Business Policy and Strategy — Chapter 1 – Basic Concepts of Strategic Management

Strategic Management
A set of managerial decisions and actions that determines the long-run performance of a firm → Includes environmental scanning, strategy implementation, and evaluation and control.
The integrated internalization of markets and corporations → Companies expanding all over the world
Environmental sustainability
Refers to the use of business practices to reduce a company’s impact upon the natural and physical, environment.
Population ecology
once an organization is successfully established in a particular environmental niche, it is unable to adapt to changing conditions
Institution theory
proposes that organizations can and do adapt to changing conditions by imitating other successful organizations.
Strategic choice perspective
goes one step further by proposing that not only do organizations adapt to a changing environment but they also have the opportunity and power to reshape their environment
Organizational learning theory
an organization adjusts defensively to a changing environment and uses knowledge offensively to improve the fit between itself and its environment.
Learning organization
an organization skilled at creating acquiring and transferring knowledge and at modifying its behavior to reflect new knowledge and insights → important for innovation and new product development
Environmental scanning
is the monitoring, evaluating and disseminating of information from the external environments to key people within the corporation
Strategic factors
external and internal elements that will determine future of the corporations
strengths, weaknesses, opportunities, threats
External environment
opportunities/threats outside of organization
Internal environment
strengths/weaknesses within organization
Strategy formulation
development of long-rang plans for the effective management of environmental opportunities and threats, in light of corporate strengths and weaknesses → mission, objectives, developing strategies, policy guidelines
purpose for the company’s existence → what the company is doing for society
end result of planned activity → what is to be accomplished by company →fulfillment of a company’s mission
a master plan that states how the corporation will achieve its mission and objectives → maximizes competitive advantage and minimizes competitive disadvantage
Hierarchy of strategy
businesses use all 3 types of strategy simultaneously so companies group strategy types by level in organization
a broad guideline for decision making that links the formulation of a strategy with its implementation
Strategy implementation
– a process by which strategies and policies are put into action through the development of programs, budgets and procedures
a statement of a corporation’s programs in terms of dollars → lists the detailed cost of each program
(standard operating procedures) SOP – a system of sequential steps or techniques that describe in detail how a particular task or job is to be done
Evaluation and Control
a process in which corporate activities and performance results are monitored so that actual performance can be compared with desired performance
the end result of activities → includes the outcomes of the strategic management process
Punctuated equilibrium
describes corporations as evolving through relatively long periods of stability (equilibrium periods) punctuated by relatively short bursts of fundamental change (revolutionary periods)
Triggering event
something that acts as a stimulus for a change in strategy
Strategic decisions
deal with the long run future of an entire organization
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
4 Phases of Strategic Management
1. basic financial planning
2. forecast based planning
3. externally oriented (strategic) planning
4. strategic management
Benefits of strategic management
1. clearer sense of strategic vision for the firm
2. sharper focus on what is strategically important
3. improved understanding of rapidly changing environment
6 climate change risks:
1. Regulatory risk → Kyoto protocol – requires companies of developed countries to reduce carbon dioxide and other greenhouse gases by 6% from 1990 to 2012
2. Supply chain risk → suppliers will be increasingly vulnerable to government regulations
3. Product and technology risk → profitable growth – the more green you are the more people will buy
4. Litigation risk → get sued
5. Reputational risk → impact on the environment can effect reputation
6. Physical risk → physically harming environment because of rising temperatures and melting ice caps
Learning organizations Skilled activities:
1. Solving problems systematically
2. Experimenting with new approaches
3. Learning of their own experiences as well as others
4. Transferring knowledge quick and efficient through organizations
Basic Model of Strategic management – 4 ELEMENTS
1. Environmental scanning
2. Strategy formulation
3. Strategy implementation
4. Evaluation and control
3 types of strategy
1. corporate – company’s overall direction
2. business
3. functional
3 Characteristics of strategic decisions
1. Rare – strategic decisions are unusual and typically have no precedent to follow
2. Consequential – strategic decisions commit substantial resources and demand a great deal of commitment from people at all levels
3. Directive – Strategic decisions set precedents for lesser decisions and future actions throughout an organization
Mintz-Bergs modes of strategic decision-making:
1. Entrepreneurial mode
2. Adaptive mode
3. Planning mode
4. Logical incrementalism
Strategic decision-making process
1. Evaluate current performance results → investment/profits and mission/objectives etc
2. Review corporate governace → performance of firms top management
3. Scan and assess external environment → opportunities and threats
4. Scan and assess internal environment → strengths and weaknesses
5. Analyze strategic (SWOT) factors → pinpoint problem areas and review/revise corporate mission/objectives
6. Generate, evaluate and select best alternative strategies
7. Implement selected strategies → via programs, budgets, and procedures
8. Evaluate implemented strategies → via feedback systems, and the control of activities to ensure their minimum deviation from plans
Functional strategy
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’s competitive advantage.
business strategy
at the business unit or product level, 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
corporate strategy
describes a company’s overall direction in terms of its general attitude towards growth and the management of its various businesses and product lines.
tactic or problem
statement of the activities or steps needed to support a strategy
Union of South American Nations
formed to unite the two existing free trade areas with a secretariat in Ecuador and a parliament in Bolivia. It consists of 12 South American countries