Basic Concepts of Strategic
Management
"Effective managers live in the present – but concentrate on the future."
James L. Hayes What is Strategy?
• A combination of the words
stratos, which meant “army”, and
agein meaning “to lead”.
Greek Language (6th century BC)
What is Strategy?
• A strategy is a comprehensive
action plan that identifies long-term
direction and guides resource
utilization to accomplish
organizational goals
with sustainable competitive
advantage.
Strategic Management
Process of formulating,
implementing, and evaluating,
strategies to accomplish long-term
goals and sustain competitive
advantage.
Strategic Audit
21st Century Challenges in Strategic Management
•
•
•
Process is more an “art” than “science”
Should strategies be visible or hidden from stakeholders
Should process be more top-down or bottom up
Phases of Strategic Management
Basic financial
planning:
Forecast-based
planning:
Strategic
planning:
Strategic
management:
-little analysis;
-more thorough
analysis;
-more thorough
-analysis;
-info coming from
within the firm;
-internal info +
environmental data;
-internal info +
environmental data +
forecast future trends;
-analysis of external
and internal
environment;
-only managers are
involved;
-only managers are
involved;
-takes 2-3 weeks;
-made by planning
staff (top managers)
+ consultants;
-takes one month;
- one year plan
-three to five years
-plan -implementation,
evaluation and control;
-meet once a year;
-made by lower level
managers+
top managers+
consultants;
-throughout the year;
- five-year plans - five-year plans
Benefits of Strategic Management
• Clear sense of strategic vision of
the firm
• Sharper focus on what is
strategically important
• Improved understanding of a
rapidly changing environment
Main Questions
•
•
•
•
Where is organization now?
If no changes are made, where will
the organization be in 1,2,5 years?
If the answers are not acceptable,
what specific actions should
management undertake?
What are risks and payoffs
involved?
Basic Model of Strategic
Management
Environmental
Scanning
Strategy
Formulation
Strategy
Implementation
Evaluation
and
Control
Environmental Scanning
External: Social Environment
External: Task Environment
Internal: Structure
Internal: Culture
Internal: Resources
Environmental Scanning
Opportunities & Threats (External)
Analysis of Trends:
•
Economic
•
Social
•
Cultural
•
Demographic/Environmental
•
Political, Legal, Governmental
•
Technological
•
Competitors
Environmental Scanning
Strengths & Weaknesses (Internal)
Typically located in functional areas of the firm
•
Management
•
Marketing
•
Finance/Accounting
•
Production/Operations
•
Research & Development
•
Computer Information Systems
Strategy Formulation
Vision & Mission
Objectives
Strategies
Policies
Strategy Formulation
Vision Statement –
What do we want to become?
Mission Statement –
What is our business?
Strategy Formulation
Key Strategic Questions
by Peter Drucker
• What is our business mission?
• Who are our customers?
• What do our customers
consider value?
• What have been our results?
• What is our plan?
Vision Examples
To be the happiest place on earth.
To be the world’s best quick service restaurant.
Mission Statement Example
We should build good ships here
– at a profit if we can
– at a loss if we must
– but always good ships
-- Newport News Shipbuilding
(since foundation in 1886)
Mission Statement Example
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
WellPont health Network’s
Vision and Mission
WellPoint redefine our industry: through a new
generation of consumer-friendly products that
put individuals back in control of their future.
The WellPoint companies provide health
security by offering a choice of quality branded
health and related financial services designed
to meet the changing expectations of
individuals, families, and their sponsors
throughout a lifelong relationship.
Importance of Mission
Benefits from a strong mission
Unanimity of Purpose
Resource Allocation
Mission
Organizational Climate
Focal point for work
structure
Customers
Products
Services
Markets
Technology
Employees
Public
Image
Mission
Elements
Survival
Growth
Profit
Self-Concept
Philosophy
Strategy Formulation
Objectives
The end results of planned activity:
• what is to be accomplished
• by when
• it should be quantified if possible
“…increase profits 10% over last year”
Strategy Formulation
Types of Strategies
Corp
Level
A Large Company
Division Level
Functional Level
Operational Level
Strategy Formulation
Strategies
• Corporate strategy directs the organization as a whole toward sustainable competitive advantage.
• Business strategy sets the strategic direction for a single business unit or product line. • Functional strategy guides the use of resources to implement business strategy. Being Better versus Being Different
Playing the Game Better
Focus on your existing strategic position and try to improve it and make it better. Practices such as restructuring, refocusing, process reengineering, quality programs, empowering employees, and the like, all aim to achieve this Playing the Game Differently Try to identify:
• new or unexploited customer segments to focus on (a new “WHO”)
• new customer needs that no competitor is currently satisfying (a new “WHAT”)
• new ways of producing, delivering, selling or distributing your products or services (a new “HOW”)
…to be successful, a company must be able to do BOTH!
Constantinos Markides
Strategy Formulation
Policies
A policy is a broad guideline for decision making that
links the formulation of strategy with its implementation.
•
Maytag Company: Maytag will not approve any cost reduction proposal if it reduces product quality in any way.
•
3M: Researches should spend 15% of their time working on something other than their primary project.
•
GE: GE must be number one or two wherever it competes.
•
Intel: Intel cannibalizes its own product line with better products before a competitor does so.
Strategy Implementation
Programs
Budgets
Procedures
Strategy Implementation
• A program is a statement of the activities or steps needed to accomplish a single-use plan. • A budget is a statement of a corporation’s program in terms of dollars. • Procedures are a system of steps or techniques that describe in detail how a particular task or job is to be done. Strategy Evaluation & Control
Internal Review
External Review
Measuring Performance
Strategic audit
Feedback/Learning Process
Internal/External Review
Revision of Decisions
Corrective Actions
Strategic Decisions Characteristics:
• Rare: strategic decisions are unusual and typically have no precedent to follow
• Consequential: strategic decisions commit substantial resources and demand a great deal of commitment from people on all levels.
• Directive: strategic decisions set precedents for lesser decisions and future actions throughout an organization.