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Chapter 1

The Nature of Strategic Management

Strategic Management:
Concepts & Cases
11th Edition
Fred David

Copyright 2007 Prentice Hall

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
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Ch 1 -2

Strategic Management
Defined

Art & science of formulating,


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

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Ch 1 -3

Strategic Management

In essence, the strategic plan is a


companys game plan

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Ch 1 -4

Strategic Management
achieves a firms success
through integration

Management

Marketing

Finance/Accounting

Production/Operations

Research & Development

MIS

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Ch 1 -5

Strategy Formulation
Vision & Mission
External Opportunities & Threats
Internal Strengths & Weaknesses
Long-Term Objectives
Alternative Strategies
Strategy Selection

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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

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Ch 1 -7

Strategy Implementation

Annual Objectives
Policies
Employee Motivation
Resource Allocation

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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

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Ch 1 -9

Strategy Evaluation

Internal Review
External Review
Performance Metrics
Corrective Actions

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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

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Ch 1 -11

Prime Task of
Strategic Management

Peter Drucker: -- Think through the


overall mission of a business. Ask
the key question: What is our
Business?

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Ch 1 -12

Integrating Intuition and


Analysis

The strategic management process


attempts to organize quantitative and
qualitative information under conditions of
uncertainty

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Ch 1 -13

Integrating Intuition and


Analysis
Intuition is based on:
Past experiences
Judgment
Feelings

Intuition is useful for decision making in:


Conditions of great uncertainty
Conditions with little precedent

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Ch 1 -14

Integrating Intuition &


Analysis
Intuition & Judgment

Involve Management at all levels

Influence all Analyses

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Ch 1 -15

Integrating Intuition &


Analysis
Analytical Thinking

Intuitive Thinking

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Ch 1 -16

Adapting to Change

Organizations must monitor events


On-going process
Internal and external events
Timely changes

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Ch 1 -17

Strategic Management is
Gaining and Maintaining
Competitive Advantage

Anything that a firm does especially


well compared to rival firms

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Ch 1 -18

Achieving Sustained
Competitive Advantage
1. Adapting to change in external trends,
internal capabilities and resources

2. Effectively formulating, implementing &


evaluating strategies

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Ch 1 -19

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Ch 1 -20

Adapting to Change
Rate & magnitude of change
increasing dramatically
E-commerce
Demographics
Technology
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Ch 1 -21

Adapting to Change
Effective Adaptation

Requires long-term focus

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Ch 1 -22

Adapting to Change Key


Strategic Management
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?

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Ch 1 -23

Key Terms
Strategists Firms success/failure
Various Job Titles:
Chief Executive Officer (CEO)
Chief Strategy Officer (CSO)
President
Owner
Board Chair
Executive Director
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Ch 1 -24

Key Terms

Vision Statement
What do we want to become?

Mission Statement
What is our business?

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Ch 1 -25

Key Terms

Opportunities and Threats (External)

Largely beyond the control of a single


organization

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Ch 1 -26

Key Terms
Opportunities & Threats (External)
Analysis of Trends:

Economic

Social

Cultural

Demographic/Environmental

Political, Legal, Governmental

Technological

Competitors

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Ch 1 -27

Key Terms
Opportunities & Threats
Environmental Scanning (Industry Analysis)

Process of conducting research and


gathering and assimilating external
information

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Ch 1 -28

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

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Ch 1 -29

Key Terms
Strengths & Weaknesses (Internal)

Controllable activities performed especially


well or poorly

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Ch 1 -30

Key Terms
Strengths & Weaknesses (Internal)
Typically located in functional areas of the firm

Management

Marketing

Finance/Accounting

Production/Operations

Research & Development

Computer Information Systems

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Ch 1 -31

Key Terms
Strengths & Weaknesses
Assessing the Internal Environment
Financial Ratios

Performance Metrics

Internal Factors
Industry Averages

Survey Data

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Ch 1 -32

Key Terms

Long-term Objectives

Mission-driven pursuit of specified results


more than one year out

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Ch 1 -33

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

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Ch 1 -34

Key Terms

Strategies

Means by which long-term objectives are


achieved

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Ch 1 -35

Key Terms
Strategies
Some Examples

Geographic expansion

Diversification

Acquisition

Market penetration

Retrenchment

Liquidation

Joint venture

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Ch 1 -36

Key Terms

Annual Objectives

Short-term milestones that firms must


achieve to attain long-term objectives

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Ch 1 -37

Key Terms

Policies

Means by which annual objectives will be


achieved

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Ch 1 -38

Example Strategies in Action in 2005

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Ch 1 -39

Example Strategies in Action in 2005

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Ch 1 -40

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

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Ch 1 -41

Strategic Management Model

Strategic Management Process

Dynamic & Continuous


More formal in larger organizations

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Ch 1 -42

Strategic Management Model


1. Identify Existing -

Vision

Mission

Objectives

Strategies

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Ch 1 -43

Strategic Management Model


2.
3.
4.
5.
6.
7.

Audit external environment


Audit internal environment
Establish long-term objectives
Generate, evaluate & select
strategies
Implement selected strategies
Measure & evaluate performance

Copyright 2007 Prentice Hall

Ch 1 -44

Benefits of Strategic
Management
Proactive in shaping firms future

Initiate and influence firms activities


Formulate better strategies
Systematic, logical, rational

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Ch 1 -45

Benefits of Strategic
Management
Financial Benefits
Improvement in sales
Improvement in profitability
Productivity improvement

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Ch 1 -46

Benefits of Strategic
Management
Non-Financial Benefits
Improved understanding of competitors strategies
Enhanced awareness of threats
Reduced resistance to change
Enhanced problem-prevention capabilities

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Ch 1 -47

Benefits of Strategic
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

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Ch 1 -48

Benefits of Strategic
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

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Ch 1 -49

Benefits of Strategic
Management (Greenley contd)

11. Encourages

favorable attitude toward

change
12. Provides

discipline and formality to the


management of the business

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Ch 1 -50

Why Some Firms Do No


Strategic Planning
Poor reward structures
Fire-fighting
Waste of time
Too expensive
Laziness
Content with success
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Ch 1 -51

Why Some Firms Do No


Strategic Planning
Fear of failure
Overconfidence
Prior bad experience
Self-interest
Fear of the unknown
Suspicion
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Ch 1 -52

Business Ethics & Strategic


Management

Business Ethics defined

Principles of conduct within organizations


that guide decision making and behavior

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Ch 1 -53

Business Ethics & Strategic


Management

Good business ethics

Prerequisite for good strategic management

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Ch 1 -54

Business Ethics & Strategic


Management

Code of business ethics

Provides basis on which policies can be


devised to guide daily behavior and
decisions in the workplace

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Ch 1 -55

Business Ethics & Strategic


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

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Ch 1 -56

Natural Environment
Perspective
ISO used to gain strategic advantage

ISO 9000 focuses on quality control


> 1.5 million companies incorporate ISO

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Ch 1 -57

Natural Environment
Perspective
ISO 14000 standards

Voluntary standards
ISO 14001 standard for Environmental
Management System
Firms minimize harmful effects on
environment

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Ch 1 -58

The Nature of Global


Competition
International/multinational corporations

Parent company
Host country

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Ch 1 -59

The Nature of Global


Competition
Strategy implementation may be difficult

Cultural differences

Norms
Values
Work ethic

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Ch 1 -60

Advantages of International
Operations
Absorb excess capacity
Reduce unit costs
Spread risk over wider markets
Low-cost production facilities

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Ch 1 -61

Advantages of International
Operations (contd)

Less intense competition


Lower taxes
Economies of scale

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Ch 1 -62

Disadvantages of
International Operations

Difficult communications
Underestimate foreign competition
Cultural barriers to effective management
Complications arising from currency
differences
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Ch 1 -63