Prentice Hall, 2004Chapter 1 Wheelen/Hunger 1 Chapter 1 Basic Concepts of Strategic Management PowerPoint Slides Anthony F. Chelte Western New England College

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

Prentice Hall, 2004Chapter 1 Wheelen/Hunger 3 Business Policy Defined: General management orientation that looks inward for properly integrating the firm’s functional activities.

Prentice Hall, 2004Chapter 1 Wheelen/Hunger 4 Four Phases of Strategic Management Basic financial planning Forecast-based planning Externally-oriented planning (strategic) Strategic management

Prentice Hall, 2004Chapter 1 Wheelen/Hunger 5 Strategic Management Highly Rated Benefits: Clearer sense of strategic vision for the firm Sharper focus on what is strategically important Improved understanding of a rapidly changing environment

Prentice Hall, 2004Chapter 1 Wheelen/Hunger 6 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 year, 2 years, 5 years, 10 years? What specific actions should management undertake? What are the risks and payoffs involved?

Prentice Hall, 2004Chapter 1 Wheelen/Hunger 7 Challenges to 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, 2004Chapter 1 Wheelen/Hunger 8 Global Issues European Union (EU) –Economic integration of 15 member countries North American Free Trade Agreement (NAFTA) –Improved trade among 3 member countries Mercosur –Free-trade area among Argentina, Brazil, Uruguay, and Paraguay Association of South East Asian Nations (ASEAN) –Attempting to link members into a borderless economic zone

Prentice Hall, 2004Chapter 1 Wheelen/Hunger 9 E-Commerce 7 Trends: –Internet forcing companies to transform themselves –Market access and branding are changing, causing disintermediation of traditional distribution channels –Balance of power shifting to the consumer –Competition is changing

Prentice Hall, 2004Chapter 1 Wheelen/Hunger 10 7 Trends (continued) Pace of business increasing drastically Internet purchasing corporations out of their traditional boundaries Knowledge becoming a key asset and source of competitive advantage

Prentice Hall, 2004Chapter 1 Wheelen/Hunger 11 Organizational Adaptation How organizations obtain “fit” within their environment: –Theory of population ecology –Institution theory –Strategic choice perspective –Organizational learning theory

Prentice Hall, 2004Chapter 1 Wheelen/Hunger 12 Adaptation to Changing Environmental Conditions Strategic flexibility: –Demands a long-term commitment to the development and nurturing of critical resources –Demands that the firm become a learning organization

Prentice Hall, 2004Chapter 1 Wheelen/Hunger 13 Learning Organizations Defined: An organization skilled at creating, acquiring, and transferring knowledge and at modifying its behavior to reflect new knowledge and insights.

Prentice Hall, 2004Chapter 1 Wheelen/Hunger 14 Learning Organizations Four Main Activities: Solving problems systematically Experimenting with new approaches Learning from their won experiences and that of others Transferring knowledge quickly and efficiently throughout the organization

Prentice Hall, 2004Chapter 1 Wheelen/Hunger 15 Evaluation and Control Strategic Management Model Strategy Formulation Strategy Implementation Mission Objectives Strategies Policies Feedback/Learning Environmental Scanning Societal Environment General Forces Task Environment Industry Analysis Structure Chain of Command Resources Assets, Skills Competencies, Knowledge Culture Beliefs, Expectations, Values Reason for existence What results to accomplish by when Plan to achieve the mission & objectives Broad guidelines for decision making Programs Activities needed to accomplish a plan Budgets Cost of the programs Procedures Sequence of steps needed to do the job Process to monitor performance and take corrective action Performance External Internal Evaluation and Control

Prentice Hall, 2004Chapter 1 Wheelen/Hunger 16 Basic Model of Strategic Management Four Basic Elements

Prentice Hall, 2004Chapter 1 Wheelen/Hunger 17 Environmental Scanning Defined: The monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the firm.

Prentice Hall, 2004Chapter 1 Wheelen/Hunger 18 Environmental Scanning

Prentice Hall, 2004Chapter 1 Wheelen/Hunger 19 Environmental Scanning Identify strategic factors –SWOT Analysis –Strengths, Weaknesses –Opportunities, Threats –Internal Environment Strengths & Weaknesses –Within the organization but not subject to short-run control of management –External Environment Opportunities & Threats –External to the organization but not subject to short- run control of management

Prentice Hall, 2004Chapter 1 Wheelen/Hunger 20 Strategy Formulation Defined: Development of long-range plans for the effective management of environmental opportunities and threats in light of corporate strengths and weaknesses.

Prentice Hall, 2004Chapter 1 Wheelen/Hunger 21 Strategy Formulation Mission Statement –Purpose or reason for the organization’s existence –Promotes shared expectations among employees –Communicates public image important to stakeholders –Who we are, what we do, what we’d like to become

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

Prentice Hall, 2004Chapter 1 Wheelen/Hunger 23 Strategy Formulation Objectives –The end results of planned activity What is to be accomplished Time in which to accomplish it Quantified when possible

Prentice Hall, 2004Chapter 1 Wheelen/Hunger 24 Strategy Formulation Goals 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.

Prentice Hall, 2004Chapter 1 Wheelen/Hunger 25 Goals & Objectives Corporate goals and objectives include: –Profitability (net profits) –Growth (increase in total assets, etc.) –Utilization of resources (ROE or ROI) –Market leadership (market share)

Prentice Hall, 2004Chapter 1 Wheelen/Hunger 26 Strategies Defined: 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.

Prentice Hall, 2004Chapter 1 Wheelen/Hunger 27 Strategies 3 Types of Strategy –Corporate strategy –Business strategy –Functional strategy

Prentice Hall, 2004Chapter 1 Wheelen/Hunger 28 Strategies Corporate Strategy –Stability –Growth –Retrenchment

Prentice Hall, 2004Chapter 1 Wheelen/Hunger 29 Strategies Business Strategy –Competitive strategies –Cooperative strategies

Prentice Hall, 2004Chapter 1 Wheelen/Hunger 30 Strategies Functional Strategy –Technological leadership –Technological followership

Prentice Hall, 2004Chapter 1 Wheelen/Hunger 31 Hierarchy of Strategy Corporate Strategy Business (Division Level) Strategy Functional Strategy

Prentice Hall, 2004Chapter 1 Wheelen/Hunger 32 Policies Defined: Broad guidelines for decision making that link the formulation of strategy with its implementation.

Prentice Hall, 2004Chapter 1 Wheelen/Hunger 33 Strategy Implementation Strategy Implementation Programs Budgets Procedures

Prentice Hall, 2004Chapter 1 Wheelen/Hunger 34 Initiation of Strategy Triggering event New CEO External intervention Threat of change in ownership Performance gap Strategic inflection point Stimulus for change in strategy

Prentice Hall, 2004Chapter 1 Wheelen/Hunger 35 Strategic Decision Making Strategic Decisions –Rare –Consequential –Directive

Prentice Hall, 2004Chapter 1 Wheelen/Hunger 36 Strategic Decision Making Mintzberg’s Modes –Entrepreneurial mode –Adaptive mode –Planning mode –Logical incrementalism

Prentice Hall, 2004Chapter 1 Wheelen/Hunger 37 Strategic Decision Making

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