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

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

2. Chapter 1 The Nature of Strategic Management

3. 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

4. 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

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

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

7. 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?

8. 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

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

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

11. 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

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

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

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

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

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

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

18. A Comprehensive Strategic Management Model Feedback Perform External Audit Develop Mission Statement Establish Long- term Objectives 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 Establish Policies and Annual Objectives Establish Policies and Annual Objectives

19. Forces Influencing Design of Strategic Management Systems Toward more formality and more details Toward less formality and fewer 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

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

21. Forces Influencing Design of Strategic Management Systems Complexity of Production Process Toward more formality and more details Toward less formality and fewer details 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

22. Forces Influencing Design of Strategic Management Systems Toward more formality and more details Toward less formality and fewer 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

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

24. 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

25. 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

26. 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