Unit 1

The Nature of Strategic Management

Source: David, Fred R. & David, Forest R, 16th. Editon (©2017)

Strategic Management. Pearson Educaton nc., USA
 Learning Objectves (1 of 2)
1.1 Describe the strategic-management process.
1.2 Discuss the three stages of strategy formulaton,
implementaton, and evaluaton actvites.
1.3 Explain the need for integratng analysis and intuiton in
strategic management.
1.4 Defne and give examples of key terms in strategic
management.
1.5 Describe the benefts of engaging in strategic
management.
(Contnued)

Source: David, Fred R. & David, Forest R, 16th. Editon (©2017)

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 Learning Objectves (2 of 2)
1.6 Explain why some frms do not engage in strategic
planning.
1.7 Describe the pitalls in doing strategic planning.
1.8 Discuss the connecton between business and military
strategy.
1.9 Explain how this course can enhance a student’s
employability.

Source: David, Fred R. & David, Forest R, 16th. Editon (©2017)

Strategic Management. Pearson Educaton nc., USA 3
 Defning Strategic Management
• Strategic Management
• The art and science of formulatng, implementng,
and evaluatng cross-functonal decisions that enable
an organizaton to achieve its objectves.

Source: David, Fred R. & David, Forest R, 16th. Editon (©2017)

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 Defning Strategic Management
• Strategic management is used synonymously with the
term strategic planning in this course.
• Sometmes the term strategic management is used to
refer to strategy formulaton, implementaton, and
evaluaton, with strategic planning referring only to
strategy formulaton.

Source: David, Fred R. & David, Forest R, 16th. Editon (©2017)

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 Defning Strategic Management
• A strategic plan is a company’s game plan.
• A strategic plan results from tough managerial choices
among numerous good alternatves, and it signals
commitment to specifc markets, policies, procedures,
and operatons.

Source: David, Fred R. & David, Forest R, 16th. Editon (©2017)

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 Figure 1.1 The Strategic Management Model

Source: Fred R. David, “How Companies Defne Their Mission,”

Long Range Planning 22, no. 1 (February 1989) 7
 The Strategic-Management Model
• Where are we now?
• Where do we want to go?
• How are we going to get there?

Source: David, Fred R. & David, Forest R, 16th. Editon (©2017)

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 Stages of Strategic Management
• Strategy formulaton
• Strategy implementaton
• Strategy evaluaton

Source: David, Fred R. & David, Forest R, 16th. Editon (©2017)

Strategic Management. Pearson Educaton nc., USA 9
 Stages of Strategic Management
• Strategy Formulaton
• developing a vision and mission
• identfying an organizaton’s external opportunites
and threats
• determining internal strengths and weaknesses
• establishing long-term objectves
• generatng alternatve strategies
• choosing partcular strategies to pursue

Source: David, Fred R. & David, Forest R, 16th. Editon (©2017)

Strategic Management. Pearson Educaton nc., USA 10
 Stages of Strategic Management
• What new businesses to enter
• What businesses to abandon
• Whether to expand operatons or diversify
• Whether to enter internatonal markets
• Whether to merge or form a joint venture
• How to avoid a hostle takeover

Source: David, Fred R. & David, Forest R, 16th. Editon (©2017)

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 Stages of Strategic Management
• Strategy Implementaton
• requires a frm to establish annual objectves, devise
policies, motvate employees, and allocate resources
so that formulated strategies can be executed.
• t is ofen called the acton stage.

Source: David, Fred R. & David, Forest R, 16th. Editon (©2017)

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 Stages of Strategic Management
• Strategy Evaluaton
• Determining which strategies are not working well
• Three fundamental actvites:
1. reviewing external and internal factors that are
the bases for current strategies
2. measuring performance
3. taking correctve actons

Source: David, Fred R. & David, Forest R, 16th. Editon (©2017)

Strategic Management. Pearson Educaton nc., USA 13
 ntegratng ntuiton and Analysis
• “ n God we trust, all others bring data.” – Edwards Deming
• Strategic management process is an objectve, logical,
systematc approach for making major decisions.
• Strategic management process organizes qualitatve
and quanttatve informaton to reach decisions.
• ntuiton is essental in making decisions in uncertain
situatons or when no precedents exist.

Source: David, Fred R. & David, Forest R, 16th. Editon (©2017)

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 Adaptng to Change
• Firms must be adept at adaptng! Change is the only
constant in the business world e.g. oil prices
• Speedy fow of informaton across natonal boundaries
• Emergence of the global economy
• The internet promotes comparison shopping by
companies and individuals
• Digital communicaton has become the name of the game
in marketng

Source: David, Fred R. & David, Forest R, 16th. Editon (©2017)

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 Key Terms in Strategic Management
• Compettve Advantage
• any actvity a frm does especially well compared to
actvites done by rival frms, or
• any resource a frm possesses that rival frms desire.
• A frm must strive to achieve sustained compettve
advantage by:
• Contnually adaptng to changes in external
trends/events and internal capabilites and resources
• Efectvely formulatng, implementng, and evaluatng
strategies that capitalize on those factors

Source: David, Fred R. & David, Forest R, 16th. Editon (©2017)

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 Key Terms in Strategic Management
• Strategists
• ndividuals most responsible for the success or failure
of an organizaton
• All strategists have to be Chief Learning Ofcers
• Help an organizaton gather, analyze, and organize
informaton
Vision and Mission Statements
• A vision statement answers the queston “What do we
want to become?”
• A mission statement answers the queston “What is
our business?”
Source: David, Fred R. & David, Forest R, 16th. Editon (©2017)
Strategic Management. Pearson Educaton nc., USA 17
 Key Terms in Strategic Management
• Vision and Mission Statements
• A vision statement answers the queston “What do
we want to become?”
• A mission statement answers the queston “What is
our business?”
• Mission statements are enduring statements of
purpose that distnguish one business from other
similar frms
• Mission statements identfy the scope of a frm’s
operatons in product and marketng terms

Source: David, Fred R. & David, Forest R, 16th. Editon (©2017)

Strategic Management. Pearson Educaton nc., USA 18
 Key Terms in Strategic Management
• External Opportunites and Threats
• economic, social, cultural, demographic,
environmental, politcal, legal, governmental,
technological, and compettve trends and events that
could signifcantly beneft or harm an organizaton
• Internal Strengths and Internal Weaknesses
• an organizaton’s controllable actvites that are
performed especially well or poorly
• determined relatve to compettors

Source: David, Fred R. & David, Forest R, 16th. Editon (©2017)

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 Key Terms in Strategic Management
• Long-Term Objectves
• specifc results that an organizaton seeks to achieve
in pursuing its basic mission
• long-term means more than one year
• should be challenging, measurable, consistent,
reasonable, and clear

Source: David, Fred R. & David, Forest R, 16th. Editon (©2017)

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 Key Terms in Strategic Management
• Strategies
• the means by which long-term objectves will be
achieved
• may include geographic expansion, diversifcaton,
acquisiton, product development, market
penetraton, retrenchment, divestture, liquidaton,
and joint ventures

Source: David, Fred R. & David, Forest R, 16th. Editon (©2017)

Strategic Management. Pearson Educaton nc., USA 21
 Key Terms in Strategic Management
• Annual objectves
• short-term milestones that organizatons must
achieve to reach long-term objectves
• should be measurable, quanttatve, challenging,
realistc, consistent, and prioritzed
• should be established at the corporate, divisional, and
functonal levels in a large organizaton

Source: David, Fred R. & David, Forest R, 16th. Editon (©2017)

Strategic Management. Pearson Educaton nc., USA 22
 Benefts of Strategic Management
• Strategic management allows an organizaton to be more
proactve than reactve in shaping its own future;
• t allows an organizaton to initate and infuence (rather
than just respond to) actvites – and thus to exert control
over its own destny.

Source: David, Fred R. & David, Forest R, 16th. Editon (©2017)

Strategic Management. Pearson Educaton nc., USA 23
 Figure 1.3 Benefts to a Firm
That Does Strategic Planning

Source: David, Fred R. & David, Forest R, 16th. Editon (©2017)

Strategic Management. Pearson Educaton nc., USA 24
 Financial Benefts
• Organizatons using strategic-management concepts show
signifcant improvement in sales, proftability, and
productvity compared to frms without systematc
planning actvites.
• High-performing frms tend to do systematc planning to
prepare for future fuctuatons in their external and
internal environments.

Source: David, Fred R. & David, Forest R, 16th. Editon (©2017)

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 Nonfnancial Benefts
• Enhanced awareness of external threats
• mproved understanding of compettors’ strategies
• ncreased employee productvity
• Reduced resistance to change
• Clearer understanding of performance-reward
relatonships

Source: David, Fred R. & David, Forest R, 16th. Editon (©2017)

Strategic Management. Pearson Educaton nc., USA 26
 Why Some Firms Do No Strategic Planning
• No formal training in strategic management
• No understanding of or appreciaton for the benefts of
planning
• No monetary rewards for doing planning
• No punishment for not planning
• Too busy “frefghtng” (resolving internal crises) to plan
ahead
• View planning as a waste of tme, since no
product/service is made
(Contnued)

Source: David, Fred R. & David, Forest R, 16th. Editon (©2017)

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 Why Some Firms Do No Strategic Planning
• Laziness; efectve planning takes tme and efort; tme is
money
• Content with current success; failure to realize that
success today is no guarantee for success tomorrow
• Overconfdence
• Prior bad experience with strategic planning done
sometme/somewhere

Source: David, Fred R. & David, Forest R, 16th. Editon (©2017)

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 Pitalls in Strategic Planning
• Using strategic planning to gain control over decisions and
resources
• Doing strategic planning only to satsfy accreditaton or
regulatory requirements
• Too hastly moving from mission development to strategy
formulaton
• Not communicatng the plan to employees, who contnue
working in the dark
• Top managers making many intuitve decisions that confict with
the formal plan
• Top managers not actvely supportng the strategic-planning
process
• Not using plans as a standard for measuring performance
Source: David, Fred R. & David, Forest R, 16th. Editon (©2017) (Contnued)
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 Pitalls in Strategic Planning
• Delegatng planning to a “planner” rather than involving
all managers
• Not involving key employees in all phases of planning
• Not creatng a collaboratve climate supportve of change
• Viewing planning as unnecessary or unimportant
• Viewing planning actvites as silos comprised of
independent parts
• Becoming so engrossed in current problems that
insufcient or no planning is done
• Being so formal in planning that fexibility and creatvity
are stfed
Source: David, Fred R. & David, Forest R, 16th. Editon (©2017)
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 Comparing Business and Military Strategy
• A fundamental diference between military and business
strategy is that business strategy is formulated,
implemented, and evaluated with an assumpton of
competton, whereas military strategy is based on an
assumpton of confict.
• Both business and military organizatons must adapt to
change and constantly improve to be successful.

Source: David, Fred R. & David, Forest R, 16th. Editon (©2017)

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 Excerpts from Sun Tzu’s ‘The Art of War’ Writngs
• Strategic planning is a mater of vital importance to the
state: a mater of life or death, the road either to survival
or ruin. Hence, it is imperatve that it be studied
thoroughly.
• Know your enemy and know yourself, and in a hundred
batles you will never be defeated.
• Skillful leaders do not let a strategy
prevent creatve counter-movement.

Source: David, Fred R. & David, Forest R, 16th. Editon (©2017)

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 How to Gain and Sustain Compettve Advantage

Source: David, Fred R. & David, Forest R, 16th. Editon (©2017)

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Session Ends
 Disclaimer
The informaton provided in this module is derived from Pearson
Educaton Inc., USA, and other sources. All informaton is provided in
good faith for educatonal purposes only. Iqra University claims no
ownership of this informaton, and will not be liable for any claims
arising thereof, now or in the future.