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Summary Strategic Management Chapter 1: Basic Concepts of Strategic Management
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A summary of Chapter 1 of the book Strategic Management and Business Policy.
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Chapter 1: Basic concepts ofStrategic Management
The Study of Strategic Management
Strategic management (business policy) = a set of managerial decisions and actions that help
determine the long-term performance of an organization.
It includes environmental scanning, strategy formulation, strategy implementation, and
evaluation and control.
Phases of strategic management
Four phases of strategic management:
1. Basic financial planning (one year)
2. Forecast-based planning (products that take more than one year, three to five years)
3. Externally oriented (strategic) planning
4. Strategic management (people at all levels are involved)
Benefits of strategic management
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.
A fit between an organization’s environment and its strategy, structure, and processes has
positive effects on the organization’s performance.
Benefits:
- 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.
Strategic management is crucial for long-term organizational success
Globalization, Innovation, and Sustainability: Challenges
to Strategic Management
Triple bottom line:
1. Traditional Profit/Loss
2. People Account – The social responsibility of the organization
3. Planet Account – The environmental responsibility of the organization
LEED (Leadership in Energy and Environmental Design) certification is available for all
structures and includes a number of levels depending upon the efforts made to have a
building be self-sustaining or to have a little impact (the smallest footprint) on the
environment as possible.
Impact of globalization
Globalization = the integrated internationalization of markets and corporations.
The worldwide availability of the Internet and supply-chain logistical improvements, such as
containerized shipping, mean that companies can now locate anywhere and work with
multiple partners to serve any market. For companies seeking a low-cost approach, the
internationalization of business has been a new avenue for competitive advantage.
, As more industries become global, strategic management is becoming an increasingly
important way to keep track of international developments and position a company for long-
term competitive advantage.
Associations have led to the increasing harmonization of standards so that products can
more easily be sold and moved across national boundaries.
Impact of innovation
Innovation = 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.
While there is a value in being a first mover, there is also a tremendous value in being a
second or third mover with the right implementation.
Impact of sustainability
Sustainability = refers to the use of business practices to manage the triple bottom line as
was discussed earlier.
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 environment responsibility
The company has a relatively obvious long-term responsibility to the shareholders of the
organization.
The company that pursues a sustainable approach to business has a responsibility to its
employees, its customers, and the community in which it operates.
The company also has a responsibility to treat the environment well. This is usually defined
as trying to achieve zero impact on the environment. Recycling, increased use of renewable
resources, reduction of waste, and refitting buildings to reduce their impact on the
environment, among many other techniques, are included in this element of the triple
bottom line.
Mercosur = free-trade area among Argentina, Brazil, Uruguay, and Venezuela means that a
manufacturing presence within these countries is becoming essential to avoid tariffs for non-
member countries.
Andean Community = a free trade alliance composed of Columbia, Ecuador, Peru, and
Bolivia.
Union of South American Nations = formed to untie the two existing free-trade areas with a
secretariat in Ecuador and a parliament in Bolivia. (2008)
Central American Free Trade Agreement (CAFTA) = the five Central American countries of El
Salvador, Guatemala, Honduras, Nicaragua, and Costa Rica, plus the United States. (2004)
Association of Southeast Asian Nations (ASEAN) = composed of Brunei Darussalam,
Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and
Vietnam – is in the process of linking its members into a borderless economic zone by 2020.
Theories of Organizational Adaptation
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.
Institution theory proposes that organizations can and do adapt to changing conditions by
imitating other successful organizations.
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