Strategic Management and

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Strategic Management and

Business Policy 15e, Global Edition

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Chapter 1

Basic Concepts of Strategic

Management

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Learning Objectives (1 of 2)

1.1 Discuss the benefits of strategic management 1.2 Explain how globalization, innovation, and

environmental sustainability influence strategic management

1.3 Discuss the differences between the theories of organizations

1.4 Discuss the activities where learning

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Learning Objectives (2 of 2)

1.5 Describe the basic model of strategic management and its components

1.6 Identify some common triggering events that act as stimuli for strategic change

1.7 Explain strategic decision-making modes

1.8 Use the strategic audit as a method of analyzing corporate functions and activities

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Strategy is Important

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The Study of Strategic Management (1 of 2)

• Strategic Management

– a set of managerial decisions and actions that determines the long-run performance of a

corporation

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The Study of Strategic Management (2 of 2)

Strategic management includes:

• Internal and external environmental scanning

• Strategy formulation

• Strategy implementation

• Evaluation and control

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Phases of Strategic Management

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As managers attempt to better deal with their

changing world, a firm generally evolves through the following four phases of strategic management:

• Phase 1: Basic financial planning

• Phase 2: Forecast-based planning

• Phase 3: Externally oriented strategic planning

• Phase 4: Strategic management

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Benefits of Strategic Management (1 of 2)

• The attainment of an appropriate match, or “fit,”

between an organization’s environment and its strategy, structure, and processes has positive effects on the organization’s performance.

• Strategic planning becomes increasingly important as the environment becomes more unstable.

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Benefits of Strategic Management (2 of 2)

• 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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Impact of Globalization

• Globalization

– the integrated internationalization of markets and corporations

– has changed the way modern corporations do business

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Impact of Innovation

• Innovation

– describes new products, services, methods, and organizational approaches that allow the business to achieve extraordinary returns

• It is the implementation of potential innovations

that truly drives businesses to be remarkable.

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Impact of Sustainability (1 of 2)

• Sustainability

– refers to the use of business practices to manage the triple bottom line

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Impact of Sustainability (2 of 2)

The triple bottom line involves:

1. the management of traditional profit/loss 2. the management of the company’s social

responsibility

3. the management of its environmental responsibility

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Theories of Organizational Adaptation (1 of 3)

• Population ecology – Once an organization

is successfully established in a particular

environmental niche, it is unable to adapt to changing conditions.

• Institution theory – Organizations can

and do adapt to

changing conditions by imitating other

successful

organizations.

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Theories of Organizational Adaptation (2 of 3)

• Strategic choice perspective

– not only do organizations adapt to a changing environment, but also have the opportunity and power to reshape their environment

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Theories of Organizational Adaptation (3 of 3)

• Organizational learning theory

– an organization adjusts defensively to changing environment and uses knowledge offensively to improve fit between itself and its environment

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Creating a Learning Organization (1 of 3)

• Strategic flexibility

– the ability to shift from one dominant strategy to another

– demands long-term commitment to development and nurturing of critical resources

– also demands that the company become a learning organization

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Creating a Learning Organization (2 of 3)

• Learning organization

– an organization skilled at creating, acquiring,

and transferring knowledge and at modifying its behavior to reflect new knowledge and insights

• Organizational learning is a critical component of competitiveness in a dynamic environment.

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Creating a Learning Organization (3 of 3)

Learning organizations are skilled at four main activities:

1. Solving problems systematically

2. Experimenting with new approaches 3. Learning from the organization’s own

experiences and past history as well as from the experiences of others

4. Transferring knowledge quickly and efficiently throughout the organization

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Basic Model of Strategic Management (1 of 9)

Strategic management consists of four basic elements:

1. Environmental scanning 2. Strategy formulation

3. Strategy implementation 4. Evaluation and control

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Figure 1-1: Basic Elements of the Strategic Management Process

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Figure 1-2: Strategic Management Model

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Basic Model of Strategic Management (2 of 9)

• Environmental Scanning

– the monitoring, evaluating and disseminating of information from the external and internal

environments to key people within the organization

– SWOT analysis: simple way to conduct environmental scanning

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Figure 1-3: Environmental Variables

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Basic Model of Strategic Management (3 of 9)

• Strategy formulation

– process of investigation, analysis, and

decision-making that provides the company with the criteria for attaining a competitive advantage

– includes defining the competitive advantages of the business, crafting the corporate mission,

specifying achievable objectives, and setting policy guidelines

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Basic Model of Strategic Management (4 of 9)

• Mission

– purpose or reason for the organization’s existence

• Vision

– describes what the organization would like to become

• Objectives

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 Develop a vision and mission

Begins with thinking strategically about

the firm’s future business map

where to take the firm

The task is to

create a roadmap of a company’s future

decide what future business position to stake out

provide long-term direction

give the firm a strong identity

Strategic Mission/Vision

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 IBM CEO

 _{July, 1993}

 “the last thing IBM needs right now is a vision”

 March, 1996

 “what IBM needs most right now is a vision”

 George Newman, The Conference Board

 “How can you lead if you don’t know where you are going”

Strategic Mission/Vision

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

A mission statement:

Focuses on current business activities

 business(es) company is in now

 customer needs currently being served



A strategic vision:

Concerns a firm’s future business path

 the kind of company it is trying to become

 customer needs to be satisfied in the future

Mission vs. Vision

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 Power of a well-conceived strategic vision

 Guides managerial decision-making

 Arouses employee buy-in and commitment

 Prepares a company for the future

Why Have a Vision Statement

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 3 factors for a good definition:

 Customer needs

 WHAT is being satisfied

 Customer groups

 WHO is being satisfied

 Technologies used functions performed

 HOW customer needs are satisfied

Defining a Strategic Vision

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

Narrow Definition

 Soft drinks

 Toys

 Overnight package delivery

 Ship cruises in the Caribbean



Broad Definition

 Beverages

 Children’s products

 Global mail delivery

 Travel & tourism

Broad vs. Narrow Mission Statements

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 Vision

 Our vision is to be the preferred world leader in chemicals.

 Mission

 Our mission is to responsibly provide quality products and services through innovation, learning and operational

excellence while sustaining maximum value for our stakeholders.

 Values

 With uncompromising integrity as our foundation we will: Inspire, Engage, Create and Deliver.

Example

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 Vision

 To be the consumers’ preferred choice by leading in

chosen markets with superior food & beverage products.

 Mission

 To provide quality and nutritious food & beverages that enrich consumers’ lives every day.



Example

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 Mission & Purpose

To provide tasty nutritious food bringing health and happiness to consumers, creating value for our

people, shareholders and communities.

 Values & Principles

Nurturing – Accountability – Drive – Excellence - Collaboration

Example

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SMART Objectives

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 Grew earnings/share 15% annually for the next 5 years

 Boost annual return on investment from 15% to 20% by 2025

 Increase annual dividends/share by 5% each year

 Strive for stock price appreciation equal to or above S&P 500 average by 2023

 Maintain a positive cash flow

 Maintain an AA bond rating

Examples: Financial Objectives

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 Increase firm’s market share to 35% by 2025

 Overtake key rivals on quality or customer service or product performance in 2 years

 Attain lower overall costs than rivals

 Boost firm’s reputation with customers

 Attain stronger foothold in international markets

Examples: Strategic Objectives

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 Domino’s Pizza

–To safely deliver a hot, quality pizza in 30 minutes or less at a fair price and a reasonable profit

 3M

–To … have at least 30% of sales come from products introduced in the past four years

Examples: Strategic & Financial

Objectives

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 General Electric

–To become the most competitive enterprise in the world by being #1 or #2 in market share in every business the company is in.

 McDonald’s

–To achieve 100% total customer satisfaction … everyday … in every restaurant … for every

Examples: Strategic & Financial

Objectives

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Basic Model of Strategic Management (5 of 9)

• Strategy

– forms a comprehensive master approach that states how the corporation will achieve its

mission and objectives

– maximizes competitive advantage and minimizes competitive disadvantage

– corporate, business, functional

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Figure 1-4: Hierarchy of Strategy

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Basic Model of Strategic Management (6 of 9)

• Policy

– a broad guideline for decision-making that links formulation of a strategy with its

implementation

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Basic Model of Strategic Management (7 of 9)

• Strategy implementation

– process by which strategies and policies are put into action through the development of programs, budgets, and procedures

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Basic Model of Strategic Management (8 of 9)

• Evaluation and control

– a process in which corporate activities and performance results are monitored so that actual performance can be compared with desired performance

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Basic Model of Strategic Management (9 of 9)

• Performance

– result of activities

– includes actual outcomes of the strategic management process

• Feedback/learning process

– revise or correct decisions based on performance

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Initiation of Strategy:

Triggering Events

• Triggering event

– something that acts as a stimulus for a change in strategy and can include:

 new CEO

 external intervention

 threat of change of ownership

 performance gap

 strategic inflection point

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Strategic Decision-making

• Strategic decisions

– deal with the long-term future of an entire organization and have three characteristics:

1. rare

2. consequential 3. directive

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Three Characteristics of Strategic Decisions

• Rare

– Strategic decisions are unusual and typically have no precedent to follow.

• Consequential

– Strategic decisions commit substantial resources and demand a great deal of commitment from people at all levels.

• Directive

– Strategic decisions set precedents for lesser decisions and future actions throughout an organization.

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Mintzberg’s Modes of Strategic Decision-making (1 of 2)

• Entrepreneurial mode

– strategy is made by one powerful individual

• Adaptive mode

– characterized by reactive solutions to existing problems, rather than a proactive search for new opportunities

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Mintzberg’s Modes of Strategic Decision-making (2 of 2)

• Planning mode

– involves the systematic gathering of

appropriate information for situation analysis, the generation of feasible alternative strategies, and the rational selection of the most

appropriate strategy

• Logical incrementalism

– a synthesis of the planning, adaptive, and, to a lesser extent, the entrepreneurial modes

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Strategic Decision-making Process

1. Evaluate current performance results.

2. Review corporate governance.

3. Scan and assess the external environment.

4. Scan and assess the internal corporate environment.

5. Analyze strategic factors.

6. Generate, evaluate, and select the best alternative strategies.

7. Implement selected strategies.

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Figure 1-5: Strategic Decision-Making Process (1 of 2)

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Figure 1-5:

Strategic Decision-making Process (2 of 2)

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The Strategic Audit:

Aid to Strategic Decision-making

• Strategic audit

– provides a checklist of questions, by area or issue, that enables a systematic analysis to be made of various corporate functions and

activities

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