BME1102 CHAPTER 1

• Strategic management


  The art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives
• Strategic management


  • Focuses on integrating management, marketing, finance and accounting, production and operations, research and development (R&D), and information systems to achieve organizational success
• Strategic planning


  The term used more often in the business world, whereas 'strategic management' is often used in academia
• Purpose of strategic management

  To exploit and create new and different opportunities for tomorrow; long-range planning tries to optimize for tomorrow the trends of today
• Stages of strategic management

  1. Strategy formulation

  2. Strategy implementation

  3. Strategy evaluation
• Strategy formulation


  • Includes developing a vision and a mission, identifying an organization's external opportunities and threats, determining internal strengths and weaknesses, establishing long-term objectives, generating alternative strategies, and choosing particular strategies to pursue
• Strategy implementation


  • Requires a firm to establish annual objectives, devise policies, motivate employees, and allocate resources so that formulated strategies can be executed
• Strategy evaluation


  • Reviewing external and internal factors, measuring performance, and taking corrective actions
• Hierarchical levels in a large organization

  • Corporate
  • Divisional or Strategic Business Unit
  • Functional
• Intuition


  Essential to making good strategic decisions, particularly useful for making decisions in situations of great uncertainty or little precedent, when highly interrelated variables exist, or when it is necessary to choose from several plausible alternatives
• Competitive advantage


  Any activity a firm does especially well compared to activities done by rival firms, or any resource a firm possesses that rival firms desire
• Firm


  • Can sustain a competitive advantage for only a certain period because of rival firms imitating and undermining that advantage
  • Must strive to achieve sustained competitive advantage by continually adapting to changes in external trends and events and internal capabilities, competencies, and resources, and effectively formulating, implementing, and evaluating strategies that capitalize on those factors
• Strategist


  The individuals most responsible for the success or failure of an organization, with various job titles, who help an organization gather, analyze, and organize information, track industry and competitive trends, develop forecasting models and scenario analyses, evaluate corporate and divisional performance, spot emerging market opportunities, identify business threats, and develop creative action plans
• Mission statement


  Enduring statements of purpose that distinguish one business from other similar firms, identifying the scope of a firm's operations in product and market terms
• External opportunities and threats

  Economic, social, cultural, demographic, environmental, political, legal, governmental, technological, and competitive trends and events that could significantly benefit or harm an organization in the future, largely beyond the control of a single organization
• General categories of opportunities and threats

  • Availability of capital
  • Consumers expect green operations and products
  • Marketing is moving rapidly to the Internet
  • Commodity food prices are increasing
  • An oversupply of oil is driving oil and gas prices down
  • Computer hacker problems are increasing
  • Intense price competition is plaguing most firms
  • Unemployment and underemployment rates remain high globally
  • Interest rates are low but rising
  • Product life cycles are becoming shorter
  • State and local governments are financially weak
  • Drug cartel–related violence is increasing in Mexico
  • Winters are colder and summers are hotter than usual
  • Birth rates are declining in most countries
  • Global markets offer the highest growth in revenues
  • New laws are passed
  • Competitors introduce new products
  • National catastrophes occur
  • The value of the Euro is rebounding
  • The separation between the rich and poor is growing
  • Social media networking is greatly expanding
  • The Russian ruble has dropped 60 percent in value
• Environmental scanning or industry analysis

  The process of conducting research and gathering and assimilating external information
• Lobbying


  One activity that some organizations use to influence external opportunities and threats
• Internal strengths and weaknesses

  An organization's controllable activities that are performed especially well or poorly, arising in the management, marketing, finance/accounting, production/operations, research and development, and management information systems (MIS) activities of a business
• Long-term objectives


  Specific results that an organization seeks to achieve in pursuing its basic mission, for more than one year, essential for organizational success because they provide direction, aid in evaluation, create synergy, reveal priorities, focus coordination, and provide a basis for effective planning, organizing, and controlling
• Strategies


  The means by which long-term objectives will be achieved, including geographic expansion, diversification, acquisition, product development, market penetration, retrenchment, divestiture, liquidation, and joint ventures
• Annual objectives


  Short-term milestones that organizations must achieve to reach long-term objectives, should be measurable, quantitative, challenging, realistic
• Objectives


  What an organization seeks to achieve in pursuing its basic mission
• Long-term objectives


  • More than one year
• Objectives


  • Essential for organizational success because they provide direction; aid in evaluation; create synergy; reveal priorities; focus coordination; and provide a basis for effective planning, organizing
• Objectives


  • Should be challenging, measurable, consistent, reasonable, and clear
• Strategies


  Means by which long-term objectives will be achieved
• Strategies


  • Potential actions that require top-management decisions and large amounts of the firm's resources
  • Have multifunctional and multidivisional consequences and require consideration of both the external and internal factors facing the firm
• Annual objectives


  Short-term milestones that organizations must achieve to reach long term objectives
• Annual objectives


  • Should be measurable, quantitative, challenging, realistic, consistent, and prioritized
  • Should be stated in terms of management, marketing, finance/accounting, production/operations, R&D, and MIS accomplishments
  • Provide the basis for allocating resources
• Policies


  • Means by which annual objectives will be achieved
  • Include guidelines, rules, and procedures established to support efforts to achieve stated objectives
  • Stated in terms of management, marketing, finance/accounting, production/operations, R&D, and MIS activities
• Strategic management model


  • Identifying an organization's existing vision, mission, objectives, and strategies is the logical starting point
  • The strategic-management process is dynamic and continuous
  • A change in any one of the major components can necessitate a change in any or all of the other components
  • Strategy formulation, implementation, and evaluation activities should be performed on a continual basis
  • Business ethics, social responsibility, and environmental sustainability issues impact all activities
  • Global and international issues impact virtually all strategic decisions
  • Formal meetings semiannually to discuss and update the firm's vision, mission, opportunities, threats, strengths, weaknesses, strategies, objectives, policies, and performance
  • Retreats are held off-premises to encourage more creativity and candor
  • Good communication and feedback are needed throughout the strategic-management process
  • Formality in applying the strategic-management process is usually positively associated with organizational success
• Benefits of strategic management

  • Allows an organization to be more proactive than reactive
  • Helps organizations formulate better strategies through a more systematic, logical, and rational approach
  • The process, rather than the decision or document, is a major benefit
  • Communication is key to successful strategic management
  • Understanding and commitment from managers and employees is important
  • Empowerment of employees to participate in decision making and exercise initiative and imagination
• Strategic planning is a learning, helping, educating, and supporting process, not merely a paper-shuffling activity among top executives
• The worst thing strategists can do is develop strategic plans themselves and then present them to operating managers to execute
• Participation is a key to gaining commitment for needed changes
• Benefits to firms that do strategic planning

  • High-performing firms tend to do systematic planning to prepare for future fluctuations
  • Firms with strategic-planning systems generally exhibit superior long-term financial performance
  • High-performing firms make more informed decisions with good anticipation of consequences
  • Low-performing firms are often preoccupied with solving internal problems and meeting paperwork deadlines, underestimate competitors, and attribute weak performance to uncontrollable factors
• Reasons why some firms do no strategic planning

  • No formal training
  • No understanding or appreciation of benefits
  • No monetary rewards
  • No punishment for not planning
  • Too busy "firefighting"
  • View planning as a waste of time
  • Laziness
  • Content with current success
  • Overconfident
  • Prior bad experience
• Pitfalls in strategic planning

  • Using it to gain control over decisions and resources
  • Doing it only to satisfy accreditation or regulatory requirements
  • Hastily moving from mission to strategy
  • Failing to communicate the plan to employees
  • Top managers making intuitive decisions that conflict with the plan
  • Top managers not actively supporting the process
  • Failing to use plans as a performance measure
  • Delegating planning to a "planner" rather than involving all managers
  • Failing to involve key employees in all phases
  • Failing to create a collaborative climate supportive of change
  • Viewing planning as unnecessary or unimportant
  • Becoming so engrossed in current problems that no planning is done
  • Being so formal that flexibility and creativity are stifled
• Strategy


  (in military context) The science of planning and directing large-scale military operations, of maneuvering forces into the most advantageous position prior to actual engagement with the enemy