Chapter 1 - The Nature of Strategic Management

Chapter 1 The Nature of Strategic Management
Strategic Management: Concepts & Cases 12th Edition Fred David
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall
Ch 1 -1
Themes in the Text

Global Considerations impact virtually all strategic decisions E-commerce vital strategic management tool Natural Environment important strategic issue
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -2
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.
Ch 1 -3
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.
Ch 1 -4
Strategic Management Defined
Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives
Ch 1 -5
Strategic Management defined
Strategic management is the process by which managers set an organizations (or several organizations) long-term course, develop plans in the light of internal and external circumstances, and undertake appropriate action to reach those goals.
Ch 1 -6
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.
Ch 1 -7
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 Porters landmark study, Competitive Strategy, appeared in 1980. The Academy of Management, the professional association of business school teachers, organized its Business Policy and Strategy division at around the same time.
Ch 1 -8
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.
Ch 1 -9
Strategic Management
In essence, the strategic plan is a companys game plan.
Ch 1 -10
Strategic management achieves a firms success through integration
Management Finance/Accounting Research & Development
Marketing Production/Operations MIS
Ch 1 -11
Stages of strategic planning
Environmental analysis Strategy formulation Strategy implementation Strategy evaluation.
Ch 1 -12
Environmental Scanning defiened
Monitoring, evaluation, and disseminating information from external and internal environments to key people in the firm
Ch 1 -13
SWOT Analysis
SWOT is an acronym used to describe the particular strengths, weaknesses, opportunities, and threats, that are strategic factors for a specific company. The external environment consists of variables (OT)that are outside the organization and not typically within the short run control of top management. These variables from the context within which the corporation exists
Ch 1 -14
SWOT Analysis
The internal environment of a corporation consists of variable(SW) that are within the organization itself and are not usually within the short run control of top management. These variables from the context in which work is done. They include the corporations structure, culture, and resources, key strengths from a set of core competencies that the corporation can use to gain competitive advantage
Ch 1 -15
Strategy formulation
Strategy Formulation is the development of long-range plans for the effective management of environmental opportunities and threats, in light of corporate strengths and weaknesses (SWOT). It includes defining the corporate mission, specifying achievable objectives, developing strategies, and setting policy guidelines.
Ch 1 -16
Mission Statement
An organizations mission statement is the purpose or reason for the organizations existence. It tells what the company is providing to society.
Ch 1 -17
Mission Statement
Purpose/reason for organization Promotes shared expectations Communicates public image Who we are; what we do; what we aspire to
Ch 1 -18
Objectives
Objectives are the end results of planned activity. They should be stated as action verbs and tell what is to be accomplished by when and quantified if possible. The achievement of corporate objectives should result in the fulfillment of corporations mission. The term goal is often used interchangeably with the term objective. In this book we prefer to differentiate the two terms. In contrast to an objective, we consider a goal as an open ended statement of what we want to accomplish, with no quantification of what is to be achieved and no time criteria for completion
Ch 1 -19
Corporate Goals/Objectives

Profitability (net profit) Efficiency (low costs.etc) Growth (increase in total assets, sales, etc) Resource utilization (ROE, ROI) Reputation(being considered a top firm Contributions to employees(employment security, wages, diversity) Contributions to society(tax paid, participation in charities) Market leadership (market share) Technological leadership(innovation, creativity). Survival (avoiding bankruptcy). Personal need of top management (using the firm for personal purposes, such as providing jobs for relatives)
Ch 1 -20
Strategy
A strategy of a corporation forms a comprehensive master plan that states how the corporation will achieve its mission and objectives. It maximizes competitive advantage and minimizes competitive disadvantage
Ch 1 -21
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
Ch 1 -22
Strategy Formulation
Vision & Mission External Opportunities & Threats Internal Strengths & Weaknesses Long-Term Objectives Alternative Strategies
Strategy Selection
Ch 1 -23
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
Ch 1 -24
Strategy implementation
Strategy implementation is a process by which strategies and policies are put into action through the development of programs, budgets, and procedures. the implementation of strategy directly or indirectly connects to all facts of management. Thus it is fundamental to follow a holistic approach when analyzing and assessing complex issues of strategy implementation.
Ch 1 -25
Strategy Implementation
Annual Objectives Policies Employee Motivation Resource Allocation
Ch 1 -26
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.
Ch 1 -27
Strategy Evaluation
Ensure that a company is achieving what it set out to accomplish. It compares performance with desired result and provides the feed back necessary for management to evaluate results and take corrective action, as needed.
Ch 1 -28
Strategy Evaluation
Internal Review External Review Performance Metrics Corrective Actions
Ch 1 -29
Strategy Evaluation
Final Stage of Strategic Management
Subject to future modification Todays success no guarantee of future success New & different problems Complacency\satisfaction leads to demise\death
Ch 1 -30
Prime Task of Strategic Management
Peter Drucker: Think through the overall mission of a business. Ask the key question: What is our Business?
Ch 1 -31
Integrating Intuition & Analysis
The strategic management process attempts to organize quantitative and qualitative information under conditions of uncertainty.
Ch 1 -32
The strategic-management process can be described as an objective, logical, systematic approach for making major decisions in an organization.
Ch 1 -33

Intuition is based on: Past experiences Judgment Feelings
Intuition is useful for decision making in: Conditions of great uncertainty Conditions with little precedent
Ch 1 -34

Intuition & Judgment
Involve management at all levels
Influence all analyses
Ch 1 -35

Analytical Thinking
Intuitive Thinking
Ch 1 -36
Adapting to Change
Organizations must monitor events

Ongoing process Internal and external events Timely changes
Ch 1 -37
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?
Ch 1 -38
Strategic Management is Gaining and Maintaining Competitive Advantage
Anything that a firm does especially well compared to rival firms
Ch 1 -39
Achieving Sustained Competitive Advantage

1. Adapting to change in external trends, internal capabilities, and resources
2. Effectively formulating, implementing, and evaluating strategies
Ch 1 -40
Adapting to Change Rate & magnitude of change increasing dramatically

E-commerce Demographics Technology
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.
Ch 1 -42
Adapting to Change
Effective Adaptation
Requires long-term focus
Ch 1 -43
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?
Ch 1 -44
Strategists
1.
2.
3.
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.
Ch 1 -45
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.
Ch 1 -46
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.
Ch 1 -47
Figure 1.1 Comprehensive Strategic-Management Model

External Audit
Chapter 3
Vision & Mission
Long-Term Objectives
Generate, Evaluate, Select Strategies
Implement Strategies: Mgmt Issues
Implement Strategies: Marketing, Fin/Acct, R&D, CIS
Measure & Evaluate Performance
Chapter 2
Chapter 5
Chapter 6
Chapter 7
Chapter 8
Chapter 9
Internal Audit
Chapter 4
Ch 1 -48
Strategic Management Model
Strategic Management Process

Dynamic & continuous More formal in larger organizations
Ch 1 -49
Benefits of Strategic Management
Research has revealed that organizations that engage in strategic management generally outperform those that do not. The attainment of an appropriate match, or fit, between an organizations environment and strategy, structure, and processes has positive effects on the organization's performance. For example, studies of the impact of deregulation on The U.S. railroad and trucking industries found that companies that changed their structures as their environment changed outperformed companies that did not.
Ch 1 -50

Proactive in shaping firms future Initiate and influence firms activities
Formulate better strategies

Systematic, logical, rational
Ch 1 -51

Financial Benefits
Improvement in sales Improvement in profitability Productivity improvement
Ch 1 -52

Nonfinancial Benefits
Improved understanding of competitors strategies
Enhanced awareness of threats

Reduced resistance to change Enhanced problem-prevention capabilities
Ch 1 -53
Benefits of Strategic Management (Greenley)

1. Identification of opportunities 2. Objective view of management problems 3. Improved coordination & control 4. Minimizes unfavorable conditions & changes
5. Decisions that better support objectives

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
Ch 1 -55
Benefits of Strategic Management (Greenley contd)
11. Encourages favorable attitude toward change
12. Provides discipline and formality to the management of the business
Ch 1 -56
Why Some Firms Do No Strategic Planning

Poor reward structures
Fire-fighting Waste of time Too expensive Laziness
Content\happy with success

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.
Ch 1 -58
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 Copyright 2009 Pearson Education, Inc. Ch 1 -59 Being as formal in planning that flexibility and creativity are stifled Publishingso Prentice Hall
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.
Ch 1 -60
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.
Ch 1 -61
Business Ethics & Strategic Management
Business ethics defined
Principles of conduct within organizations that guide decision making and behavior
Ch 1 -62
Good business ethics
Prerequisite for good strategic management
Ch 1 -63
Code of business ethics
Provides basis on which policies can be devised to guide daily behavior and decisions in the workplace
Ch 1 -64

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
Ch 1 -65
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.
Ch 1 -66
The Nature of Global Competition

Strategy implementation may be difficult
Cultural differences

Norms Values Work ethic
Ch 1 -67
Advantages of International Operations

Absorb excess capacity Reduce unit costs
Spread risk over wider markets

Low-cost production facilities
Ch 1 -68
Advantages of International Operations (contd)
Less intense competition Lower taxes Economies of scale
Ch 1 -69
Disadvantages of International Operations
Difficult communications Underestimate foreign competition Cultural barriers to effective management Complications arising from currency differences

Chapter 1 - The Nature of Strategic Management

Caricato da

Informazioni sul documento

Descrizione originale:

Titolo originale

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

Chapter 1 - The Nature of Strategic Management

Caricato da

Copyright:

Formati disponibili

Chapter 1 The Nature of Strategic Management

Strategic Management: Concepts & Cases 12th Edition Fred David

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Themes in the Text

Themes in the Text

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Themes in the Text

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Strategic Management Defined

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Strategic Management defined

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Strategic Management and Research

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Strategic Management and planning

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

In essence, the strategic plan is a companys game plan.

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Strategic management achieves a firms success through integration

Management Finance/Accounting Research & Development

Marketing Production/Operations MIS

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Stages of strategic planning

Environmental analysis Strategy formulation Strategy implementation Strategy evaluation.

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Environmental Scanning defiened

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Issues in Strategy Formulation

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Annual Objectives Policies Employee Motivation Resource Allocation

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Internal Review External Review Performance Metrics Corrective Actions

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Prime Task of Strategic Management

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Integrating Intuition & Analysis

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Integrating Intuition & Analysis

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Integrating Intuition & Analysis

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Integrating Intuition & Analysis

Involve management at all levels

Influence all analyses

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Integrating Intuition & Analysis

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall