PRINCIPLES OF STRATEGIC MANAGEMENT Environmental Scanning and Strategy Formulation

Overview Business management levels What is strategic management? Strategic management process Environmental scanning Strategy formulation Corporate strategy alternatives Selection, implementation, and evaluation

Questions What are the three levels of management and decision making in a business organization? What is the relationship between decisions made at the three levels?

What is Strategic Management? The goal of strategic management is to select overall organizational strategies to achieve competitive advantage The overall corporate strategy is then implemented at the tactical (functional) and operational levels The strategic management process is described in the next slide

Strategic Management Process Environmental Scanning Strategy Formulation Strategy Implementation Evaluation and Control

Environmental Scanning In undertaking environmental scanning, strategic managers must first be aware of the many variables within a corporation’s societal and task environments The three environments that are analyzed during the strategic management process include: Societal environment Task (industry) environment Internal environment

Societal Environment The societal environment includes the more general forces that do not directly touch on the short-run activities of the organization but than can, and often do, influence its long-run decisions The societal environment can be broken into four categories: Economic forces Technological forces Political-legal forces Sociocultural forces

Economic Forces Regulate the exchange of materials, money, energy, and information Examples include: GNP trends Interest rates Unemployment rates Wage/price controls Energy availability and cost Disposable and discretionary income

Technological Forces Generate problem-solving inventions and communications infrastructure Examples include: Total federal spending on R&D Total industry spending on R&D Patent protection Productivity improvements Internet and Web infrastructure and characteristics Internet access and online consumer behavior New digital technologies

Political-Legal Forces Allocate power and provide constraining and protecting laws and regulations Examples include: Antitrust regulations Environmental protection laws Tax laws Foreign trade regulations Laws on hiring and promotion Stability of government Intellectual property laws

Sociocultural Forces Regulate the values, mores, and customs of society Examples include: Life-style changes Career expectations Consumer activism Growth rate of population Age distribution of population Life expectancies Birth rates

Task (Industry) Environment The task environment includes issues that directly affect the industry/industries in which we currently operate or may join in the future What is the expected growth rate in the industry? Who are the competitors and how do they compare to us? Forces impacting industry competition include: Threat of new entrants Rivalry among existing firms Threat of substitute products or services Bargaining power of buyers Bargaining power of suppliers Relative power of other stakeholders

Other Stakeholders Other stakeholders may or may not be relevant to strategy selection for an organization Other stakeholders may include: Stockholders Unions Governments Suppliers Creditors Customers/Distributors Trade associations Communities Special-interest groups

Internal Environment Corporate structure Corporate culture Resources marketing finance research and development operations human resources information systems other functional area resources

Strategy Formulation (SWOT Analysis) Take findings from environmental analysis and make judgments about whether the issues are expected to be positive or negative for our firm External issues are classified as either opportunities (O) or threats (T) Internal issues are classified as either strengths (S) or weaknesses (W) Match external and internal analysis findings when generating strategic alternatives Strategic alternatives Match one internal issue (S or W) with one external issue (O or T) Each alternative is an SO, WO, ST, or WT strategy the strategy chosen incorporates one of the following corporate strategies

Corporate Strategy Alternatives Growth vertical integration horizontal integration expand into new geographic markets expand into related (complementary) products or services diversification Stability maintain current products and market while focusing on changing some facet of the firm’s operations such as website enhancements, changes within tactical areas, etc. Retrenchment turnaround (focus on improved efficiency) captive company or divestment (search for a partner to take over some part of our business) bankruptcy or liquidation

Strategy Selection, Implementation, and Evaluation and Control What are the expected benefits associated with each strategy alternative? What are the expected costs and risks associated with each strategy alternative? Is the strategy sustainable for the long-term? Choose the alternative that has the greatest benefits when compared with the costs/risks Implementation issues should also be considered when choosing an appropriate strategy (functional/tactical level changes, programs, budgets, and procedures) Performance is monitored and evaluated which provides input into the next strategic management process