STRATEGIC MANAGEMENT NOTES FOR MIDTERMS

CHAPTER 1 Mission Statements

 A mission statement identifies the scope of a firm’s operations in
product and market terms.
What Is Strategic Management?  Describes the values and priorities of an organization.
 To achieve and maintain competitive advantage.  A mission statement broadly charts the future direction of an
 Defined as the art and science of formulating, implementing, and organization.
evaluating cross-functional decisions that enable an organization  a constant reminder to its employees of why the organization
to achieve its objectives. exists and what the founders envisioned when they put their
o Strategic management focuses on fame and fortune at risk to breathe life into their dreams.
 Integrating management
 Marketing External Opportunities and Threats
 Finance/accounting  Refer to:
 Production/operations o Economic
 Research and development o Social
 Information systems to achieve o Cultural
organizational success o Demographic
 The term strategic management in this text is used synonymously o Environmental
with the term strategic planning. o Political
 The purpose of strategic management is to exploit and create o Legal
new and different opportunities for tomorrow o Governmental
 Originated in the 1950s o Technological
 A company’s game plan o Competitive trends
o Events that could significantly benefit or harm an
organization in the future.
Stages of Strategic Management/ Strategic
 beyond the control of a single organization
management process
1. Strategy formulation
a. includes developing a vision and mission Internal Strengths and Weaknesses
b. identifying an organization’s external opportunities  Organization’s controllable activities that are performed
and threats, especially well or poorly.
c. determining internal strengths and weaknesses  They arise in the management, marketing, finance/accounting,
d. establishing long-term objectives production/operations, research and development, and
e. generating alternative strategies management information systems activities of a business.
f. choosing particular strategies to pursue.  Organizations strive to pursue strategies that capitalize on
g. Include deciding what new businesses to enter, what internal strengths and eliminate internal weaknesses.
businesses to abandon, how to allocate resources,
whether to expand operations or diversify, whether to Long-Term Objectives
enter international markets, whether to merge or form  Objectives - defined as specific results that an organization
a joint venture, and how to avoid a hostile takeover. seeks to achieve in pursuing its basic mission.
2. Strategy implementation  Long-term means more than one year.
a. Requires a firm to establish annual objectives, devise
 Objectives are essential for organizational success because they
policies, motivate employees, and allocate resources
o state direction;
so that formulated strategies can be executed.
o aid in evaluation;
b. the “action stage” of strategic management.
o create synergy;
3. Strategy evaluation
o reveal priorities;
a. Three fundamental strategy-evaluation Activities are
o focus coordination
i. (1) reviewing external and internal factors
o provide a basis for effective planning, organizing,
that are the bases for current strategies,
motivating, and controlling activities.
ii. (2) measuring performance, and
iii. (3) taking corrective actions. Strategies
 Strategies are the means by which long-term objectives will be
Integrating Intuition and Analysis achieved.
 Intuition o geographic expansion
o Based on past experiences, judgment, and feelings is o diversification
o acquisition
essential to making good strategic decisions.
o product development
o Useful for making decisions in situations of great
o market penetration
uncertainty or little precedent
o retrenchment
o Quick and Ready insight
o divestiture
o Imagination is more important than knowledge, because
o liquidation
knowledge is limited, whereas imagination embraces the
o joint ventures.
entire world.
o Think outside the box
 Analytical thinking and intuitive thinking complement each other. Annual objectives
 The strategic-management process is an attempt both to duplicate  are short-term milestones that organizations must achieve to
what goes on in the mind of a brilliant, intuitive person who knows reach long-term objectives.
the business and to couple it with analysis.
Policies
Competitive Advantage  The means by which annual objectives will be achieved.
 Strategic management is all about gaining and maintaining  Policies include guidelines, rules, and procedures established to
competitive advantage support efforts to achieve stated objectives.
 “anything that a firm does especially well compared to rival
firms.” A Comprehensive Strategic-Management Model
 Sustained Competitive Advantage
o (1) continually adapting to changes in external trends and
events and internal capabilities, competencies, and  The strategic-management process is dynamic and continuous
resources; and by  A change in any one of the major components in the model can
o (2) effectively formulating, implementing, and evaluating necessitate a change in any
strategies that capitalize upon those factors.  A failure to accomplish annual objectives could require a change
in policy
Strategists  A major competitor’s change in strategy could require a change
in the firm’s mission
 Strategists are the individuals who are most responsible for the
success or failure of an organization.
o chief executive officer
o president
o owner
o chair of the board
o executive director
o chancellor
o dean
o entrepreneur
 Strategists help an organization gather, analyze, and organize
information.
 leadership is about being a role model

Vision Statements CHAPTER 2

 “What do we want to become?”
 the first step in strategic planning, preceding even development
of a mission statement. Vision and Mission
 creed statement - a statement of purpose, a statement of
philosophy, a statement of beliefs, a statement of business
principles, or a statement “defining our business,”
  a mission statement reveals what an organization wants to be and
whom it wants to serve.
Benefits of Strategic Management
 Strategic management allows an organization to be more
proactive than reactive in shaping its own future.
 Strategic management has been to help organizations formulate
better strategies through the use of a more systematic, logical,
and rational approach to strategic choice.
 Communication is a key to successful strategic management
through dialogue and participation, managers and employees
become committed to supporting the organization.
 Empowerment is the act of strengthening employees’ sense of
effectiveness by encouraging them to participate in decision
making
 Retreats meetings that are commonly held off-premises.
 customers. Small, large, for-profit, and nonprofit organizations in
Comparing Business and Military Strategy
 strategy is “the science of planning and directing large-scale
military operations, of maneuvering forces into the most
advantageous position prior to actual engagement with the
enemy.”
 Strategy comes from the Greek strategos, which refers to a
military general and combines stratos (the army) and ago (to lead).
 Military strategy is “to gain competitive advantage.”
The Process of Developing Vision and Mission
Statements
 As many managers as possible should be involved in the process
of developing these statements because through involvement,
people become committed to an organization.
 Then ask managers themselves to prepare a vision and mission
statement for the organization.
Characteristics of a Mission Statement
 A Declaration of Attitude - it is a declaration of
o Attitude and outlook.
 A Customer Orientation - A good mission statement
describes an organization’s purpose, customers, products
or services, markets, philosophy, and basic technology.
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?
Conclusion
 Organizations usually reexamine their vision and mission
statements annually. Effective mission statements stand the test
of time.
CHAPTER 3
The Nature of an External Audit
 External audit is to develop a finite list of opportunities that could
benefit a firm and threats that should be avoided.
 Key External Forces
o Economic forces
o Social, cultural, demographic, and natural environment
forces
o Political, governmental, and legal forces
o Technological forces
o Competitive forces
The Process of Performing an External Audit
 The process of performing an external audit must involve as
many managers and employees as possible. As emphasized
in earlier chapters, involvement in the strategic-management
process can lead to understanding and commitment from
organizational members.
 Individuals appreciate having the opportunity to contribute
ideas and to gain a better understanding of their firms’ industry,
competitors, and markets.
The Industrial Organization (I/O) View
 The Industrial Organization (I/O) approach to competitive
advantage advocates that external (industry) factors are
more important than internal factors in a firm achieving
competitive advantage.
Economic Forces
 Economic factors have a direct impact on the potential
attractiveness of various strategies.
 For example, when interest rates rise, funds needed for capital
expansion become more costly or unavailable. Also, when interest
rates rise, discretionary income declines, and the demand for
discretionary goods falls.
Social, Cultural, Demographic, and Natural
Environment Forces
 Social, cultural, demographic, and environmental changes have
a major impact on virtually all products, services, markets, and
all industries are being staggered and challenged by the
opportunities and threats arising from changes in social, cultural,
demographic, and environmental variables.
Political, Governmental, and Legal Forces
 Political, governmental, and legal factors, therefore, can represent
key opportunities or threats for both small and large organizations.
 For industries and firms that depend heavily on government
contracts or subsidies, political forecasts can be the most
important part of an external audit.
o Changes in patent laws, antitrust legislation, tax rates,
and lobbying activities can affect firms significantly
Technological Forces
 The Internet has changed the very nature of opportunities and
threats by altering the life cycles of products, increasing the speed
of distribution, creating new products and services, erasing
limitations of traditional geographic markets, and changing the
historical trade-off between production standardization and
flexibility.
 IT - These individuals are responsible for developing, maintaining,
and updating a company’s information database
 Technological changes can reduce or eliminate cost barriers
between businesses, create shorter production runs, create
shortages in technical skills, and result in changing values and
expectations of employees, managers, and customers.
Competitive Forces
 An important part of an external audit is identifying rival firms and
determining their strengths, weaknesses, capabilities,
opportunities, threats, objectives, and strategies.
 Collecting and evaluating information on competitors is essential
for successful strategy formulation.
Competitive Analysis: Porter’s Five-Forces Model
1. Rivalry among competing firms
2. Potential entry of new competitors
3. Potential development of substitute products
4. Bargaining power of suppliers
5. Bargaining power of consumers
Sources of External Information
 A wealth of strategic information is available to organizations from
both published and unpublished sources.
o Unpublished sources - include customer surveys,
market research, speeches at professional and
shareholders’ meetings, television programs,
interviews, and conversations with stakeholders.
o Published sources - of strategic information include
periodicals, journals, reports, government documents,
abstracts, books, directories, newspapers, and
manuals. The Internet has made it easier for firms to
gather, assimilate, and evaluate information.
Forecasting Tools and Techniques
 Forecasting is a complex activity because of factors such as
technological innovation, cultural changes, new products,
improved services, stronger competitors, shifts in government
priorities, changing social values, unstable economic conditions,
and unforeseen events.
 Managers often must rely on published forecasts to effectively
identify key external opportunities and threats.