Module 1: INTRODUCTION TO STRATEGIC o Environmental Scanning (both

MANAGEMENT external and internal)

o Strategy Formulation (strategic or
WHAT IS STRATEGIC MANAGEMENT? long-range planning)
o Strategy Implementation
STRATEGIC MANAGEMENT o Evaluation and Control

● the art and science of formulating, MODELS OF STRATEGIC MANAGEMENT

implementing, and evaluating cross-functional (STAGES OF STRATEGIC MANAGEMENT)
decisions that enable an organization to
achieve its objectives. A. ENVIRONMENTAL SCANNING
● As this definition implies, strategic management ● An element of strategic management focused
focuses on integrating management, marketing, on monitoring, evaluating, and disseminating
finance and accounting, production and information from the external and internal
operations, research and development (R&D), environments to key people within the
and information systems to achieve corporation. Its purpose is to identify strategic
organizational success. factors - those external and internal elements
that will assist in the analysis of the strategic
decisions of the corporation.

● SWOT Analysis Model - is the simplest output

of doing environmental scanning. SWOT is an
acronym used to describe the particular
Strengths, Weaknesses, Opportunities, and
Threats that appear to be strategic factors for a
specific company.
○ External Environment - consists of
variables (Opportunities and Threats) that
are outside the organization; uncontrollable
factors.
○ Internal Environment - consists of variables
● The term strategic management in this text is (Strengths and Weaknesses) that are
used synonymously with the term strategic within the organization itself; controllable
planning. The latter term is more often used in factors
the business world, whereas the former is often ● In strategic management, no longer do we simply
used in academia. list the SWOT variables and have employees try
● Sometimes the term strategic management is to populate the quadrants. Each of the four is rich
used to refer to strategy formulation, with processes and techniques that will allow for a
implementation, and evaluation, with strategic deeper understanding of the company.
planning referring only to strategy formulation.
The purpose of strategic management is to B. STRATEGY FORMULATION
exploit and create new and different ● An element of strategic management focused
opportunities for tomorrow; long-range on the process of investigation, analysis, and
planning, in contrast, tries to optimize for decision making that provides the company
tomorrow the trends of today. with the criteria for attaining a competitive
● A strategic plan is, in essence, a company’s advantage. This includes the following
game plan. processes:
● is a set of managerial decisions and actions ○ Mission: Stating Purpose - An
that help determine the long-term performance organization’s mission is the
of an organization. It includes several purpose or reason for the
processes namely: organization’s existence.
 ○ Objectives: Listing Expected C. STRATEGY IMPLEMENTATION
Results - Objectives are said to be
the end results of planned activity. ● Strategy implementation requires a firm to
Some of the areas in which a establish annual objectives, devise policies,
corporation might establish its goals motivate employees, and allocate resources so
and objectives are: profitability, that formulated strategies can be executed.
efficiency, growth, shareholder ● Strategy implementation includes developing a
wealth, utilization of resources, etc. strategy-supportive culture, creating an
○ Strategy: Defining the Competitive effective organizational structure, redirecting
Advantages - A strategy of a marketing efforts, preparing budgets,
business forms a comprehensive developing and using information systems, and
master approach that states how linking employee compensation to
the business will achieve its mission organizational performance.
and objectives. Companies must ● Strategy implementation often is called the
address three types of strategy: “action stage” of strategic management.
corporate, business, and functional. Implementing strategy means mobilizing
○ Policies: Setting Guidelines - A employees and managers to put formulated
policy is a broad guideline for strategies into action.
decision making that links the ● Often considered to be the most difficult stage
formulation of a strategy with its in strategic management, strategy
implementation. Policies provide implementation requires personal discipline,
clear guidance to all people within commitment, and sacrifice.
the organization. ● Successful strategy implementation hinges on
○ Strategy formulation issues managers’ ability to motivate employees, which
■ deciding what new is more an art than a science.
businesses to enter, ● Strategies formulated but not implemented
■ what businesses to serve no useful purpose.
abandon, ● Interpersonal skills are especially critical for
■ whether to expand successful strategy implementation. Strategy
operations or diversify, implementation activities affect all employees
■ whether to enter and managers in an organization
international markets, ● An element of strategic management focused
■ whether to merge or form a on putting strategies and policies put into
joint venture, and action through the development of programs,
■ how to avoid a hostile budgets, and procedures. Strategy
takeover implementation often involves day-to-day
● Because no organization has unlimited decisions in resource allocation.
resources, strategists must decide which ○ Programs and Tactics: Defining
alternative strategies will benefit the firm Actions - A program or a tactic is a
most. statement of the activities or steps
● Strategy-formulation decisions commit an needed to support a strategy.
organization to specific products, markets, ○ Budgets: Costing Programs - A
resources, and technologies over an budget is a statement of a
extended period of time. Strategies corporation’s programs in monetary
determine long-term competitive terms.
advantages. ○ Procedures: Detailing Activities -
● For better or worse, strategic decisions Procedures are sequential steps or
have major multifunctional consequences techniques that describe in detail
and enduring effects on an organization. how a particular task or job is to be
Top managers have the best perspective done.
to fully understand the ramifications of
strategy-formulation decisions; they have D. EVALUATION AND CONTROL
the authority to commit the resources
necessary for implementation. ● 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 3. THE PERFORMANCE TEST
primary means for obtaining this information. Is the strategy producing superior company
● All strategies are subject to future modification performance? Strategies that passed this test
because external and internal factors possessed strong company performance which is
constantly change. indicated by both (1) competitive strength and
● Three fundamental strategy-evaluation market standing and (2).
activities are
o reviewing external and internal factors that ADAPTING TO CHANGE
are the bases for current strategies,
o measuring performance, and ● The strategic-management process is based on
o taking corrective actions. the belief that organizations should continually
● Strategy evaluation is needed because monitor internal and external events and trends so
success today is no guarantee of success that timely changes can be made as needed. The
tomorrow! Success always creates new and rate and magnitude of changes that affect
different problems; complacent organizations organizations are increasing dramatically, as
experience demise. evidenced by how the drop in oil prices caught so
● An element of strategic management focused many firms by surprise.
on monitoring actual performance compared ● Firms, like organisms, must be “adept at adapting”
with the desired performance. Managers at all or they will not survive. To survive, all
levels use the resulting information to take organizations must astutely identify and adapt to
corrective action and resolve problems. change. The strategic-management process is
● The evaluation and control of performance aimed at allowing organizations to adapt
completes the strategic management model. effectively to change over the long run.
Based on performance results, management
may need to have adjustments in its strategy KEY TERMS IN STRATEGIC MANAGEMENT
formulation, in implementation, or in both.
1. COMPETITIVE ADVANTAGE
● Strategic management is all about gaining and
THREE TESTS OF A WINNING STRATEGY
maintaining competitive advantage. This term
can be defined as any activity a firm does
What makes a strategy winner? There are three
especially well compared to activities done by
tests that can be done to determine whether a
rival firms, or any resource a firm possesses
strategy is a winning strategy or not:
that rival firms desire.
● Competitive Advantage is a distinct edge
1. THE FIT TEST
possessed by companies over their rivals in
How well does the strategy fit the
attracting buyers and coping with competitive
company’s situation? Strategies that passed the Fit
forces. A company achieves a competitive
Test are strategies that exhibit both good external
advantage when it provides buyers with
fit with respect to prevailing market conditions and
superior value compared to rival sellers or
good internal fit tailored to the company’s ability to
offers the same value at a lower cost to the
execute the strategy in a competent manner.
firm. The advantage is sustainable if it persists
Winning strategies also exhibit dynamic fit in the
despite the best efforts of competitors to
sense that they evolve over time in a manner that it
match or surpass this advantage.
adjusts to both the company's situation in its
● A good example is Apple. In the case of
external and internal conditions.
Apple, the company’s unparalleled name
recognition, its reputation for technically
2. THE COMPETITIVE ADVANTAGE TEST
superior, beautifully designed, “must-have”
Is the strategy helping the company achieve
products, and the accessibility of the
a competitive advantage? Is the competitive
appealing, consumer-friendly stores with
advantage likely to be sustainable? Strategies that
knowledgeable staff, make it difficult for
passed this test are strategies that achieve a
competitors to weaken or overcome Apple’s
competitive advantage over rivals - which enables
competitive advantage. Thus, resulting in high
a company to achieve a long-lasting edge in its
admiration coming from customers all over the
respective industry.
globe.
 ● Having fewer fixed assets than rival firms can 4. EXTERNAL OPPORTUNITIES AND THREAT
provide major competitive advantages. For ● External opportunities and external threats
example, Apple has virtually no manufacturing refer to economic, social, cultural,
facilities of its own, and rival Sony has 57 demographic, environmental, political, legal,
electronics factories. Apple relies almost governmental, technological, and competitive
entirely on contract manufacturers for trends and events that could significantly
production of all its products, whereas Sony benefit or harm an organization in the future.
owns its own plants. Having fewer fixed assets Opportunities and threats are largely beyond
has enabled Apple to remain financially lean. the control of a single organization—thus the
word external.
2. STRATEGIST ● External trends and events are creating a
● Strategists are the individuals most different type of consumer and consequently a
responsible for the success or failure of an need for different types of products, services,
organization. They have various job titles, and strategies. Many companies in many
such as chief executive officer, president, industries face the severe threat of online
owner, chair of the board, executive director, sales eroding brick-and-mortar sales. A
chancellor, dean, and entrepreneur. competitor’s strength could be a threat, or a
● Strategists help an organization gather, rival firm’s weakness could be an opportunity.
analyze, and organize information. They track
industry and competitive trends, develop 5. INTERNAL STRENGTHS AND WEAKNESSES
forecasting models and scenario analyses, ● Internal strengths and internal weaknesses
evaluate corporate and divisional are an organization’s controllable activities
performance, spot emerging market that are performed especially well or poorly.
opportunities, identify business threats, and ● They arise in the management, marketing,
develop creative action plans. finance/ accounting, production/operations,
● Strategic planners usually serve in a support research and development, and management
or staff role. Usually found in higher levels of information systems (MIS) activities of a
management, they typically have considerable business. Identifying and evaluating
authority for decision making in the firm. organizational strengths and weaknesses in
the functional areas of a business is an
3. VISION AND MISSION STATEMENTS essential strategic-management activity.
● Developing a vision statement is often ● Organizations strive to pursue strategies that
considered the first step in strategic planning, capitalize on internal strengths and eliminate
preceding even development of a mission internal weaknesses.
statement. Many vision statements are a ● Both internal and external factors should be
single sentence. For example, the vision stated as specifically as possible, using
statement of Stokes Eye Clinic in Florence, numbers, percentages, dollars, and ratios, as
South Carolina, is “Our vision is to take care of well as comparisons over time to rival firms.
your vision.” ● Specificity is important because strategies will
● Many organizations today develop a vision be formulated and resources allocated based
statement that answers the question “What do on this information. The more specific the
we want to become?” underlying external and internal factors, the
● Mission statements are “enduring statements more effectively strategies can be formulated
of purpose that distinguish one business from and resources allocated. Determining the
other similar firms. numbers takes more time, but survival of the
● A mission statement identifies the scope of a firm often is at stake, so doing some research
firm’s operations in product and market and incorporating numbers associated with
terms.”11 It addresses the basic question that key factors is essential.
faces all strategists: “What is our business?” A
clear mission statement describes the values 6. LONG-TERM OBJECTIVES
and priorities of an organization. Developing a ● Objectives can be defined as specific results
mission statement compels strategists to think that an organization seeks to achieve in
about the nature and scope of present pursuing its basic mission. Long-term means
operations and to assess the potential more than one year.
attractiveness of future markets and activities. ● Objectives are essential for organizational
 success because they provide direction; aid in Module 2: CHARTING A COMPANY’S DIRECTION
evaluation; create synergy; reveal priorities;
focus coordination; and provide a basis for THE STRATEGY MAKING PROCESS
effective planning, organizing, motivating, and The strategy-making process involves five
controlling activities. Objectives should be interrelated stages (as shown in Figure 2.1):
challenging, measurable, consistent, 1. Developing a strategic vision that charts the
reasonable, and clear. In a multidimensional company’s long-term direction, a mission
firm, objectives are needed both for the overall statement that describes the company’s
company and each division. purpose, and a set of core values to guide
the pursuit of the vision and mission.
THE BASIC STRATEGIC APPROACHES 2. Setting objectives for measuring the
There are five basic strategic approaches company’s performance and tracking its
used in setting a company apart from rivals, building progress in moving in the intended long-term
strong customer loyalty, and gaining a competitive direction.
advantage. These strategies are: 3. Crafting a strategy for advancing the company
1. A LOW-COST PROVIDER STRATEGY - a along the path management has charted and
strategy focused on achieving a cost-based achieving its performance objectives.
advantage over rivals. Low-cost provider 4. Executing the chosen strategy efficiently and
strategies can produce a durable competitive effectively.
edge when rivals find it hard to match the 5. Monitoring developments, evaluating
low-cost leader’s approach to driving costs out performance, and initiating corrective
of the business. adjustments in the company’s vision and
2. A BROAD DIFFERENTIATION STRATEGY - mission statement, objectives, strategy, or
a strategy that seeks to differentiate the approach to strategy execution in light of
company’s product or service from that of actual experience, changing conditions, new
rivals in order to gain a larger market. In order ideas, and new opportunities.
to sustain this strategy, companies must
continuously innovate to stay ahead of the
competition.
3. A FOCUSED LOW-COST STRATEGY - are
strategies that deliver competitive advantage
by achieving lower costs than rivals in serving
buyers constituting the target market niche.
4. A FOCUSED DIFFERENTIATION STRATEGY
- are strategies that deliver competitive
advantage by developing a specialized ability
to offer niche buyers an appealingly
differentiated offering that meets their needs
better than rival brands do
5. A BEST-COST PROVIDER STRATEGY - are
a hybrid of low-cost and differentiation
strategies, incorporating features of both STAGE 1: DEVELOPING A STRATEGIC VISION,
simultaneously. These strategies create MISSION STATEMENT, AND SET OF CORE
competitive advantage on the basis of their VALUES
capability to incorporate attractive or upscale
attributes at a lower cost than rivals Developing a strategic vision of the company’s
future, a mission statement that defines the
company’s current purpose, and a set of core values
to guide the pursuit of the vision and mission. This
stage of strategy making provides direction for the
company, motivates and inspires company personnel,
aligns and guides actions throughout the
organization, and communicates to stakeholders
management’s aspirations for the company’s future.
STAGE 2: SETTING OBJECTIVES achieving management’s strategic vision.

Setting objectives to convert the vision and STAGE 5: EVALUATING PERFORMANCE AND
mission into performance targets that can be used as INITIATING CORRECTIVE ADJUSTMENTS
yardsticks for measuring the company’s performance.
Objectives need to spell out how much of what Monitoring developments, evaluating
kind of performance by when. Two broad types of performance, and initiating corrective
objectives are required: financial objectives and adjustments in light of actual experience, changing
strategic objectives. conditions, new ideas, and new opportunities. This
A balanced scorecard approach for measuring stage of the strategy management process is the
company performance entails setting both financial trigger point for deciding whether to continue or
objectives and strategic objectives. Stretch objectives change the company’s vision and mission, objectives,
can spur exceptional performance and help build a strategy, and/or strategy execution methods.
firewall against complacency and mediocre
performance. Extreme stretch objectives, however, The Role of the Board of Directors
are only warranted in limited circumstances
● The board of directors (BOD) of most publicly
STAGE 3: CRAFTING A STRATEGY owned corporations are composed of both inside
and outside directors. Inside directors (sometimes
Crafting a strategy to achieve the objectives called management directors) are typically officers
and move the company along the strategic course or executives employed by the corporation.
that management has charted. Masterful strategies Outside directors (sometimes called
come from doing things differently from competitors non-management directors) may be executives of
where it counts - out-innovating them, being more other firms but are not employees of the board’s
efficient, being more imaginative, adapting faster - corporation.
rather than running with the herd. ● The board of directors, then, has an obligation to
In large diversified companies, the approve all decisions that might affect the
strategy-making hierarchy consists of four levels, long-term performance of the corporation. This
each of which involves a corresponding level of means that the corporation is fundamentally
management: governed by the board of directors overseeing top
● Corporate strategy (multi business strategy), management, with the concurrence of the
● Business strategy (strategy for individual shareholder.
businesses that compete in a single industry),
● Functional-area strategies within each Role of the Board in Strategic Management
business (e.g., marketing, R&D, logistics), and
● Operating strategies (for key operating units, ● The role of the board of directors in strategic
such as manufacturing plants). management is to carry out three basic tasks:
Thus, strategy making is an inclusive ○ Monitor: The board must be updated on the
collaborative activity involving not only senior developments inside and outside the
company executives but also the heads of major corporation, bringing to management’s
business divisions, functional-area managers, and attention concerns that might have been
operating managers on the frontlines overlooked in this process.
○ Evaluate and influence: Aside from
STAGE 4: EXECUTING THE STRATEGY overlooking activities, a board can also
examine management’s proposals, decisions,
Executing the chosen strategy and and actions; agree or disagree with them; give
converting the strategic plan into action. advice and offer suggestions; and outline
Management’s agenda for executing the chosen alternatives.
strategy emerges from assessing what the company ○ Initiate and determine: Active board members
will have to do to achieve the targeted financial and can define a corporation’s mission and specify
strategic performance. Management’s handling of the strategic options to its management.
strategy implementation process can be considered
successful if things go smoothly enough that the Board of Directors’ Continuum
company meets or beats its strategic and financial
performance targets and shows good progress in ● The board of directors’ continuum shows the
 possible degree of involvement (from low to high) of becoming.
in the strategic management process. Boards can i. The CEO articulates a strategic vision
range from phantom boards with no real for the corporation.
involvement to catalyst boards with a very high ii. The CEO presents a role for others to
degree of involvement. identify with and to follow.
○ Phantom - Never knows what to do, if iii. The CEO communicates
anything; no degree of involvement. high-performance standards and also
○ Rubber Stamp - Permits officers to make all shows confidence in the followers’
decisions. It votes as the officers recommend abilities to meet these standards.
on action issues. People in an organization want to have a
○ Minimal Review - Formally reviews selected sense of direction, but only top management
issues that officers bring to its attention. is in the position to specify and communicate
○ Nominal Participation - Involved to a limited their unique strategic vision to the general
degree in the performance or review of workforce
selected key decisions, indicators, or
programs of management. b. Managing the Strategic Planning Process -
○ Active Participation - Approves, questions, Strategic planning initiatives can come from
and makes final decisions on mission, any part of an organization - it is a combined
strategy, policies, and objectives. Has active effort from the top management up to the
board committees. Performs fiscal and employees. Many large organizations have a
management audits. strategic planning staff charged with
○ Catalyst - Takes the leading role in supporting both top management and the
establishing and modifying the mission, business units in the strategic planning
objectives, strategy, and policies. It has a very process. Major responsibilities include:
active strategy committee. i. Identifying and analyzing
company-wide strategic issues, and
The Role of Top Management suggesting corporate strategic
alternatives to top management.
● The top management function is usually ii. Working as facilitators with business
conducted by the CEO of the corporation in units to guide them through the
coordination with the COO (Chief Operating strategic planning process.
Officer) or president, executive vice president, and
vice presidents of divisions and functional areas.

Responsibilities of Top Management

Unlike other people in the firm, the top

management’s job covers multidimensional concerns
and must be directed at the welfare of the whole
organization. With this, top management
responsibilities involve getting things accomplished
through and with others in order to meet the corporate
objectives. Diversity in skills is important as tasks are
usually divided into various members.

The CEO, with the support of the rest of the top

management team, has two primary responsibilities
when it comes to strategic management.
a. Executive Leadership and Strategic Vision -
Executive leadership is important because it
directs activities toward the accomplishment of
corporate objectives; and it sets the tone for
the entire corporation. Through executive
leadership, a strategic vision is formulated
which describes what the company is capable