Strategic Management 1

2. Chapter 1
McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.

3. Learning Objectives
1. Explain the concept of strategic management
2. Describe how strategic decisions differ from other
decisions that managers make
3. Name the benefits and risks of a participative
approach to strategic decision making
4. Understand the types of strategic decisions for which
different managers are responsible
5. Describe a comprehensive model of strategic
decision making
6. Appreciate the importance of strategic management
as a process
7. Give examples of strategic decisions that companies
have recently made
1-3

4. The Nature and Value of Strategic
Management
Strategic management:
The set of decisions and actions that
result in the formulation and
implementation of plans designed to
achieve a company’s objectives
1-4

5. Nine Critical Tasks of Strategic Management
-- Tasks 1-5:
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
1-5

6. Nine Critical Tasks of Strategic Management
-- Tasks 6-9:
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
1-6

7. 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
1-7

8. Dimensions of Strategic Decisions
 Strategic issues require top-management
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
1-8

9. Dimensions of Strategic Decisions (contd.)
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
1-9

10. Dimensions of Strategic Decisions (contd.)
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.
1-10

11. Dimensions of Strategic Decisions (contd.)
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
1-11

12. Dimensions of Strategic Decisions (contd.)
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
1-12

13. Dimensions of Strategic Decisions (contd.)
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
1-13

14. 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]
1-14

15. Alternative Strategic Management
Ex. 1.3
Structures
1-15

16. 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
1-16

17. Characteristics of Strategic Management
Decisions: Functional
Implement the overall strategy formulated at the
corporate and business levels
Involve action-oriented operational issues
Relatively short range and low risk
Modest costs: depend upon available resources
Relatively concrete and quantifiable
1-17

18. Characteristics of Strategic Management
Decisions: Business
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
1-18

19. Formality in Strategic Management
Formality is the degree to which
participation, responsibility,
authority, and discretion in
decision-making are specified in
strategic management
1-19

20. Forces Determining Formality
Organizational Problems in the
Size Firm
Predominant Purpose of the
Management Planning System
Styles
Complexity of Stage of Firm’s
Environment Development
Production
Process
1-20

21. Three Modes of Formality
Entrepreneurial Mode – most small firms
Planning Mode – most large firms
Adaptive Mode – most medium size firms
1-21

22. Strategy Makers
Ideal strategic team includes decision
makers from all three levels
Top managers must give final approval
Strategic decisions coincide with
managers’ responsibilities
1-22

23. 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
1-23

24. 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
1-24

25. 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
1-25

26. 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
1-26

27. Ex. 1.6 Strategic Management
Model
1-27

28. Components of Strategic
Management Model
Company Mission Internal Analysis
External Analysis Strategic Analysis &
Long-Term Objectives
Choice
Generic & Grand
Short-Term Objectives Strategies
Policies Empowering Functional Tactics
Action Restructuring,
Strategic Control & Reengineering &
Continuous Refocusing
Improvement
1-28