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Strategic Management Discussion#1-2
Basic Concepts of Strategic
Management
Chapter 1
Learning Objectives
Understand the benefits of strategic management
Explain how globalization and environmental sustainability influence strategic management
Understand the basic model of strategic management and its components
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Learning Objectives
Identify some common triggering events that act as stimuli for strategic change
Understand strategic decision-making modes
Use the strategic audit as a method of analyzing corporate functions and activities
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The Study of Strategic Management
Strategic Management
a set of managerial decisions and actions that determines the long-run performance of a corporation
1-4 Copyright © 2015 Pearson Education, Inc.
The Study of Strategic Management
Strategic Management includes:
Internal and external environment scanning
Strategy formulation
Strategy implementation
Evaluation and control
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Phases of Strategic Management
Phase 1: Basic financial planning
Phase 2: Forecast-based planning
Phase 3: Externally oriented strategic planning
Phase 4: Strategic management
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Benefits of Strategic Management
The attainment of an appropriate match, or “fit,” between an organization’s environment and its strategy, structure and processes has positive effects on the organization’s performance.
Strategic planning becomes increasingly important as the environment becomes more unstable.
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Benefits of Strategic Management
Clearer sense of strategic vision for the firm
Sharper focus on what is strategically important
Improved understanding of a rapidly changing environment
1-8 Copyright © 2015 Pearson Education, Inc.
Impact of Globalization
Globalization
the integrated internationalization of markets and corporations
has changed the way modern corporations do business
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Impact of Innovation
Innovation
describes new products, services, methods and organizational approaches that allow the business to achieve extraordinary returns
Innovation is the implementation of potential innovations that truly drives businesses to be remarkable.
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Impact of Sustainability
Sustainability
refers to the use of business practices to manage the triple bottom line
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Impact of Sustainability
The triple bottom line involves:
1. the management of traditional profit/loss; 2. the management of the company’s social
responsibility; and
3. the management of its environmental responsibility.
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Theories of Organizational Adaptation
Population ecology
once an organization is successfully established in a particular environmental niche, it is unable to adapt to changing conditions
Institution theory
organizations can and do adapt to changing conditions by imitating other successful organizations
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Theories of Organizational Adaptation
Strategic choice perspective
not only do organizations adapt to a changing environment, but they also have the opportunity and power to reshape their environment
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Theories of Organizational Adaptation
Organizational learning theory
an organization adjusts defensively to a changing environment and uses knowledge offensively to improve the fit between itself and its environment
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Creating a Learning Organization
Strategic flexibility
the ability to shift from one dominant strategy to another and requires:
• Long-term commitment to the development and nurturing of critical resources
• Learning organization
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Creating a Learning Organization
Learning organization
an organization skilled at creating, acquiring and transferring knowledge and at modifying its behavior to reflect new knowledge and insights
Organizational learning is a critical component of competitiveness in a dynamic environment.
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Creating a Learning Organization
Learning organizations are skilled at four main activities:
Solving problems systematically
Experimenting with new approaches
Learning from their own experiences and past history as well as from the experiences of others
Transferring knowledge quickly and efficiently throughout the organization
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Basic Model of Strategic Management
Strategic management consists of four basic elements:
Environmental scanning
Strategy formulation
Strategy implementation
Evaluation and control
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Basic Elements of the Strategic Management Process
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Figure 1-1
Strategic Management Model
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Figure 1-2
Basic Model of Strategic Management
Environmental scanning
the monitoring, evaluating and disseminating of information from the external and internal environments to key people within the organization
SWOT analysis
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Environmental Variables
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Figure 1-3
Basic Model of Strategic Management
Strategy formulation
process of investigation, analysis and decision making that provides the company with the criteria for attaining a competitive advantage
includes defining the competitive advantages of the business (Strategy), crafting the corporate mission, specifying achievable objectives and setting policy guidelines.
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Basic Model of Strategic Management
Mission
the purpose or reason for the organization’s existence
Vision
describes what the organization would like to become
Objectives
the end results of planned activity
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Basic Model of Strategic Management
Strategy
forms a comprehensive master approach that states how the corporation will achieve its mission and objectives
maximizes competitive advantage and minimizes competitive disadvantage
corporate, business, functional
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Hierarchy of Strategy
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Basic Model of Strategic Management
Policy
a broad guideline for decision making that links the formulation of a strategy with its implementation
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Basic Model of Strategic Management
Strategy implementation
a process by which strategies and policies are put into action through the development of programs, budgets and procedures
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Basic Model of Strategic Management
Evaluation and control
a process in which corporate activities and performance results are monitored so that actual performance can be compared with desired performance
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Basic Model of Strategic Management
Performance
the end result of organizational activities
includes the actual outcomes of the strategic management process
Feedback/Learning process
revise or correct decisions based on performance
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Initiation of Strategy: Triggering Events
Triggering event
something that acts as a stimulus for a change in strategy and can include:
• New CEO
• External intervention
• Threat of change of ownership
• Performance gap
• Strategic inflection point
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Strategic Decision Making
Strategic decisions
deal with the long-term future of an entire organization and have three characteristics:
• Rare
• Consequential
• Directive
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Three Characteristics of Strategic Decisions
Rare Strategic decisions are unusual and typically have
no precedent to follow.
Consequential Strategic decisions commit substantial resources
and demand a great deal of commitment from people at all levels.
Directive Strategic decisions set precedents for lesser
decisions and future actions throughout an organization
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Mintzberg’s Modes of Strategic Decision Making
Entrepreneurial Adaptive
Planning Logical
incrementalism
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Strategic Decision-Making Process
1. Evaluate current performance results 2. Review corporate governance 3. Scan and assess the external environment 4. Scan and assess the internal corporate
environment 5. Analyze strategic (SWOT) factors 6. Generate, evaluate and select the best
alternative strategy 7. Implement selected strategies 8. Evaluate implemented strategies
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Strategic Decision-Making Process
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Figure 1-5
Strategic Decision-Making Process
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Figure 1-5
The Strategic Audit: Aid to Strategic Decision Making
Strategic audit
provides a checklist of questions, by area or issue, that enables a systematic analysis to be made of various corporate functions and activities
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