The Nature of Strategic Management

Strategic Management
Concepts & Cases

8th edition
Fred R. David
Chapter 1:
The Nature of Strategic
Management
PowerPoint Slides By:
Anthony F. Chelte
Western New England College
Ch. 1-1
© 2001 Prentice Hall

Organizing Themes
• Global considerations impact virtually all

strategic decisions.
• E-commerce has become a vital
strategic management tool.
• The natural environment has become
an important strategic issue.
Ch. 1-2

Strategic Management Defined
Art and science of formulating,

implementing, and evaluating cross-
functional decisions that enable an
organization to achieve its objectives.
Ch. 1-3

Strategic Management Club
Visit and join the club on-line:

www.strategyclub.com
Ch. 1-4

Terminology
“Strategic Management”
Synonymous with
“Strategic Planning”
• Strategic management
 Used more often in academia
• Strategic planning
 Used more often in the business world
Ch. 1-5

Terminology
• Strategic management
Refers to:
 Strategy formulation
 Strategy implementation
 Strategy evaluation
• Strategic planning
Refers to:
 Strategy formulation
Ch. 1-6

Brief History
• 1950s
 Term strategic planning originates
1960s – 1970s
 Strategic planning very popular
 Widely viewed as panacea for problems
Ch. 1-7

Brief History
• 1980s
 Strategic planning cast aside
 Planning models did not yield higher returns
• 1990s–2000
 Revival of strategic planning
 Widely practiced in business world
Ch. 1-8

Strategic-Management Process
Three Stages
Strategy Formulation
Strategy Implementation
Strategy Evaluation
Ch. 1-9

Strategy Formulation
Vision & Mission
Opportunities & Threats
Strengths & Weaknesses
Long-Term Objectives
Alternative Strategies
Strategy Selection
Ch. 1-10

Strategy Implementation
Annual Objectives
Policies
Motivate Employees
Resource Allocation
Ch. 1-11

Strategy Evaluation
Review
External & Internal
Measure Performance
Corrective Action
Ch. 1-12

Key Strategic Management Terms
(Cont’d)
1. Strategists
2. Vision statements
3. Mission statements
4. External opportunities and threats
5. Internal strengths and weaknesses
Ch. 1-13

Key Strategic Management Terms
(Cont’d)
6. Long-term objectives
7. Strategies
8. Annual objectives
9. Policies
Ch. 1-14

Strategic Management Terms
(Cont’d)
Strategists
• Usually found in high levels of management
(CEO)
Help organization gather, analyze, and

organize information
Track industry and competitive trends
Develop forecasting model
Evaluate corporate and divisional performance

Ch. 1-15

(Cont’d)
Vision Statements
• Answers the question: “What do we want to
become?”
First step in strategic planning
Oftentimes a single sentence
“Our vision is to take care of your vision.”

(Stokes Eye Clinic, Florence, South Carolina)
Ch. 1-16

(Cont’d)
External Opportunities & Threats
• Largely beyond the control of a single organization
Economic
Social
Cultural
Demographic
Environmental
Ch. 1-17

(Cont’d)
External Opportunities & Threats (cont’d)
Political
Governmental
Technological
Competitive trends & events
Ch. 1-18

(Cont’d)
Internal Strengths & Weaknesses
• Controllable activities that are performed
well or poorly relative to competitors
Based on functional analysis of activities in

the firm’s:
 Management
 Marketing
 Finance/accounting
Ch. 1-19

(Cont’d)
Internal Strengths & Weaknesses
(Cont’d)
• Based on functional analysis of activities in
the firm’s:
Production/operations
Research and development
Computer information systems
• Organizations strive to pursue strategies that
capitalize on strengths and improve
weaknesses
Ch. 1-20

(Cont’d)
Long-Term Objectives
• Results to be achieved in pursuing the
organization’s mission. Time frame is beyond one
year.
State direction
Aid in evaluation
Create synergy
Reveal priorities
Focus coordination
Provide basis for effective management
Ch. 1-21

(Cont’d)
Strategies
• Potential actions that require top
management decisions and large amounts
of firm’s resources
Mechanisms by which long-term objectives are
realized
Geographic expansion
Diversification
Acquisition
Product development
Ch. 1-22

(Cont’d)
Strategies (cont’d)
• Mechanisms by which long-term objectives are

realized
Market penetration
Retrenchment
Divestiture
Liquidation
Joint venture
Ch. 1-23

(Cont’d)
Annual Objectives
• Short-term milestones necessary to
achieve long-term objectives.
Represent the basis for allocating resources
Established at corporate, divisional, and

functional levels
Ch. 1-24

(Cont’d)
Annual Objectives (cont’d)
• Stated in terms of accomplishments for:

management
 marketing
 finance/accounting
 production/operations
 research and development
 information systems accomplishments
Ch. 1-25

(Cont’d)
Policies
• Important in strategy implementation as the
means by which annual objectives will be achieved
 Guide to decision making and address repetitive

situations
 Established at corporate, divisional, or functional levels
 Allow consistency & coordination within and between
organizational departments
Ch. 1-26

Comprehensive Strategic Management Model
External
Audit
Chapter 3
Long-Term Generate, Implement Implement Measure &

Objectives Evaluate, Strategies: Strategies: Evaluate
Vision Select Mgmt Issues Marketing, Performance
& Strategies Fin/Acct,
Mission R&D, CIS
Statements Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9
Chapter 2
Internal
Audit
Chapter 4
Ch. 1-27

Benefits of Strategic
Management
• Proactive vs. Reactive
Initiate and influence activities
 Helps shape firm’s own future
• Principal Benefit
Formulate better strategies
 Systematic, logical, and rational approach
• Communication
Key to successful strategic management
Ch. 1-28

Management (Cont’d)
• Financial Benefits
More profitable and successful
Improvements in sales, profitability, and

productivity
High-Performing Firms
 Systematic planning
Fluctuations in external and internal environments
Ch. 1-29

Management (Cont’d)
• Nonfinancial Benefits
Enhanced awareness of external threats
Understanding of competitors’ strategies
Increased employee productivity
Reduced resistance to change
Clear performance-reward relationships
Order and discipline to the firm
View change as opportunity
Ch. 1-30

Why Some Firms Do No
Strategic Planning
• Poor reward structures
• Fire-fighting
• Waste of time
• Too expensive
• Laziness
• Content with success
Ch. 1-31

Why Some Firms Do No
Strategic Planning (Cont’d)
• Fear of failure
• Overconfidence
• Prior bad experience
• Self-interest
• Fear of the unknown
• Suspicion
Ch. 1-32

Pitfalls to Avoid in Strategic
Planning
• Using to gain control over decisions &
resources
• Doing only to satisfy regulatory requirements
• Moving hastily from mission to strategy
formulation
• Failing to communicate to employees
• Intuitive decisions that conflict with formal
plan
• Top management not supportive of process
Ch. 1-33

Pitfalls to Avoid in Strategic
Planning (Cont’d)
• Failing to use as standard for performance

measurement
• Delegating to a “planner” vs. involvement of
managers
• Failing to involve key personnel
• Failing to create collaborative environment
• Formality that stifles creativity and flexibility
Ch. 1-34

Business Ethics & Strategic
Planning
Defined:
Principles of conduct within organizations
that guide decision making and behavior
• Good business ethics is a prerequisite

for good strategic management
• Good ethics is just good business!

Ch. 1-35

Planning (Cont’d)
• Strategists responsible for high ethical
principles
• All strategic processes have ethical
ramifications
• Formal codes of ethics are in place for
many businesses
• Internet privacy emerging as ethical
issue of immense proportions
Ch. 1-36

Planning (Cont’d)
Business actions always unethical include:
• Misleading advertising
• Misleading labeling
• Environmental harm
• Poor product or service safety
• Padding expense accounts
• Insider trading
• Dumping flawed products on foreign markets
Ch. 1-37

Nature of Global Competition
• Companies conduct business across

borders
International or multinational corporations
 Parent company
 Host country
• Strategy implementation more difficult

Cultural differences
 Norms, values, work ethics
Ch. 1-38

Advantages of International
Operations
• Absorb excess capacity

• Reduce unit costs
• Low-cost production facilities
• Lower labor costs
• Competition less intense
Ch. 1-39

Advantages of International
Operations (Cont’d)
• Reduced tariffs, lower taxes

• Favorable political climate
• Economies of scale
Ch. 1-40

Disadvantages of International
Operations
Communication difficulties between parent and
subsidiaries
• Based on cultural, political, social, language,
demographic, and competitive forces
Foreign-based competitors
• Strengths underestimated
• Weaknesses overestimated
Ch. 1-41

Key Terms & Concepts
• Annual objectives • Internal strengths
• Business ethics • Internal weaknesses
• Code of ethics • Intuition
• E-commerce • Long-term objectives
• Empowerment • Mission statements
• Environmental scanning • Policies
• External opportunities • Strategic management
• External threats • Strategic-management
model
Ch. 1-42

Key Terms & Concepts (Cont’d)
• Strategic-management • Vision statement
process • Vision
• Strategies • Host country
• Strategists • International firms
• Strategy evaluation • Long-range planning
• Strategy formulation • Multinational
• Strategy corporation
implementation
• Lobbying
Ch. 1-43

The Nature of Strategic Management

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Strategic Management

Concepts & Cases

© 2001 Prentice Hall

• Global considerations impact virtually all

© 2001 Prentice Hall

Art and science of formulating,

© 2001 Prentice Hall

Visit and join the club on-line:

© 2001 Prentice Hall

© 2001 Prentice Hall

© 2001 Prentice Hall

© 2001 Prentice Hall

© 2001 Prentice Hall

© 2001 Prentice Hall

Vision & Mission

Opportunities & Threats

Strengths & Weaknesses

© 2001 Prentice Hall

© 2001 Prentice Hall

© 2001 Prentice Hall

© 2001 Prentice Hall

© 2001 Prentice Hall

Help organization gather, analyze, and

Track industry and competitive trends

Develop forecasting model

Evaluate corporate and divisional performance

© 2001 Prentice Hall

First step in strategic planning

Oftentimes a single sentence

“Our vision is to take care of your vision.”

© 2001 Prentice Hall

© 2001 Prentice Hall

© 2001 Prentice Hall

Based on functional analysis of activities in

© 2001 Prentice Hall

© 2001 Prentice Hall

© 2001 Prentice Hall

© 2001 Prentice Hall

• Mechanisms by which long-term objectives are

© 2001 Prentice Hall

Represent the basis for allocating resources

Established at corporate, divisional, and

© 2001 Prentice Hall

• Stated in terms of accomplishments for:

© 2001 Prentice Hall

 Guide to decision making and address repetitive

© 2001 Prentice Hall

Long-Term Generate, Implement Implement Measure &

© 2001 Prentice Hall

© 2001 Prentice Hall

Improvements in sales, profitability, and

© 2001 Prentice Hall

© 2001 Prentice Hall

© 2001 Prentice Hall

© 2001 Prentice Hall

© 2001 Prentice Hall

• Failing to use as standard for performance

© 2001 Prentice Hall

• Good business ethics is a prerequisite

• Good ethics is just good business!

© 2001 Prentice Hall

© 2001 Prentice Hall

© 2001 Prentice Hall