Chapter 1: THE NATURE OF STRATEGIC MANAGEMENT

Strategic Management

- the art and science of formulating, implementing, and evaluating cross- functional
decisions that enable an organization to achieve its objectives.

- It is the company’s game plan.

- used synonymously with the term strategic planning in this course.

- Sometimes the term refers to strategy formulation, implementation, and evaluation, with
strategic planning referring only to strategy formulation.

Stages of Strategic Management

S1: Strategy Formulation

❖ developing a vision and mission

❖ identifying an organization’s external opportunities and threats
❖ determining internal strengths and weaknesses
❖ establishing long-term objectives
❖ generating alternative strategies
❖ choosing particular strategies to pursue

Strategy Formulation Decisions

❖What new businesses to enter. ❖What businesses to abandon

❖Whether to expand operations or diversify ❖Whether to enter international markets

❖Whether to merge or form a joint venture ❖How to avoid a hostile takeover

 Stages of Strategic Management

S2: Strategy Implementation

❖requires a firm to establish annual objectives, devise policies, motivate employees, and
allocate resources so that formulated strategies can be executed

❖often called the action stage

Stages of Strategic Management

S3: Strategy Evaluation

❖Determining which strategies are not working well

Three fundamental activities:

❖reviewing external and internal factors that are the bases for current strategies
❖measuring performance

❖taking corrective actions

Key Terms in Strategic Management

Competitive Advantage

❖any activity a firm does especially well compared to activities done by rival firms,
or
❖any resource a firm possesses that rival firms desire.
❖A firm must strive to achieve sustained competitive advantage

Strategists

❖Individuals most responsible for the success or failure of an organization

❖Help an organization gather, analyze, and organize information

Vision and Mission Statements

❖A vision statement answers the question “What do we want to become?”

❖A mission statement answers the question “What is our business?”
External Opportunities and Threats

❖economic, social, cultural, demographic, environmental, political, legal,

governmental, technological, and competitive trends and events that could
significantly benefit or harm an organization

Some Opportunities and Threats

➢ Availability of capital can no longer be taken for granted.
➢ Consumers expect green operations and products.
➢ Marketing is moving rapidly to the Internet.
➢ Commodity food prices are increasing.
An oversupply of oil is driving oil and gas prices down

Internal Strengths and Internal Weaknesses

❖an organization’s controllable activities that are performed especially well or

poorly
❖determined relative to competitors

Long-Term Objectives

❖specific results that an organization seeks to achieve in pursuing its basic mission
❖long-term means more than one year
❖should be challenging, measurable, consistent, reasonable, and clear

Strategies

❖the means by which long-term objectives will be achieved

❖may include geographic expansion, diversification, acquisition, product
development, market penetration, retrenchment, divestiture, liquidation, and joint
ventures

Annual objectives

➢ ❖short-term milestones that organizations must achieve to reach long-term

objectives
➢ ❖should be measurable, quantitative, challenging, realistic, consistent, and
prioritized
 ➢ ❖should be established at the corporate, divisional, and functional levels in a large
organization

Policies

➢ ❖the means by which annual objectives will be achieved

Benefits of Strategic Management

❖Strategic management allows an organization to be more proactive than reactive in

shaping its own future;

❖It allows an organization to initiate and influence (rather than just respond to) activities—
and thus to exert control over its own destiny.
Financial Benefits

❖Businesses using strategic-management concepts show significant improvement

in sales, profitability, and productivity compared to firms without systematic
planning activities
❖High-performing firms tend to do systematic planning to prepare for future
fluctuations in their external and internal environments

Nonfinancial Benefits

❖Enhanced awareness of external threats

❖Improved understanding of competitors’ strategies
❖Increased employee productivity
❖Reduced resistance to change
❖Clearer understanding of performance– reward relationships

Why Some Firms Do No Strategic Planning?

❖No formal training in strategic management

❖No understanding of or appreciation for the benefits of planning

❖No monetary rewards for doing planning

❖No punishment for not planning

❖Too busy “firefighting” (resolving internal crises) to plan ahead

❖View planning as a waste of time, since no product/service is made

❖Laziness; effective planning takes time and effort; time is money

❖Content with current success; failure to realize that success today is no guarantee for
success tomorrow; even Apple Inc. is an example

❖Overconfident

❖Prior bad experience with strategic planning done sometime/somewhere

Comparing Business and Military Strategy

❖A fundamental difference between military and business strategy is that business

strategy is formulated, implemented, and evaluated with an assumption of competition,
whereas military strategy is based on an assumption of conflict

❖Both business and military organizations must adapt to change and constantly improve
to be successful

Excerpts from Sun Tzu’s The Art of War Writings

 ❖War is a matter of vital importance to the state: a matter of life or death, the road either
to survival or ruin. Hence, it is imperative that it be studied thoroughly

❖Know your enemy and know yourself, and in a hundred battles you will never be defeated

❖Skillful leaders do not let a strategy inhibit creative counter-movement

Chapter 2: THE VISION AND MISSION STATEMENT

Vision Statement

• The vision statement should be short enough, preferably one sentence.

• A vision statement should answer the basic question:

“What do we want to become?”

Tips:

✓Dream big and focus on success.

✓Use the present tense.

✓Use clear, concise, jargon-free language.

✓Should be inspiring and challenging ✓Believable Enough

✓ Achievable

✓ Relevant

• Vision – Big picture of what you want to achieve.

• Mission – General statement of how you will achieve the vision.

What comes first?

1. The first is a statement of vision. It provides a destination for the organization.

2. Next is a statement of mission. This is a guiding light on how to get to the destination.
Five Attributes of an Effective Strategic Vision Statement

1. Future-Oriented.

✓ What will the organization look like, feel like, think, and say in the future?

✓ Where is the organization headed?

✓ What does your full potential look like?

2. Inspiring and Challenging.

✓ What vivid and energizing image do you want to create for people about your desired
outcomes and goals?

✓ What is your dream?

✓ What mountaintop are you striving to reach?

✓ What catalyst will impel the organization to move toward that dream?

3. Motivating and Memorable:

✓ What notable and emotionally connecting future direction do you want to keep reaching
and pushing toward?

4. Purpose-driven.

✓ What is the larger sense of purpose you are striving to obtain?

✓ Are you building a cathedral or are you laying stones?

5. Unique
A mission statement should: WHO, WHAT, WHEN, WHERE, WHY, HOW?

• ✓Define what the organization is and what the organization aspires to be

• ✓Broad in scope; does not include monetary amounts, numbers,
percentages, ratios, or objectives
• ✓Fewer than 150 words in length
• ✓Purpose-driven
• ✓It should be clear
• ✓Realistic and achievable

Mission Statement Components

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

2. Products or services— What are the firm’s major products or services?
3. Markets— Geographically, where does the firm compete?
4. Technology— Is the firm technologically current?
5. Survival, growth, and profitability— Is the firm committed to growth and
financial soundness?
6. Philosophy— What are the basic beliefs, values, aspirations, and ethical
priorities of the firm?
7. Self-concept (distinctive competence)— What is the firm’s major
competitive advantage?
8. Public image— Is the firm responsive to social, community, and
environmental concerns?
9. Employees— Are employees a valuable asset of the firm?

Chapter 3: THE EXTERNAL ASSESSMENT

(POLITICAL, ECONOMIC, SOCIAL, TECHNOLOGICAL, LEGAL,

ENVIRONMENTAL)

External Audit

❖External audit focuses on identifying and evaluating trends and events beyond the
control of a single firm
 ❖reveals key opportunities and threats confronting an organization so that
managers can formulate strategies to take advantage of the opportunities and avoid
or reduce the impact of threats

The Nature of an External Audit

❖The external audit is aimed at identifying key variables that offer actionable
responses

❖Firms should be able to respond either offensively or defensively to the factors by

formulating strategies that take advantage of external opportunities or that minimize
the impact of potential threats.

External Strategic Management Audit

Environmental Scanning

• Environmental scanning is a process that systematically surveys and interprets

relevant data to identify external opportunities and threats that could influence
future decisions. It is closely related to a S.W.O.T. analysis and should be used as
part of the strategic planning process.

Components of external scanning that could be considered include:

Trends:

What trends are occurring in the marketplace or industry that could affect the
organization either positively or negatively?

Competition:

✓ What is your competition doing that provides them an advantage?

✓ Where can you exploit your competition's weaknesses?

Technology:

✓ What developments in technology may impact your business in the future?

✓ Are there new technologies that can make your organization more efficient?

Customers:

✓How is your customer base changing? ✓What is impacting your ability to provide
top-notch customer service?

Economy:

What is happening in the economy that could affect future business?

Labor supply:

What is the labor market like in the geographies where you operate? How can you
ensure ready access to high-demand workers?

Political/legislative arena:

✓ What impact will election outcomes have on your business?

✓ Is there impending legislation that will affect your operations?

KEY EXTERNAL FORCES

External forces can be divided into five broad categories:

1. economic forces

2. social, cultural, demographic, and natural environment forces

3. political, governmental, and legal forces

4. technological forces
 5. competitive forces

EXTERNAL INDICATORS (MCSTEEP)

❖M – MARKET (demand; market share)

❖C - COMPETITION

❖S – SOCIO-CULTURAL

❖T - TECHNOLOGY

❖E - ECONOMIC

❖E – ENVIRONMENTAL

❖P – POLITICAL / LEGAL
Competitive Forces

❖An important part of an external audit is identifying rival firms and determining
their strengths, weaknesses, capabilities, opportunities, threats, objectives, and
strategies

Characteristics of the most competitive companies:

1. Strive to continually increase market share

2. Use the vision/mission as a guide for all decisions

3. Whether it's broke or not, fix it–make it better

4. Continually adapt, innovate, improve

5. Acquisition is essential to growth

6. Hire and retain the best employees and managers possible

7. Strive to stay cost-competitive on a global basis

Industry analysis

Industry analysis is a market evaluation tool companies use to assess the level and
intensity of competition in a specific industry.

Aspects of an industry analysis include:

✓ Demand-supply statistics

✓ Degree of competition within the industry

✓ State of competition between the industry and emerging industries

✓ Future prospects based on things like technological advances

✓ Credit systems

✓ Influence of other external factors in the past and possibly the future
THE FIVE-FORCES MODEL

❖Rivalry among competing firms

-Most powerful of the five forces

-Focus on the competitive advantage of strategies over other firms

❖Potential entry of new competitors

-Barriers to entry are important

-Quality, pricing, and marketing can overcome barriers

Barriers to Entry - An economics and business term describing factors that hinder or
prevent newcomers from entering a market or industry, and so limit competition.

• Need to gain economies of scale quickly

• Need to gain technology and specialized know-how
• Lack of experience
• Strong customer loyalty
• Strong brand preferences
• Large capital requirements
• Lack of adequate distribution channels
• Government regulatory policies
• Tariffs
• Lack of access to raw materials
• Possession of patents
• Undesirable locations
• Counterattack by entrenched firms
• Potential saturation of the market

❖Potential development of substitute products

-Pressure increases when:

✓Prices of substitutes decrease
✓Consumers' switching costs decrease

❖Bargaining Power of Suppliers

is increased/high when there are:

 • Few suppliers
• Few substitutes
• Costs of switching raw materials are high
• Backward integration is gaining control or ownership of

❖Bargaining power of consumers

-Customers being concentrated or buying in volume affects intensity of competition

-Consumer power is higher where products are standard or undifferentiated

Conditions Where Consumers Gain Bargaining Power

1. If buyers can inexpensively switch

2. If buyers are particularly important

3. If sellers are struggling in the face of falling consumer demand

4. If buyers are informed about sellers' products, prices, and costs

5. If buyers have discretion in whether and when they purchase the product

SOURCES OF EXTERNAL INFORMATION

❖Unpublished sources

- customer surveys, market research, speeches at professional and shareholders'

meetings, television programs, interviews, and conversations with stakeholders.

❖Published sources

-of strategic information include periodicals, journals, reports, government

documents, abstracts, books, directories, newspapers, and manuals.
CHAPTER 4: THE INTERNAL ASSESSMENT CULTURE & The McKinsey 7S Framework

CULTURE

➢ that set of beliefs, customs, practices, and ways of thinking that they come to share
with each other through being and working together.’ (Stacey, 1996).

Organizational culture

➢ collection of values, expectations, and practices that guide and inform the actions
of all team members.

Corporate culture

➢ an organization’s values, ethics, vision, behaviors and work environment.

➢ It is what makes each company unique, and it impacts everything from public image
to employee engagement and retention.

• If employees share a company’s ethics, vision and other cultural elements, it can
positively affect a company’s bottom line. Companies with good corporate culture
often have high workplace morale, and highly engaged, productive staff.

THE IMPORTANCE OF CULTURE

• Employee motivation.

• Recruitment.

• Employee morale.

• Productivity and efficiency.

• Quality of product/service.

• Industrial relations.

• Innovation and creativity.

The McKinsey 7S Framework

McKinsey

- a large US management consultancy, produced 7-S framework for understanding

organizations.

- is a tool that describes a global picture of a company or business, according to 7

Elements.

This global picture can be used for different purposes:

✓ Tracking the evolution of the company over time.

✓ Better organize the actions to be taken.

✓ Define appropriate strategies, where they are most needed.

THE 7 S

1. Strategy
what the organization does to achieve its goals?

2. Structure

-How the firm is organized.

- What type is their organizational structure?
- How’s the physical aspect (building/facilities etc.)

3. Staff

– How talent is managed and valued?

- How people relate to each other?

4. Style

– what is the culture of the organization?

- Its character or personality: Friendly, cold, passive

- How is the leadership style?

5. Skills:

-How people work together.

 -What job skills are valued the most?

6. Systems:

- What Resources does a Company have.

• Facilities, Financial resources, Processes, etc.

7. Shared Values:

- What are the Values associated with the Company?

• Their Reputation: what outsiders think of them.

Why is this important?

• You can learn how other companies achieve their goals in such an efficient way.

• It can help you decide which company to invest in.

• It can help you “imitate” some aspects of larger, more

profitable companies.

• etc.
CHAPTER 4 B/ CHAPTER 2 PART 3: SWOT ANALYSIS

What is SWOT analysis?

• strategic planning technique that provides ssessment tools (used to perform

external and internal audits).

• provides information that is helpful in matching the firm’s resources and

capabilities to the competitive environment in which it operates.

• A scan of the internal and external environment is an essential part of the strategic
planning process.
External environment (O/T)

Opportunities and Threats are:

-that could significantly benefit or harm an organization in the future.

-Opportunities and threats are largely beyond the control of an

organization.

✔ Economic

✔ Social

✔ cultural

✔ demographic

✔ environmental

✔ Political - relations in LGU, national, outside the country

✔ legal

✔ Governmental

✔ Technological, and

✔ competitive trends and events

OPPORTUNITIES AND THREATS (EXTERNAL ENVIRONMENT)

Opportunities

•Underserved markets for specific products /services

•Few competitors in your area

•Emerging needs for your products or services

•Press/media coverage of your company

Threats – everything that poses a risk to either your organization itself or its
likelihood of success or growth.

•Emerging competitors •Changing regulatory environment

•Negative press/media coverage. •Changing customer attitudes toward your org

EXTERNAL INDICATORS

•M – MARKET – demand, market share, geographical reach (scope of territory)

• C – COMPETITION – Number of churches around the area (1 km radius and beyond),

market position (leaders, followers, or laggards?)

• S – SOCIO-CULTURAL – demographic (age, sex, religion, income status, educ status,

etc.), Attitudes toward foreign people, attitudes towards other religions, attitudes toward
collectivism or individualism of people; number of untapped/unreached people in the
community, issues in the community, culture, beliefs, traditions, what are the wants/needs
of your target groups?

• T – TECHNOLOGY – technological advancements, internet of things, innovations

• E – ECONOMIC – economic condition of the area, source/s of income;

• E – ENVIRONMENTAL / z – how will the business impact the environment? is the

community environment friendly or not? - How’s their connection to kalikasan and
sangnilikha? like pollution level (visual pollution; waste, noise, air, water, etc.), Concern for
plants and animals

(wildlife preservation), overuse of natural resources?

- Are there unfavorable weather conditions? (typhoon belt, near active volcanoes, fault
lines, flood-prone area, landslide-prone? How’s the peace and order situation? Population
trend, migration trend?

- See the terrain if: malubak, maalikabok, maputik, patag, malayo / malapit sa kabihasnan?
What’s the usual temperature? Topography?

- Magkakalapit ba or malalayo ang mga tao (nasa ika 7 bundok pa yung susunod na
kapitbahay?)

• POLITICAL – political condition in the area (is it smooth, or with political unrest?);
political changes; political trends

/ LEGAL - Environmental regulations, government restrictions (both LGU, provincial,

national e.g. IATF pagluwag or paghigpit ng mga ordinansa ng barangay / LGU’s, mga batas
ng Piipinas na nakaka apekto sa business operations, sa social concern etc.
Strengths and Weaknesses (Internal environment)

Strengths

• Things the organization does well

• Qualities that separate you from your competitors / competitive advantage

• Internal resources such as skilled, knowledgeable workers

• Tangible assets such as intellectual property, capital, physical properties,

technologies, etc.

Weaknesses

• Things the organization lacks or do not have

• Things your competitors do better than you

• Resource limitations

• Unclear unique selling proposition

Internal environment (S/W)

• Strengths and Weaknesses are an organization’s controllable activities that are

performed well or poorly. They arise in the:

✔ Management – PLOCS (Planning, Leading, Organizing, Controlling, and Staffing)

✔ Marketing -product/services, promotion, price,

✔ Finance/accounting – accounting, budgeting

✔ Operations – People management, process management, financial management,

marketing management, inventory (skills/materials)

✔ Research and development- benchmarking, trainings, continuous improvement, place,

people/partners, process, physical evidence - (layout, packaging, branding, fixtures,
signage, staff how they dress/act)
INTERNAL INDICATOR (S/W) The McKinsey 7S Framework

-1. Strategy: what the business does to achieve its goals?

- Is the strategies effective?

- 2. Structure: How the business is organized.

- What type is the firm’s organizational structure?

- How’s the physical aspect (building/facilities etc.)

3. Staff – How talent is managed and valued?

- Are there enough workers? How do people relate to each other? Are they united, divided,
undecided, problematic, or supportive?

4. Style – what is the church culture?

Its character or “personality”: Friendly; cold; passive; indifferent; traditional; modern;

hybrid?

- How is the leadership style of the managers? Are they democratic, autocratic, Laizzes-
faire, strategic, transformational, coach-style, or bureaucratic?

5. Skills: How people work together. ∙ What job skills are valued the most?

6. Systems: What Resources does a Company have?

7. Shared Values: What are the Values associated with the organization? Are you aware of
your VMGO? (Vision/Mission/Objectives)

∙ Their Reputation: what outsiders think of your organization.