UNIVERSITY OF MINDANAO

College of Business Administration Education

Program: Human Resource Management

Physically Distanced but Academically Engaged

Self-Instructional Manual (SIM) for Self-Directed Learning (SDL)

Course/Subject: CBM 121/BUS. 5A-Strategic Management

Name of Teacher: RAMONCHITO M. NALANGAN

THIS SIM/SDL MANUAL IS A DRAFT VERSION ONLY, NOT FOR

COMMERCIAL USE, REPRODUCTION AND DISTRIBUTION OUTSIDE OF
ITS INTENDED USE. THIS IS INTENDED ONLY FOR THE USE OF THE
STUDENTS WHO ARE OFFICIALLY ENROLLED IN THE
COURSE/SUBJECT.
EXPECT REVISIONS OF THE MANUAL.

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 College of Business Administration Education
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Telefax: (082)227-5456 Local 131

TABLE OF CONTENTS

PART 1: COURSE OUTLINE POLICY 3

PART 2: INSTRUCTION PROPER
BIG PICTURE A 6
WEEK 1-3: Strategic Management the Challenge of the New Century
Unit Learning Outcome (ULO A) 7
Metalanguage 7
Essential Knowledge
Vision components of strategic management 8
Purpose 12
The Vision statements 13
The Mission statements 14
The value statements 14
External environment 15
The PESTEL framework 15
PESTEL process 16
Industry life cycle 17
The five competitive forces 20
Internal environment 24
The resource-based view of strategy 24
The VRIO framework 24
Core competencies 25
Dynamic capabilities 25
Total quality management (TQM) 26
Business excellence (audit) models 26
Benchmarking 26
Organizational learning 27
Objectives 27
The Balanced Scorecard 27
The SWOT Analysis 27
Self-help 29
Let’s Check 30
Let’s Analyze 30
In a Nutshell 31
Question and Answer 32
Keywords Index 32
Course Schedule 32

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 College of Business Administration Education
2nd Floor, SS Building
Bolton Street, Davao City
Telefax: (082)227-5456 Local 131

Course Outline: CBM 121/BUS. 5A – STRATEGIC MANAGEMENT

Course Coordinator: Dr. Jestita F. Gurrea
Email: jgurrea@umindanao.edu.ph
Student Consultation: By online (LMS), Text, Email or Call
Mobile: 09461390333
Phone: (082) 227-5456 loc. 131
Effectivity Date: October 26, 2020
Mode of Delivery: Blended (On-Line with face to face or virtual sessions)
Time Frame: 54 Hours
Student Workload: Self-Directed Expected Learning
Requisites: None
Credit: 3
Attendance Requirements: A minimum of 95% attendance is required at all
scheduled Virtual or face-to-face sessions.

Course Outline Policy

Areas of Concern Details

Contact and Non-contact This 3-unit course self-instructional manual is designed for
Hours blended learning mode of instructional delivery with
scheduled face-to-face or virtual sessions. The expected
number of hours will be 54, including the face to face or
virtual sessions. The face-to-face sessions shall include
the summative assessment tasks (exams).

Submission of assessment tasks shall be on the 3rd, 5th, 7th,

Assessment Task Submission and ninth week of the term. The assessment paper shall be
attached with a cover page indicating the title of the
assessment task (if the task is a performance), the name
of the course coordinator, date of Submission, and the
name of the student. The document should be emailed to
the course coordinator. Submission is also expected: you
already paid your tuition and other fees before submitting
the assessment task. If the assessment task done in real-
time through the features in the Blackboard Learning
Management System, the schedule shall be arranged
ahead of time by the course coordinator.

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 College of Business Administration Education
2nd Floor, SS Building
Bolton Street, Davao City
Telefax: (082)227-5456 Local 131

Turnitin Submission (if necessary) For honesty and authenticity, all assessment tasks are
required to be submitted through Turnitin, with a
maximum similarity index of 30% allowed. It means that if
your paper goes beyond 30%, the students will either opt
to redo her/his paper or explain in writing addressed to the
course coordinator the reasons for the similarity. In
addition, if the paper has reached a more than 30%
similarity index, the student may be called for disciplinary
action in accordance with the University's OPM on
Intellectual and Academic Honesty.

Please note that academic dishonesty such as cheating

and commissioning other students or people to complete
the task for you have severe punishments
(reprimand, warning, expulsion).
Penalties for Late The score of an assessment item must be submitted after
Assignments/Assessments the designated time on or before the due date, without an
approved extension of time, will be reduced by 5% of the
possible maximum score for that assessment item for each
day or part-day that the assessment item is late.

However, if the late Submission of the assessment paper

has a valid reason, a letter of explanation should be
submitted and approved by the course coordinator. If
necessary, you will also be required to present/attach
evidence.

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 College of Business Administration Education
2nd Floor, SS Building
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Telefax: (082)227-5456 Local 131

Return of Assessment tasks will be returned to you two (2) weeks

Assignment after the Submission. This will be returned by email or
/Assessment via the Blackboard portal.

For group assessment tasks, the course coordinator will

require some or a few of the students for online or virtual
sessions to ask clarificatory questions to validate the
originality of the assessment task submitted and to
ensure that all the group members are involved.
Assignment Resubmission You should request in writing addressed to the course
coordinator his/her intention to resubmit an assessment
task. The resubmission is premised on the student's
failure to comply with the similarity index and other
reasonable grounds such as academic literacy
standards or other reasonable circumstances, e.g.
(illness, accidents, financial constraints).

Re-marking of You should request in writing addressed to the program

Assessment Papers coordinator your intention to appeal or contest the score
and Appeal given to an assessment task. The letter should explicitly
explain the reasons/points to contest the grade. The
program coordinator shall communicate with the
students on the approval and disapproval of the request.

If disapproved by the course coordinator, you can

elevate your case to the program head or the dean with
the original letter of request. The final decision will
come from the dean of the college.
Grading System All culled from BlackBoard sessions and traditional
contact
Course discussions/exercises – 30%
1st formative assessment – 10%
2nd formative assessment – 10%
third
formative assessment – 10%

All culled from on-campus/onsite sessions (TBA):

Final exam – 40%

Submission of the final grades shall follow the usual

University system and procedures.

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 College of Business Administration Education
2nd Floor, SS Building
Bolton Street, Davao City
Telefax: (082)227-5456 Local 131

Preferred Referencing Harvard Referencing

Style
Student Communication You are required to create a umindanao email
account, which is a requirement to access the
BlackBoard portal. Then, the course coordinator shall
enroll the students to ha submit submission materials
and resources for the course. All communication
formats: chat, Submission of assessment tasks,
requests, etc., shall be through the portal and other
university-recognized platforms.

You can also meet the course coordinator in person

through the scheduled face-to-face sessions to raise
your issues and concerns.

For students who have not created their student

email, please contact the course coordinator or
program head.
Contact Details of the Dean Dr. Vicente Salvador E. Montaño
Email: vicente_montaño@umindanao.edu.ph Phone: 082-
227-5456 local 131
Contact Details of the Program Ramonchito M. Nalangan
Head Email:
ramonchito_nalangan@umindanao.
edu.ph
Phone: 082-227-5456 local 131
Students with Special Needs Students with special needs shall communicate with the
course coordinator about the nature of his or her individual
needs. Depending on the nature of the need, the course
coordinator, with the program coordinator's approval, may
provide alternative assessment tasks or an extension of
the deadline for Submission of assessment tasks.
However, the alternative assessment tasks should still be
in the service of achieving the desired course learning
outcomes.
Online Tutorial Registration You are required to enroll in a specific tutorial time for
this course. Please note that there is a deadline for
enrollment to the tutorial.
Help Desk Contact Reil Romero
LMS Coordinator
Email: reil_romero@umindanao.edu.ph
Phone: (082) 227-5456 loc 131

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 College of Business Administration Education
2nd Floor, SS Building
Bolton Street, Davao City
Telefax: (082)227-5456 Local 131

Library Contact Brigida E. Bacani

Head-LIC
Phone# (082)300-5456
Hotline# 0951-376-6681
Email: library@umindanao.edu.ph
Well-being Welfare Rhoda Neileen P. Luayon
Support Help Desk gstcmain@umindanao.edu.ph
09190011887

Course Information – see/download course syllabus in the BlackBoard LMS.

Big Picture

CC's Voice: Hello, future Managers! Welcome to this course, CBM121: STRATEGIC MANAGEMENT.
This course is designed to explore an organization's Vision and Mission,
examine principles, techniques, and models of organizational and
environmental analysis, and discuss the theory and practice of strategy
formulation and implementation such as corporate governance and business
ethics to develop effective strategic leadership.

CO: Primarily, before becoming a successful leader in an organization,

you need to have an overview of Strategic Management: the ultimate
course outcome (CO) of this subject. Apply the knowledge gained in
basic courses to formulate and implement strategy from holistic and
multi-functional perspectives. Analyze real-life company situations
and creative solutions using a strategic management perspective.

Let us begin!

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2nd Floor, SS Building
Bolton Street, Davao City
Telefax: (082)227-5456 Local 131

Module 1: Strategic Management the Challenge of the New Century (1-3 weeks)

Unit Learning Outcomes: At the end of the unit, they are expected to:

1. To describe the strategic management process.

2. To define and give examples of key terms in strategic management.
3. To develop and evaluate SWOT analysis and Balance Scorecard.

Metalanguage:

In this section, the most important terms relevant to the study of Strategic
Management and demonstrate ULOa will be operationally defined to establish a typical
frame of reference for how the text works in your chosen business career. As you progress
in this topic, there are terms you will encounter. Please refer to these definitions in case
you encounter difficulty in understanding Strategic Management.

Please proceed immediately to the "Essential Knowledge."

Essential Knowledge:

Strategic management is the long-term aim of an organization. Strategic

management is about handling the entirety of an enterprise. It requires the degree
to which activities meet the strategic needs of the policy of the organization.

Strategic management is the overall long-term goal of the management of the

organization. It differs from strategy, the overall method of a company managing
activities to achieve the long-term objective. The organization's strategy must
use to guide and align sub-strategy formation at different parts of the
organization.

Strategic planning is organizing scheduling tasks concerning roles and resources within a
given timeline to achieve the organization's goals.

Strategic change is a fundamental transition phase that takes a company to a new

sustainable competitive position, which is likely to entail changes to the current strategy.

Continuous improvement is organizational learning, which promotes and incrementally

increases the customer's efficiency and satisfaction in day-to-day management, according to the
organization's strategic requirements.

Competitive strategy is a method at the company level intended to retain a competitive edge
over rivals and future rivals.

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The purpose is the primary reason for an organization's long-term existence. It is the
starting point for understanding an organization in its entirety. It implies that it should be
communicated to the top-level. A situation analysis evaluates an organization's current external
and internal situations and develops strategic objectives. The strategy used to achieve strategic
objectives is conditioned by the scale and nature of an organization's activities, whether single
business, multi-business, or global in orientation. Implementation involves coordinating change
management and strategic monitoring through strategic performance management, including
feedback and learning. The effectiveness of an organization's strategic management ultimately
depends on nature and commitment to top management, strategic leadership.
The sole responsibility for handling the elements of strategic management lies with the
top management of an organization. To some degree, of course, everybody needs to participate.
Senior-level, however, is the one that spends most of its time on strategic management.

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Other levels spend their time primarily on daily organizational and functional
character management. Therefore, strategic management must be a top-down-oriented
procedure, but this must be done in ways that promote bottom-up decision-making and input
on the viability and success of strategically relevant research at both organizational and
functional levels.
Top-level strategic goals and strategies to achieve them need to be broken down into
departmental strategic goals and strategies and translated into operational goals and daily
management strategies. This order of operation is often called a Hierarchy of Strategy. It must
coordinate to ensure that everyone is working on the organization's purpose.

Strategic planning
Strategic planning is for an executive or senior management to schedule strategic
management decisions in advance. It is a structured, systematic method that offers a sequenced
structure or organizational template to achieve a long-term goal. Strategic planning is equated to
POST at its purest: purpose, objectives, strategy, and tactics. Strategic planning is known at its
most dynamic, as long-range planning. It explores patterns for predicting things to come, often
well into the future.
Both Mintzberg and Quinn suggest that the formulation of strategy (the design of
priorities and strategy by top management followed by its execution (by the rest of the
organization) is an iterative mechanism for developing a strategy. Therefore, more realistic
strategic planning strategies include effective organizational input and review systems to allow
top management to understand how and why their company is implementing and modifying its
strategy.
Strategic planning has become one of the most prominent approaches to management
today. Nonetheless, it is usually used as a tool to facilitate decentralized strategy-making,
enabling lower-level managers to exit repetitive stresses to question thought and to redirect the
energy and resources of their people to a shared goal.
Strategic planning is now understood to be a part of strategic management. The Baldrige
Excellence Framework defines good practice in terms of a set of management principles:
1. All tasks must be planned properly.
2. Plans must be implemented so that people are working on these plans.
3. Work must monitor, and progress must review.
4. Necessary action must take to account for any deviation from the plan.
5. Organizations must have structures and management systems to ensure the above work in
practice.
6. Everybody must be involved in these structures and systems.

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The first four principles correspond to the Deming Cycle's order – plan, do, check, act.
Simultaneously, the other two cover the necessary provisions of organizational support and a
good corporate culture. In addition to these management principles, Baldrige specifies that a
strategic plan should have
1. A defined strategy,
2. Action plans derived from this strategy,
3. Awareness and recognition of the differences between short- and
longer-term plans,
4. An approach for developing strategy based on an organization's external environment and
internal strategic resources,
5. An approach for implementing action plans that consider an organization's key processes and
performance measures, and
6. An approach for monitoring and evaluating organizational performance
concerning the strategic plan.
While Baldrige does not specify the best way for strategic planning, the list emphasizes the parts
that strategic management should have.

Strategic change
Strategic change is a structural transition aimed at bringing an organization to a new
successful role. It works by concentrating time and money on a few critical success drivers or
strategic goals to bring a company to a new desired state and marketplace. So, a strategy designed
to achieve a future vision of the state guides the direction of change. It demands a small number
of strategic goals that senior managers can manage realistically. Given the demands on top
management in terms of attention and time, keeping strategy simple and not getting embroidered
in too much detail is essential.
According to Jack Welch (2005), a former General Electric chief executive, a strategy is a
provisional course of action often revisited and redefined by the leadership according to changing
market conditions. It is an iterative process. It is in line with Henry Mintzberg's view that strategy
is a sense of where you are heading. In other words, what path you and your company are taking
to push your company forward.
Generally, it should be episodic to make major strategic adjustments. It usually happens
when external and often internal challenges and opportunities call for immediate, dramatic
improvements to an organization's current strategy and business model. Otherwise, the overall
purpose and strategy for achieving it should be stable enough to provide an organization with a
consistent basis for decision-making. When circumstances are stable, it is through progress that
strategic change takes place.
Continuous improvement
The continuous change is gradual and is focused on progress. Those are usually motivated
by a need for day-to-day management to maintain and boost efficiency and consumer satisfaction.
The principle is to remain within the core value-creating areas of an organization's stable business
model. Thus, the company remains fit for purpose; many primary performance measures (KPIs)
are set out, along with the plans and priorities to achieve them, usually in the form of a business
plan. These are often misunderstood as strategic plans, but they are about improving operational
effectiveness to the extent that the KPIs drive best practices. While essential to sustaining
strategy, daily management's substance may not differ from that of rivals.
Competitive strategy
The competitive strategy gives a company an edge in achieving above-average profits in
its industry by generating unique value relative to its rivals. It needs a long-term strategic plan
that is sustainable. Its function is to integrate and organize those organizations' activities that
distinguish the organization from rivals in what it does and what it offers. A sustainable
competitive advantage is not merely doing similar activities better than rivals: making those
activities impossible for competitors to replicate at an equal price.
What is strategy?

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The phrases strategic management and strategy are used interchangeably through training
courses and textbooks. They are entirely different things. The strategy principle is fundamental
to strategic management, but it is just a part of strategic management like strategic planning. A
strategy is an approach to manage an entity's activities to ensure its Mission and function are
maintained over time. It serves as a frame of reference for all organizational decision-making
by clarifying the organization's overall goals and defining the critical options for advancing the
course of activities in line with its intent.
Two perspectives are considered when thinking about strategy but need to be brought
together, especially for an effective competitive strategy. It begins with the positioning of the
external market, the other, the internal strategic resources.
The most prominent thesis on strategic strategy is by Harvard Business School's
Michael Porter. His thought belongs to a well-established tradition of industrial organization
dating back to the 1960s; as a deciding force for a productive strategy, this emphasizes the
external environment. It represents experiences outside and is often referred to as market-based
thought. It starts with analyzing the market to assess its attractiveness and select a competitive
strategy to take advantage of the opportunities. Strategy-related activities through a value chain
are coordinated and optimized. The aim is to achieve and sustain a strong competitive position
within an organization's industry.
The inside-out perspectives focus on the organization's internal environment and resource-
based approach to its strategy. Strategic resources are those organizational attributes that combine
to deliver a unique competitive advantage; they are typically core competencies that require
dynamic management capabilities over time. The goal is to manage an internal alignment of
strategic resources to create a specific competitive advantage and maintain it.
Compared to hands-on strategists, big-picture strategists are perhaps more likely to take an
outside view of the strategy. The latter may be inclined to begin by thinking inside out. Strategic
administration will provide them. Leaders need to keep an eye on what is going on in the world,
while the other eye will have a clear view of the daily operations. It is essential to get the right
mix.
They do not want every little thing to be micromanaged, and they limit people in the team.
Simultaneously, though, it cannot get too nervous about a vision or a dream. It needs to get
straight into the nitty-gritty of how decisions are made to make sure things progress as fast as
possible. (2012 by McKinsey & Company)

Purpose

Essential summary

The purpose is the reason for the organization and its overall goals.
A vision statement is the organization's statement of its desired future state or ideal.
The Mission is the organization's statement of its overriding purpose, such as the value it creates
for its stakeholders and other responsibilities.
Values are the organization's statement of its expected collective norms and behaviors. They will
include its overall core business methodologies and management philosophies.
There needs to be a shared goal for organizations. Without purpose, there is no sensible strategic
course. It is necessary if anyone within an organization is to work together effectively. Senior managers
spend much time clarifying and providing concrete aims. It has been done to inspire the company and help
an organization's workers build their goals and responsibilities, and appreciate other people.
The purpose is the primary and fundamental reason for the existence, based on an organization's
belief. A company wants to believe it serves a valuable function. It takes a kind of value system
to make sense of what an agency is doing. Companies organize themselves as a single group –
Vision, purpose, and principles – has three dimensions. Each provides a specific position to
explain organizational roles in strategic management.

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Vision is a desired future state or ideal for an organization; this requires an organization
to make a substantial strategic change. The mission statement of an organization's present aims
and core activities; guides an organization's control of its core business areas and continuous
improvement for creating customer value. Visionary change and the strategy to achieve it bring
change to existing working—values, the expected collective norms in terms of how values
influence Vision and Mission's management.

Vision statements
Visions may expand as a declaration of intent in the form of a text. Typically, they are short
and memorably ambitious but not overblown. A vision should provide the underlying rationale
for the change and make sure the reasons for the change and the specific consequences for
action are clear. The motivational qualities should be sufficiently thrilling and motivating to
inspire people to seek possibilities and reconsider their jobs. It must also seem realistic, though,
so senior managers need to walk a narrow line between distant ambition and the possibilities of
carefully getting there. The development of a vision needs to consider an organization's
situation concerning external and internal environments; this may involve an envisioning
process involving the organization's essential stakeholders.
A kind of vision statement is a simple 'big idea'-something that changes an
organization. It can be used as a memorable catchphrase to communicate easily to make
exceptional efforts. A warning is needed: Vision statements should be substantive statements
useful for directing activities in the desired direction and should not be reduced to trivial nature
slogans. It is also essential to understand that they have a different role to that of mission
declarations.
Mission statements

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A mission statement explains why an organization exists. It explains the scope of what an
organization does and will typically have a rationale for explaining how it adds value to
stakeholders. The style and form of statements vary considerably in practice as they are used
differently by organizations. For example, a statement can influence relevant public relations or
marketing to indicate a distinctive feature against competitors. There is a need for consideration
to ensure an entity can live up to its claims. The statement may claim excellence and quality,
but its reputation will suffer if it fails to deliver these. Platitudes such as 'we're making your life
better will leave both clients and Mission feeling pessimistic.
The importance of stakeholders is essential to the Mission. The stakeholders are individuals
and organizations that benefit directly from what an entity does and offers by gaining interest. It
involves shareholders and other individuals involved in an organization, of course. They may
also include employees, suppliers, and facilitators, including partners, and more broadly, society
and government. Peter Drucker, commonly regarded as the father of modern management, puts
the customer first in a frequently quoted piece from his classic The Art of Management (1955):
If we want to know what an organization is, we need to start with its intent. Besides, its purpose
must lie outside the organization. It must lie inside society as a business organization is a
corporate organ. There is only one description of the business intent that is valid: to build a
customer.
However, for individual companies, a 'customer' can be challenging to identify. The public
purpose is essential in the case of public service organizations and service users and people. A
significant question is how the wider community can treat itself as a customer and how a business
firm can create significant shared value for society. Social Corporate Responsibility (CSR) is
based on the view that large corporations should fulfill the role of world citizenship. CSR includes
mutual promotion of benefit, good governance, and setting an excellent example by achieving
high business morality standards, with activities in the developing world and the environment
(Bhattacharya, Sen, and Korschun, 2011).

Values statements
A value statement documents the expected collective norms and behavioral standards for
managers and the organization's workforce. It can also express how managers and other workers
will do their job in terms of values. Notice that values vary from the value of stakeholders: values
are the principles under which people operate. The value is a product of that operation. Value
statements should be crafted to preserve social capital by stressing the principles on which most
working relationships rely, confidence, fairness, support, and honesty.
With the rise in global organizations' growth and power, value statements have become
critical in strategic management. A significant explanation for this is a higher requirement for
incorporating corporate-wide management principles and business methodologies through the
global workforce, which vary widely in the national culture. Large organizations are harmonized
with cross-functional and functional activities. It requires a general background in which
individuals can work with each other effectively to build and maintain values across the
organization.
The general context for working within an organization must be stable over a long period.
Jim Collins (2001), in his essential book Good to Great, argues that the best companies maintain
their position by preserving their core values and purpose while continuously adapting to change
their strategy and operating practices. It does not matter what these core principles are so much
that they must have them to be effective organizations – it is more important that senior
executives know them, incorporate them into the company, and maintain them over time.
The core values of an organization make up its basic strategic understanding. Collins
stresses the importance of a culture of self-disciplined people adhering to a consistent system
where they have the freedom and responsibility to act. This training feels as intuitively as it
consciously is. It should communicate through a common organizational culture shared by key
executives and staff.
The External Environment

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The external environment is those conditions external to the organization, which influences
the organization and its industry, especially those that influence the intensity of competition.
The PESTEL framework is a broad but useful mnemonic to group external environmental
influences into political, economic, social, technological, environmental, and legal factors.
Structural breaks are major and unpredictable events in the external environment. These
are likely to require a sudden rethinking of an organization's purpose and strategy.
The industry life cycle is an industry's life to a living organism that goes through stages of
introduction, growth, maturity, and decline; each stage exhibits distinct characteristics that should
be considered against the organization's purpose.
The five competitive forces are the primary influences affecting the industry and
competitive positioning, which affect an organization's competitive advantage and profitability.
Hypercompetition is a dynamic state of constant disequilibrium and competitive change in
an industry.
The external environment consists of the factors outside the organization, including the
people and organizations that influence the external changes in the organization's industry,
particularly those that affect the strength of the competition. External conditions are continually
evolving, and plans need to be regularly monitored and checked by companies to successfully
handle any emerging challenges and exploit profitable opportunities. Many changes are
challenging to identify, and they often have uncertain and even unknowable consequences. The
point of departure is monitoring and reviewing background trends to identify and evaluate
opportunities and threats; this drives the strategic management process from the outside.

The PESTEL framework

PESTEL, which is a mnemonic for political, economic, social, technological,
environmental, and legal factors, is the most comprehensive and used approach for grouping and
reviewing macro-environmental trends in strategic management. Changes in all these fields over
time are likely to contribute to industrial change. Suppose an organization's external environment
is monitored and audited. In that case, it will be better able to respond to trends and respond faster
than its competitors.
Although the framework comprises six categories, its usage as an integrated, not
compartmentalized view of developments and changes is essential. Strategic management is
about seeing and understanding connections and is not about isolated trends but about managing
the BIG image. Essential details are, of course, the key to understanding how the change will
happen. It is just in terms of what this means for the strategic management of an organization.
Understanding how the patterns will work together to drive change and growth is essential.
There will be rewards, and there will be threats. A regular review of PESTEL encourages
strategists to think about long-term trends and pose questions such as, 'Does our overall plan offer
adequate flexibility to cope with new types of competition?

Political trends
Political considerations include developments in the conduct of local, regional, and
foreign governments and agencies and the thought and behavior of prominent organizations and
individuals: in many ways, government policies and regulatory decisions influence competition.
Significant uncertainty hangs over financial markets, for example, because of a potential trade
war between the United States and China.
Economic trends
Economic trends include resource and price use, interest rates, disposal income,
employment, inflation, and productivity. Emerging economies in China, India, and several other
Asian countries have led the world in economic growth rates since the 2008 financial crisis.
Though globalization has slowed down in the aftermath of the global financial crisis, it shows
every sign of continuing, though at a slower pace.
Social trends

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Social factors include economic, social, and lifestyle changes, gender roles and group
identities, national cultures, ethics, morals, and aspirations. The post-WWII baby boom in
Western countries created a strong and distinct community of customers who will spend more on
health and leisure as they age.
Technological trends
The technology involves personnel, organizational practices, goods and services, and
operations from current and emerging technological changes. The proliferation of smartphones
and applications for price scanning and the expanded usage of the Internet changes the nature of
shopping and the role of information more generally.
Environmental trends
Environmental factors include quality of life, sustainability, and resource recycling, and
logistical and infrastructure possibilities. Issues such as environmental wealth, global warming,
and plastic packaging waste, and intensive farming escalate. Many companies would have to take
these into account.
Legal trends
Legal considerations include legislation and administrative action, boundary
requirements, standards, and labor regulations. It can also include topics of globalization that deal
with international trade and competition law. National legal systems differ enormously, and their
consequences are profound for individual industries. One of the most significant trends is to
tighten regulatory accounting standards after massive corporate failures – like Enron, Tyco
International, Peregrine Systems, and WorldCom – and the dot.com bubble burst.
The PESTEL process
The PESTEL process should be kept as simple as possible, with the big picture always kept
central. The use of the approach should follow this set of principles:
1. Someone should oversee the process, including meetings and discussions.
2. Before starting, think through the process and be clear about the PESTEL analysis objectives.
3. Keep it simple; do not get bogged down in detail so that the big picture gets lost.
4. Involve a balance of pessimists and optimists; include outsiders with different perspectives and
beware of vested interests and groupthink.
5. Agree on appropriate sources and check inside the organization first for information.
6. Use visual tools and discussion aids.
7. Identify the most critical factor issues for strategy.
8. Produce a discussion document for broader circulation.
9. Use feedback and follow-up checks on actions and keep all PESTEL
participants informed on a follow-up to encourage continual dialogue.
10. Decide which issues to monitor regularly; link to existing in-house processes for monitoring
and reviewing change, especially for planning.
PESTEL is a valuable tool for testing and defining strategic goals. Managers are
encouraged to look beyond their company and sector and be less insular. However, beware of
system vulnerabilities. Scanning data can be too easy and slip into lazily ticking boxes over time.
A strong PESTEL will go far enough to understand the root causes behind the trends; things are
not always as it seems. The research should not just emphasize the obvious; strategists should
avoid overloading information.

Industry life cycle

The industry life cycle likens an industry's life to a living organism: markets expand over
time, eventually maturing and declining. The life cycle has an introduction, growth, maturity, and
decline stages.

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Introduction stage
Production is low at; first, costs are high, and demand is deficient. There may be a wide range of
products and services, as well as diverse organizations. Small business organizations are usually
involved, but well-established organizations from other industries can diversify and join a new water-
testing industry. A significant barrier to entry can be dependent on information about technology
growth. Large organizations acquire this by taking over small specialist firms. The first to perfect a
robust design and applications could capture a large portion of the future market as a first mover.
Success is not necessarily based on either the best function or the lowest cost, but rather a robust product
supported by a marketing mix that locks in first users, who frequently buy for novelty reasons, and early
adopters in the brand's personality.
Growth stage
The time when first movers are well known in their industries and take dominant roles. The
expansion comes as the latest items get familiar to consumers, dealers, and retailers. Supplier companies
gain expertise and leverage more significant economies of scale to deliver lower prices. When a
bandwagon effect gathers strength, a tipping point is reached at a sales threshold. As a dominant design
establishes itself, the number of competing organizations first rises and then reduces to a handful.
Maturity stage
A mature industry is relatively stable, and a handful of competitors have been reduced to the
competition. Observers often use the term category killer to identify a company that has managed to
remove much competition for a product or service category. During the maturity period, individual
growth levels can no longer be sustained without taking market shares from other rivals. Typically
speaking, costs are small due to the large-scale manufacturing benefits, and competitors compete by
distribution and brand loyalty. Size and branding industries pose essential barriers to market entry.
When the number of surviving companies is relatively large and similar in size, oligopolistic positions
may mean that they are well placed to prevent price wars, take advantage of rising prices, and gain high
profits. The maturity stage is also a time when an essential product or service developed as a range of
different but related offers. Once the marketing programmed is modified to suit the customer's changing
needs, each deal is subject to the product life cycle.
Decline stage
The reasons for the decline that lies in the global environment and any of the PESTEL variables.
A significant explanation for this is technological change. Old technology may rally, though – a 'sailing
ship effect' – as steamships were introduced, sailing technology became more productive. The

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integration of computing, telecommunications, and media technology has changed industries in modern
times, bringing in new life cycles.
The life cycle of the industry depends on the characteristics of the production phases of a
product. Nonetheless, it may not be the stages, but how rivals compete in those stages is significant. It
is not only about an industry's prevailing circumstances and its economies, but how competing
companies compete against each other to survive – and the fittest survive:
The Five Competitive Forces
Arguably the most crucial contribution to thinking about strategic strategies came from Michael
Porter (1980) introduced the competitiveness of the market and the concept of five competitive powers.
The core factor is the strength of the competition between established competitors; four others affect
this – the threat of new company, customers' bargaining power, the bargaining power of suppliers, and
the threat of substitutes. The strength of these forces and how they influence one another influences
industry productivity and forms its structure. The strength of these forces and how they influence one
another influences industry productivity and forms its structure.

Porter compares the global automotive industry, the international art market, and the regulated
healthcare industry in Europe and observes that, while each is different on the surface, each industry's
competitiveness is determined by the same underlying competitive driving forces. The theory
confronted by strategists is how a company can retain an advantageous position in its business.
If the competitive forces are healthy, it is unlikely that a company can receive good returns on
its investment. If they are low, the returns may be above average. Some factors affect short-term
productivity, but it is necessary to note that the five competitive forces are long-term influences. For
example, while food prices go up and down depending on the environment and fuel costs of storage and
transportation, supermarkets' overall and longer-term profitability depends on the retail chains'
negotiating power compared to their suppliers and consumers. The danger to new entrants is small, and
the potential for food substitutes is limited.
The threat of new entrants (new business)
New external competition brings additional capacity pressures to existing market shares,
influencing the industry's prices, costs, and investment. Because of this, many existing companies in a
threatened industry will hold down profitability and make their business less appealing to potential

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entrants. Suppose entry barriers are small and the competitiveness of the market is strong. In that case,
a new company will enter the industry and push down prices and increase costs for established
competitors. The challenge for new entrants is to find ways to resolve the entry barriers without the
high investment costs that cancel the profitability of industrial operations. There are eight sources of
barriers to entry that entrants must consider and overcome:
1 Supply-side economy of scale – incumbents, have a cost advantage over incumbents from economies
of scale and can sustain lower prices.
2 Demand-side benefits of scale – incumbents have a reputation for quality and service that comes from
size.
3 Customer switching costs – there is a high cost to customers of incumbents in switching to entrants.
4 Capital requirements – cost and availability for investment in new areas are likely to be high for
entrants.
5 Incumbency advantages independent of size advantages stem from the first advantage, such as
proprietary technology, access to resources, and locations.
6 Unequal access to distribution channels – fewer wholesale and retail channels may mean incumbents
tie these up.
7 Restrictive government policy – competition policy, regulation, and licensing may foreclose entry to
entrants overseas.
8 Expected retaliation – incumbents' ability and history of retaliating when faced with the new
competition may deter entrants.
The bargaining power of customers
Potential customers or groups of customers can force suppliers to lower prices, demand more
customized features, and force up service quality. This activity drives down an organization's
profitability and shifts the balance of power and value in favor of buyers. Customers have an advantage
if the following conditions apply:
1 Customer are few and buy in quantities that are mainly about the size of suppliers. If suppliers' fixed
costs are high and marginal costs are low, there are likely to attempt to keep capacity filled through
discounting.
2 The industry's products are standardized or undifferentiated. If buyers can find equivalent products
elsewhere, suppliers can play off against each other.
3 Customers have low switching costs in changing suppliers.
4 Customers can produce the product themselves if a supplier is too costly.
Buyers are likely to be sensitive to prices if the product or service's cost is a significant proportion of
its costs and are likely to search for the best deals and negotiate hard. The opposite is exact when price
forms a low percentage of a buyer's costs. In general, however, price is less important when the quality
of the supplied product and its influence on the buyer's products are vital considerations. The importance
of service, especially when quick response and advice are required from the supplier, can be much more
important than price. Also, cash-rich and profitable business customers with healthy enterprises may be
less sensitive to levels of price. Intermediate customers and customers who are not the end-user of the
final product, such as distribution, are similarly less motivated by price. Producers often attempt to
reduce the power of the channel through exclusive arrangements with distributors and retailers.
The bargaining power of suppliers
Suppliers' strength will influence customer organizations' profitability; if this is strong, suppliers can
negotiate higher prices to their advantage. It is likely to apply if any of the following conditions apply
to an industry's suppliers:
1 Supply is more concentrated than the industry's customers.
2 Suppliers are not dependent upon a single industry for their revenues.
3 Suppliers have customers with high switching costs and tight supply
chain relations with customers.
4 Suppliers with differentiated products and services are dependent
on individual customers.
5 Suppliers have products and services for which there are no substitutes.
6 Suppliers have the potential to integrate forward and enter a customer's

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market.
The threat of substitute products and services
There are often substitutes, but it is difficult to determine if they appear different in type from the
goods or services of the industry. However, the threat of substitutes influences an industry's profitability
because it can allow customers to go elsewhere. The danger of substitutes becomes high as competitors
give the industry's offer an enticing price-performance trade-off. The switching cost for the customer
must be small, not just in terms of cost but also in comfort and assurance.

Rivalry among existing competitors

The other four influences this latter competitive force. Depending on how actively rivals use the
other forces to reinforce positions, increase revenue, and save costs, it is the most effective. The rivalry
is healthy when there are numerous and rough competitors of equal power and size. In this case, winning
customers without taking them from rivals is difficult for any organization. If the industry has a CEO,
the leader who determines the industry's economic conditions, competition would likely be
unpredictable and expensive.
The importance of the five forces
Michael Porter revisited his five-force framework in an article published in 2008. He summed up
its importance: Understanding the forces that shape industry competition is the starting point for
developing a strategy. Every company should already know its industry's average profitability and how
it has been changing over time. The five forces reveal why industry profitability is what it is. Only then
can a company incorporate industry conditions into a strategy.
An organization's competitive strategy can build defenses against the five forces or find a position
in an industry where the forces are weak. Porter warns that an organization should be careful not to set
in motion dynamics to undermine the industry's attractiveness in the longer term. However, for some
industries, especially those emerging from new technologies, the short-term may be more critical.
Hypercompetition
The short-term is essential in hyper-competition conditions, described by Richard D'Aveni
(1994) as a competitive state of constant disequilibrium and change. The concept gained popularity in
the early years of the Internet and the rise of the new dot.com enterprises. In emerging and rapidly
changing markets, competitive advantage is transient rather than sustainable. Organizations typically
move on before competitors can react. There is an emphasis on renewing rather than protecting an
existing market. A related idea is a disruptive innovation, an idea described by Clayton Christensen
(1997) as a revolutionary product that replaces existing competing ways. There are two primary forms:
the first acts to create new competition with new markets and customers; the second acts to generate
new value for existing customers who are located in a low value-added part of a market, where existing
competition is concentrating effort up-market rather than defending low- end segments.

Strategic fit
Strategic fit is matching the opportunities of the external environment with an organization's internal
capabilities. The opportunities and threats suggested by PESTEL, the industry life cycle, and the five
competitive forces are to assess against the strengths and weaknesses of the organization's internal
environment. How good this fit is will be an essential determinant of the organization's strategic success
in achieving its purpose.

The Internal Environment

The internal environment comprises those internal conditions, including its strategic resources,
abilities, and management capabilities.
The resource-based view of strategy (RBV) is based on the view that competitive advantage and
superior performance are based on strategic resources' internal management.
The VRIO framework – value, rarity, inimitability, and organizational support is a mnemonic that
identifies four critical criteria for assessing which capabilities are strategic.

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Core competencies are organization-specific abilities that an organization's people have, which
enable them to sustain competitive advantage and superior performance.
Dynamic capabilities allow an organization to renew and re-create its strategic capabilities,
including its core competencies, to meet a changing environment's needs.
Organizational learning is broad of incremental learning. It is based on the organization's
experience of routine working and existing knowledge, which is called exploitative learning, and
innovatory, based on unfamiliar working and new knowledge, which is called exploratory learning.

An organization's internal environment consists of an organization's conditions, including its

strategic resources, skills, and management capabilities. The competitive advantage of an organization
depends primarily upon its administrative and organizational processes. All organizations are different,
and management can recognize this difference and use it to drive the inside out's strategic process. As
a general point, while it is essential to be in the right industry, you need to be good at what you do.

The resource-based view of strategy

The resource-based view of strategy (RBV) is a view of strategic management as strategic
resources management. These are internal strategic assets, such as core competencies and how
employees work in unique ways to an organization; as such, they provide a competitive advantage that
is difficult for rivals to understand and imitate. Edith Penrose (1959) suggested in her book The Theory
of the Firm's Growth that 'resources' should be defined in terms of their value in supporting strategy
rather than as limited economic resources defined by their market value. Strategic resources may have
little general market value. Still, according to the RBV, firm-specific resources matter most to
competitive differentiation.
The VRIO framework
Jay Barney (1997) offers the VRIO framework is to identify strategic resources; he suggests that
above-average profits are likely if an organization's attributes are
1 Valuable – when they enable an organization to implement a strategy that improves its effectiveness
and efficiency.
2 Rare – few, if any, competing organizations have these valuable attributes.
3 Inimitable – the attributes are too difficult to emulate because they have a unique history and
development, their nature is ambiguous or socially
complex; and
4 Organizable – and organization can manage and exploit the competitive
the potential of the first three.
Strategic resources that meet the VRIO criteria can be enhanced in combinations of different
ways by recruiting people with specific skills and knowledge, patents and proprietary technologies,
physical assets like buildings and other facilities, location, social and business networks, and alliances.
The importance of intangible resources, such as corporate image, brands, and customer service, is also
fundamental to establish how people will perceive the difference between organizations and the
products and services they offer. Intangibility is quintessentially a holistically sensed quality. All
organizations are, to some extent, unique bundles of attributes, and how these are used and managed
determines differences in organizational performance. The critical thing is to manage the integration of
resources strategically, so the intangibility of the whole creates an image that puts the organization
apart. Central to this is how managers and other employees manage and do their work.
Core competencies
Core competencies are the organization-specific competencies people have, which are shared and
used in common in ways that give the organization its competitive advantage. They have the following
advantages:
1. They are hard for rivals to understand how they work, and they are difficult to copy.
2. They are relevant to a range of markets and industries.
3. They provide a shared understanding of an organization's purpose, and top-down objectives can be
better understood and easily implemented.
4. They promote cross-functional working for teams and project management generally.

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5. They facilitate a universal language of objectives which managed in

a similar way across the organization.
6. They promote a standard set of learning-based tools and working principles for solving problems.
7. They facilitate bottom-up management for decision-making.

Core competencies are not merely an ability to be outstanding or even excel in a job if rivals can
copy the talent. Core skills build a new way of working and a competitive edge that rivals cannot
replicate. An organization's core competencies are defined as bundles or patterns of skills, expertise,
and resource support that offer the organization its distinctive pattern of competencies, which are
essential to its strategic intent. Usually, these are strengthened and reinforced over time so that they
follow a direction or trajectory.
The weakness is that they become entrenched once trajectories are formed and are difficult to
change when the need arises. A strategic lock-in takes place when core competencies are inflexible and
easy to adjust. An organization's ability to manage its core competencies over time is a dynamic
strategic capability in strategic management.
Dynamic capabilities
Dynamic flexibility is the company's ability to incorporate, build, and reconfigure core
competencies to meet change. A more general concept is a company's capacity to refresh and re-create
its strategic capacities (including core competencies) to meet a growing environment's needs. It is a
senior-level strategic management process from the strategic management perspective. However,
lower-level capabilities will also be strategic because they are cross-functional processes, such as
product development, alliance and acquisition capabilities, resource allocation, and routines for
knowledge transfer. (Gary Pisano, David Teece, and Amy Shuen, 1997)
The Toyota Production System is a crucial example of a sophisticated capability. All automakers
now have similar lean production systems to Toyota, suggesting that it is no longer a unique
distinguishing capability and cannot be a strategic resource in that respect. However, diverse skills are
often similar across different organizations. The real competitive differences are in the specifics of their
implementation – factors such as timing, expense, and learning effects – that can yield significant
performance differences.
It is in the way that dynamic capabilities combine cross-functional practices, including
management philosophies and market methodologies, to render competitively individual dynamic
capabilities. Lean practices like Total Quality Management (TQM), Business Performance,
Benchmarking, and Organizational Training are closely interwoven as parallel tasks that generate value
that exceeds their parts' sum. Unless it requires a complex integration of these methodologies, an
organization's dynamic ability is likely to produce a stable pattern of a joint operation. The organization
systematically produces and modifies operating routines in search of improvement, which counts
strategically.
Total quality management (TQM)
TQM is an organization-wide philosophy. A set of management principles for improving a
product/service quality continues to meet customer needs. The 'total' principle is that customer quality
is only as good as the weakest link in the quality chain.
Every part of the production and distribution chain must be good enough to offer the next work
process, what exactly the following process needs to produce, and so on. The discipline required in the
supply chain to ensure that parts and services are distributed precisely when and where required. Along
the entire supply chain, the quality chain can be applied to include external organizations.
If teams have the responsibility to control their work to meet their immediate customer's
requirements. They are likely to see their work not as a static and standalone process but as a dynamic
activity that changes with the organization's strategy's needs. The guiding principle is that every process
managed according to the Deming (or PDCA) Cycle (Deming, 1986):
1 Plan – what to do
2 Do – carry out the work to plan and monitor
3 Check – progress of work and review
4 Act – if required, take corrective action or amend the plan, the cycle starts over

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In a TQM-conditioned environment, PDCA is used for any business process, including strategic
management. It forms the primary mechanism for organizational learning. PDCA drives continuous
improvement (sometimes called kaizen) in lean working. As a purely operations-based approach, TQM
is mostly only about taking corrective action to improve the business process. However, when business
processes are linked to strategic priorities, an external dimension is brought to make TQM strategically
sensitive. It happens with kaizen in lean working when organizations use Hoshin Kanri (policy
deployment) to deploy strategic priorities in the daily management of processes.
Business excellence (audit) models
Excellence models are used to audit good management practice in the general core areas of a
business or organization; a familiar name is a self- assessment, and the main reason is to identify and
deploy good practice and organization-wide learning. Organizations design their frameworks, but most
of these based on three models: the Malcolm Baldrige National Quality Award, the EFQM Excellence
Award, and the Deming Prize. The areas for assessment are similar and cover leadership, people,
partnerships and resources, and processes.
Benchmarking
Benchmarking compares an organization's practices with those of other organizations to identify
ideas for improvement and the adoption of sound practices and (sometimes) to compare relative
standards of performance. There are two main types. The first is competitive benchmarking. The
benchmarks are usually expressed as measured reference goals for aggregate performance, such as the
production line's output. The other is process benchmarking. Teams may visit another organization,
often in an unrelated industry, to study analogous business processes.
From a resource-based strategic point of view, replicating best practices can be elusive as the
managerial practices that are most central to competitive advantage are likely to be specific to an
individual organization. The more benchmarking organizations, the more they copy each other and
come to resemble each other. It is possible. Porter (1996) thinks of benchmarking as operational
effectiveness, which will reduce costs. However, because each competitor will copy, this will not lead
to a distinctive competitive advantage for long-term success.
On the other hand, if it is consistent with an organization's purpose, good practice should learn.
Imitation will change the way a business works. Making the plan work and increasing the identification
of best practices, adapting them, and developing and contribute to new ideas about goods and services.
Then learning becomes the norm where everyone looks for a better way to go.

Organizational learning
Central to the resource-based view and the strategic management of core competencies is
organizational learning. Chris Argyris and Donald Schon (1981) distinguish three kinds: single loop,
double loop, and deutero-learning. Single-looped learning involves identifying and correcting errors in
existing ways of working. There is a single feedback loop that checks performance against existing
plans. The second involves a double feedback loop, which connects errors to present plans and involves
questioning the assumptions of the plans and the measures defining effective performance: double loops
look beyond the present ways of doing things. Deutero-learning involves monitoring and reviewing
how learning is used to manage work, an essential prerequisite for organizational adaptation.
These three types of learning correspond to three different forms of review: single feedback is
most associated with routine daily management in operations, double feedback is mostly associated
with periodic reviews of strategy, and Deutero-learning is essential for business audits an organization
learns and manages its core processes.

Objectives
Objectives are strategically desired outcomes that must be managed effectively if the organization
continues to fulfill its purpose.
The balanced scorecard is a documented set of objectives and measures grouped typically into
four perspectives.

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Critical success factors (CSFs) are the factors that primarily account for an organization's success
in achieving its strategic purpose.
Key performance indicators (KPIs) are targets used to monitor progress on strategy-related
incremental objectives.
Strategy maps are pictorial representations of the relative order of balanced scorecard
perspectives, which illustrate cause and effect.
Strengths, weaknesses, opportunities, threats (SWOT) is a mnemonic framework used to
analyze an organization's strengths strategically, weaknesses (concerned with internal factors),
opportunities, and threats (arising because of changes in external factors).
An objective is a statement of a specific outcome that is to achieve. Objectives must be
meaningful and clear to the people who use them. They are linked to realistic measures of progress.
Those managing the objectives will know in enough time, if necessary, to intervene and make
appropriate changes. Objectives are the basis of a common language for understanding the context of
work and identifying the inevitable knock-on effects of change. Of course, this requires common ways
of working based on dialogue and consensus to facilitate the development and management of
objectives in transparent ways and can be understood by all. It makes work more comfortable.
To establish clarity in objectives, conventional objectives should be
SMART:
1. Specific
2. Measurable
3. Action-oriented (and agreed upon)
4. Realistic
5. Time-bound
Strategic objectives can be open, general, and intangible; they can also be long-term and ambitious,
perhaps to the extent that seems unrealistic. An objective is used to creative thinking about having to
do things differently and encourage a diversity of solutions for open-ended problems.
Gary Hamel and C. K. Prahalad (1989) write about the simplicity of strategic intent and the use
of long-term visionary objectives, such as a simple statement, for example, Komatsu's declared intent
to 'encircle Caterpillar.' Such statements aim to create an organization-wide obsession that was out of
all proportion to an organization's resources and capabilities. This objective type is an open one.
However, the direction it suggests must be translated into annual business plans to provide operational
objectives implemented as SMART short-term objectives.
The general management of objectives
The woes that beset scientific management are many, and some of these are summarized as
follows. Objectives must not be
1. too many – sub-objectives are out of control.
2. meaningless – it must be relevant.
3. useless – must be able to manage, review, and learn from them.
4. old – must be relevant for a change.
5. myopic – must be far-seeing and linked to the bigger picture.
6. insular – should not be selfish and easy to do, to the detriment of others.
7. inconsistent – all objectives must work synergistically.
8. pets – should not be favorites or vested interests.
9. non-agreed – all affected parties should be consulted.
10. complex – it must be simple to be understandable.
Senior levels should strategically manage their objectives and how it was used across their
organizations, to ensure that objectives have an active owner who takes resistible progress. Realism and
practicality are essential. Objectives should clarify what should be achieved. It must be recognized;
they are often subjective and rely on personal judgment. While objectives need to be essential and
stable, it must be recognized that as sub-objectives and plans progress, it may be necessary to adapt to
a strategic objective's nature. Changes in strategic objectives are likely to affect many people, so
changes in them should be made rarely, and new options investigated to find an alternative means to

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achieve the objective. As a working principle, senior managers should manage higher-level objectives
in ways that keep the overall strategy relatively stable over time.
Objectives and strategic management
For strategic management, the purpose must translate into a set of primary objectives called
strategic objectives. These are used as indicators and measures of progress to guide an organization's
long-term purpose. They cover the core areas of an organization. They are used to develop the short-
term priorities for the implementation and execution of strategy. There is a tendency for managers to
react more positively to short-term rather than longer-term objectives. In Peter Drucker's (1955)
powerful words,
Few things distinguish competent from incompetent management quite as sharply as balancing
objectives [to] obtain balanced efforts. All managers' objectives on all levels and in all areas should be
keyed to both short-range and long-range considerations.
Critical success factors (CSFs) and key performance indicators (KPIs)
The importance of balance must be reflected in the difference between critical success factors
(CSFs) and key performance indicators (KPIs). The former refers to those factors that primarily account
for an organization's long-term success and target measures for achieving outcomes in critical
operational areas. In modern management, the CSF concept often means those core business processes
that must be healthy enough to achieve their purpose. For instance, they might refer to those
management areas specified in business excellence models or the core processes identified in lean
working for sustaining value.
CSFs are often confused with KPIs, but KPIs should be measures that link daily activities to an
organization's CSFs. In other words, while CSF is long-term and linked to the overall strategy, KPIs are
strategically related targets in short-term management. The difference is essential to the distinction
drawn between strategic objectives and measures in the balanced scorecard.

The balanced scorecard

A balanced scorecard is a documented set of objectives and measures expressed from four key
areas of organizational concern called perspectives. Robert Kaplan and David Norton introduced the
concept in a Harvard Business Review article in 1992. It has been widely adopted. Its role is to help
organizations take a wide-ranging view of four types of strategically important objectives and their
measures: financial, customer, internal processes, and learning and growth. The scorecard's critical
essential is that each objective has its measures – right to the adage that what gets measured gets done.
Objectives are typically based on CSFs and the necessity of achieving a strategic vision. The measures
associated with them take the form of KPIs or targets, which indicate timelines to achieve the objectives.
No single perspective takes priority; the idea is that the perspectives and objectives are
understood as an integrated set. The total number of objectives must be kept to a bare minimum;
otherwise, the scorecard gets too complicated. No more than a half-dozen in total is about right. The
choice of perspectives is sometimes changed, or new ones adapted, such as adding a CSR objective to
reflect an organization's concern with societal issues. Generally, however, the original four perspectives
have stood the test of time. The exact choice of objectives and measures varies.
The original Kaplan and Norton (1992) article used different names for the internal business
processes and the learning and growth perspectives. They were initially called the 'internal business'
and the 'innovation and learning' perspectives. The scorecard was initially considered only a
comprehensive performance management tool. Within a few years, however, Kaplan and Norton (1996)
had proposed a balanced strategic scorecard – a strategic management system for achieving a vision –
and the perspectives.

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They were given their present names to reflect the importance of managing core business
processes, core competencies, and learning. This difference is significant because, in practice, some
organizations use the scorecard as a performance measurement tool, while others follow the strategic
approach.
A performance measurement scorecard can use a higher number of objectives than a strategic one.
These scorecards are typically based on an example: Vision business models and missions. Strategic
scorecards are based on longer-term Vision and, as such, should be kept as simple as possible to give
direction to the four perspectives. A typical issue stems from confusion about which objectives are
strategic and which are operational. Operational measures are adequate for performance measurement.
Still, they should not be used for strategic objectives unless it is clear how they relate to making strategic
changes.

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2nd Floor, SS Building
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Telefax: (082)227-5456 Local 131

Strategy maps
In managing a balanced strategic scorecard, possible strategic causes-and- effects should be
worked out to develop objectives and measures and review their progress over time. Kaplan and Norton
(1996) introduced the idea of a strategy map as a reference framework to help management reflect and
explore possible cause-and-effect relationships and how they stand concerning current issues. Thus, a
strategy map is a methodology to support and examine the scorecard and evaluate the underlying
assumptions for choosing objectives and measures. The idea is to think strategically to explore any
possible connections and evaluate them as an interrelated whole.
There is no prescriptive form for a strategy map. According to Visionary managers, directional
links between perspectives and objectives must be drawn out to see the vital contributions that enable
the organization to reach its Vision. The principle stands that no perspective is regarded to the detriment
of the others. However, the direction of thinking about cause-and-effect influences flows first from
learning and growth (the required learning skills for progressing Vision), next through the internal
process perspective (those core processes for Vision), next to customers (the value to the beneficiaries),
and finally to the financial perspective (provision of revenue, investment). Kaplan and Norton argue
against an accurate and deterministic-based organizational understanding of objectives and their
measures; instead, they stress the importance of organizational alignment and communication.
Managing the balanced scorecard
A strategic management process must involve a balanced scorecard. There are four parts and
start with the senior-level agreement, Vision's appropriate strategic objectives, and measures to achieve
the organization's Vision. The scorecard is then communicated to the rest of the organization so that
incentives and rewards are aligned to the objectives and measures. The scorecard is then used as a basis
for deciding strategic initiatives, such as projects. The final part provides feedback to enable senior
managers to evaluate and learn how the objectives and measures are working and test the assumptions
against the CSFs. A senior manager's team must take full charge of managing the scorecard: the chief
executive takes responsibility for the whole process. In contrast, each of the four parts of the
management process is the individual executive's responsibility.
Strengths, weaknesses, opportunities, threats (SWOT)
In developing a strategy to achieve strategic objectives, an organization must consider the
opportunities and threats present in the external environment and the strengths and weaknesses in its
internal environment. An analysis must start with the overall purpose of the organization and how this
translates into strategic objectives. It should also take stock of the current assumptions and management
of that purpose.
SWOT is used as an integrative framework to consider an organization's strengths, weaknesses,
opportunities, and threats. It can be used as a quick and simple method or more deeply as a detailed and
comprehensive organizing framework. The analysis components must be based on the determination of
strategic objectives, the reason for a strategic SWOT, and how a balanced scorecard fits into a SWOT
scheme.

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2nd Floor, SS Building
Bolton Street, Davao City
Telefax: (082)227-5456 Local 131

A strategic SWOT is the following:

1. Strengths are attributes of the organization that are helpful to achieving strategic objectives.

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2nd Floor, SS Building
Bolton Street, Davao City
Telefax: (082)227-5456 Local 131

2. Weaknesses are unhelpful or require attention to make them helpful in achieving the strategic
objectives.
3. Opportunities are external influences that help achieve strategic objectives.
4. Threats are influences that could harm or prevent the achievement of strategic objectives.
The opportunities and threats related to the strategic objectives of the balanced scorecard's
financial and customer perspectives, where the outside- influences of the external environment are
considered. The strengths and weaknesses relate to the internal processes and learning and growth
perspectives strategic objectives. The inside-out influences of the internal environment are considered.
Four basic questions drive the SWOT analysis process:
• How can each strength be used and developed to advance the strategic objectives?
• How can each weakness be improved and converted into a strength?
• How is it possible to exploit and benefit from each opportunity?
• How can each threat be addressed and possibly converted into an
opportunity?
SWOT is a much-abused but straightforward idea. It should not be a simple list of bullet points
of equally weighted factors since prioritization is necessary to determine which strengths, for example,
matter more than others. For strategic objectives, a SWOT analysis should be centered on the CSFs for
achieving an organization's purpose. Therefore, it is helpful if it will be carried out alongside the use of
a strategy map, which can be used to identify the primary cause-and-effect relationships and help the
participants identify and sort out essential SWOT factors. In carrying out a SWOT analysis, in general,
the following principles should be observed:
1. Be as realistic as possible.
2. Identified where the organization is now and where it wants to be in the future.
3. Be specific to avoid ambiguity and confusion.
4. Keep the SWOT short and understandable.
5. Ask questions to clarify the logic of why a factor is relevant.
The composition and number of participants are essential. The team should be representative
of the core business areas and able to see the overall picture. The suggested number for an open
discussion is eight. Using a balanced scorecard approach for SWOT analysis helps to balance external
and internal considerations to the process. There is a tendency to favor either exploratory sources of
information depending upon the focus and location of the SWOT team in the organization.

Self-Help: You can also refer to the sources below to help you further
understand the lesson:
Witcher, B. J. 2020, Absolute essentials of strategic management (1st Ed.) Routledge,
New York
Retrieved from: https://b-ok.cc/book/5304725/25a98e

Pereda, Pedrito R. et al., 2015, Strategic management. Manila: Unlimited Books Library
Services & Publishing Inc.

Flores, Marivic F. 2017, Business policy and strategy. Intramuros, Metro Manila: Unlimited
Books Library Services and Publishing Inc.

Let us Check

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 College of Business Administration Education
2nd Floor, SS Building
Bolton Street, Davao City
Telefax: (082)227-5456 Local 131

Congratulations, you just finished the most vital concept in the study of Strategic Management.
Let us check your understanding of the important concept.

Identification: Read the statement carefully and provide the correct answer.

1. It is the overall long-term goal of the management of the organization

2. It is the practice of organizing scheduling tasks concerning roles and resources within a
given timeline to achieve the organization's goals
3. It is a fundamental transition phase that makes a company a new sustainable competitive
position.
4. It is a structural transition aimed at bringing an organization to a new successful role.
5. They are characteristically behavioral.
6. Organization's statement of its expected collective norms & behaviors.
7. It is a primary and fundamental reason for existence.
8. It is a desired future state or ideal for an organization.
9. Dynamic state of constant disequilibrium and competitive change in an industry.
10. Stage where individual growth levels can no longer sustain without taking market shares
from other rivals.
15. Customers can force suppliers in the industry to lower prices.
16. It is based on the view that competitive advantage & superior performance based on the
internal management of strategic resources.
17. Allow an organization to renew and re-create its strategic capabilities
18. Ability of the company to incorporate, build & reconfigure core competencies to meet
change.
19. It is used to audit good management practices in a business or organization's general core
areas.
20. It is the desired outcomes that must be managed effectively if the organization continues
to fulfill its purpose.

Let us Analyze

Activity 1. Getting acquainted with the essential terms in the study of strategic
management is not enough, but you should demonstrate your higher thinking
skills. Now, explain the answers thoroughly.

1. Write Vision, Mission, and goals as manager of the company. (10 points)

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2nd Floor, SS Building
Bolton Street, Davao City
Telefax: (082)227-5456 Local 131

2. As a manager, how will you overcome the competitive forces? Explain each
and give an example. (10 points)

3. Discuss SWOT Analysis. (10 points)

4. Prepare a table for SWOT analysis as a manager in the future. (20 points)

In a Nutshell

Activity 1. The study of strategic management is a prerequisite to becoming a

competent manager. The various concepts and principles require a deeper
understanding. Hence, based on the discussions and learning exercises you have
done, please write your arguments or lessons learned.
In this part, you will be required to draw conclusions and ideas from the unit
lesson. I will supply the first item, and you will do the rest.

1. Social factors include economic, social, and lifestyle changes, gender roles and group
identities, national cultures, ethics, morals, and aspirations.

Your turn

2.

3.

4.

5.

6.

7.

8.

9.

10.

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 College of Business Administration Education
2nd Floor, SS Building
Bolton Street, Davao City
Telefax: (082)227-5456 Local 131

Question & Answer:

This section allows the student to list down all emerging questions or issues.
Ask questions in the LMS or other modes.

Please write answers after clarification.

Questions/Issues Answers

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 College of Business Administration Education
2nd Floor, SS Building
Bolton Street, Davao City
Telefax: (082)227-5456 Local 131

KEYWORDS INDEX

Strategic Management Life cycle stages Organizational learning

Strategic Planning Hyper competition SWOT Analysis
Strategic Change Strategic fit Balance Scorecard
Continuous Improvement Internal Environment Strategy Map
Competitive Strategy VRIO framework PESTEL factors

COURSE SCHEDULE

Activity Date Where to submit

Big Picture A: Let's Check Activities TBA LMS
Big Picture A: Let's Analyze Activities TBA LMS
Big Picture A: In a Nutshell Activities TBA LMS

Big Picture A: QA List TBA LMS

Forum TBA LMS
Quiz TBA LMS
Quiz TBA LMS
First Exam TBA LMS

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