Sm lesson 1

The Nature of
Strategic
Management
Chapter One
1-1Copyright ©2017 Pearson Education, Inc.

Definition of Strategy
Strategy: A firm’s theory about how to gain
competitive advantages
Eisner’s theory may have been:
People will pay a premium price for extraordinary
entertainment. We have the necessary resources to
create extraordinary entertainment. Therefore, let’s
redeploy our resources in a different way and offer
something extraordinary to people.

Defining Strategic Management
Copyright ©2017 Pearson Education, Inc. 1-3
Strategic Management
the art and science of formulating,
implementing, and evaluating cross-
functional decisions that enable an
organization to achieve its objectives

 Strategic management is used
synonymously with the term strategic
planning in this course.
 Sometimes the term strategic
management is used to refer to strategy
formulation, implementation, and
evaluation, with strategic planning
referring only to strategy formulation.

A strategic plan is a company’s game
plan.
A strategic plan results from tough
managerial choices among
numerous good alternatives, and it
signals commitment to specific
markets, policies, procedures, and
operations.

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Basic Model of Strategic Management

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Environmental Scanning is the
monitoring, evaluating and disseminating of
information from the external and internal
environments to key people within the organization

Stages of Strategic Management
Strategy Formulation
 developing a vision and mission
 identifying an organization’s external
opportunities and threats
 determining internal strengths and weaknesses
 establishing long-term objectives
 generating alternative strategies
 choosing particular strategies to pursue

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Prentice Hall, Inc. ©2010
Strategy Formulation:
 Mission- the purpose or reason for the
organization’s existence
 Vision- describes what the organization would
like to become
 Objectives- the end results of planned activity
(What, when, how much)

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Strategy Formulation:
 Strategies- form a comprehensive master plan
that states how the corporation will achieve its
mission and objectives
 Corporate
 Business
 Functional
 Policies- the broad guidelines for decision making
that links the formulation of a strategy with its
implementation

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Copyright © 2013 Pearson Education, Inc.
publishing as Prentice Hall

Functional Strategies
• Functional strategies are goal oriented plans
and actions of the functional areas of an
organization, they include:
– Production-Operations
– Marketing
– Research & Development
– Human Resources
– Financial-Accounting
– Information Technology & Support

Competitive Strategies
 Competitive strategies or business strategies
are goal directed plans and actions concerned
with how an organization competes in a
specific business or industry
 Looks at all aspects of strategies and actions
 Seeks to determine what the company currently
can do and what it wants to do
 Focus is on how it might more effectively
compete

Corporate Strategy
 Corporate strategies are goal directed plans
and actions that are concerned with what
business or businesses a firm wants to be in
and what to do with those businesses; for
example
 FedEx’s decision to acquire Kinko's
 PepsiCo’s decision to spin off their fast-food
division

Strategy Implementation
 requires a firm to establish annual
objectives, devise policies, motivate
employees, and allocate resources so
that formulated strategies can be
executed
 often called the action stage

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Strategy implementation: the process by which
strategies and policies are put into action through the
development of:
 Programs
 Budgets
 Procedures

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Evaluation and control: the process in which
corporate activities and performance results are
monitored so that actual performance can be
compared to desired performance

Strategy Evaluation
 Determining which strategies are not
working well
 Three fundamental activities:
reviewing external and internal factors that
are the bases for current strategies
measuring performance
taking corrective actions

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Evaluation & Control
Performance: the end result of organizational activities
Feedback/Learning Process: revise or correct
decisions based on performance

Key Terms in Strategic
Management
Competitive Advantage
 any activity a firm does especially well
compared to activities done by rival firms,
or
 any resource a firm possesses that rival
firms desire.
 A firm must strive to achieve sustained
competitive advantage

The Ability to Create More Economic
Value Than Competitors
• there must be something different about a firm’s
offering vis-à-vis competitors’ offerings
• if all firms’ strategies were the same, no firm
would have a competitive advantage
• competitive advantage is the result of doing
something different and/or better than competitors

Temporary & Sustainable
• competition limits the duration of competitive
advantage in most cases
• profits attract competition
• competitive advantage typically results in high profits
Therefore,
• most competitive advantage is temporary
• competitors imitate the advantage or offer
something better

Temporary & Sustainable
Some competitive advantages are sustainable if:
• competitors are unable to imitate the source
of advantage
• no one conceives of a better offering
Of course,
• in time, even sustainable competitive advantage
may be lost

Competitive Parity
• the firm’s offerings are ‘average’
• people do not have a preference for the firm’s offering
• the firm does not have a cost advantage over others
• some things that may lead to competitive parity may
still be critical to success

Competitive Disadvantage
• people may have an aversion to the firm’s offering
• the firm may have a cost disadvantage
• a firm may have outdated technology/equipment
• a firm may have a negative reputation
Example: Wal-Mart’s Labor & Location Policies

Disadvantage
Parity
Advantage
Below Normal
Normal
Above Normal
Economic Returns
• exceeding expectations
• meeting expectations
• failing expectations

Management
Strategists
 Individuals most responsible for the success
or failure of an organization
 Help an organization gather, analyze, and
organize information
Vision and Mission Statements
 A vision statement answers the question
“What do we want to become?”
 A mission statement answers the question
“What is our business?”

Management
External Opportunities and Threats
 economic, social, cultural, demographic,
environmental, political, legal, governmental,
technological, and competitive trends and
events that could significantly benefit or harm an
organization
Internal Strengths and Internal Weaknesses
 an organization’s controllable activities that are
performed especially well or poorly
 determined relative to competitors

Management
Long-Term Objectives
 specific results that an organization
seeks to achieve in pursuing its basic
mission
 long-term means more than one year
 should be challenging, measurable,
consistent, reasonable, and clear

Management
Annual objectives
 short-term milestones that organizations must
achieve to reach long-term objectives
 should be measurable, quantitative, challenging,
realistic, consistent, and prioritized
 should be established at the corporate,
divisional, and functional levels in a large
organization
Policies
 the means by which annual objectives will be
achieved

Benefits of Strategic Management
 Strategic management allows an
organization to be more proactive than
reactive in shaping its own future;
 It allows an organization to initiate and
influence (rather than just respond to)
activities—and thus to exert control over
its own destiny.

Financial Benefits
 Businesses using strategic-management
concepts show significant improvement in
sales, profitability, and productivity compared
to firms without systematic planning activities
 High-performing firms tend to do systematic
planning to prepare for future fluctuations in
their external and internal environments

Nonfinancial Benefits
 Enhanced awareness of external threats
 Improved understanding of competitors’
strategies
 Increased employee productivity
 Reduced resistance to change
 Clearer understanding of performance–
reward relationships

Why Some Firms Do No Strategic
Planning
 No formal training in strategic
management
 No understanding of or appreciation for
the benefits of planning
 No monetary rewards for doing planning
 No punishment for not planning
 Too busy “firefighting” (resolving internal
crises) to plan ahead
 View planning as a waste of time, since
no product/service is made

Why Some Firms Do No Strategic
Planning
 Laziness; effective planning takes time
and effort; time is money
 Content with current success; failure to
realize that success today is no guarantee
for success tomorrow; even Apple Inc. is
an example
 Overconfident
 Prior bad experience with strategic
planning done sometime/somewhere

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