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The Strategic Management Process
Rationale
Strategic Planning consists of the process of defining objectives and developing strategies to reach those objectives. By labelling a piece of planning "strategic" we expect it to operate on the grand scale and to take in "the big picture" (in contradistinction to "tactical" planning, which by definition has to focus more on the tactics of individual detailed activities). "Long range" planning typically projects current activities and programs into a revised view of the external world, thereby describing results that will most likely occur. "Strategic" planning tries to "create" more desirable future results by (a) influencing the outside world or (b) adapting current programs and actions so as to have more favourable outcomes in the external environment.
Within business, strategic planning may provide overall direction strategic management to a company or give specific direction in such areas as:
- Financial strategies
- Human resource/organisational development strategies
- Information technology deployments
- Marketing strategy
We want to do Strategic Planning to:
1. Have the capability to obtain the desired objective
2. Fit well both with the external environment and with an organization's resources and core competencies - it should appear feasible and appropriate
3. Have the capability of providing an organization with a sustainable competitive advantage - ideally through uniqueness and sustainability
4. Prove dynamic, flexible, and able to adapt to changing situations
5. Suffice on its own - specifically providing favourable outcomes without the need for cross-subsidization
Contents
- Methodologies
- Situational analysis
- The External Environment
- Goals, objectives and targets
- Mission statements and vision statements
- Why strategic plans fail
- Where to Learn More, Where to Find Strategic Planners
Learning Outcomes
1.To enable the student to analyse and critically evaluate different business practices using appropriate theories, models frameworks and tools.
2. To identify and interpret the dynamics of the interaction between the financial and strategic decisions facing organizations.
3. To analyse and evaluate the financial and strategic performance of commercial organizations.
4. To critically appraise the role of the corporate centre in the management of enterprises.
5. To demonstrate the ability to synthesize a wide range of information and produce a coherent evaluation of an organization's strategy.
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Teaching and Learning Resources
Introduction. The Strategic Management Process
- The Case Study Approach: Argus Case
- How to Handle a Case Study
Strategic Management is a set of managerial decisions and actions aimed at the generation of sustainable competitive advantage. It encompasses identification, advocating, integrating and aligning organisational goals and objectives within the planning, implementation, and execution of daily business.
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- Overview
- Time scales
- General approaches
- The strategy hierarchy
- Reasons why strategic plans fail
- Criticisms of strategic management
- Journals devoted primarily to strategic management
- Magazines that frequently contain strategic management articles
- References
- Strategic Management Self-Study Modules (California State University, Chico)
- Strategic Decision Support using Computerised Morphological Analysis From the Swedish Morphological Society
- Strategic Assets - using corporate resources for competitive advantage
- Strategy World - leading thoughts from contemporary business strategists
- The Strategy Institute - The Boston Consulting Group Institution dedicated to the advancement of strategic management
Stakeholders and the Corporate Mission
Tutorials
Readings
The term Stakeholder, as traditionally used in the English language in law and notably gambling, is a third party who temporarily holds money or property while its owner is still being determined. More recently a very different meaning of the term has become widely used in management. A "stakeholder" is a person or organization that has a legitimate interest in a project or entity. The new use of the term arose together with and due to the spread of corporate social responsibility ideas, but there are also utilitarian and traditional business goals that are served by the new meaning of the term (see Stakeholder (corporate) and below).
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As originally detailed by R. E. Freeman (1984), Stakeholder Theory attempts to ascertain which groups are stakeholders in a corporation and thus deserve management attention. In short, it attempts to address the "Principle of Who or What Really Counts."
In traditional input-output models of the corporation, the firm uses the inputs of investors, employees, and suppliers to convert inputs into usable (salable) outputs which customers buy and return to the firm some capital benefit. By this model, firms only address the needs and wishes of those four parties: investors, employees, suppliers, and customers.
Stakeholder theory recognizes that there are other parties involved, including governmental bodies, political groups, trade associations, trade unions, communities, associated corporations, etc. This view of the firm is used to define the specific stakeholders of a corporation (the normative theory (Donaldson) of stakeholder identification) as well as examine the conditions under which these parties should be treated as stakeholders (the descriptive theory of stakeholder salience). These two questions make up the modern treatment of Stakeholder Theory.
See also
External Analysis: The Identification of Industry Opportunities and Threats. Internal Analysis: Resources, Capabilities, Competencies, and Competitive Advantage
Tutorials
Readings
Competence is a standardized requirement for an individual to properly perform a specific job. It encompasses a combination of knowledge, skills and behaviour utilised to improve performance. More generally, competence is the state or quality of being adequately or well qualified, having the ability to perform a specific role. For instance, management competency includes the traits of systems thinking and emotional intelligence, and skills in influence and negotiation. A person possesses a competence as long as the skills, abilities, and knowledge that constitute that competence are a part of him, enabling the person to perform effective action within a certain workplace environment. Therefore, one might not lose knowledge, a skill, or an ability, but still lose a competence if what is needed to do a job well changes. See also |
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Competitor Analysis in marketing and strategic management is an assessment of the strengths and weaknesses of current and potential competitors.
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Building Competitive Advantage Through Functional-Level Strategy. Business-Level Strategy
Tutorials
Readings
Competitive Advantage (CA) is a position that a firm occupies in its competitive landscape. Michael Porter posits that a competitive advantage, sustainable or not, exists when a company makes economic rents, that is, their earnings exceed their costs (including cost of capital). That means that normal competitive pressures are not able to drive down the firm's earnings to the point where they cover all costs and just provide minimum sufficient additional return to keep capital invested. Most forms of competitive advantage cannot be sustained for any length of time because the promise of economic rents drives competitors to duplicate the competitive advantage held by any one firm.
A firm possesses a Sustainable Competitive Advantage (SCA) when it has value-creating processes and positions that cannot be duplicated or imitated by other firms that lead to the production of above normal rents. An SCA is different from a competitive advantage (CA) in that it provides a long-term advantage that is not easily replicated. But these above-normal rents can attract new entrants who drive down economic rents. A CA is a position a firm attains that lead to above-normal rents or a superior financial performance. The processes and positions that engender such a position is not necessarily non-duplicable or inimitable.
Analysis of the factors of profitability is the subject of numerous theories of strategy including the five forces model pioneered by Michael Porter of the Harvard Business School.
In marketing and strategic management, sustainable competitive advantage is an advantage that one firm has relative to competing firms. The source of the advantage can be something the company does that is distinctive and difficult to replicate, also known as a core competency - for example Procter & Gamble's ability to derive superior consumer insights and implement them in managing its brand portfolio. It can also be an asset such as a brand (e.g. Coca Cola) or a patent, such as Viagra. It can also simply be a result of the industry's cost structure - for example, the large fixed costs that tend to create natural monopolies in utility industries. To be sustainable, the advantage must be:
- distinctive, and
- proprietary
See also
A Core Competency is something that a firm can do well and that meets the following three conditions specified by Hamel and Prahalad (1990):
- It provides customer benefits
- It is hard for competitors to imitate
- It can be leveraged widely to many products and markets.
A core competency can take various forms, including technical/subject matter know how, a reliable process, and/or close relationships with customers and suppliers (Mascarenhas et al. 1998). It may also include product development or culture such as employee dedication. Modern business theories suggest that most activities that are not part of a company's core competency should be outsourced.
If a core competency yields a long term advantage to the company, it is said to be a sustainable competitive advantage.
Formulating Functional Strategy:Implementing the Strategy Set In each functional area identified by the strategist as needing goals and action plans, the aspects of the domain of each and the degree of detail entered into are matters of choice. Management's concern in setting functional strategy should be to provide the firm's functional officers with sufficient guidelines to carry out the functional parts of implementing other levels of strategy. As one author explains, Information about the selected (business-level) strategy can be transmitted by preparation of explicit goals and objectives ... and immediate action for each of the major functional and technical areas within the firm. In turn ... (this information) define(s) the individual tasks or jobs that are essential for strategic success, and the organisational structure and systems should then be designed to coordinate and integrate the performance of those tasks. An autocratic CEO might wish to be highly specific in functional strategy. One with a participative or less directive style might select only a few key functional pressure points, so to speak, to guide the managers of each function. |
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Competitive Strategy and the Industry Environment. Strategy in the Global Environment
Tutorials
Readings
The Porter 5 Forces Analysis is a framework for business management developed by Michael Porter in 1979. It uses concepts developed in Industrial Organization (IO) economics to derive 5 forces that determine the attractiveness of a market. It is also known as FFF (Fullerton's Five Forces). Porter referred to these forces as the microenvironment, to contrast it with the more general term macroenvironment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a company to re-assess the marketplace.
External Links
- Porter's Five Forces and Market Attractiveness / Strategic Marketing Software
- Porter's five forces analysis of Tesco compared to SWOT analysis.
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Corporate Strategy: Vertical Integration, Diversification, and Strategic Alliances
Tutorials
- Corporate Strategy: Vertical Integration, Diversification, and Strategic Alliances
- Strategic Alliances
Readings
Strategy Formulation: Goals and Action Plan
In microeconomics and strategic management, the term Vertical Integration describes a style of ownership and control. Vertically integrated companies are united through a hierarchy and share a common owner. Usually each member of the hierarchy produces a different product or service, and the products combine to satisfy a common need. It is contrasted with horizontal integration. Vertical integration is one method of avoiding the hold-up problem.
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One of the earliest, largest and most famous examples of vertical integration was the Carnegie Steel company. The company controlled not only the mills where the steel was manufactured, but also the mines where the iron ore was extracted, the coal mines that supplied the coal, the ships that transported the iron ore and the railroads that transported the coal to the factory, the coke ovens where the coal was coked, etc. A monopoly produced through vertical integration is called a vertical monopoly, although it might be more appropriate to speak of this as some form of cartel. Vertical integration is the degree to which a firm owns its upstream suppliers and its downstream buyers.
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Diversification is a form of growth marketing strategy for a company. It seeks to increase profitability through greater sales volume obtained from new products and new markets. Diversification can occur either at the business unit or at the corporate level. At the business unit level, it is most likely to expand into a new segment of an industry in which the business is already in. At the corporate level, it is generally entering a promising business outside of the scope of the existing business unit.
Diversification is part of the four main marketing strategies defined by the Product/Market Ansoff matrix:
A Strategic Alliance is a formal relationship formed between two or more parties to pursue a set of agreed upon goals or to meet a critical business need while remaining independent organizations.
Partners may provide the strategic alliance with resources such as products, distribution channels, manufacturing capability, project funding, capital equipment, knowledge, expertise, or intellectual property. The alliance is a cooperation or collaboration which aims for a synergy where each partner hopes that the benefits from the alliance will be greater than those from individual efforts. The alliance often involves technology transfer (access to knowledge and expertise), economic specialization [1], shared expenses and shared risk.
- Benefits of Strategic Alliances
- Types of strategic alliances
- Stages of Alliance Formation
- Risks of Strategic Alliances
Strategic Evaluation and Choice. Designing Strategic Control Systems
Tutorials
Readings
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Evaluating and Selecting Strategies The location of the activities of strategy evaluation and selection in the process of strategic management is shown above. After several likely strategy choices have been formulated, they can be evaluated by following the approaches described in the first part of this chapter. Six schemes are presented for identifying the most likely strategies from among a set of possible choices. Confronted with several likely strategies, managers must next select the one(s) they believe optimal. The definition of what is optimal varies from decision maker to decision maker and even for particular decision makers (as they vary the decision approach or model they follow to make the selection). In the second part of this chapter, several strategy selection approaches are explained. Our purpose in doing so is to make students more aware of the decision processes they follow while analysing cases. The chapter closes with a description of the criteria the selected strategies should meet. This set of factors would apply regardless of the strategy selection approach followed. |
Strategy Implementation and Control. Corporate Development: Building and Restructuring the Corporation. Designing Organisational Structure
Tutorials
- Strategy Implementation
- Organisational Culture
- Organisational Structure
- Designing Organisational Structure
- Management Style
- Corporate Development: Building and Restructuring the Corporation
Readings
Strategy Implementation and Control
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Often confused with "Business Development", the Corporate Development position within an organization is not a commission based strategic sales role. Corporate Development professionals typically serve the executive management of large corporations, conglomerates and private equity funds through strategic planning advisory and M&A deal execution.
The position is best described as a combination of management consulting and investment banking from a functional perspective.
Projects that corporate development groups may take on are also similar to consulting and banking. For example, if a company is looking towards non-organic growth expansion, the corporate development group may be asked to evaluate potential target companies. The acquisition of small or private companies by a large corporation is usually not conducted with the assistance of investment bankers, but executed by the corporate development team themselves.
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External links 1. Association for Corporate Growth 2. Acquisitions and partnerships remain a core competitive differentiator for Cisco |
Organisational Structure is the way in which the interrelated groups of an organization are constructed. From a managerial point of view the main concerns are ensuring effective communication and coordination.
See also
Restructuring is the corporate management term for the act of partially dismantling and reorganizing a company for the purpose of making it more efficient and therefore more profitable. It generally involves selling off portions of the company and making severe staff reductions.
Restructuring is often done as part of a bankruptcy or of a takeover by another firm, particularly a leveraged buyout by a private equity firm. It may also be done by a new CEO hired specifically to make the difficult and controversial decisions required to save or reposition the company.
Matching Structure and Control to Strategy
Tutorials
Readings
Economic Efficiency is a general term for the value assigned to a situation by some measure designed to capture the amount of waste or "friction" or other undesirable economic features present. The term microeconomic reform refers to any policy designed to increase economic efficiency.
There are several measures of economic efficiency,
including:
- Pareto efficiency
- Kaldor-Hicks efficiency
- X-efficiency
- Allocative efficiency
- Distributive efficiency
- Productive efficiency
- Optimisation of a social welfare function
For applications of these principles see:
See also
- Distribution (economics)
- Business efficiency
- Compensation principle
- Inefficiency
- Patterson equilibrium
The Efficiency Ratio of a business is expenses as a percentage of revenue (expenses / revenue) with a few variations. A lower percentage is better since that means expenses are low and earnings are big. It's the "reverse" operating leverage: revenue / expenses.
Manufacturing, a branch of industry, is the application of tools and a processing medium to the transformation of raw materials into finished goods for sale. This effort includes all intermediate processes required for the production and integration of a product's components. Some industries, such as semiconductor and steel manufacturers use the term fabrication instead. The manufacturing sector is closely connected with engineering.
According to some economists, manufacturing is a wealth producing sector of an economy, whereas a service sector tends to be wealth consuming.[1] [2] Emerging technologies have provided some new growth in advanced manufacturing employment opportunities in the Manufacturing Belt in the United States. Manufacturing provides important material support for national infrastructure and for national defence.
On the other hand, some manufacturing may involve significant social and environmental costs. The clean-up costs of hazardous waste, for example, may outweigh the benefits. Hazardous materials may expose workers to health risks. Developed countries regulate manufacturing activity with labour laws and environmental laws. In the United States, manufacturers are subject to regulations by the Occupational Safety and Health Administration and the Environmental Protection Agency In Europe, pollution taxes to offset environmental costs are another form of regulation on manufacturing activity. Labour Unions and craft guilds have played a historic role negotiation of worker rights and wages. Environment laws and labour protections that are available in developed nations may not be available in the third world. Tort law and product liability impose additional costs on manufacturing.
Examples of major manufacturers in the United States include General Motors Corporation, Ford Motor Company, Chrysler, Boeing, Gates Rubber Company and Pfizer. Examples in Europe include France's Airbus and Michelin Tire. Modern proponents of Fair Trade policy and a strong manufacturing base for the U.S. economy include economists like Paul Craig Roberts, Ravi Batra, and Lou Dobbs.
- Context
- History and development
- Taxonomy of manufacturing processes
- Manufacturing categories
- Theories
- Control
- Manufacturing engineering
- Design
- Lists of related topics
The phrase Research and Development (also R and D or R&D) has a special commercial significance apart from its conventional coupling of scientific research and technological development. For 2006, the world's three largest spenders of R&D are the United States (US$330 billion), China (US$136 billion) and Japan (US$130 billion). [1]
In general, R&D activities are conducted by specialized units or centres belonging to companies, universities and state agencies. In the context of commerce, "research and development" normally refers to future-oriented, longer-term activities in science or technology, using similar techniques to scientific research without predetermined outcomes and with broad forecasts of commercial yield.
Statistics on organisations devoted to "R&D" may express the state of an industry, the degree of competition or the lure of progress. Some common measures include: budgets, numbers of patents or on rates of peer-reviewed publications.
Bank ratios are one of the best measures, because they are continuously maintained, public and reflect risk.
In the U.S., a typical ratio of research and development for an industrial company is about 3.5% of revenues. A high technology company such as a computer manufacturer might spend 7%. Although Allergan (a biotech company) tops the spending table 43.4% investment, anything over 15% is remarkable and usually gains a reputation for being a high technology company. Companies in this category include pharmaceutical companies such as Merck & Co. (14.1%) or Novartis (15.1%), and engineering companies like Ericsson (24.9%).[1]
Such companies are often seen as poor credit risks because their spending ratios are so unusual.
Generally such firms prosper only in markets whose customers have extreme needs, such as medicine, scientific instruments, safety-critical mechanisms (aircraft) or high technology military armaments. The extreme needs justify the high risk of failure and consequently high gross margins from 60% to 90% of revenues. That is, gross profits will be as much as 90% of the sales cost, with manufacturing costing only 10% of the product price, because so many individual projects yield no exploitable product. Most industrial companies get only 40% revenues.
On a technical level, high tech organizations explore ways to re-purpose and repackage advanced technologies as a way of amortising the high overhead. They often reuse advanced manufacturing processes, expensive safety certifications, specialized embedded software, computer-aided design software, electronic designs and mechanical subsystems.
See also
Implementing Strategic Change
Tutorials
Readings
Change is a fact of life. On the positive side, change may be seen as akin to opportunity, rejuvenation, progress, innovation, and growth. But just as legitimately, change can also be seen as instability, upheaval, unpredictability, a threat, and disorientation.
The concept of Change Management describes a structured approach to transitions in individuals, teams, organizations and societies that moves the target from a current state to a desired state. Stated simply, change management is a process for managing the people-side of change. The most recent research points to a combination of organisational change management tools and individual change management models for effective change to take place.
Recommended Texts
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Sixth Edition
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Strategic
Management: Formulation, Implementation, and Control of Competitive
Strategy,
8/e
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Strategic
Cost Management: The New Tool for Competitive Advantage Check the availability and buy your books from our Bookshop. |
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Management: Building Competitive Advantage, 4/e
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Resources
