Chapter 1 The Nature of Strategic Management Concepts

Chapter 1 The Nature of Strategic Management: Concepts & Cases 13 th Edition Fred David Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 1

Strategic Management –Defined Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 2

Purpose of Strategic Management To exploit and create new and different opportunities for tomorrow Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 3

Strategic Management In essence, the strategic plan is a company’s game plan Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 4

3 Stages of the Strategic Management Process n Strategy formulation n Strategy implementation n Strategy evaluation Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 5

Strategy Formulation Vision & Mission External Opportunities & Threats Internal Strengths & Weaknesses Long-Term Objectives Alternative Strategies Strategy Selection Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 6

Issues in Strategy Formulation üBusinesses to enter üBusinesses to abandon üAllocation of resources üExpansion or diversification üInternational markets üMergers or joint ventures üAvoidance of hostile takeover Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 7

Strategy Implementation Annual Objectives Policies Employee Motivation Resource Allocation Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 8

Strategy Implementation Steps n n n Developing a strategy-supportive culture Creating an effective organizational structure Redirecting marketing efforts Preparing budgets Developing and utilizing information systems Linking employee compensation to organizational performance Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 9

Issues in Strategy Implementation Action Stage of Strategic Management üMobilization of employees & managers üMost difficult stage üInterpersonal skills critical Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 10

Strategy Evaluation Internal Review External Review Performance Measurement Corrective Action Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 11

Prime Task of Strategic Management Peter Drucker: Think through the overall mission of a business. Ask the key question: “What is our Business? ” Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 12

Integrating Intuition & Analysis The strategic management process attempts to organize quantitative and qualitative information under conditions of uncertainty Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 13

Integrating Intuition & Analysis Intuition is based on: q Past experiences q Judgment q Feelings Intuition is useful for decision making in conditions of: q Great uncertainty q Little precedent q Highly interrelated variables q Several plausible alternatives Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 14

Integrating Intuition & Analysis Intuition & Judgment Involve management at all levels Influence all analyses Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 15

Adapting to Change Organizations should continually monitor internal and external events and trends so that timely changes can be made as needed Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16

Key Terms in Strategic Management n n n n n Competitive advantage Strategists Vision and mission statements External opportunities and threats Internal strengths and weaknesses Long-term objectives Strategies Annual objectives Policies Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 17

Strategic Management is Gaining and Maintaining Competitive Advantage Anything that a firm does especially well compared to rival firms Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 18

Achieving Sustained Competitive Advantage 1. Continually adapting to changes in external trends and events and internal capabilities, competencies, and resources 2. Effectively formulating, implementing, and evaluating strategies that capitalize on those factors Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 19

Strategists Gather Information Analyze Information Organize Information Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 20

Vision and Mission Statements Vision Statement – What do we want to become? Mission Statement – What is our business? Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 21

External Opportunities and Threats Analysis of Trends q q q q Economic Social Cultural Demographic/Environmental Political, Legal, Governmental Technological Competitors Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 22

External Opportunities and Threats Basic Tenet of Strategic Management Take advantage of External Opportunities Strategy Formulation Avoid/minimize impact of External Threats Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 23

Internal Strengths and Weaknesses q Controllable activities performed especially well or poorly q Determined relative to competitors Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 24

Internal Strengths and Weaknesses n Typically located in functional areas of the firm Management q Marketing q Finance/Accounting q Production/Operations q Research & Development q Management Information Systems q Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 25

Internal Strengths and Weaknesses Assessing the Internal Environment Ratios Performance Measures Internal Factors Industry Averages Survey Data Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 26

Long-Term Objectives q Specific results that an organization seeks to achieve in pursuing its basic mission q Long-term means more than one year Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 27

Long-Term Objectives n Essential for ensuring the firm’s success q Provide direction q Aid in evaluation q Create synergy q Reveal priorities q Focus coordination q Provide basis for planning, organizing, motivating, and controlling Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 28

Strategies Means by which long-term objectives are achieved Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 29

Strategies n Examples q Geographic expansion q Diversification q Acquisition q Product development q Market penetration q Retrenchment q Divestiture q Liquidation q Joint venture Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 30

Sample Strategies n Table 1 -1 q Best Buy q Levi Strauss q New York Times Company Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 31

Annual Objectives Short-term milestones that firms must achieve to reach long-term objectives Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 32

Policies Means by which annual objectives will be achieved Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 33

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Strategic Management Model q Strategic Management Process q Dynamic & continuous q More formal in larger organizations Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 35

Strategic Management n Communication is a key to successful strategic management Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 36

Benefits of Strategic Management Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 37

Benefits of Strategic Management n Nonfinancial Benefits q q q Enhanced awareness of threats Improved understanding of competitors’ strategies Increased employee productivity Reduced resistance to change Clearer understanding of performance-reward relationship Enhanced problem-prevention capabilities Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 38

Why Some Firms Do No Strategic Planning n n n n Lack of knowledge of strategic planning Poor reward structures Fire fighting Waste of time Too expensive Laziness Content with success Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 39

Why Some Firms Do No Strategic Planning (continued) n n n n Fear of failure Overconfidence Prior bad experience Self-interest Fear of the unknown Honest difference of opinion Suspicion Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 40

Pitfalls in Strategic Planning Strategic planning is an involved, intricate, and complex process that takes an organization into uncharted territory Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 41

Effective Strategic Planning is: n n n A people process more than a paper process A learning process Words supported by numbers Simple and nonroutine Varying assignments, team membership, meeting formats, and planning calendars Challenging assumptions underlying corporate strategy Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 42

Effective Strategic Planning continued n n n Welcomes bad news Requires open-mindedness and a spirit of inquiry Is not a bureaucratic mechanism Is not ritualistic or stilted Is not too formal, predictable, or rigid Does not contain jargon or arcane language Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 43

Effective Strategic Planning continued n n n Is not a formal system for control Does not disregard qualitative information Is not controlled by “technicians” Does not pursue too many strategies at once Continually strengthens the “good ethics is good business” policy Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 44

Comparing Business and Military Strategy n n Strategic planning started in the military Similarity q n Both business and military organizations must adapt to change and constantly improve Difference q q Business strategy assumes competition Military strategy assumes conflict Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 45

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