Basic Concepts of Strategic Management

Strategic Management – A set of managerial decisions and actions that determines the long run performance of a
corporation; Includes environmental scanning (both internal and external), strategy formulation (strategic or long-range
planning), strategy implementation, and evaluation and control.

Phases of Strategic Management

1. Phase 1 – Basic financial planning (usually 1 year)

2. Phase 2 – Forecast-based planning (usually 3-5 years)
3. Phase 3 – Externally oriented (strategic) planning (usually a 5-year plan by the top management and consultants)
4. Phase 4 – Strategic management (5 year interactive on all levels)

Benefits of Strategic Management

1. Clearer sense of strategic vision for the firm.

2. Sharper focus on what is strategically important.
3. Improved understanding of a rapidly changing environment.

Simple Questions

Simple Questions – baseline in understanding the importance of Strategic Management

1. Where is the organization now?

2. If no changes are made where will the organization be in one year? Two years? Five years? 10 years? Are the answers
acceptable?
3. If the answers are not acceptable, what specific actions should management undertake? What are the risks and
payoffs involved?

Strategic Management Tools

1. Strategic Planning
2. Mission and Vision Statements
3. Core Competencies
4. Scenario and Contingency Planning
5. Knowledge Management
6. Strategic Alliances
7. Growth Strategy Tools

Challenges to Strategic Management

1. Impact of Globalization
2. Impact of Environmental Sustainability

Globalization – the process by which businesses or other organizations develop international influence or start operating on
an international scale. Globalization can be viewed as a both beneficial and destructive process.

Effects of Climate Change on Industries and Companies:

Six Categories of Risks

1. Regulatory Risk – Kyoto Protocol – cap carbon emissions

2. Supply Chain Risk
3. Product and Technology Risk
4. Litigation Risk
5. Reputational Risk
6. Physical Risk

Pascal’s Wager and Climate Change – Given all the possible outcomes, the upside of being ready and prepared for a
“fearsome event" surely beats the alternative.

Theories of Organizational Adaptation

1. The Theory of Population Ecology

2. Institution Theory
3. Strategic Choice Perspective
 4. Organizational Learning Theory

The Theory of Population Ecology – an established organization is unable to adapt to changing conditions

Institution Theory – organizations can and do adapt to changing conditions by imitating other successful organizations

Strategic Choice Perspective – organizations believe that not only they can adapt, but have the opportunity and power to
change the environment

Organizational Learning Theory – an organization adjusts defensively to a changing environment and uses knowledge
offensively to improve

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.

Organizational learning – is a critical component of competitiveness in a dynamic environment.

Four main activities of learning organizations:

1. Solving problems systematically

2. Experimenting with new approaches
3. Learning from their own experiences and past history as well as from the experiences of others
4. Transferring knowledge quickly and efficiently throughout the organization

Four Basic Elements of Strategic Management

1. Environmental Scanning
2. Strategy Formulation
3. Strategy Implementation
4. Evaluation and Control

Environmental Scanning

Environmental scanning – is the monitoring, evaluating, and disseminating of information from the external and internal
environments to key people within the corporation; Purpose: identify strategic factors

SWOT analysis – simplest way to conduct environmental scanning

Strategy Formulation

1. Objectives
2. Strategies
3. Policies

Strategy formulation – is the development of long-range plans for the effective management of SWOT; This includes defining
the corporate mission, specifying achievable objectives, developing strategies, and setting policy guidelines.

Strategy Formulation Mission

Organization’s mission – is the purpose or reason or the organization’s existence.

Mission – describes what the organization is now

Vision – describes what the organization would like to become

Objectives – end results of an activity; These should be stated as action verbs and tell what is to be accomplished by when
and quantified if possible.

 Goals ≠ Objectives

Some areas in which a corporation might establish its goals and objectives are:

1. Profitability (net profits)

2. Efficiency (low costs, etc.)
3. Growth (increase in total assets, sales, etc.)
4. Shareholder wealth (dividends plus stock price appreciation)
 5. Utilization of resources (ROE or ROI)
6. Reputation (top firm)
7. Contributions to employees (employment security, wages, diversity)
8. Contributions to society (taxes paid, participation in charities, providing a needed product or service)
9. Market Leadership (market share)
10. Technological leadership (innovations, creativity)
11. Survival (avoiding bankruptcy)

Strategies – forms a comprehensive master plan that states how the corporation will achieve its mission and objectives; This
maximizes competitive advantage and minimizes competitive disadvantage.

Three Types of Strategy

1. Corporate Strategy
2. Business Strategy
3. Functional Strategy

Corporate Strategy – Describes a company’s overall direction in terms of its general attitude toward growth and the
management of its various business and product lines; typically fit within the three main categories of stability, growth, and
retrenchment.

Business Strategy – Usually occurs at the business unit or product level, and it emphasizes improvement of the competitive
position of a corporation’s product and services in the specific industry or market segment served by a business unit.

Two overall categories

1. Competitive Strategies
2. Cooperative Strategies

Functional Strategy – Is the approach taken by a functional area to achieve corporate and business unit objectives and
strategies by maximizing resource productivity.

Hierarchy of Strategy

Policies – is a broad guideline for decision making that links the formulation of a strategy with its implementation; Companies
use this to make sure that employees throughout the firm make decisions and take actions that support the corporation’s
mission, objectives, and strategies.

Strategy Implementation – This is a process by which strategies and policies are put into action through the development of
programs, budgets, and procedures.

Strategy Implementation

1. Programs
2. Budget
3. Procedure
4. Evaluation and Control
5. Feedback and Learning Process
6. Strategic Decision Making
Program – is a statement of the activities or steps needed to accomplish a single use plan; It makes the strategy action
oriented.

Budget – Used in planning and control, a budget lists the detailed cost of each program.

Procedure or Standard Operating Procedure – are a system of sequential steps or techniques that describe in detail how a
particular task or job is to be done.

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

 Performance = Actual Results

Feedback and Learning Process – What and How to improve

Strategic Decision Making – Deal with the long-run future of an entire organization.

3 Characteristics of Strategic Decision Making:

1. Rare
2. Consequential
3. Directive

Rare – unusual and typically have no precedent to follow

Consequential – commit substantial resources and demand a great deal of commitment from people at all levels

Directive – set precedents for lesser decisions and future actions through organization

Strategic Decision-Making Process

1. Evaluate current performance results in terms of (a) return on investment, profitability, … (b) the current mission,
objectives, strategies, and policies.
2. Review corporate governance – the performance of the firm’s board of directors and top management
3. Scan and assess the external environment to determine the strategic factors that pose opportunities and threats.
4. Scan and asses the internal corporate environment to determine the strategic factors that are strength and
weaknesses
5. Analyze strategic (SWOT) factors to (a) pinpoint problem areas and (b) review and revise the corporate mission and
objectives as necessary.
6. Generate, evaluate, and select the best alternative strategy in light of the analysis conducted in step 5.
7. Implement selected strategies via programs, budgets, and procedures.
8. Evaluate implemented strategies via feedback systems, and the control of activities to ensure their minimum
deviation from plans.

Strategic Audit – A 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