Coutler Smia5 PPT 01

Chapter One
Introducing the
Concepts
Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 1- 1

Chapter One Divided into 3 Sections
1.1 Why is strategic management important?
1.2 What is strategic management?
1.3 Who is involved with strategic management?

Strategic Management in Action: Case
One – Making Magic Happen
• Disney brand faces strategic uncertainty in the
difficult business climate of 2008-2009
– Challenge for them is how to remain consistent
with their core values, in the face of global
economic slowdown
• Disney strategic strengths

– Quality creative content
– Exceptional storytelling

Case One – Disney: continued
• Disney US based firm with global geographic
operations
– North America, Europe, Asia-Pacific, Latin America
• Strategic problems
– Diminished product quality
– Over-exposure, too much product
• Strategic opportunity
– Leverage vast media content on different
platforms

Learning Outcome 1.1
• Explain Why Strategic Management Is
Important
– Despite your job function, everyone in the
organization has a role in strategic management
– It enables understanding how strategic decisions
are made
– Establishes an understanding of how work is
valued and rewarded
– It makes a difference in how well an organization
performs

Learning Outcome 1.1. – cont’d
• Studies show relationship between effective
organizations and their use of strategic
management
– Impact on bottom line
– Adapting to changing situations, internal &
external
– Coping with uncertainties
– Effectively guides organizational decision makers

Studies on Relationship Between
Strategic Management & Performance
• Studies of decision making process suggest
the way strategy is developed can have an
affect on performance
– Decision makers that collected information and
used analytical techniques make more effective
strategic decisions than those that do not

Studies on Relationship Between
Strategic Management & Performance
• Another study found organizations that used
several approaches to develop strategy
outperform those that use a single approach
– Structured, systematic approach can positively
affect organizational performance
• Strategic management helps achieve the
organization’s goals by
– Coordinating and focusing the various divisions,
departments, and work activities
Corporate Reputations
• A good corporate reputation is critical and
surveys support its importance and influence
– On financial performance
– Executing strategy
– Transparency and disclosure of information
– Strong corporate governance
• Check Companies with the Best Reputations
– www.reputationinstitute.com/knowledge-
center/hall-of-fame

• Explain what strategic management is
• Explain who’s involved with strategic
management
• Discuss the three important factors impacting
strategic management today

Explain What Strategic Management Is
• No matter what the business or industry,
strategic management is involved in such
varied areas as
– Market expansion
– Product development
– Decision making

The Basics of Strategy and Strategic
Management
• Definition of Strategy
– Strategy is a series of goal-directed plans and
actions that align an organization’s skills and
resources with the opportunities and threats in its
environment
• Definition of Strategic Management

– This is a process for situation analysis and strategy
formulation, implementation, and evaluation

The Definition of Strategy
• Strategy:
– Involves an organization’s goals
– Engages goal directed action
– Includes a series of related decisions and actions
throughout the various levels and divisions of an
organization
– Takes into account organizational internal
strengths (resources and capabilities) and external
opportunities and threats

The Definition of Strategic
Management
• Strategic management involves those
decisions and actions of organizational
members that includes:
– Analysis of the current situation
– Development of appropriate strategies
– Putting the strategies into action
– Evaluating, modifying, changing strategies as
needed

Strategic Management in Action
• IDEO is a design firm known for a range of
innovative product designs that have won
global design awards
• The strategic management challenge for IDEO

is keeping the ideas flowing
– How can companies in today’s globally
competitive environment generate creative ideas?

The Basic Activities of Strategic
Management

The Four Characteristics of Strategic
Management
• Interdisciplinary
– It focuses on the whole organization, rather than
any functional part
• External Focus – interaction of organization
with external environment
– Economy
– Competitors
– Market demographics

The Four Characteristics of Strategic
Management – cont’d
• Internal Focus
– Understands the resources and capabilities the
organization does or does not have
• Future Direction of the Organization, includes

– Decisions
– Planning
– Shifts or changes in products or markets

Strategic Management in Action
• IHOP
– What strategic changes did the new IHOP CEO
employ to turnaround a struggling company?
– What challenges did it face with the acquisition of

Applebee's in 2007?
– What was different? What did Applebee's possess

that could be used to build on?

The Strategic Management Process
• A process is a series of interrelated and
continuous steps that lead to an outcome
• The Strategic Management Process employs

its four characteristics to create a set of
strategies used to conduct its business

Figure 1.2

Situation Analysis
• Situation analysis is required before deciding
upon a strategic direction or response and it
involves scanning and evaluating
– The current organizational context
– The external environment
– The organizational environment

Strategy Formulation
• Strategy formulation is developing and
choosing appropriate strategies, as guided by
the situation analysis, and includes three main
types of strategies
– Functional Strategies (also called operational
strategies)
– Competitive Strategies (also called business
strategies)
– Corporate Strategies (these are guiding strategies
by which all efforts are aligned)

Functional Strategies
• Functional strategies or operational 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

Competitive Strategies
• 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

Corporate Strategy
• 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

Strategy Implementation
• It is not enough to formulate great strategies,
they must be implemented
– Strategy implementation is putting the various
stages of strategies into action
– How a strategy is implemented must be
considered

Strategy Evaluation
• Strategy evaluation involves evaluating both
the outcomes of the strategies and how they
have been implemented
– Determine if they produced the expected strategic
goals
– Helps with the evaluation of results and, if
necessary, any modification of strategies

Strategic Management Process in
Action
• The Strategic Management Process is a
continual cycle
– It is not a sequential process
– It allows for analysis of the current situation
– Enables adjustments to current strategies as
necessary, to pursue and achieve goals

Making It Last
• Characteristics of companies that endure
– Continual focus on value and profitability
– Keeping strategy simple by understanding key
priorities
– Committing to effective communication
– Creating a performance oriented culture
– Sharing decision making
– Obtaining and filtering information
– Rapidly adapting to change

Looking at Strategic Management’s
Past
• Strategy’s military roots
– Origin of the word is Greek referring to military
commander
– Historical references to the design of plans and
actions to gain an edge on the enemy
– The concept involves analyzing the situation and
effecting an appropriate response

Principles of War
• Nine principles taught by leading US military
academies that can be used in business to
develop strategies
– Objective: every operation should be directed to a
clearly defined, decisive, and attainable objective
– Offensive: seize, retain, and exploit the initiative
– Unity of command: forces must be under one
commander with full authority and responsibility
– Mass: concentrate combat power at the decisive
place and time
Principles of War – cont’d
• Economy of force: allocate on the essential minimum
of forces to secondary efforts
• Maneuver: place the enemy in a position of
disadvantage through the flexible application of
combat power
• Surprise: strike at the enemy at a time or place that
is unexpected
• Security: never allow an enemy to acquire an
unexpected advantage
• Simplicity: need clear plans and concise orders

Academic Origins of Strategic
Management
• Strategic management is a relatively young
field. The theoretical foundation is from
economics and organization studies; with
emphasis on
– Rationality
– Predictability
– Similarity

Academic Origins of Strategic
Management – cont’d
• Key writers and their areas of interest
– Frederick Taylor: Scientific Management
– Max Weber: Bureaucratic organizations
– Chester Barnard: Administrative functions & the
organization as open systems
• Focus by academics on
– Role of managers
– Efficiency and effectiveness

Strategic Planning and Strategic
Management Emerge
• During the 1960s, organization theorists
searched for explanations of organizational
differences in functioning and performance
– Attempts made to determine if there was one best
way to manage in all situations
– Contingency approaches emerged when it was
determined that each organization was different
and the best way to manage depended on the
situation

Strategic Planning and Strategic
Management Emerge – cont’d
• Three classic strategy textbooks established
many of basic precepts of strategic
management and distinguishing it as a
separate field of study
• During 1970s-1980s, dichotomous view of

strategy emerged
– Process focus = “how” strategy is formed
– Content focus = the “what” of strategy decisions

Learning Review: Learning Outcome
1.2
• Define strategy and strategic management
• Describe the strategic management process
• Describe the three types of organizational
strategies
• Explain the historical evolution of strategic
management

• Explain Who’s Involved with Strategic
Management
• The Board of Directors
• The Role of Top Management
• Other Managers and Organizational
Employees

Explain Who’s Involved with Strategic
Management
• Strategic management is more than the
responsibility of an organization’s top
managers
• People at all levels of the organization play a
role in strategy
– Developing it
– Implementing it
– Changing it

The Board of Directors
• Usually an elected group that represents a
company’s shareholders
– They have a legal obligation to represent and
protect the interests of shareholders through
corporate governance
– In the past, board participation was viewed as
approving strategies designed by management
– With increasing shareholder activism, boards are
more involved in the strategic process

Typical Board Responsibilities
• Review and approve strategic goals and plans
• Review and approve organization’s financial
standards and policies
• Ensure the integrity of organization’s financial
controls and reporting system
• Approve an organizational philosophy
• Monitor organizational performance and
regularly review performance results
Typical Board Responsibilities – cont’d
• Select, and compensate top level managers
• Develop management succession plans
• Review and approve capital allocations and
expenditures
• Monitor relations with shareholders and other
key stakeholders

The Role of Top Management
• Responsible for every decision and outcome,
top management plays a most significant role
in strategic management process
• Top management includes C-Suite level
officers, including
– CEO, Chief Executive Officer
– COO, Chief Operating Officer
– CFO, Chief Finance Officer
– CIO, Chief Information Officer

The Role of Top Management – cont’d
• Top management provides strategic
leadership, which involves:
– Determining organizational purpose
– Exploiting and maintaining core competencies
– Developing human capital
– Creating and sustaining strong organizational
culture
– Emphasizing ethical decisions and practices
– Establishing balanced controls

Figure 1.4

Other Managers and Organizational
Employees
• Managers and employees at all levels have
strategic responsibilities that include:
– Strategy implementation, putting strategies into
action
– Strategy evaluation, determining if the strategies
are working
– Adjust the strategies to achieve desired ends

• Explain the role of the board of directors in
strategic management
• Discuss how top managers can be effective
strategic leaders
• Describe the role of other managers and
organizational employees

• Discuss the three important factors impacting
strategic management today
– The Global Economy and Globalization
– Corporate Governance
– Strategic Management in an E-Business World

The Global Economy and Globalization
• In past twenty-five years, globalization has
become a leading focus of company strategies
• Increasing number of companies have
revenues coming from outside their country of
origin
• Global recession creates strategic challenges
– Reduced consumer demand
– Restricted access to capital
– Pressures to reduce costs

– cont’d
• Globalization has created a greater sense of
openness
• Benefits from global expansion are economic
(profits, market opportunities) and social
(political and cultural)
– Open up trade
– Break down geographic barriers
– Creates economic interdependence

– cont’d
• Problems with globalization
– Economic interdependence means when one
country’s economy falters, it can have a domino
effect on others it does business with
– Economic crises may result
• Mechanisms to deal with economic crises
– World Trade Organization
– World Bank Group
– International Monetary Fund

Global Economy: Key Mechanisms
• World Trade Organization (WTO)
– Helps 153 member countries conduct business
• World Bank Group
– Cooperative of 185 member countries that
provides financial and technical assistance, to
promote economic development and poverty
reduction
• International Monetary Fund (IMF)
– Loans and assistance to establish financial stability

Globalization: Challenges
• Beyond openness and interdependence
– Cultural differences
– Degree of acceptance of capitalism varies among
countries, as it is viewed as “Americanization”
– Misunderstandings and disagreements between
countries born of resentment, distrust
– Need for greater understanding and awareness by
strategic decision makers

Corporate Governance
• Greater awareness of the value of corporate
governance driven by the financial scandals of
the past decade
– Destroyed billions of dollars in shareholder value
– Directors of boards failed to find or address
organizational problems

Corporate Governance – cont’d
• Scandals have led to legislative reform
– Government views business as unwilling or unable
to regulate itself to protect investors
– Laws and regulations created to protect investors
by improving accuracy and reliability of corporate
disclosures

• What is corporate governance?
– The way the a corporation is governed
– The way the board uses organizational resources
– The manner in which conflicts are resolved among
multiple participants in the organization
– The sum of how a corporation uses its resources
to protect the interests of shareholders

• Sarbanes-Oxley, a US law, was designed to
protect investors by improving accuracy and
reliability of corporate disclosures
• The law mandates two areas of corporate
governance reform
– The role of the board of directors
– The type and scope of financial reporting

The Role of Boards of Directors
• The original role of the board of directors was
to ensure a group, independent from
management, would look out for investors
who were not involved in the daily operations
of the corporation
• In practice, the boards developed a “cozy”

relationship with the CEO and management
– It resulted in reciprocal “care taking”

The Role of Boards of Directors –
cont’d
• Sarbanes-Oxley changed the relationship
– Demanding board members of publicly traded
companies be responsible for strategic and
financial decisions
– The Business Roundtable, an association of CEOs
of leading companies outlined a set of governance
principles for boards and top managers that are
critical to the effective functioning of corporations
and the integrity of public markets

Corporate Governance:
The Global Perspective
• Corporate governance is a global issue
• Governance Metrics International, a research
and rating agency, using six broad categories
of analysis to create their rating metric rates
countries on their governance structures and
procedures

The Global Perspective – cont’d
• GMI Index for analysis
– Board accountability
– Financial disclosure and internal controls
– Executive compensation
– Shareholder rights
– Ownership base
– Takeover provisions

The Global Perspective – cont’d
• GMI also looks at corporate behavior and
social responsibility
– Among the highest ratings went to Ireland,
Canada, UK, Australia, USA
– Among the lowest were Indonesia, Mexico, China,
Japan

Financial Reporting
• Sarbanes-Oxley also called for more disclosure
and transparency of financial information,
creating specific requirements for businesses
– Certification of the accuracy of financial
statements by requiring senior managers to sign
off on them
– Mandated publicly traded firms establish an
auditing of internal financial controls through
independent auditors
– These mandates have created compliance costs

Guiding Principles of Corporate
Governance
1. The primary duty of the board is to select a CEO and
oversee the CEO and senior management in an
effort to achieve a competent and ethical operation
of the business
2. It is the responsibility of management to operate in
an effective and ethical manner to produce
shareholder value
3. It is the responsibility of management to produce in
a timely manner financial statements that fairly
represent the financial condition and results of
corporate operations
Governance – cont’d
4. It is the responsibility of the board to engage an
independent accounting firm to audit the financial
statements, issue an opinion that those statements are in
accordance with Generally Accepted Accounting
Principles, and oversee the corporation’s relationship
with the outside auditor
5. It is the responsibility of the board to play a leadership
role in shaping corporate governance
6. It is the responsibility of the board to adopt and oversee
implementation of compensation policies for
management and CEO performance

Governance – cont’d
7. It is the responsibility of the board to respond
appropriately to shareholder concerns
8. It is the responsibility of the corporation to deal with
its employees, customers, suppliers, and other
constituencies in a fair and equitable manner

Strategic Management in an E-
Business World
• E-business is using information and
communication technologies to support all
the activities of a business
– It includes e-commerce, which is the retailing side
of e-business
– An increasing number of businesses conduct e-
commerce, some sell exclusively over the Internet

E-Business Strategic Approaches
• Strategic decision makers often choose from
among three different strategic approaches to
e-business
• An e-business enhanced organization that
maintains its traditional structure, while
setting up e-commerce
– Many large firms have evolved using this approach
– These companies use information and
communication technology to enhance business

E-Business Strategic Approaches –
cont’d
• Another approach is an e-business enabled
organization that uses information and
communication technology to perform its
traditional business functions better; but not
sell through the internet
– This technology enables the organization to do
their work more efficiently and effectively
– The effort often employs the means to more
effectively interact with employees and customers

E-Business Strategic Approaches –
cont’d
• The final strategic approach is when an
organization is a total e-business
– The focus is on completely transforming the way it
does its work and sells its products
– It is based entirely on the Internet
– Examples of such companies include: Amazon,
Google, Yahoo, and EBay

Concluding Thought
• Strategic management is a business reality
– No matter where in an organization a person
works or what their particular job may be, they
will be involved with and affected in some way by

Learning Review: Learning Outcome
1.4
• Discuss how the global economy and
globalization affect strategic management
• Explain the concept of corporate governance
and how it impacts strategic management
• Describe the three approaches to e-business

Review of Learning Outcomes
• Outcome 1.1: Explain why strategic
management is important
– Individually: you will be evaluated on and
rewarded for doing your job well, which means
understanding how and why strategic decisions
are made
– Organizationally: it can make a difference in how
well an organization performs; it also helps with
adapting to changing situations and coordination
of various divisions, functions, and work activities

Review of Learning Outcomes – cont’d
• Outcome 1.2: Explain what strategic
management is
– Strategies: are an organization’s goal directed
plans and actions that align its capabilities and
resources with the opportunities and threats in its
environment
– Strategic management: is a process of analyzing
the current situation; developing appropriate
strategies; putting strategies into action; and
evaluating , modifying, or changing strategies

management is – cont’d
– Four characteristics: include interdisciplinary,
external focus, internal focus, and future-oriented
– Strategic management process: situation analysis,
strategy formulation, strategy implementation,
and strategy evaluation
– Types of organizational strategies: function or
operational, competitive or business, corporate or
what to do with those businesses

management is – cont’d
– Reality: process may not always follow the
sequence, but activities are still completed
– Background: military strategies and academic
origins (economics and organizational theory)
– Emergence of strategic planning and strategic
management: 1960s, attempt to explain variances
in performance; 1970s-1980s, focus on process
and content

• Outcome 1.3: Explain who is involved with
– Assumption: all employees have a role
– Three main groups: boards of directors
(representing shareholders), strategic leadership
(senior management work to create viable future),
other managers and employees (responsible for
strategy implementation and evaluation)
– Six key dimensions of strategic leadership (exploit
resources, create culture, and make decisions)

• Outcome 1.4: Discuss the important factors
impacting strategic management today
– Global economy and globalization: provides
economic and social benefits; challenges come
from openness which makes countries vulnerable
to political and cultural differences; as well as
economic interdependence of trading nations
– Challenges facing nations have been countered by
the World Trade Organization, the World Bank,
and the International Monetary Fund

• Outcome 1.4: Discuss the important factors
impacting strategic management today- cont’d
– Challenges of cultural and political differences
requires sensitivity to differences
– Corporate governance: reform brought about by
legislative action designed to protect investors and
reform the role of boards and financial reporting
– E-business (including e-commerce): these are
businesses that are enhanced, enabled, or made
totally e-business through the Internet

Case Questions:
Case 1 Making Magic Happen
1. What is the Disney Difference and how will it affect the
company’s corporate, competitive, and functional
strategies?
2. What challenges do you think Disney might face in
doing business in Russia? How could Iger and his top
management team best prepare for those challenges?
3. “The steward of the entire Disney brand.” What do you
think it means that Iger views himself as this? Is this a
part of being a leader? How might it affect the
company’s strategy formulation/implementation?

Case Questions:
Case 1 Making Magic Happen – cont’d
4. How might Iger and his top management team use
the strategic management process to “keep the
magic coming” in the current economic climate?

Case Questions:
Case 2: MTV’s New Reality
1. Explain how strategic management and its process
are illustrated in the case.
2. What are some performance measures that MTV’s
strategic decision makers might use as they
evaluate the results of their digital and global
strategies?
3. Look for information on MTV’s website that helps
describe its strategic approach and that of its
various entertainment brands.
4. Evaluate Judy McGrath’s strategic leadership.

Case Questions:
Case 3 Making Over Avon
1. Explain how strategic management and its process
are illustrated in this case.
2. What are some performance measures that Avon’s
strategic decision makers might use to evaluate the
results of the restructuring initiatives?
3. Andrea Jung is Avon’s first female CEO, which might
be surprising considering its target customer is
female. Do some research on the number of female
CEOs and board members there are in US
companies. Have these numbers changed over
time? What conclusions might be drawn?
Case Questions:
Making Over Avon – cont’d
4. Go to Avon’s website and identify its vision and
mission. How might these affect strategic decisions
and actions? Check the companies senior
management and select one manager other than
Jung. Describe that person’s job responsibilities.
Finally, select one of the firm’s brands and describe
what strategies are being used for that brand.

Case Questions:
Case 4 Fighting Grime
1. Do you think strategic management has contributed
to the Clorox company’s success? Why or why not?
2. Given the information included in the case, what
step in the strategic management process do you
think it excels? Explain your choice.
3. How might the CEO use strategic management to
manage the company’s challenges?
4. Check the website and determine Clorox sales
volume, number of employees, and current
strategies.

Case Questions:
Case 5 In the Zone
1. In the brief description of AutoZone, how is
strategic management illustrated?
2. What examples of functional strategy do you see?
What factor/s do you think it might use in its
competitive strategy?
3. AutoZone is committed to ethical business. Check
their website for corporate governance and
describe and evaluate what the company has done
to promote the concept.

Case Questions:
Case 5 In the Zone – cont’d
4. What types of strategic challenges might the CEO
and the company face as it pursues its strategic
initiatives? How might strategic management help
them deal with these challenges?

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mechanical, photocopying, recording, or otherwise, without the prior written
permission of the publisher. Printed in the United States of America.
Copyright ©2010 Pearson Education, Inc. publishing as

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Chapter One

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1.2 What is strategic management?

1.3 Who is involved with strategic management?

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• Disney strategic strengths

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• Definition of Strategic Management

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• The strategic management challenge for IDEO

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• Future Direction of the Organization, includes

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– What challenges did it face with the acquisition of

– What was different? What did Applebee's possess

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• The Strategic Management Process employs

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• During 1970s-1980s, dichotomous view of

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