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STRATEGIC MANAGEMENT & BUSINESS POLICY11TH EDITION

THOMAS L. WHEELEN J. DAVID HUNGER

CHAPTER 1 Basic Concepts of Strategic Management

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Basic Concepts of Strategic Management

GlobalizationInternationalization of markets and corporations

Global (worldwide) markets rather than national marketswww.iugaza.edu.ps\emp\melfarra

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

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Basic Concepts of Strategic Management

Electronic Commerce -- Trends

• Forcing company transformation• Market access & branding changing –

disintermediation of traditional distribution channels

• Balance of power shift to consumer• Competition changing

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Basic Concepts of Strategic Management

Electronic Commerce -- Trends

• Pace\speed of business increasing • Internet purchasing beyond traditional

boundaries• Knowledge key asset – source of

competitive advantage

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Strategic Management Defined

Set of managerial decisions and actions that determines the long-run performance of a firm.It includes environmental scanning, strategy formulation, strategy implementation, and evaluation and control.

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Strategy formulation

• Strategy formulation is typically not a regular, continuous process but is often initiated by generating events, such as a new CEO or a performance gap.

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Basic Concepts of Strategic Management

4 Phases of Strategic Management• Firms evolve through the following

faces of strategic management. 1. Basic financial planning2. Forecast-based planning3. Externally-oriented planning4. Strategic management

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Basic Concepts of Strategic Management

1. Basic financial planning: initiate some planning when they requested to set up their budgets; considers activities for one year.

2. Forecast-based planning: consider projects for more than a year. The time horizon is usually 3-5 years.

3. Externally-oriented planning: conduct strategic planning by top management and they leave implementation to low level.

4. Strategic management: planning by forming a team from all levels in the company.

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Basic Concepts of Strategic Management

Highly Rated Benefits

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

environment

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Basic Concepts of 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 1,2,5 or 10 years?

• What specific actions should management undertake?

• What are the risks and payoffs?

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Basic Concepts of Strategic Management

Basic Elements of the Strategic Management Process

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Environmental Scanning Defined

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

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Basic Concepts of Strategic Management

Environmental Variables

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Environmental Scanning

SWOT Analysis

• Strengths – Weaknesses

• Opportunities - Threats

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Strategy Formulation

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

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Strategy Formulation

Mission Statement

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

aspire to

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Organizational Adaptation

Organization “fit” with environment

• Theory of population ecology\biology: org. unable to adapt to changing conditions.

• Institution theory: org. can adapt to changes.

• Strategic choice perspective: not only adapt to changes but also it can reshape its environment.

• Organizational learning theory:

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Organizational Adaptation

Strategic flexibility

• Demands long-term commitment to development of critical resources

• Demands firm become a learning organization

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Learning Organizations

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

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Learning Organizations

4 Chief Activities

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

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Basic Concepts of Strategic Management

Hierarchy of Strategy

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levels of strategy\hierarchy

• A large corporation tends to have three levels of strategy (corporate, business, and functional) which form a hierarchy of strategy.

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Goals & Objectives

Corporate Goals/Objectives

–Profitability (net profit)–Growth–Resource utilization (ROE, ROI)–Market leadership

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Basic Concepts of Strategic Management

3 Types of Strategy

–Corporate strategy

–Business strategy

–Functional strategy

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Basic Concepts of Strategic Management

Corporate Strategy

–Stability–Growth–Retrenchment

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Basic Concepts of Strategic Management

Business Strategy

–Competitive strategies

–Cooperative strategies

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Basic Concepts of Strategic Management

Functional Strategy

–Technological leadership

–Technological followership

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Basic Concepts of Strategic Management

Strategic Decision-Making

Process

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Strategic Decision Making

Strategic Decisions

–Rare

–Consequential

–Directive

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Strategic Decision Making

Top managers tend to use one of four modes of strategy formulation: Mintzberg’s Modes

–Entrepreneurial mode–Adaptive mode–Planning mode–Logical incrementalism

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Hambrick and Fredrickson – Good Strategy

5 Elements of Good Strategy

1. Arenas2. Vehicles3. Differentiators4. Staging5. Economic logic