Stratagic Management Process Chapter 1

Why do some organizations succeed
while others fail?

 Strategy
 An action managers take to achieve one or more
of an organization’s goals
 Strategic management process
 The process by which managers choose a set of
strategies that will allow a company to achieve
superior performance
Ch 1 -1
Copyright 2007 Prentice Hall
Superior Performance and
Competitive Advantage
 Profitability
 A measure of a company’s return on its invested
capital
 Superior performance
 One company’s profitability relative to that of other
companies in the same or similar business or
industry
Ch 1 -2
Firm-Specific Performance and
Profitability
 Competitive advantage
 A firm’s profitability is greater than the average
profitability for all firms in its industry
 Sustained competitive advantage
 A firm maintains competitive advantage for a
number of years
 Business model
 Management’s model of how strategy will allow
the company to gain competitive advantage and
achieve superior profitability
Ch 1 -3
Adapting to Change – Key
Strategic Management
Questions
 What kind of business should we
become?
 Are we in the right fields
 Are there new competitors?
 What strategies should we
pursue?
 How are our customers
changing?
Ch 1 -4
Key Terms
Vision Statement –
What do we want to become?
Mission Statement –
What is our business?
Ch 1 -5
Key Terms
Opportunities and Threats (External)
 Largely beyond the control of a single

organization
Ch 1 -6
Key Terms
Opportunities & Threats (External)

Analysis of Trends:
• Economic
• Social
• Cultural
• Demographic/Environmental
• Political, Legal, Governmental
• Technological
• Competitors
Ch 1 -7
Key Terms
Opportunities & Threats
Environmental Scanning (Industry Analysis)
 Process of conducting research and

gathering and assimilating external
information
Ch 1 -8
Key Terms
Opportunities & Threats
Basic Tenet of Strategic Management
Take
Takeadvantage
advantageof
of
External
ExternalOpportunities
Opportunities
Strategy Formulation
Avoid/minimize
Avoid/minimizeimpact
impactof
of
External
ExternalThreats
Threats
Ch 1 -9
Key Terms
Strengths & Weaknesses (Internal)
 Controllable activities performed especially

well or poorly
Ch 1 -10
Key Terms
Strengths & Weaknesses (Internal)
Typically located in functional areas of the firm

• Management
• Marketing
• Finance/Accounting
• Production/Operations
• Research & Development
• Computer Information Systems
Ch 1 -11
Key Terms
Strengths & Weaknesses
Assessing the Internal Environment
Financial Ratios
Performance Metrics
Internal Factors
Industry Averages
Survey Data
Ch 1 -12
Key Terms
Long-term Objectives
 Mission-driven pursuit of specified results

more than one year out
Ch 1 -13
Key Terms
Long-term Objectives
Essential for ensuring the firm’s success

• Provide direction
• Aid in evaluation
• Create synergy
• Focus coordination
• Basis for planning, motivating, and
controlling
Ch 1 -14
Key Terms
Strategies
 Means by which long-term objectives are

achieved
Ch 1 -15
Strategic Management Model
Strategic Management Process
 Dynamic & Continuous

 More formal in larger organizations
Ch 1 -16
1. Identify Existing --
• Vision
• Mission
• Objectives
• Strategies
Ch 1 -17
2. Audit external environment

3. Audit internal environment
4. Establish long-term objectives
5. Generate, evaluate & select
strategies
6. Implement selected strategies
7. Measure & evaluate performance
Ch 1 -18
Benefits of Strategic
Management
• Proactive in shaping firm’s future
• Initiate and influence firm’s activities

• Formulate better strategies
•Systematic, logical, rational
Ch 1 -19
Management
Financial Benefits
• Improvement in sales
• Improvement in profitability
• Productivity improvement
Ch 1 -20
Management
Non-Financial Benefits
• Improved understanding of competitors strategies

• Enhanced awareness of threats
• Reduced resistance to change
• Enhanced problem-prevention capabilities
Ch 1 -21
Management (Greenley)
1. Identification of Opportunities
2. Objective view of management problems
3. Improved coordination & control
4. Minimizes adverse conditions & changes
5. Decisions that better support objectives
Ch 1 -22
Management (Greenley – cont’d)
6. Effective allocation of time & resources

7. Internal communication among personnel
8. Integration of individual behaviors
9. Clarify individual responsibilities
10. Encourage forward thinking
Ch 1 -23
Management (Greenley – cont’d)
11. Encourages favorable attitude toward

change
12. Provides
discipline and formality to the
management of the business
Ch 1 -24
Why Some Firms Do No
Strategic Planning
Poor reward structures

Fire-fighting
Waste of time
Too expensive
Laziness
Content with success
Ch 1 -25
Why Some Firms Do No
Strategic Planning
Fear of failure
Overconfidence
Prior bad experience
Self-interest
Fear of the unknown
Suspicion
Ch 1 -26
Business Ethics & Strategic
Management
Business Ethics defined –
 Principles of conduct within organizations

that guide decision making and behavior
Ch 1 -27
Management
Good business ethics –
 Prerequisite for good strategic management
Ch 1 -28
Management
Code of business ethics –
 Provides basis on which policies can be

devised to guide daily behavior and
decisions in the workplace
Ch 1 -29
Management
Business practices always considered unethical –
 Misleading advertising
 Misleading labeling
 Harm to the environment
 Insider trading
 Dumping flawed products on foreign markets
 Poor product or service safety
 Padding expense accounts
Ch 1 -30
Performance in Nonprofit Enterprises
 Government agencies, universities, charities

 Are not “in business” to make a profit
 Should use their resources efficiently and
effectively
 Set performance goals unique to the organization
 Set strategies to achieve goals and compete with
other nonprofits for scarce resources
Ch 1 -31
Levels of Strategic Management
Ch 1 -32
The Strategic Planning Process
1. Select the corporate mission and major corporate goals

2. Analyze the external competitive environment to
identify opportunities and threats
3. Analyze the organization’s internal environment to
identify its strengths and weaknesses
4. Select strategies that build on the organization’s
strengths and correct its weaknesses in order to take
advantage of external opportunities and counter
external threats
5. Implement the strategy
Ch 1 -33
Mission Statement
 A description or declaration of why a
company is in operation
 Provides the framework or context within
which strategies are formulated
 Has 3 main components:
 Mission or vision
 Values or guiding standards that drive and shape
the actions and behavior of employees
 Major goals or objectives
Ch 1 -34
The Mission or Vision
 What the company is trying to achieve over

the medium to long term
 The Boeing Company in 2016:
 “People working together as a global enterprise
for aerospace leadership”
 Microsoft:
 “To empower people through great software, any
time, any place, on any device”
Ch 1 -35
Abell’s Framework for Defining the
Business
Ch 1 -36
Major Goals and Objectives
 Goal: A desired future state or objective

 Four main characteristics of well-constructed
goals:
 Precise and measurable
 Address crucial issues
 Challenging but realistic
 Specify a time period
Ch 1 -37
Profitability
 Maximizing returns to shareholders

 Importance of balancing short-term returns
with long-term profitability
 Pressures to maximize short-term profitability
may result in unethical behavior
Ch 1 -38
External and Internal Analysis
 External analysis
 Identify strategic opportunities and threats
 Industry environment
 National environment
 Socioeconomic or macroenvironment
 Internal analysis
 Identify organizational strengths and weaknesses
 Sources of competitive advantage: superior
efficiency, quality, innovation, and responsiveness
to customers
Ch 1 -39
SWOT Analysis and the Business
Model
 Identifying strategies to align a company’s
resources and capabilities to its environment
in order to create and sustain a competitive
advantage
 Functional-level strategy
 Business-level strategy
 Global strategy
 Corporate-level strategy
Ch 1 -40
Strategy Implementation
 After choosing strategies, managers must put

them into action.
 The feedback loop—strategy is ongoing.
Managers must monitor and reevaluate for
the next round of strategy formulation and
implementation.
Ch 1 -41
Strategic Leadership
 Vision, eloquence, and consistency

 Commitment
 Being well informed
 Willingness to delegate and empower
 The astute use of power
 Emotional intelligence
Ch 1 -42
Emotional Intelligence
 Self-awareness
 Self-regulation
 Motivation
 Empathy
 Social skills
Ch 1 -43
Strategic Management
achieves a firm’s success
through integration ––
Management Marketing
Finance/Accounting Production/Operations
Research & Development MIS
Ch 1 -44
Strategy Formulation
Vision & Mission
External Opportunities & Threats
Internal Strengths & Weaknesses
Long-Term Objectives
Alternative Strategies
Strategy Selection
Ch 1 -45
Issues in Strategy
Formulation
New
Newbusiness
business
opportunities
opportunities
Businesses
Businessesto toabandon
abandon
Allocation
Allocationofofresources
resources
Expansion
Expansionor or
diversification
diversification
International
Internationalmarkets
markets
Mergers
Mergersororjoint
jointventures
ventures
Avoidance
Avoidanceof ofhostile
hostile
takeover
takeover
Ch 1 -46
Strategy Implementation
Annual Objectives
Policies
Employee Motivation
Resource Allocation
Ch 1 -47
Strategy
Implementation
Action
ActionStage
Stageof
ofStrategic
Strategic
Management
Management––
Most
Mostdifficult
difficultstage
stage
Mobilization
Mobilizationof of
employees
employees&&managers
managers
Interpersonal
Interpersonalskills
skills
critical
critical
Consensus
Consensuson ongoal
goal
pursuit
pursuit
Ch 1 -48
Strategy Evaluation
Internal Review
External Review
Performance Metrics
Corrective Actions
Ch 1 -49
Strategy
Evaluation
Final
FinalStage
Stageof
ofStrategic
Strategic
Management
Management
Subject
Subjecttotofuture
future
modification
modification
Today’s
Today’ssuccess
successnono
guarantee
guaranteeofoffuture
futuresuccess
success
New
New&&different
differentproblems
problems
Ch 1 -50
The Nature of Global
Competition
Strategy implementation may be difficult
 Cultural differences
 Norms
 Values
 Work ethic
Ch 1 -51
Advantages of International
Operations
Absorb excess capacity

Reduce unit costs
Spread risk over wider markets
Low-cost production facilities
Ch 1 -52
Advantages of International
Operations (cont’d)
Less intense competition

Lower taxes
Economies of scale
Ch 1 -53
Disadvantages of International
Operations
Difficult communications
Underestimate foreign competition
Cultural barriers to effective management
Complications arising from currency
differences
Ch 1 -54

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Why do some organizations succeed

while others fail?

Opportunities and Threats (External)

 Largely beyond the control of a single

Opportunities & Threats (External)

Environmental Scanning (Industry Analysis)

 Process of conducting research and

Basic Tenet of Strategic Management

Strengths & Weaknesses (Internal)

 Controllable activities performed especially

Strengths & Weaknesses (Internal)

Typically located in functional areas of the firm

 Mission-driven pursuit of specified results

Essential for ensuring the firm’s success

 Means by which long-term objectives are

Strategic Management Process

 Dynamic & Continuous

2. Audit external environment

• Proactive in shaping firm’s future

• Initiate and influence firm’s activities

• Improved understanding of competitors strategies

6. Effective allocation of time & resources

11. Encourages favorable attitude toward

Poor reward structures

Business Ethics defined –

 Principles of conduct within organizations

Good business ethics –

 Prerequisite for good strategic management

Code of business ethics –

 Provides basis on which policies can be

Business practices always considered unethical –

 Government agencies, universities, charities

1. Select the corporate mission and major corporate goals

 What the company is trying to achieve over

 Goal: A desired future state or objective

 Maximizing returns to shareholders

 After choosing strategies, managers must put

 Vision, eloquence, and consistency

Research & Development MIS

Vision & Mission

External Opportunities & Threats

Internal Strengths & Weaknesses

Strategy implementation may be difficult

Absorb excess capacity

Less intense competition

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