Concepts of Strategic Management

Concepts of Strategic Management Fred R. David Prentice-Hall, Inc. Sixth Edition

Chapter 1 The Nature of Strategic Management

Three Themes in the Text

Global Considerations Impact Virtually All Strategic Decisions

Information Technology Has Become a Vital Strategic Management Tool

Preserving the Natural Environment is an Important Strategic Issue

Chapter Objectives

Describe the strategic management process

Explain the need for integrating analysis and intuition in strategic management

Define and give examples of key terms in strategic management

Discuss the nature of strategy formulation, implementation, and evaluation activities

Describe the benefits of good strategic management

Explain why good ethics is good business in strategic management

Should we import? Will NAFTA affect our firm? Should we export? Should I learn a foreign language? Global Considerations Impact Virtually All Strategic Decisions

Should we outsource MIS? Should we buy our sales staff laptops? Should we upgrade our PCs? Should we set up a Web site? Information Technology Has Become A Vital Strategic Management Tool

Should we recycle? Will Congress pass tougher laws? Should we burn low-sulfur coal? Is our firm environmentally friendly? Preserving the Natural Environment is an Important Strategic Issue

The Definition of Strategic Management The Art and Science of Formulating, Implementing, and Evaluating Cross-Functional Decisions That Enable an Organization to Achieve It’s Objectives

The Stages and Activities in the Strategic Management Process Stages Activities Strategy formulation Strategy evaluation Strategy implementation Conduct research Establish annual objectives Review internal and external factors Integrate intuition with analysis Devise policies Measure performance Make decisions Allocate resources Take corrective action

The Basis for Good Strategic Decisions Intuition + Analysis Effective Strategic Decisions

Global Perspective The World’s Largest Companies The World’s Ten Largest Companies in Rank Order Based on 1994 Revenues 1. Mitsubishi 6. Marubeni 2. Mitsui 7. Ford Motor 3. Itochu 8. Exxon 4. Sumitomo 9. Nissho Iwai 5. General Motors 10. Royal Dutch/Shell Group

Conveys strong sense of vision 75% 98% Links compensation to performance 66% 91% Communicates frequently with employees 59% 89% Emphasizes ethics 74% 85% Plans for management succession 56% 85% Communicates frequently with customers 41% 78% Reassigns or terminates 34% 71% Rewards loyalty 39% 44% Makes all major decisions 39% 21% Behaves conservatively 32% 13% What Traits CEOs Have Now - And Will Need in the Year 2000 Personal Behaviors Now Year 2000

Strategy formulation 68% 78% Human resource management 41% 53% International economics and politics 10% 19% Science and technology 11% 15% Computer literacy 3% 7% Marketing and sales 50% 48% Negotiation 34% 24% Accounting and finance 33% 24% Handling media and public speaking 16% 13% Production 21% 9% What Traits CEOs Have Now - And Will Need in the Year 2000 (cont.) Knowledge and Skills Now Year 2000

Ten Key External Forces Economic Social Cultural Demographic Environmental Political Legal Governmental Technological Competitive

Fourteen Key Internal Forces Management Marketing Distribution Production/ Operations Research & Development Purchasing Manufacturing

Key Internal Forces (cont.) Finance/Accounting Packaging Computer Information Systems Employee/Manager Relations Human Resource Management Vendor Relations Promotion

Business Mission Strategy Formulation External Opportunities and Threats Internal Strengths and Weaknesses Keys to Formulating Strategies

A Comprehensive Strategic Management Model Establish Policies and Annual Objectives Establish Policies and Annual Objectives Develop Mission Statement Establish Long- term Objectives Generate, Evaluate, and Select Strategies Establish Policies and Annual Objectives Allocate Resources Measure and Evaluate Performance Perform External Audit Perform Internal Audit Feedback Strategy Formulation Strategy Implementation Strategy Evaluation

Forces Influencing Design of Strategic Management Systems Toward more formality and more details Toward less formality and fewer details Management Styles Policy maker Democratic-permissive Authoritarian Day-to-day operational thinker Intuitive thinker Experienced in planning Inexperienced in planning Organization Small one-plant companies Large companies

Forces Influencing Design of Strategic Management Systems Toward more formality and more details Toward less formality and fewer details Complexity of Environment Stable environment Turbulent environment Little competition Many markets and customers Single market and customer Competition severe

Forces Influencing Design of Strategic Management Systems Toward more formality and more details Toward less formality and fewer details Complexity of Production Process Long production lead times Short production lead times Capital intensive Labor intensive Integrated manufacturing processes Simple manufacturing processes High technology Low technology Market reaction time for new product is short Market reaction time is long

Forces Influencing Design of Strategic Management Systems Toward more formality and more details Toward less formality and fewer details Nature of Problems Facing new, complex, tough problems having long-range aspects Facing tough short-range problems Purpose of Planning System Coordinate division activities Train managers

Benefits of Strategic Management - Improved Communication - Increased Understanding - Enhanced Commitment - Greater Productivity - More Effective Strategies - Higher Productivity - Allow Firm to Influence, Initiate, and Anticipate - Be Proactive Rather Than Reactive

How to Create an Ethical Culture

Develop a Code of Business Ethics

Ask All Managers and Employers to Sign the Code

Offer Business Ethics Workshops

Include Ethics Factors in Performance Appraisal Instruments

Link Compensation to Ethical Behavior

How to Create an Ethical Culture (cont.)

Encourage Whistle Blowing

Encourage Good Business Ethics Behavior

Publicize Good Business Ethics Behavior

Reward Good Business Ethics Behavior

Set a Good Example

The Communications Benefits of Engaging In Strategic Management Managers from all functional areas listen and discuss their views in strategic management meetings. This interaction yields learning, appreciation, and understanding among managers who otherwise do not communicate with each other