Lesson 1

INTRODUCTION TO PRINCIPLES OF
MANAGEMENT
Junalyn P. Samonte, MBA, CLSSYB
PROFESSOR
 Introduction to Principles of Management

Management
The art and science of accomplishing individual and
organizational goals through the efforts of individuals and
groups using planning, organizing, leading, and controlling.

Principles of management

The concepts managers use in an effort to accomplish

management goals. It has been discussed using the
P-O-L-C framework, which refers to the management
functions of planning, organizing, leading, and controlling.
 WHO ARE MANAGERS?

The Changing Roles of Management and Managers

The term manager relates to both a position in

an organization as well as the nature of
different roles and responsibilities.

Empowerment
The process of enabling or authorizing an
individual to think, behave, take action,
and control work and decision-making in
autonomous ways
 TYPES OF MANAGERS

Top managers are responsible for developing the organization’s

strategy and acting as a steward for its vision and mission

Manager Functional managers are responsible for the efficiency and

effectiveness of a specific area such as accounting or marketing.
A manager is a
professional who takes
a leadership role in an Supervisory managers are responsible for coordinating a
organization and subgroup with a particular function or a team composed of
members from different parts of the organization.
manages a team of
employees.
Line managers often referred to as product or service
managers, lead a team that contributes directly to the
product or services the organization creates
THE NATURE OF MANAGERIAL WORK
• Figurehead role - Manager represents the organization in all
matters of formality.
• Leader role - Defines the relationships between the manager
and employees
• Liaison role, the manager interacts with peers and people
outside the organization.

• Monitor role - the manager receives and collects information.

• Disseminator role - the manager transmits special information
into the organization.
• Spokesperson - the manager disseminates the organization’s
information into its environment.

• Entrepreneur- the manager initiates change.

• Disturbance handler - the manager deals with threats to the
organization.
• Resource allocator - the manager chooses where the
organization will expend its efforts.
• Negotiator - , the manager negotiates on behalf of the
organization

PLANNING
Planning is the function of
management that involves
setting objectives and
determining a course of
action for achieving those
objectives.
• Environmental
scanning
• Strategic planning
• Tactical planning
• Operational planning
P-O-L-C FRAMEWORK
ORGANIZING LEADING CONTROLLING
Organizing is the Leading involves the C o n t ro l l i n g i nv o l v e s
function of management social and informal ensuring that
that involves developing sources of influence performance does not
an organizational that individuals use deviate from standards.
structure and allocating to inspire action
human resources to taken by others. (1) Establishing
e n s u r e t h e p e r fo r m a n c e
accomplishment of standards
objectives.
(2) comparing actual
- JOB DESIGN performance against
standards, and
(3) taking corrective
action when necessary
 Lesson 2

PERSONALITY, ATTITUDE, AND

BEHAVIOR
Junalyn P. Samonte, MBA, CLSSYB
FACILITATOR
 PERSONALITY

WHAT IS PERSONALITY?

NATURE Stable feelings, NURTURE

thoughts, and
behavioral patterns
Genetic factors account that have been formed Family relationship
for almost 50% of the significantly by genetic Social Class
differences in behavior and environmental Culture
and 30% in determining factors which give an
individual his identity.
temperament.
PERSONALITY IN MANAGEMENT / BIG FIVE PERSONALITY TRAITS

penness This is the degree to which a person is curious, original, intellectual,

creative and open to new ideas.

onscientiousness This is the degree to which a person is organized, systematic,

punctual, achievement-oriented and dependable.

xtraversion This is the degree to which a person is outgoing, talkative and sociable.

greeableness This is the degree to which a person is affable, tolerant, sensitive,

trusting, kind and earnest.
This is the degree to which a person is anxious, irritable, and
euroticism termperamental
 WORK ATTITUDES

ATTITUDE
Our opinions, beliefs,
and feelings about
aspects of our
environment.

Job satisfaction Organizational

Job Engagement
The feelings people Investment of one's mental,
have toward their emotional, and physical
jobs. energies at work.
commitment
The emotional attachment
people have toward the
company they work for.
 FACTORS CONTRIBUTING TO JOB ATTITUDES

PERSONALITY

PERSON-
ENVIRONMENT FIT WORK RELATIONSHIPS

• Person-Organizational Fit
• Person-job Fit
STRESS
JOB
CHARACTERISTICS

ORGANIZATIONAL
JUSTICE AND THE WORK-LIFE BALANCE
PSYCHOLOGICAL
CONTRACT
 WORK BEHAVIOR

Work behavior refers to activities employees perform to meet the responsibilities

and goals of their roles.

FOUR KEY WORK BEHAVIORS

JOB PERFORMANCE

CITIZENSHIP

ABSENTEEISM

TURNOVER
 WORK BEHAVIOR

JOB PERFORMANCE
Job performance refers to the degree to which an employee successfully fulfills the duties
outlined in their job description.
What Are the Major Predictors of Job Performance?

Categories of Job Performance General mental ability

ü Quality of Work How we are treated at work

ü Quantity of Work
ü Accuracy and Speed Stress
ü Effectiveness of the person
doing the job Positive work attitudes

Personality
 WORK BEHAVIOR

Major Predictors of Job Performance

Our reasoning abilities, verbal and numerical skills, analytical skills, or overall
intelligence level.

The primary reason seems to be that when individuals believe they are treated
well, they want to reciprocate. Therefore individuals treat the company well by
performing their jobs more effectively

When individuals are stressed, mental energies are drained. Instead of focusing
on the task at hand, individuals start concentrating on the stressor.

Happy workers have an inclination to be more engaged at work. They may want
to perform better. They may be more motivated.

People who are organized, reliable, dependable, and achievement oriented seem
to outperform others in various contexts
 WORK BEHAVIOR

Organizational Citizenship Behaviors

Organizational citizenship behaviors (OCB) are voluntary behaviors employees perform to
help others and benefit the organization. Helping a new coworker understand how things
work in the company and volunteering to organize the company picnic
are some examples of citizenship behaviors.
How we are treated at work /
Interpersonal Relationships
What Are the Major Predictors of
Personality
Citizenship Behaviors?
Job Attitudes

Age of Employee
 WORK BEHAVIOR

Major Predictors of CITIZENSHIP

When individuals have a good relationship with their managers; they are more
likely to engage in citizenship behaviors.

People who are conscientious and agreeable tend to perform citizenship

behaviors more often than others.

Those who have overall positive attitudes toward their work situation tend to
perform citizenship behaviors more often than others.

People who are older are better citizens. It is possible that with age we gain more
experiences to share. It becomes easier to help others because we have more
accumulated company and life experiences to draw from.
 WORK BEHAVIOR

Absenteeism
Absenteeism refers to unscheduled absences from work. Such absences are costly to
companies because of their unpredictable nature—affecting a manager’s ability to control
the firm’s or department’s budget.

Health problems

What Are the Major Predictors of

Work/life balance issues
Absenteeism?
Positive work attitudes (–)

Age of the employee (–)

 WORK BEHAVIOR

Major Predictors of ABSENTEEISM

When an employee has a contagious illness, showing up at work will infect

coworkers and will not be productive.

If employees can manage their own time, they are less likely to be absent.

When employees are dissatisfied with their work, have low organizational
commitment, or perceive that they are treated unfairly, they are likely to be
absent more often.

Research shows that age is negatively related to both frequency and duration of
absenteeism. That is, younger workers are the ones more likely to be absent.
Because of reasons that include higher loyalty to their company and a stronger
work ethic, older employees are less likely be absent from work
 WORK BEHAVIOR

Turnover
Turnover refers to an employee’s leaving an organization. Employee turnover has
potentially harmful consequences, such as poor customer service and poor company-
wide performance.

Poor performance
What Are the Major Predictors of
Turnover? Positive work attitude

Stress

Personality and Age

 WORK BEHAVIOR

Major Predictors of TURNOVER

People who perform poorly are actually more likely to leave. These people may be
fired, may be encouraged to quit, or may quit because of their fear of being fired.

When workers are unhappy at work, and when they are not attached to their
companies, they are more likely to leave.

Stressors such as role conflict and role ambiguity drain energy and motivate people
to seek alternatives. When a stressful job is a step toward a more desirable job,
employees seem to stick around longer.

People who are conscientious, agreeable, and emotionally stable are less likely to
quit their jobs. People with these personality traits may perform better at work,
which leads to lower turnover

It seems that younger employees are more likely to leave because people who are
younger often have fewer responsibilities such as supporting a household or having
dependents. As a result, they can quit a job they dislike much more easily.
 Lesson 3

DEVELOPING MISSION, VISION

AND VALUES
Junalyn P. Samonte, MBA, CLSSYB
FACILITATOR
 MISSION, VISION AND VALUES

MISSION STATEMENT VALUES STATEMENT VISION STATEMENT

A statement of purpose, Shared principles, A future-oriented declaration
describing who the company standards, and goals. of the organization’s purpose
is and what it does. and aspirations.

To serve great tasting food, bringing the joy of

To be one of the Top 5 Restaurant Companies
eating to everyone.
in the World
 MISSION, VISION AND VALUES

MISSION STATEMENT
 MISSION, VISION AND VALUES

VISION STATEMENT
 THE ROLE OF MISSION AND VISION

Communicate the purpose of the organization to stakeholders

The better employees understand an organization’s purpose, through its mission and
vision, the better able they will be to understand the strategy and its implementation.

Inform strategy development

The best vision statements create a tension and restlessness with regard to the status
quo—that is, they should foster a spirit of continuous innovation and improvement.

Develop the measurable goals and objectives by which to gauge the success
of the organization’s strategy
Mission and Vision provide a high-level guide, and the strategy provides a specific guide, to
the goals and objectives showing success or failure of the strategy and satisfaction of the
larger set of objectives stated in the mission.
MISSION AND VISION IN P-O-L-C FRAMEWORK
 MISSION AND VISION IN P-O-L-C FRAMEWORK
ORGANIZATION
DESIGN
T h i s r e fe r s t o t h e g u i d e d
process for integrating the
p e o p l e , i n fo r m a t i o n , a n d
technology of an organization
- Organizational Structure
- Levels of Command
ORGANIZING
CULTURE
All of a company's beliefs, values
and attitudes, and how these
influence the behavior of its
employees.
SOCIAL NETWORK
Social network allows users
and organizations to
connect, communicate,
share information and form
relationships. It could be in
the form of webs i te o r
applications.
 MISSION AND VISION IN P-O-L-C FRAMEWORK
LEADERSHIP
A very purposeful
person is often
described as being “on
a m i s s i o n ”. A n d t h e
success of many top
l e a d e r s a n d
entrepreneurs flows
f ro m t h e i r p e rs o n a l
mission.
LEADING
COMMUNICATIONS DECISION MAKING
Allow employees to Leadership must learn to
i d e n t i f y a n d trust workers and give
understand mi s s i o n them sufficient
and vision opportunities to develop
quality decision-making
skills.
 MISSION AND VISION IN P-O-L-C FRAMEWORK

CONTROLLING

SYSTEMS/PROCESS STRATEGIC HUMAN RESOURCE

MANAGEMENT (SHRM)
3 steps in controlling

1. Establishing performance SHRM is a Management strategy that

standards
2. Comparing actual performance
against standards, and
3. Taking corrective action when
necessary.
reflects the aim of tying the organization’s
human capital, its people, into the mission
and vision
 DEVELOPING YOUR PERSONAL MISSION AND VISION

Guidelines
The first step in planning a career is establishing a long-term goal. Where do you want to end up, ultimately?

Values
A well-crafted personal mission and vision should be informed by personal values, or a “Guiding
Philosophy”—a set of core values and principles. Examples of core values include qualities such as diligence,
creativity, or impact.

Schedule
One challenging aspect of implementing a long-term goal is the establishment of more intermediate-term
goals. The establishment of short-term goals should fit clearly into a coherent plan for a longer entire career.
 DEVELOPING YOUR PERSONAL MISSION AND VISION

Steps in identifying core mission statement and values

Step 1: Identify Past Successes. Spend some time identifying four or five examples where you have had personal
success in recent years.
Step 2: Identify Core Values. Develop a list of attributes that you believe identify who you are and what your
priorities are.

Step 3: Make a list of the ways you could make a difference. In an ideal situation, think about how you could
contribute best to
Step 4: Identify Goals. Spend some time thinking about your priorities in life and the goals you have for yourself.
Make a list of your personal goals, perhaps in the short term (up to three years) and the long term (beyond three
years).
Step 5: Write Mission and Vision Statements. On the basis of the first four steps and a better understanding of
yourself, begin writing your personal mission and vision statements.
 CHAPTER 5

Strategic Management

Apple’s innovative strategy has enabled the company to capture the hearts and minds of music
lovers worldwide.
Created exclusively for addison powell <addison.powell717@gmail.com>

Source: Shutterstock.com

Chapter Learning Objectives

Reading this chapter will help you accomplish the following:

1. See how strategy fits in the planning-organizing-leading-controlling (P-O-L-C) framework.
2. Better understand how strategies emerge.
3. Understand strategy as trade-offs, discipline, and focus.
4. Conduct internal analysis to develop strategy.
5. Conduct external analysis to develop strategy.
6. Formulate organizational and personal strategy with the strategy diamond.

Strategic management relates to choices managers make to achieve specific goals and objec-
tives that fulfill a firm’s mission and vision in a quest to attain long-term organizational perfor-
mance. Strategy is a central part of the planning function in P-O-L-C. Wise strategic managers
make choices that provide organizations with some measure of uniqueness that allows them to
outperform competitors. The central position of strategy is summarized in Table 5.1. This chapter
focuses on elements of strategy formulation and some of the key internal and external analyses
that support the development of superior strategies. We also highlight how the concept of strategy
can be applied to individuals personally and professionally.

© 2019 Boston Academic Publishing, Inc., d.b.a FlatWorld. All rights reserved.
fwbainc
 140 Principles of Management

TABLE 5.1 The P-O-L-C Framework

Planning Organizing Leading Controlling

1. Vision & Mission 1. Organization Design 1. Leadership 1. Systems/Processes
2. Strategizing 2. Culture 2. Decision Making 2. Strategic Human Resources
3. Goals & Objectives 3. Social Networks 3. Communications
4. Groups/Teams
5. Motivation

5.1 Strategic Management in the P-O-

L-C Framework

Learning Objectives

1. Define strategic management.

2. Understand how strategic management fits in the P-O-L-C framework.
3. Understand the value of SWOT analysis.
4. Understand the concept of PESTEL analysis.

Created exclusively for addison powell <addison.powell717@gmail.com>

What Is Strategic Management?
Strategic management reflects the firm’s actions to achieve its mission and vision as seen by its
strategy formulation
achievement of specific goals and objectives. Stated differently, “strategic management examines
Synonymous with
business planning and how actions and events involving top executives (such as Apple’s Tim Cook), firms (Apple), and
strategic planning. The set industries (the tablet market) influence a firm’s success or failure.”[1] The strategic management
of processes involved in process involves understanding a firm’s strategy, scanning the external and internal environments
creating or determining the
strategies of the
for changes, formulating strategy, and finally, implementing strategy.[2] Others have described strat-
organization; it focuses on egy as the pattern of resource allocation choices and organizational arrangements that result from
the content of strategies. managerial decision making.[3] Planning and strategy formulation, sometimes called business plan-
ning or strategic planning, have much in common, since formulation helps determine what the firm
strategy
should do. Strategy implementation tells managers how they should go about putting the desired
implementation
strategy into action. The concept of strategy is relevant to all types of organizations, from large,
The methods by which
public corporations, to not-for-profit organizations, religious organizations, and political parties.
strategies are
operationalized or
executed within the
organization; it focuses on
the processes through
which strategies are Strategic Management in the P-O-L-C
achieved.
Framework
Figure 5.2 “Strategic Management in P-O-L-C” summarizes where strategy formulation and imple-
mentation fit in the planning and other components of P-O-L-C. Strategic management is histori-
cally associated with the concept of business planning, and the idea of planning remains relevant

© 2019 Boston Academic Publishing, Inc., d.b.a FlatWorld. All rights reserved.
fwbainc
 Chapter 5 Strategic Management 141

today. For example, the desire to craft excellent business plans is still a key area of concern for man-
agers and entrepreneurs.[4]

FIGURE 5.1 Strategic Management in P-O-L-C

Planning starts with vision and mission and concludes with setting goals and objectives. A spe-
cific strategy captures and communicates how vision and mission will be achieved and the goals
and objectives that will be measured to assure that the organization is on the right path to achiev-
ing them.
Created exclusively for addison powell <addison.powell717@gmail.com>

There are two aspects of strategic management for most organizations. The first, corporate corporate strategy
strategy, answers strategy questions related to “What business or businesses should we be in?” and The set of strategic
“How does our business X help us compete in business Y?” Corporate strategy considers an organi- alternatives that an
zation to be a portfolio of businesses, resources, capabilities, or activities. For example, McDonald’s organization chooses from
as it manages its
is well known for their golden arches, associated exclusively with their restaurants worldwide. operations simultaneously
McDonald’s also had a majority stake in Mexican food restaurant Chipotle for several years as across several industries
well.[5] McDonald’s corporate strategy helped its managers evaluate and answer questions about and several markets.
whether it made sense for McDonald’s set of businesses to include different restaurants such as
McDonald’s and Chipotle. While other food-service companies have multiple outlets—YUM!
Brands, for example, owns Taco Bell, Pizza Hut, and KFC—McDonald’s determined that one brand
(McDonald’s) was a better strategy for it in the future and sold Chipotle in 2006. Figure 5.2 provides
a graphic guide to this kind of planning.
The logic behind corporate strategy involves the concepts of synergy and diversification. synergy
Synergy exists when the interaction of two or more activities, such as those in a business, create a The interaction of two or
combined effect greater than the sum of their individual effects. For example, synergy arises when more activities, creating a
each of the YUM! Brands’ food outlets performs better because they have common ownership and combined effect greater
than the sum of their
can share valuable inputs into their businesses. The idea is that the combination of certain busi- individual efforts.
nesses is stronger than they would be individually because they either do things more cheaply or
of higher quality as a result of their coordination under a common owner.

© 2019 Boston Academic Publishing, Inc., d.b.a FlatWorld. All rights reserved.
fwbainc
 142 Principles of Management
diversification
The number of different
businesses that an
organization is engaged in
and the extent to which
these businesses are
related to one another.
© 2019 Boston Academic Publishing, Inc., d.b.a FlatWorld. All rights reserved.
Synergy is evident in YUM! Brands’ practice of sharing a physical location between two of their
restaurant concepts like the combination of Taco Bell and KFC pictured here.
Source: http://www.flickr.com/photos/dno1967b/6360169037.
Created exclusively for addison powell <addison.powell717@gmail.com>
Diversification exists when an organization participates in multiple businesses that are in
some way distinct from each other, as Taco Bell is from Pizza Hut, for instance. Just as with a port-
folio of stock, the purpose of diversification is to spread out risk and opportunities over a larger set
of businesses. Some may be high growth, some slow growth or declining; some may perform worse
during recessions, while others perform better. Sometimes the businesses can be very different,
such as when fashion sunglass maker Maui Jim diversified into property and casualty insurance
through its merger with RLI Corporation.[6] Perhaps more than a coincidence, RLI was founded
some 60 years earlier as Replacement Lens International (later changed to its abbreviation, RLI, in
line with its broader insurance product offerings), with the primary business of providing insur-
ance for replacement contact lenses. There are two major diversification types. Related
diversification occurs when a firm operates multiple businesses within the same industry. For
example, Estée Lauder engages in multiple cosmetics-related businesses. In contrast, unrelated
diversification occurs when a firm engages in businesses in different industries that lack similari-
ties between each other. Warren Buffett’s company, Berkshire Hathaway, engages in various
businesses with little similarities to each other, such as GEICO, Fruit of the Loom, Justin Brands,
Burlington Northern, and See’s Candies.
fwbainc
 Chapter 5 Strategic Management 143

FIGURE 5.2 Corporate and Business Strategy

Whereas corporate strategy looks at an organization as a portfolio, business strategy focuses

business strategy
on how a given business needs to compete to be effective. All organizations need strategies to sur-
The set of strategic
vive and thrive. A neighborhood church, for instance, may want to serve existing members, build alternatives that an
new membership, and, at the same time, raise surplus monies to help with outreach activities that organization chooses from
fulfill their mission. Its strategy would answer questions surrounding the accomplishment of these as it conducts business in
a particular industry or
key objectives. In a for-profit company such as McDonald’s, business strategy would help keep market.
existing customers, grow its business by moving into new markets and taking customers from com-
petitors like Taco Bell and Burger King, and do all this at a profit level demanded by the stock
market as a publicly traded corporation.
Created exclusively for addison powell <addison.powell717@gmail.com>

© 2019 Boston Academic Publishing, Inc., d.b.a FlatWorld. All rights reserved.
fwbainc
 144 Principles of Management

FIGURE 5.3 The Sweet Fragrance of Success: The Brands That “Make Up” the Lauder Empire
Estée Lauder was a pioneer in the cosmetics industry. Estée Lauder summarized her zest for business by noting, “I have never worked a day in my
life without selling. If I believe in something, I sell it hard.” The company that bears her name has used related diversification and other growth
strategies to create over two dozen brands of cosmetics, perfume, skin care, and hair care products. Here we illustrate some of the products that
make up the Lauder empire.

Created exclusively for addison powell <addison.powell717@gmail.com>

Source: Shutterstock.com, OKcamera_Shutterstock.com, Keith Homan_Shutterstock.com, Sorbis_Shutterstock.com, TungCheung_Shutterstock.com, Oleg GawriloFF_

Shutterstock.com, BestStockFoto_Shutterstock.com

© 2019 Boston Academic Publishing, Inc., d.b.a FlatWorld. All rights reserved.
fwbainc
 Chapter 5 Strategic Management 145

SWOT Analysis
SWOT analysis, which stands for strengths, weaknesses, opportunities, and threats, is a tool to help
SWOT analysis
organizations understand internal strengths and weaknesses and external opportunities of the
An assessment of
environment. An assessment of strengths and weaknesses occurs as a part of organizational analy- strengths, weaknesses,
sis; that is, it is an audit of the company’s internal workings, which are relatively easier to control opportunities, and threats.
than outside factors. Examining opportunities and threats is a part of environmental analysis—the
company must look outside of the organization to assess opportunities and threats over which it
has lesser control.
SWOT asks four basic questions about a company and its environment: (1) What can we do? (2)
What do we want to do? (3) What might we do? and (4) What do others expect us to do?

FIGURE 5.4 SWOT

Chess master Bruce Pandolfini has noted the similarities between business and chess. In both arenas, you must understand your own abilities as
well as your flaws. You must also know your opponents, try to anticipate their moves, and deal with considerable uncertainty. A very popular
management tool that incorporates the idea of understanding the elements internal and external to the firm is SWOT (strengths, weaknesses,
opportunities, and threats) analysis. Strengths and weaknesses are assessed by examining the firm, while opportunities and threats refer to external
events and trends. These ideas can be applied to individuals too. Here we offer examples of SWOT analysis for organizations and for individuals who
are seeking employment.
Created exclusively for addison powell <addison.powell717@gmail.com>

Source: Shutterstock.com

© 2019 Boston Academic Publishing, Inc., d.b.a FlatWorld. All rights reserved.
fwbainc
 146 Principles of Management

Strengths and Weaknesses

sustainable
competitive
advantage
A competitive advantage
that will exist after all
attempts at strategic
imitation have ceased.
A good starting point for strategizing is an assessment of what an organization does well and where
it could benefit from improvements. In general, good strategies take advantage of strengths and
minimize the disadvantages posed by any weaknesses. TOMS Shoes, for example, is known for its
trendy footwear that helps others by donating a pair of shoes to a person in need for every pair of
shoes sold. A weakness of TOMS Shoes is that its strategy can be easily duplicated. For example,
Sketchers has launched BOBS Shoes with a similar style and mission to that of TOMS.[7] As is evi-
denced by the competitive dynamics of these two shoemakers, the hardest thing for an
organization to do is to develop its competitive advantage into a sustainable competitive
advantage where the organization’s strengths cannot be easily duplicated or imitated by other
firms nor made redundant or less valuable by changes in the external environment.

Lego effectively leveraged the unique strength of their well known minifigures to create a new
line of “mini-doll” figures for their Lego Friends line.

Created exclusively for addison powell <addison.powell717@gmail.com>

Source: cjmacer / Shutterstock.com

Opportunities and Threats

Understanding the external environment is also critical to understanding strategic management.
Opportunities assesses factors external to the business that could enable a business to exist and/
or prosper. In other words, in SWOT analysis, opportunities refer to dynamics or trends that are
opportunities for the entire industry rather than the company being analyzed. For example, an
aging population could lead to opportunities in numerous industries that cater to that demo-
graphic. In the shoe industry, a desire to purchase shoes made in the United States has led to great
success for firms with strategies aligned with this opportunity. Threats includes factors beyond
the firm’s control that could place the strategy, or the business, at risk. Like opportunities, these
are considered external because managers typically have no control over them, but may benefit
from having plans to respond to these opportunities or threats. For example, the struggling world

© 2019 Boston Academic Publishing, Inc., d.b.a FlatWorld. All rights reserved.
fwbainc
 Chapter 5 Strategic Management 147

economy has posed challenges for countless firms within multiple industries. A threat in the shoe
industry could occur if the increased costs of raw materials diminish the profitability of shoe mak-
ers.

Music Rap-Up: It's SWOT It Is

Twinprov perform a rap on SWOT analysis.

View the video online at: http://www.youtube.com/embed/xZs579WVcvk?rel=0

Internal Analysis Tools

Created exclusively for addison powell <addison.powell717@gmail.com>

Internal analysis tools help identify an organization’s strengths and weaknesses. Two tools for
internal analysis are the value chain and VRIO tools. The value chain dissects the organization
and then identifies areas of unique strength or weakness. Sometimes these parts take the form of
functions, like marketing or manufacturing. For instance, Disney excels at developing and profiting
from its branded products, such as Cinderella or Pirates of the Caribbean. This is a marketing func-
tion, as well as a design function, another Disney strength.
Value chain functions are also called capabilities. VRIO—which stands for Value, Rarity,
Imitability, and Organization—is a framework that suggests that a capability, or a resource, such as
a patent or a desirable location, is likely to yield a competitive advantage to an organization when
it can be shown that it is valuable, rare, difficult to imitate, and supported by the organization.
Where the value chain might suggest internal areas of strength, VRIO helps predict whether those
strengths will give it a competitive advantage. For example, while other movie studios can copy
Disney’s strategy by marketing their films, they are unlikely to successfully imitate the iconic sta-
tus Disney has developed over years of marketing commitment and through association with their
well-known theme parks.

External Analysis Tools

Two primary tools to examine the external environment are PESTEL and industry analysis.
PESTEL
PESTEL is an acronym that stands for Political, Economic, Social, Technological, Environmental,
Stands for the political,
and Legal environments. The PESTEL framework directs managers to collect information about, economic, social,
and analyze, each environmental dimension to identify the broad range of threats and opportuni- technological,
ties facing the organization. Industry analysis, in contrast, maps out the different relationships environmental, and legal
dimensions of an
that the organization might have with suppliers, customers, and competitors. Whereas PESTEL organization’s external
provides managers with a good sense of the broader macro-environment, industry analysis pro- environment.

© 2019 Boston Academic Publishing, Inc., d.b.a FlatWorld. All rights reserved.
fwbainc
 148 Principles of Management

vides information about the organization’s competitive environment and the key industry-level
factors that seem to influence performance.

FIGURE 5.5 PESTEL

Examining the general environment involves gaining an understanding of key factors and trends in broader society. PESTEL analysis is a popular
framework for organizing these factors and trends and isolating how they influence industries and the firms within them. Here we describe each of
the six dimensions associated with PESTEL analysis: political, economic, social, technological, environmental, and legal.

Created exclusively for addison powell <addison.powell717@gmail.com>

Source: Shutterstock.com, Anton Gvozdikov Shutterstock.com

Key Takeaway

Strategy formulation is an essential component of planning because it enables the organization

to progress from vision and mission to goals and objectives. In terms of the P-O-L-C framework,
strategy formulation is the P (planning) and strategy implementation is realized by O-L-C. Corpo-

© 2019 Boston Academic Publishing, Inc., d.b.a FlatWorld. All rights reserved.
fwbainc
 Chapter 5 Strategic Management 149

rate strategy helps to answer questions about which businesses to compete in, while business
strategy helps to answer questions about how to compete. The best strategies are based on a
thorough SWOT analysis—that is, a strategy that capitalizes on an organization’s strengths and
weaknesses while considering the opportunities and threats of their environment.

Discussion Questions

1. What is the difference between strategy formulation and strategy implementation?

2. What is the difference between business strategy and corporate strategy?
3. What are some of the forms of diversification, and what do they mean?
4. What do managers learn from a SWOT analysis?
5. In SWOT analysis, what are some of the tools used to understand the internal environment
(identify strengths and weaknesses)?
6. In SWOT analysis, what are some of the tools used to understand the external environment
(identify opportunities and threats)?

5.2 The Emergence of Strategies

Learning Objectives
Created exclusively for addison powell <addison.powell717@gmail.com>

1. Understand the difference between intended and realized strategy.

2. Understand how strategy is formulated.
3. Understand the need for a balance between strategic design and emergence.

Many successful companies were originally conceived and built making entirely different products
than we know them for today. For example, 3M (makers of Scotch tape and Post-it Notes) was
originally launched when the Minnesota Mining and Manufacturing Company sold corundum (an
element used in the wheel grinding process); Wrigley originally sold soap and baking powder and
used gum simply as a gimmick.[8] How do business strategies come into being and why do they
change? In this section, we discuss differences between intended and realized strategies. The sec-
tion concludes with discussion of how strategies are created.

© 2019 Boston Academic Publishing, Inc., d.b.a FlatWorld. All rights reserved.
fwbainc