Chapter 1

Basic Concepts of Strategic Management

PowerPoint Slides Anthony F. Chelte Western New England College

Prentice Hall, 2002

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Strategic Management
Defined: Set of managerial decisions and actions that determines the longrun 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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Strategic Management Model

Environmental Scanning External
Societal Environment General Forces Task Environment Industry Analysis

Strategy Formulation
Mission
Reason for existence

Strategy Implementation

Evaluation and Control and Control

Objectives
What results to accomplish by when

Strategies
Plan to achieve the mission & objectives

Policies
Broad guidelines for decision making

Internal
Structure Chain of Command Culture Beliefs, Expectations, Values Resources Assets, Skills Competencies, Knowledge

Programs
Activities needed to accomplish a plan

Budgets
Cost of the programs

Process to monitor performance and take corrective action

Procedures
Sequence of steps needed to do the job

Performance

Feedback/Learning

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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 shortrun 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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