Strategic Management

The set of managerial decisions and actions that determine the long-run performance of an organization

Why is Strategic Management important?

• Can make a difference in how well an organization performs
• Continually changing situations
• Nature of organizations: composed of diverse divisions, units, functions and work activities
• Involved in many decisions that managers make

Strategic Management Process

A six step process that encompasses strategic planning, implementation, and evaluation.

Step 1 of Strategic Management Process

• Identifying the organization's current mission, objectives and strategies 
• Mission: a statement of purpose
• What is our reason for being in business?
• Defining organization's mission forces managers to identify the scope of its products

Step 2 of Strategic Management

• External Analysis
• What competition is doing, what pending legislation might affect the organization 
• Managers should examine both the specific and general environments
• Opportunities: Positive Trends in External Environmental factors
• Threats: Negative trends in External Environmental Factors

Step 3 of Strategic Management Process

• Financial capital, technical expertise, skilled employees, experienced managers
• Strengths: any activities the organization does well or any unique resources that it has
• Weakness: activities the organization does NOT DO well or resources it needs but does not posses
• Core Competencies: The organization's major value-creating skills, capabilities, and resources that determine its competitive weapons
• Organization's culture is crucial: managers should be aware that strong and weak cultures have different effects on strategy
• Culture can promote or hinder an organization's strategic action
• SWOT analysis: an analysis of the organization's strengths, weaknesses, opportunities and threats

Step 4 of the Strategic Management Process

• Formulating Strategies
• Once SWOT is complete, managers need to develop and evaluate strategic alternatives and then select strategies that capitalize on the organization's strengths and exploit opportunities on or correct the organization's weaknesses
• This step is complete when managers have developed a set of strategies that give the organization a relative advantage over its rivals

Step 5 of the Strategic Management Process

• Implementing Strategies
• After strategies are formulated, they must be implemented

Step 6 of Strategic Management Process

• Evaluating Results
• How effective have the strategies been?
• What adjustments are necessary?

Top Level (Corporate-Level) Management Organizational Strategies

An organizational strategy that seeks to determine what business a company should be in or wants to be in

Vertical Integration (backward vertical integration)

gain control of inputs by becoming its own supplier

Forward Integration

Gaining control of outsputs by becoming its own distributor

Horizontal Integration

• A company grows by combining with other ogranzations in the same industry (combining operations with competitors)
• U.S. Federal Trade Commission must approve any proprosed horizontal strategy

Related Diversification

When a company grows by mearging with or acquiring firms in different, but related industries

Stability Strategy

• A corporate-level strategy characterized by an absence of significant change
• Continuing to serve the same clients by offereing the same product or service, maintaining market share, and sustaining the organization's return-on-invesetment
• Facing slow or no-growth opportunities 
• Allows time to analyze their strategic moves
• May feel successful enough, meet their personal goals and don't want the hassle of a growing business

Renewal Strategy

A corporate-level strategy designed to address organizational weakness that is leading to performance declines

Growth Strategy

• a Corporate-level strategy that seeks to increase the organization's operations by expanding the number of products offered or markets served
• Wants to increase sales revenues, # of employees, and market share
• Achieved when organization concentrates on its primary line of business and increase the # of products offered or market served in this primary usiness
• Company chooses to grow by increasing its own business operation

Retrenchment (Renewal) Strategy

• Short-run renewal strategy
• Used in situations when performance problems aren't as serious

Turnaround (renewal) strategy

A renewal strategy for situations in which the organization's performance problems are more serious

Corporate Porfolio Analysis (BCG Matrix)

• Developed by Boston Consulting Group
• A strategy tool that guides resource allocation decisions on the basis of market share and growth rate of SBUs
• Cash cow: low growth, high market share
• Stars: high growth, high market share
• Question marks: high growth, low market share
• Dogs: low growth, low market share

Middle Managers business strategies

Strategic business Units (SBUs): single business of an organization in several different businesses that are independent and formulate their own strategies

Competitive Advantage

• What sets an organization apart; its distinct edge
• The organization does somethign that others cannot or does it better
• Quality as a Competitive Advantage: focuses on customers and continuous improvement. Can satisfy customers' need for quality 
• Sustaining Competitive Advantage: keep its edge despite competitior's actions or evolutionary changes in the industry

Competitive Strategies (Michael Porter): Resources and Capabilities

1. Threat of new entrants: economics of scale, brand loyalty, and capital requirements determines how easy or hard it is for new competitors to enter an industry
2. Threat of substitutes:factors such as switching costs and buyer loyalty determine the degree to which customers are likely to buy a substitute product
3. Bargaining power of buyers: factors such as # of customers in the market, customer information, and the availability of substitutes determine the amount of influence that buyers have in an industry
4. Bargaining power of suppliers: factors such as the degree of supplier concentration and availability of substitute inputs determine the amount of power that suppliers have over firms in the industry
5. Current rivalry: factors such as industry growth rate, increasing or falling demand, and product differences determine how intense the competitive rivalry will be among firms currently in the industry

Cost Leadership Strategy

a business-level strategy in which the organization is the lower-cost producer in its industry

Differentiation Strategy

• A business-level in which a company offers unique products that are widely valued by customers
• ie: high quality, extraordinary service and innovated design

Focus Strategy

A business-level strategy in which company persues a cost or differentiation advantage in narrow industry segment

Stuck in the middle

A situation where an organization hasn't been able to develop either a low cost or a differentiation competitive advantage.

Functional-level Strategy

Organization that have traditional functional departments such as manufacturing, marketing, human resources, research and development, and finance, these strategies need to support the business-level strategy

Lower level managers (Functional level strategies)

• The Rule of Three: competitive forces in an industry, if kept relatively free of government interference or other special circumstances, will inevitably create a situation where 3 companies dominate any given market
• 3 large dominate players: "full-line generalists", "Super niche players", and "ditch dwellers"

Full-line Generalists

• Dominate and hold most of the industry market share. (Exceptions; the soft-drink industry)
• 2 Companies tend to lead to monopolistic pricings or mutual destruction
• 4 companies encourage continual price wars, which can be detrimental
• Marketshare is 70-90%
• Out of control growth can send specialists into the ditch
• Ditch companies have the worst financial performance and have little chance of surviving

Super Niche Players

Specializing through either product or market segmentation

Ditch Dwellers

Not one of the highly efficient generalist or highly focused niche, they are weak

Strategies for Applying e-Business Techniques

• Create knowledge bases that employees can tap into anytime 
• Turned customers into collaborative partners who help design, test and launch new products
• Become virtually paperless in specific tasks such as purchasing and filing expense reports
• Managed logistics in real time
• Changed the nature of numerous work tasks throughout the organization

Customer Service Strategies

• Communication
• Customer feedback
• Training

Innovation Strategies

• Ways to improve and enhance
• First mover (Pioneer): an organization that first's to bring a product innovation to the market or to use a new process innovation.
• Followers: mimic the first movers

Group

two or more interacting and interdependent individuals who come together to achieve particular goals

Formal Groups

• Are groups defined by the organization's structure that have designated work assignments and specific tasks
• Command Groups: determined by the organization chart, individuals who report directly to a given manager
• Task Groups: individuals brought together to complete a specific task
• Cross-Functional Teams: group brings together the knowledge and skills of individuals from various work areas
• Self-Managed Teams: groups that are independent 

Informal Groups

Are social, occur natural in the workplace in response to the need for social contact. Form around friendships and common interest

Stages of Group Development

• Forming
• Storming 
• Norming
• Performing 
• Adjourning

Forming

• The first stage of group development in which people join the group and then define the group's purpose, structure, and leadership
• Completed when member begin to think of themselves as part of a group

Storming

• The second stage of group development which is characterized by intra-group conflict
• Conflict over who will control the group
• Resist the control that the group imposes
• Completed when there is a clear hierarchy of leadership within the group and agreement on the group's direction

Norming

• The third stage of group development, which is characterized by close relationships and cohesiveneness
• Strong sense of group identity and camaraderie
• Completed when the group structure solidifies and the group has assimilated a common set of expectations of what defines corerction member behavior

Performing

• The forth stage of group development when the group is fully functional and accpeted
• Group energy has moved from getting to know and understand each other to performing the task at hand
• Performing is the last stage in the development of PERMANENT work groups

Adjourning

• The final stage of group development for temporary groups during which members are concerned with wrapping up activities rather than task performance
• The group prepares to disband
• High levels of task performance are no longer the group's top priority; attention directed at wrapping up activities

Group Member Resources

Members' knowledge, abilities, and skills

Group Member Resources in Cross-cultural Groups

Managers need to clearly understand the cultural characteristics of the groups and and the group members they manage (Global Organizations)

Group Structure

Shapes members behavior and makes it possible to explain, predict, and influence

Internal Structure of Group

• Defines member's roles, norms, conformity, status systems, group size, group cohesiveness, and formal leadership positions
• Roles: a set of behavior patterns expected of someone occupying a given position in a social unit
• Norms: acceptable standards or expectations shared by groups' members. For example: work output levels, absenteeism, promptness and amount of socializing allowed on the job  
• Conformity: group members feel extensive press to align to their opinions with other's opinions
• Status
• Group Size
• Group Cohesiveness

Status

• A prestige grading, position, or rank within a group 
• Significant motivator
• Behavioral consequences when individuals see a disparity between what they perceive their status to be and what others perceive it to be

Group Size

Small groups are faster at completing task than larger groups

Social Loafing

• The tendency for individuals to expend less effort when working collectively than when working individiually
• Some in the group are not carrying their fair share
• See others as lazy or inept

Group Cohesiveness

The degree to which group members are attracted to one another and share the group's goals

Group Processes

The communication patterns used by members to exchange information, group decision processes, power dynamics, conflict interaction and the like.

Group Decision Making

Uses committees, task faces, review panels, study team, or similar groups to make decisions

Advantages for Group Decisions

• Generate more complete information and knowledge
• Generate more diverse alternatives
• Increase acceptance of a solution
• Increase legitimacy

Disadvantages for Group Decisions

• Time consuming
• Minority domination
• Pressures to conform
• Ambiguous responsibility

Conflict

Perceived incompatible difference that results in interference or opposition

Traditional View of Conflict

The view that all conflict is bad and must be avoided

Human Relations View of Conflict

The view that conflict is natural and inevitable outcome in any group

Inter-actions view of conflict

The view that some conflict is necessary for a group to perform effectively

Functional Conflicts

Conflicts that support a group's goals and improve its performance

Dysfunctional Conflicts

Conflicts that prevent a group from achieving its goal

Task conflict

Conflicts over content and goals of the work

Relationship Conflict

Conflict based on interpersonal relationships

Process Conflict

Conflict over how work gets done

5 Conflict Resolution

• Avoidance
• Accommodation
• Forcing
• Compromise
• Collaboration

Group Tasks

Tasks can be generallized as either simple or complex

Work Teams

• Groups whose members work intensely on a specific, common goal using their positive synergy, individual and mutual accountability, and complementary skills
• Problem-Solving: a team of 5-12 employees from the same department or functional area who are involved in efforts to solve specific problems
• Self-Managed Work Teams: A type of work team that operates without a manager and is responsible for a complete work process or segment
• Cross-Functional Teams: a type of work that's a hybrid grouping of individuals who are experts in various specialties and who work together on various tasks
• Virtual Team: A type of work team that uses computer technology to link physically dispersed members in order to achieve a common goal

Creating Effective Teams

• Clear Goals: know what's expected and understand how they will work together to achieve the goals
• Relevant Skills: technical and interpersonal skills
• Mutal Trust
• Unified Commitment: dedication to the teams goal's and a willingness to expend extraordinary amounts of energy to achieve them
• Good Communication: verbally and nonverbally
• Negotiating Skills: flexibility, confront and reconcile differences
• Appropriate Leadership: clarifying goals, demonstrating that change is possible by overcoming inertia, increasing the self confidence of team members and help members to more fully realize their potential

Final Condition needed for an effective team is ________.

• A supportive climate
• Internally: sound infrastructure which means having proper training, clear and reasonable measurement
• Externally: managers should provide the team with the resources needed to get the job done

Leader

Someone who can influence others and who has managerial authority

Leadership

• The process of influencing a group toward the achievement of goals
• Not all leaders should be managers: the fact that an individual can influence others does not mean that he/she can also plan, organize and control.

Trait Theories

• Physical stature, appearance, social class, emotional stability, fluency of speech and sociability
• Proved to be impossible to identify a set of traits that would always differentiate
• Traits alone are not sufficient for explaining effective leadership
• Ignores the interactions of leaders and their group members as well as situational factors

Behavioral Theories

Leadership theories that identify behaviors that differentiated effective leaders from ineffective leaders

University of Iowa Studies

• Autocratic Style: A leader who tended to centralize authority, dictate work methods, make unilateral decisions, and limit employee participlation
• Democratic Style: A leader who tended to involve employees in decision making, delegate authority, encourage participlation in deciding work methods and goals, and use feedback as an opportunity for coaching employees
• Laissez-faire Style: A leader who generally gave the group complete freedom to make

The Ohio State Studies

• Initiating structure: The extent to which a leader was likely to define and structure his or her role and the roles of the group members in the search for attainment
• Consideration: the extent to which a leader had job relationships characterized by mutual trust and respect for group members' ideas and feelings
• High-high leader: a leader high in both initiating structure and consideration behaviors

University of Michigan Studies

Managerial Grid: a 2-D grid of two leadership behaviors: concerns for people and concern for production which resulted in 5 different leadership styles

Fiedler Model

• Leadership theory that proposes that effective group performance depends upon the proper match between a leader's style of interacting with his or her followers and the degree to which the situation allows the leader to control and influence
• Key factor in leadership success was an individual's basic leadership style, either task oriented or relationship oriented
• Least-preferred co-worker (LPC) questionnaire: a questionnaire that measured whether a leader was task or relationship oriented
• Leader-member relations: one if Fiedler's situation contingencies that described the degree of confidence, trust, and respect employees had for their leader
• Task Structure: One of Fiedler's situational contingencies that described the degree to which job assignments were formalized and procedurized
• Position Power: One of Fiedler's situational contingencies that described the degree of influence a leader had over power based activities such as hiring, firing, discipline, promotions and salary increases

Hersey and Blanchard's Situational Leadership Theory

• Situational leadership theory (SLT): a leadership contingency theory that focuses on followers' readiness
• The emphasis on the followers in leadership effectiveness reflects the reality that it is the follower who accept or reject the leader
• SLT uses the same two leadership dimensions that Fiedler identified: task and relationship behaviors

Hersey and Blanchard's considers each (task and relationship behaviors) as either high or low and then combining them into

4 specific leadership styles

• Telling (high-task, low relationship): leader defines roles and tells people what, how, when and where to do various tasks
• Selling (high-task, high relationship): leader provides both directive and supportive behavior
• Participating (low-task, high relationship): leader and follower share in decision-making; main role of the leader is facilitating and communicating
• Delegating (low-task, low relationship): the leader provides little direction or support

Final component in the model is

4 stages of follower readiness

• R1: People are both unable and unwilling to take responsibility for doing something. They are neither competent nor confident
• R2: People are unable but willing to do the necessary job tasks. They are motivated but currently lack the appropriate skills.
• R3: People are able but unwilling to do what the leader wants. 
• R4: People are able and willing to do what is asked of them.
• SLT essetnailly view the leader-follower relationship as analogous to that of a parent and a child

SLT if followers are _____ and _____ , the leader needs to ______.

• SLT says if followers are unable and unwilling to do a task, the leader needs to give clear and specific directions
• SLT says if followers are unable and willing, the leader needs to display high task orientation to compensate for the follower's lack of ability and high relationship orientation to get followers to "buy into" the leader's desires
• SLT says if followers are able and unwilling, the leader needs to use a supportive and participative style
• SLT says if employees are both able and willing, the leader doesn't need to do much.

Readiness

The extent to which people have the ability and willingness to accomplish a specific task

Leader Participation Model

• A leadership contingency model that related leadership behavior and partcipation in decision making
• A sequential set of rules (norms) that a leader followed in determining the form and amount of participation in decision making.

Path-Goal Theory

• A leadership theory that says it's the leader's job to assist his or her followers in attaining their goals and to provide the direction or support needed to ensure that their goals are compatible with the overall objectives of the group or organization
• Assumes that the same leader can display any or all these leadership styles

House identified 4 leadership behaviors

• Directive Leader: Lets subordinates know what's expected of them, schedules work to be done, and gives specific guidance on how to accomplish tasks
• Supportive Leader: Friendly and shows concern for the needs of followers
• Participative Leader: Consults with group members and uses their suggestions before making a deicion
• Achievement-Oriented Leader: sets challenging goals and expects followers to perform at their highest level

General Assumptions of House and his theories

• Assumes that leaders are flexible
• Environment: outside the control of the follower; tasks structure, formal authority system and the work group
• Part of the personal characteristics of the follower: including locus of control, experience and perceived ability

Some Predictions from Path-Goal Theory

• Directive leadership leads to greater satifaction tasks are ambiguous or stressful than when they are highly structured and well laid out.
• Supportive leadership results in high employee performance and satifaction when subordinates are performing structured tasks.
• Directive leadership is likely to be perceived as redundant among subordinates with high-perceived ability or with considerable experience.
• Subordinates with an internal locus of control will be more satisfied with a participative style.
• Subordinates with an external locus of control will be more satisfied with a directive style
• Achievement-oriented leadership will increase subordinates' expectancies that effort will lead to high performance when tasks are ambiguously structured
• Employee performance and satisfaction are likely to be positively influenced when the leader compensates for shortcomings in either the employee or the work setting. 
• However, if the leader spends time explaining tasks that are already clear or when the employee has the ability and experience to handle them without interference, the employee is likely to see such directive behavior as redundant or even insulting.

Transactional Leaders

Leaders who guide or motivate their followers in the direction of established goals by clarifying role and task requirements

Transformational Goals

• Leaders who provide individualized consideration and intellectual stimulation, and who possess charisma. 
• Inspires followers to transcend their own self-interest for the good of the organization  
• Transformational leadership is built over transactional
• Transformational leaders are more effective, higher performers, and more promotable than their transactional coutnerparts
• Transformational leaders correlated with lower turnover rate, higher productivity and higher employee satisfaction

Charistmatic Leader

• An enthusiastic, self-confident leader whose personality and actions influence people to behave in certain ways

5 Characteristics that differentiate charismatic leader from non-charismatic ones

• They have a vision
• Articulate that vision
• Willing to take risks to achieve that vision
• Are sensitive to both environmental constraints and follower needs
• Exhibit behaviors that are out of the ordinary

Visionary Leadership

• The ability to create and articulate a realistic, credible and attractive vision of the future that improves upon the present situation

Skills Visionary Leaders Exhibit

• Ability to explain the vision to others by making the vision clear in terms of required goals and actions through clear oral and written communication.
• Ability to express the vision not just verbally but through behavior, which requires behaving in ways that continually convey and reinforce theh vision.
• Ability to extend or apply the vision to different leadership contexts. i.e. vision has to be meaningful to the people in accounting as it is to those in production

Team Leadership: Challenge for Managers

• Learning how to become an effective team leader
• Learn skill such as having patience to share information
• Trust others
• Give up authority
• Know when to intervene
• Master the difficult balancing act of knowing when to leave their team alone and when to get involved

Common Responsibilities of all Leaders

• Coaching
• Facilitating
• Handling disciplinary problems
• Reviewing team and individual performance
• Training and communication
• Two Priorities: Managing the team's external boundary, facilitating the team process 
• 4 Specific Leadership Roles: Liaisons with external constituencies, troubleshooter, conflict managers, coaches

Legitimate Power

The power a leader has as a result of his or her position in the organization

Coercieve Power

The power a leader has because of his or her ability to punish or control. Followers react to this power out of fear of negative results.

Reward Power

The power a leader has to give positive benefits or rewards. I.E. Money, favorable performance appraisals, promotions, etc..

Expert Power

Influence, special skills, or knowledge

Referent Power

Power that arises because of a person's desirable resources or personal traits. Developed out of admiration of another and desire to be like that person.

Credibility

The degree to which followers perceive someone as honest, competent, and able to inspire.

Honesty is the main component of credibility.

Trust

• Belief in the integrity, character, and ability of a leader

5 Dimensions that make up Trust

• Integrity: most critical
• Competence
• Consistency
• Loyalty
• Openness

Empowerment

Increasing the decision-making discretion of workers

Important because of the need for quick decisions and implement changes quickly

Cross-Cultural Leadership

Effective leaders DO NOT use any single style:

They adjust their style

Women's Typical Leadership Style

• Tend to adopt a more democratic or participative style
• Share power and information, and attempt to enhance followers self-worth
• Rely on charisma, expertise, contacts, and interpersonal skills

Men's Typical Leadership Style

• More likely to use directive, command-and-control style
• Rely on formal position authority for their influence
• Use transactional leadership, handing out rewards for good work and punishment for bad
• The tendency for women to be more democratic than males declines when women are in male-dominated jobs.

Change

• Can be overwhelming
• Alternative ways to deal; make challenging and fun

8 Step Formula (Change)

1. Sense of urgency (increase): remove people from complacency
2. Build the guiding team
3. Get the vision right
4. Communicate for buy-in
5. Empower action
6. Create short-term wins
7. Don't let up
8. Make change stick

Why is it important to understand Change?

1. Not much experience for dealing with change well
2. Seeing it work
3. Knowing the formula

How can we get started with our own change process?

1. Creative Ways
2. Urgency
3. Change processes
4. Creating an experience that creates attention
5. Be diligent
6. Speaker
7. Do away with complacency

What are the obstacles to change?

• Complacency
• Anxiety
• Anger (feelings)

How can you overcome people's anxieties around change?

Help people see the upside and honesty (see, hear, feel)

What can we learn about Warren Buffett and Berkshire Hathaway?

1. More people understand the better
2. Easier for Senior Management to make things happen
3. Pamphlets from executives, to bottom of organization
4. Smart, fast and effective way

What are some of the common mistakes organization makes?

• People don't recognize complacency
• People aren't too scared or mad
• Not strong enough team to delegate projects
• Credibility
• Understanding
• Empower
• Short-term wins

Why is it important for people to understand the process of change?

See that it is easy!

How can we get started with our own change?

• Creative ways: creating an experience that catches attention 
• Show to employees: Customers, Suppliers and Financial
• Pick more than one thing that is practical

Corporate Culture and Performance

• Culture: Norms and behavior (how we behave and expect others to behave)
• Shared Values

Why culture is important?

• Can be powerful integrating force helping to implement a business strategy
• Can greatly help or hinder the capacity to adapt and the development and implementation of new strategies
• Tendency to perpetuate over time

The Arrogance Test

• Do managers look outside the firm for new ideas?
• Do they behave humbly with customers and employees?
• Do they know their real strengths and weaknesses?

The Internal Focus Test

• Do managers talk to customers
• Do they go out to evaluate competitors
• Do they talk to stalkholders
• Do executives talk to non-management employees

The Bureaucracy Test

• How centralized is decision making
• How large are staff groups
• How much do managers delegate
• How risk averse is management

Adaptive Cultures

• Constituency Focused
• Management cares deeply about customers, stockholders and employees
• Open, candid discussion and decision making
• Non-political atmosphere

Leadership Focus

• Responsibility given to lower levels
• Small central staff
• Decisiveness and risk talking encouraged
• Issue oriented
• Substance over form

Manager: Well spot trends

• External focus
• Devising new strategies

High Performance (Adaptive) Cultures

• Constituency focused, leadership encouraged
• Do well in short-term, long-term: help to adapt
• Managers adapt to changing environment, new strategies and tactics initiated
• Superior long-term economic performance

Process of Culture Change

• Creating sense of vision
• Activity that gets people attention
• Belief it is necessary
• Sense of crisis
• Creating shared opportunity
• Gathering facts

Relationship between Cohesiveness and Productivity

Work teams vs. Group teams

Drawbacks and Benefits of Managing Global Teams