Strategic Management Unit-1Slyb. + Concept, evolution of strategic management as a discipline, characteristics of strategic management, strategic management model,Opening case * When CEOs from the big three U.S. automakers—Ford, General Motors (GM), andChrysler—showed up several years ago without a clear strategic plan to ask congressional leaders for bailout monies, they were sent home with instructions to develop a clear strategic plan for the future. Austan Goolsbee, one of President Barack Obama's top economic advisers, said, “Asking for a bailout without a convincing business plan was crazy.”Goolsbee also said, “If the three auto CEOs need a bridge, it’s got to be a bridge to somewhere, not a bridge to nowhere.” This text gives the instructions on how to develop a clear strategic plan—a bridge to somewhere rather than nowhere.Vision of Amazon * "to be Earth's most customer-centric company”Concept of Strategic Management + Although the term "strategic management" is bantered around a lot in the business world, it is not understood very well by most people. Essentially strategic management answers the questions of "Where do you want your business to go?" (goals), "How is your business going to get there?" (strategy), and "How will you know when you get there?“ (evaluation) * Strategic management involves seeking and identifying opportunities and threats in the market and industry as well as the outside world in general. Strategic management is based on the premise that “all businesses are not the same." Strategic management involves assessing the strengths and weaknesses of your business.* Strategic Management is all about identification and description of the strategies that managers can carry so as to achieve better performance and a competitive advantage for their organization. An organization is said to have competitive advantage jf its profitability is higher than the average profitability for all companies in its industry. + Strategic management can also be defined as a bundle of decisions and acts which a manager undertakes and which decides the result of the firm’s performance. The manager must have a thorough knowledge and analysis of the general and competitive organizational environment so as to take right decisions. They should conduct a SWOT Analysis (Strengths, Weaknesses, Opportunities, and Threats), i.e., they should make best possible utilization of strengths, minimize the organizational weaknesses, make use of arising opportunities from the business environment and shouldn't ignore the threats.+ Strategic Management gives a broader perspective to the employees of an organization and they can better understand how their job fits into the entire organizational plan and how it is co-related to other organizational members. +The word “strategy” is derived from the Greek word “stratcgos”; stratus (meaning army) and “ago” (meaning leading/moving). * Strategy is an action that managers take to attain one or more of the organization’s goals. Strategy can also be defined as “A general direction set for the company and its various components to achieve a desired state in the future. Strategy results from the detailed strategic planning process”.In nutshell * Strategic management is the art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives. As this definition implies, strategic management focuses on integrating management, marketing, finance and accounting, production and operations, research and development (R&D), and informa- tion systems to achieve organizational success. The term strategic management in this text is used synonymously with the term strategic planning. The latter term is more often used in the business world, whereas the former is often used in academia. Sometimes the term strate- gic management is used to refer to strategy formulation, implementation, and evaluation, with strategic planning referring only to strategy formulation. The purpose of strategic management is to exploit and create new and different opportunities for tomorrow: long-range planning, in contrast, tries to optimize for tomorrow the trends of today.Features 1Strategy is Significant because it is not possible to foresee the future. Without a perfect foresight, the firms must be ready to deal with the uncertain events which constitute the business environment. 2Strategy deals with long term developments rather than routine operations, i.e. it deals with probability of innovations or new products, new methods of productions, or new markets to be developed in future. 3Strategy is created to take into account the probable behavior of customers and competitors. Strategies dealing with employees will predict the employee behavior. + Strategy is a well defined roadmap of an organization. It defines the overall mission, vision and direction of an organization. The objective of a strategy is to maximize an organization's strengths and to minimize the strengths of the competitors. + Strategy, in short, bridges the gap between “where we are” and “where we want to besEvolution of Strategic Management *In late 500, Sun Tzu authored a book called The Art of War, which contains 13 chapters that focus on military strategies and tactics. - According to Sun Tzu, the positioning of an army was important *one should take into account the physical environment and subjective beliefs of one's opponents on the field. + He emphasized the importance of responding quickly to the environment in order to appropriately meet changing conditions. In a static environment, planning works successfully, but in a dynamic and changing environment plans rarely work.Academic Perspective * In 1911 HBS introduced an integrative course in management related to business policy. * 1959 — Gordon and Howell report sponsored by Ford Foundation followed by Pearson report sponsored by Carnegie. * 1969 , American Assembly of Collegiate school of business made a mandatory required for business policy .Evolution based on Managerial Practices * Development is a result of planning techniques of managers like budgets , capital budgeting , MBO. * There techniques were unable to anticipate future so replaced by long term planning * Long term planning was replaced by strategic plan and further strategic management .Historical Prospective * First phase : mid 1930s : ad-hoc policy making * Early 1940s : Planned policy making replaced ad-hoc policy * Late 1960: The concept of strategy emerges * From late 1980s : Strategic ManagementTo sum Up + The term strategic planning originated in the 1950s and was popular between the mid- 1960sand the mid-1970s. During these years, strategic planning was widely believed to be the answer for all problems. At the time, much of corporate America was “obsessed” with strategic planning. Following that boom, however, strategic planning was cast aside during the 1980s as various planning models did not yield higher returns, The 1990s, however, brought the revival of strategic planning, and the process is widely practiced today in the business world. Many companies Today have a chief strategy officer (CSO). McDonald's hired a new CSO in October 2015. + Astrategic plan is, in essence, a company's game plan. Just as a football team needs a good game plan to have a chance for success, a company must have a good strategic plan to compete successfully. + Profit margins among firms in most industries are so slim that there is little room for error in the overall strategic plan. A strategic plan results from tough managerial choices among numerous good alternatives, and it signals commitment to specific markets, policies, procedures, and operations in lieu of other, “less desirable” courses of action. * The term strategic management is used at many colleges and universities as the title for the capstone course in business administration. This course integrates material from all business courses, and, in addition, introduces new strategic-management concepts and techniques being widely used by firms in strategic planningDifference between strategic decision and operating decision PROBUS Tosehe ose rat motions se Steerer oe tat beaten Alston tires among redic—movet ating ores ong he ers ee cen, eyeceont ——Chemeand act stegee achat ort, Opening cle nd ene deen, ‘Senor Snes, out sn eninge putin, regen seis met eh mse acetone come eyouncer ——_OLEHONSCOTRALZIO, Fol ere. Nanrepetive ect econ Rok md ete Peete ces a nnsa ener on rewound essen SerenCharacteristics of strategic management * Strategic management is the art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives. As this definition implies, strategic management focuses on integrating management, marketing, finance and accounting, production and operations, research and development (R&D), and information systems to achieve organizational success * The purpose of strategic management is to exploit and create new and different opportunities for tomorrow; long-range planning, in contrast, tries to optimize for tomorrow the trends of today. * Firm’s strategy is defined as its theory about how to gain competitive advantages.’ A good strategy is a strategy that actually generates such advantages.Cont. * Strategic planning is a learning, helping, educating, and supporting process, not merely a paper-shuffling activity among top executives. Strategic-management dialogue is more important than a nicely bound strategic-management document + Strategic management allows an organization to be more proactive than reactive in shaping its own future; it allows an organization to initiate and influence (rather than just respond to) . * Historically, the principal benefit of strategic management has been to help organizations formulate better strategies through the use of a more systematic, logical, and rational approach for decision making.Cont. bp Forms the core of management process Most aspects of strategy formulation rest on strategic decision making. The fundamental strategic decision is related to the choice of mission. i.e 1. What is our business? 2. What will it be? 3. What it should be? It is a function and responsibilities of senior management. It is concerned with the mobilization of resources and utilization of resources to help the organization to achieve its goal. wn ne 6. Itis complex and varied and difficult. 7. Itis comprehensive and integrated. 8. Ithelps in adopting a course of action to achieve the long term objectives 9. Ithelps in allocating the resources for adopting course of action.A strategy in nutshell * Aplan or course of action * A pattern * Related to activities which move an organization. * A means to achieve objectivesGE Case + General electric company (GE) + General Electric Company recently sold its appliance business to Sweden-based Electrolux AB for $3.3 billion, leaving GE focused almost entirely on finance and big- ticket industrial equipment, such as power turbines, locomotives, and aircraft engines. GE’s CEO Jeff Immelt, when asked "What is GE?,” recently responded with the word energy, rather than insurance, plastics, media, consumer finance, or appliances. Founded by Thomas Edison in 1889 and originally named Edison General Electric Company, GE is returning to its roots as an energy company. The company has spent about $14 billion lately buying Source (strategic management 6" edition Freed R David )A Basic model > External Analysis. Mission =P Objectives > Strategic —=P Strategy —=P Competitive Choice Implementation Advantage > Internal AnalysisModels of Strategic Management Process * The strategic-management process can best be studied and applied using a model. Every model represents some kind of process. The framework illustrated in next slide is a widely accepted, comprehensive model of the strategic-management process. This model does not guarantee success, but it does represent a clear and practical approach for formulating, implementing, and evaluating strategies. * Relationships among major components of the strategic-management process are shown in the model, which appears. This text is organized around this model because the model reveals how organizations actually do strategic planning. Three important questions to answer in developing a strategic plan are as follows: * Where are we now? * Where do we want to go? + How are we going to get there?trois 1} —— npnrnantation 1 ~ eeainoson’Stages of Strategic Management Process + The strategic-management process consists of three stages: strategy formulation, strategy implementation, and strategy evaluation Strategy-formulation: + Strategy formulation includes developing a vision and a mission, identifying an organization's external opportunities and threats, determining internal strengths and weaknesses, establishing long-term objectives, generating alternative strategies, and choosing particular strategies to pursue + Issues include deciding what new businesses to enter, what businesses to abandon, whether to expand operations or diversify, whether to enter international markets, whether to merge or form a joint venture, and how to avoid a hostile takeover. 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 using information systems, and linking employee compensation to organizational performance+ Strategy implementation often is called the “action stage” of strategic management. Implementing strategy means mobilizing employees and managers to put formulated strategies into action. Often considered to be the most difficult stage in strategic management, strategy implementation requires personal discipline, commitment, and sacrifice. Successful strategy implementation hinges on managers’ ability to motivate employees, which is more an art than a science. Strategies formulated but not implemented serve no useful purpose + Strategy evaluatio 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. Alll strategies are subject to future modification because external and internal factors constantly change. Three fundamental strategy-evaluation activities are + (1) reviewing external and internal factors that are the bases for current strategies, + (2) measuring performance, + (3) taking corrective actions.Key Takeaways + Formulation, implementation, and evaluation of strategy activities occur at three hierarchical levels in a large organization: corporate, divisional or strategic business unit, and functional. + By fostering communication and interaction among managers and employees across hierarchical levels, strategic management helps a firm function as a competitive team Most small businesses and some large businesses do not have divisions or strategic business units; they have only the corporate and functional levels. Nevertheless, managers and employees at these two levels should be actively involved in strategic- management activities. + Peter Drucker says the prime task of strategic management is thinking through the overall mission of a business— * that is, of asking the question, “What is our business?” This leads to the setting of objectives, the development of strategies, and the making of today’s decisions for tomorrow's results. This clearly must be done by a part of the organization that can see the entire business; that can balance objectives and the needs of today against the needs of tomorrow; and that can allocate resources of men and money to key results.Key Terms + Competitive Advantage: Strategic management is all about gaining and maintaining competitive advantage. This term can be defined as any activity a firm does especially well compared to activities done by rival firms, or any resource a firm possesses that rival firms desire + Strategists Strategists are the individuals most responsible for the success or failure of an organization. They have various job titles, such as chief executive officer, president, owner, chair of the board, executive director, chancellor, dean, and entrepreneur. Jay Conger, professor of organizational. * Vision and Mission Statements Many organizations today develop a vision statement that answers the question “What do we want to become?” Developing a vision statement is often considered the first step in strategic planning, preceding even development of a mission statement. Many vision statements are a single sentence. For example, the vision statement of Stokes Eye Clinic in Florence, South Carolina, is “Our vision is to take care of your vision.” + Mission statements are “enduring statements of purpose that distinguish one business from other similar firms. A mission statement identifies the scope of a firm's operations in product and market terms.” It addresses the basic question that faces all strategists: “What is our business?” A. Clear mission statement describes the values and priorities of an organization. Developing a mission statement compels strategists to think about the nature and scope of present operations and to assess the potential attractiveness of future markets and activities. A mission statement not only broadly charts the future direction of an organization, but it also serves as a constant reminder to its employees of why the organization exists and what the founders envisioned when they put their fame and fortune (and names) at risk to breathe life into their dream.External Opportunities and Threats Internal Strengths and Weaknesses 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 essential for organizational success because they provide 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, and clear. In a multidimensional firm, objectives are needed both for the overall company and each division. 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, dévestiture, liquidation, and joint ventures.