Concepts of Strategic ManagementFred 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

Should weimport?

Will NAFTA affect our firm?

Should weexport?

Should I learn a foreign

language?

Global Considerations Impact Virtually All Strategic Decisions

Should we outsource MIS?

Should we buyour sales staff

laptops?

Should we upgrade our

PCs?

Should we setup a Web site?

Information Technology Has Become A Vital Strategic Management Tool

Should werecycle?

Will Congresspass tougher

laws?

Should weburn low-sulfur

coal?

Is our firmenvironmentally

friendly?

Preserving the Natural Environment is an Important

Strategic Issue

The Definition of Strategic Management

The Art and Science of Formulating, Implementing, and

Evaluating Cross-Functional Decisions That Enable an

Organization to Achieve It’s Objectives

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

The Basis for Good Strategic Decisions

Intuition + Analysis

Effective Strategic Decisions

Global PerspectiveThe World’s Largest Companies

The World’s Ten Largest Companies in Rank Order Based on 1994 Revenues

1. Mitsubishi 6. Marubeni

2. Mitsui 7. Ford Motor

3. Itochu 8. Exxon

4. Sumitomo 9. Nissho Iwai

5. General Motors 10. Royal Dutch/Shell Group

Conveys strong sense of vision 75% 98%Links compensation to performance 66% 91%Communicates frequently with employees 59% 89%Emphasizes ethics 74% 85%Plans for management succession 56% 85%Communicates frequently with customers 41% 78%Reassigns or terminates 34% 71%Rewards loyalty 39% 44%Makes all major decisions 39% 21%Behaves conservatively 32% 13%

What Traits CEOs Have Now - And Will Need in the Year 2000

Personal Behaviors Now Year 2000

Strategy formulation 68% 78%Human resource management 41% 53%International economics and politics 10% 19%Science and technology 11% 15%Computer literacy 3% 7%Marketing and sales 50% 48%Negotiation 34% 24%Accounting and finance 33% 24%Handling media and public speaking 16% 13%Production 21% 9%

What Traits CEOs Have Now - And Will Need in the Year 2000 (cont.)

Knowledge and Skills Now Year 2000

Ten Key External Forces

Economic

Social

Cultural

Demographic Environmental

Political

Legal

Governmental

Technological

Competitive

Fourteen Key Internal ForcesManagement

Marketing

Distribution

Production/

OperationsResearch & Development

Purchasing

Manufacturing

Key Internal Forces (cont.)

Finance/Accounting

Packaging

Computer Information

Systems

Employee/Manager Relations

Human Resource

Management

Vendor Relations

Promotion

Business Mission

Strategy Formulation

External Opportunities and Threats

Internal Strengths and Weaknesses

Keys to Formulating Strategies

A Comprehensive Strategic Management Model

DevelopMission

Statement

Establish Long-term

Objectives

Generate,Evaluate,

andSelect

Strategies

Establish Policies and

AnnualObjectives

AllocateResources

Measureand

EvaluatePerformance

PerformExternal

Audit

PerformInternalAudit

Feedback

Strategy Formulation Strategy Implementation Strategy Evaluation

Forces Influencing Design of Strategic Management Systems

Toward more formality and more details

Toward less formality and fewer details

Management StylesPolicy makerDemocratic-permissiveAuthoritarianDay-to-day operational thinkerIntuitive thinkerExperienced in planningInexperienced in planning

OrganizationSmall one-plant companiesLarge companies

Forces Influencing Design of Strategic Management Systems

Toward more formality and more details

Toward less formality and fewer detailsComplexity of

EnvironmentStable environmentTurbulent environmentLittle competitionMany markets and customersSingle market and customerCompetition severe

Forces Influencing Design of Strategic Management Systems

Toward more formality and more details

Toward less formality and fewer details

Complexity of Production Process

Long production lead timesShort production lead timesCapital intensiveLabor intensiveIntegrated manufacturing processesSimple manufacturing processesHigh technologyLow technologyMarket reaction time for newproduct is shortMarket reaction time is long

Forces Influencing Design of Strategic Management Systems

Toward more formality and more details

Toward less formality and fewer detailsNature of Problems

Facing new, complex, tough problems having long-range aspects

Facing tough short-range problems

Purpose of Planning System

Coordinate division activities

Train managers

Benefits of Strategic Management

- Improved Communication

- Increased Understanding

- Enhanced Commitment

- Greater Productivity

- 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