Chapter 1 Strategic Management Essentials

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ESSENTIALS"— Presentation transcript:
1 Strategic Management ESSENTIALS
Chapter One

2 Chapter Objectives 1. Discuss the nature and role of a chief strategy

officer (CSO). 2. Describe the strategic-management process. 3. Explain the need for integrating
analysis and intuition in strategic management. 4. Define and give examples of key terms in
strategic management. 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.

3 Chapter Objectives (cont.)

5. Discuss the nature of strategy formulation, implementation, and evaluation activities. 6. Describe
the benefits of good strategic management. 7. Discuss the relevance of Sun Tzu’s The Art of War to
strategic management. 8. Discuss how a firm may achieve sustained competitive advantage.
Describe the benefits of good strategic management. Discuss the relevance of Sun Tzu’s The Art of
War to strategic management. Discuss how a firm may achieve sustained competitive advantage.

4 Defining Strategic Management

the art and science of formulating, implementing, and evaluating cross-functional decisions that
enable an organization to achieve its objectives Strategic management is defined as the art and
science of formulating, implementing, and evaluating cross-functional decisions that enable an
organization to achieve its objectives

5 Defining Strategic Management

Strategic management is used synonymously with the term strategic planning. Sometimes the term
strategic management is used to refer to strategy formulation, implementation, and evaluation, with
strategic planning referring only to strategy formulation. Strategic management in this text is used
synonymously with the term strategic planning. Sometimes the term strategic management is used
to refer to strategy formulation, implementation, and evaluation, with strategic planning referring
only to strategy formulation.

6 Defining Strategic Management

A strategic plan is a company’s game plan. A strategic plan results from tough managerial choices
among numerous good alternatives, and it signals commitment to specific markets, policies,
procedures, and operations. A strategic plan results from tough managerial choices among
numerous good alternatives, and it signals commitment to specific markets, policies, procedures,
and operations in lieu of other, “less desirable” courses of action.

7 Stages of Strategic Management

Strategy formulation Strategy implementation Strategy evaluation The strategic-management
process consists of three stages: strategy formulation, strategy implementation, and strategy
evaluation.

8 Stages of Strategic Management

Strategy formulation includes developing a vision and mission, identifying an organization’s
external opportunities and threats, determining internal strengths and weaknesses, establishing long-
term objectives, generating alternative strategies, and choosing particular strategies to pursue.
Strategy formulation includes developing a vision and mission, identifying an organization’s
external opportunities and threats, determining internal strengths and weaknesses, establishing long-
term objectives, generating alternative strategies, and choosing particular strategies to pursue.

9 Strategy Formulation Deciding what new businesses to enter

What businesses to abandon How to allocate resources Whether to expand operations or diversify
Whether to enter international markets Whether to merge or form a joint venture How to avoid a
hostile takeover Deciding what new businesses to enter What businesses to abandon How to
allocate resources Whether to expand operations or diversify Whether to enter international markets
Whether to merge or form a joint venture How to avoid a hostile takeover.

10 Stages of Strategic Management

Strategy implementation requires a firm to establish annual objectives, devise policies, motivate
employees, and allocate resources so that formulated strategies can be executed often called the
action stage Strategy implementation requires a firm to establish annual objectives, devise policies,
motivate employees, and allocate resources so that formulated strategies can be executed and is
often called the action stage.

11 Some Opportunities and Threats

Computer hacker problems are increasing. Intense price competition is plaguing most firms.
Unemployment and underemployment rates remain high. Interest rates are rising. Product life
cycles are becoming shorter. State and local governments are financially weak. • Availability of
capital can no longer be taken for granted. • Consumers expect green operations and products. •
Marketing moving rapidly to the Internet. • Commodity food prices are increasing. • Political unrest
in the Middle East is raising oil prices. • Computer hacker problems are increasing. • Intense price
competition is plaguing most firms. • Unemployment and underemployment rates remain high. •
Interest rates are rising. • Product life cycles are becoming shorter. • State and local governments
are financially weak. • Turmoil and violence in Mexico is increasing. • Winters are colder and
summers hotter than usual. • Home prices remain exceptionally low. • Global markets offer the
highest growth in revenues.

12 Key Terms in Strategic Management

Internal strengths and internal weaknesses an organization’s controllable activities that are
performed especially well or poorly determined relative to competitors Internal strengths and
internal weaknesses are an organization’s controllable activities that are performed especially well
or poorly and are determined relative to competitors.

13 Key Terms in Strategic Management

Objectives specific results that an organization seeks to achieve in pursuing its basic mission long-
term means more than one year should be challenging, measurable, consistent, reasonable, and clear
Objectives are specific results that an organization seeks to achieve in pursuing its basic mission.
Long-term means more than one year. They should be challenging, measurable, consistent,
reasonable, and clear.

14 Key Terms in Strategic Management

Strategies the means by which long-term objectives will be achieved may include geographic
expansion, diversification, acquisition, product development, market penetration, retrenchment,
divestiture, liquidation, and joint ventures Strategies are the means by which long-term objectives
will be achieved. They may include geographic expansion, diversification, acquisition, product
development, market penetration, retrenchment, divestiture, liquidation, and joint ventures.

15 Key Terms in Strategic Management

Annual objectives short-term milestones that organizations must achieve to reach long-term
objectives should be measurable, quantitative, challenging, realistic, consistent, and prioritized
should be established at the corporate, divisional, and functional levels in a large organization
Annual objectives are short-term milestones that organizations must achieve to reach long-term
objectives. They should be measurable, quantitative, challenging, realistic, consistent, and
prioritized. They should be established at the corporate, divisional, and functional levels in a large
organization.

16 Sample Strategies in Action in 2013

TABLE 1-1: Strategies in Action in Sample 2013
▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬
Walgreen Company___________________________________________________________
Walgreen’s is deepening its penetration into the southeastern portion of the USA by acquiring firms
such as USA Drug, May’s Drug, Med-X, Drug Warehouse, and Super D Drug. Walgreen’s is
expanding globally through acquisition of firms such the U.K.’s Alliance Boots GmbH. Walgreen’s
is acquiring firms because sales have dropped 15 percent in the last year, as a result of selling more
generic drugs, and their same-store-overall sales have dropped 10 percent, because of the chain’s
exit from Express Scripts Holding. Netflix,
Inc._________________________________________________________________ The long-time
DVD-by-mail provider is struggling to survive as it switches from the DVD business to (a)
providing Internet-delivered content and (b) expanding overseas. Major rivals include News Corp.’s
Hulu and Coinstar’s Redbox. Netflix’s overseas efforts are not going well because that strategy
requires country-by-country deals to line up video content. Netflix lost 850,000 DVD subscribers
and added 530,000 movie and TV-show streaming customers. Netflix’s international streaming
business lost about $400 million in 2012. Strategies currently being pursued by some companies are
described in Table 1-1.

17 Key Terms in Strategic Management

Policies the means by which annual objectives will be achieved include guidelines, rules, and
procedures established to support efforts to achieve stated objectives guides to decision making and
address repetitive or recurring situations Policies are the means by which annual objectives will be
achieved. They include guidelines, rules, and procedures established to support efforts to achieve
stated objectives. Policies are guides to decision making and address repetitive or recurring
situations.

18 The Strategic-Management Model

Where are we now? Where do we want to go? How are we going to get there? These are three
important questions to answer in developing a strategic plan: Where are we now? Where do we
want to go? How are we going to get there?

19 A Comprehensive Strategic-Management Model

The framework illustrated in Figure 1-1 is a widely accepted, comprehensive model of the strategic-
management process. This model does not guarantee success, but it does represent a clear and
practical approach for formulating, implementing, and evaluating strategies. Relationships among
major components of the strategic-management process are shown in the model, which appears in
all subsequent chapters with appropriate areas shaped to show the particular focus of each chapter.

20 Benefits of Strategic Management

Historically, the principal benefit of strategic management has been to help organizations formulate
better strategies through the use of a more systematic, logical, and rational approach to strategic
choice Historically, the principal benefit of strategic management has been to help organizations
formulate better strategies through the use of a more systematic, logical, and rational approach to
strategic choice.

21 Benefits of Strategic Management

Communication is a key to successful strategic management Through dialogue and participation,
managers and employees become committed to supporting the organization
22 Benefits to a Firm That Does Strategic Planning
Figure 1-2 illustrates the intrinsic benefit of a firm engaging in strategic planning. Note that all
firms need all employees on a mission to help the firm succeed.

23 Financial Benefits Businesses using strategic-management concepts show significant

improvement in sales, profitability, and productivity compared to firms without systematic planning
activities High-performing firms seem to make more informed decisions with good anticipation of
both short- and long-term consequences Businesses using strategic-management concepts show
significant improvement in sales, profitability, and productivity compared to firms without
systematic planning activities. High-performing firms seem to make more informed decisions with
good anticipation of both short- and long-term consequences.

24 Nonfinancial Benefits
Enhanced awareness of external threats, Improved understanding of competitors’ strategies,
Increased employee productivity, Reduced resistance to change, Clearer understanding of
performance–reward relationships. It allows for identification, prioritization, and exploitation of
opportunities. It provides an objective view of management problems. It represents a framework for
improved coordination and control of activities. It minimizes the effects of adverse conditions and
changes.

25 Nonfinancial Benefits
Increased discipline Improved coordination Enhanced communication Increased forward thinking
Improved decision-making Increased synergy Effective allocation of time and resources It allows
major decisions to better support established objectives. It allows more effective allocation of time
and resources to identified opportunities. It allows fewer resources and less time to be devoted to
correcting erroneous or ad hoc decisions. It creates a framework for internal communication among
personnel.

26 Why Some Firms Do No Strategic Planning

Lack of knowledge in strategic planning Poor reward structures Firefighting Waste of time Too
expensive • Lack of knowledge or experience in strategic planning—No training in strategic
planning. • Poor reward structures—When an organization assumes success, it often fails to reward
success. When failure occurs, then the firm may punish. • Firefighting—An organization can be so
deeply embroiled in resolving crises and firefighting that it reserves no time for planning. • Waste
of time—Some firms see planning as a waste of time because no marketable product is produced.
Time spent on planning is an investment. • Too expensive—Some organizations see planning as too
expensive in time and money. • Laziness—People may not want to put forth the effort needed to
formulate a plan. • Content with success—Particularly if a firm is successful, individuals may feel
there is no need to plan because things are fine as they stand. But success today does not guarantee
success tomorrow.

27 Why Some Firms Do No Strategic Planning

Laziness Content with success Overconfidence Prior bad experience Honest difference of opinion •
Fear of failure—By not taking action, there is little risk of failure unless a problem is urgent and
pressing. Whenever something worthwhile is attempted, there is some risk of failure. •
Overconfidence—As managers amass experience, they may rely less on formalized planning.
Rarely, however, is this appropriate. Being overconfident or overestimating experience can bring
demise. Forethought is rarely wasted and is often the mark of professionalism. • Prior bad
experience—People may have had a previous bad experience with planning, that is, cases in which
plans have been long, cumbersome, impractical, or inflexible. Planning, like anything else, can be
done badly. • Self-interest—When someone has achieved status, privilege, or self-esteem through
effectively using an old system, he or she often sees a new plan as a threat. • Fear of the unknown—
People may be uncertain of their abilities to learn new skills, of their aptitude with new systems, or
of their ability to take on new roles. • Honest difference of opinion—People may sincerely believe
the plan is wrong. They may view the situation from a different viewpoint, or they may have
aspirations for themselves or the organization that are different from the plan. Different people in
different jobs have different perceptions of a situation. • Suspicion—Employees may not trust
management.

28 Pitfalls in Strategic Planning

Using strategic planning to gain control over decisions and resources Doing strategic planning only
to satisfy accreditation or regulatory requirements Too hastily moving from mission development to
strategy formulation Failing to communicate the plan to employees, who continue working in the
dark Top managers making many intuitive decisions that conflict with the formal plan Using
strategic planning to gain control over decisions and resources. Doing strategic planning only to
satisfy accreditation or regulatory requirements. Too hastily moving from mission development to
strategy formulation. Failing to communicate the plan to employees, who continue working in the
dark. Top managers making many intuitive decisions that conflict with the formal plan.

29 Pitfalls in Strategic Planning

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 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.

30 Guidelines for Effective Strategic Management

Table 1-3 summarizes important guidelines for the strategic-planning process to be effective.

31 Comparing Business and Military Strategy

A fundamental difference between military and business strategy is that business strategy is
formulated, implemented, and evaluated with an assumption of competition, whereas military
strategy is based on an assumption of conflict Both business and military organizations must adapt
to change and constantly improve to be successful A fundamental difference between military and
business strategy is that business strategy is formulated, implemented, and evaluated with an
assumption of competition, whereas military strategy is based on an assumption of conflict. Both
business and military organizations must adapt to change and constantly improve to be successful.

32 Excerpts from Sun Tzu’s The Art of War Writings

War is a matter of vital importance to the state: a matter of life or death, the road either to survival
or ruin. Hence, it is imperative that it be studied thoroughly Know your enemy and know yourself,
and in a hundred battles you will never be defeated Skillful leaders do not let a strategy inhibit
creative counter-movement War is a matter of vital importance to the state: a matter of life or death,
the road either to survival or ruin. Hence, it is imperative that it be studied thoroughly. Know your
enemy and know yourself, and in a hundred battles you will never be defeated. Skillful leaders do
not let a strategy inhibit creative counter-movement.