Basic Concepts of Strategic Management

Strategic Management and
Business Policy 15e

Chapter 1
Basic Concepts of
Strategic
Management
15
Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved.
Learning Objectives
• Understand the benefits of strategic

management
• Explain how globalization and
environmental sustainability influence
strategic management
• Understand the basic model of strategic
management and its components
Copyright © 2019 Pearson Education, Inc.

1-2
Learning Objectives
• Identify some common triggering events

that act as stimuli for strategic change
• Understand strategic decision-making
modes
• Use the strategic audit as a method of
analyzing corporate functions and activities

1-3
Concepts
The relationship and differences between:

• Strategic management
• Strategic planning
• Long term planning
• Strategic thinking.

1-4
The Study of Strategic Management
• Strategic Management
– a set of managerial decisions and actions that
determines the long-run performance of a
corporation.
• Today we recognize both a science and an

art to the application of strategic
management techniques.
1-5
The Study of Strategic Management
Strategic Management includes:

• Internal and external environment scanning
• Strategy formulation
• Strategy implementation
• Evaluation and control

1-6
Phases of Strategic Management
Phase 1: Basic financial

planning
Phase 2: Forecast-based
planning
Phase 3: Externally oriented
strategic planning
Phase 4: Strategic management

1-7
Phases of Strategic Management
1.Basic financial planning: initiate some planning
when they requested to set up their budgets;
considers activities for one year.
2.Forecast-based planning: consider projects for
more than a year. The time horizon is usually 3-5
years. Extrapolate current trends in the future.
3.Externally-oriented planning: conduct strategic
planning by top management and they leave
implementation to low level.
4.Strategic management: planning by forming a team
from all levels in the company.
1-8
Concepts
The relationship and differences between:
• Long term planning: list of wishes, without putting
the activities within the context of its environment.
• Strategic thinking. Some writers like Bonn,
believe that strategic management, planning and
thinking are the same. Porter believes that
strategic planning will develop strategic thinking.
Some e.g., Mintzberg believe that strategic
planning is the result of strategic thinking.
1-9
Benefits of Strategic Management
• 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.

1-10
Benefits of Strategic Management
• Clearer sense of strategic vision for the firm

• Sharper focus on what is strategically
important
• Improved understanding of a rapidly
changing environment

1-11
Benefits
• Research into the planning practices of

companies in the oil industry concludes that:
the real value of modern strategic
planning is more in the strategic thinking
and organizational learning.

1-12
Benefits
• Improved organizational performance
• Achieves a match between the
organization’s environment and its strategy,
structure and processes
• Important in unstable environments

1-13
Things that strategic plan does not
include:
• 1- unable to predict future accurately.
• 2- it is not an alternative to effective
leadership.
• 3- it is not a list of wishes or a marketing
tool.
• 4- it is not a magic solution to problems
organizations face.

1-14
Impact of Globalization
• Globalization
– the integrated internationalization of markets
and corporations
– has changed the way modern corporations do
business

1-15
Globalization
Internationalization of markets and

corporations
Global (worldwide) markets
rather than national markets
International consideration have
led to the strategic alliance
between BA and American
Airlines.
1-16
The Contemporary Global Economy
• Globalization
– The process by which the world’s various national economies and trading systems are
fast becoming a single, highly interdependent system
 Exports: Domestically produced products sold

in foreign markets
 Imports: Foreign products sold in domestic
markets
Copyright © 2019 Pearson Education, Inc. © 2009 Pearson Education, Inc.

17
The Contemporary Global Economy
• Asia for sale in every continent.
• Many Western companies are
outsourcing their manufacturing.
• IBM employ 100,000 people in its global
delivery centers in India.

18
Globalization
The Merchandise exports of WTO members totalled
US$ 16.2 trillion in 2015 each year (WTO, 2016).
In early 2010, China officially passed Germany
as the world's top merchandise exporter.
Whereas in the past many nations followed
strict policies to protect domestic companies,
today more and more countries are
aggressively encouraging international trade.

19
FIGURE 4.3 U.S. Imports and Exports

20
Electronic Commerce
Use of the Internet to conduct business
transactions. B2B more than 7 trillion in
2004 according to UN. In 2015 estimated 20
trillion (include services, and some of
Merchandise exports ).
Basis for competition on a more strategic
level focus on product features and
costs.
AMR Research indicated that industry
leaders are in the process of moving 60-
100% of their B2B transactions to the
internet.
1-21
Electronic Commerce – Trends
Forcing company transformation to use

internet in their business.
Market access & branding changing –
disintermediation of traditional distribution
channels; dealing direct with end consumer.
Balance of power shift to consumer:
customer became more knowledgeable.
Competition changing; exploiting the
internet to become more innovative.
1-22
Electronic Commerce -- Trends
Pace\speed of business increasing; time

is compressed into ‘dog years’.
Internet purchasing beyond traditional
boundaries. Separation between
business –supplier-customer became
blurred. E.g., using extranet.
Knowledge is key asset – source of
competitive advantage
1 human year= 7 dog years.
1-23
Impact of Innovation
• Innovation
– describes new products, services, methods
and organizational approaches that allow the
business to achieve extraordinary returns
• Innovation is the implementation of potential

innovations that truly drives businesses to be
remarkable.

1-24
Impact of Innovation
• 61% were spending more money on innovation in
2014 than in 2013
• 75% of respondents reported that innovation
achieve long-term advantage competitive
advantage.
• The top five most innovative companies were
Apple, Google, Samsung, Microsoft,
and IBM.
• 70% of executives felt their own companies’
innovation were average and 13% felt weak.
1-25
Impact of Environmental Sustainability:
Environmental Sustainability: the use of

business practices to reduce a company’s
impact on the natural, physical
environment

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

1-27
Impact of Sustainability
The triple bottom line involves:

1. the management of traditional profit/loss;
2. the management of the company’s social
responsibility; and
3. the management of its environmental
responsibility.

1-28
Theories of Organizational Adaptation
• Population ecology • Institution theory

– once an organization – organizations can
is successfully and do adapt to
established in a changing conditions
particular by imitating other
environmental niche, successful
it is unable to adapt organizations
to changing
conditions

1-29
Theories of Organizational
Adaptation
• Strategic choice perspective
– not only do organizations adapt to a
changing environment, but they also
have the opportunity and power to
reshape their environment

1-30
Theories of Organizational
Adaptation
• Organizational learning theory
–an organization adjusts
defensively to a changing
environment and uses
knowledge offensively to improve
the fit between itself and its
environment
1-31
Creating a Learning Organization
• Strategic flexibility
– the ability to shift from one dominant strategy to
another and requires:
 Long-term commitment to the development

and nurturing of critical resources
 Learning organization

1-32
• 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.

1-33
Learning organizations are skilled at four

main activities:
• Solving problems systematically
• Experimenting with new approaches
• Learning from their own experiences and past
history as well as from the experiences of others
• Transferring knowledge quickly and efficiently
throughout the organization
1-34
Basic Model of Strategic
Management
Strategic management consists of four
basic elements:
• Environmental scanning

1-35
Basic Elements of the Strategic
Management Process
Figure 1-1

1-36
Strategic Management Model
Figure 1-
2

1-37
Management
• Environmental scanning
– the monitoring, evaluating and disseminating of
information from the external and internal
environments to key people within the
organization
– SWOT analysis

1-38
Environmental Variables
Figure 1-3

1-39
Management
– 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 (Strategy), crafting the
corporate mission, specifying achievable
objectives and setting policy guidelines.

1-40
Management
• Vision
– describes what the organization would like to
become
• Mission
– the purpose or reason for the organization’s
existence
• Objectives
– the end results of planned activity
1-41
Management
• 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

1-42
Hierarchy of Strategy

1-43
Management
• Policy
– a broad guideline for decision making that links
the formulation of a strategy with its
implementation

1-44
Management
– a process by which strategies and policies are
put into action through the development of
programs, budgets and procedures

1-45
Management
– a process in which corporate activities and
performance results are monitored so that
actual performance can be compared with
desired performance

1-46
Management
• Performance
– the end result of organizational activities
– includes the actual outcomes of the strategic
management process
• Feedback/Learning process
– revise or correct decisions based on
performance

1-47
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
1-48
Strategic Decision Making
• Strategic decisions
– deal with the long-term future of an entire
organization and have three characteristics:
 Rare
 Consequential
 Directive

1-49
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
1-50
Mintzberg’s Modes of Strategic
Decision Making
Entrepreneurial Adaptive
Logical
Planning
incrementalism
1-51
Mintzberg’s Modes of Strategic Decision Making
• Entrepreneurial mode: the strategy is made by

powerful individual. The focus on opportunities.
• Adaptive mode: using reactive solution rather than
proactive. This is typical in most universities and
big hospitals.
• Planning mode: it uses reactive and proactive mode.
Data gathering and analysis and select strategies.
• Logical incrementalism: strategy is set based on a
series of incremental commitment rather than
through global formulation of total strategies. This
suitable when environment is changing rapidly.
52
Mintzberg’s Modes of Strategic Decision Making
• The planning mode is suitable in most

situations.
• The planning mode, includes the basic
elements of the strategic management process.
• It is more rational.
• Research indicates that the planning mode is
more analytical, less political and more
appropriate for dealing with complex, changing
environments
53
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 (SWOT) factors
6. Generate, evaluate and select the best alternative strategy
7. Implement selected strategies
8. Evaluate implemented strategies

1-54
Figure 1-5

1-55
Figure 1-5

1-56
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

1-57

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Strategic Management and

Business Policy 15e

• Understand the benefits of strategic

Copyright © 2019 Pearson Education, Inc.

• Identify some common triggering events

Copyright © 2019 Pearson Education, Inc.

The relationship and differences between:

Copyright © 2019 Pearson Education, Inc.

• Today we recognize both a science and an

Strategic Management includes:

Copyright © 2019 Pearson Education, Inc.

Phase 1: Basic financial

Phase 4: Strategic management

• Strategic planning becomes increasingly

Copyright © 2019 Pearson Education, Inc.

• Clearer sense of strategic vision for the firm

Copyright © 2019 Pearson Education, Inc.

• Research into the planning practices of

Copyright © 2019 Pearson Education, Inc.

Copyright © 2019 Pearson Education, Inc.

Copyright © 2019 Pearson Education, Inc.

Copyright © 2019 Pearson Education, Inc.

Internationalization of markets and

 Exports: Domestically produced products sold

Copyright © 2019 Pearson Education, Inc. © 2009 Pearson Education, Inc.

Copyright © 2019 Pearson Education, Inc. © 2009 Pearson Education, Inc.

Copyright © 2019 Pearson Education, Inc.

Copyright © 2019 Pearson Education, Inc. © 2009 Pearson Education, Inc.

Forcing company transformation to use

Pace\speed of business increasing; time

• Innovation is the implementation of potential

Copyright © 2019 Pearson Education, Inc.

Environmental Sustainability: the use of

Copyright © 2019 Pearson Education, Inc.

Copyright © 2019 Pearson Education, Inc.

The triple bottom line involves:

Copyright © 2019 Pearson Education, Inc.

• Population ecology • Institution theory

Copyright © 2019 Pearson Education, Inc.

Copyright © 2019 Pearson Education, Inc.

 Long-term commitment to the development

Copyright © 2019 Pearson Education, Inc.

• Organizational learning is a critical component

Copyright © 2019 Pearson Education, Inc.

Learning organizations are skilled at four

Copyright © 2019 Pearson Education, Inc.

Copyright © 2019 Pearson Education, Inc.

Copyright © 2019 Pearson Education, Inc.

Copyright © 2019 Pearson Education, Inc.

Copyright © 2019 Pearson Education, Inc.

Copyright © 2019 Pearson Education, Inc.

Copyright © 2019 Pearson Education, Inc.

Copyright © 2019 Pearson Education, Inc.

Copyright © 2019 Pearson Education, Inc.

Copyright © 2019 Pearson Education, Inc.

Copyright © 2019 Pearson Education, Inc.

Copyright © 2019 Pearson Education, Inc.

Copyright © 2019 Pearson Education, Inc.

• Entrepreneurial mode: the strategy is made by

• The planning mode is suitable in most

2. Review corporate governance

3. Scan and assess the external environment

4. Scan and assess the internal corporate environment