1. Chapter 1 The Nature of Strategic Management
Strategic Management: Concepts & Cases
12th Edition
Fred David
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

2. Themes in the Text Global Considerations –
impact virtually all strategic decisions
E-commerce – vital strategic management tool
Natural Environment –
important strategic issue
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

3. Strategic Management – Defined
Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

4. Strategic Management
In essence, the strategic plan is a company’s game plan.
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

5. Production/Operations Research & Development
Strategic management achieves a firm’s success through integration ––
Management
Marketing
Finance/Accounting
Production/Operations
Research & Development
MIS
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

6. Strategy Formulation Vision & Mission External Opportunities & Threats
Internal Strengths & Weaknesses
Long-Term Objectives
Alternative Strategies
Strategy Selection
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

7. 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
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

8. Strategy Implementation
Annual Objectives
Policies
Employee Motivation
Resource Allocation
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

9. Strategy Implementation
Action Stage of Strategic Management
Most difficult stage
Mobilization of employees & managers
Interpersonal skills critical
Consensus on goal pursuit
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

10. Strategy Evaluation Internal Review External Review
Performance Metrics
Corrective Actions
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

11. Strategy Evaluation Final Stage of Strategic Management
Subject to future modification
Today’s success no guarantee of future success
New & different problems
Complacency leads to demise
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

12. Prime Task of Strategic Management
Peter Drucker: Think through the overall mission of a business. Ask the key question: “What is our Business?”
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

13. Integrating Intuition & Analysis
The strategic management process attempts to organize quantitative and qualitative information under conditions of uncertainty.
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

14. Integrating Intuition & Analysis
Intuition is based on:
Past experiences
Judgment
Feelings
Intuition is useful for decision making in:
Conditions of great uncertainty
Conditions with little precedent
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

15. Involve management at all levels Influence all analyses
Integrating Intuition & Analysis
Intuition & Judgment
Involve management at all levels
Influence all analyses
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

16. Integrating Intuition & Analysis
Analytical Thinking
Intuitive Thinking
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

17. Organizations must monitor events
Adapting to Change
Organizations must monitor events
Ongoing process
Internal and external events
Timely changes
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

18. “Anything that a firm does especially well compared to rival firms”
Strategic Management is Gaining and Maintaining Competitive Advantage
“Anything that a firm does especially well compared to rival firms”
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

19. Achieving Sustained Competitive Advantage
1. Adapting to change in external trends, internal capabilities, and resources
2. Effectively formulating, implementing, and evaluating strategies
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

20. Adapting to Change Rate & magnitude of change increasing dramatically
E-commerce
Demographics
Technology
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

21. Requires long-term focus
Adapting to Change
Effective Adaptation
Requires long-term focus
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

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?
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

23. Key Terms Strategists – Firm’s success/failure Various Job Titles:
Chief Executive Officer (CEO)
Chief Strategy Officer (CSO)
President
Owner
Board Chair
Executive Director
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

24. What do we want to become?
Key Terms
Vision Statement –
What do we want to become?
Mission Statement –
What is our business?
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

25. Key Terms Opportunities & Threats (External)
Largely beyond the control of a single organization
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

26. Opportunities & Threats (External)
Key Terms
Opportunities & Threats (External)
Analysis of Trends:
Economic
Social
Cultural
Demographic/Environmental
Political, Legal, Governmental
Technological
Competitors
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

27. Key Terms Opportunities & Threats
Environmental Scanning (Industry Analysis)
Process of conducting research and gathering and assimilating external information
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

28. External Opportunities
Key Terms Opportunities & Threats
Basic Tenet of Strategic Management
Take advantage of
External Opportunities
Strategy Formulation
Avoid/minimize impact of
External Threats
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

29. Strengths & Weaknesses (Internal)
Key Terms
Strengths & Weaknesses (Internal)
Controllable activities performed especially well or poorly
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

30. Strengths & Weaknesses (Internal)
Key Terms
Strengths & Weaknesses (Internal)
Typically located in functional areas of the firm
Management
Marketing
Finance/Accounting
Production/Operations
Research & Development
Computer Information Systems
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

31. Key Terms Strengths & Weaknesses
Assessing the Internal Environment
Financial Ratios
Internal Factors
Performance Metrics
Industry Averages
Survey Data
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

32. Key Terms Long-term Objectives
Mission-driven pursuit of specified results more than one year out
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

33. 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
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

34. Key Terms Strategies Means by which long-term objectives are achieved
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

35. Key Terms Strategies Some Examples Geographic expansion
Diversification
Acquisition
Market penetration
Retrenchment
Liquidation
Joint venture
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

36. Key Terms Annual Objectives
Short-term milestones that firms must achieve to attain long-term objectives
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

37. Key Terms Policies Means by which annual objectives will be achieved
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

38. Example Strategies in Action in 2007
McDonald’s Corp
The world’s largest restaurant chain by number of outlets, Big Mac is
doing fantastic both in the United States and abroad. In past months, McDonald’s began opening drive-through restaurants in China, closed 25 sites in the United Kingdom, and disposed of a supply-chain operation in Russia. Big Mac in 2007 opened 800 new restaurants in China, Japan, and Russia. Shares of McDonald’s stock increased 42 percent in 2006 as sales for the year eclipsed $41 billion. Big Mac is working to eliminate trans fats from their food (New York City is requiring this of all restaurants in 2007). McDonald’s plans in 2008 to turn ownership of about 2,300 restaurants in Canada and the United Kingdom over to licensees.
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

39. Example Strategies in Action in 2007
American General
A Fortune 500 company based in Piscataway, New Jersey, American
General split into three businesses in 2007: Air-conditioning systems,
Bath-and-kitchen business, and vehicle-control systems. The firm also
is renaming itself Trane, after its flagship air-conditioning brand name.
The company plans to divest the bath-and-kitchen division and to spin
off its vehicle control division into a publicly traded company named Wabco. Led by CEO Fred Poses, American General employs about
62,000 persons and has manufacturing operations in 28 countries.
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

40. Figure 1.1 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
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

41. Strategic Management Model
Strategic Management Process
Dynamic & continuous
More formal in larger organizations
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

42. Strategic Management Model
1. Identify Existing
Vision
Mission
Objectives
Strategies
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

43. Strategic Management Model
Audit external environment
Audit internal environment
Establish long-term objectives
Generate, evaluate, and select strategies
Implement selected strategies
Measure & evaluate performance
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

44. Benefits of Strategic Management
Proactive in shaping firm’s future
Initiate and influence firm’s activities
Formulate better strategies
Systematic, logical, rational
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

45. Benefits of Strategic Management
Financial Benefits
Improvement in sales
Improvement in profitability
Productivity improvement
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

46. Benefits of Strategic Management
Nonfinancial Benefits
Improved understanding of competitors’ strategies
Enhanced awareness of threats
Reduced resistance to change
Enhanced problem-prevention capabilities
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

47. Benefits of Strategic Management (Greenley)
Identification of opportunities
Objective view of management problems
Improved coordination & control
Minimizes adverse conditions & changes
Decisions that better support objectives
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

48. Benefits of Strategic Management (Greenley – cont’d)
Effective allocation of time & resources
Internal communication among personnel
Integration of individual behaviors
Clarify individual responsibilities
Encourage forward thinking
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

49. Benefits of Strategic Management (Greenley – cont’d)
11. Encourages favorable attitude toward change
12. Provides discipline and formality to the management of the business
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

50. Why Some Firms Do No Strategic Planning
Poor reward structures
Fire-fighting
Waste of time
Too expensive
Laziness
Content with success
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

51. Why Some Firms Do No Strategic Planning
Fear of failure
Overconfidence
Prior bad experience
Self-interest
Fear of the unknown
Suspicion
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

52. Business Ethics & Strategic Management
Business ethics defined –
Principles of conduct within organizations that guide decision making and behavior
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

53. Business Ethics & Strategic Management
Good business ethics –
Prerequisite for good strategic management
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

54. 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
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

55. 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
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

56. Natural Environment Perspective Using ISO 14000 Certification to Gain Strategic Advantage
What are ISO & 14001?
Requirements for ISO 14001
Environmental Management Systems (EMS)
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

57. The Nature of Global Competition
International/multinational corporations
Parent company
Host country
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

58. The Nature of Global Competition
Strategy implementation may be difficult
Cultural differences
Norms
Values
Work ethic
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

59. Advantages of International Operations
Absorb excess capacity
Reduce unit costs
Spread risk over wider markets
Low-cost production facilities
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

60. Advantages of International Operations (cont’d)
Less intense competition
Lower taxes
Economies of scale
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

61. Disadvantages of International Operations
Difficult communications
Underestimate foreign competition
Cultural barriers to effective management
Complications arising from currency differences
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall

62. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall