The Nature of Strategic Management

Overview
Why do some firms succeed while others fail?
A central objective of strategic management is to learn why this happens.

What is strategy?
An action a company takes to attain superior performance.

What is the strategic management process?

The process by which managers choose a set of strategies for the enterprise to pursue its vision.
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Strategic Management Defined

Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives.

Strategy Formulation
Vision & Mission External Opportunities & Threats Internal Strengths & Weaknesses Long-Term Objectives Alternative Strategies Strategy Selection

Strategy Implementation

Annual Objectives Policies Employee Motivation Resource Allocation

Strategy Evaluation

Internal Review External Review Performance Metrics Corrective Actions

Strategic Planning
Strategic planning
A set of procedures for making decisions about the organizations longterm goals and strategies

Strategic goals
major targets or end results that relate to the long-term survival, value, and growth of the organization.

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Strategic Planning
What is Strategy?
A pattern of actions and resource allocations designed to achieve the organizations goals Strategy: Strategy, narrowly defined, means "the art of the general" (from the Greek word stratigos). A combination of the ends (goals) for which the firm is striving and the means (policies) by which it is seeking to get there. A strategy is sometimes called a roadmap which is the path chosen to plow towards the end vision. The most important part of implementing the strategy is ensuring the company is going in the right direction which is towards the end vision.

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Strategic planning
Strategic planning is an organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people. In order to determine where it is going, the organization needs to know exactly where it stands, then determine where it wants to go and how it will get there. The resulting document is called the "strategic plan." While strategic planning may be used to effectively plot a company's longer-term direction, one cannot use it to reliably forecast how the market will evolve and what issues will surface in the immediate future. Therefore, strategic innovation and tinkering with the "strategic plan" have to be a cornerstone strategy for an organization to survive the turbulent business climate. Strategic planning is the formal consideration of an organization's future course. All strategic planning deals with at least one of three key questions: "What do we do?" "For whom do we do it?" "How do we excel?"

Strategic Planning
1. 2. 3. 4. 5. Where will we be active? How will we get there? How will we win in the marketplace? How fast will we move and in what sequence will we make changes? How will we obtain financial returns?

Various business analysis techniques can be used in strategic planning, including SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats ), GE/McKinsey portfolio analysis, BCG Matrix,PEST analysis (Political, Economic, Social, and Technological), STEER analysis (Socio-cultural, Technological, Economic, Ecological, and Regulatory factors), and EPISTEL (Environment, Political, Informatic, Social, Technological, Economic and Legal).

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Hierarchy of Goals and Plans

Figure 4-11

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Tactical and Operational Planning

Tactical planning
A set of procedures for translating broad strategic goals and plans into specific goals and plans that are relevant to a distinct portion of the organization, such as a functional area like marketing.

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Tactical and Operational Planning

Operational planning
The process of identifying the specific procedures and processes required at lower levels of the organization.

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Strategic Planning
Strategic management
A process that involves managers from all parts of the organization in the formulation and implementation of strategic goals and strategies.

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The Strategic Management Process

Figure 4.4 4-15

Establishment of Mission, Vision, and Goals

Mission
An organizations basic purpose and scope of operations.

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Environmental Analysis

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Table 4.1

Key Terms

Opportunities & Threats (External)

Analysis of Trends: Economic Social Cultural Demographic/Environmental Political, Legal, Governmental Technological Competitors

Key Terms

Opportunities & Threats (External)

Analysis of Trends: Economic Social Cultural Demographic/Environmental Political, Legal, Governmental Technological Competitors

Analysis of External Opportunities and Threats

Stakeholders
Groups and individuals who affect and are affected by the achievement of the organizations mission, goals, and strategies

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Analysis of Internal Strengths and Weaknesses

Resources
Inputs to a system that can enhance performance Tangible, intangible assets

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Internal Resource Analysis

Table 4.2 4-22

Resources and Core Competencies

Figure 4.5 4-23

Analysis of Internal Strengths and Weaknesses

Benchmarking
process of assessing how well one companys basic functions and skills compare with those of another company or set of companies. goal of benchmarking is to thoroughly understand the best practices of other firms and to undertake actions to achieve both better performance and lower costs

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SWOT Analysis and Strategy Formulation

SWOT analysis
A comparison of strengths, weaknesses, opportunities, and threats that helps executives formulate strategy.

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Achieving Sustained Competitive Advantage

1. Adapting to change in external trends, internal capabilities and resources

2. Effectively formulating, implementing & evaluating strategies

Adapting to Change Key Strategic Management Questions

What kind of business should we become? Are we in the right fields Are there new competitors What strategies should we pursue? How are our customers changing?

Vision and Mission

Vision Statements and Mission Statements are the inspiring words chosen by successful leaders to clearly and concisely convey the direction of the organization. By crafting a clear mission statement and vision statement, you can powerfully communicate your intentions and motivate your team or organization to realize an attractive and inspiring common vision of the future. These statements create a sense of direction and opportunity. They both are an essential part of the strategy-making process. "Mission Statements" and "Vision Statements" do two distinctly different jobs. A ission statement tells you the fundamental purpose of the organization. It defines the customer and the critical processes. It informs you of the desired level of performance. A Vision statement outlines what the organization wants to be, or how it wants the world in which it operates to be. It concentrates on the future. It is a source of inspiration. It provides clear decisionmaking criteria.

 Your organization's vision is all about what is possible, all about that potential. The mission is what it takes to make that vision come true. The mission statement can galvanize the people to achieve defined objectives, even if they are stretch objectives, provided it can be elucidated in SMART (Specific, Measurable, Achievable, Relevant and Time-bound) terms. A mission statement provides a path to realize the vision in line with its values. These statements have a direct bearing on the bottom line and succ

Mission Statement What is our business? Sets out why the organization exists and what it should be doing i.e. the fundamental purpose of the organization. A Mission Statement defines the organization's purpose and primary objectives. Its prime function is internal to define the key measures of the organization's success i.e. what the organization hopes to fulfill in the medium to long term. A mission statement defines the customer and the critical processes. It informs the Cos leadership team & stakeholders(mgrs, employees,customers,etc) of the desired level of performance. It is sometimes used to set out a "picture" of the organization in the future. A mission statement provides details of what is done and answers the question: "What do we do?" For example, the charity might provide "job training for the homeless and unemployed. The mission statement thus describes the Cos specific defined objectives that can be elucidated in SMART (Specific, Measurable, Achievable, Relevant and Time-bound) terms. A mission statement provides a path to realize the vision in line with its values.

 Vision Statements also define the organizations purpose, but the broader goal in terms of the organization's values rather than bottom line measures (values are guiding beliefs about how things should be done.) The vision statement communicates the overall purpose for being in existence or in the business and can remain the same for decades if crafted well. For employees, it gives direction about how they are expected to behave and inspires them to give their best. Shared with customers, it shapes customers' understanding of why they should work with the organization. Vision Statement What do we want to become? Vision defines the way an organization or enterprise will look in the future. Vision is a long-term view, sometimes describing how the organization would like the world to be in which it operates. For example, a charity working with the poor might have a vision statement which reads "A World without Poverty. Vision should describe why it is important to achieve the Mission. A Vision should describe what will be achieved in the wider sphere if the organization and others are successful in achieving their individual missions.

Features of an effective vision statement include: Clarity and lack of ambiguity Vivid and clear picture Description of a bright future Memorable and engaging wording Realistic aspirations Alignment with organizational values and culture

Vision

Agreement on the basic vision for which the firm strives to achieve in the long run is critically important to the firms success.

JIMS

Vision

What do we want to become?

JIMS

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Vision

Clear Business Vision Comprehensive Mission Statement

JIMS

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Vision & Mission

Shared Vision advantages- Creates commonality of interests & a shared sense of purpose which is inspiring for managers Reduce daily monotony Provides opportunity & challenge It fosters long term thinking
JIMS 36

Mission Statements

Reveal what an organization wants to be and whom it wants to serve

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Mission Statements

Essential for effectively establishing objectives and formulating strategies

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Vision & Mission

Many organizations develop both vision & mission statements

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Vision & Mission

Profit & vision are necessary to effectively motivate a workforce

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Vision & Mission

Shared vision creates a community of interests

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Developing Vision & Mission

Clear mission is needed before alternative strategies can be formulated and implemented

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Developing Vision & Mission

Participation from diverse managers is important in developing the mission

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Mission Statement Examples

It is the California Energy Commissions mission to assess, advocate, and act through public/private partnerships to improve energy systems that promote a strong economy and healthy environment.
-- California Energy Commission

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Mission Statement Examples

The Bellevue Hospital, with respect, compassion, integrity, and courage, honors the individuality and confidentiality of our patients, employees, and community, and is progressive in anticipating and providing future health care services.
-- The Bellevue Hospital

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Vision Statement Examples

A national organization which represents its members in all aspects of poultry and eggs on both a national and international level
-- U.S. Poultry & Egg Association

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Vision Statement Examples

The Vision of Manley Baptist Church is to be the people of God, on mission with God, motivated by a love for God, and a love for others
-- Manley Baptist Church
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Vision Statement Examples

The Vision of USGS is to be a world leader in the natural sciences through our scientific excellence and responsiveness to societys needs

-- U.S. Geological Survey (USGS)

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Vision Statement Examples

To be the first choice in the printed communications business. The first choice is the best choice, and being the best is what Atlanta Web pledges to work hard at beingevery day!
-- Atlanta Web Printers, Inc.
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Mission Statements

-- 90% of all companies have used a mission statement in the previous five years

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Mission Statements

What is our business?

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Mission Statements

Enduring statement of purpose

Distinguishes one firm from another Declares the firms reason for being

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Mission Statements
Also referred to as:

Creed statement Statement of purpose Statement of philosophy Statement of business principles

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Examples of vision & mission statements

Advanced Auto Parts, Inc. is a company that provides customers with automotive products and services, which include diagnosing vehicle problems and doing repair work Mission Statement It is the Mission of Advance Auto Parts to provide personal vehicle owners and enthusiasts with the vehicle related products and knowledge that fulfill their wants and needs at the right price. Our friendly, knowledgeable and professional staff will help inspire, educate and problem-solve for our customers. A supermarket and drugstore, Albertsons is a food and drug retailer located in Boise, Idaho. With a team of more than 200,000 in 2,300 stores all over America, Albertsons has over 2,500 locations in 37 states of the US. Mission Statement Guided by relentless focus on our five imperatives, we will constantly strive to implement the critical initiatives required to achieve our vision. In doing this, we will deliver operational excellence in every corner of the Company and meet or exceed our commitments to the many constituencies we serve. All of our long-term strategies and short-term actions will be molded by a set of core values that are shared by each and every associate.

Key Terms

Strategies: Means by which long-term

objectives are achieved. There are 3 levels at which strategy operates: 1. Business-Level Strategies 2. Functional-Level Strategies 3. Corporate-Level Strategies

Business-Level Strategies
Cost leadership
Attaining, then using the lowest total cost basis as a competitive advantage.

Differentiation
Using product features or services to distinguish the firms offerings from its competitors.

Market niche focus

Concentrating competitively on 1-56 a specific market segment.

Functional-Level Strategies
Focus is on improving the effectiveness of operations within a company.
Manufacturing Marketing Materials management Research and development Human resources

JIMS

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Corporate-Level Strategies
Vertical integration(When a company expands its business into areas that are at different points of the same supply chain & are controlled by a single company in order to increase that companys or entitys power in the marketplace.)Eg: A car company that expands into tire manufacturing, the producer of the cold drink expands into making bottles aswell, a mobile company opening its own Mobile retail chain. Diversification(a company enters additional lines of business that are different from the current products, services and markets.Eg: Reliance Industries diversifying into retail) Strategic alliances(Strategic alliances are partnerships in which two or more companies work together to achieve objectives that are mutually beneficial to share resources, information, capabilities and risks to achieve this. Eg: Aviva Life Insurance entered into a nation-wide strategic alliance with India Post, which help the Co. to gather its premium of policies through post offices) 1-58

Acquisitions(to increase your market share by taking over a similar company.Eg: You Tube, which was taken over my Google primarily because it had a strong and loyal user base) Joint ventures(Eg:Walmart established a joint venture with Bharti Enterprises called Bharti Walmart Pvt Ltd, for wholesale cash-and-carry and back-end supply chain management operations in India). Business portfolio restructuring(involves modifying the business portfolio through divestitures like sale of a division or plant or unit of one form to another with d motive to raise capital or to cut losses. From the sellers perspective, it is a form of contraction from the buyers point of view, it represents expansion). Eg: When Coromandal Fertilizers Ltd sold its cement division to India Cements Ltd the size of Coromandal Fertilizers Ltd contracted whereas the size of India Cements Ltd expanded. Hence, a divestiture is the obverse of a purchase.

Strategic Managers for All Levels

FIGURE 1.2
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Strategic Planning
Rational planning by top management
Basic Strategic Planning Model
Defining the Mission and Setting Top-Level Goals TopExternal Analysis of Opportunities and Threats Internal Analysis of Strengths and Weaknesses Selection of Appropriate Strategies Implementation of Chosen Strategies
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Strategic Managers
Strategic managers are General managers as opposed to Operations managers
Responsible for the overall (strategic) performance and health of the total organization.

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Benefits of Strategic Management Financial Benefits

Improvement in sales Improvement in profitability Productivity improvement

Benefits of Strategic Management

Non-Financial Benefits
Improved understanding of competitors strategies Enhanced awareness of threats Reduced resistance to change Enhanced problem-prevention capabilities