ch 1 -1copyright © 2011 pearson education. strategic management: concepts and cases arab world...

Strategic Management: Concepts and CasesArab World EditionFred R. DavidAbbas J. AliAbdulrahman Y. Al-Aali

Chapter 1: The Nature of StrategicManagement


Chapter Outline

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• What is Strategic Management?

• Key Terms in Strategic Management

• The Strategic-Management Model

• Benefits of Strategic Management

• Why Some Firms Do No Strategic Planning

• Pitfalls in Strategic Planning

• Guidelines for Effective Strategic Management

Copyright © 2011 Pearson Education

Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives

In essence, the strategic plan is a company’s game plan.

Note : Strategic management (SM) is used exchangeable with strategic planning

The purpose of SM is to exploit and create new and different opportunity for tomorrow

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Strategic Management – Definition


SM characteristics

it is not a reaction to short – term changes -------while it is a response to long –term perspectives (5-10 year or more )

it is not a quantitative exercise-------- but it is a qualitative in nature and reflects a realistic imagination of how the future looks

it is not a normative statement of where the firm would like to be in the future --------while it is a road map which describes the steps the firm should undertake to get there

finally it is a set of practical ,well thought–out perspectives and actions on how to deal with uncertainties of the future

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

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Strategic management achieves a firm’s success through integration:

Management

MIS

Production/OperationsFinance/Accounting

Marketing

Research & Development


Strategic Management

Stages of strategic management

• The SM process consists of three main stages

Strategy formulation Strategy implementation Strategy evolution


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Vision & Mission

Strategy Formulation

External Opportunities & Threats

Internal Strengths & Weaknesses

Long-Term Objectives

Alternative Strategies

Strategy Selection


Strategic Management process step:1

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Strategy Implementation

Annual Objectives

Policies & procedures

Employee Motivation

Resource Allocation


Strategic Management process step :2

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Strategy Evaluation

Internal Review

External Review

Performance Metrics

Corrective Actions


Strategic management process step:3

“Think through the overall mission of a business. Ask the key question: What is our Business?”

Peter Drucker

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Prime Task of Strategic Management


The strategic management process attempts to organize quantitative and qualitative information under conditions of uncertainty.

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Integrating Intuition & Analysis


Intuition is based on:

• Past experiences

• Judgment

• Feelings

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Intuition is useful for decision making in:

• Conditions of great uncertainty

• Conditions with little precedent


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Analytical Thinking


Intuitive Thinking


In the Arab world, there is a cultural tendency to emphasize on the role of intuition and imagination in decision making.

There are many companies which, because of luck and Abundant opportunities, have experienced great growth but only for a short time .

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Note:_


Key Terms in strategic Management

Competitive advantages Strategists Vision & mission External opportunity & threats Internal strengths & weaknesses Long – term objectives Strategies Annual (short- term)objectives Polices


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Competitive Advantage: Anything that a firm does especially well, compared to rival firms

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SM :key term (1)


1. Adapting to change in external trends, internal capabilities, and resources

2. Effectively formulating, implementing, and evaluating strategies

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Organizations is said to have a SCA when it is:-


S.M. Key Term (2)

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The Strategists – Those that affect a firm’s success or failure:

• Chief Executive Officer (CEO)

• Chief Strategy Officer (CSO)

• President

• Owner

• Board Chair

• Executive Director


Vision Statement: What do we want to become?

Mission Statement: What is our business?

S.M. Key Term (3)


S.M. Key Term (4)

Opportunities and Threats (External analysis)


External opportunities and threats are largely out of

the control of a single organization.

Oportunities and Threats (External) Cont’d…

Analysis of Trends:

• Economic

• Social

• Cultural

• Demographic/Environmental

• Political, Legal, Governmental

• Technological

• Competitors


The basic tenet of strategic management:

Strategy Formulation

Take advantage of External Opportunities

Take advantage of External Opportunities

Avoid/minimize impact of External Threats

Avoid/minimize impact of External Threats


Strengths & Weaknesses (Internal):

Controllable activities performed especially well or poorly

S.M. key term (5)

Strengths and Weaknesses (Internal analysis)


Strengths and Weaknesses (Internal) Cont’d…

Strengths and weaknesses are typically located in the functional areas of the firm, such as:

• Management

• Marketing

• Finance/Accounting

• Production/Operations

• Research & Development

• Computer Information Systems


Assessing the Internal Environment

Internal FactorsPerformance Metrics

Financial Ratios

Industry Averages

Survey Data


Long-term Objectives:

Mission-driven pursuit of specified results more than one year out

Long Term Objectives


S.M. key term (6)

Long Term Objectives (Cont’d)

Long term objectives are essential for ensuring a firm’s success. They:

• Provide direction

• Help with evaluation

• Create synergy

• Focus coordination

• Basis for planning, motivating, and controlling


Strategies: The means by which long-term objectives are achieved

S.M. key term (7)

Strategies


Strategies (Cont’d)

Some examples of different strategies are:

• Geographic expansion

• Diversification

• Acquisition

• Market penetration

• Retrenchment

• Liquidation

• Joint venture

S.M. Key Terms (8)

Annual Objectives:

Short-term achievements that firms must recognize to attain long-term objectives


Key Terms (9)

Policies:

Means by which annual objectives will be achieved


ASSIGNMENT (1)

Strategic Management Key Terms (1-9)

Research one page / term


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Source: Adapted from Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22, no 3 (June 1988):40

Strategic Management Model (Cont’d)


1. Identify Existing: • Vision• Mission• Objectives• Strategies

2. Audit external environment

3. Audit internal environment

4. Competing in the global market-place

5. Establish long-term objectives

6. Generate, evaluate, and select strategies

7. Implement selected strategies

8. Leadership and culture

9. Measure & evaluate performance

Strategic Management Model (Cont’d)


Benefits of Strategic Management

Strategic benefits :

• Is proactive in shaping firm’s future

• Initiates and influences firm’s activities

• Helps to formulate better strategies that are systematic, logical, and rational


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Financial Benefits

• Improvement in sales

• Improvement in profitability

• Productivity improvement


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Nonfinancial Benefits

• Improved understanding of competitors’ strategies

• Enhanced awareness of threats

• Increased employee productivity

• Reduced resistance to change

• Enhanced problem-prevention capabilities


According to Gordon Greenley of Aston Business school in the united Kingdom S.M. offers the following benefits :-

1. It allows for identification of opportunities

2. It provides an objective view of management problems

3. It represents a framework for improved coordination & control of activities

4. It minimizes the negative effects of conditions & changes

5. It allows major decisions to better support established objectives

6. It allows more effective allocation of time and resources

7. It reduces resources and time to be spent in correcting erroneous decisions



(Cont’d)

8. It creates a framework for internal communication among personnel

9. it provides a basis for clarifying individual responsibilities

10. It encourages forward thinking

11. It provides a cooperative approach to tackling problems and opportunities

12. It encourages a favorable attitude toward change

13. It gives a discipline to the management of business


Reasons why some firms are resistant to strategic planning include:

• Poor reward structures

• Fire-fighting (it deeply so busy in crisis mag. So it has no time to plan)

• Chief executives’ orientation

• Lack of access to needed resources

• Waste of time

• Too expensive

• Laziness

Why Some Firms Do No Strategic Planning


Why Some Firms Do No Strategic Planning (Cont’d)

• Fear of failure

• Overconfidence

• Prior bad experience

• Self-interest

• Fear of the unknown

• Honest difference of opinion

• Suspicion


Pitfalls in Strategic Planning

Being aware of potential pitfalls of strategic

planning and being prepared to address them is

essential to success.



Some pitfalls to watch out for and avoid in strategic planning (Cont’d)

• Using it to gain control over decisions and resources

• Doing it only to satisfy accreditation and regulatory requirements

• Viewing planning as unnecessary or unimportant

• Failing to communicate the plan to employees

• Top managers making many intuitive decisions that conflict with the formal plan



Some pitfalls to watch out for and avoid in strategic planning (Cont’d)

• Top managers not actively supporting the strategic planning process

• Failing to use plans as a standard for measuring performance

• Delegating planning to a ‘planner’ rather than involving all managers

• Being so formal in planning that flexibility and creativity are stifled

• Failing to create a collaborative climate supportive of change


Guidelines for Effective Strategic Management

keep the SM process as simple and non-routine as possible

SM. must not become rigid

A key role of strategists is to facilitate continuous organizational learning and change

SM require trade –offs between long- range short –range orientation


Business Ethics & Strategic Management

Business Ethics:

Principles of conduct within organizations that guide decision making and behavior

Code of Business Ethics:

Provides basis on which policies can be devised to guide daily behavior and decisions in the workplace


Business Ethics & Strategic Management (Cont’d)

Good business ethics are prerequisite for good strategic management


Business Ethics of Savola Group in Saudi Arabia

• Always tell the truth

• Always fulfill our promises and obligations

• Always honor our pledges to others

• Always commit to resolving conflicts with respect and objectivity


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• Misleading advertising

• Misleading labeling

• Harm to the environment

• Insider trading

• Dumping flawed products on foreign markets

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Unethical Business Practices

Business practices that are always considered unethical include:


• Poor product or service safety

• Lack of equal opportunities for foreign workers

• Overpricing

• Hiring child labor

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Unethical Business Practices (Cont’d)


Natural Environment PerspectiveUsing ISO 14000 Certification to Gain Strategic Advantage

• What are ISO 14000 & 14001?

• Requirements for ISO 14001

• Environmental Management Systems (EMS)

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ISO 14000 Family is a series of guidance documents and standards to help organizations address environmental issues on air ,water, soil quality …….etc.

•14001: Environmental Management Systems•14004: EMS general guidelines•14010: Guidelines for Environmental Auditing•14011: Guidelines for Auditing of an EMS•14012: Auditing - Qualification criteria•14020: Environmental Labeling•14030: Env. Performance Evaluation (EPE)•14040: Life-Cycle Assessment (LCA)


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Environmental Management System (EMS)

• ISO 14001 is the specification standard that is a model for an environmental management system (EMS)

• EMS is a systematic way of managing an organization’s environmental affairs

• It is focused on Continual Improvement of System

• It addresses immediate and long-term impact of an organization’s products, services and processes on the environment.

• It is a tool to improve environmental performance


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Requirements for ISO 14001; To achieve certification in terms of ISO 14001, a company needs to undertake a series practices by which organization can perform the EMS :-

• Assess the environmental impacts of its activities

• Develop an environmental policy that includes commitments to prevention of pollution – continuous improvement – compliance with all applicable requirements

• Set environment objectives and targets

• Establish and maintain an environmental management programme

• Implement procedures for training employees, establishing work instructions , and practices


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• Monitor, measure and communicate its performance

• Undertake environmental audits and management reviews

• Take correction actions to overcome the occurrence of any deviations .


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By implementing ISO 14000, any company can become truly competitive through the following :-

• Decreasing costs through increased efficiencies.• Creating and maintaining new market opportunities in areas such as

Europe, which may make registration to the standards a necessary condition of doing business within their specification .

• Demonstrating environmental leadership.• Improving both its own corporate image and community goodwill.• Streamlining/simplifying its EMS.


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to succeed in business today it means to succeed in the international competition


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• Parent company ….refers to a firm investing in international operations

• Host country…….refers to the country where that business is conducted

The Nature of Global Competition

International/multinational organizations ------ refers to organizations that conduct business operations across national borders


Global completion and strategic management

• The strategic management process is conceptually the same for international/multinational as for domestic firms however practically it is more complex for the following reasons :-

The presence of more variables and relationships More social , cultural, demographics ,political, governmental,

legal , technological and competitive opportunities and threats are addressed

More time and efforts are required to identify and evaluate external trends and events

The communication between domestic headquarter and overseas operation is more difficult.


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Advantages of International Operations

1. Absorb excess capacity/reduce unit costs

2. Extend the product life cycle

3. Low-cost production facilities

4. Less intense competition

5. Spread risk over wider markets


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Advantages of International Operations (cont’d)

6. Potential lower taxes

7. Joint ventures to build networks and knowledge

8. Foreign government incentives

9. Economies of scale



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Disadvantages of International Operations

1. Difficult communications

2. Underestimate foreign competition

3. Cultural barriers to effective management

4. Require understanding of regional trade organizations

5. Complications arising from currency differences

6. lack of market information

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The End


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ch 1 -1copyright © 2011 pearson education. strategic management: concepts and cases arab world...

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