chapter 1 Fundamentals of Strategic Management
hat do Circuit City, Washington Mutual, Saab, Blockbuster, and Borders have in common? All of these recognized companies filed for bankruptcy during the past several years. While the situation surrounding each firm is different, all of them failed to meet various strategic challenges. Put another way, organizations typically do not succeed or fail randomly. Some plan, prepare, and execute more effectively than others. Today’s business world is global, Internet-driven, and obsessed with speed. The challenges it creates for strategic managers are often complex, ambiguous, and unstructured. Add to this the incessant allegations of top management wrongdoings, economic stagnation, and increasing executive compensation, and it is easy to see why firm leaders are under great pressure to respond to strategic problems quickly, decisively, and responsibly. Indeed, the need for effective strategic management has never been more pronounced. This text presents a framework for addressing today’s strategic challenges.
This chapter introduces the notion of strategic management, highlights its importance, and presents a five-step process for strategically analyzing an organization. The remaining chapters expand on the various steps in the process with special emphasis on their application to ongoing enterprises.
What Is Strategic Management?_________________
Organizations exist for a purpose. The mission is articulated in a broadly defined but enduring statement of purpose that identifies the scope of an organization’s operations and its offerings to affected groups and entities. Most organizations of a significant size or stature have developed a formal mission statement, a concept discussed further in Chapter 5. Strategy refers to top management’s plans to develop and sustain competitive advantage—a state whereby a firm’s successful strategies cannot be easily duplicated by its 1 1
competitors1—so that the organization’s mission is fulfilled. 2 Following this definition, it is assumed that an organization has a plan, its competitive advantage is understood, and its members understand the reason for its existence. These assumptions may appear self-evident, but many strategic problems can be traced to fundamental misunderstandings associated with defining the strategy. Debates over the nature of the organization’s competitive advantage, its mission, and whether or not a strategic plan is really needed can be widespread.3 As such, comments such as “We’re too busy to focus on developing a strategy” or “I’m not exactly sure what my company is really trying to accomplish” can be overheard in many organizations. Strategic management is a broader term than strategy and is a process that includes top management’s analysis of the environment in which the organization operates prior to formulating a strategy, as well as the plan for implementation and control of the strategy. The difference between a strategy and the strategic management process is that the latter includes considering what must be done before a strategy is formulated through assessing whether or not the success of an implemented strategy was successful. The strategic management process can be summarized in five steps, each of which is discussed in greater detail in subsequent chapters of the book (see Figure 1.1):4
External Analysis: Analyze the opportunities and threats, or constraints, that exist in the organization’s external environment, including industry and forces in the external environment.
Internal Analysis: Analyze the organization’s strengths and weaknesses in its internal environment. Consider the context of managerial ethics and corporate social responsibility.
Strategy Formulation: Formulate strategies that build and sustain competitive advantage by matching the organization’s strengths and weaknesses...
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