Chapter 1 Basic Concepts of Strategic Management PowerPoint Slides Dr.Vijaya Kumar Skyline College Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

Strategic Management Defined: Set of managerial decisions and actions that determines the long-run performance of a firm. Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

Business Policy Defined: General management orientation that looks inward for properly integrating the firm’s functional activities. Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

Four Phases of Strategic Management Basic financial planning Forecast-based planning Externally-oriented planning (strategic) Strategic management Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

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 Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

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? Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

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 Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

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 Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

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 Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

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 Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

Organizational Adaptation How organizations obtain “fit” within their environment: Theory of population ecology Institution theory Strategic choice perspective Organizational learning theory Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

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 Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

Learning Organizations Defined: An organization skilled at creating, acquiring, and transferring knowledge and at modifying its behavior to reflect new knowledge and insights. Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

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 Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

Strategic Management Model Environmental Strategy Strategy and Control Evaluation and Control Evaluation and Control Scanning Formulation Implementation External Mission Reason for Societal existence Environment Objectives General Forces What results to Task Strategies accomplish Environment by when Plan to Industry Analysis achieve the Policies mission & Internal objectives Broad guidelines for Programs Structure decision Process Chain of Command making Activities to monitor needed to performance Culture Budgets accomplish and take Beliefs, Expectations, a plan corrective Cost of the Values action programs Procedures Resources Sequence Assets, Skills of steps Competencies, needed to Knowledge do the job Performance Feedback/Learning Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

Basic Model of Strategic Management Four Basic Elements Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

Environmental Scanning Defined: The monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the firm. Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

Environmental Scanning Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

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 short-run control of management Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

Strategy Formulation Defined: Development of long-range plans for the effective management of environmental opportunities and threats in light of corporate strengths and weaknesses. Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

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 Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

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. Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

Strategy Formulation Objectives The end results of planned activity What is to be accomplished Time in which to accomplish it Quantified when possible Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

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. Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

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) Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

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. Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

Strategies 3 Types of Strategy Corporate strategy Business strategy Functional strategy Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

Strategies Corporate Strategy Stability Growth Retrenchment Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

Strategies Business Strategy Competitive strategies Cooperative strategies Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

Strategies Functional Strategy Technological leadership Technological followership Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

Hierarchy of Strategy Corporate Strategy Functional Strategy Business (Division Level) Strategy Functional Strategy Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

Policies Defined: Broad guidelines for decision making that link the formulation of strategy with its implementation. Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

Strategy Implementation Programs Strategy Implementation Budgets Procedures Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

Initiation of Strategy New CEO External intervention Threat of change in ownership Performance gap Strategic inflection point Stimulus for change in strategy Triggering event Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

Strategic Decision Making Strategic Decisions Rare Consequential Directive Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

Strategic Decision Making Mintzberg’s Modes Entrepreneurial mode Adaptive mode Planning mode Logical incrementalism Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

Strategic Decision Making Prentice Hall, 2002 Chapter 1 Wheelen/Hunger

Strategic Decision Making Prentice Hall, 2002 Chapter 1 Wheelen/Hunger