CHAPTER 1 Basic Concepts of Strategic Managementsite.iugaza.edu.ps/melfarra/files/2010/02/first-lecture.pdf · THOMAS L. WHEELEN J. DAVID HUNGER CHAPTER 1 ... Basic Concepts of Strategic

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

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

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

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

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.

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.

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

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.

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

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?

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

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

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

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

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:

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

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

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

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.

Goals & Objectives

Corporate Goals/Objectives

–Profitability (net profit)

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–Profitability (net profit)

–Growth

–Resource utilization (ROE, ROI)

–Market leadership

Basic Concepts of Strategic Management

3 Types of Strategy

–Corporate strategy

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–Business strategy

–Functional strategy

Basic Concepts of Strategic Management

Corporate Strategy

–Stability

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–Stability

–Growth

–Retrenchment

Basic Concepts of Strategic Management

Business Strategy

–Competitive strategies

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–Cooperative strategies

Basic Concepts of Strategic Management

Functional Strategy

–Technological leadership

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–Technological followership

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

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

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