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Strategic Management

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Strategic Management ­ MGT603
VU
Lesson 2
KEY TERMS IN STRATEGIC MANAGEMENT
Objectives
This Lecture provides an overview of strategic management. It introduces a practical,
integrative model of the strategic-management process and defines basic activities and terms in
strategic management and discusses the importance of business ethics. After reading this lecture
you will be able to know that:
Key Terms in Strategic Management
What is meant by adopting to change?
Adapting to change
Organizational survival depends on:
Continuous monitoring of internal and external factors
Well-timed changes
Effective adaptation calls for a long-run focus
Incremental rise in degree of change
1. Technology
2.  E-commerce
3.  Merger-mania
4.  Demographics
The strategic management process is based on the belief that organization should continuously monitor
internal and external events and trends so that timely change can be made as needed. The rate and
magnitude of changes that affect the organization are increasing dramatically. Consider for example, E-
commerce, laser surgery, the war on terrorism, economic recession and the aging population etc.
To survive all organizations must be capable of astutely identifying and adapting to change. The need to
adapt to change leads organizations to key strategic management questions, such as "What kind of business
should we become?" "Are we in right field?" "Should we reshape our business?" "Are new technologies
being developed that could put us out of business?"
Key Terms in Strategic Management
Before we further discuss strategic management, we should define eight key terms: strategists, mission
statements, external opportunities and threats, internal strengths and weaknesses, long-term objectives,
strategies, annual objectives, and policies.
Strategists
Strategists are individuals who are most responsible for the success or failure of an organization. Strategists are
individuals who form strategies. Strategists have various job titles, such as chief executive officer, president,
and owner, chair of the board, executive director, chancellor, dean, or entrepreneur.
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. The CEO is the
most visible and critical strategic manager. Any manager who has responsibility for a unit or division,
responsibility for profit and loss outcomes, or direct authority over a major piece of the business is a
strategic manager (strategist).
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.
Vision Statements
Many organizations today develop a "vision statement" which answers the question, what do we want to
become? Developing a vision statement is often considered the first step in strategic planning, preceding
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Strategic Management ­ MGT603
VU
even development of a mission statement. 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." The vision of the Institute of Management Accountants is "Global leadership in education,
certification, and practice of management accounting and financial management."
Mission Statements
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. 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. An example mission
statement is provided below for Microsoft.
Microsoft's mission is to create software for the personal computer that empowers and enriches people in
the workplace, at school and at home. Microsoft's early vision of a computer on every desk and in every
home is coupled today with a strong commitment to Internet-related technologies that expand the power
and reach of the PC and its users. As the world's leading software provider, Microsoft strives to produce
innovative products that meet our customers' evolving needs.
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 term external. The computer revolution, biotechnology, population shifts,
changing work values and attitudes, space exploration, recyclable packages, and increased competition from
foreign companies are examples of opportunities or threats for companies. These types of changes are
creating a different type of consumer and consequently a need for different types of products, services, and
strategies.
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 Balkans, rising interest rates, or the war against drugs 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.
Environmental Scanning:
The 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.
Environment scanning has the management scan eternal environment for opportunities and threats and
internal environment for strengths and weaknesses. The factor which are most important for corporation
factor are referred as a strategic factor and summarized as SWOT standing for strength, weaknesses,
opportunities and threats.
Environmental Scanning
Internal Analysis
External Analysis
The external environment consist of opportunities and threats variables that outside the organization.
External environment has two parts:
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Strategic Management ­ MGT603
VU
Task Environment
Social Environment
Task Environment:
Task environment includes all those factors which affect the organization and itself affected by the
organization. These factor effects the specific related organizations. These factors are shareholders
community, labor unions, creditor, customers, competitors, trade associations.
Social Environment:
Social environment is an environment which includes those forces effect does not the short run activities of
the organization but it influenced the long run activities or decisions. PEST analysis are taken for social
environment PEST analysis stands for political and legal economic socio cultural logical and technological.
Internal Strengths and Weaknesses/Internal assessments
Internal strengths and internal weaknesses are an organization's controllable activities that are performed
especially  well  or  poorly.  They  arise  in  the  management,  marketing,  finance/accounting,
production/operations, research and development, and computer information systems activities of a
business. Identifying and evaluating organizational strengths and weaknesses in the functional areas of a
business is an essential strategic-management activity. Organizations strive to pursue strategies that
capitalize on internal strengths and improve on internal weaknesses.
Strengths and weaknesses are determined relative to competitors. Relative deficiency or superiority is
important information. Also, strengths and weaknesses can be determined by elements of being rather than
performance. For example, strength may involve ownership of natural resources or an historic reputation
for quality. Strengths and weaknesses may be determined relative to a firm's own objectives. For example,
high levels of inventory turnover may not be strength to a firm that seeks never to stock-out.
Internal factors can be determined in a number of ways that include computing ratios, measuring
performance, and comparing to past periods and industry averages. Various types of surveys also can be
developed and administered to examine internal factors such as employee morale, production efficiency,
advertising effectiveness, and customer loyalty.
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Table of Contents:
  1. NATURE OF STRATEGIC MANAGEMENT:Interpretation, Strategy evaluation
  2. KEY TERMS IN STRATEGIC MANAGEMENT:Adapting to change, Mission Statements
  3. INTERNAL FACTORS & LONG TERM GOALS:Strategies, Annual Objectives
  4. BENEFITS OF STRATEGIC MANAGEMENT:Non- financial Benefits, Nature of global competition
  5. COMPREHENSIVE STRATEGIC MODEL:Mission statement, Narrow Mission:
  6. CHARACTERISTICS OF A MISSION STATEMENT:A Declaration of Attitude
  7. EXTERNAL ASSESSMENT:The Nature of an External Audit, Economic Forces
  8. KEY EXTERNAL FACTORS:Economic Forces, Trends for the 2000ís USA
  9. EXTERNAL ASSESSMENT (KEY EXTERNAL FACTORS):Political, Governmental, and Legal Forces
  10. TECHNOLOGICAL FORCES:Technology-based issues
  11. INDUSTRY ANALYSIS:Global challenge, The Competitive Profile Matrix (CPM)
  12. IFE MATRIX:The Internal Factor Evaluation (IFE) Matrix, Internal Audit
  13. FUNCTIONS OF MANAGEMENT:Planning, Organizing, Motivating, Staffing
  14. FUNCTIONS OF MANAGEMENT:Customer Analysis, Product and Service Planning, Pricing
  15. INTERNAL ASSESSMENT (FINANCE/ACCOUNTING):Basic Types of Financial Ratios
  16. ANALYTICAL TOOLS:Research and Development, The functional support role
  17. THE INTERNAL FACTOR EVALUATION (IFE) MATRIX:Explanation
  18. TYPES OF STRATEGIES:The Nature of Long-Term Objectives, Integration Strategies
  19. TYPES OF STRATEGIES:Horizontal Integration, Michael Porterís Generic Strategies
  20. TYPES OF STRATEGIES:Intensive Strategies, Market Development, Product Development
  21. TYPES OF STRATEGIES:Diversification Strategies, Conglomerate Diversification
  22. TYPES OF STRATEGIES:Guidelines for Divestiture, Guidelines for Liquidation
  23. STRATEGY-FORMULATION FRAMEWORK:A Comprehensive Strategy-Formulation Framework
  24. THREATS-OPPORTUNITIES-WEAKNESSES-STRENGTHS (TOWS) MATRIX:WT Strategies
  25. THE STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX
  26. THE STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX
  27. BOSTON CONSULTING GROUP (BCG) MATRIX:Cash cows, Question marks
  28. BOSTON CONSULTING GROUP (BCG) MATRIX:Steps for the development of IE matrix
  29. GRAND STRATEGY MATRIX:RAPID MARKET GROWTH, SLOW MARKET GROWTH
  30. GRAND STRATEGY MATRIX:Preparation of matrix, Key External Factors
  31. THE NATURE OF STRATEGY IMPLEMENTATION:Management Perspectives, The SMART criteria
  32. RESOURCE ALLOCATION
  33. ORGANIZATIONAL STRUCTURE:Divisional Structure, The Matrix Structure
  34. RESTRUCTURING:Characteristics, Results, Reengineering
  35. PRODUCTION/OPERATIONS CONCERNS WHEN IMPLEMENTING STRATEGIES:Philosophy
  36. MARKET SEGMENTATION:Demographic Segmentation, Behavioralistic Segmentation
  37. MARKET SEGMENTATION:Product Decisions, Distribution (Place) Decisions, Product Positioning
  38. FINANCE/ACCOUNTING ISSUES:DEBIT, USES OF PRO FORMA STATEMENTS
  39. RESEARCH AND DEVELOPMENT ISSUES
  40. STRATEGY REVIEW, EVALUATION AND CONTROL:Evaluation, The threat of new entrants
  41. PORTER SUPPLY CHAIN MODEL:The activities of the Value Chain, Support activities
  42. STRATEGY EVALUATION:Consistency, The process of evaluating Strategies
  43. REVIEWING BASES OF STRATEGY:Measuring Organizational Performance
  44. MEASURING ORGANIZATIONAL PERFORMANCE
  45. CHARACTERISTICS OF AN EFFECTIVE EVALUATION SYSTEM:Contingency Planning