Strategic management planning for domestic and global competition 14th ed pearce robinson chapter 1

Chapter 1

Strategic Management

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Learning Objectives

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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

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Strategic management:
The set of decisions and actions that result in the 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:

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Formulate the company’s mission

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Identify the most desirable options in light of the 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

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Nine Critical Tasks of Strategic Management -- Tasks 6-9:

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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

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Strategic issues require top-management team decisions
Strategic issues require large amounts of the firm’s resources
Strategic issues often affect the firm’s long-term prosperity
Strategic issues are future oriented
Strategic issues usually have multifunctional or multibusiness consequences
Strategic issues require considering the firm’s external environment

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Dimensions of Strategic Decisions
(in detail)

 Strategic issues require top-management team decisions
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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.)

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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.)

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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.)

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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.)

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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
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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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Levels of Strategy

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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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Ex. 1.2

Alternative Strategic Management Structures

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Ex. 1.4

Hierarchy of Objectives and Strategy

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Characteristics of Strategic Management Decisions: Corporate

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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

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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/SBU

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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

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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

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Organizational Size
Predominant Management Styles
Complexity of Environment
Production Process

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Problems in the Firm
Purpose of the Planning System
Stage of Firm’s Development

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Three Modes of Formality

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

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Entrepreneurial Mode

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The informal, intuitive, and limited approach to strategic management associated
with owner-managers of smaller firms.

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Planning Mode

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The strategic formality associated with large firms that operate under a
comprehensive, formal planning system.

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Adaptive Mode

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The strategic formality associated with medium-sized firms that emphasize the
incremental modification of existing competitive approaches.

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