CHAPTER-01
BASIC CONCEPTS OF STRATEGIC
MANAGEMENT (SM)
ALMA.SHAMEEM
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Learning Objectives
After studying this chapter, you should be able to do the following:
• Define the term strategic management (SM)
• Describe the SM process.
• Explain the need for integrating analysis and intuition in strategic
management.
• Explain the benefits of strategic management.
• Explain the impacts of Globalization and E-commerce on SM.
• Describe the theory of learning organization.
• Explain the basic model of SM.
• Discuss the basic model of SM: The nature of strategy formulation,
implementation, and evaluation activities.
• Describe the strategic decision making model.
• Discuss how a firm may achieve sustained competitive advantage.
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Strategic Management
• SM is that set of managerial decisions and
actions that determines the long run
performance of a company.
• How does a company become successful and
stay successful?
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4 Phases in the Evolution of Strategic Management /4 Types
of Strategic Management
1.
2.
3.
4.
Basic financial planning – internal focus on budgeting (1 yr
horizon)
Forecast-based planning – extrapolate the current situation
into the future (3-5 yr horizon)
Externally-oriented planning – planning department and/or
consultants develop a top-down strategy with no lower
level involvement.
Strategic management – involves various departments and
levels across the organization. An ongoing process that
includes implementation, evaluation and control issues.
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Benefits of SM
Key Questions
•
Where is the organization now?
•
If no changes are made, where will the
organization be in 1, 2, 5 or 10 years?
•
What specific actions should management
undertake?
•
What are the risks and payoffs
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Benefits of SM
Why need Strategic Management?
• Clearer sense of strategic vision
• Sharper focus on strategic importance
• Improved understanding of changing
environment
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Benefits of SM
Following are the major benefits of Strategic management:
• Proactive in shaping firm’s future
• Initiate and influence actions
• Formulate better strategies (Systematic, logical, rational approach)
Financial benefits:
• Improved productivity
• Improved sales
• Improved profitability
Non-Financial benefits:
• Increased employee productivity
• Improved understanding of competitors’ strategies
• Greater awareness of external threats
• Understanding of performance reward relationships
• Better problem-avoidance
• Lesser resistance to change
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Globalization & E-Commerce
Challenges to SM
• Impact of Globalization
– Internationalization of markets & corporations
– Markets: global than national markets
• Impact of Electronic Commerce
– 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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Theories of Organizational
Adaptation
Population Ecology
(Can’t Change)
vs.
Institutional Theory
(Mimic successful organizations)
Strategic Choice Perspective
(Management decisions have at
least as much impact as industry factors)
Organizational Learning Theory
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Creating Learning Organization (LO)
• LO is skilled at creating, acquiring and
transferring knowledge and modifying its
behavior to reflect new knowledge and
insight.
• Key Activities:
–
–
–
–
Solve problems systematically
Experiment with new approaches
Learn from experience
Transfer knowledge throughout the organization
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Basic Model of SM
• Four Basic Elements
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The term used in previous slide are explained here.
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1.Environmental Scanning
• Monitoring, evaluation, and disseminating
information from external and internal
environments –to key people in the firm
SWOT Analysis
• Strengths – Weaknesses
• Opportunities – Threats
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1. Environmental Scanning
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2. Strategy Formulation
• Development of longrange plans for effective
management of
opportunities and threats
in light of corporate
strengths and weaknesses
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2.Strategy Formulation
Vision statement
• “Vision is the art of seeing things invisible”
Jonathan Swif
Mission Statement
•
•
•
•
Purpose/reason for organization
Promotes shared expectations
Communicates public image
Who we are; what we do; what we aspire to
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2.Strategy Formulation
Corporate Goals/Objectives flow from the Mission/Vision statement
•
•
•
•
Profitability (net profit)
Growth
Resource utilization (ROE, ROI)
Market leadership
Corporate Goals/Objectives need to be:
•
•
•
•
•
Specific
Measurable
Action oriented
Realistic
Timing is identified
SMART Goals
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2. Strategy Formulation
• Selecting Strategy / Hierarchy of Strategy
– Corporate strategy (Stability, Growth,
Retrenchment)
– Business strategy (Competitive,
Cooperative)
– Functional strategy (Technological
Leadership, Technological Followership)
• Defining Policies
– Guidelines for decision making that links
formulation to implementation
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3. Strategy Implementation
Process by which strategies and policies are put
into action through development of programs
and procedures
Programs
Strategy
Implementation
Budgets
Procedures
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3. Strategy Implementation
• Programs – single use plans (projects)
• Budgets – costs associated with a program
• Procedures – system of sequential steps that
describe how a particular task or job is to be
done
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4.Evaluation and Control
• Process by which corporate activities and
performance results are monitored so that
actual performance can be compared with
desired performance.
Feedback/Learning Process
• Must go back to revise or correct decisions
made earlier.
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Triggering Events
•
•
•
•
•
New CEO
External Intervention
Threat of change in ownership
Performance Gap
Strategic inflection point (industry)
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Strategic Decisions
– Rare – unusual, no precedent
– Consequential – commit substantial resources
– Directive – set precedents for decision making
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Mintzberg’s Modes of Strategic Decision
Making
• Entrepreneurial mode – founders vision
• Adaptive mode – “muddling through” (reactive)
• Planning mode – systematic gathering and
analysis of information
• Logical incrementalism – interactive strategy
development (Planning + Adaptive)
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Strategic Decision Making Model
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Strategic Decision Making
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Elements of Good Strategy
1. Arenas – Where?
1. Vehicles – How to get there?
1. Differentiators – How to win?
1. Staging – Speed and sequence – tactics
1. Economic logic – How will we gain a return?
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Key Reference
• Chapter 01-J David Hunger and Thomas L
Wheelan, Strategic Management and Business
Policy (10th Edition), Addison Wesley Lingman
Inc.
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Thank You
Chapter Roundup and Discussions
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