Concepts of Strategic Management Fred R David Prentice-Hall

Concepts of Strategic Management Fred R. David Prentice-Hall, Inc. Sixth Edition

Chapter 1 The Nature of Strategic Management

Three Themes in the Text • Global Considerations Impact Virtually All Strategic Decisions • Information Technology Has Become a Vital Strategic Management Tool • Preserving the Natural Environment is an Important Strategic Issue

Chapter Objectives • Describe the strategic management process • Explain the need for integrating analysis and intuition in strategic management • Define and give examples of key terms in strategic management • Discuss the nature of strategy formulation, implementation, and evaluation activities • Describe the benefits of good strategic management • Explain why good ethics is good business in strategic management

Global Considerations Impact Virtually All Strategic Decisions Should we import? Should I learn a foreign language? Will NAFTA affect our firm? Should we export?

Information Technology Has Become A Vital Strategic Management Tool Should we set up a Web site? Should we upgrade our PCs? Should we outsource MIS? Should we buy our sales staff laptops?

Preserving the Natural Environment is an Important Strategic Issue Is our firm environmentally friendly? Should we burn low-sulfur coal? Should we recycle? Will Congress pass tougher laws?

The Definition of Strategic Management The Art and Science of Formulating, Implementing, and Evaluating Cross-Functional Decisions That Enable an Organization to Achieve It’s Objectives

The Stages and Activities in the Strategic Management Process Stages Activities Strategy formulation Conduct research Integrate intuition with analysis Make decisions Strategy implementation Establish annual objectives Devise policies Allocate resources Strategy evaluation Review internal and external factors Measure performance Take corrective action

The Basis for Good Strategic Decisions Intuition + Analysis Effective Strategic Decisions

Global Perspective The World’s Largest Companies The World’s Ten Largest Companies in Rank Order Based on 1994 Revenues 1. Mitsubishi 6. Marubeni 2. Mitsui 7. Ford Motor 3. Itochu 8. Exxon 4. Sumitomo 9. Nissho Iwai 5. General Motors 10. Royal Dutch/Shell Group

What Traits CEOs Have Now - And Will Need in the Year 2000 Personal Behaviors Now Year 2000 Conveys strong sense of vision Links compensation to performance Communicates frequently with employees Emphasizes ethics Plans for management succession Communicates frequently with customers Reassigns or terminates Rewards loyalty Makes all major decisions Behaves conservatively 75% 66% 59% 74% 56% 41% 34% 39% 32% 98% 91% 89% 85% 78% 71% 44% 21% 13%

What Traits CEOs Have Now - And Will Need in the Year 2000 (cont. ) Knowledge and Skills Now Year 2000 Strategy formulation Human resource management International economics and politics Science and technology Computer literacy Marketing and sales Negotiation Accounting and finance Handling media and public speaking Production 68% 41% 10% 11% 3% 50% 34% 33% 16% 21% 78% 53% 19% 15% 7% 48% 24% 13% 9%

Ten Key External Forces Competitive Economic Technological Social Governmental Cultural Political Demographic Environmental Legal

Fourteen Key Internal Forces Management Marketing Research & Development Purchasing Manufacturing Production/ Operations Distribution

Key Internal Forces (cont. ) Finance/Accounting Packaging Promotion Human Resource Management Employee/ Manager Relations Vendor Relations Computer Information Systems

Keys to Formulating Strategies Business Mission Internal Strengths and Weaknesses External Opportunities and Threats Strategy Formulation

A Comprehensive Strategic Management Model Feedback Perform External Audit Establish Longterm Objectives Develop Mission Statement Generate, Evaluate, and Select Strategies Establish Policies and Annual Objectives Allocate Resources Measure and Evaluate Performance Perform Internal Audit Strategy Formulation Strategy Implementation Strategy Evaluation

Forces Influencing Design of Strategic Management Systems Toward more formality and more details Organization Small one-plant companies Large companies Management Styles Policy maker Democratic-permissive Authoritarian Day-to-day operational thinker Intuitive thinker Experienced in planning Inexperienced in planning Toward less formality and fewer details

Forces Influencing Design of Strategic Management Systems Toward more formality and more details Complexity of Environment Stable environment Turbulent environment Little competition Many markets and customers Single market and customer Competition severe Toward less formality and fewer details

Forces Influencing Design of Strategic Management Systems Toward more formality and more details Complexity of Production Process Long production lead times Short production lead times Capital intensive Labor intensive Integrated manufacturing processes Simple manufacturing processes High technology Low technology Market reaction time for new product is short Market reaction time is long Toward less formality and fewer details

Forces Influencing Design of Strategic Management Systems Toward more formality and more details Nature of Problems Facing new, complex, tough problems having long-range aspects Facing tough short-range problems Purpose of Planning System Coordinate division activities Train managers Toward less formality and fewer details

Benefits of Strategic Management - Improved Communication - Greater Productivity - Increased Understanding - More Effective Strategies - Enhanced Commitment - Higher Productivity - Allow Firm to Influence, Initiate, and Anticipate - Be Proactive Rather Than Reactive

How to Create an Ethical Culture • Develop a Code of Business Ethics • Ask All Managers and Employers to Sign the Code • Offer Business Ethics Workshops • Include Ethics Factors in Performance Appraisal Instruments • Link Compensation to Ethical Behavior

How to Create an Ethical Culture (cont. ) • Encourage Whistle Blowing • Encourage Good Business Ethics Behavior • Publicize Good Business Ethics Behavior • Reward Good Business Ethics Behavior • Set a Good Example

The Communications Benefits of Engaging In Strategic Management Managers from all functional areas listen and discuss their views in strategic management meetings. This interaction yields learning, appreciation, and understanding among managers who otherwise do not communicate with each other