Chapter 1
The Strategic Management Process
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Learning Objectives
To understand:
• the elements or stages of the strategic management
process.
• SWOT analysis.
• the importance of strategic leadership and strategic
direction.
• the key elements of important strategic perspectives,
including industrial organization economics, the
resource-based perspective, and stakeholder theory.
• how a turbulent and interdependent global environment
has increased the importance of innovation in firms.
• the elements of strategic thinking.
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Strategic Management
is the process through which organizations…
 analyze and learn from their internal and external
environments,
 establish strategic direction,
 create strategies that are intended to help achieve
established goals, and
 execute those strategies….
all in an effort to satisfy key
organizational stakeholders.
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Strategic Management Process
External and Internal
Analysis
Strategic
Direction
Strategy Formulation
(corporate and
business level)
Strategy Implementation
and Control
Strategic Restructuring
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THE BROAD ENVIRONMENT
sociocultural
forces
technological
forces
THE TASK ENVIRONMENT
competitors
suppliers
THE ORGANIZATION
owners/board of directors
managers
employees
financial
intermediaries
customers
unions
local communities
government
economic
forces
activists
political/legal
forces
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Broad Environment
The broad environment consists of domestic and global forces
such as:
socio-cultural trends (e.g. demographics)
technological trends (e.g. internet)
political trends (e.g. open markets)
economic trends (e.g. growing economy)
The broad environment forms the context within which the firm
and its task environment exist.
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Task Environment
The task environment consists of external
stakeholders -- groups or individuals outside the
organization that are significantly influenced by or
have a major impact on the organization -- such as:
Customers
Suppliers
Competitors
Communities
Financial intermediaries
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Internal Environmental
Analysis
• Internal stakeholders include managers,
employees and the owners and their
representatives (e.g., board of directors).
• Internal analysis includes an evaluation of
internal stakeholders and the organization’s
resources and capabilities
• Purpose of internal analysis to determine
 strengths and opportunities for competitive advantage,
and
 weaknesses and organizational vulnerabilities that should
be corrected.
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SWOT Analysis
• Strengths are firm resources and capabilities that
can lead to a competitive advantage.
• Weaknesses are resources and capabilities that the
firm does not possess but that are necessary,
resulting in a competitive disadvantage.
• Opportunities are conditions in the broad and task
environments that allow a firm to take advantage
of organizational strengths, overcome
organizational weaknesses, and/or neutralize
environmental threats.
• Threats are conditions in the broad and task
environments that may stand in the way of
organizational competitiveness or the achievement
of stakeholder satisfaction.
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Strategic Leadership
• Strategic leaders have a large impact on the
strategies and performance of their firms
 High impact leaders like Sam Walton of Walmart, Jack
Welch of General Electric or, more recently, Akio Toyoda
of Toyota or Sam Palmisano of IBM.
 One of the most important responsibilities of a strategic
leader is to establish strategic direction
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Strategic Direction
Strategic direction involves
• setting long-term goals and objectives
• defines the purposes for which an organization
exists and operates
 business ethics pertain to the moral obligations of
businesses to individuals, groups (such as stakeholders)
and society as a whole
 values define what matters when making decisions and
what is rewarded and reinforced
Strategic direction may be contained, in part, in
a firm's mission and vision statements
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Strategy Formulation
• Strategy is an organizational plan of action intended to
accomplish goals.
• Corporate strategy formulation refers to domain
definition, or the choice of business areas. Usually
decided by the CEO and the board of directors.
• Business strategy formulation involves domain direction
and navigation, or how to compete in a given area.
Usually decided by division heads and business unit
managers.
• Functional strategy formulation contains the details of
how the functional areas such as marketing, operations,
finance, and research should work together to achieve the
business-level strategy. Decisions made by functional
level managers.
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Strategy Implementation and
Control
• Strategy implementation involves creating the
functional strategies, systems, structures, and
processes needed by the organization in achieving
strategic ends.
• Strategic control refers to the processes that lead to
adjustments in strategic direction, strategies, or the
implementation plan when necessary.
• Strategic restructuring involves a renewed emphasis
on what an organization does well, combined with a
variety of tactics to revitalize the organization and
strengthen its competitive position.
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Alternative Perspectives on
Strategy Development
Industrial Organization Economics
• Environmental determinism – the most competitive strategy
is determined by the environment. It involves adapting to
environmental, technical and human forces
• Structure-conduct-performance model – the performance of
an industry is dependent on the conduct of the firms it
contains, which is dependent on industry structure
• Research – suggests industry is important to performance, but
not primary determinant
• Enactment – firms can, in part, create their environments.
• Combination – organizations typically involved in adaptation
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and enactment.
Alternative Perspectives on
Strategy Development
Resource-based View
• Organization is a bundle of resources – financial, physical,
human, knowledge and learning, and general organizational
(structure, systems, culture, reputation, relationships with
stakeholders).
• Sustainable competitive advantage – comes from a resource that
is valuable in the market, possessed by only a small number of
firms (rare), and costly or difficult to imitate in the short term.
• Effective development or acquisition of organizational
resources – may be the most important reason that some
organizations are more successful than others.
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Alternative Perspectives on
Strategy Development
Stakeholder Perspective
• Organization is a network of relationships with stakeholders –
internal and external constituencies that have a strong interest in the activities
and outcomes of the firm and upon whom the organization relies to achieve its
objectives.
• Stakeholder analysis
›
›
›
›
identifying and prioritizing key stakeholders
assessing their needs
collecting ideas from them
integrating this knowledge into the strategic management process
• Stakeholder management
›
›
›
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communicating with stakeholders
negotiating and contracting with stakeholders
managing relationships with them
motivating them to behave in ways that are beneficial to the organization and its
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other stakeholders
Managing for Stakeholders and Value
Creation
Primary
Stakeholders
Sources of Competitive
Advantage
Excellent Reputation
Potential for
Value Creation
More Attractive to
Stakeholders
Sales Growth
Respectful
Ability to Obtain Better
Resources
Efficiency
Mutually
Beneficial
Ability to Obtain Valuable
Information
Fewer Negative
Actions
Greater Ability to Plan
Less Risk
Nature of
Relationships
Shareholders
Employees
Trusting
Managers
Customers
Suppliers
Communities
Others
Strategic Flexibility
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A Combined Approach to Strategic
Management
• Traditional/contemporary perspective – firms should adapt to
forces in the external environment when it is unreasonable to try
to change them, while being proactive in other areas. Also,
strategy making is a combination of planning and learning. The
approach also draws from organizational economics, especially
pertaining to industry analysis
• Resource-based perspective – internal analysis leading to
identification of sources of sustainable competitive advantage
• Stakeholder perspective – part of external analysis and alliance
formation
• Global perspective – integrated throughout all aspects of strategic
management
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A Turbulent Global Environment
The world's markets are becoming increasingly globalized
•
Increasing interdependencies – due to the flow of goods
and services, knowledge and financial capital across borders.

•
Economic volatility – makes planning more difficult.

•
Interdependencies make business environment complicated.
Economic interconnections even more problematic during crises.
Global interconnectedness – has increased competition in
many industries.

Hypercompetition – intense competition among firms, often
associated with technological innovation.
These factors make continuous innovation important!
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Entrepreneurship
Entrepreneurship is the process through which
individuals, groups or firms pursue opportunities to
create new value
 Recognizing or creating an opportunity
 Assembling needed resources
 Managing resources to bring new venture into
being
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Strategic Thinking
Strategic thinking is the term used to describe the
creative aspects of strategic management
 Focus on strategic intent
 Long-term orientation
 Consideration of past and present
 Systems perspective
 Ability to seize unanticipated opportunities
 Scientific approach
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