Concepts of Strategic Management Fred R. David Prentice-Hall, Inc.

Sixth Edition

Chapter 1
The Nature of Strategic Management

Three Themes in the Text

Global Considerations Impact Virtually All Strategic Decisions Information Technology Has Become a Vital Strategic Management Tool Preserving the Natural Environment is an Important Strategic Issue

Chapter Objectives
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 Describe the benefits of good strategic management Explain why good ethics is good business in strategic management

Global Considerations Impact Virtually All Strategic Decisions

Should we import?

Should I learn a foreign language?

Will NAFTA affect our firm?

Should we export?

Information Technology Has Become A Vital Strategic Management Tool

Should we set up a Web site?

Should we upgrade our PCs? Should we buy our sales staff laptops?

Should we outsource MIS?

Preserving the Natural Environment is an Important Strategic Issue

Is our firm environmentally friendly?

Should we burn low-sulfur coal? Will Congress pass tougher laws?

Should we recycle?

The Definition of Strategic Management

The Art and Science of Formulating, Implementing, and Evaluating Cross-Functional Decisions That Enable an Organization to Achieve Its Objectives

The Stages and Activities in the Strategic Management Process

Stages
Strategy formulation Conduct research

Activities
Integrate intuition with analysis Make decisions

Strategy implementation

Establish annual objectives Review internal and external factors

Devise policies

Allocate resources

Strategy evaluation

Measure performance

Take corrective action

The Basis for Good Strategic Decisions Intuition + Analysis

Effective Strategic Decisions

Global Perspective
The Worlds Largest Companies The Worlds Ten Largest Companies in Rank Order Based on 1994 Revenues
1. Mitsubishi 2. Mitsui 6. Marubeni 7. Ford Motor

3. Itochu
4. Sumitomo 5. General Motors

8. Exxon
9. Nissho Iwai 10. Royal Dutch/Shell Group

What Traits CEOs Have Now - And Will Need in the Year 2000
Personal Behaviors Conveys strong sense of vision Links compensation to performance Communicates frequently with employees Emphasizes ethics Plans for management succession Communicates frequently with customers Reassigns or terminates Rewards loyalty Makes all major decisions Behaves conservatively Now 75% 66% 59% 74% 56% 41% 34% 39% 39% 32% Year 2000 98% 91% 89% 85% 85% 78% 71% 44% 21% 13%

What Traits CEOs Have Now - And Will Need in the Year 2000 (cont.)
Knowledge and Skills Strategy formulation Human resource management International economics and politics Science and technology Computer literacy Marketing and sales Negotiation Accounting and finance Handling media and public speaking Production Now 68% 41% 10% 11% 3% 50% 34% 33% 16% 21% Year 2000 78% 53% 19% 15% 7% 48% 24% 24% 13% 9%

Ten Key External Forces

Competitive Economic Technological

Social Cultural
Demographic

Governmental Political
Environmental

Legal

Fourteen Key Internal Forces

Management Marketing Manufacturing Production/ Operations

Research & Development

Purchasing

Distribution

Key Internal Forces (cont.)

Finance/Accounting Packaging Human Resource Management Vendor Relations Promotion

Employee/ Manager Relations

Computer Information Systems

Keys to Formulating Strategies

Business Mission

External Opportunities and Threats

Internal Strengths and Weaknesses

Strategy Formulation

A Comprehensive Strategic Management Model

Feedback

Perform External Audit

Develop Mission Statement

Establish Longterm Objectives

Generate, Evaluate, and Select Strategies

Establish Policies and Annual Objectives

Allocate Resources

Measure and Evaluate Performance

Perform Internal Audit

Strategy Formulation

Strategy Implementation

Strategy Evaluation

Forces Influencing Design of Strategic Management Systems

Toward more formality and more details

Organization
Small one-plant companies Large companies

Toward less formality and fewer details

Management Styles
Policy maker Democratic-permissive Authoritarian Day-to-day operational thinker Intuitive thinker Experienced in planning Inexperienced in planning

Forces Influencing Design of Strategic Management Systems

Toward more formality and more details

Complexity of Environment
Stable environment Turbulent environment Little competition Many markets and customers Single market and customer Competition severe

Toward less formality and fewer details

Forces Influencing Design of Strategic Management Systems

Toward more formality and more details

Complexity of Production Process

Long production lead times Short production lead times Capital intensive Labor intensive Integrated manufacturing processes Simple manufacturing processes High technology Low technology Market reaction time for new product is short Market reaction time is long

Toward less formality and fewer details

Forces Influencing Design of Strategic Management Systems

Toward more formality and more details

Nature of Problems
Facing new, complex, tough problems having long-range aspects Facing tough short-range problems

Toward less formality and fewer details

Purpose of Planning System

Coordinate division activities Train managers

Benefits of Strategic Management

- Improved Communication - Greater Productivity - Increased Understanding - Enhanced Commitment - More Effective Strategies - Higher Productivity

- Allow Firm to Influence, Initiate, and Anticipate - Be Proactive Rather Than Reactive

How to Create an Ethical Culture

Develop a Code of Business Ethics Ask All Managers and Employers to Sign the Code Offer Business Ethics Workshops Include Ethics Factors in Performance Appraisal Instruments Link Compensation to Ethical Behavior

How to Create an Ethical Culture (cont.)

Encourage Whistle Blowing Encourage Good Business Ethics Behavior Publicize Good Business Ethics Behavior Reward Good Business Ethics Behavior Set a Good Example

The Communications Benefits of Engaging In Strategic Management

Managers from all functional areas listen and discuss their views in strategic management meetings. This interaction yields learning, appreciation, and understanding among managers who otherwise do not communicate with each other