The Nature of

Strategic
Management

Chapter One

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Definition of Strategy

Strategy: A firms theory about how to gain

competitive advantages

Eisners theory may have been:

People will pay a premium price for extraordinary

entertainment. We have the necessary resources to
create extraordinary entertainment. Therefore, lets
redeploy our resources in a different way and offer
something extraordinary to people.
 Defining Strategic Management
Strategic Management

the art and science of formulating,

implementing, and evaluating cross-
functional decisions that enable an
organization to achieve its objectives

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 Defining Strategic Management
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.

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 Defining Strategic Management
A strategic plan is a companys game
plan.

A strategic plan results from tough

managerial choices among
numerous good alternatives, and it
signals commitment to specific
markets, policies, procedures, and
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Basic Model of Strategic Management

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 Basic Model of Strategic Management

Environmental Scanning is the

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

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 Stages of Strategic Management
Strategy Formulation
developing a vision and mission
identifying an organizations 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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 Basic Model of Strategic Management
Strategy Formulation:

Mission- the purpose or reason for the

organizations 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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 Basic Model of Strategic Management
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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Basic Model of Strategic Management

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 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
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 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
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 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
FedExs decision to acquire Kinko's
PepsiCos decision to spin off their fast-food
division

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publishing as Prentice Hall
 Stages of Strategic Management

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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Basic Model of Strategic Management

Strategy implementation: the process by which

strategies and policies are put into action through the
development of:

Programs
Budgets
Procedures

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Basic Model of Strategic Management

Evaluation and control: the process in which

corporate activities and performance results are
monitored so that actual performance can be
compared to desired performance

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 Stages of Strategic Management

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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Basic Model of Strategic Management

Evaluation & Control

Performance: the end result of organizational activities

Feedback/Learning Process: revise or correct

decisions based on performance

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 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
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Competitive Advantage

The Ability to Create More Economic

Value Than Competitors
there must be something different about a firms
offering vis--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
Competitive Advantage
Temporary & Sustainable
competitive advantage typically results in high profits

profits attract competition

competition limits the duration of competitive

advantage in most cases
Therefore,
most competitive advantage is temporary
competitors imitate the advantage or offer
something better
Competitive Advantage
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 Advantage
Competitive Parity

the firms offerings are average

people do not have a preference for the firms 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 Advantage

Competitive Disadvantage

people may have an aversion to the firms offering

the firm may have a cost disadvantage

a firm may have outdated technology/equipment

a firm may have a negative reputation

Example: Wal-Marts Labor & Location Policies

 Competitive Advantage

Competitive Advantage Economic Returns

Advantage Above Normal

exceeding expectations

Parity Normal
meeting expectations

Disadvantage Below Normal

failing expectations
 Key Terms in Strategic 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?
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 Key Terms in Strategic 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 organizations controllable activities that are
performed especially well or poorly
determined relative to competitors

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 Key Terms in Strategic 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

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 Key Terms in Strategic 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
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 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)
activitiesand thus to exert control over
its own destiny.

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 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

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 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

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 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
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 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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