SUPPLEMENTARY LEARNING
MATERIALS
IN
BA 225 - STRATEGIC MANAGEMENT (UNIT 1)
FOR BSHM 3-A, 3B & 3-C
Gail Louise G.Dondiego
Instructor
LEARNING GUIDE for
BSHM 1A and 1B
BA 225 - STRATEGIC MANAGEMENT
Unit I: Nature of Strategic Management
Lessons: Defining Strategic Management
Stages of Strategic Management
Integrating Intuition and Analysis
Benefits of Strategic Management
INTRODUCTION
Once there were two company presidents who competed in the same
industry. These two presidents decided to go on a camping trip to discuss a
possible merger. They hiked deep into the woods. Suddenly, they came upon a
grizzly bear that rose up on its hind legs and snarled. Instantly, the first president
took off his knapsack and got out a pair of jogging shoes. The second president
said, “Hey, you can’t outrun that bear.” The first president responded, “Maybe I
can’t outrun that bear, but I surely can outrun you!” This story captures the
notion of strategic management, which is to achieve and maintain competitive
advantage.
Learning Outcomes
At the end of this Unit, the students must have:
1. Defined the concept of strategic management;
2. Identified and explained the stages of strategic management;
3. Explain the need for integrating analysis and intuition in strategic
management.
4. Appreciated the benefits of strategic management.
Defining Strategic Management
Strategic management can be defined as the art and science of formulating,
implementing, and evaluating cross-functional decisions that enable an
organization to achieve its objectives. As this definition implies, strategic
management focuses on integrating management, marketing,
finance/accounting, production/operations, research and development, and
information systems to achieve organizational success. The term strategic
management in this text is used synonymously with the term strategic planning.
The latter term is more often used in the business world, whereas the former is
often used in academia. Sometimes the term strategic management is used to
refer to strategy formulation, implementation, and evaluation, with strategic
planning referring only to strategy formulation. The purpose of strategic
management is to exploit and create new and different opportunities for
tomorrow; long-range planning, in contrast, tries to optimize for tomorrow the
trends of today.
The term strategic planning originated in the 1950s and was very popular
between the
mid-1960s and the mid-1970s. During these years, strategic planning was widely
believed
to be the answer for all problems. At the time, much of corporate America was
“obsessed”
with strategic planning. Following that “boom,” however, strategic planning was
cast aside
during the 1980s as various planning models did not yield higher returns. The
1990s,
however, brought the revival of strategic planning, and the process is widely
practiced
today in the business world.
A strategic plan is, in essence, a company’s game plan. Just as a football
team needs a
good game plan to have a chance for success, a company must have a good
strategic plan
to compete successfully. Profit margins among firms in most industries have
been so
reduced by the global economic recession that there is little room for error in the
overall
strategic plan. A strategic plan results from tough managerial choices among
numerous
good alternatives, and it signals commitment to specific markets, policies,
procedures, and
operations in lieu of other, “less desirable” courses of action.
Stages of Strategic Management
The strategic-management process consists of three stages:
1. Strategy formulation includes developing a vision and mission, identifying
an organization’s external opportunities and threats, determining internal
strengths and weaknesses, establishing long-term objectives, generating
alternative strategies, and choosing particular strategies to pursue. Strategy-
formulation issues include deciding what new businesses to enter, what
businesses to abandon, how to allocate resources, whether to expand operations
or diversify, whether to enter international markets, whether to merge or form a
joint venture, and how to avoid a hostile takeover. Because no organization has
unlimited resources, strategists must decide which alternative strategies will
benefit the firm most. Strategy-formulation decisions commit an organization to
specific products, markets, resources, and technologies over an extended period
of time. Strategies determine long-term competitive advantages. For better or
worse, strategic decisions have major multifunctional consequences and
enduring effects on an organization. Top managers have the best perspective to
understand fully the ramifications of strategy-formulation decisions; they have
the authority to commit the resources necessary for implementation.
2. Strategy implementation requires a firm to establish annual objectives,
devise policies, motivate employees, and allocate resources so that formulated
strategies can be executed. Strategy implementation includes developing a
strategy-supportive culture, creating an effective organizational structure,
redirecting marketing efforts, preparing budgets, developing and utilizing
information systems, and linking employee compensation to organizational
performance.
Strategy implementation often is called the “action stage” of strategic
management.
Implementing strategy means mobilizing employees and managers to put
formulated strategies into action. Often considered to be the most difficult stage
in strategic management, strategy implementation requires personal discipline,
commitment, and sacrifice. Successful strategy implementation hinges upon
managers’ ability to motivate employees, which is more
an art than a science. Strategies formulated but not implemented serve no
useful purpose.
Interpersonal skills are especially critical for successful strategy implementation.
Strategy-implementation activities affect all employees and managers in an
organization.
Every division and department must decide on answers to questions, such as
“What must we
do to implement our part of the organization’s strategy?” and “How best can we
get the job
done?” The challenge of implementation is to stimulate managers and
employees throughout
an organization to work with pride and enthusiasm toward achieving stated
objectives.
3. Strategy evaluation is the final stage in strategic management. Managers
desperately need to know when particular strategies are not working well;
strategy evaluation is the primary means for obtaining this information. All
strategies are subject to future modification because external and internal
factors are constantly changing.
Three fundamental strategy-evaluation activities are:
(1) reviewing external and internal factors that are the bases for current
strategies,
(2) measuring performance
(3) taking corrective actions.
Strategy evaluation is needed because success today is no guarantee of
success tomorrow! Success always creates new and different problems;
complacent organizations experience demise. Strategy formulation,
implementation, and evaluation activities occur at three hierarchical levels in a
large organization: corporate, divisional or strategic business unit, and
functional. By fostering communication and interaction among managers and
employees across hierarchical levels, strategic management helps a firm
function as a competitive team. Most small businesses and some large
businesses do not have divisions or strategic business units; they have only the
corporate and functional levels. Nevertheless, managers and employees at these
two levels should be actively involved in strategic-management activities.
Peter Drucker says the prime task of strategic management is thinking
through the
overall mission of a business:
. . . that is, of asking the question, “What is our business?” This leads to the
setting of
objectives, the development of strategies, and the making of today’s decisions
for
tomorrow’s results. This clearly must be done by a part of the organization that
can see
the entire business; that can balance objectives and the needs of today against
the needs
of tomorrow; and that can allocate resources of men and money to key results.
Integrating Intuition and Analysis
Edward Deming once said, “In God we
trust. All others bring data.” The
strategic management process can be
described as an objective, logical,
systematic approach for making major
decisions in an organization. It attempts
to organize qualitative and quantitative
information in a way that allows effective
decisions to be made under conditions of
uncertainty. Yet strategic management is not a pure science that lends itself to
a nice, neat, one-two-three approach. Based on past experiences, judgment, and
feelings, most people recognize that intuition is essential to making good
strategic decisions.
Intuition is particularly useful for making decisions in situations of great
uncertainty or little precedent. It is also helpful when highly interrelated variables
exist or when it is necessary to choose from several plausible alternatives. Some
managers and owners of businesses profess to have extraordinary abilities for
using intuition alone in devising brilliant strategies. For example, Will Durant,
who organized GM, was described by Alfred Sloan as “a man who would proceed
on a course of action guided solely, as far as I could tell, by some intuitive flash
of brilliance. He never felt obliged to make an engineering hunt for the facts. Yet
at times, he was astoundingly correct in his judgment.” Albert Einstein
acknowledged the importance of intuition when he said, “I believe in intuition
and inspiration. At times I feel certain that I am right while not knowing the
reason. Imagination is more important than knowledge, because knowledge is
limited, whereas imagination embraces the entire world.
Although some organizations today may survive and prosper because they
have intuitive geniuses managing them, most are not so fortunate. Most
organizations can benefit from strategic management, which is based upon
integrating intuition and analysis in decision making. Choosing an intuitive or
analytic approach to decision making is not an either–or proposition. Managers at
all levels in an organization inject their intuition and judgment into strategic-
management analyses. Analytical thinking and intuitive thinking complement
each other.
Operating from the I’ve-already-made-
up-
my-mind-don’t-bother-me-with-the-facts
mode is not management by intuition; it
is management by ignorance. Drucker
says, “I believe in intuition only if you
discipline it. ‘Hunch’ artists, who make a
diagnosis but don’t check it out with the
facts, are the ones in medicine who kill
people, and in management kill businesses.” As Henderson notes: The
accelerating rate of change today is producing a business world in which
customary managerial habits in organizations are increasingly inadequate.
Experience alone was an adequate guide when changes could be made in small
increments. But intuitive and experience-based management philosophies are
grossly inadequate when decisions are strategic and have major, irreversible
consequences.
In a sense, the strategic-management process is an attempt both to
duplicate what goes on in the mind of a brilliant, intuitive person who knows the
business and to couple it with analysis.
Benefits of Strategic Management
Strategic management allows an organization to be more proactive than
reactive in shaping its own future; it allows an organization to initiate and
influence (rather than just respond to) activities—and thus to exert control over
its own destiny. Small business owners, chief executive officers, presidents, and
managers of many for-profit and nonprofit organizations have recognized and
realized the benefits of strategic management.
Historically, the principal benefit of strategic management has been to help
organizations formulate better strategies through the use of a more systematic,
logical, and rational approach to strategic choice. This certainly continues to be a
major benefit of strategic management, but research studies now indicate that
the process, rather than the decision or document, is the more important
contribution of strategic management. Communication is a key to successful
strategic management. Through involvement in the process, in other words,
through dialogue and participation, managers and employees become
committed to supporting the organization. Figure 1-2 illustrates this intrinsic
benefit of a firm engaging in strategic planning.
Note that all firms need all employees on a mission to help the firm succeed.
The manner in which strategic management is carried out is thus exceptionally
important. A major aim of the process is to achieve the understanding of and
commitment from all managers and employees. Understanding may be the most
important benefit of strategic management, followed by commitment. When
managers and employees understand what the organization is doing and why,
they often feel they are a part of the firm and become committed to assisting it.
This is especially true when employees also understand linkages between their
own compensation and organizational performance. Managers and employees
become surprisingly creative and innovative when they understand and support
the firm’s mission, objectives, and strategies.
A great benefit of strategic management, then, is the opportunity that the
process provides to empower individuals. Empowerment is the act of
strengthening employees’ sense of effectiveness by encouraging them to
participate in decision making and to exercise initiative and imagination, and
rewarding them for doing so.
The process is a learning, helping, educating, and supporting activity, not
merely a paper-shuffling activity among top executives. Strategic-management
dialogue is more important than a nicely bound strategic-management
document. The worst thing strategists can do is develop strategic plans
themselves and then present them to operating managers to execute. Through
involvement in the process, line managers become “owners” of the strategy.
Ownership of strategies by the people who have to execute them is a key to
success! Although making good strategic decisions is the major responsibility of
an organization’s owner or chief executive officer, both managers and employees
must also be involved in strategy formulation, implementation, and evaluation
activities.
Participation is a key to gaining commitment for needed changes. An
increasing number of corporations and institutions are using strategic
management to make effective decisions. But strategic management is not a
guarantee for success; it can be dysfunctional if conducted haphazardly.
REFERENCES:
1. Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22,
no. 1 (February 1989)
2. Stephen Harper, “Intuition: What Separates Executives from Managers,” Business
Horizons 31, no. 5 (September–October 1988)
3. https://www.google.com/url?sa=i&url=https%3A%2F
%2Fwww.kayspoundsuniversity.com%2Funit%2F8-benefits-and-risks-of-strategic-
management
Learning Exercise
Strategic Planning for the University
Purpose :External and internal factors are the underlying bases of strategies
formulated and implemented by organizations. Your college or university faces
numerous external opportunities/threats and has many internal
strengths/weaknesses. The purpose of this exercise is to illustrate the process of
identifying critical external and internal factors.
External influences include trends in the following areas: economic, social,
cultural, demographic, environmental, technological, political, legal,
governmental, and competitive. External factors could include declining numbers
of high school graduates; population shifts; community relations; increased
competitiveness among colleges and universities; rising numbers of adults
returning to college; decreased support from local, state, and federal agencies;
increasing numbers of foreign students attending State Universities. colleges;
and a rising number of Internet courses.
Internal factors of a college or university include faculty, students, staff,
alumni, athletic programs, physical plant, grounds and maintenance, student
housing, administration, fundraising, academic programs, food services, parking,
placement, clubs, fraternities, sororities, and public relations.
Instructions.
Step 1 On a separate sheet of paper, write four headings: External
Opportunities, External Threats, Internal Strengths, and Internal Weaknesses.
Step 2 As related to your college or university, list five factors under each of the
four headings. Step 3 Discuss the factors with your classmates.
Step 4 What new things did you learn about your university from the group
discussion? How could this type of discussion benefit an organization?
