mba5101 chapter 1d1
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STRATEGIC MANAGEMENT & BUSINESS
POLICY
11TH EDITIONTHOMAS L. WHEELEN J. DAVID HUNGER
CHAPTER 1
Basic Concepts
of StrategicManagement
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1.1 THE STUDY OF STRATEGIC MANAGEMENT
Set of managerial decisions and actionsthat determines the long-run performanceof a firm.
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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.
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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
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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?
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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
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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
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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.
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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.
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1.4 Learning Organizations
4 Chief Activities
Systematic problems solving New approach experimentation
Learning from experiences
Intra-organization knowledge transfer
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1.5 BASIC MODEL OF STRATEGIC MANAGEMENT
Four Basic Elements of the StrategicManagement Process
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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.
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1.5 a. Environmental Scanning
Environmental Variables
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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.
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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
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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
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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)
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1.5 b Strategy Formulation
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
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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)
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1.5 b Strategy Formulation
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.
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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
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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
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1.5 b Strategy Formulation
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
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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
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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
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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
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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.
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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.
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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.
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Strat e
gic
Decision- M
a
ki n
g
Proc
ess
1.8 THE STRATEGIC AUDIT: AID TO STRATEGIC DECISION MAKING
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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
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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?
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