Nature of Strategic Management

Nature of Strategic
Management
Chapter 01
If you FAIL to plan;
you PLAN to fail
Notable Quote
"If a man takes no thought about what is
distant, he will find sorrow near at hand. He
who will not worry about what is far off will
soon find something worse than worry.“
—Confucius
Strategic Management Defined
Art and science of formulating,

implementing, and evaluating cross-
functional decisions that enable an
organization to achieve its objectives.
Ch. 1-4
© 2001 Prentice Hall
Strategic Management Defined
Or simply
Overcome your competitor, achieve and maintain ‘competitive
edge/advantage’
* Let me tell you a short story about competitive edge
Ch. 1-5
Strategic Management Club
Visit and join the club on-line:

www.strategyclub.com
Ch. 1-6
Terminology
“Strategic Management”
Synonymous with
“Strategic Planning”
• Strategic management
 Used more often in academia
• Strategic planning
 Used more often in the business world
Ch. 1-7
Terminology
• Strategic management
Refers to:
 Strategy formulation
 Strategy implementation
 Strategy evaluation
• Strategic planning
Refers to:
 Strategy formulation
Ch. 1-8
Brief History
• 1950s
 Term strategic planning originates
1960s – 1970s
 Strategic planning very popular
 Widely viewed as cure for problems
Ch. 1-9
Brief History
• 1980s
 Strategic planning cast aside
 Planning models did not yield higher returns
• 1990–present
 Revival of strategic planning
 Widely practiced in business world
Ch. 1-10
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, MIS
Statements Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9
Chapter 2
Internal
Audit
Chapter 4
Ch. 1-11
Strategic-Management Process Three
Stages
Strategy Formulation
Strategy Implementation
Strategy Evaluation
Ch. 1-12
Strategy Formulation
Vision & Mission
Opportunities & Threats
Strengths & Weaknesses
Long-Term Objectives
Alternative Strategies
Strategy Selection
Ch. 1-13
Strategy Implementation
Annual Objectives
Policies
Motivate Employees
Resource Allocation
Ch. 1-14
Strategy Evaluation
Review
External & Internal
Measure Performance
Corrective Action
Ch. 1-15
Key Strategic Management Terms
(Cont’d)
1. Competitive Advantage
2. Strategists
3. Vision statements
4. Mission statements
5. External opportunities and threats
6. Internal strengths and weaknesses
Ch. 1-16
Key Strategic Management Terms
(Cont’d)
7. Long-term objectives
8. Strategies
9. Annual objectives
10. Policies
11. Synergy
Ch. 1-17
Strategic Management Terms (Cont’d)
Competitive Advantage
• Anything that a firm does especially well compared to
rival firms.
Strategic management is all about gaining and
maintaining competitive advantage.
Competitive advantage can be maintained by
continually adapting to changes in external trends
and events and internal capabilities, competencies,
and resources
And by effectively formulating, implementing, and
evaluating strategies that capitalize upon those
factors.
Ch. 1-18
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

Integrate intuition and analysis
Ch. 1-19
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. 1-20
External Opportunities & Threats

• Largely beyond the control of a single organization
Economic
Social
Cultural
Demographic
Environmental
Ch. 1-21
External Opportunities & Threats (cont’d)
Political
Governmental
Technological
Competitive trends & events
Ch. 1-22
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. 1-23
(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. 1-24
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. 1-25
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. 1-26
(Cont’d)
Strategies (cont’d)
• Mechanisms by which long-term objectives are realized

Market penetration
Retrenchment
Divestiture
Liquidation
Joint venture
Ch. 1-27
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. 1-28
(Cont’d)
Annual Objectives (cont’d)
• Stated in terms of accomplishments for:

management
 marketing
 finance/accounting
 production/operations
 research and development
 MIS accomplishments
Ch. 1-29
(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. 1-30
(Cont’d)
Synergy
• Synergy exists when everyone pulls together as
a team that knows what it wants to achieve;
synergy is the 2 + 2 = 5 effect.
By establishing and communicating clear objectives,
employees and managers can work together toward
desired results.
Synergy can result in powerful competitive advantages.
The strategic-management process itself is aimed at
creating synergy in an organization.
Achieve synergy among all managers and employees;
corporation, divisions and functional levels
Ch. 1-31
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. 1-32
(Cont’d)
• Financial Benefits
 More profitable and successful
 Improvements in sales, profitability, and productivity
 Good performance despite fluctuations in external and
internal environments
• The strategic-management process is based on the belief

that organizations should continually monitor internal and
external events and trends so that timely changes can be
made as needed.
 Reduce resistance to change
Ch. 1-33
(Cont’d)
• Other Non-financial Benefits
Enhanced awareness of external threats
Understanding of competitors’ strategies
Increased employee productivity
Clear performance-reward relationships
Order and discipline to the firm
View change as opportunity
Ch. 1-34
Why Some Firms Do NO
Strategic Planning
• Lack of knowledge or experience in strategic
planning
• Fire-fighting
• Waste of time
• Too expensive
• Laziness
• Content with success
Ch. 1-35
Why Some Firms Do No
Strategic Planning (Cont’d)
• Fear of failure
• Overconfidence
• Prior bad experience
• Self-interest
• Fear of the unknown
Ch. 1-36
Pitfalls to Avoid in Strategic Planning
• Using to gain control over decisions & resources

• Doing only to satisfy regulatory requirements
• Moving hastily from mission to strategy
formulation
• Failing to communicate to employees
• Intuitive decisions that conflict with formal plan
• Top management not supportive of process
Ch. 1-37
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
• Formality that stifles creativity and flexibility
Ch. 1-38
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. 1-39
(Cont’d)
• Strategists responsible for high ethical
principles
• All strategic processes have ethical
ramifications/consequences
• In the strategic-management model,
- business ethics
- social responsibility
- environmental sustainability
impact all activities in the model
Ch. 1-40
(Cont’d)
Business actions always unethical include:
• Misleading advertising
• Misleading labeling
• Environmental harm
• Poor product or service safety
• Insider trading
• Dumping flawed products on foreign markets
Ch. 1-41
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. 1-42
Advantages of International
Operations
• Absorb excess capacity

• Reduce unit costs
• Low-cost production facilities
• Lower labor costs
• Competition less intense
Ch. 1-43
Advantages of International
Operations (Cont’d)
• May result in reduced tariffs, lower taxes

and favorable political climate
• Economies of scale
Ch. 1-44
Disadvantages of International
Operations
Communication difficulties between parent and
subsidiaries
• Firms confront different and often little-understood
cultural, political, social, language, demographic, and
competitive forces
Foreign-based competitors
• Strengths underestimated
• Weaknesses overestimated
Ch. 1-45
Comparing Business and Military
Strategy
• A strong military heritage underlies the study of
strategic management.
• Terms such as objectives, mission, strengths, and
weaknesses first were formulated to address
problems on the battlefield
• Military strategy has enemy and conflict
• Business strategy has competitor and
competition
• BUT both need a competitive edge over the
enemy/competitor
Comparing Business and Military
Strategy
• When Napoleon won, it was because his opponents
were committed to the strategy, tactics, and
organization of earlier wars.
• When he lost—against Wellington, the Russians, and
the Spaniards—it was because he, in turn, used tried-
and-true strategies against enemies who thought
afresh, who were developing the strategies not of the
last war but of the next.
• Don’t allow your competitor to know, what you are
thinking
• Anticipate, do not react
• Do you know about Sun Tzu?
Thank You
Questions
“Dialogue is the best form of knowledge transfer” - Anonymous

Nature of Strategic Management

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Nature of Strategic Management

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Copyright:

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Nature of Strategic

Art and science of formulating,

* Let me tell you a short story about competitive edge

Visit and join the club on-line:

Long-Term Generate, Implement Implement Measure &

Vision & Mission

Opportunities & Threats

Strengths & Weaknesses

Help organization gather, analyze, and organize

Track industry and competitive trends

Develop forecasting model

Evaluate corporate and divisional performance

First step in strategic planning

Oftentimes a single sentence

“Our vision is to take care of your vision.”

External Opportunities & Threats

External Opportunities & Threats (cont’d)

Internal Strengths & Weaknesses

Based on functional analysis of activities in the

• Mechanisms by which long-term objectives are realized

Represent the basis for allocating resources

Established at corporate, divisional, and functional

• Stated in terms of accomplishments for:

Guide to decision making and address repetitive

• Proactive vs. Reactive

• The strategic-management process is based on the belief

• Using to gain control over decisions & resources

• Failing to use as standard for performance

• Good business ethics is a prerequisite for

• Good ethics is just good business!

• Companies conduct business across

• Strategy implementation more difficult

• Absorb excess capacity

• May result in reduced tariffs, lower taxes

“Dialogue is the best form of knowledge transfer” - Anonymous

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