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Chapter 1
Strategic Management
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Chapter Topics
• The Nature and Value of Strategic
Management
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•
•
•
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•
•
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Dimensions of Strategic Decisions
Formality in Strategic Management
Benefits of Strategic Management
Risks of Strategic Management
The Strategic Management Process
Components of the Strategic Management Model
Strategic Management as a Process
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What is Strategic Management?
The set of decisions and actions that result
in the formulation and implementation of
plans designed to achieve a company’s
objectives.
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Critical Tasks of Strategic Management
1.
2.
3.
4.
5.
6.
7.
8.
9.
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Formulate the company’s mission
Conduct internal analysis
Assess the company’s external environment
Analyze company’s options
Identify most desirable options
Select long-term objectives and grand strategies
Develop annual objectives and short-term strategi
Implement the strategic choices
Evaluate success of the strategic process
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What is Strategy?
• Large-scale, future-oriented plan for
interacting with the competitive
environment to achieve objectives
• Company’s “game plan”
• Framework for managerial decisions
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Dimensions of Strategic Decisions
• Strategic issues
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•
•
•
•
Require top-management decisions
Require large amounts of the firm’s resources
Often affect the firm’s long-term prosperity
Are future oriented
Usually have multifunctional or multibusiness
consequences
• Require considering the firm’s external
environment
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Three Levels of Strategy
1. Corporate level
2. Business level
3. Functional level
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Exhibit 1-3: Single-business Firms
POM/R&D
strategies
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Financial/
accounting
strategies
Marketing
strategies
Human
relations
strategies
Functional Level
Corporate/
business level
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Ex 1-3: Multiple business Firms
POM/R&D
strategies
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Business 2
Financial/
accounting
strategies
Business 3
Marketing
strategies
Human
relations
strategies
Functional Level
Business 1
Business Level
Corporate
strategies
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Ex 1-4: Hierarchy of Objectives and Strategies
Strategic Decision Makers
Ends
(What is to be
achieved)
Means
(How is to be achieved)
Mission, including
Goals and
philosophy
Long-term
objectives
Annual objectives
Grand strategy
Short-term strategies
and policies
Board of
Directors
Corporate
Managers
Business Functional
Managers Managers









Note:  indicates a principal responsibility;  indicates a secondary responsibility
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Characteristics of Strategic Management
Decisions
Greater risk,cost,
and profit potential
Corporate-level
decisions
Greater need for
flexibility
Longer time horizons
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Characteristics of Strategic Management
Decisions (contd.)
Implement overall strategy
Functionallevel
decisions
Involve action-oriented
operational issues
Are relatively short range
and low risk
Incur only modest costs
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Characteristics of Strategic Management
Decisions (contd.)
Bridge decisions at
corporate and functional
levels
Business-level
decisions
Are less costly, risky, and
potentially profitable than
corporate-level decisions
Are more costly, risky, and
potentially profitable than
functional-level decisions
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Formality in Strategic Management
• Definition
• Degree to which participants, responsibilities,
authority, and discretion in decision making are
specified
• Forces affecting degree of formality
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Size of organization
Predominant management styles
Complexity of environment
Production process
Problems
Purpose of planning system
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The Strategy Makers
• The ideal strategic management team
includes
• Chief executive officer (CEO)
• Product managers
• Heads of functional areas
• The strategic management team obtains
input from
• Planning staff
• Lower-level management and supervisors
• Role of CEO
• Provides long-term direction
• Assumes ultimate responsibility for firm’s success
• Solicits guidance from Board of Directors
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Benefits of Strategic Management
Enhances the firm’s ability to prevent problems
Emphasizes group-based strategic decisions likely to be based on
best available alternatives
Improves employees’ understanding of the productivity-reward
relationship
Reduces gaps/overlaps in activities among employees as their
participation clarifies differences in roles
Resistance to change is reduced
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Risks of Strategic Management
• Time involved may negatively impact
operational responsibilities of
managers
• Lack of involvement of strategy
makers in strategy implementation
may result in shirking of responsibility
for strategic decisions
• Potential disappointment of employees
over unattained expectations requires
managerial time and training
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Ex 1-6:
Strategic
Management
Process
Company mission
and social
responsibility
External
environment
Possible?
Internal analysis
Desired?
Strategic analysis and choice
Long-term
objectives
Short-term objectives;
reward systems
Generic and grand strategies
Functional tactics
Policies that
empower action
Restructuring, reengineering
and refocusing the organization
Legend
Major impact
Minor impact
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Strategic control and
continuous improvement
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Components of the Strategic
Management Model
• Company Mission
• Specifies unique purpose of company
• Identifies scope of operations
• Describes product, market, and technological areas
of emphasis
• Reflects values and priorities of decision makers
• Expresses approach to social responsibility efforts
• Internal Analysis
• Depicts quantity and quality of company’s
financial, human, and physical resources
• Assesses company’s strengths and weaknesses
• Contrasts past successes and concerns with current
capabilities to identify future capabilities
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Components of the Strategic
Management Model (contd.)
• External Environment
• Consists of all conditions and forces affecting
firm’s strategic options and define its competitive
situation
• Includes three interactive segments – remote,
industry, and operating environments
• Strategic Analysis and Choice
• Involves simultaneous assessment of external
environment and company profile
• Incorporates screening process based on mission
to generate possible and desired opportunities
• Results in selection of options from which a
strategic choice is made
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Components of the Strategic
Management Model (contd.)
• Long-term Objectives








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Profitability
Return on investment
Competitive position
Technological leadership
Productivity
Employee relations
Public responsibility
Employee development
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Components of the Strategic
Management Model (contd.)
• Generic Strategies
• Low cost
• Differentiation
• Focus
• Grand Strategies
• Comprehensive, general plan of major
actions through which the firm intends to
achieve its long-term objectives in a
dynamic environment
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Components of the Strategic
Management Model (contd.)
• Action Plans and Short-Term Objectives
• Translate generic and grand strategies into
“action”
• Identify specific functional tactics to be taken in the
near term
• Establish a clear time frame for completion
• Creates accountability
• Specify one or more immediate objectives as
outcomes of the action
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Components of the Strategic
Management Model (contd.)
• Functional Tactics
• Involve identifying activities unique to the
function to help build competitive advantage
• Specify detailed statements of “means” to be used
to achieve short-term objectives
• Policies that Empower Action
• Include broad, precedent-setting decisions that
substitute for repetitive or time-sensitive decision
making
• Often increase managerial effectiveness by
empowering discretion of subordinates in
implementing strategies
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Components of the Strategic
Management Model (contd.)
• Restructuring, Reengineering, and
Refocusing the Organization
• Involves an internal focus – getting work done
efficiently and effectively to make the strategy
work
• Downsizing, restructuring and reengineering
reflect the critical stage in strategy implementation
wherein managers attempt to recast their
organization.
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Components of the Strategic
Management Model (contd.)
• Strategic Control and Continuous
Improvement
• Control
• Tracks a strategy during implementation
• Detects problems
• Involves making necessary adjustments
• Continuous improvement
• Provides another approach to strategic control
• Allows an organization to respond more proactively
and timely to rapid developments
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Implications of Viewing Strategic
Management as a Process
 Changes in any one component will
affect other components
 Strategy formulation and
implementation are sequential
 Necessity of feedback from
institutionalization, review, and
evaluation to early stages of process
 Need to regard it as dynamic,
involving constant changes in
interdependent strategic activities
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