The Nature of Strategic Management

Chapter 1
The Nature of Strategic Management
Strategic Management:
Concepts & Cases
13th Edition
Fred David
Copyright © 2011 Pearson Education, Inc. Ch 1 -1

Publishing as Prentice Hall
Strategic Management –Defined
Art & science of formulating,

implementing, and evaluating,
cross-functional decisions that
enable an organization to achieve its
objectives

Purpose of Strategic Management
To exploit and create new and different

opportunities for tomorrow

Strategic Management
In essence, the strategic plan is a

company’s game plan

3 Stages of the Strategic
Management Process
 Strategy formulation
 Strategy implementation
 Strategy evaluation

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

Issues in Strategy
Formulation
Businesses to enter
Businesses to abandon
Allocation of resources
Expansion or diversification
International markets
Mergers or joint ventures
Avoidance of hostile takeover

Strategy Implementation
Annual Objectives
Policies
Employee Motivation
Resource Allocation

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

Issues in Strategy
Implementation
Action Stage of Strategic Management
Mobilization of employees & managers
Most difficult stage
Interpersonal skills critical

Strategy Evaluation
Internal Review
External Review
Performance Measurement
Corrective Action

Prime Task of
Peter Drucker: Think through the

overall mission of a business. Ask
the key question:
“What is our Business?”

Integrating Intuition & Analysis
The strategic management process

attempts to organize quantitative and
qualitative information under conditions of
uncertainty

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

Intuition & Judgment
Involve management at all levels
Influence all analyses

Adapting to Change
Organizations should continually

monitor internal and external
events and trends so that timely
changes can be made as needed

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
Strategic Management is
Gaining and Maintaining
Competitive Advantage
Anything that a firm does especially

well compared to rival firms

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

Strategists
Gather Information
Analyze Information
Organize Information

Vision and Mission Statements
Vision Statement –
What do we want to become?
Mission Statement –
What is our business?

External Opportunities and Threats
Analysis of Trends
 Economic
 Social
 Cultural
 Demographic/Environmental
 Political, Legal, Governmental
 Technological
 Competitors

External Opportunities and Threats
Basic Tenet of Strategic Management
Take advantage of
External Opportunities
Strategy Formulation
Avoid/minimize impact of
External Threats

Internal Strengths and Weaknesses
 Controllable
activities performed
especially well or poorly
 Determined relative to competitors

 Typically located in functional areas of the firm
 Management
 Marketing
 Finance/Accounting
 Production/Operations
 Research & Development
 Management Information Systems

Assessing the Internal Environment
Ratios
Performance Measures
Internal Factors
Industry Averages
Survey Data

 Specific results that an organization

seeks to achieve in pursuing its basic
mission
 Long-term means more than one year

 Essential for ensuring the firm’s success

 Provide direction
 Aid in evaluation
 Create synergy
 Reveal priorities
 Focus coordination
 Provide basis for planning, organizing,
motivating, and controlling

Strategies
Means by which long-term objectives

are achieved

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

Annual Objectives
Short-term milestones that firms must

achieve to reach long-term objectives

Policies
Means by which annual objectives will

be achieved

Strategic Management Model
 StrategicManagement Process
 Dynamic & continuous
 More formal in larger
organizations

 Communication is a key to
successful strategic management

Benefits of Strategic Management

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

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

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

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
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

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

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

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.


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Chapter 1

The Nature of Strategic Management

Copyright © 2011 Pearson Education, Inc. Ch 1 -1

Art & science of formulating,

Copyright © 2011 Pearson Education, Inc. Ch 1 -2

To exploit and create new and different

Copyright © 2011 Pearson Education, Inc. Ch 1 -3

In essence, the strategic plan is a

Copyright © 2011 Pearson Education, Inc. Ch 1 -4

Copyright © 2011 Pearson Education, Inc. Ch 1 -5

Vision & Mission

External Opportunities & Threats

Internal Strengths & Weaknesses

Copyright © 2011 Pearson Education, Inc. Ch 1 -6

Copyright © 2011 Pearson Education, Inc. Ch 1 -7

Copyright © 2011 Pearson Education, Inc. Ch 1 -8

 Developing a strategy-supportive culture

Copyright © 2011 Pearson Education, Inc. Ch 1 -9

Action Stage of Strategic Management

Mobilization of employees & managers

Most difficult stage

Interpersonal skills critical

Copyright © 2011 Pearson Education, Inc. Ch 1 -10

Copyright © 2011 Pearson Education, Inc. Ch 1 -11

Peter Drucker: Think through the

Copyright © 2011 Pearson Education, Inc. Ch 1 -12

The strategic management process

Copyright © 2011 Pearson Education, Inc. Ch 1 -13

Intuition is based on:

Intuition is useful for decision making in

 Highly interrelated variables

 Several plausible alternatives

Copyright © 2011 Pearson Education, Inc. Ch 1 -14

Intuition & Judgment

Involve management at all levels

Influence all analyses

Copyright © 2011 Pearson Education, Inc. Ch 1 -15

Organizations should continually

Copyright © 2011 Pearson Education, Inc. Ch 1 -16

Anything that a firm does especially

Copyright © 2011 Pearson Education, Inc. Ch 1 -18

1. Continually adapting to changes in

2. Effectively formulating, implementing, and

Copyright © 2011 Pearson Education, Inc. Ch 1 -19

Copyright © 2011 Pearson Education, Inc. Ch 1 -20

Copyright © 2011 Pearson Education, Inc. Ch 1 -21

Copyright © 2011 Pearson Education, Inc. Ch 1 -22

Basic Tenet of Strategic Management

Copyright © 2011 Pearson Education, Inc. Ch 1 -23

 Determined relative to competitors

Copyright © 2011 Pearson Education, Inc. Ch 1 -24

 Typically located in functional areas of the firm

 Research & Development

 Management Information Systems

Copyright © 2011 Pearson Education, Inc. Ch 1 -25

Assessing the Internal Environment

Copyright © 2011 Pearson Education, Inc. Ch 1 -26

 Specific results that an organization

 Long-term means more than one year

Copyright © 2011 Pearson Education, Inc. Ch 1 -27

 Essential for ensuring the firm’s success

 Provide basis for planning, organizing,

motivating, and controlling