Journal 2 (Concepts of Competitive Advantage

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The Nature of
Strategic Management

Chapter One

Chapter Objectives

Describe the strategic-management process.

Discuss the nature of strategy formulation, implementation, and evaluation activities.

Discuss how a firm may achieve sustained competitive advantage.

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Describe the strategic-management process.
Explain the need for integrating analysis and intuition in strategic management.
Define and give examples of key terms in strategic management.
Discuss the nature of strategy formulation, implementation, and evaluation activities.

Defining Strategic Management

Strategic management

To formulate, implement, and evaluate cross-functional decisions that enable an organization to achieve its objectives in the 3 management levels (Strategic Planning)

Risk and Opportunity

Desirability, Feasibility, Accountability

Delayability and Reversibility

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Strategic management is defined as the art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives

Defining Strategic Management

A strategic plan is a company’s game plan.
A strategic plan results from tough managerial choices among numerous good alternatives, and it signals commitment to specific markets, policies, procedures, and operations.

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A strategic plan results from tough managerial choices among numerous good alternatives, and it signals commitment to specific markets, policies, procedures, and operations in lieu of other, “less desirable” courses of action.

The Strategic-Management Model

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These are three important questions to answer in developing a strategic plan:

Where are we now?

Where do we want to go?

How are we going to get there?

A Comprehensive Strategic-Management Model

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The framework illustrated in Figure 1-1 is a widely accepted, comprehensive

model of the strategic-management process.12 This model does not guarantee success, but

it does represent a clear and practical approach for formulating, implementing, and evaluating strategies.

Relationships among major components of the strategic-management process are shown in the

model, which appears in all subsequent chapters with appropriate areas shaped to show the particular

focus of each chapter.

Stages of Strategic Management

Strategy formulation

includes 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, and choosing particular strategies to pursue

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Strategy formulation includes 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, and choosing particular strategies to pursue

Strategy Formulation

Deciding what new businesses to enter,
What businesses to abandon,
How to allocate resources,
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.

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Deciding what new businesses to enter,

What businesses to abandon,

How to allocate resources,

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

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

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Strategy implementation requires a firm to establish annual objectives, devise policies, motivate employees, and allocate resources so that formulated strategies can be executed and is often called the action stage

Stages of Strategic Management

Strategy evaluation

reviewing external and internal factors that are the bases for current strategies, measuring performance, and taking corrective actions

Businesses using strategic-management concepts show significant improvement in sales, profitability, and productivity compared to firms without systematic planning activities

High-performing firms seem to make more informed decisions with good anticipation of both short- and long-term consequences

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Strategy evaluation is defined as reviewing external and internal factors that are the bases for current strategies, measuring performance, and taking corrective actions

Integrating Intuition and Analysis

Most organizations can benefit from strategic management, which is based upon integrating intuition and analysis in decision making
Intuition is particularly useful for making decisions in situations of great uncertainty or little precedent

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Most organizations can benefit from strategic management, which is based upon integrating intuition and analysis in decision making

Intuition is particularly useful for making decisions in situations of great uncertainty or little precedent

Adapting to Change

The second-largest bookstore chain in the United States, Borders Group, declared bankruptcy in 2011 as the firm had not adapted well to changes in book retailing from traditional bookstore shopping to customers buying online, preferring digital books to hard copies
Borders was on the brink of financial collapse before being acquired in July 2011 by Direct Brands

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Key Terms in Strategic Management

Competitive advantage

anything that a firm does especially well compared to rival firms

Strategists

the individuals who are most responsible for the success or failure of an organization

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Competitive advantage is anything that a firm does especially well compared to rival firms

Strategists are the individuals who are most responsible for the success or failure of an organization.

Key Terms in Strategic Management

Vision statement

answers the question “What do we want to become?”

often considered the first step in strategic planning

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The Vision statement answers the question “What do we want to become?” and is often considered the first step in strategic planning

Key Terms in Strategic Management

Mission statements

enduring statements of purpose that distinguish one business from other similar firms

identifies the scope of a firm’s operations in product and market terms

addresses the basic question that faces all strategists: “What is our business?”

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Mission statements are enduring statements of purpose that distinguish one business from other similar firms.

It identifies the scope of a firm’s operations in product and market terms and addresses the basic question that faces all strategists: “What is our business?”

Key Terms in Strategic Management

External opportunities and external threats (OT of SWOT).

refer to economic, social, cultural, demographic, environmental, political, legal, governmental, technological, and competitive trends and events that could significantly benefit or harm an organization in the future

External Success Factors

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External opportunities and external threats refer to economic, social, cultural, demographic, environmental, political, legal, governmental, technological, and competitive trends and events that could significantly benefit or harm an organization in the future

Some Opportunities and Threats

Computer hacker problems are increasing.
Intense price competition is plaguing most firms.
Unemployment and underemployment rates remain high.
Interest rates are rising.
Product life cycles are becoming shorter.
State and local governments are financially weak.

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• Availability of capital can no longer be taken for granted.

• Consumers expect green operations and products.

• Marketing moving rapidly to the Internet.

• Commodity food prices are increasing.

• Political unrest in the Middle East is raising oil prices.

• Computer hacker problems are increasing.

• Intense price competition is plaguing most firms.

• Unemployment and underemployment rates remain high.

• Interest rates are rising.

• Product life cycles are becoming shorter.

• State and local governments are financially weak.

• Turmoil and violence in Mexico is increasing.

• Winters are colder and summers hotter than usual.

• Home prices remain exceptionally low.

• Global markets offer the highest growth in revenues.

Key Terms in Strategic Management

Internal strengths and internal weaknesses (SW of SWOT)

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

determined relative to competitors

Internal Success Factors

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Internal strengths and internal weaknesses are an organization’s controllable activities that are performed especially well or poorly

and are determined relative to competitors

Key Terms in Strategic Management

Objectives after SWOT!

Specific results that an organization seeks to achieve in pursuing its basic mission

Long-term means more than 3 (5) years

Mid-term means more than 1 year

Short-term means 1 year

Should be challenging, measurable, consistent, reasonable, and clear

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Objectives are specific results that an organization seeks to achieve in pursuing its basic mission.

Long-term means more than one year

They should be challenging, measurable, consistent, reasonable, and clear

Key Terms in Strategic Management

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

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Strategies are the means by which long-term objectives will be achieved.

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