Chapter 1

The Nature of Strategic Management

Strategic Management: Concepts & Cases 13th Edition Global Edition Fred David

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Ch 1 -1

Strategic Thinking!!!
When NASA first started sending up astronauts, they quickly discovered that ballpoint pens would not work in zero gravity. To combat this problem, NASA scientists spent a decade and $12 million developing a pen that writes in zero gravity, upside down, on almost any surface, and at a temperature ranging from below freezing to over 300 C

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Ch 1 -2

Strategic Thinking
Strategic thinking should take into consideration:
1. 2.

3.
4. 5. 6.

Competencies and Skills Products and Offerings Environment and Industry Markets and Customers Competitors and Substitutes Suppliers and Buyers

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Ch 1 -3

Strategic Thinking States how the functions of the whole organization relate to each other within their internal and external environments, both Now and in the Future

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Ch 1 -4

Strategic Management Model

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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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Ch 1 -6

Purpose of Strategic Management

To exploit and create new and different opportunities for tomorrow

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Ch 1 -7

Strategic Management

In essence, the strategic plan is a companys game plan

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Ch 1 -8

3 Stages of the Strategic Management Process

Strategy formulation Strategy implementation Strategy evaluation

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Ch 1 -9

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

Strategy Selection

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Ch 1 -10

Issues in Strategy Formulation

Businesses to enter 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 -11

Strategy Implementation

Annual Objectives Policies Employee Motivation Resource Allocation

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Ch 1 -12

Strategy Implementation Steps

Developing a strategy-supportive culture Creating an effective organizational structure Redirecting marketing efforts Preparing budgets Developing and utilizing information systems Linking employee compensation to organizational performance

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Ch 1 -13

Issues in Strategy Implementation

Action Stage of Strategic Management
Mobilization of employees & managers Most difficult stage Interpersonal skills critical

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Ch 1 -14

Strategy Evaluation

Internal Review External Review Performance Measurement Corrective Action

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Ch 1 -15

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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Ch 1 -16

Integrating Intuition & Analysis

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

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Ch 1 -17

Integrating Intuition & Analysis

Intuition is based on: Past experiences Judgment Feelings Intuition is useful for decision making in conditions of: Great uncertainty Little precedent Highly interrelated variables Several plausible alternatives
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Ch 1 -18

Integrating Intuition & Analysis

Intuition & Judgment

Involve management at all levels

Influence all analyses

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Ch 1 -19

Adapting to Change

Organizations should continually monitor internal and external events and trends so that timely changes can be made as needed

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Ch 1 -20

Key Terms in Strategic Management

Competitive advantage Strategists Vision and mission statements External opportunities and threats Internal strengths and weaknesses Long-term objectives Strategies Annual objectives Policies
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Ch 1 -21

Strategic Management is Gaining and Maintaining Competitive Advantage

Anything that a firm does especially well compared to rival firms

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Ch 1 -22

Achieving Sustained Competitive Advantage

1. Continually adapting to changes in external trends and events and internal capabilities, competencies, and resources

2. Effectively formulating, implementing, and evaluating strategies that capitalize on those factors

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Ch 1 -23

Strategists

Gather Information Analyze Information Organize Information

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Ch 1 -24

Vision and Mission Statements

Vision Statement What do we want to become? Mission Statement What is our business?

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Ch 1 -25

External Opportunities and Threats

Analysis of Trends

Economic Social Cultural Demographic/Environmental Political, Legal, Governmental Technological Competitors

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Ch 1 -26

External Opportunities and Threats

Basic Tenet of Strategic Management

Take advantage of External Opportunities
Strategy Formulation

Avoid/minimize impact of External Threats

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Ch 1 -27

Internal Strengths and Weaknesses

Controllable

activities performed especially well or poorly

relative to competitors

Determined

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Ch 1 -28

Internal Strengths and Weaknesses

Typically located in functional areas of the firm

Management Marketing Finance/Accounting Production/Operations Research & Development Management Information Systems

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Ch 1 -29

Internal Strengths and Weaknesses

Assessing the Internal Environment

Ratios

Performance Measures

Internal Factors
Industry Averages

Survey Data

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Ch 1 -30

Long-Term Objectives

Specific results that an organization seeks to achieve in pursuing its basic mission

Long-term means more than one year

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Ch 1 -31

Long-Term Objectives

Essential for ensuring the firms success Provide direction Aid in evaluation Create synergy Reveal priorities Focus coordination Provide basis for planning, organizing, motivating, and controlling
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Ch 1 -32

Strategies

Means by which long-term objectives are achieved

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Ch 1 -33

Strategies

Examples Geographic expansion Diversification Acquisition Product development Market penetration Retrenchment Divestiture Liquidation Joint venture
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Ch 1 -34

Sample Strategies

Table 1-1

Best Buy Levi Strauss

New York Times Company

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Ch 1 -35

Annual Objectives

Short-term milestones that firms must achieve to reach long-term objectives

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Ch 1 -36

Policies

Means by which annual objectives will be achieved

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Ch 1 -37

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Ch 1 -38

Strategic Management Model

Strategic

Management Process Dynamic & continuous More formal in larger organizations

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Ch 1 -39

Strategic Management

Communication is a key to successful strategic management

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Ch 1 -40

Benefits of Strategic Management

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Ch 1 -41

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

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Ch 1 -42

Why Some Firms Do No Strategic Planning

Lack of knowledge of strategic planning Poor reward structures Fire fighting Waste of time Too expensive Laziness Content with success
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Ch 1 -43

Why Some Firms Do No Strategic Planning (continued)

Fear of failure Overconfidence Prior bad experience Self-interest Fear of the unknown Honest difference of opinion Suspicion
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Ch 1 -44

Pitfalls in Strategic Planning

Strategic planning is an involved, intricate, and complex process that takes an organization into uncharted territory

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Ch 1 -45

Effective Strategic Planning is:

A people process more than a paper process A learning process Words supported by numbers Simple and nonroutine Varying assignments, team membership, meeting formats, and planning calendars Challenging assumptions underlying corporate strategy
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Ch 1 -46

Effective Strategic Planning continued

Welcomes bad news Requires open-mindedness and a spirit of inquiry Is not a bureaucratic mechanism Is not ritualistic or stilted Is not too formal, predictable, or rigid Does not contain jargon or arcane language

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Ch 1 -47

Effective Strategic Planning continued

Is not a formal system for control Does not disregard qualitative information Is not controlled by technicians Does not pursue too many strategies at once Continually strengthens the good ethics is good business policy

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Ch 1 -48

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

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Ch 1 -49

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

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Ch 1 -50