Strategic Management - Chapter 1

STRATEGIC MANAGEMENT

A set of managerial decisions and actions that determines the long-run performance of a corporation. It includes environmental scanning (both external and internal), strategy formulation (strategic or long-range planning) strategy implementation, and evaluation and control.

STRATEGIC MANAGEMENT

It emphasizes the monitoring

and evaluating of external

opportunities and threats in light of a

corporation’s strengths and

weaknesses

The study and interpretation of the

political, economic, social and

technological events and trends which

influence a business, an industry or even

a total market’.

ENVIRONMENTAL SCANNING

Environmental scanning is one essential

component of the global environmental

analysis. Environmental monitoring,

environmental forecasting

 and environmental

assessment complete the global

environmental analysis.

The global environment refers to the macro

environment which comprises industries,

markets, companies, clients and competitors.

Consequently, there exist corresponding analyses

on the micro-level. Suppliers, customers and

competitors representing the micro

environment of a company are analyzed within

the industry analysis.

The process of establishing the

organization's mission, objectives, and

choosing among alternative strategies.

Sometimes strategy formulation is called

"strategic planning."

Strategy formulation

Is vital to the well-being of a company or organization. There are two major types of strategy:

(1) corporate strategy, in which companies decide which line or lines of business to engage in; and (2) business or competitive strategy, which sets the framework for achieving success in a particular business. While business strategy often receives more attention than corporate strategy, both forms of strategy involve planning, industry/market analysis, goal setting, commitment of resources, and monitoring.

Strategy formulation

Is the action stage of strategic

management. It refers to decisions that

are made to install new strategy or

reinforce existing strategy.

Strategy implementation

The basic strategy - implementation activities

1. Establishing annual objectives

2. Devising policies

3. Allocated resources

4. The making of decisions with regard to matching

strategy and organizational structure;

developing budgets, and motivational systems.

All strategies are subject to future modification because internal and external factors are constantly changing. In the strategy evaluation and control process managers determine whether the chosen strategy is achieving the organization's objectives. The fundamental strategy evaluation and control activities are: reviewing internal and external factors that are the bases for current strategies, measuring performance, and taking corrective actions.

Strategy Evaluation And Control

1. Basic Financial Planning

2. Forecast Based Planning

3. Externally Oriented (strategic) Planning

4. Strategic Management

Phases of Strategic Management

SM emphasizes long-term performance and

outperforms who do not.

1. Clearer sense of strategic vision for the firm.2. Sharper focus on what is strategically important.3. Improved understanding of a rapidly changing environment.

Benefits of Strategic Management

1. Impact of Globalization. The integrated internalization of markets and corporation.

2. Impact of Environmental Sustainability. Refers to the use of business practices to reduce a company’s impact upon the natural and physical environment.

Globalization and Environmental Sustainability:Challenges to SM

1. Regulatory Risk

2. Supply Chain Risk

3. Product and Technology Risk

4. Litigation Risk

5. Reputational Risk

6. Physical Risk

Effects of climate Change on Industries and Companies

Regulatory risks1. If changes are made to the way business is

conducted, profits could be affected because the cost of operations in a certain industry may increase.

2. The increase could be due to new taxes that are imposed.

3. It may become necessary to invest in expensive materials for the sake of compliance. This effect can result in others feeling the impact, such as workers who must be laid off due to stressed finances or consumers who are subjected to higher prices.

4. If a government or the head of an establishment considers making a change, individuals who interact with the businesses that will be affected by the new policies may begin to consider the regulatory risk.

5. A change of regulations could cause financial losses or outlaw previous practices.

6. A change of regulations could result in individuals who formerly acted in a certain capacity becoming unqualified. It may be necessary for specialists to be hired or for specialized services to be commissioned. 

Investopedia Says:

Litigation risk can be regarded as an individual's or corporation's likelihood of getting taken to court. In a litigious society, all members are at some risk of litigation. Large firms with deep pockets can be especially prone to litigation risk since the rewards for any plaintiffs can be considerable. Corporations typically have measures in place to identify and reduce risks, such as ensuring product safety and following all pertinent laws and regulations.

http://www.answers.com/topic/litigation-risk

1. Fraudulent Financial Reporting2. Tax Evasion3. Avoiding requirements on carbon emission

Physical Risk

1. Scarcity of Resources because of misuse and abuse

2. Fire, floods and lightning damage can disrupt the flow of operations

3. Theft of Equipment

4. Scratches on the hard disk

1. The theory of population ecology (changes in population size)

2. Institution theory 3. The strategic choice perspective (power

and opportunity to reshape) 4. Organizational learning theory (uses

knowledge offensively to improve fit and organization)

Theories of Organizational Adaptation

A sub-field of ecology that deals with the

dynamics of species populations and how

these populations interact with the 

environment. It is the study of how the 

population sizes of species living together in

groups change over time and space.

Theory of Population Ecology

It focuses on the deeper and more

resilient aspects of social structure. It

considers the processes by which structures,

including schemes, rules, norms, and

routines, become established as authoritative

guidelines for social behavior.

Institutional theory

Strategic Choice Perspective It describes the role that leaders or

leading groups play in influencing an organization through making choices in a dynamic political process.

Management must adopt with the changing environment in a self-regulating manner to achieve their goals.

As industries converge and seemingly unrelated businesses suddenly become rivals, managers must understand the new challenges and the long-term implications.

In Organizational Development (OD), , learning is a

characteristic of an adaptive organization, i.e., an

organization that is able to sense changes in signals

from its environment (both internal and external) and

adapt accordingly. Management specialists endeavor

to employ their learning experiences and incorporate

the learning as feedback into the planning process.

Organizational Learning

This means that whenever expected outcome

differs from actual outcome, an individual (or

group) will engage in inquiry to understand and, if

necessary, solve this inconsistency. In the process

of organizational inquiry, the individual will interact

with other members of the organization and

learning will take place. Learning is therefore a

direct product of this interaction.

Creating a learning organization has four activities:1. Solving problems systematically

2. Experimenting with new approaches

3. Learning from their own experiences and past history as well as from the experiences of others.

4. Transferring knowledge quickly and efficiently throughout the organization.

Creating a Learning Organizations

1. Environmental Scanning (Internal and external)

2. Strategy formulation (mission, objectives,

strategies, policies)

3. Strategy Implementation (programs, budgets,

procedures)

4. Evaluation and Control (performance)

Basic Model of Strategic Management

It includes:1. Mission – the reason or purpose of

organization existence.2. Objective – are the end results of planned

activity.3. Strategies – a comprehensive master plan

that states how the corporation will achieve its mission and objectives.

4. Policies – a broad guideline for decision making that links to the formulation of strategies with its implementation.

Strategy formulation

1. Corporate Strategy – (company’s overall direction on how a corporation will achieve its mission and objectives.

2. Business Strategy – (emphasizes improvement of the competitive position of a corp. product or services in the specific industry)

3. Functional Strategy – (maximization of resource productivity)

Kinds of Strategies

What makes a decision strategic?

1. Rare – Strategic decisions are unusual and typically have no precedent to follow.

2. Consequential – Strategic decisions commit substantial resources and demand a great deal of commitment from people at all levels.

3. Directive – Strategic decisions set precedents for lesser decisions and future actions throughout an organization.

Strategic Decision Making

1. Entrepreneurial mode. It is made by one powerful individual.

2. Adaptive mode. “muddling through,” this decision making mode is characterized by reactive solutions to existing problems, rather than a pro-active search for new opportunities.

MINTZBERG’S Modes of Strategic Management Decisions

3. Planning mode. Involves the systematic gathering of appropriate information for situation analysis, the generation of feasible alternative strategies, and the rational selection of the most appropriate strategy.

4. Logical Instrumentalism. A synthesis of the planning, adaptive and to a lesser extent, the entrepreneurial modes.