PART B
CHAPTER NOTES
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CHAPTER ONE
BASIC CONCEPTS OF STRATEGIC MANAGEMENT
This chapter sets the stage for the study of strategic management and business policy. It summarizes research
supporting the conclusion that those corporations that are able to learn from their experiences and manage
strategically perform at a higher level than corporations that do not. It describes a number of triggering events that
act to initiate strategic change in most organizations. A normative model of strategic management is presented as the
basic structure underlying the book. Key concepts are defined and explained as part of the discussion of the model.
The chapter also introduces the strategic audit as a method of operationalizing strategic decision making.
LEARNING OBJECTIVES
1. Discuss the benefits of strategic management.
2. Explain how globalization, innovation, and environmental sustainability influence strategic management.
3. Discuss the differences between the theories of organizations.
TOPICS OUTLINE COVERED
1. The Study of Strategic Management
2. Globalization, Innovation, and Sustainability: Challenges to Strategic Management
3. Theories of Organizational Adaptation
4. Creating a Learning Organization
5. Basic Model of Strategic Management
a. Environmental Scanning
b. Strategy Formulation
6. Initiation of Strategy: Triggering Events
7. Strategic Decision Making
8. The Strategic Audit: Aid to Strategic Decision Making
SUGGESTED ANSWERS TO MYMANAGEMENTLAB QUESTIONS
1-1. How do the three elements of globalization, innovation, and sustainability impact your understanding
of strategy?
Globalization is the integrated internationalization of markets and corporations. As more industries become global,
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1-2. Organizational strategy can be divided roughly into two categories: a) formulation and b)
implementation. Although there is legitimate crossover between the two, how would you characterize
the issues involved in each effort?
There are four basic phases of strategic management. Phase 1 is basic financial planning, phase 2 is forecast-based
planning, phase 3 is externally oriented strategic planning, and phase 4 is strategic management. Phases 1, 2, and 3
SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
1-3. Why is strategic management considered important for global market competition?
Effective strategic management can ensure that an organization is adaptive and flexible enough to respond to
environmental challenges and changes. The business environment in most economies, irrespective of whether they
1-4. How does strategic management typically evolve in a company?
Strategic management in a corporation appears to evolve through four sequential phases according to Gluck,
Kaufman, and Walleck. Beginning with basic financial planning, it develops into forecast-based planning, then into
1-5. Define strategic flexibility and explain its implications. Why is organizational learning important to
the long-term development of strategic flexibility of organizations that intend to enter overseas
markets?
Corporations need to develop strategic flexibility, which is the ability to shift from one dominant strategy to another.
Strategic flexibility requires an organization to commit to the long-term development of important and critical
resources. It requires that the company become a learning organization, which is an organization skillful in creating,
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1-6. Why are strategic decisions different from other kinds of decisions?
Strategic decisions deal with the long-run future of the entire organization and have three characteristics that
differentiate them from other types of decisions: (1) they are rare—strategic decisions are unusual and typically
1-7. What is the most preferred planning mode of strategic decision making for organizations competing
internationally?
Typically, global markets are considered to be highly volatile, ever-changing, and unstable. James Brian Quinn
coined the phrase logical incrementalism in 1980. It refers to the synthesis of all other three modes (planning,
These are not found in the text and may be used by the instructor for classroom discussion or exams.
A1-1. Describe the triple bottom line.
The term used to describe a business’ sustainability is the triple bottom line. John Elkington coined the phrase in
A1-2. What is meant by a hierarchy of strategy?
A hierarchy of strategy is a term used to describe the interrelationships among the three levels of strategy (corporate,
business, and functional) typically found in large business corporations. Beginning with the corporate level, each
A1-3. Does every business firm have business strategies?
Every business firm should have a business strategy for every industry or market segment it serves. A business
strategy aims at improving the competitive position of a business firm’s products or services in a specific industry or
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A1-4. What information is needed for the proper formulation of strategy? Why?
In order to properly formulate strategy, it is essential to have information on the important variables in both the
external and internal environments of the corporation. This includes general forces in the societal environment as
A1-5. Reconcile the strategic decision-making process depicted in Fig. 1.5 with the strategic management
model depicted in Fig. 1.2.
The strategic management model depicts the key input variables (internal and external environments) and the key
output factors (mission, objectives, strategy, and policies). It shows how strategy formulation, implementation, and
SUGGESTIONS FOR STRATEGIC PRACTICE EXERCISE
This end of chapter exercise is a good way to motivate students to apply some of the concepts in the chapter,
particularly those from the strategic management model. Decisions are made every day, but not all decisions are
seen as strategic ones.
The text states that strategic decisions are (1) rare, (2) consequential, and (3) directive. These deal with the long-
term future of the entire organization. To aid in the decision making, the authors suggest an eight step decision-
making process. Found on page 25 in the text, these include: (1) evaluating current performance results; (2)
Most people in business on most days deal with company tactics and decisions at a level that is not strategic.
However, every decision made by every employee in a company ultimately impacts the success of the strategy for
that company. As pointed out by Malcolm Gladwell in his book The Tipping Point, it is the collection of thousands
of decisions all aimed in relatively the same direction that can lead a company to the achievement of a strategy. How
do you decide what type of decision is strategic?