BENEFITS OF STRATEGIC MANAGEMENT:Non- financial Benefits, Nature of global competition

<< INTERNAL FACTORS & LONG TERM GOALS:Strategies, Annual Objectives

COMPREHENSIVE STRATEGIC MODEL:Mission statement, Narrow Mission: >>

Strategic Management MGT603

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.

Strategic Management MGT603

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

Strategic Management MGT603

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.

Table of Contents: