CHAPTER 1
THE STRATEGIC MANAGEMENT PROCESS
CHAPTER TOPICS:
This chapter introduces the strategic management process and its role in business
organizations. The chapter introduces the strategic management process including external
environmental analysis, organizational analysis, establishment of strategic direction,
strategy formulation, strategy implementation, strategic control, and restructuring. It also
introduces alternative perspectives on the process of strategy development, including
situation analysis, environmental determinism, deliberate versus emergent strategies, the
resource-based view of the firm, stakeholder theory, and global strategic management.
Strategic thinking, as it relates to corporate entrepreneurship, is also introduced.
LEARNING OBJECTIVES:
In this introductory chapter, the learning objectives are to understand:
The elements or stages of the strategic management process.
The scope of the external and internal environments of business.
The meaning and importance of strategic direction, strategy formulation, and strategy
implementation.
The processes of strategic control and restructuring.
The different perspectives on strategy development.
The importance of innovation and entrepreneurship.
The elements of strategic thinking.
LECTURE OUTLINE:
I. Opening Vignette—IBM (excerpted here)
IBM provides computer hardware, software, and services in more than 170
countries. Several years ago, the company saw fundamental changes coming.
Developing economies were growing rapidly, a new computing architecture was
providing unprecedented computing power and an ability to transform oceans of
,data into usable information, and companies were seeking to integrate their
advanced information technologies with other business operations to improve
efficiency and facilitate innovation and growth. In response to these trends, IBM
made several bold moves. First, the company remixed its businesses to take
advantage of the most attractive business segments. The company exited
commodity businesses such as PCs and disk drives as well as acquiring over 100
companies in less than ten years, including PricewaterhouseCoopers Consulting.
Internally, the company has formed new units in areas such as analytics, which
employs four thousand IBM consultants. Now the company’s historically large
hardware operations provide less than 10% of its revenues, with approximately
40% each coming from software and services (the rest is from financing
operations). Also, about one-third of IBM’s revenues now come from non-U.S.
operations. Growth is especially strong in Brazil, Russia, India, and China. Moving
forward, IBM’s CEO Samuel J. Palmisano is positioning the company to be a major
player in infusing intelligence into the way the world actually works.
A. As illustrated by the IBM example, the most successful organizations are able
to acquire and manage resources and capabilities that provide competitive
advantages. Furthermore, they are capable of managing and satisfying a wide
range of external constituencies, called stakeholders. CEOs play a pivotal role
in this process, as they help their companies interpret trends in the external
environment, lead in the development of strategies, and oversee their
execution. In the IBM example, we see a company that has transformed itself
as a result of changes in the external environment. The processes associated
with evaluating the competitive situation of a company, acquiring and
managing resources, and developing and executing strategies are a part of
the field generally referred to as strategic management.
II. What Is Strategic Management?
A. 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.
,B. 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 are 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.
Discussion Prompt: Do you suppose that the broad or task environment has more
influence on a typical firm?
C. 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.
D. 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.
Discussion Prompt: How might a SWOT analysis be used to help a firm develop its
strategies?
E. Strategic direction pertains to the longer-term goals and objectives and
defines the purposes for which an organization exists and operates.
1. Strategic leaders have a large impact on the strategies and
performance of the firm. One of the most important responsibilities of
a strategic leader is to establish direction. Strategic direction pertains
to the enduring goals and objectives of the organization. It
encompasses a definition of the businesses in which a firm operates,
its vision for the future, and its purpose.
2. As a practical matter, there is no way to discuss purpose without also
including a discussion of the ethics of the organization. Ethics are the
THE STRATEGIC MANAGEMENT PROCESS
CHAPTER TOPICS:
This chapter introduces the strategic management process and its role in business
organizations. The chapter introduces the strategic management process including external
environmental analysis, organizational analysis, establishment of strategic direction,
strategy formulation, strategy implementation, strategic control, and restructuring. It also
introduces alternative perspectives on the process of strategy development, including
situation analysis, environmental determinism, deliberate versus emergent strategies, the
resource-based view of the firm, stakeholder theory, and global strategic management.
Strategic thinking, as it relates to corporate entrepreneurship, is also introduced.
LEARNING OBJECTIVES:
In this introductory chapter, the learning objectives are to understand:
The elements or stages of the strategic management process.
The scope of the external and internal environments of business.
The meaning and importance of strategic direction, strategy formulation, and strategy
implementation.
The processes of strategic control and restructuring.
The different perspectives on strategy development.
The importance of innovation and entrepreneurship.
The elements of strategic thinking.
LECTURE OUTLINE:
I. Opening Vignette—IBM (excerpted here)
IBM provides computer hardware, software, and services in more than 170
countries. Several years ago, the company saw fundamental changes coming.
Developing economies were growing rapidly, a new computing architecture was
providing unprecedented computing power and an ability to transform oceans of
,data into usable information, and companies were seeking to integrate their
advanced information technologies with other business operations to improve
efficiency and facilitate innovation and growth. In response to these trends, IBM
made several bold moves. First, the company remixed its businesses to take
advantage of the most attractive business segments. The company exited
commodity businesses such as PCs and disk drives as well as acquiring over 100
companies in less than ten years, including PricewaterhouseCoopers Consulting.
Internally, the company has formed new units in areas such as analytics, which
employs four thousand IBM consultants. Now the company’s historically large
hardware operations provide less than 10% of its revenues, with approximately
40% each coming from software and services (the rest is from financing
operations). Also, about one-third of IBM’s revenues now come from non-U.S.
operations. Growth is especially strong in Brazil, Russia, India, and China. Moving
forward, IBM’s CEO Samuel J. Palmisano is positioning the company to be a major
player in infusing intelligence into the way the world actually works.
A. As illustrated by the IBM example, the most successful organizations are able
to acquire and manage resources and capabilities that provide competitive
advantages. Furthermore, they are capable of managing and satisfying a wide
range of external constituencies, called stakeholders. CEOs play a pivotal role
in this process, as they help their companies interpret trends in the external
environment, lead in the development of strategies, and oversee their
execution. In the IBM example, we see a company that has transformed itself
as a result of changes in the external environment. The processes associated
with evaluating the competitive situation of a company, acquiring and
managing resources, and developing and executing strategies are a part of
the field generally referred to as strategic management.
II. What Is Strategic Management?
A. 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.
,B. 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 are 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.
Discussion Prompt: Do you suppose that the broad or task environment has more
influence on a typical firm?
C. 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.
D. 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.
Discussion Prompt: How might a SWOT analysis be used to help a firm develop its
strategies?
E. Strategic direction pertains to the longer-term goals and objectives and
defines the purposes for which an organization exists and operates.
1. Strategic leaders have a large impact on the strategies and
performance of the firm. One of the most important responsibilities of
a strategic leader is to establish direction. Strategic direction pertains
to the enduring goals and objectives of the organization. It
encompasses a definition of the businesses in which a firm operates,
its vision for the future, and its purpose.
2. As a practical matter, there is no way to discuss purpose without also
including a discussion of the ethics of the organization. Ethics are the
