Chapter 1 - Nature of Strategic Management

The Nature of
Strategic
Management
Chapter One
Learning Objectives
1. Describe the strategic- 5. Describe the benefits
management process and pitfalls of strategic
2. Explain the need for management.
integrating analysis and 6. Discuss the relevance of
intuition in strategic Sun Tzu’s The Art of
management. War to strategic
3. Define and give management.
examples of key terms 7. Discuss how a firm
in strategic may achieve sustained
management. competitive
4. Discuss the nature of advantage.
strategy formulation,
implementation, and
evaluation activities.
1-2
Defining Strategic Management
 Strategic management definitions
 the art and science of formulating, implementing, and
evaluating cross-functional decisions that enable an
organization to achieve its objectives (David)
 Strategic management is the process of managing,
planning, and analysing in order to reach all organizational
goals (Google)
 a set of managerial decisions and actions that determines
the long-run performance of a corporation (Wheelan)
 Strategic management consists of the analysis, decisions,
and actions an organization undertakes in order to create
and sustain competitive advantages (Dess, Lumpkin, &
Eisner, Strategic Management: Creating Competitive
Advantage, 3rd Ed., p. 9). 1-3
CANOE THEORY- an anology
 Think of your organization as a long canoe

 The canoe has a destination (vision/mission)
 Everyone in the canoe has a seat and paddle (job assignments)
 Everyone is expected to paddle (responsibilities)
 Those who won’t paddle have to get out of the canoe (non
performers)
 Those who prevent others from paddling have to re-adjust or get
out of the canoe (non performers/ not loyal)
 There are no passengers in the canoe (everybody have to
contribute)
 The canoe theory understands crisis (everybody need to assimilate
and acclimate to what ever is happening internally and externally)
 The canoe theory says you have the right to be happy –everybody
gain regardless of levels and positions
 Strategic management is used

synonymously with the term strategic
planning.
 To contrast-but overlaps
 Sometimes the term strategic management
is used to refer to strategy formulation,
implementation, and evaluation, with
strategic planning referring only to strategy
formulation.
1-5
Copyright ©2013 Pearson Education
 A strategic plan is a company’s game

plan. (blue print – steps/alternatives
towards achieving goals)
 A strategic plan results from tough
managerial choices among numerous
good alternatives, and it signals
commitment to specific markets, policies,
procedures, and operations.
1-6
Stages of Strategic Management
Just like a simple decision making process studied in your fundamentals of management
1-7
Stages of strategic management
Strategy formulation  Deciding what new
 includes developing a
businesses to enter,
vision and mission,
identifying an  What businesses to
organization’s external abandon,
opportunities and threats,  How to allocate resources,
determining internal
strengths and  Whether to expand
weaknesses, establishing operations or diversify,
long-term objectives,  Whether to enter
generating alternative
international markets,
strategies, and choosing
particular strategies to  Whether to merge or form a
pursue joint venture,
 How to avoid a hostile
Copyright ©2013 Pearson Education takeover. 1-8
Stages of Strategic Management
 Strategy  Strategy
implementation
 requires a firm to
evaluation
establish annual  reviewing external
objectives, devise and internal factors
policies, motivate that are the bases
employees, and for current
allocate resources so strategies,
that formulated
measuring
strategies can be
executed performance, and
 often called the action taking corrective
stage actions
1-9
Stages of Strategic Management –where it
is implemented
 Strategy formulation, implementation, and

evaluation activities occur at three hierarchical
levels in a large organization: corporate (board
of directors/UiTM), divisional
(branches/faculties/departments or strategic
business unit (ICEPS/Rmi/IBE/ARI), and
functional
(programmes/administration/maintenance/IT
 Strategic management helps a firm function as
a competitive team
1-10
Integrating Intuition and Analysis
 Most organizations can benefit from

strategic management, which is based
upon integrating intuition and analysis in
decision making (rational decision making
– past data analysis/forecasting/statistical
tools)
 Intuition (your judgment/firasat) is
particularly useful for making decisions in
situations of great uncertainty or little
precedent 1-11
Failure to Adapting to Change –
improper planning
 The second-largest bookstore chain in the United
States, Borders Group, declared bankruptcy in 2011
as the firm had not adapted well to changes in book
retailing from traditional bookstore shopping to
customers buying online, preferring digital books to
hard copies
 Borders was on the brink of financial collapse
before being acquired in July 2011 by Direct Brands
 In M’sia and even around the world like Spore we
see bookstores like MPH are restructuring and
downsizing due to Covid 19 1-12
Key Terms in Strategic Management
 Competitive  Strategists
advantage  the individuals
 anything that a who are most
firm does responsible for the
especially well success or failure
compared to rival of an organization
firms
1-13
 Vision statement  Mission statements

 answers the  enduring statements of
purpose that distinguish
question “What do one business from other
we want to similar firms
become?”  identifies the scope of a
 often considered firm’s operations in
product and market
the first step in
terms
strategic planning
 addresses the basic
question that faces all
strategists: “What is our
business?” 1-14
 External opportunities and external

threats
 refer to economic, social, cultural,
demographic, environmental, political, legal,
governmental, technological, and competitive
trends and events that could significantly
benefit or harm an organization in the future
1-15
Examples - Some Opportunities
and Threats
 Computer hacker problems are increasing.
 Intense price competition is plaguing most firms. (reducing
price at the expense of quality, but to retain or to
increase price means losing customers , while cost for
resources are getting higher)
 Unemployment and underemployment rates remain high.
( companies need to retrench workers because of increase
expense and the increase use of technology and
digitalization)
 Interest rates are rising – due to increase in expensed in
materials and goods
 Product life cycles are becoming shorter – due to companies
not maintaining qualities
 State and local governments are financially weak – govnt
are exhausted of funds
1-16
 Internal strengths and internal

weaknesses
 an organization’s controllable activities that
are performed especially well or poorly
 determined relative to competitors
 Leadership
 Workers expertise
 Types of business
 Maintaining costs
1-17
 Objectives  Strategies
 specific results that  the means by which
an organization seeks long-term objectives will
to achieve in pursuing be achieved
its basic mission  may include geographic
 long-term means expansion,
more than one year diversification,
 should be acquisition, product
challenging, development, market
measurable, penetration, staff
consistent, retrenchment, company
reasonable, and clear divestiture, liquidation,
and joint ventures 1-18
 Annual objectives  Policies
 short-term milestones that
 the means by which
organizations must
achieve to reach long- annual objectives will
term objectives be achieved
 should be measurable,  include guidelines,
quantitative, challenging, rules, and procedures
realistic, consistent, and
prioritized established to support
 should be established at
efforts to achieve
the corporate, divisional, stated objectives
and functional levels in a  guides to decision
large organization making and address
repetitive or recurring
situations 1-19
Sample Strategies in Action in 2011
1-20
The Strategic-Management Model
1-21
A Comprehensive Strategic-
Management Model
1-22
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
1-23
Benefits of Strategic Management
 Communication is a  Financial
key to successful  Businesses using strategic-
management concepts show
strategic significant improvement in
management sales, profitability, and
productivity compared to
 Through dialogue firms without systematic
and participation, planning activities
managers and  High-performing firms seem
to make more informed
employees become decisions with good
committed to anticipation of both short-
supporting the and long-term consequence
organization
1-24
Benefits to a Firm That Does
Strategic Planning
1-25
Nonfinancial Benefits
 It allows for identification,  It allows major decisions to
prioritization, and exploitation better support established
of opportunities. objectives.
 It allows more effective
 It provides an objective view allocation of time and
of management problems. resources to identified
 It represents a framework for opportunities.
improved coordination and  It allows fewer resources
and less time to be devoted
control of activities. to correcting erroneous or
 It minimizes the effects of ad hoc decisions.
adverse conditions and  It creates a framework for
changes. internal communication
among personnel.
1-26
Why Some Firms Do No
Strategic Planning
 Lack of knowledge in  Fear of failure
strategic planning
 Overconfidence
 Poor reward structures
 Firefighting
 Prior bad experience
 Waste of time  Self-interest
 Too expensive  Fear of the unknown
 Laziness  Honest difference of
 Content with success opinion
 Suspicion
1-27
Pitfalls(barriers/problems) in
Strategic Planning
 Using strategic planning to gain  Top managers not actively
control over decisions and supporting the strategic-
resources planning process
 Doing strategic planning only to  Failing to use plans as a
satisfy accreditation or standard for measuring
regulatory requirements performance
 Too hastily moving from mission  Delegating planning to a
development to strategy “planner” rather than
formulation involving all managers
 Failing to communicate the plan  Failing to involve key
to employees, who continue employees in all phases of
working in the dark planning
 Top managers making many  Failing to create a
intuitive decisions that conflict collaborative climate
with the formal plan supportive of change 1-28
Guidelines for Effective Strategic
Management
1-29
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(difference in opinion/political belief)
 Both business and military organizations must
adapt to change and constantly improve to be
successful
1-30
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
1-31
SUMMARY OF SUN TZU ART
OF WAR
if you know the enemy and know yourself, you

need not fear the result of a hundred battles. If
you know yourself but not the enemy, for
every victory gained you will also suffer a
defeat. If you know neither the enemy nor
yourself, you will succumb in every battle.
Based on text from "The Art of War."
32
1-33

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Chapter 1 - Nature of Strategic Management

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The Nature of

 Think of your organization as a long canoe

 Strategic management is used

 A strategic plan is a company’s game

 Strategy formulation, implementation, and

 Most organizations can benefit from

 Vision statement  Mission statements

 External opportunities and external

 Internal strengths and internal

 Historically, the principal benefit of

if you know the enemy and know yourself, you

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