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

2. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -2 Themes in the Text Global Considerations – impact virtually all strategic decisions E-commerce – vital strategic management tool Natural Environment – important strategic issue

3. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -3 Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives Strategic Management – Defined

4. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -4 Strategic Management In essence, the strategic plan is a company’s game plan.

5. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -5 Strategic management achieves a firm’s success through integration –– Management MIS Production/OperationsFinance/Accounting Marketing Research & Development

6. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -6 Vision & Mission Strategy Formulation External Opportunities & Threats Internal Strengths & Weaknesses Long-Term Objectives Alternative Strategies Strategy Selection

7. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -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 New business opportunities Businesses to abandon Allocation of resources Expansion or diversification International markets Mergers or joint ventures Avoidance of hostile takeover

8. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -8 Strategy Implementation Annual Objectives Policies Employee Motivation Resource Allocation

9. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -9 Strategy Implementation Action Stage of Strategic Management Most difficult stage Mobilization of employees & managers Interpersonal skills critical Consensus on goal pursuit Action Stage of Strategic Management Most difficult stage Mobilization of employees & managers Interpersonal skills critical Consensus on goal pursuit

10. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -10 Strategy Evaluation Internal Review External Review Performance Metrics Corrective Actions

11. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -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 Final Stage of Strategic Management Subject to future modification Today’s success no guarantee of future success New & different problems Complacency leads to demise

12. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -12 Peter Drucker: Think through the overall mission of a business. Ask the key question: “What is our Business?” Prime Task of Strategic Management

13. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -13 The strategic management process attempts to organize quantitative and qualitative information under conditions of uncertainty. Integrating Intuition & Analysis

14. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -14 Intuition is based on:  Past experiences  Judgment  Feelings Integrating Intuition & Analysis Intuition is useful for decision making in:  Conditions of great uncertainty  Conditions with little precedent

15. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -15 Involve management at all levels Intuition & Judgment Influence all analyses Integrating Intuition & Analysis

16. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -16 Analytical Thinking Integrating Intuition & Analysis Intuitive Thinking

17. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -17 Organizations must monitor events Ongoing process Internal and external events Timely changes Adapting to Change

18. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -18 “Anything that a firm does especially well compared to rival firms” Strategic Management is Gaining and Maintaining Competitive Advantage

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

20. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -20 Rate & magnitude of change increasing dramatically Adapting to Change E-commerce Demographics Technology

21. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -21 Effective Adaptation Adapting to Change Requires long-term focus

22. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -22 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

23. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -23 Key Terms Various Job Titles: Chief Executive Officer (CEO) Chief Strategy Officer (CSO) President Owner Board Chair Executive Director Strategists – Firm’s success/failure

24. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -24 Vision Statement – What do we want to become? Mission Statement – What is our business? Key Terms

25. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -25  Largely beyond the control of a single organization Key Terms Opportunities & Threats (External)

26. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -26 Opportunities & Threats (External) Key Terms Analysis of Trends: Economic Social Cultural Demographic/Environmental Political, Legal, Governmental Technological Competitors

27. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -27  Process of conducting research and gathering and assimilating external information Key Terms Opportunities & Threats Environmental Scanning (Industry Analysis)

28. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -28 Basic Tenet of Strategic Management Key Terms Opportunities & Threats Strategy Formulation Take advantage of External Opportunities Take advantage of External Opportunities Avoid/minimize impact of External Threats Avoid/minimize impact of External Threats

29. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -29  Controllable activities performed especially well or poorly Key Terms Strengths & Weaknesses (Internal)

30. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -30 Strengths & Weaknesses (Internal) Key Terms Typically located in functional areas of the firm Management Marketing Finance/Accounting Production/Operations Research & Development Computer Information Systems

31. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -31 Assessing the Internal Environment Key Terms Strengths & Weaknesses Internal Factors Performance Metrics Financial Ratios Industry Averages Survey Data

32. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -32  Mission-driven pursuit of specified results more than one year out Key Terms Long-term Objectives

33. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -33 Long-term Objectives Key Terms Essential for ensuring the firm’s success Provide direction Aid in evaluation Create synergy Focus coordination Basis for planning, motivating, and controlling

34. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -34  Means by which long-term objectives are achieved Key Terms Strategies

35. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -35 Strategies Key Terms Some Examples Geographic expansion Diversification Acquisition Market penetration Retrenchment Liquidation Joint venture

36. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -36  Short-term milestones that firms must achieve to attain long-term objectives Key Terms Annual Objectives

37. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -37  Means by which annual objectives will be achieved Key Terms Policies

38. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -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.

39. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -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.

40. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -40 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 Figure 1.1 Comprehensive Strategic-Management Model

41. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -41  Dynamic & continuous  More formal in larger organizations Strategic Management Model Strategic Management Process

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

43. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -43 2. Audit external environment 3. Audit internal environment 4. Establish long-term objectives 5. Generate, evaluate, and select strategies 6. Implement selected strategies 7. Measure & evaluate performance Strategic Management Model

44. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -44 Benefits of Strategic Management Proactive in shaping firm’s future Initiate and influence firm’s activities Formulate better strategies Systematic, logical, rational

45. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -45 Benefits of Strategic Management Financial Benefits Improvement in sales Improvement in profitability Productivity improvement

46. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -46 Benefits of Strategic Management Nonfinancial Benefits Improved understanding of competitors’ strategies Enhanced awareness of threats Reduced resistance to change Enhanced problem-prevention capabilities

47. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -47 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

48. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -48 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

49. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -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

50. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -50 Why Some Firms Do No Strategic Planning  Poor reward structures  Fire-fighting  Waste of time  Too expensive  Laziness  Content with success

51. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -51 Why Some Firms Do No Strategic Planning  Fear of failure  Overconfidence  Prior bad experience  Self-interest  Fear of the unknown  Suspicion

52. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -52  Principles of conduct within organizations that guide decision making and behavior Business Ethics & Strategic Management Business ethics defined –

53. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -53  Prerequisite for good strategic management Business Ethics & Strategic Management Good business ethics –

54. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -54  Provides basis on which policies can be devised to guide daily behavior and decisions in the workplace Business Ethics & Strategic Management Code of business ethics –

55. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -55  Misleading advertising  Misleading labeling  Harm to the environment  Insider trading  Dumping flawed products on foreign markets  Poor product or service safety  Padding expense accounts Business Ethics & Strategic Management Business practices always considered unethical –

56. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -56 Natural Environment Perspective Using ISO 14000 Certification to Gain Strategic Advantage What are ISO 14000 & 14001? Requirements for ISO 14001 Environmental Management Systems (EMS)

57. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -57  Parent company  Host country The Nature of Global Competition International/multinational corporations

58. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -58  Cultural differences  Norms  Values  Work ethic The Nature of Global Competition Strategy implementation may be difficult

59. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -59 Advantages of International Operations  Absorb excess capacity  Reduce unit costs  Spread risk over wider markets  Low-cost production facilities

60. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -60 Advantages of International Operations ( cont’d )  Less intense competition  Lower taxes  Economies of scale

61. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -61 Disadvantages of International Operations  Difficult communications  Underestimate foreign competition  Cultural barriers to effective management  Complications arising from currency differences

62. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -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.