Strategic Management 1
STRATEGY, Defined-
● Word Derivative: It comes from the Greek Word Strategos
● Stratos means an army
● Ago means to lead
● Purpose of Strategic Management is to use one’s strengths and exploit the weaknesses of the enemy
FOCAL ISSUES FOR STRATEGIC MANAGEMENT STUDY:The reality of Dynamism
● Hypercompetition -It occurs when product/service offerings and technologies are so new that standards become unstable and competitive advantage is not sustainable.
● Globalization
● Technology
● Natural Environment
Strategic Management is the science of creating, executing and evaluating cross-functional decisions to enable an organization to achieve its goals and objectives
Stages of Strategic Management Process
1. Strategy formulation-involves development of a vision and a mission,
identifying an organization’s external opportunities and threats,
determining internal strengths and weaknesses, establishing long-term
objectives, generating alternative strategies, and choosing particular
strategies to pursue.
Activities:
● what new businesses to enter,
● what businesses to abandon,
● how to allocate resources,
● whether to expand operations or diversify,
● whether to enter international markets,
● merge or form a joint venture,
● how to avoid hostile take over.
2. Strategy Implementation-involves establishment of annual
objectives, device policies, motivate employees, and allocate
resources so that formulated strategies can be executed.
Activities:
Developing a strategy-supportive culture, redirecting marketing
efforts, preparing budgets, developing and utilizing information
systems, and linking employee compensation to organizational
performance.
3. Strategy Evaluation- undertaken to know what strategies are not
working well for future modifications because external and internal
factors are constantly changing.
Activities:
* Reviewing external and internal factors that are the basis for current strategies
* Measuring Performance
* Taking corrective actions
THINGS TO REMEMBER
● Strategic Intelligence is the capability of an organization to possess relevant and related knowledge capabilities, foresight, and systems thinking, such that it is able to assess
its own strengths and vulnerabilities, the pressing challenges confronting the organization, as well as the trends and opportunities existing in the environment.
● Strategic thinking is the cognitive process of competently and analytically weighing factors and arriving at critical decisions in the context of the current milieu of which an
organization is part.
● Strategic Analysis consists of a systematic evaluation of variables currently existing in the external and internal environments.
● Strategic Decision Making is deliberately bringing together the right resources for the right markets at the right time.
● Organizational competitiveness pertains to the ability of any business/company to utilize its resources optimally and sustainably for maximum performance and productivity.
● Comparative Advantage refers to the ability of an organization to produce a particular good or service at lower marginal and opportunity costs than its competitors.
● Strategic Performance is the accomplishment of a high level of productivity that is characterized by efficiency in the context of lean and quantifiable management.
STRATEGIC MANAGEMENT VS.
STRATEGIC PLANNING
Treated in the context of academic environment. Theoretical approach
Buzzword in the business world
Presents all possible strategic approaches and techniques
Conducted individually and regularly by business organizations for its own sake.
Springboard of Strategic Planning
Application of theories
Generic Approach. Applies in general to similar organizations
Distinct and focused approach that is unique to the specific organization
TOPIC 1.2: Defining Strategy: The Five Ps
To simplify the definition of Strategy, Professor Henry Mintzberg of McGill University in Montreal, Canada, blended the various thoughts and views into what he referred to as the “the 5 Ps of
strategy” which are as follows:
As a Plan
Everyone who has a goal or something to accomplish needs to have a path to follow. You have to be sure that every step is a calculated risk that will result to a greater benefit. It is direction
set with adequate support of needed resources.
As a Ploy
A strategic ploy is a specific move designed to outwit or trick competitors. The infamous debt trap of CPP of China that enabled it to acquire strategic real estate and allegiance of indebted
governments is a good ploy.
As a Pattern
Here, strategy focuses on the constancy of purpose, doing what needs to be done until the set goal is attained. Intensity and focus of material, financial and human resources will diminish if
there is untimely diversification and can reduce the chances of success.
As a Position
This view does not only take into account the actions of a firm but considers itself and its competitors, how it positions itself in the industry relative to its competitors. To illustrate, being
number one in the industry gives you advantage of familiarity and loyalty of customers but you have also become the target of your competitors. If you just stay number 2, you can jump
ahead at anytime and still enjoy almost the same benefits as number 1. It all depends on how you plan to position the firm.
As a Perspective
This is dependent on how the mind of the manager interprets the competition around him. “No two persons are the same”, so we can expect that executives will perceive people and events
in different ways and with different meanings. He may consider a person or an event as a threat or as an opportunity.
HOW TO WRITE A VISION AND A MISSION STATEMENT?
The Vision & Mission Statement
● To understand the Vision and Mission go back to the beginning of the business.
● It started as a set of beliefs that the organization can offer a product or a service. It answers the question, What is our business?
● That a new management philosophy will result in a favorable public image. The reason for being. It answers the question, Why in this business?
When these beliefs are in writing, they become the Mission.
What is a mission ?
● Is a statement of role or purpose . It is also known as a Creed Statement, Statement of Purpose, Statement of Philosophy, Statement of Beliefs, Statement of Basic Principles
or a Statement Defining our Business.
● Its a description of what the organization does, who it is to serve and the organization’s uniqueness .
● Mission relates to doing, so mission statements are about your day-to-day operations. Your mission statement outlines the practical things you will do to achieve your vision
statement.
Why do we need Mission?
● It tells a company’s stories and ideals in less than 30 seconds.
● It provides the focus on the main business activities.
● If it is written, it can help reduce ‘clutter” in other document and processes .
Mission also answers the questions:
● What are we going to do?
● How are we going to do it?
DIFFERENCE BETWEEN VISION & MISSION STATEMENT:
A Mission describe the present state the products, services or organization
The vision describe the future state of the products,services organization
Condition and Process
Inspiration and motivation
Reality
Dream
How to Write a Mission Statement
The Mission Statement usually has the following components:
1. Customers. Who are the firm’s customers? (Responsibility to earn loyalty)
2. Product or Services. What are the firm’s major product or services? (Product sold at reasonable prices)
3. Market. Geographically, where does the firm compete? (Explore national and international markets)
4. Technology. Is the firm technologically competent? (Developing technology to reduce health risks)
5. Concern for survival, growth, and profitability. Is the firm committed to growth and financial soundness. (Capture a share of the market)
6. Philosophy. What are the basic beliefs, values, aspirations, and ethical priorities of the firm? (Holds people above profit)
7. Self-Concept. What is the firm’s distinctive competence or major competitive advantage? (Creative abilities of employees)
8. Concern for Public Image. Is the firm responsive to social, community, and environmental concerns? (Protection of the environment)
9. Concern for Employees. Are employees a valuable asset of the firm? (Good working conditions, compensation, opportunity for growth, high degree of security)
How to Write a Mission Statement
● 200 words is the recommended length.
OBJECTIVES
● Represent a managerial commitment to achieve specified results in a specified period of time. They clearly spell out the quantity and quality of performance to be achieved,
the time period, the process and the person who is responsible for the achievement of the objective.
EXAMPLE OF OBJECTIVES
1. To achieve 10% growth in earnings per share
2. To achieve 20% – 25% return on equity
3. To achieve 27% return on capital employed
4. To capture 10% of the existing target market
5. To establish a branch each year in every province of the Bicol Region for the next 5 years.
6. To conduct an annual community service in every area where our company has established a branch.
7. To conduct a quarterly seminar for employees on skills and personality development and career growth
IMPORTANCE OF OBJECTIVES:
● Objectives help to define the organization in its environment.
● Objectives help in formulating decisions and decision-maker
● Objectives help in formulating strategies
● Objectives provides standards for assessing organizational performance.
CHARACTERISTICS OF OBJECTIVES:
● Specific
● Time Horizon
● Flexible
● Attainable
● Measurable
● Realistic
Major Classifications of Objectives
1. Market Standing (desired state of current and new market
2. Innovation (development of new goods and services, and of skills and methods required to supply them)
3. Human Resources (selection and development of employees)
4. Financial Resources (identification of sources of capital and their uses)
5. Physical Resources (equipment and facilities and their uses)
6. Productivity (e.g. efficient use of the resources
7. relative to output)
8. Social Responsibility (awareness and responsiveness to the effects on the community of the stakeholders)
9. Profit requirements (achievement of measurable financial well-being and growth.
ORGANIZATIONAL GOALS (CHARACTERISTICS)
● To operationalize the mission statement, organizational goals and objectives are defined.
● Organizational goals are pursued to make the specified strategies succeed
● Goals are macro, encompassing in perspective, and prospective in nature.
● Goals represent the overall vision of an organization
● Provide organizations focus and direction. Converge toward the purpose of the firm. Streamlines unnecessary and redundant considerations.
● Goals move organizations into action. Organizations are motivated to function and perform toward their vision.
● Develop in organization the trait of persistence
Goals are supported by Objectives which are micro and specific in perspective.
Examples of Company Goals
● Profitability – A company may set a goal to increase gross sales by P12 million in the next 12 months
To achieve that goal, the company objectives could include adopting a comprehensive employee orientation; instituting a new-employee mentor program; etc.
● Customer Satisfaction – Many companies set an ambitious goal of 100-percent customer satisfaction. Such an aggressive goal requires specific objectives for all levels of the
organization.
Answering a phone call within the first three rings, writing a letter of apology for all complaints received, etc.
● Continued Growth – It can be measured by an expanded customer base, an increase in the number of offices or services areas, plant or facilities expansion, or an increase in
the number of new hires.
It may be supported by objectives to hire a new office manager in the target area; locate and lease suitable office space; and source vendors or suppliers who meet quality
and pricing specifications by a certain time period.
Module 2:CHALLENGES IN THE EXTERNAL AND INTERNAL ENVIRONMENT
● Environmental Scanning. It is the study and interpretation of the forces existing in the external and internal environments.
● Strategic Information. It refers to the facts and data that organizations search, identify, and evaluate to assist them to achieve their strategic plan.
Classifications of Strategic Information:
● Primary Data. This is information which are gathered through personal experience, observation, and experimentation, and
● Secondary Data. This is information gathered from the internet, reports, or publications.
TYPES OF ENVIRONMENTAL SCANNING
● INTERNAL AUDIT/INTERNAL ASSESSMENT – It requires gathering and assimilating and evaluating information about the firm’s operations by identifying the
basic activities of each function. Example: Excellent recruitment and placement activities.
● EXTERNAL AUDIT/EXTERNAL ASSESSMENT – It requires gathering and assimilating and evaluating information about trends and events that can impact
the organization, whether positively or negatively. Example: Technological advances in communication.
IMPORTANCE OF INTERNAL AND EXTERNAL AUDIT
● By knowing one’s strengths and weaknesses, it can be used to gain competitive advantage.
● Failure to anticipate emerging opportunities and threats may lead the organization to pursue ineffective strategies and miss opportunities which may lead to an
organization’s demise.
● In order for an organization to survive, it must know its strengths and weaknesses as well as that of its competitors’. It must have a clear idea about the forces
surrounding the “playing field”.
● The wise general will send a reconnoitering patrol to survey or scout the strengths and weaknesses of the enemy and situation and conditions of the battlefield
to create an edge or advantage.
Explain why conducting environmental scanning is important. Connect the importance of environmental scanning to strategy formulation
Topic 2.2 Evaluating the General Environment
Every organization operates within an environment. The environment can be classified into two: 1) the general environment (macro environment) and the 2) Industry (competitive
environment).
1. General Environment. This includes trends and events that can impact the organization but the organization has little or no influence on these trends and events, such as
political, economic, etc.
2. Industry/Competitive Environment. These are trends and events of an industry which can be influenced by an organization and the organization can influence these trends
and events happening in the industry.
Example: the industry is composed of different organizations that compete
with one another by selling the same or similar goods. When one increases its
price, it will have some effect on the pricing of others.
In view of the greater influence of the general environment, managers are more concerned with factors in the general environment.
PESTEL Analysis – the popular tool for organizing factors of the general environment
POLITICAL
Political independence/Changing governments
Terrorism/Suicide bombings
Chemical and nuclear threats
Global alliances
ECONOMIC
Globalization
Competitors and Suppliers
Fall of financially stable organizations
Increasing Oil prices
Economic trade agreements
Emerging markets
SOCIAL – It refers to important issues that are characteristics of global and local societies. Society consists of individuals, families, and communities, including their beliefs, aspirations,
traditions, and practices.
Changing social structures
Aging population/demand for health services
Sophisticated lifestyles of people
Cross-cultural diversity
TECHNOLOGICAL – these are significant changes happening in the world today which have been the result of rapid development in information technology.
Computer-integrated business
