The Three Parts of the Strategic Management Process Understanding Strategy, Learning from Success: Wal-Mart’s Grocery Business: Can the Momentum and Success Be Maintained?. • The ongoin
Trang 1The Foundations of Strategic Management
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: Integrating Solutions to Handle Cash: The Foundation for
Loomis’s Continuing Success?
WHAT IS STRATEGIC MANAGEMENT?
The Three Parts of the Strategic Management Process
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 All of its
Stores,” the Headlines Read What Happened?
THE INDUSTRIAL ORGANIZATION MODEL
THE RESOURCE-BASED VIEW OF THE FIRM MODEL
STAKEHOLDERS
STRATEGIC LEADERS
HOW THE BOOK IS ORGANIZED
SUMMARY
KEY TERMS
DISCUSSION QUESTIONS
STRATEGY TOOLBOX
Mini-Case: Are Still Better Days Ahead for Hewlett-Packard?
EXPERIENTIAL EXERCISES
BIZ FLIX
ENDNOTES
Lecture notes: Chapter Introduction: This chapter lays the groundwork with
concepts and terminology that will be used throughout the book The instructor may wish to emphasize to the students that a firm grasp of these concepts will
Trang 2The Foundations of Strategic Management
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 Stress that 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
Integrating Solutions to Handle Cash: The Foundation for Loomis’s Continuing Success
This feature applies to Knowledge Objectives 1 and 2
In a world where cash and coins are used less frequently and some speak of the possibilities of a cash-free world, Loomis, Fargo & Co.exhibitsCo exhibits
integrated solutions for handling cash as the foundation of its success
Historically, Loomis, having later merged with Wells Fargo to form Loomis, Fargo
& Co., had focused upon “having the right amount of cash, in the right place, and
at the right time.” After the merger, Loomis attributes having a vision of “managing the public flow of cash.” Loomis has faced external environmental change that continually forces them to recast themselves and to alter their strategy By
examining environmental changes, Loomis opted to use technology as a means
to differentiate themselves from competitors by providing broader based cash logistics services To increase its scale of operations, Loomis acquired Guardian Armored Security making it the largest cash-handling services provider in the state of Michigan The success of Loomis, Fargo, & Co is attributed to their use
of the strategic management process of maintaining a vision, analyzing the
environment, and making appropriate adjustments or adaptation in 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 whichwho 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
Trang 3The Foundations of Strategic Management
• 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
o the firm’s distinctive competence allows it to create values for customers that competitors cannot
FIGURE 1.1
The Strategic Management Process
This figure applies to Knowledge Objective 1
This figure shows the major components, linkages and flows of the strategic management process It indicates where each component is covered in the text
Vision influences and is influenced by analysis of environments Vision and analysis in turn influence and are influenced by strategy
Strategy takes two forms: competing through rivalry and competing through market entry.
TABLE 1.1
Key Characteristics of Strategic Management
This table applies to Knowledge Objective 1
This table indicates that strategic management is
• performance oriented
• ongoing
• dynamic rather than static
• present- and future-oriented
Trang 4The Foundations of Strategic Management
• concerned with conditions inside and outside the firm
• concerned with performing well and satisfying stakeholders
The Three Parts of the Strategic Management Process
This section applies to Knowledge Objective 1
• Firms must analyze their external and internal environments before strategies can be chosen and implemented
• A firm’s strategy should deliver a unique mix of value to customers
• Strategies include
o business-level strategies
o multiproduct strategies
o acquiring and integrating businesses
• Strategies allow a firm to enter new markets through
o international strategies
o alliances
o new ventures
• Strategy implementation is the set of actions the firm takes to use a strategy.
• Organizational success can be transitory What works for a company in the present, may not work in the future
TABLE 1.2
Vision and Mission Statements
This table applies to Knowledge Objective 1
This table gives examples of mission and vision statements of well-known
companies These statements may provide a basis for discussion as to whether they are effective in terms of providing direction (mission) for the firm and
providing an inspiration to act ethically (vision)
Understanding Strategy, Learning from Success
Wal-Mart’s Grocery Business: Can the Momentum and Success Be Maintained?
This case applies to Knowledge Objective 1, 2, 3, and 5
The case describes the current state of Wal-Mart’s grocery business By taking advantage
of their inventory management and distribution core competences/competitive advantages, Wal-Mart implements a cost leadership strategy in its grocery stores that coincides with its
Trang 5The Foundations of Strategic Management
other larger units such as Wal-Mart Supercenters Use of the strategic management
process has recently proven successful for Wal-Mart With success, Wal-Mart is now facing strong competition by Tesco PLC in American markets Recognizing Tesco’s competitive ability, Wal-Mart is adapting its strategy by testing small format grocery stores, with fresher foods, and customer convenience With a desire to build upon its competitive advantages to create more types of value for its consumers,
Wal-Mart intends to establish walk-in medical facilities within their stores along with possibilities for private-label fresh food offerings Wal-Mart’s strategic management must continue to analyze internal and external environments to ensure future success
This case illustrates that strategic success is not permanent and must continually evolve to meet changing environmental conditions
Critical thinking questions:
1 From the case materials, how has Wal-Mart utilized the strategic
management process? (Knowledge Objective 1)
Answer: Wal-Mart’s vision to be the “cost leader” influences and is
influenced by an analysis of its environments Wal-Mart, being aware of its core competencies and utilizing these resources to remain
competitively advantaged, and recognizing the strength of its
competitors shows proven analysis of the environment Their intentions for walk-in medical care and private-label food offerings indicate
adaptation and changes in strategy
2 What future do you envision for Wal-Mart as a grocer? (Knowledge
Objectives 2 and 3
Answer: Students can brainstorm on what Wal-Mart can do to remain
true to its vision (which is very general) by developing new value types for its customers Do you anticipate Wal-Mart taking its grocery store concepts to other countries and what environmental conditions should they consider? Will Wal-Mart compete with Tesco in its home turf of Britian and what environmental conditions may prompt such a move?
Understanding Strategy, Learning from Failure
“CompUSA Is Closing All of its Stores,” the Headlines Read What Happened?
This case applies to Knowledge Objectives 1, 2, 4, and 5
This case illustrates the failure of CompUSA to execute a strategic management process While the firm has been sold and the name replaced with TigerDirect, CompUSA never
Trang 6The Foundations of Strategic Management
had its own identity or vision—a seller of software apparently evolved to offering more products without any primary initiative CompUSA, even in turbulence, failed to examine its environment An analysis of competitors, mission, strengths, weaknesses,
opportunities, threats, resources, capabilities, and core competencies would have proven beneficial for CompUSA
Even if a business exists and sells products, failure is inevitable without a vision, analysis of the environment, and a resulting strategy to be implemented—the strategic management process
Critical thinking questions:
1 The instructor might point out that CompUSA expanded without direction
As Soft Warehouse, they were a seller of software that expanded product lines for sale without a reason and found themselves questioning what kind
of a seller they were (Knowledge Objectives 1, 2, 3, and 5)
a Can you develop a vision for CompUSA that would have given them
a “picture of their future?”
b What external and internal environmental conditions should
CompUSA have considered?
c Based upon the answers to a and b, how would CompUSA’s
strategy have changed?
d Will CompUSA assets be a successful integration for TigerDirect? This might be the place for the instructor to discuss whether most start-up firms really have a well-thought out business strategy Note that most start-up firms fail Could this be due to a failure of
strategy?
Answer:
These questions are designed to stimulate thought and discussion among the students The outcomes of this discussion should be that with sound strategic management processes, organizations have better opportunities for success
THE INDUSTRIAL ORGANIZATION MODEL
This section applies to Knowledge Objective 2
• External environmental conditions can be
o opportunities which may help the firm reach its vision or
o threats which may prevent the firm from reaching its vision
• Lack of control over conditions in the external environment reduces a firm’s strategic options
• A lack of options results in an industry wherein firms use similar strategies
Trang 7The Foundations of Strategic Management
THE RESOURCE-BASED VIEW OF THE FIRM MODEL
This case applies to Knowledge Objective 3
• The resource-based view (RBV) model describes how firms analyze their internal environment
• This identifies the firm’s
o strengths
o resources
o capabilities
o core competencies
o distinctive competencies
o competitive advantages
• The RBV model (internally focused) complements the I/O model (externally focused)
• The RBV model suggests that the firm needs resources and capabilities that are unique in order to create competitive advantage through creating value for
customers
• The firm has direct control over the internal environment (but not the external environment)
• The choices that the firm makes about its resources and capabilities and how they will be nurtured and used affects whether the firm can develop them differently than other firms and thus increase the firm’s strategic options
• Unique resources and capabilities increase strategic options
FIGURE 1.2
Using the Industrial Organization (I/O) Model to Analyze the External Environment
This figure applies to Knowledge Objective 2
Firms analyze the external environment by
• studying conditions
• identifying an attractive industry or industry segment
• selecting the strategy appropriate for the external environment
• implementing the strategy with the firm’s resources
FIGURE 1.3
Using the RBV Model to Analyze the Internal Environment
Trang 8The Foundations of Strategic Management
This figure applies to Knowledge Objective 3
Firms analyze the internal environment by
• studying the firm’s strengths and weaknesses
• identifying what the firm’s resources allow it to do better than its competitors
• selecting the strategy suggested by the competitive advantages and an appropriate industry
• implementing the strategy with the firm’s resources
Lecture note: The instructor may point out that in both the I/O and RBV models
the first step is studying and the last step is implementation The implication here
is that many ideas for organizations, products or services never make it to
implementation stage (or, that they shouldn’t make it to the implementation stage, which may account for the high failure rate of new firms!) If you view the models
as a “weeding out” process, you may say that only the strongest ideas with the best chances for success should make it to the implementation stage Also note that in a new venture, the idea must pass the test in both models, so that the firm has the internal strengths to compete in the external environment
STAKEHOLDERS
This section applies to Knowledge Objective 4
Teaching note: Students may be confused by the concept that persons,
organizations, and institutions outside of the firm are stakeholders, especially when they are not customers of the firm It may be useful to select a company with which most students are familiar, for example, McDonald’s Explore the non-customer stakeholders of McDonald’s Since the premiere of the film “Upsize Me” these stakeholders have gotten much more involved in McDonald’s products and operations These include government health agencies, health related groups that deal with specific problems such as obesity, diabetes, childhood health
problems, parents, etc The students may raise the U.S society as a whole, when one considers the cost to taxpayers of healthcare for obese and ill citizens, and the lower productivity of obese and ill citizens This might be an interesting class discussion since some students will argue that the need of the customers to eat high calorie foods outweighs the cost to society
• Stakeholders are individuals and groups who have an interest in the firm’s
performance and the ability to influence its actions
• Stakeholders support or withdraw support from firms depending on how well the firm meets their needs
• Firms have relationships with stakeholders that must be managed
• Better management of stakeholders can be a competitive advantage
• Communication is key to management of stakeholders
Trang 9The Foundations of Strategic Management
• Satisfying one stakeholder’s needs may disadvantage another stakeholder
• All stakeholders must be at least minimally satisfied
FIGURE 1.4
Stakeholder Groups
This figure applies to Knowledge Objective 4
The major stakeholder groups can be divided into three main categories:
• Owners
• External stakeholders
• Internal stakeholders
STRATEGIC LEADERS
This section applies to Knowledge Objective 5
• Strategic leaders are the individuals practicing strategic leadership Their tasks
include
o developing the firm’s vision, and using the vision statement to stimulate employees’ creativity
o deciding the firm’s strategies to achieve the vision
o deciding what resources to acquire at what prices
o deciding how to manage the firm’s resources
o shaping and nurturing organizational culture
• Organizational culture is the set of values and beliefs shared throughout the firm.
o Values reflect what is important.
o Beliefs refer to how things should be done.
• The most effective organizational culture lets people know they are appreciated This can motivate excellent performance
• Strategic management is increasingly decentralized, moving decisions down to people who are closest to the action
• The final responsibility for effective strategic management rests with the firm’s strategic leaders
• Strategic leaders must act ethically
• Ethics are concerned with standards for deciding what is good or bad, right or wrong,
as defined by most members of a society
• Ethics can be documented in codes of conduct.
• Ethics can be inferred by the behavior of stakeholders, especially employees
Trang 10The Foundations of Strategic Management
Teaching note: Ethics is a hot topic in the corporate world today Some firms
and leaders have been brought down for relatively minor lapses, whereas some firms suspected of major ethical lapses are apparently continuing unscathed by public opinion or governmental action A class debate could be developed by asking students if they think the issue of ethics is a currently politically correct concept that is only given lip service, or if concern about organizational ethics is a deeply felt and growing issue among the general public You may also ask which
is more indicative of the true ethical standards of the organization: the formal code of conduct or the actual day-to-day behavior of employees and board
members
HOW THE BOOK IS ORGANIZED
SUMMARY
KEY TERMS
ANSWERS TO DISCUSSION QUESTIONS
1 What is strategic management? Describe strategic management’s importance
in today’s organizations (Knowledge Objective 1)
Answer:
The process of strategic management forms a vision, analyzes the external and internal environments, and selects one or more strategies to create value for stakeholders Strategic management is an action plan designed to move
an organization toward achievement of its goals Strategic management is important in today’s organizations because it determines the success of the organization As the environment changes, the necessary strategies must also change, otherwise the organization will fail
2 What is the industrial organization (I/O) model? Why do firms use it to
analyze their external environment? (Knowledge Objective 2)
Answer:
The I/O model describes how firms analyze the external environment by studying conditions, identifying an attractive industry or industry segment, selecting the strategy appropriate for the external environment, and
implementing the strategy with the firm’s resources Firms use this model to identify threats to the firm’s success and opportunities for the firm to achieve its vision