Chapter 1 The Nature of Strategic Management

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Chapter 1 The Nature of Strategic Management

Strategic Management: Concepts & Cases

13th EditionFred David

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Chapter Outline

• What Is Strategic Management? • Key Terms in Strategic Management • The Strategic-Management Model• Benefits of Strategic Management • Why Some Firms Do No Strategic Planning • Pitfalls in Strategic Planning • The Nature of Global Competition

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

Strategic Management –Defined

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The term strategic management is used synonymously with strategic planning.

It is also used at many colleges and universities as the subtitle for the capstone course which integrates material from all business disciplines.

Strategic Management –Defined

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Strategic Management achieves a firm’s success through integration ––

Management

MIS

Production/OperationsFinance/Accounting

Marketing

Research & Development

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Strategic Management

The strategic-management process consists of three stages:

Strategy Formulation Strategy Implementation Strategy Evaluation

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Vision & Mission

Strategy Formulation

External Opportunities & Threats

Internal Strengths & Weaknesses

Long-Term Objectives

Alternative Strategies

Strategy Selection

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Issues in Strategy Formulation

New business opportunities

Businesses to abandonAllocation of resourcesExpansion or

diversificationInternational marketsMergers or joint venturesAvoidance of hostile

takeover

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Strategy Implementation

Annual Objectives

Policies

Employee Motivation

Resource Allocation

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Strategy Implementation

Action Stage of Strategic Management –

Most difficult stageMobilization of employees

& managersInterpersonal skills

criticalConsensus on goal

pursuit

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Strategy Evaluation

Internal Review

External Review

Performance Metrics

Corrective Actions

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Strategy Evaluation

Final Stage of Strategic Management

Subject to future modification

Today’s success no guarantee of future successNew & different problemsComplacency leads to

demise

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

Prime Task of Strategic Management

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

Integrating Intuition and Analysis

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Intuition is based on: Past experiences Judgment Feelings

Integrating Intuition and Analysis

Intuition is useful for decision making in: Conditions of great uncertainty Conditions with little precedent (examples or models)

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Involve Management at all levels

Intuition & Judgment

Influence all Analyses

Integrating Intuition & Analysis

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Analytical Thinking

Integrating Intuition & Analysis

Intuitive Thinking

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Organizations must monitor events

On-going process Internal and external events Timely changes

Adapting to Change

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“Anything that a firm does especially well compared to rival firms”

Strategic Management is Gaining and Maintaining Competitive Advantage

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1. Adapting to change in external trends, internal capabilities and resources

Achieving Sustained Competitive Advantage

2. Effectively formulating, implementing & evaluating strategies

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Rate & magnitude of change increasing dramatically

Adapting to Change

E-commerce

Demographics

Technology

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Effective Adaptation

Adapting to Change

Requires long-term focus

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What kind of business should we become?

Are we in the right fields Are there new competitors? What strategies should we

pursue? How are our customers

changing?

Adapting to Change – Key Strategic Management Questions

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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

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Anything that a firm does especially well compared to rival firms

Strategic Management is Gaining and Maintaining Competitive Advantage

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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

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Key Terms

Various Job Titles:

•Chief Executive Officer (CEO)•Chief Strategy Officer (CSO)•President•Owner•Board Chair•Executive Director

Strategists – Firm’s success/failure

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Strategists

Gather Information

Analyze Information

Organize Information

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Vision Statement –What do we want to become?

Mission Statement –What is our business?

Key Terms

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Largely beyond the control of a single organization

Key Terms

Opportunities and Threats (External)

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Opportunities & Threats (External)

Key Terms

Analysis of Trends: (PEST-EL-CC)

• Political,

• Economic

• Social/Demographic

• Technological

• Environmental

• Legal (Governmental)

• Cultural

• Competitors

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Process of conducting research and gathering and assimilating external information

Key Terms Opportunities & Threats

Environmental Scanning (Industry Analysis)

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Basic Tenet of Strategic Management

Key Terms Opportunities & Threats

Strategy Formulation

Take advantage of External Opportunities

Avoid/minimize impact ofExternal Threats

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Controllable activities performed especially well or poorly

Determined relative to competitors

Key Terms

Strengths & Weaknesses (Internal)

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Strengths & Weaknesses (Internal)

Key Terms

Typically located in functional areas of the firm

• Management

• Marketing

• Finance/Accounting

• Production/Operations

• Research & Development

• Management Information Systems

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Assessing the Internal Environment

Key Terms Strengths & Weaknesses

Internal FactorsPerformance Measures

Financial Ratios

Industry Averages

Survey Data

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Specific results that an organization seeks to achieve in pursuing its basic mission

Long-term means more than one year

Key Terms

Long-term Objectives (Goals)

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Long-term Objectives

Key Terms

Essential for ensuring the firm’s success

• Provide direction

• Aid in evaluation

• Create synergy

• Reveal priorities

• Focus coordination

• Provide basis for planning, motivating, and controlling

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Means by which long-term objectives are achieved

Key Terms

Strategies

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StrategiesKey Terms

Examples Geographic expansion Diversification Acquisition Product development Market penetration Retrenchment Divestiture Liquidation Joint venture

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

Key Terms

Annual Objectives

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Means by which annual objectives will be achieved

Key Terms

Policies

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Comprehensive strategic management model

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Dynamic & Continuous More formal in larger organizations

Strategic Management Model

Strategic Management Process

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1. Identify Existing --


• Vision

• Mission

• Goals/Objectives

• Strategies

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2. Audit external environment3. Audit internal environment4. Establish long-term objectives5. Generate, evaluate & select

strategies6. Implement selected strategies7. Measure & evaluate performance


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Benefits of Strategic Management

• Proactive in shaping firm’s future

• Initiate and influence firm’s activities

• Formulate better strategies

• Systematic, logical, rational

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Financial Benefits

• Improvement in sales

• Improvement in profitability

• Productivity improvement

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Non-Financial Benefits• Improved understanding of competitors strategies

• Enhanced awareness of threats

• Reduced resistance to change

• Enhanced problem-prevention capabilities• Clearer understanding of performance-reward

relationship

• Increased employee productivity

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1. Identification of Opportunities

2. Objective view of management problems

3. Improved coordination & control

4. Minimizes adverse conditions & changes

5. Decisions that better support objectives

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Benefits of Strategic Management (Cont.)

6. Effective allocation of time & resources

7. Internal communication among personnel

8. Integration of individual behaviors

9. Clarify individual responsibilities

10. Encourage forward thinking

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Benefits of Strategic Management (Cont.)

11. Encourages favorable attitude toward change

12. Provides discipline and formality to the management of the business

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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

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Why Some Firms Do No Strategic Planning

Fear of failure

Overconfidence

Prior bad experience

Self-interest

Fear of the unknown

Suspicion

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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

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Pitfalls in Strategic Planning (Cont.)

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

Delegating planning to a “planner” rather than involving all managers

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Pitfalls in Strategic Planning (Cont.)

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

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Copyright © 2011 Pearson Education, Inc.

Publishing as Prentice Hall

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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



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Effective Strategic Planning (cont.)

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

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Effective Strategic Planning (cont.)

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



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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

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Themes in the Text

•Global Considerations –impact virtually all strategic decisions

•E-commerce –vital strategic management tool

•Natural environment –important strategic issue

Documents

Chapter 1 The Nature of Strategic Management