Chapter 1 – The Nature of Strategic
Management
Strategic Management
- Art & science of formulating, implementing,
and evaluating, cross-functional decisions
that enable an organization to achieve its
objectives.
Purpose: To exploit and create new and different
opportunities for tomorrow.
In essence, “the strategic plan is a company’s
game plan”
- 3 Stages of the Strategic Management Process -
1. Strategy Formulation
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
2. Strategy Implementation
Steps:
 Developing a strategy-supportive culture
 Creating an effective organizational
structure
 Redirecting marketing efforts
 Preparing Nudgets
 Developing and utilizing information
systems
 Linking employee compensation to
organizational performance
Issues in Strategy Implementation:
Action Stage of Strategic Management
 Mobilization of employees &
managers
 Most difficult stage
 Interpersonal skills critical
3. Strategy Evaluation
Prime Task of Strategic Management:
Peter Drucker: Think through the overall mission of
a business. Ask the key question: “What is our
Business?”
- Integrating Intuition & Analysis -
- The strategic management process attempts
to organize quantitative and qualitative
information under conditions of uncertainty
Intuition is based on:
 Past experiences
 Judgment
 Feelings
Intuition is useful for decision making in conditions
of:
 Great uncertainty
 Little precedent
 Highly interrelated variables
 Several plausible alternatives
Intuition & Judgment
- Involve management at all levels
- Influence all analyses
- Adapting to Change –
Organizations should continually monitor internal
and external events and trends so that timely
changes can be made as needed
- Key Terms in Strategic Management –
1. Competitive Advantage
- Anything that a firm does especially well
compared to rival firms
Achieving Sustained Competitive Advantage
a. Continually adapting to changes in external
trends and events and internal capabilities,
competencies, and resources
b. Effectively formulating, implementing, and
evaluating strategies that capitalize on those
factors
5. Internal strengths and weaknesses
- Controllable activities performed especially
well or poorly
- Determined relative to competitors
Typically located in functional areas of the firm:
 Management
 Marketing
 Finance/Accounting
 Production/Operations
 Research & Development
 Management Information Systems

2. Strategists
- Gather Information
- Analyze info
- Organize info
6. Long-term objectives

3. Vision and Mission Statements - Specific results that an organization seeks to

achieve in pursuing its basic mission
Vision: “What do we want to become?” - Long-term means more than one year
Mission: “What is our business?” Essential for ensuring the firm’s success:
 Provide direction
 Aid in evaluation
4. External Opportunities and threats
 Create synergy
Analysis of Trends  Reveal priorities
 Focus coordination
 Economic  Provide basis for planning, organizing,
 Social motivating and controlling
 Cultural
 Demographic/Environmental
 Political, Legal, Governmental
 Technological 7. Strategies
 Competitors - Means by which long-term objectives are
achieved
Examples:
 Geographic expansion
 Diversification
 Acquisition
 Product development
 Market penetration
 Retrenchment
 Divestiture
 Liquidation
 Joint venture
Table 1-1
 Best Buy
 Levi Strauss
 New York Times Company
8. Annual objectives
- Short-term milestones that firms must
achieve to reach long-term objectives
9. Policies
- Means by which annual objectives will be
achieved
Pitfalls in Strategic Planning
Strategic planning is an involved, intricate and
complex process that takes an organization into
uncharted territory
Effective Strategic Planning is:
Strategic Management Model
Strategic Management Process
- Dynamic & Continuous
- More formal in larger organizations
Communication
- Is a key to successful strategic management
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
Why some firms do NO strategic Planning
 Lack of knowledge of strategic planning
 Poor rewards structures
 Fire fighting
 Waste of time
 Too expensive
 Laziness
 Content with success
 Fear of failure
 Overconfidence
 Prior bad experience
 Self-interest
 Fear of the unknown
 Honest difference of opinion
 Suspicion
- A people process more than a paper process
- A learning process
- Words supported by numbers
- Simple and nonroutine
- Varying assignments, team membership,
meeting formats, and planning calendars
- Challenging assumptions underlying
corporate strategy
- Welcomes bad news
- Requires open-mindedness and a spirit of
inquiry
- Is not a bureaucratic mechanism
- Is not ritualistic or stilted
- Is not too formal, predictable, or rigid
- Does not contain jargon or arcane language
- Is not a formal system for control
- Does not disregard qualitative information
- Is not controlled by “technicians”
- Does not pursue too many strategies at once
- Continually strengthens the “good ethics is
good business” policy
Comparing Business and Military Strategty
- Strategic planning started in the military
- Similarity
 Both business and military
organizations must adapt to change
and constantly improve
- Difference
 Business strategy assumes
COMPETITION
 Military strategy assumes
CONFLICT