The Nature of
Strategic
Management
Chapter One
Copyright ©2017 Pearson Education, Inc. 1-1
Learning Objectives
1. Describe the strategic-management process.
2. Discuss the three stages of strategy
formulation, implementation, and evaluation
activities.
3. Explain the need for integrating analysis and
intuition in strategic management.
4. Define and give examples of key terms in
strategic management.
Copyright ©2017 Pearson Education, Inc. 1-2
Learning Objectives (cont.)
5. Illustrate the comprehensive strategic-
management model.
6. Describe the benefits of engaging in strategic
management.
7. Explain why some firms do no strategic
planning.
8. Describe the pitfalls in actually doing strategic
planning.
9. Discuss the connection between business and
military strategy.
Copyright ©2017 Pearson Education, Inc. 1-3
Defining Strategic Management
Strategic management
is the process of formulating and implementing
strategies to achieve the objectives and goals of an
organization.
It involves analyzing the internal and external
environment, setting goals and objectives, developing and
implementing strategies, and evaluating the results to
ensure the organization's long-term success and
competitiveness.
Strategic management helps organizations align their
resources, capabilities, and activities with the changing
business environment to gain a competitive advantage and
1-4
achieve sustainable growth
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
Copyright ©2017 Pearson Education, Inc. 1-5
Defining Strategic Management
Strategic management is used 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.
Copyright ©2017 Pearson Education, Inc. 1-6
Defining Strategic Management
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.
Copyright ©2017 Pearson Education, Inc. 1-7
Stages of Strategic Management
Strategy Strategy Strategy
formulation implementation evaluation
Copyright ©2017 Pearson Education, Inc. 1-8
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
Copyright ©2017 Pearson Education, Inc. 1-9
Strategy Formulation Decisions
What new businesses to enter
What businesses to abandon
Whether to expand operations or diversify
Whether to enter international markets
Whether to merge or form a joint venture
How to avoid a hostile takeover
Copyright ©2017 Pearson Education, Inc. 1-10
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
Copyright ©2017 Pearson Education, Inc. 1-11
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
Copyright ©2017 Pearson Education, Inc. 1-12
Key Terms in Strategic Management
Competitive Advantage
any activity a firm does especially well compared
to activities done by rival firms,
Or
A unique advantage that allows an organization to
outperform its competitors and achieve superior
performance in the market.
A firm must strive to achieve sustained competitive
advantage
Copyright ©2017 Pearson Education, Inc. 1-13
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?”
Copyright ©2017 Pearson Education, Inc. 1-14
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 organization’s controllable activities that are
performed especially well or poorly
determined relative to competitors
Copyright ©2017 Pearson Education, Inc. 1-15
Some Opportunities and Threats
Availability of capital can no longer be
taken for granted.
Consumers expect green operations and
products.
Marketing is moving rapidly to the Internet.
Commodity food prices are increasing.
Copyright ©2017 Pearson Education, Inc. 1-16
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
Copyright ©2017 Pearson Education, Inc. 1-17
Key Terms in Strategic Management
Strategies
the means by which long-term
objectives will be achieved
may include geographic expansion,
diversification, acquisition, product
development, market penetration,
retrenchment, divestiture, liquidation,
and joint ventures
Copyright ©2017 Pearson Education, Inc. 1-18
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
Copyright ©2017 Pearson Education, Inc. 1-19
The Strategic-Management Model
Where are we now?
Where do we want to go?
How are we going to get there?
Copyright ©2017 Pearson Education, Inc. 1-20
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.
Copyright ©2017 Pearson Education, Inc. 1-21
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
Copyright ©2017 Pearson Education, Inc. 1-22
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
Copyright ©2017 Pearson Education, Inc. 1-23
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
Copyright ©2017 Pearson Education, Inc. 1-24
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
Overconfident
Prior bad experience with strategic planning
done sometime/somewhere
Copyright ©2017 Pearson Education, Inc. 1-25
Pitfalls in Strategic Planning
Using strategic planning to gain control over decisions and
resources
Doing strategic planning only to satisfy accreditation or
regulatory requirements
Too hastily moving from mission development to strategy
formulation
Failing to communicate the plan to employees, who continue
working in the dark
Top managers making many intuitive decisions that conflict
with the formal plan
Top managers not actively supporting the strategic-planning
process
Failing to use plans as a standard for measuring performance
Copyright ©2017 Pearson Education, Inc. 1-26
Pitfalls in Strategic Planning
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
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
Copyright ©2017 Pearson Education, Inc. 1-27
How to Gain and Sustain
Competitive Advantage
Copyright ©2017 Pearson Education, Inc. 1-28
Comparing Business and
Military Strategy
A fundamental difference between military
and business strategy is that business
strategy is formulated, implemented, and
evaluated with an assumption of competition,
whereas military strategy is based on an
assumption of conflict
Both business and military organizations
must adapt to change and constantly improve
to be successful
Copyright ©2017 Pearson Education, Inc. 1-29
Business and military strategy share some similarities in terms of
goal-setting, planning, and execution. However, there are also
significant differences between the two.
1. Goal-setting: Both business and military strategies involve setting
clear objectives. In business, these objectives are usually focused
on profitability, market share, or growth. In the military, goals are
typically centered around national security, defense, or the
achievement of specific military objectives.
2. Planning: Business and military strategies require careful
planning to achieve their respective goals. In business, this
involves analyzing market conditions, identifying target
customers, and developing marketing and operational plans. In the
military, planning involves assessing the enemy's capabilities,
identifying potential threats, and devising tactical and operational
plans to achieve military objectives.
Copyright ©2017 Pearson Education, Inc. 1-30
Despite these similarities, there are several key differences
between business and military strategy:
1. Nature of the environment: Business strategies are
developed and executed in a competitive, market-driven
environment where success is often measured by financial
performance. Military strategies, on the other hand, are
implemented in a more hostile and unpredictable environment
where the objective is to overcome adversaries and ensure
national security.
2. Stakeholders: In business, the primary stakeholders are
customers, shareholders, employees, and suppliers. The
success of a business strategy is often measured by its impact
on these stakeholders and the bottom line. In the military, the
primary stakeholders are the government, citizens, and
soldiers. The success of military strategy is often measured by
its impact on national security and the protection of citizens.
Copyright ©2017 Pearson Education, Inc. 1-31
3. Decision-making: Business strategy is typically
developed by a company's leadership and implemented
by managers and employees. Decision-making in
business is often based on market research, financial
analysis, and risk assessment. In the military, strategy
is developed by military leaders and implemented by
soldiers. Decision-making in the military is often based
on intelligence, operational analysis, and the
assessment of military capabilities.
Copyright ©2017 Pearson Education, Inc. 1-32
END
Copyright ©2017 Pearson Education, Inc. 1-33
