CONTEMPORARY

What Is Strategic Management?

Strategic management can be defined as the art and science of formulating,
implementing, and evaluating cross-functional decisions that enable an
organization to achieve its objectives.
As this definition implies, strategic management focuses on integrating
management, marketing, finance/accounting, production/operations, research
and development, and information systems to achieve organizational success.
The purpose of strategic management is to exploit and create new and
different opportunities for tomorrow; long-range planning, in contrast, tries to
optimize for tomorrow the trends of today.

Why Is Strategic Management Important?

Why is strategic management so important? There are three reasons. The most
significant one is that it can make a difference in how well an organization
performs. Why do some businesses succeed and others fail, even when faced
with the same environmental conditions?
Research has found a generally positive relationship between strategic
planning and performance. In other words, it appears that organizations that
use strategic management do have higher levels of performance. And that fact
makes it pretty important for managers!
Another reason it’s important has to do with the fact that managers in
organizations of all types and sizes face continually changing situations. They
cope with this uncertainty by using the strategic management process to
examine relevant factors and decide what actions to take.
Finally, strategic management is important because organizations are complex
and diverse. Each part needs to work together toward achieving the
organization’s goals; strategic management helps do this.

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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 rival firms cannot do or owns something rival
firms desire, that can represent a competitive advantage.

QUALITY AS A COMPETITIVE ADVANTAGE.

If implemented properly, quality can be a way for an organization to create a

sustainable competitive advantage. That’s why many organizations apply
quality management concepts in an attempt to set themselves apart from
competitors. If a business is able to improve the quality and reliability of its
products continuously, it may have a competitive advantage that can’t be
taken away.

Strategic management process

The strategic-management process consists of three stages: strategy
formulation, strategy implementation, and strategy evaluation.
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.

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

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functional levels. Nevertheless, managers and employees at these two levels
should be actively involved in strategic-management activities.

The strategic management process is a six-step process that encompasses

strategy planning, implementation, and evaluation. Although the first four
steps describe the planning that must take place, implementation and
evaluation are just as important! Even the best strategies can fail if
management doesn’t implement or evaluate them properly.

Step 1: Identifying the Organization’s Current Mission,

Goals and Strategies

Every organization needs a mission—a statement of its purpose. Defining the

mission forces managers to identify what it’s in business to do.

Step 2: Doing an External Analysis

Managers do an external analysis, so they know, for instance, what the
competition is doing, what pending legislation might affect the organization,
or what the labor supply is like in locations where it operates. In an external

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analysis, managers should examine the economic, demographic,
political/legal, sociocultural, technological, and global components to see the
trends and changes.
Once they’ve analyzed the environment, managers need to pinpoint
opportunities that the organization can exploit and threats that it must
counteract or buffer against.
Opportunities are positive trends in the external environment; threats are
negative trends.

Step 3: Doing an Internal Analysis

The internal analysis provides important information about an organization’s
specific resources and capabilities. An organization’s financial, physical,
human, and intangible resources are the assets that it uses to develop,
manufacture, and deliver products to its customers. They’re “what” the
organization has. On the other hand, its capabilities are its skills and abilities
in doing the work activities needed in its business—“how” it does its work.
The major value-creating capabilities of the organization are known as its core
competencies. Both resources and core competencies determine the
organization’s competitive weapons.
After completing an internal analysis, managers should be able to identify
organizational strengths and weaknesses. Any activities the organization does
well or any unique resources that it has been called strengths. Weaknesses
are activities the organization doesn’t do well or resources it needs but doesn’t
possess.
The combined external and internal analyses are called the SWOT analysis,
which analyzes the organization’s strengths, weaknesses, opportunities, and
threats. After completing the SWOT analysis, managers are ready to
formulate appropriate strategies—that is, strategies that (1) exploit an
organization’s strengths and external opportunities, (2) buffer or protect the
organization from external threats, or (3) correct critical weaknesses.

Step 4: Formulating Strategies

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As managers formulate strategies, they should consider the realities of the
external environment and their available resources and capabilities in order to
design strategies that will help an organization achieve its goals. The three
main strategies managers will formulate corporate, competitive, and
functional.
Strategy-formulation issues include deciding 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.
Because no organization has unlimited resources, strategists must decide
which alternative strategies will benefit the firm most. Strategy-formulation
decisions commit an organization to specific products, markets, resources,
and technologies over an extended period of time

Step 5: Implementing Strategies

Once strategies are formulated, they must be implemented. No matter how
effectively the organization has planned its strategies, performance will suffer
if the strategies aren’t implemented properly. Strategy implementation
requires a firm to establish annual objectives, develop 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.
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.
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Step 6: Evaluating Results
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.

Vision and Mission Statements

Vision statement - What Do We Want to Become?
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. Many organizations have both a vision and
a mission statement, but the vision statement should be established first and
foremost. The vision statement should be short, preferably one sentence, and
as many managers as possible should have input into developing the
statement.

Mission statement - What Is Our Business?

The mission statement is a declaration of an organization’s “reason for being.”
It answers the central question, “What is our business?” A clear mission
statement is essential for effectively establishing objectives and formulating
strategies.

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Mary Coulter. — 11th ed
Mission Statement Components
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?

External forces
External forces can be divided into five broad categories:
1. economic forces
2. social, cultural, demographic, and natural environmental forces
3. political, governmental, and legal forces
4. technological forces
5. competitive forces

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FIVE FORCES MODEL.
In any industry, five competitive forces dictate the rules of competition.
Together, these five forces determine industry attractiveness and profitability,
which managers assess using these five factors:
1. Threat of new entrants. How likely is it that new competitors will come into
the industry?
2. Threat of substitutes. How likely is it that other industries’ products can be
substituted for our industry’s products?
3. Bargaining power of buyers. How much bargaining power do buyers
(customers) have?
4. Bargaining power of suppliers. How much bargaining power do suppliers
have?
5. Current rivalry. How intense is the rivalry among current industry
competitors?

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Mary Coulter. — 11th ed
SWOT Matrix
The Strengths-Weaknesses-Opportunities-Threats

The Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix is an

important matching tool that helps managers develop four types of strategies:
SO (strengths-opportunities) Strategies, WO (weaknesses-opportunities)
Strategies, ST (strengths-threats) Strategies, and WT (weaknesses-threats)
Strategies. Matching key external and internal factors is the most difficult part
of developing a SWOT Matrix and requires good judgment- and there is no
one best set of matches.
SO Strategies use a firm’s internal strengths to take advantage of external
opportunities.
All managers would like their organizations to be in a position in which
internal strengths can be used to take advantage of external trends and events.
Organizations generally will pursue WO, ST, or WT strategies to get into a
situation in which they can apply SO Strategies. When a firm has major
weaknesses, it will strive to overcome them and make them strengths. When
an organization faces major threats, it will seek to avoid them to concentrate
on opportunities.
WO Strategies aim at improving internal weaknesses by taking advantage of
external opportunities. Sometimes key external opportunities exist, but a firm
has internal weaknesses that prevent it from exploiting those opportunities.

ST Strategies use a firm’s strengths to avoid or reduce the impact of external

threats. This does not mean that a strong organization should always meet
threats in the external environment directly.
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Mary Coulter. — 11th ed
WT Strategies are defensive tactics that reduce internal weakness and avoid
external threats. An organization faced with numerous external threats and
internal weaknesses may indeed be in a dangerous position. In fact, such a
firm may have to fight for its survival, merge, retrench, declare bankruptcy,
or choose liquidation.
A graphic representation of the SWOT Matrix is provided in the below Figure.
Note that a SWOT Matrix is composed of nine cells. As shown, there are four
key factor cells, four strategy cells, and one cell that is always left blank (the
upper-left cell). The four strategy cells, labeled SO, WO, ST, and WT, are
developed after completing four key factor cells, labeled S, W, O, and T.
There are eight steps involved in constructing a SWOT Matrix:
1. List the firm’s key external opportunities.
2. List the firm’s key external threats.
3. List the firm’s key internal strengths.
4. List the firm’s key internal weaknesses.
5. Match internal strengths with external opportunities, and record the
resultant SO Strategies in the appropriate cell.
6. Match internal weaknesses with external opportunities, and record the
resultant WO Strategies.
7. Match internal strengths with external threats, and record the resultant ST
Strategies.
8. Match internal weaknesses with external threats, and record the resultant
WT Strategies.

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Robbins, Stephen P.Management / Stephen P. Robbins,
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Mary Coulter. — 11th ed
Contemporary Management- Chapter 3
Dr. Amira Omar
Robbins, Stephen P.Management / Stephen P. Robbins,
12
Mary Coulter. — 11th ed