mba5101 chapter 1d1

8/8/2019 MBA5101 Chapter 1D1

1/33

Prentice Hall, Inc. 2008 1-1

STRATEGIC MANAGEMENT & BUSINESS

POLICY

11TH EDITIONTHOMAS L. WHEELEN J. DAVID HUNGER

CHAPTER 1

Basic Concepts

of StrategicManagement

8/8/2019 MBA5101 Chapter 1D1

2/33


1.1 THE STUDY OF STRATEGIC MANAGEMENT

Set of managerial decisions and actionsthat determines the long-run performanceof a firm.

8/8/2019 MBA5101 Chapter 1D1

3/33


Phases of strategic management

4 Phases of Strategic Management

Basic financial planning: little analysis w/ internalinfo. Time horizon: 1 year (typical)

Forecast-based planning: consider longer than 1yr projects. More external data used. Politics

involved for larger share among managers. Externally-oriented (strategic) planning: seeks to

increase responsiveness to changing marketsand competition. Involve Sr. level w/consultant.

Strategic management: use levels w/in firm tosolicit inputs to achieve firms primary objectives.Details the implementation, evaluation, & controlissues instead of forecasting for 5 yrs.

8/8/2019 MBA5101 Chapter 1D1

4/33


Benefits of strategic management

Highly rated benefits of strategicmanagement survey of nearly 50corps. worldwide:

Clearer sense of strategic vision

Sharper focus on strategic importance

Improved understanding of changing

environment

8/8/2019 MBA5101 Chapter 1D1

5/33


Benefits of Strategic Management

Need Not Always be a Formal Process

Where is the organization now? (notwhere do we hope it is)

If no changes are made, where will theorganization be in 1,2,5 or 10 years?

What specific actions should

management undertake? What are the risks and payoffs?

8/8/2019 MBA5101 Chapter 1D1

6/33


1.2 Globalization and E-Commerce: challenges to strategic management

Impact of GlobalizationInternationalization of markets and corporations

Global (worldwide) markets rather than national markets.NAFTA, EU, Mercosur, CAFTA, ASEAN, ....

Electronic CommerceUse of the Internet to conduct business transactions

Basis for competition on a more strategic level rather thantraditional focus on product features and costs

8/8/2019 MBA5101 Chapter 1D1

7/33

8/8/2019 MBA5101 Chapter 1D1

8/33


Electronic Commerce -- Trends

Pace of business increasing: info needed,expectation increased feeling of dog year.

Internet purchasing beyond traditionalboundaries: use of extranet to link suppliers,manufacturers, and customers.

Knowledge key asset source of competitive

advantage: traditional accounting assets reduced& replaced by intangible assets such as powerfulbrands, intellectual capital (key relationships,proprietary processes, & skilled employees).

1.2 Globalization and E-Commerce: challenges to strategic management

8/8/2019 MBA5101 Chapter 1D1

9/33


1.3 THEORIES OF ORGANIZATIONAL ADAPTATION

Organization fit with environment

Theory of population ecology: successful nicheprevents changes of a firm.

Institution theory: reversed of population

ecology by imitating successful firms. Strategic choice perspective: firms can change

and reshape their environment.

Organizational learning theory: firm adjusts

defensively to its environment & usesknowledge offensively to improve the fit betweenitself and its environment.

8/8/2019 MBA5101 Chapter 1D1

10/33


1.4 CREATING A LEARNING ORGANIZATION

A learning organization is a company that

has evolved to the point that its primaryvalue is in helping itself to operatesuccessfully in a dynamic, complexenvironment.

Demand a long term commitment to thedevelopment and nurturing of criticalresources.

Demand an organization skilled at

creating, acquiring, and transferringknowledge and at modifying its behaviorto reflect new knowledge and insights.

8/8/2019 MBA5101 Chapter 1D1

11/33


1.4 Learning Organizations

4 Chief Activities

Systematic problems solving New approach experimentation

Learning from experiences

Intra-organization knowledge transfer

8/8/2019 MBA5101 Chapter 1D1

12/33


1.5 BASIC MODEL OF STRATEGIC MANAGEMENT

Four Basic Elements of the StrategicManagement Process

8/8/2019 MBA5101 Chapter 1D1

13/33


1.5 a. Environmental Scanning

is defined as the monitoring, evaluation, and

disseminating information to key people inthe firm. Its purpose is to identify strategicfactors (from external and internal elements)that will determine the future of the corporation.

8/8/2019 MBA5101 Chapter 1D1

14/33


1.5 a. Environmental Scanning

Environmental Variables

8/8/2019 MBA5101 Chapter 1D1

15/33


1.5 a. Environmental Scanning Defined

SWOT Analysis

External environment: consists of variables(opportunities & threats) that are outside of anorganization & not w/in the short-run control oftop management (they may be general forcesand trends w/in the overall societal environmentor specific factors operated w/in an orgs specifictask environment namely its industry.

Internal environment: includes the corpsstructure, culture, and resources; corecompetencies used by a firm to gain competitiveadvantage.

8/8/2019 MBA5101 Chapter 1D1

16/33


1.5 b. Strategy Formulation

Development of long-range plans for effectivemanagement of opportunities and threats,in light of corporate strengths andweaknesses (SWOT). It includes defining

the corporate mission, specifyingachievable objectives, developingstrategies, and setting policy guidelines.

1 5 b St t F l ti

8/8/2019 MBA5101 Chapter 1D1

17/33


1.5 b Strategy Formulation

1. Mission (statement of a corporation)

An organizations mission is the Purpose orreason for the organizations existence:tell what the firm provides to society.

The mission statement:

promotes a sense of shared expectations inemployees and

communicates public image to importantstakeholder groups in the companys taskenvironment

1 5 b 1 St t F l ti

8/8/2019 MBA5101 Chapter 1D1

18/33


1.5 b.1 Strategy Formulation

A mission statementdescribes what the organizationis now.

A vision statementdelineates what the organizationwould like to become.

A value statementlists the companys value and

philosophy of doing business.Ex. To improve the quality of home life by designing,

building, marketing, and servicing the bestappliances in the world Maytag Corp.

Ex. We shall build good ships here at a profit if wecan at a loss if we must but always good ships

Newport News Shipbuilding (since 1886)

1 5 b St t F l ti

8/8/2019 MBA5101 Chapter 1D1

19/33



2. Objectives:

a.are the end results of planned activities. S/Bstated as action verbs (tell whats accomplished by

when & quantifiable if possible)

b. Goal is defined as open ended statement of what

one wants to accomplish, w/no quantification ofwhat is to be achieved and no time criteria forcompletion.

They goals and objectives are sometimes usedinterchangeably.

1 5 G l & Obj ti

8/8/2019 MBA5101 Chapter 1D1

20/33


1.5 Goals & Objectives

CorporateGoals/Objectives

- Profitability (net profits)

- Efficiency (low costs,...)

- Growth (total assets,

sales, ...)- Shareholder wealth(dividends + stock priceappreciation)

- Utilization of resources(ROE or ROI)

- Reputation

- Contributions toemployees (security,wages, diversity)

- Contributions to society(taxes paid, charity, ...)

- Market leadership(share)

- Technologicalleadership (innovations)

- Survival (avoidbankruptcy)

- Personal needs of topmanagement (job for

relatives)

1 5 b Strategy Formulation

8/8/2019 MBA5101 Chapter 1D1

21/33



3. Strategies:

A strategy of a corp. forms a comprehensive master

plan that states how the corporation will achieve itsmission and objectives. It maximizes competitiveadvantage and minimizes competitive disadvantage.

St t F l ti

8/8/2019 MBA5101 Chapter 1D1

22/33


Strategy Formulation

Three types of strategy

Corporate strategy: overall direction stability, growth,

and retrenchment (reduce expenses, economize).

Business strategy: occurs at the business unit orproduct level. Grouped into 2 categories:

Competitive: to differentiate by adding extra activities. Staples as

a retail store and add services such as copying, UPS shipping, ... Cooperative: is used to support competitive. Intel in alliance withMicrosoft to differentiate itself from AMD.

Functional strategy: concern w/developing & nurturinga distinctive competence to maintain a competitiveadvantage.

Technological follower-ship: imitation of products of othercompanies.

Technological leadership: pioneering of an innovation.

Basic Concepts of Strategic Management

8/8/2019 MBA5101 Chapter 1D1

23/33


BasicConcepts of Strategic Management

Hierarchy of

Strategy:

Nesting within one

another to

complement and

support one another.

Functional supports

Business, andBusiness supports

Corporate.

1 5 b Strategy Formulation

8/8/2019 MBA5101 Chapter 1D1

24/33



4. Policies:

is a broad guideline for decision making that links theformulation of a strategy with its implementation.Companies use policies to make sure thatemployees throughout the firm make decisions and

take actions that support the corporations mission,objectives, and strategies.

Ex. When Cisco decided on a strategy of growth throughacquisitions, it established a policy to consider only

companies with no more than 75 employees, 75% ofwhom were engineers.

1 5 c Strategy Implementation

8/8/2019 MBA5101 Chapter 1D1

25/33


1.5 c Strategy Implementation

Strategy implementation is a process by whichstrategies and policies are put into action

through the development of programs,budgets, and procedures.

1. Program: Boeing implemented a series of

programs to regain its industry leadership onBoeing 787.

2. Budgets: used in planning and control, serves asa detailed plan of new strategy and/or pro forma.

3. Procedures (SOP): a system of sequential stepsor techniques that describe in detail how aparticular task or job is to be done.

1 5 d Evaluation and Control

8/8/2019 MBA5101 Chapter 1D1

26/33


1.5 d Evaluation and Control

Evaluation and Control is a process in whichcorporate activities and performance results

are monitored so that actual performance canbe compared with the desired performance.

Managers at all levels use the resulting information to

take corrective action and resolve problems.

Performance includes the actual outcomes of thestrategic management process. The practice ofstrategic management is justified in terms of itsability to improve an orgs performance (in terms ofprofits and ROI).

1 6 INITIATION OF STRATEGY: TRIGGERING EVENTS

8/8/2019 MBA5101 Chapter 1D1

27/33


1.6 INITIATION OF STRATEGY: TRIGGERING EVENTS

Henry Mintzberg discovered that strategy formulationis typically not a regular, continuous process: It ismost often an irregular, discontinuous process,

proceeding in fits and starts. There are periods ofstability in strategy development, but also there are

periods of flux, of groping, of piecemeal change,and of global change.

Human tendency is to continue on a particular courseof action until something goes wrong or a person isforced to question his or her actions.

Most large corporations tend to follow a particularstrategic orientation for about 15 to 20 yearsbefore making a significant change in direction(known aspunctuated equilibrium).

1 7 STRATEGIC DECISION MAKING

8/8/2019 MBA5101 Chapter 1D1

28/33


1.7 STRATEGIC DECISION MAKING

What makes a decision strategic?

Strategic decisions deal with the long-run future of anentire organization and have 3 characteristics:

Rare: strategic decision are unusual and typically

have no precedent to follow. Consequential: strategic decisions commitsubstantial resources and demand a great deal ofcommitment from people at all levels.

Directive: strategic decisions set precedents forlesser decisions and future actions through out anorganization.

1 7 Strategic Decision Making

8/8/2019 MBA5101 Chapter 1D1

29/33


1.7 Strategic Decision Making

Mintzbergs modes of strategic decision making(1st three, 4th was added by Quinn):

Entrepreneurial mode: made by one powerful individualmainly for the growth of a firm.

Adaptive mode: by reactive solutions to existing problemsrather than a proactive search for new opportunities.

Planning mode: involves systematic gathering ofappropriate info for situation analysis, the generation offeasible alternative strategies, & the rational selection ofthe most appropriate strategy. It includes both reactive and

proactive solutions. Logical incrementalism: corporate headquarters

established the mission and objectives but allowedbusiness units to propose strategies to achieve them.

1 7 Strategic Decision Making

8/8/2019 MBA5101 Chapter 1D1

30/33


1.7 Strategic Decision Making

Strategic decision making process: aids tobetter decisions.

Depending on unique situations, different modes can be used.However, in general, research has foundedplanningmode is a more rationale in most situations which includesmore analytical and less political than other modes.

See page 22 for more details.

8/8/2019 MBA5101 Chapter 1D1

31/33


Strat e

gic

Decision- M

a

ki n

g

Proc

ess

1.8 THE STRATEGIC AUDIT: AID TO STRATEGIC DECISION MAKING

8/8/2019 MBA5101 Chapter 1D1

32/33


1.8 THE STRATEGIC AUDIT: AID TO STRATEGIC DECISION MAKING

A strategic audit provides a checklist ofquestions, by area or issue, that enables a

systematic analysis to be made of variouscorporate functions and activities (seeAppendix 1.A on pages 26 through 33).

1.9 CONCLUSION

8/8/2019 MBA5101 Chapter 1D1

33/33

Prentice Hall Inc 2008 1-33

1.9 CONCLUSION

Strategy Scholars Donald Hambrick and JamesFredrickson propose that a good strategy

has five elements, providing answers to fivequestions:

Arenas: where will we be active?

Vehicles: How will we get there? Differentiators: How will we win in the market

places?

Staging: What will be our speed and sequence of

moves? Economic logic: How will we obtain our returns?

mba5101 chapter 1d1

Documents