Strategic Management
belief that the investment is good and the price will rise.
Nevertheless, the person selling that same stock believes
the opposite, so only one of these people will be correct.
Thinking of it in these terms will make an investor a real-
istic and conservative player.
SEE ALSO Investments; Securities and Exchange Commis-
sion; Stock Exchanges; Stock Indexes
B I B L I O G R A PH Y
Campbell, Allan B. (2004). Conquering stock market hype. New
York: McGraw-Hill.
Dalton, John M. (2001). How the stock market works (3rd ed.).
New York: New York Institute of Finance.
Fontanills, George A., and Gentile, Tom (2001). Stock market
course. New York: Wiley.
Kelly, Jason (2003). The neatest little guide to stock market invest-
ments. New York: Penguin.
Stav, Julie, and Adamson, Deborah (2000). Get your share: The
everyday woman’s guide to striking it rich in the stock market.
New York: Berkeley Books.
Joel Lerner
STRATEGIC
MANAGEMENT
Strategic management is the process of developing and
executing a series of competitive moves to enhance the
success of the organization both in the present and in the
future. These competitive moves are derived from the
demands of the external environment in which the firm
operates as well as the internal capabilities that it has
developed or can reasonably hope to build or acquire.
While managers may follow somewhat different strategic
management routines, a sound process should include an
analysis of the current business situation, the formulation
of objectives and strategies based on that analysis, and an
implementation and evaluation procedure that ensures
progress toward each strategy and objective. This article
focuses on the formulation of appropriate strategic objec-
tives based on a sound understanding of the internal and
external environments faced by the firm. A brief discus-
sion of implementation is included though this topic is
covered in greater detail in other entries.
SITUATIONAL ANALYSIS
In order to create appropriate strategic objectives, organi-
zations work to understand their internal capabilities as
well as the environment in which they operate. Further,
they also seek to clarify their purpose or mission. The sit-
uation analysis firmly focuses management’s attention on
ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION
these issues, allowing it to create a fit between its resources
and the demands of the competitive situation.
The steps to be taken in a situational analysis are
largely agreed upon, though there does exist some debate
as to whether one starts with a mission statement or with
an analysis of the state of the organization. Those who
believe that a mission statement is the logical starting
point argue that management must first think carefully
and creatively about the future direction of the company
if they are to create and implement effective objectives. In
this way, managers can choose their own vision of what
the company ought to be rather than be unduly affected
by company history or industry exigencies. On the other
hand, managers may want to have a keen understanding
of the history and current performance of a company as
well as important industry factors so as to craft a strategic
vision that is attainable in terms of organizational compe-
tencies and industry dynamics. While both sides have
merit, this article discusses the state of the organization
first.
STATE OF THE ORGANIZATION
In analyzing the state of the organization, managers take a
candid measure of its recent performance. Typically, they
consider such issues as profitability, stock price perform-
ance, market share, revenue growth, customer satisfaction,
product innovation, and so forth. These measures can
vary from industry to industry. Product innovation, for
example, is important to the pharmaceutical industry,
while the number of new distributors signed may be a
more important measure in the multilevel marketing
industry.
In addition to this performance review, managers typ-
ically examine a company’s (s)trengths, (w)eaknesses,
(o)pportunities, and (t)hreats (SWOT) by conducting a
SWOT analysis. Strengths consist of those things that a
company does particularly well relative to its competition
and that provide it with some competitive advantage.
Strengths can be found in many different areas, including
people, such as a particularly competent sales force; sys-
tems, such as Federal Express’s information systems; loca-
tions, like that occupied by a restaurant with sweeping
ocean views; and intangible assets, such as a strong brand
name. These strengths provide the competitive advantage
needed to succeed in the marketplace.
Weaknesses, however, diminish the competitiveness
of a company. They, too, can be found in many different
areas, including outdated equipment, a poor understand-
ing of customers, or a high cost structure.
Strengths and weaknesses are typically internal to a
company and, therefore, largely under a company’s con-
trol. By contrast, opportunities and threats are usually
709
Strategic Management
derived from the external market situation and require
some response from a company if it is to perform well.
Opportunities can arise in many areas, including geo-
graphical expansion, new technologies, and changing cus-
tomer preferences and tastes. Only when a firm has (or
can hope to acquire) the specific skills needed to seize
upon some option does it become an opportunity for the
company.
Whereas opportunities are chances to be seized,
threats can be thought of as concerns that are largely out-
side of the organization’s control but have the potential to
disrupt its operations. Probably the biggest threat to many
companies is their competition. Other sources of threats
include foreign economic crises such as the Asian flu that
spread in the latter part of the 1990s, government regula-
tions, natural disasters, and so forth. In creating strategic
objectives, management prepares contingency plans to
minimize the impact of its most serious threats.
In addition to conducting a SWOT analysis and can-
did performance review, the executive team may use sev-
eral other tools to acquire a better understanding of its
current situation. They may, for example, identify those
forces in the industry that are causing the nature of com-
petition to change for all competitors. One example
would be the publicizing of the link between cholesterol
and heart disease that made many consumers more aware
of the amount of fat in foods. This change made it impor-
tant for many food manufacturers to either lower the
amount of fat in their products or to introduce fat-free or
low-fat versions of those products. These forces that
change the nature the way companies compete in an
industry are known as driving forces.
Another tool used by managers in conducting a state-
of-the-organization review is an analysis of key success fac-
tors. In this analysis managers examine those things that
all companies within a given industry must do well if they
are to survive. These might include rapid service for the
fast-food industry, producing large numbers of vehicles so
as to offset the high cost of specialized equipment in the
automotive industry, or having skilled designers in the
fashion industry. By understanding such factors, managers
are in a position to better allocate resources so as to per-
form well in the future.
In addition to these tools, managers may also conduct
other types of analyses, including ones focused on cus-
tomers, economic characteristics of the industry, supplier
relationships, and so forth. These analyses constitute a
first step in the strategic management process as organiza-
tional leaders attempt to understand the organization’s
current situation so as to later be able to identify those
strategic objectives most likely to improve performance.
710 ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION
MISSION STATEMENTS
Having thoroughly understood an organization’s internal
and external environment, managers establish a mission
statement to create a five- to ten-year vision of the com-
pany. A mission statement documents the service or prod-
uct the company provides to the marketplace and the
unique way in which it distinguishes itself from other
companies. It also indicates the target group of customers
that the company serves.
An example of this type of mission statement is pro-
vided by Courtyard by Marriott. It indicates that Court-
yard by Marriott is serving economy- and quality-minded
frequent business travelers with a premier, moderately
priced lodging facility that is consistently perceived as
clean, comfortable, well maintained, attractive, and
staffed by friendly, attentive, and efficient people. This
mission statement indicates the product and service pro-
vided to the target customers and the way in which it will
be done.
Mission statements serve several purposes in strategic
management. First, they provide direction for the organi-
zation. As a firm engages in its strategic planning process
it compares its objectives with the path it has set for itself.
If any of the goals suggest a deviation from the purpose of
the organization, managers must decide if the goal is suf-
ficiently important to warrant a change in the mission
statement. Otherwise, the objective might be dropped.
With this in mind managers are typically careful to write
mission statements that are broad enough to encourage
growth but specific enough to give direction.
A second purpose of mission statements is to create a
shared sense of purpose and inspiration among employees.
In some organizations, employees are required to memo-
rize the mission statement so that they will understand
what is appropriate behavior and what is not. For this rea-
son, most mission statements are relatively short so that
the purpose of the company remains clearly in the minds
of its employees. Furthermore, many companies seek the
input of their employees in creating a mission statement
so as to create a document that is owned by all.
Finally, mission statements are also external docu-
ments. They communicate to the outside world the values
and goals of the organization. Unfortunately, some com-
panies create mission statements as a marketing document
and then fail to live up to that vision of themselves. For a
mission statement to be effective, it must be a living doc-
ument that motivates behavior.
EXTERNAL ENVIRONMENT REVIEW
Once a company has carefully and frankly understood its
situation and has spent time considering the appropriate-
ness of its mission statement, it may choose to do a more

thorough review of the external environment. This envi-
ronment consists of industry, government, competitive,
economic, political, and other factors that the organiza-
tion cannot control but which may have an important
impact on the company. For example, the dietary supple-
ments industry in the United States spends large amounts
of money to keep abreast of the latest regulations issued by
the Food and Drug Administration.
Much of this analysis may be done within a “State of
the Organization” report, but some companies choose to
address it as a third step in the strategic planning process
to ensure that they are not caught off guard by these
important factors. While the organization cannot control
these forces, it can formulate responses that will minimize
the potential damage or even put the firm in a better com-
petitive position should the eventuality actually occur.
KEY OBJECTIVES AND STRATEGIES
Having conducted the previous three steps, managers
have sufficient information to choose objectives that are
most likely to match the internal capabilities of the firm
with the exigencies of the external environment. Thomp-
son and Strickland (1998) state that “objectives represent
a managerial commitment to achieving specific perform-
ance targets within a specific time frame” (p. 36). While
drawing heavily on the previous three steps in the process,
objectives rely even more particularly on the SWOT
analysis in enhancing certain strengths, overcoming spe-
cific weaknesses, capitalizing on opportunities, and
addressing the threats. By creating such a fit between the
demands of the industry and the skills and competencies
of the organization, a firm increases its ability to compete
successfully in the marketplace.
Firms may set specific objectives including such
things as increasing market share, decreasing customer
complaints, cutting costs by 10 percent, or creating a
more effective food preparation facility. These broad
objectives are then broken down into specific strategies
that may, in turn, be broken down into even more specific
action steps. It is important that objectives be written in a
way that clearly indicates the nature of what is to be
achieved, the single individual responsible for the objec-
tive, a committee to work on the project, funding
assigned, and date to be completed. Based on these
requirements, an objective for a rural hospital might take
the following form:
Objective 2: Increase revenues from visiting physi-
cians by $500,000.
Person Responsible: Virginia Moody (CEO)
ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION
Strategic Management
Committee Members: Virginia Moody, Dr. Etta,
Erika Boerk (PR director), Sean Ortiz (Facilities
Coordinator), and Tristan Roberts (Marketing)
Funding: $125,000
Date Due: June 1, 20XX
Strategies
1. Develop relationship with Dr. Yang (podiatrist).
2. Refurbish existing office space to accommodate
visiting physicians.
3. Contract with local newspaper to advertise visits.
4. Find a dermatologist
5. Etc.
In addition, each of the strategies could also be bro-
ken down in similar fashion to include the person(s)
responsible, funds required, and due dates.
IMPLEMENTATION
Having created detailed objectives and strategies, an
organization may find that some internal adjustments in
the way a firm is organized or in the competencies of its
workers are required to achieve those objectives. These
adjustments may be as simple as sending an employee to
a seminar to better understand a new information process
software or as complex as creating a new international
division to take advantage of overseas opportunities. This
process requires the identification of those individual and
organization competencies needed to facilitate the accom-
plishment of the stated objectives.
In addition to serving as a guide to the form of the
organization, the objectives also serve as the basis of the
year’s budgets and performance standards. Having set the
funding requirements for each objective, these monies are
added to the normal operating budget for each division so
that they can fulfill these goals. Further, these objectives
and strategies are added to the existing performance stan-
dards for each division or department and become an
integral part of the performance evaluation of the individ-
uals assigned to each task. In this way the progress of each
objective is tracked throughout the year and a specific and
agreed-upon measuring stick exists for each employee’s
performance.
Finally, it should be mentioned that in any strategic
management process, but particularly in those taking
place in dynamic environments, situations change and
strategic plans require modification. While five-year plans
may remain relatively unchanged in some industries,
other industries may make major modifications monthly.
For this reason, most firms consider strategic management
to be an ongoing process characterized by periodic
711
Stress
progress evaluations and major plan analysis on a yearly
basis. Such updates allow a firm to continually reconfigure
its internal process and capabilities to create a better fit
with the demands of the competitive situation.
SEE ALSO Management; Policy Development
B I B L I O G R A PH Y
Bourgeios, L. J. III, Duhaime, Irene M., and Stimpert, J. L.
(1999). Strategic Management: A Managerial Perspective (2nd
ed.). Fort Worth, TX: Dryden Press.
Hitt, Michael, Ireland, R. Duane, and Hoskisson, Robert E.
(2005). Strategic Management: Competitiveness and Globaliza-
tion (6th ed.). Mason, OH: Thomson/South-Western.
Mintzberg, Henry (1987, July-August). “Crafting Strategy.”
Harvard Business Review, 66-75.
Porter, Michael A. (1985). Competitive Advantage: Creating and
Sustaining Superior Performance. New York: Free Press.
Porter, Michael A. (1998). Competitive Strategy: Techniques for
Analyzing Industries and Competitors. New York: Free Press.
Porter, Michael E. (1996, November). “What Is Strategy?” Har-
vard Business Review, 61-78.
Prahalad, C. K., and Hamel, Gary. (1990, May-June). “The
Core Competence of the Corporation.” Harvard Business
Review, 79-83.
Thompson, Arthur A., Jr., and Strickland, A. J. III (1998).
Strategic Management: Concepts and Cases (12th ed.). Boston:
McGraw-Hill/Irwin.
Norman S. Wright
STRESS
Stress has been defined in a number of ways by a number
of different individuals, but everyone agrees that stress is
experienced by all workers in the business world no mat-
ter what their position. Stress is the body’s reaction to any
demand placed on it, and health experts agree that some
stress is essential for human survival. As demands are
placed on a person’s body, there will be some kind of auto-
matic reaction. When this reaction is positive, the stress
helps individuals perform their jobs better. Positive stress,
called eustress, can lead individuals to a new awareness of
their abilities and a completely new perspective on their
jobs. Negative stress, called distress, upsets individuals and
can make them physically sick. It can lead to feelings of
distrust, rejection, anger, and depression, which may lead
to a number of medical problems, including stroke, heart
disease, high blood pressure, cancer, and ulcers.
712 ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION
SYMPTOMS OF STRESS
Because everyone is different, the symptoms of stress are
varied and numerous. The symptoms of stress have been
placed in different categories, the most common being
physical, psychological, behavioral, and mental.
Headache, fatigue, grinding teeth, clenched jaws, chest
pain, shortness of breath, insomnia, nausea, high blood
pressure, muscle aches, constipation or diarrhea, and heart
palpitations are all physical symptoms of stress. Anxiety,
nervousness, depression, anger, defensiveness, hypersensi-
tivity, apathy, feelings of helplessness, impatience, and
short temper are symptoms of psychological stress. Behav-
ioral symptoms include overeating or loss of appetite, pro-
crastination, increased use of alcohol or drugs, pacing,
nervous habits (nail-biting, foot-tapping), crying, swear-
ing, poor personal hygiene, and withdrawal or isolation
from others. Individuals who experience a decrease in
concentration and memory, indecisiveness, confusion,
loss of sense of humor, and mind going blank or racing
may have mental stress.
Many of these symptoms, when not treated, can lead
to serious medical problems as well as loss of time on the
job. When individuals experience stress, they often miss
work because of illness or arrive late because they dread
coming to work. When on the job, they may not perform-
ing up to their ability.
REACTION TO STRESS
When individuals perceive or anticipate a threatening or
stressful situation, part of the nervous system, the sympa-
thetic nervous system, becomes activated and releases a
number of chemicals. One of these chemicals, adrenaline,
is a stimulant hormone and is released into the blood-
stream. Adrenaline and other hormones, including nora-
drenaline, produce changes in the body that get the
individual geared up for action.
David Posen (1995), who specializes in stress man-
agement, indicates that gearing up for action is often
called “the fight-or-flight response” because it provides the
strength and energy to either fight or run away from dan-
ger. These responses increase heart rate and blood pressure
in order to get more blood to the muscles, brain, and
heart, the organs that are the most important in dealing
with danger. This increase in blood flow to the brain,
heart, and muscles means that there is a decrease in the
blood flow to the skin, digestive tract, kidneys, and liver,
where it is least needed in a time of crisis. Individuals will
also begin to breathe faster to take in more oxygen, and
their muscles will tense so that they are prepared for
action. An increased mental alertness and sensitivity of
sense organs occurs. As these reactions are taking place,
there is also an increase in the blood sugar, fats, and cho-
lesterol and a rise in platelets and blood-clotting factors.