469 Chapter 1

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Strategic Management:
Creating Competitive Advantages
Chapter One
McGraw-Hill/Irwin
Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives
After reading this chapter, you should have a good
understanding of:
LO1 The definition of strategic management and its four
key attributes.
LO2 The strategic management process and its three
interrelated and principal activities.
LO3 The vital role of corporate governance and
stakeholder management as well as how “symbiosis”
can be achieved among an organization’s stakeholders.
1-2
Learning Objectives (cont.)
LO4 The importance of social responsibility, including
environmental sustainability, and how it can enhance a
corporation’s innovation strategy.
LO5 The need for greater empowerment throughout the
organization.
LO6 How an awareness of a hierarchy of strategic goals
can help an organization achieve coherence in its
strategic direction.
1-3
Two Perspectives of Leadership
• Romantic view
 Leader is the key
force in organization’s
success
• External control
perspective
 Focus is on external
factors that affect an
organization’s
success
1-4
QUESTION
A CEO made a lot of mistakes such as committing
errors in assessing the market and competitive
conditions and improperly redesigning the
organization into numerous business units. Such
errors led to significant performance declines. This
illustrates the __________ perspective of leadership.
A. External control
B. Romantic
C. Internal mechanism
D. Operational
1-5
Example: E*Trade
Elements of Caplan’s turnaround
• Cut costs by reducing the advertising
budget and selling unrelated businesses
• Changed the firm’s culture and instilled
more discipline
• Refocused the firm on its core banking
operations
1-6
What is Strategic Management?
• Strategic management
must become both a
process and a way of
thinking throughout
the organization
• Leaders must be
proactive, anticipate
change, and
continually refine
changes to their
strategies
1-7
Defining Strategic Management
• Strategic management
 Analyses, decisions, and actions an
organization undertakes in order to create
and sustain competitive advantages
1-8
Defining Strategic Management
• Analysis
 Strategic goals
 Internal and external environment of the firm
• Strategic decisions
 What industries should we compete in?
 How should we compete in those industries?
1-9
Defining Strategic Management
• Actions
 Allocate necessary resources
 Design the organization to bring intended
strategies to reality
1-10
Two Fundamental Questions
1. How should we
compete in order to
create competitive
advantages in the
marketplace?
2. How can we create
competitive
advantages in the
marketplace that are
unique, valuable,
and difficult for rivals
to copy or
substitute?
1-11
Key Attributes of Strategic
Management
1. Directs the organization toward overall
goals and objectives
2. Includes multiple stakeholders in decision
making
1-12
Key Attributes of Strategic
Management (cont.)
3. Needs to incorporate short-term and
long-term perspectives
4. Recognizes trade-offs between efficiency
and effectiveness
1-13
Key Attributes of Strategic
Management
• Ambidexterity
 The challenge managers face of both
aligning resources to take advantage of
existing product
markets as well
as proactively
exploring new
opportunities
1-14
Ambidextrous Behaviors in Individuals
• They take time and
are alert to
opportunities beyond
the confines of their
own jobs
• They are cooperative
and seek out
opportunities to
combine their efforts
with others
1-15
Strategic Management Process
• Intended strategy
 Decisions are determined only by analysis
• Realized strategy
 Decisions are determined by both analysis
and unforeseen environmental
developments, unanticipated resource
constraints, and/or changes in managerial
preferences
1-16
Strategic Management Process
Adapted from Exhibit 1.2 Realized Strategy and Intended Strategy: Usually Not the Same
Source: H. Mintzberg and J. A. Waters, “Of Strategies, Deliberate and Emergent,” Strategic Management Journal 6 (1985), pp. 25772.
1-17
Strategic
Management
Process
1-18
Strategic Analysis
• Consists of “advance work” that must be
done in order to effectively formulate and
implement strategies
• Starting point
1-19
Strategy Formulation
A firm’s strategy formulation is developed at
several levels:
• Business-level
• Corporate level
• International
• Entrepreneurial
1-20
Strategy Implementation
• Ensuring proper
strategic controls and
organizational
designs
• Establishing effective
means to coordinate
and integrate
activities within the
firm as well as with
suppliers, customers,
and alliance partners
1-21
Corporate Governance and
Stakeholder Management
• Corporate governance
 The relationship among various participants
in determining the direction and performance
of corporations
1-22
Corporate Governance and
Stakeholder Management (cont.)
• Board of Directors
 Elected
representatives of the
owners
 Ensure interests and
motives of
management are
aligned with those of
the owners
1-23
Corporate Governance
Three mechanisms ensure effective
corporate governance:
• An effective and engaged board of
directors
• Shared activism
• Proper managerial rewards and incentives
1-24
Stakeholder Management
• Zero sum view
 Stakeholders compete for attention and
resources of the organization
 Gain of one is a loss to the other
1-25
Stakeholder Management
• Stakeholder symbiosis view
 Stakeholders are dependent upon each other
for their success and well-being
 Mutual benefits
1-26
QUESTION
Outback Steakhouse has developed a
sophisticated quantitative model and found that
there were positive relationships between
employee satisfaction, customer satisfaction,
and financial results. This is an example of
__________.
A. Zero-sum relationship among stakeholders
B. Stakeholder symbiosis
C. Rewarding stakeholders
D. Emphasizing financial returns
1-27
Crowdsourcing
• Crowdsourcing
 Tapping of the “latent of the online crowd”
• Linux, Amazon, Wikipedia
1-28
Social Responsibility
• Social responsibility
 The expectation that businesses or
individuals will strive to improve the overall
welfare of society
1-29
Social Responsibility
• Triple bottom line
 Assessment of a company’s performance in
financial, social, and environmental
dimensions
1-30
Example: Social Responsibility
• Starbucks Coffee Company defines CSR as:
 Conducting business in ways that produce social,
environmental and economic benefits for the
communities in which we operate and for the
company’s stakeholders, including shareholders.
• Some tangible benefits include attracting and retaining
our partners, customer loyalty, reducing operating costs,
and creating a sustainable supply chain.
1-31
Strategic Management Perspective
All managers and employees must:
• Take an integrative, strategic perspective
of issues facing the organization
• Assess how functional areas and activities
“fit together” to achieve goals and
objectives
1-32
Three Types of Leaders
• Local line leaders
 Have significant profit-and-loss responsibility
• Executive leaders
 Champion and guide ideas, create a learning
infrastructure, establish a domain for taking
action
1-33
Three Types of Leaders (cont.)
• Internal networkers
 Generate power through the conviction and
clarity of their ideas
1-34
Coherence in Strategic Direction
• Hierarchy of goals
 Goals ranging from those that are less
specific yet able to evoke powerful and
compelling mental images those that are
more specific and measurable
• Vision, mission statement, strategic
objectives
1-35
A Hierarchy of Goals
1-36
Coherence in Strategic Direction
• Organizational
vision
 Goal that is
“massively inspiring,
overarching, and long
term”
 Represents a
destination that is
driven by and evokes
passion
1-37
Why Do Visions Fail?
• The walk doesn’t
match the talk
• Irrelevance
• Too much focus leads
to missed
opportunities
• Not the holy grail
• An ideal future
irreconciled with the
present
1-38
Coherence in Strategic Direction
• Mission statement
 Set of goals that include both the purpose of
the organization, its scope of operations, and
the basis of its competitive advantage
• Has the greatest impact when it reflects an
organization’s enduring, overarching strategic
priorities and competitive positioning
1-39
Coherence in Strategic Direction
• Strategic objectives
 Goals that are used to operationalize the
mission statement
 Specific, measurable, appropriate, realistic,
timely
1-40
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