Chapter 1: Introduction to Strategic Management

functional level strategies

A _____________________ define the way each functional areas - sales, marketing, operations, finance, etc.- will deliver their contribution to the business goals as well as the evolutionary goals required to maintain or achieve high levels of performance as a business function.

Strategy

A company's __________ consists of the set of competitive moves and business approaches that management is employing to run the company

Mission Statement

A strong _________________ is one that motivates a team to consistently advance toward a common goal

Business Level Strategy

At this level, we can use internal and external analysis frameworks

4 Characteristics of Strategic Decisions

1. Based on a systematic, comprehensive analysis internal and external factors. 2. Long-term and future-oriented --usually several years to a decade or longer. 3. Seek to capitalize on favorable situations outside the organization. 4. Involve choices and trade-offs.

What is the scope of Strategic Management?

1. Determining the mission of the company, including broad statement about its purpose, philosophy, and goals 2. Developing a company profile reflecting internal conditions and capabilities 3. Assessment of the company's external environment in terms of both competitive advantage and general contextual factors 4. Analysis of possible options uncovered in matching the company with external environment 5. Identifying desired options in light of the company mission 6. Strategic choice of a particular set of long-term objectives and grand strategies needed to achieve the desired options 7. Development of annual objectives and short-term strategies compatible with long-term objectives and grand strategies

What Makes Strategy a Winner?

1. How well does the strategy fit the company's situation? 2. Is the strategy helping company achieve a sustainable competitive advantage? 3. Is strategy resulting in better performance?

Key Terms in Strategy

1. Mission 2. Strategy 3. Competitive Advantage

External Analysis Frameworks use in Business Level Strategy

1. Porter's Five Forces 2. PESTEL Analysis 3. Blue Ocean Strategy 4. Porter's Generic Strategies

Internal Analysis Frameworks use in Business Level Strategy

1. Value Chain Analysis 2. VRIO Model

Business Level

Determine the basis of competition on selected market

Board of Directors

Establishing board direction for the firm

Board of Directors

Evaluating top management's strategic proposals

1. Broaden exposure 2. Increase marketing budget 3. Improve quality 4. Rebrand 5. Tap new and emerging markets

Examples of Business Level Strategies:

Corporate-Level

Generally, determine the business in which the company should be involved.

Good Management

Good Strategy + Good Strategy Execution

Corporate-Level

Identify distinctive competitiveness or competencies by adopting a portfolio approach

Example of Functional Strategy

If the business strategy is for example aimed at offering products to students and young adults, the marketing department should target these people as accurately as possible through their marketing campaigns by choosing the right (social) media channels.

For example, a business-level strategy may define a goal to expand into a new geographic territory with a certain revenue or market share goals at the end of 24 months. The functional area head 1. needs to examine this goal, 2. define what they must do to support achieving that goal (in 3. isolation or with other functional areas) and articulate their own strategy to deliver.

In this example, the marketing team could create a strategy that tells their story of supporting this goal with objectives like... > Objective 1 - Launch: research the market, determine the competitive set, identify any unique to new market trends or dynamics to success, source and win go-to-market partners and plan marketing introduction. > Objective 2 - Assist in building strong presence (with Sales) > Objective 3 - Increase awareness and positioning, etc...

1. Corporate-Level Strategy 2. Business-Level Strategy 3. Functional-Level Strategy

Levels of Strategy

Shell's Mission Statement contradicts what it really do ---polluting rivers and silencing protesters

Management Gone Wrong

Strategy

Management's plans

The Global Imperative

Most firms are involved globally to some extent.

1. Improved understanding of competitors strategies 2. Enhanced awareness of threats 3. Reduced resistance to change 4. Enhanced problem-prevention capabilities

Non-Financial Benefits of Strategic Management:

Corporate-Level

Orientations at the corporate level reflect the concern of stockholders and society at large

Mission

Purpose

1. What do we do? 2. Whom do we serve? 3. How do we serve them?

Questions that guide mission statements include:

1. What are our hopes and dreams for the company? 2. What problem are we solving for the greater good? 3. Who and what are we inspiring to change?

Questions that guide vision statements include:

Corporate Governance

Refers to the board of directors, institutional investors, and large shareholders who monitor firm strategies to ensure effective management.

Corporate-Level

Responsible for financial /non-financial performance (Ex. corporate image and social responsibility)

Board of Directors

Selecting and determining the compensation for the chief executive

True

T/F: Corporate Strategy is often not seen in SMEs

False

T/F: Corporate Strategy is often not seen in Small-Medium Enterprises (SME's), but in Multinational Enterprises (MNE's) or conglomerates.

False

T/F: Corporate Strategy is often seen in SMEs

True

T/F: Corporate Strategy is often seen in SMEs and MNEs or conglomerates

1. Corporate Strategy 2. Business Strategy 3. Functional Strategy

The 3 levels of strategy:

1. CEO's 2. the business/product managers 3. the heads of the functional areas

The Executives Ideally, strategic management process is developed and governed by a team which comprises of

business level strategy

The _____________________________ defines the strategic goals for the business to evolve and grow.

comparative advantage

The basis for global involvement is

competitive advantage

The business-level strategy is aimed at gaining a _______________ by offering true value for customers while being a unique and hard-to-imitate player within the competitive landscape.

Functional-Level Strategy

The goal is to align these strategies as much as possible with the greater business strategy.

Functional-Level Strategy

These strategies are often aimed at improving the effectiveness of a company's operations within departments.

Contingency theory

This uses joint outcome of environmental forces and firm's strategic actions.

1. Where are we now? 2. Where do we want to go? -Business(es) to be in and market positions to stake out? -Buyer needs and groups to serve? -Outcomes to achieve? 3. How do we get there?

Three Big Strategic Questions

Business Level

Translate general statements of directions and intent to concrete functional objectives and strategies

Business Model

explains how the organization seeks to earn a profit by selling its goods.

Vision Statement

gives the company direction

Strategic Management

involves setting objectives, analyzing the competitive environment, analyzing the internal organization, evaluating strategies, and ensuring that management rolls out the strategies across the organization.

Strategic Management

is a broader term than strategy

Strategic Management

is a process that includes top management's analysis of the environment in which the organization operates prior to formulating a strategy, as well as the plan for implementation and control of the strategy.

Vision Statement

is about what you want to become - it is meant to be aspirational.

Business Level Strategy

is aimed at gaining a competitive advantage by offering true value for customers while being a unique and hard-to-imitate player within the competitive landscape.

Mergers and Acquisitions (M&A)

is also an important part of corporate strategy

Shell

is also one of the world's most valuable companies

Functional-Level Strategy

is concerned with the question: > "How do we support the business-level strategy within functional departments, such as Marketing, HR, Production and R&D?"

Strategy

is management's "game plan"

Divestment

is the process of selling subsidiary assets, investments, or divisions of a company in order to maximize the value of the parent company.

Business Level Strategy

is what most people are familiar with and is about the question: > "How do we compete?" > "How do we gain (a sustainable) competitive advantage over rivals?"

Corporate-Level Strategy

major investment and divestment decisions are made at this level by top management

Mission Statement

outlines both what you do and what comprises the core of the business, and from this, objectives are made clear, followed finally by what it takes to reach those objectives

Business level

particularly have principal responsibilities for approving environmental analysis and forecasting

5 Characteristics of a Successful Strategy

1.Understand the competitive environment 2.Strengths and weaknesess are assessed 3.The strategy is consistent with the mission and goals 4.Plans for putting the strategy into action are designed before it is implemented. 5.Possible future changes are anticipated

1. Industrial organization 2. Resource-based theory 3. Contingency theory

3 Theoretical Perspectives on Strategic Management:

Sun Tzu's Art of War

> "Know your enemy and know yourself and in 100 battles you will never be in peril." - intelligence is key. > "To win 100 battles is not the height of skill - To subdue the enemy without fighting is." - outwit your opponent. > "Avoid what is strong. Attack what is weak." - do not go head-to-head in battles. > "It is better to outwit than outfight an opponent."

Vision Statement

Because it describes the future of the business, it emphasizes the organization's overall purpose.

top managers

Because of the tremendous impact and large commitments of company resources, strategy can only be made by

1. resulting from financial gains and strengths 2. by gains in competitive strength and market standings

Better performance:

Strategic Management Concept

Competent execution of a well-conceived strategy is the best test of managerial excellence and a proven recipe for organizational success!

Business Level

Composed of business and corporate managers

Corporate-Level

Composed of members of BODs, Directors, and CEOs

Shell oil paid Nigerian military to put down protests, court documents to show: Secret papers reveal that in the 1990s the oil giant routinely worked with the army to suppress resistance to its activities

Shell has never denied that its oil operations have polluted large areas of the Niger Delta - land and air. But it had resisted changes of complicity in human rights abuses.

Capital Research Global Investors

Shell is also one of the world's most valuable companies. As of January, 2013 the largest shareholder is _______________ with 9.85% ahead of BlackRock in second with 6.89%.

Shell Mission Statement

Shell's purpose is to power progress together with more and cleaner energy solutions. We believe that rising standards of living for a growing global population are likely to continue to drive demand for energy, including oil and gas, for years to come.

Environment Scanning ---> Strategy Formulation ---> Strategy Implementation ---> Evaluation and Control | | Feedback

Strategic Management Process

1. Attract and please customers 2. Stake out a market position 3. Conduct operations 4. Compete successfully 5. Achieve organizational objectives

Strategy is management's "game plan" to:

Competitive Advantage

Successful strategies that cannot be duplicated

1. To proactively shape how a company's business will be conducted. 2. To mold the independent actions and decisions of managers and employees into a coordinated company-wide game plan.

Why are Strategies Needed?

Functional-Level Strategy

Within these departments, workers often refer to their 'Marketing Strategy', 'Human Resource Strategy' or 'R&D Strategy'.

Industrial organization

a branch of microeconomics, emphasizes the influence of the industry environment on the firm.

Top management

also reviews, evaluates, and counsels on most major phases of the strategic plan's preparation

Royal Dutch Shell plc

commonly known as Shell, is an Anglo-Dutch multinational oil and gas company headquartered in the Netherlands and incorporated in the United Kingdom.

Royal Dutch Shell plc

created by the merger of Royal Dutch Petroleum and UK-based Shell Transport & Trading, it is the second-largest company in the world, in terms of revenue, and one of the six oil and gas "supermajors".

Function level

details strategy to achieve goals within each functional area.

Mission Statement

drives the company

Contingency theory

represents a middle ground perspective.

Royal Dutch Shell

revenue was equal to 84% of the Netherlands' S555.8 billion GDP at the time.

Business level

sets business goals.

Top Management

shoulders the responsibility for approving phases of planning

Mergers and Acquisitions (M&A)

this level of strategy is only necessary when the company operates in 2 or more business areas through different business units with different business-level strategies that need to be aligned to form an internally consistent corporate-level strategy.

Shell

topped the 2013 Fortune Global 500 list of the world's largest companies.

Resource-based theory

views performance of the firm's ability to use resources to develop a distinctive competence.

Realized Strategy

what management actually implements

Intended Strategy

what management originally plans

Dimensions of Strategic Decisions

•Strategic issues require top-management decisions •Strategic issues involve the allocation of large amounts of the company resources •Strategic issues are likely to have a significant impact on the long-term prosperity of the firm •Strategic issues are future oriented •Strategic issues usually have major multifunctional or multi-business consequences •Strategic issues necessitate considering factors in the firm's external environment