Chapter 1

The Nature of Strategic Management

Strategic Management: Concepts & Cases

Fred David

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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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Strategic Management –Defined

Art & science of formulating,

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

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Purpose of Strategic Management

To exploit and create new and different

opportunities for tomorrow

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Strategic Management

In essence, the strategic plan is a

company’s game plan

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Strategic Management is
Gaining and Maintaining
Competitive Advantage

Anything that a firm does especially

well compared to rival firms

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3 Stages of the Strategic
Management Process

1) Strategy formulation

2) Strategy implementation

3) Strategy evaluation

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1. Strategy Formulation

Vision & Mission

External Opportunities & Threats

Internal Strengths & Weaknesses

Long-Term Objectives

Alternative Strategies

Strategy Selection

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Strategists

Gather Information

Analyze Information

Organize Information

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Vision and Mission Statements

Vision Statement –
What do we want to become?

Mission Statement –
What is our business?

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Prime Task of Strategic Management

Peter Drucker: Think through the

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

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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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External Opportunities and Threats

Basic Tenet of Strategic Management

Take advantage of
External Opportunities

Strategy Formulation

Avoid/minimize impact of
External Threats

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Internal Strengths and Weaknesses

 Controllable
activities performed
especially well or poorly

 Determined relative to competitors

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Internal Strengths and Weaknesses

 Typically located in functional areas of the firm

 Management
 Marketing

 Finance/Accounting

 Production/Operations

 Research & Development

 Management Information Systems

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Internal Strengths and Weaknesses

Assessing the Internal Environment

Ratios

Performance Measures
Internal Factors
Industry Averages

Survey Data

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Long-Term Objectives

 Specific results that an organization

seeks to achieve in pursuing its basic
mission

 Long-term means more than one year

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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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Strategies

Means by which long-term objectives

are achieved

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Strategies
 Examples
 Geographic expansion

 Diversification

 Acquisition

 Product development

 Market penetration

 Retrenchment

 Divestiture

 Liquidation

 Joint venture

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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

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2. Strategy Implementation

Annual Objectives

Policies

Employee Motivation

Resource Allocation

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Annual Objectives

Short-term milestones that firms must

achieve to reach long-term objectives

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Policies

Means by which annual objectives will

be achieved

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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

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3. Strategy Evaluation

Internal Review

External Review

Performance Measurement

Corrective Action

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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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