Strategic Management: Concepts

and Cases

Chapter 1:
The Nature of Strategic
Management

Ch 1 -1 Copyright © 2011 Pearson Education

 Philosophy Behind the Strategic Management Course

• Strategic Management is the capstone course for business

administration majors.
• Students learn new strategy formulation, mplementation,
and evaluation concepts and techniques.
• Students use this new knowledge, coupled with
knowledge acquired from other courses, to plan the
future direction of different organizations.

Ch 3Copyright
- © 2009 Pearson Education, Inc.
2 Publishing as Prentice Hall
 Normal Managerial Thinking Agents Strategic Management Thinking

Strategic Management Thinking Normal Managerial Thinking

VISION Determining Goals

MISSION Mobilization Resources

EXTERNAL REVIEW Results Evaluation

INTERNAL REVIEW -----------------

Determining Goals )objectives( --------------

to achieve objectives Strategy Formulation ----------------

Strategy Implementation ----------------

Strategy Evaluation --------------

Ch 3Copyright
- © 2009 Pearson Education, Inc.
3 Publishing as Prentice Hall
 Chapter Outline

• What is Strategic Management?

• Key Terms in Strategic Management

• The Strategic-Management Model

• Benefits of Strategic Management

• Why Some Firms Do No Strategic Planning

• Pitfalls in Strategic Planning

• Guidelines for Effective Strategic Management

Ch 1 -4 Copyright © 2011 Pearson Education

 Chapter Outline (cont’d)

• Business Ethics and Strategic Management

• Comparing Business and Military Strategy

Ch 1 - 5 Copyright © 2011 Pearson Education

 Strategic Management – Defined

Art & science of formulating,

implementing, and evaluating, cross-
functional decisions that enable an
organization to achieve its objectives

In concentrate, the strategic plan is a

company’s game plan.
Ch 1 -6

Ch 1 -6 Copyright © 2011 Pearson Education

 Strategic Management
Strategic management achieves a firm’s success
through integration:

Management Marketing

Finance/Accounting Production/Operations

Research & Development MIS

Ch 1 -7

Ch 1 -7 Copyright © 2011 Pearson Education

 Strategic Management

Strategy Formulation

Vision & Mission

External Opportunities & Threats

Internal Strengths & Weaknesses

Long-Term Objectives

Alternative Strategies

Strategy Selection

Ch 1 -8

Ch 1 -8 Copyright © 2011 Pearson Education

 Strategy Formulation
Issues in Strategy Formulation

• New business opportunities

• Businesses to abandon

• Allocation of resources

• Expansion or diversification

• International markets

• Mergers or joint ventures

• Avoidance of hostile takeover

Ch 1 -9

Ch 1 -9 Copyright © 2011 Pearson Education

 Strategy Implementation

Strategy Implementation

Annual Objectives

Policies

Employee Motivation

Resource Allocation

Ch 1 -10

Ch 1 -10 Copyright © 2011 Pearson Education

 Strategy Implementation
The Action Stage of Strategic Management

• Is the most difficult stage

• Involves mobilization of employees

& managers

• Interpersonal skills are critical

• There must be harmony on goal

pursuits
Ch 1 -11

Ch 1 -11 Copyright © 2011 Pearson Education

 Strategy Evaluation

Strategy Evaluation

Internal Review

External Review

Performance Metrics

Corrective Actions

Ch 1 -12

Ch 1 -12 Copyright © 2011 Pearson Education

 Strategy Evaluation
Final Stage of Strategic Management

• Subject to future modification

• Today’s success is no guarantee of

future success

• New and different problems

• Complacency leads to failure

Ch 1 -13

Ch 1 -13 Copyright © 2011 Pearson Education

 Prime Task of Strategic Management

“Think through the overall mission of a business. Ask

the key question: What is our Business?”
Peter Drucker

Ch 1 -14

Ch 1 -14 Copyright © 2011 Pearson Education

 Integrating Intuition & Analysis

The strategic management process attempts to organize

quantitative and qualitative information under conditions of
uncertainty.

Ch 1 -15

Ch 1 -15 Copyright © 2011 Pearson Education

 Integrating Intuition & Analysis

Intuition is based on:

• Past experiences

• Judgment

• Feelings

Intuition is useful for decision making in:

• Conditions of great uncertainty

• Conditions with little example

Ch 1 -16

Ch 1 -16 Copyright © 2011 Pearson Education

 Integrating Intuition & Analysis

Intuition & Judgment

Involve management at all levels

Influence all analyses

Ch 1 -17

Ch 1 -17 Copyright © 2011 Pearson Education

 Integrating Intuition & Analysis

Analytical Thinking

Intuitive Thinking

Ch 1 -18

Ch 1 -18 Copyright © 2011 Pearson Education

 Integrating Intuition & Analysis

In the Arab world, there is a cultural tendency to emphasize

the role of intuition and imagination in decision making.

There are companies which, because of luck and ample

opportunities, have experienced tremendous growth.

Ch 1 -19

Ch 1 -19 Copyright © 2011 Pearson Education

 Adapting to Change

Organizations must monitor events

• Ongoing process

• Internal and external events

• Timely changes

Ch 1 -20

Ch 1 -20 Copyright © 2011 Pearson Education

 Strategic Management is Gaining and Maintaining
Competitive Advantage

Competitive Advantage:
Anything that a firm does especially well compared to rival
firms

Ch 1 -21

Ch 1 -21 Copyright © 2011 Pearson Education

 Achieving Sustained Competitive Advantage

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

and resources
2. Effectively formulating, implementing, and evaluating
strategies

Ch 1 -22

Ch 1 -22 Copyright © 2011 Pearson Education

 Adapting to Change

Rate & magnitude of change is increasing dramatically

E-commerce

Demographics

Technology

Ch 1 -23 Copyright © 2011 Pearson Education

 Adapting to Change

Effective Adaptation to change requires long-term

focus

Ch 1 -24

Ch 1 -24 Copyright © 2011 Pearson Education

 Adapting to Change
Key Strategic Management Questions

• 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?

Ch 1 -25 Copyright © 2011 Pearson Education

 Key Terms

Vision Statement:
What do we want to
become?

Mission Statement:
What is our business?
Ch 1 -26 Copyright © 2011 Pearson Education
 Opportunities and Threats
(External)

External opportunities and

threats are largely beyond the
control of a single organization.

Ch 1 -27 Copyright © 2011 Pearson Education

 Oportunities and Threats (External) Cont’d…

Analysis of Trends:
• Economic
• Social
• Cultural
• Demographic/Environmental
• Political, Legal, Governmental
• Technological
• Competitors

Ch 1 -28 Copyright © 2011 Pearson Education

 Key Terms

Environmental Scanning (Industry

Analysis):
The process of conducting research
and gathering and assimilating
external information

Ch 1 -29 Copyright © 2011 Pearson Education

 Key Terms Opportunities & Threats

The basic tenet of strategic management:

Take
Take advantage
advantage of
of
External
External Opportunities
Opportunities

Strategy Formulation

Avoid/minimize
Avoid/minimize impact
impact
of
of External
External Threats
Threats

Ch 1 -30 Copyright © 2011 Pearson Education

 Strengths and Weaknesses
(Internal)

Strengths & Weaknesses (Internal):

Controllable activities performed
especially well or poorly

Ch 1 -31 Copyright © 2011 Pearson Education

 Strengths and Weaknesses (Internal) Cont’d…

Strengths and weaknesses are typically located in the

functional areas of the firm, such as:
• Management
• Marketing
• Finance/Accounting
• Production/Operations
• Research & Development
• Computer Information Systems

Ch 1 -32 Copyright © 2011 Pearson Education

 Assessing the Internal Environment

Financial Ratios

Performance Metrics
Internal Factors
Industry Averages

Survey Data

Ch 1 -33 Copyright © 2011 Pearson Education

 Long Term Objectives

Long-term Objectives:
Mission-driven pursuit of
specified results more than one
year out

Ch 1 -34 Copyright © 2011 Pearson Education

 Importance of Long Term Objectives

Long term objectives are essential for

ensuring a firm’s success. They:
• Provide direction
• Help with evaluation
• Create synergy
• Focus coordination
• Basis for planning, motivating, and
controlling

Ch 1 -35 Copyright © 2011 Pearson Education

 Strategies

Strategies:

The way by which long-term

objectives are achieved

Ch 1 -36 Copyright © 2011 Pearson Education

Examples of different strategies are:

• Geographic expansion
• Diversification
• Acquisition
• Market penetration
• Retrenchment(reduce the
investment)
• Liquidation
• Joint venture
 Annual Objectives:
Short-term milestones that firms must
achieve to attain long-term objectives

Ch 1 -38 Copyright © 2011 Pearson Education

 Policies:
Means by which annual
objectives will be achieved

Ch 1 -39 Copyright © 2011 Pearson Education

 Example Strategies in Action in 2009 (Cont’d)
SKAB Group

“The SKAB Group is one of the largest private-sector business groups in

Saudi Arabia with a variety of diversified but interconnected business
enterprises, spanning such disciplines as environment protection and
recycling, mineral-water bottling, contracting, the hospitality industry,
real estate, shopping malls, travel and tourism, food products, and
construction and maintenance.”
SKAB embarks on three major strategies to realize growth and market
vitality: market expansion at home and abroad, partnership, and
acquisition. Although the group is family-owned, it is managed by
professional management team.
Ch 1 -40

Ch 1 -40 Copyright © 2011 Pearson Education

Source: Adapted from Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22, no 3 (June 1988):40

Ch 1 -41 Copyright © 2011 Pearson Education

 Benefits of Strategic Management

Strategic Management:
• Is proactive in shaping firm’s future
• Initiates and influences firm’s activities
• Helps to formulate better strategies that
are systematic, logical, and rational

Ch 1 -42 Copyright © 2011 Pearson Education

 Benefits of Strategic Management
Financial Benefits

• Improvement in sales
• Improvement in profitability
• Productivity improvement

Ch 1 -43

Ch 1 -43 Copyright © 2011 Pearson Education

 Benefits of Strategic Management
Nonfinancial Benefits

• Improved understanding of competitors’

strategies
• Enhanced awareness of threats
• Increased employee productivity
• Reduced resistance to change
• Enhanced problem-prevention capabilities

Ch 1 -44

Ch 1 -44 Copyright © 2011 Pearson Education

 Benefits of Strategic Management

1. Identification of opportunities
2. Objective view of management problems
3. Improved coordination & control
4. Minimizes difficult conditions & changes
5. Decisions that better support objectives
6. Effective allocation of resources
7. Reduces resources and time spent correcting
incorrect decisions

Ch 1 -45 Copyright © 2011 Pearson Education

 Benefits of Strategic Management

8. Internal communication among personnel

9. Integration of individual behaviors
10.Clarify individual responsibilities
11.Encourages forward thinking
12.Cooperative approach to tackling problems and
opportunities
13.Encourages favorable attitude toward change
14.Gives discipline to business management

Ch 1 -46 Copyright © 2011 Pearson Education

 Why Some Firms Do No Strategic Planning

Reasons why some firms are resistant to strategic

planning include:
• Poor reward structures
• Fire-fighting
• Chief executives’ orientation
• Lack of access to needed resources
• Waste of time
• Too expensive
• happy with success

Ch 1 -47 Copyright © 2011 Pearson Education

 Why Some Firms Do No Strategic Planning

• Fear of failure
• Overconfidence
• Prior bad experience
• Self-interest
• Fear of the unknown
• Honest difference of opinion

Ch 1 -48 Copyright © 2011 Pearson Education

 Pitfalls in Strategic Planning
Some pitfalls to watch out for and avoid in
strategic planning

• Using it to gain control over decisions and resources

• Doing it just to satisfy accreditation and regulatory
requirements
• Too hastily moving from mission development to strategy
formulation
• Failing to communicate the plan to employees
• Top managers making many intuitive decisions that
conflict with the formal plan

Ch 1 -49 Copyright © 2011 Pearson Education

 Pitfalls in Strategic Planning
Some pitfalls to watch out for and avoid in strategic
planning (Cont’d)

• 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

Ch 1 -50 Copyright © 2011 Pearson Education

 Pitfalls in Strategic Planning
Some pitfalls to watch out for and avoid in strategic
planning (Cont’d)

• Viewing planning as 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

Ch 1 -51 Copyright © 2011 Pearson Education

 Guidelines for Effective Strategic Management

Strategic Management must:

• Not become a bureaucratic mechanism.
• Not become ritualistic, too formal, predictable, and rigid
• Be a self-reflective learning process
• Words supported by numbers, rather than numbers
supported by words
• Represent the medium for explaining strategic issues and
organizational responses

Ch 1 -52 Copyright © 2011 Pearson Education

 Business Ethics & Strategic Management
Business Ethics:
Principles of conduct within organizations that
guide decision making and behavior

Code of Business Ethics:

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

Ch 1 -53 Copyright © 2011 Pearson Education

 Business Ethics & Strategic Management

Good business ethics are

prerequisite for good strategic
management

Ch 1 -54 Copyright © 2011 Pearson Education

 Unethical Business Practices

Business practices that are always considered unethical

include:
• Misleading advertising
• Misleading labeling
• Harm to the environment

• Insider trading { is the trading of a public company

's stock or other securities (such as bonds or 
stock options) based on material, nonpublic
information about the company. .
• Dumping flawed products on foreign markets

Ch 1 -55 Copyright © 2011 Pearson Education

 Unethical Business Practices

• Poor product or service safety

• Padding expense accounts
• Lack of equal opportunities for foreign workers
• Overpricing
• Sweatshops{A sweatshop (or sweat factory) is a
crowded workplace with very poor, socially
unacceptable or illegal working conditions. The work
may be difficult, dangerous
• Hiring child labor

Ch 1 -56 Copyright © 2011 Pearson Education