chapter 1 basic concepts of strategic...
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STRATEGIC MANAGEMENT & BUSINESS POLICY
11TH EDITION
THOMAS L. WHEELEN J. DAVID HUNGER
CHAPTER 1
Basic Concepts
of Strategic
Management
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THOMAS L. WHEELEN J. DAVID HUNGER
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Basic Concepts of Strategic Management
GlobalizationInternationalization of markets and corporations
Global (worldwide) markets rather than national markets
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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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Basic Concepts of Strategic Management
Electronic Commerce -- Trends
• Forcing company transformation
• Market access & branding changing –disintermediation of traditional distribution channels
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distribution channels
• Balance of power shift to consumer
• Competition changing
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Basic Concepts of Strategic Management
Electronic Commerce -- Trends
• Pace\speed of business increasing
• Internet purchasing beyond traditional boundaries
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boundaries
• Knowledge key asset – source of competitive advantage
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Strategic Management Defined
Set of managerial decisions and actions that determines the long-run performance of a firm.
It includes environmental scanning,
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It includes environmental scanning, strategy formulation, strategy implementation, and evaluation and control.
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Strategy formulation
• Strategy formulation is typically not a
regular, continuous process but is often
initiated by generating events, such as a
new CEO or a performance gap.
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new CEO or a performance gap.
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Basic Concepts of Strategic Management
4 Phases of Strategic Management
• Firms evolve through the following faces of strategic management.
1. Basic financial planning
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1. Basic financial planning
2. Forecast-based planning
3. Externally-oriented planning
4. Strategic management
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Basic Concepts of Strategic Management
1. Basic financial planning: initiate some planning when they requested to set up their budgets; considers activities for one year.
2. Forecast-based planning: consider projects for more than a year. The time horizon is
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for more than a year. The time horizon is usually 3-5 years.
3. Externally-oriented planning: conduct strategic planning by top management and they leave implementation to low level.
4. Strategic management: planning by forming a team from all levels in the company.
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Basic Concepts of Strategic Management
Highly Rated Benefits
• Clearer sense of strategic vision
• Sharper focus on strategic importance
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• 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
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• 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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Basic Concepts of Strategic Management
Basic Elements of the Strategic
Management Process
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Environmental Scanning Defined
Monitoring, evaluation, and disseminating information from external and internal
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information from external and internal environments –to key people in the firm
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Basic Concepts of Strategic Management
Environmental
Variables
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Environmental Scanning
SWOT Analysis
• Strengths – Weaknesses
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• Strengths – Weaknesses
• Opportunities - Threats
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Strategy Formulation
Development of long-range plans for effective management of opportunities and threats in light of corporate
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and threats in light of corporate strengths and weaknesses
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Strategy Formulation
Mission Statement
• Purpose/reason for organization
• Promotes shared expectations
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• Promotes shared expectations
• Communicates public image
• Who we are; what we do; what we aspire to
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Organizational Adaptation
Organization “fit” with environment
• Theory of population ecology\biology: org. unable to adapt to changing conditions.
• Institution theory: org. can adapt to
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• Institution theory: org. can adapt to changes.
• Strategic choice perspective: not only adapt to changes but also it can reshape its environment.
• Organizational learning theory:
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Organizational Adaptation
Strategic flexibility
• Demands long-term commitment to development of critical resources
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development of critical resources
• Demands firm become a learning organization
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Learning Organizations
An organization skilled at creating, acquiring, and transferring knowledge and at modifying its behavior to reflect new knowledge and insights
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and insights
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Learning Organizations
4 Chief Activities
• Systematic problem solving
• New approach experimentation
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• New approach experimentation
• Learning from experiences
• Intra-organization knowledge transfer
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Basic Concepts of Strategic Management
Hierarchy of
Strategy
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levels of strategy\hierarchy
• A large corporation tends to have three
levels of strategy (corporate, business,
and functional) which form a hierarchy of
strategy.
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strategy.
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Goals & Objectives
Corporate Goals/Objectives
–Profitability (net profit)
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–Profitability (net profit)
–Growth
–Resource utilization (ROE, ROI)
–Market leadership
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Basic Concepts of Strategic Management
3 Types of Strategy
–Corporate strategy
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–Business strategy
–Functional strategy
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Basic Concepts of Strategic Management
Corporate Strategy
–Stability
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–Stability
–Growth
–Retrenchment
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Basic Concepts of Strategic Management
Business Strategy
–Competitive strategies
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–Cooperative strategies
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Basic Concepts of Strategic Management
Functional Strategy
–Technological leadership
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–Technological followership
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Basic Concepts of Strategic Management
Strategic
Decision-Making
Process
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Strategic Decision Making
Strategic Decisions
–Rare
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–Consequential
–Directive
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Strategic Decision Making
Top managers tend to use one of four modes of strategy formulation:
Mintzberg’s Modes
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–Entrepreneurial mode
–Adaptive mode
–Planning mode
–Logical incrementalism
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Hambrick and Fredrickson – Good Strategy
5 Elements of Good Strategy
1. Arenas
2. Vehicles
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2. Vehicles
3. Differentiators
4. Staging
5. Economic logic