Strategic Management Ch01

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
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
Chapter Outline (contd)
Business Ethics and Strategic Management

Comparing Business and Military Strategy
The Nature of Global Competition
Ch 1 - 4
Themes in the Text
Global Considerations impact virtually all strategic

decisions
E-commerce vital strategic management tool
Natural Environment important strategic issue
Ch 1 -5
Ch 1 -5
Strategic Management Defined
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 companys game plan.
Ch 1 -6
Ch 1 -6
Strategic Management
Strategic management achieves a firms success through
integration:
Management
Marketing
Finance/Accounting
Production/Operations
Research & Development
MIS
Ch 1 -7
Ch 1 -7
Strategic Management
Strategy Formulation
Vision & Mission
External Opportunities & Threats
Internal Strengths & Weaknesses
Long-Term Objectives
Alternative Strategies
Strategy Selection
Ch 1 -8
Ch 1 -8
Issues in Strategy Formulation
New business opportunities
Businesses to abandon
Allocation of resources
Expansion or diversification
International markets
Mergers or joint ventures
Avoidance of hostile takeover
Ch 1 -9
Ch 1 -9
Strategy Implementation
Annual Objectives
Policies
Employee Motivation
Resource Allocation
Ch 1 -10
Ch 1 -10
The Action Stage of Strategic Management
Is the most difficult stage

Involves mobilization of employees & managers
Interpersonal skills are critical
There must be consensus on goal pursuits
Ch 1 -11
Ch 1 -11
Strategy Evaluation
Strategy Evaluation
Internal Review
External Review
Performance Metrics
Corrective Actions
Ch 1 -12
Ch 1 -12
Strategy Evaluation
Final Stage of Strategic Management
Subject to future modification
Todays success is no guarantee of future success
New and different problems
Complacency leads to demise
Ch 1 -13
Ch 1 -13
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 -14
Ch 1 -14
Integrating Intuition & Analysis
The strategic management process attempts to organize

quantitative and qualitative information under conditions of
uncertainty.
Ch 1 -15
Ch 1 -15

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 -16
Ch 1 -16
Intuition & Judgment
Involve management at all levels
Influence all analyses
Ch 1 -17
Ch 1 -17
Analytical Thinking
Intuitive Thinking
Ch 1 -18
Ch 1 -18
In the Arab world, there is a cultural tendency to emphasize

the role of intuition and imagination in decision making.
There are companies which, because of luck and ample
opportunities, have experienced tremendous growth.
Ch 1 -19
Ch 1 -19
Adapting to Change
Organizations must monitor events

Ongoing process
Internal and external events
Timely changes
Ch 1 -20
Ch 1 -20
Strategic Management is Gaining and Maintaining

Competitive Advantage
Competitive Advantage:
Anything that a firm does especially well compared to rival
firms
Ch 1 -21
Ch 1 -21
Achieving Sustained Competitive Advantage
1. Adapting to change in external trends, internal capabilities,

and resources
2. Effectively formulating, implementing, and evaluating
strategies
Ch 1 -22
Ch 1 -22
Adapting to Change
Rate & magnitude of change is increasing dramatically
E-commerce
Demographics
Technology
Ch 1 -23
Adapting to Change
Effective Adaptation to change requires long-term

focus
Ch 1 -24
Ch 1 -24
Adapting to Change
Key Strategic Management Questions
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?
Ch 1 -25
Key Terms
The Strategists Those that affect a firms success or

failure:
Chief Executive Officer (CEO)

Chief Strategy Officer (CSO)
President
Owner
Board Chair
Executive Director
Ch 1 -26
Ch 1 -26
Key Terms
Vision Statement:
What do we want to become?
Mission Statement:
What is our business?
Ch 1 -27
Opportunities and Threats (External)
External opportunities and threats are largely beyond

the control of a single organization.
Ch 1 -28
Oportunities and Threats (External) Contd

Analysis of Trends:
Ch 1 -29
Economic
Social
Cultural
Demographic/Environmental
Political, Legal, Governmental
Technological
Competitors
Key Terms
Environmental Scanning (Industry Analysis):

The process of conducting research and gathering and assimilating
external information
Ch 1 -30
Key Terms Opportunities & Threats

The basic tenet of strategic management:
Take
Take advantage
advantage of
of
External
External Opportunities
Opportunities
Avoid/minimize
Avoid/minimize impact
impact
of
of External
External Threats
Threats
Ch 1 -31
Strengths and Weaknesses (Internal)
Strengths & Weaknesses (Internal):

Controllable activities performed especially well or poorly
Ch 1 -32
Strengths and Weaknesses (Internal) Contd
Strengths and weaknesses are typically located in the

functional areas of the firm, such as:
Ch 1 -33
Management
Marketing
Finance/Accounting
Production/Operations
Research & Development
Computer Information Systems
Assessing the Internal Environment
Financial Ratios
Performance Metrics
Internal Factors
Industry Averages
Survey Data
Ch 1 -34
Long Term Objectives
Long-term Objectives:
Mission-driven pursuit of specified results more than one year
out
Ch 1 -35
Long Term Objectives (Contd)
Long term objectives are essential for ensuring a firms

success. They:
Provide direction
Help with evaluation
Create synergy
Focus coordination
Basis for planning, motivating, and

controlling
Ch 1 -36
Strategies
Strategies:
The means by which long-term objectives are achieved
Ch 1 -37
Strategies (Contd)
Some examples of different strategies are:
Geographic expansion
Diversification
Acquisition
Market penetration
Retrenchment
Liquidation
Joint venture
Key Terms
Annual Objectives:
Short-term milestones that firms must achieve to attain long-term
objectives
Ch 1 -39
Key Terms
Policies:
Means by which annual objectives will be achieved
Ch 1 -40
Example Strategies in Action in 2009

Mohammed Abdulmohsin Al-Kharafi & Sons Company
(MAK Group)
The MAK Group is one of the largest family-owned organizations in
the Arab world. In 2008 it was listed among the top 100 companies
in the Muslim world by Dinar Standard. In 2009 its annual turnover
was over US$5 billion; it operates in more than 25 countries around
the world and has more than 120,000 employees. The company was
established as a trading company more than 100 years ago and it
has since developed into a large multi-national corporation.
Faced with limited local market and enriched with a large amount of
cash, the company has embarked on an ambitious diversification
strategy. Since 1956 the company has participated in a number of
important projects in Kuwait, the Gulf States, Africa, the Caribbean,
Asia, and Eastern Europe. It has various branches and subsidiaries
in area related Construction, trade, and manufacturing in various
parts of the world.
Ch 1 -41
Ch 1 -41
Example Strategies in Action in 2009 (Contd)

SKAB Group
The SKAB Group is one of the largest private-sector business groups in
Saudi Arabia with a variety of diversified but interconnected business
enterprises, spanning such disciplines as environment protection and
recycling, mineral-water bottling, contracting, the hospitality industry,
real estate, shopping malls, travel and tourism, food products, and
construction and maintenance.
SKAB embarks on three major strategies to realize growth and market
vitality: market expansion at home and abroad, partnership, and
acquisition. Although the group is family-owned, it is managed by
professional management team.
Ch 1 -42
Ch 1 -42
Source: Adapted from Fred R. David, How Companies Define Their Mission, Long Range Planning 22, no 3 (June 1988):40
Ch 1 -43
Strategic Management Model

Strategic Management Process
Dynamic & continuous
More formal in larger organizations
Ch 1 -44
Strategic Management Model (Contd)
1.
Identify Existing:
Vision
Mission
Objectives
Strategies
2.
Audit external environment
3.
Audit internal environment
4.
Competing in the global market-place
Ch 1 -45
Strategic Management Model (Contd)
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 -46
Strategic Management:
Is proactive in shaping firms future
Initiates and influences firms activities
Helps to formulate better strategies that are systematic, logical,
and rational
Ch 1 -47

Financial Benefits
Improvement in sales
Improvement in profitability
Productivity improvement
Ch 1 -48
Ch 1 -48

Nonfinancial Benefits
Improved understanding of competitors strategies

Enhanced awareness of threats
Increased employee productivity
Reduced resistance to change
Enhanced problem-prevention capabilities
Ch 1 -49
Ch 1 -49

Greenley
1. Identification of opportunities
2. Objective view of management problems
3. Improved coordination & control
4. Minimizes adverse conditions & changes
5. Decisions that better support objectives
6. Effective allocation of resources
7. Reduces resources and time spent correcting erroneous
decisions
Ch 1 -50

Greenley (Contd)
8. Internal communication among personnel
9. Integration of individual behaviors
10. Clarify individual responsibilities
11. Encourages forward thinking
12. Cooperative approach to tackling problems and opportunities
13. Encourages favorable attitude toward change
14. Gives discipline to business management
Ch 1 -51

Reasons why some firms are resistant to strategic planning
include:
Poor reward structures
Fire-fighting
Chief executives orientation
Lack of access to needed resources
Waste of time
Too expensive
Laziness
Content with success
Ch 1 -52

(Contd)
Fear of failure
Overconfidence
Prior bad experience
Self-interest
Fear of the unknown
Honest difference of opinion
Suspicion
Ch 1 -53
Being aware of potential pitfalls of strategic planning and being

prepared to address them is essential to success.
Ch 1 -54

Some pitfalls to watch out for and avoid in
strategic planning
Using it to gain control over decisions and resources
Doing it only to satisfy accreditation and regulatory requirements
Too hastily moving from mission development to strategy
formulation
Failing to communicate the plan to employees
Top managers making many intuitive decisions that
conflict with the formal plan
Ch 1 -55

Some pitfalls to watch out for and avoid in strategic
planning (Contd)
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
Failing to involve key employees in all phases of planning
Failing to create a collaborative climate supportive of change
Ch 1 -56

Some pitfalls to watch out for and avoid in
strategic planning (Contd)
Viewing planning as unnecessary or unimportant
Becoming so engrossed in current problems that insufficient or no
planning is done
Being so formal in planning that flexibility and creativity are stifled
Ch 1 -57
Guidelines for Effective Strategic Management
Strategic Management must:

Not become a self-perpetuating bureaucratic mechanism
Not become ritualistic, stifled, orchestrated, too formal,
predictable, and rigid
Be a self-reflective learning process
Words supported by numbers, rather than numbers supported by
words
Represent the medium for explaining strategic issues and
organizational responses
Ch 1 -58
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 -59
Business Ethics & Strategic Management (Contd)
Good business ethics are prerequisite for good strategic

management
Ch 1 -60

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 -61

Unethical Business Practices (Contd)
Poor product or service safety
Padding expense accounts
Lack of equal opportunities for foreign workers
Overpricing
Sweatshops
Hiring child labor
Ch 1 -62
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 -63
Ch 1 -63
International/multinational corporations:
Parent company
Host country
Ch 1 -64
Strategy implementation may be difficult

Cultural differences:
Norms
Values
Work ethic
Ch 1 -65
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
Ch 1 -66
Ch 1 -66
Advantages of International Operations (contd)
6. Potential lower taxes

7. Joint ventures to build networks and knowledge
8. Foreign government incentives
9. Economies of scale
Ch 1 -67
Ch 1 -67
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. Availability of market information
Ch 1 -68
Ch 1 -68
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Ch 1 -69
Ch 1 -69

Strategic Management Ch01

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Ch 1 -1

Copyright 2011 Pearson Education

Strategic Management: Concepts

Copyright 2011 Pearson Education

What is Strategic Management?

Copyright 2011 Pearson Education

Chapter Outline (contd)

Business Ethics and Strategic Management

Copyright 2011 Pearson Education

Themes in the Text

Global Considerations impact virtually all strategic

Copyright 2011 Pearson Education

Strategic Management Defined

Art & science of formulating, implementing, and evaluating, cross-functional

Copyright 2011 Pearson Education

Research & Development

Copyright 2011 Pearson Education

Copyright 2011 Pearson Education

New business opportunities

Mergers or joint ventures

Avoidance of hostile takeover

Copyright 2011 Pearson Education

Copyright 2011 Pearson Education

Is the most difficult stage

Copyright 2011 Pearson Education

Copyright 2011 Pearson Education

Copyright 2011 Pearson Education

Prime Task of Strategic Management

Think through the overall mission of a business. Ask

Copyright 2011 Pearson Education

Integrating Intuition & Analysis

The strategic management process attempts to organize

Copyright 2011 Pearson Education

Integrating Intuition & Analysis

Intuition is useful for decision making in:

Copyright 2011 Pearson Education

Integrating Intuition & Analysis

Intuition & Judgment

Involve management at all levels

Influence all analyses

Copyright 2011 Pearson Education

Integrating Intuition & Analysis

Copyright 2011 Pearson Education

Integrating Intuition & Analysis

In the Arab world, there is a cultural tendency to emphasize

Copyright 2011 Pearson Education

Organizations must monitor events

Copyright 2011 Pearson Education

Strategic Management is Gaining and Maintaining

Copyright 2011 Pearson Education

Achieving Sustained Competitive Advantage

1. Adapting to change in external trends, internal capabilities,

Copyright 2011 Pearson Education

Copyright 2011 Pearson Education

Effective Adaptation to change requires long-term

Copyright 2011 Pearson Education

Copyright 2011 Pearson Education

The Strategists Those that affect a firms success or

Chief Executive Officer (CEO)

Copyright 2011 Pearson Education

Copyright 2011 Pearson Education

Opportunities and Threats (External)

External opportunities and threats are largely beyond

Copyright 2011 Pearson Education