Chapter 1: Over View of

Business Policy and

Strategic Management
Key terms in strategic Management
 Before further discussing 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.
 Key terms
1. 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.
 For example, in a global economic recession, simply having
ample cash on the firm’s balance sheet can provide a major
competitive advantage.
 Normally, a firm can sustain a competitive advantage for only a certain
period due to rival firms imitating and undermining that advantage. Thus
it is not adequate to simply obtain competitive advantage.
 Key terms
 A firm must strive to achieve sustained
competitive advantage by
Continually adapting to changes in external trends and events and
internal capabilities, competencies, and resources; and by
 Effectively formulating, implementing, and evaluating strategies that
capitalize upon those factors.
2. Strategists
 Strategists are the individuals who are 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.
 Key terms
 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.
3. Vision and Mission Statements
 Developing a vision statement is often considered the first step in
strategic planning, preceding even development of a mission statement.
Many vision statements are a single sentence.
Example of vision(Ethiopian Airlines)
 To become the most competitive and leading aviation group in Africa by
providing safe, market driven and customer focused passenger and
cargo transport, aviation training, flight catering and ground services by
2025.
 Key terms
 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. A mission statement broadly charts the future direction of an
organization.
 A mission statement is a constant reminder to its employees of why
the organization exists and what the founders envisioned when they
put their fame and fortune at risk to breathe life into their dreams.
Example of Mission (Apple Company)
 Apple is committed to bringing the best personal computing
experience to students, educators, creative professionals and
consumers around the world through its innovative hardware,
software and Internet offerings.
 Key terms
4. 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.
 Opportunities and threats are largely beyond the control of
a single organization—thus the word external.
 Key terms
5. 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, and management information systems
activities of a business.
 Identifying and evaluating organizational strengths and
weaknesses in the functional areas of a business is an
essential strategic management activity.
 Strengths and weaknesses are determined relative to
competitors.
 Key terms
 Internal factors can be determined in a number of ways,
including computing ratios, measuring performance, and
comparing to past periods and industry averages.
 Various types of surveys also can be developed and
administered to examine internal factors such as employee
morale, production efficiency, advertising effectiveness, and
customer loyalty.
 Key terms
6. 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. Objectives are
essential for organizational success because they state
direction; aid in evaluation; create synergy; reveal priorities;
focus coordination; and provide a basis for effective
planning, organizing, motivating, and controlling activities.
 Key terms
7. 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.
 Strategies are potential actions that require top
management decisions and large amounts of the firm’s
resources.
 In addition, strategies affect an organization’s long-term
prosperity, typically for at least five years, and thus are
future-oriented.
 Key terms
8. 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.
 Key terms
9. Policies
 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. Policies are most often stated in terms of
management, marketing, finance/accounting, production/operations,
research and development, and computer information systems
activities.
 Policies can be established at the corporate level and apply to an entire
organization at the divisional level and apply to a single division, or at
the functional level and apply to particular operational activities or
departments.
 Policies, like annual objectives, are especially important in strategy
implementation because they outline an organization’s expectations of
its employees and managers.
 Policies allow consistency and coordination within and between
organizational departments.
 Definition of 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.

 Most strategy scholars have contended a scientific perspective,

whereby strategic managers are encouraged to systematically
assess the firm’s external environment and evaluate the pros and
cons of many alternatives before formulating strategy.
 Overview cont’d…
 According to the artistic perspective on
strategy, it rests on the fact that it senses the
state of the organization and seeks to mold its
strategy like a potter molds clay. The strategists
ultimately chart a course based on holistic
thinking, intuition, and imagination.
 Overview cont’d…
 To be successful in the long-run, companies must
not only be able to execute current activities to
satisfy an existing market, but they must also adapt
those activities to satisfy new and changing markets
 Many companies can manage short-term bursts of
high performance, but only a few can sustain it over
a longer period of time.

 For example, of the original Forbes 100 companies

listed in 1917, only 13 have survived to the present
day.
 Overview cont’d…
 Research reveals that organizations that
engage in strategic management generally
outperform those that do not.
 A survey of nearly 50 corporations in a variety
of countries and industries found the three
most highly rated benefits of strategic
management to be:
 Clearer sense of strategic vision for the firm.
 Sharper focus on what is strategically important.
 Improved understanding of a rapidly changing
environment.
 Activity
What are differences
between business policy and
strategic management?
What are their similarities?
Are they mutually exclusive?
Basic elements of Strategic Management process

The strategic-management
process consists of 3 stages:
 strategy formulation,
 strategy implementation, and
 strategy evaluation.
Strategic Management process

Strategy Strategy Strategy

formulation implementation evaluation
 Process cont’d…
1. 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.
It deals with what new businesses to enter, what
businesses to abandon, how to allocate resources,
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.
 Process cont’d…
2. 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.
 Process cont’d…
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, strategy implementation requires
personal discipline, commitment, and sacrifice.
Successful strategy implementation hinges upon
managers’ ability to motivate employees, which is
more an art than a science. Strategies formulated but
not implemented serve no useful purpose.
 Process cont’d…
3. 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.
All strategies are subject to future modification because external
and internal factors are constantly changing.
Three fundamental strategy-evaluation activities are
(1) reviewing external and internal factors that are the bases for
current strategies,
(2) measuring performance, and
(3) 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.
 Process cont’d…
 Strategy formulation, implementation, and evaluation
activities occur at three hierarchical levels in a large
organization: corporate, divisional or strategic
business unit, and functional.
 By fostering communication and interaction among
managers and employees across hierarchical levels,
strategic management helps a firm function as a
competitive team.
 Most small businesses and some large businesses do
not have divisions or strategic business units; they
have only the corporate and functional levels.
 Benefits of Strategic Management
 Strategic management allows an
organization to be more proactive than
reactive in shaping its own future; it allows
an organization to initiate and influence
(rather than just respond to) activities—and
thus to exert control over its own destiny.
 Small business owners, chief executive
officers, presidents, and managers of many
for-profit and nonprofit organizations have
recognized and realized the benefits of
strategic management.
 Benefits…
 An increasing number of corporations and
institutions are using strategic management to
make effective decisions. But strategic
management is not a guarantee for success; it can
be dysfunctional if conducted haphazardly.
 Financial Benefits
Research indicates that organizations using strategic-
management concepts are more profitable and successful
than those that do not.
Businesses using strategic-management concepts show
significant improvement in sales, profitability, and
productivity compared to firms without systematic planning
activities.
 Benefits…
 Nonfinancial Benefits
 Besides helping firms avoid financial failure,
strategic management offers other tangible
benefits, such as an enhanced awareness of
external threats, an improved understanding of
competitors’ strategies, increased employee
productivity, reduced resistance to change, and
a clearer understanding of performance–reward
relationships.
 Benefits …
 Greenley stated that strategic management offers the following
benefits:
– It allows for identification, prioritization, and exploitation of
opportunities.
– It provides an objective view of management problems.
– It represents a framework for improved coordination and control of
activities.
– It minimizes the effects of adverse conditions and changes.
– It allows major decisions to better support established objectives.
– It allows more effective allocation of time and resources to identified
opportunities.
– It allows fewer resources and less time to be devoted to correcting
erroneous or ad hoc decisions.
 Benefit …
 It creates a framework for internal communication among
personnel.
 It helps integrate the behavior of individuals into a total
effort.
 It provides a basis for clarifying individual responsibilities.
 It encourages forward thinking.
 It provides a cooperative, integrated, and enthusiastic
approach to tackling problems and opportunities.
 It encourages a favorable attitude toward change.
 It gives a degree of discipline and formality to the
management of a business
 Why Some Firms Do No Strategic Planning
 Some firms do not engage in strategic planning, and
some firms do strategic planning but
 receive no support from managers and employees. Some
reasons for poor or no strategic planning are as follows:
– Lack of knowledge or experience in strategic planning
– Poor reward structures
– Firefighting
– Waste of time—Some firms see planning as a waste of time
– Too expensive—Some organizations see planning as too
expensive
– Content with success—Particularly if a firm is successful
– Fear of failure
– Overconfidence
– Etc …
Pitfalls in Strategic Planning
 Strategic planning is an involved, complicated, and
complex process that takes an organization into
unexplored territory.
 It does not provide a ready-to-use prescription for
success; instead, it takes the organization through a
journey and offers a framework for addressing questions
and solving problems.
 Being aware of potential pitfalls and being prepared to
address them is essential to success.
 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 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-mindness and a spirit of inquiry and
learning.
 9. It should not be a bureaucratic mechanism.
 10. It should not become ritualistic, stilted, or orchestrated.
 17 principles …
 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.
End of chapter 1
Thank You!!