Chapter 1

The Nature of Strategic Management

Learning Objectives

• Explain the concept of strategic management

• Describe how strategic decisions differ from other decisions that managers make

• Describe the comprehensive model of strategic decision making

• Appreciate the importance of strategic management process

Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its goal and objectives.

Strategic Management – Defined

Strategic Management Critical Task1. Formulate the company’s mission, including

broad statements about its philosophy, and goals

2. Conduct an analysis that reflects the company’s internal conditions and capabilities

3. Assess the company’s external environment, including both the competitive and the general contextual factors

4. Analyze the company’s options by matching its resources with the external environment

5. Identify the most desirable options by evaluating each option in light of the company's mission

6. Select a set of long-term objectives and grand strategies that will achieve the most desirable options

7. Develop annual objective and short-term strategies that are compatible with the selected set of long-term objectives and grand strategies

8. Implement the strategic choices by means of budgeted resource allocations in which the matching of tasks, people, structures, technologies, and reward system is emphasized

9. Evaluate the success of the strategic process as an input for future decision making.

Expectations for the Course: You Will…

• Struggle with figuring out what to do

• Be prepared to participate in planning for your own firms

• Study real business situation

Why is strategic management important?

• Gives everyone a role• Makes a difference in

performance levels• Provides systematic approach to

uncertainties• Coordinates and focuses

employees

Copyright © 2004 South-Western. All rights reserved.

12–9

The Strategic

Management Process

Strategic Leadership and the Strategic

Management Process

Effective Strategic Leadership

Strategic Intent Strategic Mission

Successful Strategic Actions

Formulation of Strategies

Implementation of Strategies

Strategic Competitiveness

Above-average Returns

Shapes theFormulation of

and

Influence

YieldsYields

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Strategic Leadership

• Requires the managerial ability to:– Anticipate and envision– Maintain flexibility– Empower others to create strategic change as

necessary

• Strategic leadership is:– Multi-functional work that involves working through

others– Consideration of the entire enterprise rather than

just a sub-unit– A managerial frame of reference

Strategic Leadership (cont’d)

• Effective strategic leaders:

– Manage the firm’s operations effectively

– Sustain a high performance over time

– Make better decisions than their competitors

– Make candid, courageous, pragmatic decisions

– Understand how their decisions affect the internal systems in use by the firm

– Solicit feedback from peers, superiors and employees about their decisions and visions

Managers as an Organizational Resource

• Managers often use their discretion when making strategic decisions and implementing strategies

• Factors affecting the amount of decision-making discretion include:

– External environmental sources

– Characteristics of the organization

– Characteristics of the manager

Factors Affecting Managerial Discretion

External Environment

Managerial Discretion

External Environment• Industry structure• Rate of market growth• Number and type of

competitors• Nature and degree of

political/legal constraints• Degree to which products

can be differentiated

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Factors Affecting Managerial Discretion

External Environment

Characteristics of the Organization

Managerial Discretion

Characteristics of the Organization

• Size• Age• Culture• Availability of resources• Patterns of interaction

among employees

Factors Affecting Managerial Discretion

External Environment

Characteristics of the Organization

Managerial Discretion

Characteristics of the Manager

Characteristics of the Manager

• Tolerance for ambiguity• Commitment to the firm

and its desired strategic outcomes

• Interpersonal skills• Aspiration level• Degree of self-confidence

Top Management Teams

• Composed of the key managers who are responsible for selecting and implementing the firm’s strategies

• A heterogeneous top management team:

– Has varied expertise and knowledge

– Can draw on multiple perspectives

– Will evaluate alternative strategies

– Builds consensus

Important Definitions

• Strategic Management Process– The full set of commitments, decisions, and

actions required for a firm to achieve strategic competitiveness and earn above-average returns.

Steps in Strategic Management Process

• Step 1: Identifying the organization's current mission, objectives, and strategies– Mission: the firm’s reason for being

• Who we are,• What we do, and • Where we are now

– Goals: the foundation for further planning• Measurable performance targets

• Step 2: Conducting an external analysis– The environmental scanning of specific and general

environments– Focuses on identifying opportunities and threats

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Strategic Management Process (cont’d)

• Step 3: Conducting an internal analysis– Assessing organizational resources, capabilities,

activities and culture:• Strengths (core competencies) create value for the

customer and strengthen the competitive position of the firm.

• Weaknesses (things done poorly or not at all) can place the firm at a competitive disadvantage.

Steps 2 and 3 combined are called a SWOT analysis (Strengths, Weaknesses,

Opportunities, and Threats)

Strategic Management Process (cont’d)

• Step 4: Formulating strategies– Develop and evaluate strategic alternatives– Select appropriate strategies for all levels in the

organization that provide relative advantage over competitors

– Match organizational strengths to environmental opportunities

– Correct weaknesses and guard against threats

Strategic Management Process (cont’d)

• Step 5: Implementing strategies– Implementation: effectively fitting organizational

structure and activities to the environment– Effective strategy implementation requires an

organizational structure matched to its requirements.

• Step 6: Evaluating results– How effective have strategies been?– What adjustments, if any, are necessary?

Levels of strategy

• What kind of business should we become?

• Are we in the right fields• Are there new competitors• What strategies should we

pursue?• How are our customers

changing?

Adapting to Change – Key Strategic Management Questions

Vision Statement –What do we want to become?

Mission Statement –What is our business?

Key Terms

Opportunities & Threats (External)

Key Terms

Analysis of Trends:

• Economic

• Social

• Cultural

• Demographic/Environmental

• Political, Legal, Governmental

• Technological

• Competitors

Strengths & Weaknesses (Internal)

Key Terms

Typically located in functional areas of the firm

• Management

• Marketing

• Finance/Accounting

• Production/Operations

• Research & Development

• Computer Information Systems

Means by which long-term objectives are achieved

Key Terms

Strategies

ExternalAudit

Chapter 3

InternalAudit

Chapter 4

Long-TermObjectives

Chapter 5

Generate,Evaluate,

SelectStrategies

Chapter 6

ImplementStrategies:

Mgmt Issues

Chapter 7

ImplementStrategies:Marketing,Fin/Acct,R&D, CISChapter 8

Measure &Evaluate

Performance

Chapter 9

Vision &

Mission

Chapter 2

Comprehensive strategic management model