1. Copyright © 2011 Pearson Education, Inc.
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Ch 1 -1
Chapter 1
The Nature of Strategic Management
Strategic Management:
Concepts & Cases
13th
Edition
Fred David

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Ch 1 -2
Art & science of formulating,
implementing, and evaluating,
cross-functional decisions that
enable an organization to achieve its
objectives
Strategic Management –Defined

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Ch 1 -3
Purpose of Strategic Management
To exploit and create new and different
opportunities for tomorrow

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Ch 1 -4
Strategic Management
In essence, the strategic plan is a
company’s game plan

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Ch 1 -5
3 Stages of the Strategic
Management Process
 Strategy formulation
 Strategy implementation
 Strategy evaluation

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Ch 1 -6
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
Businesses to enter
Businesses to abandon
Allocation of resources
Expansion or
diversification
International markets
Mergers or joint
ventures
Avoidance of hostile
takeover
Businesses to enter
Businesses to abandon
Allocation of resources
Expansion or
diversification
International markets
Mergers or joint
ventures
Avoidance of hostile
takeover

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Strategy Implementation
Annual Objectives
Policies
Employee Motivation
Resource Allocation

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Strategy Implementation Steps
 Developing a strategy-supportive culture
 Creating an effective organizational structure
 Redirecting marketing efforts
 Preparing budgets
 Developing and utilizing information systems
 Linking employee compensation to
organizational performance

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Issues in Strategy
Implementation
Action Stage of Strategic
Management
Mobilization of
employees & managers
Most difficult stage
Interpersonal skills
critical
Action Stage of Strategic
Management
Mobilization of
employees & managers
Most difficult stage
Interpersonal skills
critical

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Strategy Evaluation
Internal Review
External Review
Performance Measurement
Corrective Action

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Ch 1 -12
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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Intuition is based on:
 Past experiences
 Judgment
 Feelings
Integrating Intuition & Analysis
Intuition is useful for decision making in
conditions of:
 Great uncertainty
 Little precedent
 Highly interrelated variables
 Several plausible alternatives

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Involve management at all levels
Intuition & Judgment
Influence all analyses
Integrating Intuition & Analysis

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Organizations should continually
monitor internal and external
events and trends so that timely
changes can be made as needed
Adapting to Change

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Key Terms in Strategic Management
 Competitive advantage
 Strategists
 Vision and mission statements
 External opportunities and threats
 Internal strengths and weaknesses
 Long-term objectives
 Strategies
 Annual objectives
 Policies

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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. Continually adapting to changes in
external trends and events and internal
capabilities, competencies, and resources
Achieving Sustained Competitive
Advantage
2. Effectively formulating, implementing, and
evaluating strategies that capitalize on those
factors

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Strategists
Gather Information
Analyze Information
Organize Information

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Vision Statement –
What do we want to become?
Mission Statement –
What is our business?
Vision and Mission Statements

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External Opportunities and Threats
Analysis of Trends
 Economic
 Social
 Cultural
 Demographic/Environmental
 Political, Legal, Governmental
 Technological
 Competitors

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Basic Tenet of Strategic Management
External Opportunities and Threats
Strategy Formulation
Take advantage of
External Opportunities
Take advantage of
External Opportunities
Avoid/minimize impact of
External Threats
Avoid/minimize impact of
External Threats

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 Controllable activities performed
especially well or poorly
 Determined relative to competitors
Internal Strengths and Weaknesses

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 Typically located in functional areas of the firm
 Management
 Marketing
 Finance/Accounting
 Production/Operations
 Research & Development
 Management Information Systems
Internal Strengths and Weaknesses

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Assessing the Internal Environment
Internal Strengths and Weaknesses
Internal Factors
Performance Measures
Ratios
Industry Averages
Survey Data

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 Specific results that an organization
seeks to achieve in pursuing its basic
mission
 Long-term means more than one year
Long-Term Objectives

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Long-Term Objectives
 Essential for ensuring the firm’s success
 Provide direction
 Aid in evaluation
 Create synergy
 Reveal priorities
 Focus coordination
 Provide basis for planning, organizing,
motivating, and controlling

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Means by which long-term objectives
are achieved
Strategies

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Strategies
 Examples
 Geographic expansion
 Diversification
 Acquisition
 Product development
 Market penetration
 Retrenchment
 Divestiture
 Liquidation
 Joint venture

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Sample Strategies
 Table 1-1
 Best Buy
 Levi Strauss
 New York Times Company

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Short-term milestones that firms must
achieve to reach long-term objectives
Annual Objectives

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Means by which annual objectives will
be achieved
Policies

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 Strategic Management Process
Dynamic & continuous
More formal in larger
organizations
Strategic Management Model

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Strategic Management
 Communication is a key to
successful strategic management

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Benefits of Strategic Management

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Benefits of Strategic Management
 Nonfinancial Benefits
 Enhanced awareness of threats
 Improved understanding of competitors’ strategies
 Increased employee productivity
 Reduced resistance to change
 Clearer understanding of performance-reward
relationship
 Enhanced problem-prevention capabilities

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Ch 1 -39
Why Some Firms Do No Strategic
Planning
 Lack of knowledge of strategic planning
 Poor reward structures
 Fire fighting
 Waste of time
 Too expensive
 Laziness
 Content with success

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Why Some Firms Do No Strategic
Planning (continued)
 Fear of failure
 Overconfidence
 Prior bad experience
 Self-interest
 Fear of the unknown
 Honest difference of opinion
 Suspicion

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Pitfalls in Strategic Planning
Strategic planning is an involved, intricate,
and complex process that takes an
organization into uncharted territory

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Effective Strategic Planning is:
 A people process more than a paper process
 A learning process
 Words supported by numbers
 Simple and nonroutine
 Varying assignments, team membership,
meeting formats, and planning calendars
 Challenging assumptions underlying
corporate strategy

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Effective Strategic Planning
continued
 Welcomes bad news
 Requires open-mindedness and a spirit of
inquiry
 Is not a bureaucratic mechanism
 Is not ritualistic or stilted
 Is not too formal, predictable, or rigid
 Does not contain jargon or arcane language

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Effective Strategic Planning
continued
 Is not a formal system for control
 Does not disregard qualitative information
 Is not controlled by “technicians”
 Does not pursue too many strategies at once
 Continually strengthens the “good ethics is
good business” policy

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Comparing Business and Military
Strategy
 Strategic planning started in the military
 Similarity
 Both business and military organizations must
adapt to change and constantly improve
 Difference
 Business strategy assumes competition
 Military strategy assumes conflict

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Ch 1 -46
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