Strategic Management

Chapter 1

McGraw-Hill/Irwin Copyright © 2009 by the McGraw-Hill Companies, Inc. All rights reserved.
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

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The Nature and Value of Strategic
Management

 Strategic management:
The set of decisions and actions that result
in formulation and implementation of
plans designed to achieve a company’s
objectives

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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

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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 long-term
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 company’s 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 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

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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

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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.

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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 firm’s SBUs, divisions,
or program units

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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

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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

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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 and 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  Problems in the

 Predominant Firm
Management Styles  Purpose of the
 Complexity of Planning System
Environment  Stage of Firm’s
 Production Process Development

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Three Modes of Formality
 Entrepreneurial Mode – most small firms
 Planning Mode – most large firms
 Adaptive Mode – most medium size firms

1-21
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 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
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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 process—a flow
of information through interrelated stages of
analysis toward the achievement of some
goal

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Strategic Management
Model

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

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