Chapter 1

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Basic Concepts of Strategic
Management

Concepts in Strategic Management and Business Policy: Toward Global Sustainability, 13/e Author(s): Thomas L. Wheelen and J. David Hunger
 1.1 The Study of Strategic Management

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• Strategic management is a set of managerial
decisions and actions that determines the long-
run performance of a corporation.
• Strategic management includes:
Internal and external environment scanning
Strategy formulation
Strategy implementation
Evaluation and control

Concepts in Strategic Management and Business Policy: Toward Global Sustainability, 13/e Author(s): Thomas L. Wheelen and J. David Hunger
 1.1 The Study of Strategic Management

• Phases of strategic management

The firm evolves through following phases:

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Phase 1: Basic financial planning:
One year Budgets
Based mostly on internal information, and very little external
information through sales team
Time Horizon: One year
Challenge: such budget is not useful for long-term planning

Concepts in Strategic Management and Business Policy: Toward Global Sustainability, 13/e Author(s): Thomas L. Wheelen and J. David Hunger
 1.1 The Study of Strategic Management
• Phases of strategic management
The firm evolves through following phases:

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Phase 2: Forecast-based planning
Based on available external data on ad-hoc basis
Projecting of current trends into the future
Time horizon: 3-5 years
Challenge: to fit all proposed budgets, and competition for larger
shares of limited funds

Concepts in Strategic Management and Business Policy: Toward Global Sustainability, 13/e Author(s): Thomas L. Wheelen and J. David Hunger
 1.1 The Study of Strategic Management
• Phases of strategic management
The firm evolves through following phases:

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Phase 3: Externally oriented strategic planning
Due to political environment, top management takes control
Planning is taken from lower managers and given to “planning staff”
Consultants provide required techniques to gather information and
forecast future trends
Competitive intelligence unit is established
Time horizon: 5 years
Challenge: Plans are worthless without commitment of lower managers
as they have to implement them

Concepts in Strategic Management and Business Policy: Toward Global Sustainability, 13/e Author(s): Thomas L. Wheelen and J. David Hunger
 1.1 The Study of Strategic Management
• Phases of strategic management
The firm evolves through following phases:

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Phase 4: Strategic management
Formation of Planning Groups at various organizational levels, from
various departments and workgroups
Strategic plans detail implementation, evaluation and control issues.
Instead of forecasting the future, probable scenarios and contingency
strategies are formulated
Strategic information is made available for all employees
Top management may initiate the strategic planning process, but
resulting strategy may come from any level.
Planning is interactive, rather than top-down
Concepts in Strategic Management and Business Policy: Toward Global Sustainability, 13/e Author(s): Thomas L. Wheelen and J. David Hunger
 1.1 The Study of Strategic Management
• Benefits of strategic management
As Strategic Management focuses on Long term

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performance, the change in environment during the
course is a “must”
Strategic management help to “adapt” activities according
to changing markets (benefit of contingent plans:
flexibility)
A “fit” between environment and company’s strategy,
structure and processes leads to higher performance.

1-7 Hunger
Concepts in Strategic Management and Business Policy: Toward Global Sustainability, 13/e Author(s): Thomas L. Wheelen and J. David
 1.1 The Study of Strategic Management

• Other benefits of strategic management

Clearer sense of strategic vision for the firm

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Sharper focus on what is strategically important
Improved understanding of a rapidly changing
environment
(Source: A survey of 50 corporations in various countries and industries)

Real value of Strategic Management lies in “strategic

thinking” and “organizational learning”, rather than the
resultant plan.

1-8 Hunger
Concepts in Strategic Management and Business Policy: Toward Global Sustainability, 13/e Author(s): Thomas L. Wheelen and J. David
 1.4 Creating a Learning Organization

Stable Environment Dynamic Environment

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• Minimal changes
• Developing competitive
strategy, and defending it • Competitive advantage
is sufficient
• Continuous changes, and
hyper-competition
lies in developing
strategic flexibility; the
ability to shift from one
dominant strategy to
other
• It demands the
companies to become
“learning organizations”

Concepts in Strategic Management and Business Policy: Toward Global Sustainability, 13/e Author(s): Thomas L. Wheelen and J. David Hunger
 1.4 Creating a Learning Organization
• Learning organization: An organization skilled at creating,
acquiring, and transferring knowledge and at modifying

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its behavior to reflect new knowledge and insights.
• Main activities of a learning organization include:
Solving problems systematically
Experimenting with new approaches
Learning from past experience, history and experiences of others
Transferring knowledge quickly and easily throughout the organization

• Defining point of learning organizations: Core

competencies derive from the learned capabilities that are
almost impossible to imitate
Concepts in Strategic Management and Business Policy: Toward Global Sustainability, 13/e Author(s): Thomas L. Wheelen and J. David Hunger
 1.5 Basic Model of Strategic Management

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• Basic elements of strategic management:
Environmental scanning
Strategy formulation
Strategy implementation
Evaluation and control

Concepts in Strategic Management and Business Policy: Toward Global Sustainability, 13/e Author(s): Thomas L. Wheelen and J. David Hunger
 1.5 Basic Model of Strategic Management

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It is a prescriptive model: What organizations
should do for strategic management, not what they
actually do.

Concepts in Strategic Management and Business Policy: Toward Global Sustainability, 13/e Author(s): Thomas L. Wheelen and J. David Hunger
 1.5 Basic Model of Strategic Management

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Concepts in Strategic Management and Business Policy: Toward Global Sustainability, 13/e Author(s): Thomas L. Wheelen and J. David Hunger
 1.5 Basic Model of Strategic Management
Basic elements of strategic management:

1- Environmental scanning: the monitoring,

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evaluating and disseminating of information from the
external and internal environments to key people
within the organization.

SWOT analysis: to analyze factors that are not in

short run control of top managements

Concepts in Strategic Management and Business Policy: Toward Global Sustainability, 13/e Author(s): Thomas L. Wheelen and J. David Hunger
 1.5 Basic Model of Strategic Management

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Concepts in Strategic Management and Business Policy: Toward Global Sustainability, 13/e Author(s): Thomas L. Wheelen and J. David Hunger
 1.5 Basic Model of Strategic Management
2- Strategy formulation: the development of long-
range plans for the effective management of
environmental opportunities and threats in light of

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organizational strengths and weaknesses.
A. Mission: The purpose or reason for the organization’s existence.

B. Vision: It describes what the organization would like to become.

C. Objectives: The end results of planned activity (quantification of

what to achieve, and when)

Concepts in Strategic Management and Business Policy: Toward Global Sustainability, 13/e Author(s): Thomas L. Wheelen and J. David Hunger
 1.5 Basic Model of Strategic Management

2- Strategy formulation

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D. Strategy
Strategies form a comprehensive master plan that states how the
corporation will achieve its mission and objectives
Corporate: Stability, Growth, Retrenchment
Business: Competitive or Cooperative
Functional: maximizing resource productivity
E. Policies
Broad guidelines for decision making that links the formulation of a
strategy with its implementation.

Concepts in Strategic Management and Business Policy: Toward Global Sustainability, 13/e Author(s): Thomas L. Wheelen and J. David Hunger
 1.5 Basic Model of Strategic Management

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Concepts in Strategic Management and Business Policy: Toward Global Sustainability, 13/e Author(s): Thomas L. Wheelen and J. David Hunger
 1.5 Basic Model of Strategic Management
3 - Strategy implementation:
The process by which strategies and policies are put into action through
the development of programs, budgets and procedures.

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• Program (tactic): action oriented steps needed to support a
strategy
Example:
To support the strategy of market leadership through improving
manufacturing efficiency to keep the cost low (cost leadership
strategy), Boeing used following programs:
Outsourced 70% of production.
Reduced final assembly time by getting completed sections from
suppliers.
Used new and light weight material to reduce inspection time.
Resolved poor relations with labor unions.

Concepts in Strategic Management and Business Policy: Toward Global Sustainability, 13/e Author(s): Thomas L. Wheelen and J. David Hunger
 1.5 Basic Model of Strategic Management
3 - Strategy implementation:

• Budgeting: Statement of programs in terms of money

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– Detailed financial plan of strategy
– Statement of expected impact on firm’s financial future

• Procedures: Detailing activities

– Standard operating procedures (SOPs)
– A system of particular steps required for a job/task/program to
be done

Concepts in Strategic Management and Business Policy: Toward Global Sustainability, 13/e Author(s): Thomas L. Wheelen and J. David Hunger
 Basic Model of Strategic Management

4. Evaluation and control:

The process in which corporate activities and performance results

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are monitored so that actual performance can be compared to desired
performance

• Performance: The end result of organizational activities, the

actual/realized outcomes of strategic management process.

5- Feedback/Learning process: Revise or correct decisions based

on evaluation of strategy

Concepts in Strategic Management and Business Policy: Toward Global Sustainability, 13/e Author(s): Thomas L. Wheelen and J. David Hunger
 1.6 Initiation of Strategy: Triggering
Events

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• Triggering event: Something that acts as a stimulus for a
change in strategy, and can include:
New CEO
External intervention
Threat of change of ownership
Performance gap
Strategic inflection point: a major change due to introduction of
new technology, regulatory environment or customer
preferences.

Concepts in Strategic Management and Business Policy: Toward Global Sustainability, 13/e Author(s): Thomas L. Wheelen and J. David Hunger
 Case Study: Fast Fashion

• How is Strategic management illustrated in this case study?

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– Hints: Vision, mission, objectives, strategies, policies,
programs, budget, procedures, performance
• How might SWOT analysis be helpful to Inditex Executives?
To Zara store’s executives?
– Hints: Analyze its internal, task and societal environment.
• What competitive Advantage do you think Zara is pursuing?
How does it exploit competitive advantage?
– Hint: Identify anything which Zara has that the competitors
don’t have.
• Do you think Zara’s success is due to external or internal
factors, or both?
• What strategic implications does Zara’s move into online
retailing has?

Concepts in Strategic Management and Business Policy: Toward Global Sustainability, 13/e Author(s): Thomas L. Wheelen and J. David Hunger