Strategy Lecture Notes from Chapter 1-7

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Western University
Management and Organizational Studies
Management and Organizational Studies 4410A/B
Raymond Leduc

Chapter 1 – The Nature of Strategic Mgmt 9/11/2012 10:13:00 AM Strategic Management – Defined Chapter Objectives: 1. Describe the strategic mgmt. process 2. Explain the need for integrating analysis and intuition in strategic mgmt. 3. Define and give examples of key terms in strategic mgmt. 4. Discuss the nature of strategy formulation, implementation, and evaluation activities 5. Benefits of good strategic mgmt. 6. Relevance of Sun Tzu’s The Art of War to strategic mgmt. 7. Discuss how a firm may achieve sustained competitive advantage Defintion of Strategic Mgmt/Strategic planning  Art & Science of formulating, implementing, and evaluating (earnings per shares…etc), cross-functional decisions that enable an organization to achieve its objectives ART: innovation, creativity, experience, inspiration SCIENCE: marketing research, tactics, ratio analysis, logistics, operations Strategy mgmt has three stages: formulation, implementation, evaluation. They occur at three hierarchical levels: corporate, divisional, strategic business unit, and function First ask, what is our business? Strategy Formulation  Vision & Mission  External Opp & Threats  Internat  Longer term  Alternative strategy  Strategy selection  Allocate resources  Merger and acquisition  Expand operations or diversify  Avoiding hostile takeover Strategy Implementation (most important skill: interpersonal)  Establish annual objectives  Devise policies  Motivate employees  Creating effective org structure  Redirecting marketing efforts  Preparing budgets  Developing and utilizing information systems  Linking employee compensation to org performance Strategy Evaluation  Reviewing eternal and internal factors that are the bases for current strategies  Measuring performance  Taking corrective actions Achieving Sustained Competition Advantage 4 measures to define advantage:  hard to copy  better to customers  durable  exploitable How to maintain your competitive advantage? 1. Continually adapting to changes in external trends and events and internal capabilities, competencies, and resources 2. Effectively formulating, implementing, and evaluating strategies that capitalize on those factors Vision and Mission Statements  For every case we look at, we evaluate this first o Vision statement: what do we want to become? Mission statement: What is your business? “enduring statements of purpose that distinguish one business from other similar firms. A mission statement identifies the scope of a firm’s operations in product and market terms”  Are you in the stuff business or the experience business? Objectives can be defined as specific results that an organization seeks to achieve in pursuing its basic mission  Aid in evaluation  Create synergy  Motivating, organizing, and controlling activities Strategies may include geographic expansion, diversitification, acquistition, product development, market penetration, retrenchment, divestiture, liquidation, and joint ventures. Policies are the means by which annual objectives will be achieved. Include guidelines, rules, and procedures established to support efforts to achieve stated objectives Benefits of Strategic Management  Enhanced communication => Deeper/improved understanding => greater commitment => the result  Strategic management dialogue is more important than a nicely bound strategic management document  Non-financial benefits o Clearer understanding of performance-reward relationships o The problem prevention capabilities of organizations because it promotes interaction among managers at all divisional and functional levels o Better framework, forward thinking, promotes change, identification, prioritization, and exploitation of opportunities Why Some firms do no strategic planning?  Lack of knowledge, poor reward structures, firefighting, waste of time, too expensive, laziness, content with success, fear of failure, overconfidence, prior bad experience, self-interest, fear of the unknown, honest difference of opinion, suspicion Pitfalls in Strategic Planning  Using strategic planning to gain control over decisions and resources  Doing strategic planning only to satisfy accreditation or regulatory requirements  Too hastily moving from mission development to strategy formulation  Failing to communicate plan to employees who continue working in the dark  Top managers making many intuitive decisions that conflict with the formal plan  Failing to use plans as a standard for measuring performance  Delegating planning to a planner rather than involving all managers  Failing to create a collaborative climate supportive of change  Viewing planning as unnecessary or unimportant  Becoming so engrossed in current problems that insufficient or no planning is done  Being so formal in planning that flexibility and creativity are stifled  Strategy Game Tips Questions to ask Think about how implementation affects your performance How do you affect earnings per share? Unless your earnings went up Other criteria Stock price, credit rating, image rating Imagery: Corporate social responsibility, domination - investments are cumulative internet: if you don’t want internet sales, just block the orders Chapter 2 Mission & Vision 9/11/2012 10:13:00 AM - Clear Business Vision: what we aspire to become - comprehensive mission statement – what we do; what business we are in Difference between slogan and mission Walmart: Walmart. Always low prices. Always” Mission Statement: “Walmart’s mission is to help people save money so they can live better”  It is a blend of mission and vision Western provides the best student experience among Canada’s leading research-intensive universities Process of developing vision and mission statements 1. first select several articles about statements and ask all managers to read background info 2. ask managers to themselves to prepare a vision and mission statement the organization 3. all managers have input into and support the final statement. 4. Sometimes consultants are brought in for an external opinion Process of developing a mission statement - should create an “emotional bond” and “sense of mission” between the organization and its employees Importance (Benefits) of Vision and Mission  firms using a mission statement have 30% higher return on certain financial measures than those with none  to ensure unanimity of purpose within the organization  to provide a basis or standard for allocating organizational resources  to establish a general tone or organizational climate  to serve as a focal point for individuals to identify with the organization’s purpose and direction, and to deter those who cannot from participating further in the organization’s activities  to specify organizational purposes and then to translate these purposes into objectives in such a way that cost time and performance parameters can be assessed and controlled Characteristics of a mission statement  A declaration of attitude and outlook  Broad to reconcile differences effectively among and appeal to all stakeholders  Mission statements are not designed to concrete ends, but used to provide motivation, general direction, an image, a tone, a philosophy to guide the enterprise Nine Components of a Mission Statement  Customers – who are the firm’s customers  Products or services  Markets – geographically  Technology  Concern for survival , growth, profitability  Philosophy  Self-concept – distingtion  Concern for public image  Concern for employees Customer Driven Orientation  Define what the organization is and its aspirations  Be limited enough to exclude some ventures and broad enough to allow for creative growth  Distinguish a given organization from all others  Serve as a framerwork for evaluating both current and prospective activities  Be stated in terms sufficiently clear to be widely understood Chapter 3 9/11/2012 10:13:00 AM External Opportunities Overall View- Relationship between key external factors and an organization External factors -> Stakeholders -> an organization’s threats and opportunities - adjust with time and money to access opportunities Industrial Organization View (I/O) View  Industry factors are more important than internal factors  Ex: porter’s 5 forces  Performance determined by industry forces  Firm performance is based on industry properties: barrier to market entry, economies of scale, product differentiation..etc ECONOMIC FACTORS  Direct impact on the potential attractiveness of various strategies  Concerned with interest rates/inflation  funds needed for capital  level of disposable income  money market rates  gross domestic product trend  consumption trends  unemployment trends  Strong US dollar = more expensive exports, worsens trade deficit  Low US dollar = lower imports and higher exports, helps stave off risks of deflation, reduces trade deficit Weak Dollar Advantages Disadvantages - Lead to more exports, lower - can lead to inflation imports, - can cause rise in oil prices - Stimulate worldwide recession - make it unattractive for - Encourage foreign countries to americans to travel else where lower interest rates, - Can contribute to rise in stock prices SOCIAL CULTURAL DEMOGRAPHIC NATURAL ENVIRONMENT FORCES  By 2075, US will have no racial/ethnic majority  Aging trend  Childbearing rates  Attudes toward foreign people  Average level of education POLITICAL LEGAL FORCES  Special tariffs  Regulations, deregulations  Subsidies World oil currency and labour markets TECHNOLOGY FORCES  Conflict between technology and content  Internet has changed the very nature of opportunities and threats by o altering the life cycles of products, o increasing the speed of distribution, o creating new products and services, o erasing limitations of traditional geographic markets o changing the historical trade off between production standardization and flexibility.  The internet is altering economies of scale, changing entry barriers, and redefining the relationship between industries and various suppliers  CIO – manager, managing the firm’s relationshjip with stakeholdesr COMPETITIVE FORCES  Identify rival firms’s SWOT  Seven factors that describe the most competitive companies o Market share matters, 90 thshare isn’t as important as 91, don’t drop to 89 o Fix it, make it better o Innovate or evaporate o Acquisition is essential to growth (niche or tech related market) o People make a difference tired of hearing it too bad o There’s no sub for quality Competitive Intelligence Program (CI)  A systematic and ethical process for gathering and analyzing information about the competition’s activities and general business trends to further a business’s own goals  Three basic objectives o To provide a general understanding of industry and its competitors o To identify areas in which competitiors are vulnerable and to assess the impact strategic actions would have on competitors o Idenfitfy potential moves that a competitors might
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