1. The Strategic Management Process
Chapter 1
The Strategic Management Process
Foundations in Strategic Management, 2e

2. Foundations in Strategic Management, 2e
Learning Objectives
To understand:
the elements or stages of the strategic management process
the different perspectives on strategy development
the implications of social responsibility, organizational ethics and the increasingly global business environment
Foundations in Strategic Management, 2e

3. Foundations in Strategic Management, 2e
is the process through which organizations…
analyze and learn from stakeholders inside and outside of the organization,
establish strategic direction,
create strategies that are intended to help achieve established goals, and
execute those strategies….
all in an effort to satisfy key organizational constituencies (stakeholders).
Foundations in Strategic Management, 2e

4. Strategic Management Process
Internal and External Analysis
Strategy Formulation
(corporate and business level)
Strategic
Direction
Strategy Implementation
and Control
Strategic Restructuring
Foundations in Strategic Management, 2e

5. global socio-cultural
THE BROAD ENVIRONMENT
global socio-cultural
forces
global technological
forces
THE TASK ENVIRONMENT
financial
intermediaries
competitors
THE ORGANIZATION
owners/board of directors
managers employees
suppliers
customers
unions
local communities
government
activists
global economic
forces
global political/legal
forces
Foundations in Strategic Management, 2e

6. External Environmental Analysis
The external environment of business may be divided into two sectors:
Broad
Task
All trends and stakeholders in the external environment should be analyzed at both the domestic and international level
External environmental analysis involves evaluation of the broad and task environments to determine trends, threats, and opportunities and to provide a foundation for strategic direction.
Foundations in Strategic Management, 2e

7. Foundations in Strategic Management, 2e
Broad Environment
The broad environment consists of domestic and global forces such as
socio-cultural trends (e.g. demographics)
technological trends (e.g. internet)
political trends (e.g. open markets)
economic trends (e.g. growing economy)
The broad environment forms the context within which the firm and its task environment exist.
The broad environment consists of domestic and global environmental forces such as socio-cultural, technological, political and economic trends. The broad environment forms the context within which the firm and its task environment exist.
Foundations in Strategic Management, 2e

8. Foundations in Strategic Management, 2e
Task Environment
The task environment consists of external stakeholders -- groups or individuals outside the organization that are significantly influenced by or have a major impact on the organization -- such as
Customers
Suppliers
Competitors
The task environment consists of external stakeholders -- groups or individuals outside the organization that are significantly influenced by or have a major impact on the organization
Foundations in Strategic Management, 2e

9. Internal Environmental Analysis
Internal stakeholders include managers, employees and the owners and their representatives (e.g., board of directors).
Internal analysis includes an evaluation of internal stakeholders and the organization’s resources and capabilities
Purpose of internal analysis to determine
strengths and opportunities for competitive advantage, and
weaknesses and organizational vulnerabilities that should be corrected.
Internal stakeholders include managers, employees and the owners and their representatives (e.g., board of directors).
A fully developed internal analysis includes an evaluation of internal stakeholders and the organization’s resources and capabilities to determine strengths, weaknesses, and opportunities for competitive advantage, and to identify organizational vulnerabilities that should be corrected.
Foundations in Strategic Management, 2e

10. Foundations in Strategic Management, 2e
Strategic Direction
Strategic direction involves
setting long-term goals and objectives, such as mission and vision
defines the purposes for which an organization exists and operates
Strategic direction pertains to the longer-term goals and objectives and defines the purposes for which an organization exists and operates.
Unlike shorter-term goals and strategies, the mission is an enduring part of planning processes within the organization.
Foundations in Strategic Management, 2e

11. Foundations in Strategic Management, 2e
Strategy Formulation
Strategy is an organizational plan of action intended to accomplish goals.
Corporate strategy formulation refers to domain definition, or the choice of business areas. Usually decided by the CEO and the board of directors.
Business strategy formulation involves domain direction and navigation, or how to compete in a given area. Usually decided by division heads and business unit managers.
Functional strategy formulation contains the details of how the functional areas such as marketing, operations, finance, and research should work together to achieve the business-level strategy.
Strategy formulation is divided into three types: corporate, business, and functional.
A strategy is an organizational plan of action that is intended to move an organization toward the achievement of its shorter-term goals and, ultimately, toward the achievement of its fundamental purposes.
Business strategy formulation pertains to domain direction and navigation, or how businesses compete in the areas they have selected.
Corporate strategy formulation refers primarily to domain definition, or the selection of business areas in which the organization will compete.
Functional strategy formulation contains the details of how the functional areas such as marketing, operations, finance, and research should work together to achieve the business-level strategy.
Corporate strategy decisions are made by the CEO and/or board of directors. , If an organization is only involved in one area of business, then business strategy decisions tend to be made by the same people.
In diversified organizations, business strategy decisions are made by division heads or business unit managers.
Functional decisions are made by functional managers, who represent organizational areas such as operations, finance, personnel, accounting, research and development, or information systems.
Foundations in Strategic Management, 2e

12. Strategy Implementation and Control
Strategy implementation involves creating the functional strategies, systems, structures, and processes needed by the organization in achieving strategic ends.
Strategic control refers to the processes that lead to adjustments in strategic direction, strategies, or the implementation plan when necessary.
Strategy implementation involves creating a pattern of decisions and actions that are intended to carry out a plan.
Strategy implementation involves creating the functional strategies, systems, structures, and processes needed by the organization in achieving strategic ends. Functional strategies outline the specific actions that each function must undertake to convert business- and corporate-level strategies into actions.
Strategic control refers to the processes that lead to adjustments in strategic direction, strategies, or the implementation plan when necessary.
Foundations in Strategic Management, 2e

13. Alternative Perspectives on Strategy Development
Traditional Strategic Management Process
Situation Analysis--Strengths, Weaknesses, Opportunities and Threats (SWOT)
Strategies should take advantage of strengths and opportunities or neutralize or overcome weaknesses and threats
Environmental Determinism--the best strategy involves adapting to environmental, technical and human forces
Strategy is deliberate (always planned and intended by management)
The traditional process for developing strategy consists of analyzing the internal and external environments of the organization to arrive at organizational strengths, weaknesses, opportunities and threats (SWOT). The results from this "situation analysis", as this process is sometimes called, are the basis for developing missions, goals and strategies.
Environmental determinism argues that good management is associated with determining which strategy will best fit environmental, technical and human forces at a particular point in time, and then working to carry it out. From this perspective, the most successful organization will be the one that best adapts to existing forces.
Foundations in Strategic Management, 2e

14. Alternative Perspectives on Strategy Development
Contemporary Views
Adaptation--strategy involves submitting to existing forces.
Enactment--firms can, in part, create their environments.
Deliberate--intended by management (planned)
Emergent--organizations learn as they go by trial and error. Strategy is the pattern in a stream of decisions.
Stakeholder view
Organizations are at the center of a network of contacts
Increasing use of partnering
The principle of enactment, on the other hand, assumes that organizations do not have to submit to existing forces in the environment—they can, in part, create their environments through strategic alliances with stakeholders, advertising, political lobbying and a variety of other activities
Deliberate strategy implies that managers plan to pursue an intended strategic course.
In some cases, strategy simply emerges from a stream of decisions. An emergent strategy is one that was not planned or intended. According to this perspective, managers learn what will work through a process of trial and error
The stakeholder view of strategic management considers the organization from the perspective of the internal and external constituencies that have a strong interest in the organization.
Foundations in Strategic Management, 2e

15. Alternative Perspectives on Strategy Development
Resource-based View
Organization is made up of resources: financial, physical, human, general organizational (structure, systems, culture, reputation, relationships with stakeholders).
Sustainable competitive advantage--Comes from a resource that is valuable in the market, possessed by only a small number of firms (rare), and costly or difficult to imitate in the short term.
Effective development or acquisition of organizational resources may be the most important reason that some organizations are more successful than others.
The resource-based view of the firm takes the position that an organization is a bundle of resources.
- financial resources, including all of the monetary resources from which a firm can draw,
- physical resources such as plant, equipment, location and access to raw materials,
- human resources, which pertains to the skills, background and training of individuals within the firm and
- general organizational resources, which includes a variety of factors that are peculiar to specific organizations.
In applying the resource-based-view to the strategic management process,
- strengths are firm resources and capabilities that can lead to a competitive advantage.
- weaknesses are resources and capabilities that the firm does not possess but that are necessary, resulting in a competitive disadvantage,
- opportunities are conditions in the broad and task environments that allow a firm to take advantage of organizational strengths, overcome organizational weaknesses and/or neutralize environmental threats,
- threats are conditions in the broad and task environments that may stand in the way of organizational competitiveness or the achievement of stakeholder satisfaction.
Sustainable competitive advantage may be achieved if a resource allows the firm to take advantage of opportunities or neutralize threats, if only a small number of firms possess it, and if it is costly or impossible to imitate.
Many strategy scholars believe that effective development of organizational resources is the most important reason that some organizations are more successful than others.
Foundations in Strategic Management, 2e

16. Foundations in Strategic Management, 2e
The Most Successful Organizations Analyze and Manage Their Stakeholders Well
Stakeholder Analysis
Identifying and Prioritizing Key Stakeholders
Assessing Their Needs
Collecting Ideas From Them
Integrating this Knowledge into the Strategic Management Process
One of the first activities associated with any well-done stakeholder analysis is the establishment of priorities given to each stakeholder.
Stakeholder analysis involves identifying and prioritizing key stakeholders, assessing their needs, collecting ideas from them, and integrating this knowledge into strategic management processes such as the establishment of strategic direction and the formulation and implementation of strategies.
Foundations in Strategic Management, 2e

17. Foundations in Strategic Management, 2e
The Most Successful Organizations Analyze and Manage Their Stakeholders Well
Stakeholder Management
Communicating with Stakeholders
Negotiating and Contracting with Them
Managing Relationships with Them
Motivating Them to Act in Beneficial Ways
Stakeholder management includes communicating, negotiating, contracting, and managing relationships with stakeholders, and motivating them to behave in ways that are beneficial to the organization and its other stakeholders.
Foundations in Strategic Management, 2e

18. Organizational Ethics
Personal Ethics--value system that helps determine what is right. “Ground rules” for behavior.
Organizational Ethics--value system that has been widely adopted by members of an organization.
Worth of customers/employees vs. focus on profit
Value of honesty vs. getting the job done
Work ethic
Ethics represent a personal value system or moral code.
An organization’s ethics are the value system that has been widely adopted by members of an organization.
Sometimes the stated ethics of an organization differ from the actual values that guide organizational decisions.
Foundations in Strategic Management, 2e

19. SOCIAL RESPONSIBILITY
Economic responsibilities
Legal responsibilities
Moral obligations
Discretionary responsibilities
Social responsibility contains four major components:
1. economic responsibilities such as the obligation to be productive and profitable and meet the consumer needs of society,
2. a legal responsibility to achieve economic goals within the confines of written law,
3. moral obligations to abide by unwritten codes, norms, and values implicitly derived from society, and
4. discretionary responsibilities that are volitional or philanthropic in nature.
Research evidence does not unequivocally support the idea that firms that rank high on social responsibility, based on the four components described above, are necessarily any more or less profitable than firms that rank low.
Foundations in Strategic Management, 2e

20. INCREASING NEED FOR ETHICAL BEHAVIOR
Global Competition
Trustworthy
Behavior
Increasing
Organizational
Interdependence
Increasing
Need
for Trust
Behavior
that Violates
Trust and
Fairness
Organizations that exhibit trustworthy behavior enjoy good reputations, a more committed effort by internal and external stakeholders to the organization and an eagerness on the part of stakeholders to conduct business.
Technological
Complexity
Foundations in Strategic Management, 2e

21. INCREASING NEED FOR ETHICAL BEHAVIOR
Trustworthy
Behavior
Good Reputation
Committed Effort
by Stakeholders
Stakeholders Eager
to Conduct Business
Foundations in Strategic Management, 2e

22. INCREASING NEED FOR ETHICAL BEHAVIOR
Poor Reputation
Behavior
that Violates
Trust and
Fairness
Stakeholders Avoid
Transactions When
Possible
Stakeholders Not Committed
to Organization
Legal Suits, Walkouts,
Boycotts, etc.
Foundations in Strategic Management, 2e