Prentice Hall, Inc. © 20061-1 STRATEGIC MANAGEMENT & BUSINESS POLICY 10 TH EDITION THOMAS L. WHEELEN J. DAVID HUNGER CHAPTER 1 Basic Concepts of Strategic

Prentice Hall, Inc. © 2006 1-1

STRATEGIC MANAGEMENT & BUSINESS POLICY10TH EDITION

THOMAS L. WHEELEN J. DAVID HUNGER

CHAPTER 1 Basic Concepts of Strategic Management


What is Strategy ? …

The concept of strategy is ancient and originated in the study of success in war.

The word strategy comes from the Greek ‘stratos’ (army) and ‘agein’ (to lead).

The “strategos” in Athens was an elected general.


What is Strategy ? …

“Strategy is knowing the business you propose to carry out”.

Xenophon (ancient Greece)

This definition stresses that strategy requires; A knowledge of the business, An intention of the future, An orientation towards action.

This definition also emphasizes the link between leadership and strategy formulation. Xenophon saw strategy as a direct responsibility of those in charge, not as a spectator sport.


MINTZBERG’S TEN SCHOOLS (Strategy Safari)

1. THE DESIGN SCHOOL

“Strategy Formation as a Process of Conception”

2. THE PLANNING SCHOOL

“Strategy Formation as a Formal Process”

3. THE POSITIONING SCHOOL

“Strategy Formation as an Analytical Process”

4. THE ENTREPRENEURIAL SCHOOL

“Strategy Formation as a Visionary Process”

5. THE COGNITIVE SCHOOL

“Strategy Formation as a Mental Process”

6. THE LEARNING SCHOOL

“Strategy Formation as an Emergent Process”

7. THE POWER SCHOOL

“Strategy Formation as a Process of Negotiation”

8. THE CULTURAL SCHOOL

“Strategy Formation as a Collective Process”

9. THE ENVIRONMENTAL SCHOOL

“Strategy Formation as a Reactive Process”

10. THE CONFIGURATION SCHOOL

“Strategy Formation as a Process of Transformation”


Strategic Management Defined

Mintzberg's 5 Ps for Strategy

1. Plan

2. Pattern

3. Position

4. Perspective.

5. Ploy



Set of managerial decisions and actions that determines the long-run performance of a firm.

It includes :–Environmental scanning

(both external and internal : SWOT)

–Strategy formulation –Strategy implementation–Evaluation and control


Hambrick and Fredrickson – Good Strategy

5 Elements of Good Strategy

1. Arenas ( Where will we be active ?)2. Vehicles (How we will get there ?)3. Differentiators (How will we win in the

marketplace ?)4. Staging (What will be our speed and sequence

of moves ?)5. Economic logic (How will we make money ?)

(How will we obtain our resources ?)


Basic Concepts of Strategic Management

Highly Rated Benefits

• Clearer sense of strategic vision• Sharper focus on strategic importance• Improved understanding of changing

environment



Highly Rated Benefits (Mintzberg)

• Strategy sets direction • Strategy focuses effort • Strategy defines the organization • Strategy provides consistency



Strategy includes :

–Environmental scanning (both external and internal : SWOT)

–Strategy formulation –Strategy implementation–Evaluation and control



Basic Elements of the Strategic Management Process


Environmental Scanning

SWOT Analysis

• Strengths – Weaknesses

• Opportunities - Threats

Monitoring, evaluation, and disseminating information from external and internal environments –to key people in the firm



GlobalizationInternationalization of markets and corporations

Global (worldwide) markets rather than national markets

Electronic CommerceUse of the Internet to conduct business transactions

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



Electronic Commerce -- Trends

• Forcing company transformation• Market access & branding changing –

disintermediation of traditional distribution channels

• Balance of power shift to consumer• Competition changing



Environmental Variables


Organizational Adaptation

Organization “fit” with environment

• Theory of population ecology(Inertia prevents from changing)

• Institution theory(Change by imitating)

• Strategic choice perspective(They have the power to reshape)

• Organizational learning theory(Organization adjust defensively)


Strategy Formulation

Environment is not static, it is dynamic.

If you do not fail to adjust, no strategic plan will save you from failure.

HERE COMES THE LEARNING ORGANIZATION


Learning Organizations

An organization skilled at creating, acquiring, and transferring knowledge and at modifying its behavior to reflect new knowledge and insights

Learning Organization


Learning Organizations

4 Chief Activities

• Systematic problem solving• New approach experimentation• Learning from experiences• Intra-organization knowledge transfer


Organizational Adaptation

Strategic flexibility

• Demands long-term commitment to development of critical resources

• Demands firm become a learning organization

IT IS NOT THE PLANIT IS THE PLANNING (that counts)



Development of long-range plans for effective management of opportunities and threats in light of corporate strengths and weaknesses



Mission Statement

• Purpose/reason for organization• Promotes shared expectations• Communicates public image• Who we are; what we do; what we

aspire to



Mission Statement

“ We shall build good ships here – at a profit if we can – at a loss if we must but always good ships …”

Newport Ships Building

1886



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 1,2,5 or 10 years?

• What specific actions should management undertake?

• What are the risks and payoffs?


Strategic Decision MakingHow can we differentiate Strategic Decisions :

–Rare(Typically new and unusual)

–Consequential(Commit substantial

resources and demand commitment)

–Directive(Direct lesser decisions and future actions)


Strategic Decision Making

Mintzberg’s Modes

–Entrepreneurial mode(Focus is on opportunities, problems are secondary. Typically large, bold decisions. Dominant goal is growth)

–Adaptive mode(“muddling through” Reactive solutions to existing problems rather than proactive search for new opportunities)

–Planning mode(Systematic gathering of information, situation analysis, generation of feasible alternatives, rational selection)

–Logical incrementalism(An interactive process, synthesis of the other three)



3 Types of Strategy

–Corporate strategy

–Business strategy

–Functional strategy



Hierarchy of Strategy



Corporate Strategy–Stability–Growth–Retrenchment

Business Strategy–Competitive strategies–Cooperative strategies

Functional Strategy–Technological leadership–Technological followership



STRATEGY IMPLEMENTATION

–STRATEGY

–PROGRAMS–BUDGETS–PROCEDURES



Strategic Decision-Making

Process



4 Phases of Strategic Management

1. Basic financial planning(Time horizon: 1 year)

2. Forecast-based planning(Time horizon: 3 – 5 years)

3. Externally-oriented planning (by expert planners)

4. Strategic management(constructed with the inputs and

commitments of lover lever managers too)



Reading assignment;

“Strategies for better and worse”• Strategy sets direction • Strategy focuses effort • Strategy defines the organization • Strategy provides consistency

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Prentice Hall, Inc. © 20061-1 STRATEGIC MANAGEMENT & BUSINESS POLICY 10 TH EDITION THOMAS L. WHEELEN J. DAVID HUNGER CHAPTER 1 Basic Concepts of Strategic