Business Policy and Strategy - Chapter 1 - Basic Concepts of Strategic Management

Environmental sustainability

Refers to the use of business practices to reduce a company's impact upon the natural and physical, environment.

The effects of climate change on industries and companies throughout the world can be grouped into six categories of risks:

Regulatory, supply chain, product & technology, litigation, reputational , and physical

Corporate strategy

describes a company's overall direction in terms of its general attitude towards growth and the management of its various businesses and product lines.

Punctuated equilibrium

describes corporations as evolving through relatively long periods of stability (equilibrium periods) punctuated by relatively short bursts of fundamental change (revolutionary periods)

Strategic management consists of four basic elements:

- Environmental scanning - Strategy formulation - Strategy implementation - Evaluation and control

Strategy implementation

- a process by which strategies and policies are put into action through the development of programs, budgets and procedures

Programs

Is a statement of the activities or steps needed to accomplish a single use plan. It makes the strategy action oriented. It may involve restructuring the corporation, changing the company's internal culture, or beginning a new research effort.

Phases of strategic management

Phase 1: Basic Financial Planning Phase 2: Forecast Based Planning Phase 3: Externally Oriented Planning Phase 4: Strategic Management

Regulatory Risk

Risk that regulations will effect how the company operates

Budget

a statement of a corporation's programs in terms of dollars → lists the detailed cost of each program

Organizational learning theory

an organization adjusts defensively to a changing environment and uses knowledge offensively to improve the fit between itself and its environment.

Learning organization

an organization skilled at creating acquiring and transferring knowledge and at modifying its behavior to reflect new knowledge and insights → important for innovation and new product development *) an organization in which managers try to maximize the ability of individuals and groups to think and behave creatively and thus maximize the potential for organizational learning to take place

Business strategy

at the business unit or product level, 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

Hierarchy of strategy

businesses use all 3 types of strategy simultaneously so companies group strategy types by level in organization

Strategic decisions

deal with the long run future of an entire organization

Vision

describes what the organization would like to become

Strategy formulation

development of long-rang plans for the effective management of environmental opportunities and threats, in light of corporate strengths and weaknesses → mission, objectives, developing strategies, policy guidelines

Objective

end result of planned activity → what is to be accomplished by company →fulfillment of a company's mission

Strategic factors

external and internal elements that will determiterm-20ne future of the corporations

Global Issue

feature to learn how regional trade associations are forcing corporations to establish a manufacturing presence wherever they wish to market goods or else face significant tariffs. *) Products can more easily be sold and moved across national boundaries.

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

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.

Reputational Risk

is a hidden danger that can pose a threat to the survival of the biggest and best-run companies. It can often wipe out millions or billions of dollars in market capitalization or lost revenues and can occasionally result in a change at the uppermost levels of management.

Population ecology

once an organization is successfully established in a particular environmental niche, it is unable to adapt to changing conditions

External environment

opportunities/threats outside of organization

Environmental scanning

is the monitoring, evaluating and disseminating of information from the external environments to key people within the corporation

Mission

purpose for the company's existence → what the company is doing for society

Functional strategy

the approach taken by a functional area to achieve corporate and business unit objectives and strategies by maximizing resource productivity. It is concerned with developing and nurturing a distinctive competence to provide a company's competitive advantage.

Performance

the end result of activities → includes the outcomes of the strategic management process

Increasing risks of error, costly mistakes, and even economic ruin are causing today's professional managers in all organizations

to take strategic management seriously in order to keep their companies competitive in an increasingly volatile environment.

Benefits of Strategic Planning

1. Clearer sense of strategic vision for the firm. 2. Sharper focus on what is strategically important. 3. Improved understanding of a rapidly changing environment.

Institution theory

proposes that organizations can and do adapt to changing conditions by imitating other successful organizations.

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

Triggering event

something that acts as a stimulus for a change in strategy

Tactic or problem

statement of the activities or steps needed to support a strategy

SWOT

strengths, weaknesses, opportunities, threats

Internal environment

strengths/weaknesses within organization

Mintz-Bergs modes of strategic decision-making:

1. Entrepreneurial mode 2. Adaptive mode 3. Planning mode 4. Logical incrementalism

Strategic Management

A set of managerial decisions and actions that determines the long-run performance of a firm → Includes environmental scanning, strategy implementation, and evaluation and control.

Procedures

(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

Phase 2: Forecast Based Planning

*) As annual budgets become less useful at stimulating long term planning, managers attempt to propose 5 years plan. *) They now consider projects that may take more than one year. In addition to internal information, managers gather any available environmental data and extrapolate current trends 5 years into the future. *) The time horizon is usually three to five years.

Phase 1: Basic Financial Planning

*) Managers initiate serious planning when they are requested to propose next years' budget. *) Projects are proposed on the basis of very little analysis, with most information coming from within the firm. *) The time horizon is usually one year.

Product and Technology Risk

*) The impact of the environment and society to make them more likely to buy their products and services. *) Rapid technology affects the life cycle of the product.

Phase 4: Strategic Management

*) Top Management realized that the best strategic plans are worthless without the input and commitment of lower level managers *) Top managers forms planning groups of managers and key employees at many levels from various departments. *) They develop and integrate a series of strategic plans aiming at achieving the company primary objectives. *) Strategic plans now detail the implementation, evaluation and control issues. *) The sophisticated annual five years strategic plan is replaced with thinking at all levels of the organization through out the year. *) Although Top Management may still initiate the strategic planning process, the resulting strategies may come from anywhere of the Organization. *) Planning is typically interactive across levels and is no longer top down. *) People at all levels are now involved.*

Phase 3: Externally Oriented Planning

*) Top Management takes control of the planning process by initiating strategic planning. *) The company seeks to increase its responsiveness to changing markets and competition by thinking strategically. *) Planning is taken out of the hands of lower level managers and concentrated in a planning staff whose task is to develop strategic plans for the corporation.

To be successful in the long-run, companies must not only be able to execute current activities to satisfy an existing market

, but they must also adapt those activities to satisfy new and changing markets.

The typical business firm usually considers three types of strategies:

1. Corporate Strategy: Describes a company's overall direction in terms of its general attitude towards growth and the management of its various business and product lines. 2. 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. 3. Functional Strategy: Is the approach taken by a functional area to achieve corporate and business unit objectives and strategies by maximizing resource productivity.

Strategic decision-making process

1. Evaluate current performance results → investment/profits and mission/objectives etc 2. Review corporate governace → performance of firms top management 3. Scan and assess external environment → opportunities and threats 4. Scan and assess internal environment → strengths and weaknesses 5. Analyze strategic (SWOT) factors → pinpoint problem areas and review/revise corporate mission/objectives 6. Generate, evaluate and select best alternative strategies 7. Implement selected strategies → via programs, budgets, and procedures 8. Evaluate implemented strategies → via feedback systems, and the control of activities to ensure their minimum deviation from plans

3 Characteristics of strategic decisions

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

Learning Organizations are skilled at for main activities:

1. Solving Problems systematically 2. Experimenting with new approaches 3. Learning from their own experiences and past history as well as from the experience of others. 4. Transferring knowledge quickly and effectively through out the organization.

To be effective, however, strategic management need not always be a formal process. It can begin with a few simple questions.

1. Where is the Organization now? 2. If no changes are made, where the Organization will be in one year? Two years? Five years? Ten Years? Are the answers acceptable? 3. If the answers are not acceptable, what specific actions should management undertake? What are the risks and payoffs involved?

Physical Risk

The direct risk posed by climate change includes the physical effect of drought, floods, storms, and rising sea levels.

Globalization

The integrated internalization of markets and corporations → Companies expanding all over the world

Supply Chain Risk

The likelihood of a disruption that would impact the ability of a company to continuously supply products and services.

Litigation Risk

The possibility that legal action will be taken because of an individual's or corporation's actions, inactions, products, services or other events.

Policy

a broad guideline for decision making that links the formulation of a strategy with its implementation

Strategy

a master plan that states how the corporation will achieve its mission and objectives → maximizes competitive advantage and minimizes competitive disadvantage

Evaluation and Control

a process in which corporate activities and performance results are monitored so that actual performance can be compared with desired performance

Triggering Events for Strategic Change

• New CEO • External Intervention • Threat of a change in ownership • Performance Gap