CHAPTER 1:

OVERVIEW OF STRATEGIC
MANAGEMENT

Week 1
Chapter Objectives
1.1 The Nature of Strategic Management
1.2 Business Vision & Mission
PART A:
The Nature of Strategic
Management
What is Strategic Management?
What is Strategic Management?
 “The art and science of formulating, implementing
and evaluating cross-functional decisions that
enable an organization to achieve its objectives”
 SM focuses on integrating management + marketing +
finance/accounting + production/operations + RND +
Computer IS = To achieve Organizational Success.
 Strategic Management VS Strategic Planning
Strategic Management VS Strategic Planning

Strategic Management Strategic Planning

 Often used in Academia  Often used in Business
 Used to refer Strategy  Used to refer only Strategy
Formulation, Formulation.
Implementation and  Purpose: Tries to optimize
Evaluation. for tomorrow the trends of
 Purpose: Create new and today.
different opportunities for
tomorrow.
Stages in Strategic Management
 Consists of 3 stages:

Strategy Formulation

Strategy Implementation

Strategy Evaluation
Strategy Formulation
Activities includes:
Developing a vision & mission

Identifying organization’s external opportunities and treats

Determining internal strengths and weaknesses

Establishing long term objectives

Generating alternative strategies

Choosing particular strategies to pursue

Strategy Formulation
Issues:
Deciding what new businesses to enter

Deciding what businesses to abandon

How to allocate resources

Whether to expend operations or diversify

Whether to enter international markets

Whether to merge or form a joint venture

Strategy Implementation
Activities includes:

Establish annual objectives

Devise policies

Motivate employees

Allocate resources

These activities are needed so that formulated strategies can executed

Strategy Implementation
Issues:
Developing a strategy-supportive culture

Creating an effective organizational structure

Redirecting marketing efforts

Preparing budgets

Developing and utilizing information system

Linking employee compensation to organizational performance

Strategy Implementation
 Often called the “action stage” of SM. Most
difficult stage.
 Implementing strategy means:
i. Mobilizing employees & managers to put formulated
strategies into action.
 Strategies formulated but not implemented serve no
useful purpose.
Strategy Evaluation
 The final stage in SM.
 Managers need to know when particular strategies
are not working well.
 All strategies are subject to future modification
because external & internal factors are constantly
changing.
Strategy Evaluation
Activities includes:

Reviewing external and internal factors that are the bases for
current strategies

Measuring performance

Taking corrective actions

Key Terms in Strategic Management

1. Competitive Advantage
2. Strategists
3. Vision and Mission Statements
4. External Opportunities and Threats
5. Internal Strengths and Weaknesses
6. Long-Term Objectives
7. Strategies
8. Annual Objectives
9. Policies
Competitive Advantage
 “Anything that a firm does especially well compared
to rival firms.”
 When a firm can do something that rival firms cannot
do, or owns something that rival firms desire.
 Normally, a firm can sustain a competitive advantage
for only a certain period due to rival firms imitating
and undermining that advantage.
Competitive Advantage
 A firm must strive to achieve sustained competitive
advantage by:
1. Continually adapting to changes in external trends
and events and internal capabilities, competencies,
and resources
2. Effectively formulating, implementing, and
evaluating strategies.
Strategists
 Individuals who are most responsible for the success
or failure of an organization – CEO, president, owner,
chair of the board, executive director, chancellor,
dean, or entrepreneur.
 Task: Gather, analyze, and organize information.
 Track industry and competitive trends, develop
forecasting models and scenario analyses, evaluate
corporate and divisional performance, spot emerging
market opportunities, identify business threats, and
develop creative action plans.
External Opportunities and Threats
 Economic, social, cultural, demographic,
environmental, political, legal, governmental,
technological, and competitive trends and events that
could significantly benefit or harm an organization in
the future.
 Opportunities and threats are largely beyond the
control of a single organization
External Opportunities and Threats
 Examples:
1. Consumers expect green operations and products.
2. Marketing has moving rapidly to the Internet.
3. Consumers must see value in all that they
consume.
Internal Strengths and Weaknesses
 Organization’s controllable activities that are
performed especially well or poorly.
 Management, marketing, finance/accounting,
production/operations, research and development, and
MIS activities of a business.
 Strengths and weaknesses are determined relative
to competitors.
Long-Term Objectives
 Objectives - Specific results that an organization
seeks to achieve in pursuing its basic mission.
 Long-term - More than one year.
 Objectives:
 State direction, reveal priorities, focus coordination &
provide a basis for effective planning, organizing,
motivating, and controlling activities.
 Should be challenging, measurable, consistent,
reasonable, and clear.
Strategies
 Strategies - Which long-term objectives will be
achieved.
 Geographic expansion, product development, market
penetration, retrenchment and joint ventures.
 Require top management decisions and large
amounts of the firm’s resources.
 Affect an organization’s long-term prosperity,
typically for at least five years, and thus are future-
oriented.
Annual Objectives
 Short-term milestones that organizations must
achieve to reach long term objectives.
 Should be measurable, quantitative, challenging,
realistic, consistent and prioritized.
 Should be established at the corporate, divisional,
and functional levels in a large organization.
Policies
 Policies - which annual objectives will be achieved.
 Include guidelines, rules, and procedures
established to support efforts to achieve stated
objectives.
 Policies are most often stated in terms of
management, marketing, finance/accounting,
production/operations, research and development,
and computer information systems activities.
Benefits of Strategic Management
A. Financial Benefits:
 Firm using SM concepts > successful than those that
do not.
 Significant improvement in – Sales, profitability,
productivity.
 High performance firm – Make more informed
decisions with good anticipation of short & long term
consequences
 Low performance firm – Preoccupied with solving
internal problems and meeting paperwork deadlines.
Benefits of Strategic Management
B. Nonfinancial Benefits
 Enhancing awareness of external threats, improve
understanding of competitors’ strategies, increased
employee productivity, reduce resistance to change,
clearer understanding of performance-reward
relationship.
 Empowering managers & employees to improve
product and service – also, brings order and
discipline, thus improve efficiency & effectiveness of
managerial system.
PART B:
The Business Vision and Mission
Vision Versus Mission
 Vision statement answers: What do we want to
become?
 Vision provides foundation for developing mission
statement.
 Should be established first

 Should be short, preferably one sentence

Example of Vision & Mission
Vision Versus Mission
 Mission statement answers: What is our business?
 Also called a statement of purpose or a statement of
philosophy.
 Reveals what an organization wants to be and whom it
wants to serve.
Example of Vision & Mission
Vision Versus Mission
 Vision and Mission are the first step in strategic
management.
 It can be argued that Profit is the primary
corporation motivator – But profit alone is not
enough to motivate employees.
 Some employees see profit as something they earn
and management then uses and even gives away to
shareholders.
Vision Versus Mission
 When employees and managers work together to
develop vision and mission:
i. The documents can reflect the personal visions that
managers and employees have on their future.
ii. Shared vision motivates employees with opportunity
and challenges.
The Process of Developing a Mission Statement

 A clear mission is needed before strategies can be

formulated and implemented.
 Important to involve as many managers as possible
in the process of developing mission statement –
People are committed through involvement.
 Should create “emotional bond” and “sense of
mission” between the organization and its
employees.
The Process of Developing a Mission Statement

 Widely used approach:

i. Select several articles about mission statements and
ask all managers to read these as back ground
information.
ii. Then ask managers themselves to prepare a mission
statement for the organization.
iii. A facilitator should merge these statements into
single document and distribute this draft mission to
all managers.
The Process of Developing a Mission Statement

 Widely used approach:

iv. A request for modification, additions and deletion is
needed next, along with a meeting to revise the
document. (Some firm hire outside consultant to
manage the process).
v. Once all managers have support the final mission
statements, organization can gain managers support
on strategy formulation, implementation and
evaluation activities.
 Importance of Vision & Mission Statements

#1 To ensure unanimity of purpose within the organization

To provide a basis or standard for allocating organizational

#2 resources

#3 To establish a general tone or organizational climate

To serve as a focal point for individuals to identify with the

#4 organization’s purpose and direction
To specify organizational purposes and translate into objectives
#5 where cost, time and performance parameters can be assessed and
controlled.
Characteristics of a Mission Statement

1. A Declaration of Attitude
 More than a statement of specific details.
 Usually is broad in scope for 2 reasons:
1. Excess specificity would limit potential creative
growth for the organization.
2. To reconcile differences among diverse stakeholders.
 Effective Mission Statement - <200 words, gives
positive feelings, inspire and motivate readers to
action. – Generates impression that the firm is
successful.
Characteristics of a Mission Statement

2. A Customer Orientation
 A good mission statement reflects the anticipations of
customers.
 Rather than developing a product and then trying to
find a market, should be identifying customer needs
and then provide a product / service to fulfill those
needs.
Characteristics of a Mission Statement

 Example:
1. ExxonMobile’s mission statement focuses on energy
rather than oil and gas.
2. Universal Studio’s mission statement focusses on
entertainment rather than on movies.
Characteristics of a Mission Statement

 Relevant utility statement in developing mission

statement:
1. Do not offer me things.
2. Do not offer me clothes. Offer me attractive looks.
3. Do not offer me shoes. Offer me comfort for my feet
and the pleasure of walking.
4. Do not offer me house. Offer me security, comfort and
a place that is clean and happy.
5. Do not offer me things. Offer me ideas, emotions,
ambience, feelings and benefits.
Characteristics of a Mission Statement

3. A Declaration of Social Policy

 Organization has responsibilities not only towards its
various stakeholders but also to consumers,
environmentalists, minorities, communities and other
group.
 An organization’s social policy should be integrated
into all SM activities, including the development of
mission statement.
Characteristics of a Mission Statement

 Firms should strive to engage in social activities

that have economic benefits.
 Merck & Co – Developed a drug for treating river
blindness, a disease caused by parasitic worm endemic
in poor tropical areas of Africa, Middle East and Latin
America.
9 Mission Statement Components

1. Customers • Who are the firm’s customers?

2. Products or • What are the firm’s major products or

Services services?
• Geographically, where does the firm
3. Markets
compete?

4. Technology • Is the firm technologically current?

5. Concern for
survival, • Is the firm committed to growth and
growth and financial soundless?
profitability
Mission Statement Components
• What are the basic beliefs, values,
6. Philosophy aspirations and ethical priorities of the
firm?

7. Self • What is the firm’s distinctive competence

Concept or major competitive advantage?

8. Concern for • Is the firm responsive to social, community

public image and environmental concerns?

9. Concern for • Are employees a valuable assets of the firm

employees

Continue SH
END