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Prentice Hall, 2002 Chapter 1Wheelen/Hunger
1
Chapter 1
Basic Concepts of
Strategic Management
PowerPoint Slides
Anthony F. Chelte
Western New England College
Prentice Hall, 2002 Chapter 1Wheelen/Hunger
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Strategic Management
Defined:
Set of managerial decisions and actions that determines the long-run performance of a firm.
Prentice Hall, 2002 Chapter 1Wheelen/Hunger
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Business Policy
Defined:
General management orientation that looks inward for properly integrating the firm’s functional activities.
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Four Phases ofStrategic Management
• Basic financial planning
• Forecast-based planning
• Externally-oriented planning (strategic)
• Strategic management
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Strategic Management
Highly Rated Benefits:
• Clearer sense of strategic vision for the firm
• Sharper focus on what is strategically important
• Improved understanding of a rapidly changing environment
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Strategic Management
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 year, 2 years, 5 years, 10 years?
• What specific actions should management undertake? What are the risks and payoffs involved?
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Challenges to Strategic Management
Globalization– Internationalization of markets and
corporations• Global (worldwide) markets rather than national
markets
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
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Global Issues• European Union (EU)
– Economic integration of 15 member countries
• North American Free Trade Agreement (NAFTA)– Improved trade among 3 member countries
• Mercosur– Free-trade area among Argentina, Brazil,
Uruguay, and Paraguay
• Association of South East Asian Nations (ASEAN)– Attempting to link members into a borderless
economic zone
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E-Commerce
7 Trends:
– Internet forcing companies to transform themselves
– Market access and branding are changing, causing disintermediation of traditional distribution channels
– Balance of power shifting to the consumer
– Competition is changing
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7 Trends (continued)
• Pace of business increasing drastically
• Internet purchasing corporations out of their traditional boundaries
• Knowledge becoming a key asset and source of competitive advantage
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Organizational Adaptation
How organizations obtain “fit” within their environment:
– Theory of population ecology
– Institution theory
– Strategic choice perspective
– Organizational learning theory
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Adaptation to Changing Environmental Conditions
Strategic flexibility:
– Demands a long-term commitment to the development and nurturing of critical resources
– Demands that the firm become a learning organization
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Learning Organizations
Defined:
An organization skilled at creating, acquiring, and transferring knowledge and at modifying its behavior to reflect new knowledge and insights.
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Learning Organizations
Four Main Activities:• Solving problems systematically• Experimenting with new approaches• Learning from their won experiences and
that of others• Transferring knowledge quickly and
efficiently throughout the organization
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Evaluation and Control
and Control
Strategic Management Model
Strategy Formulation
Strategy Implementation
Mission
Objectives
Strategies
Policies
Feedback/Learning
Environmental
Scanning
Societal Environment
General Forces
Task Environment
Industry Analysis
Structure Chain of Command
Resources Assets, Skills
Competencies, Knowledge
Culture Beliefs, Expectations,
Values
Reason for existence
What results to accomplish by when Plan to
achieve the mission & objectives Broad
guidelines for decision making
Programs
Activities needed to accomplish a plan
Budgets
Cost of the programs Procedures
Sequence of steps needed to do the job
Process to monitor performanceand take corrective action
Performance
External
Internal
Evaluationand Control
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Basic Model of Strategic Management
Four Basic Elements
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Environmental Scanning
Defined:
The monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the firm.
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Environmental Scanning
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Environmental Scanning
Identify strategic factors– SWOT Analysis
– Strengths, Weaknesses
– Opportunities, Threats
– Internal Environment• Strengths & Weaknesses
– Within the organization but not subject to short-run control of management
– External Environment• Opportunities & Threats
– External to the organization but not subject to short-run control of management
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Strategy Formulation
Defined:
Development of long-range plans for the effective management of environmental opportunities and threats in light of corporate strengths and weaknesses.
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Strategy Formulation
Mission Statement– Purpose or reason for the
organization’s existence– Promotes shared expectations among
employees– Communicates public image important
to stakeholders– Who we are, what we do, what we’d like
to become
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Strategy Formulation
Maytag Corporation
Mission Statement
To improve the quality of home life by designing, building, marketing, and servicing the best appliances in the world.
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Strategy Formulation
Objectives
– The end results of planned activity• What is to be accomplished• Time in which to accomplish it• Quantified when possible
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Strategy Formulation
Goals vs. Objectives
A goal is an open-ended statement of what one wants to accomplish with no quantification of what is to be achieved and no time criteria for completion.
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Goals & Objectives
Corporate goals and objectives include:– Profitability (net profits)– Growth (increase in total assets, etc.)– Utilization of resources (ROE or ROI)– Market leadership (market share)
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Strategies
Defined:
A strategy of a corporation forms a comprehensive master plan stating how the corporation will achieve its mission and objectives. It maximizes competitive advantage and minimizes competitive disadvantage.
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Strategies
3 Types of Strategy
– Corporate strategy
– Business strategy
– Functional strategy
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Strategies
Corporate StrategyCorporate Strategy
–Stability
–Growth
–Retrenchment
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Strategies
Business StrategyBusiness Strategy– Competitive strategies
– Cooperative strategies
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Strategies
Functional StrategyFunctional Strategy
–Technological leadership
–Technological followership
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Hierarchy of Strategy
Corporate Strategy
Business(Division Level)
Strategy
FunctionalStrategy
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Policies
Defined:
Broad guidelines for decision making that link the formulation of strategy with its implementation.
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Strategy Implementation
Strategy Implementation
Programs
Budgets
Procedures
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Initiation of Strategy
Triggeringevent
•New CEO
•External intervention
•Threat of change inownership
•Performance gap
•Strategic inflection point
Stimulusfor change
instrategy
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Strategic Decision Making
Strategic Decisions
– Rare
– Consequential
– Directive
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Strategic Decision Making
Mintzberg’s Modes
– Entrepreneurial mode
– Adaptive mode
– Planning mode
– Logical incrementalism
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Strategic Decision Making
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Strategic Decision Making