Topic 1: The Nature of
Strategic Management
Strategic Management:
Concepts & Cases
12th Edition
Fred David
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Ch 1 -1
Learning Outcomes
◼
Describe the strategic management process
◼
Explain the need for integrating analysis and
intuition in strategic management
◼
Enumerate the
management
◼
Discuss the advantages and disadvantages of
entering global markets
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benefits
of
good
strategic
Ch 1 -2
Themes in the Text
• Global Considerations – impact virtually all
strategic decisions
• E-commerce – vital strategic management tool
• Natural Environment – important strategic issue
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Ch 1 -3
Strategic Management – Defined
▪
Art
&
science
of
formulating,
implementing, & evaluating, crossfunctional decisions that enable an
organization to achieve its objectives
▪
In essence, the strategic plan is a
company’s game plan.
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Ch 1 -4
Strategic management achieves a
firm’s success through integration
Management
Marketing
Finance/Accounting
Production/Operations
Research & Development
MIS
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Ch 1 -6
Strategy Formulation
Vision & Mission
External Opportunities & Threats
Internal Strengths & Weaknesses
Long-Term Objectives
Alternative Strategies
Strategy Selection
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Ch 1 -7
Issues in Strategy Formulation
✓ New business opportunities
✓ Businesses to abandon
✓ Allocation of resources
✓ Expansion or diversification
✓ International markets
✓ Mergers or joint ventures
✓ Avoidance of hostile takeover
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Ch 1 -8
Strategy Implementation
Annual Objectives
Policies
Employee Motivation
Resource Allocation
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Ch 1 -9
Strategy Implementation
Action Stage of Strategic Management
✓Most difficult stage
✓Mobilization of employees & managers
✓Interpersonal skills critical
✓Consensus on goal pursuit
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Ch 1 -10
Strategy Evaluation
Internal Review
External Review
Performance Metrics
Corrective Actions
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Ch 1 -11
Strategy
Evaluation
Final Stage of Strategic
Management
✓Subject to future
modification
✓Today’s success no
guarantee of future success
✓New & different problems
✓Complacency leads to
demise
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Ch 1 -12
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 -13
Integrating Intuition & Analysis
The strategic management process attempts
to organize quantitative & qualitative
information under conditions of uncertainty.
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Ch 1 -14
Integrating Intuition & Analysis
Intuition is based on:
Past experiences
❑ Judgment
❑ Feelings
❑
Intuition is useful for decision making in:
Conditions of great uncertainty
❑ Conditions with little precedent
❑
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Ch 1 -15
Integrating Intuition & Analysis
Intuition & Judgment
Involve management at all levels
Influence all analyses
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Ch 1 -16
Integrating Intuition & Analysis
Analytical Thinking
Intuitive Thinking
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Ch 1 -17
Adapting to Change
Organizations must monitor events
◼
Ongoing process
◼
Internal and external events
◼
Timely changes
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Ch 1 -18
Strategic Management is Gaining &
Maintaining Competitive Advantage
“Anything that a firm does especially
well compared to rival firms”
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Ch 1 -19
Achieving Sustained Competitive
Advantage
1. Adapting to change in external trends, internal
capabilities, and resources
2. Effectively formulating, implementing, and
evaluating strategies
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Ch 1 -20
Adapting to Change
Rate & magnitude of change increasing
dramatically
E-commerce
Demographics
Technology
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Ch 1 -21
Adapting to Change
Effective Adaptation – Requires long-term focus
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Ch 1 -22
Adapting to Change – Key Strategic
Management Questions
◼
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?
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Ch 1 -23
Key Terms
Strategists – Firm’s success/failure
Various Job Titles:
•
•
•
•
•
•
Chief Executive Officer (CEO)
Chief Strategy Officer (CSO)
President
Owner
Board Chair
Executive Director
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Ch 1 -24
Key Terms
Vision
Statement
–
What do we want to
become?
Mission Statement –
What is our business?
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Ch 1 -25
Key Terms: Opportunities & Threats
❑ Largely
beyond
organization
the
control
of
a
single
Analysis of Trends:
• Economic
• Social
• Cultural
• Demographic/Environmental
• Political, Legal, Governmental
• Technological
• Competitors
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Ch 1 -26
Key Terms: Opportunities & Threats
Environmental Scanning (Industry Analysis)
❑ Process of conducting research and gathering
and assimilating external information
Basic Tenet of Strategic Management
Strategy
Formulation
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Take advantage of
External Opportunities
Avoid/minimize impact of
External Threats
Ch 1 -27
Key Terms: Strengths & Weaknesses
❑ Controllable activities performed especially well
or poorly
Typically located in functional areas of the firm:
• Management
• Marketing
• Finance/Accounting
• Production/Operations
• Research & Development
• Computer Information Systems
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Ch 1 -28
Key Terms: Strengths & Weaknesses
Assessing the Internal Environment
Financial Ratios
Internal
Factors
Performance Metrics
Industry Averages
Survey Data
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Ch 1 -29
Key Terms: Long-term Objectives
❑ Mission-driven pursuit of specified results more
than one year out
Essential for ensuring the firm’s success:
• Provide direction
• Aid in evaluation
• Create synergy
• Focus coordination
• Basis for planning, motivating, and
controlling
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Ch 1 -30
Key Terms: Strategies
❑ Means
by which long-term objectives are
achieved
Some Examples:
• Geographic expansion
• Diversification
• Acquisition
• Market penetration
• Retrenchment
• Liquidation
• Joint venture
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Ch 1 -31
Key Terms
Annual Objectives – Short-term milestones that
firms must achieve to attain long-term objectives
Policies – Means by which annual objectives will
be achieved
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Ch 1 -32
Example Strategies in Action in 2007
McDonald’s Corp
The world’s largest restaurant chain by number of outlets, Big
Mac is doing fantastic both in the United States and abroad. In
past months, McDonald’s began opening drive-through
restaurants in China, closed 25 sites in the United Kingdom,
and disposed of a supply-chain operation in Russia. Big Mac in
2007 opened 800 new restaurants in China, Japan, and
Russia. Shares of McDonald’s stock increased 42 percent in
2006 as sales for the year eclipsed $41 billion. Big Mac is
working to eliminate trans fats from their food (New York City is
requiring this of all restaurants in 2007). McDonald’s plans in
2008 to turn ownership of about 2,300 restaurants in Canada
and the United Kingdom over to licensees.
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Ch 1 -33
Example Strategies in Action in 2007
American General
A Fortune 500 company based in Piscataway, New Jersey,
American General split into three businesses in 2007: Airconditioning systems, Bath-and-kitchen business, and
vehicle-control systems. The firm also is renaming itself
Trane, after its flagship air-conditioning brand name. The
company plans to divest the bath-and-kitchen division and
to spin off its vehicle control division into a publicly traded
company named Wabco. Led by CEO Fred Poses,
American General employs about 62,000 persons and has
manufacturing operations in 28 countries.
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Ch 1 -34
Comprehensive Strategic-Management Model
External
Audit
Chapter 3
Vision
&
Mission
Chapter 2
Long-Term
Objectives
Generate,
Evaluate,
Select
Strategies
Implement
Strategies:
Mgmt Issues
Implement
Strategies:
Marketing,
Fin/Acct,
R&D, CIS
Measure &
Evaluate
Performance
Chapter 5
Chapter 6
Chapter 7
Chapter 8
Chapter 9
Internal
Audit
Chapter 4
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Ch 1 -35
Strategic Management Model
Strategic Management Process
❑ Dynamic & continuous
❑ More formal in larger organizations
1. Identify Existing: Vision, Mission, Objectives, Strategies
2. Audit external environment
3. Audit internal environment
4. Establish long-term objectives
5. Generate, evaluate, and select strategies
6. Implement selected strategies
7. Measure & evaluate performance
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Ch 1 -36
Benefits of Strategic Management
• Proactive in shaping firm’s future
• Initiate and influence firm’s activities
• Formulate better strategies
• Systematic, logical, rational
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Ch 1 -37
Benefits of Strategic Management
Financial Benefits
•
Improvement in sales
•
Improvement in profitability
•
Productivity improvement
Nonfinancial Benefits
• Improved understanding of competitors’ strategies
• Enhanced awareness of threats
• Reduced resistance to change
• Enhanced problem-prevention capabilities
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Ch 1 -38
Benefits of Strategic Management (Greenley)
1. Identification of opportunities
2. Objective view of management problems
3. Improved coordination & control
4. Minimizes adverse conditions & changes
5. Decisions that better support objectives
6. Effective allocation of time & resources
7. Internal communication among personnel
8. Integration of individual behaviors
9. Clarify individual responsibilities
10. Encourage forward thinking
11. Encourages favorable attitude toward change
12. Provides discipline and formality to the management of the
business
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Ch 1 -39
Why Some Firms Do No Strategic
Planning
➢ Poor reward structures
➢ Fear of failure
➢ Fire-fighting
➢ Overconfidence
➢ Waste of time
➢ Prior bad experience
➢ Too expensive
➢ Self-interest
➢ Laziness
➢ Fear of the unknown
➢ Content with success
➢ Suspicion
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Ch 1 -40
Business Ethics & Strategic
Management
Business ethics defined – Principles of conduct
within organizations that guide decision making
and behavior
Good business ethics – Prerequisite for good
strategic management
Code of business ethics – Provides basis on
which policies can be devised to guide daily
behavior and decisions in the workplace
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Ch 1 -41
Business Ethics & Strategic
Management
Business practices always considered unethical:
❑ Misleading advertising
❑ Misleading labeling
❑ Harm to the environment
❑ Insider trading
❑ Dumping flawed products on foreign markets
❑ Poor product or service safety
❑ Padding expense accounts
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Ch 1 -42
Natural Environment Perspective
Using ISO 14000 Certification to Gain Strategic Advantage
◼
What are ISO 14000 &
14001?
◼
Requirements for ISO 14001
◼
Environmental Management
Systems (EMS)
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Ch 1 -43
The Nature of Global Competition
International/multinational corporations
❑ Parent company
❑ Host country
Strategy implementation may be difficult
❑ Cultural differences
Norms
❑ Values
❑ Work ethic
❑
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Ch 1 -44
Advantages of International
Operations
➢ Absorb excess capacity
➢ Reduce unit costs
➢ Spread risk over wider markets
➢ Low-cost production facilities
➢ Less intense competition
➢ Lower taxes
➢ Economies of scale
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Ch 1 -45
Disadvantages of International
Operations
➢ Difficult communications
➢ Underestimate foreign competition
➢ Cultural barriers to effective management
➢ Complications arising from currency differences
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Ch 1 -46
Average Pay for TOP MGMT
Strategists
◼ South Korea
◼ Hongkong
◼ Singapore
◼ Taiwan
◼ India
◼ Philippines
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:
:
:
:
:
:
$384,123
$270,707
$239,866
$114,914
$ 89,759
$ 51,519
Ch 1 -47