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Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -1 Chapter 1 The Nature of Strategic Management Strategic Management: Concepts.

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Presentation on theme: "Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -1 Chapter 1 The Nature of Strategic Management Strategic Management: Concepts."— Presentation transcript:

1 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -1 Chapter 1 The Nature of Strategic Management Strategic Management: Concepts & Cases 12 th Edition Fred David

2 Chapter Objectives Describe the strategic management process Explain the need for integrating analysis and intuition in strategic management. Define and give examples of key terms in strategic management. Discuss the nature of strategy formulation, implementation, and evaluation activities. Describe the benefits of good strategic management. Discuss how a firm may achieve sustained competitive advantage Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -2

3 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -3 Themes in the Text Global Considerations – impact virtually all strategic decisions E-commerce – vital strategic management tool Natural Environment – important strategic issue

4 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -4 Themes in the Text Global considerations impact virtually all strategic decisions. The boundaries of countries can no longer be the boundary of our minds. It has become a matter of survival for businesses to see and appreciate the world from the perspective of others. The underpinnings of strategic management hinge on managers gaining an understanding of competitors, markets, prices, suppliers, distributors, governments, creditors, shareholders, and customers worldwide.

5 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -5 Themes in the Text The natural environment is an important strategic issue. Perhaps no greater threat exists to business and society than the continuous decimation and degradation of our natural environment.

6 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -6 Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives Strategic Management – Defined

7 ٍ Strategic Management defined Strategic management is the process by which managers set an organizations (or several organizations) long-term course, develop plans in the light of internal and external circumstances, and undertake appropriate action to reach those goals. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -7

8 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -8 Strategic Management The term originated in the 1950S. Was very popular between mid-1960s and mid-1970s. It casted aside during 1980s. The 1990s and on brought the revival of strategic planning, the process is widely practiced.

9 Strategic Management and Research As a self-identified area of inquiry, strategic management is still young. The first major conference devoted to the subject was only held in 1977 at the University of Pittsburgh. The Strategic Management Journal and the Journal of Business Strategy each published their first issue three years later. Michael Porters landmark study, Competitive Strategy, appeared in 1980. The Academy of Management, the professional association of business school teachers, organized its Business Policy and Strategy division at around the same time. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -9

10 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -10 Strategic Management and planning The term strategic management is used synonymously with strategic planning. The purpose of strategic management is to exploit and create new and different opportunities for tomorrow While long-range planning tries to optimize for tomorrow the trends of today.

11 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -11 Strategic Management In essence, the strategic plan is a companys game plan.

12 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -12 Strategic management achieves a firms success through integration –– Management MIS Production/OperationsFinance/Accounting Marketing Research & Development

13 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -13 Stages of strategic planning Environmental analysis Strategy formulation Strategy implementation Strategy evaluation.

14 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -14 Vision & Mission Strategy Formulation External Opportunities & Threats Internal Strengths & Weaknesses Long-Term Objectives Alternative Strategies Strategy Selection

15 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -15 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 New business opportunities Businesses to abandon Allocation of resources Expansion or diversification International markets Mergers or joint ventures Avoidance of hostile takeover

16 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -16 Strategy Implementation Annual Objectives Policies Employee Motivation Resource Allocation

17 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -17 Strategy Implementation Action Stage of Strategic Management Most difficult stage recruitment of employees & managers Interpersonal skills critical Consensus on goal pursuit Interpersonal skills are essential. Action Stage of Strategic Management Most difficult stage recruitment of employees & managers Interpersonal skills critical Consensus on goal pursuit Interpersonal skills are essential.

18 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -18 Strategy Evaluation Internal Review External Review Performance Metrics Corrective Actions

19 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -19 Strategy Evaluation Final Stage of Strategic Management Subject to future modification Todays success no guarantee of future success New & different problems Complacency\satisfaction leads to demise\death Final Stage of Strategic Management Subject to future modification Todays success no guarantee of future success New & different problems Complacency\satisfaction leads to demise\death

20 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -20 Peter Drucker: Think through the overall mission of a business. Ask the key question: What is our Business? Prime Task of Strategic Management

21 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -21 The strategic management process attempts to organize quantitative and qualitative information under conditions of uncertainty. Integrating Intuition & Analysis

22 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -22 The strategic-management process can be described as an objective, logical, systematic approach for making major decisions in an organization. Integrating Intuition & Analysis

23 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -23 Intuition is based on: Past experiences Judgment Feelings Integrating Intuition & Analysis Intuition is useful for decision making in: Conditions of great uncertainty Conditions with little precedent

24 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -24 Involve management at all levels Intuition & Judgment Influence all analyses Integrating Intuition & Analysis

25 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -25 Analytical Thinking Integrating Intuition & Analysis Intuitive Thinking

26 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -26 Organizations must monitor events Ongoing process Internal and external events Timely changes Adapting to Change

27 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -27 The need to adapt to change leads organizations to key strategic-management questions, such as, What kind of business should be become? Are we in the right field? Should we reshape our business? What new competitors are entering our industry? Adapting to Change

28 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -28 Anything that a firm does especially well compared to rival firms Strategic Management is Gaining and Maintaining Competitive Advantage

29 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -29 1. Adapting to change in external trends, internal capabilities, and resources Achieving Sustained Competitive Advantage 2. Effectively formulating, implementing, and evaluating strategies

30 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -30 Rate & magnitude of change increasing dramatically Adapting to Change E-commerce Demographics Technology

31 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -31 Internet and sales value in US 2006 online sales in US rose 25% to reach 24.6$ billion. Traditional sales increased 5% only to 457.4$ billion. The internet has changed the very nature and core of buying and selling.

32 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -32 Effective Adaptation Adapting to Change Requires long-term focus

33 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -33 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

34 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -34 Strategists 1. Strategists are individuals who are most responsible for the success or failure of an organization. 2. Strategists hold various job titles, such as chief executive officers, president, owner, chair of the board, executive director, chancellor, dean, or entrepreneur. 3. Strategists help an organization gather, analyze, and organize information. They track industry and competitive trends, develop forecasting models and scenario analyses, evaluate corporate and divisional performance, spot emerging market opportunities, identify business threats, and develop creative action plans.

35 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -35 Policies 1.Policies include guidelines, rules, and procedures established to support efforts to achieve stated objectives. 2.Policies are most often stated in terms of management, marketing, finance/accounting, production/operations, research and development, and computer information systems activities. Examples: smoking policy, recruitment policy

36 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -36 Example Strategies in Action in 2007 McDonalds Corp The worlds largest restaurant chain by number of outlets, Big Mac is doing fantastic both in the United States and abroad. In past months, McDonalds 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 McDonalds 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). McDonalds plans in 2008 to turn ownership of about 2,300 restaurants in Canada and the United Kingdom over to licensees.

37 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -37 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: Air-conditioning 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.

38 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -38 External Audit Chapter 3 Internal Audit Chapter 4 Long-Term Objectives Chapter 5 Generate, Evaluate, Select Strategies Chapter 6 Implement Strategies: Mgmt Issues Chapter 7 Implement Strategies: Marketing, Fin/Acct, R&D, CIS Chapter 8 Measure & Evaluate Performance Chapter 9 Vision & Mission Chapter 2 Figure 1.1 Comprehensive Strategic-Management Model

39 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -39 Dynamic & continuous More formal in larger organizations Strategic Management Model Strategic Management Process

40 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -40 Benefits of Strategic Management Proactive in shaping firms future Initiate and influence firms activities Formulate better strategies Systematic, logical, rational

41 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -41 Benefits of Strategic Management Financial Benefits Improvement in sales Improvement in profitability Productivity improvement

42 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -42 Benefits of Strategic Management Nonfinancial Benefits Improved understanding of competitors strategies Enhanced awareness of threats Reduced resistance to change Enhanced problem-prevention capabilities

43 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -43 Benefits of Strategic Management (Greenley) 1.Identification of opportunities 2.Objective view of management problems 3.Improved coordination & control 4.Minimizes unfavorable conditions & changes 5.Decisions that better support objectives

44 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -44 Benefits of Strategic Management (Greenley – contd ) 6.Effective allocation of time & resources 7.Internal communication among personnel 8.Integration of individual behaviors 9.Clarify individual responsibilities 10. Encourage forward thinking

45 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -45 Benefits of Strategic Management (Greenley – contd ) 11. Encourages favorable attitude toward change 12. Provides discipline and formality to the management of the business

46 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -46 Why Some Firms Do No Strategic Planning Poor reward structures Fire-fighting Waste of time Too expensive Laziness Content\happy with success

47 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -47 Why Some Firms Do No Strategic Planning Fear of failure Overconfidence Prior bad experience Self-interest: self-esteem through effectively using old system. Fear of the unknown: uncertain of their ability to learn new skills. Suspicion: employees may not trust management.

48 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -48 PITFALLS IN STRATEGIC PLANNING Using strategic planning to gain control over decisions and resources Doing strategic planning only to satisfy accreditation or regulatory requirements Too hastily\quickly moving from mission development to strategy formulation Failing to communicate the plan to employees, who continue working in the dark Top managers making many intuitive decisions that conflict with the formal plan Top managers not actively supporting the strategic-planning process Failing to use plans as a standard for measuring performance Delegating planning to a planner rather than involving all managers Failing to involve key employees in all phases of planning Failing to create a collaborative climate supportive of change Viewing planning to be unnecessary or unimportant Becoming so engrossed in current problems that insufficient or no planning is done Being so formal in planning that flexibility and creativity are stifled

49 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -49 Guidelines For Effective Strategic Management Is strategic management in our firm a people process or a paper process? should be addressed. Balancing between long-range versus short-range or maximizing profits versus increasing shareholders wealth. Subjective factors such as attitudes toward risk, concern for social responsibility, and organizational culture will always affect strategy-formulation decisions, but organizations must remain as objective as possible.

50 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -50 COMPARING BUSINESS AND MILITARY STRATEGY A Strong Military Heritage Underlies the Study of Strategic Management Terms such as objectives, mission, strengths, and weaknesses were first formulated to address problems on the battlefield. A fundamental difference between military and business strategy is that business strategy is formulated, implemented, and evaluated with the assumption of competition, while military strategy is based on an assumption of conflict.

51 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -51 Principles of conduct within organizations that guide decision making and behavior Business Ethics & Strategic Management Business ethics defined –

52 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -52 Prerequisite for good strategic management Business Ethics & Strategic Management Good business ethics –

53 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -53 Provides basis on which policies can be devised to guide daily behavior and decisions in the workplace Business Ethics & Strategic Management Code of business ethics –

54 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -54 Misleading advertising Misleading labeling Harm to the environment Insider trading Dumping flawed/faulty products on foreign markets Poor product or service safety Padding expense accounts Business Ethics & Strategic Management Business practices always considered unethical –

55 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -55 Parent company: a firm investing in international operations; Host country: the country where that business is conducted. The Nature of Global Competition International/multinational corporations

56 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -56 Cultural differences Norms Values Work ethic The Nature of Global Competition Strategy implementation may be difficult

57 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -57 Advantages of International Operations Absorb excess capacity Reduce unit costs Spread risk over wider markets Low-cost production facilities

58 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -58 Advantages of International Operations ( contd ) Less intense competition Lower taxes Economies of scale

59 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -59 Disadvantages of International Operations Difficult communications Underestimate foreign competition Cultural barriers to effective management Complications arising from currency differences


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