Strategic Management
PRELIM TOPICS
LESSON 1: INTRODUCTION TO STRATEGIC
MANAGEMENT
Learning Objectives:
1. Define strategic management and explain its
four key attributes
2. Explain the strategic management process
3. Explain the levels of strategic decision making
4. Explain the hierarchy of goals (vision, mission
and strategic objectives)
I. DEFINING STRATEGIC MANAGEMENT
Strategic management consists of the
analyses, decisions, and actions an organization
undertakes in order to create and sustain
competitive advantages (Dess, McNamara, Eisner,
Lee, 2019). It is the integrative management field
that combines analysis, formulation,
and implementation in the quest for competitive
advantage (Rothaermel, 2019).
In any competitive situation, a good strategy
enables a firm to achieve superior performance
relative to its competitors. Strategy is a set of
goal-directed actions a firm takes to gain and
sustain superior performance relative to
competitors (Rothaermel, 2019). A god strategy
needs to start with a clear and critical diagnosis
of the competitive challenge. A firm that achieves
superior performance relative to other
competitors in the same industry or the industry
average has a competitive
advantage (Rothaermel, 2019).
There are two main elements that go to the
heart of the field of strategic management.
First, the strategic management of an
organization entails three ongoing processes:
1. Analysis of strategic goals (vision, mission,
and strategic objectives) along with the
analysis of the internal and external
environments of the organization.
2. Strategic decisions – these decisions
broadly speaking, address two basic
questions: what industries should we
compete in? How should we compete in
those industries?
3. Actions that must be taken. Firms must
take the necessary actions to implement
their strategies-the ideas, decisions, and
actions that enable a firm to succeed.
This requires leaders to allocate the
necessary resources and to design the
organization to bring the intended
strategies to reality.
Second. The essence of strategic
management is the study of why some firms
outperform others. Thus, managers need to
determine how a firm is to compete so that it
can obtain advantages that are sustainable
over a long period of time. That means
focusing on two fundamental questions:
1. How should we compete in order to
create competitive advantages in the
marketplace?
2. How can we create competitive
advantages in the market place that are
unique, valuable, and difficult for rivals to
copy or substitute?
The Four Key Attributes of Strategic
Management
• Directs the organization toward overall
goals and objectives
• Includes multiple stakeholders in
decision making
 • Needs to incorporate short-term and
long term perspectives
• Recognizes trade-offs between efficiency
and effectiveness
First, strategic management is directed
toward overall organizational goals and
objectives. That is, effort must be directed at
what is best for the total organization, not just a
single functional area.
Second, strategic management includes
multiple stakeholders in decision making.
Stakeholders are those individuals, groups, and
organizations that have stake in the success of
the organization, including owners, employees,
customers, suppliers, the community at large.
3. Implement (I)
The tasks of analyze, formulate, and implement
are the pillars of research and knowledge about
strategic management. Although we will study
each of these tasks one at a time, they are highly
interdependent and frequently happen
simultaneously (Rothaermel, 2019).
Why do we often refer to strategy as a process?
The answer is that it is never a once-and-for all
event---it goes on and on. There is a need to
continually review strategic objectives because
the environment within which organizations
operate is continually changing. The purpose of
strategy is to make an organization fit into its
environment.

Third, strategic management requires

incorporating both short-term and long-term
perspectives. That is, managers must maintain
both a vision for the future of the organization
and a focus on its present operating needs.

Fourth, strategic management involves the

recognition of trade-offs between effectiveness
and efficiency. Effectiveness means tailoring to
the needs of an organization rather than wasting
effort or “doing the right thing”. Efficiency is
performing actions at a low cost relative to a Source: Rothaermel, F.(2019). Strategic
benchmark, or “doing thing right”. Management. 4th ed.

II. THE STRATEGIC MANAGEMENT

PROCESS

The AFI Strategy Framework

The AFI strategy framework is a model
that links three interdependent strategic
management tasks---analyze, formulate, and
implement--that together, help managers plan
and implement a strategy that can improve
performance and result in competitive
advantage. A successful strategy details a set of
actions that managers take to gain and sustain Source: https://en.ppt-online.org/76124
competitive advantage. Effectively managing the
strategy process is the result of three broad tasks:
1. Analyze (A)
2. Formulate (F)
I. Strategic Analysis (Prelim Topic)
The purpose of strategic analysis is to gather
information and to analyze it systematically and
thoroughly. None of us would be wise to make an
important decision about anything in life without
adequate and relevant information, and nor
would tourism, hospitality and events
organization (Evans, 2015)
Strategic analysis includes the following:
1. Analyzing Organizational Goals and
Objectives – A firm’s vision, mission, and
strategic objectives form a hierarchy of
goals that range from broad statement
s of intent and bases for competitive
advantage to specific, measurable
strategic objectives.
2. Examination of an organization’s
internal environment (internal analysis).
The purpose on internal analysis is to
establish the organization’s strengths
and weaknesses.
3. Examination of the organization’s
external environment (external
analysis). This takes the form of a
thorough analysis of two layers of
external environment-the micro and
the macro environment.
II. Strategic Formulation (Midterm Topic)
Strategy formulation involves decisions made by
firms regarding investments, commitments, and
other aspects of operations that create and
sustain competitive advantage.
Strategy formulation is developed at several
levels. First, business-level strategy addresses the
issue of how to compete in a given business to
attain competitive advantage. Second,
corporate-level strategy focuses on two issues:
(a) what business to compete in and (b) how
businesses can be managed to achieve synergy.
Third, a firm must develop international
strategies as it ventures beyond its national
boundaries. Fourth, managers must formulate
effective entrepreneurial initiatives ((Dess,
McNamara, Eisner, Lee, 2019)
The second stage in the strategic process involves
taking the important information gathered from
the strategic analysis stage and using it to make
an intelligent and informed strategic selection or
choice of the most appropriate courses of action
for the future. Specifically, strategic choices are
required. Specifically strategic choices are
required for tourism, hospitality and events
organizations in relation to three key aspects:
1. How will the organization compete?
2. What is the strategic direction that the
organization will take?
3. What methods will be utilized by the
organization?
III. Strategic Implementation (Final Topic)
Strategy implementation involves actions made
by firms that carry out the formulated strategy,
including strategic control, organizational design
and leadership (Dess, McNamara, Eisner, Lee,
2019)
The third stage in the strategic process involves
taking the selected strategic options and actually
putting them into practice.. This is a complex
stage of the process as it concerns putting
detailed aspects of the strategy into practice. It
involves actually carrying out the strategy and
this brings into focus a number of other
managerial issues. There are a number of areas
which we need to be aware in order to effectively
implement a strategy within tourism, hospitality
and events organizations (Evans, 2015)
III. LEVELS OF STRATEGIC DECISIONS
Management decisions in an organization can be
classified in three broad and sometimes
overlapping categories: strategic, tactical and
operational. These can be illustrated as a
hierarchy in which higher level decisions tend to
shape those at lower levels of the organization.
 • are made by senior leaders
• affect the whole organization
• are medium to long-term in nature
• are complex and often based upon
certain or incomplete information

Managers at the strategic level require multi-

conceptual skills--the ability to consider the
effects of multiple internal and external
influences on the business and the possible ways
in which strategy can be adjusted to account for
such influences.
Strategic, tactical and operational decisions
within an organization differ from each other in Tactical Level Decisions
terms of their: Tactical decisions are concerned with how
• Focus strategic level objectives are to be met and how
• Level in the organization at which they strategies are implemented. They are dependent
are made upon overall strategy and involve fine tuning and
• Scope adjustment. They are usually made at the head of
• Time horizon business unit, department or functional area level
• Degree of certainty or uncertainty and they have an effect only in parts of the
• Complexity organization. They are normally medium-term in
timescale, semi-complex and usually involve
The differences between the three levels of some uncertainty but not as much as at the
decision making are summarized in the table strategic-level.
below:
Operational Level Decisions
Operational decisions are concerned with the
short-term objectives of the business and with its
day-to-day management. They are dependent
upon strategy and tactics. These decisions are
made at junior managerial or supervisory level,
are based on a high degree of certainty, and are
not complex.

IV. ORGANIZATIONAL VISION, MISSION,

AND STRATEGIC OBJECTIVES
Strategic Level Decisions
Strategic decisions (which are our primary focus)
Organizational Vision
are concerned with:
A vision is a goal that is massively inspiring,
• The acquisition of sustainable
overarching, and long term. It represents a
competitive advantage
destination that is driven by and evoke passion
• The setting of long-term objectives
(Dess, McNamara, Eisner, Lee, 2019). Vision
• The formulation, evaluation, selection
statement answers the question “What do we
and monitoring of strategies to achieve
want to become?” and often considered the first
these objectives
step in strategic planning.
Strategic decisions normally have a number of
characteristic features in that they:
 A vision captures an organization's aspiration
and spells out what it ultimately wants to
accomplish. An effective vision pervades the
organization with a sense of winning and
motivates employees at all levels to aim for the
same target, while leaving room for individual
and team contributions. To provide meaning for
employees in pursuit of the organization's goal,
vision statements should be forward-looking and
inspiring.
Mission Statements
A company’s mission statement differs
from its vision in that it encompasses both the
purpose of the company and the basis of
competition and competitive advantage. It
describes what an organization actually does,
that is the product and services it plans to provide,
and the markets in which it will
compete. Mission statements are enduring
statements of purpose that distinguish one
business from other similar firms. It identifies the
scope of a firm’s operations in product and
market terms and addresses the basic question
that faces all strategists: “What is our business?”
Strategic Objectives
Strategic objectives are used to
operationalize the mission statement. That is,
they help to provide guidance on how the
organization can fulfill or move toward the
“higher goals” in the goal hierarchy-the mission
and the vision. Thus, they are more specific and
cover a more well-defined time frame. Setting
objectives demands a yardstick to measure the
fulfillment of the objectives.
For objectives to be meaningful, they need to
satisfy several criteria. An objective must be:
• Specific - This provides a clear message as
to what needs to be accomplished
• Measurable - There must be at least one
indicator (or yardstick) that measures
progress against fulfilling the objective.
• Appropriate - It must be consistent with
the organization's vision and mission.
• Realistic - It must be an achievable target
given the organization's capabilities and
opportunities in the environment. In
essence, it must be challenging but
doable.
• Timely - There must be a time frame for
achieving the objective.
LESSON 2: STRATEGIC MANAGEMENT –
TOURISM, HOSPITALITY AND EVENTS
CONTEXT
Learning Objectives:
1. Define goods and services
2. Describe the key characteristics of service
products and how they are relevant to THE
organizations
3. Explain the defining characteristics of THE
products in particular
4. Explore some of the ways in which managers
respond to the key features of THE products
I. GOODS AND SERVICES
It is important to consider the nature of the
products that comprises Tourism, Hospitality and
Events. In general, there are two basic types of
products: goods and services
• Goods are tangible - things you can own
• Services are intangible - things done on
your behalf or for your benefit.
You do not own service products, but instead you
have to use them. For example, as a customer
you do not own an aircraft seat on a flight, a hotel
room, or an event that you attend, but instead
you make use of the services offered (Evans,
2015).

Source: https://cianclernon.wordpress.com/tag/
heteroability/
Service Product Characteristics
1. Intangibility - Unlike physical products,
services cannot be seen, tasted, felt,
heard, or smelled before they are
purchased. To reduce uncertainty caused
by intangibility, buyers look for tangible
evidence that will provide information
and confidence about the service (Kotler,
2016).
2. Inseparability - In most hospitality
services, both the service provider and
the customer must be present for the
transaction to occur. Customer-contact
employees are part of the product.
Inseparability also means that customers
are part of the product. The third
implication of inseparability is that
customers and employees must
understand the service delivery system
(Kotler, 2016)
3. Perishability - Services cannot be stored.
If service providers are to maximize
revenue, they must manage capacity and
demand because they cannot carry
forward unsold inventory (Kotler, 2016)
4. Heterogeneity - Service quality depends
on who provides the services and when
and where they are provided. Services
are produced and consumed
simultaneously (Kotler, 2016).
5. Ownership - When a consumer buys a
service he or she does not usually receive
ownership of anything tangible. Service
buyers are therefore buying only access
to or use of something, which has
important management implications.
Since transfer of ownership is not
involved, the task of building a
relationship with customers, of retaining
their custom, and building brand loyalty
becomes more difficult (Evans, 2016)
II. SIX TOURISM, HOSPITALITY AND
EVENTS CHARACTERISTICS
The five characteristics of services cited in the
preceding sections change the emphasis of a
manager’s task when compared to dealing with
physical products. The characteristics apply to all
service products to some degree – which includes
banking, insurance and professional services
(legal accounting, etc.). Thus the characteristics
considered previously, whilst certainly applicable
to THE sectors are not unique to these sectors,
but applicable across all service sectors. Six
further characteristics can be identified, which
are particularly applicable to these sectors
(though to varying degrees in the three sectors).
Consequently these characteristics have a
particular influence on decision making for
managers operating in these three sectors (Evans,
2016).
The six characteristics which are particularly
applicable to THE sectors includes:
1. High cost
2. Seasonality
3. Ease of entry/exit
4. Interdependence
5. Impact on society
6. The effect of external shocks
 III. KEY SERVICE CHARACTERISTICS
AND THEIR IMPLICATIONS FOR
MANAGERS
Summary of Key THE Characteristics and their
Implications for Managers
There are 11 characteristics of THE identified
in this section. Some characteristics are common
to the service industry , but some are particularly
important to THE settings. It is important that
managers working in the THE are aware of these
factors and consider the managerial implications
that are associated with each. The strategy which
organizations put in place should reflect an
understanding of these characteristics and the
impacts they might have on the organizations
concerned (Evans, 2015).
A summary of the key characteristics of THE
and their implications for managers is provided
below:
A summary of the key
character
IV. STRATEGIC MANAGEMENT IN THE
CONTEXT: THE CASE STUDY METHOD
V. STRATEGIC MANAGEMENT IN
TOURISM, HOSPITALITY AND EVENTS
CONTEXT: THE CASE STUDY METHOD
Case study analysis invariably forms part of most
courses in strategic management. Case studies
are used so as to enable students to understand
the complete nature of strategic decision making
and the inter-related nature of such decisions.
Cases that covers various facets of tourism,
hospitality and events management provide an
illustration of the specific strategies management
challenges that managers face in these contexts.
Case studies are thus a valuable tool in several
ways. Case Studies:
• Provide experience of organizational
problems and issues that it might not be
possible or feasible to encounter directly.
• Serve to illustrate the theory and
concepts of strategic management
applied to relevant examples from THE
• Allow active participation in strategic
analysis, choice and implementation and
of presenting results persuasively
• Illustrate the linkages inherent in
strategic management in that internal
decisions have impacts on other parts of
the organization and on external
stakeholders
• Illustrate the holistic nature of strategic
management in that decisions often
require knowledge of other subject fields
such as marketing, finance, and human
resource management.
In all cases considered, however, it is important
to realize that what you are normally being asked
to do is to place yourself in the position of a
manager of an organization or within an industry
sector at a particular moment in time.
The important point is not what actually
happened to the company in reality, but given the
available information, how would you have made
sense of the information available to you at the
time and what actions would you have
recommended in the circumstances.
1. Why Analyze Strategic Management Cases?
It is often said that the key to finding good
answers is to ask good questions. Strategic
managers and business leaders are required to
evaluate options, make choices, and find
solutions to the challenges they face every day.
To do so, they must learn to ask the right
questions. The study of strategic management
poses the same challenge. The process of
analyzing, decision making, and implementing
strategic actions raises many good questions:
• Why do some firms succeed and others
fail?
• Why are some companies higher
performers than others?
• What information is needed in the
strategic planning process?
• How do competing values and beliefs
affect strategic decision making?
• What skills and capabilities are needed to
implement a strategy effectively?
How does a student of strategic management
answer these questions? By strategic case
analysis. Case analysis stimulates the real-world
experience that strategic managers and company
leaders face as they try to determine how best to
run their companies. It places students in the
middle of an actual situation and challenges them
to figure out what to do.
A strategic management case is a detailed
description of a challenging situation faced by an
organization. It usually includes a chronology of
events and extensive support materials such as
financial statements, product lists, and
transcripts of interviews with employees.
Although names or locations are sometimes
changed to provide anonymity, case usually
report the facts of a situation as authentically as
possible.
One of the main reasons to analyze strategic
management cases is to develop an ability to
evaluate business situations critically. In case
analysis, memorizing key terms and conceptual
frameworks is not enough. To analyze a case, it is
important that you go beyond textbook
prescriptions and quick answers. It requires you
to look deeply into the information that is
provided and root out the essential issues and
causes of a company's problems.
The types of skills that are required to
prepare an effective strategic case analysis can
benefit you in actual business situations. Case
analysis adds to the overall learning experience
by helping you acquire or improve skills that may
not be taught in a typical lecture course. Three
capabilities can be learned by conducting case
analysis:
1. Differentiate - Effective strategic management
requires that many different elements of a
situation be evaluated at once. This is also true in
case analysis. When analyzing cases, it is
important to isolate critical facts, evaluate
whether assumptions are useful or faulty, and
distinguish between good and bad information.
Differentiating between the factors that are
influencing the situation presented by a case is
necessary for making a good analysis. Strategic
management also involves understanding that
problems are often complex and multilayered.
This applies to case analysis as well. It requires
students to dig deep. being too quick to accept
the easiest or least controversial answer will
usually fail to get to the heart of the problem.
2. Speculate - Strategic managers need to be able
to use their imagination to envision an
explanation or solution that might not readily be
apparent. The same is true with case analysis.
Being able to imagine different scenarios or
contemplate the outcome of a decision can aid
the analysis. Managers have to deal with
uncertainty since most decisions are made
without complete knowledge of the
circumstances. The ability to speculate about
details that are unknown or the consequences of
an action can be helpful.
3. Integrate - Strategy involves looking at the big
picture and having an organization wide
perspective. Strategic case analysis is no different.
A strategic manager needs to comprehend how
all the factors that influence the organization will
interact. Changes made in one part of the
organization affect other parts. Thus, a holistic
perspective that integrates the impact of various
decisions and environmental influences on all
parts of the organization is needed.
2. How to Conduct a Case Analysis
The process of analyzing strategic management
cases involves several steps.
First, unless you prepare for a case discussion,
there is little you can gain from the discussion and
even less that you can offer. Effective strategic
managers don't enter into problem-solving
situation without doing some homework--
investigating the situations, analyzing and
researching possible solutions, and sometimes
gathering the advice of others. Good problem
solving often requires that decision makers be
immersed in the facts, options, and implications
surrounding the problem. In case analysis, this
means reading and thoroughly comprehending
the case materials before trying to make an
analysis.
The second point is related to the first. To get the
most out of a case analysis, you must place
yourself "inside" the case. Think like an actual
participant in the case situation. There are
several positions you can take:
• Strategic decision maker. This is the
position of the senior executive
responsible for resolving the situation
describe in the case. It may be the CEO,
the business owner, or a strategic
manager in a key executive position.
• Board of directors. Since the board of
directors represents the owners of a
corporation, it has a responsibility to step
in when a management crisis threatens
the company. As a board member, you
may be in a unique position to solve
problems.
• Outside consultant. Either the board or
top management may decide to bring in
outsiders. Consultants often have an
advantage because they can look at a
situation objectively.
Five Steps to Follow When Conducting A Strategic
Management Case Analysis:
1. Become Familiar with the Material.
• Read quickly through the case one time
to get an overall sense of the material
• Use the initial read-through to assess
possible links to strategic concepts
• Read through the case again, in depth.
Make written notes as your read
• Evaluate how strategic concepts might
inform key decisions or suggest
alternative solutions.
• After formulating initial
recommendations, thumb through the
case again to help assess the
consequences of the actions you propose.
2. Identify Problems
When conducting case analysis, one of your most
important task is to identify the problem. Earlier
we noted that one of the main reasons to
conduct case analysis is to find solutions. But you
cannot find a solution unless you know the
problem. Another saying you may have heard is
"A good diagnosis is half the cure." In other words,
once you have determined what the problem is,
you are well on your way to identify a reasonable
solution.
Some cases have more than one problem, But
the problems are usually related. For a
hypothetical example, consider the following:
Company A was losing customers to a new
competitor. Upon analysis, it was determined
that the competitor had a 50 percent faster
delivery time even though its product was of
lower quality. The managers of company A could
not understand why customers would settle for
an inferior product. It turns out that no one was
marketing to company A's customer that its
product was superior. A second problem was that
falling sales resulted in cuts in company A's sales
force. Thus, there were two related problems:
inferior delivery technology and insufficient sales
effort.
 Another tip when preparing a case analysis is
to articulate the problem. Writing down a
problem statement gives you a reference point to
turn to as you proceed through the case analysis.
This is important because the process of
formulating strategies or evaluating
implementation methods may lead your way
from the initial problem. Make sure your
recommendation actually addresses the
problems you have identified.
3. Conduct Strategic Analyses
• The first step is to determine which
strategic issues are involved. Is there a
problem in the company's competitive
environment or is it an integral
problem?
• Once you have identified the issues that
apply to the case, conduct the analysis.
For example you may need to conduct a
five-forces analysis or SWOT analysis
4. Propose Alternative Solutions
It is important to remember that in strategic
management case analysis, there is rarely one
right answer or one best way. Therefore, it is
helpful to consider several different solutions.
After conducting strategic analysis and
identifying the problem, develop a list of
options. What are the possible solutions? What
are the alternatives? First, generate a list of all the
options you can think of without prejudging any
one of them. This point illustrates the purpose of
developing alternatives: to evaluate what will
happen if a company chooses one solution over
another.
The point of this step in the case analysis
process is to find a solution that both solves the
problem and is realistic. A consideration of the
implications of various alternative solutions will
generally lead you to a final recommendation
that is more thoughtful and complete.
5. Make Recommendations
The basic aim of a case analysis is to find solutions.
Your analysis is not complete until you have
recommended a course of action. In this step the
task is to make a set of recommendations that
your analysis supports. Describe exactly what
needs to be done. explain why this course of
action will solve the problem. The
recommendations should also include
suggestions for how best to implement the
proposed solution because the recommended
actions and their implications for the
performance and future of the firm are
interrelated.
Recall that the solution you proposed must
solve the problem you identified. Make a logical
argument that shows how the problem led to the
analysis and the analysis led to the
recommendations you are proposing. Remember,
an analysis is not an end in itself; it is useful only
if it leads to a solution.
LESSON 3: VISION AND MISSION ANALYSIS
Learning Objectives:
1. Describe the nature and role of vision and
mission statements in strategic management.
2. Identify the components of mission statements
3. Discuss how clear vision and mission
statements can benefit other strategic
management activities
4. Evaluate mission statements of different
organizations
I. VISION VERSUS MISSION
A vision statement should answer the basic
question, "What do we want to become?". A clear
vision provides the foundation for developing a
comprehensive mission statement (David and
David, 2015).
A vision is a goal that is massively inspiring,
overarching, and long term. It represents a
destination that is driven by and evoke passion
(Dess, McNamara, Eisner, Lee, 2019). Vision
statement answers the question “What do we
want to become?” and often considered the first
step in strategic planning.
A vision captures an organization's aspiration and
spells out what it ultimately wants to accomplish.
An effective vision pervades the organization
with a sense of winning and motivates employees
at all levels to aim for the same target, while
leaving room for individual and team
contributions. To provide meaning for employees
in pursuit of the organization's goal, vision
statements should be forward-looking and
inspiring.
Example:
The mission statement is a declaration of an
organization's "reason for being". A clear mission
statement is essential for effectively establishing
objectives and formulating strategies (David and
David, 2015). A company’s mission statement
differs from its vision in that it encompasses both
the purpose of the company and the basis of
competition and competitive advantage. It
describes what an organization actually does,
that is the product and services it plans to provide,
and the markets in which it will
compete. Mission statements are enduring
statements of purpose that distinguish one
business from other similar firms. It identifies the
scope of a firm’s operations in product and
market terms and addresses the basic question
that faces all strategists: “What is our business?”
II. TEN BENEFITS OF HAVING A CLEAR
MISSION AND VISION
The importance of vision and mission statements
to effective strategic management is
documented in many literature. Rarick and Vitton
found the firms with a formalized mission
statement have twice the average return on
shareholder's equity than those firms without a
formalized statement (David & David, 2015).
Ten Benefits of Having a Clear Mission and
Vision
1. Achieve clarity of purpose among all managers
and employees.
2. Provide a basis for all other strategic planning
activities, including internal and external
assessment, establishing objectives, developing
strategies, choosing among alternative strategies,
devising policies, establishing organizational
structure, allocating resources, and evaluating
performance.
3. Provide direction
4. Provide a focal point for all stakeholders of the
firm
5. Resolve divergent views among managers
6. Promote a sense of shared expectations among
all managers and employees
7. Project a sense of worth and intent to all
stakeholders
8. Project an organized, motivated organization
worthy of support
9. Achieve higher organizational performance
10. Achieve synergy among all managers and
employees
III. COMPONENTS OF A MISSION
STATEMENT
Mission statements can and do vary in length,
content, format, and specificity. Most
practitioners and academicians of strategic
management feel that an effective statement
should include these nine mission statement
components: (Adopted from David and David,
2015)
1. Customers - Who are the firm's customers?
2. Products or Services - What are the firm's
major products or services?
3. Markets - Geographically, where does the firm
compete?
4. Technology - Is the firm technologically
current?
5. Concern for survival, growth, and profitability -
Is the firm committed to growth and financial
soundness?
6. Philosophy - What are the basic beliefs, values,
aspirations, and ethical priorities of the firm?
7. Self-concept - What is the firm's distinctive
competence or major competitive advantage?
8. Concern for public image - Is the firm
responsive to social, community, and
environmental concerns?
9. Concern for employees - are employees a
valuable asset of the firm?
Template for Evaluating the Mission Statement
LESSON 4: ANALYZING THE EXTERNAL
ENVIRONMENT OF THE FIRM
Learning Objectives:
1. Explain why environmental scanning,
environmental monitoring, and collecting
competitive intelligence are critical inputs to
forecasting.
2. Discuss the impact of the general environment
on a firm's strategies and performance
3. Explain how forces in the
competitive environment can affect profitability,
and how a firm can improve its competitive
position by increasing its power vis-a-vis these
forces.
I. THE ROLE OF ENVIRONMENTAL
SCANNING, MONITORING AND
COMPETITIVE INTELLIGENCE AND
FORECASTING
We will now address three important processes -
scanning, monitoring, and gathering competitive
intelligence to developed forecasts. Figure 2
illustrates relationships among these important
activities.
Source: (Dess, McNamara, Eisner, Lee, 2019)
Environmental Scanning involves surveillance of
a firm's external environment to predict
environmental changes and detect changes
already underway. This alerts the organization to
critical trends and events before changes develop
a discernible pattern and before competitors
recognize them. Experts agree that spotting key
trends requires a combination of knowing your
business and your customer as well as keeping an
eye on what's happening around you. Such a big
picture/small picture view enables you to better
identify the emerging trends that will affect your
business.
Environmental Monitoring tracks the evolution of
environmental trends, sequences of events, or
streams of activities. They may be trends that the
firm came across by accident or ones that were
brought to its attention from outside the
organization. Monitoring enables firms to
evaluate how dramatically environmental trends
are changing the competitive landscape.
Competitive Intelligence (CI) helps firms define
and understand their industry and identify rivals
strengths and weaknesses. This include the
intelligence gathering associated with collecting
data on competitors and interpreting such data.
Done properly, competitive intelligence helps a
company avoid surprises by anticipating
competitors moves and decreasing response
time.
Environmental Forecasting involves the
development of plausible projections about the
direction, scope, speed, and intensity of
environmental change. Its purpose is to predict
change. It asks: How long will it take a new
technology to reach the marketplace? Will the
present social concern about an issue result in
new legislation? Are current lifestyle trends likely
to continue? Some forecasting issues are much
more specific to a particular firm and the industry
in which it competes.
II. THE GENERAL ENVIRONMENT (PESTEL
FRAMEWORK)
2.1 The PESTEL Framework
Image Source: http://bitly.ws/g9BG
A PESTEL analysis is a tool or framework for
marketers. You can use it if you are seeking to
analyze and screen the external marketing
environment of your company. The strategic
management tool gauges macro-environmental
factors. The results make decision-making much
easier.
Different macro-environmental factors can affect
business strategies. So, it is vital to follow the
PESTEL framework. The aim is to assess how
exactly the factors influence business
performance.
Political Factors
Politics plays an important role in business. This is
because there is a balance between systems of
control and free markets. As global economics
supersedes domestic economies, companies
must consider numerous opportunities and
threats before expanding into new regions. It also
applies to firms identifying optimal areas for
production or sales. Political factors may even
help determine the location of corporate
headquarters.
Some of the political factors you need to watch
are:
· Tax policies
· Stability of government
· Entry mode regulations
· Social policies (e.g. social welfare etc.)
· Trade regulations (e.g. the EU & ASEAN)
Economic Factors
Economic factors are metrics that measure the
health of any economic region. The economic
state will change a lot of times during the firm’s
lifetime. You have to compare the current levels
of inflation, unemployment, economic growth,
and international trade. This way, you can carry
out your strategic plan better.
Some examples of economic factors you can
judge are:
· Disposable income of buyers
· Credit accessibility
· Unemployment rates
· Interest rates
· Inflation
Social Factors
Social factors assess the mentality of individuals
or consumers in a given market. These are also
known as demographic factors. Social indicators
like exchange rates, GDP, and inflation are critical
to management. They can tell when it is a good
time to borrow. These factors help find out how
an economy might react to certain changes.
The following are some social factors to focus on:
· Population demographics: (e.g. aging
population)
· Distribution of Wealth
· Changes in lifestyles and trends
· Educational levels
Technological Factors
This step entails recognizing the potential
technologies that are available. Technological
advancements can optimize internal efficiency
and help a product or service from becoming
technologically obsolete. The role of technology
in business is increasing each year. This trend will
continue because R&D drives new innovations.
Recognizing evolving technologies to optimize
internal efficiency is a great asset in management.
But, there are few threats. Disruptive innovations
such as Netflix affect business for CD-players. The
best strategy is to adapt according to the changes.
Your strategies should sidestep threats and
embrace opportunities.
This is a large challenge for management. Below
is a list of common technological factors:
· New discoveries and innovations
· Rate of technological advances and
innovations
· Rate of technological obsolescence
· New technological platforms (e.g. VHS and
DVD)
Environmental Factors
Both consumers and governments penalize firms
for having an adverse effect on the environment.
Governments levy huge fines upon companies for
polluting. Companies are also rewarded for
having a positive impact on the environment. The
consumers are willing to switch brands if they
find a business is ignoring its environmental
duties.
The impact on the environment is a rising
concern. Note that the environment benefits the
company too. Running water for a hydro-power
plant is an example.
Few common environmental factors are:
· Waste disposal laws
· Environmental protection laws
· Energy consumption regulation
· Popular attitude towards the environment
Legal Factors
This step involves learning about the laws and
regulations in your region. It is critical for avoiding
unnecessary legal costs.
This is the last factor in the PESTEL framework.
These factors overview the legal elements. Often,
start-ups link these elements to the political
framework. Many legal issues can affect a
company that does not act responsibly. This step
helps to avoid legal pitfalls. You should always
remain within the confines of established
regulations.
Common legal factors that companies focus on
include:
· Employment regulations
· Competitive regulations
· Health and safety regulations
· Product regulations
· Antitrust laws
· Patent infringements
It is common to conduct a PESTEL analysis before
serious decisions. Managers might conduct it
before any large projects are undertaken.
Understanding all the influencing factors is the
first step to addressing them.
Remember, there are many factors other than
these which can have an effect on business
success. The evaluation is a one-to-one process.
Each company should do it for themselves and
find the key drivers of change. You must identify
the factors which have strategic and competitive
consequences.
Analyzing the total macro-environment is an
extensive task. Even though, it is complex,
understanding the PESTEL framework of basic
influences will allow you to maintain an organized
and strategic approach. These will isolate each
opportunity or threat.
After writing down the PESTEL framework,
company managers can create strategies. The
macro-environmental factors will shape the
strategies. I am sure that the thinking process will
be as sensitive as current and future
environmental factors.
III. THE COMPETITIVE ENVIRONMENT
(PORTER’S FIVE FORCES MODEL)
2.2 Porter’s Five Forces Model
Porter’s Five Forces Analysis
For both small and big businesses, managing
business effectively is difficult. One of the most
essentials skills needed is the ability to assess the
competitive environment. Entrepreneur and
managers must comprehend the competitive
environment of the business.
There are several ways to analyze the market and
business environment. SWOT ANALYSIS is the
most commonly used tool. Applying Porter’s Five
Forces analysis is also a great way. (image
source: http://bitly.ws/g9BL)
The Porter’s Five Forces tool is a very powerful
tool. It is simple but excellent for judging exactly
where power lies. As it helps to understand not
only the strength of current competitive position
but also the strength of an expected position, it is
very useful.
It is a critical part of planning process. If you gain
a proper understanding of where the power lies,
you can take advantage of the company’s
strengths. You can also improve your firm’s
weaknesses. Overall, you will not take any wrong
steps.
The tool is generally used to identify whether new
products or services will be profitable. It also
helps to understand the balance of power.
The analysis peeks at the strength of 5 vital forces
which affect business competition. The five
different forces are:
· Supplier power
· Buyer power
· Competitive rivalry
· The threat of substitution
· The threat of new entry
Supplier power is the ability of vendors to
increase prices of your inputs. Buyer power refers
to the customers’ power drive down prices.
Competitive rivalry is the strength of competition.
The threat of substitution is the degree to which
different products and services can be used
instead of your offering. The threat of new entry
is how easily new competitors can enter the
market.
The analysis entails thinking about how each of
these forces affects your business. You are
expected to identify the strength of each of the
forces. By doing so, you can swiftly assess the
strength of your business position. The analysis
also increases your chances to earn more
profit in the industry.
After assessing the forces, you have to find ways
to affect the forces. Remember that your aim is
to move the balance of power more in your
favour.
Now, let’s discuss the 5 forces which determine
competitive power in details.
Supplier Power
Often, the first step is to assess how easy it is for
the suppliers to increase prices of inputs. This
depends on the following factors:
• The number of suppliers of the key input
• How unique their product or service is
• Their strengths and how much control
they have over you
• The cost of switching from one to
another
Fewer number of supplier choices means you
need suppliers’ help more. This also means that
fewer suppliers make them more powerful.
Buyer Power
When assessing buyer power, you have to ask
yourself how easy it is for the customers to bring
prices down. This depends on the following
factors:
• The number of buyers
• The importance of each customer to a
business
• The cost to consumers switching from
your offering to products and services by
another company.
If you handle only some powerful purchasers,
they often dictate the terms to you.
Competitive Rivalry
The critical thing to consider here is the number
and capability of your business competitors. If
there are many competitors and if they offer
equally appealing products and services, you will
perhaps have very little power. This is because
suppliers and buyers will choose the competing
companies if they do not like the deal you are
offering.
You will be very powerful if your product or
service is unique. If competitors cannot offer
what you provide, you will have immense
strength. In short, the factors to be considered in
this step are:
• The number of competitors
• The quality different between your
product and competitor’s product
• Any other differences
• Switching costs involved for suppliers
and buyers
• Customer loyalty
Threat of Substitution
The ability of your buyers to find an alternative is
considered here. If you provide unique software
which automates a significant process,
consumers can easily substitute by conducting
the process manually. They may choose to
outsource it as well. If the substitution is easy and
viable, it weakens your business. Factors you can
assess are:
• Performance of the substitute product
• Cost of change
Threat of New Entry
Other’s ability to enter the market can affect
power too. The below factors affect this:
• Time and cost of entering the market and
competing
• If there are few economies of scale in
place
• The amount of protection for the key
technologies
The new businesses can swiftly enter the market
and weaken your position. However, if the
market has strong and durable barriers to entry,
you can maintain a favourable position.
How does Porter’s Five Forces Model vary from
SWOT
SWOT is one of the most commonly used
businesses tool. Both the analyses in discussion
can portray the strengths and weakness of your
business. However, there are some major
distinctions. The level of specificity, competition
and time orientation are some differences.
SWOT can be described a more general and
overall assessment. Typically, the Five Forces
model focuses on a single growth decision. SWOT
is often used to get a picture of firm’s current
position. After conducting the SWOT analysis, you
can consider future strategic options. Five Forces
assesses the viability of a specific product or Example of External Factor Evaluation (EFE
service. Matrix)

SWOT focuses on your business and its position

while you can use Five Forces to analyze
competitors. Porter’s Five Forces helps find out
how competitors could inhibit you. Time
orientation is another factor which differentiates
SWOT and the Five Forces model. SWOT primarily
assesses your current position and the future
endeavors. On the other hand, Porter’s Five
Forces analysis focuses mostly on future
decisions of your company.

IV. THE EXTERNAL FACTOR EVALUATION (EFE)

V. THE COMPETITIVE PROFILE MATRIX

2.3 The Competitive Profile Matrix

(CPM)

The key question in analyzing the competition.

The Competitive Profile Matrix (CPM) is a tool

that compares the firm and its rivals and reveals
their relative strengths and weaknesses.

Understanding the tool

Source: Strategic Management by David, F. and
David, F., 2017.
Regardless of the numbers of key opportunities
and threats included in the EFE Matrix, the
highest possible total weighted score for an
organization is 4.0 and the lowest possible total
weighted score is 1.0. The average total weighted
score is 2.5. In external evaluation, a low total
score indicates that the companies strategies
aren't well designed to meet the opportunities
and defend against threats.
In order to better understand the external
environment and the competition in a particular
industry, firms often use CPM. The matrix
identifies a firm’s key competitors and compares
them using industry’s critical success factors. The
analysis also reveals company’s relative strengths
and weaknesses against its competitors, so a
company would know, which areas it should
improve and, which areas to protect.
An example of a matrix is demonstrated below.

Critical Success Factors
Critical success factors (CSF) are the key areas,
which must be performed at the highest possible
level of excellence if organizations want succeed
in the particular industry. They vary between
different industries or even strategic groups and
include both internal and external factors. In our
example, we have included 11 CSF, which is
usually not enough. The more critical success
factors are included the more robust and
accurate the analysis is. The following list
provides some of the general CSF, but the list is
not definite and you should include industry
specific factors in your matrix:
Weight
Each critical success factor should be assigned a
weight ranging from 0.0 (low importance) to 1.0
(high importance). The number indicates how
important the factor is in succeeding in the
industry. If there were no weights assigned, all
factors would be equally important, which is an
impossible scenario in the real world. The sum of
all the weights must equal 1.0. Separate factors
should not be given too much emphasis
(assigning a weight of 0.3 or more) because the
success in an industry is rarely determined by one
or few factors. In our first example, the most
significant factors are ‘strong online presence’
(0.15), ‘market share’ (0.14), ‘brand reputation’
(0.13).
Rating
The ratings in CPM refer to how well companies
are doing in each area. They range from 4 to 1,
where 4 means a major strength, 3 – minor
strength, 2 – minor weakness and 1 – major
weakness. Ratings, as well as weights, are
assigned subjectively to each company, but the
process can be done easier through
benchmarking. Benchmarking reveals how well
companies are doing compared to each other or
industry’s average. Just remember that firms can
be assigned equal ratings for the same factor. For
example, if Company A, Company B and Company
C, have the market share of 25%, 27% & 28%
accordingly, they would all receive the rating of 4
rather than receiving ratings 2, 3 & 4.
Score & Total Score
The score is the result of weight multiplied by
rating. Each company receives a score on each
factor. Total score is simply the sum of all
individual score for the company. The firm that
receives the highest total score is relatively
stronger than its competitors. In our example, the
strongest performer in the market should be
Company B (2.94 points).
Benefits of the CPM:
• The same factors are used to compare
the firms. This makes the comparison
more accurate.
• The analysis displays the information on
a matrix, which makes it easy to compare
the companies visually.
• The results of the matrix facilitate
decision-making. Companies can easily
decide which areas they should
strengthen, protect or what strategies
they should pursue.
Using the tool Example
Step 1. Identify the critical success factors This is competitive profile matrix example of
To make it easier, use our list of CSF and include smartphones operating systems. The main
as many factors as possible. In addition, following competitors: Google’s Android OS, Apple’s iOS
questions should be helpful identifying industry’s and Microsoft’s Windows Phone operating
CSF: systems will be compared to each other to find
• Why consumers prefer Company A over out their relative strengths and weaknesses.
Company B or vice versa?
• What resources, capabilities and
competences firms possess?
• What sustainable competitive
advantages companies have in the
industry?
• Why some companies succeed and
others fail in the industry?

Step 2. Assign the weights and ratings

The best way to identify what weights should be
assigned to each factor is to compare the best
and worst performing companies in the industry.
Well performing companies will usually
undertake activities that are significant for
success in the industry. They will put most of their
resources and energy into those activities as
compared to low performing organizations.
The CPM analysis reveals that Android is the
Weights can also be determined in discussion
strongest player in the industry with relative
with other top-level managers.
strengths in market share, distribution channels,
Ratings should be assigned using benchmarking
customization features, openness and cloud
or during team discussions.
integration. On the other hand, iOS prevails in
frequency updates, marketing capabilities and
Step 3. Compare the scores and take action
the rate of OS crashes. Windows Phone is the
You should compare the scores on each factor to
weakest of them all and doesn’t have any relative
identify where company’s relative strengths and
strengths against its rivals. The companies should
weaknesses are. In our first example, Company A
create their strategies according to their
had relative strength in ‘level of product
strengths and weakness and improve their
integration’, ‘product range’ and ‘variety of
ratings in the most significant industry’s areas.
distribution channels’. Therefore, Company A
should protect these areas while trying to
improve its weaknesses in ‘sales per employee’
and ‘market share’. The company should also
improve its strategy to become more successful
in the industry.