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CHAPTER 1

Strategic Management

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Chapter Topics

• The Nature and Value of Strategic Management

• Dimensions of Strategic Decisions
• Formality in Strategic Management
• Benefits of Strategic Management
• Risks of Strategic Management
• Executives’ Views 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. Formulate the company’s mission

2. Conduct internal analysis
3. Assess the company’s external environment
4. Analyze company’s options
5. Identify most desirable options
6. Select long-term objectives and grand strategies
7. Develop annual objectives and short-term strategies
8. Implement the strategic choices
9. 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
• 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 1-2: Single-business Firms

C o rp o ra te /
b u s in e s s le v e l

P O M /R & D F i n a n c i a l/ M a r k e t in g H um an
s t r a te g ie s a c c o u n t in g s t r a te g ie s r e la t io n s
s t r a te g ie s s t r a te g ie s

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Ex 1-2: Multiple business Firms

C o r p o r a te
s t r a te g ie s

B u s in e s s 1 B u s in e s s 2 B u s in e s s 3
T y p e t it le h e re T y p e t it le h e re T y p e t it le h e re

P O M /R & D F i n a n c i a l/ M a r k e t in g H um an
s t r a te g ie s a c c o u n t in g s t r a te g ie s r e la t io n s
s t r a te g ie s s t r a te g ie s

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Ex 1-3: Hierarchy of Objectives and Strategies

Strategic Decision Makers

Ends Means Board of Corporate Business Functional

(What is to be (How is to be achieved) Directors Managers Managers Managers
achieved)
Mission, including
Goals and
philosophy   
Long-term
objectives
Grand strategy   
Annual objectives Short-term strategies
And policies
  

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 Greater need for

decisions flexibility

Longer time horizons

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Characteristics of Strategic Management

Decisions

Implement overall strategy

Involve action-oriented
Functional-
Functional- operational issues
level
level
decisions
decisions Are relatively short range
and low risk

Incur only modest costs

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Characteristics of Strategic Management

Decisions
Bridge decisions at
corporate and functional
levels

Are less costly, risky, and

Business-level potentially profitable than
decisions 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
• 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 1-5 18
Strategic
Company mission
Management
and social
Process
responsibility

Possible?
External
Internal analysis
environment
Desired?
Feedback

Feedback
Strategic analysis and choice

Long-term
Generic and grand strategies
objectives

Short-term objectives; Policies that

Functional tactics
reward systems empower action

Restructuring, reengineering
and refocusing the organization
Legend Strategic control and
Major impact continuous improvement
Minor
impact
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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

• 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

• Long-term Objectives
– 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

• Generic and Grand Strategies

• Low cost
• Differentiation
• Focus
• 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
• 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

• Restructuring, Reengineering, and Refocusing the

Organization
• Involves an internal focus – getting work done efficiently and
effectively to make the strategy work
• Organizational structure
• Leadership
• Culture
• Reward systems

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Components of the Strategic

Management Model

• 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 the Strategic

Management 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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