Module 1
The Nature of Strategic Management
Ch 1 -1
Strategic Management –Defined
Art & science of formulating,
implementing, and evaluating,
cross-functional decisions that
enable an organization to achieve its
objectives
Ch 1 -2
Purpose of Strategic Management
To exploit and create new and different
opportunities for tomorrow
Ch 1 -3
Strategic Management
In essence, the strategic plan is a
company’s game plan
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
Ch 1 -5
Strategy Formulation
Vision & Mission
External Opportunities & Threats
Internal Strengths & Weaknesses
Long-Term Objectives
Alternative Strategies
Strategy Selection
Ch 1 -6
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
Ch 1 -7
Strategy Implementation
Annual Objectives
Policies
Employee Motivation
Resource Allocation
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
Ch 1 -9
Issues in Strategy
Implementation
Action Stage of Strategic
Management
Mobilization of
employees & managers
Most difficult stage
Interpersonal skills
critical
Ch 1 -10
Strategy Evaluation
Internal Review
External Review
Performance Measurement
Corrective Action
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?”
Ch 1 -12
Integrating Intuition & Analysis
The strategic management process
attempts to organize quantitative and
qualitative information under conditions of
uncertainty
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
Ch 1 -14
Integrating Intuition & Analysis
Intuition & Judgment
Involve management at all levels
Influence all analyses
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
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
Ch 1 -17
Strategic Management is
Gaining and Maintaining
Competitive Advantage
Anything that a firm does especially
well compared to rival firms
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
Ch 1 -19
Strategists
Gather Information
Analyze Information
Organize Information
Ch 1 -20
Vision and Mission Statements
Vision Statement –
What do we want to become?
Mission Statement –
What is our business?
Ch 1 -21
External Opportunities and Threats
Analysis of Trends
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Economic
Social
Cultural
Demographic/Environmental
Political, Legal, Governmental
Technological
Competitors
Ch 1 -22
External Opportunities and Threats
Basic Tenet of Strategic Management
Take advantage of
External Opportunities
Strategy Formulation
Avoid/minimize impact of
External Threats
Ch 1 -23
Internal Strengths and Weaknesses
 Controllable
activities performed
especially well or poorly
 Determined
relative to competitors
Ch 1 -24
Internal Strengths and Weaknesses
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Typically located in functional areas of the firm
Management
 Marketing
 Finance/Accounting
 Production/Operations
 Research & Development
 Management Information Systems
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Ch 1 -25
Internal Strengths and Weaknesses
Assessing the Internal Environment
Ratios
Performance Measures
Internal Factors
Industry Averages
Survey Data
Ch 1 -26
Long-Term Objectives
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Specific results that an organization
seeks to achieve in pursuing its basic
mission
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Long-term means more than one year
Ch 1 -27
Long-Term Objectives
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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
Ch 1 -28
Strategies
Means by which long-term objectives
are achieved
Ch 1 -29
Strategies
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Examples
 Geographic expansion
 Diversification
 Acquisition
 Product development
 Market penetration
 Retrenchment
 Divestiture
 Liquidation
 Joint venture
Ch 1 -30
Sample Strategies
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Table 1-1
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Best Buy
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Levi Strauss
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New York Times Company
Ch 1 -31
Annual Objectives
Short-term milestones that firms must
achieve to reach long-term objectives
Ch 1 -32
Policies
Means by which annual objectives will
be achieved
Ch 1 -33
Ch 1 -34
Strategic Management Model
 Strategic
Management Process
 Dynamic & continuous
 More formal in larger
organizations
Ch 1 -35
Strategic Management
 Communication
is a key to
successful strategic management
Ch 1 -36
Benefits of Strategic Management
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
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
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
Ch 1 -40
Pitfalls in Strategic Planning
Strategic planning is an involved, intricate,
and complex process that takes an
organization into uncharted territory
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
Ch 1 -42
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
Ch 1 -43
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
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
Ch 1 -45