David sm13 PPT 01

Chapter 1
The Nature of Strategic Management
Strategic Management:
Concepts & Cases
13th Edition
Fred David
Copyright 2005 Prentice Hall Ch 1 -1

What is Strategy?
As there is always an element of

uncertainty about future, strategy
is more about a set of options
("strategic choices") than a fixed
plan. It derives from the Greek
"στρατηγία" (strategia), "office of
general, command, generalship"

Strategic Management –Defined
Art & science of formulating,

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

Purpose of Strategic Management
To exploit and create new and different

opportunities for tomorrow
A long-range planning tries to optimize for

tomorrow the trends of today.

Purpose of Strategic Management
Market based-opportunities
Resource based-core competencies

WHAT MAKES A DECISION
STRATEGIC
Unlike many other decisions, strategic decisions deal
with the long-run future of an entire organization and
have three characteristics:
1. Rare: Strategic decisions are unusual and typically have
no precedent (emsal) to follow.
2. Consequential (önemli ve sonucu olan): Strategic
decisions commit substantial resources and demand a
great deal of commitment from people at all levels.
3. Directive (yol gösterici): Strategic decisions set
precedents for lesser decisions and future actions
throughout an organization.
Tomorrow's world is not going to
be the same.....
So, how could you plan your future if tomorrow
doesn't even resemble to today?
- Strategic planning originated in the 1950s and
became popular between mid-1960s-mid-
1970s.
- Casted aside in 1980s due to not yielding
high returns.

Strategic Management
- In essence, the strategic plan is a company’s

game plan.
- Profit margins have become very slim; no
room for errors in strategy...
- Long term competitive advantage

3 Stages of the Strategic
Management Process
Strategy formulation (sometimes
strategic planning)
◼ Strategy implementation
◼ Strategy evaluation

Strategy Formulation
Vision & Mission
External Opportunities & Threats
Internal Strengths & Weaknesses
Long-Term Objectives
Alternative Strategies
Strategy Selection
Multifuncfional consequences and enduring effects

Issues in Strategy
Formulation
✓Businesses to enter
✓Businesses to abandon
✓Allocation of resources
✓Expansion (büyüme) or
diversification(çeşitlendir
me)
✓International markets
✓Mergers (birleşme) or
joint ventures (ortaklık)
✓Avoidance of hostile
takeover

Strategy Implementation
Annual Objectives
Devising Policies
Employee Motivation
Resource Allocation

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

Issues in Strategy
Implementation It is the Action Stage of
✓Mobilization of
employees & managers
✓Most difficult stage
✓Interpersonal skills
critical

Research indicates that the ability to implement

a strategy is viewed as considerably more
important than strategy formulation, and that
strategy implementation, rather than strategy
formulation, is he key to superior
organisational performance.
** “In the majority of cases – we estimate 70
percent - the real problem isn’t bad strategy but
bad execution” (Fortune 1999).
http://hbr.org/2005/10/the-office-of-strategy-management/ar/1


All the firms are heading by strategic decisions.
The number of those strategic decisions
determines their future targets and performances.
The average decisions taken by firms all around
the world is 2.5 per firm. For the routine decisions
this rate goes even higher, to 6.1. The best
performance companies in Turkey are taking an
average of 5 decisions annually; that doesn’t
distinguishes them from their competitors only.
What matters most is the speed of implementing
those decisions in a lucrative way.
Which strategy does not work well?
Strategy Evaluation
Internal Review
External Review
Performance Measurement
Corrective Action
Modify
Prime Task of
Peter Drucker: Think through the

overall mission of a business. Ask
the key question:
“What is our Business?”

2
3
Managers
Managers as
as
An
An optimal
optimal decision
decision
isis possible
decision
decision makers
makers
possible
Assumptions
Assumptions of
of the
the
All
Rational
Rational Model
Model
All relevant
relevant information
information
isis available
available
All
All relevant
relevant information
information isis
Rational
Rational
understandable
understandable decision
decision
All
All alternatives
alternatives are
are known
known
making
making
All
All possible
possible outcomes
outcomes known
known
9 BARTOL, MANAGEMENT: A PACIFIC RIM FOCUS 3E © McGraw-Hill Australia 2001
2
4
Managers
Managers as
as
Time
Time constraints
constraints
decision
decision makers
makers
Satisficing
Satisficing
Limited
Limited ability
ability to
to
understand
understand all
all factors
factors
Inadequate
Inadequate base
base ‘Satisficing’
‘Satisficing’
of
of information
information
decision
decision
Limited
Limited memory
memory of
of making
making
decision-makers
decision-makers
Poor
Poor perception
perception of
of factors
factors
to
to be
be considered
considered
in
in decision
decision process
process
10 BARTOL, MANAGEMENT: A PACIFIC RIM FOCUS 3E © McGraw-Hill Australia 2001
Integrating Intuition (önsezi) & Analysis
- The strategic management process

attempts to organize quantitative and
qualitative information under conditions of
uncertainty.
- An objective, logical, systematic approach
for making decisions in an organization. But;

Integrating Intuition & Analysis
Intuition is based on:

❑ Past experiences
❑ Judgment
❑ Feelings
Intuition is useful for decision making in

conditions of:
❑ Great uncertainty
❑ Little precedent
❑ Highly interrelated variables
❑ Several plausible alternatives

Einstein once said:
Imagination is more important

than knowledge, because
knowledge is limited, whereas
imagination embraces the entire
world.....

Adapting to Change
Organizations should continually

monitor internal and external
events and trends so that timely
changes can be made as needed

Adapting to Change
* What kind of business should we

become?
* Are we in the right field?
* Should we reshape our business?
* What new competitors are entering
our industry?

WHY NOKIA FAILED? A concise timeline of Nokia’s important moments:
•In October 1998, Nokia became the best-selling mobile
phone brand in the world;
•Nokia’s operating profit went from $1 billion in 1995 to
almost $4 billion by 1999;
•The best-selling mobile phone of all time, the Nokia 1100,
was created in 2003;
•In 2007, Apple introduced the iPhone;
•By the end of 2007, half of all smartphones sold in the
world were Nokias, while Apple’s iPhone had a mere 5 per
cent share of the global market;
•In 2010 Nokia launched the “iPhone killer” but failed to
match the competition;
•The quality of Nokia’s high-end phones continues to
decline;
•In just six years, the market value of Nokia declined by
about 90%;
•Nokia’s decline accelerates by 2011 and is acquired by
Microsoft in 2013.
Nokia’s demise from being the world’s best mobile phone
company to losing it all by 2013 has become a case study
discussed by teachers and students in business
Copyright 2005 Prentice Hall management classes.
Ch 1 -30
WHY NOKIA FAILED?
When explaining Nokia’s fall many observers found
three reasons:
-Nokia’s technology was inferior to Apple’s;
-The arrogance among top-level managers (Fear was

widespread and communication was lacking)
-Lack of vision.
-Top managers lacked technical competence which

influenced how they could assess technological
limitations during goal setting; by comparison, the
top engineers at Apple were all engineers;
-Instead of allocating resources to the achievement

of long-term goals such as developing a new
operating system, Nokia management decided to
develop new phone devices for short-term market
Copyright 2005 Prentice Hall demands.
https://medium.com/multiplier-magazine/why-did-nokia-fail-81110d981787
Ch 1 -31
Strategic Management is
Gaining and Maintaining
Competitive Advantage
Anything that a firm does especially

well compared to rival firms

Achieving Sustained Competitive
Advantage
1. Continually adapting to changes in

external trends and events and internal
capabilities, competencies, and resources
2. Effectively formulating, implementing, and

evaluating strategies that capitalize on those
factors

Who are strategists?
Strategists hold various job titles, such as chief

executive officers, president, owner, chair of
the board, executive director, chancellor, dean,
or entrepreneur.
Strategists
Gather Information
Analyze Information
Organize Information

Vision & Mission
External Opportunities & Threats
Internal Strengths & Weaknesses
Alternative Strategies
Strategy Selection
Multifuncfional consequences and enduring effects

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

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

External Opportunities and Threats
Basic Tenet(ilke-prensip) of Strategic

Management Environmental
Beyond control scanning/industry analysis
Take advantage of
External Opportunities
Avoid/minimize impact of
External Threats
Controllable

Internal Strengths and Weaknesses
❑ Controllable activities performed

especially well or poorly
❑ Determined relative to competitors

and maybe determined by both
performance and elements of
being

◼ Typically located in functional areas of the firm
❑ Management
❑ Marketing
❑ Finance/Accounting
❑ Production/Operations
❑ Research & Development
❑ Management Information Systems

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

❑ Specific results that an organization

seeks to achieve in pursuing its basic
mission
❑ Long-term means more than one year

◼ 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

Objectives should be challenging,

measurable, consistent, reasonable, and
clear.

Strategies
Means by which long-term objectives

are achieved

Strategies
◼ Examples
❑ Geographic expansion
❑ Diversification
❑ Acquisition
❑ Product development
❑ Market penetration
❑ Retrenchment(tasarruf-kemer sıkma)
❑ Divestiture(elden çıkarma)
❑ Liquidation(tasfiye-nakte çevirme)
❑ Joint venture

Annual Objectives
• Short-term milestones that firms must

achieve to reach long-term objectives.
• Like long-term objectives, annual

objectives should be measurable,
quantitative, challenging, realistic,
consistent, and prioritized.

Policies
• Means by which annual objectives will

be achieved.
• Policies include guidelines, rules, and

procedures established to support
efforts to achieve stated objectives.
• Values vs policies
• Policies vs strategies

Where are we
now?
Where do we want to
go?
How are we going to get
there?

Strategic Management Model
❑ Strategic Management Process

❑ Dynamic & continuous
❑ More formal in larger

organizations

◼ Communication is a key to
successful strategic management

Benefits of Strategic Management

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

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

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

Pitfalls (tuzak-tehlike)in Strategic
Planning
Strategic planning is an involved,

intricate(çetrefilli), and complex process
that takes an organization into uncharted
territory

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
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(tantanalı)
◼ Is not too formal, predictable, or rigid
◼ Does not contain jargon or arcane(sır dolu)
language

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

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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Chapter 1

The Nature of Strategic Management

Copyright 2005 Prentice Hall Ch 1 -1

As there is always an element of

Copyright 2005 Prentice Hall Ch 1 -2

Art & science of formulating,

Copyright 2005 Prentice Hall Ch 1 -3

To exploit and create new and different

A long-range planning tries to optimize for

Copyright 2005 Prentice Hall Ch 1 -4

Resource based-core competencies

Copyright 2005 Prentice Hall Ch 1 -5

Copyright 2005 Prentice Hall Ch 1 -8

- In essence, the strategic plan is a company’s

Copyright 2005 Prentice Hall Ch 1 -9

Copyright 2005 Prentice Hall Ch 1 -10

Vision & Mission

External Opportunities & Threats

Internal Strengths & Weaknesses

Multifuncfional consequences and enduring effects

Copyright 2005 Prentice Hall Ch 1 -12

Copyright 2005 Prentice Hall Ch 1 -13

◼ Developing a strategy-supportive culture

Copyright 2005 Prentice Hall Ch 1 -14

✓Most difficult stage

Copyright 2005 Prentice Hall Ch 1 -15

Research indicates that the ability to implement

Copyright 2005 Prentice Hall Ch 1 -18

Copyright 2005 Prentice Hall Ch 1 -19

Peter Drucker: Think through the

Copyright 2005 Prentice Hall Ch 1 -22

- The strategic management process

Copyright 2005 Prentice Hall Ch 1 -25

Intuition is based on:

Intuition is useful for decision making in

❑ Highly interrelated variables

❑ Several plausible alternatives

Copyright 2005 Prentice Hall Ch 1 -26

Imagination is more important

Copyright 2005 Prentice Hall Ch 1 -27

Organizations should continually

Copyright 2005 Prentice Hall Ch 1 -28

* What kind of business should we

Copyright 2005 Prentice Hall Ch 1 -29

-Nokia’s technology was inferior to Apple’s;

-The arrogance among top-level managers (Fear was

-Top managers lacked technical competence which

-Instead of allocating resources to the achievement

Anything that a firm does especially

Copyright 2005 Prentice Hall Ch 1 -32

1. Continually adapting to changes in

2. Effectively formulating, implementing, and

Copyright 2005 Prentice Hall Ch 1 -33

Strategists hold various job titles, such as chief

Copyright 2005 Prentice Hall Ch 1 -35

Vision & Mission

External Opportunities & Threats

Internal Strengths & Weaknesses