Nature of Strategic MGMT

Chapter 1
The Nature of Strategic Management
Strategic Management:
Concepts & Cases
12th Edition
Fred David
Copyright 2009 Pearson Education, Inc.
Ch 1 -1
Themes in the Text

Global Considerations
impact virtually all strategic decisions
E-commerce
vital strategic management tool
Natural Environment
important strategic issue
Ch 1 -2
Strategic Management
Defined
Art & science of formulating,

implementing, and evaluating,
cross-functional decisions that
enable an organization to achieve its
objectives
Ch 1 -3
In essence, the strategic plan is a

companys game plan.
Ch 1 -4
Strategic management
achieves a firms success
through integration
Management
Marketing
Finance/Accounting
Production/Operations
Research & Development
MIS
Ch 1 -5
Strategy Formulation
Vision & Mission
External Opportunities & Threats
Internal Strengths & Weaknesses
Long-Term Objectives
Alternative Strategies
Strategy Selection
Ch 1 -6
Issues in Strategy
Formulation
New
Newbusiness
business
opportunities
opportunities
Businesses
Businessesto
toabandon
abandon
Allocation
Allocationof
ofresources
resources
Expansion
Expansionor
or
diversification
diversification
International
Internationalmarkets
markets
Mergers
Mergersor
orjoint
jointventures
ventures
Avoidance
Avoidanceof
ofhostile
hostile
takeover
takeover
Ch 1 -7
Strategy Implementation
Annual Objectives
Policies
Employee Motivation
Resource Allocation
Ch 1 -8
Strategy
Implementation
Action
ActionStage
Stageof
ofStrategic
Strategic
Management
Management
Most
Mostdifficult
difficultstage
stage
Mobilization
Mobilizationof
of
employees
employees&&managers
managers
Interpersonal
Interpersonalskills
skills
critical
critical
Consensus
Consensuson
ongoal
goal
pursuit
pursuit
Ch 1 -9
Strategy Evaluation
Internal Review
External Review
Performance Metrics
Corrective Actions
Ch 1 -10
Strategy
Evaluation
Final
FinalStage
Stageof
ofStrategic
Strategic
Management
Management
Subject
Subjectto
tofuture
future
modification
modification
Todays
Todayssuccess
successno
no
guarantee
guaranteeof
offuture
futuresuccess
success
New
New&&different
differentproblems
problems
Complacency
Complacencyleads
leadsto
to
demise
demise
Ch 1 -11
Prime Task of
Peter Drucker: Think through the

overall mission of a business. Ask
the key question: What is our
Business?
Ch 1 -12
Integrating Intuition &

Analysis
The strategic management process

attempts to organize quantitative and
qualitative information under conditions of
uncertainty.
Ch 1 -13

Analysis
Intuition is based on:
Past experiences
Judgment
Feelings
Intuition is useful for decision making in:

Conditions of great uncertainty
Conditions with little precedent
Ch 1 -14

Analysis
Intuition & Judgment
Involve management at all levels
Influence all analyses
Ch 1 -15

Analysis
Analytical Thinking
Intuitive Thinking
Ch 1 -16
Adapting to Change
Organizations must monitor events

Ongoing process
Internal and external events
Timely changes
Ch 1 -17
Strategic Management is
Gaining and Maintaining
Competitive Advantage
Anything that a firm does especially

well compared to rival firms
Ch 1 -18
Achieving Sustained
Competitive Advantage
1. Adapting to change in external trends,
internal capabilities, and resources
2. Effectively formulating, implementing, and

evaluating strategies
Ch 1 -19
Adapting to Change
Rate & magnitude of change
increasing dramatically
E-commerce
Demographics
Technology
Ch 1 -20
Adapting to Change
Effective Adaptation
Requires long-term focus
Ch 1 -21
Adapting to Change Key

Questions
What kind of business should we

become?
Are we in the right fields?
Are there new competitors?
What strategies should we
pursue?
How are our customers changing?
Ch 1 -22
Key Terms
Strategists Firms success/failure
Various Job Titles:
Chief Executive Officer (CEO)
Chief Strategy Officer (CSO)
President
Owner
Board Chair
Executive Director
Ch 1 -23
Key Terms
Vision Statement
What do we want to become?
Mission Statement
What is our business?
Ch 1 -24
Key Terms
Opportunities & Threats (External)
Largely beyond the control of a single

organization
Ch 1 -25
Key Terms
Opportunities & Threats (External)
Analysis of Trends:
Economic
Social
Cultural
Demographic/Environmental
Political, Legal, Governmental
Technological
Competitors
Ch 1 -26
Key Terms
Opportunities & Threats
Environmental Scanning (Industry Analysis)
Process of conducting research and

gathering and assimilating external
information
Ch 1 -27
Key Terms
Opportunities & Threats
Basic Tenet of Strategic Management
Take
Takeadvantage
advantageof
of
External
ExternalOpportunities
Opportunities
Strategy Formulation
Avoid/minimize
Avoid/minimizeimpact
impactof
of
External
ExternalThreats
Threats
Ch 1 -28
Key Terms
Strengths & Weaknesses (Internal)
Controllable activities performed especially

well or poorly
Ch 1 -29
Key Terms
Strengths & Weaknesses (Internal)
Typically located in functional areas of the firm
Management
Marketing
Finance/Accounting
Production/Operations
Research & Development
Computer Information Systems
Ch 1 -30
Key Terms
Strengths & Weaknesses
Assessing the Internal Environment
Financial Ratios
Performance Metrics
Internal Factors
Industry Averages
Survey Data
Ch 1 -31
Key Terms
Long-term Objectives
Mission-driven pursuit of specified results

more than one year out
Ch 1 -32
Key Terms
Long-term Objectives
Essential for ensuring the firms success
Provide direction
Aid in evaluation
Create synergy
Focus coordination
Basis for planning, motivating, and

controlling
Ch 1 -33
Key Terms
Strategies
Means by which long-term objectives are

achieved
Ch 1 -34
Key Terms
Strategies
Some Examples
Geographic expansion
Diversification
Acquisition
Market penetration
Retrenchment
Liquidation
Joint venture
Ch 1 -35
Key Terms
Annual Objectives
Short-term milestones that firms must

achieve to attain long-term objectives
Ch 1 -36
Key Terms
Policies
Means by which annual objectives will be

achieved
Ch 1 -37
Example Strategies in Action in 2007

McDonalds Corp
The worlds largest restaurant chain by number of outlets, Big Mac is
doing fantastic both in the United States and abroad. In past months,
McDonalds began opening drive-through restaurants in China, closed
25 sites in the United Kingdom, and disposed of a supply-chain
operation in Russia. Big Mac in 2007 opened 800 new restaurants in
China, Japan, and Russia. Shares of McDonalds stock increased 42
percent in 2006 as sales for the year eclipsed $41 billion. Big Mac is
working to eliminate trans fats from their food (New York City is requiring
this of all restaurants in 2007). McDonalds plans in 2008 to turn
ownership of about 2,300 restaurants in Canada and the United
Kingdom over to licensees.
Ch 1 -38
Example Strategies in Action in 2007

American General
A Fortune 500 company based in Piscataway, New Jersey, American
General split into three businesses in 2007: Air-conditioning systems,
Bath-and-kitchen business, and vehicle-control systems. The firm also
is renaming itself Trane, after its flagship air-conditioning brand name.
The company plans to divest the bath-and-kitchen division and to spin
off its vehicle control division into a publicly traded company named
Wabco. Led by CEO Fred Poses, American General employs about
62,000 persons and has manufacturing operations in 28 countries.
Ch 1 -39
Figure 1.1 Comprehensive Strategic-Management Model

External
Audit
Chapter 3
Vision
&
Mission
Chapter 2
Long-Term
Objectives
Generate,
Evaluate,
Select
Strategies
Implement
Strategies:
Mgmt Issues
Implement
Strategies:
Marketing,
Fin/Acct,
R&D, CIS
Measure &
Evaluate
Performance
Chapter 5
Chapter 6
Chapter 7
Chapter 8
Chapter 9
Internal
Audit
Chapter 4
Ch 1 -40
Strategic Management Model
Strategic Management Process
Dynamic & continuous

More formal in larger organizations
Ch 1 -41

1.
Identify Existing
Vision
Mission
Objectives
Strategies
Ch 1 -42

2.
3.
4.
5.
6.
7.
Audit external environment

Audit internal environment
Establish long-term objectives
Generate, evaluate, and select strategies
Implement selected strategies
Measure & evaluate performance
Ch 1 -43
Benefits of Strategic
Management
Proactive in shaping firms future
Initiate and influence firms activities
Formulate better strategies
Systematic, logical, rational
Ch 1 -44
Management
Financial Benefits
Improvement in sales
Improvement in profitability
Productivity improvement
Ch 1 -45
Management
Nonfinancial Benefits
Improved understanding of competitors strategies
Enhanced awareness of threats
Reduced resistance to change
Enhanced problem-prevention capabilities
Ch 1 -46
Management (Greenley)
1. Identification of opportunities
2. Objective view of management problems
3. Improved coordination & control
4. Minimizes adverse conditions & changes
5. Decisions that better support objectives
Ch 1 -47
Management (Greenley contd)
6. Effective allocation of time & resources
7. Internal communication among personnel
8. Integration of individual behaviors
9. Clarify individual responsibilities
10. Encourage forward thinking
Ch 1 -48
Management (Greenley contd)
11. Encourages favorable attitude toward

change
12. Provides discipline and formality to the
management of the business
Ch 1 -49
Why Some Firms Do No

Strategic Planning
Poor reward structures
Fire-fighting
Waste of time
Too expensive
Laziness
Content with success
Ch 1 -50
Why Some Firms Do No

Strategic Planning
Fear of failure
Overconfidence
Prior bad experience
Self-interest
Fear of the unknown
Suspicion
Ch 1 -51
Business Ethics & Strategic

Management
Business ethics defined
Principles of conduct within organizations

that guide decision making and behavior
Ch 1 -52

Management
Good business ethics
Prerequisite for good strategic management
Ch 1 -53

Management
Code of business ethics
Provides basis on which policies can be

devised to guide daily behavior and
decisions in the workplace
Ch 1 -54

Management
Business practices always considered unethical
Misleading advertising
Misleading labeling
Harm to the environment
Insider trading
Dumping flawed products on foreign markets
Poor product or service safety
Padding expense accounts
Ch 1 -55
Natural Environment
Perspective
Using
WhatISO
are
Advantage
14000
Certification
ISO 14000
& 14001?to Gain Strategic
Requirements for ISO 14001
Environmental Management
Systems (EMS)
Ch 1 -56
The Nature of Global

Competition
International/multinational corporations
Parent company
Host country
Ch 1 -57
The Nature of Global

Competition
Strategy implementation may be difficult
Cultural differences
Norms
Values
Work ethic
Ch 1 -58
Advantages of International
Operations
Absorb excess capacity
Reduce unit costs
Spread risk over wider markets
Low-cost production facilities
Ch 1 -59
Advantages of International
Operations (contd)
Less intense competition

Lower taxes
Economies of scale
Ch 1 -60
Disadvantages of
International Operations
Difficult communications
Underestimate foreign competition
Cultural barriers to effective management
Complications arising from currency
differences
Ch 1 -61
All rights reserved. No part of this publication may be reproduced, stored in a

retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior written
permission of the publisher. Printed in the United States of America.
Ch 1 -62

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Chapter 1

The Nature of Strategic Management

Copyright 2009 Pearson Education, Inc.

Themes in the Text

Art & science of formulating,

Copyright 2009 Pearson Education, Inc.

In essence, the strategic plan is a

Copyright 2009 Pearson Education, Inc.

Research & Development

Copyright 2009 Pearson Education, Inc.

Copyright 2009 Pearson Education, Inc.

Copyright 2009 Pearson Education, Inc.

Copyright 2009 Pearson Education, Inc.

Copyright 2009 Pearson Education, Inc.

Copyright 2009 Pearson Education, Inc.

Copyright 2009 Pearson Education, Inc.

Peter Drucker: Think through the

Copyright 2009 Pearson Education, Inc.

Integrating Intuition &

The strategic management process

Copyright 2009 Pearson Education, Inc.

Integrating Intuition &

Intuition is useful for decision making in:

Copyright 2009 Pearson Education, Inc.

Integrating Intuition &

Involve management at all levels

Influence all analyses

Copyright 2009 Pearson Education, Inc.

Integrating Intuition &

Copyright 2009 Pearson Education, Inc.

Organizations must monitor events

Copyright 2009 Pearson Education, Inc.

Anything that a firm does especially

Copyright 2009 Pearson Education, Inc.

2. Effectively formulating, implementing, and

Copyright 2009 Pearson Education, Inc.

Requires long-term focus

Copyright 2009 Pearson Education, Inc.

Adapting to Change Key

What kind of business should we

Copyright 2009 Pearson Education, Inc.

Copyright 2009 Pearson Education, Inc.

Opportunities & Threats (External)

Largely beyond the control of a single

Copyright 2009 Pearson Education, Inc.

Political, Legal, Governmental

Copyright 2009 Pearson Education, Inc.

Process of conducting research and

Copyright 2009 Pearson Education, Inc.

Copyright 2009 Pearson Education, Inc.

Controllable activities performed especially

Copyright 2009 Pearson Education, Inc.

Research & Development

Computer Information Systems

Copyright 2009 Pearson Education, Inc.

Copyright 2009 Pearson Education, Inc.

Mission-driven pursuit of specified results

Copyright 2009 Pearson Education, Inc.

Basis for planning, motivating, and

Copyright 2009 Pearson Education, Inc.

Means by which long-term objectives are

Copyright 2009 Pearson Education, Inc.

Copyright 2009 Pearson Education, Inc.