CHAPTER 1: BASIC CONCEPTS OF STRATEGIC

MANAGEMENT

Globalization
- The integrated internationalization of markets and corporations
- Global (worldwide) markets rather than national markets
- has changed the way modern corporations do business

Innovation
- Is the implementation of potential innovations that truly drives businesses to be
remarkable
- describes new products, services, methods and organizational approaches that allow the
business to achieve extraordinary returns
Sustainability
- refers to the use of business practices to manage the triple bottom line
- triple bottom line involves:
- the management of traditional profit/loss
- the management of the company’s social responsibility; and
- the management of its environmental responsibility

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
● Strategic choice perspective
- not only do organizations adapt to a changing environment, but they also have the
opportunity and power to reshape their environment
● Organizational learning theory
- an organization adjusts defensively to a changing environment and uses knowledge
offensively to improve the fit between itself and its environment

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
● Learning organization
- an organization skilled at creating, acquiring and transferring knowledge and modifying
its behavior to reflect new knowledge and insights

● Organizational learning
- is a critical component of competitiveness in a dynamic environment.

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

Basic Model of Strategic Management

Strategic management consists of four basic elements:
● Environmental scanning
- the monitoring, evaluating and disseminating of information from the external and
internal environments to key people within the organization
- SWOT analysis
Environmental variables:

● 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.
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
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
Policy:
- a broad guideline for decision making that links the formulation of a strategy with its
implementation

● Strategy implementation
- a process by which strategies and policies are put into action through the development
of programs, budgets, and procedures

● Evaluation and control

 - a process in which corporate activities and performance results are monitored so that
actual performance can be compared with desired performance.
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

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

Strategic Management Model

Electronic Commerce
- Use of the Internet to conduct business transactions
- Basis for competition on a more strategic level rather than traditional focus on product
features and costs
*Set of managerial decisions and actions that determines the long-run performance of a firm.

4 Phases of Strategic Management

1.Basic financial planning
2.Forecast-based planning
3.Externally-oriented planning
4.Strategic management

Highly Rated Benefits

•Clearer sense of strategic vision
 •Sharper focus on strategic importance
•Improved understanding of changing environment

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 organization be in 1,2,5 or 10 years?
•What specific actions should management undertake?
•What are the risks and payoffs?

Basic Elements of the Strategic Management Process

*Monitoring, evaluation, and disseminating information from external and internal environments
–to key people in the firm

SWOT Analysis
•Strengths – Weaknesses
•Opportunities - Threats

*Development of long-range plans for effective management of opportunities and threats

in light of corporate strengths and weaknesses

Mission Statement
•Purpose/reason for organization
•Promotes shared expectations
•Communicates public image
•Who we are; what we do; what we aspire to

Organization “fit” with environment

•Theory of population ecology
•Institution theory
•Strategic choice perspective
•Organizational learning theory

Strategic flexibility
•Demands long-term commitment to development of critical resources
•Demands firm become a learning organization

*An organization skilled at creating, acquiring, and transferring knowledge and at modifying its
behavior to reflect new knowledge and insights

Hierarchy of Strategy
Corporate Goals/Objectives
- Profitability (net profit)
- Growth
- Resource utilization (ROE, ROI)
- Market leadership

3 Types of Strategy
- Corporate strategy (Stability, growth, retrenchment)
- Business strategy (Competitive and cooperative strategies)
- Functional strategy (Technological leadership and technological followership)

Strategic Decision-Making Process

● Evaluate current performance results
● Review corporate governance
● Scan and assess the external environment
● Scan and assess the internal corporate environment
● Analyze strategic (SWOT) factors
● Generate, evaluate and select the best alternative strategy
● Implement selected strategies
A firm’s external environment creates:
- Opportunities - is a condition in the general environment that if exploited effectively,
helps a company achieve strategic competitiveness
- Threats - is a condition in the general environment that may hinder a company’s efforts
to achieve strategic competitiveness

The GENERAL ENVIRONMENT is grouped into seven environmental segments:

1. Demographic
2. Economic
3. Political/Legal
4. Sociocultural
5. Technological
6. Global
7. Physical

THE DEMOGRAPHIC SEGMENT

- are commonly analyzed on a global basis because of their potential effects across
countries’ borders and because many firms compete in global markets.
● Population size
● Age structure
● Geographic distribution
● Ethnic mix
● Income distribution
THE ECONOMIC SEGMENT
- refers to the nature and direction of the economy in which a firm competes or may
compete.
● Inflation rates
● Interest rates
● Trade deficits or surpluses

THE POLITICAL/LEGAL SEGMENT

- represents how organizations and governments mutually try to influence each other, and
how firms try to understand these influences (current and projected) on their strategic
actions.
● Antitrust laws
● Taxation laws
● Deregulation philosophies
● Labor training laws
● Educational philosophies and policies

THE SOCIOCULTURAL SEGMENT

- is concerned with a society’s attitudes and cultural values. Attitudes and values form the
cornerstone of a society, they often drive demographic, economic, political/legal, and
technological conditions and changes.
● Women in the workforce
● Workforce
● Diversity attitudes about the quality of work life
● Shifts in work and career preferences
● Shifts in product and service preference characteristics

THE TECHNOLOGICAL SEGMENT

- includes the activities involved in creating new knowledge and translating that
knowledge into new outputs, products, processes, and materials.
● Product innovations
● New communication technologies

THE GLOBAL SEGMENT

- includes relevant new global markets, existing markets that are changing, important
international political events, and critical cultural and institutional characteristics of global
markets
● Important political events
● Critical global markets
● Newly industrialized countries
● Different cultural and institutional attributes

THE PHYSICAL ENVIRONMENT SEGMENT

- refers to potential and actual changes in the physical environment

External environments are:

● Turbulent
● Complex
● Global
● Uncertain
● Ambiguous
● Incomplete

ATTRACTIVE INDUSTRY (High profit potential):

- High entry barriers
- Suppliers and buyers have weak positions
- Few threats from substitute products
- Moderate rivalry among competitors
UNATTRACTIVE INDUSTRY (Low profit potential):
- Low entry barriers
- Suppliers and buyers have strong positions
- Strong threats from substitute products
- Intense rivalry among competitors

Strategic Group
- a set of firms emphasizing similar strategic dimensions and using similar strategies
Strategic Audit
- Provides a checklist of questions, by are or issue, that enables a systematic analysis to
be made of various corporate functions and activities

Strategic Decisions - deal with the long-term future of an entire organization and have three
characteristics:
- 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

Mintzberg’s Modes of Strategic Decision Making

- Entrepreneurial mode
- Adaptive mode
- Planning mode
- Logical incrementalism

THE STUDY OF STRATEGIC MANAGEMENT

Strategic Management
● a set of managerial decisions and actions that determines the long-run performance of a
corporation
● the art and science of formal process of determining long range objectives and
formulating, implementing and evaluating cross-functional decisions and action plans
based on the vision of the organization over and identified time frame
● managing the total business enterprise from the outlook of the top level

Strategic Management includes:

●Internal and external environment scanning
●Strategy formulation
●Strategy implementation
●Evaluation and control

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

Nature of Business
- Business is defined as a continuing economic decision making activity which involves
managerial, social and legal processes of using inputs to produce or create goods,
and/or provide services of value to satisfy human needs in exchange of profit.
Types of Business
- Sole proprietorship
•Ownership and management
•Capitalization
•Risk
•Unlimited liability
- Partnership
•Ownership and management
•Capitalization
•Risk
•Unlimited liability

- Corporation
•Has legal standing
•Acts like artificial human being
•Owners have limited liability
•Run by Board of Directors
- Cooperative
•Memberships are voluntary
•Capitalization
•Voting rights
•Community concern

Organizational Culture
- Refers to the composite of values, attitudes, norms and beliefs developed over time and
shared by management, employees and the entire organization

The Value of Strategic Management

- A strategy is devised at the relevant level of management and is a long term plan of
change and improvement for the organization
- Consist s of competitive moves and business approaches to articulate the vision into
practical reality given the actual business scenario

Correlation Between Business and Military Strategy

- Where do you want to go?
- Where are we now?
- How will we get there?
- How do we measure success?

Understanding the Strategic Management Process

Stage 1. Planning
- an activity to see the future and strategize accordingly towards organizations direction
- the process of determining objectives and assessing how these objectives can best be
achieved in a timely manner gve the firm’s status amidst opportunities and challenges
- an overview of the entire process is visualized and laid against time frames
ELEMENTS:
● Scanning
● Monitoring
● Forecasting
● Assessing
TOOLS:
● SWOT Identification
● Top-down/Bottom-up Planning
● Basic Planning
● Vision-based Strategic Planning
 ● Issue-based (Goal-based Planning)
● Scenario Planning
● Organic(Self-organizing) Planning

Stage 2. Formulation
- the process of choosing the best course of action to achieve the goals and objectives in
order to realize the vision.

Stag 3. Implementation
- ultimate test of planning and formulation
- shows the gaps and deviations from ideally set plans and carefully formulated solutions

Stage 4. Evaluation
- how realistic are the plans set?
- were actions/solutins formulated properly?

Stage 5. Feedback
- taking time and cost into consideration throughout the process brings to focus if current
stage is sill aligned with the objectives set by the organization