STRATEGIC MANAGEMENT – Parcial

CHAPTER 1: Strategic Management

STRATEGIC MANAGEMENT: art & science of formulating, implementing and evaluating, cross-functional
decision that enable an organization to achieve its objectives.

Strategic Management achieves an organization’s success through the integration of:

 Management  Production/Operations
 Marketing  Research&Development
 Finance/Accounting,  Information System

STRATEGIC MANAGEMENT PROCESS: 3 steps. Each activity occurs at three hierarchical levels in a large
organization: corporate, divisional or strategic business unit, and functional.

1. STRATEGY FORMULATION: must be based in Issues in Strategy Formulation:

 A vision & mission  New business opportunities
 External Opportunities & Threats  Businesses to abandon
 Internal Strengths & Weaknesses  Allocation of resources
 Long-Term objectives  Expansion or diversification
 Alternative Strategies  International markets
 Strategy selection  Mergers or joint ventures
 Avoidance of hostile takeover

2. STRATEGY IMPLEMENTATION: requires Action stage of Strategy Management:

 Annual objectives  Most difficult stage
 Policies  Mobilization of employees & managers
 Employee motivation  Interpersonal skills critical
 Resource Allocation  Consensus on goal pursuit

Final Stage of Strategy Management:

3. STRATEGY EVALUATION: obtain info trough  Subject to future modification
 Internal and External review  Today’s success no guarantee of future success
 Performance metrics  New & different problems
 Corrective actions  Complacency leads to demise

PRIME TASK OF STRATEGIC MANAGEMENT: according to Peter, it is thinking through the overall mission
of a business by asking the question “What is our business?” This leads to the setting of objectives, the
development of strategies, and the making of today’s decisions for tomorrow’s results.

INTEGRATING INTUITION & ANALYSIS: Analytical thinking and intuitive thinking complement each other.
-The strategic management process attempts to organize quantitative and qualitative information under
conditions of uncertainty.
-Most organizations can benefit from strategic management, which is based upon integrating intuition and
analysis in decision making.
- Managers at all levels in an organization inject their intuition and judgment into strategic management
analyses.
INTUITION
Is based on: Is useful for decision making in:
 Past experiences Conditions of great uncertainty
 Judgement Conditions with little precedent
 Feelings

In a sense, the strategic-management process is an attempt both to duplicate what goes on in the mind of
a brilliant, intuitive person who knows the business and to couple it with analysis.

ADAPTING TO CHANGE: To survive, all organizations must astutely identify and adapt to change. An
effective adaptation requires long-term focus.

The strategic management process is based on the belief that organizations should continually monitor:
 Ongoing process
 Internal and External events
 Timely changes

The rate and magnitude of change increasing dramatically:

 E-commerce: It allows firms to sell products, advertise, purchase supplies, bypass intermediaries,
track inventory, eliminate paperwork, and share information. It minimizes the expense of time,
distance, and space in doing business
 Demographic: the number of people shopping online and the average amount they spend is
increasing dramatically.
 Technologies: The Internet promotes endless comparison shopping, which thus enables consumers
worldwide to band together to demand discounts. The Internet has transferred power from
businesses to individuals. Consumers today pay more attention to Social Media instead of
television, radio, newspapers, and magazines.

The need to adapt to change leads organizations to key strategic management questions, such as: “What
kind of business should we become?” “Are we in the right field?” “Should we reshape our business?”
“What new competitors are entering our industry?” “What strategies should we pursue?” “How are our
customers changing?” “Are new technologies being developed that could put us out of business?”

COMPETITIVE ADVANTAGE: anything that a firm does especially well compared to rival firms.

- Strategic management is all about gaining and maintaining competitive advantage.

How to achieve Sustained Competitive Advantage?

1. Adapting to change in external trends, internal capabilities and resources
2. Effectively formulating, implementing and evaluating strategies

STRATEGISTS: the individuals who are most responsible for the success or failure of an organization.
They help an organization gather, analyze, and organize information.
They have various Job titles as:
 Chief Executive Officer (CEO)  Executive director
 President  Chancellor
 Owner  Dean
 Chair of the board  Entrepreneur

VISION STATEMENT: Is the answer to the question: “what do we want to become?”.

-Developing a vision statement is often considered the first step in strategic planning
MISION STATEMENT: statements of purpose that distinguish one business from other similar firms. If it is
clear it will describe the values and priorities of an organization
-It addresses the basic question that faces all strategists: “What is our business?”

Mission and Vision statements can often be found in the front of annual reports

OPPORTUNITIES & THREATS (EXTERNAL): refer to Political, Economic, Social, Technological,

Environmental, Legal (PESTEL), Demographic, Governmental and Competitive trends and events that
could significantly benefit or harm an organization in the future.
- They are beyond the control of a single organization

Environmental scanning or Industry analysis: process of conducting research and gathering and
assimilating external information.

Basic tenet of Strategic Management:

 Take advantage of EXTERNAL OPPORTUNITIES

 Avoid/minimize the impact of EXTERNAL THREATS

STRENGHTS & WEAKNESSES (INTERNAL): organization’s controllable activities that are performed
especially well or poorly.

Typically located in functional areas of the firm:

 Management  Production/Operations
 Marketing  Research & Development
 Finance/Accounting  Computer Information Systems

- Identifying and evaluating organizational strengths and weaknesses in the functional areas of a business
is an essential strategic management activity.

Assessing the internal environment: Internal factors can be determined in a number of ways:
 Financial Ratios  Industry Averages
 Performance Metrics  Survey Data

LONG-TERM OBJECTIVES: Objectives can be defined as specific results that an organization seeks to
achieve in pursuing its basic mission. Long-term means more than one year.

They are essential for ensuring the firm’s success because they:
 Provide direction  Focus coordination
 Aid in evaluation  Basis for planning, motivating and
 Create synergy controlling

ANNUAL OBJECTIVES: short-term milestones that organizations must achieve to reach long- term
objectives. They must be stated in terms of functional areas accomplishments.

Both types of Objectives should be: measurable, quantitative, challenging, realistic, consistent, and
prioritized.

STRATEGIES: means by which long-term objectives will be achieved.

Business strategies examples:
 Geographic expansion  Product development
 Diversification  Market penetration
 Acquisition
 Retrenchment  Liquidation
 Divestiture  Joint ventures

POLICIES: the means by which annual objectives will be achieved.

- They include guidelines, rules, and procedures.
- They are guides to decision making and address repetitive or recurring situations.
- They can be established at the corporate level and apply to an entire organization at the divisional level
and apply to a single division, or at the functional level and apply to particular operational activities or
departments.
- They are especially important in strategy implementation because they outline an organization’s
expectations of its employees and managers.

STRATEGIC MANAGEMENT MODEL: strategic-management process can best be studied and applied using
a model.
This model does not guarantee success, but it does represent a clear and practical approach for
formulating, implementing, and evaluating strategies. Relationships among major components of the
strategic-management process are shown in the model.

Application of the strategic-management process is typically more formal in larger and well-established
organizations. Formality refers to the extent that participants, responsibilities, authority, duties, and
approach are specified.

-Three important questions to answer in developing a strategic plan:

 Where are we now?

 Where do we want to go?
 How are we going to get there?

1. Identifying an organization’s existing:

 Vision
 Mission Every organization has them, even if they are not consciously
 Objectives designed, written, or communicated.
 Strategies

2. Audit external environment

3. Audit internal environment
4. Establish long-term objectives
5. Generate, evaluate, and select strategies
6. Implement selected strategies
7. Measure & evaluate performance

The strategic-management process is dynamic and continuous. A change in any one of the major
components in the model can necessitate a change in any or all of the other components. For instance, a
shift in the economy could represent a major opportunity and require a change in long-term objectives and
strategies; a failure to accomplish annual objectives could require a change in policy; or a major
competitor’s change in strategy could require a change in the firm’s mission. Therefore, strategy
formulation, implementation, and evaluation activities should be performed on a continual basis, not just
at the end of the year or semiannually. The strategic-management process never really ends.

-Strategic Management allows an organization to be more proactive than reactive in shaping its own future
-It allows an organization to initiate and influence activities and thus to exert control over its own destiny

BENEFITS OF STRATEGIC MANAGEMENT

Proactive in shaping firm’s future: it allows organizations to be proactive rather than reactive
Initiate and influence firm’s activities: and so, to be able to exert control over its own destiny
 Formulate better strategies: through the use of a more systematic, logical, and rational approach to
strategic choice

FINANCIAL BENEFITS NON-FINANCIAL BENEFITS

 Improvement in sales  Improved understanding of competitor’s
 Improvement in profitability strategies
 Productivity improvement  Enhanced awareness of threats
 Reduce resistance to change
 Enhanced problem-prevention capabilities
BENEFITS OF STRATEGIC MANAGEMENT: as Greenly stated

1. Allows for identification, prioritization and exploitation of opportunities

2. Provides an objective view of management problems
3. Represents a framework for improved coordination and control of activities
4. Minimizes the effects of adverse conditions and changes
5. Allows major decisions to better support established objectives
6. Allows more effective allocation of time and resources to identified opportunities
7. Allows fewer resources and less time to spend correcting erroneous or ad hoc decisions
8. Creates a framework for internal communication among personnel
9. Helps integrate the behavior of individuals into a total effort

 10. Provides a basis for clarifying individual responsibilities 

11. Encourages forward thinking 

12. Provides a cooperative, integrated, and enthusiastic approach to tackling problems

 a n d opportunities 

13. Encourages a favorable attitude toward change 

14. Gives a degree of discipline and formality to the management of a business 


WHY DO FIRMS DO NO STRATEGIC PLANNING?

 Lack of knowledge or experience in strategic planning: no training in strategic planning. 


 Poor reward structures: when an organization assumes success, it often fails to reward success.
 Firefighting: an organization can be so deeply embroiled in resolving crises and firefighting that it
reserves no time for planning. 

 Waste of time: seen as it because no marketable product is produced.
 Too expensive
 Laziness: people may not want to put forth the effort needed to formulate a plan. 

 Content with success: particularly if a firm is successful, individuals may feel there is no need to
plan because things are fine as they stand.
 Fear of failure: by not taking action, there is little risk of failure unless a problem is urgent and
pressing. 

 Overconfidence: as managers amass experience, they may rely less on formalized planning.
 Prior bad experience: people may have had a previous bad experience with planning, that is, cases
in which plans have been long, cumbersome, impractical, or inflexible.
 Self-interest: when someone has achieved status, privilege, or self-esteem through effectively using
an old system, he or she often sees a new plan as a threat. 

 Fear of the unknown: people may be uncertain of their abilities to learn new skills, of their aptitude
with new systems, or of their ability to take on new roles. 

 Honest difference of opinion: people may sincerely believe the plan is wrong. Different people in
different jobs have different perceptions of a situation. 

 Suspicion: Employees may not trust management. 


BUSINESS ETHICS: Principles of conduct within organizations that guide decision making and behavior

GOOD BUSINESS ETHICS: Prerequisite for good strategic management

CODE OF BUSINESS ETHICS: Provides basis on which policies can be devised to guide daily behavior and
decisions in the workplace
BUSINESS PRACTICES ALWAYS CONSIDERED UNETHICAL:
 Misleading advertising  Dumping flawed products on foreign
 Misleading labeling markets
 Harm to the environment  Poor product or service safety
 Insider trading  Padding expense accounts

THE NATURE OF GLOBAL COMPETITION: Strategy implementation may be difficult because of:
CULTURAL DIFFERENCES:
 Norms  Values  Work ethic

Advantages of International operations

 Absorb excess capacity  Less intense competition
 Reduce unit costs  Lower taxes
 Spread risk over wider markets  Economies of scale
 Low-cost production facilities

Disadvantage of international operations:

 Difficult communications
 Underestimate foreign competition
 Cultural barriers to effective management
 Complication arising from currency difference

CHAPTER 3: External Assessment

EXTERNAL AUDIT: external audit is to develop a finite list of opportunities that could benefit a firm and
threats that should be avoided.

EXTERNAL STRATEGIC MANAGAMENT AUDIT: Identify & evaluate factors beyond the control of a single
firm
 Increased foreign competition
 Population shifts
 Aging society
 Fear of traveling
 Stock market volatility

THE PROCESS OF PERFORMING AN EXTERNAL AUDIT:

1. Gather competitive intelligence and information about external forces.
2. Once info is gathered, through sources of information, it should be assimilated and evaluated.
3. Meeting between managers will be done to collectively identify the most important opportunities
and threats facing the firm.
4. Make a list of the external factors from the most important to the least ones.

EXTERNAL FACTORS MUST BE:

 Long-term orientated
 Measurable
 Applicable to Competing firms
 Hierarchical
VARIABLES when performing External Audit:
 Market share  Price competitiveness
 Breadth of competing products  Technological advancements
 World economies  Interest rates
 Foreign affiliates  Pollution abatement
 Proprietary account advantages

This are External forces a Sources of information, they are

company first must gather classified as stakeholders.
competitive intelligence and
information about them.

-Economic forces: an economic variable of significant importance in strategic planning is gross domes- tic
product.

-Social, cultural, demographic, and environmental natural forces: they have a major impact on
 Products  Markets
 Services  Customers

Key variables to monitor:

 Consumer behavior  Energy conservation
 Ethical concerns  Social responsibility
 Attitudes toward saving  Leisure-Time values
 Racial Equity  Recycling
Average Educational level  Waste management
Governmental regulation  Air & Water pollution
 Attitudes toward customer service  Ozone depletion
 Attitudes toward quality  Endangered species
-Political, legal and governmental forces: Federal, state, local, and foreign governments are major
regulators, deregulators, subsidizers, employers, and customers of organizations.

Key opportunities & threats:

 Antitrust legislation  Lobbying efforts
 Tax rates  Patent laws

Globalization of Industry:
 Worldwide trend toward similar consumption patterns
 Global buyers and sellers
 E-commerce
 Technology for instant currency transfers

-Technological forces: they have a major impact on:

 Internet  Communications  Semiconductors

-Competitive forces: collection & evaluation of data on competitors is essential for successful strategy
formulation
Rivalry among competing firms:
 Most powerful of the five forces
 Focus on competitive advantage of strategies

Potential entry of new competitors:

 Barriers to entry are important
 Quality, pricing, and marketing can overcome barriers

Potential development of substitute products:

 Pressures increase when consumers switching costs decrease
 Firm’s plans for increased capacity & market penetration

Bargaining power of suppliers:

 Large number of suppliers & few substitutes affect intensity of competition
 Backward integration can gain control or ownership of suppliers

Bargaining power of consumers:

 Customers concentrated or buying volume affects intensity of competition
 Consumer power is higher where products are standard or undifferentiated

INDUSTRIAL ORGANIZATION VIEW: the approach to competitive advantage says that external (industry)
factors are more important than internal factors in a firm achieving competitive advantage.
- Organizational performance is determined by industry forces.

Industry Properties: based on the firm performance

 Economies of scale
 Barriers to Market Entry
 Product Differentiation
 Level of Competitiveness

THE GLOBAL CHALLENGE: It is based on globalization, which is about the worldwide integration of
 Strategy formulation
 Strategy implementation
 Strategy evaluation

INDUSTRY ANALYSIS: The External Factor Evaluation (EFE) Matrix: it is about summarizing and evaluating:
 Economic  Cultural  Governmental
 Social  Environmental  Technological
 Demographic  Political  Competitive

CHAPTER 4: Internal Assessment

INTERNAL AUDIT: it is done to develop the Strengths and Weaknesses the organization has.
- Involvement in performing an internal strategic-management audit provides vehicle for understanding
nature and effect of decisions in other functional business areas of the firm

KEY INTERNAL FORCES:

Functional Business Areas:
 They vary between organizations
 Each division has different strengths and weaknesses
Distinctive Competencies:
 An organization’s strengths that cannot be easily matched or imitated by competitors
 Building competitive advantage involves taking advantage of distinctive competencies
 Strategies designed to improve an organization’s weaknesses and turn to strengths

KEY TO ORGANIZATIONAL SUCCES: Coordination & understanding among managers from all functional
areas.

FUNCTIONAL RELATIONSHIPS: Number and complexity increases relative to organization size.

RESOURCE BASED VIEW (RBV): contends the internal resources that are more important for a firm than
external factors in achieving and sustaining competitive advantage.

Three All-Encompassing categories:

1. Physical resources
2. Human resources
3. Organizational resources

INTEGRATING STRATEGY & CULTURE

ORGANIZATIONAL CULTURE: Pattern of behavior developed by an organization as it learns to cope with its
problem of external adaptation and internal integration. It is considered valid and taught to new members.
 It is resistant to change
 It may represent a strength or weakness
 cultural products include values, beliefs, rites, rituals, ceremonies, myths, stories, legends, sagas,
language, metaphors, symbols, heroes, and heroines.

FUNCTIONS OF MANAGEMENT

1. PLANNING: applied at Strategy Formulation

DESCRIPTION SPECIFIC TASKS

Beginning of management process  Forecasting
Bridge between present and future  Establishing objectives
 Improves likelihood of attaining desired  Devising strategies
results  Developing policies
 Setting goals

2. ORGANIZING: applied at Strategy Implementation

DESCRIPTION SPECIFIC TASKS

 Achieves coordinated effort  Organizational design
 Defines task & authority relationships  Job specialization, description and
 Departmentalization specification
 Delegation of authority  Span of control
 Unity of command
 Coordination
 Job design
 Job analysis
 3. MOTIVATING: applied at Strategy Implementation

DESCRIPTION SPECIFIC TASKS

 Influencing to accomplish specific  Leadership
objectives  Communication
 Communication – major component  Work groups
Job enrichment
Job satisfaction
 Needs fulfillment
 Organizational change
 Moral

4. STAFFING: applied at Strategy Implementation

SPECIFIC TASKS
DESCRIPTION  Wage & salary admin.
 Personnel management  Employee benefits
 Human resource management  Interviewing
 Hiring
 Discharging
 Training
 Management development
 Affirmative action
 EEO
 Labor relations

5. CONTROLLING: applied at Strategy Evaluation

DESCRIPTION SPECIFIC TASKS

 Establishing performance standards  Quality
 Ensure actual operations conform to  Financial
planned operations  Sales
 Taking corrective actions  Inventory
 Expense
 Analysis of variance
 Rewards
 Sanctions

MANAGEMENT AUDIT CHECKLIST: checklist of questions that can help determine specific strengths and
weaknesses in the functional area of business

 Does the firm use strategic management  Are job descriptions clear?
concepts?  Are job specifications clear?
 Are objectives/goals measurable? Well  Is employee morale high?
communicated?  Is employee absenteeism low?
 Do managers at all levels plan effectively?  Is employee turnover low?
 Do managers delegate well?  Are the reward mechanisms effective?
 Is the organization’s structure  Are the organization’s control
appropriate? mechanisms effective?
MARKETING: the process of defining, anticipating, creating, and fulfilling customers’ needs and wants for
products and services.

7 Basic functions:

 Customer analysis: Customer surveys, Consumer information, Market positioning strategies,

Customer profiles, Market segmentation strategies
 Selling products/services: Advertising, Sales, Promotion, Publicity, Sales force management,
Customer relations, Dealer relations
 Product and service planning: Test marketing, Brand positioning, Devising warrantees, Packaging,
Product features/options, Product style, Quality
 Pricing: Forward integration, Discounts, Credit terms, Condition of sale, Markups, Costs, Unit
pricing
 Distribution: Warehousing, Channels, Coverage, Retail site locations, Sales territories, Inventory
levels, Transportation
 Marketing research: Data collection, Data input, Data analysis, Support business functions
 Opportunity analysis: Assessing costs, Assessing benefits, Assessing risks, Cost/benefit /risk
analysis

OPPORTUNITY ANALYSIS: questions about marketing that must be examined in strategic planning

 Are markets segmented effectively?

 Is the organization positioned well among competitors?
 Has the firm’s market share been increasing?
 Are the distribution channels reliable & cost effective?
 Is the sales force effective?
 Does the firm conduct market research?
 Are product quality & customer service good?
 Are the firm’s products/services priced appropriately?
 Does the firm have effective promotion, advertising, and publicity strategies?
 Are the marketing, planning, and budgeting effective?
 Do the firm’s marketing managers have adequate experience and training?
 Is the firm’s Internet presence excellent as compared to rivals? 


FINANCE/ACCOUNTING: Determining financial strengths & weaknesses key to strategy formation.

FUNCTIONS:
 Investment decision (Capital budgeting)
 Financing decision
 Dividend decision

FINANCE/ACCOUNTING AUDIT:
 Does the firm have sufficient working capital?
 Are capital budgeting procedures effective?
 Are dividend payout policies reasonable?
 Are the firm’s financial managers experienced and well trained?

Effective Financial Analysis Requires:

1. Analysis of how the ratios have changed over time
2. How the ratios compare to industry norms
3. How the ratios compare with key competitors
PRODUCTION/OPERATIONS: deals with inputs, transformations, and outputs that vary across industries
and markets.

FUNCTIONS:
 Process: choice of technology, facility layout, process flow analysis, facility location, line balancing,
process control, and transportation analysis.
 Capacity: include forecasting, facilities planning, aggregate planning, scheduling, capacity planning,
and queuing analysis.
 Inventory: managing the level of raw materials, work-in-process, and finished goods.
 Workforce: caring for job design, work measurement, job enrichment, work standards, and
motivation techniques.
 Quality: ensuring quality control, sampling, testing, quality assurance, cost control.

PRODUCTION/OPERATIONS AUDIT:

 Are suppliers of materials, parts, etc. reliable and reasonable?

 Are facilities, equipment, and machinery in good condition?
 Are inventory-control policies and procedures effective?
 Are quality-control policies & procedures effective?
 Are facilities, resources, and markets strategically located?
 Does the firm have technological competencies?

RESEARCH & DEVELOPMENT: area of internal operations that should be examined for specific strengths
and weaknesses.

RESEARCH & DEVELOPMENT FUNCTIONS:

 Development of new products before competitors

 Improving product quality
 Improving manufacturing processes to reduce costs

R&D BUDGETS:

 Financing as many projects as possible

 Use percent-of-sales method
 Budgeting relative to competitors
 How many successful new products are needed

RESEARCH & DEVELOPMENT AUDIT:

 Are the R&D facilities adequate?

 If R&D is outsourced, is it cost-effective?
 Are the R&D personnel well qualified?
 Are R&D resources allocated effectively?

CHAPTER 5: Strategies

LONG-TERM OBJECTIVES: represent the results expected from pursuing certain strategies. They must be:

 Quantifiable  Understandable  Obtainable

 Measurable  Challenging  Congruent
 Realistic  Hierarchical  Timeline
STRATEGIES

FORWARD Gaining ownership or increased control over distributors or

INTEGRATION retailers VERTICAL
BACKWARD Seeking ownership or increased control of a firm’s suppliers INTEGRATION
INTEGRATION STRATEGIES
HORIZONTAL Seeking ownership or increased control over competitors
INTEGRATION
MARKET Seeking increased market share for present products or services
PENETRATION in present markets through greater marketing efforts
INTENSIVE
MARKET Introducing present products or services into new graphic area
DEVELOPMENT STRATEGIES
PRODUCT Seeking increased sales by improving present products or
DEVELOPMENT services or developing new ones
RELATED Adding new but related products or services
DIVERSIFICATION DIVERSIFICATION
STRATEGIES
UNRELATED Adding new, unrelated products or services
DIVERSIFICATION
RETRENCHMENT Regrouping through cost and asset reduction to reverse
declining sales and profit
DEFENSIVE
DIVESTITURE Selling a division or part of an organization
STRATEGIES
LIQUIDATION Selling all of a company’s assets, in parts, for their tangible
worth

MICHAEL PORTER’S GENERIC STRATEGIES: strategies allow organizations to gain competitive advantage
from three different bases: cost leadership, differentiation, and focus.

Low-cost strategy: offers products or services to a wide range of customers at the lowest price available on
the market.
Best-value strategy: offers products or services to a wide range of customers at the best price-value
available on the market.
Differentiation: generic strategy aimed at producing products and services considered unique
industrywide and directed at consumers who are relatively price-insensitive.
Low-cost focus strategy: offers products or services to a small range (niche group) of customers at the
lowest price available on the market.
Best-value focus strategy: offers products or services to a small range of customers at the best price-value
available on the market.