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Strategic Management

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Strategic Management ­ MGT603
VU
Lesson 4
BENEFITS OF STRATEGIC MANAGEMENT
Objectives:
After reading this lecture you will be able to know that:
What are Non financial benefits of Strategic Management?
Why firms do no strategic planning?
Pitfalls to avoid in strategic planning
Business Ethics
Global challenges
Non- financial Benefits
Increased employee productivity
Improved understanding of competitors' strategies
Greater awareness of external threats
Understanding of performance reward relationships
Better problem-avoidance
Lesser resistance to change
Besides helping firms avoid financial demise, strategic management offers other tangible benefits, such as an
enhanced awareness of external threats, an improved understanding of competitors' strategies, increased
employee productivity, reduced resistance to change, and a clearer understanding of performance-reward
relationships. Strategic management enhances the problem-prevention capabilities of organizations because
it promotes interaction among manager's at all divisional and functional levels. Interaction can enable firms
to turn on their managers and employees by nurturing them, sharing organizational objectives with them,
empowering them to help improve the product or service, and recognizing their contributions.
In addition to empowering managers and employees, strategic management often brings order and
discipline to an otherwise floundering firm. It can be the beginning of an efficient and effective managerial
system. Strategic management may renew confidence in the current business strategy or point to the need
for corrective actions. The strategic-management process provides a basis for identifying and rationalizing
the need for change to all managers and employees of a firm; it helps them view change as an opportunity
rather than a threat.
Greenly stated that strategic management offers the following benefits:
1. It allows for identification, prioritization, and exploitation of opportunities.
2. It provides an objective view of management problems.
3. It represents a framework for improved coordination and control of activities.
4. It minimizes the effects of adverse conditions and changes.
5. It allows major decisions to better support established objectives.
6. It allows more effective allocation of time and resources to identified opportunities.
7. It allows fewer resources and less time to be devoted to correcting erroneous or ad hoc decisions.
8. It creates a framework for internal communication among personnel.
9. It helps integrate the behavior of individuals into a total effort.
10. It provides a basis for clarifying individual responsibilities.
11. It encourages forward thinking.
12. It provides a cooperative, integrated, and enthusiastic approach to tackling problems and
opportunities.
13. It encourages a favorable attitude toward change.
14. It gives a degree of discipline and formality to the management of a business.
Why Some Firms Do No Strategic Planning?
Some firms do not engage in strategic planning and some firms do strategic planning but receive no support
from managers and employees. Some reasons for poor or no strategic planning are as follows:
1. Poor Reward Structures--when an organization assumes success, it often fails to reward success.
Where failure occurs, then the firm may punish. In this situation, it is better for an individual to do
nothing (and not draw attention) than risk trying to achieve something, fail, and be punished.
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Strategic Management ­ MGT603
VU
2. Fire-fighting--an organization can be so deeply embroiled in crisis management and fire-fighting
that it does not have time to plan.
3. Waste of Time--some firms see planning as a waste of time since no marketable product is
produced. Time spent on planning is an investment.
4. Too Expensive--some organizations are culturally opposed to spending resources.
5. Laziness--People may not want to put forth the effort needed to formulate a plan.
6. Content with Success--particularly if a firm is successful, individuals may feel there is no need to
plan because things are fine as they stand. But success today does not guarantee success tomorrow.
7. Fear of Failure--by not taking action, there is little risk of failure unless a problem is urgent and
pressing. Whenever something worthwhile is attempted, there is some risk of failure.
8. Overconfidence--as individuals amass experience, they may rely less on formalized planning.
Rarely, however, is this appropriate. Being overconfident or overestimating experience can bring
demise. Forethought is rarely wasted and is often the mark of professionalism.
9. Prior Bad Experience--People may have had a previous bad experience with planning, where
plans have been long, cumbersome, impractical, or inflexible. Planning, like anything, can be done
badly.
10. Self-Interest--when someone has achieved status, privilege, or self-esteem through effectively
using an old system, they often see a new plan as a threat.
11. Fear of the Unknown--People may be uncertain of their abilities to learn new skills, their aptitude
with new systems, or their ability to take on new roles.
12. Honest Difference of Opinion--People may sincerely believe the plan is wrong. They may view
the situation from a different viewpoint, or may have aspirations for themselves or the organization
that are different from the plan. Different people in different jobs have different perceptions of a
situation.
13. Suspicion--Employees may not trust management.
Pitfalls to avoid in Strategic Planning
Strategic planning is an involved, intricate, and complex process that takes an organization into non
chartered territory. It does not provide a ready-to-use prescription for success; instead, it takes the
organization through a journey and offers a framework for addressing questions and solving problems.
Being aware of potential pitfalls and prepared to address them is essential to success.
Some pitfalls to watch for and avoid in strategic planning are provided below:
1. Using strategic planning to gain control over decisions and resources
2. Doing strategic planning only to satisfy accreditation or regulatory requirements
3. Too hastily moving from mission development to strategy formulation
4. Failing to communicate the plan to employees, who continue working in the dark
5. Top managers making many intuitive decisions that conflict with the formal plan
6. Top managers not actively supporting the strategic-planning process
7. Failing to use plans as a standard for measuring performance
8. Delegating planning to a "planner" rather than involving all managers
9. Failing to involve key employees in all phases of planning
10. Failing to create a collaborative climate supportive of change
11. Viewing planning to be unnecessary or unimportant
12. Becoming so engrossed in current problems that insufficient or no planning is done
13. Being so formal in planning that flexibility and creativity are stifled.
Business Ethics and Strategic Management
Definition:
Business ethics can be defined as principles of conduct within organizations that guide decision making and
behavior.
Good business ethics is a prerequisite for good strategic management; good ethics is just good business.
Implementation:
A rising tide of consciousness about the importance of business ethics is sweeping America and the world.
Strategists are the individuals primarily responsible for ensuring that high ethical principles are espoused and
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Strategic Management ­ MGT603
VU
practiced in an organization. All strategy formulation, implementation, and evaluation decisions have ethical
ramifications.
A new wave of ethics issues related to product safety, employee health, sexual harassment, AIDS in the
workplace, smoking, acid rain, affirmative action, waste disposal, foreign business practices, cover-ups,
takeover tactics, conflicts of interest, employee privacy, inappropriate gifts, security of company records,
and layoffs has accented the need for strategists to develop a clear code of business ethics. A code of
business ethics can provide a basis on which policies can be devised to guide daily behavior and decisions
at the work site.
The explosion of the Internet into the workplace has raised many new ethical questions in organizations
today. For example, United Parcel Service (UPS) recently caught an employee actually running a personal
business from his computer.
Merely having a code of ethics, however, is not sufficient to ensure ethical business behavior. A code of
ethics can be viewed as a public relations gimmick, a set of platitudes, or window dressing. To ensure that
the code is read, understood, believed, and remembered, organizations need to conduct periodic ethics
workshops to sensitize people to workplace circumstances in which ethics issues may arise. If employees see
examples of punishment for violating the code and rewards for upholding the code, this helps reinforce the
importance of a firm's code of ethics.
Internet privacy is an emerging ethical issue of immense proportions.
­  38% of companies store and review employees' email messages
­  Up from 15% in recent years
­  54% companies monitor employees' internet connections
­  Situation in Pakistan is not much different
Advertisers, marketers, companies, and people with various reasons to snoop on other people now can
discover easily on the Internet others' buying preferences, hobbies, incomes, medical data, social security
numbers, addresses, previous addresses, sexual preferences, credit card purchases, traffic tickets, divorce
settlements, and much more.
Some business actions always considered to be unethical include misleading advertising or labeling, causing
environmental harm, poor product or service safety, padding expense accounts, insider trading, dumping
banned or flawed products. In foreign markets, lack of equal opportunities for women and minorities,
overpricing, hostile takeovers, moving jobs overseas, and using nonunion labor in a union shop.
Nature of global competition:
Foreign competitors are battering U.S. firms in many industries. In its simplest sense, the international
challenge faced by U.S. business is twofold:
(1) How to gain and maintain exports to other nations and
(2) How to defend domestic markets against imported goods.
Few companies can afford to ignore the presence of international competition. Firms that seem insulated
and comfortable today may be vulnerable tomorrow; for example, foreign banks do not yet compete or
operate in most of the United States.
More and more countries around the world are welcoming foreign investment and capital. As a result, labor
markets have steadily become more international. East Asian countries have become market leaders in
labor-intensive industries, Brazil offers abundant natural resources and rapidly developing markets, and
Germany offers skilled labor and technology. The drive to improve the efficiency of global business
operations is leading to greater functional specialization. This is not limited to a search for the familiar low-
cost labor in Latin America or Asia. Other considerations include the cost of energy, availability of
resources, inflation rates, existing tax rates, and the nature of trade regulations. Yang Shangkun insists that
China's door is still open to foreign capital and technology, despite the continued strength of the
Communist Party.
The ability to identify and evaluate strategic opportunities and threats in an international environment is a
prerequisite competency for strategists. The nuances of competing in international markets are seemingly
infinite. Language, culture, politics, attitudes, and economies differ significantly across countries. The
availability, depth, and reliability of economic and marketing information in different countries vary
extensively, as do industrial structures, business practices, and the number and nature of regional
organizations.
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Table of Contents:
  1. NATURE OF STRATEGIC MANAGEMENT:Interpretation, Strategy evaluation
  2. KEY TERMS IN STRATEGIC MANAGEMENT:Adapting to change, Mission Statements
  3. INTERNAL FACTORS & LONG TERM GOALS:Strategies, Annual Objectives
  4. BENEFITS OF STRATEGIC MANAGEMENT:Non- financial Benefits, Nature of global competition
  5. COMPREHENSIVE STRATEGIC MODEL:Mission statement, Narrow Mission:
  6. CHARACTERISTICS OF A MISSION STATEMENT:A Declaration of Attitude
  7. EXTERNAL ASSESSMENT:The Nature of an External Audit, Economic Forces
  8. KEY EXTERNAL FACTORS:Economic Forces, Trends for the 2000ís USA
  9. EXTERNAL ASSESSMENT (KEY EXTERNAL FACTORS):Political, Governmental, and Legal Forces
  10. TECHNOLOGICAL FORCES:Technology-based issues
  11. INDUSTRY ANALYSIS:Global challenge, The Competitive Profile Matrix (CPM)
  12. IFE MATRIX:The Internal Factor Evaluation (IFE) Matrix, Internal Audit
  13. FUNCTIONS OF MANAGEMENT:Planning, Organizing, Motivating, Staffing
  14. FUNCTIONS OF MANAGEMENT:Customer Analysis, Product and Service Planning, Pricing
  15. INTERNAL ASSESSMENT (FINANCE/ACCOUNTING):Basic Types of Financial Ratios
  16. ANALYTICAL TOOLS:Research and Development, The functional support role
  17. THE INTERNAL FACTOR EVALUATION (IFE) MATRIX:Explanation
  18. TYPES OF STRATEGIES:The Nature of Long-Term Objectives, Integration Strategies
  19. TYPES OF STRATEGIES:Horizontal Integration, Michael Porterís Generic Strategies
  20. TYPES OF STRATEGIES:Intensive Strategies, Market Development, Product Development
  21. TYPES OF STRATEGIES:Diversification Strategies, Conglomerate Diversification
  22. TYPES OF STRATEGIES:Guidelines for Divestiture, Guidelines for Liquidation
  23. STRATEGY-FORMULATION FRAMEWORK:A Comprehensive Strategy-Formulation Framework
  24. THREATS-OPPORTUNITIES-WEAKNESSES-STRENGTHS (TOWS) MATRIX:WT Strategies
  25. THE STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX
  26. THE STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX
  27. BOSTON CONSULTING GROUP (BCG) MATRIX:Cash cows, Question marks
  28. BOSTON CONSULTING GROUP (BCG) MATRIX:Steps for the development of IE matrix
  29. GRAND STRATEGY MATRIX:RAPID MARKET GROWTH, SLOW MARKET GROWTH
  30. GRAND STRATEGY MATRIX:Preparation of matrix, Key External Factors
  31. THE NATURE OF STRATEGY IMPLEMENTATION:Management Perspectives, The SMART criteria
  32. RESOURCE ALLOCATION
  33. ORGANIZATIONAL STRUCTURE:Divisional Structure, The Matrix Structure
  34. RESTRUCTURING:Characteristics, Results, Reengineering
  35. PRODUCTION/OPERATIONS CONCERNS WHEN IMPLEMENTING STRATEGIES:Philosophy
  36. MARKET SEGMENTATION:Demographic Segmentation, Behavioralistic Segmentation
  37. MARKET SEGMENTATION:Product Decisions, Distribution (Place) Decisions, Product Positioning
  38. FINANCE/ACCOUNTING ISSUES:DEBIT, USES OF PRO FORMA STATEMENTS
  39. RESEARCH AND DEVELOPMENT ISSUES
  40. STRATEGY REVIEW, EVALUATION AND CONTROL:Evaluation, The threat of new entrants
  41. PORTER SUPPLY CHAIN MODEL:The activities of the Value Chain, Support activities
  42. STRATEGY EVALUATION:Consistency, The process of evaluating Strategies
  43. REVIEWING BASES OF STRATEGY:Measuring Organizational Performance
  44. MEASURING ORGANIZATIONAL PERFORMANCE
  45. CHARACTERISTICS OF AN EFFECTIVE EVALUATION SYSTEM:Contingency Planning