Strategic Management and

Business Policy 15e, Global Edition

Chapter 1
Basic Concepts of
Strategic
Management

15

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Strategy is Important

“Without a strategy the organization is like a ship without a rudder,

going around in circles.”
Joel Ross and Michael Kami

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The Study of Strategic Management
(1 of 2)
• Set of managerial decisions and actions that
determines the long-run performance of a
firm.
• Business policy
– General Management orientation and tends to
look inwards – concerns for proper integration of
functional activities
– Strategic management incorporates the
integrative concerns of business policy with a
heavier environmental and strategic emphasis
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The Study of Strategic Management
(2 of 2)

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Levels of Strategy-Making in a
Company

Corporate- Corporate
Company A
Level Strategy
Managers
Business- Business Strategies SBU1 SBU2
Level
Managers

Functional Finance & Acctg.

Functional Strategies Marketing
Managers
Human Resource

Operational Strategies

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The Study of Strategic Management
(2 of 2)
Strategic management includes:
• Internal and external environmental scanning
• Strategy formulation
• Strategy implementation
• Evaluation and control

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1-6
Phases of Strategic Management
As managers attempt to better deal with their changing
world, a firm generally evolves through the following four
phases of strategic management:
• Basic financial planning
– Initiates serious planning for next year’s budget
• Forecast-based planning
– Attempts to propose five-year plans
• Externally-oriented planning (strategic planning)
– In addition to 5-yr plans, company seeks to increase
responsiveness to market & competition
• Strategic management
– Develops and integrates series of strategic plans
– Tries to incorporate input & commitment of lower level managers
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1-7
Benefits of Strategic Management
(1 of 2)
• The attainment of an appropriate match, or “fit,”
between an organization’s environment and its
strategy, structure, and processes has positive
effects on the organization’s performance.
• Strategic planning becomes increasingly
important as the environment becomes more
unstable.

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1-8
Benefits of Strategic Management
(2 of 2)
• 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
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• Additional Benefits
– Improved organizational
performance
– Achieves a match between
the organization’s
environment and its
strategy, structure and
processes
– Important in unstable
environments
– Strategic thinking
– Organizational learning
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Impact of Globalization
• Globalization • Impact of
– the integration and Environmental
internationalization of Sustainability
markets and – Risks of Climate
corporations Change include:
• Environmental ▪ Regulatory risk
Sustainability ▪ Supply chain risk
– the use of business ▪ Product and
practices to reduce a technology risk
company’s impact on ▪ Litigation risk
the natural, physical ▪ Reputational risk
environment ▪ Physical risk

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Impact of Innovation

• Innovation
– describes new products, services, methods,
and organizational approaches that allow the
business to achieve extraordinary returns

• It is the implementation of potential innovations

that truly drives businesses to be remarkable.

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Impact of Sustainability

• Sustainability
– refers to the use of business practices to
manage the triple bottom line
The triple bottom line involves:
1. the management of traditional profit/loss
2. the management of the company’s social
responsibility
3. the management of its environmental
responsibility
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Theories of Organizational
Adaptation
• Population ecology • Strategic choice
– established perspective
organizations are – organizations adapt to change
unable to adapt to and have the ability to reshape
their environment
change
• Organizational learning
• Strategic flexibility theory
– the ability to shift from one – organizations adapt
dominant strategy to another defensively and use
with the commitment to knowledge to improve
development of critical their relationship with the
resources and meet the environment
demand of making a learning
organization

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Creating a Learning Organization

Learning organizations are skilled at four main

activities:
1. Solving problems systematically
2. Experimenting with new approaches
3. Learning from the organization’s own
experiences and past history as well as from the
experiences of others
4. Transferring knowledge quickly and efficiently
throughout the organization
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Basic Model of Strategic Management

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1-15
Figure 1-2: Strategic Management Model

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1-16
Basic Model of Strategic Management

• Environmental
Scanning
– the monitoring,
evaluating and
disseminating of
information from the
external and internal
environments to key
people within the
organization
– SWOT analysis:
simple way to conduct
environmental
scanning

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Basic Model of Strategic Management

• Identify strategic • External Environment

factors – Opportunities & Threats
• SWOT Analysis ▪ External to the organization
but not subject to short-run
– Strengths,
control of management
Weaknesses
– Opportunities,
Threats

• Internal Environment
– Strengths &
Weaknesses
▪ Within the
organization but
not subject to
short-run control
of management
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Basic Model of Strategic Management

• Defined:
– Development of long-range plans for the
effective management of environmental
opportunities and threats in light of corporate
strengths and weaknesses.
– Includes formulation of:
▪ Mission & Vision
▪ Objectives & Goals
▪ Strategies
▪ Policies

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Basic Model of Strategic Management

• Mission
– purpose or reason for the organization’s
existence
• 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

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Strategic Mission/Vision
▪ Vision
describes what the organization would like to
become

 Develop a vision and mission

▪ Begins with thinking strategically about
✓ the firm’s future business map
✓ where to take the firm
▪ The task is to
✓ create a roadmap of a company’s future
✓ decide what future business position to stake out
✓ provide long-term direction

✓ give the firm a strong identity

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Strategic Mission/Vision
 IBM CEO
▪ July, 1993
▪ “the last thing IBM needs right now is a vision”
▪ March, 1996
▪ “what IBM needs most right now is a vision”

 George Newman, The Conference Board

▪ “How can you lead if you don’t know where you are
going”

 Greyhound Corporation CEO

▪ “Management’s job is not to see the company as it is …
but as it can become”

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Mission vs. Vision

 A mission statement:  A strategic vision:

▪Focuses on current ▪Concerns a firm’s
business activities future business path
➢ business(es) company is in ➢ the kind of company it is
now trying to become
➢ customer needs currently ➢ customer needs to be

being served satisfied in the future

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Why Have a Vision Statement

 Power of a well-conceived strategic vision

❖ Guides managerial decision-making
❖ Arouses employee buy-in and commitment
❖ Prepares a company for the future

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Defining a Strategic Vision

 3 factors for a good definition:

✓ Customer needs
▪ WHAT is being satisfied
✓ Customer groups
▪ WHO is being satisfied
✓ Technologies used functions performed
▪ HOW customer needs are satisfied

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Broad vs. Narrow Mission Statements

 Narrow Definition  Broad Definition

❑ Soft drinks ❑ Beverages
❑ Toys ❑ Children’s products
❑ Overnight package delivery ❑ Global mail delivery
❑ Ship cruises in the ❑ Travel & tourism
Caribbean

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Example
 Vision
▪ “We believe that we are on the face of the earth to
make great products and that’s not changing.”
 Mission
▪ “ to bringing the best user experience to its
customers through its innovative hardware, software,
and services.”
 Values
▪ “inclusion and diversity, education, accessibility,
environment, supplier responsibility and privacy.”

Link - https://mission-statement.com/apple/
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Objectives & Goals
• Objectives • Goals
– The end results of – A goal is an open-
planned activity ended statement
▪ What is to be of what one wants
accomplished
to accomplish with
▪ Time in which to
accomplish it no quantification of
▪ Quantified when possible what is to be
achieved and no
time criteria for
completion.

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SMART Objectives

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29
Examples: Financial Objectives

✓ Grew earnings/share 15% annually for the next 5

years
✓ Boost annual return on investment from 15% to
20% by 2025
✓ Increase annual dividends/share by 5% each year
✓ Strive for stock price appreciation equal to or
above S&P 500 average by 2023
✓ Maintain a positive cash flow
✓ Maintain an AA bond rating

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Examples: Strategic Objectives

➢ Increase firm’s market share to 35% by 2025

➢ Overtake key rivals on quality or customer service or
product performance in 2 years
➢ Attain lower overall costs than rivals
➢ Boost firm’s reputation with customers
➢ Attain stronger foothold in international markets
➢ Achieve technological superiority
➢ Become leader in new product introductions
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Examples: Strategic & Financial
Objectives
❖ Domino’s Pizza
–To safely deliver a hot, quality pizza in 30 minutes or
less at a fair price and a reasonable profit

❖ 3M
–To … have at least 30% of sales come from products
introduced in the past four years

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Examples: Strategic & Financial
Objectives
❖ General Electric
–To become the most competitive enterprise in the
world by being #1 or #2 in market share in every
business the company is in.

❖ McDonald’s
–To achieve 100% total customer satisfaction …
everyday … in every restaurant … for every
customer

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Basic Model of Strategic Management
- 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.

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Basic Model of Strategic Management
- Policies
• Policy
– a broad guideline for decision-making that links
formulation of a strategy with its
implementation

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Basic Model of Strategic Management

• Strategy implementation
– process by which strategies and policies are
put into action through the development of
programs, budgets, and procedures

Programs
Strategy
Implementation Budgets

Procedures

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Basic Model of Strategic Management

• Evaluation and control

– a process in which corporate activities and
performance results are monitored so that
actual performance can be compared with
desired performance

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Strategic Decision Making
• Strategic Decisions
– Rare – unusual and may
not have precedent to follow
– Consequential –
requires substantial
resources and demands great
deal of commitment
– Directive – sets
precedents for lesser
decisions and future actions
• Mintzberg’s Modes
– Entrepreneurial mode
▪ Made by powerful
individuals
• Adaptive mode
▪ Reactive solutions to
existing problems
• Planning mode
▪ Systematic approach: includes
both proactive & reactive steps

– Logical
incrementalism
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Strategic Management: Triggering
Events
• Triggering event
– something that acts as a stimulus for a change
in strategy and can include:
▪ new CEO
▪ external intervention
▪ threat of change of ownership
▪ performance gap
▪ strategic inflection point

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The Strategic Decision Making Process

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