Strategic management can be defined as the art and science of formulating, implementing, and evaluating cross functional decisions

that enable an organization to achieve its objectives. To achieve organizational success Strategic management= strategic planning The purpose is to exploit and create new and different opportunities for tomorrow; long range planning, in contrast, tries to optimize for tomorrow the trends today Based on integrating intuition and analysis in making decision

3 stages of strategic management 1. Strategy formulation y Developing vision mission, identifying external opportunities and threats, determining internal strengths and weaknesses, establishing long term objectives, generating alternative strategies, and choosing particular strategies to pursue y strategies determine long term competitive advantage

2.

Strategy implementation y Require a firm to establish annual objectives, devise policies, motivate employees, and allocate resources so that formulated strategies can be executed. y Developing a strategy-supportive culture, effective organizational structure, redirecting marketing efforts, preparing budgets, developing and utilizing information system, and linking employee compensation to organizational performance y y y y Action Stage of Strategic Management Put formulated strategies into action Most difficult stage Interpersonal skills are especially critical for successful strategy implementation

3.

Strategy evaluation y To know if particular strategies are not working well Three fundamental strategy evaluation activities are y y y Reviewing internal & external factors that are bases for current strategies Measuring performances Taking corrective actions

 Strategy formulation, implementation and evaluation occur at 3 hierarchical levels in large org : corporate, divisional/strategic unit, and functional  Based in past experiences, judgement, and feelings, intuition is essential to making good strategic decisions  Intuition - useful in making decisions in situations of great uncertainty  Organization should monitor internal & external so that timely changes can be made as needed  To survive, all organization must be capable of astutely identifying and adapt to changes  Strategic management process is aimed at allowing organizations to adapt effectively to change over the long run

Strategist - individuals who are mostly responsible for the success or failure of an organization - gather, analyze and organize information Vision - What do we want to become? Mission - enduring statements of purpose that distinguish one firm to another - what is our business - identifies the scope of a firm s operations in product and market terms External Factors Opportunities and threats - Beyond the control of the firm - Economic, Social, Cultural, Demographic/Environmental, Political, Legal, Governmental, Technological, Competitors

Environmental Scanning (Industry Analysis) - Process of conducting research and gathering and assimilating external information  Strategy formulation take advantage of external opportunities - Avoid/minimize impact of external threats Internal Factors Strength and weaknesses - Controllable activities performed especially well or poorly - determined relative to competitors - Financial ratios, Performance metrics, Industry averages, Survey data Long-term Objectives Mission- driven pursuit of specified results more than one year out. - state direction, aid in evaluation, create synergy, reveal priorities, focus coordination and basis for effective planning - SMART (specific, measurable, attainable, realistic, time bound) Strategies - Means by which long-term objectives are achieved Annual Objectives - Short-term milestones that firms must achieve to attain long-term objectives Policies - Means by which annual objectives will be achieved. Strategic Management Model 1. 2. 3. 4. 5. 6. 7. Identify Vision, Mission, Objectives, Strategies Audit external environment Audit internal environment Establish long-term objectives Generate, evaluate and select strategies Implement selected strategies Measure & evaluate performance

Benefits of Strategic Management 1. 2. 3. Proactive in shaping firm s future Initiate and influence firm s activities Formulate better strategies - Systematic, logical, rational  Communication is the key to successful Strategic management

Mission statement components 1. 2. 3. 4. 5. 6. 7. 8. 9. Customers- who are the customers? Products/services what are the firm s major product or services Market geographically, where does the firm compete Technology is the firm technologically current? Concern for survival, growth and profitability is the firm committed to growth and financial soundness? Philiosophy what are the basic beliefs, values, aspirations and ethical priorities of the firm? Self concept what is the firm distinctive competence or major competitive advantages Concern for public image is the firm responsive to social community and environmental concerns? Concern for employees are employees a valuable asset to the firm?

STRATEGIES Reasons for strategic planning - Quest for higher revenues - Quest for higher profits

Varying Performance Measures by Organizational Level Organizational Level Corporate Division Function Basis for Annual Bonus/Merit Pay 75% on long-term objectives 25% on annual objectives 50% on long-term objectives 50% on annual objectives 25% on long-term objectives 75% on annual objectives

Types of strategies I. Integration Strategies / Vertical Integration  allow a firm to gain control over distributors, suppliers, and/or competitors. a. b. c. Forward integration involves gaining ownership or increase control over distributors or retailers. Backward integration increase control of a firm s suppliers Horizontal integration increase control over a firm s competitor

II. Intensive strategies  Require intensive effort to improve competitive position with existing products a. Market penetration Seeks to increase market share for present products and services in present market through greater marketing efforts. b. c. Market development Introducing present products or service into new geographic areas Product development seeks increase sales by improving or modifying present products and services.

III. Diversification Strategies a. b. c. Related/ Concentric Diversification Adding new but related products and services Unrelated / Conglomerate Diversification creating new but unrelated products and services Horizontal Diversification - creating new but unrelated products and services for current customers

 Related when their value chains poses competitively valuable cross-business strategic fits  Unrelated when their value chains are so dissimilar that no competitively valuable cross-business relationship exist IV. a. Defensive Strategies Retrenchment regrouping through cost and asset reduction to reverse declining sales and profit - Turn around or reorganizational strategy - designed to fortify an organization s basic distinctive competence b. Divestiture Selling a division or part of an organization - to raise capital for further strategic acquisition or investments c. Liquidation Selling all of the company s asset, in parts, for their tangible worth. - recognition of defeat and consequently can be emotionally difficult strategy - better to cease operating than to continue losing large sum of money

V. Joint Venture and Combination strategies a. Joint Venture when two or more companies form a temporary partnership or consortium for the purpose of capitalizing on some opportunity b. Combination Combination of two or more strategies simultaneously

Michael Porter s Generic Strategies  Strategies allow organization to gain competitive advantage from three different bases: cost leadership, differentiation and focus. Generic Strategies y Cost leadership emphasizes producing standardized products at very low per-unit cost for consumers who are price sensitive y Differentiation strategy aimed at producing products and services considered unique industrywide and directed at consumers who are relatively price-insensitive y Focus means producing products and services that fulfil the needs of small groups of consumers.

 Value chain - total revenues minus total cost of all activites undertaken to develop and market product or services yield value Mergers  Acquisition when large firm purchases/acquire a smaller firm or vice versa  Merger 2 organizations of about equal size unite to form one enterprise  Leverage Buyout when a coporation s shareholder are bought by the company s management and other private investors

using borrowed funds. Nature of Strategy Analysis & Choice  Establishing long-term objectives, Generating alternative strategies, Selecting strategies to pursue , Best alternative - achieve mission & objectives Three Stage Decision-making framework 1. Input stage summarizes the basic input information needed to formulate strategies. a. EFE Matrix (External Factors Evaluation) Allows the strategist to summarize and evaluate external information

b. IFE Matrix (Internal Factors Evaluation) - summarizes and evaluates the major strength and weaknesses c. CPM ( Competitor Profile Matrix Identifies a firm s major competitors and their particular strength and weaknesses in relation to a sample firm s strategic position 2. Matching Stage focus upon generating feasible alternative strategies by aligning key external and internal factors  Matching external and internal critical success factors is the key to effectively generating feasible alternative strategy a. TOWS Develop four types of strategies : i. SO Strategies use a firm s internal strengths to take advantage of external opportunities ii. iii. iv. WO Strategies - Improving internal weaknesses by taking advantage of external opportunities ST Strategies - Use a firm s strengths to avoid or reduce the impact of external threats WT Strategies - Defensive tactics aimed at reducing internal weaknesses & avoiding environmental threats

b. S.P.A.C.E Matrix y It has 4 quadrants framework that indicates whether Aggressive, Conservative, Defensive & Competitive strategies are most appropriate y Internal (Financial Strength & Competitive Advantage); External (Environmental Stability & Industry Strength) QUADRANTS y y y y Aggressive in excellent position to use internal strength Conservative staying close to firm s basic competencies and not taking excessive risks Defensive firm should focus on rectifying weaknesses & avoid external threats Competitive indicating competitive strategies

c.

BCG Matrix (Boston Consulting Group) y y Enhances multi-divisional firm in formulating strategies Ratio of a division s own market share in an industry to the market share held by the largest rival firm in that industry. QUADRANTS y Question Mark low relative market share position, yet compete in high-growth industry ; cash needs are high and cash generation is low y y Stars Cash Cows best long-run opportunities for growth and profitability High relative market share position but compete in low growth industry - generate cash in excess of their needs y Dogs low relative market share position but compete in low-growth industry; weak internal &external

d. Grand Strategy Matrix y y Tool for formulating alternative strategies Based on two dimensions: Competitive position &Market growth

QUADRANTS y y y y 3. Decision Stage  QSPM ( Quantitative Strategic Planning Matrix) - Technique designed to determine the relative attractiveness of feasible alternative actions  QSPM - Tells which alternative strategies are the best I In an excellent strategic position II need to evaluate their present approach to the marketplace seriously; cannot compete effectively III firm compete in slow-growth industries and have a weak competitive positions IV strong competitive position but are in slow-growth industry

The Nature of Strategy Implementation  Successful strategy formulation does not guarantee successful strategy implementation.

 Strategy implementation means change  Less than 10% of strategies formulated are successfully implemented! Formulation vs. Implementation y y y y y Formulation positions forces before the action vs. Implementation manages forces during the action Formulation focuses on effectiveness vs. Implementation focuses on efficiency Formulation primarily an intellectual process vs. Implementation primarily an operational process Formulation requires good intuitive & analytical skills vs. Implementation requires special motivational & leadership skills Formulation requires coordination among a few individuals vs. Implementation requires coordination among many individuals

 Strategy implementation - Varies among different types & sizes of organizations  Change in strategy = change in structure

Kinds of structure y y y Functional Structure group task and activities by function Divisional Structure by geographic are, by customers, by product/services or by process

Strategic Business Unit Structure (SBU) group similar divisions into strategic business unit and delegates authority and responsibility for each unit to a senior executive who reports directly to the chief executive officer

Matrix Structure- group based on both vertical and horizontal flows of authority and communication

 Restructuring

- Reducing the size of the firm # of employees, divisions, and/or units, # of hierarchical levels - Also called Downsizing, Rightsizing, Delayering - concerned primarily with shareholders well-being - reducing the size of the firm in terms of number of employees, division/unit, hierarchical levels. - To improve effectiveness and efficiency

 Reengineering - Reconfiguring or redesigning work, jobs, & processes to improve cost, quality, service, & speed. - concerned more with employee and customer well-being - Also called Process management, Process innovation, Process redesign  Resistance to change - Single greatest threat to successful strategy implementation  Linking Pay/Performance to Strategies - Pay for performance systems

Centrally Important in Implementing Strategy y Market segmentation - Subdividing of a market into distinct subsets of customers according to needs and buying habits. - Geographic, Demographic, Psychographic, Behavioural y Product positioning - Schematic representations that reflect how products/services compare to competitors on dimensions most important to success in the industry - Customer Wants & Customer Needs y Finance/Accounting Issues - Central to strategy implementation - Acquiring needed capital, Developing projected financial statements, Preparing financial budgets, Evaluating worth of a business - EPS/EBIT analysis - Earnings per share/Earnings before interest and taxes - Projected Financial Statements - Allow an organization to examine the expected results of various actions and approaches. - Financial Budget - Details how funds will be obtained and spent for a specified period of time. y Research & Development Issues - New products and improvement of existing products that allow for effective strategy Implementation y Management Information System - Information is basis for understanding the firm. One of the most important factors differentiating successful from unsuccessful firms. - Information collection, retrieval, & storage, keeping managers informed, Coordination of activities among divisions, & Allow firm to reduce costs

Strategy Review, Evaluation & Control  Key external and internal factors often change quickly and dramatically Strategy Evaluation - Vital to the organization s well-being - Alert management to potential/actual problems in a timely fashion - Erroneous strategic decisions can have severe negative impact on organizations 3 Basic Activities 1. Examine the underlying bases of a firm s strategy a. b. 2. 3. Develop revised EFE Matrix Develop revised IFE Matrix

Compare expected to actual results Identify corrective actions to ensure that performance conforms to plans

Rummelt s 4 Criteria can be used to evaluate strategy y y y y Consistency - Strategy should not present inconsistent goals & policies Consonance the need for the strategist to examine sets of trends as well as individual trends in evaluating strategies Feasibility the strategy can be attempted within physical, human, & financial resources Advantage competitive advantage

Contingency Planning - Alternative plans that can be put into effect if certain key events do not occur as expected

Source: Strategic Management: Concepts & Cases (10th Edition) by Fred David