1. Chapter 1 The Strategic Management Process

2. 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.

3. is the process through which organizations…
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.

4. Strategic Management Process
External and Internal Analysis
Strategy Formulation
(corporate and business level)
Strategic
Direction
Strategy Implementation
and Control
Strategic Restructuring

5. THE BROAD ENVIRONMENT
sociocultural
forces
technological
forces
THE TASK ENVIRONMENT
financial
intermediaries
competitors
THE ORGANIZATION
owners/board of directors
managers employees
suppliers
customers
unions
local communities
government
activists
political/legal
forces
economic
forces

6. 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.
The broad environment consists of domestic and global environmental forces such as socio-cultural, technological, political and economic trends. The broad environment forms the context within which the firm and its task environment exist.

7. 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
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

8. 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.
Internal stakeholders include managers, employees and the owners and their representatives (e.g., board of directors).
A fully developed internal analysis includes an evaluation of internal stakeholders and the organization’s resources and capabilities to determine strengths, weaknesses, and opportunities for competitive advantage, and to identify organizational vulnerabilities that should be corrected.

9. 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.
External environmental analysis involves evaluation of the broad and task environments to determine trends, threats, and opportunities and to provide a foundation for strategic direction.

10. 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
Internal stakeholders include managers, employees and the owners and their representatives (e.g., board of directors).
A fully developed internal analysis includes an evaluation of internal stakeholders and the organization’s resources and capabilities to determine strengths, weaknesses, and opportunities for competitive advantage, and to identify organizational vulnerabilities that should be corrected.

11. 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
Strategic direction pertains to the longer-term goals and objectives and defines the purposes for which an organization exists and operates.
Unlike shorter-term goals and strategies, the mission is an enduring part of planning processes within the organization.

12. 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.
Strategy formulation is divided into three types: corporate, business, and functional.
A strategy is an organizational plan of action that is intended to move an organization toward the achievement of its shorter-term goals and, ultimately, toward the achievement of its fundamental purposes.
Business strategy formulation pertains to domain direction and navigation, or how businesses compete in the areas they have selected.
Corporate strategy formulation refers primarily to domain definition, or the selection of business areas in which the organization will compete.
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.
Corporate strategy decisions are made by the CEO and/or board of directors. , If an organization is only involved in one area of business, then business strategy decisions tend to be made by the same people.
In diversified organizations, business strategy decisions are made by division heads or business unit managers.
Functional decisions are made by functional managers, who represent organizational areas such as operations, finance, personnel, accounting, research and development, or information systems.

13. 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.
Strategy implementation involves creating a pattern of decisions and actions that are intended to carry out a plan.
Strategy implementation involves creating the functional strategies, systems, structures, and processes needed by the organization in achieving strategic ends. Functional strategies outline the specific actions that each function must undertake to convert business- and corporate-level strategies into actions.
Strategic control refers to the processes that lead to adjustments in strategic direction, strategies, or the implementation plan when necessary.

14. 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 and enactment.
The traditional process for developing strategy consists of analyzing the internal and external environments of the organization to arrive at organizational strengths, weaknesses, opportunities and threats (SWOT). The results from this "situation analysis", as this process is sometimes called, are the basis for developing missions, goals and strategies.
Environmental determinism argues that good management is associated with determining which strategy will best fit environmental, technical and human forces at a particular point in time, and then working to carry it out. From this perspective, the most successful organization will be the one that best adapts to existing forces.

15. 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.
The resource-based view of the firm takes the position that an organization is a bundle of resources.
- financial resources, including all of the monetary resources from which a firm can draw,
- physical resources such as plant, equipment, location and access to raw materials,
- human resources, which pertains to the skills, background and training of individuals within the firm and
- general organizational resources, which includes a variety of factors that are peculiar to specific organizations.
In applying the resource-based-view to the strategic management process,
- 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.
Sustainable competitive advantage may be achieved if a resource allows the firm to take advantage of opportunities or neutralize threats, if only a small number of firms possess it, and if it is costly or impossible to imitate.
Many strategy scholars believe that effective development of organizational resources is the most important reason that some organizations are more successful than others.

16. 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
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 other stakeholders
The resource-based view of the firm takes the position that an organization is a bundle of resources.
- financial resources, including all of the monetary resources from which a firm can draw,
- physical resources such as plant, equipment, location and access to raw materials,
- human resources, which pertains to the skills, background and training of individuals within the firm and
- general organizational resources, which includes a variety of factors that are peculiar to specific organizations.
In applying the resource-based-view to the strategic management process,
- 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.
Sustainable competitive advantage may be achieved if a resource allows the firm to take advantage of opportunities or neutralize threats, if only a small number of firms possess it, and if it is costly or impossible to imitate.
Many strategy scholars believe that effective development of organizational resources is the most important reason that some organizations are more successful than others.

17. Managing for Stakeholders and Value Creation
Sources of Competitive
Advantage
Primary
Stakeholders
Potential for
Value Creation
Nature of
Relationships
Excellent Reputation
More Attractive to Stakeholders
Ability to Obtain Better Resources
Ability to Obtain Valuable Information
Greater Ability to Plan
Strategic Flexibility
Shareholders
Employees
Managers
Customers
Suppliers
Communities
Others
Sales Growth
Efficiency
Fewer Negative Actions
Less Risk
Trusting
Respectful
Mutually Beneficial
The resource-based view of the firm takes the position that an organization is a bundle of resources.
- financial resources, including all of the monetary resources from which a firm can draw,
- physical resources such as plant, equipment, location and access to raw materials,
- human resources, which pertains to the skills, background and training of individuals within the firm and
- general organizational resources, which includes a variety of factors that are peculiar to specific organizations.
In applying the resource-based-view to the strategic management process,
- 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.
Sustainable competitive advantage may be achieved if a resource allows the firm to take advantage of opportunities or neutralize threats, if only a small number of firms possess it, and if it is costly or impossible to imitate.
Many strategy scholars believe that effective development of organizational resources is the most important reason that some organizations are more successful than others.

18. 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
The resource-based view of the firm takes the position that an organization is a bundle of resources.
- financial resources, including all of the monetary resources from which a firm can draw,
- physical resources such as plant, equipment, location and access to raw materials,
- human resources, which pertains to the skills, background and training of individuals within the firm and
- general organizational resources, which includes a variety of factors that are peculiar to specific organizations.
In applying the resource-based-view to the strategic management process,
- 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.
Sustainable competitive advantage may be achieved if a resource allows the firm to take advantage of opportunities or neutralize threats, if only a small number of firms possess it, and if it is costly or impossible to imitate.
Many strategy scholars believe that effective development of organizational resources is the most important reason that some organizations are more successful than others.

19. These factors make continuous innovation important!
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.
Interdependencies make business environment complicated.
Economic volatility – makes planning more difficult.
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.
The resource-based view of the firm takes the position that an organization is a bundle of resources.
- financial resources, including all of the monetary resources from which a firm can draw,
- physical resources such as plant, equipment, location and access to raw materials,
- human resources, which pertains to the skills, background and training of individuals within the firm and
- general organizational resources, which includes a variety of factors that are peculiar to specific organizations.
In applying the resource-based-view to the strategic management process,
- 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.
Sustainable competitive advantage may be achieved if a resource allows the firm to take advantage of opportunities or neutralize threats, if only a small number of firms possess it, and if it is costly or impossible to imitate.
Many strategy scholars believe that effective development of organizational resources is the most important reason that some organizations are more successful than others.
These factors make continuous innovation important!

20. 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
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

21. 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
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