1Chapter 1: The Strategic

Management ProcessBA 469 Spring Term, 2007

Prof. Dowling

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Why do some organizations succeed while others fail?

• Strategy– An action managers take to achieve one or more of

an organization’s goals

• Strategic management process– The process by which managers choose a set of

strategies that will allow a company to achieve superior performance

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Superior Performance and Competitive Advantage

• Profitability– A measure of a company’s return on its invested

capital

• Superior performance– One company’s profitability relative to that of

other companies in the same or similar business or industry

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Firm-Specific Performance and Profitability

• Competitive advantage– A firm’s profitability is greater than the average

profitability for all firms in its industry

• Sustained competitive advantage– A firm maintains competitive advantage for a

number of years

• Business model– Management’s model of how strategy will allow

the company to gain competitive advantage and achieve superior profitability

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Industry Structure and Profitability

Return on Invested Capital in Selected Industries, 1997-2001

Data Source: Value Line Investment Survey

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Strategic Managers

• General managers– Responsible for overall company performance or

divisional performance

• Functional managers– Responsible for supervising a particular task or

operation

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Levels of Strategic Management

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The Strategic Planning Process

1. Select the corporate mission and major corporate goals2. Analyze the external competitive environment to

identify opportunities and threats3. Analyze the organization’s internal environment to

identify its strengths and weaknesses4. Select strategies that build on the organization’s

strengths and correct its weaknesses in order to take advantage of external opportunities and counter external threats

5. Implement the strategy

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Main Components of the Strategic Planning Process

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Mission Statement

• A description or declaration of why a company is in operation

• Provides the framework or context within which strategies are formulated

• Has 3 main components:– Mission or vision– Values or guiding standards that drive and shape

the actions and behavior of employees– Major goals or objectives

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The Mission or Vision

• What the company is trying to achieve over the medium to long term

• The Boeing Company in 2016:– “People working together as a global enterprise for

aerospace leadership”

• Microsoft:– “To empower people through great software, any

time, any place, on any device”

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Abell’s Framework for Defining the Business

Source: D. F. Abell, Defining the Business: The Starting Point of Strategic Planning (Englewood Cliffs, Prentice Hall, 1980), p. 7.

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Values

• How managers and employees should conduct themselves

• Organizational culture– The set of values, norms, and standards that control how

employees work to achieve an organization’s mission and goals

– Often seen as a source of competitive advantage

• In high-performing organizations, values respect the interests of key organizational stakeholders.

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Values at Nucor

• “Management is obligated to manage Nucor in such a way that employees will have the opportunity to earn according to their productivity.”

• “Employees should be able to feel confident that if they do their jobs properly, they will have a job tomorrow.”

• “Employees have the right to be treated fairly and must believe that they will be.”

• “Employees must have an avenue of appeal when they believe they are being treated unfairly.”

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Values at Texas Instruments

Source: http://www.ti.com/corp/docs/company/vision.shtml. Accessed 10/25/02. Copyright © 1995-2002 Texas Instruments Incorporated. All rights reserved. Reprinted by permission.

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Major Goals and Objectives

• Goal: A desired future state or objective

• Four main characteristics of well-constructed goals:– Precise and measurable– Address crucial issues– Challenging but realistic– Specify a time period

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Profitability

• Maximizing returns to shareholders

• Importance of balancing short-term returns with long-term profitability

• Pressures to maximize short-term profitability may result in unethical behavior

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External and Internal Analysis

• External analysis– Identify strategic opportunities and threats

• Industry environment• National environment• Socioeconomic or macroenvironment

• Internal analysis– Identify organizational strengths and weaknesses– Sources of competitive advantage: superior

efficiency, quality, innovation, and responsiveness to customers

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SWOT Analysis and the Business Model

• Identifying strategies to align a company’s resources and capabilities to its environment in order to create and sustain a competitive advantage– Functional-level strategy– Business-level strategy– Global strategy– Corporate-level strategy

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Strategy Implementation

• After choosing strategies, managers must put them into action.

• The feedback loop—strategy is ongoing. Managers must monitor and reevaluate for the next round of strategy formulation and implementation.

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Strategy as an Emergent Process

• Strategy making in an unpredictable world

• Strategy making by lower-level managers

• Serendipity and strategy

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Intended and Emergent Strategies

• Intended strategies– Strategies an organization plans to put into action

• Emergent strategies– Unplanned strategies

• Realized strategy– The product of whatever intended strategies are

actually put into action and of any emergent strategies

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Emergent and Deliberate Strategies

Source: Adapted from H. Mintzberg and A. McGugh, Administrative Science Quarterly, Vol. 30. No. 2, June 1985.

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Strategic Planning in Practice

• Scenario Planning• Involving Functional Managers

– Avoiding the ivory tower approach– Perceiving procedural justice

• Strategic Intent– Avoiding the fit model, which focuses too much on

the current state– Setting ambitious goals that stretch a company and

finding ways to build to attain those goals

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Strategic Leadership

• Vision, eloquence, and consistency

• Commitment

• Being well informed

• Willingness to delegate and empower

• The astute use of power

• Emotional intelligence

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Challenges to Strategic Decision Making

• Cognitive biases– Prior hypothesis bias– Escalating commitment– Reasoning by analogy– Representativeness– Illusion of Control

• Hubris hypothesis

• Groupthink