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  • 1. CHAPTER 1THE NATURE OF STRATEGIC MANAGEMENT Strategic Management: Concepts & Cases 13th Edition Global Edition Fred David Ch 1 -1
  • 2. JILL MITCHELL• Email: jmitchell@pkrush.com website: www.jillmitchell.netBackground• BSc(Hons) Chemical Engineering• Chartered/Professional Engineer• MBA – Bristol Business School, UK• Currently studying for a PhD in Entrepreneurship at Pretoria University• 25 years+ industry experience, specifically brewing , food & packaging industry• 12 years+ small business management experience, UK & RSA:- setting up and running businesses Ch 1 -2
  • 3. ADMINISTRATION• Form 4 groups of 3 people. Keep these groups for the rest of the course. Help each other during the week with all tasks and assignments. Work in these groups on group assignments in class• EMAIL addresses – please input into my spreadsheet. I will communicate with you this way and send any specific instructions via email• Keep checking www.jmitchell.net. I post the course slides and any other relevant information to this website – bear in mind there are other courses here – just look for strategic management Ch 1 -3
  • 4. LECTURE NOTESwww.jillmitchell.net Ch 1 -4
  • 5. DID YOU KNOW?Show video Ch 1 -5
  • 6. Strategic Management –Defined Art & science of formulating, implementing, and evaluating, cross- functional decisions that enable an organisation to achieve its objectives Ch 1 -6
  • 7. PURPOSE OF STRATEGIC MANAGEMENTTo exploit and create new and differentopportunities for tomorrow Ch 1 -7
  • 8. Strategic ManagementIn essence, the strategic plan is a company’sgame plan Ch 1 -8
  • 9. 3 STAGES OF THE STRATEGICMANAGEMENT PROCESS• Strategy formulation• Strategy implementation• Strategy evaluation Ch 1 -9
  • 10. Strategy Formulation Vision & Mission External Opportunities & Threats Internal Strengths & Weaknesses Long-Term Objectives Alternative Strategies Strategy Selection Ch 1 -10
  • 11. Issues in StrategyFormulation Businesses to enter Businesses to abandon Allocation of resources Expansion or diversification International markets Mergers or joint ventures Avoidance of hostile takeover Ch 1 -11
  • 12. Strategy Implementation Annual Objectives Policies Employee Motivation Resource Allocation Ch 1 -12
  • 13. STRATEGY IMPLEMENTATION STEPS• Developing a strategy-supportive culture• Creating an effective organisational structure• Redirecting marketing efforts• Preparing budgets• Developing and utilising information systems• Linking employee compensation to organisational performance Ch 1 -13
  • 14. Issues in StrategyImplementation Action Stage of Strategic Management Mobilisation of employees & managers Most difficult stage Interpersonal skills critical Ch 1 -14
  • 15. Strategy Evaluation Internal Review External Review Performance Measurement Corrective Action Ch 1 -15
  • 16. Prime Task ofStrategic Management Peter Drucker: Think through the overall mission of a business. Ask the key question: “What is our Business?” Ch 1 -16
  • 17. Integrating Intuition & Analysis The strategic management process attempts to organise quantitative and qualitative information under conditions of uncertainty Ch 1 -17
  • 18. Integrating Intuition & Analysis Intuition is based on: • Past experiences • Judgment • Feelings Intuition is useful for decision making in conditions of:  Great uncertainty  Little precedent  Highly interrelated variables  Several plausible alternatives Ch 1 -18
  • 19. Integrating Intuition & Analysis Intuition & Judgment Involve management at all levels Influence all analyses Ch 1 -19
  • 20. Adapting to Change Organisations should continually monitor internal and external events and trends so that timely changes can be made as needed Ch 1 -20
  • 21. KEY TERMS IN STRATEGICMANAGEMENT• Competitive advantage• Strategists• Vision and mission statements• External opportunities and threats• Internal strengths and weaknesses• Long-term objectives• Strategies• Annual objectives• Policies Ch 1 -21
  • 22. Strategic Management isGaining and MaintainingCompetitive Advantage Anything that a firm does especially well compared to rival firms Ch 1 -22
  • 23. Achieving Sustained CompetitiveAdvantage 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 Ch 1 -23
  • 24. Strategists Gather Information Analyse Information Organise Information Ch 1 -24
  • 25. Vision and Mission Statements Vision Statement – What do we want to become? Mission Statement – What is our business? Ch 1 -25
  • 26. External Opportunities and Threats Analysis of Trends • Economic • Social • Cultural • Demographic/Environmental • Political, Legal, Governmental • Technological • Competitors Ch 1 -26
  • 27. External Opportunities and ThreatsBasic Tenet of Strategic Management Take advantage of External Opportunities Strategy Formulation Avoid/minimise impact of External Threats Ch 1 -27
  • 28. Internal Strengths and Weaknesses Controllable activities performed especially well or poorly Determined relative to competitors Ch 1 -28
  • 29. Internal Strengths and Weaknesses• Typically located in functional areas of the firm • Management • Marketing • Finance/Accounting • Production/Operations • Research & Development • Management Information Systems Ch 1 -29
  • 30. Internal Strengths and WeaknessesAssessing the Internal Environment Ratios Performance Measures Internal Factors Industry Averages Survey Data Ch 1 -30
  • 31. Long-Term Objectives Specific results that an organisation seeks to achieve in pursuing its basic mission Long-term means more than one year Ch 1 -31
  • 32. Long-Term Objectives• Essential for ensuring the firm’s success • Provide direction • Aid in evaluation • Create synergy • Reveal priorities • Focus coordination • Provide basis for planning, organizing, motivating, and controlling Ch 1 -32
  • 33. Strategies Means by which long-term objectives are achieved Ch 1 -33
  • 34. Strategies • Examples • Geographic expansion • Diversification • Acquisition • Product development • Market penetration • Retrenchment • Divestiture • Liquidation • Joint venture Ch 1 -34
  • 35. Sample Strategies • Table 1-1 • Best Buy • Levi Strauss • New York Times Company Ch 1 -35
  • 36. Annual Objectives Short-term milestones that firms must achieve to reach long-term objectives Ch 1 -36
  • 37. Policies Means by which annual objectives will be achieved Ch 1 -37
  • 38. COPYRIGHT © 2011 PEARSON Ch 1 -38EDUCATION
  • 39. Strategic Management Model Strategic Management Process • Dynamic & continuous • More formal in larger organizations Ch 1 -39
  • 40. STRATEGIC MANAGEMENT• Communication is a key to successful strategic management Ch 1 -40
  • 41. Benefits of Strategic Management Ch 1 -41
  • 42. BENEFITS OF STRATEGIC MANAGEMENT• Nonfinancial Benefits • 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 Ch 1 -42
  • 43. WHY SOME FIRMS DO NO STRATEGIC PLANNING• Lack of knowledge of strategic planning• Poor reward structures• Fire fighting• Waste of time• Too expensive• Laziness• Content with success Ch 1 -43
  • 44. WHY SOME FIRMS DO NO STRATEGIC PLANNING (CONTINUED)• Fear of failure• Overconfidence• Prior bad experience• Self-interest• Fear of the unknown• Honest difference of opinion• Suspicion Ch 1 -44
  • 45. PITFALLS IN STRATEGIC PLANNING Strategic planning is an involved, intricate, and complex process that takes an organisation into uncharted territory Ch 1 -45
  • 46. EFFECTIVE STRATEGIC PLANNING IS:• A people process more than a paper process• A learning process• Words supported by numbers• Simple and non - routine• Varying assignments, team membership, meeting formats, and planning calendars• Challenging assumptions underlying corporate strategy Ch 1 -46
  • 47. EFFECTIVE STRATEGIC PLANNING CONTINUED• Welcomes bad news• Requires open-mindedness and a spirit of enquiry• Is not a bureaucratic mechanism• Is not ritualistic or stilted• Is not too formal, predictable, or rigid• Does not contain jargon or arcane language Ch 1 -47
  • 48. EFFECTIVE STRATEGIC PLANNINGCONTINUED• 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 Ch 1 -48
  • 49. COMPARING BUSINESS AND MILITARY STRATEGY• Strategic planning started in the military• Similarity • Both business and military organisations must adapt to change and constantly improve• Difference • Business strategy assumes competition • Military strategy assumes conflict Ch 1 -49
  • 50. INDIVIDUAL EXERCISE• Read Turbulent Flight Plan• Complete Exercise 4.2 Ch 1 -50
  • 51. FOR NEXT WEEK• Assurance of learning exercise 1d: strategic planning at Nestlé (p 70) - Table 1-3 page 53• Readings 1 & 2 from Strategic Management supplement for Southern Africa• Steps 1, 3, 4, of gathering strategy information on Adidas AG. I will email you step 2. Step 5 will be done in class next week• Read Business report 2010, www.busrep.co.za• Read CNBC 2010, www,cnbc.com• Read news for South Africa and the world 2010, www.iol.co.za• Read Knowledge to power your business, www.quickmba.com , specifically The Strategic Planning Process and Business Vision & Mission Statements Ch 1 -51