FIDM-Los Angeles
BUMT 4450: Strategic Management Policies (web)
Lecture Notes
Week 1
Module 1(chapter 1):
The Basic Concepts of Strategic Managements
1.Introduction
- The Basics of Strategy and Strategic Management
- Definition of Strategy
Strategy is a series of goal-directed decisions and actions of an organization
Strategy involves:
a)An organization's goals
b)Goal-directed action, i.e., implementing the strategy
c)Evaluating key internal strengths (capabilities and resources) and matching them with external opportunities and threats
- Definition of Strategic Management
Strategic management is a process of analyzing the current situation, developing appropriate strategies, putting those strategies into action and evaluating, modifying, or changing those strategies as needed.
a)The basic activitiesare:
(1)environmental scanning,
(2)strategy formulation,
(3)strategy implementation, and
(4)strategy evaluation and control.
b)Strategic management differs from others types of management. (e.g., marketing management, personnel management) The four aspects of strategic management that set it apart are:
(1)Interdisciplinary—does not focus on a specific area such as human resources or operations.
(2)External focus—characterized by emphasis on the interactions of the organization with its external sources of influence (government regulation, customers, suppliers, technology, etc.)
(3)Internal focus—it involves the organization’s specific resources and capabilities...what resources it has and it does well
(4)Future direction—forecasting the future business climate for the organization and planning how the organization is to proceed.
2.Why Strategic Management is Important
- Everyone in an organization plays a role in managing strategically.
- Effective and efficient decision making
- Improved job performance
- Strategic planning affects an organization’s performance
- Firm success or failure is key research area in strategic management research
- Small, but positive relationship between strategic planning and performance.
- Provides a systematic approach for coping with the uncertain environments that organizations face.
- The competitive and global environments that organizations operate in today are constantly changing; they are dynamic
- It provides an analytical structure for decision making.
- Coordinates and focuses the diverse divisions, functions and work activities within the organization to achieve organization’s goals.
- The Strategic Management Process
A process simply means that there's a series of interrelated and continuous steps that lead to some concluding aspect. In the strategic management process, the series of four steps lead to the development, modification, or change in the organization's strategies discussed as follows:
- Environmental Scanning
Environmental scanning is the monitoring, evaluating, and dissemination of information from the external and internal environment to key people within the organization. Its purpose is to identify strategic factors ---- external and internal that will determine the future of the organization.
- Strategy Formulation
Strategy formulation involves the design and choice of appropriate organizational strategies from multiple alternatives. The organization's strategies are designed and developed in this stage of the strategic management process. To describe an organization's strategies, look at them from three different organizational levels:
a)Functional strategies (also called operational strategies) are the short, goal-directed decisions and actions of the organization's various functional departments.
b)Competitive strategies are concerned with how an organization is going to compete in a specific business or industry.
c)Corporate strategies are concerned with the broad and more long-term questions of "what business(es) are we in or do we want to be in, and what do we want to do with these businesses?"
- Strategy Implementation
Strategy implementation is the process of putting the organization's various strategies into action.
- Strategy Evaluation and control
Strategy evaluation is the process of evaluating how the strategy has been implemented as well as the outcomes of the strategy.
- Continuing Process of Strategic Management in Action
It’s an ongoing and continuous cycle of strategy analysis and formulation, implementation, and evaluation. As performance results or outcomes are achieved—at any level of the organization—organizational members assess the implications and make any necessary adjustments to strategies.
3.Strategic Management in Today’s World
- Globalization: expanding business world-wide
- Opening trade and geographic barriers has challenges
a)Vulnerability due to openness needed to do business may lead to increased terrorism.
a)Economic Interdependence: each country’s economic stability relies on the economic stability of its trading partners.
The World Trade Organization (WTO), is a global organization of 146 countries that deals with the rules of international trade. It helps organizations conduct business by enacting trade agreements that are negotiated and ratified by the vast majority of the world’s trading nations.
- Cultural differences between countries
a)Concern of “Americanization”, i.e. American culture and values displacing the traditions and values of other countries
b)Successful strategic decision-making will involve cultural and political sensitivity to accommodate diverse views
A.Strategic Management in an e-Business World
1.E-Business: the way an organization does its work by using electronic (internet-based) linkages with its key constituencies (employees, customers, clients, suppliers, and partners.)
a)e-Business enhanced organization
(1)A traditional organization that sets up e-business capabilities, usually e-commerce (sales and marketing), while maintaining its traditional structure.
(2)Internet use to enhance, not replace traditional ways of doing business.
b)e-Business enabled organization
(1)The organization uses the Internet to perform its traditional business functions better, but not to sell anything.
(2)Internet enables organizational members to work more efficiently and effectively, such as communications and support.
(3)Example: Levi Strauss: website to interact with customers and provide information, but not to sell.
(4)Includes intranet, internal organizational communications that uses Internet technology accessible only by organizational employees.
c)Total e-business
(1)The whole existence of the organization is based on the Internet.
(2)Examples: Amazon.com, Yahoo, eBay
Week 2
Module 2(chapter 2):
Corporate Governance
All an organization's employees play an important role in the formulation, implementation, and evaluation of its strategies. The only aspect that differs is the scope or range of the individual’s strategic decision making and action.
- The Role of the Board of Directors
In publicly owned business organizations (those whose stocks or shares are sold to the public), the board of directors serves as the elected representatives of the company's stockholders. Their legal obligation is to represent the shareholders and protect their interests.
Their responsibilities typically include, but are not limited to the following:
- Review and approve strategic goals and plans.
- Review and approve the organization's financial standards and policies.
- Ensure the integrity of the organization's financial controls and reporting systems.
- Approve an organizational philosophy.
- Monitor organizational performance and regularly review performance results.
- Select, evaluate, and compensate top-level managers.
- Develop management succession plans.
- Review and approve capital allocations and expenditures.
- Monitor relations with shareholders and other key stakeholders.
- The role of the board in the firm’s strategy process may be
a)Approving role: limited input regarding specific operational approaches
b)Initiating role: initiate strategies as well as oversee implementation and evaluation of the strategies
- The Role of Top Management
By definition, top management is ultimately responsible for every decision and action of every organizational employee and providing effective strategic leadership. Strategic leadership is an individual’s ability to anticipate, envision, maintain flexibility, think strategically, and work with others in the organization to initiate changes that will create a viable and valuable future for the organization.
- CEO—Chief Executive Officer: the top organizational manager and has a staff with responsibilities in several functional areas such as the:
a)COO—Chief Operating Officer
b)CFO—Chief Financial Officer
c)CIO—Chief Information Officer
- Effective strategic leadership involves
a)Determining organizational purpose or vision
b)Exploiting and maintaining core competencies
c)Developing human capital
d)Creating and sustaining strong organizational culture
e)Emphasizing ethical decisions and practices
f)Establishing appropriately balanced controls
- Other Strategic Managers and Organizational Employees
Some of the areas where other employees have responsibilities include:
- Strategy implementation—Lower-level managers, supervisors, and their workers are the ones who put the strategies into action, and they are in the best position to monitor performance.
- Strategy evaluation—Although top management may establish the guidelines and policies for evaluating performance, it's the other strategic managers and organizational employees who actually do the evaluation and take any necessary actions.
Week 2
Module 3(chapter 3):
Ethics and SocialResponsibility inStrategic Management: Moving Beyond the Immediate Stakeholders
Managers must consider the needs of the broader community-at-large and act in a socially responsible manner. Social responsibility is the expectation that businesses or individuals will strive to improve the overall welfare of a society.
The following SUPPLEMENT summarizes some of the central points in the debate as to the value of corporations to devote significant resources to corporate social responsibility:
Stakeholders versus Shareholders
Although corporate social responsibility may appear to be an “apple-pie virtue”, it is quite controversial. Below are some of the chief arguments for and against it:
Proponents will claim that it…BURNISHES A COMPANY’S REPUTATION. In the wake of corporate scandals, corporate social responsibility builds goodwill—and can pay off when scandals or regulatory scrutiny inevitably arise.
ATTRACTS TALENT. Many young professionals expect their employers to be active in social issues. Membership in Netimpact.org, a network of socially-conscious MBA graduates, jumped from 4,000 in 2002 to 10,000 in 2004.
On the other hand, Detractors will argue that it…COSTS TOO MUCH. Giving by corporate foundations reached an all-time high of $3.6 billion last year. However, it can come at the expense of other priorities, such as research and development, and is rarely valued by Wall Street.
IS MISGUIDED. Many corporate executives believe, as economist Milton Friedman does, that the role of business is to generate profits for shareholders—not to spend others’ money for some perceived social benefit.
Social innovationallows firms to think beyond their immediate stakeholders, to consider community needs as an opportunity to develop ideas and demonstrate business technologies as well as ways to find and serve new markets
It is important to note that the expectations of various stakeholder groups are not constant over time and keep changing with changes in technology, globalization and other societal changes. An administrator would have to recognize this dynamic nature of stakeholder management and strive towards achieving mutual benefit through stakeholder symbiosis.
Week 3
Module 4(chapter 4):
Environmental Scanning and Industry Analysis
What is an External Analysis?
An external analysis is the process of scanning and evaluating an organization's various external environmental sectors in order to determine positive and negative trends that could impact organizational performance.
Opportunities are positive external environmental trends or changes that may help the organization improve its performance.
Threats, on the other hand, are negative external environmental trends or changes that may hinder the organization's performance.
The strategic manager will design new strategies or change current strategies to take advantage of opportunities and to avoid threats.
What is environmental uncertainty and what role does it play in external analysis?
•The amount of change and complexity in an organization's environment.
•The more complex and dynamic the environment, the more uncertain it is and the more information that decision makers need about the environment to be able to make appropriate decisions. The degrees of complexity and stability of the environment and the availability of resources all contribute to the level of uncertainty that strategic decision-makers face.
Why does a manager need to do more than just scan the environment?
•It's not enough for you just to know what's happening in your organization's environment—you also need to assess what this information means for your organization.
How do you do an External Analysis?
Specific environment describes those external environmental sectors that directly impact the organization's decisions and actions by opening up opportunities or threats. e.g. customers, competitors, and suppliers.
General environment refers to those external environmental sectors that indirectly affect the organization’s strategic decisions and actions and may pose opportunities or threats. e.g. economic, demographic, socio-cultural, political-legal, and technological sectors
The specific environment consists of those external sectors with which the organization directly interacts. In other words, the specific environment includes industry and competitive variables.
Industry is a group or groups of organizations producing similar or identical products.
These organizations also compete for customers to purchase their products and must secure the necessary resources (or inputs) that are converted (or processed) into products (or outputs).
The strategic manager can use Porter’s model to determine external opportunities and threats by evaluating the 5 forces.
Porter's five forces model
1.Current Rivalry Among Existing Firms
The existing firms in an industry are an organization's current and direct competitors. The more intense the rivalry among existing firms, the more profitability will suffer
2.Threat of New Entrants
In addition to current competitors, one should also be on the lookout for organizations moving into one’s industry. The reasons are that that new
new firms may bring new capacity to the industry and they may possess substantial resources that can be used to launch competitive attacks against current competitors.
It should be noted that barriers to entry are obstacles to entering an industry. When barriers are high or current competitors can be expected to take significant actions to keep newcomers out, then the threat of entry is low. A low threat of potential entrants is positive for an industry because profitability is not divided up among numerous competitors.
3.Bargaining Power of Buyers
Buyers are the seller's customers. If they have a lot of bargaining power, they can force prices down, bargain for higher quality or more services, or they might even play competitors against each other trying to see who will give them the best deal.
4.Bargaining Power of Suppliers
If an industry's suppliers have bargaining power, they can raise prices or reduce the quality of products that an industry purchases. An industry's suppliers include any of the providers of resources or inputs: raw materials sources, equipment manufacturers, financial institutions, and even labor sources.
5.Threat of Substitute Products
The best way to evaluate the threat of substitute products is to ask whether other industries can satisfy the consumer need that our industry is satisfying.Substitute products can reduce the importance of an industry's products to its customers. Potentially, substitute products can translate to reduced market demand, increased competition for the remaining demand, all of which translates into reduced profits.
The Societal Environment (see Tables 4-1 and 4-3 on pages 73 and 78 respectively, for examples of the following four factors)
The general environment includes those external environmental sectors that indirectly affect the organization's strategic decisions and actions and may pose opportunities or threats. The four main general environment sectors:
Economic
The economic sector encompasses all the macroeconomic data, current statistics, trends, and changes that reflect what’s happening with the economy. It doesn't include the economic statistics of an organization’s industry. For instance, industry sales forecasts and trends aren't part of the general economic sector. However, you would look at those statistics in evaluating the industry and competitive environment.
Socio-cultural
What the country's culture is like and is it changing? What are society's traditions, values, attitudes, beliefs, tastes, patterns of behavior, and how are these changing? Demographic sector information fit into this category.
Evaluating shifts in beliefs, opinions, values, etc. to determine how these values may influence people’s behavior in shop, work, family rearing, etc. International Considerations: Important to understand each country’s culture, and try to uncover any trends or changes within the culture.
Political-Legal
Political-legal refers to the various laws, regulations, judicial decisions, and political forces that are currently in effect at the federal, state, and local levels of government. It might also include regulations enacted by professional associations (such as FASB—the Financial Accounting Standards Board).
Potential legal, regulatory, and political changes, or pending judicial decisions that might take place and could impact your organization.
Evaluate the impact regulations may have on the organization and the industry.
Also consider how consumer attitudes may change toward the industry/organization due to regulation. e.g. “vices” (tobacco, alcoholic beverages, gambling).
International Considerations: If operating in another country, your organization needs to know the relevant laws and regulations, and
abide by them. It is also important to be aware of political changes.
Technological
These are scientific or technological improvements, advancements
and innovations that create opportunities and in some cases, threats for an organization. Business firms tend to look for technological forces that generate problem-solving inventions.
Week 3
Module 5 (chapter 5):
Internal Scanning: Organizational Analysis
I.WHAT IS AN INTERNAL ANALYSIS? An internal analysis is the process of identifying and evaluating an organization’s specific characteristics including its resources, capabilities and core competencies. It entails looking at the organization’s current vision, mission, strategic objectives and strategies.
A.A Quick Review of Organizational Resources
1.The assets an organization has for carrying out whatever work activities and processes it's in business to do. These resources (or assets) can be:
a)Financial resources include debt capacity, credit lines, available equity (stock), cash reserves, and any other financial (monetary) assets.