The document outlines the nature of strategic management, defining it as the art and science of formulating, implementing, and evaluating decisions to achieve organizational objectives. It details the strategic management process, which includes strategy formulation, implementation, and evaluation, while emphasizing the importance of adaptability to external and internal changes. Additionally, the document discusses key components such as vision and mission statements, competitive advantages, and the role of strategists in organizational success.

1. Copyright © 2011 Pearson Education Ch 1 -1
Chapter 1
The Nature of Strategic Management
Strategic Management:
Concepts & Cases
13th Edition
Global Edition
Fred David

2. Copyright © 2011 Pearson Education Ch 1 -2
Art & science of formulating,
implementing, and evaluating,
cross-functional decisions that
enable an organization to achieve its
objectives
Strategic Management –Defined

3. Copyright © 2011 Pearson Education Ch 1 -3
Purpose of Strategic Management
To exploit and create new and different
opportunities for tomorrow

4. Copyright © 2011 Pearson Education Ch 1 -4
Strategic Management
In essence, the strategic plan is a
company’s game plan

5. Copyright © 2011 Pearson Education Ch 1 -5
3 Stages of the Strategic
Management Process
 Strategy formulation
 Strategy implementation
 Strategy evaluation

6. Copyright © 2011 Pearson Education Ch 1 -6
Vision & Mission
Strategy Formulation
External Opportunities & Threats
Internal Strengths & Weaknesses
Long-Term Objectives
Alternative Strategies
Strategy Selection

7. Copyright © 2011 Pearson Education Ch 1 -7
Issues in Strategy
Formulation
Businesses to enter
Businesses to abandon
Allocation of resources
Expansion or
diversification
International markets
Mergers or joint
ventures
Avoidance of hostile
takeover

8. Copyright © 2011 Pearson Education Ch 1 -8
Strategy Implementation
Annual Objectives
Policies
Employee Motivation
Resource Allocation

9. Copyright © 2011 Pearson Education Ch 1 -9
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

10. Copyright © 2011 Pearson Education Ch 1 -10
Issues in Strategy
Implementation
Action Stage of Strategic
Management
Mobilization of
employees & managers
Most difficult stage
Interpersonal skills
critical

11. Copyright © 2011 Pearson Education Ch 1 -11
Strategy Evaluation
Internal Review
External Review
Performance Measurement
Corrective Action

12. Copyright © 2011 Pearson Education Ch 1 -12
Peter Drucker: Think through the
overall mission of a business. Ask
the key question:
“What is our Business?”
Prime Task of
Strategic Management

13. Copyright © 2011 Pearson Education Ch 1 -13
The strategic management process
attempts to organize quantitative and
qualitative information under conditions of
uncertainty
Integrating Intuition & Analysis

14. Copyright © 2011 Pearson Education Ch 1 -14
Intuition is based on:
 Past experiences
 Judgment
 Feelings
Integrating Intuition & Analysis
Intuition is useful for decision making in
conditions of:
 Great uncertainty
 Little precedent
 Highly interrelated variables
 Several plausible alternatives

15. Copyright © 2011 Pearson Education Ch 1 -15
Involve management at all levels
Intuition & Judgment
Influence all analyses
Integrating Intuition & Analysis

16. Copyright © 2011 Pearson Education Ch 1 -16
Organizations should continually
monitor internal and external
events and trends so that timely
changes can be made as needed
Adapting to Change

17. Copyright © 2011 Pearson Education Ch 1 -17
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

18. Copyright © 2011 Pearson Education Ch 1 -18
Anything that a firm does especially
well compared to rival firms
Strategic Management is
Gaining and Maintaining
Competitive Advantage

19. Copyright © 2011 Pearson Education Ch 1 -19
1. Continually adapting to changes in
external trends and events and internal
capabilities, competencies, and resources
Achieving Sustained Competitive
Advantage
2. Effectively formulating, implementing, and
evaluating strategies that capitalize on those
factors

20. Copyright © 2011 Pearson Education Ch 1 -20
Strategists
Gather Information
Analyze Information
Organize Information

21. Copyright © 2011 Pearson Education Ch 1 -21
Vision Statement –
What do we want to become?
Mission Statement –
What is our business?
Vision and Mission Statements

22. Copyright © 2011 Pearson Education Ch 1 -22
External Opportunities and Threats
Analysis of Trends
 Economic
 Social
 Cultural
 Demographic/Environmental
 Political, Legal, Governmental
 Technological
 Competitors

23. Copyright © 2011 Pearson Education Ch 1 -23
Basic Tenet of Strategic Management
External Opportunities and Threats
Strategy Formulation
Take advantage of
External Opportunities
Avoid/minimize impact of
External Threats

24. Copyright © 2011 Pearson Education Ch 1 -24
 Controllable activities performed
especially well or poorly
 Determined relative to competitors
Internal Strengths and Weaknesses

25. Copyright © 2011 Pearson Education Ch 1 -25
 Typically located in functional areas of the firm
 Management
 Marketing
 Finance/Accounting
 Production/Operations
 Research & Development
 Management Information Systems
Internal Strengths and Weaknesses

26. Copyright © 2011 Pearson Education Ch 1 -26
Assessing the Internal Environment
Internal Strengths and Weaknesses
Internal Factors
Performance Measures
Ratios
Industry Averages
Survey Data

27. Copyright © 2011 Pearson Education Ch 1 -27
 Specific results that an organization
seeks to achieve in pursuing its basic
mission
 Long-term means more than one year
Long-Term Objectives

28. Copyright © 2011 Pearson Education Ch 1 -28
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

29. Copyright © 2011 Pearson Education Ch 1 -29
Means by which long-term objectives
are achieved
Strategies

30. Copyright © 2011 Pearson Education Ch 1 -30
Strategies
 Examples
 Geographic expansion
 Diversification
 Acquisition
 Product development
 Market penetration
 Retrenchment
 Divestiture
 Liquidation
 Joint venture

31. Copyright © 2011 Pearson Education Ch 1 -31
Short-term milestones that firms must
achieve to reach long-term objectives
Annual Objectives

32. Copyright © 2011 Pearson Education Ch 1 -32
Means by which annual objectives will
be achieved
Policies

33. Copyright © 2011 Pearson Education Ch 1 -33

34. Copyright © 2011 Pearson Education Ch 1 -34
 Strategic Management Process
 Dynamic & continuous
 More formal in larger
organizations
Strategic Management Model

35. Copyright © 2011 Pearson Education Ch 1 -35
Strategic Management
 Communication is a key to
successful strategic management

36. Copyright © 2011 Pearson Education Ch 1 -36
Benefits of Strategic Management

37. Copyright © 2011 Pearson Education Ch 1 -37
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

38. Copyright © 2011 Pearson Education Ch 1 -38
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

39. Copyright © 2011 Pearson Education Ch 1 -39
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

40. Copyright © 2011 Pearson Education Ch 1 -40
Pitfalls in Strategic Planning
Strategic planning is an involved, intricate,
and complex process that takes an
organization into uncharted territory

41. Copyright © 2011 Pearson Education Ch 1 -41
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

42. Copyright © 2011 Pearson Education Ch 1 -42
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

43. Copyright © 2011 Pearson Education Ch 1 -43
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

44. Copyright © 2011 Pearson Education Ch 1 -44
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