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Chapter 1 : Introduction to Strategic Management. The evolution of strategic management as an area of study. In 1950s the Gordan Howell report, recommended that business education be made broader in nature and include a capstone couse in an area called ‘BUSINESS POLICY’
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The evolution of strategic management as an area of study • In 1950s the Gordan Howell report, recommended that business education be made broader in nature and include a capstone couse in an area called ‘BUSINESS POLICY’ • Business policy emphazied the development of skill in identifying, analyzing and solving real world problems in a wide range of substantive business areas. • This course cane to include consideration of the total organization and its enviornment. E.g. Social responsibilities and ethics, politics, legislative and economic factors. • Broader emphazies prompted the leaders to change the course name to ‘STRATEGIC MANAGEMENT’.
Nature of Strategic Management Definition of Strategic Management • Strategic Management is defined as a continuous, iterative process aimed at keeping an organization as a whole appropriately matched to its environment.
EXPLANATION • Definition suggests that Strategic management is a continuous process, means it never stops within an organization. • The term ‘iterative’ in the definiton of strategic management indicates that the process of strategic management starts with the first step, ends with the last step and then begins again with the first step. It consists of a series of steps that are repeated in cyclical fashion. • The last part of the definition states that the purpose of strategic managment is to ensure that an organization as a whole is appropriately matched to its environment – that is, to its operational surroundings. Organizational environments are constantly changing and organizations must be modified accordingly to ensure that organizational goals can be attained.
Operation of the Strategic Mangement Process • In the past, the strategic management process was heavily handled by Planning departments within organizations. • The strategic managment process of today tends, especially in smaller organizations, to be dominated by the chief executive officer (CEO) of the company. The CEO is considered responsible for the success of the process. • The CEO who is successful in this area generally designs a strategic managment process that involves members from many different organizational area and levels. E.g. Board of directors, corporate management and divison managment, along with the CEO.
Benefits of Strategic Management • Organization can gain many benefits from a properly designed process, the most important benefit is the tendency of such organizations to increase their levels of profits. • A significant number of recent investigations suggest that an efficient and effective strategic management system can increase profitability. • Other advantages can also be gained like strategic management can boost the commitment of organization members to the attainment of long term organizational goals. • This increased commitment comes about when organization members participate in setting organizational goals as well as setting strategies to reach goals.
Strategic Management Process Steps involved in Strategic Management • Performing an environmental analysis. • Establishing organizational direction. • Formulating organizational strategy. • Implemeting organizational strategy. • Exerting strategic control.
EXPLANATION Step 1: Environmental Analysis:Environmental analysis is the process of monitoring the organization’s environment to identify both present and future threats and opportunities. Step 2: Establishing Organizational Direction:There are two indicators of the direction in which an organization is moving i.e. Organizational mission and organizational objectives. Mission is the purpose for which, or reason why, an organizational exists. Objectives are the targets the organization has chosen.
EXPLANATION Step 3: Strategy Formulation:Strategy is defined as a course of action aimed at ensuring that the organization will achieve its objectives. Strategy formulation, then, is the process of designing and selecting strategies that lead to the attainment of organizational objectives. Step 4: Implementing Organizational Strategy:This step involves putting into action the logically developed strategies that emerged from the previous steps of the strategic management process. Without the effective implementation of strategy, organizations are unable to get benefits of performing organizational analysis, establishing organizational direction, and formulating organizational strategy.
EXPLANATION Step 5: Strategic Control: Strategic control is a special type of organizational control that focuses on monitoring and evaluting the strategic management process in order to improve it and ensure that it is functioning properly.
Special Issues in Strategic Management Strategic Management and International Operations: Businesses have tended to become increasingly involved in international business activities. So managers should determine how best to ‘factor’ international issues into the strategic management process, they must be fully aware of those international variables that might affect their organizations. Strategic Management and Social Responsibility: Social responsibility is the managerial obligation to take action That protects and promotes organizational interests along with the welfare of society as a whole. Recognition that such an obligation exists necessarily has an impact on the strategic management process.
Foundations for Strategic Management Operational Foundations: The operations functions is performed by those people within a business who are responsible for producing the goods or services that the organization offers for public consumption. Financial Foundations: Financial analysis is the process of evaluating assets, liabilities, and equity and making decisions on the bassis of this evaluation. Marketing Foundations: Marketing has recently has been defined as the process of planning and executing conception, pricing, promotion, and distribution of ideas, goods and services to create exchange that satisfy individual and organizational objectives.
Approach to Analyzing Strategic Problems and Cases • Case analysis is the most common way of teaching strategic management. Cases are descriptions of actual strategic management problems that students must analyze in order to suggest solutions. • The major steps of case analysis method are problem definition, formulation of alternative solutions to the problems, evaluation of developed alternatives, and selection and implementation of the chosen alternative. Worksheets are used for this.
