1.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
1
Chapter 1
Basic Concepts of
Strategic Management
PowerPoint Slides
Anthony F. Chelte
Western New England College

2.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
2
Strategic Management
Defined:
Set of managerial decisions and
actions that determines the long-
run performance of a firm.

3.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
3
Business Policy
Defined:
General management orientation
that looks inward for properly
integrating the firm’s functional
activities.

4.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
4
Four Phases of
Strategic Management
• Basic financial planning
• Forecast-based planning
• Externally-oriented planning
(strategic)
• Strategic management

5.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
5
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

6.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
6
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?

7.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
7
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

8.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
8
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

9.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
9
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

10.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
10
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

11.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
11
Organizational Adaptation
How organizations obtain “fit” within their environment:
– Theory of population ecology
– Institution theory
– Strategic choice perspective
– Organizational learning theory

12.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
12
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

13.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
13
Learning Organizations
Defined:
An organization skilled at creating,
acquiring, and transferring
knowledge and at modifying its
behavior to reflect new knowledge
and insights.

14.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
14
Learning Organizations
Four Main Activities:
• Solving problems systematically
• Experimenting with new approaches
• Learning from their won experiences and
that of others
• Transferring knowledge quickly and
efficiently throughout the organization

15.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
15
Evaluation
and Control
and Control
Strategic Management Model
Strategy
Formulation
Strategy
Implementation
Mission
Objectives
Strategies
Policies
Feedback/Learning
Environmental
Scanning
Societal
Environment
General Forces
Task
Environment
Industry Analysis
Structure
Chain of Command
Resources
Assets, Skills
Competencies,
Knowledge
Culture
Beliefs, Expectations,
Values
Reason for
existence
What results
to
accomplish
by when Plan to
achieve the
mission &
objectives Broad
guidelines for
decision
making
Programs
Activities
needed to
accomplish
a plan
Budgets
Cost of the
programs
Procedures
Sequence
of steps
needed to
do the job
Process
to monitor
performance
and take
corrective
action
Performance
External
Internal
Evaluation
and Control

16.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
16
Basic Model of
Strategic Management
Four Basic Elements

17.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
17
Environmental Scanning
Defined:
The monitoring, evaluating, and
disseminating of information from
the external and internal
environments to key people within
the firm.

18.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
18
Environmental Scanning

19.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
19
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 short-
run control of management

20.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
20
Strategy Formulation
Defined:
Development of long-range plans for
the effective management of
environmental opportunities and
threats in light of corporate strengths
and weaknesses.

21.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
21
Strategy Formulation
Mission Statement
– Purpose or reason for the
organization’s existence
– Promotes shared expectations among
employees
– Communicates public image important
to stakeholders
– Who we are, what we do, what we’d like
to become

22.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
22
Strategy Formulation
Maytag Corporation
Mission Statement
To improve the quality of home life
by designing, building, marketing,
and servicing the best appliances in
the world.

23.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
23
Strategy Formulation
Objectives
– The end results of planned activity
• What is to be accomplished
• Time in which to accomplish it
• Quantified when possible

24.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
24
Strategy Formulation
Goals vs. Objectives
A goal is an open-ended statement of
what one wants to accomplish with no
quantification of what is to be achieved
and no time criteria for completion.

25.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
25
Goals & Objectives
Corporate goals and objectives include:
– Profitability (net profits)
– Growth (increase in total assets, etc.)
– Utilization of resources (ROE or ROI)
– Market leadership (market share)

26.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
26
Strategies
Defined:
A strategy of a corporation forms a
comprehensive master plan stating
how the corporation will achieve its
mission and objectives. It maximizes
competitive advantage and
minimizes competitive disadvantage.

27.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
27
Strategies
3 Types of Strategy
–Corporate strategy
–Business strategy
–Functional strategy

28.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
28
Strategies
Corporate Strategy
–Stability
–Growth
–Retrenchment

29.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
29
Strategies
Business Strategy
–Competitive strategies
–Cooperative strategies

30.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
30
Strategies
Functional Strategy
–Technological leadership
–Technological followership

31.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
31
Hierarchy of Strategy
Corporate Strategy
Business
(Division Level)
Strategy
Functional
Strategy

32.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
32
Policies
Defined:
Broad guidelines for decision
making that link the formulation of
strategy with its implementation.

33.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
33
Strategy Implementation
Strategy
Implementation
Programs
Budgets
Procedures

34.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
34
Initiation of Strategy
Triggering
event
•New CEO
•External intervention
•Threat of change in
ownership
•Performance gap
•Strategic inflection point
Stimulus
for change
in
strategy

35.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
35
Strategic Decision Making
Strategic Decisions
– Rare
– Consequential
– Directive

36.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
36
Strategic Decision Making
Mintzberg’s Modes
– Entrepreneurial mode
– Adaptive mode
– Planning mode
– Logical incrementalism

37.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
37
Strategic Decision Making

38.
Prentice Hall, 2004 Chapter 1
Wheelen/Hunger
38
Strategic Decision Making