Chapter 1 - Basic Concepts of Strategic Management

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Basic Concepts of Strategic Management  Focus on emphasizing

Strategic Management Phase 4—Strategic management:


- a set of managerial decisions and actions that Realizing that even the best strategic plans are worthless
determines the long run performance of a without the input and commitment of lower-level
corporation managers, top management forms planning groups of
- originally called business policy managers and key employees at many levels, from
various departments and workgroups. They develop and
Strategic business analysis integrate a series of strategic plans aimed at achieving
- More on application the company’s primary objectives. Strategic plans at this
point detail the implementation, evaluation, and control
Phases of Strategic Management issues. Rather than attempting to perfectly forecast the
future, the plans emphasize probable scenarios and
Phase 1- Basic financial planning contingency strategies. The sophisticated annual five-
Normal company activities are often suspended for year strategic plan is replaced with strategic thinking at
weeks while managers try to cram ideas into the all levels of the organization throughout the year.
proposed budget. Strategic information, previously available only centrally
The time horizon is usually one year to top management, is available via local area networks
 From beginning (plan manager propose a and intranets to people throughout the organization.
budget for 1 year) Instead of a large centralized planning staff, internal and
 Little analysis external planning consultants are available to help guide
 Initiate serious planning group strategy discussions. Although top management
may still initiate the strategic planning process, the
Phase 2- Forecast-based planning resulting strategies may come from anywhere in the
As annual budgets become less useful at stimulating organization. Planning is typically interactive across
longterm planning, managers attempt to propose five- levels and is no longer top down. People at all levels are
year plan. now involved.
In addition to internal information, managers gather any
available environmental data—usually on an ad hoc  From Phase 1 to 3., it will replace by Phase 4
basis—and extrapolate current trends five years into the  All about implementation
future.
The time horizon is usually three to five years  Strategic performance
 Talking about budget

Phase 3- Externally Oriented strategic planning BENEFITS OF STRATEGIC MANAGEMENT


Frustrated with highly political yet ineffectual five-year  Strategic management emphasizes long-term
plans, top management takes control of the planning performance. Many companies can manage
process by initiating strategic planning short-term bursts of high performance, but only
Planning is taken out of the hands of lower-level a few can sustain it over a longer period of time
managers and concentrated in a planning staff whose  To be successful in the long-run, companies
task is to develop strategic plans for the corporation must not only be able to execute current
 Consultants often provide the sophisticated and activities to satisfy an existing market, but they
innovative techniques that the planning staff must also adapt those activities to satisfy new
uses to gather information and forecast future and changing markets
trends. 
 Ex-military experts develop competitive
intelligence units.
 Upper-level managers meet once a year at a
resort “retreat” led by key members of the
planning staff to evaluate and update the current
strategic plan
 Top management typically develops five-year
plans with help from consultants but minimal
input from lower levels.
 Talking about strategies
A survey of nearly 50 corporations in a variety of
countries and industries found the three most highly
rated benefits of strategic management to be:
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

IMPACT OF ENVIRONMENTAL SUSTAINABILITY

Environmental Sustainability
- The use of business practices to reduce
Impact of globalization company’s impact upon natural, physical
- The integrated internationalization of markets environment.
and corporation - Climate change is playing a growing role in
business decision.
Innovation-
- Describes new product, services, methods and
organizational apporoaches Effects of climate Change
- Is the implementation of potential innovations
that truly drives usiness to be remarkable 1. Regulatory Risk
 Kyoto Protocol
- Requires the developed countries to reduce
carbon dioxide and other greenhouse gasses.

2. Supply Chain Risk


 Suppliers will be increasingly vulnerable to
government regulations— leading to higher
component and energy costs as they pass along
increasing carbon-related costs to their
customers. Global supply chains will be at risk
from an increasing intensity of major storms and
flooding.

3. Product and Technology Risk


 Environmental sustainability can be a
prerequisite to profitable growth.
 Carbon-friendly products using new
technologies are becoming increasingly popular
Sustainability with consumers
- Management of triple bottom line
4. Litigation Risk
 Companies that generate significant carbon
emissions face the threat of lawsuits similar to
those in the tobacco, pharmaceutical, and
building supplies (e.g., asbestos) industries

5. Reputational Risk
 A company’s impact on the environment can THEORIES OF ORGANIZATIONAL
heavily affect its overall reputation ADAPTATION
 a company with a good record of environmental
sustainability may create a competitive 1. Population Ecology
advantage in terms of attracting and keeping  proposes that once an organization is
loyal consumers, employees, and investors successfully established in a particular
environmental niche, it is unable to adapt to
changing conditions. Inertia prevents the
organization from changing
 in sociology, research fails to support the
6. Physical Risk arguments of population ecology.
 The direct risk posed by climate change includes
the physical effects of drought, flood, storms and
rising sea levels 2. Institution Theory
 , in contrast, proposes that organizations can and
PROJECTED EFFECTS OF CLIMATE CHANGE do adapt to changing conditions by imitating
other successful organizations
1. Temperature Increase
 Global average warming of 0.2 degrees 3. Strategic Choice perspective
 Long term warming with doubles dioxide  goes one step further by proposing that not only
concentrations do organizations adapt to a changing
 Fewer cold day sand nights environment, but they also have the opportunity
 Increase frequency, intensity and duration of and power to reshape their environment
heat waves
4. Organizational Learning Theory
2. Sea Level Rise  -an organization adjusts defensively to a
 Sea level will continue to rise due to thermal changing environment and uses knowledge
expansion offensively to improve the fit between itself and
 Sea level at 18 to 59 cm by the end of 21st its environment. This perspective expands the
century strategic choice perspective to include people at
all levels becoming involved in providing input
3. Precipitation and Humidity into strategic decisions.
 Increase number of wet days in high latitudes
 Annual precipitation in Northern Europe, CREATING A LEARNING ORGANIZATION
Canada, Northeastern US
 Winter precipitation in Asia Learning organizations are skilled at four main
activities:
 Dry spells increase
(S-E-L-T)
1. Solving problems systematically
4. Extreme weather related events
2. Experimenting with new approaches
 Increasing intense tropical cyclone activity
3. Learning from their own experience and past history
 Increasing frequency of floods as well as from the experiences of others
 Increasing of risk of drought 4. Transferring knowledge quickly and efficiently.
 Increasing of wildfires
BASIC MODEL OF STRATEGIC MANAGEMENT
(E-S-S-E)
5, Other related events
 Decreasing snow season A. Environment scanning
 Fewer cold days and nights b. Strategy formulation
 Accelerated glacier loss c. Strategy Implementation
 Reduction in and warming permafrost d. Evaluation and Control
1. Environments scanning  is a process by which strategies and policies are
 monitoring, evaluating and disseminating put into action through the development of
information from external to internal programs, budgets, and procedures
environments.  sometimes referred operational budget
 Its purpose is to identify strategic factors---
external and internal elements that will Programs
determine the future of corporation - a statement of the activities or steps needed to
 simplest way is to conduct SWOT accomplish a single-use plan
 SWOT -strategic factors of specific company - tactics- individual action
 Internal environment- consist of environment Budgets
(S - a statement of a corporation’s programs in terms
 trenght & Weakness) that are within the of dollars. Used in planning and control, a
organization itself and not in a short run control budget lists the detailed cost of each program
of the top management.
- Procedures
2. Strategy formulation - sometimes termed Standard Operating
 is the development of long-range plans for the Procedures (SOP), are a system of sequential
effective management of environmental steps or techniques that describe in detail how a
opportunities and threats, in light of corporate particular task or job is to be do
strengths and weaknesses (SWOT). It includes
defining the corporate mission, specifying 4, Evaluation and control
achievable objectives, developing strategies, and  is a process in which corporate activities and
setting policy guidelines performance results are monitored so that actual
Mission performance can be compared with desired
- reason for organization’s existence performance.
- it drives the company
Performance
Vision - is the end result of activities. It includes the
- describe what the organizations would like to actual outcomes of the strategic management
become process

Objective Feedback/ Learning process


- are the end results of planned activity - revise or correct decisions based on performance
- Goal- no quantity- open ended statement
TRIGGERING EVENTS
Strategy - is something that acts as a stimulus for a change
- forms a comprehensive master plan that states in strategy.
how the corporation will achieve its mission and Some possible triggering events are:
objectives 1. New CEO
- Hierarchy of strategy- is grouping of strategy 2. External Intervention
types by level in the organization. 3. Threat of a change in ownership
 Corporate strategy- overall direction of company 4. Performance gap
and management f its business (stability, growth 5. Strategic inflection point
and retrenchment)
 Business Strategy- competitive and cooperative
strategies
 Functional strategy- maximize resource
productivity

Policies
- Broad guidelines for decision making that links
the formulation of a strategy with its
implementation.

3. Strategy implementation
“an interactive process in which the organization
probes the future, experiments and learns from a
series of partial (incremental) commitments
rather than through global formulations of total
strategies

STRATEGIC DECISION-MAKING PROCESS:


AID TO BETTER DECISIONS

8 steps to improve the making or strategic decision.

1. Evaluate current performance results in terms of


(a) return on investment, profitability, and so forth, and
(b) the current mission, objectives, strategies, and
policies.
WHAT MAKES A DECISION STRATEGIC?
Unlike many other decisions, strategic decisions deal 2. Review corporate governance—that is, the
with the long-run future of an entire organization and performance of the firm’s board of directors and top
have three characteristics: management.

1. Rare: Strategic decisions are unusual and typically 3. Scan and assess the external environment to
have no precedent to follow determine the strategic factors that pose Opportunities
2. Consequential: Strategic decisions commit substantial and Threats.
resources and demand a great deal of commitment from
people at all levels. 4. Scan and assess the internal corporate
3. Directive: Strategic decisions set precedents for lesser environment to determine the strategic factors that are
decisions and future actions throughout an organization. Strengths (especially core competencies) and
Weaknesses.

MINTZBERG’S MODES OF STRATEGIC 5. Analyze strategic (SWOT) factors to (a) pinpoint


DECISION MAKING problem areas and (b) review and revise the corporate
mission and objectives, as necessary.
1. Entrepreneurial Mode
 :Strategy is made by one powerful individual. 6. Generate, evaluate, and select the best alternative
The focus is on opportunities; problems are strategy in light of the analysis conducted in step 5.
secondary. Strategy is guided by the founder’s
own vision of direction and is exemplified by 7. Implement selected strategies via programs, budgets,
large, bold decisions. and procedures.
2. Adaptive mode
 Sometimes referred to as “muddling through,” 8. Evaluate implemented strategies via feedback
this decision-making mode is characterized by systems, and the control of activities to ensure their
reactive solutions to existing problems, rather minimum deviation from plans.
than a proactive search for new opportunities
3. Planning mode
 This decision-making mode involves the STRATEGIC AUDIT: AID TO STRATEGIC
systematic gathering of appropriate information DECISION-MAKING
for situation analysis, the generation of feasible
alternative strategies, and the rational selection Strategic Audit
of the most appropriate strategy. - provides checklist of questions that enable a
4. Logical incremetalism systematic analysis to be made of various
 can be viewed as a synthesis of the planning, corporate functions and activities.
adaptive, and, to a lesser extent, the
entrepreneurial mode Additional
 top management has a reasonably clear idea of
the corporation’s mission and objectives, but, in
its development of strategies, it chooses to use
so

over years

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