MGT 406 - STRATEGIC MANAGE.

REVIEWER

The Nature of Strategic Management

Strategic Management Model

Benefits to a Firm That Does Strategic Planning

Benefits of Engaging Strategic Management

*Financial Benefits

*Non-Financial Benefits

Financial Benefits

*Generally more profitable and successful than those that do not.

*There is a significant improvement in sales, profitability, and productivity compared to
firms without systematic planning activities.
*They exhibit superior long-term financial performance relative to their industry.

Non-financial Benefits
*Enhanced awareness of external threats
*Improved understanding of competitors’ strategies
*Increased employee productivity
*Reduced resistance to change
*Clearer understanding of performance–reward relationships
*Enhances the problem-prevention capabilities of organizations
*Empowers managers and employees
*Brings order and discipline to an otherwise floundering firm
*Beginning of an efficient and effective managerial system

*Renew confidence in the current business strategy or point to the need for corrective
actions
*Provides a basis for identifying and rationalizing the need for change to all managers and
employees of a firm
*According to Greenley, nonfinancial benefits of a firm utilizing strategic management are
as follows:
*Increased discipline
*Improved coordination
*Enhanced communication
*Reduced resistance to change
*Increased forward thinking
*Improved decision making
*Increased synergy
*More effective allocation of time and resources.

Guidelines for Effective Strategic Management

R. T. Lenz offers six guidelines for effective strategic management:

*Keep the process simple and easily understandable.
*Eliminate vague planning jargon.
*Keep the process non-routine; vary assignments, team membership, meeting formats,
settings, and even the planning calendar.
*Welcome bad news and encourage devil’s advocate thinking.
*Do not allow technicians to monopolize the planning process.
*To the extent possible, involve managers from all areas of the firm.

Seventeen Guidelines for the Strategic-Planning Process to Be Effective

1. It should be 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 nonroutine.
 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-mindedness 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

STRATEGY FORMULATION: Vision & Mission Analysis

“Where there is no vision, the people perish.”

VISION: WHAT DO WE WANT TO BECOME?

*It should be established first and foremost.

*It provides the foundation for developing a comprehensive mission statement.
*It should be short.
*It needs to be written for a customer perspective.
*It needs to do more than identify the product or service a firm offers.
*Both profit and vision are needed to motivate a workforce effectively.

MISSION: WHAT IS OUR BUSINESS?

*It is an enduring statement of purpose that distinguishes one organization from other
similar enterprises.
*A declaration of an organization’s “reason for being”
*Essential for effectively establishing objectives and formulating strategies
*Reveals what an organization wants to be and whom it wants to serve

CHARACTERISTICS OF A MISSION STATEMENT

Mission statements are broad in scope because of two major reasons:

1. Allows for the generation and consideration of a range of feasible alternative
objectives and strategies without unduly stifling management creativity.
2. Needs to be broad to reconcile differences effectively among stakeholders.

NINE COMPONENTS OF A MISSION STATEMENT

1. Customers
2. Products or services
3. Markets
4. Technology
5. Survival, growth and profitability
6. Philosophy
7. Self-concept
8 .Public image
9. Employees

PROCESS OF DEVELOPING VISION AND MISSION STATEMENTS

Campbell and Yeung – the process should create an emotional bond and sense of
mission.
1. Select several articles about these statements.
2. Ask managers to individually prepare a vision and mission statement for the
organization.
3. A facilitator/committee should merge these into single document and distribute the
drafts to all managers.
4. Request for modifications, additions and deletion is needed. Meeting for revision
should follow.

IMPORTANCE OF VISION AND MISSION

1. To make sure all employees or managers understand the firm’s purpose or reason for
being.
2. To provide basis for prioritization of key internal and external factors utilized to
formulate feasible strategies.
3. To provide basis for the allocation of resources.
4. To provide basis for organizing work, departments, activities and segments around a
common purpose.

TEN BENEFITS OF HAVING A CLEAR MISSION AND VISION

THE EXTERNAL AUDIT

The Purpose and Nature of External Audit

An external audit process ensures that a company's internal controls, processes, guidelines
and policies are adequate, effective and in compliance with governmental requirements,
industry standards and company policies. This type of audit also ensures that reporting
mechanisms prevent errors in financial statements. Audit report users include investors,
company management, regulators and business partners—such as lenders, suppliers and
creditors.

Function of External Audit

*An external audit report provides "full assurance" to investors and financial market
participants that a company's accounting records are "fair," complete and in adherence with
generally accepted accounting principles, industry standards and regulatory requirements.

Process of Performing an External Audit

*Involve as many managers and employees as possible

*Company first must gather competitive intelligence and information about economic,
social, cultural, demographic , environmental, political, governmental , legal and
technological trends.
*Individuals can be asked to monitor various sources of information , such as key
magazines, trade journals and newspapers.
*Once information is gathered , it should be assimilated and evaluated.
*Series of meetings of managers is needed to collectively identify the most important
opportunities and threats facing the firm.

KEY EXTERNAL FORCES

1. Economic Forces
2. Social, Cultural, Demographic, And Natural Environment Forces
3. Political, Governmental, and Legal Forces
 4. Technological Forces
5. Competitive Forces

ECONOMIC FORCES

*Factors such as level of employment, rate of inflation, rate of interest, demographic

changes, and fiscal and monetary policies, which determine the state of competitive
environment in which a firm operates. These forces affect the outcome of the firm's
marketing activities, by determining the volume and strength of demand for the its
products.

Social, Cultural, Demographic, and Natural Environment Forces

*Social forces actually are the current social factors that are visible in the economy. It can
be particular beliefs, ideologies in a specific direction, etc.
*Cultural forces are the factors that decide what kind of culture is there in a particular
region. Like the traditions followed by people, their overall behavior and likings, thought
patterns, lifestyles etc are the cultural forces.
*Demographic forces are the ones that define things like population structure, the age of
the people, gender ratio, occupational structure, family size, marital status etc.
*The natural environmental forces are the state of natural resources in an economy, the
current condition of environment etc.

Political, Governmental and Legal Forces

*Antitrust legislation - Antitrust law is the law of competition. Why then is

it called “antitrust”? The answer is that these laws were originally established to check the
abuses threatened or imposed by the immense “trusts” that emerged in the late 19th
Century.
*Lobbying efforts - In politics, lobbying, persuasion, or interest representation is the act of
lawfully attempting to influence the actions, policies, or decisions of government officials,
most often legislators or members of regulatory agencies.

*Tax rates - A tax rate is the percentage at which an individual or corporation is taxed. The
United States (both the federal government and many of the states) uses a progressive tax
rate system, in which the percentage of tax charged increases as the amount of the person's
or entity's taxable income increases.
*Patent law - Patent law is the branch of intellectual property law that deals with new
inventions. Traditional patents protect tangible scientific inventions, such as circuit boards,
car engines, heating coils, or zippers. However, over time patents have been used to protect
a broader variety of inventions such as coding algorithms, business practices, or genetically
modified organisms.
Technological Forces

*The influences that developments in technology have on consumers, business and society
in general. Some positive technological forces include increased leisure time, improved
communication and better management information systems, while some negatives might
include increased unemployment and information abuse.

Competitive Forces

Direct forces that determine how low the floor can go for price competition. They include:

Intensity of direct competition measured by number of competitors, degree of product

standardization, amount of excess production capacity

Customer negotiating power, which is influenced by customer expectations towards

product quality and price

Indirect forces that place a ceiling on a market’s prices and profits. They include:
The threat of indirect competition—the availability of products that offer similar
performance
The possibility of new entrants into the marketplace
Supplier pressure—where demand for inputs is high, suppliers can raise their prices
Regulatory pressure—laws and regulations affecting customer and supplier behaviour and
the availability of substitute products and services

Porter's Five Forces

Competitive Rivalry- This looks at the number and strength of your competitors. How many
rivals do you have? Who are they, and how does the quality of their products and services
compare with yours?
Supplier Power- This is determined by how easy it is for your suppliers to increase their
prices. How many potential suppliers do you have? How unique is the product or service
that they provide, and how expensive would it be to switch from one supplier to another?
Buyer Power- Here, you ask yourself how easy it is for buyers to drive your prices down.
How many buyers are there, and how big are their orders? How much would it cost them to
switch from your products and services to those of a rival? Are your buyers strong enough
to dictate terms to you?

Threat of Substitution-This refers to the likelihood of your customers finding a different way
of doing what you do.
Threat of New Entry- Your position can be affected by people's ability to enter your market.
So, think about how easily this could be done. How easy is it to get a foothold in your
industry or market? How much would it cost, and how tightly is your sector regulated?
Sources of External Information

Unpublished sources -include customer surveys, market research, speeches at professional

and shareholders’ meetings, television programs, interviews, and conversations with
stakeholders.
Published sources- of strategic information include periodicals, journals, reports,
government documents, abstracts, books, directories, newspapers, and manuals.

Forecasting Tools and Techniques

Forecasts are educated assumptions about future trends and events.

Forecasting is a complex activity because of factors such as technological innovation,
cultural changes, new products, improved services, stronger competitors, shifts in
government priorities, changing social values, unstable economic conditions, and
unforeseen events.

External Factor Evaluation Matrix

is a strategy tool used to examine company's external environment and to identify the
available opportunities and threats.

Five Steps to Develop an EFE Matrix?

1. List the External Factors and Categorize Them as Opportunities or Threats
2. Assign a Weight to Each Factor
3. Assign a Rating
4. Determine the Weighted Scores
5. Total Weighted Score

Competitive Profile Matrix

is a tool that compares the firm and its rivals and reveals their relative strengths and
weaknesses.

The Internal Assessment

The Nature of Internal Audit

The process of performing an internal audit closely parallels the process of performing
an external audit. Representative managers and employees from throughout the firm need
to be involved in determining a firm’s strengths and weaknesses. The internal audit requires
gathering, assimilating, and prioritizing information about the firm’s management,
marketing, finance and accounting, production and operations, R&D, and MIS operations to
reveal the firm’s most important strengths and most severe weaknesses.

Integrating Culture and Strategy

 Organizational culture is a pattern of behavior that has been developed by an
organization as it learns to cope with its problem of external adaptation and internal
integration, and that has worked well enough to be considered valid and to be taught to
new members as the correct way to perceive, think, and feel.
Organizational culture captures the subtle, elusive, and largely unconscious forces that
shape a workplace. Remarkably resistant to change, culture can represent a major strength
or weakness for any firm. It can be an underlying reason for strengths or weaknesses in any
of the major business functions.
Cultural products include values, beliefs, rites, rituals, ceremonies, myths, stories,
legends, sagas, language, metaphors, symbols, folktales, and heroes and heroines. These
products or dimensions are levers that strategists can use to influence and direct strategy
formulation, implementation, and evaluation activities.

*Management

*Planning - consists of all those managerial activities related to preparing for the future,
such as forecasting, establishing objectives, devising strategies, and developing policies

*Organizing - includes all those managerial activities that result in a structure of task and
authority relationships, such as organizational design, job specialization, job descriptions,
span of control, coordination, job design, and job analysis.

*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.

*Staffing - refers to human resource (HR) activities, such as wage and salary administration,
employee benefits, interviewing, hiring, firing, training, management development,
employee safety, equal employment opportunity, and union relations.

*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

*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.
*Selling Products and Services - Successful strategy implementation generally rests on 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. The effectiveness of various selling
tools for consumer and industrial products varies.

*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

*Pricing - is the process whereby a business sets the price at which it will sell its products
and services, and may be part of the business's marketing plan. In setting prices, the
business will take into account the price at which it could acquire the goods, the
manufacturing cost, the marketplace, competition, market condition, brand, and quality of
product.

*Distribution - includes warehousing, distribution channels, distribution coverage, retail site

locations, sales territories, inventory levels and location, transportation carriers,
wholesaling, and retailing. Most producers today do not sell their goods directly to
consumers. Various marketing entities act as intermediaries; they bear a variety of names
such as wholesalers, retailers, brokers, facilitators, agents, vendors—or simply distributors.

*Marketing Research - is the systematic gathering, recording, and analyzing of data about
problems relating to the marketing of goods and services. Marketing researchers employ
numerous scales, instruments, procedures, concepts, and techniques to gather information;
their research can uncover critical strengths and weaknesses

Cost/Benefit Analysis

which involves assessing the costs, benefits, and risks associated with marketing decisions.
Three steps are required to perform a cost/benefit analysis:
1. compute the total costs associated with a decision
2. estimate the total benefits from the decision
3. compare the total costs with the total benefits
Cost/benefit analysis should also be performed when a company is evaluating
alternative ways to be socially responsible.

Marketing Audit Checklist of Questions

1. Are markets segmented effectively?

2. Is the organization positioned well among competitors?
3. Has the firm’s market share been increasing?
4. Are present channels of distribution reliable and cost effective?
5. Does the firm have an effective sales organization?
 6. Does the firm conduct market research?
7. Are product quality and customer service good?
8. Are the firm’s products and services priced appropriately?
9. Does the firm have an effective promotion, advertising, and publicity strategy?
10. Are marketing, planning, and budgeting effective?
11. Do the firm’s marketing managers have adequate experience and training?
12. Is the firm’s Internet presence excellent as compared to rivals?

Finance and Accounting

*Finance and Accounting Functions

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. A firm’s liquidity,
leverage, working capital, profitability, asset utilization, cash flow, and equity can eliminate
some strategies as being feasible alternatives. Financial factors often alter existing strategies
and change implementation plans.
Financial ratio analysis is the most widely used method for determining an
organization’s strengths and weaknesses in the investment, financing, and dividend areas.
are computed from an organization’s income statement and balance sheet. Computing
financial ratios is like taking a photograph—the results reflect a situation at just one point in
time.
 *Finance/Accounting Audit Checklist

1. Where is the firm financially strong and weak as indicated by financial ratio analyses?
2. Can the firm raise needed short-term capital?
3. Can the firm raise needed long-term capital through debt or equity?
4. Does the firm have sufficient working capital?
5. Are capital budgeting procedures effective?
6. Are dividend payout policies reasonable?
7. Does the firm have good relations with its investors and stockholders?
8. Are the firm’s financial managers experienced and well trained?
9. Is the firm’s debt situation excellent?

Internal Assessment

*Production/operations - consists of all those activities that transform inputs into goods and
services
*Capacity utilization-extent to which a manufacturing plant’s output reaches its potential
output.

Basic Functions/Decision Areas

(Roger Schroeder)

Decision Areas:
1. Process
2. Capacity
3. Inventory
4. Workforce
5. Quality

Production/Operation Audit Checklist

Questions such as the following should be examined:

1. Are supplies of raw materials, parts, and subassemblies reliable and reasonable?
2. Are facilities, equipment, machinery, and offices in good condition?
3. Are inventory-control policies and procedures effective?
4. Are quality-control policies and procedures effective?
5. Are facilities, resources, and markets strategically located?
6. Does the firm have technological competencies?

Research and Development

Fifth major area of internal operations that should be examined for specific strengths and
weaknesseses as input into formulating strategies

Internal and External Research and Development

4 Approaches:
1. Financing as many project proposal as possible
2. Using a percentage-of-sales method
3. Budgeting about the same amount that competitors spend for R&D.
4. Deciding how many successful new products are needed and working backward to estimate
the required R&D investment.

Research and Development Audit Checklist

Questions such as the following should be asked in performing a research and development
audit:
1. Does the firm have R&D facilities? Are they adequate?
2. If outside R&D firms are used, are they cost effective?
3. Are the organization’s R&D personnel well qualified?
4. Are R&D resources allocated effectively?
5. Are management information and computer systems adequate?
6. Is communication between R&D and other organizational units effective?
7. Are present products technologically competitive?

Management Information System

*Receives raw material from both the external and internal evaluation of an organization
*Cornerstone of all organization

Management Information System Audit Checklist

Questions such as the following should be asked when conducting this audit:
1. Do all managers in the firm use the information system to make decisions?
2. Is there a chief information officer or director of information systems position in the firm?
3. Are data in the information system updated regularly?
4. Do managers from all functional areas of the firm contribute input to the information
system?
5. Are there effective passwords for entry into the firm’s information system?
6. Are strategists of the firm familiar with the information systems of rival firms?
7. Is the information system user-friendly?
8. Do all users of the information system understand the competitive advantages that
information can provide firms?
9. Are computer training workshops provided for users of the information system?
10. Is the firm’s information system continually being improved in content and user-
friendliness?

Value Chain Analysis

Refers to the process whereby a firm determines the costs associated with organizational
 activities from purchasing raw materials to manufacturing products to marketing those
products.

Benchmarking

*An analytical tool used to determine whether a firm’s value chain analysis is competitive
compared to those of rivals and thus conducive to winning in the marketplace.
An Example Value Chain for a Typical Manufacturing Firm
*Supplier Cost
*Production Costs
*Distribution Cost
*Sales and Marketing Costs
*Customer Service Costs
*Management Costs

The Internal Factor Evaluation Matrix

A summary step in conducting an internal strategic-management audit

Five Steps in Developing IFE Matrix
1. List key internal factors as identified in the internal-audit process
2. Assign a weight that ranges from 0.0 (not important) to 1.0 (all important) to each factor.
3. Assign a 1 to 4 rating to each factor to indicate factors
4. Multiply each factor’s weight by its rating to determine a weighted score for each variable.
5. Sum the weighted scores for each variable to determine the total weighted score for the
organization.
The Shifting Source of Competitive Advantage

Upstream Activities - Factories, Suppliers, Vendors, Logistics, Facilities, Operations

Downstream Activities - Customers, Distributors, Channels, Pricing, Marketing, Positioning