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Ch 1 -1
Chapter 1
The Nature of Strategic Management

Strategic Management:
Concepts & Cases
12
th
Edition
Fred David



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Ch 1 -2
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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Ch 1 -3

Art & science of formulating,
implementing, and evaluating,
cross-functional decisions that
enable an organization to achieve its
objectives

Strategic Management
Defined
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Ch 1 -4
Strategic Management

In essence, the strategic plan is a
companys game plan.
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Ch 1 -5
Strategic management
achieves a firms success
through integration


Management
MIS
Production/Operations Finance/Accounting
Marketing
Research & Development
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Ch 1 -6


Vision & Mission
Strategy Formulation
External Opportunities & Threats
Internal Strengths & Weaknesses
Long-Term Objectives
Alternative Strategies
Strategy Selection
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Ch 1 -7


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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Ch 1 -8


Strategy Implementation
Annual Objectives
Policies
Employee Motivation
Resource Allocation
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Ch 1 -9


Strategy
Implementation
Action Stage of Strategic
Management

Most difficult stage
Mobilization of
employees & managers
Interpersonal skills
critical
Consensus on goal
pursuit
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Ch 1 -10


Strategy Evaluation
Internal Review
External Review
Performance Metrics
Corrective Actions
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Ch 1 -11


Strategy
Evaluation
Final Stage of Strategic
Management

Subject to future
modification
Todays success no
guarantee of future success
New & different problems
Complacency leads to
demise
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Ch 1 -12

Peter Drucker: Think through the
overall mission of a business. Ask
the key question: What is our
Business?

Prime Task of
Strategic Management
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Ch 1 -13

The strategic management process
attempts to organize quantitative and
qualitative information under conditions of
uncertainty.


Integrating Intuition &
Analysis
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Ch 1 -14

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
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Ch 1 -15


Involve management at all levels
Intuition & Judgment
Influence all analyses
Integrating Intuition &
Analysis
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Ch 1 -16


Analytical Thinking
Integrating Intuition &
Analysis
Intuitive Thinking
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Ch 1 -17

Organizations must monitor
events
Ongoing process
Internal and external events
Timely changes
Adapting to Change
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Ch 1 -18

Anything that a firm does especially
well compared to rival firms
Strategic Management is
Gaining and Maintaining
Competitive Advantage
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Ch 1 -19

1. Adapting to change in external trends,
internal capabilities, and resources
Achieving Sustained
Competitive Advantage

2. Effectively formulating, implementing, and
evaluating strategies
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Ch 1 -20

Rate & magnitude of change
increasing dramatically
Adapting to Change
E-commerce
Demographics
Technology
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Ch 1 -21

Effective Adaptation

Adapting to Change

Requires long-term focus

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Ch 1 -22
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
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Ch 1 -23
Key Terms
Various Job Titles:

Chief Executive Officer (CEO)
Chief Strategy Officer (CSO)
President
Owner
Board Chair
Executive Director

Strategists Firms success/failure

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Ch 1 -24
Vision Statement
What do we want to become?


Mission Statement
What is our business?
Key Terms
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Ch 1 -25
Largely beyond the control of a single
organization
Key Terms


Opportunities & Threats (External)

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Ch 1 -26
Opportunities & Threats (External)
Key Terms
Analysis of Trends:
Economic
Social
Cultural
Demographic/Environmental
Political, Legal, Governmental
Technological
Competitors
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Ch 1 -27

Process of conducting research and
gathering and assimilating external
information
Key Terms
Opportunities & Threats

Environmental Scanning (Industry Analysis)

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Ch 1 -28
Basic Tenet of Strategic Management
Key Terms
Opportunities & Threats
Strategy Formulation

Take advantage of
External Opportunities

Avoid/minimize impact of
External Threats

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Ch 1 -29
Controllable activities performed especially
well or poorly
Key Terms


Strengths & Weaknesses (Internal)

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Ch 1 -30
Strengths & Weaknesses (Internal)
Key Terms
Typically located in functional areas of the firm
Management
Marketing
Finance/Accounting
Production/Operations
Research & Development
Computer Information Systems
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Ch 1 -31
Assessing the Internal Environment
Key Terms
Strengths & Weaknesses
Internal Factors
Performance Metrics
Financial Ratios
Industry Averages
Survey Data
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Ch 1 -32
Mission-driven pursuit of specified results
more than one year out
Key Terms


Long-term Objectives

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Ch 1 -33
Long-term Objectives
Key Terms
Essential for ensuring the firms success
Provide direction
Aid in evaluation
Create synergy
Focus coordination
Basis for planning, motivating, and
controlling
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Ch 1 -34
Means by which long-term objectives are
achieved
Key Terms


Strategies

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Ch 1 -35
Strategies
Key Terms
Some Examples
Geographic expansion
Diversification
Acquisition
Market penetration
Retrenchment
Liquidation
Joint venture
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Ch 1 -36
Short-term milestones that firms must
achieve to attain long-term objectives
Key Terms


Annual Objectives

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Ch 1 -37
Means by which annual objectives will be
achieved
Key Terms


Policies

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Ch 1 -38
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.
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Ch 1 -39
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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Ch 1 -40
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
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Ch 1 -41
Dynamic & continuous
More formal in larger organizations
Strategic Management Model

Strategic Management Process

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Ch 1 -42
1. Identify Existing
Strategic Management Model
Vision
Mission
Objectives
Strategies

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Ch 1 -43
2. Audit external environment
3. Audit internal environment
4. Establish long-term objectives
5. Generate, evaluate, and select strategies
6. Implement selected strategies
7. Measure & evaluate performance
Strategic Management Model
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Ch 1 -44
Benefits of Strategic
Management
Proactive in shaping firms future
Initiate and influence firms activities
Formulate better strategies
Systematic, logical, rational
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Ch 1 -45
Benefits of Strategic
Management
Financial Benefits
Improvement in sales
Improvement in profitability
Productivity improvement
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Ch 1 -46
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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Ch 1 -47
Benefits of Strategic
Management (Greenley)
1. Identification of opportunities
2. Objective view of management problems
3. Improved coordination & control
4. Minimizes adverse conditions & changes
5. Decisions that better support objectives
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Ch 1 -48
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
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Ch 1 -49
Benefits of Strategic
Management (Greenley contd)
11. Encourages favorable attitude toward
change
12. Provides discipline and formality to the
management of the business
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Ch 1 -50
Why Some Firms Do No
Strategic Planning
Poor reward structures
Fire-fighting
Waste of time
Too expensive
Laziness
Content with success
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Ch 1 -51
Why Some Firms Do No
Strategic Planning
Fear of failure
Overconfidence
Prior bad experience
Self-interest
Fear of the unknown
Suspicion
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Ch 1 -52
Principles of conduct within organizations
that guide decision making and behavior
Business Ethics & Strategic
Management

Business ethics defined

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Ch 1 -53
Prerequisite for good strategic management
Business Ethics & Strategic
Management

Good business ethics

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Ch 1 -54
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

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Ch 1 -55
Misleading advertising
Misleading labeling
Harm to the environment
Insider trading
Dumping flawed products on foreign markets
Poor product or service safety
Padding expense accounts

Business Ethics & Strategic
Management

Business practices always considered unethical

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Ch 1 -56
Natural Environment Perspective
Using ISO 14000 Certification to Gain Strategic Advantage
What are ISO 14000 & 14001?

Requirements for ISO 14001

Environmental Management
Systems (EMS)

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Ch 1 -57
Parent company
Host country
The Nature of Global
Competition

International/multinational corporations
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Ch 1 -58
Cultural differences
Norms
Values
Work ethic
The Nature of Global
Competition

Strategy implementation may be difficult
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Ch 1 -59
Advantages of International
Operations
Absorb excess capacity
Reduce unit costs
Spread risk over wider markets
Low-cost production facilities
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Ch 1 -60
Advantages of International
Operations (contd)
Less intense competition
Lower taxes
Economies of scale
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Ch 1 -61
Disadvantages of International
Operations
Difficult communications
Underestimate foreign competition
Cultural barriers to effective management
Complications arising from currency
differences
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Ch 1 -62
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