CONCEPTS OF

ADMINISTRATION
•STRATEGIC
Fourteenth edition

Fred R. David
ALWAYS LEARNING PEARSON
 /Bibliographic cataloging data

DAVID, FRED R.

Strategic Management Concepts

PEARSON EDUCATION, Mexico, 2013

ISBN: 978-607-32-1576-3
Area: Administration

Format: 21.5 x 27.5 cm Pages: 400

General Management: Philip De la Vega

Higher Education Department: Mario Contreras
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Authorized translation from the English language edition, entitled STRATEGIC MANAGEMENT: A COMPETITIVE ADVANTAGE APPROACH
CONCEPTS, 14th edition, by FRED R. DAVID, published by Pearson Education, Inc., publishing as Prentice Hall, Copyright © 2013. All rights
reserved. ISBN 9780132666213.

Authorized translation of the English language edition, entitled STRATEGIC MANAGEMENT: A COMPETITIVE ADVANTAGE APPROACH
CONCEPTS, 14th. edition, by FRED R. DAVID, published by Pearson Education, Inc., publishing as Prentice Hall, Copyright © 2013. All rights
reserved.

This Spanish edition is the only authorized one.

FOURTEENTH EDITION, 2013

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PEARSON
CHAPTER OBJECTIVES
After studying this chapter, you should be able to:
1. Describe the strategic management process.
2. Explain the need to integrate analysis and intuition into strategic management.
3. Define and exemplify some key terms in strategic management.
4. Analyze the nature of strategy formulation, implementation and evaluation.
5. Describe the benefits of good strategic management.
6. Analyze the relevance of Sun Tzu's book The Art of War for strategic management.
7. Analyze how a company can achieve sustained competitive advantage.

EXERCISES TO REINFORCE LEARNING

Exercise 1A Strategic planning in a local company
Comparing business strategy to military strategy
Exercise 1F
Exercise 1B Getting familiar with SMCO
Gather strategy information
Exercise 1C
Updating the Walt Disney Integration Case
Exercise 1D
Strategic planning for my university
Exercise 1E
 4 PART 1 • OVERVIEW OF STRATEGIC MANAGEMENT CHAPTER 1 • NATURE OF STRATEGIC MANAGEMENT 5

When the CEOs of America's three largest automakers, Ford, General Motors (GM) and Chrysler, appeared before We present Walt Disney as the new integration case, because it is a famous global company that is undergoing a strategic change and has good
U.S. Congressional leaders seeking a financial bailout without a clear strategic plan, they were sent home with management. By working through the Walt Disney-related learning reinforcement exercises at the end of each chapter, you will be well prepared to
instructions to develop such a plan for the future. Austan Goolsbee, one of President Obama's economic advisers, develop an effective strategic plan for any company assigned to you this semester. The exercises at the end of the chapters apply the tools and
said, “Asking for a bailout without a compelling business plan was folly.” Goolsbee also said, “If the three auto CEOs concepts that were covered in each one.
need a bridge, it should be a bridge that takes them somewhere, not one that takes them nowhere.” 1 This textbook
gives you instructions on how to develop a clear strategic plan—that is, a bridge that takes you somewhere.
This chapter provides an overview of strategic management. It presents a practical and comprehensive model of
What is strategic management?
the strategic management process, and defines its basic activities and terms. On one occasion, two CEOs of companies competing in the same industry decided to go on an outing to discuss a possible merger. They went into
It also introduces the concept of excellence cases. The case at the beginning of each chapter reveals how some the forest. Suddenly, they came across a grizzly bear standing on its hind legs, growling at them. The first thing the first president did was take off
companies have managed to succeed within a weak global economy. The companies studied prosper while their rivals his backpack, grab a pair of shoes and run. The second president told him, “You can’t outrun that bear.” The first president replied: “Maybe not,
weaken. Each case examines the strategies of companies that are performing well despite high unemployment, rising but I can definitely do it faster than you!” This story captures the essence of strategic management, which is about gaining and sustaining
interest rates, limited credit availability, increasing consumer demand, and intense price competition. competitive advantage.
At the beginning of each chapter, a case of excellent strategic management is presented. The first company to be
introduced is Winnebago Industries Inc.
Definition of strategic management
Strategic management is defined as the art and science of formulating, implementing and evaluating multidisciplinary decisions that enable a
company to achieve its objectives. As this definition suggests, strategic management focuses on integrating management, marketing, finance and
accounting, production and operations, research and development, and information systems to achieve organizational success. The term strategic
management in this text is used synonymously with the term strategic planning. The latter is more frequently used in the business world, while the
Strategic management case of excellence former is used more in the academic field. Sometimes the term strategic management is used to refer to the formulation, implementation, and
evaluation of strategies, and strategic planning refers only to the formulation of strategies. The purpose of strategic management is to create and
take advantage of new and different opportunities for the future; in contrast, long-range planning seeks to optimize today's trends for tomorrow.

WINNEBAGO INDUSTRIES INC. The term strategic planning originated in the 1950s and enjoyed great popularity from the mid-1960s to the mid-1970s. At that time, strategic
planning was thought to be the solution to all problems and many American corporations were “obsessed” with it. However, after this “boom”,
strategic planning was left aside during the 1980s, as the various planning models did not generate greater returns. However, the 1990s brought
about a resurgence of strategic planning, and today, this process is widely practiced in the business world.
In 2001, Winnebago was recognized as the nation's best-selling motorhome manufacturer for the tenth consecutive year. The mobile home manufacturer has an
excellent strategic plan. For fiscal year 2010, Winnebago reported an incredible 112% increase in revenue and earnings to $10.2 million.
In essence, a strategic plan is the company's game plan. Just as a football team needs a good game plan to have a chance of success, a
Winnebago hired 350 new employees in the past 12 months as dealer inventory of its vehicles increased 21%. Winnebago dealers sold more Class A and company must have a good strategic plan to compete successfully. Profit margins between companies in most industries are so small that the
Class C motorhomes combined than any other manufacturer's dealer in 2010, giving them an 18.8 percent market share. The company recently became the strategic plan does not allow for the possibility of error. A strategic plan is the result of the difficult process of choosing among numerous good
Class A market leader for the first time since 1981, and achieved a Class A alternatives and indicates a commitment to specific markets, policies, procedures and operations rather than to other “less desirable” courses of
market share of 19.5% in 2010, compared to 16.6% the previous year. Winnebago action.
Winnebago's Class A diesel market share was 15.2 percent in 2010, up from Vice President of The XéxrrÁnc) strategic management st used in many colleges and universities as the title ------------------------------------------------------ - -
11.4 percent the year before, while market share in the Class A gasoline Sales and
one of the main courses taught in the business administration degree. This course integrates material from all business courses. The Strategic
segment increased from 22.9 to 23.7 percent. Marketing Roger
Management Club Online www.strategyclub.
Despite high gasoline prices, consumer credit cuts, rising costs of raw Martin stated in
materials and high unemployment, Winnebago is successfully offering 2011: "We are very
com offers many benefits to students of strategic management.
innovative products and marketing its vehicles and motor homes to the pleased that
general public, but especially to retirees, who purchase a motor home Statistical Surveys Stages of strategic management
primarily for the experience of traveling and camping with fellow retirees. They has once again The strategic management process consists of three stages: strategy formulation, implementation, and evaluation. ^Strategy formulation involves
enjoy camping and grilling with other RVers, making new friends every day named Winnebago developing a vision and mission, identifying external opportunities and threats to the firm, determining internal strengths and weaknesses,
while traveling instead of staying in a motel without meeting new people. as the leading establishing long-term objectives, generating alternative strategies, and choosing the particular strategies to be pursued. Issues involved in strategy
Randy Potts, the new CEO of Forest City, Iowa-based Winnebago, faces manufacturer of formulation include deciding which new businesses to enter, which businesses to exit, how to allocate resources, expand operations or diversify,
major competition including Fleetwood, Coachman and Thor Industries. trucks."
enter international markets, merge or form a partnership, and how to avoid a hostile takeover.
Winnebago recently received the Quality Circle Award from the Recreation rolling bags number
Vehicle Dealers Association, a recognition the company has received every ro one in the United States. We congratulate our loyal employees and strong
year since 1996. dealer network for achieving this leading sales position for the tenth consecutive
year. We work very hard to develop new and exciting products and to support our
distributors and retail customers with what we believe to be industry-leading sales
and service programs. We are pleased that these efforts have resulted in
sustained success in the retail market. :
We are particularly pleased with the market share in the ‘
segment of the Class A gasoline and diesel, which is due, in part, to the :
"The success of our new 2011 line, which features great innovation in terms of
features and distribution that are unique in the industry." j
In the quarter ended May 28, 2011, j Winnebago's revenue increased to
$135.6 j million from $134.8 million a year earlier. J

Source: Company documents. Also, Timothy Martin, “Winnebago Logs

Another Profit,” Wall Street Journal, October 15, 2010, p. B6.
6 PART 1 • OVERVIEW OF STRATEGIC MANAGEMENT CHAPTER 1 * NATURE OF STRATEGIC MANAGEMENT 7

Since no company has unlimited resources, strategists must decide which alternative strategies will yield the by a few flashes of intuitive brilliance. He never felt the need to investigate the facts. Despite this, he was sometimes
most benefits. Decisions made in formulating strategies will commit an organization to certain products, markets, impressively accurate in his judgments.” 3 Albert Einstein recognized the importance of intuition when he said, “I
resources, and technologies for an extended period of time. Long-term competitive advantages will depend on believe in intuition and inspiration. Sometimes I am sure that I am right even though I do not know the reason.
strategies. For better or worse, strategic decisions bring important cross-functional consequences and long-lasting Imagination is more important than knowledge, because knowledge is limited, while imagination encompasses the
effects on an organization. Senior managers have the best perspective to fully understand the consequences of their entire world.”4
decisions when formulating their strategies; and they have the authority to commit the resources necessary for their While some companies today are able to survive and thrive thanks to the intuitive geniuses who run them, most
implementation. are not so fortunate. These organizations can benefit from strategic management, which integrates intuition and
Strategy implementation requires the company to set annual objectives, create policies, motivate employees, and analysis into decision making. Choosing between an intuitive or analytical approach to decision making is not a no-
allocate resources so that the formulated strategies can be executed. Strategy implementation involves developing a brainer proposition. Managers at all levels of a company bring their intuition and judgment to strategic management
culture that supports the strategy, creating an effective organizational structure, redirecting marketing efforts, analyses. Analytical thinking and intuitive thinking complement each other.
preparing budgets, developing and using information systems, and linking employee compensation to organizational Operating with the mindset of “I’ve made up my mind, don’t bother me with the facts” is not managing by
performance. intuition; it is managing by ignorance.5 Drucker says, “I believe in intuition only if it is disciplined. The 'hunch' artists,
Strategy implementation is often referred to as the “action stage” of strategic management. Implementing a who diagnose but do not investigate the facts, are the ones who kill people in medicine, and destroy companies in
strategy means mobilizing both employees and managers to put the formulated strategies into practice. Often government."6 As Henderson points out:
considered the most difficult stage of strategic management, implementation requires discipline, commitment and
sacrifice. Successful implementation depends on managers' ability to motivate employees, which is more of an art The rapid changes taking place today are creating a business world in which companies' administrative habits are
than a science. Strategies formulated but not implemented are of no use. becoming increasingly inadequate. Experience was the only adequate guide when changes were gradual.
Interpersonal skills are especially important for successful strategy implementation. Implementation activities However, intuitive and experience-based management philosophies are totally inadequate when decisions are
affect all employees and managers in a company. Each division and department must decide the answers to questions strategic and carry important and irreversible consequences.7
such as “What should we do to implement our part of the organizational strategy?” and “How can we best do this?”
The challenge of implementation is to motivate managers and employees throughout the company to work with pride In a way, the strategic management process attempts to duplicate what goes on in the mind of a brilliant, intuitive
and enthusiasm towards achieving the stated objectives. person who knows the business and complement it with analysis.
Strategy evaluation is the final stage of strategic management. Managers urgently need to know whether certain
strategies are not working well; strategy evaluation is the primary means of obtaining this information. All strategies Adapting to change
are subject to future modifications, due to the constant change of external and internal factors. Strategy evaluation The strategic management process is based on the belief that companies must continually monitor internal and
consists of three fundamental activities: 1) reviewing the external and internal factors based on which current external trends and events in order to make necessary and timely changes. The pace and magnitude of change
strategies are formulated, 2) measuring performance, and 3) applying corrective actions. Strategy evaluation is affecting organizations has increased dramatically – just look at how the global economic downturn has taken so
necessary because success today does not guarantee success tomorrow. Success always creates new and different many businesses by surprise. Companies, like organisms, must be “adaptive experts” if they are to survive.
problems; organizations that are complacent tend to disappear. For 30 years, Lowe's Company and Home Depot Inc. have been and remain fierce competitors, always trying to
In large companies, the activities of strategy formulation, implementation and evaluation occur at three better adapt to changing consumer needs. Home Depot is bigger and reports faster revenue and profit growth, but
hierarchical levels: corporate, divisional or strategic business units, and functional. By fostering communication and Lowe's CEO Robert Niblock says his company is as quick to get its tools and appliances online as it is in stores.
interaction between managers and employees at all hierarchical levels, strategic management helps a company Lowe's revenue is about $49 billion annually, while Home Depot's is $68 billion. Recently, Home Depot CEO Frank
function as a competitive team. Most small businesses and some large companies lack strategic business divisions or Blake added 19 centralized distribution centers so store employees could spend more time serving shoppers. Both
units; they only have the corporate and functional levels. Still, managers and employees at these two levels must take firms are hiring thousands of part-time employees, moving away from the concept of full-time jobs, in order to keep
an active role in strategic management. labor costs low and create a competitive advantage based on price.
Peter Drucker states that the main task of strategic management is to think about the overall mission of a The second-largest bookstore chain in the United States, Borders Group, filed for bankruptcy in 2011, due to its
company: inability to adapt to changes in book retailing: from traditional book sales in bookstores to online purchases, the
preference for digital books over printed ones, and even the shift to renting books instead of buying them. Borders
ranks second in terms of store count, behind Barnes & Noble, which is also struggling to survive in an industry
...that is, asking ourselves, “What is our business?” This leads to goal setting, strategy development and decision permeated by rapid digitalization and increasingly alienated from brick-and-mortar stores. Ann Arbor, Michigan-
making today for tomorrow's results. This must certainly be done by a part of the organization that is capable of based Borders Group operates 676 stores nationwide but was on the brink of financial collapse before being acquired
seeing the business as a whole; capable of balancing today's objectives and needs with tomorrow's needs; and in July 2011 by Direct Brands, a division of Najafi Companies of Phoenix, Arizona.
capable of allocating human and monetary resources to achieving key results.2

Integration of intuition and analysis

Edward Deming once said, "In God we trust. “The rest of you, take care of the data.” The strategic management
process can be described as an objective, logical and systematic method for making important business decisions. Its
purpose is to organize qualitative and quantitative information in such a way that it is possible to make effective
decisions under conditions of uncertainty. However, strategic management is not a pure science that fits into a simple
or systematic model.
Based on their past experiences, judgments, and feelings, most people recognize that intuition is essential for
making good strategic decisions. Intuition is very useful for making decisions, particularly in situations of great
uncertainty or with few precedents. It is also useful when there are highly interrelated variables or when one must
choose between several plausible alternatives. Some managers and business owners claim to possess extraordinary
intuitive abilities that they use as their only resource when developing brilliant strategies. For example, Alfred Sloan
described Will Durant, founder of GM, as “a man who would adopt a course of action guided, as far as I know, only
8 PART 1 • OVERVIEW OF STRATEGIC MANAGEMENT CHAPTER 1 • NATURE OF STRATEGIC MANAGEMENT

To survive, every business must identify changes and adapt to them cleverly. The strategic management process customers from Neiman Marcus and Saks Fifth Avenue; T. J. Maxx and Marshalls have taken customers from most other stores in malls,
aims to enable organizations to adapt effectively to long-term change. As Waterman has said: and Family Dollar is taking revenue from Wal-Mart.9 Gaining and maintaining a competitive advantage is critical to a company's long-term
success. In mass retail, large companies such as Wal-Mart, Best Buy and Sears are losing their competitive advantage to smaller stores,
Today more than ever in the business environment the only constant is change. Successful companies navigate suggesting a marked trend toward downsizing in mass retail. For example, Best Buy opened 150 of its smaller Best Buy Mobile stores in
change with great effectiveness by continually adapting their bureaucracies, strategies, systems, products, and 2011. Home Depot is selling some of its parking lots to fast food chains and auto repair shops. In Greensboro, North Carolina, Sears just
cultures to survive the shocks and thrive on the same forces that destroy the competition.8 leased about 34,000 square feet of its space to Whole Foods Market, which is set to open in 2012. As customers are shopping more online
than before, it is much better to have fewer buildings to maintain a competitive advantage in the retail market. In mid-2011, Wal-Mart
began opening Wal-Mart Express stores of less than 40,000 square feet each, instead of the 180,000-square-foot Supercenters. Office
Online social media, rising food and energy prices are external changes that are transforming business and
Depot's new 5,000-square-foot stores are much smaller than its traditional stores.
society in today's world. On a political map, the borders between countries are very clear, but on the competitive map
It is common for a company to be able to maintain its competitive advantage only for a certain time, as rival companies will imitate
that shows the true flow of financial and industrial activity, the borders have disappeared. The rapid flow of information
and undermine that same advantage. Therefore, it is not enough to simply gain a competitive advantage. A company must strive to achieve
has transcended national borders and people around the world can see with their own eyes how other people live and
sustained competitive advantage by 1) continually adapting to changes in external trends and events, and in internal capabilities, -
work. We have become a borderless world with global citizens, global competitors, global Chentes, global suppliers and
competencies, and resources; 2) being effective in formulating, implementing, and evaluating strategies that capitalize on these factors.
global distributors! American companies have been challenged by rivals in many industries. To say that the U.S. auto
Every day more and more companies are gaining a competitive advantage by using the Internet to make direct sales and communicate with
industry has been threatened by international competition is an understatement; the reality is that the same situation has
suppliers, consumers, creditors, partners, shareholders, customers and competitors on a global level. E-commerce allows businesses to sell
played out in many other industries.
their products, advertise them, purchase supplies, eliminate middlemen, track inventory, eliminate paperwork and share information. In
The need to adapt to change has caused organizations to ask key strategic management questions such as “What
short, e-commerce is minimizing the expense and inconvenience of time, distance and space when doing business, resulting in better
type of business should we become?”, “Are we in the right market(s)?”, “Should we redesign our business?”, “What
customer service, greater efficiency, better products and greater profitability.
new competitors are entering our industry?”, “What strategies should we adopt?”, “How are our customers changing?”,
In June 2011, Irvine, California-based Specific Media acquired social networking company Myspace. Myspace, formerly owned by
“Are new technologies being developed that could put us out of business?”
Beverly Hills-based News Corp., is being battered by the rapid growth of rival Facebook. Myspace's customer base fell from more than 100
The Internet has changed the way we organize our lives, inhabit our homes, and relate and interact with family,
million the previous year to 80 million in early 2011, while Facebook's customer base, in the same time, increased from 350 million to 500
friends, neighbors, and even ourselves. The Internet promotes price comparison before purchasing, allowing consumers
million. Analyst Jeremiah Owyang of market research firm Altimeter Group said: “Myspace’s end was seen coming before CEO Chris
around the world to join together to demand discounts. The Internet has transferred power from corporations to
DeWolfe left. The company had stopped innovating for years, unlike Facebook. It's a question of culture and leadership. Myspace's
individuals. When trying to get the best price and service, shoppers used to face major obstacles such as limited time
business model didn't evolve. It was stuck with its young population and only implemented minimal changes - until it was too late."10
and information to make comparisons, but now consumers can instantly review hundreds of offers from sellers. There
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has been a dramatic increase in both the number of people shopping online and the average amount of money they
spend. Digital communication has become the name of the game in marketing. Today, consumers rely on blogs, forums
Strategists
like Twitter, video sites like YouTube, and social networking sites like Facebook, Myspace, and LinkedIn instead of
Strategists are the people who bear the greatest responsibility for the success or failure of a company. Strategists have many titles,
television, radio, newspapers, and magazines. Facebook and Myspace recently unveiled new features that will further
including CEO, president, owner, chairman of the board, executive director, chancellor, dean, or entrepreneur. Jay Conger, professor of
connect social networks to the broader Internet. Users of these social networks have access to many other shopping sites
organizational behavior at London Business School and author of Building Leaders, says, “All strategists should be training directors. We
with the same passwords they use on their social network, so their friends can see what items they have purchased from
are going through a long period of changes. If our leaders do not show great adaptability and are not good role models during this time,
various online stores. The intent of these two social networking sites is to have their members use their passwords to
then our companies will not adapt either, because at the end of the day, leadership is about setting an example.”
manage all of their other online identities. Retailers in more traditional stores have realized that their online sales can
Strategists help a company gather, analyze, and organize information. They observe competitive and industry trends, develop
increase sales in their physical stores, since they use their websites to announce promotions.
predictive models and scenario analyses, assess corporate and divisional performance, recognize opportunities in emerging markets,
identify business threats, and develop creative action plans. Strategic planners often
Key Terms of Strategic Management
Before we continue talking about strategic management, we must define nine key terms: competitive advantage,
strategists, vision and mission statement, external opportunities and threats, internal strengths and weaknesses, long-
term objectives, strategies, annual objectives and policies.

Competitive advantage
The essence of strategic management is to achieve and maintain a competitive advantage. This term can be defined as
“anything that a company does especially well compared to rival companies.” When a company can do something that
rival companies can't, or has something that its rivals want, that represents a competitive advantage. For example, a
company that has plenty of cash on its balance sheet has a competitive advantage. Some cash-rich companies are
acquiring struggling rivals. For example, in mid-2011, Dish Network Corp. acquired Reston, Virginia-based satellite
communications company DBSD North America, which was operating under bankruptcy protection, for $1 billion. The
acquisition gave Dish Network access to diverse broadband offerings. Dish Network is also seeking to acquire bankrupt
satellite operator Terrestar Networks, which would allow Dish Network to launch its mobile video and internet services
via satellite.
Having fewer fixed assets than rivals can also provide an important competitive advantage in a global downturn.
For example, Apple has no production facilities of its own, while its rival, Sony, has 57 factories. Apple relies
exclusively on contract manufacturers for the production of all its products, while Sony has its own plants. Having
fewer fixed assets has allowed Apple to maintain its financial health and avoid incurring large long-term debts. Sony, by
contrast, has accumulated a heavy amount of debt on its balance sheet.
Paco Underhill, CEO of Envirosell, says, “What was once a respectful war has now become a 21st-century street
fight, with everyone competing for customers’ money.” Shoppers are “shopping cheaper,” so Nordstrom is poaching
 10 PART 1 • OVERVIEW OF STRATEGIC MANAGEMENT CHAPTER 1 • NATURE OF STRATEGIC MANAGEMENT 11

hold important administrative positions. They are usually found at high levels of management, and generally have activity that some organizations use to influence external opportunities and threats.
the authority to make decisions in the company. The CEO is the most visible and important strategic manager. Any
manager who is responsible for a unit or division, for profit or loss results, or who has direct authority over a Internal strengths and weaknesses
significant part of the company is a strategic manager (strategist). Over the past five years, the role of chief strategy Internal strengths and weaknesses are activities that an organization can control and perform very well or very poorly.
officer, or CSO, has emerged as a new part of the C-suite at many companies, including at Sun Microsystems, These activities are related to a company's administration, marketing, finance and accounting, production and
Network Associates, Clarus, Lante, Marimba, Sapient, Commerce One, BBDO, Cadbury Schweppes, General Motors, operations, research and development, and information management systems. Identifying and evaluating
Ellie Mae, Cendant, Charles Schwab, Tyco, Campbell Soup, Morgan Stanley, and Reed-Elsevier. This corporate title organizational strengths and weaknesses in the functional areas of a company constitutes a fundamental task of
represents recognition of the growing importance of strategic planning in business. Franz Koch, CSO of German strategic management. Organizations strive to find strategies that capitalize on internal strengths and eliminate internal
sportswear company Puma AG, was promoted to CEO of Puma in mid-2011. Asked about his plans for the company, weaknesses.
Koch said on a conference call, “I plan to focus just on the long-term strategic plan.” Strengths and weaknesses are determined based on competitors. Relative deficiency or superiority constitutes
Strategists differ from one another as much as companies do, and these differences must be taken into account important information. Strengths and weaknesses may also depend on the company's own elements and not just its
when formulating, implementing, and evaluating strategies. Some strategists rule out certain types of strategies performance. For example, a strength might be having natural resources or a historical reputation for quality. Strengths
because of their personal philosophies. Strategists differ in their attitudes, values, ethics, willingness to take risks, and weaknesses can also be determined by a company's own objectives. For example, high levels of inventory turnover
concern for social responsibility or profitability, short- and long-term goals, and management style. Milton Hershey, are a weakness for a company that seeks to never run out of stock.
founder of Hershey Foods, created the company to support an orphanage. From its corporate profits, Hershey Foods There are several ways to determine internal factors, such as calculating ratios, measuring performance, and
supports more than 1,000 children at its School for Orphans. comparing with prior periods and industry averages. Various types of surveys can also be developed and applied to
examine internal factors such as employee morale, production efficiency, advertising effectiveness, and customer
Vision and Mission Statement loyalty.
Today, many organizations write a vision statement, which answers the question, “What do we want to become?”
Formulating a vision statement is considered the first step in strategic planning, preceding even the mission statement. Long-term goals
Many vision statements consist of only one sentence. For example, at Stokes Eye Clinic in Florence, South Carolina, Objectives are defined as the specific results that an organization seeks to achieve by pursuing its core mission. Long
“Our vision is to take care of your vision.” term means a period longer than one year. Objectives are essential to the success of an enterprise because they point
A mission statement is an “enduring statement of purpose that distinguishes a company from other similar out direction, aid in evaluation, create synergy, reveal priorities, focus on coordination, and establish a basis for
companies. The mission statement identifies the scope of a company’s operations in terms of product and market.” 11 It planning, organizing, directing, and controlling activities. Goals should be challenging, measurable, consistent,
answers the basic question facing all strategists: “What is our business?” A clear mission statement describes an reasonable and clear. In a multidimensional company, objectives must be established generally for the entire
organization's values and priorities. Developing the mission statement forces strategists to think about the nature and organization and specifically for each of the divisions.
scope of current operations and to assess the potential attractiveness of future markets and activities. The mission
statement broadly outlines the future direction of a company. It's a constant reminder to employees of why the Strategies
organization exists and what the founders envisioned when they put their fame and fortune on the line to make their Strategies are the means through which long-term objectives will be achieved. Some business strategies are geographic
dreams a reality. expansion, diversification, acquisition, product development, market penetration, budget reductions, divestitures,
liquidation, and joint ventures. Table 1-1 describes the strategies adopted by some companies.
External opportunities and threats Strategies are possible courses of action that require decisions by senior management and large amounts of
External opportunities and threats refer to economic, social, cultural, demographic, environmental, political, legal, company resources. Furthermore, strategies affect the long-term prosperity of the organization, usually for a minimum
governmental, technological and competitive trends and developments that could significantly benefit or harm an of five years, and are therefore future-oriented. Strategies have multi-functional or multi-divisional consequences and
organization in the future. Opportunities and threats are beyond the control of a single company, hence the use of the require consideration of both external and internal factors facing the firm.
word external. Below are the threats that many companies face:
Annual objectives
• Interest rates are on the rise.
Annual objectives are short-term goals that organizations must achieve in order to achieve their long-term objectives.
• Product life cycles are getting shorter.
Like long-term goals, annual goals should be measurable, quantitative, challenging, realistic, consistent and prioritized.
• State and local governments are financially weak.
In a large company, these objectives should be set at the corporate, divisional, and functional levels. Annual objectives
• Riots and violence in Mexico have increased.
should be formulated in terms of achievements in the areas of administration, marketing, finance and accounting,
• Winters are colder and summers are hotter than before.
production and operations, research and development, and management information systems (MIS). For each long-
• House prices remain exceptionally low.
Some of the opportunities are presented term objective, a series of annual objectives are necessary. Annual objectives
• Global markets offer the highest revenue growth.
• The availability of capital can no longer be taken for granted.
• Consumers expect green operations and products. The changes mentioned above are creating a different type of
• Marketing is rapidly moving online. consumer and, consequently, the need for different types of products,
• Prices of basic foodstuffs are rising. services and strategies. Many companies in different industries are
• Political tension in the Middle East is causing oil prices to rise. facing the external threat of online sales capturing a larger market share
• Hacker activity has been on the rise. in their industry.
• Intense price competition has affected most companies. Other opportunities and threats include the passage of a law, the
• Unemployment and underemployment rates remain high. introduction of a new product by a competitor, a national catastrophe, or
a decline in the value of the dollar. A competitor's strength can
constitute a threat. Unrest in the Middle East, rising energy costs, or
social media could all be seen as both opportunities and threats.
A basic principle of strategic management is that companies should formulate strategies to take advantage of
external opportunities and avoid or reduce the impact of external threats. For this reason, identifying, examining and
evaluating external opportunities and threats is essential for success. This process of investigating, gathering and
assimilating external information is often referred to as environmental scanning or industry analysis. Lobbying is an
12 PART 1 • OVERVIEW OF STRATEGIC MANAGEMENT CHAPTER 1 • NATURE OF STRATEGIC MANAGEMENT 13

TABLE 1-1 Example of strategies in action in 2011 TABLE 1-2 Percentage of smokers in some countries
Skype ____________________________________________________________________________ Country Percentage
Headquartered in Luxembourg and acquired by Microsoft Corporation in 2011, Skype offers software applications that enable users to make Internet Greece Russia 50
calls, video conferences, send instant messages and transfer files. Very popular with people who frequently make international calls, Skype conferences High
Austria Spain
can hold up to 25 people at the same time, including the caller. Skype 3.0, recently released for Apple's iOS platform, offers the possibility of video
United Kingdom
conferencing via iPhone, iPad and iPod Touch. Skype just acquired Qik, a mobile video streaming and storage company, and partnered with Sony and
Panasonic to create Skype-ready Blu-ray players. Today, 25% of all international calls are made via Skype, up from 13% in 2009. The video France Germany
conferencing market is expected to exceed $1 billion by 2015. Italy Belgium
Sbarro Inc. Switzerland
USA
The Italian fast food restaurant located in many of the fast food areas of shopping malls around the world is deep in debt and struggling to survive.
Based in Melville, New York, Sbarro is closing the least profitable of its 1,000 locations in 40 countries, including Qatar, Egypt and New Zealand.
Sbarro has hired bankruptcy and restructuring attorneys to help it survive as many consumers have, for various reasons, opted for other in-center fast-
food options, such as Chick-fil-A. Sbarro needs a clear strategic plan to survive. v Low
19
Target Corp.
Source: Based on “Smoking Culture Persists in Europe, Despite Bans,” by
Based in Minneapolis, the mass-market chain entered Canada in 2012, where it acquired about 150 Zellers stores and converted them into Target stores.
Christina Passariello, Wall Street Journal, January 2, 2009, A5.
Despite having 1,752 stores in the United States, Target has been a late entrant into Canada, as Wal-Mart and Sears have been in Canada for many
years. Most of Target's new Canadian stores will be in highly urbanized areas such as Vancouver, Montreal, Ottawa, Edmonton and Calgary. According
to reports, 70% of Canadians are already familiar with the Target brand. Avis, Dollar, Thrifty and Budget are among them. These four companies charge a $250 cleaning fee if any of their
customers smoke in their rental vehicle.
Caesars Entertainment

Formerly known as Harrah's Entertainment, the gambling company is establishing non-casino hotels in Asia for the first time, following in the footsteps
of its main competitor, MGM Resorts International. None of these companies have been able to obtain licenses to operate gambling in Macau and
Strategic management model
Singapore. As the US gambling market remains stagnant, Caesars is eager to take advantage of strong growth in China, India and Vietnam. Caesars The best way to study and apply the strategic management process is by using a model. Each model represents some
initially plans to manage rather than own the hotels that will soon use its brand across Asia. type of process. The flowchart shown in Figure 1-1 is a comprehensive and widely accepted model of the strategic
management process.12 This model does not guarantee success, but it does provide a clear and practical method for
formulating, implementing, and evaluating strategies. The model includes the relationships among the major
are especially important in strategy implementation, while long-term objectives are important for strategy
components of the strategic management process; it will appear in all subsequent chapters, and will highlight areas
formulation. Annual objectives are the basis for resource allocation.
related to the particular topic of each chapter. The following are three important questions that must be answered
Policies when developing a strategic plan:
Policies are the means to achieve annual objectives. Policies consist of guidelines, rules and procedures established to Where are we right now?
support efforts to achieve these objectives. Policies guide decision-making and the management of repetitive or Where do we want to go?
recurring situations.
How will we get there?
Policies are typically formulated in terms of administration, marketing, finance and accounting, production and
operations, research and development, and computer systems administration activities. Policies can be established at Identifying a company's vision, mission, objectives and current strategies is the logical starting point for strategic
the corporate level and apply to all divisions of the organization or targeted at a single division, or they can be targeted management, since a company's current situation and condition may prevent the adoption of certain strategies and
at each functional level and apply to some of the operational activities or specific departments. Policies, like annual may even dictate a particular course of action. Every company has a vision, mission, certain objectives and strategies,
objectives, have special relevance in the implementation of strategies, as they describe what the organization expects even if these elements have not been consciously designed, written or communicated. To know where a company is
from its employees and managers. Policies enable coherence and coordination within and between departments within going, you need to know where it has been.
the organization. The strategic management process is dynamic and continuous. A change in any one of the major components of
Various studies suggest that a healthier team will be able to implement strategies more efficiently and effectively. the model produces a change in some or all of the other components—For example, third-world countries with new
Smoking has become a heavy burden on Europe's state-run welfare systems, with smoking-related illnesses costing Internet access might represent a significant opportunity and a need for change in a company's long-term goals and
more than $100 billion a year. Smoking also represents a huge burden on businesses around the world, which is why strategies; a failure to meet annual goals might require a change in policy; a major change in competitors' strategy
they continually implement policies to restrict this habit. Table 1-2 shows a percentage ranking of some countries of might require a change in the company's mission. Therefore, strategy formulation, implementation and evaluation
people who smoke. activities must be carried out on an ongoing basis, not just at the end of the year or every six months. In reality, the
Hotels and motels across the United States are rapidly becoming smoke-free, with more than 13,000 hotels and process of strategic management never ends.
motels now adopting this policy. The American Hotel and Lodging Association says there are 50,800 hotels and It is important to note that in the strategic management model, issues of business ethics, social responsibility and
motels in the United States that have 15 rooms or more. All Marriotts are now smoke-free. Almost all car rental environmental sustainability have repercussions on all activities in the model, as will be described in Chapter 10.
companies are smoke-free, including: Also note in the model that current international issues also impact almost all strategic decisions, as described in
Chapter 11.
In practice, the strategic management process does not have the clear divisions nor is its execution as orderly as
its model suggests. Strategists do not follow the process outlined in the model to the letter. There is usually feedback
between the hierarchical levels of the organization.
 14 PART 1 • OVERVIEW OF STRATEGIC MANAGEMENT CHAPTER 1 • NATURE OF STRATEGIC MANAGEMENT 15

FIGURE 1-1 respond to them) and, in this way, exercise control over their own destiny. Small business owners, CEOs, presidents, and managers of many for-
profit and nonprofit organizations have recognized and understood the benefits of strategic management.
Comprehensive model of the strategic management process Since its inception, the primary benefit of strategic management has been to help companies formulate better strategies through the use of a
more systematic, logical, and rational approach to strategic choice. This, of course, remains an important benefit of strategic management, but
Chapter 10: Business ethics, social responsibility and environmental sustainability more recent research indicates that the process, rather than the decision or document, is the most important contribution of strategic
management.14 Communication is the key to successful strategic management. Through participation in the process, that is, through dialogue and
participation, both managers and employees become committed to supporting the organization. Figure 1-2 illustrates this intrinsic benefit that
strategic planning has for a company. It is worth mentioning that all organizations need all their employees to be dedicated to the mission of
achieving the success of the organization.
Therefore, the way in which strategic management is carried out is exceptionally important. One of the key goals of the process is to achieve
understanding and commitment from all managers and employees. Understanding may be the most important benefit of strategic management,
followed by commitment. When managers and employees understand what the organization does and why it does it, they tend to feel part of the
company and are committed to helping it. This is especially true when employees understand the relationship between their compensation and
company performance. Managers and employees become surprisingly creative and innovative when they understand and support the company's
mission, goals, and strategies. Therefore, an important benefit of strategic management is the opportunity for the process to empower individuals.
Empowerment is the act of strengthening employees' sense of efficacy, which encourages them to participate in decision-making and to exercise
. Implement their initiative and imagination, and they are rewarded for doing so.
Developing strategies:
Set long-term Generating,
goals Marketing, Strategic planning is a process of learning, helping, educating and supporting, not just a paperwork activity among senior executives. The
Evaluating, and
the vision and
mission Cañitul Selecting
Strategies Chapter
finance,
accounting, R&D,
dialogue that is provoked in the strategic management process is more important than a well-bound document. 15 The worst thing that strategists
statementChapt and MIS topics
can do is develop strategic plans alone and then present them to operational managers for execution. By participating in the process, managers
6
er 2 Chapter 8 “own” the strategy. The feeling of ownership of the strategies in the people who have to execute them is the key to their success.
Although making good strategic decisions is the primary responsibility of an organization's owner or CEO, both managers and employees
must participate in the activities of strategy formulation, implementation, and evaluation. Participation is one of the keys to achieving
commitment to make the necessary changes.
More and more corporations and institutions are using strategic management to make effective decisions. But strategic management does not
guarantee success; it can be dysfunctional if conducted in a haphazard manner.

Financial benefits
Research indicates that organizations that use strategic management concepts are more profitable and successful than those that do not. 16
Companies that use strategic management concepts show significant improvement in areas such as sales, profitability, and productivity compared
to companies that do not have systematic planning activities. High-performing companies tend to engage in systematic planning in preparation for
future fluctuations in their external and internal environments. Companies that have planning systems that resemble
Chapter 11: Global/International Issues
Benefits for a company that carries out strategic planning

Formulation of Implementation of I Evaluation _

strategies strategies I of strategies
Source: Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22, no. 3 (June 1988): 40.

tion. Many organizations hold formal semi-annual meetings to review and update the company's vision and mission,
opportunities and threats, strengths and weaknesses, strategies, objectives, policies, and performance. These meetings
are commonly held off-site and are known as retreats. The purpose of holding regular strategic management meetings
away from the workplace is to stimulate the creativity and openness of the participants. Good communication and
feedback are necessary throughout the entire strategic management process.
The application of the strategic management process is usually more formal in larger, more established
organizations. Formality refers to the degree to which participants, their responsibilities, authority, duties, and focus
are specified. Smaller companies tend to be less formal. Those that compete in complex and changing environments,
FIGURE 1-2
such as technology companies, tend to have more formal strategic planning. Companies that have numerous divisions,
products, markets, and technologies also tend to be more formal in their application of strategic management concepts.
Generally, the greater formality when applying the strategic management process is proportional to the cost, extent,
precision and success of planning in organizations of any type or size.13
Greater commitment

Benefits of strategic management to. To achieve the

objectives
Strategic management allows an organization to be more proactive than reactive in shaping its future; it allows a b. To implement the
strategies
company to initiate and influence activities (rather than just c. To work hard
 16 PART 1 • OVERVIEW OF STRATEGIC MANAGEMENT CHAPTER 1 • NATURE OF STRATEGIC MANAGEMENT 17

more to strategic management theory, they generally exhibit superior long-term financial performance relative to their
industry.
High-performing companies appear to make better-informed decisions with accurate foresight of short- and
long-term consequences. In contrast, companies with poor performance often engage in short-term activities, which
do not reflect a forecast of future conditions. Strategists in underperforming organizations often worry about solving
internal problems and meeting paperwork deadlines. They typically underestimate the strengths of their competitors
and overestimate the strengths of their organizations. They often attribute poor performance to uncontrollable factors
such as the bad economy, technological changes or competition from other countries.
Every year, more than 100,000 American businesses fail. Business failures come in the form of bankruptcies,
foreclosures, liquidations, and court-ordered suspensions of payments. Although there are many factors other than a
lack of effective strategic planning that can cause a business to fail, the planning concepts and tools described in this
text can produce significant financial benefits for any organization.

Non-financial benefits

In addition to helping companies avoid financial failure, strategic management offers other tangible benefits, such as
increased awareness of external threats, better understanding of competitors' strategies, increased employee
productivity, reduced resistance to change, and a clearer understanding of the relationships between performance and
rewards. Strategic management enhances organizational problem-prevention capabilities by fostering interaction
between managers at all divisional and functional levels. Companies that have looked out for their managers and
employees, shared organizational goals with them, empowered them to improve products or services, and recognized
their contributions will be able to rely on them when they need their help, thanks to this interaction.
In addition to empowering managers and employees, strategic management often brings order and discipline to
an enterprise that would otherwise be in danger of failure. It can be the beginning of an efficient and effective
Errors in strategic planning
Strategic planning is an intricate and complex process that takes an organization into uncharted territory. It is not a
administrative system. Strategic management can renew confidence in the company's current strategy or highlight the
recipe for success, but rather a guide to organization and a framework for answering questions and solving problems.
need for corrective action. The strategic management process provides the foundation for managers and employees to
Being aware of potential pitfalls and prepared to deal with them is essential to success.
identify and rationalize the need for change; it helps them view change as an opportunity rather than a threat.
Some of the mistakes to avoid in strategic planning are:
Greenley stated that strategic management offers the following benefits:

1. It allows to identify, prioritize and exploit opportunities 7. data.

ADMINISTRATION............................................1
•STRATEGIC.......................................................1
Fred R. David....................................................1
CHAPTER OBJECTIVES.............................3
EXERCISES TO REINFORCE LEARNING3

Guidelines for Effective Strategic Management —

Failure to follow certain guidelines when conducting strategic management could lead to criticism of the process and
create problems for the organization. Questions such as “Is strategic management in our company a people process or
Why some companies do not carry out strategic planning a mere formality?” must be taken into account.
Some companies do not carry out any strategic planning, while others do so but receive no support from their
managers and employees. Some of the reasons for poor or omitted strategic planning are: Even the most technically perfect strategic plan will be of little use if it is not implemented. Many organizations
tend to waste time, money and effort in developing a strategic plan, however, they consider the means and
circumstances in which it is to be implemented as something secondary. Change comes through implementation
and evaluation, not through the plan. More is achieved with a well-implemented technically imperfect plan than
20
with a perfect plan that is never put into practice.

Strategic management should not become a self-perpetuating bureaucratic mechanism. On the contrary, it
should be a learning and introspective process that familiarizes managers and
 17 PART 1 • OVERVIEW OF STRATEGIC MANAGEMENT CHAPTER 1 • NATURE OF STRATEGIC MANAGEMENT 17

What is strategic management?..................5

Definition of strategic management.......5
Stages of strategic management.............5
Integration of intuition and analysis.......7
Key Terms of Strategic Management.........9
Strategists................................................9
External opportunities and threats........11
Internal strengths and weaknesses........11
Strategies..............................................11
Annual objectives.................................11
Policies..................................................13
Financial benefits..................................15
Non-financial benefits..........................16
Comparison between business strategy and military strategy 19
Note to the student....................................21
Conclusion................................................22
Key Terms and Concepts.............................22
Topics for review and discussion.................22
2. tomorrow. where plans have been lengthy, cumbersome, impractical or
3. Allows for better allocation of time and resources at 14. • Fear of failure If you do not act, the risk of failure is minimal, inflexible. Planning, like anything else, can also be done wrong.
opportunities identified. unless an urgent and pressing problem arises. Whenever you • Personal Interests When a person has achieved a certain status,
attempt something worthwhile, there is a risk of failure. privilege or level of self-esteem by having used a system
• Lack of knowledge or experience in strategic planning There is no
• Overconfidence As managers accumulate experience, they tend to effectively, they often perceive any new plan as a threat.
training in strategic planning.
rely less on formal planning. However, this is rarely accurate. • Fear of the unknown People may be skeptical of their ability to
• Deficiency in reward structures When an organization achieves
Overconfidence or overestimating experience can lead to the acquire new skills, their ability to work with new systems, or their
success, it often forgets to reward it. When he fails, he punishes.
extinction of a company. Planning is always a good idea and is a ability to take on new roles.
It allows fewer resources and time to be spent correcting erroneous or
sign of professionalism. • Difference of opinions People may sincerely believe that the plan
improvised decisions.
• Previous bad experiences Perhaps you have had some bad is not suitable. They may see the situation from a different
Create a framework for internal communication between staff. | It
experiences with planning, that is, cases perspective, or they may have aspirations for themselves or the
helps to combine individual effort into a total effort.
organization that are different from those in the plan. The
• Use strategic planning to gain control over decisions and
| perception of a situation is as different as the people and their
resources.
Provides a basis for clarifying individual responsibilities. positions within an organization.
• Conduct strategic planning only to meet regulatory or
Encourages innovative thinking. • Distrust Employees may not trust management.18
accreditation requirements.
It offers a cooperative, integrated and enthusiastic approach to • Moving too quickly from mission development to strategy
addressing problems and opportunities. formulation.
It motivates a favorable attitude towards change. • Not communicating the plan to employees and letting them • Not using plans as a standard for measuring performance.
It provides discipline and formality to the administration of a continue working without knowing anything. • Delegating planning to a “planner” instead of involving all
• 17 business. • Allowing senior managers to make many intuitive decisions that managers.
no marketable product. Time spent planning is an investment.
conflict with the formal plan. • Not involving key employees in all phases of planning.
• Very expensive Some organizations see planning as something
• That senior management does not actively support the strategic • Not creating a collaborative climate that supports change.
very expensive both in time and money.
planning process. • Viewing planning as unnecessary or unimportant.
• Laziness People may not want to put in the effort required to
• Being too preoccupied with current problems caused by a lack or
formulate a plan. • Emergency Solutions An organization can be so busy solving
inadequacy of planning.
• Satisfaction with success Especially when a company is successful, crises and last-minute problems that it does not reserve time for
• Formalize planning so much that there is no room for flexibility
individuals may feel that there is no need to plan because things planning.
and creativity.19
are going well. But success today does not guarantee success • Waste of time Some companies see planning as a waste of time,
because it is not generating
18 PART 1 • OVERVIEW OF STRATEGIC MANAGEMENT CHAPTER 1 • NATURE OF STRATEGIC MANAGEMENT 19

employees of the organization with the key strategic problems and feasible alternatives to solve them. Strategic TABLE 1-3 Seventeen guidelines for the effectiveness of the strategic management process
management must not become ritualistic, forced, directed or overly formal, predictable or inflexible. Words backed
by numbers, not numbers backed by words, should be the means of explaining strategic issues and organizational 1. It must be a people's process and not a mere formality.
responses. One of the main functions of strategists is to facilitate the continuity of learning and organizational 2. It should be a learning process for all managers and employees.
change. 3. It must be a process in which words are supported by figures and not in which figures are supported by words.
R. T. Lenz offered some important guidelines for effective strategic management: 4. It should be simple and not routine.
5. There should be variety in tasks, team members, meeting formats, and even the planning schedule.
Keep the strategic management process as simple and spontaneous as possible. Eliminate technicalities and
6. It must challenge the assumptions on which current corporate strategy is based.
archaic language related to planning. Remember that strategic management is a process for fostering learning
7. You must welcome bad news.
and action, not just a formal system of control. To avoid routine, change tasks, team members, meeting formats,
8. You must embrace open-mindedness and the spirit of inquiry and learning.
and planning schedules. The process should not be predictable; change environments to stimulate creativity.
9. It should not be a bureaucratic mechanism.
Emphasize verbal plans and support them with figures. If managers can't express their strategy in a paragraph,
10. It must not become ritualistic, artificial or directed.
they either don't have it or they don't understand it. Stimulate thinking and action that challenges the
assumptions underlying current corporate strategy. Welcome the bad news. If the strategy isn't working, 11. It should not be too formal, predictable or rigid.
managers need to know. Furthermore, no relevant information should be classified as inadmissible merely 12. It should not contain technicalities or archaic language related to planning.
because it cannot be quantified. Build a corporate culture in which both the role of strategic management and its 13. It should not represent a formal control system.
essential purposes are understood. Don’t let “technicians” take over the process. Ultimately, it is a process of 14. Qualitative information should not be underestimated.
learning and action. Talk about it in these terms. Pay attention to its psychological, social and political 15. It should not be controlled by “technicians”.
dimensions, as well as to the information infrastructure and administrative procedures on which it is based.21 16. Too
many strategies should not be followed at once. •
17. Always strengthen the policy of “an ethical business is a good business”.
An important tip for effective strategic management is to have an open mind. A willingness and enthusiasm to
consider new information, new viewpoints, new ideas and new possibilities are essential; all members of the contrary, success is the product of both continued attention to modifying external and internal conditions and the
organization must share an inquisitive and learning spirit. Strategists, such as CEOs, presidents, small business owners, formulation and implementation of intuitive adaptations to those conditions. The element of surprise offers major
and heads of government agencies, must commit to listening and understanding managers' positions well enough that competitive advantages in both business and military strategy; information systems that provide data on the strategies
they can repeat those same words to the managers' satisfaction. In addition, managers and employees throughout the and resources of adversaries or competitors are also vitally important.
company must be able to describe the strategists' positions to the strategists' satisfaction. This degree of discipline will Of course, a fundamental difference between military and business strategy is that business strategy is formulated,
foster understanding and learning. implemented and evaluated under an assumption of competition, while military strategy is based on an assumption of
No organization has unlimited resources. No company can take on an unlimited amount of debt or issue an conflict. However, military conflict and business competition are so similar that many strategic management techniques
unlimited amount of stock to increase its capital. Therefore, no organization can pursue all the strategies that could apply equally in both situations. Business strategists have access to valuable insights that military thinkers have refined
benefit it. Thus, strategic decisions must be made to eliminate some courses of action and allocate certain over time. Superiority in strategy formulation and implementation can overcome an adversary's superiority in numbers
organizational resources among others. Most organizations can only afford to adopt a few corporate-level strategies at and resources.
any given time. A serious mistake made by many managers is to adopt too many strategies at the same time, thereby Both military organizations and businesses must adapt to change and constantly improve to be successful.
diluting the company's resources to such an extent that all strategies are put at risk. Joseph Charyk, CEO of Companies often fail to change their strategies when their environment and competitive conditions dictate the need to
Communication Satellite Corporation (Comsat), said, “We must face the fact that Comsat may not be able to do do so. Gluck offers a classic military example in this regard:
everything it wants to do. We must make difficult choices about which businesses to keep and which to leave.”
Strategic decisions require certain balances between long-term and short-term considerations, or between Napoleon's victories were due to his adversaries' commitment to the strategy, tactics and organization of previous
maximizing profits and increasing shareholder wealth. There are also ethical issues. Strategic choices involve wars. His defeats against Wellington, the Russians and the Spanish were due to his using proven strategies against
subjective judgments and preferences. In many cases, a lack of objectivity when formulating strategies causes the loss enemies who had renewed their way of thinking and who were developing the strategies not of the past war but of
of the company's competitive position and profitability. Most organizations today recognize that strategic management the future.22
concepts and techniques can improve decision effectiveness. Subjective factors, such as attitudes toward risk, concerns
about social responsibility, and organizational culture, always affect decisions related to strategy formulation, but
There are similarities that can be drawn from Sun Tzu's writings that can be applied to the practice of formulating
organizations need to be as objective as possible when considering qualitative factors. Table 1-3 presents a summary of
and implementing strategies for modern business. Table 1-4 presents narrative fragments from the book The Art of
the important guidelines for the effectiveness of the strategic management process.
War. As you read the table, consider which of the principles of

Comparison between business strategy and military strategy

The study of strategic management has its origins in the military. Terms like objectives, mission, strengths, and
weaknesses were created to address problems on the battlefield. According to

According to Webster's New World Dictionary, strategy is “the science of planning and directing large-scale military
operations, of leading troops to the most advantageous position before actual engagement with the enemy.” The word
strategy comes from the Greek strategos, which refers to the military leader, and combines the words stratos (army)
and ago (to lead). The history of strategic planning began in the military. A key objective of both military and business
strategy is “achieving competitive advantage.” In many ways, business strategy is similar to military strategy, and over
the centuries military strategists have learned many things that can benefit modern business strategists. Both business
and military organizations attempt to use their own strengths to exploit the weaknesses of competitors. If an
organization's overall strategy is wrong (ineffective), all the efficiency in the world will not be enough to achieve
success. Generally speaking, military or business success is not the happy result of fortuitous strategies. On the
 20 PART 1 • OVERVIEW OF STRATEGIC MANAGEMENT CHAPTER 1 • NATURE OF STRATEGIC MANAGEMENT 21

war apply to business strategy taking into account that today companies compete aggressively to survive and grow. from the beginning to finally formulate its recommendation on the course of action of its company for the last three years. The notion of
competitive advantage must be a constant in the analysis of each of the PowerPoint pages or slides. Therefore, in your written or oral analysis,
Note to the student avoid being merely descriptive and instead be prescriptive, intuitive and proactive throughout your project.

When analyzing your strategic management case, from the first page or slide of your project to the end, emphasize the
areas where your company has competitive advantages or disadvantages. The most important thing is to highlight your Conclusion
recommendations from beginning to end so that the company can maintain and increase its competitive advantages,
Every company has a strategy, even if it is informal, unstructured and sporadic. All organizations are headed somewhere, although, unfortunately,
and overcome its competitive disadvantages. Start laying the groundwork
some do not know where they are going. The old adage “If you don’t know where you’re going, any road will get you there!” highlights the need
for organizations to use strategic management concepts and techniques. The process of strategic management is becoming more and more common
TABLE 1-4 Passages from Sun Tzu's The Art of War
among small and large companies, non-profit institutions, government institutions and multinational conglomerates. Furthermore, the benefits of
• War is a matter of vital importance to the State: it is the domain of life or death, the path to survival or ruin. Therefore, it is essential to study it empowering managers and employees are almost limitless.
thoroughly. Organizations must replace a reactive approach with a proactive one in their industry, and strive to influence, anticipate and cause events
• The art of war is based on deception. When the enemy is near, make him think you are far away; when he is far away, make it seem that you are near. rather than just respond to them. The strategic management process embodies this approach to decision making. It constitutes a logical, systematic
Attract him with bait. Hit the enemy when he is disoriented. Avoid the enemy when he is strong. If your opponent is of a choleric temperament, try to and objective approach to determining the future direction of a company. The stakes are usually too high for strategists to rely solely on intuition
irritate him. If he is arrogant, encourage his selfishness. If enemy troops are well prepared after a reorganization, try to throw them into disarray. If they when choosing among alternative courses of action. Successful strategists take the time to think about their business, where their company stands,
are united, sow discord between them. Attack the enemy when they are off guard and appear where they least expect it. These are the keys to victory and what kind of organization they want to become; only then do they implement programs and policies to move from where they are to where they
for a strategist. It is not possible to formulate them in detail in advance. want to be in a reasonable amount of time.
• A quick victory is the main objective of war. When this is late in coming, swords become dull and morale declines. When the army engages in It is well known that people and organizations that plan ahead are more likely to become what they want to be than those that do not plan at
prolonged campaigns, state resources are soon exhausted. So while we have heard that haste in war is unwise, we have yet to see a smart operation that all. A good strategist plans and controls his plans, while a bad strategist never plans and then tries to control, but only people. The purpose of this
was prolonged. textbook is to provide you with the tools necessary to be a good strategist.
• As a general rule, in war the best policy is to keep an enemy intact; to ruin him is bad strategy. To capture the whole army of the enemy is better than
to destroy it; to seize a regiment, a company, or a squadron without harming it is better than to destroy it, for the epitome of skill does not lie in
winning 100 victories out of 100 battles fought: to overwhelm the enemy without even fighting is the supreme excellence. The most skilled in war are
those who defeat the enemy army without fighting.
• The art of using troops is this: when you outnumber the enemy 10 to one, surround him. When he is five times stronger, attack him. If it's twice as
strong, split it. If he matches you in strength, face him with the backing of a good plan. If you are weaker, have the ability to retreat. And if in every
aspect you are the weakest, avoid it. Key Terms and Concepts
• Know your enemy and know yourself, and in 100 battles you will never be defeated. If you don't know the enemy but you know yourself, your chances
Strategic management (p. 5)
of winning or losing will be identical. But if you know neither the enemy nor yourself, you will surely be defeated in every battle. External threats (p. 10)
• He who occupies the battlefield first awaits the enemy rested; he who arrives later on the scene and rushes into battle does so exhausted. Those who are Internal weaknesses (p. 11)
skilled in war draw the enemy onto the battlefield, not being led there by their opponents. So when the enemy is rested, have the skill to exhaust him; Mission Statement (p. 10)
when he is well fed, drive him to starvation; when he is calm, force him to move. Vision statement (p. 10)
Empowerment (p. 15)
• Analyze the enemy's plans to know their flaws as well as their strengths. Flick him to find out the pattern of his movements. Encourage him to show Strategists (p. 9)
himself so that he can reveal his alignments and find out his position. Launch a test attack to find out where you are strong and where you are weak. Strategies (p. 11)
Plans are laid out for victory depending on the situation, but this escapes the understanding of the crowd. Evaluation of strategies (p. 6) Intuition (p. 7)
• Armies could be compared to water, because just as water flees from the heights to flow downwards, armies must avoid the strong side and attack the Exploration of the environment (p. 11)) Strategic management model (p. 13)
Strategy formulation (p. 6) Long-term goals (p. 11)
weak. And just as water changes its course depending on the terrain, an army achieves its victory according to the situation of the adversary. The shape
Internal strengths (p. 11) Annual objectives (p. 11)
of water is never constant, and in the art of war the conditions are not either. Therefore, whoever is able to modify his tactics according to the enemy's Strategy implementation (p. 6) External opportunities (p. 10)
conditions and thus achieve victory can be compared to the gods. Long-term planning (p. 5)
• If you decide to enter the battle, never announce your intentions or plans. Act as if nothing happened. Strategic planning (p. 5)
Policies (p. 12)
• Unskilled leaders resolve their conflicts in courts and on battlefields. Brilliant strategists rarely enter battle or set foot in courts; they usually achieve
their goals through tactical positioning long before any confrontation arises. Topics for review and discussion Strategic management process (p. 5)
Retreats (p. 14)
• When you decide to challenge another company (or army), do not forget that success is the product of calculation, estimation, analysis and position. A 1. Are the terms “strategic management” and “strategic planning” Competitive advantage (p. 8)
poor calculation will only bring defeat. synonyms? Please explain. Sustained competitive advantage (p. 9)
• Skillful leaders do not allow strategy to inhibit creative counterattack, nor do orders from someone far away interfere with maneuvers that arise 2. What are the three stages in strategic management? Which stage is
spontaneously in the face of an immediate situation. the most analytical? Which one relies more on empowerment to
• When a decisive advantage is achieved over a rival, skilled leaders do not press. They hold their position and give their rivals the opportunity to succeed? Which one depends more on statistics? Justify your
surrender, or join them. They never allow their strength to be weakened by someone who has nothing to lose. answers.
3. Why do many companies rush from mission/vision development to
• Brilliant strategists make their way by assuming a deceptive appearance that conceals the areas of greatest confrontation, so that opponents divide their
creating alternative strategies?
forces in an attempt to defend all possible fronts. They create the illusion of being confused, fearful, or vulnerable so that the opponent is irremediably
attracted to this illusion of advantage. 4. Why are strategic planning retreats often held outside the workplace?
How often should these retreats be held in a company and who
(Note: Replace the words war or art of war with strategy or strategic planning.) should participate in them?
Source: Adapted from The Art of War and www.ccs.neu.edu/home/thigpen/html/art_of_war.html 5. Distinguish between long-term planning and strategic planning.
6. Compare a company's strategic plan to a football team's game plan.
7. Describe the three activities that comprise strategy evaluation.