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 major perspectives influencing strategic management, including situation
analysis, industrial organization economics, 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.
SWOT analysis.
The importance of effective strategic leadership and strategic direction.
The key elements of important perspectives influencing strategic management, including
industrial organization economics, the resource-based perspective, and stakeholder
theory.
How an increasingly turbulent and interdependent global environment has increased the
importance of innovation in organizations.
The elements of strategic thinking.
LECTURE OUTLINE:
I. Opening Vignette—Whole Foods Market (excerpted here)
The Whole Foods philosophy of taking excellent care of stakeholders is supported
by a set of core values of selling high-quality products, delighting customers,
,supporting team members to achieve happiness and excellence, caring about the
community and environment, creating long-term win-win partnerships with
suppliers, and promoting health through education. Whole Foods has been very
successful at taking care of its team members. In fact, for 14 years in a row the
company has been listed as one of the best companies to work for by Fortune
magazine. Financially the company has thrived, with continuous growth in
operating income since the beginning of the “Great Recession” that started around
the end of 2007. Earnings per share have also increased and revenues have grown
in every year except 2009, when they were flat. Whole Foods has done this while
also providing healthy eating education in its stores, launching a new Whole Kids
Foundation dedicated to promoting children’s nutrition, opening wellness clubs, and
supporting a program that offers microcredit to poor people in developing nations
to help them work their way out of poverty. The company also rolled out a new
rating standard that recognizes producers for improving the welfare of animals and
providing this information to customers. In addition, the company labels household
products based on their impact on the environment
A. 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. Top managers 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 Whole
Foods example, we see a values-driven company led by a visionary leader,
John Mackey, who has been able to guide the company successfully through
very difficult economic times.
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 major perspectives influencing strategic management, including situation
analysis, industrial organization economics, 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.
SWOT analysis.
The importance of effective strategic leadership and strategic direction.
The key elements of important perspectives influencing strategic management, including
industrial organization economics, the resource-based perspective, and stakeholder
theory.
How an increasingly turbulent and interdependent global environment has increased the
importance of innovation in organizations.
The elements of strategic thinking.
LECTURE OUTLINE:
I. Opening Vignette—Whole Foods Market (excerpted here)
The Whole Foods philosophy of taking excellent care of stakeholders is supported
by a set of core values of selling high-quality products, delighting customers,
,supporting team members to achieve happiness and excellence, caring about the
community and environment, creating long-term win-win partnerships with
suppliers, and promoting health through education. Whole Foods has been very
successful at taking care of its team members. In fact, for 14 years in a row the
company has been listed as one of the best companies to work for by Fortune
magazine. Financially the company has thrived, with continuous growth in
operating income since the beginning of the “Great Recession” that started around
the end of 2007. Earnings per share have also increased and revenues have grown
in every year except 2009, when they were flat. Whole Foods has done this while
also providing healthy eating education in its stores, launching a new Whole Kids
Foundation dedicated to promoting children’s nutrition, opening wellness clubs, and
supporting a program that offers microcredit to poor people in developing nations
to help them work their way out of poverty. The company also rolled out a new
rating standard that recognizes producers for improving the welfare of animals and
providing this information to customers. In addition, the company labels household
products based on their impact on the environment
A. 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. Top managers 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 Whole
Foods example, we see a values-driven company led by a visionary leader,
John Mackey, who has been able to guide the company successfully through
very difficult economic times.
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
