strategic-management

8 PART 1 • OVERVIEW OF STRATEGIC MANAGEMENT
Although some organizations today may survive and prosper because they have intuitive
geniuses managing them, most are not so fortunate. Most organizations can benefit
from strategic management, which is based upon integrating intuition and analysis in decision
making. Choosing an intuitive or analytic approach to decision making is not an
either–or proposition. Managers at all levels in an organization inject their intuition and
judgment into strategic-management analyses. Analytical thinking and intuitive thinking
complement each other.
Operating from the I’ve-already-made-up-my-mind-don’t-bother-me-with-the-facts
mode is not management by intuition; it is management by ignorance. 5 Drucker says,
“I believe in intuition only if you discipline it. ‘Hunch’ artists, who make a diagnosis but
don’t check it out with the facts, are the ones in medicine who kill people, and in management
kill businesses.” 6 As Henderson notes:
The accelerating rate of change today is producing a business world in which customary
managerial habits in organizations are increasingly inadequate. Experience
alone was an adequate guide when changes could be made in small increments. But
intuitive and experience-based management philosophies are grossly inadequate
when decisions are strategic and have major, irreversible consequences. 7
In a sense, the strategic-management process is an attempt both to duplicate what goes
on in the mind of a brilliant, intuitive person who knows the business and to couple it with
analysis.
Adapting to Change
The strategic-management process is based on the belief that organizations should continually
monitor internal and external events and trends so that timely changes can be
made as needed. The rate and magnitude of changes that affect organizations are
increasing dramatically as evidenced how the global economic recession has caught so
many firms by surprise. Firms, like organisms, must be “adept at adapting” or they will
not survive.
Corporate bankruptcies and defaults more than doubled in 2009 from an already bad
2008 year. All industries were hit hard, especially retail, chemicals, autos, and financial.
As lenders tightened restrictions on borrowers, thousands of firms could not avoid bankruptcy.
Even the economies of China, Japan, and South Korea stalled as demand for their
goods from the United States and Europe dried up. China’s annual growth slowed from 13
percent in 2007 to 9 percent in 2008 and then 5 percent for 2009. Consumer confidence
indexes were falling all over the world as were housing prices.
Nine of 10 stocks in the S&P 1500 lost value in 2008. The Nasdaq composite index
fell 40.5 percent in 2008, its worst year ever. S&P 500 stocks lost 38.5 percent of their
value in 2008, the worst year since 1937. The Dow Jones Industrial Average lost 33.8 percent
of its value in 2008, the worst loss since 1931 as shareholders lost $6.8 trillion in
wealth. Only three S&P 500 stocks rose in 2008: Family Dollar up 38 percent, making
it the best performer in the S&P 500; Wal-Mart Stores up 18 percent; and McDonald’s
up nearly 6 percent. The biggest decliner on the Dow in 2008 was GM, whose stock fell
87 percent. Citigroup lost 77 percent of its stock value in 2008. Even General Electric lost
56 percent of its value. Fannie Mae and Freddie Mac each slid 98 percent as did Fleetwood
Enterprises, which makes recreational vehicles. And losses were also extensive worldwide.
For example, Vanguard’s Europe/Pacific Index, composed of stocks firms based on those
continents, fell 43 percent in 2008.
To survive, all organizations must astutely identify and adapt to change. The strategicmanagement
process is aimed at allowing organizations to adapt effectively to change over
the long run. As Waterman has noted:
In today’s business environment, more than in any preceding era, the only constant is
change. Successful organizations effectively manage change, continuously adapting
their bureaucracies, strategies, systems, products, and cultures to survive the shocks
and prosper from the forces that decimate the competition. 8