Ch 1 -1
Copyright © 2011 Pearson Education
Strategic Management: Concepts
and Cases
Arab World Edition
Fred R. David
Abbas J. Ali
Abdulrahman Y. Al-Aali
Chapter 1:
The Nature of Strategic
Management
Ch 1 -2
Copyright © 2011 Pearson Education
Chapter Outline
• What is Strategic Management?
• Key Terms in Strategic Management
• The Strategic-Management Model
• Benefits of Strategic Management
• Why Some Firms Do No Strategic Planning
• Pitfalls in Strategic Planning
• Guidelines for Effective Strategic Management
Ch 1 -3
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Strategic Management – Definition
Art & science of formulating, implementing, and evaluating,
cross-functional decisions that enable an organization to achieve
its objectives
In essence, the strategic plan is a company’s game plan.
Note : Strategic management (SM) is used exchangeable with
strategic planning
The purpose of SM is to exploit and create new and different
opportunity for tomorrow
Ch 1 -4
Ch 1 -4
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SM characteristics
it is not a reaction to short – term changes -------while it is a
response to long –term perspectives (5-10 year or more )
it is not a quantitative exercise-------- but it is a qualitative in
nature and reflects a realistic imagination of how the future looks
it is not a normative statement of where the firm would like to be
in the future --------while it is a road map which describes the
steps the firm should undertake to get there
finally it is a set of practical ,well thought–out perspectives and
actions on how to deal with uncertainties of the future
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Strategic Management
Strategic management achieves a firm’s success through
integration:
Management
Marketing
Finance/Accounting
Production/Operations
Research & Development
MIS
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Ch 1 -6
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Stages of strategic management
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The SM process consists of three main
stages
Strategy formulation
Strategy implementation
Strategy evolution
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Strategic Management process step:1
Strategy Formulation
Vision & Mission
Long-Term Objectives
Internal Strengths & Weaknesses
External Opportunities & Threats
Alternative Strategies
Strategy Selection
Ch 1 -8
Ch 1 -8
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Strategic Management process
step :2
Strategy Implementation
Annual Objectives
Policies & procedures
Employee Motivation
Resource Allocation
Ch 1 -9
Ch 1 -9
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Strategic management process
step:3
Strategy Evaluation
Internal Review
External Review
Performance Metrics
Corrective Actions
Ch 1 -10
Ch 1 -10
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Prime Task of Strategic Management
“Think through the overall mission of a
business. Ask the key question: What is
our Business?”
Peter Drucker
Ch 1 -11
Ch 1 -11
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Integrating Intuition & Analysis
The strategic management process attempts to
organize quantitative and qualitative
information under conditions of uncertainty.
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Ch 1 -12
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Integrating Intuition & Analysis
Intuition is based on:
• Past experiences
• Judgment
• Feelings
Intuition is useful for decision making in:
• Conditions of great uncertainty
• Conditions with little precedent
Ch 1 -13
Ch 1 -13
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Integrating Intuition & Analysis
Analytical Thinking
Intuitive Thinking
Ch 1 -14
Ch 1 -14
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Note:_
In the Arab world, there is a cultural tendency to
emphasize on the role of intuition and imagination in
decision making.
There are many companies which, because of luck and
Abundant opportunities, have experienced great growth
but only for a short time .
Ch 1 -15
Ch 1 -15
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Key Terms in strategic Management

Competitive advantages

Strategists
Vision & mission
External opportunity & threats
Internal strengths & weaknesses
Long – term objectives
Strategies
Annual (short- term)objectives
Polices
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SM :key term (1)
Competitive Advantage:
Anything that a firm does especially well, compared to rival
firms
Ch 1 -17
Ch 1 -17
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Organizations is said to have a SCA when it is:-
1. Adapting to change in external trends, internal capabilities,
and resources
2. Effectively formulating, implementing, and evaluating
strategies
Ch 1 -18
Ch 1 -18
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S.M. Key Term (2)
The Strategists – Those that affect a firm’s success or
failure:
• Chief Executive Officer (CEO)
• Chief Strategy Officer (CSO)
• President
• Owner
• Board Chair
• Executive Director
Ch 1 -19
Ch 1 -19
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S.M. Key Term (3)
Vision Statement:
What do we want to become?
Mission Statement:
What is our business?
Ch 1 -20
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S.M. Key Term (4)
Opportunities and Threats (External analysis)
External opportunities and threats are largely out of
the control of a single organization.
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Oportunities and Threats (External) Cont’d…
Analysis of Trends:
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•
Economic
•
Social
•
Cultural
•
Demographic/Environmental
•
Political, Legal, Governmental
•
Technological
•
Competitors
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The basic tenet of strategic management:
Take advantage of
External Opportunities
Strategy Formulation
Avoid/minimize impact
of External Threats
Ch 1 -23
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S.M. key term (5)
Strengths and Weaknesses (Internal analysis)
Strengths & Weaknesses (Internal):
Controllable activities performed especially well or poorly
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Strengths and Weaknesses (Internal) Cont’d…
Strengths and weaknesses are typically located in the
functional areas of the firm, such as:
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•
Management
•
Marketing
•
Finance/Accounting
•
Production/Operations
•
Research & Development
•
Computer Information Systems
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Assessing the Internal Environment
Financial Ratios
Performance Metrics
Internal Factors
Industry Averages
Survey Data
Ch 1 -26
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Long Term Objectives
Long-term Objectives:
Mission-driven pursuit of specified results more than one year
out
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S.M. key term (6)
Long Term Objectives (Cont’d)
Long term objectives are essential for ensuring a firm’s
success. They:
•
Provide direction
•
Help with evaluation
•
Create synergy
•
Focus coordination
•
Basis for planning, motivating, and
controlling
Ch 1 -28
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S.M. key term (7)
Strategies
Strategies:
The means by which long-term objectives are achieved
Ch 1 -29
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Strategies (Cont’d)
Some examples of different strategies are:
•
Geographic expansion
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Diversification
•
Acquisition
•
Market penetration
•
Retrenchment
•
Liquidation
•
Joint venture
S.M. Key Terms (8)
Annual Objectives:
Short-term achievements that firms must recognize to attain longterm objectives
Ch 1 -31
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Key Terms (9)
Policies:
Means by which annual objectives will be achieved
Ch 1 -32
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ASSIGNMENT
(1)
Strategic Management Key Terms
(1-9)
Research
one page / term
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Source: Adapted from Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22, no 3 (June 1988):40
Ch 1 -34
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Strategic Management Model (Cont’d)
1. Identify Existing:
• Vision
• Mission
• Objectives
• Strategies
2. Audit external environment
3. Audit internal environment
4. Competing in the global market-place
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Strategic Management Model (Cont’d)
5. Establish long-term objectives
6. Generate, evaluate, and select strategies
7. Implement selected strategies
8. Leadership and culture
9. Measure & evaluate performance
Ch 1 -36
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Benefits of Strategic Management
Strategic benefits :
• Is proactive in shaping firm’s future
• Initiates and influences firm’s activities
• Helps to formulate better strategies that are systematic, logical,
and rational
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Benefits of Strategic Management
Financial Benefits
•
Improvement in sales
•
Improvement in profitability
•
Productivity improvement
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Ch 1 -38
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Benefits of Strategic Management
Nonfinancial Benefits
• Improved understanding of competitors’ strategies
• Enhanced awareness of threats
• Increased employee productivity
• Reduced resistance to change
• Enhanced problem-prevention capabilities
Ch 1 -39
Ch 1 -39
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According to Gordon Greenley of Aston Business
school in the united Kingdom S.M. offers the
following benefits :1. It allows for identification of opportunities
2. It provides an objective view of management problems
3. It represents a framework for improved coordination & control
of activities
4. It minimizes the negative effects of conditions & changes
5. It allows major decisions to better support established
objectives
6. It allows more effective allocation of time and resources
7. It reduces resources and time to be spent in correcting
erroneous decisions
Ch 1 -40
Copyright © 2011 Pearson Education
Benefits of Strategic Management
(Cont’d)
8. It creates a framework for internal communication among
personnel
9. it provides a basis for clarifying individual responsibilities
10. It encourages forward thinking
11. It provides a cooperative approach to tackling problems and
opportunities
12. It encourages a favorable attitude toward change
13. It gives a discipline to the management of business
Ch 1 -41
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Why Some Firms Do No Strategic Planning
Reasons why some firms are resistant to strategic planning
include:
• Poor reward structures
• Fire-fighting (it deeply so busy in crisis mag. So it has no
time to plan)
• Chief executives’ orientation
• Lack of access to needed resources
• Waste of time
• Too expensive
• Laziness
Ch 1 -42
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Why Some Firms Do No Strategic Planning
(Cont’d)
• Fear of failure
• Overconfidence
• Prior bad experience
• Self-interest
• Fear of the unknown
• Honest difference of opinion
• Suspicion
Ch 1 -43
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Pitfalls in Strategic Planning
Being aware of potential pitfalls of strategic
planning and being prepared to address them is
essential to success.
Ch 1 -44
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Pitfalls in Strategic Planning
Some pitfalls to watch out for and avoid in
strategic planning (Cont’d)
• Using it to gain control over decisions and resources
• Doing it only to satisfy accreditation and regulatory requirements
• Viewing planning as unnecessary or unimportant
• Failing to communicate the plan to employees
• Top managers making many intuitive decisions that
conflict with the formal plan
Ch 1 -45
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Pitfalls in Strategic Planning
Some pitfalls to watch out for and avoid in strategic
planning (Cont’d)
• Top managers not actively supporting the strategic planning
process
• Failing to use plans as a standard for measuring performance
• Delegating planning to a ‘planner’ rather than involving all
managers
• Being so formal in planning that flexibility and creativity are
stifled
• Failing to create a collaborative climate supportive of change
Ch 1 -46
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Guidelines for Effective Strategic Management
 keep the SM process as simple and non-routine as possible
 SM. must not become rigid
 A key role of strategists is to facilitate continuous organizational
learning and change
 SM require trade –offs between long- range short –range
orientation
Ch 1 -47
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Business Ethics & Strategic Management
Business Ethics:
Principles of conduct within organizations that guide decision
making and behavior
Code of Business Ethics:
Provides basis on which policies can be devised to guide daily
behavior and decisions in the workplace
Ch 1 -48
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Business Ethics & Strategic Management (Cont’d)
Good business ethics are prerequisite for good strategic
management
Ch 1 -49
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Business Ethics of Savola Group in Saudi Arabia
• Always tell the truth
•
Always fulfill our promises and obligations
• Always honor our pledges to others
• Always commit to resolving conflicts with respect and objectivity
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Business Ethics & Strategic Management
Unethical Business Practices
Business practices that are always considered unethical include:
• Misleading advertising
• Misleading labeling
• Harm to the environment
• Insider trading
• Dumping flawed products on foreign markets
Ch 1 -51
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Business Ethics & Strategic Management
Unethical Business Practices (Cont’d)
• Poor product or service safety
• Lack of equal opportunities for foreign workers
• Overpricing
• Hiring child labor
Ch 1 -52
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Natural Environment Perspective
Using ISO 14000 Certification to Gain Strategic
Advantage
• What are ISO 14000 & 14001?
• Requirements for ISO 14001
• Environmental Management Systems (EMS)
Ch 1 -53
Ch 1 -53
ISO 14000 Family is a series of guidance documents
and standards to help organizations address
environmental issues on air ,water, soil quality
…….etc.
• 14001: Environmental Management Systems
• 14004: EMS general guidelines
• 14010: Guidelines for Environmental Auditing
• 14011: Guidelines for Auditing of an EMS
• 14012: Auditing - Qualification criteria
• 14020: Environmental Labeling
• 14030: Env. Performance Evaluation (EPE)
• 14040: Life-Cycle Assessment (LCA)
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Environmental Management System (EMS)
•
ISO 14001 is the specification standard that is a model for an
environmental management system (EMS)
•
EMS is a systematic way of managing an organization’s
environmental affairs
•
It is focused on Continual Improvement of System
•
It addresses immediate and long-term impact of an organization’s
products, services and processes on the environment.
•
It is a tool to improve environmental performance
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Requirements for ISO 14001;
To achieve certification in terms of ISO 14001, a
company needs to undertake a series practices by
which organization can perform the EMS :• Assess
the environmental impacts of its activities
• Develop
an environmental policy that includes commitments to
prevention of pollution – continuous improvement – compliance
with all applicable requirements
• Set
environment objectives and targets
• Establish
and maintain an environmental management programme
• Implement
procedures for training employees, establishing work
instructions , and practices
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• Monitor,
measure and communicate its performance
• Undertake
environmental audits and management reviews
• Take
correction actions to overcome the occurrence of any
deviations .
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By implementing ISO 14000, any company can
become truly competitive through the following :•
•
•
•
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Decreasing costs through increased efficiencies.
Creating and maintaining new market opportunities in areas such as
Europe, which may make registration to the standards a necessary
condition of doing business within their specification .
Demonstrating environmental leadership.
Improving both its own corporate image and community goodwill.
Streamlining/simplifying its EMS.
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to succeed in business today it
means to succeed in the
international competition
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The Nature of Global Competition
International/multinational organizations ------ refers to
organizations that conduct business operations across
national borders
• Parent company ….refers to a firm investing in international
operations
• Host country…….refers to the country where that business is
conducted
Ch 1 -60
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Global completion and strategic management
•
The strategic management process is conceptually the same for
international/multinational as for domestic firms however
practically it is more complex for the following reasons :-

The presence of more variables and relationships
More social , cultural, demographics ,political, governmental, legal
, technological and competitive opportunities and threats are
addressed
More time and efforts are required to identify and evaluate external
trends and events
The communication between domestic headquarter and overseas
operation is more difficult.
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Advantages of International Operations
1. Absorb excess capacity/reduce unit costs
2. Extend the product life cycle
3. Low-cost production facilities
4. Less intense competition
5. Spread risk over wider markets
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Ch 1 -62
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Advantages of International Operations (cont’d)
6. Potential lower taxes
7. Joint ventures to build networks and knowledge
8. Foreign government incentives
9. Economies of scale
Ch 1 -63
Ch 1 -63
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Disadvantages of International Operations
1. Difficult communications
2. Underestimate foreign competition
3. Cultural barriers to effective management
4. Require understanding of regional trade organizations
5. Complications arising from currency differences
6. lack of market information
Ch 1 -64
Ch 1 -64
The End
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