Chapter 1

Basic Concepts of
Strategic Management
 a. Phase of Strategic Management
1. The Study of Strategic b. Benefits of Strategic
Management Management

2. Globalization, Innovation, and Sustainability: a. Impact of Globalization

Challenges to Strategic Management b. Impact of Innovation
c. Impact of Sustainbility

3. Theories of Organizational Adaptation

BASIC CONCEPTS 4. Creating a Learning

OF STRATEGIC Organization a. Environmental Scanning
MANAGEMENT b. Strategiy Formulation
5. Basic Model of Strategic Management c. Strategy Implementation
d. Evaluation and Control
e. Feedback/learning process
6. Initiation of Strategy: Triggering Events
a. What Makes a Decision Strategic?
b. Mintzberg’s Modes of Strategic
7. Strategic Decision Making Decision Making
c. Strategic Decision-Making Process:
AID To Better Decisions
8. The Strategic Audit: Aid to Strategic
Decision Making
 THE STUDY OF STRATEGIC
MANAGEMENT
Business policy, strategic management with the concentrated efforts of researchers
Phase Of Strategic Management and practitioners.

Phase 1 Phase 2 Phase 3 Phase 4

Basic Financial Planning Forecast-based Planning Externally oriented (strategic) Strategic Management
Planning
• Initiating a formal strategic
• Stimulating long term planning
• Propose the project’s • Gathering available
planning system • Strategic plans including the
• Respons changing markets and details of implementation,
budget in a year suchas the invironmental data as the competition
sales force internal information • Developing strategic plans
evaluation and control issue.
• One year plan • Evaluate proposal • To innovative techniques • Five year plans
• Three to five years plan bussniss consultants would be
needed
• Top management and
consultants develop long term
plans
Benefits Of Strategic Management
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:

01 A clearer sense of strategic vision for the firm

02 A sharper focus on what is strategically important

03 An improved understanding of a rapidly changing environment

Strategic planning was the number two tool used by decision makers just
behind customer relationship management. Planning the strategy of large,
multidivisional corporations can be complex and time consuming. It often
takes slightly more than a year for a large company to move from situation
assessment to a final decision agreement. It is needed to ensure that strategic
planning leads to successful performance.
GLOBAL IZATION, INNOVATION, AND SUSTAINABILITY:
CHALLENGES TO STRATEGIC MANAGEMENT
The ability to create unique value and grow an organization
requires innovation skill. Today, the term used to describe a
business’s sustainability is the triple bottom line. This phrase was
first used by John Elkington in 1994 to suggest that companies
prepare three different bottom lines in their annual report.

• Traditional Profil/Loss

• People Account – The

social responsibility the
organization
• Planet Account – The
environmental
responsibility of the
organization
Impact Of Globalization

Globalization, the integrated internationalization of markets and corporations, has changed

the way modern corporations do business. As more industries become global, strategic
management is becoming an increasingly important way to keep track of international
developments and position a company for long-term competitive advantage. The Global
Issue feature to learn how regional trade associations are pushing corporations to establish a
manufacturing presence wherever they wish to market goods.

Modern PowerPoint Presentation

Portfolio Presentation
Impact Of Innovation 61% were
spending more
money on The top five most
innovation in innovative
2014 than in companies were
2013 Apple, Google,
75% of respondents Samsung,
Innovation, as the term is used in reported that Microsoft, and
business, is meant to describe new innovation IBM
products, services, methods, and investment was
primarily aimed at
organizational approaches that allow the
long-term advantage 70% of executives
business to achieve extraordinary returns. and current felt their own
Boston Consulting Group (BCG) found that competitive companies
innovation is a top 3 priority for three- advantage innovation
capabilities were
quarters of the companies in the 2014 BCG only aver-age and
global innovation survey. They also found 13% felt they were
that: weak.

Innovation is the machine that generates business

opportunities in the market
 Impact Of Sustainability
PowerPoint Presentation

Sustainability refers to the use of business practices to manage the triple bottom
line. That triple bottom line involves:
1. The management of traditional profit/loss
2. The management of the company’s social responsibility and
3. The management of its environmental responsibility

Companies that have embraced sustainable practices have seen dramatic

increases in risk mitigation and innovation, and an overall feeling of corporate
social responsibility. The company has a responsibility to treat the environment well.
As trying to achieve (or approach) zero impact on the environment. Recycling,
increased use of renewable resources. Reduction of waste, and refitting buildings.

The Association of Southeast Asian Nations (ASEAN) – composed of Brunei

Darussalam. Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines,
Singapore, Thailand, and Vietnam – is in the process of linking its members into a
borderless economic zone by 2020. increasingly referred to as ASEAN +3. ASEAN
now includes China, Japan and Shouth Korean in its annual summit meetings. The
ASEAN nations negotiated linkage of the ASEAN free Trade Area (AFTA) with the
existing free-trade area of Australia and New Zealand.
Population Ecology Institution Theory Strategic Choice Organizational Learning
Perspective Theory

Suggests that once In contrast, Goes a significant Which says that an

an organization is proposes that step further by organization
successfully organizations can proposing that not adjusts a changing
established in a and do adapt to only do organizations environment and
particular changing conditions adapt to a changing uses knowledge to
environmental it is by imitating other environment, but they improve the fit
unable to adapt to successful also have the between
changing conditions organizations opportunity and power organization and
to reshape their its environment
environment
 CREATING A LEARNING ORGANIZATION
Strategic flexibility demands a long term commitment to the development and nurturing of
critical resources and capabilities. It also demands that the company become a learning
organization – an organization skilled at creating, acquiring, and transferring knowledge and at
modifying its behavior to reflect new knowledge and insights. Organizational learning is a critical
component of competitiveness in a dynamic environment. It is particularly important to
innovation and new product development.

Learning organiztions are skille at four Strategic management is essential for

main activities: learning organizations to avoid stagnation
According to Chandler, companies spring through continuous self-examination and
from an individual entrepreneur’s experimentation. People at all levels, not
• Solving problems systematically
knowledge, which then evolves into just top management, participate in
• Experimenting with new approaches
organizational knowledge. This strategic management—helping to scan
• Learning from their own experiences
organizational knowledge is composed of the environment for critical information,
and past history as well as from the
three basic strengths: technical skills; suggesting changes to strategies and
experiences of others
functional knowledge, such as production programs to take advantage of
• Transferring knowledge quickly and
and marketing; and managerial expertise. environmental shifts, and working with
efficiently throughout the organization.
others to continuously improve work
methods, procedures, and evaluation
techniques.
 BASIC MODEL OF STRATEGIC MANAGEMENT
Strategic management consists of four basic elements:

Environmental scanning is the monitoring, evaluating, and disseminating of information

1. Environmental from the external and internal environments to key people within the corporation. Its
scanning purpose is to identify strategic factors—those external and internal elements that will
assist in the analysis of the strategic decisions of the corporation.

The external environment consists of The internal environment of a corporation

variables (opportunities and threats) that consists of variables (strengths and
are outside the organization and not weaknesses) that are within the organization
typically within the short-run control of top itself and are within the short-run control of
management. top management.
 Strategy formulation is the process of investigation, analysis, and decision making that provides the company
2. Strategy with the criteria for attaining a competitive advantage. It includes defining the competitive advantages of the
formulation business, identifying weaknesses that are impacting the company’s ability to grow, crafting the corporate
mission, specifying achievable objectives, and setting policy guidelines.

A. Mission: Stating Purpose

An organization’s mission is the purpose or reason for the organization’s existence. Some people like to
consider vision and mission as two different concepts: Mission describes what the organization is now; vision
describes what the organization would like to become.

B. Objectives: Listing Expected Results Objectives are the end results of planned activity. They should be stated as action verbs and tell employees what is to
be accomplished and when, with appropriate metrics. The achievement of corporate objectives should result in the fulfillment of a corporation’s mission. The term
goal is often used interchangeably with the term objective. Some of the areas in which a corporation might establish its goals and objectives are:

• Profitability (net profits)

• Efficiency (low costs, etc.)
• Growth (increase in total assets, sales, etc.)
• Shareholder wealth (dividends plus stock price appreciation)
• Utilization of resources (Return on Equity (ROE) or Return on Investment (ROI))
• Reputation (being considered a “top” firm)
• Contributions to employees (employment security, wages, diversity)
• Contributions to society (taxes paid, participation in charities, providing a needed product or service)
• Market leadership (market share)
• Technological leadership (innovations, creativity)
• Survival (avoiding bankruptcy)
• Personal needs of top management (using the firm for personal purposes, such as providing jobs for relatives)
C. Strategy: Defining the Competitive Advantages A strategy of a business forms a comprehensive master approach that states how the
business will achieve its mission and objectives. It maximizes competitive advantage and minimizes competitive disadvantage. The typical
larger business addresses three types of strategy: corporate, business, and functional.
• Corporate strategy describes a company’s overall direction in terms of growth and the management of its various businesses.
Corporate strategies generally fit within the three main categories of stability, growth, and retrenchment.
• Business strategy usually occurs at the business unit or product level, and it emphasizes improvement of the competitive position of a
corporation’s products or services in the specific industry or market segment served by that business unit. Business strategies may fit
within the two overall categories: competitive and cooperative strategies.
• Functional strategy is the approach taken by a functional area to achieve corporate and business unit objectives and strategies by
maximizing resource productivity. It is concerned with developing and nurturing a distinctive competence to provide a company or
business unit with a competitive advantage.

D. Policies: Setting Guidelines A policy is a broad guideline for decision making that links the formulation of a strategy with its implementation.
Companies use policies to make sure that employees throughout the firm make decisions and take actions that support the corporation’s mission,
objectives, and strategies.Consider the following company policies:
• 3M: 3M says researchers should spend 15% of their time working on something other than their primary project. (This supports 3M’s strong product
development strategy)
• Google: Google’s health care plan includes their onsite medical staff. Any employee who feels ill at work can make an appointment with the doctor at
the Googleplex. This supports the Google HRM functional strategy to support its employees.
• General Electric: GE must be number one or two wherever it competes. (This supports GE’s objective to be number one in market capitalization.)
• Starbucks: All Starbucks employees are offered a Total Pay Package that includes a 401(k) savings plan, stock options, and an employee stock
purchase plan. This goes a long way toward their goal of having every employee feel like a partner in the business.
• Ryanair: Ryanair charges for everything a passenger might want or need on a flight. The only thing you get with your ticket is the right to a seat on the
plane (and that seat depends upon how fast you can run across the tarmac to the plane).
 Strategy implementation is a process by which strategies and policies are put into action through the
3. Strategy development of programs, budgets, and procedures. This process might involve changes within the
implementation overall culture, structure, and/or management system of the entire organization.

Programs and Tactics: Defining

Actions Budgets: Costing Programs Procedures: Detailing
Activities
a program is a collection of tactics where
A budget is a statement of a
a tactic is the individual action taken by
the organization as an element of the corporation’s programs in terms Procedures, sometimes
effort to accomplish a plan. To of dollars. Used in planning and termed Standard Operating
significantly cut costs, management control, a budget lists the Procedures (SOP), are a
decided to implement a series of tactics: detailed cost of each program. system of sequential steps or
• Outsource approximately 70% of Many corporations demand a techniques that describe in
manufacturing.
• Reduce final assembly time to three certain percentage return on detail how a particular task or
days (compared to 20 for its 737 investment, often called a job is to be done. in order to
plane) by having suppliers build “hurdle rate,” before complete the corporation’s
completed plane sections. management will approve a new program.
• Use new, lightweight composite program. it also specifies
materials in place of aluminum to
reduce inspection time.
through proforma financial
• Resolve poor relations with labor statements the expected impact
unions caused by downsizing and on the firm’s financial future.
outsourcing.
 Evaluation and control is a process in which corporate activities and performance results
4. Evaluation and are monitored so that actual performance can be compared with desired performance.
control Managers at all levels use the resulting information to take corrective action and resolve
problems.

Performance is the end result of activities.49 It includes the actual outcomes of the strategic
management process. The practice of strategic management is justified in terms of its ability
to improve an organization’s performance, typically measured in terms of profits and return
on investment. For evaluation and control to be effective, managers must obtain clear,
prompt, and unbiased information from the people below them in the corporation’s hierarchy.
Using this information, managers compare what is actually happening with what was
originally planned in the formulation stage.

A firm or business unit develops strategies,

5. FEEDBACK/LEARNING programs, and must go back to revise or correct
PROCESS
decisions made earlier in the process.
 INITIATION OF STRATEGY:
TRIGGERING EVENTS
A triggering event is something that acts as a stimulus for a change
in strategy. Some possible triggering events are:

■ New CEO:
By asking a series of Performance gap:
embarrassing A performance gap
questions, a new CEO Strategic inflection point:
exists when
cuts through the veil of Coined by Andy Grove, past-
External intervention: Threat of a change performance does not
complacency and CEO of Intel Corporation, a
A firm’s bank suddenly in ownership: meet expectations.
forces people to strategic inflection point is what
refuses to approve a Another firm may
question the very Sales and profits happens to a business when a
new loan or suddenly initiate a takeover by
reason for the either are no longer major change takes
demands payment in buying a company’s
corporation’s increasing or may place due to the introduction of
full on an old one. A key common stock.
existence. new technologies, a different
customer complains even be falling.
about a serious product regulatory environment, a change
defect. in customers’ values, or a change
in what customers prefer
STRATEGIC DECISION MAKING

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.
1. What Makes a
• Consequential: Strategic decisions commit substantial
Decision Strategic? 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 an organization.
 are made in a flash by one person (often an entrepreneur or
a powerful chief executive officer) who has a brilliant insight
2. Mintzberg’s and is quickly able to convince others to adopt his or her
Modes of Strategic idea. According to Henry Mintzberg, the three most typical
Decision Making approaches, or modes, of strategic decision making are
entrepreneurial, adaptive, and planning (a fourth mode,
logical incrementalism, was added later by Quinn):

Entrepreneurial mode: Planning mode: Logical incrementalism:

Strategy is made by one This decision-making mode A fourth decision-making mode can be
powerful individual. The focus involves the systematic gathering viewed as a synthesis of the planning,
is on opportunities; problems Adaptive mode: adaptive, and, to a lesser extent, the
of appropriate information for
are secondary. Strategy is as know “muddling through,” this entrepreneurial modes. top management has
situation analysis, the generation a reasonably clear idea of the corporation’s
guided by the founder’s own decision-making mode is
of feasible alternative strategies, mission and objectives, but, in its
vision of direction and is characterized by reactive solutions
and the rational selection of the development of strategies, it chooses to use
exemplified by large, bold to existing problems, rather than a “an interactive process. although the mission
most appropriate strategy. It
decisions. The dominant goal is proactive search for new and objectives are set, the strategy is
includes both the proactive search
growth of the corporation. opportunities. Much bargaining goes allowed to emerge out of debate, discussion,
for new opportunities and the and experimentation. This approach appears
on concerning the priority of
reactive solution of existing to be useful when the environment is
objectives. This mode is typical of
problems. changing rapidly and when it is important to
most universities, many large build consensus and develop needed
hospitals, a large number of resources before committing an entire
governmental agencies. corporation to a specific strategy.
 Evaluate current performance results in terms of (a) return on investment, profitability, and
so forth, and (b) the current mission, objectives, strategies, and policies.

Review corporate governance—that is, the performance of the firm’s board of

3. Strategic Decision- directors and top management.
Making Process: Aid
to Better Decisions
Scan and assess the external environment to determine the strategic factors
that pose opportunities and threats.
Good arguments can be made for
using the entrepreneurial,
adaptive modes, or logical Scan and assess the internal corporate environment to determine the strategic
incrementalism approaches in factors that are strengths (especially core competencies) and weaknesses.
certain specific situations. In most
situations the planning mode, Analyze strategic factors to (a) pinpoint problem areas and (b) review and revise
which includes the basic elements the corporate mission and objectives, as necessary..
of the strategic management
process, is a more rational, better
Generate, evaluate, and select the best alternative strategies in light of the
tested, and more complete
analysis conducted in the previous step..
method for making strategic
decisions. We therefore propose
the following eight-step strategic Implement selected strategies via programs, budgets, and procedures.
decision-making process to
improve the making of strategic
decisions.
Evaluate implemented strategies via feedback systems, and the control of activities
to ensure their minimum deviation from plans.
 THE STRATEGIC AUDIT: AID TO
STRATEGIC DECISION MAKING

One effective means of putting the strategic decision-making process into action is through a technique known as the
strategic audit. A strategic audit provides a checklist of questions, by area or issue, that enables a systematic analysis to be
made of various corporate functions and activities.

A strategic audit is a type of management audit and is extremely useful as a diagnostic tool for pinpointing corporatewide
problem areas and to highlight organizational strengths and weaknesses. A strategic audit can help determine why a certain
area is creating problems for a corporation and help generate solutions to the problem. The critical question needed for a
detailed strategic analysis of any business it needed based on particular companies in defferent part of countries.

An analyst can develop responses to these sub questions when they are needed for a complete strategic analysis of a
company.