TOPIC 1: THE NATURE OF STRATEGIC
MANAGEMENT
Global Considerations
o impact virtually all strategic decisions
E-commerce
o vital strategic management tool
Natural Environment
o important strategic issue
Strategic Management – Defined
o Art & science of formulating,
implementing, & evaluating, cross-
functional decisions that enable an
organization to achieve its objectives
o In essence, the strategic plan is a
company’s game plan.
Strategic management achieves a firm’s
success through integration
Strategy Formulation
o Vision & Mission
o External Opportunities & Threats
o Internal Strengths & Weaknesses
o Long-Term Objectives
o Alternative Strategies
o Strategy Selection
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
Strategy Implementation
o Annual Objectives
o Policies
o Employee Motivation
o Resource Allocation
Action Stage of Strategic Management
 Most difficult stage
 Mobilization of employees & managers
 Interpersonal skills critical
 Consensus on goal pursuit
Strategy Evaluation
o Internal Review
o External Review
o Performance Metrics
o Corrective Actions
Final Stage of Strategic Management
 Subject to future modification
 Today’s success no guarantee of future
success
 New & different problems
 Complacency leads to demise
Prime Task of Strategic Management
o Peter Drucker: Think through the overall
mission of a business. Ask the key
question: “What is our Business?”
Integrating Intuition & Analysis
o The strategic management process 1. Adapting to change in external trends,
attempts to organize quantitative & internal capabilities, and resources
qualitative information under 2. Effectively formulating, implementing,
conditions of uncertainty. and evaluating strategies

Intuition is based on: Adapting to Change

o Past experiences o E-commerce

o Judgment o Demographics
o Feelings o Technology

Intuition is useful for decision making in: Effective Adaptation

o Conditions of great uncertainty o Requires long-term focus

o Conditions with little precedent
Adapting to Change – Key Strategic
Intuition & Judgment Management Questions

o Involve management at all levels o What kind of business should we

o Influence all analyses become?
o Are we in the right fields?
o Are there new competitors?
o What strategies should we pursue?
o How are our customers changing?

Key Terms

Strategists
Adapting to Change
o Firm’s success/failure
Organizations must monitor events
Various Job Titles:
o Ongoing process
o Internal and external events o Chief Executive Officer (CEO)
o Timely changes o Chief Strategy Officer (CSO)
o President
Strategic Management is Gaining &
o Owner
Maintaining Competitive Advantage
o Board Chair
o “Anything that a firm does especially o Executive Director
well compared to rival firms”
Vision Statement
Achieving Sustained Competitive
Advantage o What do we want to become?

Mission Statement
o What is our business?
Key Terms: Opportunities & Threats
o Largely beyond the control of a single
organization
o Research & Development
o Computer Information Systems
Assessing the Internal Environment
Internal Factors

Analysis of Trends: o Financial Ratios

o Performance Metrics
o Economic
o Industry Averages
o Social
o Survey Data
o Cultural
o Demographic/Environmental Key Terms: Long-term Objectives
o Political, Legal, Governmental
o Mission-driven pursuit of specified
o Technological
results more than one year out
o Competitors
Essential for ensuring the firm’s success:
Environmental Scanning (Industry
Analysis) o Provide direction
o Aid in evaluation
o Process of conducting research and
o Create synergy
gathering and assimilating external
o Focus coordination
information
o Basis for planning, motivating, and
Basic Tenet of Strategic Management controlling

o Strategy Formulation Key Terms: Strategies

o Take advantage of External
o Means by which long-term objectives
Opportunities
are achieved
o Avoid/minimize impact of External
Threats Some Examples:

Key Terms: Strengths & Weaknesses o Geographic expansion

o Diversification
o Controllable activities performed
o Acquisition
especially well or poorly
o Market penetration
Typically located in functional areas of o Retrenchment
the firm: o Liquidation

o Management o Joint venture

o Marketing Key Terms

o Finance/Accounting
Annual Objectives
o Production/Operations
o Short-term milestones that firms must
achieve to attain long-term objectives
Policies
o Means by which annual objectives will
be achieved
Comprehensive Strategic-Management
Model
Strategic Management Model
Strategic Management Process
o Dynamic & continuous
o More formal in larger organizations
1. Identify Existing: Vision, Mission,
Objectives, Strategies
2. Audit external environment
3. Audit internal environment
4. Establish long-term objectives
5. Generate, evaluate, and select
strategies
6. Implement selected strategies
7. Measure & evaluate performance
Benefits of Strategic Management
o Proactive in shaping firm’s future
o Initiate and influence firm’s activities
o Formulate better strategies
o Systematic, logical, rational
Financial Benefits
o Improvement in sales
o Improvement in profitability
o Productivity improvement
Nonfinancial Benefits
o Improved understanding of
competitors’ strategies
o Enhanced awareness of threats
o Reduced resistance to change
o Enhanced problem-prevention
capabilities
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
6. Effective allocation of time &
resources
7. Internal communication among
personnel
8. Integration of individual behaviors
9. Clarify individual responsibilities
10. Encourage forward thinking
11. Encourages favorable attitude
toward change
12. Provides discipline and formality to
the management of the business
Why Some Firms Do No Strategic
Planning
o Poor reward structures
 o Fire-fighting The Nature of Global Competition
o Waste of time
International/multinational corporations
o Too expensive
o Laziness o Parent company
o Content with success o Host country
o Fear of failure Strategy implementation may be difficult
o Overconfidence
o Prior bad experience o Cultural differences

o Self-interest o Norms

o Fear of the unknown o Values

o Suspicion o Work ethic

Business Ethics & Strategic Management Advantages of International Operations

Business ethics defined o Absorb excess capacity

o Principles of conduct within
organizations that guide decision
making and behavior
Good business ethics
o Prerequisite for good strategic
management
Code of business ethics
o Provides basis on which policies can be
devised to guide daily behavior and
decisions in the workplace
Business practices always considered
unethical:
o Reduce unit costs
o Spread risk over wider markets
o Low-cost production facilities
o Less intense competition
o Lower taxes
o Economies of scale
Disadvantages of International
Operations
o Difficult communications
o Underestimate foreign competition
o Cultural barriers to effective
management
o Complications arising from currency
differences

o Misleading advertising
o Misleading labeling
o Harm to the environment
o Insider trading
o Dumping flawed products on foreign
markets
o Poor product or service safety
o Padding expense accounts
TOPIC 2: THE BUSINESS VISION &
MISSION
Vision
“The last thing IBM needs right now is a
vision.” (July 1993)
“What IBM needs most right now is a
vision.” (March 1996) – Louis V. Gerstner, Jr.,
CEO, IBM Corporation
Vision
o Agreement on the basic vision for which
the firm strives to achieve in the long
run is critically important to the firm’s
success.
o “What do we want to become?”
Shared Vision:
o Creates commonality of interests
o Reduce daily monotony
o Provides opportunity & challenge
Vision Statement Examples
o Tyson Foods’ vision is to be the world’s
first choice for protein solutions while
maximizing shareholder value.
o General Motors’ vision is to be the
world leader in transportation products
and related services.
o PepsiCo’s responsibility is to continually
improve all aspects of the world in
which we operate – environment, social,
economic – creating a better tomorrow
than today.
o Dell’s vision is to create a company
culture where environmental excellence
is second nature.
Mission Statements
o 90% of all companies have used a
mission statement in the previous five
years
o “What is our business?”
o Enduring statement of purpose
o Distinguishes one firm from another
o Declares the firm’s reason for being
o Reveal what an organization wants to
be and whom it wants to serve
o Essential for effectively establishing
objectives and formulating strategies
Also referred to as:
o Creed statement
o Statement of purpose
o Statement of philosophy
o Statement of business principles
Vision & Mission
o Many organizations develop both vision
& mission statements
o Profit & vision are necessary to
effectively motivate a workforce
o Shared vision creates a community of
interests
Developing Vision & Mission
o Clear mission is needed before
alternative strategies can be formulated
& implemented
o Participation from diverse managers is
important in developing the mission
Importance of Mission
Benefits from a strong mission:
Mission
o Unanimity of Purpose
o Resource Allocation
o Organizational Climate
o Focal Point for Work Structure
Effective Missions
 Broad in scope
 Generate strategic alternatives
 Not overly specific
 Reconciles interests among diverse
stakeholders
 Finely balanced between specificity &
generality
 Arouse positive feelings & emotions
 Motivate readers to action
 Generate favorable impression of the
firm
 Reflect future growth
 Provide criteria for strategy selection
 Basis for generating & evaluating
strategic options
 Are dynamic in nature
Natural Environmental Perspective - Is
Your Firm Environmentally Proactive?
o Preserving the natural resources is good
business!
o Reactive environmental policies can be
expensive
o Proactive policies force companies to
innovate and upgrade processes
Mission & Customer Orientation – Vern
McGinnis
o Define what the organization is
o Define what it aspires to be
o Limited to exclude some ventures
o Broad enough to allow for growth
o Distinguishes firm from all others
o Stated clearly – understood by all
An Effective Mission Statement:
o Anticipates customer needs
o Identifies customer needs
o Provides product/service to satisfy
needs
Social Policy & Mission
Managerial philosophy shapes social
policy:
o Affects development of vision &
mission
o Responsibilities to:
o Consumers
o Environmentalists
o Minorities
o Communities
o Social policy should be integrated in all
strategic management activities
o Mission should convey the social
responsibility of the firm
Vision & Mission
Research results are mixed, however, firms Key Terms and Concepts
with formal mission statements generally
see:

o 2x average return on shareholders’

equity
o Positive relationship to company
performance
o 30% higher return on certain financial
measures

Global Perspective – Social Policies on

Retirement: Japan Versus the World

o Labor shortages due to aging

population
o Shortages can be met by immigration
o Historical barriers to immigration in
Japan lead to significant economic
problems

Characteristics of a Mission Statement

TOPIC 3: MAKING AN EXTERNAL
ASSESSMENT
External Audit
External Assessment
Gather competitive intelligence:
“It is not the strongest of the species that
o Social
survive, nor the most intelligent, but the one
o Cultural
most responsive to change.” – Charles
o Demographic
Darwin
o Environmental
“It is not the strongest of the species that o Governmental
survive, nor the most intelligent, but the one o Legal
most responsive to change.” – Charles o Technological
Darwin
External Audit: Sources of Information
External Strategic Management Audit
o Internet
o Environmental Scanning o Libraries
o Industry Analysis o Suppliers
Identify & evaluate factors beyond the o Distributors
control of a single firm: o Salespersons
o Customers
o Increased foreign competition
o Competition
o Population shifts
o Aging society Performing External Audit
o Fear of traveling Key Factors:
o Stock market volatility
o Vary over time
Purpose of External Audit o Vary by industry
Identify Variables:
o Opportunities o Market share
o Threats o Breadth of competing products
o World economies
o Foreign affiliates
o Proprietary account advantages
o Price competitiveness
o Technological advancements
o Interest rates
o Pollution abatement
External Factors Social, Cultural, Demographic, &
Environmental Force
o Long-term Orientation
o Measurable Major Impact:
o Applicable to Competing Firms
o Products
o Hierarchical
o Services
Industrial Organization (I/O) View o Markets
Industry factors more important than o Customers
internal factors
U.S. Facts:
o Performance determined by industry
o Aging population
forces
o Less Caucasian
I/O Perspective Firm Performance o Widening gap between rich & poor
o 2025 = 18.5% population > 65 years
Industry Properties
o 2075 = no ethnic or racial majority
o Economies of Scale
Facts:
o Barriers to Market Entry
o Product Differentiation o World population approaching 7 billion
o Level of Competitiveness o World population = 8 billion by 2028
o World population = 9 billion by 2054
Research Findings
o U.S. population < 300 million
“Approximately 20% of a firm’s profitability
Trends:
can be explained by the industry, whereas
36% of the variance in profitability is o More American households with people
attributed to the firm’s internal factors” living alone
Economic Forces o Aging Americans – affects all
organizations
o Trends in the dollar’s value o Population shift to the south and west
o European Union o Decimation & degradation of the
o Layoffs natural environment
o Economic standard of living
Global trends:

o China’s labor rates less than Mexico

o China provides more site location
incentives than Mexico
Natural Environment Perspective -
Business Leaders Pushing for Legislation
on Climate Change
o 10 CEOs pressuring for caps on
greenhouse-gas omissions
o Desiring a single national emissions cap
o Top 5 buyers of green power:
o PepsiCo
o Wells Fargo
o Whole Foods
o U.S. Air Force
o Johnson & Johnson
21st Century Trends:
o More educated consumers
o Aging population
o Minorities more influential
o Local rather than federal solutions
o Fixation with youth decreasing
o Hispanics increase to 15% by 2021
o African-American increase to 14% by
2021
Key Social, Cultural, Demographic, &
Environmental Variables
o Childbearing rates
o Number of special interest groups
o Number of marriages & divorces
o Number of births & deaths
o Immigration & emigration rates
Social, Cultural, Demographic, &
Environmental Forces: Key Variables
Political, Governmental, & Legal Forces
Government Regulation: Key
opportunities & threats –
o Antitrust legislation
o Tax rates
o Lobbying efforts
o Patent laws
Increasing Global Interdependence:
Political variables impact –
o Formulation of strategies
o Implementation of strategies
Increasing Global Interdependence:
Strategists in a global economy –
o Forecast political climates
o Legalistic skills
o Diverse world cultures
Globalization of Industry:
o Worldwide trend toward similar
consumption patterns
o Global buyers and sellers
o E-commerce
o Technology for instant currency
transfers
Key Political, Governmental, & Legal
Variables
 o Key factors for our current position in
industry
Technological Forces
o Nature of supplier & distributor
Major Impact: relationships
o The threat of substitute
o Internet
products/services
o Communications
o Should we keep our strategies secret
o Semiconductors
from employees and stakeholders?
Significance of IT:
Sources of Corporate Information:
o Chief Information Officer (CIO)
o Moody’s Manuals
o Chief Technology Officer (CTO)
o Standard Corporation Descriptions
**Technology-based issues: Essential for o Value Line Investment Surveys
nearly every strategic decision o Dun’s Business Rankings

Competitive Forces o Standard & Poor’s Industry Surveys

o Industry Week
o Collection & evaluation of data on o Forbes, Fortune, BusinessWeek
competitors is essential for successful
strategy formulation 7 Characteristics of Most Competitive
o Competition on virtually all industries U.S. Firms:
can be described as intense o Market share matters
o Identifying rival firms’ strengths, o Understand what business you are in
weaknesses, capabilities, opportunities, o Broke or not, fix it
threats, objectives, strategies o Innovate or evaporate
Key Questions Concerning Competitors o Acquisition is essential to growth
o People make a difference
o Their strengths
o No substitute for quality
o Their weaknesses
o Their objectives & strategies The Five-Forces Model of Competition
o Their responses to external variables
o Their vulnerability to our alternative
strategies
o Our vulnerability to strategic
counterattack
o Our product/service positioning
o Sales/profit rankings of competitors
over time
o Entry & exit of firms in the industry
Steps to Determine if an Acceptable
Profit Can Be Earned
o Identify key aspects or elements of each
competitive force
o Evaluate how strong and important
each element is for the firm
o Decide whether the collective strength
of the elements is worth the firm
entering or staying in the industry
The Five-Forces Model
o Rivalry Among Competing Firms:
Most powerful of the five forces; Focus
on competitive advantage of strategies
o Potential Entry of New Competitors:
Barriers to entry are important; Quality,
pricing, and marketing can overcome
barriers
o Potential Development of Substitute
Products: Pressures increase when
consumers’ switching costs decrease;
Firm’s plans for increased capacity &
market penetration
o Bargaining Power of Suppliers: Large
number of suppliers & few substitutes
affects intensity of competition;
Backward integration can gain control
or ownership of suppliers
o Bargaining Power of Consumers:
Customers concentrated or buying in
volume affects intensity of competition;
Consumer power is higher where
products are standard or
undifferentiated
Conditions Where Consumers Gain
Bargaining Power
o If they can inexpensively switch
o If they are particularly important
o If sellers are struggling in the face of
falling consumer demand
o If they are informed about sellers’
products, prices, and costs
o If they have discretion in whether and
when they purchase the product
Forecasting Tools and Techniques
Forecasts are educated assumptions about
future trends and events
o Quantitative techniques – most
appropriate when historical data is
available & there is a constant
relationship
o Qualitative techniques
The Global Challenge
Faced by U.S. Firms:
o Gain & maintain exports to other
nations
o Defend domestic markets against
imported goods
Multinational Corporations (MNCs):
o Simultaneously globally competitive &
nationally responsive
Globalization: Worldwide integration of –
o Strategy formulation
o Strategy implementation
o Strategy evaluation
Globalization of Industries:
o Similar consumption patterns
o Global buyers and sellers
o E-commerce
o Instant transmission of money & o Identifies firm’s major competitors and
information their strengths & weaknesses in relation
to a sample firm’s strategic positions
Global Perspective-China’s Automobile
Producers Heading to the United States Important: Just because one firm receives a
in 2008 3.2 rating and another receives a 2.8 rating,
it does not follow that the first firm is 20
o China’s auto exports doubled in 2006
percent better than the second.
o China produces more cars than
Germany and is the world’s third largest Key Terms & Concepts
automobile producer
o Changfeng Group first Chinese
automaker in the Detroit Auto Show

Industry Analysis: The External Factor

Evaluation (EFE) Matrix

Summarize & Evaluate

Industry Analysis EFE

Total weighted score of 4.0

o Organization response is outstanding to

threats & weaknesses

Total weighted score of 1.0

o Firm’s strategies not capitalizing on

opportunities or avoiding threats

Important: Understanding factors used in the

EFE Matrix is more important than actual
weights and ratings assigned.

Industry Analysis: Competitive Profile

Matrix (CPM)