Nature of ST - Mgt.

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
What is Strategy?
Characteristics of a Strategy and Strategic Decisions:
1. 2. 3. 4. 5. 6.
Long-term direction of the organization Scope of the organization Gaining advantage over competitors Addressing changes in the business environment Building on resources and competencies Affected by values and expectations
Ch 1 -2
What is Strategy?
Strategy could be defined as: It is the direction and scope of an organization over the long-term which achieves advantage in a changing environment through its resources and competencies, with the aim of fulfilling stakeholders expectations.
Ch 1 -3
What is Strategy?
The vocabulary of strategy
Vision, Mission, Objective, Strategies, Models and Tools, Control, etc.
Ch 1 -4
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
Ch 1 -5
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
Ch 1 -6
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
Ch 1 -7
Strategic Management Defined
Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives
Ch 1 -9
Strategic Management
In essence, the strategic plan is a companys game plan.

If you do not know where you are going, then any road will take you there
Ch 1 -10
Strategic management achieves a firms success through integration
Management Finance/Accounting Research & Development
Marketing Production/Operations MIS
Ch 1 -11
Strategy Formulation
Vision & Mission External Opportunities & Threats Internal Strengths & Weaknesses Long-Term Objectives Alternative Strategies
Strategy Selection
Ch 1 -12
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 -13
Strategy Implementation
Annual Objectives Policies Employee Motivation Resource Allocation
Ch 1 -14
Strategy Implementation
Action Stage of Strategic Management Most difficult stage Mobilization of employees & managers Interpersonal skills critical Consensus on goal pursuit
Ch 1 -15
Strategy Evaluation
Internal Review External Review Performance Metrics Corrective Actions
Ch 1 -16
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
Ch 1 -17
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 -18
Integrating Intuition & Analysis
The strategic management process attempts to organize quantitative and qualitative information under conditions of uncertainty.
Ch 1 -19

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 -20

Intuition & Judgment
Involve management at all levels
Influence all analyses
Ch 1 -21

Analytical Thinking
Intuitive Thinking
Ch 1 -22
Adapting to Change
Organizations must monitor events

Ongoing process Internal and external events Timely changes
Ch 1 -23
Strategic Management is Gaining and Maintaining Competitive Advantage
Anything that a firm does especially well compared to rival firms
Ch 1 -24
Achieving Sustained Competitive Advantage

1. Adapting to change in external trends, internal capabilities, and resources
2. Effectively formulating, implementing, and evaluating strategies
Ch 1 -25
Adapting to Change Rate & magnitude of change increasing dramatically

E-commerce Demographics Technology
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -26
Adapting to Change
Effective Adaptation
Requires long-term focus
Ch 1 -27
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 -28
Key Terms
Strategists Firms success/failure
Various Job Titles:
Chief Executive Officer (CEO) Chief Strategy Officer (CSO) President Owner Board Chair Executive Director
Key Terms Vision Statement What do we want to become?

Mission Statement What is our business?
Ch 1 -30
Key Terms
Opportunities & Threats (External)
Largely beyond the control of a single organization
Ch 1 -31
Key Terms
Opportunities & Threats (External)
Analysis of Trends:
Economic Social Cultural Demographic/Environmental Political, Legal, Governmental Technological Competitors
Ch 1 -32
Key Terms Opportunities & Threats

Environmental Scanning (Industry Analysis)
Process of conducting research and gathering and assimilating external information
Ch 1 -33
Key Terms Opportunities & Threats Basic Tenet of Strategic Management

Take advantage of External Opportunities Strategy Formulation
Avoid/minimize impact of External Threats
Ch 1 -34
Key Terms
Strengths & Weaknesses (Internal)
Controllable activities performed especially well or poorly
Ch 1 -35
Key Terms
Strengths & Weaknesses (Internal)
Typically located in functional areas of the firm Management Marketing Finance/Accounting Production/Operations Research & Development
Computer Information Systems
Ch 1 -36
Key Terms Strengths & Weaknesses Assessing the Internal Environment

Financial Ratios
Performance Metrics
Internal Factors
Industry Averages
Survey Data
Ch 1 -37
Key Terms
Long-term Objectives
Mission-driven pursuit of specified results more than one year out
Ch 1 -38
Key Terms
Long-term Objectives
Essential for ensuring the firms success Provide direction Aid in evaluation Create synergy Focus coordination Basis for planning, motivating, and controlling
Ch 1 -39
Key Terms
Strategies
Means by which long-term objectives are achieved
Ch 1 -40
Key Terms
Strategies
Some Examples Geographic expansion Diversification
Acquisition
Market penetration Retrenchment Liquidation Joint venture
Ch 1 -41
Key Terms
Annual Objectives
Short-term milestones that firms must achieve to attain long-term objectives
Ch 1 -42
Key Terms
Policies
Means by which annual objectives will be achieved
Ch 1 -43
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.
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 -45
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 -46
Strategic Management Model
Strategic Management Process

Dynamic & continuous More formal in larger organizations
Ch 1 -47

1.
Identify Existing
Vision Mission
Objectives
Strategies
Ch 1 -48

2. 3. 4. 5. 6. 7.
Audit external environment Audit internal environment Establish long-term objectives Generate, evaluate, and select strategies Implement selected strategies Measure & evaluate performance
Ch 1 -49
Benefits of Strategic Management

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

Systematic, logical, rational
Ch 1 -50

Financial Benefits
Improvement in sales Improvement in profitability Productivity improvement
Ch 1 -51

Nonfinancial Benefits
Improved understanding of competitors strategies
Enhanced awareness of threats

Reduced resistance to change Enhanced problem-prevention capabilities
Ch 1 -52
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
Ch 1 -53
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 -54
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 -55
Why Some Firms Do No Strategic Planning

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

Why Some Firms Do No Strategic Planning

Fear of failure
Overconfidence Prior bad experience Self-interest Fear of the unknown
Suspicion
Business Ethics & Strategic Management
Business ethics defined
Principles of conduct within organizations that guide decision making and behavior
Ch 1 -58
Good business ethics
Prerequisite for good strategic management
Ch 1 -59
Code of business ethics
Provides basis on which policies can be devised to guide daily behavior and decisions in the workplace
Ch 1 -60

Business practices always considered unethical

Misleading advertising Misleading labeling Harm to the environment Insider trading Dumping flawed products on foreign markets Poor product or service safety Padding expense accounts
Ch 1 -61
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 -62
The Nature of Global Competition

International/multinational corporations

Parent company Host country
Ch 1 -63
The Nature of Global Competition

Strategy implementation may be difficult
Cultural differences

Norms Values Work ethic
Ch 1 -64
Advantages of International Operations

Absorb excess capacity Reduce unit costs
Spread risk over wider markets

Low-cost production facilities
Ch 1 -65
Advantages of International Operations (contd)
Less intense competition Lower taxes Economies of scale
Ch 1 -66
Disadvantages of International Operations
Difficult communications Underestimate foreign competition Cultural barriers to effective management Complications arising from currency differences
How Business is Done?

Jack, a smart successful businessman, talking to his son;
Jack: I want you to marry a girl of my choice

Son: I will choose my own bride Jack: But the girl is Bill Gates daughter
Son: Well, in that case Next day Jack approaches Bill Gates
Jack: I have a husband for your daughter
Bill Gates: But my daughter is too young to marry

Jack: But this young man is the Vice-President of the World Bank Bill Gates: Ahin that case
How Business is Done?

Finally Jack goes to see the president of the World Bank Jack: I have a young man to be recommended as a vicepresident President: But I already have more vice-presidents than I need Jack: But this young man is Bill Gates son-in-law
President: Ahin that case
Finally Jacks son married Bill Gates daughter, and became the vice-president of the World Bank .. This is how business is done!!!
Ch 1 -69

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Chapter 1 The Nature of Strategic Management

Strategic Management: Concepts & Cases 12th Edition Fred David

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

Strategic Management Defined

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

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Issues in Strategy Formulation

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

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

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

Organizations must monitor events

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Strategic Management is Gaining and Maintaining Competitive Advantage

Anything that a firm does especially well compared to rival firms

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Achieving Sustained Competitive Advantage

2. Effectively formulating, implementing, and evaluating strategies

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Adapting to Change Rate & magnitude of change increasing dramatically

Requires long-term focus

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Adapting to Change Key Strategic Management Questions

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Key Terms Vision Statement What do we want to become?

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Opportunities & Threats (External)

Largely beyond the control of a single organization

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Key Terms Opportunities & Threats

Process of conducting research and gathering and assimilating external information

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Key Terms Opportunities & Threats Basic Tenet of Strategic Management

Avoid/minimize impact of External Threats

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall