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Chapter 1Chapter 1
The Strategic Management ProcessThe Strategic Management Process
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Learning ObjectivesLearning Objectives
To understand:
• the elements or stages of the strategic management process.
• SWOT analysis.
• the importance of strategic leadership and strategic direction.
• the key elements of important strategic perspectives, including industrial organization economics, the resource-based perspective, and stakeholder theory.
• how a turbulent and interdependent global environment has increased the importance of innovation in firms.
• the elements of strategic thinking.
To understand:
• the elements or stages of the strategic management process.
• SWOT analysis.
• the importance of strategic leadership and strategic direction.
• the key elements of important strategic perspectives, including industrial organization economics, the resource-based perspective, and stakeholder theory.
• how a turbulent and interdependent global environment has increased the importance of innovation in firms.
• the elements of strategic thinking.
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Strategic Management
is the process through which organizations…
analyze and learn from their internal and external environments,
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 their internal and external environments,
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
External and Internal External and Internal AnalysisAnalysis
Strategic Management ProcessStrategic Management Process
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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
socioculturalforces
socioculturalforces
technological forces
technological forces
economicforces
economicforces
owners/board of directorsmanagers employees
political/legal forcespolitical/legal forces
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Broad EnvironmentBroad 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.
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 Task Environment
The The tasktask environment consists of external environment consists of external stakeholders -- groups or individuals outside the stakeholders -- groups or individuals outside the organization that are significantly influenced by or organization that are significantly influenced by or have a major impact on the organization -- such as:have a major impact on the organization -- such as:
CustomersCustomersSuppliersSuppliersCompetitorsCompetitorsCommunitiesCommunitiesFinancial intermediariesFinancial intermediaries
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Internal Environmental Analysis
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.
• 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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SWOT AnalysisSWOT Analysis
• Strengths are firm resources and capabilities that can lead to a competitive advantage.
• Weaknesses are resources and capabilities that the firm does not possess but that are necessary, resulting in a competitive disadvantage.
• Opportunities are conditions in the broad and task environments that allow a firm to take advantage of organizational strengths, overcome organizational weaknesses, and/or neutralize environmental threats.
• Threats are conditions in the broad and task environments that may stand in the way of organizational competitiveness or the achievement of stakeholder satisfaction.
• Strengths are firm resources and capabilities that can lead to a competitive advantage.
• Weaknesses are resources and capabilities that the firm does not possess but that are necessary, resulting in a competitive disadvantage.
• Opportunities are conditions in the broad and task environments that allow a firm to take advantage of organizational strengths, overcome organizational weaknesses, and/or neutralize environmental threats.
• Threats are conditions in the broad and task environments that may stand in the way of organizational competitiveness or the achievement of stakeholder satisfaction.
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Strategic LeadershipStrategic Leadership
• Strategic leaders have a large impact on the strategies and performance of their firmsHigh impact leaders like Sam Walton of Walmart, Jack
Welch of General Electric or, more recently, Akio Toyoda of Toyota or Sam Palmisano of IBM.
One of the most important responsibilities of a strategic leader is to establish strategic direction
• Strategic leaders have a large impact on the strategies and performance of their firmsHigh impact leaders like Sam Walton of Walmart, Jack
Welch of General Electric or, more recently, Akio Toyoda of Toyota or Sam Palmisano of IBM.
One of the most important responsibilities of a strategic leader is to establish strategic direction
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Strategic DirectionStrategic Direction
Strategic direction involves
• setting long-term goals and objectives
• defines the purposes for which an organization exists and operatesbusiness ethics pertain to the moral obligations of
businesses to individuals, groups (such as stakeholders) and society as a whole
values define what matters when making decisions and what is rewarded and reinforced
Strategic direction may be contained, in part, in a firm's mission and vision statements
Strategic direction involves
• setting long-term goals and objectives
• defines the purposes for which an organization exists and operatesbusiness ethics pertain to the moral obligations of
businesses to individuals, groups (such as stakeholders) and society as a whole
values define what matters when making decisions and what is rewarded and reinforced
Strategic direction may be contained, in part, in a firm's mission and vision statements
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Strategy FormulationStrategy 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. Decisions made by functional level managers.
• 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. Decisions made by functional level managers.
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Strategy Implementation and Control
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.
• 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
Industrial Organization Economics
• Environmental determinism – the most competitive strategy is determined by the environment. It involves adapting to environmental, technical and human forces
• Structure-conduct-performance model – the performance of an industry is dependent on the conduct of the firms it contains, which is dependent on industry structure
• Research – suggests industry is important to performance, but not primary determinant
• Enactment – firms can, in part, create their environments.
• Combination – organizations typically involved in adaptation and enactment.
Industrial Organization Economics
• Environmental determinism – the most competitive strategy is determined by the environment. It involves adapting to environmental, technical and human forces
• Structure-conduct-performance model – the performance of an industry is dependent on the conduct of the firms it contains, which is dependent on industry structure
• Research – suggests industry is important to performance, but not primary determinant
• Enactment – firms can, in part, create their environments.
• Combination – organizations typically involved in adaptation and enactment.
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Resource-based View• Organization is a bundle of resources – financial, physical, human,
knowledge and learning, and 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 a bundle of resources – financial, physical, human,
knowledge and learning, and 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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Stakeholder Perspective• Organization is a network of relationships with stakeholders – internal and
external constituencies that have a strong interest in the activities and outcomes of the firm and upon whom the organization relies to achieve its objectives.
• Stakeholder analysis� identifying and prioritizing key stakeholders� assessing their needs� collecting ideas from them� integrating this knowledge into the strategic management process
• Stakeholder management� communicating with stakeholders� negotiating and contracting with stakeholders� managing relationships with them� motivating them to behave in ways that are beneficial to the organization and its other stakeholders
Stakeholder Perspective• Organization is a network of relationships with stakeholders – internal and
external constituencies that have a strong interest in the activities and outcomes of the firm and upon whom the organization relies to achieve its objectives.
• Stakeholder analysis� identifying and prioritizing key stakeholders� assessing their needs� collecting ideas from them� integrating this knowledge into the strategic management process
• Stakeholder management� communicating with stakeholders� negotiating and contracting with stakeholders� managing relationships with them� motivating them to behave in ways that are beneficial to the organization and its other stakeholders
Alternative Perspectives on Strategy Development
Alternative Perspectives on Strategy Development
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Managing for Stakeholders and Value Creation
Managing for Stakeholders and Value Creation
Potential forValue CreationPotential for
Value Creation
PrimaryStakeholders
PrimaryStakeholders
Nature ofRelationships
Nature ofRelationships
Trusting
Respectful
Mutually Beneficial
Shareholders
Employees
Managers
Customers
Suppliers
Communities
Others
Sources of CompetitiveAdvantage
Sources of CompetitiveAdvantage
Sales Growth
Efficiency
Fewer Negative Actions
Less Risk
Excellent Reputation
More Attractive to Stakeholders
Ability to Obtain Better Resources
Ability to Obtain Valuable Information
Greater Ability to Plan
Strategic Flexibility
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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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The world's markets are becoming increasingly globalizedThe world's markets are becoming increasingly globalizedThe world's markets are becoming increasingly globalizedThe world's markets are becoming increasingly globalized
A Turbulent Global EnvironmentA Turbulent Global Environment
• Increasing interdependencies – due to the flow of goods and services, knowledge and financial capital across borders. Interdependencies make business environment complicated.
• Economic volatility – makes planning more difficult. Economic interconnections even more problematic during crises.
• Global interconnectedness – has increased competition in many industries. Hypercompetition – intense competition among firms, often
associated with technological innovation.
• Increasing interdependencies – due to the flow of goods and services, knowledge and financial capital across borders. Interdependencies make business environment complicated.
• Economic volatility – makes planning more difficult. Economic interconnections even more problematic during crises.
• Global interconnectedness – has increased competition in many industries. Hypercompetition – intense competition among firms, often
associated with technological innovation.
These factors make continuous innovation important!These factors make continuous innovation important!
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EntrepreneurshipEntrepreneurship
Entrepreneurship is the process through which individuals, groups or firms pursue opportunities to create new value
Entrepreneurship is the process through which individuals, groups or firms pursue opportunities to create new value
Recognizing or creating an opportunityAssembling needed resourcesManaging resources to bring new venture into
being
Recognizing or creating an opportunityAssembling needed resourcesManaging resources to bring new venture into
being
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Strategic ThinkingStrategic Thinking
Strategic thinking is the term used to describe the creative aspects of strategic management
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
Focus on strategic intent Long-term orientationConsideration of past and presentSystems perspectiveAbility to seize unanticipated opportunities
Scientific approach