BUSPOL 8.

Annual objectives- Short-term milestones necessary to achieve long-

Chapter 1: The Nature of Strategic Management
9.
Organizing Themes
• Global considerations impact virtually all strategic decisions.
• E-commerce has become a vital strategic management tool.
• The natural environment has become an important strategic issue.
term objectives.
Policies- Important in strategy implementation as the means by which
annual objectives will be achieved. Guide to decision making and
address repetitive situations. Established at corporate, divisional, or
functional levels. Allow consistency & coordination within and
between organizational departments.

Strategic Management- Art and science of formulating, implementing, and Benefits of Strategic Management
evaluating cross-functional decisions that enable an organization to achieve its • Proactive vs. Reactive- Initiate and influence activities
objectives.  Helps shape firm’s own future
• Principal Benefit- Formulate better strategies
“Strategic Management” is synonymous with “Strategic Planning”  Systematic, logical, and rational approach
• Strategic management- used more often in academia; Refers to: • Communication- Key to successful strategic management
 Strategy formulation • Financial Benefits
 Strategy implementation  More profitable and successful
 Strategy evaluation  Improvements in sales, profitability, and productivity
• Strategic planning- used more often in the business world; Refers to:  High-Performing Firms
 Strategy formulation  Systematic planning
• Fluctuations in external and
Brief History internal environments
• 1950s- Term strategic planning originates • Nonfinancial Benefits
• 1960s – 1970s- Strategic planning very popular; Widely viewed as  Enhanced awareness of external threats
panacea for problems  Understanding of competitors’ strategies
• 1980s- Strategic planning cast aside; Planning models did not yield  Increased employee productivity
higher returns  Reduced resistance to change
• 1990s–2000- Revival of strategic planning; Widely practiced in  Clear performance-reward relationships
business world  Order and discipline to the firm
 View change as opportunity
Strategic-Management Process Three Stages
 Strategy Formulation Why Some Firms Do No Strategic Planning
 Vision & Mission • Poor reward structures Fear of failure
 Opportunities & Threats • Fire-fighting Overconfidence
 Strengths & Weaknesses • Waste of time Prior bad experience
 Long-Term Objectives • Too expensive Self-interest
 Alternative Strategies • Laziness Fear of the unknown
 Strategy Selection • Content with success Suspicion
 Strategy Implementation
 Annual Objectives Pitfalls to Avoid in Strategic Planning
 Policies • Using to gain control over decisions & resources
 Motivate Employees • Doing only to satisfy regulatory requirements
• Moving hastily from mission to strategy formulation
 Resource Allocation
• Failing to communicate to employees
 Strategy Evaluation
• Intuitive decisions that conflict with formal plan
 Review
• Top management not supportive of process
 External & Internal
• Failing to use as standard for performance measurement
 Measure Performance
• Delegating to a “planner” vs. involvement of managers
 Corrective Action • Failing to involve key personnel
• Failing to create collaborative environment
Key Strategic Management Terms • Formality that stifles creativity and flexibility
1. Strategists- Usually found in high levels of management that helps
organization gather, analyze, and organize information, track industry Business Ethics & Strategic Planning- Principles of conduct within organizations
and competitive trends, develop forecasting model, and evaluate that guide decision making and behavior. Good business ethics is a prerequisite
corporate and divisional performance. for good strategic management. Good ethics is just good business!
2. Vision statements- Answers the question: “What do we want to • Strategists responsible for high ethical principles
become?”. It is the first step in strategic planning and oftentimes a • All strategic processes have ethical ramifications
single sentence • Formal codes of ethics are in place for many businesses
3. Mission statements • Internet privacy emerging as ethical issue of immense proportions
4. External opportunities and threats- (Economic, Social, Cultural,
Demographic, Environmental, Political, Governmental, Technological, Business actions always unethical include:
Competitive trends & events) • Misleading advertising
5. Internal strengths and weaknesses- Controllable activities that are • Misleading labeling
performed well or poorly relative to competitors • Environmental harm
6. Long-term objectives- Results to be achieved in pursuing the • Poor product or service safety
organization’s mission. Time frame is beyond one year. • Padding expense accounts
7. Strategies- Potential actions that require top management decisions • Insider trading
and large amounts of firm’s resources • Dumping flawed products on foreign markets
Mechanisms by which long-term objectives are realized
 Geographic expansion Nature of Global Competition
 Diversification • Companies conduct business across borders
 Acquisition  International or multinational corporations
 Product development  Parent company
 Market penetration  Host country
 Retrenchment • Strategy implementation more difficult
 Divestiture  Cultural differences- Norms, values, work ethics
 Liquidation
 Joint venture Advantages of International Operations
• Absorb excess capacity
 • Reduce unit costs Components of Mission (Cont’d)
• Low-cost production facilities • Customers
• Lower labor costs • Products or services
• Competition less intense • Markets
• Reduced tariffs, lower taxes • Technology
• Favorable political climate • Survival, growth, and profitability
• Economies of scale • Philosophy
• Self-concept
Disadvantages of International Operations • Concern for public image
 Communication difficulties between parent and subsidiaries • Concern for employees
• Based on cultural, political, social, language, demographic,
and competitive forces Components of mission and corresponding questions to be answered:
 Foreign-based competitors • Customers: “Who are the firm’s customers?”
• Strengths underestimated • Products or services:“What are the firm's major products or services?”
• Weaknesses overestimated • Markets: “Geographically, where does the firm compete?”
• Technology: “Is the firm technologically current?”
• Concern for survival, growth, and profitability: “Is the firm
Chapter 2: The Business Mission committed to growth and financial soundness?”
• Philosophy: “What are the basic beliefs, values, aspirations, and
That business mission is so rarely given adequate thought is perhaps the most ethical priorities of the firm?”
important single cause of business frustration. • Self-concept: “What is the firm’s distinctive competence or major
—Peter Drucker— competitive advantage?”
• Concern for public image: “Is the firm responsive to social,
Mission statement answers the question: “What is our business?” community, and environmental concerns?”
Vision statement answers the question: “What do we want to become?” • Concern for employees: “Are employees a valuable asset of the firm?”
Clear mission is needed before alternative strategies can be formulated and
implemented. Importance of Vision & Mission
Although research results are mixed, firms with formal mission statements…
Characteristics of a Mission • 2X average return on shareholder’s equity
According to Vern McGinnis, mission should: • Positive relationship to organizational performance
• Define what the organization is • 30% higher return on certain financial measures
• Define what the organization aspires to be
• Limited to exclude some ventures
• Broad enough to allow for creative growth Chapter 3: The External Assessment
• Distinguish the firm from all others
• Serve as framework to evaluate current activities External Strategic Management Audit- Also called: Environmental Scanning or
• Stated clearly so that it is understood by all Industry Analysis

Effective mission statements: External Audit- Identification and evaluation of trends and events beyond control
• Broad in scope of single firm
• Generate range of feasible strategic alternatives – Increased foreign competition
• Not excessively specific – Populations shifts
• Reconcile interests among diverse stakeholders – Aging society
• Finely balanced between specificity & generality – Information technology
• Arouse positive feelings and emotions – Computer revolution
• Motivate readers to action
• Generate the impression that firm is successful, has direction, and is Nature of External Audit
worthy of time, support, and investment Purpose: Development of Finite List of Opportunities and Threats to be avoided
• Reflect judgments re: future growth
• Provide criteria for selecting strategies Key External Forces
• Basis for generating & screening strategic options Five (5) broad categories:
• Are dynamic in orientation 1. Economic forces
2. Social, cultural, demographic, & environmental forces
Customer Orientation 3. Political, governmental, and legal forces
A good mission statement reflects the anticipations of customers. 4. Technological factors
• Identify customer needs 5. Competitive forces
• Provide product/service to satisfy needs
Performing an External Audit
Social Policy & Mission Gather competitive intelligence on factors:
Managerial philosophy and thinking at the highest levels in the organization – Social
reflect social policy. – Cultural
• Affects development of vision & mission – Demographic
• Responsibilities to consumers, environmentalists, minorities, – Environmental
communities, & other groups – Economic
Social policy should be integrated in all strategic-management activities. – Political, legal, governmental
Mission statement is an effective instrument for conveying the social – technological
responsibility of the firm.
Sources of information include:
Components of Mission – Internet
Mission statements vary in… – Libraries (corporate, university, public)
 Length – Suppliers
 Content – Distributors
 Format – Customers
 Specificity – Competition
Must include the 9 elements, as the mission statement is the most public and
visible part of the strategic-management process. Key factors:
– Vary over time
– Vary by industry
Variables include: • Value placed on leisure time
– Market share • Recycling
– Breadth of competing products • Waste management
– World economies • Air & water pollution
– Foreign affiliates • Ozone depletion
– Proprietary account advantages • Endangered species
– Price competitiveness
– Technological advancements Political, Govt., & Legal Forces
– Interest rates Government Regulation
– Pollution abatement • Key opportunities & key threats
• Antitrust legislation (Microsoft)
Key External Factors: • Tax rates
1. Oriented to long-term & annual objectives • Lobbying efforts
2. Measurable • Patent laws
3. Applicable to all competing firms
4. Hierarchical Increasing Global Interdependence
• Overall company • Impact of political variables
• Divisional or functional areas – Formulation of Strategies
– Implementation of Strategies
Economic Forces • Strategists in a global economy
Monitor Key Economic Variables: – Forecast political climates
 Availability of credit – Legalistic skills
 Level of disposable income – Diverse world cultures
 Interest rates
 Inflation rates Globalization of Industry
 Money market rates • Worldwide trend toward similar consumption patterns
 Federal government budget deficits • Global buyers & sellers
 Gross domestic product trend • E-commerce
 Consumption patterns • Instant transmission of money & information across
• Unemployment trends continents
• Worker productivity levels
• Value of the dollar in world markets Key Political, govt., & legal variables:
• Stock market trends • Government regulation/deregulation
• Foreign countries’ economic conditions • Tax law changes
• Import/export factors • Special tariffs
• Demand shifts for goods/services • Political Action Committees (PACs)
• Income differences by region/customer • Voter participation rates
• Price fluctuations • Number of patents
• Exportation of labor & capital • Changes in patent laws
• Monetary policies
• Fiscal policies Technological Forces
• Tax rates Revolutionary technological forces: Profound impact on organizations
• ECC policies • Internet
• OPEC policies • Semiconductors
• LDC policies • XML technologies
• UWB communications
Social, Cultural, Demographic & Environmental Forces
Major impact on: Internet changes the nature of opportunities and threats --
– Products • Alters life cycle of products
– Services • Increases speed of distribution
– Markets • Creates new products and services
– Customers • Eases limitations of geographic markets
Domestic only is a risky strategy • Alters economies of scale
• Changes entry barriers
Key variables :
• Childbearing rates Capitalizing on Information Technology (IT)
• Number of special-interest groups • Chief Information Officer (CIO)
• Number of marriages • Chief Technology Officer (CTO)
• Number of divorces
• Number of births Technology-based issues- Underlie nearly every strategic decision
• Number of deaths
• Immigration & emigration rates Competitive Forces
 Collection and evaluation of information on competitors is essential
Monitor Key Variables for successful strategy formulation
• Life expectancy rates  Competition in virtually all industries can be described as intense.
• Per capita income  Identifying rival firms
• Attitudes toward business  Strengths
• Average disposable income  Weaknesses
• Buying habits  Capabilities
• Ethical concerns  Opportunities
• Attitudes toward saving  Threats
• Racial equality  Objectives
• Average level of education  Strategies
• Government regulation  Key Questions About Competitors:
• Attitudes toward customer service  Their strengths
• Attitudes toward product quality  Their weaknesses
• Energy conservation  Their objectives and strategies
• Social responsibility
  Their responses to all external variables (e.g. social,  Determines the total weighted score for the organization.
political, demographic, etc.) • Highest possible weighted score for the organization is 4.0; the lowest,
 Their vulnerability to our alternative strategies 1.0. Average = 2.5
 Our vulnerability to successful strategic counterattack
 Our product and service positioning relative to Competitive Profile Matrix- Identifies firm’s major competitors and their
competitors strengths & weaknesses in relation to a sample firm’s strategic position
 Entry and exit of firms in the industry
 Key factors for our current position in industry
 Sales and profit rankings of competitors over time
 Nature of supplier and distributor relationships
 The threat of substitute products or services

Sources of Corporate Information:

• Moody’s Manuals
• Standard Corporation Descriptions
• Value Line Investment Surveys
• Dun’s Business Rankings
• Standard & Poor’s Industry Surveys
• Industry Week
• Forbes, Fortune, Business Week

7 Characteristics of most competitive U.S. firms:

1. Market share matters
2. Understand what business you are in
3. Broke or not, fix it
4. Innovate or evaporate
5. Acquisition is essential to growth
6. People make a difference
7. No substitute for quality

Competitive Intelligence Programs:

• Systematic and ethical process for gathering and analyzing information
about the competition’s activities and general business trends to
further a business’ own goals.

Industry Analysis (EFE)

External Factor Evaluation Matrix
Summarize & evaluate:

Five-Step process:
• List key external factors (10-20)
 Opportunities & threats
• Assign weight to each (0 to 1.0)
 Sum of all weights = 1.0
• Assign 1-4 rating to each factor
 Firm’s current strategies response to the factor
• Multiply each factor’s weight by its rating
 Produces a weighted score
• Sum the weighted scores for each