The Nature of Strategic

Management
Chapter 1
Strategic Management

The Evolution of Strategic

Management
1950s
DOMINANT
THEME

MAIN
ISSUES
CONCEPTS
&
TECHNIQUE
S

IMPLEMENTATION

1960s
1970s

Early-mid Late1970sLate 1980s Late 1990s

early 1980s early 1990s early 2000s

Budgetary
Corporate
planning & planning
control

Corporate
Analysis of
Quest for
Strategic
strategy
industry &
competitive
innovation
competition
advantage
The New
Economy
Financial control Planning growth Diversifica- Positioning Competitive
Innovation &
ion
advantage
knowledge
Budgeting
Forecasting &
Portfolio
Analysis of
Resource
Dynamic
project appraisal investment planning.
industry &
analysis.
sources of
planning
Synergy
competition
Case
advantage
market
competences Knowledge
share
management
cooperation
Emphasis on
Rise of
DiversifiIndustry/market
Restructuring Virtual
orgafinancial
corporate planning
cation.
selectivity.
BPR.
nization.
management
departments
Quest for
Active asset
Refocusing
Alliances
& formal
global management Outsourcing
Quest for
planning
market share
critical mass
2

A
AComprehensive
Comprehensive Strategic
Strategic Management
Management Model
Model
Feedback

Perform
Perform
External
External
Audit
Audit
Chapter
Chapter33

Develop
Develop
Mission
Mission
Statement
Statement

Establish
Establish
LongLongterm
term
Objectives
Objectives

Chapter
Chapter22

Chapter
Chapter55

Generate,
Generate,
Evaluate,
Evaluate,
and
and
Select
Select
Strategies
Strategies
Chapter
Chapter66

Implement
Implement
Strategic
Strategic
Management
Management
Issues
Issues
Chapter
Chapter77

Implement
Implement
StrategiesStrategiesMarketing,
Marketing,
Finance,
Finance,
Accounting,
Accounting,
R&D,
R&D,
MIS
MISIssues
Issues

Measure
Measure
and
and
Evaluate
Evaluate
Performance
Performance
Chapter
Chapter99

Chapter
Chapter88
Perform
Perform
Internal
Internal
Audit
Audit
Chapter
Chapter44
3

Strategy Formulation

Strategy Implementation

Strategy Evaluation

What is Strategic Management?

Strategic management can be defined as the art

and science of formulating, implementing, and
evaluating cross-functional decisions that enable an
organization to achieve its objectives.
Strategic management focuses on integrating

management
marketing
finance/accounting
production/operations
research and development (R & D)
computer information systems.

What is Strategic Management?

Strategic management can also be defined

as consisting of the analysis, decisions, and
actions an organization undertakes in order
to create and sustain competitive
advantages.
The purpose of strategic management is to
exploit and create new and different
opportunities for tomorrow.
5

Stages of Strategic Management

The strategic management process

consists of three stages:
Strategy Formulation
(create)
Strategy Implementation
(do)
Strategy Evaluation
(monitor)

Stages of Strategic Management

Strategy formulation includes:

Developing a vision and mission.

Identifying an organizations external
opportunities and threats.
Determining internal strengths and
weaknesses.
Establishing long-term objectives.
Generating alternative strategies.
Choosing particular strategies to pursue.
7

Stages of Strategic Management

Strategy formulation includes deciding:

What new businesses to enter.

What businesses to abandon.
How to allocate resources.
Whether to expand operations or diversify.
Whether to enter international markets.
Whether to merge or form a joint venture.
How to avoid a hostile takeover.

Stages of Strategic Management

Strategy implementation includes:

Establishing annual objectives.

Devising policies.
Motivating employees through leadership.
Allocating resources.

Stages of Strategic Management

Strategy implementation is often considered

to be the most difficult stage of strategic
management, because it requires personal
discipline, commitment, and sacrifice.
Strategy implementation often is called the
action stage of strategic management.
Note: Strategies formulated but not implemented serve no useful
purpose.

10

Stages of Strategic Management

Strategy evaluation includes:

Reviewing external and internal factors that

are the bases for current strategies.
Measuring performance.
Taking corrective action, if needed.

11

The Prime Task of Strategic Management

Strategy evaluation is needed because:

All strategies are subject to future modification.

Success today is no guarantee of success
tomorrow.
Success can lead to complacency.
Success leads to new and different problems.

12

Stages of Strategic Management

According to Peter Drucker, the prime task of
strategic management is thinking through the
overall mission of a business:
. . . that is, of asking the question, What is our Business?
This leads to the setting of objectives, the development of
strategies, and the making of todays decisions for tomorrows
results.

13

Integrating Intuition and Analysis

The strategic management process can be

described as an objective, logical, systematic
approach for making major decisions in an
organization.
That said, strategic management is based upon
integrating intuition and analysis in decision
making.
I believe in intuition only if you discipline it.
Peter Drucker

14

Integrating Intuition and Analysis

Intuition is based on
past experience
judgment
feelings.
Intuition is useful for making decisions in
conditions of great uncertainty
conditions with little precedent
situations where highly interrelated variables exist
when it is necessary to choose from several plausible
alternatives.
If done properly, analytical thinking and intuitive thinking
complement each other.

15

Adapting to Change

The strategic-management process is based

on the belief that organizations should
continually monitor internal and external
events and trends so that timely changes
can be made as needed.
To survive, all organizations must be capable
of clearly identifying and adapting to change.

16

Key Terms in Strategic Management

Competitive advantage is anything that a

firm does especially well compared to rival
firms.

Getting and sustaining competitive advantage is

essential for long-term success in an
organization.
Pursuit of competitive advantage leads to
organizational success or failure.

17

Key Terms in Strategic Management

A firm must strive to achieve sustained
competitive advantage by

1.

2.

continually adapting to changes in

external trends and events
internal capabilities
competencies
resources.
effectively formulating, implementing, and evaluating
strategies that capitalize upon those factors.

18

Key Terms in Strategic Management

Strategists are the individuals who are most

responsible for the success or failure of an
organization.
Strategists may have various job titles.
Strategists help an organization gather,
analyze, and organize information.

19

Key Terms in Strategic Management

Vision statement: answers the question,

What do we want to become?
Developing a vision statement is often
considered the first step in strategic
planning.
Many vision statements are a single
sentence can be narrow or board.

20

Key Terms in Strategic Management

Mission statements

are enduring statements of purpose that distinguish one

business from other similar firms.
identify the scope of a firms operations in product and
market terms.
answer the question: What is our business?
broadly chart the future direction of an organization.
describe the values and priorities of an organization.

21

Key Terms in Strategic Management

External opportunities and threats refer to the following

trends and events that could significantly benefit or harm an
organization in the future:
Economic
Social
Cultural
Demographic
Environmental
Political
Legal
Governmental
Technological
Competitive.

22

Key Terms in Strategic Management

Opportunities and threats are largely beyond the

control of a single organization.
A basic tenet of strategic management is that firms
need to

formulate strategies to take advantage of external

opportunities
avoid or reduce the impact of external threats.

The process of conducting research and gathering

and assimilating external information is called
environmental scanning.

23

Key Terms in Strategic Management

Internal strengths and internal weaknesses are an

organizations controllable activities that are performed
especially well (strengths) or poorly (weaknesses).
Internal strengths and weaknesses arise in the functional areas
within an organization: management, marketing,
finance/accounting, production/operations, research and
development (R&D), and management information systems.
Strengths and weaknesses are determined relative to
competitors.

24

Key Terms in Strategic Management

Long-term objectives are specific results that an

organization seeks to achieve in pursuing its basic
mission.
Long-term means more than one year.
Long-term objectives should be

challenging
measurable
consistent
reasonable
clear.

25

Key Terms in Strategic Management

Strategies are

potential actions that require top management decisions

and large amounts of the firms resources.
the means by which long-term objectives will be achieved.
the combination of competitive moves and business
approaches that managers employ to please customers,
compete successfully, and achieve organizational
objectives.

26

Key Terms in Strategic Management

For example, strategies may include

Geographic expansions
Diversification
Acquisition
Product development
Market penetration
Retrenchment
Divestiture
Liquidation
Joint ventures.

27

Key Terms in Strategic Management

Annual objectives

Short-term (less than one year) milestones that

organizations must achieve to reach long-term objectives.
Should be stated in terms of management, marketing,
finance/accounting, production/operations, research and
development, and management information systems
accomplishments.
A set of annual objectives should be developed for
each long-term objective.
Are especially important in strategy implementation.
Represent the basis for allocating resources.

28

Key Terms in Strategic Management

Policies
are the means by which annual objectives will be achieved.
are most often stated in terms of management, marketing,
finance/accounting, production/operations, research and
development, and management information systems
accomplishments.
include guidelines, rules, and procedures established to support
efforts to achieve stated objectives.
are especially important in strategy implementation because
they outline an organizations expectations of its employees and
managers.
allow consistency and coordination within and between
organizational departments.
are guides to decision making and address repetitive or
recurring situations.
29

A
AComprehensive
Comprehensive Strategic
Strategic Management
Management Model
Model
Feedback

Perform
Perform
External
External
Audit
Audit
Chapter
Chapter33

Develop
Develop
Mission
Mission
Statement
Statement

Establish
Establish
LongLongterm
term
Objectives
Objectives

Chapter
Chapter22

Chapter
Chapter55

Generate,
Generate,
Evaluate,
Evaluate,
and
and
Select
Select
Strategies
Strategies
Chapter
Chapter66

Implement
Implement
Strategic
Strategic
Management
Management
Issues
Issues
Chapter
Chapter77

Implement
Implement
StrategiesStrategiesMarketing,
Marketing,
Finance,
Finance,
Accounting,
Accounting,
R&D,
R&D,
MIS
MISIssues
Issues

Measure
Measure
and
and
Evaluate
Evaluate
Performance
Performance
Chapter
Chapter99

Chapter
Chapter88
Perform
Perform
Internal
Internal
Audit
Audit
Chapter
Chapter44
30

Strategy Formulation

Strategy Implementation

Strategy Evaluation

The Strategic Management Model

The strategic management process is

dynamic
continuous
more formal in larger organizations

31

Benefits of Strategic Management

Strategic management

Allows an organization to be more proactive than reactive

in shaping its own future.
Allows an organization to initiate and influence (rather than
just respond to) activities.
Allows an organization to exert control over its own
destiny.
Helps an organization formulate better strategies through
the use of a more systematic, logical, and rational
approach to strategic choice.

32

Benefits of Strategic Management

Communication is a key to successful

strategic management.
Dialogue and participation are essential
ingredients.
A major aim of the process is to achieve the
understanding of and commitment from all
managers and employees.

33

Financial Benefits of Strategic Management

In general, businesses using strategicmanagement concepts

show significant improvement in sales.

show significant improvement in profitability.
show significant improvement in productivity.
exhibit superior long-term financial performance
relative to their industry.

34

Non-financial Benefits of Strategic Management

Non-financial benefits include:

an enhanced awareness of external threats.

an improved understanding of competitors
strategies.
increased employee productivity.
reduced resistance to change.
a clearer understanding of performance-reward
relationships.

35

Non-financial Benefits of Strategic Management

Greenly identified the following benefits:
1.
2.
3.
4.
5.
6.
7.

identification, prioritization, and exploitation of

opportunities.
objective view of management problems.
improved coordination and control.
minimizes the effects of adverse conditions and
changes.
allows major decisions to better support established
objectives.
effective allocation of time and resources.
fewer resources and less time devoted to correcting
erroneous or ad hoc decisions.
36

Non-financial Benefits of Strategic Management

(Cont.)
Greenly identified the following benefits:
8.
9.
10.
11.
12.
13.
14.

creates a framework for internal communication among

personnel.
helps integrate the behavior of individuals into a total
effort.
clarifies individual responsibilities.
encourages forward thinking.
provides a cooperative, integrated and enthusiastic
approach to tackling problems and opportunities.
encourages a favorable attitude toward change.
gives a degree of discipline and formality to the
management of the business.
37

Why Some Firms Do No Strategic Planning

Poor reward structuressome organizations fail to reward

success.
Fire-fightingcrisis management
Waste of timeno marketable product is produced
Too expensive
Lazinessstrategic planning takes effort
Content with success
Fear of failure
Overconfidence
Prior bad experience
Self-interest
Fear of the unknown
Honest difference of opinion
Suspicionemployees may not trust management

38

Pitfalls in Strategic Planning

Using strategic planning to gain control over decisions and

resources
Doing strategic planning only to satisfy accreditation or
regulatory requirements
Too hastily moving from mission development to strategy
formulation
Failing to communicate the plan to employees, who continue
working in the dark
Top managers making many intuitive decisions that conflict with
the formal plan
Top managers not actively supporting the strategic-planning
process
Failing to use plans as a standard for measuring performance

39

Pitfalls in Strategic Planning (Cont.)

Delegating planning to a planner rather than

involving all managers
Failing to involve key employees in all phases of
planning
Failing to create a collaborative climate supportive
of change
Viewing planning to be unnecessary or unimportant
Becoming so engrossed in current problems that
insufficient or no planning is done
Being so formal in planning that flexibility and
creativity are stifled
40

Guidelines for Effective Strategic Management

Keep the strategic-management process as simple and nonroutine as possible.

Eliminate jargon and arcane planning language.
Avoid routinized behavior.
Emphasize word-oriented plans with numbers as back-up
material.
Stimulate thinking and action that challenge the assumptions
underlying current corporate strategy.
Welcome bad news.
Build a corporate culture in which the role of strategic
management and its essential purposes are understood.
Attend to psychological, social, and political dimensions, as well
as the information infrastructure and administrative procedures
supporting it.
41

Guidelines for Effective Strategic Management

No organization can pursue all the strategies that

potentially could benefit the firmno firm has
unlimited resources.
Dont pursue too many strategies at the same time.
Carefully consider the trade-offs involved in
strategic decisions: long-range vs. short-range
considerations or maximizing profits versus
increasing shareholders wealth.
Consider ethical issues.
Be as objective as possible in considering
qualitative factors.

42

Business Ethics and Strategic Management

Business ethics can be defined as principles of

conduct within organizations that guide decision
making and behavior.
Good business ethics are a prerequisite for good
strategic management.
All strategy formulation, implementation, and
evaluation decisions have ethical ramifications.
A code of business ethics can provide a basis on
which policies can be devised to guide daily
behavior and decisions at the work site.
An ethics culture needs to permeate organizations.

43

Business Ethics and Strategic Management

The spirit of the organization is created at the top.

Business relationships are built mostly on mutual
trust and reputation.
More and more firms believe that ethics training and
an ethics culture create strategic advantage.
Firms can align ethical and strategic decision
making by incorporating ethical considerations into
long-term planning, by integrating ethical decision
making into the performance appraisal process.

44

Business Ethics and Strategic Management

Business actions always considered to be unethical

include:

Misleading advertising
Misleading labeling
Causing environmental harm
Poor product or service safety
Padding expense accounts
Insider trading
Dumping flawed products on foreign markets.

45

The Nature of Global Competition

Organizations that conduct business operations

across national borders are called international
firms or multinational corporations.
A parent company is a firm investing in international
operations, while a host country is the country
where that business is conducted.
The strategic-management process is more difficult
and complex for multinational firms because of the
presence of more variables and relationships.
More time and effort are required to identify and
evaluate external trends and events in multinational
corporations.
46

The Nature of Global Competition

Geographical distance, cultural and national

differences, and variations in business practices
make communication between domestic
headquarters and overseas operations difficult.
Strategy implementation can be more difficult
because different cultures have different norms,
values, and work ethics.
Fully 95 percent of the worlds population lives
outside the U.S., and this group is growing 70
percent faster than the American population.
There is an accelerating trend toward foreign
acquisitions and joint ventures.
47

Advantages and Disadvantages of

International Operations

The main advantage of international operations is

that firms can gain new customers for their
products. Other advantages include:
1.

2.
3.
4.
5.
6.
7.

Foreign operations can absorb excess capacity, reduce

unit costs, and spread economic risks over a wider
number of markets.
Establishing low-cost production facilities in locations
close to raw materials and/or cheap labor.
Competition may be less intense in foreign markets.
Reduced tariffs, lower taxes, and favorable political
treatment.
Joint ventures can reduce risk.
Incentives to encourage foreign investment.
Achieve global economies of scale.
48

Advantages and Disadvantages of

International Operations

The main disadvantage of international operations is that a

foreign operation could be seized by nationalistic factions.
Other potential disadvantages include:
1.
Different social, cultural, demographic, environmental, political,
governmental, legal, technological, economic and competitive
forces affecting business.
2.
Weaknesses of foreign competition may be underestimated.
3.
Different language, culture, and value systems can create
barriers to communication and managing people.
4.
Different but important regional organizations.
5.
Dealing with multiple monetary systems.
6.
The availability, depth, and reliability of economic and
marketing information varies.

49

A
AComprehensive
Comprehensive Strategic
Strategic Management
Management Model
Model
Feedback

Perform
Perform
External
External
Audit
Audit
Chapter
Chapter33

Develop
Develop
Mission
Mission
Statement
Statement

Establish
Establish
LongLongterm
term
Objectives
Objectives

Chapter
Chapter22

Chapter
Chapter55

Generate,
Generate,
Evaluate,
Evaluate,
and
and
Select
Select
Strategies
Strategies
Chapter
Chapter66

Implement
Implement
Strategic
Strategic
Management
Management
Issues
Issues

Implement
Implement
StrategiesStrategies Marketing,
Marketing,
Finance,
Finance,
Accounting,
Accounting,
R&D,
R&D,
MIS
MISIssues
Issues

Chapter
Chapter77

Measure
Measure
and
and
Evaluate
Evaluate
Performance
Performance
Chapter
Chapter99

Chapter
Chapter88
Perform
Perform
Internal
Internal
Audit
Audit
Chapter
Chapter44
50

Strategy Formulation

Strategy Implementation

Strategy Evaluation