CHAPTER 1 Basic Concepts of Strategic Management CONCEPTS IN STRATEGIC MANAGEMENT & BUSINESS POLICY 12TH EDITION THOMAS L. WHEELEN J. DAVID HUNGER Prentice Hall 2006

New Challenges Electronic Commerce Globalization Sustainability Basic Concepts of Strategic Management New Challenges Electronic Commerce Use of the Internet to conduct business transactions and Social Networking to promote Basis for competition on a more strategic level rather than traditional focus on product features and costs Globalization Internationalization of markets and corporations Global (worldwide) markets rather than national markets Sustainability Long-term viability Focuses on the company, its employees, its neighborhood, and the world environment – not just the stockholders. Prentice Hall 2006

Electronic Commerce -- Trends Basic Concepts of Strategic Management Electronic Commerce -- Trends Forcing company transformation Market access & branding changing – disintermediation of traditional distribution channels Balance of power shift to consumer Competition changing Pace of business increasing Internet purchasing beyond traditional boundaries Knowledge key asset – source of competitive advantage Prentice Hall 2006

Globalization -- Trends Basic Concepts of Strategic Management Globalization -- Trends Old model: US only, grow large, move into ‘foreign’ markets New model: early or immediate growth in global markets Enablers: Ubiquitous communications Cheap transportation of people and goods (but energy costs rising) Global culture Prentice Hall 2006

Sustainability -- Trends Basic Concepts of Strategic Management Sustainability -- Trends Longer-term view Sustainable competitive advantage Long-term needs of the business Needs of the community Ecological sensitivity Prentice Hall, Inc. © 2008

Strategic Management Defined Set of managerial decisions and actions that determines the long-run performance of a firm. Prentice Hall, Inc. © 2008 Prentice Hall 2006

Basic financial planning Forecast-based planning Basic Concepts of Strategic Management 4 Phases of Strategic Management Implementation as Companies Grow in Complexity and Sophistication Basic financial planning Forecast-based planning Externally-oriented planning Strategic management Prentice Hall, Inc. © 2008 Prentice Hall 2006

Benefits of Strategic Planning Highly Rated by Companies Who Do It Basic Concepts of Strategic Management Benefits of Strategic Planning Highly Rated by Companies Who Do It Clearer sense of strategic vision Sharper focus on strategic importance Improved understanding of changing environment Prentice Hall, Inc. © 2008 Prentice Hall 2006

Strategic Management Need not be a Formal Process in Smaller Companies Basic Concepts of Strategic Management Strategic Management Need not be a Formal Process in Smaller Companies Where is the organization now? (not where do we wish it was) 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? Prentice Hall, Inc. © 2008 Prentice Hall 2006

Basic Elements of the Strategic Management Process Basic Concepts of Strategic Management Basic Elements of the Strategic Management Process Prentice Hall, Inc. © 2008 Prentice Hall 2006

Environmental Scanning Defined Monitoring, evaluation, and disseminating information from external and internal environments to key people in the firm Prentice Hall, Inc. © 2008 Prentice Hall 2006

Environmental Variables Basic Concepts of Strategic Management Environmental Variables Prentice Hall, Inc. © 2008 Prentice Hall 2006

Strengths – Weaknesses Opportunities – Threats Environmental Scanning SWOT Analysis Strengths – Weaknesses Opportunities – Threats Prentice Hall, Inc. © 2008 Prentice Hall 2006

Strategy Formulation Developing long-range plans for effective management of opportunities and threats in light of corporate strengths and weaknesses Prentice Hall, Inc. © 2008 Prentice Hall 2006

Purpose/reason for organization Promotes shared expectations Strategy Formulation – How to Codify a Strategy Mission Statement Purpose/reason for organization Promotes shared expectations Communicates public image Who we are; what we do; what we aspire to Prentice Hall, Inc. © 2008 Prentice Hall 2006

Organization “fit” with environment Theory of population ecology Organizational Adaptation Organization “fit” with environment Theory of population ecology Institution theory Strategic choice perspective Organizational learning theory Prentice Hall, Inc. © 2008 Prentice Hall 2006

Strategic flexibility Organizational Adaptation Strategic flexibility Demands long-term commitment to development of critical resources Demands firm become a learning organization Prentice Hall, Inc. © 2008 Prentice Hall 2006

Learning Organizations An organization skilled at creating, acquiring, and transferring knowledge and at modifying its behavior to reflect new knowledge and insights Prentice Hall, Inc. © 2008 Prentice Hall 2006

Systematic problem solving New approach experimentation Learning Organizations 4 Chief Activities Systematic problem solving New approach experimentation Learning from experiences Intra-organization knowledge transfer Prentice Hall, Inc. © 2008 Prentice Hall 2006

Hierarchy of Strategy Basic Concepts of Strategic Management Prentice Hall, Inc. © 2008 Prentice Hall 2006

Corporate Goals/Objectives Profitability (net profit) Growth Resource utilization (ROE, ROI) Market leadership Prentice Hall, Inc. © 2008 Prentice Hall 2006

3 Types of Strategy Corporate strategy Business strategy Basic Concepts of Strategic Management 3 Types of Strategy Corporate strategy Business strategy Functional strategy Prentice Hall, Inc. © 2008 Prentice Hall 2006

Corporate Strategy seeks one of these: Basic Concepts of Strategic Management Corporate Strategy seeks one of these: Stability Growth Retrenchment Prentice Hall, Inc. © 2008 Prentice Hall 2006

Business Strategy Competitive strategies Cooperative strategies Basic Concepts of Strategic Management Business Strategy Competitive strategies Cooperative strategies Prentice Hall 2006

Functional Strategy Technological leadership Basic Concepts of Strategic Management Functional Strategy Technological leadership Technological followership Prentice Hall, Inc. © 2008 Prentice Hall 2006

Strategic Decision-Making Process Basic Concepts of Strategic Management Strategic Decision-Making Process

Strategic Decisions Rare Consequential Directive Strategic Decision Making Strategic Decisions Rare Consequential Directive Prentice Hall 2006

Mintzberg’s Modes Entrepreneurial mode Adaptive mode Planning mode Strategic Decision Making Mintzberg’s Modes Entrepreneurial mode Adaptive mode Planning mode Logical incrementalism Prentice Hall 2006

5 Elements of Good Strategy Hambrick and Fredrickson – Good Strategy 5 Elements of Good Strategy Arenas Vehicles Differentiators Staging Economic logic Prentice Hall 2006