Chapter 1
The Nature of Strategic Management
Strategic Management:
Concepts & Cases
13th Edition
Fred David
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Ch 1 -1
Strategic Management –Defined
Art & science of formulating,
implementing, and evaluating,
cross-functional decisions that
enable an organization to achieve its
objectives
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Ch 1 -2
Purpose of Strategic Management
To exploit and create new and different
opportunities for tomorrow
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Ch 1 -3
Strategic Management
In essence, the strategic plan is a
company’s game plan
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Ch 1 -4
3 Stages of the Strategic
Management Process
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Strategy formulation
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Strategy implementation
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Strategy evaluation
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Ch 1 -5
Strategy Formulation
Vision & Mission
External Opportunities & Threats
Internal Strengths & Weaknesses
Long-Term Objectives
Alternative Strategies
Strategy Selection
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Ch 1 -6
Issues in Strategy
Formulation
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Businesses
Businessesto
toenter
enter
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Businesses
Businessesto
toabandon
abandon

Allocation
Allocationof
ofresources
resources
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Expansion
Expansionor
or
diversification
diversification
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International
Internationalmarkets
markets
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Mergers
Mergersor
orjoint
joint
ventures
ventures

Avoidance
Avoidanceof
ofhostile
hostile
takeover
takeover
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Ch 1 -7
Strategy Implementation
Annual Objectives
Policies
Employee Motivation
Resource Allocation
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Ch 1 -8
Strategy Implementation Steps
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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
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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
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Ch 1 -10
Strategy Evaluation
Internal Review
External Review
Performance Measurement
Corrective Action
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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?”
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Ch 1 -12
Integrating Intuition & Analysis
The strategic management process
attempts to organize quantitative and
qualitative information under conditions of
uncertainty
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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
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Ch 1 -14
Integrating Intuition & Analysis
Intuition & Judgment
Involve management at all levels
Influence all analyses
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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
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Ch 1 -16
Key Terms in Strategic Management
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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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Ch 1 -17
Strategic Management is
Gaining and Maintaining
Competitive Advantage
Anything that a firm does especially
well compared to rival firms
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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
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Ch 1 -19
Strategists
Gather Information
Analyze Information
Organize Information
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Ch 1 -20
Vision and Mission Statements
Vision Statement –
What do we want to become?
Mission Statement –
What is our business?
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Ch 1 -21
External Opportunities and Threats
Analysis of Trends
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Economic
Social
Cultural
Demographic/Environmental
Political, Legal, Governmental
Technological
Competitors
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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
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Ch 1 -23
Internal Strengths and Weaknesses
 Controllable
activities performed
especially well or poorly
 Determined
relative to competitors
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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

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Internal Strengths and Weaknesses
Assessing the Internal Environment
Ratios
Performance Measures
Internal Factors
Industry Averages
Survey Data
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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
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Long-Term Objectives

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
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Ch 1 -28
Strategies
Means by which long-term objectives
are achieved
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Ch 1 -29
Strategies

Examples
 Geographic expansion
 Diversification
 Acquisition
 Product development
 Market penetration
 Retrenchment
 Divestiture
 Liquidation
 Joint venture
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Ch 1 -30
Sample Strategies

Table 1-1
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Best Buy

Levi Strauss
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New York Times Company
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Ch 1 -31
Annual Objectives
Short-term milestones that firms must
achieve to reach long-term objectives
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Policies
Means by which annual objectives will
be achieved
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Ch 1 -33
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Ch 1 -34
Strategic Management Model
 Strategic
Management Process
 Dynamic & continuous
 More formal in larger
organizations
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Ch 1 -35
Strategic Management
 Communication
is a key to
successful strategic management
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Ch 1 -36
Benefits of Strategic Management
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Ch 1 -37
Benefits of Strategic Management
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Nonfinancial Benefits
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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
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Ch 1 -38
Why Some Firms Do No Strategic
Planning
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Lack of knowledge of strategic planning
Poor reward structures
Fire fighting
Waste of time
Too expensive
Laziness
Content with success
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Ch 1 -39
Why Some Firms Do No Strategic
Planning (continued)
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Fear of failure
Overconfidence
Prior bad experience
Self-interest
Fear of the unknown
Honest difference of opinion
Suspicion
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Pitfalls in Strategic Planning
Strategic planning is an involved,
complicated, and complex process that
takes an organization into unexplored
territory
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Ch 1 -41
Effective Strategic Planning is:
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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
continued
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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
continued
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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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Ch 1 -44
Comparing Business and Military
Strategy
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Strategic planning started in the military
Similarity
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Both business and military organizations must
adapt to change and constantly improve
Difference
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Business strategy assumes competition
Military strategy assumes conflict
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Ch 1 -45
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Ch 1 -46