Basic Concepts OF Strategic Management

SUSTAINABILITY AND STRATEGIC AUDIT (SUSTRA730)

BASIC CONCEPTS OF STRATEGIC THE TRIPLE BOTTOMLINE:
MANAGEMENT ➢ The management of traditional
profit/loss
STRATEGIC MANAGEMENT ➢ The management of the company’s
➢ A set of managerial decisions and social responsibility
actions that determines the long-run ➢ the management of its environmental
performance of a corporation responsibility
➢ Includes
o Internal and external THEORIES OF ORGANIZATIONAL
environmental scanning ADAPTATION
o Strategy formulation ➢ Population theory
o Strategy implementation ➢ Institution theory
o Evaluation and control ➢ Strategic choice perspective
➢ Organizational learning theory
PHASES OF STRATEGIC CONTROL
Basic financial
Phase 1 planning POPULATION THEORY
Phase 2
Forecast-based ➢ Inability of an organization to adapt to
planning the changing conditions after
Externally oriented establishment
Phase 3 strategic planning
Strategic INSTITUTION THEORY
Phase 4 management
➢ Organizations adapt to changing
conditions by imitating other
BENEFITS OF STRATEGIC
successful organizations
MANAGEMENT
➢ Attainment of appropriate match or fit STRATEGIC CHOICE PERSPECTIVE
for the organization’s environment, ➢ Organizations adapt to changing
strategy, structure and processes
conditions and also have the
➢ Strategic planning becomes opportunity and power to reshape the
increasingly important as the
environment
environment becomes more unstable
➢ Clearer sense of strategic vision for ORGANIZATIONAL LEARNING
the firm
➢ Organizations adjust defensively to
➢ Sharper focus on what is strategically the changing environment by using
important offensive knowledge and techniques
➢ Improved understanding in changing to fit itself in the environment.
environment
CREATING A LEARNING ORGANIZATION
GLOBALIZATION
➢ The integrated internalization of STRATEGIC FELXIBILITY
markets and corporations
➢ The ability to shift from one dominant
strategy to another and requires
INNOVATION
o Long term commitment
➢ Describes new products, services, o To the development and
methods and organizational nurturing of critical resources
approaches that allow the business to
achieve extraordinary return
LEARNING ORGANIZATION
➢ Implementation of potential
➢ An organization skilled at creating,
innovations that truly drives business
acquiring and transferring knowledge
to be remarkable.
and at modifying its behavior to
reflect new knowledge and insights
SUSTAINABILITY
➢ Skilled at FOUR MAIN ACTIVITIES
➢ The use of business practices to o Solving problems
manage the triple bottom line systematically
 SUSTAINABILITY AND STRATEGIC AUDIT (SUSTRA730)
o Experimenting with new o Maximizes resource
approaches productivity
o Learning from their own
experiences and past history as POLICIES/POLICY
well as from the experiences of ➢ Broad guidelines for decision making
others ➢ a broad guideline for decision making
o Transferring knowledge quickly that links the formulation of a
and efficiently throughout the strategy with its implementation
organization
PROGRAMS
ORGANIZATIONAL LEARNING ➢ Activities needed to accomplish a
➢ Is a critical component of plan
competitiveness in a dynamic
environment BUDGETS
➢ Cost of the programs
STRATEGIC MANAGEMENT ELEMENTS:
➢ Environmental scanning PROCEDURES
➢ Strategy formulation ➢ Sequence of steps needed to do the
➢ Strategy implementation job
➢ Evaluation and control
PERFORMANCE
➢ Actual results
MISSION
➢ the end result of organizational
➢ Reason for existence
activities
➢ The purpose or reason for the
➢ includes the actual outcomes of the
organization’s existence strategic management process
VISION
➢ Describes what the organization NATURAL ENVIRONMENT
would like to become ➢ Resources and climate

OBJECTIVES SOCIETAL ENVIRONMENT

➢ What results to accomplish by when ➢ General forces
➢ The end results of planned activity
TASK ENVIRONMENT
STRATEGIES/ STRATEGY ➢ Industry analysis
➢ Plan to achieve the mission and
objectives STRUCTURE
➢ forms a comprehensive master ➢ Chain of command
approach that states how the
corporation will achieve its mission CULTURE
and objectives ➢ Beliefs, expectations, values
➢ maximizes competitive advantage
and minimizes competitive RESOURCES
disadvantage ➢ Assets, skills, competencies and
knowledge
HIERARCHY OF STRATEGY
1. Corporate Strategy ENVIRONMENTAL SCANNING
o Overall direction of company ➢ Gathering information
and management of its ➢ The monitoring, evaluating and
business disseminating of information from the
2. Business Strategy external and internal environments to
o Competitive and cooperative key people within the organization
strategies ➢ SWOT analysis
3. Functional Strategy
 SUSTAINABILITY AND STRATEGIC AUDIT (SUSTRA730)
STRATEGY FORMULATION CONSEQUENTIAL
➢ Developing long-range plans ➢ Strategic decisions commit
➢ Process of investigation, analysis and substantial resources and demand a
decision making that provides the great deal of commitment from
company with the criteria for people at all levels.
attaining a competitive advantage
➢ Includes defining the competitive DIRECTIVE
advantages of the business ➢ Strategic decisions set precedents for
(strategy), crafting the corporate lesser decisions and future actions
mission, specifying achievable throughout an organization.
objectives and setting policy
guidelines. MINTZBERG’S MODES OF STRATEGIC
DECISION MAKING
STRATEGY IMPLEMENTATION ➢ Entrepreneurial
➢ Putting strategy into action ➢ Planning
➢ a process by which strategies and ➢ Adaptive
policies are put into action through ➢ Logical incrementalism
the development of programs,
budgets and procedures
STRATEGIC DECISION-MAKING
EVALUATION AND CONTROL PROCESS
➢ Monitoring performance 1. Evaluate current performance results
➢ a process in which corporate activities 2. Review corporate governance
and performance results are 3. Scan and assess the external
monitored so that actual performance environment
can be compared with desired 4. Scan and assess the internal corporate
performance environment
5. Analyze strategic (SWOT) factors
FEEDBACK/LEARNING PROCESS 6. Generate, evaluate and select the best
➢ revise or correct decisions based on alternative strategy
performance 7. Implement selected strategies
8. Evaluate implemented strategies
TRIGGERING EVENTS
➢ something that acts as a stimulus for
a change in strategy and can include: STRATEGIC AUDIT
o  New CEO ➢ provides a checklist of questions, by
o  External intervention area or issue, that enables a
o  Threat of change of systematic analysis to be made of
ownership various corporate functions and
o  Performance gap activities
o  Strategic inflection point

STRATEGIC DECISIONS
➢ deal with the long-term future of an CORPORATE GOVERNANCE
entire organization and have three Role of the board of directors
characteristics:
o  Rare CORPORATION
o  Consequential ➢ a mechanism established to allow
o  Directive different parties to contribute capital,
expertise and labor for their mutual
benefit
RARE ➢ A corporation is an artificial being
➢ Strategic decisions are unusual and created by operation of law, having
typically have no precedent to follow. the right of succession and the
powers, attributes, and properties
 SUSTAINABILITY AND STRATEGIC AUDIT (SUSTRA730)
expressly authorized by law or NONFINANCIAL AND SUSTAINABILITY
incidental to its existence. (Sec. 2, ISSUES
R.A. 11232) 11. Maintain a COMPREHENSIVE AND
➢ Not more than fifteen (15) – any COSTY-EFFICIENT COMMUNICATION
person, partnership[, association or CHANNEL
cooperation [sec. 10, RA, 11232] 12. Have strong and effective internal
➢ Number of directors/ trustees, 5 control system to ensure integrity,
minimum. 15 maximum (Sec. 1, RA transparency and proper governance
11232) 13. Treat all shareholders/ members
➢ Governed by the board of directors FAIRLY AND EQUITABLY
that oversees the top management 14. RIGHTS TO STAKEHOLDERS must be
with the agreement of the respected
shareholders. 15. Creation of a SYMBIOTIC WORKING
ENVIRONMENT
CORPORATE GOVERNANCE 16. Be SOCIALLY RESPONSIBLE in all
➢ the relationship among the board of dealing with the communities in
directors, top management and which it operates.
shareholders in determining the
direction and performance of the RESPONSIBILITIES OF THE BOARD
corporation. 1. Effective board leadership
2. Strategy of the organization
PRINCIPLES OF CORPORATE 3. Risk vs. initiative
GOVERNANCE 4. Succession planning
1. should be headed by COMPETENT, 5. Sustainability
WORKING BOARD
2. fiduciary roles, responsibilities, Due care
accountabilities by the BOARD, the ➢ Board is to direct not manage the
articles of incorporation and by-laws affairs.
and any legal pronouncements and
guidelines should BE CLEARLY MAKE ROLE OF THE BOARD IN STRATEGIC
KNOWN TO ALL DIRECTORS MANAGEMENT
3. Board commits should be set up the 1. MONITOR developments inside and
SUPPRORT THE EFFECTIVE outside the corporation
PERFORMANCE of the board’s 2. EVALUATE AND INFLUENCE
function management proposals, decisions
4. The directors should DEVOTE TIME and actions
AND ATTENTION to perform duties as 3. INITIATE AND DETERMINE the
well as the sufficient time to BE corporation’s mission and strategies.
FAMILIAR WITH THE CORPORATION’S
BUSINESS BOARD OF DIRECTORS’ CONTINUUM
5. Board should endeavor to excerise
an OBJECTIUVE AND INDEPENDENT
JUDGEMENT in all affairs
6. Assessment process to measure
Board’s effectiveness
7. Board should be duty-bound to apply
HIGHLY ETHICAL STANDARDS.
8. Should establish corporate
disclosures policies and procedures
9. Establish standards for the
APPROPRIATE SELECTION OF
EXTERNAL AUDITOR
10. Ensure that the company DISCLOSES MEMBERS OF A BOARD OF DIRECTORS
MATERIAL, REPORTABLE Inside directors Officers or
executive
employed by the
 SUSTAINABILITY AND STRATEGIC AUDIT (SUSTRA730)
corporation ➢ when two corporations have directors
Executives of other who serve on the board of a third firm
firms but are not
Outside directors
employees of the STAGGERED BOARDS
board’s corporation ➢ only a portion of board members
states that stand for re- election when directors
problems arise in serve more than one year terms
corporations
because the agents CRITERIA FOR A GOOD DIRECTOR:
(top management)
1. Willingness to challenge
are not willing to
Agency theory management when necessary
bear responsibility
for their decisions 2. Special expertise that is important
unless they own a to the company
substantial amount 3. Available for outside meetings to
of stock in the advise management
corporation 4. Expertise on global issues
proposes that, 5. Understands the firm’s key
because of their technologies and processes
long tenure with
the corporation, ORGANIZATION OF THE BOARD
Stewardship
theory
insiders (senior ➢ the size of the board is determined by
executives) tend to the corp’s charter and by-laws
identify with the
➢ most corporations have quite a bit of
corporation and its
success discretion in determining board size.
➢ Large = 10 directors (publicly held)
Not employed by
Affiliated the corporation, ➢ Small = 4 – 5 members (privately
directors handle legal or held)
insurance work ➢ The most effective boards accomplish
Used to work for much of their work through
the corporation, committees
Retired executive partly responsible ➢ Although they do not usually have
directors for past decisions legal duties, most committees are
affecting current granted full power to act with the
strategy authority of the board between board
Descendants of the meetings.
founder and own
Family directors
significant blocks of LEAD DIRECTOR
stocks ➢ consulted by the Chair/CEO regarding
CODETERMINATION board affairs and coordinates the
annual evaluation of the CEO
➢ The inclusion of a corporation’s
workers on its board, began only ➢
EVALUATING GOVERNANCE
recently in the United States
S&P CORPORATE GOVERNANCE SCORING
INTERLOCKING DIRECTORATES SYSTEM
➢ ownership structure and influence
➢ useful for gaining both inside
information about an uncertain ➢ financial stakeholder rights and
environment and objective expertise relations]
about potential strategies and tactics ➢ financial transparency and
information disclosure
DIRECT INTERLOCKING DIRECTORATE ➢ board structure and processes
➢ when two firms share a director or ENTERPRISE RISK MANAGEMENT
when an executive of one firm sits on ➢ a process, effected by an entity's
the board of a second Board of Directors, Management and
other personnel, applied in strategy
setting and across the enterprise that
 SUSTAINABILITY AND STRATEGIC AUDIT (SUSTRA730)
is designed to identify potential ➢ provide change and movement in an
events that may affect the entity, organization by providing a vision for
manage risks to be within its risk that change
appetite, and provide reasonable
assurance regarding the achievement CHARACTERISTICS OF EFFECTIVE
of entity objectives. CEOS:
➢ The CEO articulates a strategic vision
AVOIDING GOVERNANCE for the corporation.
IMPROVEMENTS ➢ The CEO presents a role for others to
1. Multiple classes of stock identify with and to follow.
2. Public to private ownership ➢ The CEO communicates high
3. Controlled companies performance standards and also show
confidence in the followers’ abilities
TRENDS IN CORPORATE GOVERNANCE to meet these standards.
➢ Boards shaping company strategy
➢ Institutional investors active on STRATEGIC PLANNING STAFF
boards ➢ charged with supporting both top
➢ Shareholder demands that directors management and the business units
and top management own significant in the strategic planning process
stock ➢ RESPONSIBILITIES:
➢ More involvement of non-affiliated o Identify and analyze company-
outside directors wide strategic issues, and
➢ Increased representation of women suggest corporate strategic
and minorities alternatives to top
➢ Boards evaluating individual directors management
➢ Smaller boards o Work as facilitators with
➢ Splitting the Chairman and CEO business units to guide them
positions through the strategic planning
➢ Shareholders may begin to nominate process
board members
➢ Society expects boards to balance
profitability with social needs of
society

THE ROLE OF THE TOP MANAGEMENT

Top management responsibilities
➢ involve getting things accomplished
through and with others in order to
meet the corporate objectives
➢ are multidimensional and are oriented
toward the welfare of the total
organization

EXECUTIVE LEADERSHIP
➢ the directing of activities toward the
accomplishment of corporate
objectives, sets the tone for the entire
corporation

STRATEGIC VISION
➢ description of what the company is
capable of becoming

TRANSFORMATIONAL LEADERS