strategic management concepts & cases 11th edition by fred r. david chap 1

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Chapter OneScope of Strategic Management

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Major Issues to ConsiderMajor Issues to Consider

Global considerations impact virtually all strategic decisions.E-commerce has become a vital strategic management tool.The natural environment has become an important strategic issue.

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Strategic Management DefinedStrategic Management Defined

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

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TerminologyTerminology

“Strategic Management”Synonymous with

“Strategic Planning”

• Strategic managementUsed more often in academia

• Strategic planningUsed more often in the business world

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TerminologyTerminology

Strategic managementRefers to:

Strategy formulationStrategy implementationStrategy evaluation

Strategic planningRefers to:

Strategy formulation

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Brief HistoryBrief History

1950sTerm strategic planning originates

1960s – 1970sStrategic planning very popular

Widely viewed as panacea for problems

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Brief HistoryBrief History

1980sStrategic planning cast aside

Planning models did not yield higher returns

1990s–2000Revival of strategic planning

Widely practiced in business world

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StrategicStrategic--Management Process Management Process Three StagesThree Stages

Strategy Formulation

Strategy Implementation

Strategy Evaluation

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Strategy Formulation

Vision & Mission

Alternative Strategies

Long-Term Objectives

Strengths & Weaknesses

Opportunities & Threats

Strategy Selection

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Strategy Implementation

Motivate Employees

Policies

Annual Objectives

Resource Allocation

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Strategy Evaluation

Corrective Action

Measure Performance

ReviewExternal & Internal

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Key Strategic Management Terms Key Strategic Management Terms (Cont(Cont’’d)d)

1. Strategists2. Vision statements3. Mission statements4. External opportunities and threats5. Internal strengths and weaknesses6. Long-term objectives7. Strategies8. Annual objectives9. Policies

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Strategic Management Terms Strategic Management Terms (Cont(Cont’’d)d)Strategists

• Usually found in high levels of management (CEO)

Help organization gather, analyze, and organize information

Track industry and competitive trends

Develop forecasting model

Evaluate corporate and divisional performance

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Strategic Management Terms Strategic Management Terms (Cont(Cont’’d)d)

Vision Statements• Answers the question: “What do we want to

become?”

First step in strategic planning

Oftentimes a single sentence“Our vision is to take care of your vision.”

(Stokes Eye Clinic, Florence, South Carolina).

Southern Polytechnic State University. www.spsu.edu/planassess/strategic.htm

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Strategic Management Terms Strategic Management Terms (Cont(Cont’’d)d)External Opportunities & Threats

• Largely beyond the control of a single organization

EconomicSocialCulturalDemographicEnvironmental

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Strategic Management Terms Strategic Management Terms (Cont(Cont’’d)d)External Opportunities & Threats (cont’d)

PoliticalGovernmentalTechnologicalCompetitive trends & events

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Internal Strengths & Weaknesses• Controllable activities that are performed

well or poorly relative to competitors

Based on functional analysis of activities in the firm’s:

ManagementMarketingFinance/accounting

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Internal Strengths & Weaknesses (Cont’d)

• Based on functional analysis of activities in the firm’s:

Production/operationsResearch and developmentComputer information systems

• Organizations strive to pursue strategies that capitalize on strengths and improve weaknesses

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Strategic Management Terms Strategic Management Terms (Cont(Cont’’d)d)Long-Term Objectives

• Results to be achieved in pursuing the organization’s mission. Time frame is beyond one year.

State directionAid in evaluationCreate synergyReveal prioritiesFocus coordinationProvide basis for effective management

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Strategic Management Terms Strategic Management Terms (Cont(Cont’’d)d)Strategies

• Potential actions that require top management decisions and large amounts of firm’s resources

Mechanisms by which long-term objectives are realizedGeographic expansionDiversificationAcquisitionProduct development

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Strategic Management Terms Strategic Management Terms (Cont(Cont’’d)d)Strategies (cont’d)

• Mechanisms by which long-term objectives are realized

Market penetrationRetrenchmentDivestitureLiquidationJoint venture

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Annual Objectives• Short-term milestones necessary to achieve

long-term objectives.

Represent the basis for allocating resources

Established at corporate, divisional, and functional levels

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Annual Objectives (cont’d)

Stated in terms of accomplishments for:managementmarketingfinance/accountingproduction/operationsresearch and developmentinformation systems accomplishments

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Policies• Important in strategy implementation as the means

by which annual objectives will be achieved

Guide to decision making and address repetitive situationsEstablished at corporate, divisional, or functional levelsAllow consistency & coordination within and between organizational departments

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Comprehensive Strategic Management ModelComprehensive Strategic Management Model

Vision &

MissionStatements

Chapter 2

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

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Proactive vs. ReactiveInitiate and influence activities

Helps shape firm’s own future

Principal BenefitFormulate better strategies

Systematic, logical, and rational approach

CommunicationKey to successful strategic management

Benefits of Strategic ManagementBenefits of Strategic Management

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Financial BenefitsMore profitable and successful

Improvements in sales, profitability, and productivity

High-Performing FirmsSystematic planning

Fluctuations in external and internal environments

Benefits of Strategic Management Benefits of Strategic Management (Cont(Cont’’d)d)

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Nonfinancial BenefitsEnhanced awareness of external threatsUnderstanding of competitors’ strategiesIncreased employee productivityReduced resistance to changeClear performance-reward relationshipsOrder and discipline to the firmView change as opportunity

Benefits of Strategic Management Benefits of Strategic Management (Cont(Cont’’d)d)

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Why Some Firms Do Why Some Firms Do NoNoStrategic PlanningStrategic Planning

Poor reward structuresFire-fightingWaste of timeToo expensiveLazinessContent with success

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Why Some Firms Do Why Some Firms Do NoNoStrategic Planning (ContStrategic Planning (Cont’’d)d)

Fear of failureOverconfidencePrior bad experienceSelf-interestFear of the unknownSuspicionwww.mindtools.com/plfailpl.html

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Pitfalls to Avoid in Strategic Pitfalls to Avoid in Strategic PlanningPlanning

Using to gain control over decisions & resourcesDoing only to satisfy regulatory requirementsMoving hastily from mission to strategy formulationFailing to communicate to employeesIntuitive decisions that conflict with formal planTop management not supportive of process

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Pitfalls to Avoid in Strategic Pitfalls to Avoid in Strategic Planning Planning (Cont(Cont’’d)d)

Failing to use as standard for performance measurementDelegating to a “planner” vs. involvement of managersFailing to involve key personnelFailing to create collaborative environmentFormality that stifles creativity and flexibility

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Business Ethics & Strategic PlanningBusiness Ethics & Strategic Planning

Defined:Principles of conduct within organizations that

guide decision making and behavior

Good business ethics is a prerequisite for good strategic management

Good ethics is just good business!

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Business Ethics & Strategic Planning Business Ethics & Strategic Planning (Cont(Cont’’d)d)

Strategists responsible for high ethical principlesAll strategic processes have ethical ramificationsFormal codes of ethics are in place for many businessesInternet privacy emerging as ethical issue of immense proportions

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Business Ethics & Strategic Planning Business Ethics & Strategic Planning (Cont(Cont’’d)d)Business actions always unethical include:

• Misleading advertising• Misleading labeling• Environmental harm• Poor product or service safety• Padding expense accounts• Insider trading• Dumping flawed products on foreign markets

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Nature of Global CompetitionNature of Global Competition

Companies conduct business across borders

International or multinational corporationsParent company Host country

Strategy implementation more difficultCultural differences

Norms, values, work ethics

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Advantages of International Advantages of International OperationsOperations

Absorb excess capacityReduce unit costsLow-cost production facilitiesLower labor costsCompetition less intense

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Advantages of International Advantages of International Operations (ContOperations (Cont’’d)d)

Reduced tariffs, lower taxesFavorable political climateEconomies of scale

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Communication difficulties between parent and subsidiaries• Based on cultural, political, social, language,

demographic, and competitive forces

Foreign-based competitors • Strengths underestimated• Weaknesses overestimated

Disadvantages of International Disadvantages of International OperationsOperations

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Planning in Actionhttp://www.planware.org/strategy.htm#1

strategic management concepts & cases 11th edition by fred r. david chap 1

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