David sm13 ppt_01

Chapter 1
The Nature of Strategic Management

Strategic Management:
Concepts & Cases
13th Edition
Fred David

Copyright © 2011 Pearson
Education, Inc. Ch 1 -1

Strategic Management –Defined

Art & science of formulating,
implementing, and evaluating,
cross-functional decisions that
enable an organization to achieve its
objectives


Purpose of Strategic Management

To exploit and create new and different
opportunities for tomorrow


Strategic Management

In essence, the strategic plan is a
company’s game plan


3 Stages of the Strategic
Management Process

 Strategy formulation

 Strategy implementation

 Strategy evaluation

Strategy Formulation

Vision & Mission

External Opportunities & Threats

Internal Strengths & Weaknesses

Long-Term Objectives

Alternative Strategies

Strategy Selection


Issues in Strategy
Formulation

Businesses to enter
Businesses to enter
Businesses to abandon
Businesses to abandon
Allocation of resources
Allocation of resources
Expansion or
Expansion or
diversification
diversification
International markets
International markets
Mergers or joint
Mergers or joint
ventures
ventures
Avoidance of hostile
Avoidance of hostile
takeover
takeover


Strategy Implementation

Annual Objectives

Policies

Employee Motivation

Resource Allocation


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


Issues in Strategy
Implementation

Action Stage of Strategic
Action Stage of Strategic
Management
Management

Mobilization of
Mobilization of
employees & managers
employees & managers

Most difficult stage
Most difficult stage

Interpersonal skills
Interpersonal skills
critical
critical


Strategy Evaluation

Internal Review

External Review

Performance Measurement

Corrective Action


Prime Task of

Peter Drucker: Think through the
overall mission of a business. Ask
the key question:
“What is our Business?”


Integrating Intuition & Analysis

The strategic management process
attempts to organize quantitative and
qualitative information under conditions of
uncertainty



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



Intuition & Judgment

Involve management at all levels

Influence all analyses


Adapting to Change

Organizations should continually
monitor internal and external
events and trends so that timely
changes can be made as needed


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

Strategic Management is
Gaining and Maintaining
Competitive Advantage

Anything that a firm does especially
well compared to rival firms


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


Strategists

Gather Information

Analyze Information

Organize Information


Vision and Mission Statements

Vision Statement –
What do we want to become?

Mission Statement –
What is our business?


External Opportunities and Threats

Analysis of Trends
 Economic
 Social
 Cultural
 Demographic/Environmental
 Political, Legal, Governmental
 Technological
 Competitors

External Opportunities and 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


Internal Strengths and Weaknesses

 Controllable
activities performed
especially well or poorly

 Determined relative to competitors


 Typically located in functional areas of the firm

 Management
 Marketing

 Finance/Accounting

 Production/Operations

 Research & Development

 Management Information Systems



Assessing the Internal Environment

Ratios

Performance Measures
Internal Factors
Industry Averages

Survey Data



 Specific results that an organization
seeks to achieve in pursuing its basic
mission

 Long-term means more than one year



 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

Strategies

Means by which long-term objectives
are achieved


Strategies
 Examples
 Geographic expansion

 Diversification

 Acquisition

 Product development

 Market penetration

 Retrenchment

 Divestiture

 Liquidation

 Joint venture


Sample Strategies
 Table 1-1

 Best Buy

 Levi Strauss

 New York Times Company

Annual Objectives

Short-term milestones that firms must
achieve to reach long-term objectives


Policies

Means by which annual objectives will
be achieved


Strategic Management Model

 StrategicManagement Process
 Dynamic & continuous

 More formal in larger
organizations



 Communication is a key to
successful strategic management


Benefits of Strategic Management


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


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


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


Pitfalls in Strategic Planning

Strategic planning is an involved, intricate,
and complex process that takes an
organization into uncharted territory


Effective Strategic Planning is:

 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

Effective Strategic Planning
continued
 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


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” policy


Comparing Business and Military
Strategy
 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 conflict


All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior written
permission of the publisher. Printed in the United States of America.


David sm13 ppt_01

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