1. Ch 1 -1Copyright © 2011 Pearson Education

2. Strategic Management: Concepts and Cases Arab World Edition Fred R. David Abbas J. Ali Abdulrahman Y. Al-Aali Chapter 1: The Nature of Strategic Management Ch 1 -2Copyright © 2011 Pearson Education

3. Chapter Outline Ch 1 -3 What is Strategic Management? Key Terms in Strategic Management The Strategic-Management Model Benefits of Strategic Management Why Some Firms Do No Strategic Planning Pitfalls in Strategic Planning Guidelines for Effective Strategic Management Copyright © 2011 Pearson Education

4. Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives In essence, the strategic plan is a company’s game plan. Note : Strategic management (SM) is used exchangeable with strategic planning The purpose of SM is to exploit and create new and different opportunity for tomorrow Ch 1 -4 Strategic Management – Definition Ch 1 -4Copyright © 2011 Pearson Education

5. SM characteristics it is not a reaction to short – term changes -------while it is a response to long –term perspectives (5-10 year or more ) it is not a quantitative exercise-------- but it is a qualitative in nature and reflects a realistic imagination of how the future looks it is not a normative statement of where the firm would like to be in the future --------while it is a road map which describes the steps the firm should undertake to get there finally it is a set of practical,well thought–out perspectives and actions on how to deal with uncertainties of the future Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 - 5

6. Ch 1 -6 Strategic management achieves a firm’s success through integration: Management MIS Production/OperationsFinance/Accounting Marketing Research & Development Ch 1 -6Copyright © 2011 Pearson Education Strategic Management

7. Stages of strategic management The SM process consists of three main stages  Strategy formulation  Strategy implementation  Strategy evolution Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 - 7

8. Ch 1 -8 Vision & Mission Strategy Formulation External Opportunities & Threats Internal Strengths & Weaknesses Long-Term Objectives Alternative Strategies Strategy Selection Ch 1 -8Copyright © 2011 Pearson Education Strategic Management process step:1

9. Ch 1 -9 Strategy Implementation Annual Objectives Policies & procedures Employee Motivation Resource Allocation Ch 1 -9Copyright © 2011 Pearson Education Strategic Management process step :2

10. Ch 1 -10 Strategy Evaluation Internal Review External Review Performance Metrics Corrective Actions Ch 1 -10Copyright © 2011 Pearson Education Strategic management process step:3

11. “Think through the overall mission of a business. Ask the key question: What is our Business?” Peter Drucker Ch 1 -11 Prime Task of Strategic Management Ch 1 -11Copyright © 2011 Pearson Education

12. The strategic management process attempts to organize quantitative and qualitative information under conditions of uncertainty. Ch 1 -12 Integrating Intuition & Analysis Ch 1 -12Copyright © 2011 Pearson Education

13. Intuition is based on: Past experiences Judgment Feelings Ch 1 -13 Integrating Intuition & Analysis Intuition is useful for decision making in: Conditions of great uncertainty Conditions with little precedent Ch 1 -13Copyright © 2011 Pearson Education

14. Ch 1 -14 Analytical Thinking Integrating Intuition & Analysis Intuitive Thinking Ch 1 -14Copyright © 2011 Pearson Education

15. In the Arab world, there is a cultural tendency to emphasize on the role of intuition and imagination in decision making. There are many companies which, because of luck and Abundant opportunities, have experienced great growth but only for a short time. Ch 1 -15 Note:_ Ch 1 -15Copyright © 2011 Pearson Education

16. Key Terms in strategic Management  Competitive advantages  Strategists  Vision & mission  External opportunity & threats  Internal strengths & weaknesses  Long – term objectives  Strategies  Annual (short- term)objectives  Polices Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 - 16

17. Competitive Advantage: Anything that a firm does especially well, compared to rival firms Ch 1 -17 SM :key term (1) Ch 1 -17Copyright © 2011 Pearson Education

18. 1.Adapting to change in external trends, internal capabilities, and resources 2.Effectively formulating, implementing, and evaluating strategies Ch 1 -18 Organizations is said to have a SCA when it is:- Ch 1 -18Copyright © 2011 Pearson Education

19. S.M. Key Term (2) Ch 1 -19 The Strategists – Those that affect a firm’s success or failure: Chief Executive Officer (CEO) Chief Strategy Officer (CSO) President Owner Board Chair Executive Director Ch 1 -19Copyright © 2011 Pearson Education

20. Vision Statement: What do we want to become? Mission Statement: What is our business? S.M. Key Term (3) Ch 1 -20Copyright © 2011 Pearson Education

21. S.M. Key Term (4) Opportunities and Threats ( External analysis) Ch 1 -21Copyright © 2011 Pearson Education External opportunities and threats are largely out of the control of a single organization.

22. Oportunities and Threats (External) Cont’d… Analysis of Trends: Economic Social Cultural Demographic/Environmental Political, Legal, Governmental Technological Competitors Ch 1 -22Copyright © 2011 Pearson Education

23. The basic tenet of strategic management: Strategy Formulation Take advantage of External Opportunities Avoid/minimize impact of External Threats Ch 1 -23Copyright © 2011 Pearson Education

24. Strengths & Weaknesses (Internal): Controllable activities performed especially well or poorly S.M. key term (5) Strengths and Weaknesses (Internal analysis) Ch 1 -24Copyright © 2011 Pearson Education

25. Strengths and Weaknesses (Internal) Cont’d… Strengths and weaknesses are typically located in the functional areas of the firm, such as: Management Marketing Finance/Accounting Production/Operations Research & Development Computer Information Systems Ch 1 -25Copyright © 2011 Pearson Education

26. Assessing the Internal Environment Internal Factors Performance Metrics Financial Ratios Industry Averages Survey Data Ch 1 -26Copyright © 2011 Pearson Education

27. Long-term Objectives: Mission-driven pursuit of specified results more than one year out Long Term Objectives Ch 1 -27Copyright © 2011 Pearson Education

28. S.M. key term (6) Long Term Objectives (Cont’d) Long term objectives are essential for ensuring a firm’s success. They: Provide direction Help with evaluation Create synergy Focus coordination Basis for planning, motivating, and controlling Ch 1 -28Copyright © 2011 Pearson Education

29. Strategies : The means by which long-term objectives are achieved S.M. key term (7) Strategies Ch 1 -29Copyright © 2011 Pearson Education

30. Strategies (Cont’d) Some examples of different strategies are: Geographic expansion Diversification Acquisition Market penetration Retrenchment Liquidation Joint venture

31. S.M. Key Terms (8) Annual Objectives: Short-term achievements that firms must recognize to attain long- term objectives Ch 1 -31Copyright © 2011 Pearson Education

32. Key Terms (9) Policies: Means by which annual objectives will be achieved Ch 1 -32Copyright © 2011 Pearson Education

33. ASSIGNMENT (1) Strategic Management Key Terms (1-9) Research one page / term Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 - 33

34. Ch 1 -34 Copyright © 2011 Pearson Education Source: Adapted from Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22, no 3 (June 1988):40

35. Strategic Management Model (Cont’d) Ch 1 -35Copyright © 2011 Pearson Education 1.Identify Existing: Vision Mission Objectives Strategies 2.Audit external environment 3.Audit internal environment 4.Competing in the global market-place

36. 5.Establish long-term objectives 6.Generate, evaluate, and select strategies 7.Implement selected strategies 8.Leadership and culture 9.Measure & evaluate performance Strategic Management Model (Cont’d) Ch 1 -36Copyright © 2011 Pearson Education

37. Benefits of Strategic Management Strategic benefits : Is proactive in shaping firm’s future Initiates and influences firm’s activities Helps to formulate better strategies that are systematic, logical, and rational Ch 1 -37Copyright © 2011 Pearson Education

38. Ch 1 -38 Benefits of Strategic Management Financial Benefits Improvement in sales Improvement in profitability Productivity improvement Ch 1 -38Copyright © 2011 Pearson Education

39. Ch 1 -39 Benefits of Strategic Management Nonfinancial Benefits Improved understanding of competitors’ strategies Enhanced awareness of threats Increased employee productivity Reduced resistance to change Enhanced problem-prevention capabilities Ch 1 -39Copyright © 2011 Pearson Education

40. According to Gordon Greenley of Aston Business school in the united Kingdom S.M. offers the following benefits :- 1.It allows for identification of opportunities 2.It provides an objective view of management problems 3.It represents a framework for improved coordination & control of activities 4.It minimizes the negative effects of conditions & changes 5.It allows major decisions to better support established objectives 6.It allows more effective allocation of time and resources 7.It reduces resources and time to be spent in correcting erroneous decisions Ch 1 -40Copyright © 2011 Pearson Education

41. Benefits of Strategic Management (Cont’d) 8.It creates a framework for internal communication among personnel 9.it provides a basis for clarifying individual responsibilities 10.It encourages forward thinking 11.It provides a cooperative approach to tackling problems and opportunities 12.It encourages a favorable attitude toward change 13.It gives a discipline to the management of business Ch 1 -41Copyright © 2011 Pearson Education

42. Reasons why some firms are resistant to strategic planning include: Poor reward structures Fire-fighting (it deeply so busy in crisis mag. So it has no time to plan) Chief executives’ orientation Lack of access to needed resources Waste of time Too expensive Laziness Why Some Firms Do No Strategic Planning Ch 1 -42Copyright © 2011 Pearson Education

43. Why Some Firms Do No Strategic Planning (Cont’d) Fear of failure Overconfidence Prior bad experience Self-interest Fear of the unknown Honest difference of opinion Suspicion Ch 1 -43Copyright © 2011 Pearson Education

44. Pitfalls in Strategic Planning Being aware of potential pitfalls of strategic planning and being prepared to address them is essential to success. Ch 1 -44Copyright © 2011 Pearson Education

45. Pitfalls in Strategic Planning Some pitfalls to watch out for and avoid in strategic planning (Cont’d) Using it to gain control over decisions and resources Doing it only to satisfy accreditation and regulatory requirements Viewing planning as unnecessary or unimportant Failing to communicate the plan to employees Top managers making many intuitive decisions that conflict with the formal plan Ch 1 -45Copyright © 2011 Pearson Education

46. Pitfalls in Strategic Planning Some pitfalls to watch out for and avoid in strategic planning (Cont’d) 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 Being so formal in planning that flexibility and creativity are stifled Failing to create a collaborative climate supportive of change Ch 1 -46Copyright © 2011 Pearson Education

47. Guidelines for Effective Strategic Management  keep the SM process as simple and non-routine as possible  SM. must not become rigid  A key role of strategists is to facilitate continuous organizational learning and change  SM require trade –offs between long- range short –range orientation Ch 1 -47Copyright © 2011 Pearson Education

48. Business Ethics & Strategic Management Business Ethics: Principles of conduct within organizations that guide decision making and behavior Code of Business Ethics: Provides basis on which policies can be devised to guide daily behavior and decisions in the workplace Ch 1 -48Copyright © 2011 Pearson Education

49. Business Ethics & Strategic Management (Cont’d) Good business ethics are prerequisite for good strategic management Ch 1 -49Copyright © 2011 Pearson Education

50. Business Ethics of Savola Group in Saudi Arabia Always tell the truth Always fulfill our promises and obligations Always honor our pledges to others Always commit to resolving conflicts with respect and objectivity Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 - 50

51. Misleading advertising Misleading labeling Harm to the environment Insider trading Dumping flawed products on foreign markets Ch 1 -51 Business Ethics & Strategic Management Unethical Business Practices Business practices that are always considered unethical include: Copyright © 2011 Pearson Education

52. Poor product or service safety Lack of equal opportunities for foreign workers Overpricing Hiring child labor Ch 1 -52 Business Ethics & Strategic Management Unethical Business Practices (Cont’d) Copyright © 2011 Pearson Education

53. Natural Environment Perspective Using ISO 14000 Certification to Gain Strategic Advantage What are ISO 14000 & 14001? Requirements for ISO 14001 Environmental Management Systems (EMS) Ch 1 -53

54. ISO 14000 Family is a series of guidance documents and standards to help organizations address environmental issues on air,water, soil quality …….etc. 14001: Environmental Management Systems 14004: EMS general guidelines 14010: Guidelines for Environmental Auditing 14011: Guidelines for Auditing of an EMS 14012: Auditing - Qualification criteria 14020: Environmental Labeling 14030: Env. Performance Evaluation (EPE) 14040: Life-Cycle Assessment (LCA) Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 - 54

55. Environmental Management System (EMS) ISO 14001 is the specification standard that is a model for an environmental management system (EMS) EMS is a systematic way of managing an organization’s environmental affairs It is focused on Continual Improvement of System It addresses immediate and long-term impact of an organization’s products, services and processes on the environment. It is a tool to improve environmental performance Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 - 55

56. Requirements for ISO 14001; To achieve certification in terms of ISO 14001, a company needs to undertake a series practices by which organization can perform the EMS :- Assess the environmental impacts of its activities Develop an environmental policy that includes commitments to prevention of pollution – continuous improvement – compliance with all applicable requirements Set environment objectives and targets Establish and maintain an environmental management programme Implement procedures for training employees, establishing work instructions, and practices Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 - 56

57. Monitor, measure and communicate its performance Undertake environmental audits and management reviews Take correction actions to overcome the occurrence of any deviations. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 - 57

58. By implementing ISO 14000, any company can become truly competitive through the following :- Decreasing costs through increased efficiencies. Creating and maintaining new market opportunities in areas such as Europe, which may make registration to the standards a necessary condition of doing business within their specification. Demonstrating environmental leadership. Improving both its own corporate image and community goodwill. Streamlining/simplifying its EMS. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 - 58

59. to succeed in business today it means to succeed in the international competition Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 - 59

60. Parent company ….refers to a firm investing in international operations Host country…….refers to the country where that business is conducted The Nature of Global Competition International/multinational organizations ------ refers to organizations that conduct business operations across national borders Ch 1 -60Copyright © 2011 Pearson Education

61. Global completion and strategic management The strategic management process is conceptually the same for international/multinational as for domestic firms however practically it is more complex for the following reasons :-  The presence of more variables and relationships  More social, cultural, demographics,political, governmental, legal, technological and competitive opportunities and threats are addressed  More time and efforts are required to identify and evaluate external trends and events  The communication between domestic headquarter and overseas operation is more difficult. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 - 61

62. Ch 1 -62 Advantages of International Operations 1.Absorb excess capacity/reduce unit costs 2.Extend the product life cycle 3.Low-cost production facilities 4.Less intense competition 5.Spread risk over wider markets Ch 1 -62Copyright © 2011 Pearson Education

63. Ch 1 -63 Advantages of International Operations (cont’d) 6.Potential lower taxes 7.Joint ventures to build networks and knowledge 8.Foreign government incentives 9.Economies of scale Ch 1 -63Copyright © 2011 Pearson Education

64. Ch 1 -64 Disadvantages of International Operations 1.Difficult communications 2.Underestimate foreign competition 3.Cultural barriers to effective management 4.Require understanding of regional trade organizations 5.Complications arising from currency differences 6.lack of market information Ch 1 -64

65. The End Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 - 65