Strategic Management

Concepts & Cases

8th edition

Fred R. David

Chapter 1:
The Nature of
Strategic
Management
PowerPoint Slides By:
Anthony F. Chelte
Western New England College
Ch. 1-1
2001 Prentice Hall

Organizing Themes
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.
Ch. 1-2
2001 Prentice Hall

Strategic Management
Defined
Art and science of formulating,
implementing, and evaluating crossfunctional decisions that enable an
organization to achieve its objectives.

Ch. 1-3
2001 Prentice Hall

Strategic Management
Club

Visit and join the club on-line:

www.strategyclub.com

Ch. 1-4
2001 Prentice Hall

Terminology
Strategic Management
Synonymous with
Strategic Planning
Strategic management
Used more often in academia

Strategic planning
Used more often in the business world
Ch. 1-5
2001 Prentice Hall

Terminology
Strategic management
Refers to:
Strategy formulation
Strategy implementation
Strategy evaluation

Strategic planning
Refers to:
Strategy formulation
Ch. 1-6
2001 Prentice Hall

Brief History
1950s
Term strategic planning originates

1960s 1970s
Strategic planning very popular
Widely viewed as panacea for problems

Ch. 1-7
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Brief History
1980s
Strategic planning cast aside
Planning models did not yield higher returns

1990s2000
Revival of strategic planning
Widely practiced in business world

Ch. 1-8
2001 Prentice Hall

Strategic-Management
Process Three Stages
Strategy Formulation
Strategy
Implementation
Strategy Evaluation
Ch. 1-9
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Strategy Formulation
Vision & Mission
Opportunities & Threats
Strengths & Weaknesses
Long-Term Objectives
Alternative Strategies
Strategy Selection
Ch. 1-10
2001 Prentice Hall

Strategy Implementation

Annual Objectives

Policies

Motivate Employees

Resource Allocation
Ch. 1-11
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Strategy Evaluation

Review
External & Internal

Measure Performance

Corrective Action

Ch. 1-12
2001 Prentice Hall

Key Strategic Management

Terms (Contd)
1.
2.
3.
4.
5.

Strategists
Vision statements
Mission statements
External opportunities and threats
Internal strengths and weaknesses

Ch. 1-13
2001 Prentice Hall

Key Strategic Management

Terms (Contd)
6.
7.
8.
9.

Long-term objectives
Strategies
Annual objectives
Policies

Ch. 1-14
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Strategic Management
Terms (Contd)
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
Ch. 1-15
2001 Prentice Hall

Strategic Management
Terms (Contd)
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)
Ch. 1-16
2001 Prentice Hall

Strategic Management
Terms (Contd)
External Opportunities & Threats
Largely beyond the control of a single
organization

Economic
Social
Cultural
Demographic
Environmental
Ch. 1-17
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Strategic Management
Terms (Contd)
External Opportunities & Threats
(contd)
Political
Governmental
Technological
Competitive trends & events

Ch. 1-18
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Strategic Management
Terms (Contd)
Internal Strengths & Weaknesses
Controllable activities that are
performed well or poorly relative to
competitors
Based on functional analysis of activities in
the firms:
Management
Marketing
Finance/accounting
Ch. 1-19
2001 Prentice Hall

Strategic Management
Terms (Contd)
Internal Strengths & Weaknesses
(Contd)
Based on functional analysis of
activities in the firms:
Production/operations
Research and development
Computer information systems

Organizations strive to pursue

strategies that capitalize on strengths
and improve weaknesses
Ch. 1-20
2001 Prentice Hall

Strategic Management
Terms (Contd)
Long-Term Objectives
Results to be achieved in pursuing the
organizations mission. Time frame is
beyond one year.
State direction
Aid in evaluation
Create synergy
Reveal priorities
Focus coordination
Provide basis for effective management
Ch. 1-21
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Strategic Management
Terms (Contd)
Strategies
Potential actions that require top
management decisions and large
amounts of firms resources
Mechanisms by which long-term objectives
are realized
Geographic expansion
Diversification
Acquisition
Product development
Ch. 1-22
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Strategic Management
Terms (Contd)
Strategies (contd)
Mechanisms by which long-term objectives
are realized
Market penetration
Retrenchment
Divestiture
Liquidation
Joint venture
Ch. 1-23
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Strategic Management
Terms (Contd)
Annual Objectives
Short-term milestones necessary to
achieve long-term objectives.
Represent the basis for allocating
resources
Established at corporate, divisional, and
functional levels
Ch. 1-24
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Strategic Management
Terms (Contd)
Annual Objectives (contd)
Stated in terms of accomplishments for:
management
marketing
finance/accounting
production/operations
research and development
information systems accomplishments
Ch. 1-25
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Strategic Management
Terms (Contd)
Policies
Important in strategy implementation as the
means by which annual objectives will be
achieved
Guide to decision making and address repetitive
situations
Established at corporate, divisional, or functional
levels
Allow consistency & coordination within and
between organizational departments
Ch. 1-26
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Comprehensive Strategic Management

Model
External
Audit

Chapter 3

Vision
&
Mission
Statements

Long-Term
Objectives

Generate,
Evaluate,
Select
Strategies

Implement
Strategies:
Mgmt Issues

Implement
Strategies:
Marketing,
Fin/Acct,
R&D, CIS

Measure &
Evaluate
Performance

Chapter 5

Chapter 6

Chapter 7

Chapter 8

Chapter 9

Chapter 2
Internal
Audit

Chapter 4

Ch. 1-27
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Benefits of Strategic
Management
Proactive vs. Reactive
Initiate and influence activities
Helps shape firms own future

Principal Benefit
Formulate better strategies
Systematic, logical, and rational approach

Communication
Key to successful strategic
management
Ch. 1-28
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Benefits of Strategic
Management (Contd)
Financial Benefits
More profitable and successful
Improvements in sales, profitability, and
productivity
High-Performing Firms
Systematic planning
Fluctuations in external and internal environments
Ch. 1-29
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Benefits of Strategic
Management (Contd)
Nonfinancial Benefits
Enhanced awareness of external threats
Understanding of competitors strategies
Increased employee productivity
Reduced resistance to change
Clear performance-reward relationships
Order and discipline to the firm
View change as opportunity
Ch. 1-30
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Why Some Firms Do No

Strategic Planning

Poor reward structures

Fire-fighting
Waste of time
Too expensive
Laziness
Content with success

Ch. 1-31
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Why Some Firms Do No

Strategic Planning (Contd)

Fear of failure
Overconfidence
Prior bad experience
Self-interest
Fear of the unknown
Suspicion

Ch. 1-32
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Pitfalls to Avoid in Strategic

Planning
Using to gain control over decisions &
resources
Doing only to satisfy regulatory
requirements
Moving hastily from mission to strategy
formulation
Failing to communicate to employees
Intuitive decisions that conflict with formal
plan
Top management not supportive of process
Ch. 1-33
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Pitfalls to Avoid in Strategic

Planning (Contd)
Failing to use as standard for performance
measurement
Delegating to a planner vs. involvement
of managers
Failing to involve key personnel
Failing to create collaborative environment
Formality that stifles creativity and
flexibility
Ch. 1-34
2001 Prentice Hall

Business 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!
Ch. 1-35
2001 Prentice Hall

Business Ethics & Strategic

Planning (Contd)
Strategists responsible for high
ethical principles
All strategic processes have ethical
ramifications
Formal codes of ethics are in place
for many businesses
Internet privacy emerging as ethical
issue of immense proportions
Ch. 1-36
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Business Ethics & Strategic

Planning (Contd)
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
Ch. 1-37
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Nature of Global
Competition
Companies conduct business across
borders
International or multinational corporations
Parent company
Host country

Strategy implementation more difficult

Cultural differences
Norms, values, work ethics
Ch. 1-38
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Advantages of International
Operations
Absorb excess capacity
Reduce unit costs
Low-cost production facilities
Lower labor costs
Competition less intense

Ch. 1-39
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Advantages of International
Operations (Contd)

Reduced tariffs, lower taxes

Favorable political climate
Economies of scale

Ch. 1-40
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Disadvantages of
International Operations
Communication difficulties between
parent and subsidiaries
Based on cultural, political, social, language,
demographic, and competitive forces

Foreign-based competitors
Strengths underestimated
Weaknesses overestimated
Ch. 1-41
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Key Terms & Concepts

Annual objectives
Business ethics
Code of ethics
E-commerce
Empowerment
Environmental
scanning
External
opportunities
External threats

Internal strengths
Internal weaknesses
Intuition
Long-term objectives
Mission statements
Policies
Strategic
management
Strategicmanagement model
Ch. 1-42

2001 Prentice Hall

Key Terms & Concepts

(Contd)
Strategicmanagement
process
Strategies
Strategists
Strategy evaluation
Strategy formulation
Strategy
implementation
Lobbying

Vision statement
Vision
Host country
International firms
Long-range planning
Multinational
corporation

Ch. 1-43
2001 Prentice Hall