Chapter 1 The Nature of Strategic Management

1. Chapter 1 The Nature of Strategic Management Strategic Management: Concepts & Cases 13th Edition Fred David

2. Chapter Outline • What Is Strategy & Strategic Management? • Key Terms in Strategic Management • The Strategic-Management Model • Benefits of Strategic Management • Why Some Firms Do No Strategic Planning? • Business Ethics and Strategic Management • Comparing Business and Military Strategies • The Nature of Global Competition

3. What is Strategy? • Consists of competitive moves & business approaches to produce successful performance. • Management’s “game plan” for • Running the business • Strengthening firm’s competitive position • Satisfying customers • Achieving performance targets

4. A corporation’s strategy forms a comprehensive master plan stating how the corporation will achieve its mission & objectives.

5. Strategic Management – Defined Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives.-It focuses on integrating management, marketing, finance/accounting, production, R&D and computer information systems to achieve organizational success.

6. Strategic-Management Process Three Stages Strategy Formulation Strategy Implementation Strategy Evaluation

7. Strategy Formulation Issues include: • What new businesses to enter • What businesses to abandon • How to allocate resources • Expand operations or diversify • Enter international markets • Merge or form joint venture • Avoidance of hostile takeover Prentice Hall, 2001

8. Strategy Implementation Is the action stage of strategic management: • Most difficult stage • Need to mobilize employees and managers to put formulated strategies into action • Interpersonal skills are critical • Consensus on pursuing goals Prentice Hall, 2001

9. Strategy Evaluation Final stage of strategic management: • It is the stage where managers find out how well their strategies are working. • All strategies subject to future modification because of changes in the firm’s internal and external environment • Success today is no guarantee of success tomorrow Prentice Hall, 2001

10. Integrating Intuition and Analysis • The strategic management process is a logical, systematic and objective approach to decision-making in organizations. • The strategic managementprocess attempts to organize quantitative and qualitative information under conditions of uncertainty. • But intuition is still important to making good strategic decisions. Prentice Hall, 2001

11. Integrating Intuition and Analysis Intuition based on: • Past experiences • Judgment • Feelings Useful for decision making • Conditions of great uncertainty • Conditions with little precedent Prentice Hall, 2001

12. Adaptation to Change • Organizations must continually monitor internal and external events and trends so that timely changes can be made when needed. Prentice Hall, 2001

13. Adaptation to Change • Rate and magnitude of changes • Increasing dramatically • E-commerce • Demographics • Technology • Strategic alliances • The strategic management process allows organizations to adapt effectively to change over the long run. Prentice Hall, 2001

14. 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?

15. Key Terms Competitive Advantage • Is defined as “anything the firm does especially well compared to its competitors.” • It exists when a firm can do something that rival firms cannot do, or owns a resource that rival firms desire. • Exists when a firm is able to deliver the same benefits as a competitor but at a lower cost (cost advantage) or deliver benefits that exceed those of competing products (differentiation advantage).

16. Key Terms Competitive Advantage • The goal of a business strategy is to achieve sustainable competitive advantage. • Can be achieved through continually adapting to internal and external changes. • Effectively formulating, implementing and evaluating strategies that capitalize upon the competitive advantage.

17. Key Terms Vision Statement – What do we want to become? Mission Statement – What is our business? - Identifies the scope of the business

18. Key Terms Opportunities & Threats (External) • Include the following factors: • Economic • Social • Cultural • Demographic/Environmental • Political, Legal, Governmental • Technological • Competitors • These factors can significantly harm or benefit the organization in the future

19. Opportunities & Threats (External) • These factors are beyond the control of a a single organization. • Basic tenet of strategic management: • Take advantage of external opportunities • Avoid or reduce impact of external threats Prentice Hall, 2001

20. Key Terms - Environmental Scanning/Industry Analysis is the process of conducting research and gathering and assimilating external information. Prentice Hall, 2001

21. Key Terms Strengths & Weaknesses (Internal) • Refers to an organization’s controllable activities that are performed especially well or poorly. • Typically located in functional areas of the firm: • Management • Marketing • Finance/Accounting • Production/Operations • Research & Development • Computer Information Systems • Strengths and weaknesses are typically determined relative to competitors.

22. Key Terms Long-term objectives • Objectives refer to results that an organization seeks to achieve in its mission statement. • Long term means more than one year. • Objectives are essential for organizational success because they: • State direction • Aid in evaluation • Create synergy • Focus coordination • Provide the basis for planning, motivating and controlling Prentice Hall, 2001

23. Key Terms Strategies - The means by which long-term objectives are achieved. • May include: • Geographic expansion, diversification • Acquisition • Product development, market penetration • Retrenchment, divestiture • Liquidation, joint venture

24. Key Terms Annual Objectives - Short-term milestones that organizations must take to achieve long-term objectives. • Represent the basis for allocating resources • Established at corporate, divisional, and functional levels

25. Key Terms Policies • Important in strategy implementation as the means by which annual objectives will be achieved • Guide to decision making and address repetitive situations • Established at corporate, divisional, or functional levels • Allow consistency & coordination within and between organizational departments

26. Comprehensive strategic management model External Audit Chapter 3 Vision & Mission Chapter 2 Long-Term Objectives Chapter 5 Generate, Evaluate, Select Strategies Chapter 6 Implement Strategies: Mgmt Issues Chapter 7 Implement Strategies: Marketing, Fin/Acct, R&D, CIS Chapter 8 Measure & Evaluate Performance Chapter 9 Internal Audit Chapter 4

27. Benefits of Strategic Management Financial Benefits • Improvement in sales • Improvement in profitability • Productivity improvement

28. Why Some Firms Don’t Do Strategic Planning • Poor reward structures • Fire-fighting • Waste of time • Too expensive • Laziness • Content with success

29. Why Some Firms Don’t Do Strategic Planning (Cont’d) • Fear of failure • Overconfidence • Prior bad experience • Self-interest • Fear of the unknown • Suspicion