Lecture 1 and 2 Strategic Planning.pptx
- 1. Intro to the Course What is Strategic Management? Lecture 1
- 2. Getting to know each other • Contact Details: [email protected] Mob: +99559960602 • Resources
- 3. What we shall learn • The essence of strategic management. • Basic managerial topics in strategic management. • Strategic Management – as a process • Internal and external environmental scanning methods • The role of company performance • The types of strategies • The role of strategic management in formatting successful company • Control and evaluation mechanisms.
- 4. Assessment Form Components Thresholds Midterm Home work (case analyses) - 10 points Midterm Exam - 30 points Group Work (Project) - 30 points 21 points Final FINAL exam - Project - 30 points 10 points Total 100 points
- 5. • Plagiarism – unacceptable, when presenting homework, presentation using someone else’s work, idea or opinion without indicating source. In such cases, lecturer is obliged not to assess the work. • Cheating– cheating during any activity (homework, exam, report, presentation) is unacceptable. The lecturer is obliged to not to assess the work. • Reexam for midterm assessment – is possible, if a student presents a reason (sickness, work obligations, business trips). A student has to turn with a necessary statement to the business school administration. Date and time for re-exam is proposed by the lecturer. Re-exam does not include class participation and debates.
- 6. What is Strategic Management?
- 7. What is Strategic Management • Strategic management is a set of managerial decisions and actions that help determine the long-term performance of an organization. • It includes: environmental scanning (both external and internal), strategy formulation (strategic or long-range planning), strategy implementation, and evaluation and control. • Originally called business policy, strategic management has advanced substantially with the concentrated efforts of researchers and practitioners. • Today, we recognize both a science and an art to the application of strategic management techniques.
- 8. Phases of Strategic Management • Phase 1—Basic financial planning – proposing next years’ budget; one year horizon; • Phase 2—Forecast-based planning – five-year plans with a lot of environmental analysis involved; • Phase 3—Externally oriented (strategic) planning - The company seeks to increase its responsiveness to changing markets and competition by thinking and acting strategically. • Phase 4—Strategic management - Rather than attempting to perfectly forecast the future, the plans emphasize probable scenarios and contingency strategies. The sophisticated annual five-year strategic plan is replaced with strategic thinking at all levels of the organization throughout the year.
- 9. Benefits of Strategic Management • A clearer sense of strategic vision for the firm. • A sharper focus on what is strategically important. • An improved understanding of a rapidly changing environment. It can begin with a few simple questions: • Where is the organization now? (Not where do we hope it is!) • If no significant changes are made, where will the organization be in one year? Two years? Five years? Ten years? Are the answers acceptable? • If the answers are not acceptable, what specific actions should management undertake? What are the risks and payoffs involved?
- 10. Globalization, Innovation, and Sustainability: Challenges to Strategic Management • Globalization, the integrated internationalization of markets and corporations, has changed the way modern corporations do business; • Innovation, as the term is used in business, is meant to describe new products, services, methods, and organizational approaches that allow the business to achieve extraordinary returns. • Sustainability refers to the use of business practices to manage the triple bottom line: (1) the management of traditional profit/loss; (2) the management of the company’s social responsibility; and (3) the management of its environmental responsibility.
- 11. Theories of Organizational Adaptation • The theory of population ecology suggests that once an organization is successfully established in a particular environmental niche, it is unable to adapt to changing conditions. • Institution theory, in contrast, proposes that organizations can and do adapt to changing conditions by imitating other successful organizations. The strategic choice perspective goes a significant step further by proposing that not only do organizations adapt to a changing environment, but they also have the opportunity and power to reshape their environment. • organizational learning theory, says that an organization adjusts defensively to a changing environment and uses knowledge offensively to improve the fit between itself and its environment.
- 12. Learning Organization • Learning organization—an organization skilled at creating, acquiring, and transferring knowledge and at modifying its behavior to reflect new knowledge and insights. Learning organizations are skilled at four main activities: • Solving problems systematically; • Experimenting with new approaches; • Learning from their own experiences and past history as well as from the experiences of others; • Transferring knowledge quickly and efficiently throughout the organization.
- 13. Basic Model of Strategic Management • Strategic management consists of four basic elements: • Environmental scanning • Strategy formulation • Strategy implementation • Evaluation and control.
- 14. Environmental Scanning • Environmental scanning is the monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the corporation. • Its purpose is to identify strategic factors—those external and internal elements that will assist in the analysis of the strategic decisions of the corporation. The simplest way to represent the outcomes of environmental scanning is through a SWOT approach. SWOT is an acronym used to describe the particular Strengths, Weaknesses, Opportunities, and Threats that appear to be strategic factors for a specific company.
- 18. Break for the Case analysis • Toyota Motors Co; • Read the case and we will discuss the case related questions during the seminar.
- 19. Toyota Motors Co - Qs • Name and analyze the key Internal Challenges that the company has faced during the course of the period given in the case; • Name and analyze the key External Challenges that the company has faced; • What strategic choices can you identify for combatting these challenges? • How would you characterize Toyota Motors, what type of organization is it? • What are some of the key challenges that you believe the organization will be facing in the near future?
- 20. ABC of a Strategy • The goal is sustaining superior performance relative to competitors; • How to formulate a good strategy? • You need to Diagnose, create a guiding policy and set coherent actions to implement the policy. • The important point here is that strategy is about creating superior value, while containing the cost to create it, or by offering similar value at lower cost. Managers achieve these combinations of value and cost through strategic positioning. • The key to successful strategy is to combine a set of activities to stake out a unique strategic position within an industry. • AFI Framework – Analyze, Formulate, Implement
- 21. What is not a Strategy? • Wishful thinking – “We will be No. 1” • A failure to face a competitive challenge is not strategy. • Operational effectiveness, competitive benchmarking, or other tactical tools are not strategy;
- 22. Strategy Formulation • Strategy formulation is the process of investigation, analysis, and decision making that provides the company with the criteria for attaining a competitive advantage. It includes defining the competitive advantages of the business, identifying weaknesses that are impacting the company’s ability to grow, crafting the corporate mission, specifying achievable objectives, and setting policy guidelines.
- 23. Mission: Stating Purpose, Vision and Values • An organization’s mission is the purpose or reason for the organization’s existence. It announces what the company is providing to society—either a service. • Mission describes what the organization is now; vision describes what the organization would like to become. • Values – what commitments do we make, do we put in place to act both legally and ethically to pursue our mission and vision?
- 24. Examples • Tesla’s vision is to accelerate the world’s transition to sustainable transport. • Tesla hopes to translate this vision into reality by providing affordable zero-emission mass-market cars that are the best in class, which captures Tesla’s mission. • Custmer vs. product oriented visions.
- 26. Objectives: Listing Expected Results • Objectives are the end results of planned activity. They should be stated as action verbs and tell employees what is to be accomplished and when, with appropriate metrics. The achievement of corporate objectives s • The term goal is often used interchangeably with the term objective. We prefer to differentiate the two terms. In contrast to an objective, we consider a goal as an open-ended statement of what one wants to accomplish, with no quantification of what is to be achieved and no time criteria for completion.
- 27. Objectives: Listing Expected Results (2) Some of the areas in which a corporation might establish its goals and objectives are: • Profitability (net profits) • Efficiency (low costs, etc.) • Growth (increase in total assets, sales, etc.) • Shareholder wealth (dividends plus stock price appreciation) • Utilization of resources (Return on Equity (ROE) or Return on Investment (ROI)) • Reputation (being considered a “top” firm) • Contributions to employees (employment security, wages, diversity) • Contributions to society (taxes paid, participation in charities, providing a needed product or service) • Market leadership (market share) • Technological leadership (innovations, creativity) • Survival (avoiding bankruptcy) • Personal needs of top management (using the firm for personal purposes, such as providing jobs for relatives)
- 28. Strategy: Defining the Competitive Advantages • The typical larger business addresses three types of strategy: corporate, business, and functional. • Corporate strategy describes a company’s overall direction in terms of growth and the management of its various businesses. Corporate strategies generally fit within the three main categories of stability, growth, and retrenchment. • Business strategy usually occurs at the business unit or product level, and it emphasizes improvement of the competitive position of a corporation’s products or services in the specific industry or market segment served by that business unit. Business strategies may fit within the two overall categories: competitive and cooperative strategies. • Functional strategy is the approach taken by a functional area to achieve corporate and business unit objectives and strategies by maximizing resource productivity. It is concerned with developing and nurturing a distinctive competence to provide a company or business unit with a competitive advantage.
- 29. Policies: Setting Guidelines • A policy is a broad guideline for decision making that links the formulation of a strategy with its implementation
- 30. Strategy Implementation • Strategy implementation is a process by which strategies and policies are put into action through the development of programs, budgets, and procedures. This process might involve changes within the overall culture, structure, and/or management system of the entire organization.
- 31. Programs and Tactics: Defining Actions • A program or a tactic is a statement of the activities or steps needed to support a strategy. The terms are interchangeable. In practice, a program is a collection of tactics where a tactic is the individual action taken by the organization as an element of the effort to accomplish a plan. • A program or tactic makes a strategy action-oriented. It may involve restructuring the corporation, changing the company’s internal culture, or beginning a new research effort.
- 32. Budgets: Costing Programs • A budget is a statement of a corporation’s programs in terms of dollars. Used in planning and control, a budget lists the detailed cost of each program. Many corporations demand a certain percentage return on investment, often called a “hurdle rate,” before management will approve a new program.
- 33. Procedures: Detailing Activities • Procedures, sometimes termed Standard Operating Procedures (SOP), are a system of sequential steps or techniques that describe in detail how a particular task or job is to be done. They typically detail the various activities that must be carried out in order to complete the corporation’s program.
- 34. Evaluation and Control • Evaluation and control is a process in which corporate activities and performance results are monitored so that actual performance can be compared with desired performance. • Managers at all levels use the resulting information to take corrective action and resolve problems. • Performance is the end result of activities.
- 35. Initiation of Strategy: Triggering Events • A triggering event is something that acts as a stimulus for a change in strategy. Some possible triggering events are: • New CEO; • External intervention; • Threat of a change in ownership; • Performance gap; • Strategic inflection point.
- 36. Mintzberg’s Modes of Strategic Decision Making • Entrepreneurial mode - Strategy is made by one powerful individual. The focus is on opportunities; problems are secondary. Strategy is guided by the founder’s own vision of direction and is exemplified by large, bold decisions; • Adaptive mode: Sometimes referred to as “muddling through,” this decision-making mode is characterized by reactive solutions to existing problems, rather than a proactive search for new opportunities. • Planning mode: This decision-making mode involves the systematic gathering of appropriate information for situation analysis, the generation of feasible alternative strategies, and the rational selection of the most appropriate strategy. • Logical incrementalism: A fourth decision-making mode can be viewed as a synthesis of the planning, adaptive, and, to a lesser extent, the entrepreneurial modes. In this mode, top management has a reasonably clear idea of the corporation’s mission and objectives, but, in its development of strategies, it chooses to use “an interactive process in which the organization probes the future, experiments, and learns from a series of partial (incremental) commitments rather than through global formulations of total strategies.
- 37. Strategic Decision-Making Process: Aid to Better Decisions • Evaluate current performance results in terms of (a) return on investment, profitability, and so forth, and (b) the current mission, objectives, strategies, and policies. • Review corporate governance—that is, the performance of the firm’s board of directors and top management. • Scan and assess the external environment to determine the strategic factors that pose opportunities and threats. • Scan and assess the internal corporate environment to determine the strategic factors that are strengths (especially core competencies) and weaknesses. • Analyze strategic factors to (a) pinpoint problem areas and (b) review and revise the corporate mission and objectives, as necessary. • Generate, evaluate, and select the best alternative strategies in light of the analysis conducted in the previous step. • Implement selected strategies via programs, budgets, and procedures. • Evaluate implemented strategies via feedback systems, and the control of activities to ensure their minimum deviation from plans.
- 40. Tesla Case
- 41. Tesla’s strategy • Musk, Tesla’s co-founder and CEO, describes himself as an “engineer and entrepreneur who builds and operates companies to solve environmental, social, and economic challenges.” Tesla was founded with the vision to “accelerate the world’s transition to sustainable transport.” • To address the competitive challenge, Tesla’s current guiding policy is to build a cost competitive mass-market vehicle such as the new Model 3. To achieve this, Tesla needs a 5 USD billion investment in the lithium-ion battery plant; • To accomplish building a cost-competitive mass-market vehicle, Tesla must benefit from economies of scale, which are decreases in cost per vehicle as output increases. To reap these critical cost reductions, Tesla must ramp up its production volume. This is a huge challenge: Tesla aims to increase its production output by some 20 times, from 50,000 cars built in 2015 to 1 million cars per year by 2020.
- 42. Reading • Chapter 1 Introduction to Strategic Management and Business Policy