Chapter 1
The Nature of
Strategic
Management
Learning Objectives
• Explain the concept of strategic
management
• Describe how strategic decisions differ
from other decisions that managers
make
• Describe the comprehensive model of
strategic decision making
• Appreciate the importance of strategic
management process
Strategic Management –
Defined
Art & science of formulating,
implementing, and evaluating,
cross-functional decisions that
enable an organization to achieve
its goal and objectives.
Strategic Management Critical Task
1. Formulate the company’s mission, including
broad statements about its philosophy, and goals
2. Conduct an analysis that reflects the company’s
internal conditions and capabilities
3. Assess the company’s external environment,
including both the competitive and the general
contextual factors
4. Analyze the company’s options by
matching its resources with the external
environment
5. Identify the most desirable options by
evaluating each option in light of the
company's mission
6. Select a set of long-term objectives and
grand strategies that will achieve the most
desirable options
7. Develop annual objective and short-term
strategies that are compatible with the
selected set of long-term objectives and grand
strategies
8. Implement the strategic choices by
means of budgeted resource allocations in
which the matching of tasks, people,
structures, technologies, and reward system is
emphasized
9. Evaluate the success of the strategic
process as an input for future decision making.
Expectations for the Course:
You Will…
• Struggle with figuring out what to do
• Be prepared to participate in planning for
your own firms
• Study real business situation
Why is strategic management
important?
• Gives everyone a role
• Makes a difference in
performance levels
• Provides systematic approach to
uncertainties
• Coordinates and focuses
employees
The
Strategic
Managemen
t Process
Copyright © 2004 South-Western.
All rights reserved.
12–9
Strategic Leadership
and the Strategic
Management Process
Effective Strategic
Leadership
Shapes the
Formulation of
Strategic Intent
and
Strategic
Mission
Influence
Successful
Strategic Actions
Formulation of
Strategies
Implementation
of Strategies
Yields
Yields
Strategic
Competitiveness
Above-average Returns
Strategic Leadership
• Requires the managerial ability to:
– Anticipate and envision
– Maintain flexibility
– Empower others to create strategic change as
necessary
• Strategic leadership is:
– Multi-functional work that involves working
through others
– Consideration of the entire enterprise rather
than just a sub-unit
– A managerial frame of reference
12–11
Strategic Leadership (cont’d)
• Effective strategic leaders:
– Manage the firm’s operations effectively
– Sustain a high performance over time
– Make better decisions than their competitors
– Make candid, courageous, pragmatic
decisions
– Understand how their decisions affect the
internal systems in use by the firm
– Solicit feedback from peers, superiors and
employees about their decisions and visions
Managers as an Organizational
Resource
• Managers often use their discretion when
making strategic decisions and
implementing strategies
• Factors affecting the amount of decisionmaking discretion include:
– External environmental sources
– Characteristics of the organization
– Characteristics of the manager
Factors Affecting
Managerial
Discretion
External
Environment
External Environment
• Industry structure
• Rate of market growth
• Number and type of
competitors
• Nature and degree of
political/legal constraints
• Degree to which products
can be differentiated
Managerial
Discretion
Factors Affecting
Managerial
Discretion
External
Environment
Characteristics of
the Organization
Characteristics of the
Organization
•
•
•
•
•
Size
Age
Culture
Availability of resources
Patterns of interaction
among employees
Managerial
Discretion
12–15
Factors Affecting
Managerial
Discretion
External
Environment
Characteristics of
the Organization
Characteristics of the
Manager
• Tolerance for ambiguity
• Commitment to the firm
and its desired strategic
outcomes
• Interpersonal skills
• Aspiration level
• Degree of self-confidence
Managerial
Discretion
Characteristics of
the Manager
Top Management Teams
• Composed of the key managers who are
responsible for selecting and implementing
the firm’s strategies
• A heterogeneous top management team:
– Has varied expertise and knowledge
– Can draw on multiple perspectives
– Will evaluate alternative strategies
– Builds consensus
Important Definitions
• Strategic Management Process
– The full set of commitments, decisions, and
actions required for a firm to achieve strategic
competitiveness and earn above-average
returns.
Steps in Strategic
Management Process
• Step 1: Identifying the organization's current
mission, objectives, and strategies
– Mission: the firm’s reason for being
• Who we are,
• What we do, and
• Where we are now
– Goals: the foundation for further planning
• Measurable performance targets
• Step 2: Conducting an external analysis
– The environmental scanning of specific and general
environments
– Focuses on identifying opportunities and threats
19
Strategic Management Process
(cont’d)
• Step 3: Conducting an internal analysis
– Assessing organizational resources, capabilities,
activities and culture:
• Strengths (core competencies) create value for the
customer and strengthen the competitive position of
the firm.
• Weaknesses (things done poorly or not at all) can
place the firm at a competitive disadvantage.
Steps 2 and 3 combined are called a SWOT
analysis (Strengths, Weaknesses,
Opportunities, and Threats)
Strategic Management Process
(cont’d)
• Step 4: Formulating strategies
– Develop and evaluate strategic alternatives
– Select appropriate strategies for all levels in the
organization that provide relative advantage
over competitors
– Match organizational strengths to environmental
opportunities
– Correct weaknesses and guard against threats
Strategic Management Process
(cont’d)
• Step 5: Implementing strategies
– Implementation: effectively fitting organizational
structure and activities to the environment
– Effective strategy implementation requires an
organizational structure matched to its
requirements.
• Step 6: Evaluating results
– How effective have strategies been?
– What adjustments, if any, are necessary?
Levels of strategy
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?
Key Terms
Vision Statement –
What do we want to become?
Mission Statement –
What is our business?
Key Terms
Opportunities & Threats (External)
Analysis of Trends:
•
Economic
•
Social
•
Cultural
•
Demographic/Environmental
•
Political, Legal, Governmental
•
Technological
•
Competitors
Key Terms
Strengths & Weaknesses (Internal)
Typically located in functional areas of the firm
•
Management
•
Marketing
•
Finance/Accounting
•
Production/Operations
•
Research & Development
•
Computer Information Systems
Key Terms
Strategies
Means by which long-term objectives are
achieved
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