ADMAS UNIVERSITY
MBA PROGRAM
STRATEGIC MANAGEMENT
1
Ground Rules
Free exit and free entry
Arrive on time to the class as much as u can
Participation
Not interrupting fellow students
Respecting other people’s contribution
Ch 1 -2
Chapter 1
The Nature of Strategic Management
Strategic Management:
Concepts & Cases
11th Edition
Fred David
Ch 1 -4
CHAPTER OBJECTIVES
After studying this chapter, you should be able to do
the following:
1.Describe the strategic- 4. Discuss the nature of Strategy
formulation, implementation, and
management process.
evaluation activities.
2. Explain the need for
5. Describe the benefits of good
integrating analysis and
intuition in strategic strategic management.
management. 6. Discuss the relevance of Sun
Tzu’s The Art of War to strategic
3. Define and give
management.
examples of key terms
in strategic 7. Discuss how a firm may
management. achieve sustained competitive
advantage.
Ch 1 -5
Strategic Management – Defined
History of Strategy began in the military.
Word ‘Strategy’ comes from Greek word
‘Straegos’, that refers to military general
and combines ‘stratos’ (army) and ‘ago’
(to lead).
1st used around 360 BC, when the
Chinese military strategist sun Tzu wrote
the art of war,
Ch 1 -6
Strategic Management – Defined
Both Military Strategy and Business Strategy
focus how to use their own strengths to exploit
enemy’s / competitor’s weaknesses.
Fundamental difference between Military
Strategy and Business Strategy is that Military
strategy is based on the assumption of ‘Conflict’,
whereas Business Strategy is based on the
assumption of ‘Competition’.
Strategic Management as an academic
discipline started to develop in the 1950s.
Ch 1 -7
Strategic Management –
Defined
Art & science of formulating,
implementing, and evaluating,
cross-functional decisions that
enable an organization to achieve its
objectives
Ch 1 -8
Strategic Management
achieves a firm’s success
through integration ––
Management Marketing
Finance/Accounting Production/Operations
Research & Development MIS
Ch 1 -9
Strategic Management
In essence, the strategic plan is a
company’s game plan
Ch 1 -10
Stages of Strategic Management
Strategic Management process
consists of 3 stages:
Strategy Strategy Strategy
formulation implementation evaluation
ch 1 - 10
Strategy Formulation
Vision & Mission
External Opportunities & Threats
Internal Strengths & Weaknesses
Long-Term Objectives
Alternative Strategies
Strategy Selection
Ch 1 -12
Issues in Strategy
Formulation
New business
opportunities
Businesses to abandon
Allocation of resources
Expansion or
diversification
International markets
Mergers or joint ventures
Avoidance of hostile
takeover
Ch 1 -13
Strategy Implementation
Annual Objectives
Policies
Employee Motivation
Resource Allocation
Ch 1 -14
Strategy
Implementation
Action Stage of Strategic
Management –
Most difficult stage
Mobilization of
employees & managers
Interpersonal skills
critical
Consensus on goal
pursuit
Ch 1 -15
Strategy Evaluation
Internal Review
External Review
Performance Metrics
Corrective Actions
Ch 1 -16
Strategy
Evaluation
Final Stage of Strategic
Management
Subject to future
modification
Today’s success no
guarantee of future success
New & different problems
Complacency leads to
demise
Ch 1 -17
Integrating Intuition and
Analysis
The strategic management process
attempts to organize quantitative and
qualitative information under conditions of
uncertainty
Ch 1 -18
Integrating Intuition and
Analysis
Intuition is based on:
Past experiences
Judgment
Feelings
Intuition is useful for decision making in:
Conditions of great uncertainty
Conditions with little precedent
Ch 1 -19
Integrating Intuition &
Analysis
Intuition & Judgment
Involve Management at all levels
Influence all Analyses
Ch 1 -20
Intuition + Analysis
Effective Strategic Decisions
Ch 1 - 21
The Stages and Activities in the
Strategic Management Process
Stages Activities
Strategy Conduct Integrate Make
formulation investigation intuition with
analysis decisions
Strategy Establish Devise Allocate
implementation annual policies resources
objectives
Review internal Measure Take
Strategy and external performance
evaluation corrective
factors action
Ch 1-17
Adapting to Change
Organizations must monitor
events
On-going process
Internal and external events
Timely changes
Ch 1 -23
Adapting to Change
Rate & magnitude of change
increasing dramatically
E-commerce
Globalization
Technology
Ch 1 -24
Adapting to Change
Effective Adaptation
Requires long-term focus
Ch 1 -25
Adapting to Change – Key
Strategic Management
Questions
What kind of business should
we become?
Are we in the right fields
Are there new competitors?
What strategies should we
pursue?
How are our customers
changing?
Ch 1 -26
Key Terms
Strategists – Firm’s success/failure
Various Job Titles:
•Chief Executive Officer (CEO)
•Chief Strategy Officer (CSO)
•President
•Owner
•Board Chair
•Executive Director
Ch 1 -27
Competitive Advantage
“Anything that a firm does especially
well compared to rival firms”
Strategic Management is Gaining
and Maintaining Competitive
Advantage
Ch 1 -28
Achieving Sustained
Competitive Advantage
1. Adapting to change in external trends,
internal capabilities and resources
2. Effectively formulating, implementing &
evaluating strategies
Ch 1 -29
Key Terms
Vision Statement –
What do we want to become?
Mission Statement –
What is our business?
Ch 1 -30
Key Terms
Opportunities and Threats (External)
Largely beyond the control of a single
organization
Ch 1 -31
Key Terms
Opportunities & Threats (External)
Analysis of Trends:
• Economic
• Social
• Cultural
• Demographic/Environmental
• Political, Legal, Governmental
• Technological
• Competitors
Ch 1 -32
Key Terms
Opportunities & Threats
Environmental Scanning (Industry Analysis)
Process of conducting research and
gathering and assimilating external
information
Ch 1 -33
Key Terms
Opportunities & Threats
Basic Tenet of Strategic Management
Take advantage of
External Opportunities
Strategy Formulation
Avoid/minimize impact of
External Threats
Ch 1 -34
Key Terms
Strengths & Weaknesses (Internal)
Controllable activities performed especially
well or poorly
Ch 1 -35
Key Terms
Strengths & Weaknesses (Internal)
Typically located in functional areas of the firm
• Management
• Marketing
• Finance/Accounting
• Production/Operations
• Research & Development
• Computer Information Systems
Ch 1 -36
Key Terms
Strengths & Weaknesses
Assessing the Internal Environment
Financial Ratios
Performance Metrics
Internal Factors
Industry Averages
Survey Data
Ch 1 -37
Key Terms
Long-term Objectives
Objectives can be defined as specific results
that an organization seeks to achieve in
pursuing its basic mission. Long-term
means more than five year.
Ch 1 -38
Key Terms
Long-term Objectives
Essential for ensuring the firm’s success
• Provide direction
• Aid in evaluation
• Create synergy
• Focus coordination
• Basis for planning, motivating, and
controlling
Ch 1 -39
Key Terms
Strategies
Means by which long-term objectives are
achieved
Ch 1 -40
Key Terms
Strategies
Some Examples
• Geographic expansion
• Diversification
• Acquisition
• Market penetration
• Retrenchment
• Liquidation
• Joint venture
Ch 1 -41
Key Terms
Annual Objectives
Short-term milestones that firms must
achieve to attain long-term objectives
Ch 1 -42
Key Terms
Policies
Means by which annual objectives will be
achieved
Ch 1 -43
Over view of types/levels of strategy
Ch 1 -44
1) Corporate level strategies
A corporate level strategy specifies actions a firm takes to
gain a competitive advantage by selecting and managing
a group of different businesses competing in
different product markets.
2) Business Level Strategies
A business-level strategy is an integrated and
coordinated set of commitments and actions the firm uses
to gain a competitive advantage by exploiting core
competencies in specific product markets
3) Functional Level Strategies
This is the approach taken by a functional area to achieve
corporate and business unit objectives and strategies
They are strategies, which are designed by different
functions of a company; Finance, Accounting, Research
and Development, Personnel, Marketing and Production
MIDROC Ethiopia
Investment Group Corporate level strategy
Business
level strategy
Abc Car Avanti Derba Hora
Rental Blue Derba- Derba Drilling Ethio-
Leather Hawassa Food
PLC Nile MIDROC Transpo and Chipwood Compl
Cement Hydrology Industry
Resort rt PLC PLC Factory PLC ex PLC
PLC PLC
Hotel (ELICO)
MARKETING FINANCE
PRODUCTION HRM MGT Functional level strategy
Ch 1-46
Comprehensive strategic
management model
Ch 1 -47
Strategic Management Model
Strategic Management Process
Dynamic & Continuous
More formal in larger organizations
Ch 1 -49
Strategic Management Model
1. Identify Existing --
• Vision
• Mission
• Objectives
• Strategies
Ch 1 -50
Strategic Management Model
2. Audit external environment
3. Audit internal environment
4. Establish long-term objectives
5. Generate, evaluate & select
strategies
6. Implement selected strategies
7. Measure & evaluate performance
Ch 1 -51
Benefits of Strategic
Management
• Proactive in shaping firm’s future
• Initiate and influence firm’s activities
• Formulate better strategies
•Systematic, logical, rational
Ch 1 -52
Benefits of Strategic
Management
Financial Benefits
• Improvement in sales
• Improvement in profitability
• Productivity improvement
Ch 1 -53
Benefits of Strategic
Management
Non-Financial Benefits
• Improved understanding of competitors strategies
• Enhanced awareness of threats
• Reduced resistance to change
• Enhanced problem-prevention capabilities
Ch 1 -54
Benefits of Strategic
Management (Greenley)
1. Identification of Opportunities
2. Objective view of management problems
3. Improved coordination & control
4. Minimizes adverse conditions & changes
5. Decisions that better support objectives
Ch 1 -55
Benefits of Strategic
Management (Greenley – cont’d)
6. Effective allocation of time & resources
7. Internal communication among personnel
8. Integration of individual behaviors
9. Clarify individual responsibilities
10. Encourage forward thinking
Ch 1 -56
Benefits of Strategic
Management (Greenley – cont’d)
11. Encourages favorable attitude toward
change
12. Provides
discipline and formality to the
management of the business
Ch 1 -57
Why Some Firms Do No
Strategic Planning
Poor reward structures
Fire-fighting
Waste of time
Too expensive
Laziness
Content with success
Ch 1 -58
Why Some Firms Do No
Strategic Planning
Fear of failure
Overconfidence
Prior bad experience
Self-interest
Fear of the unknown
Suspicion
Ch 1 -59
