1.1
Why Strategic Management Is
Important
Why SM is Important

Everyone in an organization plays a role in
strategic management

Understanding strategic decisions is
important so you can do your job well
and have your work valued and rewarded.
Why SM is Important
2 fundamental questions
Why do firms succeed/fail?
 Why do firms have varying levels of
performance?

These questions have guided strategic
management researcher for many years.
Why SM is Important
Strategic Management:
 Makes a difference in the performance of
the organization
◦ Higher levels of performance, measured by
profits, in companies with SM
Important to know if it affects the
organizational performance
Reputation
Global survey of financial analysts was
conducted in 2008, and over 90% agreed
reputation affects financial status of the
organization.
Measured aspects:
◦ Executing strategy
◦ Transparency of information
◦ Strong corporate governance
Highest ranking companies included
 IKEA, Google, Toyota…
Why SM is Important
Organizations are constantly faced with
changing situations both internally and
externally and are still expected to meet a
certain level of output
 Industries never stand still

◦ Operations improve
◦ Markets expand
◦ Competition comes and goes
The way strategy is developed has an effect
on performance according to past studies
 Companies that collected information and
used analytical techniques made more
effective decisions than those that did
not.
 Organizations that use several approaches
to developing strategy outperformed
those who only used one.
Why SM is Important
Focuses and coordinates different
divisions/departments on the same goal
 Each division has its own goals for
performance

◦ Accounting and revenues, operations and
output…

SM helps align these goals with the
organizations goals
Strategic Management
What it is?
Section 1.2
Defining Strategy
Goals directed plans and actions
Capabilities and resources (Internal Forces)
Opportunities and threats (External Forces)
Strategic Management

Analyzing the CURRENT situation

Propelling the strategy into action.
Notice: Changes could or must be made to
accommodate strategy in accordance.
Four Characteristics

Interdisciplinary

External Factors

Internal Factors

Future Direction
The Strategic Management Process
1. Situation Analysis- Current Situation
 2. Strategy Formulation- Designing
 3. Strategy Implementation- Action
 4. Strategy Evaluation- Revisit and Check

Situation Analysis
Evaluating the current situation
Strategy Formation

1. Functional Strategies
◦ Relate to organizational functional area
◦ Example: Production- operations, marketing,
finance and accounting

2. Competitive Strategies
◦ Concerned with how an organization competes
in the industry
◦ Examples: Direct Competitors

3. Corporate Strategies
◦ What business to be in and what to do
◦ Example: acquisitions
The Strategic Management Process
1. Situation Analysis- Current
 2. Strategy Formulation- Designing
 3. Strategy Implementation
◦ Strategy in action

4. Strategy Evaluation◦ how it measures to expectation
History of Strategic Management
Strategos- military commander
 1960’s Contingency approach arose

Who’s Involved with Strategic Management

Remember – strategic management is the responsibility
of all employees
◦ All organizational levels play a role in developing, implementing,
and changing strategy
 Lower level employees are concerned with functional strategies
 Higher level executives are concerned with strategic issues

Three main groups in the strategic management process
◦ The Board of Directors
◦ The Top Management Team
◦ Other Strategic Managers and Organizational Employees
The Board of Directors

Elected group that represents a company’s shareholders
◦ Legal obligation to protect interests of stockholders
◦ Corporate governance – governing the decisions and actions of
the organization
◦ Two different roles a Board plays
 Approving Role
 Involved Role
The Board of Directors cont…

Approving Role
◦ Older, traditional form of role that a Board
plays
◦ Top management keeps board members
informed of strategies
◦ Board’s role is to approve these strategies,
some of which they may have already given
input on
The Board of Directors cont…

Involved Role
◦ More common role of Board’s in today’s
business world
◦ Board initiates strategies and oversees the
implementation and evaluation of these
strategies
The Board of Directors cont…
The Board of Directors Key Roles









Review and approve strategic goals and plans
Review and approve organization’s financial standards and policies
Ensure integrity of organization’s financial controls and reporting
system
Approve an organizational philosophy
Monitor organizational performance and regularly review
performance results
Select, evaluate, and compensate top-level managers
Develop management succession plans
Review and approve capital allocations and expenditures
Monitor relations with shareholders and other key stakeholders
The Role of Top Management



An organizations top manager is typically the Chief
Executive Officer (CEO)
The CEO works with other executive or senior
managers such as COO, CFO, CCO, CIO etc…
Roles of Chief Executives
◦ Chief Strategist
◦ Strategy Designer
◦ Key Decision Maker
◦ Visionary Leader
◦ Provide Effective Strategic Leadership
The Role of Top Management cont…

Provide Effective Strategic Leadership
◦ Strategic Leadership – the ability to anticipate, envision, maintain
flexibility, think strategically, and work with others in the
organization to initiate changes that will create a viable and
valuable future for the organization

Executive or Senior Level Management provides
effective Strategic Leadership with six key dimensions
◦
◦
◦
◦
◦
◦
Determining the organization’s purpose or vision
Exploiting and maintaining the organization’s core competencies
Developing the organization’s human capital
Creating and sustaining a strong organizational culture
Emphasizing ethical organizational decisions and practices
Establishing appropriately balanced organizational controls
Other Strategic Managers and
Organizational Employees

Strategy Implementation
◦ Employees put strategies into action
◦ It is not uncommon to see them managing or
supervising the work of others and doing
work themselves

Evaluation of Strategies
◦ If strategies aren’t helping the organization
achieve its goals, they need to be changed
◦ Employees do the evaluating and follow up to
top management
1.4
Factors Impacting SM Today
Global economy and Globalization
 Corporate Governance
 E-business

Global Economy and Globalization
Offers significant business opportunities
 Extremely difficult doing business globally
 Meant to open up trade, and break down
geographical barriers

◦ Openness entails open to both good and bad
Global Economy and Globalization
High interdependence on trade can lead to
domino effects during economic
upturns/downturns.
 WTO- goal is to promote long term
economic development and poverty reduction
by providing technical and financial support
 IMF- promotes international monetary
cooperation and provides members with
policy advice, loans, and technical assistance to
maintain financial stability

Global Economy and Globalization
Other challenges in the global economy:
 Cultural differences (traditions, history,
beliefs)
◦ Ex: Capitalism’s high emphasis on profits and
growth are widely accepted in US and Australia,
but not so much in France or Scandinavia


Internet and speed of information
Strategic managers must be sensitive to
cultural and political differences
◦ How will decisions be viewed?
◦ How will their actions be viewed?
Corporate Governance


Corporate Governance – the way a corporation is
governed or the determination of the broad uses to
which organizational resources will be deployed and the
resolution of conflicts among the myriad participants in
organizations
2001-2002
◦ Enron, Tyco, Worldcom

Sarbanes-Oxley Act – U.S. law designed to protect
investors by improving the accuracy and reliability of
corporate disclosures
◦ Mandated two areas
 The Role of Boards of Directors
 Financial Reporting
Corporate Governance cont…
The Role of Boards of Directors


The original purpose of a corporate Board of Directors
was to ensure that there was a group, independent from
management that looked out for the interest of the
owners who were not involved in the day to day
operations of the corporation.
Sarbanes-Oxley changed the way publicly traded
companies were run through the board members
◦ No more “relationship” between the CEO and board members
Corporate Governance cont…
Financial Reporting
 Sarbanes-Oxley called for more disclosure and
transparency of financial information
◦ Senior Managers must now sign off certifying the
accuracy of financial statements

Section 404
◦ Deals with auditing of internal financial controls
SM in the E-business World

E-business- using information and
communication technologies to support
all aspects of a business.
◦ E-commerce- retailing side of e-business,
selling items over the internet.
SM in the E-business World

E-business Enhanced Organization
◦ Traditional organization that sets up e-business
capabilities, while maintaining its traditional
structure
◦ Ex: shopping at Wal-Mart in store, or online

E-business Enabled Organization
◦ Uses information and communication technology
to perform its traditional business functions
better, not for selling anything.
◦ Enables organizations to do their work more
efficiently and effectively
SM in the E-business World

Total E-business
◦ Whole approach to business is based on the
internet and other information and
communication technologies
◦ Ex: Google,Yahoo, eBay, Amazon.com