Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -1 Chapter 1 The Nature of Strategic Management Strategic Management: Concepts & Cases 13 th Edition Fred David

LEARNING OBJECTIVES After reading this chapter, you should be able to: Define the strategic management concept and some key terminologies in strategic management. Describe the strategic management process. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -2

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -3 Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives Strategic Management –Defined

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -4 Comparing Business and Military Strategy Strategic planning started in the military Similarity  Both business and military organizations must adapt to change and constantly improve Difference  Business strategy assumes competition  Military strategy assumes conflict

KEY TERMINOLOGIES Some of the key terminologies of strategic management are: 1. Strategic management 2. Strategy 3. Business strategy 4. Corporate planning 5. Corporate strategy Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -5

KEY TERMINOLOGIES 1. Strategic Management  The strategic management process is made up of three main steps:  strategy formulation,  strategy implementation and  strategy evaluation.  It also emphasizes the analysis of the external and internal environment of a company in order to achieve the company’s objectives. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -6

KEY TERMINOLOGIES (cont.) 2.Strategy  Strategy refers to the actions taken by a manager to ensure that the organization is better off than its competitors or is able to fend off competitive actions from competitors. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -7

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -8 Means by which long-term objectives are achieved Strategies

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -9 Strategies Examples  Geographic expansion  Diversification  Acquisition  Product development  Market penetration  Retrenchment  Divestiture  Liquidation  Joint venture

3. Business unit Strategy  Business-strategy organizations always try to use their own strengths in exploiting the competitors’ weaknesses.  The main purpose is to gain competitive advantage.  Actions taken by a manager to ensure that the organization is better off than its competitors or is able to fend off competitive actions from competitors.  A well prepared strategy can help ensures proper distribution of resources to tackle specific situation. KEY TERMINOLOGIES (cont.) Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -10

KEY TERMINOLOGIES (cont.) 3. Corporate Planning  Corporate planning can be defined as a process of obtaining objectives and its components followed by a process of finding and evaluating various available alternatives. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -11

5. Corporate Strategy  Corporate strategy is a guideline, plan to direct all the components of a business in a certain direction.  Corporate strategy is considered as a guideline, setting the scope where the company should be involved in and can be aligned in such a way to ensure that the business objectives are met. KEY TERMINOLOGIES (cont.) Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -12

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Purpose of Strategic Management To exploit and create new and different opportunities for tomorrow

THE STRATEGIC MANAGEMENT PROCESS (cont.) Define vision and mission Perform situational analysis Establish objectives Formulate strategies Implement strategies Evaluate and correct Strategy FormulationStrategy Implementation Strategy Evaluation Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -14

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Vision & Mission Strategy Formulation External Opportunities & Threats Internal Strengths & Weaknesses Long-Term Objectives Alternative Strategies Strategy Selection

Strategy Formulation It involves designing and developing strategies to achieve the firm’s mission and vision. Strategy formulation entails identifying the firm’s external opportunities and threats, determining the firm’s internal strengths and weaknesses and establishing objectives to achieve the firm’s mission and vision. THE STRATEGIC MANAGEMENT PROCESS (cont.) Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -16

THE STRATEGIC MANAGEMENT PROCESS (cont.) Strategy formulation Identifying the company’s mission and vision in the starting point for strategic management process. The mission and vision statements set the direction for where the company is going. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -17

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Vision Statement – What do we want to become? Mission Statement – What is our business? Vision and Mission Statements

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch In order to achieve the organization’s mission, would need to operationalize the mission statement into strategic objectives. Objectives – are concrete goals the organization aims to achieve in pursuing its basic mission.  Specific results that an organization seeks to achieve in pursuing its basic mission  Long-term means more than one year Long-Term Objectives

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 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

THE STRATEGIC MANAGEMENT PROCESS (cont.) Strategy formulation Before organization establish its objectives, it must perform situation analysis. Situation Analysis  Scanning and evaluating the organization’s internal and external environment – this provides the critical information to establish the organization’s objectives.  Also use to identify the organization’s opportunities and threats. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -21

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Strategy Implementation Annual Objectives Policies Employee Motivation Resource Allocation

Strategy Implementation Strategy implementation means executing the strategies or when business strategies are translated into action. It includes allocating resources to execute the formulated strategies, preparing budgets, and developing and utilizing information systems and employees. THE STRATEGIC MANAGEMENT PROCESS (cont.) Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -23

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Strategy Evaluation Internal Review External Review Performance Measurement Corrective Action

Strategy Evaluation The final stage in the strategic management process The firm’s managers seek to determine which strategies worked and which were not successful. Involves: Reviewing external and internal factors that form the basis of the current strategies Measuring performance against objectives Taking corrective action – if the strategies formulated did not results in the objectives being met or not in line with the actual goals,  the strategy should be modified or reformulated. THE STRATEGIC MANAGEMENT PROCESS (cont.) Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -25

 Changes in the environment or a change in any of the steps in the strategies management process could mean a change in any or all of the components.  For example,  an introduction of a new product by a major competitor may result in a change in the organization’s existing product line and this may affect the organization’s mission and vision. THE STRATEGIC MANAGEMENT PROCESS (cont.) Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -26

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch The strategic management process attempts to organize quantitative and qualitative information under conditions of uncertainty Integrating Intuition & Analysis

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Intuition is based on:  Past experiences  Judgment  Feelings Integrating Intuition & Analysis Intuition is useful for decision making in conditions of:  Great uncertainty  Little precedent  Highly interrelated variables  Several plausible alternatives

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Organizations should continually monitor internal and external events and trends so that timely changes can be made as needed Adapting to Change

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch  Strategic Management Process  Dynamic & continuous  More formal in larger organizations Strategic Management Model

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Strategic Management Communication is a key to successful strategic management

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Benefits of Strategic Management Nonfinancial Benefits  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

Role of the Database on strategic management process Primary Role: To Support Managerial Decision Making at All Levels of the Organization  Top Level  Strategic Decisions  Middle Management  Tactical Decisions  Operational Management  Daily, Operational Decisions DBMS must provide each level a separate view of the data and support their specialized decision making roles Provide a seamless flow of information throughout the company

Top Level Management Provide information for strategic decision making, strategic planning, policy formation, and goals definitions Provide access to data to identify growth opportunities Provide a framework for defining and enforcing organizational policies Improve the likelihood of a positive return on investment for the company  Ways to reduce cost  Increase Productivity Provide feedback on whether the company is achieving its goals

Middle Management Provide necessary data for tactical decision making and planning Monitor and control the use of company resources  How efficiently are the resources allocated and used (including data)  What potential or current operational problems exist  Evaluate the performance of the different departments Provide a framework for ensuring the security and privacy of the data in the database

Operational Management Represent and support the company operations Produce query results within set performance levels Enhance short-term operational ability  Timely information for Customer Support  Support for application development and computer operations

Management Support Systems Management Information Systems Decision Support Systems Executive Information Systems

Management Information Systems (MIS) MIS primarily provides information on the firm’s performance to help managers in monitoring and controlling the business. Information provided by MIS is used by decision makers at the operational and tactical levels of organization. Today, these reports might be available online through an intranet, and more MIS reports can be generated on demand.

Decision Support Systems (DSS) DSS is a part of special category of information systems that are designed to enhance managerial decision-making. DSSs help managers make decisions that are unique, rapidly changing and not easily specified in advance. Although DSS uses internal information from MIS, it also uses external sources, such as current stock prices or product prices of competitors.