Chapter 1 The Nature of Strategic Management

Ch 1 -1

Without a strategy the organization is like a ship without a rudder, going around in circles.

Ch 1 -2

Strategic Management Defined

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

Ch 1 -3

Strategic Management

In essence, the strategic plan is a companys game plan

Ch 1 -4

Strategic Management achieves a firms success through integration

Management Finance/Accounting Research & Development

Marketing Production/Operations MIS

Ch 1 -5

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

Strategy Selection

Ch 1 -6

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 -7

Strategy Implementation

Annual Objectives Policies Employee Motivation Resource Allocation

Ch 1 -8

Strategy Implementation
Action Stage of Strategic Management Most difficult stage Mobilization of employees & managers Interpersonal skills critical Consensus on goal pursuit

Ch 1 -9

Strategy Evaluation

Internal Review External Review Performance Metrics Corrective Actions

Ch 1 -10

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 -11

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 -12

Integrating Intuition and Analysis

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

Ch 1 -13

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 -14

Integrating Intuition & Analysis

Intuition & Judgment

Involve Management at all levels

Influence all Analyses

Ch 1 -15

Integrating Intuition & Analysis

Analytical Thinking

Intuitive Thinking

Ch 1 -16

Adapting to Change

Organizations must monitor events

On-going process Internal and external events Timely changes

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

Achieving Sustained Competitive Advantage

1. Adapting to change in external trends, internal capabilities and resources

2. Effectively formulating, implementing & evaluating strategies

Ch 1 -19

Ch 1 -20

Adapting to Change Rate & magnitude of change increasing dramatically

E-commerce Demographics Technology
Ch 1 -21

Adapting to Change

Effective Adaptation

Requires long-term focus

Ch 1 -22

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 -23

Key Terms
Strategists Firms success/failure
Various Job Titles:

Chief Executive Officer (CEO) Chief Financial Officer (CFO) Chief Strategy Officer (CSO) President Owner Board Chair Executive Director
Ch 1 -24

Key Terms Vision Statement What do we want to become?

Mission Statement What is our business?

Ch 1 -25

INTEL
Vision: Getting to a billion connected computers worldwide, millions of servers, and trillions of dollars of e-commerce

Mission is being the building block supplier to the Internet economy and making efforts to make the Internet more useful

Ch 1 -26

Key Terms

Opportunities and Threats (External)

Largely beyond the control of a single organization

Ch 1 -27

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

Ch 1 -28

Key Terms Opportunities & Threats

Environmental Scanning (Industry Analysis)

Process of conducting research and gathering and assimilating external information

Ch 1 -29

Key Terms Opportunities & Threats Basic Tenet of Strategic Management

Take advantage of External Opportunities Strategy Formulation

Avoid/minimize impact of External Threats

Ch 1 -30

Key Terms

Strengths & Weaknesses (Internal)

Controllable activities performed especially well or poorly

Ch 1 -31

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 -32

Key Terms Strengths & Weaknesses Assessing the Internal Environment

Financial Ratios

Performance Metrics

Internal Factors
Industry Averages

Survey Data

Ch 1 -33

Key Terms

Long-term Objectives

Mission-driven pursuit of specified results more than one year out

Ch 1 -34

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 -35

Key Terms

Strategies

Means by which long-term objectives are achieved

Ch 1 -36

Key Terms
Strategies
Some Examples Geographic expansion Diversification

Acquisition
Market penetration Retrenchment Liquidation Joint venture
Ch 1 -37

Key Terms

Annual Objectives

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

Ch 1 -38

Key Terms

Policies

Means by which annual objectives will be achieved

Ch 1 -39

Example Strategies in Action in 2005

Ch 1 -40

Example Strategies in Action in 2005

Ch 1 -41

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 -42

Strategic Management Model

Strategic Management Process

Dynamic & Continuous More formal in larger organizations

Ch 1 -43

Strategic Management Model

1. Identify Existing - Vision Mission

Objectives
Strategies

Ch 1 -44

Strategic Management Model

2. 3. 4. 5. 6. 7.

Audit external environment Audit internal environment Establish long-term objectives Generate, evaluate & select strategies Implement selected strategies Measure & evaluate performance

Ch 1 -45

Benefits of Strategic Management

Proactive in shaping firms future

Initiate and influence firms activities

Formulate better strategies

Systematic, logical, rational

Ch 1 -46

Benefits of Strategic Management

Financial Benefits
Improvement in sales Improvement in profitability Productivity improvement

Ch 1 -47

Benefits of Strategic Management

Non-Financial Benefits
Improved understanding of competitors strategies

Enhanced awareness of threats

Reduced resistance to change Enhanced problem-prevention capabilities

Ch 1 -48

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 -49

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 -50

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 -51

Why Some Firms Do No Strategic Planning

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

Content with success

Ch 1 -52

Why Some Firms Do No Strategic Planning

Fear of failure
Overconfidence Prior bad experience Self-interest Fear of the unknown

Suspicion
Ch 1 -53

Business Ethics & Strategic Management

Business Ethics defined

Principles of conduct within organizations that guide decision making and behavior

Ch 1 -54

Business Ethics & Strategic Management

Good business ethics

Prerequisite for good strategic management

Ch 1 -55

Business Ethics & Strategic Management

Code of business ethics

Provides basis on which policies can be devised to guide daily behavior and decisions in the workplace

Ch 1 -56

Business Ethics & Strategic Management

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 -57

The Nature of Global Competition

International/multinational corporations

Parent company Host country

Ch 1 -58

The Nature of Global Competition

Strategy implementation may be difficult

Cultural differences

Norms Values Work ethic

Ch 1 -59

Advantages of International Operations

Absorb excess capacity Reduce unit costs

Spread risk over wider markets

Low-cost production facilities

Ch 1 -60

Advantages of International Operations (contd)

Less intense competition Lower taxes Economies of scale

Ch 1 -61

Disadvantages of International Operations

Difficult communications Underestimate foreign competition Cultural barriers to effective management Complications arising from currency differences
Ch 1 -62