Concepts of Strategic Management

Fred R. David
Prentice-Hall, Inc.
Sixth Edition
 Chapter 1

The Nature of Strategic

Management
 Three Themes in the Text

• Global Considerations Impact Virtually

All Strategic Decisions
• Information Technology Has Become a
Vital Strategic Management Tool
• Preserving the Natural Environment is
an Important Strategic Issue
 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
• Explain why good ethics is good business in
strategic management
 Global Considerations
Impact Virtually All
Strategic Decisions

Should I
Should we
learn a foreign
import?
language?

Will NAFTA Should we

affect our firm? export?
 Information Technology Has Become
A Vital Strategic Management Tool

Should we
Should we set
upgrade our
up a Web site?
PCs?

Should we buy
Should we our sales staff
outsource MIS? laptops?
 Preserving the Natural
Environment is an Important
Strategic Issue

Is our firm Should we

environmentally burn low-sulfur
friendly? coal?

Should we Will Congress

recycle? pass tougher
laws?
 The Definition of
Strategic Management

The Art and Science of

Formulating, Implementing, and
Evaluating Cross-Functional
Decisions That Enable an
Organization to Achieve It’s
Objectives
 The Stages and Activities in the
Strategic Management Process
Stages Activities
Strategy Conduct Integrate Make
formulation research intuition decisions
with analysis

Strategy Establish Devise Allocate

implementation annual policies resources
objectives

Review internal Measure Take

Strategy and external performance corrective
evaluation factors action
 The Basis for Good
Strategic Decisions

Intuition + Analysis

Effective Strategic Decisions

 Global Perspective
The World’s Largest Companies

The World’s Ten Largest Companies in

Rank Order Based on 1994 Revenues
1. Mitsubishi 6. Marubeni
2. Mitsui 7. Ford Motor
3. Itochu 8. Exxon
4. Sumitomo 9. Nissho Iwai
5. General Motors 10. Royal Dutch/Shell Group
 What Traits CEOs Have Now - And Will
Need in the Year 2000
Personal Behaviors Now Year 2000
Conveys strong sense of vision 75% 98%
Links compensation to performance 66% 91%
Communicates frequently with employees 59% 89%
Emphasizes ethics 74% 85%
Plans for management succession 56% 85%
Communicates frequently with customers 41% 78%
Reassigns or terminates 34% 71%
Rewards loyalty 39% 44%
Makes all major decisions 39% 21%
Behaves conservatively 32% 13%
 What Traits CEOs Have Now - And Will
Need in the Year 2000 (cont.)
Knowledge and Skills Now Year 2000
Strategy formulation 68% 78%
Human resource management 41% 53%
International economics and politics 10% 19%
Science and technology 11% 15%
Computer literacy 3% 7%
Marketing and sales 50% 48%
Negotiation 34% 24%
Accounting and finance 33% 24%
Handling media and public speaking 16% 13%
Production 21% 9%
 Ten Key External Forces
Competitive

Economic Technological

Social Governmental

Cultural Political

Demographic Environmental
Legal
 Fourteen Key Internal Forces
Management

Marketing Manufacturing

Research & Production/

Development Operations

Purchasing Distribution
 Key Internal Forces (cont.)
Finance/Accounting

Packaging Promotion

Human Employee/
Resource Manager
Management Relations

Computer
Vendor Information
Relations Systems
 Keys to Formulating Strategies

Business Mission

External Internal
Opportunities Strengths and
and Threats Weaknesses

Strategy Formulation
 A Comprehensive Strategic Management Model
Feedback

Perform
External
Audit

Generate,
Establish Establish Measure
Develop Evaluate,
Long- Policies and Allocate and
Mission and
term Annual Resources Evaluate
Statement Select
Objectives Objectives Performance
Strategies

Perform
Internal
Audit

Strategy Formulation Strategy Implementation Strategy Evaluation

 Forces Influencing Design of Strategic
Management Systems
Toward more Toward less
formality and formality and
more details
Organization fewer details

Small one-plant companies

Large companies
Management Styles
Policy maker
Democratic-permissive
Authoritarian
Day-to-day operational thinker
Intuitive thinker
Experienced in planning
Inexperienced in planning
 Forces Influencing Design of Strategic
Management Systems
Toward more Toward less
formality and formality and
more details fewer details
Complexity of
Environment
Stable environment
Turbulent environment
Little competition
Many markets and customers
Single market and customer
Competition severe
 Forces Influencing Design of Strategic
Management Systems
Toward more Complexity of Toward less
formality and formality and
more details Production Process fewer details
Long production lead times
Short production lead times
Capital intensive
Labor intensive
Integrated manufacturing processes
Simple manufacturing processes
High technology
Low technology
Market reaction time for new
product is short
Market reaction time is long
 Forces Influencing Design of Strategic
Management Systems
Toward more Toward less
formality and formality and
more details fewer details
Nature of Problems
Facing new, complex, tough
problems having long-range
aspects

Facing tough short-range problems

Purpose of Planning
System
Coordinate division activities
Train managers
 Benefits of Strategic Management

- Improved Communication - Greater Productivity

- Increased Understanding - More Effective Strategies
- Enhanced Commitment - Higher Productivity
- Allow Firm to Influence, Initiate, and Anticipate
- Be Proactive Rather Than Reactive
 How to Create an Ethical Culture

• Develop a Code of Business Ethics

• Ask All Managers and Employers to Sign
the Code
• Offer Business Ethics Workshops
• Include Ethics Factors in Performance
Appraisal Instruments
• Link Compensation to Ethical Behavior
 How to Create an Ethical Culture
(cont.)
• Encourage Whistle Blowing
• Encourage Good Business Ethics
Behavior
• Publicize Good Business Ethics Behavior
• Reward Good Business Ethics Behavior
• Set a Good Example
 The Communications Benefits of
Engaging In Strategic Management

Managers from all functional

areas listen and discuss their
views in strategic
management meetings. This
interaction yields learning,
appreciation, and
understanding among
managers who otherwise do
not communicate with each
other