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Chapter 1

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

Learning Objectives
1. 2. 3. 4. 5. 6.

7.

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

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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 companys objectives

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Nine Critical Tasks of Strategic Management - Tasks 1-5: Formulate the companys mission Conduct an internal analysis Assess the external environment

competitive and general contexts Analyze the companys options by matching its resources with the external environment Identify the most desirable options in light of the mission

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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 longterm objectives and grand strategies Implement the strategic choices Evaluate the success of the strategic process for future decision making

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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 companys awareness of the main elements of competition
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Dimensions of Strategic Decisions


Strategic issues require top-management

decisions
Strategic decisions overarch several

areas of a firms 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
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Dimensions of Strategic Decisions (contd.)


Strategic issues require large amounts of the

firms 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

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Dimensions of Strategic Decisions (contd.)


Strategic issues often affect the firms 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.

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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
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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 firms SBUs, divisions, or program units
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Dimensions of Strategic Decisions (contd.)


Strategic issues require considering the

firms 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
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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]
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Alternative Strategic Management Structures


Ex. 1.3

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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


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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

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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

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Formality in Strategic Management

Formality is the degree to which

participation, responsibility, authority, and discretion in decision-making are specified in strategic management

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Forces Determining Formality


Organizational

Size Firm Predominant Purpose of the Management Planning System Styles Stage of Firms Complexity of Development Environment Production Process
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Problems in the

Three Modes of Formality


Entrepreneurial Mode most small firms Planning Mode most large firms Adaptive Mode most medium size firms

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Strategy Makers
Ideal strategic team includes decision

makers from all three levels Top managers must give final approval Strategic decisions coincide with managers responsibilities

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Strategy Makers: The CEO


A firms CEO plays a dominant role

in strategic planning The CEOs principal duty is giving long-term direction to the firm The CEO bears ultimate responsibility for the firms success and strategic success CEOs are typically strong-willed, company-oriented individuals
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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

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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

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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 processa flow of information through interrelated stages of analysis toward the achievement of some goal

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Ex. 1.6 Strategic

Management

Model

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Components of Strategic Management Model


Company Mission External Analysis Long-Term Objectives Short-Term Objectives Policies Empowering Internal Analysis Strategic Analysis &

Action Strategic Control & Continuous Improvement

Choice Generic & Grand Strategies Functional Tactics Restructuring, Reengineering & Refocusing

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