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Chapter 1 The Nature of Strategic Management

Strategic Management: Concepts & Cases12th EditionFred David

Copyright 2005 Prentice Hall

Themes in the Text

Global Considerations

impact virtually all strategic decisions

E-commerce vital strategic management tool

Natural Environment

important strategic issue


Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives

Strategic Management Defined


In essence, the strategic plan is a companys game plan.Strategic Management


Strategic management achieves a firms success through integration ManagementMISProduction/OperationsFinance/AccountingMarketingResearch & Development


Vision & MissionStrategy FormulationExternal Opportunities & ThreatsInternal Strengths & WeaknessesLong-Term ObjectivesAlternative StrategiesStrategy Selection


Issues in Strategy FormulationNew business opportunitiesBusinesses to abandonAllocation of resourcesExpansion or diversificationInternational marketsMergers or joint venturesAvoidance of hostile takeover


Strategy ImplementationAnnual ObjectivesPoliciesEmployee MotivationResource Allocation


Strategy ImplementationAction Stage of Strategic Management

Most difficult stageMobilization of employees & managersInterpersonal skills criticalConsensus on goal pursuit


Strategy EvaluationInternal ReviewExternal ReviewPerformance MetricsCorrective Actions


Strategy EvaluationFinal Stage of Strategic Management

Subject to future modificationTodays success no guarantee of future successNew & different problemsComplacency leads to demise


Peter Drucker: Think through the overall mission of a business. Ask the key question: What is our Business?Prime Task of Strategic Management


The strategic management process attempts to organize quantitative and qualitative information under conditions of uncertainty.

Integrating Intuition & Analysis


Intuition is based on:Past experiencesJudgmentFeelings

Integrating Intuition & Analysis

Intuition is useful for decision making in:Conditions of great uncertaintyConditions with little precedent


Involve management at all levelsIntuition & JudgmentInfluence all analysesIntegrating Intuition & Analysis


Analytical ThinkingIntegrating Intuition & AnalysisIntuitive Thinking


Organizations must monitor eventsOngoing processInternal and external eventsTimely changes

Adapting to Change


Anything that a firm does especially well compared to rival firmsStrategic Management is Gaining and Maintaining Competitive Advantage


1. Adapting to change in external trends, internal capabilities, and resourcesAchieving Sustained Competitive Advantage

2. Effectively formulating, implementing, and evaluating strategies


Rate & magnitude of change increasing dramaticallyAdapting to ChangeE-commerceDemographicsTechnology


Effective Adaptation

Adapting to Change

Requires long-term focus


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


Key Terms

Various Job Titles:

Chief Executive Officer (CEO)Chief Strategy Officer (CSO)PresidentOwnerBoard ChairExecutive Director

Strategists Firms success/failure


Vision Statement What do we want to become?

Mission Statement What is our business?Key Terms


Largely beyond the control of a single organizationKey Terms

Opportunities & Threats (External)


Opportunities & Threats (External)Key TermsAnalysis of Trends:EconomicSocialCulturalDemographic/EnvironmentalPolitical, Legal, GovernmentalTechnologicalCompetitors


Process of conducting research and gathering and assimilating external information

Key Terms Opportunities & Threats

Environmental Scanning (Industry Analysis)


Basic Tenet of Strategic ManagementKey Terms Opportunities & ThreatsStrategy Formulation

Take advantage of External Opportunities

Avoid/minimize impact ofExternal Threats


Controllable activities performed especially well or poorlyKey Terms

Strengths & Weaknesses (Internal)


Strengths & Weaknesses (Internal)Key TermsTypically located in functional areas of the firmManagementMarketingFinance/AccountingProduction/OperationsResearch & DevelopmentComputer Information Systems


Assessing the Internal EnvironmentKey Terms Strengths & WeaknessesInternal FactorsPerformance MetricsFinancial RatiosIndustry AveragesSurvey Data


Mission-driven pursuit of specified results more than one year outKey Terms

Long-term Objectives


Long-term ObjectivesKey TermsEssential for ensuring the firms successProvide directionAid in evaluationCreate synergyFocus coordinationBasis for planning, motivating, and controlling


Means by which long-term objectives are achievedKey Terms

Strategies


StrategiesKey TermsSome ExamplesGeographic expansionDiversificationAcquisitionMarket penetrationRetrenchmentLiquidationJoint venture


Short-term milestones that firms must achieve to attain long-term objectivesKey Terms

Annual Objectives


Means by which annual objectives will be achievedKey Terms

Policies


Example Strategies in Action in 2007McDonalds CorpThe worlds largest restaurant chain by number of outlets, Big Mac is doing fantastic both in the United States and abroad. In past months, McDonalds 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 McDonalds 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). McDonalds plans in 2008 to turn ownership of about 2,300 restaurants in Canada and the United Kingdom over to licensees.


Example Strategies in Action in 2007American GeneralA 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 alsois renaming itself Trane, after its flagship air-conditioning brand name.The company plans to divest the bath-and-kitchen division and to spinoff its vehicle control division into a publicly traded company namedWabco. Led by CEO Fred Poses, American General employs about 62,000 persons and has manufacturing operations in 28 countries.


Figure 1.1 Comprehensive Strategic-Management ModelExternalAudit

Chapter 3InternalAudit

Chapter 4Long-TermObjectives

Chapter 5Generate,Evaluate,SelectStrategies

Chapter 6ImplementStrategies:Mgmt Issues

Chapter 7ImplementStrategies:Marketing,Fin/Acct,R&D, CISChapter 8Measure &EvaluatePerformance

Chapter 9Vision & Mission

Chapter 2


Dynamic & continuousMore formal in larger organizationsStrategic Management Model

Strategic Management Process


1. Identify ExistingStrategic Management ModelVisionMissionObjectivesStrategies


Audit external environmentAudit internal environmentEstablish long-term objectivesGenerate, evaluate, and select strategiesImplement selected strategiesMeasure & evaluate performanceStrategic Management Model


Benefits of Strategic Management Proactive in shaping firms future Initiate and influence firms activities Formulate better strategiesSystematic, logical, rational


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


Benefits of Strategic Management Nonfinancial Benefits Improved understanding of competitors strategies Enhanced awareness of threats Reduced resistance to change Enhanced problem-prevention capabilities


Benefits of Strategic Management (Greenley)Identification of opportunitiesObjective view of management problemsImproved coordination & controlMinimizes adverse conditions & changesDecisions that better support objectives


Benefits of Strategic Management (Greenley contd)Effective allocation of time & resourcesInternal communication among personnelIntegration of individual behaviorsClarify individual responsibilities Encourage forward thinking


Benefits of Strategic Management (Greenley contd)11. Encourages favorable attitude toward change12. Provides discipline and formality to the management of the business


Why Some Firms Do No Strategic PlanningPoor reward structuresFire-fightingWaste of timeToo expensiveLazinessContent with success


Why Some Firms Do No Strategic PlanningFear of failureOverconfidencePrior bad experienceSelf-interestFear of the unknownSuspicion


Principles of conduct within organizations that guide decision making and behaviorBusiness Ethics & Strategic Management

Business ethics defined


Prerequisite for good strategic managementBusiness Ethics & Strategic Management

Good business ethics


Provides basis on which policies can be devised to guide daily behavior and decisions in the workplaceBusiness Ethics & Strategic Management

Code of business ethics


Misleading advertisingMisleading labelingHarm to the environmentInsider tradingDumping flawed products on foreign marketsPoor product or service safetyPadding expense accountsBusiness Ethics & Strategic Management

Business practices always considered unethical


Natural Environment PerspectiveUsing ISO 14000 Certification to Gain Strategic Advantage

What are ISO 14000 & 14001?

Requirements for ISO 14001

Environmental Management Systems (EMS)


Parent companyHost countryThe Nature of Global Competition

International/multinational corporations


Cultural differencesNormsValuesWork ethic

The Nature of Global Competition

Strategy implementation may be difficult


Advantages of International OperationsAbsorb excess capacityReduce unit costsSpread risk over wider marketsLow-cost production facilities


Advantages of International Operations (contd)Less intense competitionLower taxesEconomies of scale


Disadvantages of International OperationsDifficult communicationsUnderestimate foreign competitionCultural barriers to effective managementComplications arising from currency differences


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.


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