CHAPTER 1 six categories of risks: regulatory, supply chain,

product and technology, litigation, reputational,

Strategic management is a set of managerial
and physical.
decisions and actions that determines the long run
performance of a corporation. Originally called Regulatory Risk - Kyoto Protocol, which requires
business policy, the developed countries, to reduce carbon dioxide
and other greenhouse gases
Strategic management emphasizes long-term
performance. Supply Chain Risk: Suppliers will be increasingly
vulnerable to government regulations
four phases of strategic management:
Institution theory, in contrast, proposes that
Phase 1—Basic financial planning: Managers
organizations can and do adapt to changing
initiate serious planning
conditions by imitating other successful
Phase 2—Forecast-based planning: As annual organizations.
budgets become less useful
strategic choice perspective goes one step further
Phase 3—Externally oriented (strategic) planning: by proposing that not only do organizations adapt
Frustrated with highly political to a changing environment

Phase 4—Strategic management: Realizing that organizational learning theory, which says that an
even the best strategic plans are worthless organization adjusts defensively to a changing
environment and uses knowledge offensively
General Electric, one of the pioneers of strategic
planning, led the transition Strategic management consists of four basic
elements: Environmental scanning Strategy
three most highly rated benefits of strategic
formulation Strategy implementation Evaluation
management to be:
and control
- Clearer sense of strategic vision for the
Environmental scanning is the monitoring,
firm.
evaluating, and disseminating of information
- Sharper focus on what is strategically
important. internal environment of a corporation consists of
- Improved understanding of a rapidly variables (Strengths and Weaknesses)
changing environment
Strategy formulation is the development of long-
. Globalization, the integrated internationalization range plans for the effective management of
of markets and corporations, has changed the way environmental opportunities and threats
modern corporations do business.
mission is the purpose or reason for the
Environmental sustainability refers to the use of organization’s existence.
business practices to reduce a company’s im pact
vision describes what the organization would like
upon the natural, physical environment
to become.
Association of Southeast Asian Nations (ASEAN)—
Objectives are the end results of planned activity.
composed of Brunei Darussalam, Cambodia,
They should be stated as action verbs and tell what
Indonesia, Laos, Malaysia, Myanmar, Philippines,
is to be accomplished by when and quantified if
Singa pore, Thailand, and Vietnam
possible.
Strategy - It maximizes competitive advantage and
minimizes competitive disadvantage.
 strategic decisions deal with the long-run future of
an entire organization and have three
typical business firm usually considers three types
characteristics:
of strategy: corporate, business, and functional
1. Rare: Strategic decisions are unusual and
Corporate strategy describes a company’s overall
typically have no precedent to follow.
direction in terms of its general attitude
2. Consequential: Strategic decisions commit
Business strategy usually occurs at the business
substantial resources and demand a great deal of
unit or product level, and it emphasizes
commitment from people at all levels.
improvement of the competitive position of a
corporation’s 3. Directive: Strategic decisions set precedents for
lesser decisions and future actions throughout an
Functional strategy is the approach taken by a
organization.77
functional area to achieve corporate and business
unit objectives and strategies by maximizing Three most typical approaches, or modes, of
resource productivity strategic decision making are entrepreneurial,
adaptive, and planning (a fourth mode, logical
A hierarchy of strategy is a grouping of strategy
incrementalism
types by level in the organization. A nesting of one
strategy within another Entrepreneurial mode: Strategy is made by one
powerful individual.
A policy is a broad guideline for decision making
that links the formulation of a strategy with its Adaptive mode: Sometimes referred to as
implementation. “muddling through,” this decision-making mode is
characterized by reactive solutions to existing
Strategy implementation is a process by which
problems
strategies and policies are put into action
Planning mode: This decision-making mode
A program is a statement of the activities or steps
involves the systematic gathering of appropriate
needed to accomplish a single-use plan
information for situation analysis,
Budget - budget lists the detailed cost of each
Logical incrementalism: A fourth decision-making
program.
mode can be viewed as a synthesis of the planning,
Procedures, sometimes termed Standard adaptive, and, to a lesser extent
Operating Procedures (SOP), are a system of
eight-step strategic decision-making process to
sequential steps or techniques that describe in
improve the making of strategic decisions
detail how a particular task or job is to be done
1. Evaluate current performance results in terms
Evaluation and control is a process in which
of (a) return on investment, profitability, and so
corporate activities and performance results are
forth, and (b) the current mission, objectives,
monitored so that actual performance can be
strategies, and policies.
compared with desired performance
2. Review corporate governance—that is, the
Performance is the end result of activities. It
performance of the firm’s board of directors
includes the actual outcomes of the strategic
management process. and top management.
3. Scan and assess the external environment to
determine the strategic factors that pose
Opportunities and Threats. The Role of the board of directors in strategic
management is to carry out three basic tasks
4. Scan and assess the internal corporate
environment to determine the strategic factors Monitor: By acting through its committees
that are Strengths (especially core competencies) Evaluate and influence: A board can examine
and Weaknesses. management’s proposals,
5. Analyze strategic (SWOT) factors to (a) pinpoint Initiate and determine: A board can delineate a
problem areas and (b) review and re corporation’s mission
vise the corporate mission and objectives, as Inside directors (sometimes called management
necessary. directors) are typically officers or executives
employed by the corporation.
6. Generate, evaluate, and select the best
alternative strategy in light of the analysis con Outside directors (sometimes called non-
management directors) may be executives of other
ducted in step 5.
firms but are not employees of the board’s
7. Implement selected strategies via programs, corporation.
budgets, and procedures.
Agency theory, which states that problems arise in
8. Evaluate implemented strategies via feedback corporations because the agents (top
management) are not willing to bear responsibility
. A strategic audit provides a checklist of questions,
for their decisions unless they own a substantial
by area or issue, that enables a systematic analysis
amount of stock in the corporation.
to be made of various corporate functions and
activities Stewardship theory proposes that, because of their
long tenure with the corporation, insiders (senior
corporate governance refers to the relationship
executives) tend to identify with the corporation
among these three groups in determining the
and its success.
direction and performance of the corporation.
1. Affiliated directors, who, though not really
five board of director responsibilities, listed in
employed by the corporation
order of importance:
2. Retired executive directors, who used to
1. Setting corporate strategy, overall direction, work for the company,
mission, or vision 3. Family directors, who are descendants of
the founder and own significant block
2. Hiring and firing the CEO and top management
Agency theory is concerned with analyzing and
3. Controlling, monitoring, or supervising top
resolving two problems that occur in relationships
management
between principals (owners/shareholders) and
4. Reviewing and approving the use of resources their agents (top management):

5. Caring for shareholder interests Stewardship theory suggests that executives tend
to be more motivated to act in the best interests of
the corporation than in their own
Codetermination, the inclusion of a corporation’s
workers on its board,
A direct interlocking directorate occurs when two there is no method for deciding whether one
firms share a director or when an executive of one decision is better than another.
firm sits on the board of a second firm. An indirect
four types of moral relativism—naïve, role, social
interlock occurs when two corporations have
group, or cultural relativism
directors who also serve on the board of a third
firm, such as a bank. Naïve relativism: Based on the belief that all moral
decisions are deeply personal
lead director. This person is consulted by the
Chair/CEO regarding board affairs and coordinates Role relativism: Based on the belief that social
the annual evaluation of the CEO roles carry with them certain obligations to that
role,
Top management responsibilities, especially those
of the CEO, involve getting things accomplished Social group relativism: Based on a belief that
through and with others in order to meet the morality is simply a matter of following the norms
corporate objectives. of an individual’s peer group, social group
Executive leadership is the directing of activities Cultural relativism: Based on the belief that
toward the accomplishment of corporate morality is relative to a particular culture, society,
objectives. Executive leadership is important or community,
because it sets the tone for the entire corporation.
three levels of moral development
A strategic vision is a description of what the
The preconventional level: This level is
company is capable of becoming. It is often
characterized by a concern for self.
communicated in the company’s mission and vision
statements The conventional level: This level is characterized
by considerations of society’s laws and norms.
transformational leaders that is, leaders who
provide change and movement in an organization The principled level: This level is characterized by a
by providing a vision for that change person’s adherence to an internal moral code.

CHAPTER 3 A code of ethics specifies how an organization

expects its employees to behave while on the job.
social responsibility proposes that a private
corporation has responsibilities to society that whistle-blowers, those employees who report
extend beyond making a profit. Strategic decisions illegal or unethical behavior on the part of others.
often affect more than just the corporation.
Ethics is defined as the consensually accepted
Carroll’s Four Social Responsibilities of Business standards of behavior for an occupation, a trade, or
a profession.
Discretionary, ethical, economic, legal
Morality, in contrast, is the precepts of personal
Stakeholders - includes a large number of groups
behavior based on religious or philosophical
with interest in a business organization’s activities.
grounds.
Stakeholder analysis is the identification and
Law refers to formal codes that permit or forbid
evaluation of corporate stakeholders.
certain behaviors and may or may not enforce
moral relativism claims that morality is relative to ethics or morality
some personal, social, or cultural standard and that
three basic approaches to ethical behavior:
Utilitarian approach: The utilitarian approach societal environment is mankind’s social system
proposes that actions and plans should be judged that includes general forces that do not di rectly
by their consequences touch on the short-run activities of the organization
Individual rights approach: The individual rights These factors affect multiple industries and are as
approach proposes that human be ings have follows:
certain fundamental rights that should be
Economic forces that regulate the exchange of
respected in all decisions
materials, money, energy, and information.
Justice approach: The justice approach proposes
Technological forces that generate problem-
that decision makers be equitable, fair, and
solving inventions.
impartial in the distribution of costs and benefits to
individuals and groups Political–legal forces that allocate power and
provide constraining and protecting laws
three questions regarding an act or a decision:
and regulations.
1. Utility: Does it optimize the satisfactions of all
stakeholders? Sociocultural forces that regulate the values,
mores, and customs of society
2. Rights: Does it respect the rights of the
individuals involved? Task environment includes those elements or
groups that directly affect a corporation and, in
3. Justice: Is it consistent with the canons of justice
turn, are affected by it.
Globalized frontier: In this scenario, the Arctic by
Eight current sociocultural trends are transforming
2040 has become an integral component of the
North America and the rest of the world:
global economic system
Increasing environmental awareness
Adaptive frontier: In this scenario, the Arctic in
2040 is being drawn much more slowly into the Growing health consciousness:
global economy
Expanding seniors market
Fortress frontier: In this scenario, widespread
Impact of Generation Y Boomlet:
resource exploitation and increased in ternational
tension exist throughout the Arctic Declining mass market
Equitable frontier: In this scenario, the Arctic is Changing pace and location of life
integrated with the global economic system by
Changing household composition
2040, but international concern for sustainable
development Increasing diversity of workforce and markets:
Environmental scanning is the monitoring, multinational corporation (MNC), a company with
evaluation, and dissemination of information from significant assets and activities in multiple
the external and internal environments to key countries, conducts its marketing, financial,
people within the corporation manufacturing, and other functional activities.
natural environment includes physical resources, Creating a Scanning System How can anyone
wildlife, and climate that are an inherent part of monitor and keep track of all the trends and factors
existence on Earth. in the worldwide societal environment?
The company uses WebFountain to:
 - Locate negative publicity or investor - Its product or service is unique and/or it
discontent has built up switching costs (for example,
- Track general trends word processing software).
- Learn competitive information - Substitutes are not readily available (for
- Identify emerging competitive threats example, electricity).
- Unravel consumer attitudes - Suppliers are able to integrate forward and
compete directly with their present
industry is a group of firms that produces a similar
customers (for example, a microprocessor
product or service
producer such as Intel can make PCs).
Threat of New Entrants - A purchasing industry buys only a small
portion of the supplier group’s goods and
New entrants to an industry typically bring to it
services and is thus unimportant to the
new capacity, a desire to gain market share, and
supplier (for example, sales of lawn mower
substantial resources.
tires are less important to the tire industry
entry barrier is an obstruction that makes it difficult than are sales of auto tires).
for a company to enter an industry.
complementor is a company (e.g., Microsoft) or an
Possible barriers industry whose product works well with a firm’s
(e.g., Intel’s) product and without which the
- Economies of scale:
product would lose much of its value.
- Product differentiation:
- Capital requirements: fragmented industry—where no firm has large
- Switching costs: market share, and each firm serves only a small
- Access to distribution channels: piece of the total market in competition with
- Cost disadvantages independent of size: others
- Government policy
consolidated industry—dominated by a few large
- rivalry is related to the presence of several
firms, each of which struggles to differentiate its
factors, including:
products from those of the competition.
- Number of competitors:
- Rate of industry growth: These are regional industries, in which MNCs
- Product or service characteristics: primarily coordinate their activities within regions,
- Amount of fixed costs: such as the Americas or Asia.
- Capacity
A strategic group is a set of business units or firms
- Height of exit barriers: Exit barriers
that “pursue similar strategies with simi lar
Diversity of rivals resources.”

Threat of substitute products or services A strategic type is a category of firms based on a

common strategic orientation and a combination of
substitute product is a product that appears to be
structure, culture, and processes consistent with
different but can satisfy the same need as another
that strategy.
product.
These general types have the following
supplier or supplier group is powerful if some of
characteristics:
the following factors apply:
Defenders are companies with a limited product
- The supplier industry is dominated by a
line that focus on improving the effi ciency of their
few companies, but it sells to many (for
existing operations.
example the petroleum industry).
Prospectors are companies with fairly broad
product lines that focus on product innova tion and
market opportunities.
Analyzers are corporations that operate in at least
two different product-market areas, one stable and
one variable
Reactors are corporations that lack a consistent
strategy-structure-culture relationship.
competition becomes hypercompetition.
Competitive intelligence is a formal program of
gathering information on a company’s competitors.
Often called business intelligence, it is one of the
fastest growing fields within strategic management.
industry scenario is a forecasted description of a
particular industry’s likely future.
1. Examine possible shifts in the natural
environment and in societal variables globally.
2. Identify uncertainties in each of the six forces of
the task environment (that is, potential entrants,
competitors, likely substitutes, buyers, suppliers,
and other key stakeholders).
3. Make a range of plausible assumptions about
future trends.
4. Combine assumptions about individual trends
into internally consistent scenarios.
5. Analyze the industry situation that would prevail
under each scenario.
6. Determine the sources of competitive advantage
under each scenario.
7. Predict competitors’ behavior under each
scenario.
8. Select the scenarios that are either most likely to
occur or most likely to have a strong impact on the
future of the company. Use these scenarios as
assumptions in strategy formulation.