Module 1 strategic management | Summaries Strategic Management

The Study of Strategic Management

Strategic management determines a company's long-term performance. It involves environmental

scanning, strategy design, strategy implementation, evaluation, and control. Strategic management,

historically dubbed company policy, has grown thanks to researchers and practitioners. Today, strategic

management is a science and an art.

PHASES OF STRATEGIC MANAGEMENT

Phase 1—Basic financial planning: Managers start serious preparation when asked to submit next year's

budget. Projects are proposed with little analysis, primarily from inside sources. This endeavor relies on

sales force environmental data. Simple operational planning is time-consuming but purports to be

strategic management. Managers spend weeks trying to fit ideas into the budget. Usually one year.

Phase 2—Forecast-based planning: As annual budgets fail to inspire long-term planning, managers

suggest five-year plans. They contemplate multi-year initiatives now. Managers collect environmental

data and estimate present trends. To ensure all proposed budgets fit, this process can take a month or

more of managerial activity. Managers fight over limited cash, making it political. Proposals and

assumptions are evaluated in countless meetings. Usually three to five years.

Phase 3—Externally oriented (strategic) planning: Top management implements a formal strategic

planning structure after becoming frustrated with highly political but ineffective five-year plans. Thinking

strategically helps the organization adapt to shifting markets and competitors. A planning team creates

strategic strategies for the company instead of lower-level managers. The planning department uses

sophisticated and innovative methods from consultants to gather information and predict future trends.

Phase 4—Strategic management: Top management organizes planning groups of managers and key

employees from diverse departments and workgroups since even the best strategic plans are useless

without lower-level managers' involvement and commitment. They create and implement plans to

highlight the company's competitive advantages. Strategic plans cover implementation, evaluation, and

control. The plans focus on likely scenarios and contingency preparations rather than precise prediction.

Strategic thinking replaces the five-year strategic plan. Strategic information, traditionally restricted to

top management, is now used by everyone. Instead of a big centralized planning team, internal and

external planning consultants guide group strategy discussions. Top management may start strategic

planning, but every employee can contribute strategies. Planning is now multi-level and interactive.

Everyone's involved.

BENEFITS OF STRATEGIC MANAGEMENT

A clearer sense of strategic vision for the firm

A sharper focus on what is strategically important.

An improved understanding of a rapidly changing environment.

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The Study of Strategic Management Strategic management determines a company's long-term performance. It involves environmental scanning, strategy design, strategy implementation, evaluation, and control. Strategic management, historically dubbed company policy, has grown thanks to researchers and practitioners. Today, strategic management is a science and an art. PHASES OF STRATEGIC MANAGEMENT Phase 1—Basic financial planning: Managers start serious preparation when asked to submit next year's budget. Projects are proposed with little analysis, primarily from inside sources. This endeavor relies on sales force environmental data. Simple operational planning is time-consuming but purports to be strategic management. Managers spend weeks trying to fit ideas into the budget. Usually one year. Phase 2—Forecast-based planning: As annual budgets fail to inspire long-term planning, managers suggest five-year plans. They contemplate multi-year initiatives now. Managers collect environmental data and estimate present trends. To ensure all proposed budgets fit, this process can take a month or more of managerial activity. Managers fight over limited cash, making it political. Proposals and assumptions are evaluated in countless meetings. Usually three to five years. Phase 3—Externally oriented (strategic) planning: Top management implements a formal strategic planning structure after becoming frustrated with highly political but ineffective five-year plans. Thinking strategically helps the organization adapt to shifting markets and competitors. A planning team creates strategic strategies for the company instead of lower-level managers. The planning department uses sophisticated and innovative methods from consultants to gather information and predict future trends. Phase 4—Strategic management: Top management organizes planning groups of managers and key employees from diverse departments and workgroups since even the best strategic plans are useless without lower-level managers' involvement and commitment. They create and implement plans to highlight the company's competitive advantages. Strategic plans cover implementation, evaluation, and control. The plans focus on likely scenarios and contingency preparations rather than precise prediction. Strategic thinking replaces the five-year strategic plan. Strategic information, traditionally restricted to top management, is now used by everyone. Instead of a big centralized planning team, internal and external planning consultants guide group strategy discussions. Top management may start strategic planning, but every employee can contribute strategies. Planning is now multi-level and interactive. Everyone's involved. BENEFITS OF STRATEGIC MANAGEMENT  A clearer sense of strategic vision for the firm  A sharper focus on what is strategically important.  An improved understanding of a rapidly changing environment.

Impact of Innovation Business innovation refers to innovative products, services, procedures, and organizational approaches that provide high returns. Impact of Sustainability As mentioned, sustainability means using business techniques to manage the triple bottom line. The triple bottom line includes managing profit/loss, social responsibility, and environmental responsibility. The corporation owes stockholders long-term. The company must survive industry, social, and environmental changes. Strategy and this textbook focus on this. A sustainable company owes its employees, customers, and community. Creating a Learning Organization Strategic flexibility requires long-term investment in vital resources and skills. It also requires the corporation to become a learning organization—one that can create, acquire, and transmit knowledge and adapt its behavior to new information. Competitiveness in a changing environment requires organizational learning. Learning organizations are skilled at four main activities:  Solving problems systematically  Experimenting with new approaches  Learning from their own experiences and past history as well as from the experiences of others  Transferring knowledge quickly and efficiently throughout the organization. Basic Model of Strategic Management Strategic management consists of four basic elements:  Environmental scanning  Strategy formulation  Strategy implementation  Evaluation and control. Environmental Scanning Environmental scanning involves monitoring, assessing, and sharing external and internal information with important company personnel. It identifies strategic aspects—external and internal considerations that will help the firm analyze its strategic decisions. SWOT analysis simplifies environmental scanning results. SWOT describes a company's strategic Strengths, Weaknesses, Opportunities, and Threats. Top management rarely has short-term influence over external variables like opportunities and dangers. These factors define the corporation.

The typical larger business addresses three types of strategy: corporate, business, and functional. Corporate strategy - describes a company's growth and business management. Stability, growth, and retrenchment are corporate strategies. Business strategy - at the business unit or product level focuses on improving a corporation's products or services' competitive position in its industry or market segment. Competitive and cooperative strategies are business strategies. Functional strategy - is a functional area's approach to meeting corporate and business unit goals through maximizing resource productivity. It develops and nurtures a unique capability to give a firm or business unit a strategic advantage. Policies: Setting Guidelines A policy guides decision-making from strategy creation through implementation. Policies ensure that all employees follow the company's mission, goals, and strategy. Strategy Implementation Strategies and policies are implemented through programs, budgets, and processes. Organizational culture, structure, and management may change during this process. Except for drastic corporatewide changes, middle- and lower-level managers implement strategy with top management review. Strategy implementation—also called operational planning—often entails daily resource allocation choices. Programs and Tactics: Defining Actions Programs and tactics describe the actions needed to support a strategy. Interchangeable. A program is a set of tactics, which are individual actions conducted by the organization to achieve a plan. Programs and tactics make strategies actionable. It may involve restructuring the company, changing its culture, or starting new research. To significantly cut costs, management decided to implement a series of tactics:  Outsource approximately 70% of manufacturing.  Reduce final assembly time to three days (compared to 20 for its 737 plane) by having suppliers build completed plane sections.  Use new, lightweight composite materials in place of aluminum to reduce inspection time.  Resolve poor relations with labor unions caused by downsizing and outsourcing Budgets: Costing Programs Budgets list a company's programs in dollars. Budgets show program costs for planning and control. Before approving a new program, many companies need a "hurdle rate" return on investment. So the new initiative can boost profits and shareholder value. The budget details the new strategy and forecasts the firm's financial future using proforma financial statements.

Procedures: Detailing Activities Procedures, often known as Standard Operating Procedures (SOP), are a set of instructions for completing a task. They list the tasks needed to finish the company's program. Performance Activities create performance. It comprises strategic management results. Strategic management is supported by its capacity to boost earnings and ROI. Managers need clear, timely, and unbiased information from subordinates to evaluate and control. Managers use this data to compare actual events to formulated plans. Initiation of Strategy: Triggering Events A triggering event is something that acts as a stimulus for a change in strategy. Some possible triggering events are. New CEO: Asking awkward questions breaks complacency and makes individuals reconsider the corporation's purpose. External intervention: A firm's bank suddenly denies a loan or demands full payment on an old one. Key customer complains about significant product fault. Threat of a change in ownership: A competitor may buy a company's common stock. Performance gap: Performance falls short of expectations. Sales and profitability may be declining. Strategic Decision Making Strategic management emphasizes decision-making. Decisions become harder as businesses grow larger and more complex in uncertain circumstances. This book provides a strategic decision-making framework that might help corporate employees make these decisions, in line with the strategic choice approach. MINTZBERG’S MODES OF STRATEGIC DECISION MAKING Entrepreneurial mode: Powerful person makes strategy. Opportunities trump issues. Large, bold decisions reflect the founder's direction. Company expansion is the main objective. Jeff Bezos built Amazon.com using this strategy. Amazon reflects Bezos' aim of selling everything online. Adaptive mode: Also known as "muddling through," this decision-making style is reactive, not proactive. Priorities are negotiated. Corporate strategy is fragmented and incremental. Planning mode: This decision-making style involves methodical information collecting, strategy creation, and rational strategy selection. It involves proactive exploration and reactive problem-solving.

Module 1 strategic management, Summaries of Strategic Management

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