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Chapter1

Strategic
Management

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Learning Objectives
1. Explain the concept of strategic management
2. Describe how strategic decisions differ from other
decisions that managers make
3. Name the benefits and risks of a participative approach
to strategic decision making
4. Understand the types of strategic decisions for which
different managers are responsible
5. Describe a comprehensive model of strategic decision
making
6. Appreciate the importance of strategic management as
a process
7. 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 companys
objectives

Nine Critical Tasks of Strategic


Management -- Tasks 1-5:

Formulate the companys mission


Conduct an internal analysis
Assess the external environment
competitive and general contexts
Analyze the companys options by
matching its resources with the
external environment
Identify the most desirable options in
light of the mission
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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 shortterm 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 companys awareness of
the main elements of competition
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Dimensions of Strategic
Decisions
Strategic issues require top-management team

decisions
Strategic issues require large amounts of the
firms resources
Strategic issues often affect the firms long-term
prosperity
Strategic issues are future oriented
Strategic issues usually have multifunctional or
multibusiness consequences
Strategic issues require considering the firms
external environment
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Dimensions of Strategic Decisions


(in detail)
Strategic issues require topmanagement team decisions
Strategic decisions overarch several areas
of a firms 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
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Dimensions of Strategic
Decisions (contd.)
Strategic issues require large amounts of
the firms 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
9

Dimensions of Strategic
Decisions (contd.)
Strategic issues often affect the firms
long-term prosperity
Strategic decisions commit the firm for a
long time, typically 5 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 do
and where they compete. Shifting away
from that can jeopardize their previous
gains.

10

Dimensions 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 issues usually have
multifunctional or multibusiness
consequences.
Strategic decisions have complex
implications for most areas of the
firm
Decisions about customer mix,
competitive emphasis, or
organizational structure involve a
number of the firms SBUs,
divisions, or program units
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Dimensions of Strategic
Decisions (contd.)
Strategic issues require considering
the firms external environment
All businesses exist in an open
system. They affect and are
affected by external conditions that
are largely beyond their control
Successful positioning requires that
strategic managers look beyond
operations and consider what
relevant others are likely to do

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Levels of Strategy
Corporate level: board of
directors, CEO &
administration [Highest]
Business level: business and
corporate managers [Middle]
Functional level: Product,
geographic, and functional
area managers [Lowest]
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Alternative Strategic
Management Structures
Ex. 1.2

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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
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Characteristics of 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
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Characteristics of Strategic
Management Decisions: Business/SBU

Help bridge decisions at the corporate and


functional levels
Less costly, 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

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Forces Determining Formality


Organizational
Size
Predominant
Management
Styles
Complexity of
Environment
Production
Process

Problems in the
Firm
Purpose of the
Planning System
Stage of Firms
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, 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 firms CEO plays a prominent
role in strategic planning
The CEOs principal duty is giving
long-term direction to the firm
The CEO bears ultimate
responsibility for the firms
success and strategic success
CEOs are typically strong-willed,
company-oriented individuals
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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
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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 processa
flow of information through interrelated
stages of analysis toward the achievement
of some goal
29

Ex. 1.5

Strategic Management Model

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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

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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.
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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.
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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
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