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

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

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

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

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. Strategic Management – Defined

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

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

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

Prentice Hall, 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.

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? Adapting to Change – Key Strategic Management Questions

15 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). Key Terms

16 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. Key Terms

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

Prentice Hall, 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 Opportunities & Threats (External)

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

Strengths & Weaknesses (Internal) Key Terms 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.

Prentice Hall, 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

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

24 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 Key Terms

25 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 Key Terms

External Audit Chapter 3 Internal Audit Chapter 4 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 Vision & Mission Chapter 2 Comprehensive strategic management model

Benefits of Strategic Management Financial Benefits Improvement in sales Improvement in profitability Productivity improvement

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

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