Strategic Management and Business Policy PDF

01-Sep-21 Strategic Management and Business Policy 15e, Global Edition Chapter 1 Basic Conce...

01-Sep-21 Strategic Management and Business Policy 15e, Global Edition Chapter 1 Basic Concepts of Strategic Management Associate Professor Dr. Asif Salam Department of Business Administration Faculty of Economics and Administration King Abdulaziz University Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. Why we need to learn about Strategic Management to think strategically? Strategic thinking is the ability to think on a big and small scale, long and short term, and into the past and the present. While strategic thinking is a valuable skill for everyone in an organization, it becomes increasingly essential as you ascend the ladder. In fact, you may have a difficult time being promoted or succeeding as a leader without it. Yet, no one formally teaches strategic thinking—so it's critical to take the initiative and learn how to do it yourself. This course teaches managers and leaders how to use strategic thinking to guide the direction of their teams and come up with solutions to key business problems. This course is going to show you how to carve out time to think about strategy, gather data, learn from the past, create a vision for the future, and implement strategic thinking within your team. It’s all about embracing a strategic minddset! Strategic thinking mindset Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1- 1  01-Sep-21 The Study of Strategic Management (1 of 2) Strategic Management – a set of managerial decisions and actions that determines the long-run performance of an organization. Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1-3 The Study of Strategic Management (2 of 2) Strategic management includes: Internal and external environmental scanning Strategy formulation (strategic or long-range planning) Strategy implementation Evaluation and control Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1-4 2  01-Sep-21 Phases of Strategic Management As managers attempt to better deal with their changing world, a firm generally evolves through the following four phases of strategic management: Phase 1: Basic financial planning Phase 2: Forecast-based planning Phase 3: Externally oriented strategic planning Phase 4: Strategic management Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1-5 Benefits of Strategic Management (1 of 2) The attainment of an appropriate match, or “fit,” between an organization’s environment and its strategy, structure, and processes has positive effects on the organization’s performance. Strategic planning becomes increasingly important as the environment becomes more unstable or uncertain. Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1-6 3  01-Sep-21 Benefits of Strategic Management (2 of 2) A survey of nearly 50 large corporations in a variety of countries and industries found the three most highly rated benefits of strategic management to be: 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 Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1-7 Impact of Globalization Globalization – the integrated internationalization of markets and corporations – has changed the way modern corporations do business Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1-8 4  01-Sep-21 Impact of Innovation Innovation – as the term is used in business, is meant to describe new products, services, methods, and organizational approaches that allow the business to achieve extraordinary returns. – Innovation is the machine that generates business opportunities in the market. – However, it is the implementation of potential innovations that truly drives businesses to be remarkable. Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1-9 Impact of Sustainability (1 of 2) Sustainability – refers to the use of business practices to manage the triple bottom line Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1-10 5  01-Sep-21 Impact of Sustainability (2 of 2) The triple bottom line involves: 1. the management of traditional profit/loss 2. the management of the company’s social responsibility 3. the management of its environmental responsibility Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1-11 Theories of Organizational Adaptation (1 of 3) The theory of population ecology suggests that once an organization is successfully established in a particular environmental niche, it is unable to adapt to changing conditions. Inertia prevents the organization from changing in any significant manner. Institution theory, in contrast, proposes that organizations can and do adapt to changing conditions by imitating other successful organizations. Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1-12 6  01-Sep-21 Theories of Organizational Adaptation (2 of 3) Strategic choice perspective – The strategic choice perspective goes one step further by proposing that not only do organizations adapt to a changing environment, but they also have the opportunity and power to reshape their environment. Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1-13 Theories of Organizational Adaptation (3 of 3) Organizational learning theory – Because of its emphasis on managers making rational strategic decisions, the strategic choice perspective is the dominant one taken in strategic management. – Its argument that adaptation is a dynamic process fits with the view of organizational learning theory, which says that an organization adjusts defensively to a changing environment and uses knowledge offensively to improve the fit between itself and its environment. Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1-14 7  01-Sep-21 Creating a Learning Organization (1 of 3) Strategic flexibility – Corporations must develop strategic flexibility—the ability to shift from one dominant strategy to another. – Strategic flexibility demands a long-term commitment to the development and nurturing of critical resources. – It also demands that the company become a learning organization. Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1-15 Creating a Learning Organization (2 of 3) Learning organization – A learning organization is an organization skilled at creating, acquiring, and transferring knowledge and at modifying its behavior to reflect new knowledge and insights. – Organizational learning is a critical component of competitiveness in a dynamic environment. Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1-16 8  01-Sep-21 Creating a Learning Organization (3 of 3) Learning organizations are skilled at four main activities: 1. Solving problems systematically 2. Experimenting with new approaches 3. Learning from the organization’s own experiences and past history as well as from the experiences of others 4. Transferring knowledge quickly and efficiently throughout the organization Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1-17 Basic Model of Strategic Management (1 of 9) Strategic management consists of four basic elements: 1. Environmental scanning 2. Strategy formulation 3. Strategy implementation 4. Evaluation and control Basic Elements of the Strategic Management Process Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1-18 9  01-Sep-21 Strategic Management Model Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1-19 Basic Model of Strategic Management (2 of 9) Environmental Scanning – Environmental scanning is the monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the corporation. – Its purpose is to identify strategic factors—those external and internal elements that will assist in the analysis in deciding the strategic decisions of the corporation. – The simplest way to conduct environmental scanning is through SWOT analysis. Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1-20 10  01-Sep-21 Environmental Variables It depicts key environmental variables. The environmental variables may be general forces and trends within the natural or societal environments or specific factors that operate within an organization’s specific task environment—often called its industry. Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1-21 Basic Model of Strategic Management Strategy formulation – It is the process of investigation, analysis, and decision-making that provides the company with the criteria for attaining a competitive advantage – It includes defining the competitive advantages of the business, crafting the corporate mission, specifying achievable objectives, and setting policy guidelines Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1-22 11  01-Sep-21 Basic Model of Strategic Management Mission – An organization’s mission is the purpose or reason for the organization’s existence. Some people like to consider vision and mission as two different concepts: Mission describes what the organization is now. Vision – Describes what the organization would like to become. Objectives – … are the end result of planned activity. They should be stated as action verbs and tell what is to be accomplished by when and quantified if possible. Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1-23 Basic Model of Strategic Management Strategy – A strategy of a corporation forms a comprehensive master approach that states how the corporation will achieve its mission and objectives. – Strategy maximizes competitive advantage and minimizes competitive disadvantage. – Corporate strategy describes a company’s overall direction regarding its general attitude toward growth and the management of its various businesses and product lines. – Business strategy usually occurs at the business unit or product level, and it emphasizes improvement of the competitive position of a corporation’s products 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. Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1-24 12  01-Sep-21 Hierarchy of Strategy A hierarchy of strategy is a grouping of strategy types by level in the organization. Hierarchy of strategy is a nesting of one strategy within another so that they complement and support one another. Functional strategies support business strategies, which, in turn, support the corporate strategy(ies). Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1-25 Basic Model of Strategic Management Policy – a broad guideline for decision-making that links formulation of a strategy with its implementation Strategy implementation – … is a process by which strategies and policies are put into action through the development of programs, budgets, and procedures Evaluation and control – … is a process in which corporate activities and performance results are monitored so that actual performance can be compared with desired performance Performance – is the result of activities – It includes 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 earlier in the process Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1-26 13  01-Sep-21 Initiation of Strategy: Triggering Events Triggering event – It is something that acts as a stimulus for a change in strategy. – Some possible triggering events may include a:  new CEO  external intervention  threat of change of ownership  performance gap  strategic inflection point Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1-27 Strategic Decision-making Strategic decisions – Unlike many other decisions, strategic decisions deal with the long-term future of an entire organization and have three characteristics: rare, consequential, and directive. 1. Rare: Strategic decisions are unusual and typically have no precedent to follow. 2. Consequential: Strategic decisions commit substantial resources and demand a great deal of commitment from people at all levels. 3. Directive: Strategic decisions set precedents for lesser decisions and future actions throughout an organization. Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1-28 14  01-Sep-21 Mintzberg’s Modes of Strategic Decision-making (1 of 2) 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. Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1-29 Strategic Decision-making Process Research indicates that the planning mode is not only more analytical and less political than are the other modes, but also more appropriate for dealing with complex, changing environments. The following make up the eight-step strategic decision-making process to improve the making of strategic decisions: 1. Evaluate current performance results. 2. Review corporate governance. 3. Scan and assess the external environment. 4. Scan and assess the internal corporate environment. 5. Analyze strategic factors. 6. Generate, evaluate, and select the best alternative strategies. 7. Implement selected strategies. 8. Evaluate implemented strategies. Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1-30 15  01-Sep-21 Strategic Decision-Making Process (1 of 2) Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1-31 Strategic Decision-making Process (2 of 2) Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1-32 16  01-Sep-21 The Strategic Audit: Aid to Strategic Decision-making Strategic audit – provides a checklist of questions, by area or issue, that enables a systematic analysis to be made of various corporate functions and activities Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1-33 1. Does strategic CSR initiatives drive Firm Performance? 2. Does strategic CSR leads to sustainable competitive advantage? Customer Satisfaction Loyalty CSR Reputation/I Orientation mage Firm Performance Competitive Advantage Trust Term Project Discussion Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1- 17