Chapter 1

The Nature of Strategic

Management
Strategic Management: Concepts & Cases
13th Edition Fred David
Prepared by: Maria Anna David-Cruz, PhD.
Strategic Management –Defined
• Art & science of formulating, implementing, and
evaluating, cross-functional decisions that enable an
organization to achieve its objectives.
• strategic management focuses on integrating
management, marketing, finance/accounting,
production/operations, research and development,
and information systems to achieve organizational
success.
Strategic Management
• The purpose of strategic
management is to exploit and create
new and different opportunities for
tomorrow;
• long-range planning, in contrast,
tries to optimize for tomorrow the
trends of today.

• In essence, the strategic plan is a

company’s game plan
3 Stages of the Strategic Management Process

•Strategy formulation
•Strategy implementation
•Strategy evaluation
Key Terms in Strategic Management
◼ Competitive advantage ◼ Long-term objectives
◼ Strategists ◼ Strategies
◼ Vision and mission ◼ Annual objectives
statements
◼ Policies
◼ External opportunities and
threats
◼ Internal strengths and
weaknesses
Strategic Management is Gaining and
Maintaining Competitive Advantage

• Anything that a firm does

especially well compared to
rival firms
Strategists
Vision and Mission
Statements
Vision: What do we want to become?

Source: https://medium.com/ebaqdesign/vision-statements-of-top-brands-7f1708db42ec
Mission: What is our business?

Source: https://www.pinterest.ph/pin/49680402130521799/
External Opportunities and Threats
•Analysis of Trends
❑ Economic ❑ Political, Legal,
Governmental
❑ Social
❑ Technological
❑ Cultural
❑ Competitors
❑ Demographic/Environmental
Basic Tenet of Strategic Management
Internal Strengths and Weaknesses
• Controllable activities performed especially well or poorly
• Determined relative to competitors
• Typically located in functional areas of the firm
❑ Management
❑ Marketing
❑ Finance/Accounting
❑ Production/Operations
❑ Research & Development
❑ Management Information Systems
Assessing the Internal Environment
Long-Term Objectives
❑ Specific results that an organization seeks to achieve in pursuing its basic
mission
❑ Long-term means more than one year
❑ Essential for ensuring the firm’s success
❑ Provide direction
❑ Aid in evaluation
❑ Create synergy
❑ Reveal priorities
❑ Focus coordination
❑ Provide basis for planning, organizing, motivating, and controlling
 Examples
Strategies • Geographic expansion
• Diversification
• Acquisition
• Product development
Means by which long- • Market penetration
term objectives are • Retrenchment
achieved • Divestiture
• Liquidation
• Joint venture
Annual Objectives
• Annual objectives are short-term milestones that
organizations must achieve to reach long-term
objectives.
• They should be measurable, quantitative,
challenging, realistic, consistent, and prioritized
• They should be established at the corporate,
divisional, and functional levels in a large
organization.
Policies
•Policies are the means by which annual
objectives will be achieved.
•They include guidelines, rules, and procedures
established to support efforts to achieve stated
objectives
•Policies are guides to decision making and
address repetitive or recurring situations
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MODEL
Strategic Management Process
•Dynamic & continuous
•More formal in larger organizations

Communication is a key to
successful strategic
management
Benefits of Strategic Management
Financial Benefits
• Research indicates that organizations using strategic-management
concepts are more profitable and successful than those that do not.
• High-performing firms tend to do systematic planning to prepare for
future fluctuations in the external and internal environments.
• Firms with planning systems more closely resembling strategic-
management theory generally exhibit superior long-term financial
performance relative to their industry.
Nonfinancial Benefits
❑ Enhanced awareness of threats
❑ Improved understanding of competitors’ strategies
❑ Increased employee productivity
❑ Reduced resistance to change
❑ Clearer understanding of performance-reward relationship
❑ Enhanced problem-prevention capabilities
GUIDELINES FOR EFFECTIVE STRATEGIC
MANAGEMENT
A. Failure to Follow Certain Guidelines in Planning Can Cause Problems

• An integral part of strategy evaluation must be to evaluate the quality of the

strategic-management process. Issues such as “Is strategic management in our
firm a people process or a paper process?” should be addressed.
• Strategic decisions require trade-offs such as long-range versus short-range
considerations or maximizing profits versus increasing shareholders’ wealth.
• Subjective factors such as attitudes toward risk, concern for social responsibility,
and organizational culture will always affect strategy-formulation decisions, but
organizations must remain as objective as possible.
Why Some Firms Do No Strategic Planning
◼ Lack of knowledge of strategic ◼ Laziness
planning
◼ Content with success
◼ Poor reward structures
◼ Fear of failure
◼ Fire fighting
◼ Overconfidence
◼ Waste of time
◼ Prior bad experience
◼ Too expensive
◼ Self-interest
◼ Honest difference of opinion
◼ Fear of the unknown
◼ Suspicion
COMPARING BUSINESS AND MILITARY
STRATEGY
A Strong Military Heritage Underlies the Study of Strategic Management
• Terms such as objectives, mission, strengths, and weaknesses were first
formulated to address problems on the battlefield.
• A fundamental difference between military and business strategy is that
business strategy is formulated, implemented, and evaluated with the
assumption of competition, while military strategy is based on an
assumption of conflict.
• The similarities between military and business strategy can be seen in Sun
Tzu’s The Art of War.