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Learning Objectives
After reading this chapter, you should have a good
understanding of:
Strategic Management:
LO1 The definition of strategic management and its four
Creating Competitive Advantages key attributes.
LO2 The strategic management process and its three
Chapter One interrelated and principal activities.
LO3 The vital role of corporate governance and
stakeholder management as well as how “symbiosis”
can be achieved among an organization’s stakeholders.

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved. 1-2

Learning Objectives (cont.) Two Perspectives of Leadership

LO4 The importance of social responsibility, including • Romantic view
environmental sustainability, and how it can enhance a
Leader is the key
corporation’s innovation strategy. force in organization’s
LO5 The need for greater empowerment throughout the success
organization. • External control
LO6 How an awareness of a hierarchy of strategic goals perspective
can help an organization achieve coherence in its
Focus is on external
strategic direction. factors that affect an
organization’s
success

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QUESTION Example: E*Trade

A CEO made a lot of mistakes such as committing Elements of Caplan’s turnaround
errors in assessing the market and competitive
• Cut costs by reducing the advertising
conditions and improperly redesigning the
organization into numerous business units. Such budget and selling unrelated businesses
errors led to significant performance declines. This • Changed the firm’s culture and instilled
illustrates the __________ perspective of leadership. more discipline
• Refocused the firm on its core banking
A. External control
B. Romantic operations
C. Internal mechanism
D. Operational
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What is Strategic Management? Defining Strategic Management

• Strategic management • Leaders must be • Strategic management
must become both a proactive, anticipate
Analyses, decisions, and actions an
process and a way of change, and organization undertakes in order to create
thinking throughout continually refine and sustain competitive advantages
the organization changes to their
strategies

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Defining Strategic Management Defining Strategic Management

• Analysis • Actions

Strategic goals
Allocate necessary resources

Internal and external environment of the firm
Design the organization to bring intended
• Strategic decisions strategies to reality

What industries should we compete in?

How should we compete in those industries?

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Key Attributes of Strategic

Two Fundamental Questions Management
1. How should we 2. How can we create 1. Directs the organization toward overall
compete in order to competitive goals and objectives
create competitive advantages in the
advantages in the marketplace that are 2. Includes multiple stakeholders in decision
marketplace? unique, valuable, making
and difficult for rivals
to copy or
substitute?

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Key Attributes of Strategic Key Attributes of Strategic

Management (cont.) Management
3. Needs to incorporate short-term and • Ambidexterity
long-term perspectives
The challenge managers face of both
4. Recognizes trade-offs between efficiency aligning resources to take advantage of
existing product
and effectiveness
markets as well
as proactively
exploring new
opportunities

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Ambidextrous Behaviors in Individuals Strategic Management Process

• They take time and • They are cooperative • Intended strategy
are alert to and seek out
Decisions are determined only by analysis
opportunities beyond opportunities to
the confines of their combine their efforts • Realized strategy
own jobs with others
Decisions are determined by both analysis
and unforeseen environmental
developments, unanticipated resource
constraints, and/or changes in managerial
preferences

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Strategic Management Process

Strategic
Management
Process

Adapted from Exhibit 1.2 Realized Strategy and Intended Strategy: Usually Not the Same
Source: H. Mintzberg and J. A. Waters, “Of Strategies, Deliberate and Emergent,” Strategic Management Journal 6 (1985), pp. 257-
72.

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Strategic Analysis Strategy Formulation

• Consists of “advance work” that must be A firm’s strategy formulation is developed at
done in order to effectively formulate and several levels:
implement strategies • Business-level
• Starting point • Corporate level
• International
• Entrepreneurial

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Corporate Governance and

Strategy Implementation
Stakeholder Management
• Ensuring proper • Establishing effective • Corporate governance
strategic controls and means to coordinate
The relationship among various participants
organizational and integrate in determining the direction and performance
designs activities within the of corporations
firm as well as with
suppliers, customers,
and alliance partners

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Corporate Governance and

Corporate Governance
Stakeholder Management (cont.)
• Board of Directors Three mechanisms ensure effective

Elected corporate governance:
representatives of the
owners • An effective and engaged board of

Ensure interests and directors
motives of
management are
• Shared activism
aligned with those of • Proper managerial rewards and incentives
the owners

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Stakeholder Management Stakeholder Management

• Zero sum view • Stakeholder symbiosis view

Stakeholders compete for attention and
Stakeholders are dependent upon each other
resources of the organization for their success and well-being

Gain of one is a loss to the other
Mutual benefits

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QUESTION Crowdsourcing
Outback Steakhouse has developed a • Crowdsourcing
sophisticated quantitative model and found that
Tapping of the “latent of the online crowd”
there were positive relationships between
• Linux, Amazon, Wikipedia
employee satisfaction, customer satisfaction,
and financial results. This is an example of
__________.
A. Zero-sum relationship among stakeholders
B. Stakeholder symbiosis
C. Rewarding stakeholders
D. Emphasizing financial returns

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Social Responsibility Social Responsibility

• Social responsibility • Triple bottom line

The expectation that businesses or
Assessment of a company’s performance in
individuals will strive to improve the overall financial, social, and environmental
welfare of society dimensions

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Example: Social Responsibility Strategic Management Perspective

• Starbucks Coffee Company defines CSR as: All managers and employees must:

Conducting business in ways that produce social,
environmental and economic benefits for the
• Take an integrative, strategic perspective
communities in which we operate and for the of issues facing the organization
company’s stakeholders, including shareholders.
• Assess how functional areas and activities
“fit together” to achieve goals and
• Some tangible benefits include attracting and retaining
our partners, customer loyalty, reducing operating costs, objectives
and creating a sustainable supply chain.

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Three Types of Leaders Three Types of Leaders (cont.)

• Local line leaders • Internal networkers

Have significant profit-and-loss responsibility
Generate power through the conviction and
• Executive leaders clarity of their ideas

Champion and guide ideas, create a learning
infrastructure, establish a domain for taking
action

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Coherence in Strategic Direction A Hierarchy of Goals

• Hierarchy of goals

Goals ranging from those that are less
specific yet able to evoke powerful and
compelling mental images those that are
more specific and measurable
• Vision, mission statement, strategic
objectives

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Coherence in Strategic Direction Why Do Visions Fail?

• Organizational • The walk doesn’t • Not the holy grail
vision match the talk • An ideal future

Goal that is • Irrelevance irreconciled with the
“massively inspiring, present
overarching, and long
• Too much focus leads
term” to missed

Represents a opportunities
destination that is
driven by and evokes
passion

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Coherence in Strategic Direction Coherence in Strategic Direction

• Mission statement • Strategic objectives

Set of goals that include both the purpose of
Goals that are used to operationalize the
the organization, its scope of operations, and mission statement
the basis of its competitive advantage
Specific, measurable, appropriate, realistic,
• Has the greatest impact when it reflects an timely
organization’s enduring, overarching strategic
priorities and competitive positioning

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