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chapter 1

STRATEGIC
MANAGEMENT:

CREATING
COMPETITIVE
ADVANTAGES

Copyright 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education .
LEARNING OBJECTIVES

AFTER READING THIS CHAPTER, YOU SHOULD HAVE A GOOD


UNDERSTANDING OF:
LO1.1 THE DEFINITION OF STRATEGIC MANAGEMENT AND ITS FOUR KEY ATTRIBUTES.
LO1.2 THE STRATEGIC MANAGEMENT PROCESS AND ITS THREE INTERRELATED AND
PRINCIPAL ACTIVITIES.
LO1.3 THE VITAL ROLE OF CORPORATE GOVERNANCE AND STAKEHOLDER
MANAGEMENT AS WELL AS HOW SYMBIOSIS CAN BE ACHIEVED AMONG AN
ORGANIZATIONS STAKEHOLDERS.

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LEARNING OBJECTIVES
AFTER READING THIS CHAPTER, YOU SHOULD HAVE A
GOOD UNDERSTANDING OF:
LO1.4 THE IMPORTANCE OF SOCIAL RESPONSIBILITY, INCLUDING
ENVIRONMENTAL SUSTAINABILITY, AND HOW IT CAN ENHANCE A
CORPORATIONS INNOVATION STRATEGY.
LO1.5 THE NEED FOR GREATER EMPOWERMENT THROUGHOUT THE
ORGANIZATION.
LO1.6 HOW AN AWARENESS OF A HIERARCHY OF STRATEGIC
GOALS CAN HELP AN ORGANIZATION ACHIEVE COHERENCE IN ITS
STRATEGIC DIRECTION.
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THE IMPORTANCE OF LEADERSHIP

Consider
Maintaining competitive success or even
surviving over long periods of time is difficult
for companies of any size.
SO how much credit (or blame) does a
leader deserve?

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TWO PERSPECTIVES OF LEADERSHIP

ROMANTIC VIEW
LEADER IS THE KEY FORCE IN THE
ORGANIZATIONS SUCCESS
EXTERNAL CONTROL VIEW
I.E. STEVE JOBS
OR? EXTERNAL FORCES DETERMINE THE
ORGANIZATIONS SUCCESS
I.E. ECONOMIC
DOWNTURNS

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LEADERS CAN MAKE A DIFFERENCE
MUST BE PROACTIVE - ANTICIPATE CHANGE
CONTINUALLY REFINE STRATEGIES
BE AWARE OF EXTERNAL OPPORTUNITIES AND THREATS
THOROUGHLY UNDERSTAND THEIR FIRMS RESOURCES AND CAPABILITIES
MAKE STRATEGIC MANAGEMENT BOTH A PROCESS AND A WAY OF
THINKING THROUGHOUT THE ORGANIZATION

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DEFINING STRATEGIC MANAGEMENT

STRATEGIC MANAGEMENT INVOLVES


ANALYSIS
STRATEGIC GOALS (VISION, MISSION, STRATEGIC OBJECTIVES)
INTERNAL AND EXTERNAL ENVIRONMENT
DECISIONS - FORMULATION
WHAT INDUSTRIES SHOULD WE COMPETE IN?
HOW SHOULD WE COMPETE IN THOSE INDUSTRIES?
ACTIONS - IMPLEMENTATION
ALLOCATE NECESSARY RESOURCES
DESIGN THE ORGANIZATION TO BRING INTENDED STRATEGIES TO REALITY

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TWO FUNDAMENTAL QUESTIONS
1. HOW SHOULD WE COMPETE IN ORDER TO CREATE COMPETITIVE
ADVANTAGES IN THE MARKETPLACE?
2. HOW CAN WE CREATE COMPETITIVE ADVANTAGES IN THE MARKETPLACE
THAT ARE UNIQUE, VALUABLE, AND DIFFICULT FOR RIVALS TO COPY OR
SUBSTITUTE?

NOTE: OPERATIONAL EFFECTIVENESS IS NOT ENOUGH TO SUSTAIN A


COMPETITIVE ADVANTAGE.

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STRATEGIC MANAGEMENT

KEY ATTRIBUTES OF STRATEGIC MANAGEMENT


DIRECTS THE ORGANIZATION TOWARD OVERALL GOALS AND OBJECTIVES.

INCLUDES MULTIPLE STAKEHOLDERS IN DECISION MAKING.

NEEDS TO INCORPORATE SHORT-TERM AND LONG-TERM PERSPECTIVES.

RECOGNIZES TRADE-OFFS BETWEEN EFFICIENCY AND EFFECTIVENESS.

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STRATEGIC MANAGEMENT TRADE-OFFS

Managers need to be ambidextrous


FOCUSING ON SHORT-TERM FOCUSING ON LONG-TERM
EFFICIENCY EFFECTIVENESS
ALIGNING RESOURCES TO TAKE EXPANDING PRODUCT-MARKET
ADVANTAGE OF EXISTING SCOPE BY PROACTIVELY
PRODUCT MARKETS EXPLORING NEW
OPPORTUNITIES

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QUESTION?
ACCORDING TO HENRY MINTZBERG, THE REALIZED STRATEGIES OF A FIRM
A. ARE A COMBINATION OF DELIBERATE AND EMERGENT STRATEGIES.
B. ARE A COMBINATION OF DELIBERATE AND DIFFERENTIATION STRATEGIES.
C. MUST BE BASED ON A COMPANYS STRATEGIC PLAN.
D. MUST BE KEPT CONFIDENTIAL FOR COMPETITIVE REASONS.

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INTENDED VS REALIZED STRATEGIES
The Business Environment is far from predictable.
INTENDED STRATEGY REALIZED STRATEGY
ORGANIZATIONAL DECISIONS ARE DETERMINED
DECISIONS ARE BY BOTH ANALYSIS
DETERMINED ONLY BY (DELIBERATE) & UNFORESEEN
ANALYSIS ENVIRONMENTAL
versus DEVELOPMENTS,
UNANTICIPATED RESOURCE
INTENDED STRATEGY CONSTRAINTS, AND/OR
RARELY SURVIVES IN ITS CHANGES IN MANAGERIAL
ORIGINAL FORM PREFERENCES (EMERGENT)
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STRATEGIC MANAGEMENT PROCESS

Exhibit 1.2 Realized Strategy and Intended Strategy: Usually Not the Same
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Source: Mintzberg, H. & Waters, J.A., Of Strategies: Deliberate and Emergent, Strategic Management Journal, Vol. 6, 1985, pp. 257-
272. Copyright John Wiley & Sons Limited. Reproduced with permission.
EXAMPLE: FAILURE OF INTENDED STRATEGY

BORDERS BOOKSTORE FOCUSED ON ITS INTENDED STRATEGY


A PHYSICAL RETAIL PRESENCE.

STICKING TO WHAT YOU KNOW BEST CAN BE VERY DANGEROUS.


BORDERS FOUND THE CONSUMER SHIFT AWAY FROM BRICK &
MORTAR BOOK STORES TO ONLINE BOOK BUYING AND DIGITAL
BOOKS AN OVERWHELMING ENVIRONMENTAL FORCE AGAINST
WHICH THEY HAD FEW DEFENSES.
UNANTICIPATED DEVELOPMENTS CAN OFTEN HAVE VERY NEGATIVE
CONSEQUENCES FOR BUSINESSES REGARDLESS OF HOW WELL
FORMULATED THEIR STRATEGIES ARE. 1-14
STRATEGIC
MANAGEMENT
PROCESS

Exhibit 1.3 The Strategic 1-15

Management Process
STRATEGY ANALYSIS

STARTING POINT IN THE STRATEGIC MANAGEMENT PROCESS


PRECEDES EFFECTIVE FORMULATION AND IMPLEMENTATION OF STRATEGIES
INVOLVES CAREFUL ANALYSIS OF THE OVERARCHING GOALS OF THE ORGANIZATION
REQUIRES A THOROUGH ANALYSIS OF THE ORGANIZATIONS EXTERNAL AND INTERNAL
ENVIRONMENT

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STRATEGY ANALYSIS CONT.
ANALYZING ORGANIZATIONAL GOALS & OBJECTIVES
ESTABLISH A HIERARCHY OF GOALS
VISION
MISSION
STRATEGIC OBJECTIVES

ANALYZING THE EXTERNAL ENVIRONMENT OF THE


FIRM
MANAGERS MUST MONITOR & SCAN THE ENVIRONMENT AS WELL AS ANALYZE
COMPETITORS
THE GENERAL ENVIRONMENT
THE INDUSTRY ENVIRONMENT
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STRATEGY ANALYSIS CONT.
ASSESSING THE INTERNAL ENVIRONMENT OF THE FIRM
ANALYZING STRENGTHS & RELATIONSHIPS AMONG ACTIVITIES
THAT CONSTITUTE A FIRMS VALUE CHAIN
CAN UNCOVER POTENTIAL SOURCES OF COMPETITIVE
ADVANTAGE

ASSESSING A FIRMS INTELLECTUAL ASSETS


KNOWLEDGE WORKERS & OTHER INTELLECTUAL ASSETS DRIVE
COMPETITIVE ADVANTAGE & WEALTH CREATION
NETWORKS & RELATIONSHIPS PLUS TECHNOLOGY ENHANCES
COLLABORATION, ACCUMULATES & STORES KNOWLEDGE 1-18
STRATEGY FORMULATION

BASED ON STRATEGY ANALYSIS


DEVELOPED AT SEVERAL LEVELS
INVOLVES DECISIONS THAT CAN CREATE AND SUSTAIN COMPETITIVE ADVANTAGE
INVESTMENT DECISIONS
COMMITMENT OF RESOURCES
OPERATIONAL SYNERGIES
RECOGNIZING VIABLE OPPORTUNITIES

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STRATEGY FORMULATION CONT.

FORMULATING BUSINESS-LEVEL STRATEGY


SUCCESSFUL FIRMS DEVELOP BASES FOR SUSTAINABLE
COMPETITIVE ADVANTAGE THROUGH
COST LEADERSHIP AND/OR
DIFFERENTIATION, AS WELL AS
FOCUSING ON A NARROW OR INDUSTRYWIDE MARKET SEGMENT

FORMULATING CORPORATE-LEVEL STRATEGY


ADDRESSES A FIRMS PORTFOLIO (OR GROUP) OF BUSINESSES
WHAT BUSINESS(ES) SHOULD WE COMPETE IN?
HOW CAN WE MANAGE THIS PORTFOLIO OF BUSINESSES TO
CREATE SYNERGIES? 1-20
STRATEGY FORMULATION CONT.
FORMULATING INTERNATIONAL STRATEGY
WHAT IS THE APPROPRIATE ENTRY STRATEGY?
HOW DO WE GO ABOUT ATTAINING COMPETITIVE
ADVANTAGE IN INTERNATIONAL MARKETS?
ENTREPRENEURIAL STRATEGY AND COMPETITIVE
DYNAMICS
HOW DO WE RECOGNIZE VIABLE OPPORTUNITIES?
HOW DO WE FORMULATE EFFECTIVE STRATEGIES?
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STRATEGY IMPLEMENTATION

IMPLEMENTS THE FORMULATED STRATEGY


ENSURES PROPER STRATEGIC CONTROL SYSTEMS
ESTABLISHES AN APPROPRIATE ORGANIZATIONAL DESIGN -
COORDINATES & INTEGRATES ACTIVITIES WITHIN THE FIRM
COORDINATES ACTIVITIES WITH SUPPLIERS, CUSTOMERS,
ALLIANCE PARTNERS
LEADERSHIP ENSURES ORGANIZATIONAL COMMITMENT TO
EXCELLENCE & ETHICAL BEHAVIOR
PROMOTES LEARNING & CONTINUOUS IMPROVEMENT
ACTS ENTREPRENEURIALLY IN CREATING NEW 1-22

OPPORTUNITIES
STRATEGY IMPLEMENTATION CONT.
STRATEGIC CONTROL & CORPORATE GOVERNANCE
INFORMATIONAL CONTROL
MONITOR & SCAN THE ENVIRONMENT
RESPOND EFFECTIVELY TO THREATS & OPPORTUNITIES
BEHAVIORAL CONTROL
PROPER BALANCE OF REWARDS & INCENTIVES
APPROPRIATE CULTURES & BOUNDARIES (OR
CONSTRAINTS)
EFFECTIVE CORPORATE GOVERNANCE 1-23
STRATEGY IMPLEMENTATION CONT.

CREATING EFFECTIVE ORGANIZATIONAL DESIGNS


ORGANIZATIONAL STRUCTURES MUST BE CONSISTENT
WITH STRATEGY
ORGANIZATIONAL BOUNDARIES MUST BE FLEXIBLE &
PERMEABLE
STRATEGIC ALLIANCES MUST CAPITALIZE ON
CAPABILITIES OF OTHER ORGANIZATIONS

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STRATEGY IMPLEMENTATION CONT.
CREATING A LEARNING ORGANIZATION & AN ETHICAL
ORGANIZATION
EFFECTIVE LEADERS
SET A DIRECTION
DESIGN THE ORGANIZATION
DEVELOP AN ORGANIZATION COMMITTED TO EXCELLENCE & ETHICAL BEHAVIOR
CREATE A LEARNING ORGANIZATION
BENEFIT FROM INDIVIDUAL & COLLECTIVE TALENTS

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STRATEGY IMPLEMENTATION CONT.
FOSTERING CORPORATE ENTREPRENEURSHIP
FIRMS MUST CONTINUALLY IMPROVE & GROW
FIRMS MUST FIND NEW WAYS TO RENEW THEMSELVES
ENTREPRENEURSHIP & INNOVATION PROVIDE FOR NEW OPPORTUNITIES
ENHANCE A FIRMS INNOVATIVE CAPACITY
ALLOW AUTONOMOUS ENTREPRENEURIAL BEHAVIOR

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CORPORATE GOVERNANCE & STAKEHOLDER
MANAGEMENT
CORPORATE GOVERNANCE: THE RELATIONSHIP AMONG VARIOUS
PARTICIPANTS IN DETERMINING THE DIRECTION AND PERFORMANCE OF
CORPORATIONS.
PRIMARY PARTICIPANTS:
THE SHAREHOLDERS
THE MANAGEMENT (LED BY THE CHIEF EXECUTIVE OFFICER)
THE BOARD OF DIRECTORS (BOD)

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CORPORATE GOVERNANCE CONT.

BOARD OF DIRECTORS
ELECTED REPRESENTATIVES OF
THE OWNERS
ENSURE INTERESTS & MOTIVES
OF MANAGEMENT ARE ALIGNED
WITH THOSE OF THE OWNERS
NEED AN EFFECTIVE AND
ENGAGED BOARD
SHAREHOLDER ACTIVISM
PROPER MANAGERIAL REWARDS
& INCENTIVES
EXTERNAL CONTROL Exhibit 1.4 The Key Elements of 1-28

MECHANISMS Corporate Governance


STAKEHOLDER MANAGEMENT

Exhibit 1.5 An Organizations Key Stakeholders & the Nature of Their Claims 1-29
STAKEHOLDER MANAGEMENT
Two views of stakeholder management
ZERO SUM SYMBIOSIS
STAKEHOLDERS STAKEHOLDERS ARE
COMPETE FOR OR? DEPENDENT UPON EACH
OTHER FOR SUCCESS &
ATTENTION &
RESOURCES WELL-BEING
GAIN OF ONE IS A LOSS RECEIVE MUTUAL
TO THE OTHER BENEFITS
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QUESTION?

OUTBACK STEAKHOUSE HAS DEVELOPED A SOPHISTICATED QUANTITATIVE


MODEL AND FOUND THAT THERE WERE POSITIVE RELATIONSHIPS BETWEEN
EMPLOYEE SATISFACTION, CUSTOMER SATISFACTION, AND FINANCIAL
RESULTS. ACCORDING TO THE TEXT, THIS IS AN EXAMPLE OF ___________.
A. ZERO-SUM RELATIONSHIP AMONG STAKEHOLDERS
B. STAKEHOLDER SYMBIOSIS
C. REWARDING STAKEHOLDERS
D. EMPHASIZING FINANCIAL RETURNS

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SOCIAL RESPONSIBILITY

SOCIAL RESPONSIBILITY: THE EXPECTATION THAT BUSINESSES OR


INDIVIDUALS WILL STRIVE TO IMPROVE THE OVERALL WELFARE OF
SOCIETY.
FIRMS HAVE MULTIPLE STAKEHOLDERS AND MUST GO BEYOND A FOCUS
SOLELY ON FINANCIAL RESULTS
FIRMS MUST CREATE SHARED VALUE IDENTIFY & EXPAND CONNECTIONS
BETWEEN SOCIETAL & ECONOMIC PROGRESS
FIRMS CAN MEASURE A TRIPLE BOTTOM LINE
ASSESSING FINANCIAL, SOCIAL, AND ENVIRONMENTAL PERFORMANCE
EMBRACING ENVIRONMENTAL SUSTAINABILITY.
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EXAMPLE: MAKING SUSTAINABILITY PROFITABLE
RAPIDLY DEVELOPING ECONOMIES ARE OFTEN SEEN AS SUSTAINABILITY
LAGGARDS, DUE TO WEAK REGULATORY BODIES, RESOURCE SHORTAGES,
COMPETITION FROM MORE INDUSTRIALIZED COUNTRIES & FIRMS.
YET SEKEMS LEADERSHIP HAD A VISION: AS EGYPTS FIRST ORGANIC
FARM, OF GROWING ORGANIC COTTON.
SEKEMS FARMING TECHNIQUES RECLAIMED ARABLE LAND FROM THE
SAHARA, AND DECREASED GREENHOUSE GASES. IT ALSO MEANT COTTON
NEEDED 20%-40% LESS WATER.
RESPONDING TO WORLDWIDE DEMAND, FROM 2006 UNTIL THE ARAB
SPRING OF 2011, SEKEM IMPROVED COTTON YIELDS BY 30%, &
INCREASED REVENUES BY 14%.
SEKEM TOOK THE LONG-TERM VIEW OF STRATEGY & IT PAID OFF.
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EMPOWERED STRATEGIC MANAGEMENT

STRATEGIC MANAGEMENT REQUIRES AN INTEGRATIVE VIEW OF THE


ORGANIZATION
ALL FUNCTIONAL AREAS & ACTIVITIES MUST FIT TOGETHER TO ACHIEVE
GOALS & OBJECTIVES
LEADERS ARE NEEDED THROUGHOUT:
LOCAL LINE LEADERS HAVE PROFIT & LOSS RESPONSIBILITY
EXECUTIVE LEADERS CHAMPION & GUIDE IDEAS
INTERNAL NETWORKERS HOLD LITTLE POSITIONAL POWER, BUT HAVE
CONVICTION & CLARITY OF IDEAS

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COHERENCE IN STRATEGIC DIRECTION

ORGANIZATIONS EXPRESS PRIORITIES BEST THROUGH STATED GOALS & OBJECTIVES THAT FORM A
HIERARCHY OF GOALS
VISION EVOKES POWERFUL & COMPELLING MENTAL IMAGES OF A SHARED FUTURE
MISSION ENCOMPASSES THE ORGANIZATIONS CURRENT PURPOSE, BASIS OF COMPETITION, &
COMPETITIVE ADVANTAGE
STRATEGIC OBJECTIVES OPERATIONALIZE THE MISSION STATEMENT WITH SPECIFIC YARDSTICKS

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COHERENCE IN STRATEGIC DIRECTION

Exhibit 1.6 A Hierarchy of Goals 1-36


COHERENCE IN STRATEGIC DIRECTION

ORGANIZATIONAL VISION
A MASSIVELY INSPIRING GOAL
OVERARCHING, LONG TERM
A DESTINATION DRIVEN BY & EVOKING PASSION
DEVELOPED & IMPLEMENTED BY LEADERSHIP
A FUNDAMENTAL STATEMENT OF AN ORGANIZATIONS VALUES,
ASPIRATIONS, AND GOALS
CAPTURES BOTH THE MINDS & HEARTS OF EMPLOYEES

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COHERENCE IN STRATEGIC DIRECTION

ORGANIZATIONAL VISIONS CAN BACKFIRE


THE WALK DOESNT MATCH THE TALK
IRRELEVANCE
NOT THE HOLY GRAIL
TOO MUCH FOCUS LEADS TO MISSED OPPORTUNITIES
AN IDEAL FUTURE IRRECONCILED WITH THE PRESENT

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COHERENCE IN STRATEGIC DIRECTION
MISSION STATEMENT
STATES THE PURPOSE OF THE COMPANY & BUILDS A COMMON
UNDERSTANDING OF THAT PURPOSE
MORE SPECIFIC THAN THE VISION
FOCUSED ON THE MEANS BY WHICH THE FIRM WILL COMPETE
INCORPORATES STAKEHOLDER MANAGEMENT
COMMUNICATES WHY AN ORGANIZATION IS SPECIAL & DIFFERENT
CAN & SHOULD CHANGE WHEN COMPETITIVE CONDITIONS CHANGE

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COHERENCE IN STRATEGIC DIRECTION

STRATEGIC OBJECTIVES
USED TO OPERATIONALIZE THE MISSION STATEMENT
PROVIDE GUIDANCE ON HOW TO FULFILL MISSION & VISION
ARE MEASURABLE, SPECIFIC, APPROPRIATE, REALISTIC & TIMELY
CAN BE SHORT-TERM ACTION PLANS
CAN BE BOTH FINANCIAL AND NONFINANCIAL
SHOULD BE CHALLENGING, YET HELP RESOLVE CONFLICTS
PROVIDE A YARDSTICK FOR REWARDS & INCENTIVES

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