Prentice Hall, 2004

Chapter 1
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Chapter 1
Basic Concepts of
Strategic Management


PowerPoint Slides
Anthony F. Chelte
Western New England College
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Strategic Management
Defined:
Set of managerial decisions and
actions that determines the long-
run performance of a firm.

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Business Policy
Defined:
General management orientation
that looks inward for properly
integrating the firms functional
activities.
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Four Phases of
Strategic Management
Basic financial planning
Forecast-based planning
Externally-oriented planning
(strategic)
Strategic management
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Strategic Management
Highly Rated Benefits:

Clearer sense of strategic vision for the firm

Sharper focus on what is strategically
important

Improved understanding of a rapidly
changing environment
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Strategic Management
Not always a formal process:

Where is the organization now? (Not where do we
hope it is!)

If no changes are made, where will the
organization be in 1 year, 2 years, 5 years, 10
years?

What specific actions should management
undertake? What are the risks and payoffs
involved?
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Challenges to
Strategic Management
Globalization
Internationalization of markets and
corporations
Global (worldwide) markets rather than national
markets

Electronic Commerce
Use of the Internet to conduct business
transactions
Basis for competition on a more strategic level rather
than traditional focus on product features and costs
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Global Issues
European Union (EU)
Economic integration of 15 member countries

North American Free Trade Agreement (NAFTA)
Improved trade among 3 member countries

Mercosur
Free-trade area among Argentina, Brazil,
Uruguay, and Paraguay

Association of South East Asian Nations (ASEAN)
Attempting to link members into a borderless
economic zone
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E-Commerce

7 Trends:

Internet forcing companies to transform
themselves

Market access and branding are changing,
causing disintermediation of traditional
distribution channels

Balance of power shifting to the consumer

Competition is changing
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7 Trends (continued)
Pace of business increasing drastically

Internet purchasing corporations out of
their traditional boundaries

Knowledge becoming a key asset and
source of competitive advantage
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Organizational Adaptation
How organizations obtain fit within their environment:

Theory of population ecology

Institution theory

Strategic choice perspective

Organizational learning theory
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Adaptation to Changing
Environmental Conditions

Strategic flexibility:

Demands a long-term commitment to the development
and nurturing of critical resources

Demands that the firm become a learning organization
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Learning Organizations
Defined:
An organization skilled at creating,
acquiring, and transferring
knowledge and at modifying its
behavior to reflect new knowledge
and insights.
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Learning Organizations
Four Main Activities:
Solving problems systematically
Experimenting with new approaches
Learning from their won experiences and
that of others
Transferring knowledge quickly and
efficiently throughout the organization
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Evaluation
and Control
and Control
Strategic Management Model
Strategy
Formulation
Strategy
Implementation

Mission
Objectives
Strategies
Policies
Feedback/Learning
Environmental

Scanning
Societal
Environment
General Forces
Task
Environment
Industry Analysis
Structure
Chain of Command
Resources
Assets, Skills
Competencies,
Knowledge
Culture
Beliefs, Expectations,
Values
Reason for
existence
What results
to
accomplish
by when
Plan to
achieve the
mission &
objectives
Broad
guidelines for
decision
making
Programs
Activities
needed to
accomplish
a plan
Budgets
Cost of the
programs
Procedures
Sequence
of steps
needed to
do the job
Process
to monitor
performance
and take
corrective
action
Performance
External
Internal
Evaluation
and Control
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Basic Model of
Strategic Management

Four Basic Elements
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Environmental Scanning
Defined:
The monitoring, evaluating, and
disseminating of information from
the external and internal
environments to key people within
the firm.

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Environmental Scanning
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Environmental Scanning
Identify strategic factors
SWOT Analysis
Strengths, Weaknesses
Opportunities, Threats
Internal Environment
Strengths & Weaknesses
Within the organization but not subject to short-run
control of management
External Environment
Opportunities & Threats
External to the organization but not subject to short-
run control of management

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Strategy Formulation
Defined:
Development of long-range plans for
the effective management of
environmental opportunities and
threats in light of corporate strengths
and weaknesses.
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Strategy Formulation
Mission Statement
Purpose or reason for the
organizations existence
Promotes shared expectations among
employees
Communicates public image important
to stakeholders
Who we are, what we do, what wed like
to become
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Strategy Formulation
Maytag Corporation
Mission Statement

To improve the quality of home life
by designing, building, marketing,
and servicing the best appliances in
the world.
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Strategy Formulation
Objectives

The end results of planned activity
What is to be accomplished
Time in which to accomplish it
Quantified when possible
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Strategy Formulation
Goals vs. Objectives

A goal is an open-ended statement of
what one wants to accomplish with no
quantification of what is to be achieved
and no time criteria for completion.

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Goals & Objectives
Corporate goals and objectives include:
Profitability (net profits)
Growth (increase in total assets, etc.)
Utilization of resources (ROE or ROI)
Market leadership (market share)

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Strategies
Defined:
A strategy of a corporation forms a
comprehensive master plan stating
how the corporation will achieve its
mission and objectives. It maximizes
competitive advantage and
minimizes competitive disadvantage.
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Strategies
3 Types of Strategy

Corporate strategy

Business strategy

Functional strategy
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Strategies
Corporate Strategy
Stability
Growth
Retrenchment

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Strategies
Business Strategy
Competitive strategies
Cooperative strategies
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Strategies
Functional Strategy
Technological leadership
Technological followership
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Hierarchy of Strategy

Corporate Strategy
Business
(Division Level)
Strategy
Functional
Strategy
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Policies
Defined:
Broad guidelines for decision
making that link the formulation of
strategy with its implementation.
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Strategy Implementation
Strategy
Implementation
Programs
Budgets
Procedures
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Initiation of Strategy
Triggering
event
New CEO

External intervention

Threat of change in
ownership

Performance gap

Strategic inflection point
Stimulus
for change
in
strategy
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Strategic Decision Making
Strategic Decisions

Rare

Consequential

Directive
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Strategic Decision Making
Mintzbergs Modes
Entrepreneurial mode
Adaptive mode
Planning mode
Logical incrementalism

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Strategic Decision Making
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Strategic Decision Making