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  1. 1. Overview of Strategic Management Strategic Management: Concepts & Cases 12th Edition Fred David Ch 1 -1
  2. 2. What is Strategic Management Once two competing company presidents went on a camping trip to discuss a possible merger. Suddenly there came a dangerous grizzly bear. The first president took off his backpack and quickly wore his jogging shoes. The second president said, “ Hey! You can’t outrun that bear.” The first president said, “May be I can’t outrun the bear, but I surely can outrun you!” Ch 1 -2Copyright 2007 Prentice Hall
  3. 3. What is Strategic Management The story captures the notion of strategic management, Which is to achieve and maintain “Competitive Advantage”. Ch 1 -3Copyright 2007 Prentice Hall
  4. 4. Strategic Management –Defined Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives Ch 1 -4
  5. 5. Strategic Managementachieves a firm’s successthrough integration –– Management Marketing Finance/Accounting Production/Operations Research & Development MIS Ch 1 -5
  6. 6. Purpose of Strategic Management To exploit and create new and different opportunities for tomorrow Ch 1 -6
  7. 7. Three Stage Process Strategy Formulation Strategy Implementation Strategy Evaluation Fred R. David Prentice Hall
  8. 8. Strategy Formulation Vision & Mission External Opportunities & Threats Internal Strengths & Weaknesses Long-Term Objectives Alternative Strategies Strategy Selection Ch 1 -8
  9. 9. Strategy Implementation Annual Objectives Policies Employee Motivation Resource Allocation Ch 1 -9
  10. 10. Strategy Implementation Steps 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 Ch 1 -10
  11. 11. StrategyImplementation Action Stage of Strategic Action Stage of Strategic Management – Management – Most difficult stage Most difficult stage Mobilization of employees Mobilization of employees & managers & managers Interpersonal skills critical Interpersonal skills critical Consensus on goal pursuit Consensus on goal pursuit Ch 1 -11
  12. 12. Strategy Evaluation Internal Review External Review Performance Measurement Corrective Actions Ch 1 -12
  13. 13. StrategyEvaluation Final Stage of Strategic Final Stage of Strategic Management Management Subject to future modification Subject to future modification Today’s success no Today’s success no guarantee of future success guarantee of future success New & different problems New & different problems Complacency leads to demise Complacency leads to demise Ch 1 -13
  14. 14. Integrating Intuition and Analysis Strategic Management is:An objective, logical, systematic andanalytical approach for making majordecisions.The strategic management process attemptsto organize quantitative and qualitativeinformation under conditions of uncertaintyYet it is not a pure science that lends itself toa one two three approach. Ch 1 -14
  15. 15. Integrating Intuition and AnalysisIntuition: An insight or understanding of a phenomenon without conscious reasoning. The act or faculty of knowing or sensing without the use of evident rational processes. Ch 1 -15
  16. 16. Integrating Intuition and Analysis Where does intuition come from? Conscious Subconscious Unconscious We think of intuition as a magical phenomenon—but intuition is formed out of our past experiences and knowledge. Intuition is useful for decision making in:  Conditions of great uncertainty  Conditions with little precedent Ch 1 -16
  17. 17. Integrating Intuition & Analysis“I believe in intuition and inspiration. At times I feel certain that I am right while not knowing the reason. Sometimes, imagination is more important than knowledge, because knowledge is limited, whereas imagination embraces the entire world.” Albert Einstein Ch 1 -17
  18. 18. Integrating Intuition & Analysis Excessive reliance on facts limits us. Too much reliance on intuition kills the business. Analytical Thinking Intuitive Thinking Ch 1 -18Copyright 2007 Prentice Hall
  19. 19. Adapting to Change Organizations should continually monitor internal and external events and trends so that timely changes can be made as needed Ch 1 -19Copyright 2007 Prentice Hall
  20. 20. Key Terms in Strategic Management Competitive advantage Strategists Vision and mission statements External opportunities and threats Internal strengths and weaknesses Long-term objectives Strategies Annual objectives Policies Ch 1 -20
  21. 21. Strategic Management is Gaining and Maintaining Competitive Advantage “Anything that a firm does especially well compared to rival firms” Ch 1 -21Copyright 2007 Prentice Hall
  22. 22. Achieving Sustained Competitive Advantage 1. Adapting to change in external trends, internal capabilities and resources 2. Effectively formulating, implementing & evaluating strategies Ch 1 -22Copyright 2007 Prentice Hall
  23. 23. Adapting to Change Rate & magnitude of change increasing dramatically E-commerce Demographics Technology Ch 1 -23Copyright 2007 Prentice Hall
  24. 24. Adapting to Change – KeyStrategic ManagementQuestions  What kind of business should we become?  Are we in the right fields?  Are there new competitors?  What strategies should we pursue?  How are our customers changing? Ch 1 -24
  25. 25. Strategists – Strategists Gather Information Analyze Information Organize InformationVarious Job Titles: •Chief Executive Officer(CEO) •Chief Strategy Officer (CSO) •President •Board Chair •Executive Director Ch 1 -25Copyright 2007 Prentice Hall
  26. 26. Key Terms Vision Statement – What do we want to become? Mission Statement – What is our business? Ch 1 -26Copyright 2007 Prentice Hall
  27. 27. Key Terms Opportunities and Threats (External)  Largely beyond the control of a single organization Ch 1 -27Copyright 2007 Prentice Hall
  28. 28. Key Terms Opportunities & Threats (External) Analysis of Trends: • Economic • Social • Cultural • Demographic/Environmental • Political, Legal, Governmental • Technological • Competitors Ch 1 -28Copyright 2007 Prentice Hall
  29. 29. Key Terms Opportunities & Threats Environmental Scanning (Industry Analysis)  Process of conducting research and gathering and assimilating external information Ch 1 -29Copyright 2007 Prentice Hall
  30. 30. Key Terms Opportunities & Threats Basic Tenet of Strategic Management Take advantage of Take advantage of External Opportunities External Opportunities Strategy Formulation Avoid/minimize impact of Avoid/minimize impact of External Threats External Threats Ch 1 -30Copyright 2007 Prentice Hall
  31. 31. Key Terms Strengths & Weaknesses (Internal)  Controllable activities performed especially well or poorly Ch 1 -31Copyright 2007 Prentice Hall
  32. 32. Key Terms Strengths & Weaknesses (Internal) Typically located in functional areas of the firm • Management • Marketing • Finance/Accounting • Production/Operations • Research & Development • Computer Information Systems Ch 1 -32Copyright 2007 Prentice Hall
  33. 33. Key Terms Strengths & Weaknesses Assessing the Internal Environment Financial Ratios Performance Metrics Internal Factors Industry Averages Survey Data Ch 1 -33Copyright 2007 Prentice Hall
  34. 34. Key Terms Long-term Objectives  Mission-driven pursuit of specified results more than one year out Ch 1 -34Copyright 2007 Prentice Hall
  35. 35. Key Terms Long-term Objectives Essential for ensuring the firm’s success • Provide direction • Aid in evaluation • Create synergy • Focus coordination • Basis for planning, motivating, and controlling Ch 1 -35Copyright 2007 Prentice Hall
  36. 36. Key Terms Strategies  Means by which long-term objectives are achieved Ch 1 -36Copyright 2007 Prentice Hall
  37. 37. Key Terms Strategies Some Examples • Geographic expansion • Diversification • Acquisition • Market penetration • Retrenchment • Liquidation • Joint venture Ch 1 -37Copyright 2007 Prentice Hall
  38. 38. Key Terms Annual Objectives  Short-term milestones that firms must achieve to attain long-term objectives Ch 1 -38Copyright 2007 Prentice Hall
  39. 39. Key Terms Policies  Means by which annual objectives will be achieved Ch 1 -39Copyright 2007 Prentice Hall
  40. 40. Comprehensive strategic management model External Audit Chapter 3 Long-Term Generate, Implement Implement Measure &Vision Objectives Evaluate, Strategies: Strategies: Evaluate & Select Mgmt Issues Marketing, PerformanceMission Strategies Fin/Acct, R&D, CISChapter 2 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9 Internal Audit Chapter 4 Ch 1 -40Copyright 2007 Prentice Hall
  41. 41. Strategic Management Model Strategic Management Process  Dynamic & Continuous  More formal in larger organizations Ch 1 -41Copyright 2007 Prentice Hall
  42. 42. Strategic Management Model 1. Identify Existing -- • Vision • Mission • Objectives • Strategies Ch 1 -42Copyright 2007 Prentice Hall
  43. 43. Strategic Management Model 2. Audit external environment 3. Audit internal environment 4. Establish long-term objectives 5. Generate, evaluate & select strategies 6. Implement selected strategies 7. Measure & evaluate performance Ch 1 -43Copyright 2007 Prentice Hall
  44. 44. Benefits of Strategic Management• Proactive in shaping firm’s future• Initiate and influence firm’s activities• Formulate better strategies •Systematic, logical, rational Ch 1 -44Copyright 2007 Prentice Hall
  45. 45. Benefits of Strategic Management Financial Benefits • Improvement in sales • Improvement in profitability • Productivity improvement Ch 1 -45Copyright 2007 Prentice Hall
  46. 46. Benefits of Strategic Management Non-Financial Benefits • Improved understanding of competitors strategies • Enhanced awareness of threats • Reduced resistance to change • Enhanced problem-prevention capabilities Ch 1 -46Copyright 2007 Prentice Hall
  47. 47. Benefits of Strategic Management (Greenley)1. Identification of Opportunities2. Objective view of management problems3. Improved coordination & control4. Minimizes adverse conditions & changes5. Decisions that better support objectives Ch 1 -47Copyright 2007 Prentice Hall
  48. 48. Benefits of Strategic Management (Greenley – cont’d)6. Effective allocation of time & resources7. Internal communication among personnel8. Integration of individual behaviors9. Clarify individual responsibilities10. Encourage forward thinking Ch 1 -48Copyright 2007 Prentice Hall
  49. 49. Benefits of Strategic Management (Greenley – cont’d) 11. Encourages favorable attitude toward change 12. Provides discipline and formality to the management of the business Ch 1 -49Copyright 2007 Prentice Hall
  50. 50. Why Some Firms Do No Strategic PlanningPoor reward structuresFire-fightingWaste of timeToo expensiveLazinessContent with success Ch 1 -50Copyright 2007 Prentice Hall
  51. 51. Why Some Firms Do No Strategic PlanningFear of failureOverconfidencePrior bad experienceSelf-interestFear of the unknownSuspicion Ch 1 -51Copyright 2007 Prentice Hall
  52. 52. Pitfalls in Strategic Planning Strategic planning is an involved, intricate, and complex process that takes an organization into uncharted territoryCopyright © 2011 Pearson Education, Inc. Ch 1 -52Publishing as Prentice Hall
  53. 53. Effective Strategic Planning is: A people process more than a paper process A learning process Simple and nonroutine Varying assignments, team membership, meeting formats, and planning calendarsCopyright © 2011 Pearson Education, Inc. Ch 1 -53Publishing as Prentice Hall
  54. 54. Effective Strategic Planning continued Welcomes bad news Requires open-mindedness and a spirit of inquiry Is not a bureaucratic mechanism Is not too formal, predictable, or rigid Does not contain jargon or arcane languageCopyright © 2011 Pearson Education, Inc. Ch 1 -54Publishing as Prentice Hall
  55. 55. Effective Strategic Planning continued 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” policyCopyright © 2011 Pearson Education, Inc. Ch 1 -55Publishing as Prentice Hall
  56. 56. Comparing Business and MilitaryStrategy Strategic planning started in the military Similarity  Both business and military organizations must adapt to change and constantly improve Difference  Business strategy assumes competition  Military strategy assumes conflictCopyright © 2011 Pearson Education, Inc. Ch 1 -56Publishing as Prentice Hall