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Summary Strategic management and business policy
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Samenvatting Strategic marketing management - Hoofdstukken 1,2,4,5,6,7,8,12
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OBM-4 Strategic management and business policyChapter 1 Basic concepts of strategic management
1.1 The study of strategic management
Strategic management is a set of managerial decisions and actions that determines the
long-run performance of a corporation. It includes:
- Environmental scanning (both external and internal)
- Strategy formulation (strategic or long-run planning)
- Strategy implementation
- Evaluation and control
It emphasizes the monitoring and evaluating of external opportunities and threats in light of a
corporations strengths and weaknesses.
Phases of strategic management
As managers attempt to better deal with their changing world, a firm generally evolves
through the following four phases of strategic management:
Phase 1: Basic financial planning
Managers initiate serous planning when they are requested to propose the following
years budget. Most of the information is from within the company and based on basic
analysis. Mostly it is analyzed over one year.
Phase 2: Forecast-based planning
As annual budgets become less useful at stimulating long-term planning, managers
attempt to propose five year plans. This time they gather as much as data as possible,
within or outside the company as well as environmental data. Really time consuming.
Phase 3: Externally oriented strategic planning
Due to the lack of consistency and forecasting, the company seeks to increase its
responsiveness to changing markets and competition by thinking strategically. The
planning is mostly done by lower levels.
Phase 4: Strategic management
Realizing that even the best strategic plans are worthless without the input and
commitment of lower-level managers, top management forms planning groups of
managers and key employees at many levels, from various departments and
workgroups.
Benefits of strategic management
Strategic management emphasizes long-term performance. Research reveals that
organizations that engage in strategic management generally outperform those that do not.
Strategic planning becomes increasingly important as the environment becomes more
unstable. There are three main benefits why you should use strategic management:
- Clearer sense of strategic vision for the firm
- Sharper focus on what is strategically important
- Improved understanding of a rapidly changing environment
1.2 Globalization and environmental sustainability: challenges to strategic
management
Impact of globalization
Globalization, the integrated internationalization of markets and corporations, has changed
the way modern corporations do business. Jobs, knowledge and capital now are able to
move across borders with far greater speed and far less friction than was possible only a few
years ago. The worldwide availability of the internet and supply chain logistic improvements
mean that companies can now locate anywhere and work with multiples partners to serve
any market. This is needed to reach economies of scale for some companies. As more
industries become global, strategic management is becoming an increasing important way to
, keep track of international developments and position a company for long-term competitive
advantage. The formation of regional trade associations and agreements, such as the EU,
NAFTA etc. also changes the way how international business is being conducted.
Impact of environmental sustainability
Environmental sustainability refers to the use of business practices to reduce a company‘s
impact upon the natural, physical environment. Climate change is playing a growing role in
business decisions. Porter and Reinhardt warn that in addition to understanding its emission
cost, every firm needs to evaluate its vulnerability to climate related effects such as regional
shifts in the availability of energy and water, the reliability of infrastructures and supply
chains, and the prevalence of infectious diseases.
The effect of climate change on industries and companies throughout the world can be
grouped into six categories of risks:
Regulatory risk: Most of the companies around the world are already subject to the
Kyoto protocol, which requires the developed countries to reduce carbon dioxide and
other greenhouse gases. This is just an example, and there are many more.
Supply chain risk: suppliers will be increasingly vulnerable to government regulations,
leading to higher component and energy costs as they pass along increasing carbon
related costs to their consumers. Another example is the increasing scarcity of fossil-
based fuel, which is already boosting transportation costs significantly.
Product and technology risk: Environmental sustainability can be a prerequisite to
profitable growth. Examples are green cars, food etc.
Litigation risk: Companies that generate significant carbon emission face the threat of
lawsuits similar to those in the tobacco, pharmaceutical and building supplies industries.
Reputational risk: A company‘s impact on the environment can heavily affect its overall
reputation. However a good record can be in your advantage.
Physical risk: The direct risk posed by climate change includes the physical effects of
drought, floods, storms, and rising sea levels.
1.3 Theories of organizational adaption
Globalization and environmental sustainability present real challenges to strategic
management of business corporations. It is hard for a company to keep track of all the
changing technology, economic etc. trends around the world and make the necessary
adjustments. Various theories have been proposed to account for how organizations obtain
fit with their environment. The theory of population ecology for example proposes that once
an organization is successfully established in a particular environmental niche, it is unable to
adapt to changing conditions. This prevents companies from changing. The institution
theory, in contrast, proposes that organizations can and do adapt to changing conditions by
imitating other successful organizations. The 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. This is that if one
company changes its strategy, it has a big influence on other firms within the industry. The
organizational learning theory says that an organization adjusts defensively to a changing
environment and uses knowledge offensively to improve the fit between itself and its
environment.
1.4 Creating a learning organization
Strategic management has now evolved to the point that its primary value is in helping an
organization operate successfully in a dynamic, complex environment. To be competitive in
dynamic environments, corporations are becoming less bureaucratic and more flexible. As it
takes less and less time for one product or technology to replace another, companies are
finding that there is no such thing as a permanent competitive advantage. This means that
corporations must develop strategic flexibility, the ability to shift from one dominant strategy
to another. Strategic flexibility demands a long term commitment to the development and
nurturing of critical resources. It also demands that the company become a learning
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