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Introduction to Strategic Performance management

Defining Strategic Management


The art and science of formulating, implementing, and evaluating crossfunctional decisions that enable an organization to achieve its objectives.
Following this definition it implies, strategic management focuses on;
Integrating management
Marketing
Finance/accounting
Production/operations
Research and development
Information systems to achieve organizational success.
The term strategic management in this text is used synonymously with the term
strategic planning.
Strategic management purpose - To exploit and create new and different
opportunities for tomorrow benefits.
Strategy - Is a pattern of activities that seeks to achieve the objectives of the
organization and adapt its scope, resources and operations to environmental
changes in the long term.
Strategic planning can also be known as long-term planning or corporate
planning.

Characteristics of strategic planning

Considers the longer term, a time horizon of about five years or more
Considers the whole organization
It gives direction to the whole organization, and integrates its activities
It considers all stakeholders
It looks at how to gain a sustainable competitive advantage
It relates the organization, its resources and competences to its environment

Benefits of Strategic Planning


Forces organizations to look
ahead. Forewarned is
forearmed
Improves the organizations fit
with its environment
Makes best use of scarce
resources
Influences the future
(advertising, lobbying)
Provides direction for the
business
Monitors progress (control)
Ensures consistent goal and
objectives.
Can create competitive
advantage

Drawback of Strategic Planning


cost = time and money
Paralysis by analysis
bureaucracy develops
plan = straightjacket and
opportunities are ignored
because they are not in the
plan
Less relevance in a crisis.
there are long lead times when
the business needs to be
turned around
there is high capital expenditure
Many stakeholders are affected.

When is Strategic planning important


There are long lead time
The business needs to be turned around
There is high capital expenditure
Many stakeholders are affected

Why Some Firms Do Not Have Strategic Planning


Lack of knowledge or experience in strategic planningNo training in
strategic planning.
Firefightingan organization can be so deeply embroiled in resolving
crises and firefighting that it reserves no time for planning.
Waste of timesome firms see planning as a waste of time because no
marketable product is produced. Time spent on planning is an investment.
Too expensive
Laziness
Content with success
Overconfidenceas managers amass experience, less on formalized
planning.
Prior bad experiencePeople may have had a previous bad experience
with planning
Self-interestwhen someone has achieved status, privilege, or selfesteem through effectively using an old system, he or she often sees a
new plan as a threat.
Fear of the unknown.
How do we formulate Strategic Planning
1. The rational top down approach to strategic planning
Information about the organization and its environment is collected and
rational decisions are made about future courses of action.
Traditional approach and its more linear, step-by-step
It breaks down the process into three distinct steps:
o Strategic analysis (examination of the current strategic position)
o Strategic choice
o Strategic implementation (or strategy into action)

Strategic Planning process


Set Mission

Establish Objectives

Internal Appraisal

External Appraisal

Stakeholder Appraisal

Generate Strategic Options


Strategic Choice

Plan and Implement


Strategy
Review and Control
2. Emergent strategies
The belief that strategies evolve over time (emerge) rather than result from an
in-depth analysis of every aspect of the environment and an impartial evaluation
of every possible alternative.
Organisation focus on their core competencies and rely on those to be succeful
as the market needs emerge

3. Incrementalism
Strategy making involving small scale extensions of past practices would be
more successful as it was likely to be more acceptable as consultation;
compromise and accommodation were built into the process
4. Freewheeling opportunism
Freewheeling opportunists do not like planning. They prefer to see and grab
opportunities as they arise.e.g entrepreneurs enjoy taking risks and the
excitement of setting up new ventures. However, once the
Strategic Planning Levels

Corporate Strategy

Business Strategy
Functional Strategy

Corporate Strategy

Business Strategy

Functional Strategy

What business is the


firm in? What
businesses should it
be in?

Looks at how each


strategic business
unit (SBU) attempts
to achieve its
mission within its
chosen area of
activity.
Which products
should be
developed?
What approach
should be taken to

Looks at how the


different functions of
the business support
the corporate and
business strategies
corporate and
business strategies

These activities need


to be matched to the
firms environment,
its
Resource capabilities
and the values and

Information at this
level is more detailed

expectations of
stakeholders.

gain a competitive
advantage?

How integrated
should these
businesses be?

Which markets to
enter?

Note that it is not always clear and rarely important whether a decision is
classified as corporate, business or functional
Consistency is important strategy formulation process
The strategies at the different levels should be consistent. Theres no point
having a corporate strategy that says that the organization should move up
market, if the business strategy is to stay in cheap markets and operations
provide low quality products and services.
The Johnson, Scholes and Whittington (JSW) Model Strategic Planning
This is modern approach of rational planning model and it consists of 3 elements
Strategic position/analysis, Strategic choices & Strategic implementation/in
action.
The interdependence of each level is important to take notice of and that the
formulation is not done in linearly.
1. The strategic position/analysis
The aim is to form a view of the main influences on the present and future
well-being of the organization a
The environment -competitors, markets, regulations, discoveries etc.
opportunities and threats (PESTEL environment variables)
Strategic capability of the organization i.e. resources, competences.
strengths and weaknesses
Organization culture, beliefs and assumptions
Stakeholders analysis where you look at their expectations and power

2. Strategic choice
Strategic choices need to be made at every level, though obviously c
choices made at any particular level can influence choices at other levels.
Generation of strategic options, e.g. growth, acquisition, diversification or
concentration.
Evaluation of the options to assess their relative merits and feasibility.
Selection of the strategy or option that the organization will pursue
Example of Strategic choices at different strategic levels
Corporate the scope and direction of the organization. Examples
a. Which businesses should it be in?
b. Should the organization change from being a manufacturer to a
service provider?
c. Which markets should it be in?
Business how to compete at the business level?
Operational level for example, whether an organisation should
outsource components or make them itself.
3. Strategic in Action/Implementation
Three elements on this level
1. Organizing/Structuring the organization e.g. should the firm be split
into regions?
2. Resource enabling Ensuring appropriate resources are available to
support the chosen strategy e.g. acquiring new fixed assets, human
resources
3. Managing Change Most strategic planning and implementation will
involve change, so managing change, in particular employees fears
and resistance is crucial.
Adapting to Change
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 as evidenced how the global

economic recession has caught so many firms by surprise. Firms, like


organisms, must be adept at adapting or they will not survive.
Corporate bankruptcies and defaults more than doubled in 2009 from an already
bad 2008 year. All industries were hit hard, especially retail, chemicals, autos,
and financial.

Key Terms in Strategic Management


Before we further discuss strategic management, we should define nine key
terms:
Competitive advantage, strategists, vision and mission statements, external
opportunities and threats, internal strengths and weaknesses, long-term
objectives, strategies, annual objectives, and policies.
1. Competitive Advantage
Strategic management is all about gaining and maintaining competitive
advantage. This term can be defined as anything that a firm does especially
well compare to rival firms.
When a firm can do something that rival firms cannot do, or owns something that
rival firms desire, that can represent a competitive advantage. For example, in a
global economic recession, simply having ample cash on the firms balance
sheet can provide a major competitive advantage. Some cash-rich firms are
buying distressed rivals.
Real life example of competitive advantage;
Having less fixed assets than rival firms also can provide major competitive
advantages in a global recession. For example, Apple has no manufacturing
facilities of its own, and rival Sony has 57 electronics factories. Apple relies
exclusively on contract manufacturers for production of all of its products,
whereas Sony owns its own plants. Less fixed assets has enabled Apple to
remain financially lean with virtually no long-term debt Sony, in contrast, has
built up massive debt on its balance sheet.

2. Vision and Mission Statements


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 and charts the future direction of an organization.
A mission statement is a constant reminder to its employees of why the
organization exists.
Elements of Mission Statement
1. Purpose Why is the company in business? What is the organization for?
This could be maximizing shareholder wealth or taking such aim as
secondary, like satisfying needs of customers, the community, employees
as well as shareholders.
2. Strategy part of mission statement where company states how it is going
to achieve its purpose. How competitive advantage will be soughed
3. Policies and Standards of behavior Without policy and behavior
guidelines that help staff to make decisions on a day-to-day basis the
strategy and purpose has little value.
4. Values Values are feelings and moral principles that lie behind the
companys culture.
Advantages of Mission Statement
Help resolve stakeholders
conflict
Set the direction of the org & so
help formulation of strategy
Help communicate values and
culture to employees

Criticisms of Mission Statements


Often full of meaningless terms
like best which give staff little
idea of what to aim at.
Often written retrospectively to
justify past actions
Often ignored by managers

Help the marketing process by


communicating with customers

Might simply be PR exercise

1. Policies
Policies are guides to decision making and address repetitive or recurring
situations.
Policies include guidelines, rules, and procedures established to support efforts
to achieve stated objectives.
2. Annual Objectives
Annual objectives are short-term milestones that organizations must achieve to
reach long-term objectives. Like long-term objectives, annual objectives should
be measurable, quantitative, challenging, realistic, consistent, and prioritized.
They should be established at the management level
3. 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 ventures. Strategies
Requires top management decisions and large amounts of the firms
resources.
Affect an organizations long-term prosperity, typically for at least five
years, and thus are future-oriented.
Strategies have multifunctional or multidivisional consequences and
require consideration of both the external and internal factors facing the
firm.
4. Long-Term Objectives
Long-term means more than one year.
Important bcoz they state direction; aid in evaluation; create synergy;
reveal priorities; focus coordination; and provide a basis for effective
planning, organizing, motivating, and controlling activities.
Objectives should be challenging, measurable, consistent, reasonable,