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Basic Concepts of Strategic Management

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Basic Concepts of

Strategic Management
The Study of Strategic
Management
 Strategic Management
- a set of managerial decisions and actions that
determines the long run performance of a corporation.
- it emphasizes the monitoring and evaluating of
external opportunities and threats in light of a
corporation’s strengths and weaknesses.
- originally called business policy, strategic
management incorporates such topics as strategic
planning, environmental scanning, and industry
analysis.
Phases of Strategic
Management
 Phase 1 − Basic Financial Planning
 Phase 2 – Forecast-Based Planning
 Phase 3 – Externally Oriented (Strategic)
Planning
 Phase 4 – Strategic Management
Benefits of Strategic
Management
• A clearer sense of strategic vision for the
firm
• A sharper focus on what is strategically
important
• An improved understanding of a rapidly
changing environment.
A survey by McKinsey & Company of 800 executives
found that formal strategic planning process improved
overall satisfaction with strategy development. To be
effective, however, strategic management need not always
be a formal process. It can begin with a few simple
questions:
- Where is the organization now? (Not where do we
hope it is)
- If no significant changes are made, where will the
organization be in one year? Two years? Five years? Ten
years? Are the answers acceptable?
- If the answers are not acceptable, what specific
actions should management undertake? What are the risks
and payoffs involved?
Globalization, Innovation, and
Sustainability: Challenges to
Strategic Management
Today, the term used to describe a business’s
sustainability is the triple bottom line. This phrase was
first used by John Elkington in 1994 to suggest that
companies prepare three different bottom lines in their
annual report.
- Traditional Profit/Loss
- People Account- The social responsibility of the
organization
- Planet Account- The environmental responsibility of
the organization
• Globalization
- the integrated internationalism of markets and
corporations, has changed the way modern corporations do
business.
• Innovation
- as the term used in business, is meant to describe new
products, services, methods, and organizational approaches
that allow the business to achieve.
- the machine that generates business opportunities in
the market; however, it is the implementation of potential
innovations that truly drives businesses to be remarkable.
• Sustainability
- refers to the use of business practices to
manage the triple bottom line as was discussed
earlier.
- The company has a relatively obvious long-
term responsibility to the shareholders of the
organization. That means that the company has to
be able to thrive despite changes in the
industry,society, and the physical environment.
Theories of Organizational
Adaptation
Globalization, innovation, and sustainability present real
challenges to the strategic management of businesses.
Various theories have been proposed to account for how
organizations obtain fit with their environment and how these
approaches have been used to varying degrees by
researchers trying to understand firm performance.
1. Theory of Population Ecology
- this suggests that once an organization is successfully
established in a particular environmental niche, it is unable to
adapt to changing conditions.
- Although it is a popular theory in sociology, research fails
to support the arguments of population ecology.
2. Institution Theory
- this proposes that organizations cand and do
adapt to changing conditions by imitating other successful
organizations. This theory does not, however, explain how or
by whom successful new strategies are developed in the first
place.
3. Strategic Choice Perspective
- this proposed that not only do organizations adapt to a
changing environment, but they also have the opportunity and
power to reshape their environment.
4. Organizational Learning Theory
- this says that an organization adjusts defensively to a
changing environment and uses knowledge offensively to
improve the fit between itself and its environment.
Creating a Learning
Organization
• Strategic Flexibility
- the ability to shift frim one dominant
strategy to another.
• Learning Organizations
- An organization skilled at creating,
acquiring, and transferring knowledge and at
modifying its behavior to reflect new knowledge
and insights.
Learning Organizations are skilled at four
main activities:
 Solving problems systematically
 Experimenting with new approaches
 Learning from their own experiences and
past history as well as from the experiences
of others.
 Transferring knowledge quickly and
efficiently throughout the organizations.
Basic Model of Strategic
Management
Four Basic Elements
Environmental Scanning
- The monitoring, evaluating, and
disseminating of information from the external
and internal environments to key people within
the firm.
- Its purpose is to identify strategic
factors- those external and internal elements
that will assist in the analysis of the strategic
decisions of the corporation.
SWOT Approach
SWOT is an acronym used to describe the
particular Strengths, Weaknesses, Opportunities, and
Threats that appear to be strategic factors for a specific
company.
External Environment
consists of variables (opportunities and threats)
that are outside the organization and not typically within
the short-run control of top management.
Internal Environment
consists of variables (strengths and weaknesses)
that are within the organization itself and are within the
short-run control of top management.
Strategy Formulation
- the process of investigation, analysis, and decision
making that provides the company with the criteria for
attaining a competitive advantage.
Mission- Stating Purpose
- the purpose or reason for the organization’s existence.
- this describes what the organization is now while vision
describes what the organization would like to become.
Objectives- Listing Expected Results
- the end results of planned activity
- the achievement of corporate objectives should result in
the fulfillment of a corporation’s mission.
Strategy: Defining the Competitive
Advantages
- this states on how the business will achieve its mission
and objectives.
Three types of strategy:
 Corporate Strategy describes a company’s overall
direction in terms of growth and the management of its
various businesses.
 Business Strategy usually occurs at the business unit or
product level, and it emphasizes improvement of the
competitive position of a corporation’s product or services in
the specific industry or market segment served by that
business unit.
 Functional Strategy is the approach taken by a functional
area to achieve corporate and business unit objectives and
strategies by maximizing resource productivity.
Policies: Setting Guidelines
- a broad guideline for decision making
that links the formulation of a strategy with
its implementation.
- Companies use policies to make sure
that employees throughout the firm make
decisions and take actions that support the
corporation’s mission, objectives and
strategies.
Strategy Implementation
- a process by which strategies and policies
are put into action through the development of
programs, budgets, and procedures.
Programs and Tactics: Defining Actions
a statement of the activities or steps needed to
support a strategy. The terms are
interchangeable.
Budgets: Costing Programs
a statement of a corporation’s programs in
terms of dollars.
Procedures: Detailing Activities
sometimes termed Standard Operating
Procedures (SOP), a system of sequential
steps or techniques that describe in detail
how a particular task or job is to be done.
Evaluation and Control
a process in which corporate activities
and performance results are monitored so
that actual performance can be compared
with desired performance.
Performance
- the end results of activities.
- it includes the actual outcomes of the
strategic management process.
Feedback/ Learning
Process
as a firm or business unit develops
strategies, programs, and the like, it often
must go back to revise or correct decisions
made in the process.
Initiation of Strategy

Stimulus
for change
in
strategy
Strategic Decision Making
Strategic Decisions deal with a long-term
future of an entire organization and have three
chracteristics:
 Rare: Strategic decisions are unusual and
typically have no precedent to follow.
 Consequential: Strategic decisions commit
substantial resources and demand a great deal
of commitiment from people at all levels.
 Directive: Strategic decisions set precedents
for lesser decisions and future actions
throughout an organization.
Mintzberg’s Modes of
Strategic Decision Making
Four most typical approaches, or modes of
strategic decision making according to Henry
Mintzberg:
 Entrepreneurial Mode: strategy is made by
one powerful individual.
 Adaptive Mode: sometimes referred to as
“muddling through”, this decision making mode
is characterized by reactive solutions to existing
problems, rather than a proactive search for new
opportunities.
 Planning Mode: this decision making mode
involves the systematic gathering of
appropriate information for situation analysis,
the generation of feasible alternative
strategies, and the rational selection of the
most appropriate strategy.
 Logical Incrementalism: a fourth decision-
making mode can be viewed as a synthesis of
the planning, adaptive, and, to a lesser extent,
the entrepreneurial modes.
Strategic Decision Making
Process- Aid to Better Decisions