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“
Strategic Management
MGT425
Instructor
Dr. Mohamed A. Ghonim ” Lecture 2
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Strategic Management: An Overview
Corporate Governance and Stakeholder Management
Corporate governance is the relationship among various
participants in determining the direction and performance
of corporations.
Primary participants are:
• Shareholders.
• Management (led by the Chief Executive Officer).
• The Board of Directors (BOD).
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Corporate Governance
Board of Directors:
Elected representatives of the
owners.
Ensure interests and motives of
management are aligned with
those of the owners:
• Create an effective and engaged
board.
• Address shareholder activism.
• Provide proper managerial rewards
and incentives.
• Establish external control
mechanisms.
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Stakeholder Management
An Organization’s Key Stakeholders and the Nature of Their Claims.
Stakeholder Group Nature of Claim
Stockholders Dividends, capital appreciation
Employees Wages, benefits, safe working environment,
job security
Suppliers Payment on time, assurance of continued
relationship
Creditors Payment of interest, repayment of principal
Customers Value, warranties
Government Taxes, compliance with regulations
Community Good citizenship behavior such as charities,
employment, not polluting the environment
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Two Views of Stakeholder Management
ZERO SUM SYMBIOSIS
• Stakeholders • Stakeholders are
compete for attention dependent upon
and resources. each other for
• The gain of one is a success and
loss to the other. well-being.
• Stakeholders
receive mutual
benefits.
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Social Responsibility and Environmental Sustainability
• Firms have multiple stakeholders and must go beyond a
focus solely on financial results.
• Social responsibility is the expectation that businesses
or individuals will strive to improve the overall welfare of
society.
• Firms can measure a triple bottom line, assessing
financial, social, AND environmental performance.
• Sustainability projects can yield substantial benefits
even when they are difficult to quantify.
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Coherence in Strategic Direction
Organizations express priorities best through stated
goals and objectives that form a hierarchy of goals:
• Vision evokes powerful and compelling mental images of
a shared future.
• Mission encompasses the organization’s current purpose,
basis of competition, and competitive advantage.
• Strategic objectives operationalize the mission statement
with specific yardsticks.
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Coherence in Strategic Direction
A Hierarchy of Goals
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Set Strategic Objectives
For objectives to be meaningful, they need to be
measurable, specific, appropriate, realistic, and timely.
Strategic Objectives (Financial)
• Increase sales growth 6 percent to 8 percent and accelerate core net earnings growth
from 13 percent to 15 percent per share in each of the next 5 years. (Procter and
Gamble.)
• Generate Internet-related revenue of $1.5 billion. (AutoNation)
• Cut corporate overhead costs by $30 million per year. (Fortune Brands)
Strategic Objectives (Nonfinancial)
• Reduce volatile emissions 15 percent over a 5-year-period, indexed to net sales. (3M)
• Our goal is to help save 100,000 more lives each year. (Varian Medical Systems)
• We want to be the top-ranked supplier to our customers. (PPG)
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Strategy
Goal-directed actions to gain and
sustain superior performance
relative to competitors.
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Competitive Advantage
Superior performance relative to other competitors
in the same industry or the industry average.
• Competitive advantage is relative, not absolute.
To assess competitive advantage, benchmark:
• Compare the firm to competitors in the same industry.
• Compare the firm to the industry average.
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Sustainable Competitive Advantage
A firm that is able to outperform its competitors or
the industry average over a prolonged period.
Example: Apple (smartphone industry):
• Sustainable competitive advantage over Samsung.
• Has lasted over a decade.
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Value Creation
Companies with a good strategy are able to provide
products or services to consumers:
• At a price point that they can afford.
• That enables the company to make a profit.
Value creation lays the foundation for a successful
economy:
• Education.
• Infrastructure.
• Public safety.
• Healthcare.
• Clean water and air.