copyright © 2009 pearson education, inc. publishing as prentice hall ch 1 -1 chapter 1 the nature...

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

Ch 1 -1

Chapter 1 The Nature of Strategic Management

Strategic Management: Concepts & Cases

12th Edition

Fred David

Chapter Objectives

Describe the strategic management process Explain the need for integrating analysis and intuition in

strategic management. Define and give examples of key terms in strategic

management. Discuss the nature of strategy formulation,

implementation, and evaluation activities. Describe the benefits of good strategic management. Discuss how a firm may achieve sustained competitive

advantage


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Themes in the Text

•Global Considerations – impact virtually all strategic decisions

•E-commerce – vital strategic management tool

•Natural Environment – important strategic issue


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Themes in the Text

Global considerations impact virtually all strategic decisions.

The boundaries of countries can no longer be the boundary of our minds.

It has become a matter of survival for businesses to see and appreciate the world from the perspective of others.

The underpinnings of strategic management hinge on managers gaining an understanding of competitors, markets, prices, suppliers, distributors, governments, creditors, shareholders, and customers worldwide.


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Themes in the Text

The natural environment is an important strategic issue.

Perhaps no greater threat exists to business and society than the continuous decimation and degradation of our natural environment.


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

Strategic Management – Defined

�ٍStrategic Management defined Strategic management is the process by

which managers set an organization’s (or several organizations’) long-term course, develop plans in the light of internal and external circumstances, and undertake appropriate action to reach those goals.


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Strategic Management

The term originated in the 1950S. Was very popular between mid-1960s and

mid-1970s. It casted aside during 1980s. The 1990s and on brought the revival of

strategic planning, the process is widely practiced.

Strategic Management and Research As a self-identified area of inquiry, strategic management is

still young. The first major conference devoted to the subject was only held in 1977 at the University of Pittsburgh. The Strategic Management Journal and the Journal of Business Strategy each published their first issue three years later. Michael Porter’s landmark study, Competitive Strategy, appeared in 1980. The Academy of Management, the professional association of business school teachers, organized its Business Policy and Strategy division at around the same time.


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Strategic Management and planning The term strategic management is used

synonymously with strategic planning. The purpose of strategic management is to

exploit and create new and different opportunities for tomorrow

While long-range planning tries to optimize for tomorrow the trends of today.


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Strategic Management

In essence, the strategic plan is a company’s game plan.


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Strategic management achieves a firm’s success through integration ––

Management

MIS

Production/OperationsFinance/Accounting

Marketing

Research & Development


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Stages of strategic planning

Environmental analysis Strategy formulation Strategy implementation Strategy evaluation.


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Vision & Mission

Strategy Formulation

External Opportunities & Threats

Internal Strengths & Weaknesses

Long-Term Objectives

Alternative Strategies

Strategy Selection


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Issues in Strategy Formulation

New business opportunitiesBusinesses to abandonAllocation of resourcesExpansion or diversificationInternational marketsMergers or joint venturesAvoidance of hostile takeover

New business opportunitiesBusinesses to abandonAllocation of resourcesExpansion or diversificationInternational marketsMergers or joint venturesAvoidance of hostile takeover


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Strategy Implementation

Annual Objectives

Policies

Employee Motivation

Resource Allocation


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Strategy Implementation

Action Stage of Strategic Management

Most difficult stagerecruitment of employees & managersInterpersonal skills criticalConsensus on goal pursuitInterpersonal skills are essential.

Action Stage of Strategic Management

Most difficult stagerecruitment of employees & managersInterpersonal skills criticalConsensus on goal pursuitInterpersonal skills are essential.


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Strategy Evaluation

Internal Review

External Review

Performance Metrics

Corrective Actions


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Strategy Evaluation

Final Stage of Strategic Management

Subject to future modificationToday’s success no guarantee of future successNew & different problemsComplacency\satisfaction leads to demise\death

Final Stage of Strategic Management

Subject to future modificationToday’s success no guarantee of future successNew & different problemsComplacency\satisfaction leads to demise\death


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Peter Drucker: Think through the overall mission of a business. Ask the key question: “What is our Business?”

Prime Task of Strategic Management


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

Integrating Intuition & Analysis


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The strategic-management process can be described as an objective, logical, systematic approach for making major decisions in an organization.



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Intuition is based on: Past experiences Judgment Feelings


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


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Involve management at all levels

Intuition & Judgment

Influence all analyses



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Analytical Thinking


Intuitive Thinking


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Organizations must monitor events Ongoing process Internal and external events Timely changes

Adapting to Change


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The need to adapt to change leads organizations to key strategic-management questions, such as, “What kind of business should be become?” “Are we in the right field?” “Should we reshape our business?” “What new competitors are entering our industry?”

Adapting to Change


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“Anything that a firm does especially well compared to rival firms”

Strategic Management is Gaining and Maintaining Competitive Advantage


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1. Adapting to change in external trends, internal capabilities, and resources

Achieving Sustained Competitive Advantage

2. Effectively formulating, implementing, and evaluating strategies


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Rate & magnitude of change increasing dramatically

Adapting to Change

E-commerce

Demographics

Technology


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Internet and sales value in US 2006 online sales in US rose 25% to reach

24.6$ billion. Traditional sales increased 5% only to 457.4$

billion. The internet has changed the very nature and

core of buying and selling.


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Effective Adaptation

Adapting to Change

Requires long-term focus


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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


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Strategists

1. Strategists are individuals who are most responsible for the success or failure of an organization.

2. Strategists hold various job titles, such as chief executive officers, president, owner, chair of the board, executive director, chancellor, dean, or entrepreneur.

3. Strategists help an organization gather, analyze, and organize information. They track industry and competitive trends, develop forecasting models and scenario analyses, evaluate corporate and divisional performance, spot emerging market opportunities, identify business threats, and develop creative action plans.


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Policies

1. Policies include guidelines, rules, and procedures established to support efforts to achieve stated objectives.

2. Policies are most often stated in terms of management, marketing, finance/accounting, production/operations, research and development, and computer information systems activities.

Examples: smoking policy, recruitment policy


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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.


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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 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.


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ExternalAudit

Chapter 3

InternalAudit

Chapter 4

Long-TermObjectives

Chapter 5

Generate,Evaluate,

SelectStrategies

Chapter 6

ImplementStrategies:

Mgmt Issues

Chapter 7

ImplementStrategies:Marketing,Fin/Acct,R&D, CISChapter 8

Measure &Evaluate

Performance

Chapter 9

Vision &

Mission

Chapter 2

Figure 1.1 Comprehensive Strategic-Management Model


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Dynamic & continuous More formal in larger organizations

Strategic Management Model

Strategic Management Process


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Benefits of Strategic Management

• Proactive in shaping firm’s future

• Initiate and influence firm’s activities

• Formulate better strategies

•Systematic, logical, rational


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Financial Benefits

• Improvement in sales

• Improvement in profitability

• Productivity improvement


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Nonfinancial Benefits

• Improved understanding of competitors’ strategies

• Enhanced awareness of threats

• Reduced resistance to change

• Enhanced problem-prevention capabilities


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Benefits of Strategic Management (Greenley)

1. Identification of opportunities

2. Objective view of management problems

3. Improved coordination & control

4. Minimizes unfavorable conditions & changes

5. Decisions that better support objectives


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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


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Benefits of Strategic Management (Greenley – cont’d)

11. Encourages favorable attitude toward change

12. Provides discipline and formality to the management of the business


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Why Some Firms Do No Strategic Planning

Poor reward structures

Fire-fighting

Waste of time

Too expensive

Laziness

Content\happy with success


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Why Some Firms Do No Strategic Planning

Fear of failure

Overconfidence

Prior bad experience

Self-interest: self-esteem through effectively using old system.

Fear of the unknown: uncertain of their ability to learn new skills.

Suspicion: employees may not trust management.


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PITFALLS IN STRATEGIC PLANNING

•Using strategic planning to gain control over decisions and resources•Doing strategic planning only to satisfy accreditation or regulatory requirements•Too hastily\quickly moving from mission development to strategy formulation•Failing to communicate the plan to employees, who continue working in the dark•Top managers making many intuitive decisions that conflict with the formal plan •Top managers not actively supporting the strategic-planning process•Failing to use plans as a standard for measuring performance•Delegating planning to a “planner” rather than involving all managers•Failing to involve key employees in all phases of planning•Failing to create a collaborative climate supportive of change•Viewing planning to be unnecessary or unimportant•Becoming so engrossed in current problems that insufficient or no planning is done•Being so formal in planning that flexibility and creativity are stifled


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Guidelines For Effective Strategic Management “Is strategic management in our firm a people

process or a paper process?” should be addressed. Balancing between long-range versus short-range

or maximizing profits versus increasing shareholders’ wealth.

Subjective factors such as attitudes toward risk, concern for social responsibility, and organizational culture will always affect strategy-formulation decisions, but organizations must remain as objective as possible.


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COMPARING BUSINESS AND MILITARY STRATEGY

A Strong Military Heritage Underlies the Study of Strategic Management

Terms such as objectives, mission, strengths, and weaknesses were first formulated to address problems on the battlefield.

A fundamental difference between military and business strategy is that business strategy is formulated, implemented, and evaluated with the assumption of competition, while military strategy is based on an assumption of conflict.


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Principles of conduct within organizations that guide decision making and behavior

Business Ethics & Strategic Management

Business ethics defined –


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Prerequisite for good strategic management


Good business ethics –


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Provides basis on which policies can be devised to guide daily behavior and decisions in the workplace


Code of business ethics –


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Misleading advertising Misleading labeling Harm to the environment Insider trading Dumping flawed/faulty products on foreign markets Poor product or service safety Padding expense accounts


Business practices always considered unethical –


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Parent company: a firm investing in international operations;

Host country: the country where that business is conducted.

The Nature of Global Competition

International/multinational corporations


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Cultural differences Norms Values Work ethic

The Nature of Global Competition

Strategy implementation may be difficult


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Advantages of International Operations

Absorb excess capacity

Reduce unit costs

Spread risk over wider markets

Low-cost production facilities


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Advantages of International Operations (cont’d)

Less intense competition

Lower taxes

Economies of scale


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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 ch 1 -1 chapter 1 the nature...

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