Prescriptive/Normative Theories: what managers/firms should do
Descriptive: What managers/firms would do
Performance Feedback Model (Descriptive Model)
Model tells you how willing you are to change in relation to the performance
of your business; Performance relative to goals (x), Probability of change (y)
When company is doing good less probability of change negative slope
When company is doing bad more probability of change positive slope
Bigger change when performance < goals, compared to performance > goals
Managerial Complacency: performance > goals happy don’t take risks
Probability of change decreases near bankruptcy, they don’t want to risk
What is Strategic Management?
Strategic management consists of the analysis, decisions, and actions an
organization undertakes in order to create and sustain competitive advantages.
1. Analysis: analysis of strategic goals (vision, mission, strategic objectives)
along with the analysis of the internal and external environment of the
2. Decisions: What industries should we compete in? How should we compete in
3. Actions/implementation: leaders must allocate the necessary resources and
design the organization to bring the intended strategies to reality
Strategic management is the study of why some firms outperform others.
How to compete in order to sustain a competitive advantage over others
o Quality & Premiums vs. Low Cost vs. Specialization
How to avoid imitation and maintain uniqueness
o Efficiency does not always entail a competitive advantage, because
everyone can be efficient, you must separate yourself from your
competitors by doing something they can’t, doing something different.
4 Key attributes of Strategic Management
1. Directed toward overall organizational goals: goal for one function of the
firm may not be best for whole firm e.g. lowering production costs may be
countered in an increase in marketing costs to sell the same bland product;
over-engineering to create a superior product may lead to smaller market
share due to expensive product decreasing effectiveness of competitive
advantage, one must always think “from the perspective of the whole
organization rather than that of the functional areas” 2. Includes multiple stakeholders in decision making: must consider effect
of each decision on owners, employees, customers, suppliers, community at
3. Incorporates short-term and long-term perspectives: Managers must
maintain both a vision for the future of the organization as well as a focus on
its present operating needs. E.g. layoff employees cuts current costs, but can
have implications in the long run for employee morale.
4. Recognizes trade-offs between efficiency and effectiveness: effectively
(doing the right things), efficiently (doing things right); must not forget
overall goal of the organization to meet short-term goals. You can only
pursue one because you have limited resources.
The Strategic Management Process
Strategies don’t always work as planned. What doesn’t happen is called Unrealized
Strategy. These are due to changes in the external and internal environment. From
these changes will emerge new strategies (emergent strategies). Your final
Realized strategy will be a mix of your intended strategy and your emergent
The Role of Corporate Govern