Chapter 1

The Nature of Strategic Management

Ch 1 -1
"If we know where we are and something about how we got there, we might see
where we are trending—and if the outcomes which lie naturally in our course
are unacceptable, to make timely change." —Abraham Lincoln

"Without a strategy, an organization is like a ship without a rudder, going around

in circles. It’s like a tramp; it has no place to go." —Joel Ross and Michael
Kami

"Plans are less important than planning." —Dale McConkey

"The formulation of strategy can develop competitive advantage only to the

extent that the process can give meaning to workers in the trenches." —David
Hurst

"Most of us fear change. Even when our minds say change is normal, our
stomachs quiver at the prospect. But for strategists and managers today, there
is no choice but to change." —Robert Waterman Jr.

"If a man takes no thought about what is distant, he will find sorrow near at
hand. He who will not worry about what is far off will soon find something worse
than worry." —Confucius
Ch 1 -2
Plan vs Strategy
BASIS FOR
PLANNING STRATEGY
COMPARISON

Meaning A plan is an arrangement, a pattern, a A strategy is a blueprint, layout,

program, or a scheme for a definite design, or idea used to
purpose. Planning is thinking in advance, accomplish a specific goal.
for the actions which are going to take
place in the future.

What is it? Planning is a road map for accomplishing Strategy is the path chosen for
any task. achieving the objectives.

Related to Thinking Action

Basis Assumptions Practical considerations

Term Depending upon the circumstances. Long Term

Nature Preventive Competitive

Part of Management Yes Sub-part of Decision Making

Functions Ch 1 -3
Strategic Management –Defined

Art & science of formulating,

implementing, and evaluating,
cross-functional decisions that
enable an organization to achieve its
objectives

Ch 1 -4
Strategic Management
 In essence, the strategic plan is a company’s game plan.
 The purpose of strategic management is to exploit and create
new and different opportunities for tomorrow; long-range
planning, in contrast, tries to optimize for tomorrow the trends
of today.
 The term strategic planning originated in the 1950 and was
very popular between the mid-1960s and the mid-1970s.
 Profit margins among firms in most industries have been so
reduced by the global economic recession that there is little
room for error in the overall strategic plan.

Ch 1 -5
Strategic Management
achieves a firm’s success
through integration ––

Management Marketing

Finance/Accounting Production/Operations

Research & Development MIS

Ch 1 -6
3 Stages of the Strategic
Management Process

 Strategy formulation

 Strategy implementation

 Strategy evaluation

Ch 1 -7
Strategy Formulation

Vision & Mission

External Opportunities & Threats

Internal Strengths & Weaknesses

Long-Term Objectives

Alternative Strategies

Strategy Selection

Ch 1 -8
Strategy Implementation

Annual Objectives

Policies

Employee Motivation

Resource Allocation

Ch 1 -9
Strategy Evaluation

Internal Review

External Review

Performance Measurement

Corrective Action

Ch 1 -10
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 -11
Integrating Intuition and
Analysis

The strategic management process

attempts to organize quantitative and
qualitative information under conditions of
uncertainty

Ch 1 -12
Integrating Intuition and
Analysis

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 -13
Integrating Intuition &
Analysis

Intuition & Judgment

Involve Management at all levels

Influence all Analyses

Ch 1 -14
Integrating Intuition &
Analysis

Analytical Thinking

Intuitive Thinking

Ch 1 -15
Adapting to Change

Organizations must monitor

events
 On-going process
 Internal and external events

 Timely changes

Ch 1 -16
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
Ch 1 -17
Strategic Management is
Gaining and Maintaining
Competitive Advantage

Anything that a firm does especially

well compared to rival firms

Ch 1 -18
Strategists

Gather Information

Analyze Information

Organize Information

Ch 1 -19
Vision and Mission Statements

Vision Statement –
What do we want to become?

Mission Statement –
What is our business?

Ch 1 -20
Ch 1 -21
External Opportunities and Threats

Analysis of Trends
 Economic
 Social
 Cultural
 Demographic/Environmental
 Political, Legal, Governmental
 Technological
 Competitors

Ch 1 -22
External Opportunities and Threats

Basic Tenet of Strategic Management

Take advantage of
External Opportunities

Strategy Formulation

Avoid/minimize impact of
External Threats

Ch 1 -23
Internal Strengths and Weaknesses

 Controllable
activities performed
especially well or poorly

 Determined relative to competitors

Ch 1 -24
Internal Strengths and Weaknesses

 Typically located in functional areas of the firm

 Management
 Marketing

 Finance/Accounting

 Production/Operations

 Research & Development

 Management Information Systems

Ch 1 -25
Internal Strengths and Weaknesses

Assessing the Internal Environment

Financial Ratios

Performance Measures
Internal Factors
Industry Averages

Survey Data

Ch 1 -26
Long-Term Objectives

 Specific results that an organization

seeks to achieve in pursuing its basic
mission

 Long-term means more than one year

Ch 1 -27
Long-Term Objectives

 Essential for ensuring the firm’s success

 Provide direction

 Aid in evaluation

 Create synergy

 Reveal priorities

 Focus coordination

 Provide basis for planning, organizing,

motivating, and controlling

Ch 1 -28
Strategies

Means by which long-term objectives

are achieved

Ch 1 -29
Strategies
 Examples
 Geographic expansion

 Diversification

 Acquisition

 Product development

 Market penetration

 Retrenchment (reduction of expenditure)

 Divestiture (disposal of business unit through sale)

 Liquidation

 Joint venture

Ch 1 -30
Annual Objectives

Short-term milestones that firms must

achieve to reach long-term objectives

Ch 1 -31
Policies

Means by which annual objectives will

be achieved

Ch 1 -32
Ch 1 -33
Strategic Management Model

 StrategicManagement Process
 Dynamic & continuous
 More formal in larger
organizations

Ch 1 -34
Strategic Management

 Communication is a key to
successful strategic management

Ch 1 -35
Benefits of Strategic Management

Ch 1 -36
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

Ch 1 -37
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

Ch 1 -38
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

Ch 1 -39