PRINCIPLES OF
STRATEGIC
MANAGEMENT
Environmental Scanning and
Strategy Formulation
Overview
• Business management levels
• What is strategic management?
• Strategic management process
• Environmental scanning
• Strategy formulation
• Corporate strategy alternatives
• Selection, implementation, and evaluation
Questions
• What are the three levels of management and decision
making in a business organization?
• What is the relationship between decisions made at the
three levels?
What is Strategic Management?
• The goal of strategic management is to select overall
organizational strategies to achieve competitive
advantage
• The overall corporate strategy is then implemented at the
tactical (functional) and operational levels
• The strategic management process is described in the
next slide
Strategic Management Process
Environmental
Scanning
Strategy
Formulation
Strategy
Implementation
Evaluation and
Control
Environmental Scanning
• In undertaking environmental scanning, strategic
managers must first be aware of the many variables
within a corporation’s societal and task environments
• The three environments that are analyzed during the
strategic management process include:
• Societal environment
• Task (industry) environment
• Internal environment
Societal Environment
• The societal environment includes the more general
forces that do not directly touch on the short-run activities
of the organization but than can, and often do, influence
its long-run decisions
• The societal environment can be broken into four
categories:
• Economic forces
• Technological forces
• Political-legal forces
• Sociocultural forces
Economic Forces
• Regulate the exchange of materials, money, energy, and
information
• Examples include:
• GNP trends
• Interest rates
• Unemployment rates
• Wage/price controls
• Energy availability and cost
• Disposable and discretionary income
Technological Forces
• Generate problem-solving inventions and communications
infrastructure
• Examples include:
• Total federal spending on R&D
• Total industry spending on R&D
• Patent protection
• Productivity improvements
• Internet and Web infrastructure and characteristics
• Internet access and online consumer behavior
• New digital technologies
Political-Legal Forces
• Allocate power and provide constraining and protecting
laws and regulations
• Examples include:
• Antitrust regulations
• Environmental protection laws
• Tax laws
• Foreign trade regulations
• Laws on hiring and promotion
• Stability of government
• Intellectual property laws
Sociocultural Forces
• Regulate the values, mores, and customs of society
• Examples include:
• Life-style changes
• Career expectations
• Consumer activism
• Growth rate of population
• Age distribution of population
• Life expectancies
• Birth rates
Task (Industry) Environment
• The task environment includes issues that directly affect the
industry/industries in which we currently operate or may join in
the future
• What is the expected growth rate in the industry?
• Who are the competitors and how do they compare to us?
• Forces impacting industry competition include:
• Threat of new entrants
• Rivalry among existing firms
• Threat of substitute products or services
• Bargaining power of buyers
• Bargaining power of suppliers
• Relative power of other stakeholders
Other Stakeholders
• Other stakeholders may or may not be relevant to strategy
selection for an organization
• Other stakeholders may include:
• Stockholders
• Unions
• Governments
• Suppliers
• Creditors
• Customers/Distributors
• Trade associations
• Communities
• Special-interest groups
Internal Environment
• Corporate structure
• Corporate culture
• Resources
• marketing
• finance
• research and development
• operations
• human resources
• information systems
• other functional area resources
Strategy Formulation (SWOT Analysis)
• Take findings from environmental analysis and make
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judgments about whether the issues are expected to be
positive or negative for our firm
External issues are classified as either opportunities (O)
or threats (T)
Internal issues are classified as either strengths (S) or
weaknesses (W)
Match external and internal analysis findings when
generating strategic alternatives
Strategic alternatives
• Match one internal issue (S or W) with one external issue (O or T)
• Each alternative is an SO, WO, ST, or WT strategy
• the strategy chosen incorporates one of the following corporate
strategies
Corporate Strategy Alternatives
• Growth
• vertical integration
• horizontal integration
• expand into new geographic markets
• expand into related (complementary) products or services
• diversification
• Stability
• maintain current products and market while focusing on changing
some facet of the firm’s operations such as website enhancements,
changes within tactical areas, etc.
• Retrenchment
• turnaround (focus on improved efficiency)
• captive company or divestment (search for a partner to take over
some part of our business)
• bankruptcy or liquidation
Strategy Selection, Implementation, and
Evaluation and Control
• What are the expected benefits associated with each strategy
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alternative?
What are the expected costs and risks associated with each
strategy alternative?
Is the strategy sustainable for the long-term?
Choose the alternative that has the greatest benefits when
compared with the costs/risks
Implementation issues should also be considered when
choosing an appropriate strategy (functional/tactical level
changes, programs, budgets, and procedures)
Performance is monitored and evaluated which provides input
into the next strategic management process