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UBMM3013

STRATEGIC MANAGEMENT

Lecturer : Ms Seow Ai Na
Office Room No.: H269
Consultation Hours :
Monday 2.00 – 4.00 pm
Thursday 3.00 – 5.00 pm

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May 2019 Semester
Main Text Book

Pearce II, J. A., & Robinson, R. B., Jr.


(2015). Strategic management:
Planning for domestic & global
competition (14rd ed.). New York:
McGraw Hill.

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UBMM3013 Strategic Management

Lecture 1
Introduction to Strategic Management
Refer Pearce II & Robinson (Chapter 1)
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

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Discussion: Borders Group Inc.
• International book and music retailer
• 1300 stores  674 stores
• 35k employees  19500
• Feb 2011  declare bankrupt C11

• Why? Cause by
- slow in reacting to the trend of e-retailing
- did not set up its own internet sales
- competition with other book retailers
(e.g. Barnes & Noble)
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THE NATURE AND VALUE OF STRATEGIC
MANAGEMENT
Definition
• Strategic management:
The set of decisions and actions that
result in the formulation and
implementation of plans designed to
achieve a company’s objectives

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Nine Critical Tasks of Strategic Management --
Tasks 1-5:

1. Formulate the company’s mission


2. Conduct an internal analysis – understand
company’s internal condition and capabilities
3. Assess the company’s external environment ,
including both competitive and general contexts
4. Analyse the company’s options by matching its
resources with the external environment
5. Identify the most desirable options in light of the
company’s mission
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Nine Critical Tasks of Strategic Management--
Tasks 6-9:
6. Select a set of long-term objectives and grand
strategies that will achieve the most desirable
options
7. Develop annual objectives and short-term
strategies that are compatible with long-term
objectives and grand strategies
8. Implement the strategic choices by means of
budgeted resource allocations in which the
matching of tasks, people, structures, technologies,
and reward systems is emphasized.
9. Evaluate the success of the strategic process for
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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 company’s awareness of the main
elements of competition - how, when, and
where it should compete; against whom it
should compete; and for what purposes it 9
should compete.
Dimensions of Strategic Decisions (in general)
1) Strategic issues require top-management decisions
2) Strategic issues require large amounts of the firm’s
resources
3) Strategic issues often affect the firm’s long-term
prosperity
4) Strategic issues are future oriented
5) Strategic issues usually have multi-functional or multi-
business consequences
6) Strategic issues require considering the firm’s external
environment
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Dimensions of Strategic Decisions (in details)

1) Strategic issues require top-


management decisions
 Strategic decisions affect several
areas of a firm’s 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 11
Dimensions of Strategic Decisions (contd.)

2) Strategic issues require large amounts


of the firm’s 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 12
Dimensions of Strategic Decisions (contd.)
3) Strategic issues often affect the firm’s 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 in certain markets, for


certain products, with certain technology.
Shifting away from that can jeopardize their 13
previous gains
Dimensions of Strategic Decisions (contd.)
4) 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
• In competitive environment, a firm will
succeed only if it takes a proactive
(anticipatory) stance toward change
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Dimensions of Strategic Decisions (contd.)

5) Strategic issues usually have


multifunctional or multi-business
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 firm’s strategic business
units (SBUs) or divisions 15
Dimensions of Strategic Decisions (contd.)
6) Strategic issues require considering
the firm’s 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 its
operations and consider what relevant
others are likely to do, including
competitors, customers, suppliers, 16
creditors, government, and labour
Three Levels of Strategy
• Corporate level: [Highest]
 Composed principally of a board of directors,
the chief executive & administrative officers.
 Responsible for financial performance &
nonfinancial goals (corporate image and
social responsibilities)
 For multi-business firm, this level determines
the businesses in which the firm should be
involved.
 Develop long-term plans 17
Three Levels of Strategy
• Business level: [Middle]

 Composed principally of business and


corporate managers

 These managers must translate the


statements of direction and intent
generated at the corporate level into
concrete business objectives and strategies
for individual business divisions (SBUs).

 Determine how the firm will compete in the


selected product-market arena 18
Three Levels of Strategy
• Functional level: [Lowest]

 Product, geographic, and functional area


managers
 Develop annual objectives and short-term
strategies in different functional areas
e.g. operations, research and development,
finance and accounting, marketing, human
relations etc.
 To implement or execute the firm’s strategic plans.
 Concern of these managers include: the efficiency
and effectiveness of production and marketing
systems, the quality of customer service, and the
success of particular products and services in 19
increasing the firm’s market shares.
Ex. 1.2Alternative Strategic Management Structures

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Characteristics of Strategic 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 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
• Common functional-level decisions: high versus
low inventory levels, close versus loose
supervision etc.
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Characteristics of Strategic 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
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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  Problems in the Firm


 Predominant  Purpose of the
Management Styles Planning System
 Complexity of  Stage of Firm’s
Environment
Development
 Production Process

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Three Modes of Formality
• Entrepreneurial Mode
- Associated with owner-managers of smaller firms.
- Basically under the control of a single individual
- Produce a limited number of products or services
- informal, intuitive, limited approach to strategic management

• Planning Mode
– most large firms
- comprehensive, formal planning system

• Adaptive Mode
– most medium size firms
- emphasize on the incremental modification of existing
competitive approaches (the identification and evaluation of
alternative strategies are closely related to existing strategy) 26
Strategy Makers
• Ideal strategic team includes decision
makers from all 3 levels.
• Because strategic decisions have at
tremendous impact on a company and
require large commitments of company
resources, top managers must give final
approval for strategic action.

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Strategy Makers: The CEO
 A firm’s CEO plays a dominant role in
strategic planning
 The CEO’s principal duty is giving long-
term direction to the firm
 The CEO bears ultimate responsibility for
the firm’s success and strategic success
 CEOs are typically strong-willed, company-
oriented individuals
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Benefits of Strategic Management
• Financial benefits: e.g. improve profit & sales, long-term
financial performance

• Nonfinancial evaluation criteria (i.e. Behaviour-based effects –


Benefits of Participative Approach to Strategic Management)

(a) Strategy formulation activities enhance the firm’s


ability to prevent problems.
- Monitoring and forecasting subordinates responsibilities

(b) Group-based strategic decisions are likely to be drawn


from the best available alternatives.
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Benefits of Strategic Management
(c) The involvement of employees in strategy
formulation improves their understanding of the
productivity-reward relationship in every strategic
plan, increase their motivation.

(d) Gaps and overlaps in activities among individuals


and groups are reduced as participation in strategy
formulation clarifies differences in roles, duties &
responsibilities.

(e) Reduce resistance to change


• Employees gain awareness and better understand
of the strategy formulation process
• Better acceptance of the decisions derived. 30
STRATEGIC MANAGEMENT PROCESS
• Strategic management is a process—a flow of
information through interrelated stages of analysis
toward the achievement of some goal
• Stakeholders: Influential people who are vitally
interested in the actions of the business
• Feedback: the analysis of post implementation
results that can be used to enhance future
decision
• Dynamic characterises the constantly changing
conditions that affect interrelated and
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interdependent strategic activities
Ex. 1.5 Strategic Management Model

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Components of the Strategic Management Model
(context)
• Company Mission • Internal Analysis
• External Analysis • Strategic Analysis &
Choice
• Long-Term Objectives
• Generic & Grand
• Short-Term Objectives Strategies
• Policies Empowering • Action Plans &
Action Functional Tactics
• Strategic Control & • Organizational Structure,
Continuous Leadership & Culture
Improvement (Restructuring, Reengineering &
Refocusing)
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Components of Strategic Management Model

• Company mission
The company’s mission describes the company’s
product, market, and technological areas of emphasis
in a way that reflects the values and priorities of the
company.

• Internal analysis
The company analyzes the quantity and quality of the
company’s financial, human, and physical resources
etc.
It also assesses the strengths and weaknesses of the
company’s management and organizational structure. 34
Components of Strategic Management Model
• External Environment
A firm’s external environment consists of all the
conditions and forces that affect its strategic
options and define its competitive situation.

Three interactive segments of external


environment:
 Remote environment
 Industry environment
 Operating environment
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Components of Strategic Management Model
• Strategic Analysis and Choice
Simultaneously assessment of the external
environment and the company profile enables a
firm to identify a range of possible attractive
opportunities.

However, they must be screened through the


criterion of the company mission to generate a
set of possible and desired opportunities.
This screening process results in the selection
of options from which a strategic choice is
made. 36
Components of Strategic Management Model

• Long-term objectives
The results an organization seeks over a
multiyear period are its long-term
objectives, such as profitability, return on
investment, competitive position,
technological leadership, productivity, etc.

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Components of Strategic Management Model
• Generic & grand strategies
Many businesses explicitly and implicitly adopt
one or more generic strategies (e.g. low cost,
differentiation, or focus) characterizing their
competitive orientation in the marketplace
Grand strategies: Long term strategies, the
means by which objectives can be achieved

• Short-term Objectives
Desired results that provide specific guidance for
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action during a period of one year or less.
Components of Strategic Management Model
• Functional Tactics & Action Plans
Functional Tactics: Short-term, narrow scoped
plans that detail the “means” or activities that a
company will use to achieve short-term objectives.

Action Plans: translate generic & grand strategies


into “actions” – e.g. specific actions for next year,
time frame for each action

• Policies
Predetermined decisions that substitute for
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managerial discretion in repetitive decision making.
Components of Strategic Management Model
• Organisational Structure, Leadership & Culture

Ensure work of business done efficiently &


effectively to make the strategy successful.

E.g. What is the best way to organise ourselves to


accomplish the mission? Where should the leadership
come from? How to design the rewards system to
encourage actions? etc.

May involve downsizing, restructuring, reengineering


& refocusing in strategy implementation
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Components of Strategic Management Model
• Strategic Control and Continuous Improvement

Strategic control is concerned with 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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