1. Describe the strategic management process
2. Summarize the nature of strategy formulation implementation and evaluation activities
3. Contrast the benefits of and the pitfalls in pursuing strategic management
4. How ICTs are impacting the management process
5. Describe the nature and role of vision and mission statements in strategic management
6. Describe the value of strategic thinking to the organization
7. Define the following terms: competitive advantages, strategies,
8. What are some external opportunities and threats and internal strengths and weakness
9. How do you measure the performances?
10. What corrective action can be taken?
11. What are some characteristics of the mission statement
12. What is the role of the mission and vision statement in the enterprise
13. Describe how to conduct an external strategic-management audit
14. Describe macro-environmental forces that affect the firm (economic, social, cultural, demographic, environmental, political, governmental, legal technological, competitive)
15. Distinguish among forecasting tools used in strategic management
16. Describe the components of the TOWS (threats opportunity weakness strength) analysis
17. Explain the importance of gathering competitive intelligence ? Porter?s Five Forces Model of Competitive Analysis
18. Explain how to develop the external factor evaluation matrix and the competitive profile matrix – the external factor evaluation matrix (EFE) and the Competitive profile matrix (CPM)
19. Describe the trends towards cooperation among competitors
20. Explain the concept of a company as a value chain
21. Explain how to determine and prioritize a firm?s internal strengths and weaknesses
22. Explain how key internal forces contribute to the company?s competitive position
23. Explain the key interrelationships among the functional areas of business
24. Explain the nature of an internal audit, characteristics of key internal factors: core and distinctive competencies.
25. Explain the Resource-Based View.
26. Explain the internal factor evaluation (IFE) matrix
Turks and Caicos Community college
Strategic Management MGMT4701
Unit 2 ? Formulation: The Business Vision and Mission
Three dimensional Business model: The Abell model
Derek Abell developed a business definition framework in the 1980s. This model is still known as the Abell model. According to Abell the strategic planning process is the starting principle for any given organization, and this process is defined in the mission statement. A mission statement gives direction to the organization and provides the basis for further elaboration of strategies. Three questions play an important part in the formulation of the mission statement:
1. Who are the customers of the organization?
2. How can the organization meet its customer needs?
3. What techniques does the organization use to meet the customer needs?
Derek Abell summarized the three questions in three axes: a horizontal axis on which he positioned the customers/ user groups, a vertical axis with buying needs and an inclined axis with the applied technologies. Therefore, an overall summary of the ?business model? is created in the Abell model.
In the Abell model all customer needs that are relevant to the company are identified and listed. These customer needs are determined on the basis of the product as a result of which a link is made to customer benefits.
Example: A software manufacturer responds to the needs of the customer by only delivering packages that can be installed by laypeople very easily. In addition, they offer virus free software and the possibility to clean up the software on a monthly basis. They also provide clear manuals and a telephone helpline.
The term ?technologies? should be interpreted broadly. In addition to technologies that are used to create a product, there are also technologies that are used to put a product on the market. Which marketing campaign must be used and in which way is the market research on a product carried out?
Example: A software manufacturer uses the latest technologies in his software products. In addition, the manufacturer offers support to customers by means of a 24-hour helpdesk and he guarantees the best possible information provision.
Customer groups / Buyers
Marketing is all about buyers. Without buyers there would not be a market. Each organization wants to get down to the core of the buyers and therefore customer segmentation is very important. By having a thorough knowledge of the various target groups, an organization can make targeted product offers.
Example: A software manufacturer delivers products to B2B and B2C customers. The manufacturer reaches these groups by deploying their own Account Managers, distributive trade, retail trade and trade associations.
The Abell model provides an organization with a quick and easy overview of the most important factors that can be used in the marketing concept. It is possible to optimize the?Abell model by sorting the different aspects of Customers, Needs and Technologies according to their degree of importance from the cross line of the three axes.
The most important aspects of the?Abell model that are closest to the ?0 axis? will have high priority. The company will know immediately to which aspect it must pay attention first.
Importance (Benefits) of Vision and Mission Statements
The importance (benefits) of vision and mission statements to effective strategic management is well documented in the literature, although research results are mixed.
? Rarick and Vitton found that firms with a formalized mission statement have twice the average return on shareholders? equity than those firms without a formalized mission statement have;
? Bart and Baetz found a positive relationship between mission statements and organizational performance;
? Business Week reports that firms using mission statements have a 30 percent higher return on certain financial measures than those without such statements;
? However, some studies have found that having a mission statement does not directly contribute positively to financial performance. The extent of manager and employee involvement in developing vision and mission statements can make a difference in business success.
? King and Cleland recommend that organizations carefully develop a written mission statement in order to reap the following benefits:
Benefits of having a clear mission statement
Achieve clarity of purpose among all managers and employees.
Provide a basis for all other strategic planning activities, including the internal and external assessment, establishing objectives, developing strategies, choosing among alternative strategies, devising policies, establishing organizational structure, allocating resources, and evaluating performance.
Provide a focal point for all stakeholders of the firm.
Resolve divergent views among managers.
Promote a sense of shared expectations among all managers and employees.
Project a sense of worth and intent to all stakeholders.
Project an organized, motivated organization worthy of support.
Achieve higher organizational performance.
Achieve synergy among all managers and employees.
Characteristics of a Mission Statement
Broad in scope; do not include monetary amounts, numbers, percentages, ratios, or objectives
Less than 250 words in length
Identify the utility of a firm?s products
Reveal that the firm is socially responsible
Reveal that the firm is environmentally responsible
Include nine components customers, products or services, markets, technology, concern for survival/growth/ profits, philosophy, self-concept, concern for public image, concern for employees
A Declaration of Attitude
A mission statement is more than a statement of specific details; it is a declaration of attitude and outlook. It usually is broad in scope for at least two major reasons.
1. First, a good mission statement allows for the generation and consideration of a range of feasible alternative objectives and strategies without unduly stifling management creativity. Excess specificity would limit the potential of creative growth for the organization. However, an overly general statement that does not exclude any strategy alternatives could be dysfunctional. Apple Computer?s mission statement, for example, should not open the possibility for diversification into pesticides – or Ford Motor Company?s into food processing.
2. Second, a mission statement needs to be broad to reconcile differences effectively among, and appeal to, an organization?s diverse stakeholders, the individuals and groups of individuals who have a special stake or claim on the company. Thus a mission statement should be reconciliatory. Stakeholders include employees, managers, stockholders, boards of directors, customers, suppliers, distributors, creditors, governments (local, state, federal, and foreign), unions, competitors, environmental groups, and the general public. Stakeholders affect and are affected by an organization?s strategies, yet the claims and concerns of diverse constituencies vary and often conflict. For example, the general public is especially interested in social responsibility, whereas stockholders are more interested in profitability. Claims on any business literally may number in the thousands, and they often include clean air, jobs, taxes, investment opportunities, career opportunities, equal employment opportunities, employee benefits, salaries, wages, clean water, and community services. All stakeholders? claims on an organization cannot be pursued with equal emphasis. A good mission statement indicates the relative attention that an organization will devote to meeting the claims of various stakeholders.
A Customer Orientation
A good mission statement describes an organization?s purpose, customers, products or services, markets, philosophy, and basic technology. According to Vern McGinnis, a mission statement should:
(1) define what the organization is and what the organization aspires to be,
(2) be limited enough to exclude some ventures and broad enough to allow for creative growth, (3) distinguish a given organization from all others,
(4) serve as a framework for evaluating both current and prospective activities, and
(5) be stated in terms sufficiently clear to be widely understood throughout the organization.
A good mission statement reflects the anticipations of customers. Rather than developing a product and then trying to find a market, the operating philosophy of organizations should be to identify customers? needs and then provide a product or service to fulfill those needs.
Good mission statements identify the utility of a firm?s products to its customers. This
is why AT&T?s mission statement focuses on communication rather than on telephones; it
is why ExxonMobil?s mission statement focuses on energy rather than on oil and gas; it is why Union Pacific?s mission statement focuses on transportation rather than on railroads;
it is why Universal Studios’ mission statement focuses on entertainment rather than on movies.
The following utility statements are relevant in developing a mission statement:
? Do not offer me things.
? Do not offer me clothes. Offer me attractive looks.
? Do not offer me shoes. Offer me comfort for my feet and the pleasure of walking.
? Do not offer me a house. Offer me security, comfort, and a place that is clean and happy.
? Do not offer me books. Offer me hours of pleasure and the benefit of knowledge.
? Do not offer me CDs. Offer me leisure and the sound of music.
? Do not offer me tools. Offer me the benefits and the pleasure that come from making
? Do not offer me furniture. Offer me comfort and the quietness of a cozy place.
? Do not offer me things. Offer me ideas, emotions, ambience, feelings, and benefits.
? Please, do not offer me things.
Mission Statement Components
Mission statements can and do vary in length, content, format, and specificity. Most practitioners and academicians of strategic management feel that an effective statement should include nine components. Because a mission statement is often the most visible and public part of the strategic-management process, it is important that it includes the nine characteristics as summarized in Table 2-4, as well as the following nine components:
Customers?Who are the firm?s customers?
Products or services?What are the firm?s major products or services?
Markets?Geographically, where does the firm compete?
Technology?Is the firm technologically current?
Concern for survival, growth, and profitability?Is the firm committed to growth and financial soundness?
Philosophy?What are the basic beliefs, values, aspirations, and ethical priorities of the firm?
Self-concept?What is the firm?s distinctive competence or major competitive advantage?
Concern for public image?Is the firm responsive to social, community, and environmental concerns?
Concern for employees?Are employees a valuable asset of the firm?
Examples of the Nine Essential Components of a Mission Statement
We believe our first responsibility is to the doctors, nurses, patients, mothers, and all others who use our products and services. (Johnson & Johnson)
To earn our customers? loyalty, we listen to them, anticipate their needs, and act to create value in their eyes. (Lexmark International)
2. Products or Services
AMAX?s principal products are molybdenum, coal, iron ore, copper, lead, zinc, petroleum and natural gas, potash, phosphates, nickel, tungsten, silver, gold, and magnesium. (AMAX Engineering Company)
Standard Oil Company (Indiana) is in business to find and produce crude oil, natural gas, and natural gas liquids; to manufacture high-quality products useful to society from these raw materials; and to distribute and market those products and to provide dependable related services to the consuming public at reasonable prices. (Standard Oil Company)
We are dedicated to the total success of Corning Glass Works as a worldwide competitor. (Corning Glass Works) Our emphasis is on North American markets, although global opportunities will be explored. (Blockway)
Control Data is in the business of applying micro-electronics and computer technology in two general areas: computer-related hardware; and computing-enhancing services, which include computation, information, education, and finance. (Control Data)
We will continually strive to meet the preferences of adult smokers by developing technologies that have the potential to reduce the health risks associated with smoking. (RJ Reynolds)
5. Concern for Survival, Growth, and Profitability
In this respect, the company will conduct its operations prudently and will provide the profits and growth which will assure Hoover?s ultimate success. (Hoover Universal)
To serve the worldwide need for knowledge at a fair profit by adhering, evaluating, producing, and distributing valuable information in a way that benefits our customers, employees, other investors, and our society. (McGraw-Hill)
Our world-class leadership is dedicated to a management philosophy that holds people above profits. (Kellogg)
It?s all part of the Mary Kay philosophy?a philosophy based on the golden rule. A spirit of sharing and caring where people give cheerfully of their time, knowledge, and experience. (Mary Kay Cosmetics)
Crown Zellerbach is committed to leapfrogging ongoing competition within 1,000 days by unleashing the constructive and creative abilities and energies of each of its employees. (Crown Zellerbach)
8. Concern for Public Image
To share the world?s obligation for the protection of the environment. (Dow Chemical)
To contribute to the economic strength of society and function as a good corporate citizen on a local, state, and national basis in all countries in which we do business. (Pfizer)
9. Concern for Employees
To recruit, develop, motivate, reward, and retain personnel of exceptional ability, character, and dedication by providing good working conditions, superior leadership, compensation on the basis of performance, an attractive benefit program, opportunity for growth, and a high degree of employment security. (The Wachovia Corporation)
To compensate its employees with remuneration and fringe benefits competitive with other employment opportunities in its geographical area and commensurate with their contributions toward efficient corporate operations. (Public Service Electric & Gas Company)
Turks and Caicos Community college
Strategic Management MGMT4701
Unit 1 ? The Strategic Management Process
Define strategy and strategic management
A plan of action or policy designed to achieve a major or overall aim.
Strategic management can be defined as the art and science of formulating, implementing,
and evaluating cross-functional decisions that enable an organization to achieve its objectives.
It focuses on integrating management, marketing, finance/accounting, production/operations, research and development, and information systems to achieve organizational success.
The term strategic management is used synonymously with the term strategic planning. The latter term is more often used in the business world, whereas the former is often used in academia. Sometimes the term strategic management is used to refer to strategy formulation, implementation, and evaluation, with strategic planning referring only to strategy formulation.
The purpose of strategic management is to exploit and create new and different opportunities for tomorrow; long-range planning, in contrast, tries to optimize for tomorrow the trends of today.
Stages of Strategic Management
The strategic-management process consists of three stages: strategy formulation, strategy implementation, and strategy evaluation.
(a) Strategy formulation
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 issues
Strategy-formulation issues include 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, and how to avoid a hostile takeover. Because no organization has unlimited resources, strategists must decide which alternative strategies will benefit the firm most.
Strategy formulation decisions commit an organization to specific products, markets, resources, and technologies over an extended period of time. Strategies determine long-term competitive advantages. For better or worse, strategic decisions have major multifunctional consequences and enduring effects on an organization. Top managers have the best perspective to understand fully the ramifications of strategy-formulation decisions; they have the authority to commit the resources necessary for implementation.
(b) Strategy Implementation
Strategy implementation requires a firm to establish annual objectives, devise policies, motivate employees, and allocate resources so that formulated strategies can be executed. Strategy implementation includes developing a strategy-supportive culture, creating an effective organizational structure, redirecting marketing efforts, preparing budgets, developing and utilizing information systems, and linking employee compensation to organizational performance.
Strategy implementation often is called the ?action stage? of strategic management.
Implementing strategy means mobilizing employees and managers to put formulated strategies into action. Often considered to be the most difficult stage in strategic management, strategy implementation requires personal discipline, commitment, and sacrifice.
Successful strategy implementation hinges upon managers? ability to motivate employees, which is more an art than a science. Strategies formulated but not implemented serve no useful purpose.
Interpersonal skills are especially critical for successful strategy implementation.
Strategy-implementation activities affect all employees and managers in an organization.
Every division and department must decide on answers to questions, such as ?What must we do to implement our part of the organization?s strategy?? and ?How best can we get the job done??
The challenge of implementation is to stimulate managers and employees throughout an organization to work with pride and enthusiasm toward achieving stated objectives.
(c) Strategy Evaluation
Strategy evaluation is the final stage in strategic management. Managers desperately need to know when particular strategies are not working well; strategy evaluation is the primary means for obtaining this information. All strategies are subject to future modification because external and internal factors are constantly changing.
Three fundamental strategy-evaluation activities are
(1) reviewing external and internal factors that are the bases for current strategies,
(2) measuring performance, and
(3) taking corrective actions.
Strategy evaluation is needed because success today is no guarantee of success tomorrow! Success always creates new and different problems; complacent organizations experience demise.
Strategy formulation, implementation, and evaluation activities occur at three hierarchical levels in a large organization: corporate, divisional or strategic business unit, and functional.
By fostering communication and interaction among managers and employees across hierarchical levels, strategic management helps a firm function as a competitive team. Most small businesses and some large businesses do not have divisions or strategic business units; they have only the corporate and functional levels. Nevertheless, managers and employees at these two levels should be actively involved in strategic-management activities.
Adapting to Change
The strategic-management process is based on the belief that organizations should continually monitor internal and external events and trends so that timely changes can be made as needed. The rate and magnitude of changes that affect organizations are increasing dramatically as evidenced how the global economic recession has caught so many firms by surprise. Firms, like organisms, must be ?adept at adapting? or they will not survive.
Key concepts/terms used in strategic management studies
1. Competitive advantage – Strategic management is all about gaining and maintaining competitive advantage. This term can be defined as ?anything that a firm does especially well compared to rival firms.? When a firm can do something that rival firms cannot do, or owns something that rival firms desire, that can represent a competitive advantage.
Normally, a firm can sustain a competitive advantage for only a certain period due to rival firms imitating and undermining that advantage. Thus it is not adequate to simply obtain competitive advantage. A firm must strive to achieve sustained competitive advantage by:
(1) continually adapting to changes in external trends and events and internal capabilities,
competencies, and resources; and by
(2) effectively formulating, implementing, and evaluating strategies that capitalize upon those factors.
2. Strategists- Strategists are the individuals who are most responsible for the success or failure of an organization. Strategists have various job titles, such as chief executive officer, president, owner, chair of the board, executive director, chancellor, dean, or entrepreneur. Jay Conger, professor of organizational behavior at the London Business School and author of Building Leaders, says,
?All strategists have to be chief learning officers. We are in an extended period of change. If our leaders aren?t highly adaptive and great models during this period, then our companies won?t adapt either, because ultimately leadership is about being a role model.?
Strategists help an organization gather, analyze, and organize information. They track industry and competitive trends, develop forecasting models and scenario analyses, evaluate corporate and divisional performance, spot emerging market opportunities, identify business threats, and develop creative action plans. Strategic planners usually serve in a support or staff role. Usually found in higher levels of management, they typically have considerable authority for decision making in the firm.
Strategists differ as much as organizations themselves, and these differences must be considered in the formulation, implementation, and evaluation of strategies. Some strategists will not consider some types of strategies because of their personal philosophies. Strategists differ in their attitudes, values, ethics, willingness to take risks, concern for social responsibility, concern for profitability, concern for short-run versus long-run aims, and management style. The founder of Hershey Foods, Milton Hershey, built the company to manage an orphanage. From corporate profits, Hershey Foods today cares for over a thousand boys and girls in its School for Orphans.
3. Vision and Mission statements
Many organizations today develop a vision statement that answers the question ?What do we want to become?? Developing a vision statement is often considered the first step in strategic planning, preceding even development of a mission statement.
A vision statement is an aspirational description of what an organization would like to achieve or accomplish in the mid-term or long-term future. It is intended to serves as a clear guide for choosing current and future courses of action
A mission statement is a written declaration of an organization’s core purpose and focus that normally remains unchanged over time. Properly crafted mission statements (1) serve as filters to separate what is important from what is not, (2) clearly state which markets will be served and how, and (3) communicate a sense of intended direction to the entire organization.
Many vision statements are a single sentence. For example, the vision statement of Stokes Eye Clinic in Florence, South Carolina, is ?Our vision is to take care of your vision.?
Mission statements are ?enduring statements of purpose that distinguish one business from other similar firms.
A mission statement identifies the scope of a firm?s operations in product and market terms.?12 It addresses the basic question that faces all strategists:
?What is our business?? A clear mission statement describes the values and priorities of an organization.
Developing a mission statement compels strategists to think about the nature and scope of present operations and to assess the potential attractiveness of future markets and activities. A mission statement broadly charts the future direction of an organization.
A mission statement is a constant reminder to its employees of why the organization exists and what the founders envisioned when they put their fame and fortune at risk to breathe life into their dreams. Here is an example of a mission statement for Barnes & Noble:
Our mission is to operate the best specialty retail business in America, regardless
of the product we sell. Because the product we sell is books, our aspirations must
be consistent with the promise and the ideals of the volumes which line our
shelves. To say that our mission exists independent of the product we sell is to
demean the importance and the distinction of being booksellers. As booksellers we
are determined to be the very best in our business, regardless of the size, pedigree,
or inclinations of our competitors. We will continue to bring our industry nuances
of style and approaches to bookselling which are consistent with our evolving
aspirations. Above all, we expect to be a credit to the communities we serve, a
valuable resource to our customers, and a place where our dedicated booksellers
can grow and prosper. Toward this end we will not only listen to our customers
and booksellers but embrace the idea that the Company is at their service.
4. External opportunities and threats
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.
Opportunities and threats are largely beyond the control of a single organization?thus the word external. In a global economic recession, a few opportunities and threats that face many firms are listed here:
? Availability of capital can no longer be taken for granted.
? Consumers expect green operations and products.
? Marketing has moving rapidly to the Internet.
? Consumers must see value in all that they consume.
? Global markets offer the highest growth in revenues.
Other opportunities and threats may include the passage of a law, the introduction of a new product by a competitor, a national catastrophe, or the declining value of the dollar.
A competitor?s strength could be a threat. Unrest in the Middle East, rising energy costs, or the war against terrorism could represent an opportunity or a threat.
A basic tenet of strategic management is that firms need to formulate strategies to take advantage of external opportunities and to avoid or reduce the impact of external threats. For this reason, identifying, monitoring, and evaluating external opportunities and threats are essential for success. This process of conducting research and gathering and assimilating external information is sometimes called environmental scanning or industry analysis. Lobbying is one activity that some organizations utilize to influence external opportunities and threats.