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Chapter 1
Basic Concepts of
Strategic Management

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Strategic Management
Defined:
Set of managerial decisions and
actions that determines the longrun performance of a firm
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The good news
USPS vs
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8 % CGAR

" 

Kodak: 7
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6 billion

CGAR: 6
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1%
61 companies out of business

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Four Phases of

Strategic Management
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Basic financial planning
Forecast-based planning
Externally-oriented planning
(strategic)
Strategic management
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Strategic Management
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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Strategic Management
Not always a formal process:
• Where is the organization now? (Not where do we
hope it is!)
• If no changes are made, where will the
organization be in 1 year, 2 years, 5 years, 10
years?
• What specific actions should management
undertake? What are the risks and payoffs
involved?
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Challenges to 

Strategic Management
Globalization

– Internationalization of markets and
corporations

• Global (worldwide) markets rather than national
markets

Electronic Commerce

– Use of the Internet to conduct business
transactions

• Basis for competition on a more strategic level rather
than traditional focus on product features and costs
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Global Issues
• European Union (EU)
– Economic integration of 15 member countries

• North American Free Trade Agreement (NAFTA)
– Improved trade among 3 member countries

• Mercosur
– Free-trade area among Argentina, Brazil, Uruguay,
and Paraguay

• Association of South East Asian Nations (ASEAN)
– Attempting to link members into a borderless
economic zone
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E-Commerce


7 Trends:

– Internet forcing companies to transform
themselves
– Market access and branding are changing,
causing disintermediation of traditional
distribution channels

– Balance of power shifting to the consumer

– Competition is changing
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7 Trends (continued)
•

Pace of business increasing drastically

•

Internet purchasing corporations out of
their traditional boundaries

•

Knowledge becoming a key asset and
source of competitive advantage
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Organizational Adaptation
How organizations obtain “fit” within their environment:

– Theory of population ecology
– Institution theory
– Strategic choice perspective
– Organizational learning theory
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Adaptation to Changing
Environmental Conditions
Strategic flexibility:
– Demands a long-term commitment to the development
and nurturing of critical resources
– Demands that the firm become a learning organization

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Learning Organizations
Defined:
An organization skilled at creating,
acquiring, and transferring
knowledge and at modifying its
behavior to reflect new knowledge
and insights
...


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Environmental Scanning

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Environmental Scanning
Identify strategic factors
– SWOT Analysis
– Strengths, Weaknesses
– Opportunities, Threats

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

– External Environment
• Opportunities & Threats
– External to the organization but not subject to shortrun control of management

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Strategy Formulation
Defined:
Development of long-range plans for
the effective management of
environmental opportunities and
threats in light of corporate strengths
and weaknesses
...

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Strategy Formulation
Objectives
– The end results of planned activity
• What is to be accomplished
• Time in which to accomplish it
• Quantified when possible

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Strategy Formulation
Goals vs
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Goals & Objectives
Corporate goals and objectives include:
– Profitability (net profits)
– Growth (increase in total assets, etc
...
It maximizes
competitive advantage and minimizes
competitive disadvantage
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Strategy Implementation
Programs
Strategy
Implementation

Budgets
Procedures

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Initiation of Strategy
•New CEO
•External intervention

Triggering
event

•Threat of change in
ownership

Stimulus
for change
in
strategy

•Performance gap
•Strategic inflection point

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Strategic Decision Making
Strategic Decisions
– Rare
– Consequential
– Directive

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Strategic Decision Making
Mintzberg’s Modes
– Entrepreneurial mode
– Adaptive mode
– Planning mode
– Logical incrementalism

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Strategic Decision Making

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Strategic Decision Making

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