Chapter 1 The Strategic Management Process

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Learning Objectives

To understand:• the elements or stages of the strategic

management process

• the different perspectives on strategy development

• the characteristics of strategic thinking and how strategic thinking fits into the strategic management process

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Strategic Management

is the process through which organizations…

analyze and learn from stakeholders inside and outside of the organization,

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.

Strategic Management

is the process through which organizations…

analyze and learn from stakeholders inside and outside of the organization,

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.

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StrategicStrategicDirectionDirection

Strategy FormulationStrategy Formulation(corporate and (corporate and business level)business level)

Strategy ImplementationStrategy Implementationand Controland Control

Strategic RestructuringStrategic Restructuring

Internal and External Internal and External AnalysisAnalysis

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THE TASK ENVIRONMENTTHE TASK ENVIRONMENT

THE BROAD ENVIRONMENTTHE BROAD ENVIRONMENT

THE ORGANIZATIONTHE ORGANIZATION

suppliers

government

unions

activists

local communities

financialintermediaries

customers

competitors

socio-culturalforces

socio-culturalforces

technological forces

technological forces

economicforces

economicforces

owners/board of directorsmanagers employees

political/legal forcespolitical/legal forces

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External Environmental Analysis

• The external environment of business may be divided into two sectors:

BroadTask

• All trends and stakeholders in the external environment should be analyzed at both the domestic and international level

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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.

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Task Environment

The task environment consists of external stakeholders -- groups or individuals outside the organization that are significantly influenced by aor have a major impact on the organization -- such as:

CustomersSuppliersCompetitors

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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 determinestrengths and opportunities for competitive advantage,

and weaknesses and organizational vulnerabilities that should

be corrected.

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Strategic Direction

Strategic direction involves

• setting long-term goals and objectives, such as mission and vision

• defines the purposes for which an organization exists and operates

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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.

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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.

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Alternative Perspectives on Strategy Development

Alternative Perspectives on Strategy Development

Traditional Strategic Management Process

• Situation Analysis--Strengths, Weaknesses, Opportunities and Threats (SWOT)

• Strategies should take advantage of strengths and opportunities or neutralize or overcome weaknesses and threats

• Environmental Determinism--the best strategy involves adapting to environmental, technical and human forces

• Strategy is deliberate (always planned and intended by management)

Traditional Strategic Management Process

• Situation Analysis--Strengths, Weaknesses, Opportunities and Threats (SWOT)

• Strategies should take advantage of strengths and opportunities or neutralize or overcome weaknesses and threats

• Environmental Determinism--the best strategy involves adapting to environmental, technical and human forces

• Strategy is deliberate (always planned and intended by management)

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Contemporary Views

• Adaptation--strategy involves submitting to existing forces.

• Enactment--firms can, in part, create their environments.

• Deliberate--intended by management (planned)

• Emergent--organizations learn as they go by trial and error. Strategy is the pattern in a stream of decisions.

Stakeholder view

• Organizations are at the center of a network of contacts

• Increasing use of partnering

Contemporary Views

• Adaptation--strategy involves submitting to existing forces.

• Enactment--firms can, in part, create their environments.

• Deliberate--intended by management (planned)

• Emergent--organizations learn as they go by trial and error. Strategy is the pattern in a stream of decisions.

Stakeholder view

• Organizations are at the center of a network of contacts

• Increasing use of partnering

Alternative Perspectives on Strategy Development

Alternative Perspectives on Strategy Development

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Resource-based View• Organization is made up of resources: financial, physical, human, 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.

Resource-based View• Organization is made up of resources: financial, physical, human, 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.

Alternative Perspectives on Strategy Development

Alternative Perspectives on Strategy Development

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• Identifying and Prioritizing Key

Stakeholders

• Assessing Their Needs

• Collecting Ideas From Them

• Integrating this Knowledge into

the Strategic Management Process

• Identifying and Prioritizing Key

Stakeholders

• Assessing Their Needs

• Collecting Ideas From Them

• Integrating this Knowledge into

the Strategic Management Process

The Most Successful Organizations Analyze and Manage Their

Stakeholders Well

The Most Successful Organizations Analyze and Manage Their

Stakeholders Well

Stakeholder AnalysisStakeholder Analysis

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Stakeholder ManagementStakeholder Management

The Most Successful Organizations Analyze and Manage Their

Stakeholders Well

The Most Successful Organizations Analyze and Manage Their

Stakeholders Well

• Communicating with Stakeholders

• Negotiating and Contracting with

Them

• Managing Relationships with Them

• Motivating Them to Act in Beneficial

Ways

• Communicating with Stakeholders

• Negotiating and Contracting with

Them

• Managing Relationships with Them

• Motivating Them to Act in Beneficial

Ways

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Most successful firms eventually look to the global environment

for opportunities to grow and develop

Most successful firms eventually look to the global environment

for opportunities to grow and develop

Global Strategic ManagementGlobal Strategic Management

•Saturated domestic markets•Profitable foreign markets•Falling trade barriers•Newly industrialized countries•Similarity of industrialized nations•Shift towards market economies•English a universal business language•Availability of lower-cost resources•Uniformity in technical standards•Opportunities to learn from foreign ventures

•Saturated domestic markets•Profitable foreign markets•Falling trade barriers•Newly industrialized countries•Similarity of industrialized nations•Shift towards market economies•English a universal business language•Availability of lower-cost resources•Uniformity in technical standards•Opportunities to learn from foreign ventures

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• 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

• 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

A Combined Approach to Strategic Management

A Combined Approach to Strategic Management

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Strategic Thinking

Strategic thinking is the term used to describe the creative aspects of strategic management

Focus on strategic intent Long-term orientationConsideration of past and presentSystems perspectiveAbility to seize unanticipated opportunities

Scientific approach