Chapter 1: Basic concepts of strategic management

strategic management
set of managerial decisions and actions that determines the long-run performance of a corportation
basic financial planning
– phase 1 of strategic management

– one year time horizon

– simplistic, budget proposals for following year, etc.

forecast-based planning
– phase 2 of strategic management

– five year plans; 3-5 year time horizon

– projects may take more than one year

– involves a full month or more of managerial activity

externally oriented planning
– phase 3 of strategic management

– company seeks to increase its responsiveness to changing markets and competition by thinking strategically

– taken out of hands of lower-level managers and concentrated in a planning staff whose task is to develop strategic plans for the corporation

– top management develops five-year plans with help from consultants but minimal input from lower levels

strategic management (phase)
– phase 4 of strategic management

– detail the implementation, evaluation, and control issues

– series of plans integrated by lower-level, top management and key employees at many levels within the corporation

* General electric was one of the pioneers of this during the 1980s

sense of vision (for the firm), sharper focus (on what is strategically important), improved understanding (of a rapidly changing environment)
three most highly rated benefits of strategic management
– the integrated internationalization of markets and corporations

– changed the way modern corporations do business

– term used in business meant to describe new products, services, methods, and organizational approaches that allow the business to achieve extraordinary returns
– refers to the use of business practices to manage the triple bottom line
triple bottom line
1- management of traditional profit/loss

2- management of company’s social responsibility

3- management of environmental responsibility

population ecology
– suggests that 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
– proposes 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
– says that an organization adjusts defensively to a changing environment and uses knowledge offensively to improve the fit between itself and its environment
learning organization
– organization skilled at creating, acquiring, and transferring knowledge and at modifying its behavior to reflect new knowledge and insights
environmental scanning, strategy formation, strategy implementation, evaluation and control
four basic elements of strategic management
environmental scanning
– monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the corporation
strategic factors
– those elements that will assist in the analysis in deciding the strategic decisions of the corporation
SWOT analysis
simplest way to conduct environmental scanning

Strengths, Weaknesses, Opportunities, Threats

external environment
– consists of Opportunities and Threats

– outside of an organization and not typically within the short-run control of top management

Use FIGURE 1-3 on page 15

internal environment
– consists of Strengths and Weaknesses

– variables within organization and the short-run control of top management

– culture, structure, and resources

Use FIGURE 1-3 on page 15

strategy formulation
– process of investigation, analysis, and decision making that provides the company with the criteria for attaining a competitive advantage
– the purpose or reason for the organization’s existence

– announces what the company is providing to society

– end results of planned activity

– tell what is to be accomplished by when and quantified if possible

– comprehensive master approach that states how the corporation will achieve its mission and objectives
corporate strategy
– describes a company’s overall direction in terms of its general attitude toward growth and the management of its various businesses and product lines
business strategy
– occurs at the business unit or product level, emphasizes improvement of competitive position of a corporation’s products or services
functional strategy
– approach taken by a functional area to achieve corporate and business unit objectives and strategies by maximizing resource productivity
– broad guideline for decision making that links the formulation of a strategy with its implementation
program (or tactic)
– statement of activities or steps needed to support a strategy
– statement of a corporation’s programs in terms of dollars
triggering events
– acts as a stimulus for a change in strategy

– new CEO, external intervention, threat of a change in ownership, performance gap, strategic inflection point