Ch 1 1 Copyright 2011 Pearson Education Strategic

Ch 1 -1 Copyright © 2011 Pearson Education

Strategic Management: Concepts and Cases Arab World Edition Fred R. David Abbas J. Ali Abdulrahman Y. Al-Aali Chapter 1: The Nature of Strategic Management Ch 1 -2 Copyright © 2011 Pearson Education

Chapter Outline • What is Strategic Management? • Key Terms in Strategic Management • The Strategic-Management Model • Benefits of Strategic Management • Why Some Firms Do No Strategic Planning • Pitfalls in Strategic Planning • Guidelines for Effective Strategic Management Ch 1 -3 Copyright © 2011 Pearson Education

Strategic Management – Definition Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives In essence, the strategic plan is a company’s game plan. Note : Strategic management (SM) is used exchangeable with strategic planning The purpose of SM is to exploit and create new and different opportunity for tomorrow Ch 1 -4 Copyright © 2011 Pearson Education

SM characteristics it is not a reaction to short – term changes -------while it is a response to long –term perspectives (5 -10 year or more ) it is not a quantitative exercise---- but it is a qualitative in nature and reflects a realistic imagination of how the future looks it is not a normative statement of where the firm would like to be in the future ----while it is a road map which describes the steps the firm should undertake to get there finally it is a set of practical , well thought–out perspectives and actions on how to deal with uncertainties of the future Ch 3 Copyright © 2009 Pearson Education, Inc. -5 Publishing as Prentice Hall

Strategic Management Strategic management achieves a firm’s success through integration: Management Marketing Finance/Accounting Production/Operations Research & Development MIS Ch 1 -6 Copyright © 2011 Pearson Education

Stages of strategic management • The SM process consists of three main stages Strategy formulation v Strategy implementation v Strategy evolution v Ch 3 Copyright © 2009 Pearson Education, Inc. -7 Publishing as Prentice Hall

Strategic Management process step: 1 Strategy Formulation Vision & Mission Long-Term Objectives Internal Strengths & Weaknesses External Opportunities & Threats Alternative Strategies Strategy Selection Ch 1 -8 Copyright © 2011 Pearson Education

Strategic Management process step : 2 Strategy Implementation Annual Objectives Policies & procedures Employee Motivation Resource Allocation Ch 1 -9 Copyright © 2011 Pearson Education

Strategic management process step: 3 Strategy Evaluation Internal Review External Review Performance Metrics Corrective Actions Ch 1 -10 Copyright © 2011 Pearson Education

Prime Task of Strategic Management “Think through the overall mission of a business. Ask the key question: What is our Business? ” Peter Drucker Ch 1 -11 Copyright © 2011 Pearson Education

Integrating Intuition & Analysis The strategic management process attempts to organize quantitative and qualitative information under conditions of uncertainty. Ch 1 -12 Copyright © 2011 Pearson Education

Integrating Intuition & Analysis Intuition is based on: • Past experiences • Judgment • Feelings Intuition is useful for decision making in: • Conditions of great uncertainty • Conditions with little precedent Ch 1 -13 Copyright © 2011 Pearson Education

Integrating Intuition & Analysis Analytical Thinking Intuitive Thinking Ch 1 -14 Copyright © 2011 Pearson Education

Note: _ In the Arab world, there is a cultural tendency to emphasize on the role of intuition and imagination in decision making. There are many companies which, because of luck and Abundant opportunities, have experienced great growth but only for a short time. Ch 1 -15 Copyright © 2011 Pearson Education

Key Terms in strategic Management v Competitive advantages v Strategists Vision & mission External opportunity & threats Internal strengths & weaknesses Long – term objectives Strategies Annual (short- term)objectives Polices v v v v Ch 3 Copyright © 2009 Pearson Education, Inc. -16 Publishing as Prentice Hall

SM : key term (1) Competitive Advantage: Anything that a firm does especially well, compared to rival firms Ch 1 -17 Copyright © 2011 Pearson Education

Organizations is said to have a SCA when it is: - 1. Adapting to change in external trends, internal capabilities, and resources 2. Effectively formulating, implementing, and evaluating strategies Ch 1 -18 Copyright © 2011 Pearson Education

S. M. Key Term (2) The Strategists – Those that affect a firm’s success or failure: • Chief Executive Officer (CEO) • Chief Strategy Officer (CSO) • President • Owner • Board Chair • Executive Director Ch 1 -19 Copyright © 2011 Pearson Education

S. M. Key Term (3) Vision Statement: What do we want to become? Mission Statement: What is our business? Ch 1 -20 Copyright © 2011 Pearson Education

S. M. Key Term (4) Opportunities and Threats (External analysis) External opportunities and threats are largely out of the control of a single organization. Ch 1 -21 Copyright © 2011 Pearson Education

Oportunities and Threats (External) Cont’d… Analysis of Trends: Ch 1 -22 • Economic • Social • Cultural • Demographic/Environmental • Political, Legal, Governmental • Technological • Competitors Copyright © 2011 Pearson Education

The basic tenet of strategic management: Take advantage of External Opportunities Strategy Formulation Avoid/minimize impact of External Threats Ch 1 -23 Copyright © 2011 Pearson Education

S. M. key term (5) Strengths and Weaknesses (Internal analysis) Strengths & Weaknesses (Internal): Controllable activities performed especially well or poorly Ch 1 -24 Copyright © 2011 Pearson Education

Strengths and Weaknesses (Internal) Cont’d… Strengths and weaknesses are typically located in the functional areas of the firm, such as: Ch 1 -25 • Management • Marketing • Finance/Accounting • Production/Operations • Research & Development • Computer Information Systems Copyright © 2011 Pearson Education

Assessing the Internal Environment Financial Ratios Performance Metrics Internal Factors Industry Averages Survey Data Ch 1 -26 Copyright © 2011 Pearson Education

Long Term Objectives Long-term Objectives: Mission-driven pursuit of specified results more than one year out Ch 1 -27 Copyright © 2011 Pearson Education

S. M. key term (6) Long Term Objectives (Cont’d) Long term objectives are essential for ensuring a firm’s success. They: Ch 1 -28 • Provide direction • Help with evaluation • Create synergy • Focus coordination • Basis for planning, motivating, and controlling Copyright © 2011 Pearson Education

S. M. key term (7) Strategies: The means by which long-term objectives are achieved Ch 1 -29 Copyright © 2011 Pearson Education

Strategies (Cont’d) Some examples of different strategies are: • Geographic expansion • Diversification • Acquisition • Market penetration • Retrenchment • Liquidation • Joint venture

S. M. Key Terms (8) Annual Objectives: Short-term achievements that firms must recognize to attain longterm objectives Ch 1 -31 Copyright © 2011 Pearson Education

Key Terms (9) Policies: Means by which annual objectives will be achieved Ch 1 -32 Copyright © 2011 Pearson Education

ASSIGNMENT (1) Strategic Management Key Terms (1 -9) Research one page / term Ch 1 Copyright © 2009 Pearson Education, Inc. -33 Publishing as Prentice Hall

Source: Adapted from Fred R. David, “How Companies Define Their Mission, ” Long Range Planning 22, no 3 (June 1988): 40 Ch 1 -34 Copyright © 2011 Pearson Education

Strategic Management Model (Cont’d) 1. Identify Existing: • Vision • Mission • Objectives • Strategies 2. Audit external environment 3. Audit internal environment 4. Competing in the global market-place Ch 1 -35 Copyright © 2011 Pearson Education

Strategic Management Model (Cont’d) 5. Establish long-term objectives 6. Generate, evaluate, and select strategies 7. Implement selected strategies 8. Leadership and culture 9. Measure & evaluate performance Ch 1 -36 Copyright © 2011 Pearson Education

Benefits of Strategic Management Strategic benefits : • Is proactive in shaping firm’s future • Initiates and influences firm’s activities • Helps to formulate better strategies that are systematic, logical, and rational Ch 1 -37 Copyright © 2011 Pearson Education

Benefits of Strategic Management Financial Benefits • Improvement in sales • Improvement in profitability • Productivity improvement Ch 1 -38 Copyright © 2011 Pearson Education

Benefits of Strategic Management Nonfinancial Benefits • Improved understanding of competitors’ strategies • Enhanced awareness of threats • Increased employee productivity • Reduced resistance to change • Enhanced problem-prevention capabilities Ch 1 -39 Copyright © 2011 Pearson Education

According to Gordon Greenley of Aston Business school in the united Kingdom S. M. offers the following benefits : 1. It allows for identification of opportunities 2. It provides an objective view of management problems 3. It represents a framework for improved coordination & control of activities 4. It minimizes the negative effects of conditions & changes 5. It allows major decisions to better support established objectives 6. It allows more effective allocation of time and resources 7. It reduces resources and time to be spent in correcting erroneous decisions Ch 1 -40 Copyright © 2011 Pearson Education

Benefits of Strategic Management (Cont’d) 8. It creates a framework for internal communication among personnel 9. it provides a basis for clarifying individual responsibilities 10. It encourages forward thinking 11. It provides a cooperative approach to tackling problems and opportunities 12. It encourages a favorable attitude toward change 13. It gives a discipline to the management of business Ch 1 -41 Copyright © 2011 Pearson Education

Why Some Firms Do No Strategic Planning Reasons why some firms are resistant to strategic planning include: • Poor reward structures • Fire-fighting (it deeply so busy in crisis mag. So it has no time to plan) • Chief executives’ orientation • Lack of access to needed resources • Waste of time • Too expensive • Laziness Ch 1 -42 Copyright © 2011 Pearson Education

Why Some Firms Do No Strategic Planning (Cont’d) • Fear of failure • Overconfidence • Prior bad experience • Self-interest • Fear of the unknown • Honest difference of opinion • Suspicion Ch 1 -43 Copyright © 2011 Pearson Education

Pitfalls in Strategic Planning Being aware of potential pitfalls of strategic planning and being prepared to address them is essential to success. Ch 1 -44 Copyright © 2011 Pearson Education

Pitfalls in Strategic Planning Some pitfalls to watch out for and avoid in strategic planning (Cont’d) • Using it to gain control over decisions and resources • Doing it only to satisfy accreditation and regulatory requirements • Viewing planning as unnecessary or unimportant • Failing to communicate the plan to employees • Top managers making many intuitive decisions that conflict with the formal plan Ch 1 -45 Copyright © 2011 Pearson Education

Pitfalls in Strategic Planning Some pitfalls to watch out for and avoid in strategic planning (Cont’d) • Top managers not actively supporting the strategic planning process • Failing to use plans as a standard for measuring performance • Delegating planning to a ‘planner’ rather than involving all managers • Being so formal in planning that flexibility and creativity are stifled • Failing to create a collaborative climate supportive of change Ch 1 -46 Copyright © 2011 Pearson Education

Guidelines for Effective Strategic Management q keep the SM process as simple and non-routine as possible q SM. must not become rigid q A key role of strategists is to facilitate continuous organizational learning and change q SM require trade –offs between long- range short –range orientation Ch 1 -47 Copyright © 2011 Pearson Education

Business Ethics & Strategic Management Business Ethics: Principles of conduct within organizations that guide decision making and behavior Code of Business Ethics: Provides basis on which policies can be devised to guide daily behavior and decisions in the workplace Ch 1 -48 Copyright © 2011 Pearson Education

Business Ethics & Strategic Management (Cont’d) Good business ethics are prerequisite for good strategic management Ch 1 -49 Copyright © 2011 Pearson Education

Business Ethics of Savola Group in Saudi Arabia • Always tell the truth • Always fulfill our promises and obligations • Always honor our pledges to others • Always commit to resolving conflicts with respect and objectivity Ch 1 Copyright © 2009 Pearson Education, Inc. -50 Publishing as Prentice Hall

Business Ethics & Strategic Management Unethical Business Practices Business practices that are always considered unethical include: • Misleading advertising • Misleading labeling • Harm to the environment • Insider trading • Dumping flawed products on foreign markets Ch 1 -51 Copyright © 2011 Pearson Education

Business Ethics & Strategic Management Unethical Business Practices (Cont’d) • Poor product or service safety • Lack of equal opportunities foreign workers • Overpricing • Hiring child labor Ch 1 -52 Copyright © 2011 Pearson Education

Natural Environment Perspective Using ISO 14000 Certification to Gain Strategic Advantage • What are ISO 14000 & 14001? • Requirements for ISO 14001 • Environmental Management Systems (EMS) Ch 1 -53

ISO 14000 Family is a series of guidance documents and standards to help organizations address environmental issues on air , water, soil quality ……. etc. • 14001: • 14004: • 14010: • 14011: • 14012: • 14020: • 14030: • 14040: Environmental Management Systems EMS general guidelines Guidelines for Environmental Auditing Guidelines for Auditing of an EMS Auditing - Qualification criteria Environmental Labeling Env. Performance Evaluation (EPE) Life-Cycle Assessment (LCA) Ch 3 Copyright © 2009 Pearson Education, Inc. -54 Publishing as Prentice Hall

Environmental Management System (EMS) • ISO 14001 is the specification standard that is a model for an environmental management system (EMS) • EMS is a systematic way of managing an organization’s environmental affairs • It is focused on Continual Improvement of System • It addresses immediate and long-term impact of an organization’s products, services and processes on the environment. • It is a tool to improve environmental performance Ch 3 Copyright © 2009 Pearson Education, Inc. -55 Publishing as Prentice Hall

Requirements for ISO 14001; To achieve certification in terms of ISO 14001, a company needs to undertake a series practices by which organization can perform the EMS : • Assess the environmental impacts of its activities • Develop an environmental policy that includes commitments to prevention of pollution – continuous improvement – compliance with all applicable requirements • Set environment objectives and targets • Establish and maintain an environmental management programme • Implement procedures for training employees, establishing work instructions , and practices Ch 3 Copyright © 2009 Pearson Education, Inc. -56 Publishing as Prentice Hall

• Monitor, measure and communicate its performance • Undertake environmental audits and management reviews • Take correction actions to overcome the occurrence of any deviations. Ch 3 Copyright © 2009 Pearson Education, Inc. -57 Publishing as Prentice Hall

By implementing ISO 14000, any company can become truly competitive through the following : • • • Decreasing costs through increased efficiencies. Creating and maintaining new market opportunities in areas such as Europe, which may make registration to the standards a necessary condition of doing business within their specification. Demonstrating environmental leadership. Improving both its own corporate image and community goodwill. Streamlining/simplifying its EMS. Ch 3 Copyright © 2009 Pearson Education, Inc. -58 Publishing as Prentice Hall

to succeed in business today it means to succeed in the international competition Ch 3 Copyright © 2009 Pearson Education, Inc. -59 Publishing as Prentice Hall

The Nature of Global Competition International/multinational organizations ------ refers to organizations that conduct business operations across national borders • Parent company …. refers to a firm investing in international operations • Host country……. refers to the country where that business is conducted Ch 1 -60 Copyright © 2011 Pearson Education

Global completion and strategic management • The strategic management process is conceptually the same for international/multinational as for domestic firms however practically it is more complex for the following reasons : - The presence of more variables and relationships q More social , cultural, demographics , political, governmental, legal , technological and competitive opportunities and threats are addressed q More time and efforts are required to identify and evaluate external trends and events q The communication between domestic headquarter and overseas operation is more difficult. q Ch 3 Copyright © 2009 Pearson Education, Inc. -61 Publishing as Prentice Hall

Advantages of International Operations 1. Absorb excess capacity/reduce unit costs 2. Extend the product life cycle 3. Low-cost production facilities 4. Less intense competition 5. Spread risk over wider markets Ch 1 -62 Copyright © 2011 Pearson Education

Advantages of International Operations (cont’d) 6. Potential lower taxes 7. Joint ventures to build networks and knowledge 8. Foreign government incentives 9. Economies of scale Ch 1 -63 Copyright © 2011 Pearson Education

Disadvantages of International Operations 1. Difficult communications 2. Underestimate foreign competition 3. Cultural barriers to effective management 4. Require understanding of regional trade organizations 5. Complications arising from currency differences 6. lack of market information Ch 1 -64

The End Ch 3 Copyright © 2009 Pearson Education, Inc. -65 Publishing as Prentice Hall