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Introduction to Strategic Management

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Title: Introduction to Strategic Management


1
Introduction to Strategic Management
  • MANA 5336

2
  • What is Strategy?

Strategy is the overall plan for deploying
resources to establish a favorable
position. Tactic is a scheme for a specific
maneuver.
3
  • Characteristics of strategic decisions
  • Important
  • Involve a significant commitment of resources
  • Not easily reversible

4
Basic Framework
External Environment Competitors Customers Supplie
rs etc
The firm Goals Values Resources
Capabilities Structures Systems
Strategy
5
Definitions
Strategic Management Process
The full set of commitments, decisions, and
actions required for a firm to create value and
earn above-average returns
Value Creation
What is achieved when a firm successfully
formulates and implements a strategy that other
companies are unable to duplicate or find too
costly to imitate.
6
Definitions
Average Returns
Returns that are equal to those an investor
expects to earn from other investments with a
similar amount of risk
Above-Average Returns
Returns that are in excess of what an investor
expects to earn from other investments with a
similar amount of risk
7
Definitions
Risk
An investors uncertainty about the economic
gains or losses that will result from a
particular investment
8
Competitive Landscape
Dynamics of strategic maneuvering among global
and innovative combatants
Price-quality positioning, new know-how, first
mover
Hypercompetitive environments
Protect or invade established product or
geographic markets
Fundamental nature of competition is changing
9
Competitive Landscape
Goods, services, people, skills, and ideas move
freely across geographic borders
Emergence of global economy
Spread of economic innovations around the world
Hypercompetitive environments
Political and cultural adjustments are required
Fundamental nature of competition is changing
10
Competitive Landscape
Emergence of global economy
Increasing rate of technological change and
diffusion
Rapid technological change
The information age
Increasing knowledge intensity
Hypercompetitive environments
Fundamental nature of competition is changing
11
Strategic Flexibility
A set of capabilities used to respond to various
demands and opportunities existing in a dynamic
and uncertain competitive environment It involves
coping with uncertainty and the accompanying risks
12
Strategic Flexibility
Strategic Flexibility
Strategic Flexibility
Strategic flexibility
13
I/O Model of Above-Average Returns
1. External Environments
  • Strategy dictated by the external environment of
    the firm (what opportunities exist in these
    environments?)
  • Firm develops internal skills required by
    external environment (what can the firm do about
    the opportunities?)

Industry Environment
Competitor Environment
14
Four Assumptions of the I/O Model
  • The external environment is assumed to possess
    pressures and constraints that determine the
    strategies that would result in above-average
    returns
  • Most firms competing within a particular industry
    or within a certain segment of it are assumed to
    control similar strategically relevant resources
    and to pursue similar strategies in light of
    those resources

15
Four Assumptions of the I/O Model
  • Resources used to implement strategies are highly
    mobile across firms
  • Organizational decision makers are assumed to be
    rational and committed to acting in the firms
    best interests, as shown by their
    profit-maximizing behaviors

16
I/O Model of Above-Average Returns
Industrial Organization Model
  • Study the external environment, especially the
    industry environment
  • economies of scale
  • barriers to market entry
  • diversification
  • product differentiation
  • degree of concentration of firms in the industry

17
I/O Model of Above-Average Returns
Industrial Organization Model
  • Locate an attractive industry with a high
    potential for above-average returns

Attractive industry one whose structural
characteristics suggest above-average returns
18
I/O Model of Above-Average Returns
Industrial Organization Model
Identify the strategy called for by the
attractive industry to earn above-average returns
Strategy formulation selection of a strategy
linked with above-average returns in a particular
industry
19
I/O Model of Above-Average Returns
Industrial Organization Model
  • Develop or acquire assets and skills needed to
    implement the strategy

Assets and skills those assets and skills
required to implement a chosen strategy
20
I/O Model of Above-Average Returns
Industrial Organization Model
Use the firms strengths (its developed or
acquired assets and skills) to implement the
strategy
Strategy implementation select strategic actions
linked with effective implementation of the
chosen strategy
21
I/O Model of Above-Average Returns
Industrial Organization Model
Superior returns earning of above-average returns
22
Resource-based Model of Above Average Returns
1. Firms Resources
  • Strategy dictated by the firms unique resources
    and capabilities
  • Find an environment in which to exploit these
    assets (where are the best opportunities?)

23
Resource-based Model of Above Average Returns
Resource-based Model
  • Identify the firms resources-- strengths and
    weaknesses compared with competitors

Resources inputs into a firms production process
24
Resource-based Model of Above Average Returns
Resource-based Model
  • Determine the firms capabilities--what it can do
    better than its competitors

Capability capacity of an integrated set of
resources to integratively perform a task or
activity
25
Resource-based Model of Above Average Returns
Resource-based Model
  • Determine the potential of the firms resources
    and capabilities in terms of a competitive
    advantage

Competitive advantage ability of a firm to
outperform its rivals
26
Resource-based Model of Above Average Returns
Resource-based Model
Locate an attractive industry
An attractive industry an industry with
opportunities that can be exploited by the firms
resources and capabilities
27
Resource-based Model of Above Average Returns
Resource-based Model
  • Select a strategy that best allows the firm to
    utilize its resources and capabilities relative
    to opportunities in the external environment

Strategy formulation and implementation
strategic actions taken to earn above average
returns
28
Resource-based Model of Above Average Returns
Resource-based Model
Superior returns earning of above-average returns
29
Strategic Intent Mission
  • Strategic Intent
  • Winning competitive battles by leveraging the
    firms resources, capabilities, and core
    competencies
  • Strategic Mission
  • An application of strategic intent in terms of
    products to be offered and markets to be served

30
Emergent and Deliberate Strategies
IntendedStrategy
RealizedStrategy
DeliberateStrategy
EmergentStrategy
UnrealizedStrategy
From Strategy Formation in an Adhocracy by
Henry Mintzberg and Alexandra McHugh,
Administrative Science Quarterly, Vol. 30, No. 2,
June 1985. Reprinted by permission of
Administrative Science Quarterly.
31
Strategic Management Process for Intended
Strategies
Missionsand Goals
InternalAnalysis
Strategic Choice
ExternalAnalysis
INTENDED STRATEGY
Organizing forImplementation
32
Strategic Management Process for Emergent
Strategies
33
The Firm and Its Stakeholders
Stakeholders
Groups who are affected by a firms performance
and who have claims on its wealth
The firm must maintain performance at an adequate
level in order to retain the participation of key
stakeholders
34
The Firm and Its Stakeholders
Stakeholders
Capital Market Stakeholders
  • Shareholders
  • Major suppliers of capital
  • Banks
  • Private lenders
  • Venture capitalists

35
The Firm and Its Stakeholders
Stakeholders
Capital Market Stakeholders
Product Market Stakeholders
Primary customers Suppliers Host
communities Unions
36
The Firm and Its Stakeholders
Stakeholders
Capital Market Stakeholders
Product Market Stakeholders
Organizational Stakeholders
Employees Managers Nonmanagers
37
Values
  • Johnson Johnsons credosets its
    responsibilities to
  • JJ product users.
  • JJ employees.
  • Communities in which JJemployees live and work.
  • JJ stockholders.

Source Courtesy of Johnson Johnson.
38
Johnson Johnson Credo
  • First Responsibility Is to Those Who Use JJ
    Products
  • Next Come Its Employees
  • Next, the Communities in Which the Employees Live
    and Work
  • Its Final Responsibility Is to Its Stockholders

39
Levels of Strategy
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