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STRATEGIC MANAGEMENT & BUSINESS POLICY11TH EDITION

THOMAS L. WHEELEN J. DAVID HUNGER

CHAPTER 1 Basic Concepts of Strategic Management

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Basic Concepts of Strategic Management

Strategic ManagementSet of managerial decisions and actions that determines the long-run performance of a firm.

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Basic Concepts of Strategic Management

4 Phases in the Evolution of Strategic Management

1. Basic financial planning – internal focus on budgeting (1 yr horizon)

2. Forecast-based planning – extrapolate the current situation into the future (3-5 yr horizon)

3. Externally-oriented planning – planning department and/or consultants develop a top-down strategy with no lower level involvement.

4. Strategic management – involves various departments and levels across the organization. An ongoing process that includes implementation, evaluation and control issues.

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Basic Concepts of Strategic Management

Highly Rated Benefits

• Clearer sense of strategic vision• Sharper focus on strategic importance• Improved understanding of changing

environment

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Basic Concepts of 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, 2, 5 or 10 years?

• What specific actions should management undertake?

• What are the risks and payoffs?

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Most Popular Management Tools2003 Survey

• Strategic Planning – 89%• Mission/Vision Statements – 84%

Basic Concepts of Strategic Management

Real Value?• Strategic Thinking• Organizational Learning

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Basic Concepts of Strategic Management

GlobalizationInternationalization of markets and corporations

Global (worldwide) markets rather than national markets

Electronic CommerceUse 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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Regional Trade Organizations• European Union (EU) – 25 member nations promote

60% local content to avoid tariffs• North American Free Trade Agreement (NAFTA) –

Canada, Mexico and US 62.5% local content.• Mercosur/Mercosul – South American equivalent of

NAFTA• Central American Free Trade Agreement (CAFTA) –

duty free textiles, consumer goods and farm exports.• Association of South Eastern Asian Nations (ASEAN) –

less powerful due to due to Chine, Japan and Korea exclusion.

Basic Concepts of Strategic Management

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Basic Concepts of Strategic Management

Electronic Commerce -- Trends

• Forcing company transformation – networking of suppliers, customers and partners

• Market access & branding changing – disintermediation of traditional distribution channels

• Balance of power shift to consumer – access to many options and comparative shopping

• Competition changing – due to low barriers to entry

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Basic Concepts of Strategic Management

Electronic Commerce -- Trends

• Pace of business increasing –dog years = Internet years

• Internet pushing companies beyond traditional boundaries – supply chain management and virtual companies

• Knowledge key asset – source of competitive advantage

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Population Ecology vs. Institutional Theory(Can’t Change) (Mimic successful

organizations)

Strategic Choice Perspective(Management decisions have at

least as much impact as industry factors)

Organizational Learning Theory

Basic Concepts of Strategic Management

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“Sustainable Competitive Advantage doesn’t lie in doggedly following a centrally managed 5 year strategic plan but in stringing together a series of strategic short term thrusts”

Richard D’Aventi – Hypercompetition

Basic Concepts of Strategic Management

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Learning Organizationis 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

Basic Concepts of Strategic Management

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Organizational Knowledge– Technical Skills – research– Functional Skills – manufacturing and marketing– Managerial Expertise – plan, organize, influence and

control

Basic Concepts of Strategic Management

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Basic Concepts of Strategic Management

Basic Elements of the Strategic Management Process

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Basic Concepts of Strategic Management

Environmental ScanningMonitoring, evaluation, and disseminating information from external and internal environments –to key people in the firm

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Environmental Scanning

SWOT Analysis• Strengths – Weaknesses• Opportunities – Threats

Environmental Variables• Societal – technological, political, legal,

social, economic• Task/Industry – customers, suppliers,

competitors• Internal – structure, resources, culture

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Basic Concepts of Strategic Management

Strategy FormulationDevelopment of long-range plans for

effective management of opportunities and threats in light of corporate strengths and weaknesses

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Strategy Formulation

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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Goals & Objectives

Corporate Goals/Objectives flow from the Mission/Vision statement

–Profitability (net profit)–Growth–Resource utilization (ROE, ROI)–Market leadership

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Goals & Objectives

Corporate Goals/Objectives need to be:SpecificMeasurableAction orientedRealisticTiming is identified

SMART Goals

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Basic Concepts of Strategic Management

Hierarchy of Strategy

Corporate strategy – general direction(stability, growth, retrenchment)

Business strategy – industry or market segment focus

(competitive vs. cooperative)

Functional strategy – functional planning to support the Corporate and Business strategy.

(technology leader or follower)

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Strategy Implementation

Process by which strategies and policies are put into action through development of programs and procedures

Basic Concepts of Strategic Management

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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

Basic Concepts of Strategic Management

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Evaluation and Control

Process by which corporate activities and performance results are monitored so that actual performance can be compared with desired performance.

Basic Concepts of Strategic Management

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Punctuated Equilibrium

Corporations usually take 15 – 20 years before making a significant change in strategy orientation

Basic Concepts of Strategic Management

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Triggering Event• New CEO• External Intervention• Threat of change in ownership• Performance Gap• Strategic inflection point (industry)

Basic Concepts of Strategic Management

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Strategic Decision Making

Strategic Decisions

Rare – unusual, no precedent

Consequential – commit substantial resources

Directive – set precedents for decision making

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Strategic Decision Making

Mintzberg’s Modes

Entrepreneurial mode – founders visionAdaptive mode – “muddling through” (reactive)Planning mode – systematic gathering and

analysis of informationLogical incrementalism – interactive strategy

development (Planning + Adaptive)

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Basic Concepts of Strategic Management

Strategic Decision-Making

Process

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Hambrick and Fredrickson – Good Strategy

5 Elements of Good Strategy

1. Arenas – Where?2. Vehicles – How to get there?3. Differentiators – How to win?4. Staging – Speed and sequence - tactics5. Economic logic – How will we gain a return?

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STRATEGIC MANAGEMENT & BUSINESS POLICY11TH EDITION

THOMAS L. WHEELEN J. DAVID HUNGER

CHAPTER 1 Basic Concepts of Strategic Management