Chapter 1 The Nature of Strategic Management

Strategic Management:

Concepts & Cases

13th Edition

Fred David

Chapter Outline

• What Is Strategy & Strategic Management?• Key Terms in Strategic Management• The Strategic-Management Model• Benefits of Strategic Management• Why Some Firms Do No Strategic Planning?• Business Ethics and Strategic Management• Comparing Business and Military Strategies• The Nature of Global Competition

What is Strategy?

• Consists of competitive moves & business approaches to produce successful performance.

• Management’s “game plan” for – Running the business– Strengthening firm’s competitive position– Satisfying customers– Achieving performance targets

• A corporation’s strategy forms a comprehensive master plan stating how the corporation will achieve its mission & objectives.

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

-It focuses on integrating management, marketing, finance/accounting, production, R&D and computer information systems to achieve organizational success.

Strategic Management – Defined

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Strategic-Management Process Three Stages

Strategy Formulation

Strategy Implementation

Strategy Evaluation

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Strategy FormulationStrategy Formulation

Issues include:– What new businesses to enter– What businesses to abandon– How to allocate resources– Expand operations or diversify– Enter international markets– Merge or form joint venture– Avoidance of hostile takeover

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Strategy ImplementationStrategy Implementation

Is the action stage of strategic management:– Most difficult stage

• Need to mobilize employees and managers to put formulated strategies into action

• Interpersonal skills are critical• Consensus on pursuing goals

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Strategy EvaluationStrategy Evaluation

Final stage of strategic management:• It is the stage where managers find out how well their

strategies are working.

• All strategies subject to future modification because of changes in the firm’s internal and external environment– Success today is no guarantee of success tomorrow

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Integrating Intuition and AnalysisIntegrating Intuition and Analysis

• The strategic management process is a logical, systematic and objective approach to decision-making in organizations. – The strategic management process attempts

to organize quantitative and qualitative information under conditions of uncertainty.

• But intuition is still important to making good strategic decisions.

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Integrating Intuition and AnalysisIntegrating Intuition and Analysis

Intuition based on:– Past experiences

– Judgment

– Feelings

Useful for decision making– Conditions of great uncertainty

– Conditions with little precedent

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Adaptation to ChangeAdaptation to Change

• Organizations must continually monitor internal and external events and trends so that timely changes can be made when needed.

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Adaptation to ChangeAdaptation to Change

• Rate and magnitude of changes– Increasing dramatically

• E-commerce• Demographics• Technology• Strategic alliances

• The strategic management process allows organizations to adapt effectively to change over the long run.

• 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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Competitive Advantage

• Is defined as “anything the firm does especially well compared to its competitors.”

• It exists when a firm can do something that rival firms cannot do, or owns a resource that rival firms desire.

• Exists when a firm is able to deliver the same benefits as a competitor but at a lower cost (cost advantage) or deliver benefits that exceed those of competing products (differentiation advantage).

Key TermsKey Terms

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Competitive Advantage

• The goal of a business strategy is to achieve sustainable competitive advantage.

• Can be achieved through continually adapting to internal and external changes.

• Effectively formulating, implementing and evaluating strategies that capitalize upon the competitive advantage.

Key TermsKey Terms

Vision Statement –What do we want to become?

Mission Statement –What is our business?- Identifies the scope of the business

Key TermsKey Terms

Opportunities & Threats (External)

• Include the following factors:

• Economic

• Social

• Cultural

• Demographic/Environmental

• Political, Legal, Governmental

• Technological

• Competitors

• These factors can significantly harm or benefit the organization in the future

Key TermsKey Terms

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• These factors are beyond the control of a a single organization.

• Basic tenet of strategic management:– Take advantage of external opportunities– Avoid or reduce impact of external threats

Opportunities & Threats (External)

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Key TermsKey Terms

- Environmental Scanning/Industry Analysis is the process of conducting research and gathering and assimilating external information.

Strengths & Weaknesses (Internal) Key Terms

• Refers to an organization’s controllable activities that are performed especially well or poorly.

• Typically located in functional areas of the firm:

• Management

• Marketing

• Finance/Accounting

• Production/Operations

• Research & Development

• Computer Information Systems

– Strengths and weaknesses are typically determined relative to competitors.

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Key TermsKey Terms

Long-term objectives

- Objectives refer to results that an organization seeks to achieve in its mission statement.

- Long term means more than one year. – Objectives are essential for organizational success

because they:• State direction• Aid in evaluation• Create synergy• Focus coordination• Provide the basis for planning, motivating and controlling

- The means by which long-term objectives are achieved.

– May include:• Geographic expansion, diversification• Acquisition• Product development, market penetration• Retrenchment, divestiture• Liquidation, joint venture

Strategies

Key TermsKey Terms

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Annual Objectives

- Short-term milestones that organizations must take to achieve long-term objectives.

Represent the basis for allocating resources

Established at corporate, divisional, and functional levels

Key TermsKey Terms

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Policies• Important in strategy implementation as the means

by which annual objectives will be achieved

Guide to decision making and address repetitive situations

Established at corporate, divisional, or functional levels

Allow consistency & coordination within and between organizational departments

Key TermsKey Terms

ExternalAudit

Chapter 3

InternalAudit

Chapter 4

Long-TermObjectives

Chapter 5

Generate,Evaluate,

SelectStrategies

Chapter 6

ImplementStrategies:

Mgmt Issues

Chapter 7

ImplementStrategies:Marketing,Fin/Acct,R&D, CISChapter 8

Measure &Evaluate

Performance

Chapter 9

Vision &

Mission

Chapter 2

Comprehensive strategic management model

Benefits of Strategic Management

Financial Benefits

• Improvement in sales

• Improvement in profitability

• Productivity improvement

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• Poor reward structures• Fire-fighting• Waste of time• Too expensive• Laziness• Content with success

Why Some Firms Don’t Do Strategic Planning

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• Fear of failure• Overconfidence• Prior bad experience• Self-interest• Fear of the unknown• Suspicion

Why Some Firms Don’t Do Strategic Planning (Cont’d)