CHAPTER 1 Basic Concepts of Strategic Management STRATEGIC

CHAPTER 1 Basic Concepts of Strategic Management STRATEGIC MANAGEMENT & BUSINESS POLICY 10 TH EDITION THOMAS L. WHEELEN Prentice Hall, Inc. © 2006 J. DAVID HUNGER 1 -1

Basic Concepts of 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 Prentice Hall, Inc. © 2006 1 -2

Basic Concepts of Strategic Management Electronic Commerce -- Trends • • Forcing company transformation Market access & branding changing – disintermediation of traditional distribution channels Balance of power shift to consumer Competition changing Prentice Hall, Inc. © 2006 1 -3

Basic Concepts of Strategic Management Electronic Commerce -- Trends • • • Pace of business increasing Internet purchasing beyond traditional boundaries Knowledge key asset – source of competitive advantage Prentice Hall, Inc. © 2006 1 -4

Strategic Management Defined Set of managerial decisions and actions that determines the long-run performance of a firm. Prentice Hall, Inc. © 2006 1 -5

Basic Concepts of Strategic Management 4 Phases of Strategic Management 1. 2. 3. 4. Basic financial planning Forecast-based planning Externally-oriented planning Strategic management Prentice Hall, Inc. © 2006 1 -6

Basic Concepts of Strategic Management Highly Rated Benefits • • • Clearer sense of strategic vision Sharper focus on strategic importance Improved understanding of changing environment Prentice Hall, Inc. © 2006 1 -7

Basic Concepts of 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, 2, 5 or 10 years? What specific actions should management undertake? What are the risks and payoffs? Prentice Hall, Inc. © 2006 1 -8

Basic Concepts of Strategic Management Basic Elements of the Strategic Management Process Prentice Hall, Inc. © 2006 1 -9

Environmental Scanning Defined Monitoring, evaluation, and disseminating information from external and internal environments –to key people in the firm Prentice Hall, Inc. © 2006 1 -10

Basic Concepts of Strategic Management Environmental Variables Prentice Hall, Inc. © 2006 1 -11

Environmental Scanning SWOT Analysis • Strengths – Weaknesses • Opportunities - Threats Prentice Hall, Inc. © 2006 1 -12

Strategy Formulation Development of long-range plans for effective management of opportunities and threats in light of corporate strengths and weaknesses Prentice Hall, Inc. © 2006 1 -13

Strategy Formulation Mission Statement • • Purpose/reason for organization Promotes shared expectations Communicates public image Who we are; what we do; what we aspire to Prentice Hall, Inc. © 2006 1 -14

Organizational Adaptation Organization “fit” with environment • • Theory of population ecology Institution theory Strategic choice perspective Organizational learning theory Prentice Hall, Inc. © 2006 1 -15

Organizational Adaptation Strategic flexibility • Demands long-term commitment to development of critical resources • Demands firm become a learning organization Prentice Hall, Inc. © 2006 1 -16

Learning Organizations An organization skilled at creating, acquiring, and transferring knowledge and at modifying its behavior to reflect new knowledge and insights Prentice Hall, Inc. © 2006 1 -17

Learning Organizations 4 Chief Activities • • Systematic problem solving New approach experimentation Learning from experiences Intra-organization knowledge transfer Prentice Hall, Inc. © 2006 1 -18

Basic Concepts of Strategic Management Hierarchy of Strategy Prentice Hall, Inc. © 2006 1 -19

Goals & Objectives Corporate Goals/Objectives –Profitability (net profit) –Growth –Resource utilization (ROE, ROI) –Market leadership Prentice Hall, Inc. © 2006 1 -20

Basic Concepts of Strategic Management 3 Types of Strategy –Corporate strategy –Business strategy –Functional strategy Prentice Hall, Inc. © 2006 1 -21

Basic Concepts of Strategic Management Corporate Strategy –Stability –Growth –Retrenchment Prentice Hall, Inc. © 2006 1 -22

Basic Concepts of Strategic Management Business Strategy –Competitive strategies –Cooperative strategies Prentice Hall, Inc. © 2006 1 -23

Basic Concepts of Strategic Management Functional Strategy –Technological leadership –Technological followership Prentice Hall, Inc. © 2006 1 -24

Basic Concepts of Strategic Management Strategic Decision-Making Process Prentice Hall, Inc. © 2006 1 -25

Strategic Decision Making Strategic Decisions –Rare –Consequential –Directive Prentice Hall, Inc. © 2006 1 -26

Strategic Decision Making Mintzberg’s Modes –Entrepreneurial mode –Adaptive mode –Planning mode –Logical incrementalism Prentice Hall, Inc. © 2006 1 -27

Hambrick and Fredrickson – Good Strategy 5 Elements of Good Strategy 1. 2. 3. 4. 5. Arenas Vehicles Differentiators Staging Economic logic Prentice Hall, Inc. © 2006 1 -28