BASIC CONCEPTS OF STRATEGIC MANAGEMENT
SUMMARY OF KEY POINTS
• Strategic management starts with three key questions: (1) Where is the organization now? (2) If no changes are made, where will the organization be in a few years? (3) If the answers are not acceptable, what specific actions should management undertake?
• Strategic management is that set of managerial decisions and actions that determines the long-run performance of a corporation. It includes environmental scanning, strategy formulation, strategy implementation, and evaluation and control.
• Strategic management in many organizations tends to evolve in four phases from basic financial planning to forecast-based planning, to what people refer to as strategic planning (strategy formulation only), and finally to full-blown strategic management (including implementation and evaluation and control).
• Research reveals that companies engaging in strategic management tend to outperform those organizations which do not.
• Strategy formulation is typically not a regular, continuous process but is often initiated by triggering events, such as a new CEO or a performance gap.
• The strategic management model proceeds from environmental scanning to strategy formulation (including establishing mission, objectives, strategies, and policies) to strategy implantation (including developing programs, budgets, and procedures) to evaluation and control. This model is made action-oriented through the strategic decision making process depicted in Figure 1.3..
• A large corporation tends to have three levels of strategy (corporate, business, and functional) which form a hierarchy of strategy.
• Strategic decisions are rare, consequential, and directive.
• Top managers tend to use one of three modes of strategy formulation: entrepreneurial, adaptive, planning, or logical incrementalism.
SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
1.Why has strategic management become so important to today's corporations?
Research indicates that organizations that engage in strategic management generally outperform those that do not. 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. Bruce Henderson pointed out that a firm cannot afford to follow intuitive strategies once it becomes large, has layers of management, or its environment changes substantially. As the world's environment becomes increasingly complex and changing, strategic management is used by today's corporations as one way to make the environment more manageable.
2.How does strategic management typically evolve in a corporation?
Strategic management in a corporation appears to evolve through four sequential phases according to Gluck, Kaufman and Walleck. Beginning with basic financial planning, it develops into forecast-based planning, and then into externally-oriented planning, and finally into a full-blown strategic management system. The evolution is most likely caused by increasing change and complexity in the corporation's external environment. The phases are thus likely to be characterized by a change from primarily an inward-looking orientation in the first phase to primarily an outward-looking orientation in the third phase, and to a more integrative orientation in the final strategic management phase with equal emphasis on both the external and internal environments.
3.What is a learning organization? Is this approach to strategic management better than the more traditional top-down approach in which strategic planning is primarily done by top management?
Traditional top- down strategic planning assumes that top management has all the information and knowledge needed to properly understand the firm’s external and internal environments and...