Chapter 01

Strategic Management Essentials

What Is Strategic Management?

Strategic management can be defined as the art and science of formulating, implementing, and
evaluating cross-functional decisions that enable an organization to achieve its objectives. As
this definition implies, strategic management focuses on integrating management, marketing,
finance and accounting, production and operations, research and development, and
information systems to achieve organizational success.

Strategic planning.
The term strategic management in this text is used synonymously with the term strategic
planning.

Term strategic management

The term strategic management is used to refer to strategy formulation, implementation, and
evaluation and strategic planning referring only to strategy formulation.

Stages of Strategic Management

The strategic-management process consists of three stages: strategy formulation, strategy
implementation, and strategy evaluation.

Strategy formulation
 includes developing a vision and mission
 Swot analysis
 identifying an organization’s external opportunities and threats
 determining internal strengths and weaknesses
 establishing long-term objectives, generating alternative strategies, and choosing
particular strategies to pursue.
 Strategy-formulation issues include deciding
 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, and how to avoid a hostile takeover.
RELATED DIVERSIFICATION
Related diversification occurs when a business adds or expands its product lines or markets.
That is, the business continues selling similar products or providing similar services to new
clients or customers
UNRELATED DIVERSIFICATION
Unrelated diversification occurs when a business expands by adding new, or unrelated,
product.
Strategy implementation
Strategy implementation often is called the “action stage” of strategic management.
Implementing strategy means mobilizing employees and managers to put formulated strategies
into action. Often considered to be the most difficult stage in strategic management.
 Establish annual objectives
 Devise policies
 Motivate employees
 Allocate resources so that formulated strategies can be executed
 Developing a strategy-supportive culture
 Creating an effective organizational structure, redirecting marketing efforts
 Preparing budgets, developing and using information systems, and linking
employee compensation to organizational performance.
 Interpersonal skills are especially critical for successful strategy implementation.
Strategy evaluation
is the final stage in strategic management? Managers desperately need to know when
particular strategies are not working well: strategy evaluation is the primary means for
obtaining this information.
Three fundamental strategy-evaluation activities
 Reviewing external and internal factors that are the bases for current strategies,
 measuring performance
 taking corrective actions. Strategy evaluation is needed because success today
is no guarantee of success tomorrow! Success always creates new and different
problems; complacent organizations experience demise.

Integrating Intuition and Analysis

In God we trust. All others bring data.” The strategic-management process can be described as
an objective, logical, systematic approach for making major decisions in an organization.
It attempts to organize qualitative and quantitative information in a way that allows effective
decisions to be made under conditions of uncertainty.

Yet strategic management is not a pure science that lends itself to a nice, neat, one-two-three
approach.

 Based on past experiences,

 Based on judgment
 Based on past feelings
Intuition is essential to making good strategic decisions. Intuition is particularly useful
for making decisions in situations of great uncertainty or little precedent.
 Intuition when he said I believe in intuition and inspiration. At times I feel certain that I
am right while not knowing the reason. Imagination is more important than knowledge,
because knowledge is limited, whereas imagination embraces the entire world
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 by how the global economic recession caught so many firms by surprise. Firms, like
organisms, must be “adept at adapting” or they will not survive.

Key Terms in Strategic Management

Before we further discuss strategic management, we should define nine key terms: competitive
advantage, strategists, vision and mission statements, external opportunities and threats,
internal strengths and weaknesses, long-term objectives, strategies, annual objectives, and
policies.

Competitive Advantage
Strategic management is all about gaining and maintaining competitive advantage. This term
can be defined as “anything that a firm does especially well compared to rival firms.” When a
firm can do something that rival firms cannot do or owns something that rival firms desire, that
can represent a competitive advantage.
Strategists
Strategists are the individuals most responsible for the success or failure of an organization.
Strategists have various job titles, such as chief executive officer, president, owner, chair of the
board, executive director, chancellor, dean, or entrepreneur.
1) Strategists help an organization gather, analyze, and organize information.
2) Social Responsibility
Vision and Mission Statements
1) vision statement that answers the question “What do we want to become?” Developing
a vision statement is often considered the first step in strategic planning, preceding even
development of a mission statement.
2) Mission statements What is our business?” A clear mission statement describes the
values and priorities of an organization.
External Opportunities and Threats
External opportunities and external threats refer to economic, social, cultural, demographic,
environmental, political, legal, governmental, technological, and competitive trends and events
that could significantly benefit or harm an organization in the future.
Internal Strengths and Weaknesses
Internal strengths and internal weaknesses are an organization’s controllable activities that are
performed especially well or poorly. They arise in the management, marketing,
finance/accounting, production/operations, research and development (R&D), and
management information systems (MIS) activities of a business.
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 one year.
1) provide direction
 2) aid in evaluation
3) create synergy
4) reveal priorities
5) focus coordination
6) effective planning, organizing, motivating, and controlling activities
7) Measurable, consistent, reasonable, and clear.
Strategies
Strategies are the means by which long-term objectives will be achieved. Business strategies
may include geographic expansion, diversification, acquisition, product development, market
penetration, retrenchment, divestiture, liquidation, and joint ventures.
Annual Objectives
Annual objectives are short-term milestones that organizations must achieve to reach long-
term objectives. Like long-term objectives, annual objectives should be measurable,
quantitative, challenging, realistic, consistent, and prioritized.
Policies
Policies are the means by which annual objectives will be achieved. Policies include guidelines,
rules, and procedures established to support efforts to achieve stated objectives. Policies are
guides to decision making and address repetitive or recurring situations.
Benefits of Strategic Management
Strategic management allows an organization to be more proactive than reactive in shaping its
own future.

Types of Benefits
Financial Benefits
 Revenue Increase
 Profitability
 improvement in sales
 productivity
 planning activities
 High-performing
Nonfinancial Benefits
 Identification
 Management Coronations
 Time & Resources
 Forward Things
 increased employee productivity
 reduced resistance to change

Why Some Firms Do No Strategic Planning

1. Lack of knowledge & Experience
2. Poor Reward
3. Fire Fighting
4. Wastage of time
5. To expensive
6. Laziness
7. Content with success
8. Fear of Failure
9. Over confidence
10. Prior Bad experience
11. Self interest
12. Fear of the unknown
13. Honest difference of opinion
14. Suspicion Employees Not Trust

Guidelines for Effective Strategic Management

1. It should he a people process more than a paper process.

2. It should be a learning process for all managers and employees.
3. It should be words supported by numbers rather than numbers supported by
words.
4. It should be simple and non-routine.
5. It should vary assignments, team memberships, meeting formats, and even the
planning calendar.
6. It should challenge the assumptions underlying the current corporate strategy.
7. It should welcome bad news.
8. It should welcome open-mind ness and a spirit of inquiry and learning.
9. It should not be a bureaucratic mechanism.
10. It should not become ritualistic, stilted, or orchestrated.
11. It should not be too formal, predictable, or rigid.
12. It should not contain jargon or arcane planning language.
13. It should not be a formal system for control.
14. It should not disregard qualitative information.
15. It should not be controlled by “technicians.”
16. Do not pursue too many strategies at once.
17. Continually strengthen the “good ethics is good business" policy.
 The End
Chapter 02
The Business Vision and Mission
Definitions Mission & Vision Statement
 A Mission Statement defines the company's business, its objectives and its
approach to reach those objectives.

 A Vision Statement describes the desired future position of the company. Elements
of Mission and Vision Statements are often combined to provide a statement of the
company's purposes, goals and values.

What Do We Want to Become?

1. A clear vision provides the foundation for developing a comprehensive mission
statement.
2. Many organizations have both a vision and mission statement, but the vision statement
should be established first and foremost.
3. The vision statement should be short, preferably one sentence, and as many managers
as possible should have input into developing the statement.
Example: General Motors’ vision is to be the world leader in transportation products and
related services.

What Is Our Business?

Answer this question mission statement
1. An enduring statement of purpose that distinguishes one organization from other
similar enterprises, the mission statement is a declaration of an organization’s “reason
for being.”
2. It answers the pivotal question “What is our business?” A clear mission statement is
essential for effectively establishing objectives and formulating strategies.
3. A statement of purpose, a statement of philosophy, a statement of beliefs, a statement
of business principles, or a statement “defining our business.

Vision versus Mission

The Vision Statement is shorter than Mission Statement.
The Vision Statement shows the company’s future aspirations. Mission Statement explains the
company’s core purpose.
The Vision Statement is made to inspire. Mission Statement is made to inform.

Importance (Benefits) of Vision and Mission Statements

The importance (benefits) of vision and mission statements to effective strategic management
is well documented in the literature, although research results are mixed.

 To ensure unanimity of purpose

 Basis, or standard
 To establish a general tone
 To serve as a focal point
 Translation of objectives
 To specify organizational purposes (cost, time, and performance parameters)

Characteristics of a Mission Statement

A Declaration of Attitude
A mission statement is more than a statement of specific details;
 It is a declaration of attitude and outlook. It usually is broad in scope for at least two
major reasons. Stakeholders include employees, managers, stockholders, boards of
directors, customers, general public.
 Alternative objectives and strategies without unduly stifling management creativity.

A Customer Orientation
A good mission statement describes an organization’s purpose, customers, products or services,
markets, philosophy, and basic technology
1. Define what the organization is and what the organization aspires to be
2. Be limited enough to exclude some ventures and broad enough to allow for creative
growth
3. Distinguish a given organization from all others
4. Serve as a framework for evaluating both current and prospective activities,
5. Be stated in terms sufficiently clear to be widely understood throughout the
organization

Mission Statement Components

Mission statements can and do vary in length, content, format, and specificity. Most
practitioners and academicians of strategic management feel that an effective statement
should include nine components.
1. Customers
Who are the firm’s customers?
2. Product & Services
What are the firm’s major products or services?
3. Market
Geographically, where does the firm compete?
4. Technology
Is the firm technologically current?
5. Concern for survival, growth, and profitability
Is the firm committed to growth and financial soundness?
6. Philosophy
What are the basic beliefs, values, aspirations, and ethical priorities of the firm?
7. Self-concept
What is the firm’s distinctive competence or major competitive advantage?
8. Concern for public image
Is the firm responsive to social, community, and environmental concerns?
9. Concern for employees
Are employees a valuable asset of the firm?

The End
Lecture 03

The External Assessment

The Nature of an External Audit
The purpose of an external audit is to develop a finite list of opportunities that could benefit a
firm and threats that should be avoided. As the term finite suggests, the external audit is not
aimed at developing an exhaustive list of every possible factor that could influence the
business.
Key External Forces
External forces can be divided into five broad categories:
 Economic forces
 Social, cultural, demographic, and natural environment forces
 Political, governmental, and legal forces
 Technological forces
 Competitive forces

Economic Forces
Economic forces are the factors that help to determine the competitiveness of the environment
in which the firm operates. These factors include: Unemployment level. Inflation rate. Fiscal
policies.
Key Economic Variables to Be Monitored
 Availability of credit
 Level of disposable income
 Propensity of people to spend
 Interest rates
 Inflation rates
 Money market rates
 Federal government budget deficits
 Gross domestic product trend
 Consumption patterns
 Unemployment trends Worker
 Productivity levels
 Value of the dollar in world markets
 Stock market trends
 Foreign countries’ economic conditions
 Demand shifts for different categories of goods and services
 Income differences by region and consumer groups
  Price fluctuations
 Export of labor and capital from the United States
 Monetary policies
 Fiscal policies
 Tax rates
 European Economic Community (EEC)
 Policies Organization of
 Petroleum Exporting Countries (OPEC)
 policies Coalitions of Lesser Developed Countries (LDC) policies

Social, Cultural, Demographic, and Natural Environment Forces

Social, cultural, demographic, and environmental changes have a major impact on virtually all
products, services, markets, and customers. Small, large, for-profit, and nonprofit organizations
in all industries are being staggered and challenged by the opportunities and threats arising
from changes in social, cultural, demographic, and environmental variables.
Key Social, Cultural, Demographic, and Natural Environment Variables
 Childbearing rates
 Number of special-interest groups
 Number of marriages
 Number of divorces
 Number of births N
 Number of deaths
 Immigration and emigration rates
 Social Security programs
 Life expectancy rates
 Per capita income
 Location of retailing, manufacturing, and service businesses
 Attitudes toward business
 Lifestyles
 Traffic congestion I
 Inner-city environments
 Average disposable income
 Trust in government
 Attitudes toward government
 Attitudes toward work
 Buying habits
 Ethical concerns
 Attitudes toward saving
 Sex roles
 Attitudes toward investing
  Racial equality
 Use of birth control
 Average level of education
 Government regulation
 Attitudes toward retirement
 Attitudes toward leisure time
 Attitudes toward product quality
 Attitudes toward customer service Pollution control
 Attitudes toward foreign peoples
 Energy conservation
 Social programs
 Number of churches
 Number of church member’s Social responsibility
 Attitudes toward careers
Political, Governmental, and Legal Forces
Federal, state, local, and foreign governments are major regulators, deregulators, subsidizers,
employers, and customers of organizations. Political, governmental, and legal factors,
therefore, can represent key opportunities or threats for both small and large organizations.
Some Political, Governmental, and Legal Variables
 Government regulations or deregulations
 Changes in tax laws
 Special tariffs
 Political action committees
 Voter participation rates
 Number, severity, and location of government protests
 Number of patents
 Changes in patent laws
 Environmental protection laws
 Level of defense expenditures
 Legislation on equal employment
 Level of government subsidies
 Antitrust legislation
 American relationships
 Russian-American relationships
 European-American relationships
 African-American relationships
 Import–export regulations
 Political conditions in foreign countries
 Special local, state, and federal laws
 Lobbying activities
  Size of government budgets
 World oil, currency, and labor markets
 Location and severity of terrorist activities
 Local, state, and national elections
Technological Forces
Revolutionary technological changes and discoveries are having a dramatic impact on
organizations. To effectively capitalize on e-commerce, a number of organizations are
establishing two new positions in their firms: chief information officer (CIO) and chief
technology officer (CTO).
 Internet
 Social Media
 Business
 E-Commerce
 IT-Expenditures
 Budget for costing
Examples of the Impact of Wireless Technology
Airlines—many airlines now offer wireless technology in flight.
Automotive—Vehicles are becoming wireless.
Banking—Visa sends text message alerts after unusual transactions.

Competitive Forces
Collecting and evaluating information on competitors is essential for successful strategy
formulation. Identifying major competitors is not always easy because many firms have
divisions that compete in different industries.
Key Questions about Competitors
 Strengths/ Weakness
 Objectives Strategy
 Competitors Status
 Supply Chain Management
 Product Quality
 People negotiation

Competitive Analysis: Porter’s Five-Forces Model

Porter’s Five-Forces Model of competitive analysis is a widely used approach for developing
strategies in many industries. The intensity of competition among firms varies widely across
industries. According to Porter, the nature of competitiveness in a given industry can be viewed
as a composite of five forces.
 Rivalry among competing firms
 Potential entry of new competitors
 Potential development of substitute products
  Bargaining power of suppliers
 Bargaining power of consumers

Porter’s Five-Forces Model

Rivalry among Competing Firms

Rivalry among competing firms is usually the most powerful of the five competitive forces.
Changes in strategy by one firm may be met with retaliatory countermoves, such as
 Lowering prices
 Enhancing quality
 Adding features
 Providing services
 Extending warranties
 Increasing advertising.
Potential Entry of New Competitors
Whenever new firms can easily enter a particular industry, the intensity of competitiveness
among firms increases. Barriers to entry, however, can include the need to gain economies of
scale quickly, the need to gain technology and specialized know-how
 The lack of experience
 Strong customer loyalty
 Strong brand preferences
 Large capital requirements
 Lack of adequate distribution channels
 Government regulatory policies tariffs
 Lack of access to
Potential Development of Substitute Products
In many industries, firms are in close competition with producers of substitute products in
other industries
 Plastic container producers competing with glass
 Paperboard, and aluminum can producers
 Acetaminophen manufacturers competing with other manufacturers of pain and
headache remedies
Bargaining Power of Suppliers
The bargaining power of suppliers affects the intensity of competition in an industry, especially
when there is a large number of suppliers, when there are only a few good substitute raw
materials, or when the cost of switching raw materials is especially costly.
 Reduce inventory and logistics costs
 Speed the availability of next-generation components
 Enhance the quality of the parts and components being supplied and reduce defect
rates
 Squeeze out important cost savings for both themselves and their suppliers

Bargaining Power of Consumers

When customers are concentrated or large or buy in volume, their bargaining power represents
a major force affecting the intensity of competition in an industry
 If they can inexpensively switch to competing brands or substitutes
 If they are particularly important to the seller
 If sellers are struggling in the face of falling consumer demand
 If they are informed about sellers’ products, prices, and costs
 If they have discretion in whether and when they purchase the product
Chapter 4
The Internal Assessment
Internal Audit
Objectives and strategies are established with the intention of capitalizing upon internal
strengths and overcoming weaknesses. The internal-audit part of the strategic-management
process.
Internal Forces
Management
The functions of management consist of five basic activities: planning, organizing, motivating,
staffing, and controlling
The Basic Functions of Management
1. Planning
Planning consists of all those managerial activities related to preparing for the future.
Specific tasks include forecasting, establishing objectives, devising strategies, developing
policies, and setting goals.
2. Organizing
Organizing includes all those managerial activities that result in a structure of task and
authority relationships. Specific areas include organizational design, job specialization,
job descriptions, job specifications, span of control, unity of command, coordination, job
design, and job analysis.
3. Motivating
Motivating involves efforts directed toward shaping human behavior. Specific topics
include leadership, communication, work groups, behavior modification, delegation of
authority, job enrichment, job satisfaction, needs fulfillment, organizational change,
employee morale, and managerial morale.
4. Staffing
Staffing activities are centered on personnel or human resource management. Included
are wage and salary administration, employee benefits, interviewing, hiring, firing,
training, management development, employee safety, affirmative action, equal
employment opportunity, union relations, career development, personnel research,
discipline policies, grievance procedures, and public relations.
5. Controlling
Controlling refers to all those managerial activities directed toward ensuring that actual
results are consistent with planned results. Key areas of concern include quality control,
 financial control, sales control, inventory control, expense control, analysis of variances,
rewards, and sanctions.

Marketing
Marketing can be described as the process of defining, anticipating, creating, and fulfilling
customers’ needs and wants for products and services.
1) Customer Analysis
Customer analysis—the examination and evaluation of consumer needs, desires, and
wants—involves administering customer surveys, analyzing consumer information,
evaluating market positioning strategies, developing customer profiles, and determining
optimal market segmentation strategies.
2) Selling Products/Services
Successful strategy implementation generally rests upon the ability of an organization to
sell some product or service. Selling includes many marketing activities, such as
advertising, sales promotion, publicity, personal selling, sales force management,
customer relations, and dealer relations.
3) Product and Service Planning
Product and service planning includes activities such as test marketing; product and
brand positioning; devising warranties; packaging; determining product options,
features, style, and quality; deleting old products; and providing for customer service
4) Pricing
Five major stakeholders affect pricing decisions: consumers, governments, suppliers,
distributors, and competitors. Sometimes an organization will pursue a forward
integration strategy primarily to gain better control over prices charged to consumers.
5) Distribution
Distribution includes warehousing, distribution channels, distribution coverage, retail
site locations, sales territories, inventory levels and location, transportation carriers,
wholesaling, and retailing.
6) Marketing Research
Marketing research is the systematic gathering, recording, and analyzing of data about
problems relating to the marketing of goods and services. Marketing research can
uncover critical strengths and weaknesses.
7) Cost/Benefit Analysis
The seventh function of marketing is cost/benefit analysis, which involves assessing the
costs, benefits, and risks associated with marketing decisions

Finance/Accounting
Financial condition is often considered the single best measure of a firm’s competitive position
and overall attractiveness to investors. Determining an organization’s financial strengths and
weaknesses is essential to effectively formulating strategies leverage, working capital,
profitability, asset utilization, cash flow.

1) Investment decision
Also called capital budgeting, is the allocation and reallocation of capital and resources
to projects, products, assets, and divisions of an organization. Once strategies are
formulated, capital budgeting decisions are required to successfully implement
strategies.
2) Financing decision
Determines the best capital structure for the firm and includes examining various
methods by which the firm can raise capital (for example, by issuing stock, increasing
debt, selling assets, or using a combination of these approaches).
3) Dividend decisions
Issues such as the percentage of earnings paid to stockholders, the stability of dividends
paid over time, and the repurchase or issuance of stock. Dividend decisions determine
the amount of funds that are retained in a firm compared to the amount paid out to
stockholders.
Production/Operations
The production/operations function of a business consists of all those activities that transform
inputs into goods and services. Production/operations management deals with inputs,
transformations, and outputs that vary across industries and markets.
The Basic Functions (Decisions) Within Production/Operations
1) Process
These decisions include choice of technology, facility layout, process flow analysis,
facility location, line balancing, process control, and transportation analysis. Distances
from raw materials to production sites to customers are a major consideration.
2) Capacity
These decisions include forecasting, facilities planning, aggregate planning, scheduling,
capacity planning, and queuing analysis. Capacity utilization is a major consideration.
3) Inventory
These decisions involve managing the level of raw materials, work-in-process, and
finished goods, especially considering what to order, when to order, how much to order,
and materials handling.
4) Workforce
These decisions involve managing the skilled, unskilled, clerical, and managerial
employees by caring for job design, work measurement, job enrichment, work
standards, and motivation techniques.
5) Quality
 These decisions are aimed at ensuring that high-quality goods and services are produced
by caring for quality control, sampling, testing, quality assurance, and cost control.

Research and Development

The fifth major area of internal operations that should be examined for specific strengths and
weaknesses is research and development (R&D). Many firms today conduct no R&D, and yet
many other companies depend on successful R&D activities for survival.
1) Internal R&D,
In which an organization operates its own R&D department, and/or (2) contract R&D, in
which a firm hires independent researchers or independent agencies to develop specific
products. Many companies use both approaches to develop new products.
2) Outside R&D
Assistance is to pursue a joint venture with another firm. R&D strengths (capabilities)
and weaknesses (limitations) play a major role in strategy formulation and strategy
implementation.
Management Information Systems
Information ties all business functions together and provides the basis for all managerial
decisions. It is the cornerstone of all organizations. Information represents a major source of
competitive management advantage or disadvantage
 A management information system’s purpose is to improve the performance of an
enterprise by improving the quality of managerial decisions.
 A management information system receives raw material from both the external and
internal evaluation of an organization
 It gathers data about marketing, finance, production, and personnel matters internally,
and social, cultural, demographic, environmental, economic, political, governmental,
legal, technological, and competitive factors externally