Chapter 1

The Nature of Strategic Management

Strategic Management:
Concepts & Cases
11th Edition
Fred David

Ch 1 -1
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 Themes in the Text
•Global Considerations –
impact virtually all strategic decisions

•E-commerce –
vital strategic management tool

•Natural environment –
important strategic issue

Ch 1 -2
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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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 Strategic Management

In essence, the strategic plan is a

company’s game plan

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 Strategic Management
achieves a firm’s success
through integration ––

Management Marketing

Finance/Accounting Production/Operations

Research & Development MIS

Ch 1 -5
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 Strategy Formulation

Vision & Mission

External Opportunities & Threats

Internal Strengths & Weaknesses

Long-Term Objectives

Alternative Strategies

Strategy Selection

Ch 1 -6
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Issues in Strategy
Formulation

New
Newbusiness
business
opportunities
opportunities
Businesses
Businessesto toabandon
abandon
Allocation
Allocationofofresources
resources
Expansion
Expansionor or
diversification
diversification
International
Internationalmarkets
markets
Mergers
Mergersororjoint
jointventures
ventures
Avoidance
Avoidanceof ofhostile
hostile
takeover
takeover

Ch 1 -7
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 Strategy Implementation

Annual Objectives

Policies

Employee Motivation

Resource Allocation

Ch 1 -8
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Strategy
Implementation

Action
ActionStage
Stageof
ofStrategic
Strategic
Management
Management––

Most
Mostdifficult
difficultstage
stage
Mobilization
Mobilizationof of
employees
employees&&managers
managers
Interpersonal
Interpersonalskills
skills
critical
critical
Consensus
Consensuson ongoal
goal
pursuit
pursuit

Ch 1 -9
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 Strategy Evaluation

Internal Review

External Review

Performance Metrics

Corrective Actions

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Strategy
Evaluation
Final
FinalStage
Stageof
ofStrategic
Strategic
Management
Management

Subject
Subjecttotofuture
future
modification
modification
Today’s
Today’ssuccess
successnono
guarantee
guaranteeofoffuture
futuresuccess
success
New
New&&different
differentproblems
problems
Complacency
Complacencyleadsleadsto
to
demise
demise

Ch 1 -11
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 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
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 Integrating Intuition and
Analysis

The strategic management process

attempts to organize quantitative and
qualitative information under conditions of
uncertainty

Ch 1 -13
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 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
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 Integrating Intuition &
Analysis

Intuition & Judgment

Involve Management at all levels

Influence all Analyses

Ch 1 -15
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 Integrating Intuition &
Analysis

Analytical Thinking

Intuitive Thinking

Ch 1 -16
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 Adapting to Change

Organizations must monitor events

 On-going process
 Internal and external events

 Timely changes

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

“Anything that a firm does especially

well compared to rival firms”

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 Achieving Sustained
Competitive Advantage

1. Adapting to change in external trends,

internal capabilities and resources

2. Effectively formulating, implementing &

evaluating strategies

Ch 1 -19
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 Ch 1 -20
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 Adapting to Change

Rate & magnitude of change

increasing dramatically

E-commerce

Demographics

Technology

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 Adapting to Change

Effective Adaptation

Requires long-term focus

Ch 1 -22
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 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
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 Key Terms

Strategists – Firm’s success/failure

Various Job Titles:

•Chief Executive Officer (CEO)

•Chief Strategy Officer (CSO)
•President
•Owner
•Board Chair
•Executive Director

Ch 1 -24
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 Key Terms

Vision Statement –
What do we want to become?

Mission Statement –
What is our business?

Ch 1 -25
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 Key Terms

Opportunities and Threats (External)

 Largely beyond the control of a single

organization

Ch 1 -26
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 Key Terms

Opportunities & Threats (External)

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

Ch 1 -27
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 Key Terms
Opportunities & Threats

Environmental Scanning (Industry Analysis)

 Process of conducting research and

gathering and assimilating external
information

Ch 1 -28
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 Key Terms
Opportunities & Threats

Basic Tenet of Strategic Management

Take
Takeadvantage
advantageof
of
External
ExternalOpportunities
Opportunities
Strategy Formulation

Avoid/minimize
Avoid/minimizeimpact
impactof
of
External
ExternalThreats
Threats

Ch 1 -29
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 Key Terms

Strengths & Weaknesses (Internal)

 Controllable activities performed especially

well or poorly

Ch 1 -30
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 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 -31
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 Key Terms
Strengths & Weaknesses
Assessing the Internal Environment

Financial Ratios

Performance Metrics
Internal Factors
Industry Averages

Survey Data

Ch 1 -32
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 Key Terms

Long-term Objectives

 Mission-driven pursuit of specified results

more than one year out

Ch 1 -33
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 Key Terms

Long-term Objectives

Essential for ensuring the firm’s success

• Provide direction
• Aid in evaluation
• Create synergy
• Focus coordination
• Basis for planning, motivating, and
controlling

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 Key Terms

Strategies

 Means by which long-term objectives are

achieved

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 Key Terms

Strategies
Some Examples
• Geographic expansion
• Diversification
• Acquisition
• Market penetration
• Retrenchment
• Liquidation
• Joint venture

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 Key Terms

Annual Objectives

 Short-term milestones that firms must

achieve to attain long-term objectives

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 Key Terms

Policies

 Means by which annual objectives will be

achieved

Ch 1 -38
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Example Strategies in Action in 2005

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Example Strategies in Action in 2005

Ch 1 -40
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 Comprehensive strategic management model
External
Audit

Chapter 3

Long-Term Generate, Implement Implement Measure &

Vision
Objectives Evaluate, Strategies: Strategies: Evaluate
&
Select Mgmt Issues Marketing, Performance
Mission
Strategies Fin/Acct,
R&D, CIS
Chapter 2 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9

Internal
Audit

Chapter 4

Ch 1 -41
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 Strategic Management Model

Strategic Management Process

 Dynamic & Continuous

 More formal in larger organizations

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 Strategic Management Model

1. Identify Existing --

• Vision
• Mission
• Objectives
• Strategies

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 Strategic Management Model

2. Audit external environment

3. Audit internal environment
4. Establish long-term objectives
5. Generate, evaluate & select
strategies
6. Implement selected strategies
7. Measure & evaluate performance

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 Benefits of Strategic
Management

• Proactive in shaping firm’s future

• Initiate and influence firm’s activities

• Formulate better strategies
•Systematic, logical, rational

Ch 1 -45
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 Benefits of Strategic
Management

Financial Benefits

• Improvement in sales
• Improvement in profitability
• Productivity improvement

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 Benefits of Strategic
Management

Non-Financial Benefits

• Improved understanding of competitors strategies

• Enhanced awareness of threats
• Reduced resistance to change
• Enhanced problem-prevention capabilities

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 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

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 Benefits of Strategic
Management (Greenley – cont’d)

6. Effective allocation of time & resources

7. Internal communication among personnel
8. Integration of individual behaviors
9. Clarify individual responsibilities
10. Encourage forward thinking

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 Benefits of Strategic
Management (Greenley – cont’d)

11. Encourages favorable attitude toward

change
12. Provides
discipline and formality to the
management of the business

Ch 1 -50
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 Why Some Firms Do No
Strategic Planning

Poor reward structures

Fire-fighting
Waste of time
Too expensive
Laziness
Content with success

Ch 1 -51
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 Why Some Firms Do No
Strategic Planning

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

Ch 1 -52
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