Nature of Strategic

Management
Chapter 01
If you FAIL to plan;
you PLAN to fail
 Strategic Management Defined

Art and science of formulating,

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

Or simply
Overcome your competitor, achieve and
maintain ‘competitive edge/advantage’
Strategic Management Club

Visit and join the club on-line:

www.strategyclub.com
 Terminology
“Strategic Management”
Synonymous with
“Strategic Planning”

• Strategic management
 Used more often in academia

• Strategic planning
 Used more often in the business world
 Terminology

• Strategic management
Refers to:
 Strategy formulation
 Strategy implementation
 Strategy evaluation

• Strategic planning
Refers to:
 Strategy formulation
 Comprehensive Strategic Management Model

External
Audit

Chapter 3

Long-Term Generate, Implement Implement Measure &

Objectives Evaluate, Strategies: Strategies: Evaluate
Vision Select Mgmt Issues Marketing, Performance
& Strategies Fin/Acct,
Mission R&D, MIS
Statements Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9

Chapter 2
Internal
Audit

Chapter 4
Strategic-Management Process Three
Stages

Strategy Formulation

Strategy Implementation

Strategy Evaluation
Strategy Formulation

Vision & Mission

Opportunities & Threats

Strengths & Weaknesses

Long-Term Objectives

Alternative Strategies

Strategy Selection
Strategy Implementation

Annual Objectives

Policies

Motivate Employees

Resource Allocation
Strategy Evaluation

Review
External & Internal

Measure Performance

Corrective Action
Key Strategic Management Terms
(Cont’d)

1. Competitive Advantage
2. Strategists
3. Vision statements
4. Mission statements
5. External opportunities and threats
6. Internal strengths and weaknesses
 Key Strategic Management Terms
(Cont’d)
7. Long-term objectives
8. Strategies
9. Annual objectives
10. Policies
11. Synergy
 Strategic Management Terms (Cont’d)
Competitive Advantage
• Anything that a firm does especially well compared to
rival firms.
Strategic management is all about gaining and
maintaining competitive advantage.
Competitive advantage can be maintained by
continually adapting to changes in external trends
and events and internal capabilities, competencies,
and resources
And by effectively formulating, implementing, and
evaluating strategies that capitalize upon those
factors.
 Strategic Management Terms (Cont’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

Integrate intuition and analysis
 Strategic Management
Terms (Cont’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)
 Strategic Management Terms (Cont’d)

External Opportunities & Threats

• Largely beyond the control of a single organization

Economic
Social
Cultural
Demographic
Environmental
 Strategic Management Terms (Cont’d)

External Opportunities & Threats (cont’d)

Political
Governmental
Technological
Competitive trends & events
Strategic Management Terms (Cont’d)

Internal Strengths & Weaknesses

• Controllable activities that are performed well
or poorly relative to competitors

Based on functional analysis of activities in the

firm’s:
 Management
 Marketing
 Finance/accounting
 Strategic Management Terms
(Cont’d)
Internal Strengths & Weaknesses (Cont’d)
• Based on functional analysis of activities in the
firm’s:
Production/operations
Research and development
Computer information systems
• Organizations strive to pursue strategies that
capitalize on strengths and improve weaknesses
 Strategic Management Terms (Cont’d)

Long-Term Objectives
• Results to be achieved in pursuing the organization’s
mission. Time frame is beyond one year.
State direction
Aid in evaluation
Create synergy
Reveal priorities
Focus coordination
Provide basis for effective management
 Strategic Management Terms (Cont’d)

Strategies
• Potential actions that require top management
decisions and large amounts of firm’s resources
Mechanisms by which long-term objectives are realized
Geographic expansion
Diversification
Acquisition
Product development
 Strategic Management Terms
(Cont’d)
Strategies (cont’d)

• Mechanisms by which long-term objectives are realized

Market penetration
Retrenchment
Divestiture
Liquidation
Joint venture
 Strategic Management Terms (Cont’d)

Annual Objectives
• Short-term milestones necessary to achieve
long-term objectives.

Represent the basis for allocating resources

Established at corporate, divisional, and functional

levels
 Strategic Management Terms
(Cont’d)
Annual Objectives (cont’d)

• Stated in terms of accomplishments for:

management
 marketing
 finance/accounting
 production/operations
 research and development
 MIS accomplishments
 Strategic Management Terms
(Cont’d)
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
 Strategic Management Terms
(Cont’d)
Synergy
• Synergy exists when everyone pulls together as
a team that knows what it wants to achieve;
synergy is the 2 + 2 = 5 effect.
By establishing and communicating clear objectives,
employees and managers can work together toward
desired results.
Synergy can result in powerful competitive advantages.
The strategic-management process itself is aimed at
creating synergy in an organization.
Achieve synergy among all managers and employees;
corporation, divisions and functional levels
 Benefits of Strategic Management

• Proactive vs. Reactive

Initiate and influence activities
Helps shape firm’s own future
• Principal Benefit
Formulate better strategies
Systematic, logical, and rational approach
• Communication
Key to successful strategic management
 Benefits of Strategic Management
(Cont’d)
• Financial Benefits
 More profitable and successful
 Improvements in sales, profitability, and productivity
 Good performance despite fluctuations in external and
internal environments

• The strategic-management process is based on the belief

that organizations should continually monitor internal and
external events and trends so that timely changes can be
made as needed.
 Reduce resistance to change
 Benefits of Strategic Management
(Cont’d)
• Other Non-financial Benefits
Enhanced awareness of external threats
Understanding of competitors’ strategies
Increased employee productivity
Clear performance-reward relationships
Order and discipline to the firm
View change as opportunity
 Why Some Firms Do NO
Strategic Planning
• Lack of knowledge or experience in strategic
planning
• Fire-fighting
• Waste of time
• Too expensive
• Laziness
• Content with success
 Why Some Firms Do No
Strategic Planning (Cont’d)

• Fear of failure
• Overconfidence
• Prior bad experience
• Self-interest
• Fear of the unknown
Pitfalls to Avoid in Strategic Planning

• Using to gain control over decisions & resources

• Doing only to satisfy regulatory requirements
• Moving quickly from mission to strategy
formulation
• Failing to communicate to employees
• Intuitive decisions that conflict with formal plan
• Top management not supportive of process
Pitfalls to Avoid in Strategic Planning
(Cont’d)

• 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
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!

 Business Ethics & Strategic Planning
(Cont’d)
• Strategists responsible for high ethical
principles
• All strategic processes have ethical
ramifications /consequences
• In the strategic-management model,
- business ethics
- social responsibility
- environmental sustainability
impact all activities in the model
 Business Ethics & Strategic Planning
(Cont’d)
Business actions always unethical include:

• Misleading advertising
• Misleading labeling
• Environmental harm
• Poor product or service safety
• Insider trading
• Dumping flawed products on foreign markets
 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
 Advantages of International
Operations

• Absorb excess capacity

• Reduce unit costs
• Low-cost production facilities
• Lower labor costs
• Competition less intense
 Advantages of International
Operations (Cont’d)

• May result in reduced tariffs, lower taxes

and favorable political climate
• Economies of scale
 Disadvantages of International
Operations
Communication difficulties between parent and
subsidiaries
• Firms confront different and often little-understood
cultural, political, social, language, demographic, and
competitive forces

Foreign-based competitors
• Strengths underestimated
• Weaknesses overestimated
 Comparing Business and Military
Strategy
• A strong military heritage underlies the study of
strategic management.
• Terms such as objectives, mission, strengths, and
weaknesses first were formulated to address
problems on the battlefield
• Military strategy has enemy and conflict
• Business strategy has competitor and
competition
• BUT both need a competitive edge over the
enemy/competitor
 Comparing Business and Military
Strategy
• When Napoleon won, it was because his opponents
were committed to the strategy, tactics, and
organization of earlier wars.
• When he lost—against Wellington, the Russians, and
the Spaniards—it was because he, in turn, used tried-
and-true strategies against enemies who thought
afresh, who were developing the strategies not of the
last war but of the next.
• Don’t allow your competitor to know, what you are
thinking
• Anticipate, do not react
• Do you know about Sun Tzu?
 Thank You
Questions

“Dialogue is the best form of knowledge transfer” - Anonymous