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

 The term strategic management is used synonymously with

strategic planning.

 The purpose of strategic management is to exploit and create new

and different opportunities for tomorrow while long-range
planning tries to optimize for tomorrow the trends of today.

Stages of Strategic Management

1.The strategic-management process consists of three stages.

a. Strategy formulation includes developing a vision and mission,

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.

b. Strategy implementation requires a firm to establish annual

objectives, devise policies, motivate employees, and allocate
resources so that formulated strategies can be executed; strategy
implementation includes developing a strategy-supportive
culture, creating an effective organizational structure, redirecting
marketing efforts, preparing budgets, developing and utilizing
 information systems, and linking employee compensation to
organizational performance.

C. 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

2.Three fundamental strategy evaluation activities are provided

below:
a. Reviewing external and internal factors that are the bases
for current strategies
b. Measuring performance
c. Taking corrective action

3.Strategy formulation, implementation, and evaluation activities

occur at three hierarchical levels in a large organization:
corporate, divisional, and functional. Smaller businesses may only
have the corporate and functional levels.

KEY TERMS IN STRATEGIC MANAGEMENT

A. Competitive Advantage

1. Competitive advantage is defined as anything that a firm

does especially well compared to rival firms.

2. Firms should seek a sustained competitive advantage

by continually adapting to changes in external trends and
internal capabilities and evaluating strategies that capitalize
on those factors.
B. Strategists

1. Strategists are individuals who are most responsible for the

success or failure of an organization.

2. Strategists hold various job titles, such as chief executive

officers, president, owner, chair of the board, executive
director, chancellor, dean, or entrepreneur.

3. Strategists help an organization gather, analyze, and organize

information. They track industry and competitive trends,
develop forecasting models and scenario analyses, evaluate
corporate and divisional performance, spot emerging market
opportunities, identify business threats, and develop creative
action plans.

C. Vision and Mission Statements

1. Vision statements answer the question: “What do we want

to become?”
2. Mission statements are “enduring statements of purpose
that distinguish one business from other similar firms. A
mission statement identifies the scope of a firm’s operations
in product and market terms.” It addresses the basic
question that faces all strategists: “What is our business?” It
should include the values and priorities of an organization.

D. External Opportunities and Threats

1. 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.

2. Opportunities and threats are largely beyond the control of

a single organization, thus the term external.

3. A basic tenet of strategic management is that firms need to

formulate strategies to take advantage of external
opportunities and to avoid or reduce the impact of external
threats.

4. The process of conducting research and gathering and

assimilating external information is called environmental
scanning or industry analysis.

E. Internal Strengths and Weaknesses

1. Internal strengths and internal weaknesses are an

organization’s controllable activities that are performed
especially well or poorly.
2. Identifying and evaluating organizational strengths and
weaknesses in the functional areas of a business is an
essential strategic-management activity.
3. Strengths and weaknesses are determined relative to
competitors and may be determined by both performance
and elements of being.

F. Long-Term Objectives

1. Objectives can be defined as specific results that an

organization seeks to achieve in pursuing its basic mission.

2. Long term means more than one year.

 3. Objectives state direction, aid in evaluation, create synergy,
reveal priorities, focus coordination, and provide a basis for
effective planning, organizing, motivating and controlling
activities.

4. Objectives should be challenging, measurable, consistent,

reasonable, and clear.

G. Strategies

1. 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 venture.

H. Annual Objectives

1. Annual objectives are short-term milestones that

organizations must achieve to reach long-term objectives.

3. Like long-term objectives, annual objectives should be

measurable, quantitative, challenging, realistic, consistent,
and prioritized

I. Policies

1. 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.

2. Policies are most often stated in terms of management,

marketing, finance/accounting, production/operations,
 research and development, and computer information
systems activities.

BENEFITS OF STRATEGIC MANAGEMENT

Communication is a key to successful strategic management

A. Financial Benefits
B. B. Nonfinancial Benefits

Greenley stated that strategic management offers these

benefits:
a. It allows for identification, prioritization, and exploitation
of opportunities.
b. It provides an objective view of management problems.
c. It represents a framework for improved coordination and
control of activities.
d. It minimizes the effects of adverse conditions and
changes.
e. It allows major decisions to better support established
objectives.
f. It allows more effective allocation of time and resources
to identified opportunities.
g. It allows fewer resources and less time to be devoted to
correcting erroneous or ad hoc decisions.
h. It creates a framework for internal communication among
personnel.
i. It helps integrate the behavior of individuals into a total
effort.
j. It provides a basis for clarifying individual responsibilities.
k. It encourages forward thinking.
 l. It provides a cooperative, integrated, and enthusiastic
approach to tackling problems and opportunities.
m.It encourages a favorable attitude toward change.
n. It gives a degree of discipline and formality to the
management of a business.

WHY SOME FIRMS DO NO STRATEGIC PLANNING

Some reasons for poor or no strategic planning are as follows:

 Poor reward structures

 Fire fighting
 Waste of time
 Too expensive
 Laziness
 Content with success
 Fear of failure
 Overconfidence
 Prior bad experience
 Self-interest
 Fear of the unknown
 Honest difference of opinion
 Suspicion

PITFALLS IN STRATEGIC PLANNING

Some pitfalls to watch for and avoid in strategic planning are

provided below:

 Using strategic planning to gain control over decisions and

resources
 Doing strategic planning only to satisfy accreditation or
regulatory requirements
  Too hastily moving from mission development to strategy
formulation
 Failing to communicate the plan to employees, who continue
working in the dark
 Top managers making many intuitive decisions that conflict
with the formal plan
 Top managers not actively supporting the strategic-planning
process
 Failing to use plans as a standard for measuring performance
 Delegating planning to a “planner” rather than involving all
managers
 Failing to involve key employees in all phases of planning
 Failing to create a collaborative climate supportive of change
 Viewing planning to be unnecessary or unimportant
 Becoming so engrossed in current problems that insufficient
or no planning is done
 Being so formal in planning that flexibility and creativity are
stifled

COMPARING BUSINESS AND MILITARY STRATEGY

A. A Strong Military Heritage Underlies the Study of Strategic

Management

1. Terms such as objectives, mission, strengths, and

weaknesses were first formulated to address problems on
the battlefield.
2. A fundamental difference between military and business
strategy is that business strategy is formulated,
implemented, and evaluated with the assumption of
competition, while military strategy is based on an
assumption of conflict.
THE NATURE OF GLOBAL COMPETITION

A. International Firms or Multinational Corporations

1. Organizations that conduct business operations across

national borders are called international firms or
multinational corporations.
2. The term parent company refers to a firm investing in
international operations; host country is the country where
that business is conducted.

B. Advantages and Disadvantages of International Operations

1. Advantages of International Operations

a. Firms have numerous reasons to formulate and

implement strategies that initiate, continue, or expand
involvement in business operations across borders.

1. Foreign operations can absorb excess capacity, reduce

unit costs, and spread economic risks over a wider
number of markets.
2. Foreign operations can allow firms to establish low-
cost production facilities in locations close to raw
materials and/or cheap labor.
3. Competitors in foreign markets may not exist, or
competition may be less intense than in domestic
markets.
 4. Foreign operations may result in reduced tariffs, lower
taxes, and favorable political treatment in other
countries.
5. Joint ventures can enable firms to learn the
technology, culture, and business practices of other
people and to make contacts with potential customers,
suppliers, creditors, and distributors in foreign
countries.
6. Many foreign governments and countries offer varied
incentives to encourage foreign investment in specific
locations.
7. Economics of scale can be achieved from operation in
global rather than solely domestic markets. Larger-
scale production and better efficiencies allow higher
sales volumes and lower price offerings.

b. Perhaps the greatest advantage is that firms can gain new

customers for their products and services, thus increasing
revenues.

2. Disadvantages of International Operations

a. There are also numerous potential disadvantages of

initiating, continuing, or expanding business across
national borders.

1. Firms confront different social, cultural, demographic,

environmental, political, governmental, legal,
 technological, economic, and competitive forces when
doing business internationally.
2. Weaknesses of competitors in foreign lands are often
overestimated and strengths underestimated.
3. Language, culture, and value systems differ among
countries.
4. It is necessary to gain an understanding of regional
organizations such as the European Economic
Community and the Latin American Free Trade Area.
5. Dealing with two or more monetary systems can
complicate international business operations.
6. The availability, depth, and reliability of economic and
marketing information in different countries vary
extensively, as do industrial structures, business
practices, and nature of regional organizations.