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Chapter 1
The Foundations of Strategic Management

KNOWLEDGE OBJECTIVES

1. Define strategic management.
2. Discuss why firms use the industrial organization model to analyze their external environment. 3. Discuss why firms use the resource-based view of the firm model to analyze their internal environment. 4. Define stakeholders and understand their importance. 5. Explain the work of strategic leaders.

CHAPTER OUTLINE

Focusing on Strategy: Are You a Left-Handed Guitar Player? If So, We Have a Product Just for You! WHAT IS STRATEGIC MANAGEMENT?
The Three Parts of the Strategic Management Process
THE INDUSTRIAL ORGANIZATION MODEL
Understanding Strategy, Learning from Success: Wal-Mart’s Grocery Business: Can the Momentum and Success Be Maintained? Understanding Strategy, Learning from Failure: “CompUSA Is Closing Its Stores,” the Headlines Read. What Happened? THE RESOURCE-BASED VIEW OF THE FIRM MODEL

STAKEHOLDERS
STRATEGIC LEADERS
HOW THE BOOK IS ORGANIZED
SUMMARY
KEY TERMS
DISCUSSION QUESTIONS

Lecture notes: Chapter Introduction: This chapter lays the groundwork with concepts and terminology that will be used throughout the book. A firm grasp of these concepts will give them a good foundation for understanding and using the material in the rest of the text.

The purpose of the text is to explain the three parts of strategic management: vision, analysis, and strategy. It is crucial for the success of the organization for all members to understand and implement the vision and strategy of the firm. Ideally, strategy is not isolated at the CEO level, but extends to all levels of employees. Nor is strategy confined to Fortune 500 firms. All firms need effective business strategy.

Focusing on Strategy

WHAT IS STRATEGIC MANAGEMENT?

This section applies to Knowledge Objective 1.

• The ongoing process of strategic management forms a vision, analyzes the external and internal environments, and selects one or more strategies to create value for stakeholders who includes customers and shareholders. • Strategic management is an action plan designed to move an organization toward achievement of its goals. • The firm’s vision consists of

o its mission, the firm’s DNA, its core information, characteristics and o the “picture” of the firm’s future
• The vision inspires employees.
• The mission defines the firm’s core intent and the business(es) in which it intends to operate. • The external environment is conditions outside the firm that affect firm performance. • The internal environment is conditions inside the firm that affect the choice of and use of strategies. • Strengths are resources and capabilities allowing the firm to complete important tasks. • Resources are tangible and intangible assets of the firm. • Capabilities result from the integration of different resources to complete a task or a series of related tasks. • Core competencies are capabilities the firm performs especially well. o Distinctive competencies are core competencies that differ from those held by competitors. • Competitive advantage exists when

o the firm creates value for customers by performing a key activity better than its competitors or

1 the firm’s Vision

Vision is a picture of what the firm wants to be, and in broad terms, what it wants to ultimately achieve. Vision is “big picture” thinking with passion that helps people feel what they are supposed to be doing.

Vision statements:
• Reflect a firm’s values and aspirations
• Are intended to capture the heart and mind of each employee (and hopefully, many of its other stakeholders) • Tend to be enduring, whereas its mission can change in light of changing environmental conditions • Tend to be relatively short and concise, easily remembered

Examples of vision...
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