CHAPTER 1

STRATEGIC MANAGEMENT
BASEC CONCEPT

The Study of Strategic Management

Strategic Management:
a set of managerial decisions and actions that
determines the long-run performance of a
corporation.
Includes:
Internal and external environment scanning
Strategy formulation
Strategy implementation
Evaluation and control
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The Study of Strategic Management

Phases of Strategic Management:

Phase 1: Basic financial planning
It consists of formulating a budget for the following year. The time horizon for financial
planning is usually one year.
Phase 2: Forecast-based planning
It is used for projects that will take longer than one year. Financial planning is less
useful for forecasting these projects. Time horizon for forecast-based planning is 3 to 5
years.
Phase 3: Externally oriented strategic planning
It is conducted by top management in order to formulate long term plans. Consultants
are brought in to provide sophisticated and innovative techniques to help forecast future
trends.
Phase 4: Strategic management
Top management brings in planning groups of managers and key employees at many
levels to develop and integrate a series of strategic plains aimed at achieving the
company's primary objectives. Instead of forecasting the future, these plans emphasize
probable scenarios and contingency strategies. Strategic information is communicated
throughout the organization and all levels of the organization are involved.
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The Study of Strategic Management

Benefits of Strategic Management:
Clearer sense of strategic vision for the firm
Sharper focus on what is strategically important
Improved understanding of a rapidly changing
environment

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The Study of Strategic Management

Additional Benefits of Strategic Management:
Improved organizational performance
Achieves a match between the organizations
environment and its strategy, structure and
processes
Important in unstable environments
Strategic thinking
Organizational learning
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Globalization and Environmental Sustainability:

Challenges to Strategic Management
Impact of Globalization:
Globalization:
the integration and internationalization of markets and
corporations

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Globalization and Environmental Sustainability:

Challenges to Strategic Management
Impact of Environmental Sustainability:
Environmental Sustainability:
the use of business practices to reduce a companys
impact on the natural, physical environment

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Globalization and Environmental Sustainability:

Challenges to Strategic Management
Impact of Environmental Sustainability
Risks of Climate Change include:
Regulatory risk
Supply chain risk
Product and technology risk
Litigation (suing) risk
Reputational risk
Physical risk
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Theories of Organizational Adaptation

Population ecology:
established organizations are unable to adapt to
change
Institution theory:
organizations adapt by imitating successful
organizations

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Theories of Organizational Adaptation

Strategic choice perspective:
organizations adapt to change and have the
ability to reshape their environment
Organizational learning theory:
organizations adapt defensively and use
knowledge to improve their relationship with
the environment

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Creating a Learning Organization

Strategic flexibility:
the ability to shift from one dominant strategy to
another and requires:
Long-term commitment to the development
and nurturing of critical resources
Learning organization

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Creating a Learning Organization

Learning organization:
an organization skilled at creating, acquiring,
and transferring knowledge and at modifying
its behavior to reflect new knowledge and
insights

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Creating a Learning Organization

Main activities of a learning organization
include:
Solving problems systematically
Experimenting with new approaches
Learning from past experience, history and
experiences of others
Transferring knowledge quickly and easily
throughout the organization

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Basic Model of Strategic Management

Basic Elements of Strategic Management
1.
2.
3.
4.

Environmental scanning
Strategy formulation
Strategy implementation
Evaluation and control

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Basic Model of Strategic Management

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Basic Model of Strategic Management

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Basic Model of Strategic Management

Basic Elements of Strategic Management

Environmental Scanning is the monitoring,
evaluating and disseminating of information
from the external and internal environments to
key people within the organization

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Basic Model of Strategic Management

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Basic Elements of Strategic Management

Strategy Formulation: the development of long-range plans for

the effective management of environmental opportunities and
threats in light of organizational strengths and weaknesses
(SWOT)
it includes developing a vision and mission, identifying an
organizations external opportunities and threats, determining
internal strengths and weaknesses, establishing long-term
objectives, generating alternative strategies, and choosing
particular strategies to pursue

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Strategy Formulation
1.
2.
3.
4.
5.
6.
7.

Deciding what new businesses to enter

What businesses to abandon
How to allocate resources
Whether to expand operations or diversify
Whether to enter international markets
Whether to merge or form a joint venture
How to avoid a hostile takeover

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Basic Elements of Strategic Management

Mission- the purpose or reason for the organizations
existence
Vision- describes what the organization would like to become
Objectives- the end results of planned activity
specific results that an organization seeks to achieve in
pursuing its basic mission
long-term means more than one year
should be challenging, measurable, consistent,
reasonable, and clear
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Basic Elements of Strategic

Management

Strategies- form a comprehensive master plan that states how

the corporation will achieve its mission and objectives
Corporate
Business
Functional
Strategies also,
the means by which long-term objectives will be achieved
may include geographic expansion, diversification,
acquisition, product development, market penetration ,
retranchement, dvestiture, liquidation, and joint venture

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Cont
Policies- the broad guidelines for decision making
that links the formulation of a strategy with its
implementation
Policies also,
the means by which annual objectives will be
achieved
include guidelines, rules, and procedures
established to support efforts to achieve stated
objectives
guides to decision making and address repetitive
or recurring situations
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Basic Model of Strategic Management

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Basic Elements of Strategic Management

Strategy implementation:
the process by which strategies and policies are put into action
through the development of:
Programs
Budgets
Procedures
Strategy implementation also:
requires a firm to establish annual objectives, devise policies,
motivate employees, and allocate resources so that formulated
strategies can be executed
often called the action stage
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Some Opportunities and Threats

Computer hacker problems are increasing.
Intense price competition is plaguing most firms.
Unemployment and underemployment rates
remain high.
Interest rates are rising.
Product life cycles are becoming shorter.
State and local governments are financially weak.

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Basic Elements of Strategic Management

Evaluation and control:

the process in which corporate activities and
performance results are monitored so that
actual performance can be compared to
desired performance

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Basic Elements of Strategic Management

Performance:
the end result of organizational activities
Feedback/Learning Process:
revise or correct decisions based on
performance

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Initiation of strategy : triggering events

Triggering(trace) event: something that acts as a

stimulus for a change in strategy and can
include:

New CEO
External intervention (interfere from outside)
Threat of change of ownership
Performance gap
Strategic inflection point

Strategic inflection point is a time in the life of business when its

fundamentals are about to change. That change can mean an opportunity
to rise to new heights. But it may just as likely signal the beginning of the
end
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What Makes a Strategic Decision?

Strategic decision making
focuses on the long-run future of the organization
Characteristics of strategic decision making include:

1. Rare
( few, important, long term )

Top.
M

2. Consequential
( effects all management)

3. Directive
(not influenced by higher Management and
give clear instruction to The flowers.)

. Business M

Functional . M

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Mintzbergs Modes of Strategic Decision Making

1. Entrepreneurial mode Strategy made by one individual,
proactive and focus in the opportunities, the problems is
secondary and the dominant goal is growth. Example
amazon.com

2. Adaptive mode the decision is reactive to solve problem not

as pre active to search for opportunities, example universities,
government agencies, encyclopedia Britannica Inc book shop.

3. Planning mode involve the systematic gathering the

appropriate information for situation analysis to generate
alternative strategies includes both proactive to get opportunities
and reactive to solve problems example IBM.

4. Logical instrumentalism this mode included all the previous

modes they use interactive process which is the organization has
clear objectives in the future, experiments and learns from series o
partial
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Strategic Decision Making Process:

1.
2.
3.
4.

Evaluate current performance results

Review corporate governance
Scan and assess the external environment
Scan and assess the internal corporate environment

5. Analyze strategic (SWOT) factors

6. Generate, evaluate and select the best
alternative strategy
7. Implement selected strategies
8. Evaluate implemented strategies

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Strategic Decision Making

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Strategic Audit : Aid to Strategic Decision Making

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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.
Strategy audit can help determine why a certain
area is creating problems for a corporation and
help generate solutions to the problems

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Discussion Questions
1. Why has strategic management become so important
to todays corporations?
2. How does strategic management typically evolve
in a corporation?
3. What is a learning organization? Is this approach to
strategic management better than the more traditional
top-down approach in which strategic planning is
primarily
done by top management?
4. Why are strategic decisions different from other kinds
of decisions?
5. When is the planning mode of strategic decision
making
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