Chapter 1

The Nature of Strategic Management

Strategic Management:
Concepts & Cases
13th Edition
Fred David

Copyright 2011 Pearson

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

Ch 1 -2

Purpose of Strategic Management

To exploit and create new and different

opportunities for tomorrow

Copyright 2011 Pearson

Ch 1 -3

Strategic Management

In essence, the strategic plan is a

companys game plan

Copyright 2011 Pearson

Ch 1 -4

3 Stages of the Strategic

Management Process

Strategy formulation

Strategy implementation

Strategy evaluation
Copyright 2011 Pearson

Ch 1 -5

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

Copyright 2011 Pearson

Ch 1 -6

Issues in Strategy
Formulation

Businesses
Businessesto
toenter
enter

Businesses
Businessesto
toabandon
abandon

Allocation
Allocationof
ofresources
resources

Expansion
Expansionor
or
diversification
diversification

International
Internationalmarkets
markets

Mergers
Mergersor
orjoint
joint
ventures
ventures

Avoidance
Avoidanceof
ofhostile
hostile
takeover
takeover

Copyright 2011 Pearson

Ch 1 -7

Strategy Implementation

Annual Objectives
Policies
Employee Motivation
Resource Allocation

Copyright 2011 Pearson

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

Ch 1 -9

Issues in Strategy
Implementation
Action
ActionStage
Stageof
ofStrategic
Strategic
Management
Management

Mobilization
Mobilizationof
of
employees
employees&&managers
managers

Most
Mostdifficult
difficultstage
stage

Interpersonal
Interpersonalskills
skills
critical
critical

Copyright 2011 Pearson

Ch 1 -10

Strategy Evaluation

Internal Review
External Review
Performance Measurement
Corrective Action

Copyright 2011 Pearson

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

Ch 1 -12

Integrating Intuition & Analysis

The strategic management process

attempts to organize quantitative and
qualitative information under conditions of
uncertainty

Copyright 2011 Pearson

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

Ch 1 -14

Integrating Intuition & Analysis

Intuition & Judgment

Involve management at all levels

Influence all analyses

Copyright 2011 Pearson

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

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

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

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

Ch 1 -19

Strategists
Gather Information
Analyze Information
Organize Information

Copyright 2011 Pearson

Ch 1 -20

Vision and Mission Statements

Vision Statement
What do we want to become?

Mission Statement
What is our business?

Copyright 2011 Pearson

Ch 1 -21

External Opportunities and Threats

Analysis of Trends

Economic
Social
Cultural
Demographic/Environmental
Political, Legal, Governmental
Technological
Competitors
Copyright 2011 Pearson

Ch 1 -22

External Opportunities and Threats

Basic Tenet of Strategic Management

Take
Takeadvantage
advantageof
of
External
ExternalOpportunities
Opportunities
Strategy Formulation

Avoid/minimize
Avoid/minimizeimpact
impactof
of
External
ExternalThreats
Threats

Copyright 2011 Pearson

Ch 1 -23

Internal Strengths and Weaknesses

Controllable

activities performed
especially well or poorly

Determined

relative to competitors

Copyright 2011 Pearson

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

Ch 1 -25

Internal Strengths and Weaknesses

Assessing the Internal Environment
Ratios

Performance Measures

Internal Factors
Industry Averages

Survey Data

Copyright 2011 Pearson

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

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

Ch 1 -28

Strategies

Means by which long-term objectives

are achieved

Copyright 2011 Pearson

Ch 1 -29

Strategies

Examples
Geographic expansion
Diversification
Acquisition
Product development
Market penetration
Retrenchment
Divestiture
Liquidation
Joint venture
Copyright 2011 Pearson

Ch 1 -30

Sample Strategies

Table 1-1

Best Buy

Levi Strauss

New York Times Company

Copyright 2011 Pearson

Ch 1 -31

Annual Objectives

Short-term milestones that firms must

achieve to reach long-term objectives

Copyright 2011 Pearson

Ch 1 -32

Policies

Means by which annual objectives will

be achieved

Copyright 2011 Pearson

Ch 1 -33

Copyright 2011 Pearson

Ch 1 -34

Strategic Management Model

Strategic

Management Process
Dynamic & continuous
More formal in larger
organizations

Copyright 2011 Pearson

Ch 1 -35

Strategic Management

Communication

is a key to
successful strategic management

Copyright 2011 Pearson

Ch 1 -36

Benefits of Strategic Management

Copyright 2011 Pearson

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

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

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

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

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

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

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

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

Difference

Business strategy assumes competition

Military strategy assumes conflict

Copyright 2011 Pearson

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

Ch 1 -46