Chapter 2:Introduction

Strategy – a set of related actions that managers take to increase their

company’s performance goals.

Objectives of Strategic Management:

 to identify and describe the strategies that managers can pursue
to achieve superior performance and provide their company with a
competitive advantage.
 to give you a thorough understanding of the analytical techniques and
skills necessary to identify and implement strategies successfully.
 to describe in more detail what superior performance and
competitive advantage mean and to explain the pivotal role that
managers play in leading the strategy-making process.

Strategy Making Process:

 Strategic leadership is about how to most effectively manage a
company’s strategy-making process to create competitive advantage.
The strategy-making process is the process by which managers
select and then implement a set of strategies that aim to achieve a
competitive advantage.
 Strategy formulation is the task of selecting strategies.
 Strategy implementation is the task of putting strategies into
action, which includes designing, delivering, and supporting products;
improving the efficiency and effectiveness of operations; and
designing a company’s organization structure, control systems, and
culture.
Strategic leadership is concerned with managing the strategy-making
process to increase the performance of a company, thereby increasing the
value of the enterprise to its owners, its shareholders. It must have a
competitive advantage.

Superior Performance
 The major goal of companies is to maximize the returns that
shareholders receive from holding shares in the company. To
maximize shareholder value, managers must pursue strategies that
result in high and sustained profitability and in profit growth.
 The profitability of a company can be measured by the return that
it makes of the capital invested in the enterprise. The profit growth
 of a company can be measured by the growth in earnings per share.
Profitability and profit growth are determined by the strategies
managers adopt.
 A company has a competitive advantage over its rivals when it is more
profitable than the average for all firms in its industry. It has a
sustained competitive advantage when it is able to maintain above
average profitability over a number of years. In general, a
company with a competitive advantage will grow its profits more
rapidly than its rivals.

Business Model - is managers’ conception of how the set of strategies their

company pursues should work together as a congruent whole, enabling the
company to gain a competitive advantage and achieve superior
profitability and profit growth.

A business model encompasses the totality of how a company will:

 Select its customers.  Deliver goods and services
 Define and differentiate its to the market.
product offerings.  Organize activities within
 Create value for its the company.
customers.  Configure its resources.
 Acquire and keep customers.  Achieve and sustain a high
 Produce goods or services. level of profitability.
 Lower costs.  Grow the business over time.

Performance in Nonprofit Enterprises

 nonprofit enterprises such as government agencies, universities,
and charities are not in “business” to make profits.
 managers of nonprofits need to map out strategies to attain these
goals.
 planning and thinking strategically are as important for managers
in the nonprofit sector as they are for managers in profit-seeking
firms.

Strategic Managers
 General managers
Managers who bear responsibility for the overall performance of
the company or for one of its major self-contained subunits or divisions
  Functional managers - Managers responsible for supervising a
particular function, that is, a task, activity, or operation, such as
accounting, marketing, research, and development (R&D),
information technology, or logistics.
 Corporate-Level Managers - consists of the chief executive
officer (CEO), other senior executives, and corporate staff.
 Business-Level Managers - the head of the division
 Functional-Level Managers - responsible for the specific business
functions or operations (human resources, purchasing, product
development, customer service, etc.) that constitute a company or
one of its divisions.

Corporate Strategic Planning is a companywide approach at the business

unit and corporate level for developing strategic plans to achieve a longer-
term vision.

Importance of Corporate Strategic Planning:

- it gives every employee a set of guidelines they can use in their
everyday work to move toward certain targets, which promote the vision
and mission of the company.
- it improves efficiency within the organization and helps identify
unseen bottlenecks or pain-points.

Steps involved in strategic corporate planning:

1) Competitive Analysis - understanding the trends that could
impact the success of your strategy.
2) Strategic Goals & Priorities - includes not only what is to be
accomplished, but how it will be accomplished including high level
plans, budgets, human resources, etc.
3) Communication - the information needs to be communicated and
shared with leadership inside the business unit so that priorities
and plans can be aligned and integrated within a single budget.

The Strategy-Making Process

The formal strategic planning process has five main steps:
 1. Select the corporate mission and major corporate goals.
 2. Analyze the organization’s external competitive environment to
identify opportunities and threats.
  3. Analyze the organization’s internal operating environment to
identify the organization’s strengths and weaknesses.
 4. 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. These strategies
should be consistent with the mission and major goals of the
organization. They should be congruent and constitute a viable
business model.
 5. Implement the strategies.

Terms to Remember: Sustained competitive advantage

- A company’s strategies enable it
Risk Capital - Equity capital for to maintain above-average
which there is no guarantee that profitability for a number of
stockholders will ever recoup their years.
investment or earn a decent
return. Multidivisional company - A
company that competes in several
Shareholder value - Returns that different businesses and has
shareholders earn from created a separate self-contained
purchasing shares in a company. division to manage each.

Profitability - The return a Business unit - A self-contained

company makes on the capital division that provides a product or
invested in the enterprise. service for a particular market.

Profit growth - The increase in

net profit over time.

Competitive Advantage - The

achieved advantage over rivals
when a company’s profitability is
greater than the average
profitability of firms in its
industry.
Chapter 2: Business, Mission, Vision, Goals, and Objectives

A company’ s stakeholders are Goals – a precise and measurable

individuals or groups with an desired future state that a
interest, claim, or stake in the company attempts to realize.
company, in what it does, and in how
well it performs. Four main characteristics
of well-constructed goals
Mission – refers to the purpose of (1) They are specific and
an organization. “What is our measurable. (2) They address
business? What will it be? What crucial issues. (3) They are
should it be? (Overall purpose of challenging but realistic. (4) They
the business, what your business specify a time period.
does, what’s important to your
business) Objectives – are the need results
of a planned activity. They are
Vision – lays out some desired stated quantifiable terms.
future state—it articulates, often - stated differently at
in bold terms, what the company various levels of
would like to achieve. (Where do management.
you want to be?) - play a very important role
in enhancing the efficiency
Values – statements of how and effectiveness of an
managers and employees of a organization.
company should conduct - serve as measurable
themselves, how they should do benchmarks that will help a
business, and what kind of destination reach its goals.
organization they should build to
help a company achieve its mission. Objectives should be SMART
(Specific, Measurable,
Organizational Culture – the set of Attainable, Relevant, Time
values, norms, and standards that bound). They should help in the
control how employees work to achievement of the
achieve an organization’ s mission organization’ s mission and
and goals. vision.
Agency Theory – is a theory dealing relative agents. Because the
with the problems that can arise in principal relies heavily on the agent
a business relationship when one to make the decision, there may be
person delegates decision-making an assortment of conflicts or
authority to another. Offers a way disagreements.
of understanding why managers do
not always act in the best interests Agency Relationship – a
of stakeholders, and also why they relationship that arises whenever
might sometimes engage in actions one-party delegates decision-
that are unethical, and perhaps also making authority or control over
illegal. A concept used to explain resources to another.
the important relationships
between principals and their
Principal – a person delegating governance mechanisms is to
authority to an agent, who acts on reduce the scope and frequency of
the principal’s behalf. the agency problem: to help ensure
that agents act in a manner that is
Agents – a person to whom consistent with the best interests
authority is delegated by a of their principals.
principal.

Governance Mechanism – are

mechanisms that principals put in
place to align incentives between
principals and agents and to monitor
and control agents. The purpose of

ROOTS OF UNETHICAL BEHAVING ETHICALLY

BEHAVIOR - Hiring and Promotion
- Personal Ethical Code - Organization Culture and
- Lack of Ethical Leadership
Consideration - Ethics Officers
- Organizational Structure - Decision Making Processes
- Pressure form Top - Strong Corporate
Management Governance
- Leadership Influence - Moral Courage
 BASIS MISSION VISION
CONCEPT defines the purpose communicates both
and primary the purpose and values
objectives
ANSWER THE How will you get to Where you want to
QUESTION where you want to be?
be?
PURPOSE Inform what the Inspire and motivate
organization does people
TIME FRAME Present leads to Future
future

BASIS OBEJCTIVES GOALS

CONCEPT represents managerial refers to the long-
commitment term purpose
MEASUREMENT easy to measure difficult to
measure
TIME PERIOD mid-term or short long term in nature
term in nature
ACTION Specific action Generic action