Strategic Management

Concepts & Cases

Fred R. David
Chapter 1:
The Nature of Strategic
Management
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© 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

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 Strategic Management Defined
“Art and science of formulating, implementing,
and evaluating cross-functional decisions that
enable an organization to achieve its objectives.”
As this definition implies, strategic management
focuses on integrating management, marketing,
finance/accounting, production/operations,
research and development, and information
systems to achieve organizational success.
In essence, the strategic plan is a company’s Ch. 1-3
game plan © 2001 Prentice Hall
 Terminology
“Strategic Management”
Synonymous with
“Strategic Planning”

• Strategic management
➢ Used more often in academia

• Strategic planning
➢ Used more often in the business world
Ch. 1-4

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 Terminology

• Strategic management
➢Refers to:
▪ Strategy formulation
▪ Strategy implementation
▪ Strategy evaluation

• Strategic planning
➢Refers to:
▪ Strategy formulation
Ch. 1-5

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 Brief History
• 1950s
➢ Term strategic planning originates

1960s – 1970s
➢ Strategic planning very popular
▪ Widely viewed as panacea (remedy) for problems

Ch. 1-6

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 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. 1-7

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Strategic-Management Process
Three Stages

Strategy Formulation

Strategy Implementation

Strategy Evaluation
Ch. 1-8

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Strategy Formulation

Vision & Mission

Opportunities & Threats

Strengths & Weaknesses

Long-Term Objectives

Alternative Strategies

Strategy Selection

Ch. 1-9

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Strategy Implementation

Annual Objectives

Policies

Motivate Employees

Resource Allocation

Ch. 1-10

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Strategy Evaluation

Review
External & Internal

Measure Performance

Corrective Action

Ch. 1-11

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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. 1-12

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Key Strategic Management Terms
(Cont’d)

6. Long-term objectives
7. Strategies
8. Annual objectives
9. Policies

Ch. 1-13

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 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. 1-14

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 Strategic Management Terms
(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. 1-15

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 Strategic Management Terms
(Cont’d)
External Opportunities & Threats
• Largely beyond the control of a single organization

➢Economic
➢Social
➢Cultural
➢Demographic
➢Environmental

Ch. 1-16

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 Strategic Management Terms
(Cont’d)
External Opportunities & Threats (cont’d)

➢Political
➢Governmental
➢Technological
➢Competitive trends & events

Ch. 1-17

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 Strategic Management Terms
(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. 1-18

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 Strategic Management Terms
(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. 1-19

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 Strategic Management Terms
(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. 1-20

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 Strategic Management Terms
(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. 1-21

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 Strategic Management Terms
(Cont’d)
Strategies (cont’d)

• Mechanisms by which long-term objectives are

realized
➢Market penetration
➢Retrenchment ( withdrawing from
certain markets)
➢Divestiture
➢Liquidation
➢Joint venture
Ch. 1-22

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 Strategic Management Terms
(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. 1-23

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 Strategic Management Terms
(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. 1-24

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 Strategic Management Terms
(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. 1-25

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 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. 1-26

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Benefits of Strategic Management

Ch. 1-27

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 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

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 Benefits of Strategic
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

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 Benefits of Strategic
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

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

Ch. 1-31

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 Why Some Firms Do No
Strategic Planning (Cont’d)

• Fear of failure
• Overconfidence
• Prior bad experience
• Self-interest
• Fear of the unknown
• Suspicion (Distrust)

Ch. 1-32

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Pitfalls (drawbacks) to Avoid in
Strategic Planning
• Using to gain control over decisions &
resources
• Doing only to satisfy regulatory requirements
• Moving hastily (hurriedly) 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

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 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
• Becoming so absorbed in current problems
that insufficient or no planning is done
• Formality that stifles (quiet) creativity and
flexibility
Ch. 1-34

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 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

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

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 Business Ethics & Strategic
Planning (Cont’d)
Business actions always unethical include:
• Misleading advertising
• Misleading labeling
• Environmental harm
• Poor product or service safety
• Padding (Filling) expense accounts
• Insider trading
• Dumping flawed (faulty) products on foreign markets

Ch. 1-37

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 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

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 Seventeen Guidelines for the Strategic-
Planning Process to Be Effective

• It should be a people process more than a paper

process.
• It should be a learning process for all managers and
employees.
• It should be words supported by numbers rather than
numbers supported by words.
• It should be simple and non-routine.
• It should vary assignments, team memberships,
meeting formats, and even the planning calendar.
• It should challenge the assumptions underlying
(basic) the current corporate strategy. Ch. 1-39

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 Seventeen Guidelines for the Strategic-
Planning Process to Be Effective (Contd.)

• It should welcome bad news.

• It should welcome open-mindness and a spirit of
inquiry and learning.
• It should not be a bureaucratic mechanism.
• It should not become ritualistic (formalized) or
orchestrated (written).
• It should not be too formal, predictable
(foreseeable), or rigid.
• It should not contain nonsense or secret planning
language.
Ch. 1-40

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 Seventeen Guidelines for the Strategic-
Planning Process to Be Effective (Contd.)

• It should not be a formal system for control.

• It should not disregard qualitative
information.
• It should not be controlled by “technicians.”
• Do not pursue too many strategies at once.
• Continually strengthen the “good ethics is
good business” policy.

Ch. 1-41

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 Advantages of International
Operations

• Absorb excess capacity

• Reduce unit costs
• Low-cost production facilities
• Lower labor costs
• Competition less intense (penetrating)

Ch. 1-42

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 Advantages of International
Operations (Cont’d)

• Reduced tariffs, lower taxes

• Favorable political climate
• Economies of scale

Ch. 1-43

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 Disadvantages of International
Operations
Communication difficulties between parent and
subsidiaries (affiliates)
• Based on cultural, political, social, language,
demographic, and competitive forces

Foreign-based competitors
• Strengths underestimated
• Weaknesses overestimated

Ch. 1-44

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