Strategic planning meanwhile, deals with the planning functions of the management (William)

Today

Visionforthefuture

Thepurposeofstrategicplanningistomovetheorganizationfromwhereitistowhereit wantstobe.

Basically, strategic management is a process that involves managers from all parts of the organization in the formulation, implementation and evaluation of strategies while strategic planning is only referring to strategy formulation

The strategic management process consists of three stages:

1.

Strategy formulation Strategy formulation deals with establishing strategy and tactics necessary to achieve the mission and vision of the organization. This includes both short run and long run strategies and tactics. Strategies are developed with the intention of reducing the gap between the current and desired competitive position of the organization

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Overview of Strategic Management

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2.

Strategy Implementation Strategy implementation involves doing the things necessarily to ensure that the strategy of the organization is achieved effectively and efficiently. Implementation includes the day to day operations and involves all other managerial functions.

3.

Strategy Evaluation Strategic management is the final stage in strategic management process. This stage is designed to monitor the organizations progress toward implementing its plan and achieving its goals. Strategic evaluation mechanism will identify any deviations between actual and planned results so that managers can make the adjustment necessary to ensure that organization goals can be achieve.

The strategic-management process can be described as an objective, logical, systematic approach for making major decisions in an organization. It attempts to organize qualitative and quantitative information in a way that allows effective decisions to be made under conditions of uncertainty.

The strategic-management process is based on the belief that organizations should continually monitor internal and external events and trends so that timely changes can be made as needed. The rate and magnitude of changes that affect organizations are increasing dramatically.

1.2

KEY TERMS IN STRATEGIC MANAGEMENT There are nine main key terms in strategic management:

1.

Competitive Advantage Competitive advantage is defined as anything that a firm does especially well compared to rival firms. Firms should seek a sustained competitive advantage by continually adapting to changes in external trends and internal capabilities and evaluating strategies that capitalize on those factors. g: Malaysia Airline System (MAS) for example is well known for its best cabin crew for Business Class.

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Overview of Strategic Management

Getting and keeping competitive advantage is essential for long term success in an organization

2.

Strategist Strategists are individuals who are most responsible for the success or failure of an organization. Strategists hold various job titles, such as chief executive officers, president, owner, chair of the board, executive director, chancellor, dean, or entrepreneur. Strategies help an organization gather, analyze and organize information. They are the heart and soul for the organization.

According to Peter Drucker,Trees dies from the top. Strategist creates organizational spirit. When strategist spirit dies, so does the rest of the company spirit. This lead to the downfall or death of the company.

3.

Vision and Mission Statements Developing a vision statement is often considered the fist step in strategic management. Vision statements answer the question: What do we want to become? Many vision statements are a single sentence. For example, the vision statement for UiTM Melaka;

Menjadikan UiTM Melaka sebagai Universiti yang unggul yang berteraskan kesarjanaan dan kecemerlangan akademik bagi menerajui dinamisme bumiputera dalam semua bidang yang terdapat di UiTMKM menerusi program profesional bertaraf dunia supaya terlahir graduan yang berdaya saing, global dan beretika.
Mission statements are enduring statements of purpose that distinguish one business from other similar firms. A mission statement identifies the scope of a firms operations in product and market terms. It addresses the basic question that faces all strategists: What is our business? It should include the values and priorities of an organization. A mission statement broadly charts the future direction of an organization. An example of a mission statement is provided as follows for UiTM Melaka:

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Overview of Strategic Management

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Mempertingkatkan keilmuan dan kepakaran bumiputera di UiTM Melaka dalam semua bidang menerusi penyampaian program profesional, penyelidikan serta penglibatan dalam aktiviti kemasyarakatan yang berlandaskan kepada nilai-nilai murni dan etika keprofesionalan.

4.

External Opportunities and Threats

External opportunities and external threats refer to economic, social, cultural, demographic, environmental, political, legal, governmental, technological, and competitive trends and events that could significantly benefit or harm an organization in the future.

P E S T C

politic, legal and governmental economy social and cultural Technology competitive tends

Opportunities and threats are largely beyond the control of a single organization, thus the term external.

The basic tenet of strategic management is to take advantage of external opportunities and avoid or minimize the impacts of external threats.

5.

Internal Strengths and Weaknesses

Internal strengths and internal weaknesses are an organizations controllable activities that are performed especially well or poorly.

Identifying and evaluating organizational strengths and weaknesses in the functional areas of a business is an essential strategic-management activity.

Strengths and weaknesses are determined relative to competitors and may be determined by both performance and elements of being. Firms strength and weaknesses typically located in its functional areas such as:

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Overview of Strategic Management

management marketing human resource operations management information system finance and accounting research and development

6.

Long Term Objectives

Objectives can be defined as specific results that an organization seeks to achieve in pursuing its basic mission. Long term means more than one year. Objectives are essentials for organization success because they:

state directions aid in evaluations create synergy reveal priorities focus coordination provide basis for effective management process (P, O, L, C)

Objectives should be challenging, measurable, consistent, reasonable and clear.

7.

Strategies

Strategies are the means by which long-term objectives will be achieved. Business strategies may include geographic expansion, diversification, acquisition, product development, market penetration, retrenchment,

divestiture, liquidation, and joint venture.

8.

Annual Objectives

Annual objectives are short-term milestones that organizations must achieve to reach long-term objectives. Like long-term objectives, annual objectives

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should be measurable, quantitative, challenging, realistic, consistent, and prioritized.

S M A R T

Specific Measurable Achievable Realistic Timely

9.

Policies

Policies are the means by which annual objectives will be achieved. Policies include guidelines, rules, and procedures established to support efforts to achieve stated objectives.

Policies are most often stated in terms of management, marketing, finance/accounting, production/operations, research and development, and computer information systems activities. Eg: no smoking policies

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THE STRATEGIC MANAGEMENT MODEL

Vision& Mission

LongTerm Objectives

Generate, Evaluate, Select Strategies

Implement Strategies: Manageme ntIssues

Implement Strategies: Marketing, Fin/Acct, R&D,CIS

Measures& Evaluate Performance

Internal Audit

FORMULATION

IMPLEMENTATION

EVALUATION

COMPREHENSIVESTRATEGICMANAGEMENTMODEL 7|Page

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Overview of Strategic Management

The strategic-management process consists of three stages.

a.

Strategy formulation includes developing a vision and mission, identifying an organizations external opportunities and threats, determining internal strengths and weaknesses, establishing long-term objectives, generating alternative strategies, and choosing particular strategies to pursue. Strategy formulation also concerned with setting long term goals and objectives, generating alternatives strategies to achieve the long term goals and choosing particular strategy to pursue. Eg:

Joint ventures or merger Moving into foreign market Allocation of resources

b.

Strategy implementation requires a firm to establish annual objectives, devise policies, motivate employees, and allocate resources so that formulated strategies can be executed; strategy implementation includes developing a strategy-supportive culture, creating an effective organizational structure, redirecting marketing efforts, preparing budgets, developing and utilizing information systems, and linking employee compensation to organizational performance.

Implementation means mobilizing employees and managers in order to put formulated strategies into action. It is considered to be most difficult stage of strategic management. It requires personal discipline, commitment and sacrifice.

c.

Strategy evaluation is the final stage in strategic management. Managers desperately need to know when particular strategies are not working well; strategy evaluation is the primary means for obtaining this information. All strategies are subject to change to future modification as external and internal forces are constantly changing.

The strategic-management process is dynamic and continuous. A change in any one of the major components in the model can necessitate a change in any or all of the other components.

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1.3.1

Benefits of Strategic Management

A.

Financial Benefits

1.

Research

indicates

that

organizations

using

strategic-

management concepts are more profitable and successful than those that do not.

2.

High-performing firms tend to do systematic planning to prepare for future fluctuations in the external and internal environments. Firms with planning systems more closely resembling strategic-management theory generally exhibit superior long-term financial performance relative to their industry.

3.

The financial benefits of strategic management are:

a) b) c)

Shown significant improvement in sales Improved profitability Improved productivity compared to firms without systematic planning activities

d)

High performing firms seem to make more informed decisions with good anticipation both short term and long term consequences

B.

Nonfinancial Benefits

1.

Besides helping firms avoid financial demise, strategic management offers other tangible benefits, such as:

a. b. c. d.

Enhanced awareness of external threats Improved understanding of competitors strengths Increased employee productivity Reduced resistance to change

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e.

Provides clearer understanding of performance-reward relationships.

f.

It allows for identification, prioritization and exploitation of opportunities

g. h. i.

Provides an objective view of management problems Minimizes the effects of condition and changes It allows more allocation time and resources to identified opportunities

2.

In addition to empowering managers and employees, strategic management often brings order and discipline to an otherwise floundering firm.

C.

Why Some Firms Do No Strategic Planning

Although strategic management is considered as the best way in managing an organization, some managers are still skeptical in implementing it. Some reasons for poor or no strategic planning are as follows:

Poor reward structures Fire fighting 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

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Overview of Strategic Management

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D.

Pitfalls in Strategic Planning

Some pitfalls to watch for and avoid in strategic planning are provided below:

Using strategic planning to gain control over decisions and resources Doing strategic planning only to satisfy accreditation or regulatory requirement 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 to be 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 stifled

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1.3.2

Business Ethics and Strategic Management

1.

Business ethics can be defined as principles of conduct within organizations that guide decision making and behavior. Good business ethics are a prerequisite for good strategic management; good ethics is just good business.

2.

A code of business ethics can provide a basis on which policies can be devised to guide daily behavior and decisions at the work site.

1.3.3

Comparing Business and Military Strategic

A Strong Military Heritage Underlies the Study of Strategic Management. Terms such as objectives, mission, strengths, and weaknesses were first formulated to address problems on the battlefield.

Business and military strategy are very similar. A key aim of both business and military strategy is to gain competitive advantage. They both also try to use their own strengths to exploit competitors weaknesses. The element of surprise provides great competitive advantages in both military and business strategy; information systems that provide data on opponents or competitors strategies and resources are also vitally important.

While business and military strategy are the same in many ways, they have one major difference which is business strategy is formulated, implemented and evaluated with an assumption of competition, whereas military strategy is based on an assumption of conflict.

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