Additional input on Basic Concepts of Strategic Management
4 Phases of Strategic Management
1. Basic Financial Planning – managers initiate serious planning when they are
requested to propose the years budget.
2. Forecast-based Planning – at this point, they consider projects that may take
more than one year. In addition to internal information, managers gather any
available environmental data usually on an ad hoc basis and extrapolate current
trends five years into the future.
3. Externally oriented ( strategic) planning – company seeks to increase its
responsiveness to changing markets and competition by thinking strategically.
4. Strategic management – develop and integrate a series of strategic plans aimed
at achieving the company’s primary objectives.
Theories of Organizational Adaptation
Globalization and environmental sustainability present real challenges to
the strategic management of business corporations. How can one company keep
track of all the challenging technological, economic, political-legal, and sociocultural
trends around the world and make the necessary adjustments? This is not an easy
task. Various theories have been proposed to account for how organizations obtain fit
with their environment.
1. Theory of population ecology – proposes that once an organization is
successfully established in a particular environmental niche, it is unable to adopt
to changing conditions. The company is thus replaced (is bought out or goes
bankrupt) by other organizations more suited to the new environment.
2. Institution theory – proposes that organizations can do adopt to changing
conditions by imitating other successful organizations. To its credit, many
examples can be found of companies that have adopted to changing
circumstances by imitating an admired firm’s strategies and management
techniques. The theory does not however explain how or by whom successful
new strategies are developed in the first place.
3. Strategic choice perspective – goes one step further by proposing that not only
do organizations adapt to a changing environment, but they also have the
opportunity and power to reshape their environment. This perspective is
supported by research indicating that the decisions of a firm’s management have
at least as great an impact on firms performance as overall industry factors.
Because of its emphasis on managers making rational strategic decisions, the
strategic choice perspective is the dominant one taken in strategic management.
4. Organizational learning theory – an organizations adjusts defensively to a
changing environment and uses knowledge offensively to improve the fit
between itself and its environment. This perspective expands the strategic choice
perspective to include people at all levels becoming involved in providing input
into strategic decisions.
What Makes a Decision Strategic
Unlike many other decisions, strategic decision deal with the long-run future of an
entire organization and have three characteristics:
1. Rare: Strategic decisions are unusual and typically have no precedent to
follow.
2. Consequential: Strategic decisions commit substantial resources and
demand a great deal of commitment from people at all levels.
3. Directive: Strategic decisions set precedent for lesser decisions and future
actions throughout an organization.
Mintzberg’s Modes of Strategic Decision Making
 Entrepreneurial mode: Strategy is made by one powerful individual. The
focus is on opportunities; problems are secondary. Strategy is guided by the
founder’s own vision of direction and is exemplified by large, bold
decisions. The dominant goal is growth of the corporation.
 Adaptive mode: Sometimes referred to as “muddling through,” this
decision-making mode is characterized by reactive solutions to existing
problems, rather than a proactive search for new opportunities. Much
bargaining goes on concerning priorities of objectives. Strategy is
fragmented and is developed to move a corporation forward incrementally.
 Planning mode: This decision-making mode involves the systematic
gathering of appropriate information for situation analysis, the generation of
feasible alternative strategies, and the rational selection of the most
appropriate strategy. It includes both the proactive search for new
opportunities and the reactive solution of existing problems.
 Logical incrementalism: This can be viewed as a synthesis of the planning,
adaptive, and, to a lesser extent, the entrepreneurial modes. In this mode,
top managers has a reasonably clear idea of the corporation’s mission and
objective, but, in its development of strategies, it chooses to use “an
interactive process in which the organization probes the future, experiments
and learns from a series of partial commitments rather than through global
formulation of total strategies.
Environmental Scanning – it is the monitoring, evaluation and dissemination of
information from the external and internal environment to key people within the
organization
The Macro Environment Large corporations categorize the social environment in any one geographic region
Essentially refers to all forms of direct or indirect factors of overall into four areas and focus their scanning in each area on trends that have corporate
environmental conditions at large considered external or outside the business wide relevance
organization. the overall environment of the company is actually the world where it Economic:
operates. • GDP trend – market value of all officially recognized final goods and services
produced within a country in a given period of time. GDP per capita is often
Figure 2-1 Components of a company’s macro environment considered an indicator of a country’s standard of living.
• Interest rates - interest rate in the Philippines is reported by the BSP. Interest
Identifying External Environmental Variables rate decisions are taken by the Monetary Board of the BSP.
Figure 2-2 – Environmental variables • Money supply – it is the aggregate amount of monetary assets available in a
country at a specific time. According to Financial Times, Money supply M0 and
Natural Environment – includes physical resources, wildlife, and climate M1, also known as narrow money, includes coins and notes in circulation and
that are inherent part of existence on Earth. These factors form ecological system of other assets that are easily convertible into cash.
interrelated life. • Inflation rates –In economics, inflation is a rise in the general level of prices of
goods and services in an economy over a period of time. When the general price
Societal environment – is mankind’s social system that includes general forces that level rises, each unit of currency buys fewer goods and services. Consequently,
do not directly touch on the short-run activities of the organization that can, and inflation reflects a reduction in the purchasing power per unit of money – a loss
often do, influence its long run decision. of real value in the medium of exchange and unit of account within the
economy.
These factors affect multiple industries and are as follows: • Unemployment levels
1. Economic factors – regulate the exchange of materials, money, energy and • Wage/price controls
information. • Devaluation/revaluation
2. Technological forces – that generate problem solving inventions. • Energy alternatives
3. Political-legal forces – that allocate power and provide constraining and • Energy availability and cost
protecting laws and regulations. • Disposable and discretionary income
4. Sociocultural forces – regulate the values, mores and customs of society. • Current markets
• Global financial system
Task environment – includes those elements or groups that directly affect a Technological
corporation and, in turn, are affected by it. These are government, local • Total government spending for R & D
communities, suppliers, competitors, customers, creditors, employees/labor unions, • Total industry spending for R & D
special interest groups and trade associations. • Focus of technological efforts
• Patent protection
Industry analysis – refers to the in-depth examination of key factors within a • New products
corporation’s task environment. • New developments in technology transfer from lab to marketplace
• Internet availability
The natural, societal and task environments must be monitored to detect the strategic • Productivity improvements through automation
factors that are likely in the future to have a strong impact on corporate success or • Telecommunication infrastructure
failure. • Computer hacking activity

Scanning the Societal Environment: STEEP Analysis Political-legal

• Antitrust regulations -Antitrust regulation is legislation designed to disband
STEEP Analysis: Monitoring Trends in the Societal and Natural Environment or prevent the formation of monopolies. Its purpose is to protect small
businesses from being destroyed by unfair tactics, and to protect the public
by ensuring better prices through competition. Rules designed to prevent or
Some Important Variables in the Societal Environment limit monopolies, also known as cartels, exist in most countries throughout
the world.
 • Environmental protection laws 6. Smart, mobile robots – improvements in these areas mean that robots will be
• Global warming legislation created to perform more sophisticated factory work, run errands, do household
• Immigration laws chores and assist the disabled.
• Tax laws
• Special incentives
• Foreign trade regulations Trends in the political-legal part of the societal environment have significant
• Attitudes toward foreign companies impact not only on the level of competition within an industry but also on which
• Stability of government strategies might be successful.
• Laws on hiring and promotion
• Outsourcing regulation Eighty current sociocultural trends transforming the rest of the world:
1. Increasing environmental awareness – recycling and conservation are becoming
Sociocultural more than slogans.
• Lifestyle changes 2. Growing health consciousness – concerns about personal health fuel the trend
• Career expectations towards physical fitness and healthier living.
• Consumer activism 3. Expanding senior markets – people over 55 will become an even more important
• Rate of family formation market.
• Growth rate of population 4. Impact on generation Y boomlet – now in its teens and 20s this generation is
• Age distribution of population expected to have a strong impact on future products and services.
• Regional shifts in population 5. Declining mass market – niche markets are defining the markets environment.
• Life expectancies People want products and services that are adapted more to their personal needs.
• Birthrates 6. Changing pace and location of life – instant communication via e-mail, cell
• Pension plans phones and overnight mail enhances efficiency, but it puts more pressure in life.
• Health care 7. Changing household composition – single-person household specially those of
• Level of education single women with children, could soon become the most common household
• Living wage type.
• Unionization 8. Increasing diversity of workforce and market.
International Societal Consideration
Changes in the technological part of the societal environment can also have a • Each country or group of countries in which a company operates presents a
great impact on multiple industries. unique societal environment with a different set of economic, technological,
Researchers at George Washington University have identified a number of political-legal, and socio cultural variables for the company to face.
technological breakthroughs that are already having a significant impact on many • International societal environment vary so widely that a corporation’s internal
industries: environment and strategic management process must be very flexible.
1. Portable information devices and electronic networking – combining the • Differences in societal environment strongly affect the ways in which a
computing power of personal computer, the networking of the internet, the multinational corporation (MNC), a company with significant assets and
images of the television and the convenience of the telephone, these appliances activities in multiple countries, conducts its marketing, financial, manufacturing
will soon be used by the majority of the population of industrialized nations to and other functional activities.
make phone calls, send e-mails and transmit documents and other data.
2. Alternative energy sources – the use of wind, geothermal, hydroelectric, solar, Scanning the task environment:
biomass and other alternative energy sources should increase considerably. As shown in the illustration, a corporation’s scanning of the environment
3. Precision farming – the computerized management of crops to suit variations in includes analyses of all the relevant elements in the task environment. These
land characteristics will make farming more efficient and sustainable. analyses take the form of individual reports written by various people in different
4. Virtual personal assistants – very smart computer programs that monitor e-mail, parts of the firm.
faxes and phone calls will be able to take over routine tasks, such as writing a
letter, retrieving a file, making a phone call or screening requests.
5. Genetically altered organisms – a convergence of biotechnology and agriculture
is creating a new field of life sciences.
Scanning external environment Probable Impact on Corporations
Figure 2-3 Scanning external environment
High Medium Low

High
Medium

Probability of Occurrence
High priority High priority
priority

Medium
Medium
High priority Low priority
priority

Medium

Low
Low priority Low priority
Priority

Identifying External Strategic Factors
 The origin of competitive advantage lies in the ability to identify and respond to
environmental change well in advance of competition. Although this seems
obvious, why are some companies better able to adapt than others? One reason is
because of differences in the ability of managers to recognize and understand
external strategic issues and factors.
 No firm can successfully monitor all external factors. Choices must be made
regarding which factors are important and which are not.
 Even though managers agree that strategic importance determines what variables
are consistently tracked, they sometimes miss or choose to ignore crucial new
developments.
 The willingness to reject unfamiliar as well as negative information is called
strategic myopia
1. Identify a number of likely trends emerging in the natural, societal, and task
environments. These are strategic environmental issues – those important
trends that, if they occur, determine what the industry or he world will look
like in the near future.
2. Assess the probability of these trends actually occurring, from low to
medium to high.
3. Attempt to ascertain the likely impact (from low to high) of each of these
trends on the corporation being examined.
A corporation’s external strategic factors are the key environmental trends
that are judged to have both a medium to high probability of occurrence and a
medium to high probability of impact on the corporation.
The issue priority matrix can then be used to help managers decide which
environmental trend should be merely scanned (low priority) and which should
be monitored as strategic factors (high priority)

One way to identify and analyze developments in the external environment is to use
the issues priority matrix