Nature of Strategic -Ch 1

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Copyright 2011 Pearson Education, Inc.Publishin as Prentice Hall

Ch 1 -1

Chapter 1 The Nature of Strategic Management


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Chapter Objectives

1. Describe the strategic-management process.2. Explain the need for integrating analysis and

intuition in strategic management.

3. Define and give examples of key terms instrategic management.

4. Discuss the nature of strategy formulation,

implementation, and evaluation activities.

1-2Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall


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Chapter Objectives (cont.)

5. Describe the benefits of good strategicmanagement.

6. Discuss the relevance of The Art of War tostrategic management.

7. Discuss how a firm may achieve sustainedcompetitive advantage.

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall1-3


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Defining Strategic Management

Strategic management is usedsynonymously with the term strategicplanning.Sometimes the term strategicmanagement is used to refer to strategyformulation, implementation, andevaluation, with strategic planningreferring only to strategy formulation.



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Defining Strategic Management

A strategic plan is a companys gameplan.

A strategic plan results from toughmanagerial choices among numerousgood alternatives , and it signalscommitment to specific markets, policies,procedures, and operations.



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Stages of Strategic Management

Strategyformulation

Strategyimplementation

Strategyevaluation



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Copyright 2011Pearson Education,Inc.

Ch 1 -8

Vision & Mission

Strategy Formulation

External Opportunities & Threats

Internal Strengths & Weaknesses

Long-Term Objectives

Alternative Strategies

Strategy Selection


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Strategy formulation includes developing a vision and mission,

identifying an organizations externalopportunities and threats, determininginternal strengths and weaknesses,establishing long-term objectives, generating

alternative strategies, and choosing particularstrategies to pursue



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Strategy Formulation

Deciding what new businesses to enter,What businesses to abandon,

How to allocate resources,Whether to expand operations ordiversify,Whether to enter international markets,Whether to merge or form a joint venture,How to avoid a hostile takeover.



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Ch 1 -11

Strategy Implementation

Annual Objectives

Policies

Employee Motivation

Resource Allocation


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Strategy implementation requires a firm to establish annual objectives,

devise policies, motivate employees, andallocate resources so that formulatedstrategies can be executed

often called the action stage



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Ch 1 -13

Strategy Evaluation

Internal Review

External Review

Performance Measurement

Corrective Action


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Strategy evaluation reviewing external and internal factors that

are the bases for current strategies,measuring performance, and takingcorrective actions



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Strategy formulation, implementation, andevaluation activities occur at threehierarchical levels in a large organization:corporate, divisional or strategic businessunit, and functionalStrategic management helps a firmfunction as a competitive team



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Prentice Hall, Inc. 1-16

Basic Concepts of Strategic Management

3 Types of Strategy

Corporate strategy

Business strategy

Functional strategy


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Two-Way Influence

CorporateStrategy

Business Strategies

Functional Strategies

Operating Strategies

Two-Way Influence

Two-Way Influence

Corporate-LevelManagers

Business-LevelManagers

FunctionalManagers

OperatingManagers

Levels of Strategy-Making in a Diversified Company


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Corporate Strategy

Stability Growth Retrenchment

f


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Business Strategy

Competitive strategies

Cooperative and Complementary strategies

B i C f S i M


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Functional Strategy

Technological leadership

Technological followership


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Integrating Intuition and Analysis

Most organizations can benefit fromstrategic management, which is basedupon integrating intuition and analysis indecision making Intuition is particularly useful for makingdecisions in situations of great uncertaintyor little precedent



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SWOTStrengths identifying existingorganisational strengths

Weaknesses identifying existingorganisational weaknessesOpportunities what market opportunitiesmight there befor the organisation to exploit?Threats where might the threatsto the future success come from?


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PESTPolitical: local, national and international politicaldevelopments how will they affect the organisationand in what way/s?Economic: what are the main economic issues both nationally and internationally that might affectthe organisation?Social: what are the developing social trends thatmay impact on how the organisation operates and

what will they mean for future planning?Technological: changing technology can impact oncompetitive advantage very quickly!


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PEST

Examples:Growth of China and India as manufacturing centresConcern over treatment of workers and the environment in lessdeveloped countries who may be suppliers

The future direction of the interest rate, consumer spending, etc.The changing age structure of the populationThe popularity of fads like the Atkins Diet The move towards greater political regulation of businessThe effect of more bureaucracy in the labour market


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Adapting to Change

The second-largest bookstore chain in theUnited States, Borders Group, declaredbankruptcy in 2011 as the firm had not adapted

well to changes in book retailing from traditionalbookstore shopping to customers buyingonline, preferring digital books to hard copiesBorders was on the brink of financial collapsebefore being acquired in July 2011 by DirectBrands



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Key Terms in Strategic Management

Competitiveadvantage anything that a

firm doesespecially wellcompared to rival

firms

Strategists the individuals

who are mostresponsible for thesuccess or failureof an organization



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Vision statement answers the question What do we want to

become? often considered the first step in strategic

planning



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Mission statements enduring statements of purpose that

distinguish one business from other similarfirms

identifies the scope of a firms operations inproduct and market terms

addresses the basic question that faces allstrategists: What is our business?



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External opportunities and externalthreats refer to economic, social, cultural,

demographic, environmental, political, legal,governmental, technological, and competitivetrends and events that could significantly

benefit or harm an organization in the future



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Some Opportunities and Threats

Computer hacker problems are increasing.Intense price competition is plaguing mostfirms.

Unemployment and underemployment ratesremain high.Interest rates are rising.

Product life cycles are becoming shorter.State and local governments are financiallyweak.




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EnvironmentalVariables


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Internal strengths and internalweaknesses an organizations controllable activities that

are performed especially well or poorly determined relative to competitors



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Objectives specific results that an organization seeks to

achieve in pursuing its basic mission long-term means more than one year should be challenging, measurable,

consistent, reasonable, and clear


Strategic and Financial Objectives


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Unile vers Strategic and Financial Objectives

Grow annual revenues by 5-6% annually

Increase operating profit margins from 11% to16% within 5 years

Trim companys 1200 food, household, andpersonal care products down to 400 core brands

Focus sales and marketing efforts on those

brands with potential to become respected,market-leading global brands

Streamline companys supply chain




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X % increase in annual revenues X % increase annually in after-tax profits X % increase annually in earnings per share Annual dividend increases of X %Profit margins of X %

X % return on capital employed (ROCE)Increased shareholder valueStrong bond and credit ratingsSufficient internal cash flows to fund 100% of new capitalinvestmentStable earnings during periods of recession

Examples: Financial Objectives




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Winning an X % market share Achieving lower overall costs than rivalsOvertaking key competitors on product performance or qualityor customer service

Deriving X % of revenues from sale of new products introducedin past 5 years Achieving technological leadershipHaving better product selection than rivalsStrengthening companys brand name appeal

Having stronger national or global sales and distributioncapabilities than rivalsConsistently getting new or improved products to market aheadof rivals

Examples: Strategic Objectives



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Strategies the means by which long-term objectives will

be achieved may include geographic expansion,

diversification, acquisition, productdevelopment, market penetration,

retrenchment, divestiture, liquidation, and joint ventures



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Types of Strategy

Competitive Advantage something whichgives the organisation some advantage over itsrivals

Cost advantage A strategy to seek out andsecure a cost advantageof some kind - lower average costs, lowerlabour costs, etc.


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Types of Strategy

Market Dominance: Achieved through:

Internal growth Acquisitions mergers and takeovers

New product development: to keepahead of rivals and set the pace

Contraction/Expansion focus on whatyou are good at (core competencies) or seek toexpand into a range of markets?


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Types of Strategy

Price Leadership through dominating theindustry others follow your price leadGlobal seeking to expand

global operationsReengineering thinking outside the box looking at news ways of doing things toleverage the organisations performance


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Types of Strategy

Internal business level strategies Downsizing selling off unwanted parts of thebusiness similarto contractionDelayering flattening the managementstructure, removing bureaucracy, speed updecision making

Restructuring complete re-thinkof the way the business is organised


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Annual objectives short-term milestones that organizations

must achieve to reach long-term objectives should be measurable, quantitative,

challenging, realistic, consistent, andprioritized

should be established at the corporate,divisional, and functional levels in a largeorganization



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Sample Strategies in Action in 2011



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Policies the means by which annual objectives will be

achieved include guidelines, rules, and procedures

established to support efforts to achievestated objectives

guides to decision making and addressrepetitive or recurring situations



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The Strategic-Management Model

Where are we now?

Where do we want to go?

How are we going to get there?




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Strategic Decision-Making Process


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Benefits of Strategic Management

Historically, the principal benefit ofstrategic management has been to helporganizations formulate better strategiesthrough the use of a more systematic,logical, and rational approach to strategicchoice



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Benefits of Strategic Management

Communication is a key to successfulstrategic managementThrough dialogue and participation,managers and employees becomecommitted to supporting the organization


B fit t Fi Th t D


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Benefits to a Firm That DoesStrategic Planning



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Financial Benefits

Businesses using strategic-managementconcepts show significant improvement insales, profitability, and productivity

compared to firms without systematicplanning activitiesHigh-performing firms seem to make more

informed decisions with good anticipation ofboth short- and long-term consequences



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Nonfinancial Benefits

It allows for identification, prioritization,and exploitation of opportunities.It provides an objective view ofmanagement problems.It represents a framework for improvedcoordination and control of activities.It minimizes the effects of adverseconditions and changes.



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Nonfinancial Benefits

It allows major decisions to better supportestablished objectives.It allows more effective allocation of timeand resources to identified opportunities.It allows fewer resources and less time to bedevoted to correcting erroneous or ad hoc

decisions.It creates a framework for internalcommunication among personnel.


Wh Some Firms Do No


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Why Some Firms Do NoStrategic Planning

Lack of knowledge in strategic planningPoor reward structures

FirefightingWaste of timeToo expensive

LazinessContent with success


Why Some Firms Do No


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Why Some Firms Do NoStrategic Planning

Fear of failureOverconfidence

Prior bad experienceSelf-interestFear of the unknown

Honest difference of opinionSuspicion



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Pitfalls in Strategic Planning

Using strategic planning to gain control overdecisions and resourcesDoing strategic planning only to satisfy

accreditation or regulatory requirementsToo hastily moving from mission developmentto strategy formulation

Failing to communicate the plan to employees,who continue working in the darkTop managers making many intuitive decisionsthat conflict with the formal plan



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Pitfalls in Strategic Planning

Top managers not actively supporting thestrategic-planning processFailing to use plans as a standard for

measuring performanceDelegating planning to a planner rather thaninvolving all managers

Failing to involve key employees in all phasesof planningFailing to create a collaborative climatesupportive of change


Guidelines for Effective Strategic


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Guidelines for Effective StrategicManagement


Comparing Business and


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Comparing Business andMilitary Strategy

A fundamental difference between militaryand business strategy is that businessstrategy is formulated, implemented, and

evaluated with an assumption ofcompetition , whereas military strategy isbased on an assumption of conflict

Both business and military organizationsmust adapt to change and constantlyimprove to be successful


Excerpts from Sun Tzus The Art


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Excerpts from Sun Tzu s The Artof War Writings

War is a matter of vital importance to thestate: a matter of life or death, the roadeither to survival or ruin. Hence, it is

imperative that it be studied thoroughlyKnow your enemy and know yourself, and ina hundred battles you will never be defeated

Skillful leaders do not let a strategy inhibitcreative counter-movement

Documents

Nature of Strategic -Ch 1