Chapter 1

The Nature of Strategic Management

Strategic Management: Concepts & Cases 13th Edition Fred David

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 1 -1

Strategic Management Defined

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

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 1 -2

Purpose of Strategic Management

To exploit and create new and different opportunities for tomorrow

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 1 -3

Strategic Management

In essence, the strategic plan is a companys game plan

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 1 -4

3 Stages of the Strategic Management Process

Strategy formulation Strategy implementation

Strategy evaluation
Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -5

Strategy Formulation
Vision & Mission External Opportunities & Threats Internal Strengths & Weaknesses Long-Term Objectives Alternative Strategies

Strategy Selection

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 1 -6

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

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 1 -7

Strategy Implementation

Annual Objectives Policies Employee Motivation Resource Allocation

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 1 -8

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
Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 1 -9

Issues in Strategy Implementation

Action Stage of Strategic Management Mobilization of employees & managers Most difficult stage Interpersonal skills critical

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 1 -10

Strategy Evaluation

Internal Review External Review Performance Measurement Corrective Action

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 1 -11

Prime Task of Strategic Management

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

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 1 -12

Integrating Intuition & Analysis

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

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 1 -13

Integrating Intuition & Analysis

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
Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -14

Integrating Intuition & Analysis

Intuition & Judgment

Involve management at all levels

Influence all analyses

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 1 -15

Adapting to Change

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

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 1 -16

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
Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -17

Strategic Management is Gaining and Maintaining Competitive Advantage

Anything that a firm does especially well compared to rival firms

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 1 -18

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

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 1 -19

Strategists

Gather Information Analyze Information Organize Information

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 1 -20

Vision and Mission Statements

Vision Statement What do we want to become?

Mission Statement What is our business?

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 1 -21

External Opportunities and Threats

Analysis of Trends

Economic Social Cultural Demographic/Environmental Political, Legal, Governmental Technological Competitors

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -22

External Opportunities and Threats

Basic Tenet of Strategic Management

Take advantage of External Opportunities Strategy Formulation

Avoid/minimize impact of External Threats

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 1 -23

Internal Strengths and Weaknesses

Controllable

activities performed especially well or poorly relative to competitors

Determined

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 1 -24

Internal Strengths and Weaknesses

Typically located in functional areas of the firm Management Marketing Finance/Accounting Production/Operations Research & Development Management Information Systems

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -25

Internal Strengths and Weaknesses

Assessing the Internal Environment
Ratios

Performance Measures

Internal Factors
Industry Averages

Survey Data

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 1 -26

Long-Term Objectives

Specific results that an organization seeks to achieve in pursuing its basic mission Long-term means more than one year

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 1 -27

Long-Term Objectives

Essential for ensuring the firms success Provide direction Aid in evaluation Create synergy Reveal priorities Focus coordination Provide basis for planning, organizing, motivating, and controlling
Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -28

Strategies

Means by which long-term objectives are achieved

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 1 -29

Strategies

Examples Geographic expansion Diversification Acquisition Product development Market penetration Retrenchment Divestiture Liquidation Joint venture
Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -30

Sample Strategies

Table 1-1

Best Buy Levi Strauss

New York Times Company

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -31

Annual Objectives

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

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 1 -32

Policies

Means by which annual objectives will be achieved

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 1 -33

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 1 -34

Strategic Management Model

Strategic

Management Process Dynamic & continuous More formal in larger organizations

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 1 -35

Strategic Management

Communication

is a key to successful strategic management

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 1 -36

Benefits of Strategic Management

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

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

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

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
Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 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
Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -40

Pitfalls in Strategic Planning

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

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

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
Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 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

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

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

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

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 Business strategy assumes competition Military strategy assumes conflict

Difference

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 1 -45

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.

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 1 -46