1. Chapter 1 The Nature of Strategic Management
Strategic Management: Concepts & Cases
12th Edition
Fred David
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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
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3. 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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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.
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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.
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6. Strategic Management – Defined
Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives
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7. ٍStrategic Management defined
Strategic management is the process by which managers set an organization’s (or several organizations’) long-term course, develop plans in the light of internal and external circumstances, and undertake appropriate action to reach those goals.
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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.
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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 Porter’s landmark study, Competitive Strategy, appeared in The Academy of Management, the professional association of business school teachers, organized its Business Policy and Strategy division at around the same time.
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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.
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11. Strategic Management
In essence, the strategic plan is a company’s game plan.
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12. Production/Operations Research & Development
Strategic management achieves a firm’s success through integration ––
Management
Marketing
Finance/Accounting
Production/Operations
Research & Development
MIS
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13. Stages of strategic planning
Environmental analysis
Strategy formulation
Strategy implementation
Strategy evaluation.
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14. Strategy Formulation Vision & Mission External Opportunities & Threats
Internal Strengths & Weaknesses
Long-Term Objectives
Alternative Strategies
Strategy Selection
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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
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16. Strategy Implementation
Annual Objectives
Policies
Employee Motivation
Resource Allocation
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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.
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18. Strategy Evaluation Internal Review External Review
Performance Metrics
Corrective Actions
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19. Strategy Evaluation Final Stage of Strategic Management
Subject to future modification
Today’s success no guarantee of future success
New & different problems
Complacency\satisfaction leads to demise\death
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20. 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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21. Integrating Intuition & Analysis
The strategic management process attempts to organize quantitative and qualitative information under conditions of uncertainty.
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22. Integrating Intuition & Analysis
The strategic-management process can be described as an objective, logical, systematic approach for making major decisions in an organization.
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23. 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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24. Involve management at all levels Influence all analyses
Integrating Intuition & Analysis
Intuition & Judgment
Involve management at all levels
Influence all analyses
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25. Integrating Intuition & Analysis
Analytical Thinking
Intuitive Thinking
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26. Organizations must monitor events
Adapting to Change
Organizations must monitor events
Ongoing process
Internal and external events
Timely changes
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27. Adapting to Change
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?”
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28. “Anything that a firm does especially well compared to rival firms”
Strategic Management is Gaining and Maintaining Competitive Advantage
“Anything that a firm does especially well compared to rival firms”
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29. 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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30. Adapting to Change Rate & magnitude of change increasing dramatically
E-commerce
Demographics
Technology
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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.
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32. Requires long-term focus
Adapting to Change
Effective Adaptation
Requires long-term focus
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33. 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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34. Strategists
Strategists are individuals who are most responsible for the success or failure of an organization.
Strategists hold various job titles, such as chief executive officers, president, owner, chair of the board, executive director, chancellor, dean, or entrepreneur.
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.
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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
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36. 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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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.
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38. Figure 1.1 Comprehensive Strategic-Management Model
External
Audit
Chapter 3
Vision
&
Mission
Chapter 2
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
Internal
Audit
Chapter 4
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39. Strategic Management Model
Strategic Management Process
Dynamic & continuous
More formal in larger organizations
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40. 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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41. Benefits of Strategic Management
Financial Benefits
Improvement in sales
Improvement in profitability
Productivity improvement
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42. Benefits of Strategic Management
Nonfinancial Benefits
Improved understanding of competitors’ strategies
Enhanced awareness of threats
Reduced resistance to change
Enhanced problem-prevention capabilities
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43. Benefits of Strategic Management (Greenley)
Identification of opportunities
Objective view of management problems
Improved coordination & control
Minimizes unfavorable conditions & changes
Decisions that better support objectives
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44. Benefits of Strategic Management (Greenley – cont’d)
Effective allocation of time & resources
Internal communication among personnel
Integration of individual behaviors
Clarify individual responsibilities
Encourage forward thinking
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45. Benefits of Strategic Management (Greenley – cont’d)
11. Encourages favorable attitude toward change
12. Provides discipline and formality to the management of the business
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46. Why Some Firms Do No Strategic Planning
Poor reward structures
Fire-fighting
Waste of time
Too expensive
Laziness
Content\happy with success
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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.
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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
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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.
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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.
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51. Business Ethics & Strategic Management
Business ethics defined –
Principles of conduct within organizations that guide decision making and behavior
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52. Business Ethics & Strategic Management
Good business ethics –
Prerequisite for good strategic management
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53. Business Ethics & 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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54. Business Ethics & Strategic Management
Business practices always considered unethical –
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
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55. The Nature of Global Competition
International/multinational corporations
Parent company: a firm investing in international operations;
Host country: the country where that business is conducted.
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56. The Nature of Global Competition
Strategy implementation may be difficult
Cultural differences
Norms
Values
Work ethic
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57. Advantages of International Operations
Absorb excess capacity
Reduce unit costs
Spread risk over wider markets
Low-cost production facilities
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58. Advantages of International Operations (cont’d)
Less intense competition
Lower taxes
Economies of scale
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59. Disadvantages of International Operations
Difficult communications
Underestimate foreign competition
Cultural barriers to effective management
Complications arising from currency differences
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