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Pearce & Robinson, 10th ed.
Chapter 1
Strategic Management
McGraw-Hill/Irwin
Strategic Management, 10/e
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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Learning Objectives
1.
2.
3.
4.
5.
6.
7.
Explain the concept of strategic management
Describe how strategic decisions differ from other decisions that
managers make
Name the benefits and risks of a participative approach to
strategic decision making
Understand the types of strategic decisions for which different
managers are responsible
Describe a comprehensive model of strategic decision making
Appreciate the importance of strategic management as a
process
Give examples of strategic decisions that companies have
recently made
The Nature and Value
of Strategic Management
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• Strategic management:
The set of decisions and actions that result in
formulation and implementation of plans designed
to achieve a company’s objectives
Nine Critical Tasks of Strategic
Management -- Tasks 1-5:
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• Formulate the company’s mission
• Conduct an internal analysis
• Assess the external environment – competitive
and general contexts
• Analyze the company’s options by matching its
resources with the external environment
• Identify the most desirable options in light of the
mission
Nine Critical Tasks of Strategic
Management -- Tasks 6-9:
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• Select a set of long-term objectives and grand
strategies that will achieve the most desirable
options
• Develop annual objectives and short-term
strategies that are compatible with long-term
objectives and grand strategies
• Implement the strategic choices
• Evaluate the success of the strategic process for
future decision making
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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
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Dimensions of Strategic Decisions
• Strategic issues require topmanagement decisions
– Strategic decisions overarch 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
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Dimensions of Strategic Decisions
• 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
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Dimensions of Strategic Decisions
• 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 for what they do and
where they compete. Shifting away from
that can jeopardize their previous gains.
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Dimensions of Strategic Decisions
• 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
– A firm will succeed only if it takes a
proactive (anticipatory) stance toward
change
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Dimensions of Strategic Decisions
• Strategic issues usually have
multifunctional or multibusiness
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
SBUs, divisions, or program units
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Dimensions of Strategic Decisions
• 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 operations
and consider what relevant others are
likely to do
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Three Levels of Strategy
• Corporate level: board of directors,
CEO & administration [Highest]
• Business level: business and corporate
managers [Middle]
• Functional level: Product, geographic,
and functional area managers [Lowest]
Alternative Strategic Management
Structures
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Characteristics of Strategic
Management 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
Management Decisions: Functional
• Implement the overall strategy formulated
at the corporate and business levels
• Involve action-oriented and operational
issues
• Relatively short range and low risk
• Modest costs: depend upon available
resources
• Relatively concrete and quantifiable
Characteristics of Strategic
Management Decisions: Business
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• 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
• Predominant
• Problems in the
Management
Firm
Styles
•
Purpose
of
the
• Complexity of
Planning System
Environment
• Production Process • Stage of Firm’s
Development
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Three Modes of Formality
• Entrepreneurial Mode – most small firms
• Planning Mode – most large firms
• Adaptive Mode – most medium size firms
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Strategy Makers
• Ideal strategic team includes decision
makers from all three levels
• Top managers must give final approval
• Strategic decisions coincide with
managers’ responsibilities
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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
• Managers at all levels interact in planning and
implementing strategy
• Similar to participative decision making
• Assessing strategy formulation requires
looking at nonfinancial evaluations as well as
financial ones
• Promoting positive behavioral consequences
enables achievement of financial goals
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Risks of Strategic Management
• Managers’ time away from other
responsibilities
• Unrealistic expectations promised by strategy
formulators
• Possible disappointment of participating
subordinates if goal is not reached
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Strategic Management Process
• Businesses vary in formulation and other
processes
• The basic components of the models used to
analyze strategic management are similar
• Strategic management is a process—a flow
of information through interrelated stages of
analysis toward the achievement of some
goal
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Strategic Management Model
Components of Strategic
Management Model
•
•
•
•
•
Company Mission
External Analysis
Long-Term Objectives
Short-Term Objectives
Policies Empowering
Action
• Strategic Control &
Continuous
Improvement
• Internal Analysis
• Strategic Analysis &
Choice
• Generic & Grand
Strategies
• Functional Tactics
• Restructuring,
Reengineering &
Refocusing
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