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Chapter 1The Nature of Strategic

Management

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

Strategic Management DefinedStrategic Management Defined

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The Stages and Activities in the Strategic Management Process

The Stages and Activities in the Strategic Management Process

Stages Activities

Strategy formulation

Strategy evaluation

Strategy implementation

Conduct research

Establish annual

objectives

Review internal and external

factors

Integrate intuition with

analysis

Devise policies

Measure performance

Make decisions

Allocate resources

Take corrective

action©1999 Prentice Hall

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The Basis for Good Strategic DecisionsThe Basis for Good Strategic Decisions

Intuition + Analysis

Effective Strategic Decisions©1999 Prentice Hall

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Hierarchy of Strategy

Functional Strategy

Business (Division Level)

Strategy

Corporate Strategy

Manufacturing Finance MarketingResearch

and Development

Human Resources

Strategic Business

Unit

Strategic Business

Unit

Strategic Business

Unit

Corporate Headquarters

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Business MissionBusiness Mission

Strategy FormulationStrategy Formulation

External Opportunities and Threats

External Opportunities and Threats

Internal Strengths and Weaknesses

Internal Strengths and Weaknesses

Keys to Formulating Strategies

©1999 Prentice Hall

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Business Mission

• Mission statements are statements of purpose that distinguish one business from similar firms.

• It addresses the basic question: “What is our business?”

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Ten Key External ForcesTen Key External Forces

EconomicEconomic

SocialSocial

CulturalCultural

DemographicDemographic EnvironmentalEnvironmental

PoliticalPolitical

LegalLegal

GovernmentalGovernmental

TechnologicalTechnological

CompetitiveCompetitive

©1999 Prentice Hall

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Fourteen Key Internal ForcesFourteen Key Internal Forces

ManagementManagement

MarketingMarketing

DistributionDistribution

Production/

Operations

Production/

Operations

Research & DevelopmentResearch & Development

PurchasingPurchasing

ManufacturingManufacturing

©1999 Prentice Hall

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Key Internal Forces (continued)Key Internal Forces (continued)

Finance/AccountingFinance/Accounting

PackagingPackaging

Computer Information

Systems

Computer Information

Systems

Vendor RelationsVendor

Relations

PromotionPromotion

Human Resource

Management

Human Resource

Management

Employee/ Manager Relations

Employee/ Manager Relations

©1999 Prentice Hall

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A Comprehensive Strategic Management ModelA Comprehensive Strategic Management Model

DevelopMission

And VisionStatements

DevelopMission

And VisionStatements

Establish Long-term

Objectives

Establish Long-term

Objectives

Generate,Evaluate,

andSelect

Strategies

Generate,Evaluate,

andSelect

Strategies

Establish Policies and

AnnualObjectives

Establish Policies and

AnnualObjectives

ImplementStrategies

ImplementStrategies

Measureand

EvaluatePerformance

Measureand

EvaluatePerformance

PerformExternal

Audit

PerformExternal

Audit

PerformInternalAudit

PerformInternalAudit

Feedback

Strategy Formulation Strategy Implementation Strategy Evaluation©1999 Prentice Hall

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Benefits of Strategic ManagementBenefits of Strategic Management

- Improved Communication

- Increased Understanding

- Enhanced Commitment

- Greater Productivity

- More Effective Strategies

- Higher Sales and Profits

- Firm can Influence, Initiate, and Anticipate

- Be Proactive Rather Than Reactive©1999 Prentice Hall

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Business Ethics

• Business ethics can be defined as principles of conduct within organizations that guide decision making and behavior.

• Ethical decision making deals with the moral evaluation of decisions based on commonly accepted principles of behavior; the evaluation results in an action being judged right or wrong.

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Factors Affecting Ethical Decision Making

• Moral Values– deontology

– teleology

• Opportunity– codes of ethics

– policies

– rewards/punishment

• Significant Others– management

– peers

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Suggestions for Improving Ethical Behavior

• Offer training programs which independently and explicitly address specific treatment of ethical issues.

• Limit the opportunity to engage in unethical behavior by providing a well-developed structure and system of checks and balances, including explicit penalties for unethical behavior.

• Let employees know what penalties the company imposes on those who engage in unethical behavior.

• Recognize how the behavior of co-workers and superiors can influence the behavior of other employees in the organization.

• Develop a code of ethics or ethical policies that are widely communicated and enforced.

• In larger organizations, develop an ethics committee to address new issues and help establish and evaluate existing codes and policies.

• Eliminate the “bad apples”.– Source: Ferrell, O.C. and Gareth Gardiner (1991), In Pursuit of Ethics, USA: Smith Collins.

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Tough-Minded Management and Social/Ethical Responsibility

• Continuum of Managerial Authority• The Tough-Minded Manager:

– Accepts that risks must often be taken and that conflict is inevitable in making tough choices;

– Understands that short-run losses may be inevitable and unavoidable to achieve long-run success;

– Believes that the best long-run approach to business is integrity;– Is aware that ethical problems may arise in the workplace, and of how ethical

decisions are usually made in the workplace;– Has reached a level of moral development where economic self-interest is not

paramount, and where persona ethical values are important;– Has learned that trust is the glue that holds business relationships together;– Believes strongly that maintaining self-esteem and self-respect outweighs material

gain.– Source: Ferrell, O.C. and Gareth Gardiner (1991), In Pursuit of Ethics, USA: Smith Collins.