Chapter 1

Prentice Hall, 2004Chapter 1Wheelen/Hunger 1Chapter 1Basic Concepts of Strategic Management

1Prentice Hall, 2004Chapter 1Wheelen/Hunger 2Strategic Management Defined:Set of managerial decisions and actions that determines the long-run performance of a firm.

2Prentice Hall, 2004Chapter 1Wheelen/Hunger 3Business PolicyDefined:General management orientation that looks inward for properly integrating the firms functional activities.3Prentice Hall, 2004Chapter 1Wheelen/Hunger 4Four Phases ofStrategic ManagementBasic financial planningForecast-based planningExternally-oriented planning (strategic)Strategic management4Prentice Hall, 2004Chapter 1Wheelen/Hunger 5Strategic ManagementHighly Rated Benefits:

Clearer sense of strategic vision for the firm

Sharper focus on what is strategically important

Improved understanding of a rapidly changing environment5Prentice Hall, 2004Chapter 1Wheelen/Hunger 6Strategic ManagementNot 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?6Prentice Hall, 2004Chapter 1Wheelen/Hunger 7Challenges to Strategic ManagementGlobalizationInternationalization of markets and corporationsGlobal (worldwide) markets rather than national markets

Electronic CommerceUse of the Internet to conduct business transactionsBasis for competition on a more strategic level rather than traditional focus on product features and costs7Prentice Hall, 2004Chapter 1Wheelen/Hunger 8Global IssuesEuropean Union (EU)Economic integration of 27 member countries

North American Free Trade Agreement (NAFTA)Improved trade among 3 member countries

MERCOSURFree-trade area among Argentina, Brazil, Uruguay, and Paraguay

Association of South East Asian Nations (ASEAN)Attempting to link members into a borderless economic zone8Prentice Hall, 2004Chapter 1Wheelen/Hunger 9E-Commerce

7 Trends:Internet forcing companies to transform themselvesMarket access and branding are changing, causing disintermediation of traditional distribution channelsBalance of power shifting to the consumerCompetition is changingPace of business increasing drasticallyInternet purchasing corporations out of their traditional boundariesKnowledge becoming a key asset and source of competitive advantage

9Prentice Hall, 2004Chapter 1Wheelen/Hunger 10Organizational AdaptationHow organizations obtain fit within their environment:

Theory of population ecology

Institution theory

Strategic choice perspective

Organizational learning theory10Prentice Hall, 2004Chapter 1Wheelen/Hunger 11Adaptation to Changing Environmental ConditionsStrategic flexibility:

Demands a long-term commitment to the development and nurturing of critical resources

Demands that the firm become a learning organization11Prentice Hall, 2004Chapter 1Wheelen/Hunger 12Learning OrganizationsDefined:An organization skilled at creating, acquiring, and transferring knowledge and at modifying its behavior to reflect new knowledge and insights.12Prentice Hall, 2004Chapter 1Wheelen/Hunger 13Learning OrganizationsFour Main Activities:Solving problems systematicallyExperimenting with new approachesLearning from their own experiences and that of othersTransferring knowledge quickly and efficiently throughout the organization13Prentice Hall, 2004Chapter 1Wheelen/Hunger 14Evaluation and Controland ControlStrategic Management ModelStrategy FormulationStrategy Implementation MissionObjectivesStrategiesPoliciesFeedback/Learning Environmental ScanningSocietal Environment General ForcesTask Environment Industry AnalysisStructure Chain of CommandResources Assets, Skills Competencies, KnowledgeCulture Beliefs, Expectations, ValuesReason for existenceWhat results to accomplish by whenPlan to achieve the mission & objectivesBroad guidelines for decision makingProgramsActivities needed to accomplish a planBudgetsCost of the programsProceduresSequence of steps needed to do the jobProcess to monitor performanceand take corrective actionPerformanceExternalInternalEvaluationand Control14Prentice Hall, 2004Chapter 1Wheelen/Hunger 15Basic Model of Strategic ManagementFour Basic Elements

15Prentice Hall, 2004Chapter 1Wheelen/Hunger 16Environmental ScanningDefined:The monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the firm.

16Prentice Hall, 2004Chapter 1Wheelen/Hunger 17Environmental Scanning

17Prentice Hall, 2004Chapter 1Wheelen/Hunger 18Environmental ScanningIdentify strategic factorsSWOT AnalysisStrengths, Weaknesses Opportunities, ThreatsInternal EnvironmentStrengths & WeaknessesWithin the organization but not subject to short-run control of managementExternal EnvironmentOpportunities & Threats External to the organization but not subject to short-run control of management

18Prentice Hall, 2004Chapter 1Wheelen/Hunger 19Strategy FormulationDefined:Development of long-range plans for the effective management of environmental opportunities and threats in light of corporate strengths and weaknesses.19Prentice Hall, 2004Chapter 1Wheelen/Hunger 20Strategy FormulationMission StatementPurpose or reason for the organizations existencePromotes shared expectations among employeesCommunicates public image important to stakeholdersWho we are, what we do, what wed like to become20Prentice Hall, 2004Chapter 1Wheelen/Hunger 21Strategy FormulationMaytag Corporation Mission Statement

To improve the quality of home life by designing, building, marketing, and servicing the best appliances in the world.21Prentice Hall, 2004Chapter 1Wheelen/Hunger 22Strategy FormulationObjectives

The end results of planned activityWhat is to be accomplishedTime in which to accomplish itQuantified when possible22Prentice Hall, 2004Chapter 1Wheelen/Hunger 23Strategy FormulationGoals 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.

23Prentice Hall, 2004Chapter 1Wheelen/Hunger 24Goals & ObjectivesCorporate goals and objectives include:Profitability (net profits)Growth (increase in total assets, etc.)Utilization of resources (ROE or ROI)Market leadership (market share)

24Prentice Hall, 2004Chapter 1Wheelen/Hunger 25StrategiesDefined: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.25Prentice Hall, 2004Chapter 1Wheelen/Hunger 26Strategies3 Types of Strategy

Corporate strategy

Business strategy

Functional strategy26Prentice Hall, 2004Chapter 1Wheelen/Hunger 27StrategiesCorporate StrategyStabilityGrowthRetrenchment

27Prentice Hall, 2004Chapter 1Wheelen/Hunger 28StrategiesBusiness StrategyCompetitive strategiesCooperative strategies28Prentice Hall, 2004Chapter 1Wheelen/Hunger 29StrategiesFunctional StrategyTechnological leadershipTechnological followership29Prentice Hall, 2004Chapter 1Wheelen/Hunger 30Hierarchy of StrategyCorporate StrategyBusiness(Division Level)StrategyFunctionalStrategy30Prentice Hall, 2004Chapter 1Wheelen/Hunger 31PoliciesDefined:Broad guidelines for decision making that link the formulation of strategy with its implementation.31Prentice Hall, 2004Chapter 1Wheelen/Hunger 32Strategy ImplementationStrategy ImplementationProgramsBudgetsProcedures32QuestionUnder what circumstances should you review companys strategy?Your suggestions please!Prentice Hall, 2004Chapter 1Wheelen/Hunger 33Prentice Hall, 2004Chapter 1Wheelen/Hunger 34Initiation of StrategyTriggeringeventNew CEO

External intervention

Threat of change inownership

Performance gap

Strategic inflection pointStimulusfor changeinstrategy34Strategic decisionsRare

Consequential

Directive Prentice Hall, 2004Chapter 1Wheelen/Hunger 35Strategic Decision MakingMintzbergs Modes:Entrepreneurial modeAdaptive modePlanning modeLogical incrementalismPrentice Hall, 2004Chapter 1Wheelen/Hunger 36QuestionOut of the 4 approaches to decision makings suggested by Mintzberg (& Quinn) which do you think is the best?`Your suggestion please!Prentice Hall, 2004Chapter 1Wheelen/Hunger 37Prentice Hall, 2004Chapter 1Wheelen/Hunger 38Strategic Decision Making

38Prentice Hall, 2004Chapter 1Wheelen/Hunger 39Strategic Decision Making

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