The Strategic

Management
Process
Module 1

Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education .

JRMC
 Learning Objectives
1-2

After reading this chapter, you should have a

good understanding of:
LO1.1 The elements or stages of the
strategic management process.
LO1.2 The scope of the external and internal
environments of business.
LO1.3 The meaning and importance of strategic
direction, strategy formulation, and strategy
implementation.
 Two Perspectives of
1-3
Leadership
External Control
Romantic View
Perspective
� Leader is the key � External forces
force in the determine the
organization’s organization’s
success success
� i.e. Steve Jobs � i.e. economic
downturns

OR?
 Leaders can make a
1-4
difference
� Must be proactive - anticipate change
� Continually refine strategies
� Be aware of external opportunities and
threats
� Thoroughly understand their firm’s
resources and capabilities
� Make strategic management both a
process and a way of thinking throughout
the organization
 Defining Strategic
1-5
Management
� Strategic Management

Strategic management is the process through

which organizations analyze and learn from their internal
and external environments, establish strategic direction,
create strategies that are intended to help achieve
established goals, and execute those strategies, all in an
effort to satisfy key organizational constituencies, which
are called stakeholders.
 Defining Strategic
1-6
Management
� Strategic Management involves
� Analysis
■ Strategic goals (vision, mission, strategic objectives)
■ Internal and external environment
� Decisions - Formulation
■ What industries should we compete in?
■ How should we compete in those industries?
� Actions - Implementation
■ Allocate necessary resources
■ Design the organization to bring intended strategies
to reality
 Strategic Management
1-7

� Key Attributes of strategic management

� Directs the organization toward overall goals
and objectives.
� Includes multiple stakeholders in decision
making.
� Needs to incorporate short-term and long-
term perspectives.
� Recognizes trade-offs between efficiency
and effectiveness.
 External environmental analysis
1-8

External environmental analysis involves evaluation of the broad and

task environments to determine trends, threats, and opportunities and to provide
a foundation for strategic direction.

1. The broad environment consists of domestic and global

environmental forces such as sociocultural, technological,
political, and economic trends. The broad environment forms
the context within which the firm and its task environment
exist.
2. The task environment consists of external stakeholders—groups
or individuals outside the organization that is significantly
influenced by or have a major impact on the organization.
3. All of the external stakeholders should be analyzed at both the
domestic and international levels.
 Internal Environmental Analysis
1-9

Internal stakeholders include managers, employees, and the

owners and their representatives (e.g., board of directors).

1. A fully developed internal analysis includes an evaluation of

internal stakeholders and the organization’s resources and
capabilities to determine strengths, weaknesses, and
opportunities for competitive advantage and to identify
organizational vulnerabilities that should be corrected.
 A SWOT Analysis
1-10

A SWOT (Strengths, Weaknesses, Opportunities, Threats)

analysis is a useful technique for organizing an assessment
of internal and external environmental sources of influence.

1. Strengths are firm resources and capabilities that can lead to a

competitive advantage.
2. Weaknesses are resources and capabilities that the firm does not
possess but that are necessary, resulting in a competitive disadvantage.
3. Opportunities are conditions in the broad and task environments that
allow a firm to take advantage of organizational strengths, overcome
organizational weaknesses, and/or neutralize environmental threats.
4. Threats are conditions in the broad and task environments that may
stand in the way of organizational competitiveness or the achievement
of stakeholder satisfaction.
 Intended vs Realized
1-11
Strategies
The Business Environment is far from predictable.
Intended Strategy Realized Strategy
� Organizational � Decisions are
decisions are determined by both
determined only by analysis (deliberate) &
analysis unforeseen
versus
environmental
developments,
� Intended strategy
unanticipated resource
rarely survives in its
constraints, and/or
original form
changes in managerial
preferences (emergent)
 Strategic Management
1-12
Process

Exhibit 1.2 Realized Strategy and Intended Strategy: Usually Not the
Same
Source: Mintzberg, H. & Waters, J.A., “Of Strategies: Deliberate and Emergent,” Strategic Management Journal,
Vol. 6, 1985, pp. 257-272. Copyright © John Wiley & Sons Limited. Reproduced with permission.
 Strategy Analysis
1-13

� Starting point in the strategic

management process
� Precedes effective formulation and
implementation of strategies
� Involves careful analysis of the
overarching goals of the organization
� Requires a thorough analysis of the
organization’s external and internal
environment
 Strategy Analysis cont.
1-14

� Analyzing Organizational Goals & Objectives

� Establish a hierarchy of goals
■ Vision
■ Mission
■ Strategic Objectives
� Analyzing the External Environment of the
Firm
� Managers must monitor & scan the
environment as well as analyze competitors
■ The General Environment
■ The Industry Environment
 Strategy Analysis cont.
1-15

� Assessing the Internal Environment of the

Firm
� Analyzing strengths & relationships among
activities that constitute a firm’s value chain
� Can uncover potential sources of competitive
advantage
� Assessing a Firm’s Intellectual Assets
� Knowledge workers & other intellectual assets
drive competitive advantage & wealth creation
� Networks & relationships plus technology
enhances collaboration, accumulates & stores
knowledge
 Strategy Formulation
1-16

� Based on strategy analysis

� Developed at several levels
� Involves decisions that can create and
sustain competitive advantage
� Investment decisions
� Commitment of resources
� Operational synergies
� Recognizing viable opportunities
 Strategy Formulation cont.
1-17

� Formulating Business-Level Strategy

� Successful firms develop bases for sustainable
competitive advantage through
■ Cost leadership and/or
■ Differentiation, as well as
■ Focusing on a narrow or industrywide market segment
� Formulating Corporate-Level Strategy
� Addresses a firm’s portfolio (or group) of
businesses
■ What business(es) should we compete in?
■ How can we manage this portfolio of businesses to
create synergies?
 Strategy Formulation cont.
1-18

� Formulating International Strategy

� What is the appropriate entry strategy?
� How do we go about attaining competitive
advantage in international markets?
� Entrepreneurial Strategy and Competitive
Dynamics
� How do we recognize viable opportunities?
� How do we formulate effective strategies?
 Strategy Implementation
1-19

� Implements the formulated strategy

� Ensures proper strategic control systems
� Establishes an appropriate organizational design -
coordinates & integrates activities within the firm
� Coordinates activities with suppliers, customers,
alliance partners
� Leadership ensures organizational commitment to
excellence & ethical behavior
� Promotes learning & continuous improvement
� Acts entrepreneurially in creating new
opportunities
 Strategy Implementation
1-20
cont.
� Strategic Control & Corporate
Governance
� Informational control
■ Monitor & scan the environment
■ Respond effectively to threats & opportunities
� Behavioral control
■ Proper balance of rewards & incentives
■ Appropriate cultures & boundaries (or constraints)
� Effective corporate governance
 Strategy Implementation
1-21
cont.
� Creating Effective Organizational
Designs
� Organizational structures must be consistent
with strategy
� Organizational boundaries must be flexible &
permeable
� Strategic alliances must capitalize on
capabilities of other organizations
 Strategy Implementation
1-22
cont.
� Creating a Learning Organization & an
Ethical Organization
� Effective leaders
■ Set a direction
■ Design the organization
■ Develop an organization committed to excellence
& ethical behavior
� Create a “learning organization”
■ Benefit from individual & collective talents
 Strategy Implementation
1-23
cont.
� Fostering Corporate Entrepreneurship
� Firms must continually improve & grow
� Firms must find new ways to renew
themselves
� Entrepreneurship & innovation provide for
new opportunities
■ Enhance a firm’s innovative capacity
■ Allow autonomous entrepreneurial behavior
 IV. Strategic Thinking and
Entrepreneurship
1-24

 Entrepreneurship is the process through which individuals,

groups, or firms pursue opportunities to create new value. It
involves recognizing or creating an opportunity, assembling
the resources necessary to pursue it, and then managing
those resources to bring the new venture into being.

 Entrepreneurship can occur both within firms and

independently of them. This type of entrepreneurship is
sometimes called strategic entrepreneurship or
intrapreneurship. It is how innovation is used to create new
business for the firm.
 IV. Strategic Thinking and
Entrepreneurship
1-25

Strategic thinking is the term used to describe the creative

aspects of strategic management. A rigid strategic planning
process can drive out strategic thinking. Strategic thinking has
several characteristics:

1. Focus on strategic intent or the overall vision of the

organization.
2. Long-term orientation.
3. Consideration of past and present.
4. Systems perspective.
5. Ability to seize opportunities.
6. Scientific approach, which involves generating ideas through
a creative process, then testing them (like hypotheses) to see
if they will work.
 Empowered Strategic Management
1-26

� Strategic management requires an

integrative view of the organization
� ALL functional areas & activities must fit
together to achieve goals & objectives
� Leaders are needed throughout:
� Local line leaders – have profit & loss
responsibility
� Executive leaders – champion & guide ideas
� Internal networkers – hold little positional
power, but have conviction & clarity of ideas