Chapter 1
Basic Concepts of
Strategic Management
PowerPoint Slides
Anthony F. Chelte
Western New England College
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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 firm’s 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
Strategy
Formulation
Scanning
External
Societal
Environment
General Forces
Strategy
Implementation
Evaluation
and
Control
and Control
Mission
Reason for
existence
Task
Environment
Industry Analysis
Internal
Structure
Chain of Command
Objectives
What results
to
accomplish
by when
Strategies
Plan to
achieve the
mission &
objectives
Policies
Broad
guidelines for
decision
making
Culture
Beliefs, Expectations,
Values
Programs
Activities
needed to
accomplish
a plan
Resources
Assets, Skills
Competencies,
Knowledge
Process
to monitor
performance
and take
corrective
action
Budgets
Cost of the
programs
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
organization’s existence
– Promotes shared expectations among
employees
– Communicates public image important
to stakeholders
– Who we are, what we do, what we’d 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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Hierarchy of Strategy
Corporate Strategy
Business
(Division Level)
Strategy
Functional
Strategy
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Policies
Defined:
Broad guidelines for decision
making that link the formulation of
strategy with its implementation.
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Strategy Implementation
Programs
Strategy
Implementation
Budgets
Procedures
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Initiation of Strategy
•New CEO
•External intervention
Triggering
event
•Threat of change in
ownership
Stimulus
for change
in
strategy
•Performance gap
•Strategic inflection point
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Strategic Decision Making
Strategic Decisions
– Rare
– Consequential
– Directive
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Strategic Decision Making
Mintzberg’s Modes
– Entrepreneurial mode
– Adaptive mode
– Planning mode
– Logical incrementalism
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Strategic Decision Making
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Strategic Decision Making
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