Chapter 1

The Strategic Management Process

Strategic Management
An Integrated Approach

Charles W. L. Hill
Gareth R. Jones
PowerPoint Presentation by Charlie Cook

Fifth Edition
Copyright 2001 Houghton Mifflin Company. All rights reserved.

Overview
Why do some firms succeed while others fail?
A central objective of strategic management is to

learn why this happens.

What is strategy?
An action a company takes to attain superior

performance.

What is the strategic management process?

The process by which managers choose a set of

strategies for the enterprise to pursue its vision.

Copyright 2001 Houghton Mifflin Company. All rights reserved. 1-2

Strategic Planning
Rational planning by top management?
Basic Strategic Planning Model
Defining the Mission and Setting Top-Level Goals External Analysis of Opportunities and Threats Internal Analysis of Strengths and Weaknesses Selection of Appropriate Strategies Implementation of Chosen Strategies
Copyright 2001 Houghton Mifflin Company. All rights reserved. 1-3

The Main Components of the Strategic Planning Process

FIGURE 1.1
Copyright 2001 Houghton Mifflin Company. All rights reserved. 1-4

Mission and Goals

Mission
Sets out why the organization

exists and what it should be doing.

Major goals
Specify what the organization hopes

to fulfill in the medium to long term.

Secondary goals
Are objectives to be attained that lead to superior

performance.
Copyright 2001 Houghton Mifflin Company. All rights reserved. 1-5

External Analysis
Identify strategic opportunities and threats in the operating environment.

Immediate (Industry)

Macroenvironment

National

Copyright 2001 Houghton Mifflin Company. All rights reserved.

1-6

Internal Analysis
Identify strengths
Quality and quantity of resources available
Distinctive competencies

Identify weaknesses
Inadequate resources
Managerial and

organizational deficiencies

Copyright 2001 Houghton Mifflin Company. All rights reserved.

1-7

SWOT and Strategic Choice

Strengths and Weaknesses Opportunities and Threats (SWOT Analysis)

Strategic Choice
Business Functional Global Corporate

Copyright 2001 Houghton Mifflin Company. All rights reserved.

1-8

Business-Level Strategies
Cost leadership
Attaining, then using the lowest total cost basis as a

competitive advantage.

Differentiation
Using product features or services to distinguish the

firms offerings from its competitors.

Market niche focus

Concentrating competitively on

a specific market segment.

Copyright 2001 Houghton Mifflin Company. All rights reserved. 1-9

Functional-Level Strategies
Focus is on improving the effectiveness of operations within a company.
Manufacturing Marketing

Materials management
Research and development Human resources

Copyright 2001 Houghton Mifflin Company. All rights reserved.

1-10

Global-Level Strategies
Multidomestic International Global Transnational

Copyright 2001 Houghton Mifflin Company. All rights reserved.

1-11

Corporate-Level Strategies
Vertical integration Diversification Strategic alliances Acquisitions New ventures Business portfolio restructuring

Copyright 2001 Houghton Mifflin Company. All rights reserved.

1-12

Strategy Implementation
Designing organizational structure Designing control systems
Market and output controls Bureaucratic controls Control through organizational culture Rewards and incentives
Controls Structure

Matching strategy, structure, and controls

Congruence (fit) among strategy,

structure, and controls

Strategy

Copyright 2001 Houghton Mifflin Company. All rights reserved.

1-13

Managing Strategic Change

The only constant is change. Success requires adapting strategy and structure to a changing world. The feedback loop in Corporate strategic planning.
Operational Business

Functional
Copyright 2001 Houghton Mifflin Company. All rights reserved. 1-14

Strategic Managers
General managers
Responsible for the overall (strategic) performance

and health of the total organization.

Operations managers
Responsible for specific business

functions or operations.

Copyright 2001 Houghton Mifflin Company. All rights reserved.

1-15

Strategic Managers for All Levels

FIGURE 1.2
Copyright 2001 Houghton Mifflin Company. All rights reserved. 1-16

Strategic Leadership
Vision, eloquence, and consistency Commitment to the vision Being well informed Willingness to delegate and empower Astute use of power Emotional intelligence

Copyright 2001 Houghton Mifflin Company. All rights reserved.

1-17

Strategy as an Emergent Process

Strategy making in an unpredictable world
Creates the necessity for flexible strategic approaches.

Strategy making by lower-level managers

Strategy evolves through autonomous action.

Serendipity and strategy

Accidental discoveries and happenstances can have dramatic

effects on strategic direction.

Intended and emergent strategies

Realized strategies are combinations of intended and

emergent strategies.
Copyright 2001 Houghton Mifflin Company. All rights reserved. 1-18

Intended and Emergent Strategies

FIGURE 1.3
Copyright 2001 Houghton Mifflin Company. All rights reserved.

Source: Reprinted from Strategy Formation in an Adhocracy, by Henry Mintzberg and Alexandra McGugh, published in Administrative Science Quarterly, Vol. 30, No. 2, June 1985, by permission of Administrative Science Quarterly.

1-19

The Strategic Management Process for Intended and Emergent Strategies

FIGURE 1.4
Copyright 2001 Houghton Mifflin Company. All rights reserved. 1-20

Strategic Planning in Practice

Planning under uncertainty
Scenario planning for dynamic environmental change

Ivory tower planning

Lack of contact with operational realities The importance of involving operating managers

Procedural justice in the decision-making process Engagement, explanation, and expectations

Planning for the present: Strategic Intent

Recognition of the static nature of the strategic fit model Strategic intent in focusing the organization on winning by

achieving stretch goals

Copyright 2001 Houghton Mifflin Company. All rights reserved.

1-21

Improving Strategic Decision Making

Cognitive biases systematically influence the rationality of decision makers.

FIGURE 1.5
Copyright 2001 Houghton Mifflin Company. All rights reserved. 1-22

Groupthink and Strategic Decisions

Pitfalls of groupthink
Failing to question underlying assumptions.
Coalescing around a single person or policy. Filtering out conflicting information.

Developing after-the-fact rationalizations.

Having an emotional (nonobjective)

commitment to an action.

Copyright 2001 Houghton Mifflin Company. All rights reserved.

1-23

Techniques for Improving Decision Making

Two decisionmaking processes that counteract cognitive biases and groupthink.

FIGURE 1.6
Copyright 2001 Houghton Mifflin Company. All rights reserved. 1-24