This chapter discusses strategic management and strategic planning. It defines strategic management as formulating, implementing, and evaluating cross-functional decisions to achieve organizational objectives. The basic model of strategic management involves environmental scanning, strategy formulation, implementation, and evaluation. Strategy formulation includes developing a vision/mission and identifying strengths/weaknesses and opportunities/threats. Implementation requires setting objectives, policies, and allocating resources. Evaluation assesses performance and makes corrections. Benefits include increased control and improved performance compared to non-planning firms.

1. The Nature of
Strategic
Management
Chapter One
1-1Copyright ©2017 Pearson Education, Inc.

2. Definition of Strategy
Strategy: A firm’s theory about how to gain
competitive advantages
Eisner’s theory may have been:
People will pay a premium price for extraordinary
entertainment. We have the necessary resources to
create extraordinary entertainment. Therefore, let’s
redeploy our resources in a different way and offer
something extraordinary to people.

3. Defining Strategic Management
Copyright ©2017 Pearson Education, Inc. 1-3
Strategic Management
the art and science of formulating,
implementing, and evaluating cross-
functional decisions that enable an
organization to achieve its objectives

4. Defining Strategic Management
Copyright ©2017 Pearson Education, Inc. 1-4
 Strategic management is used
synonymously with the term strategic
planning in this course.
 Sometimes the term strategic
management is used to refer to strategy
formulation, implementation, and
evaluation, with strategic planning
referring only to strategy formulation.

5. Defining Strategic Management
Copyright ©2017 Pearson Education, Inc. 1-5
A strategic plan is a company’s game
plan.
A strategic plan results from tough
managerial choices among
numerous good alternatives, and it
signals commitment to specific
markets, policies, procedures, and
operations.

6. 1-6
Basic Model of Strategic Management

7. 1-7
Environmental Scanning is the
monitoring, evaluating and disseminating of
information from the external and internal
environments to key people within the organization
Basic Model of Strategic Management

8. Stages of Strategic Management
Copyright ©2017 Pearson Education, Inc. 1-8
Strategy Formulation
 developing a vision and mission
 identifying an organization’s external
opportunities and threats
 determining internal strengths and weaknesses
 establishing long-term objectives
 generating alternative strategies
 choosing particular strategies to pursue

9. 1-9
Prentice Hall, Inc. ©2010
Strategy Formulation:
 Mission- the purpose or reason for the
organization’s existence
 Vision- describes what the organization would
like to become
 Objectives- the end results of planned activity
(What, when, how much)
Basic Model of Strategic Management

10. 1-10
Prentice Hall, Inc. ©2010
Strategy Formulation:
 Strategies- form a comprehensive master plan
that states how the corporation will achieve its
mission and objectives
 Corporate
 Business
 Functional
 Policies- the broad guidelines for decision making
that links the formulation of a strategy with its
implementation
Basic Model of Strategic Management

11. 1-11
Prentice Hall, Inc. ©2010
Basic Model of Strategic Management

12. Copyright © 2013 Pearson Education, Inc.
publishing as Prentice Hall

13. Functional Strategies
Copyright © 2013 Pearson Education, Inc.
publishing as Prentice Hall
• Functional strategies are goal oriented plans
and actions of the functional areas of an
organization, they include:
– Production-Operations
– Marketing
– Research & Development
– Human Resources
– Financial-Accounting
– Information Technology & Support

14. Competitive Strategies
Copyright © 2013 Pearson Education, Inc.
publishing as Prentice Hall
 Competitive strategies or business strategies
are goal directed plans and actions concerned
with how an organization competes in a
specific business or industry
 Looks at all aspects of strategies and actions
 Seeks to determine what the company currently
can do and what it wants to do
 Focus is on how it might more effectively
compete

15. Corporate Strategy
Copyright © 2013 Pearson Education, Inc.
publishing as Prentice Hall
 Corporate strategies are goal directed plans
and actions that are concerned with what
business or businesses a firm wants to be in
and what to do with those businesses; for
example
 FedEx’s decision to acquire Kinko's
 PepsiCo’s decision to spin off their fast-food
division

16. Stages of Strategic Management
Copyright ©2017 Pearson Education, Inc. 1-16
Strategy Implementation
 requires a firm to establish annual
objectives, devise policies, motivate
employees, and allocate resources so
that formulated strategies can be
executed
 often called the action stage

17. 1-17
Prentice Hall, Inc. ©2010
Strategy implementation: the process by which
strategies and policies are put into action through the
development of:
 Programs
 Budgets
 Procedures
Basic Model of Strategic Management

18. 1-18
Prentice Hall, Inc. ©2010
Evaluation and control: the process in which
corporate activities and performance results are
monitored so that actual performance can be
compared to desired performance
Basic Model of Strategic Management

19. Stages of Strategic Management
Copyright ©2017 Pearson Education, Inc. 1-19
Strategy Evaluation
 Determining which strategies are not
working well
 Three fundamental activities:
reviewing external and internal factors that
are the bases for current strategies
measuring performance
taking corrective actions

20. 1-20
Prentice Hall, Inc. ©2010
Evaluation & Control
Performance: the end result of organizational activities
Feedback/Learning Process: revise or correct
decisions based on performance
Basic Model of Strategic Management

21. Key Terms in Strategic
Management
Copyright ©2017 Pearson Education, Inc. 1-21
Competitive Advantage
 any activity a firm does especially well
compared to activities done by rival firms,
or
 any resource a firm possesses that rival
firms desire.
 A firm must strive to achieve sustained
competitive advantage

22. Competitive Advantage
The Ability to Create More Economic
Value Than Competitors
• there must be something different about a firm’s
offering vis-à-vis competitors’ offerings
• if all firms’ strategies were the same, no firm
would have a competitive advantage
• competitive advantage is the result of doing
something different and/or better than competitors

23. Competitive Advantage
Temporary & Sustainable
• competition limits the duration of competitive
advantage in most cases
• profits attract competition
• competitive advantage typically results in high profits
Therefore,
• most competitive advantage is temporary
• competitors imitate the advantage or offer
something better

24. Competitive Advantage
Temporary & Sustainable
Some competitive advantages are sustainable if:
• competitors are unable to imitate the source
of advantage
• no one conceives of a better offering
Of course,
• in time, even sustainable competitive advantage
may be lost

25. Competitive Advantage
Competitive Parity
• the firm’s offerings are ‘average’
• people do not have a preference for the firm’s offering
• the firm does not have a cost advantage over others
• some things that may lead to competitive parity may
still be critical to success

26. Competitive Advantage
Competitive Disadvantage
• people may have an aversion to the firm’s offering
• the firm may have a cost disadvantage
• a firm may have outdated technology/equipment
• a firm may have a negative reputation
Example: Wal-Mart’s Labor & Location Policies

27. Competitive Advantage
Competitive Advantage
Disadvantage
Parity
Advantage
Below Normal
Normal
Above Normal
Economic Returns
• exceeding expectations
• meeting expectations
• failing expectations

28. Key Terms in Strategic
Management
Copyright ©2017 Pearson Education, Inc. 1-28
Strategists
 Individuals most responsible for the success
or failure of an organization
 Help an organization gather, analyze, and
organize information
Vision and Mission Statements
 A vision statement answers the question
“What do we want to become?”
 A mission statement answers the question
“What is our business?”

29. Key Terms in Strategic
Management
Copyright ©2017 Pearson Education, Inc. 1-29
External Opportunities and Threats
 economic, social, cultural, demographic,
environmental, political, legal, governmental,
technological, and competitive trends and
events that could significantly benefit or harm an
organization
Internal Strengths and Internal Weaknesses
 an organization’s controllable activities that are
performed especially well or poorly
 determined relative to competitors

30. Key Terms in Strategic
Management
Copyright ©2017 Pearson Education, Inc. 1-30
Long-Term Objectives
 specific results that an organization
seeks to achieve in pursuing its basic
mission
 long-term means more than one year
 should be challenging, measurable,
consistent, reasonable, and clear

31. Key Terms in Strategic
Management
Copyright ©2017 Pearson Education, Inc. 1-31
Annual objectives
 short-term milestones that organizations must
achieve to reach long-term objectives
 should be measurable, quantitative, challenging,
realistic, consistent, and prioritized
 should be established at the corporate,
divisional, and functional levels in a large
organization
Policies
 the means by which annual objectives will be
achieved

32. Benefits of Strategic Management
Copyright ©2017 Pearson Education, Inc. 1-32
 Strategic management allows an
organization to be more proactive than
reactive in shaping its own future;
 It allows an organization to initiate and
influence (rather than just respond to)
activities—and thus to exert control over
its own destiny.

33. Financial Benefits
Copyright ©2017 Pearson Education, Inc. 1-33
 Businesses using strategic-management
concepts show significant improvement in
sales, profitability, and productivity compared
to firms without systematic planning activities
 High-performing firms tend to do systematic
planning to prepare for future fluctuations in
their external and internal environments

34. Nonfinancial Benefits
Copyright ©2017 Pearson Education, Inc. 1-34
 Enhanced awareness of external threats
 Improved understanding of competitors’
strategies
 Increased employee productivity
 Reduced resistance to change
 Clearer understanding of performance–
reward relationships

35. Why Some Firms Do No Strategic
Planning
Copyright ©2017 Pearson Education, Inc. 1-35
 No formal training in strategic
management
 No understanding of or appreciation for
the benefits of planning
 No monetary rewards for doing planning
 No punishment for not planning
 Too busy “firefighting” (resolving internal
crises) to plan ahead
 View planning as a waste of time, since
no product/service is made

36. Why Some Firms Do No Strategic
Planning
Copyright ©2017 Pearson Education, Inc. 1-36
 Laziness; effective planning takes time
and effort; time is money
 Content with current success; failure to
realize that success today is no guarantee
for success tomorrow; even Apple Inc. is
an example
 Overconfident
 Prior bad experience with strategic
planning done sometime/somewhere