The Strategic Management Process

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The Strategic Management Process

• I. Introduction
• A. Three Broad Factors
• 1. Industry Context
• The type of Industry may significantly effect
  profitability and success. Example would include
  Airline vs. Pharmaceutical
• Industry

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The Strategic Management Process

• A. Three Broad Factors (Continued)
• 2. National Context
• The competitiveness of companies is influenced
  by the attitude of government toward business and
  if the marketplace is global.
• 3. Company Resources, capabilities, and
  strategies
• This is one of the most important factors in a
  firms overall performance. We study the roots
  of success and failure in an attempt to find
  those companies who will be the leaders of
  tomorrow.

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The Strategic Management Process

• The Purpose of an Organization
• The Number One purpose of any organization is
  to provide the maximum wealth possible to its
  shareholders in a legal and ethical manner
  according to recognized corporate business
  practice.

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II. What is Strategy?

• A. Old Definition
• the determination of the basic long-
• term goals and objectives of an
• enterprise, and the adoption of
• courses of action and the allocation
• of resources necessary for carrying
• out these goals

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II. What is Strategy?

• B. New Definition
• a pattern in a stream of decisions or actions
• The pattern is a product of whatever intended
  strategies (planned) that are actually realized
  and any emergent (unplanned) strategies that are
  also realized.

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II. What is Strategy?

• Emergent Strategies are those that are not
  planned by the firm but become an important part
  of a firms success. Example of this is when
  Honda arrived in L.A. in 1959 to establish an
  American subsidary to sell 250cc and 350cc
  machines. The big bike sales were sluggish and
  the executives used 50cc bikes to run errands
  around L.A. One day they got a call from Sears
  and the rest is history. By 1964 nearly one out
  of two motorcycles sold in the U.S. was a Honda.

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What is Strategy?

• Emergent Strategies (Cont.) In practice, the
  strategies of many firms tend to be a mix of the
  intended and the emergent. The trick for
  managers is to recognize the process of emergence
  and to intervene selectively, killing off bad
  emergent strategies but nurturing good ones.

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III. Strategic Management Process Model

• A. Selection of corporate mission and major
  corporate goals. These establish the context
  within which intended strategies are formulated
  and set the criteria for evaluating emergent
  strategies. The mission states why an
  organization exists and what it should be doing.
• B. Analysis of the organizations external
  competitive environment to identify opportunities
  and threats. Two components are examined at this
  stage the specific industry environment within
  which the organization is based as well as the
  macroenvironment.

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III.Strategic Management Process Model

• C. The objective of internal analysis is to
  identify the strengths and weaknesses of the
  organization. This involves identifying the
  quantity and quality of an organizations
  resources.
• Strategic choice involves generating a series of
  strategic alternatives, given the mission and
  goals of the firm, its internal strengths and
  weaknesses, and external opportunities and
  threats. Normally referred to as a SWOT analysis.

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III. Strategic Management Process Model

• SWOT Analysis The objective of a SWOT analysis
  is to choose those strategies that achieve the
  best alignment, or fit, between internal
  strengths and weaknesses and external
  opportunities and threats. The process of
  strategic choice requires the organization to
  identify the set of functional-level,
  business-level, corporate-level, and global
  strategies that best enables it to survive and
  prosper.

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III. Strategic Management Process Model

• Functional-Level Strategies These are
  strategies directed at improving the
  effectiveness of functional operations within a
  company. such as manufacturing, marketing,
  materials management, research and development,
  and human resources.
• Business-Level Strategies These encompass the
  overall competitive theme that a company chooses
  to stress, the way it positions itself in the
  marketplace to gain a competitive advantage, and
  the different positioning strategies that can be
  used in different industry settings.

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III. Strategic Management Process Model

• Corporate-Level Strategy This strategy answers
  the question What businesses should we be in to
  maximize the long-run wealth of our shareholders.
  The answer may involve vertical integration,
  diversification, strategic alliances,
  acquisition, new ventures, or some combination of
  these. In addition, to achieve a competitive
  advantage and maximize performance, a company has
  to expand its operations outside the home country
  into the global market.

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III. Strategic Management Process Model

• Corporate-Level Strategy To make a strategy
  work, an organization needs to adopt the correct
  organizational structure. This involves deciding
  how to allocate decision-making authority within
  the firm and how to divide the organization into
  subunits. Strategy implementation also involves
  the selection of appropriate organizational
  controls. Controls are needed both to assess the
  performance and control the actions of
  individuals or subunits within the firm to
  achieve proper coordination.

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III. Strategic Management Process Model

• Corporate-Level Strategy Strategy
  implementation requires achieving a fit among the
  organizations strategy, structure, and controls.
  Although in theory the strategic management
  process is characterized by rational decision
  making, in reality organizational conflict and
  politics play a key role. Strategic change tends
  to bring conflict by altering the established
  distribution of power within an organization.

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IV. Criticisms of Formal Planning Systems

• A. Planning Equilibrium--If its used
• by every company, it is no longer a
• source of competitive advantage
• B. Planning Under Uncertainty
• C. Ivory Tower Planning
• D. Strategic Intent versus Strategic Fit

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V. Pitfalls in Strategic Decision Making

• A. Cognitive Biases
• 1. Prior Hypothesis Bias
• 2. Representativeness
• 3. Illusion of Control
• 4. Reasoning by Analogy
• 5. Escalating Commitment

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V. Pitfalls in Strategic Decision Making

• B. Groupthink occurs when a group of decision
  makers decides on a course of action without
  questioning underlying assumptions.
• Techniques for improving decision making
• 1. Devils Advocacy Generating and plan and a
  critical analysis of the plan
• 2. Dialectic Inquiry Generates a plan and a
  counterplan reflecting plausible but conflicting
  courses of action.

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VI. Strategic Managers and Strategtic Leadership

• A. Levels of Strategic Management
• 1. Corporate Level
• 2. Business Level
• 3. Functional Level
• See Figure 1.7 on page 24

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VI. Strategic Managers and Strategic Leadership

• B. Strategic Leadership
• 1. Vision, Eloquence, and
• Consistency
• 2. Commitment
• 3. Being well informed
• 4. Willingness to Delegate and Empower
• 5. Political Astuteness