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Chap 1 - 1. Defining Strategic Management

Strategic management is the art and science of formulating, implementing, and
evaluating cross-functional decisions that allow an organization to reach its goals. It is
often used interchangeably with the term strategic planning.

●​ The "Game Plan": A strategic plan represents a company’s commitment to

specific markets, policies, and operations, chosen from various alternatives.
●​ Core Questions: * Where are we now?
○​ Where do we want to go?
○​ How are we going to get there?

2. The Three Stages of Strategic Management

The process is cyclical and consists of three distinct phases:

Phase I: Strategy Formulation

This is the "planning" stage. It involves:

●​ Vision & Mission: Defining what the company wants to become and what its
current business is.
●​ External Assessment: Identifying opportunities and threats (e.g., economic trends,
tech shifts).
●​ Internal Assessment: Determining strengths and weaknesses.
●​ Goal Setting: Establishing long-term objectives and choosing which specific
strategies to pursue (e.g., entering international markets or merging).

Phase II: Strategy Implementation

Often called the Action Stage, this is the most difficult part of the process. It requires:
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●​ Establishing annual objectives and policies.

●​ Motivating employees and allocating resources.
●​ Developing a strategy-supportive culture to ensure the plan is actually executed.

Phase III: Strategy Evaluation

This is the "review" stage to see if the plan is working. It involves three fundamental
activities:

1.​ Reviewing internal and external factors that are the bases for current strategies.
2.​ Measuring performance.
3.​ Taking corrective actions to get the firm back on track.

3. Key Terms in Strategic Management

To understand the discipline, you must master these fundamental concepts:

●​ Competitive Advantage: Anything a firm does especially well compared to rivals,

or a resource it possesses that rivals want. The goal is sustained competitive
advantage.
●​ Strategists: The individuals (usually CEOs or owners) most responsible for the
success or failure of the organization.
●​ Vision vs. Mission: * Vision: "What do we want to become?" (Future-oriented).
○​ Mission: "What is our business?" (Present-oriented).
●​ External Opportunities/Threats: Factors outside the firm's control (e.g., "green"
consumer trends, fluctuating oil prices) that can help or hurt it.
●​ Internal Strengths/Weaknesses: Controllable activities performed well or poorly
relative to competitors.
●​ Strategies: The means (actions) to reach long-term objectives (e.g., geographic
expansion).
●​ Policies: The tools/rules used to achieve annual objectives.
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4. Benefits of Strategic Management

Engaging in this process allows a firm to be proactive rather than reactive, giving it more
control over its destiny.

Financial Benefits Non-financial Benefits

Significant improvement in sales Enhanced awareness of external threats

Increased profitability Better understanding of competitor strategies

Improved productivity Reduced resistance to change among

employees

Better preparation for future Clearer link between performance and

fluctuations rewards

5. Why Some Firms Fail to Plan (and Pitfalls to Avoid)

Not every company plans, and even those that do often make mistakes.

Why Firms Don’t Plan:

●​ Firefighting: Managers are too busy resolving immediate crises to look ahead.
●​ Overconfidence: Success today leads to the false belief that success tomorrow is
guaranteed.
●​ Lack of Knowledge: No formal training or appreciation for the benefits of planning.
●​ Laziness: Effective planning takes significant time and effort.

Common Pitfalls in Planning:

●​ The "Planner" Trap: Delegating planning to a single person rather than involving
all managers.
●​ Bureaucracy: Being so formal that flexibility and creativity are stifled.
●​ Communication Breakdown: Failing to share the plan with employees, leaving
them "in the dark."
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●​ Satisfying Requirements: Doing it only to satisfy regulators or accreditation, not

to improve the business.

6. Business vs. Military Strategy

The roots of "strategy" are military, and while they share similarities, there is a key
distinction:

●​ Business Strategy: Based on an assumption of competition. It aims to gain market

share in a peaceful environment.
●​ Military Strategy: Based on an assumption of conflict.

Insight from Sun Tzu: "Know your enemy and know yourself, and in a
hundred battles you will never be defeated." This applies equally to
understanding your competitors and your own internal strengths.

Chap 2 - 1. The Vision Statement: "The Future"

The vision statement is the first step in strategic planning. It describes the "dream" or the
ultimate destination of the firm.

●​ The Core Question: "What do we want to become?"

●​ Key Traits: * Should be short (preferably one sentence).
○​ Should be developed with input from as many managers as possible.
○​ Should reveal the type of business the firm is in.
●​ Examples:
○​ Good: General Motors – To be the world leader in transportation products
and related services.
○​ Too Vague: PepsiCo – Creating a better tomorrow than today. (Critique: It
doesn't mention food or beverages).

2. The Mission Statement: "The Present"

The mission statement is a declaration of an organization's "reason for being." It

distinguishes one firm from others in the same industry.

●​ The Core Question: "What is our business?"

●​ Alternative Names: Creed statement, statement of purpose, statement of
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philosophy, or statement of business principles.

●​ Function: It provides the foundation for priorities, strategies, plans, and work
assignments.

3. The Process of Developing Statements

Creating these statements is just as important as the final document because it builds
consensus.

1.​ Preparation: Managers read background articles on vision/mission.

2.​ Individual Drafts: Managers write their own versions.
3.​ Synthesis: A facilitator or committee merges these into one draft.
4.​ Feedback: The draft is distributed for modifications and deletions.
5.​ Finalization: A meeting is held to finalize the document, ensuring everyone "buys
in."

4. Importance & Benefits

A clear mission and vision provide a "North Star" for the company:

●​ Shared Purpose: Ensures all employees understand why the company exists.
●​ Resource Allocation: Helps managers decide where to spend money and time.
●​ Standard of Operation: Provides a basis for organizing departments and activities.
●​ Strategy Formulation: You cannot choose a strategy if you don't know your
mission.

5. Characteristics of a Good Mission Statement

A mission statement should be broad enough to allow for creative growth but specific
enough to provide direction.

●​ Broad in Scope: Should not include specific numbers, percentages, or dollar

amounts.
●​ Concise: Generally fewer than 150 words.
●​ Inspiring & Enduring: It should motivate and remain relevant for years.
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●​ Stakeholder-Focused: It must appeal to various groups (customers, employees,

stockholders, etc.).
●​ Socially & Environmentally Responsible: Reflects the firm's commitment to the
community.

The "Customer Orientation" Mindset

The text emphasizes that a mission should reflect benefits rather than products.

Key Insight: "Do not offer me clothes; offer me attractive looks. Do not offer
me shoes; offer me comfort for my feet." Conclusion: Identify the customer's
need first, then provide the solution.

6. The 9 Components of a Mission Statement

To be comprehensive, a mission statement should ideally address these nine elements:

1.​ Customers: Who are the firm’s customers?

2.​ Products or Services: What are the major goods/services provided?
3.​ Markets: Geographically, where does the firm compete?
4.​ Technology: Is the firm technologically current?
5.​ Survival, Growth, & Profitability: Is the firm committed to financial soundness?
6.​ Philosophy: What are the basic beliefs, values, and ethical priorities?
7.​ Self-Concept (Distinctive Competence): What is the firm’s major competitive
advantage?
8.​ Public Image: Is the firm responsive to social and environmental concerns?
9.​ Employees: Are employees seen as a valuable asset?

Chap 3 - 1. The Nature of an External Audit

An external audit (or environmental scanning) focuses on identifying and evaluating
trends and events that a single firm cannot control.

●​ Purpose: To reveal key opportunities (factors that could benefit the firm) and
threats (factors that could harm the firm).
●​ The Goal: To formulate strategies that allow a firm to respond offensively (taking
advantage of opportunities) or defensively (minimizing the impact of threats).
●​ The I/O View: The Industrial Organization (I/O) view suggests that external
(industry) factors are more important than internal factors in gaining a competitive
advantage.
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2. The Five Categories of External Forces

Strategic management divides external variables into five broad categories:

I. Economic Forces

These factors affect the purchasing power of customers and the cost of capital.

●​ Key Variables: GDP trends, interest rates, inflation, unemployment levels, and
disposable income.
●​ The Value of the Dollar: * Strong Dollar: Makes U.S. goods expensive for
foreigners (lowers exports) but allows U.S. firms to buy raw materials cheaply
from abroad. It also keeps inflation low.
○​ Weak Dollar: Boosts exports as U.S. goods become cheaper for foreign
buyers.

II. Social, Cultural, Demographic, & Environmental Forces

These have a major impact on products, services, and customers.

●​ U.S. Demographic Trends: * Aging Population: By 2050, 20% of the population will
be over 65.
○​ Racial Shifts: The U.S. is becoming less white; by 2075, it is projected there
will be no ethnic or racial majority.
●​ Other Variables: Number of marriages/divorces, life expectancy, per capita
income, and attitudes toward "green" operations.

III. Political, Governmental, and Legal Forces

Organizations are heavily influenced by the legal and political landscape.

●​ Key Variables: Environmental regulations, tariffs, political stability in foreign

countries, and changes in patent laws.
●​ Interdependence: Global markets are increasingly linked, making international
political conditions vital for domestic firms.

IV. Technological Forces

Technological shifts can render existing products obsolete and create new competitive
advantages.

●​ Emerging Tech: Internet of Things (IoT), AI, 3D printing, robotics, and the cloud.
●​ Corporate Roles: Many firms now employ a Chief Information Officer (CIO) and
Chief Technology Officer (CTO) to manage this flow of information.
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V. Competitive Forces

Identifying rivals and determining their strengths, weaknesses, and strategies is crucial.

●​ Competitive Intelligence (CI): An ethical process for gathering information about

what competitors are doing.
●​ CI Objectives: To understand the industry, identify competitor vulnerabilities, and
anticipate their next moves.

3. Porter’s Five-Forces Model

This model is used to determine the "attractiveness" and profit potential of an industry
based on five competitive pressures:

1.​ Rivalry Among Competing Firms: Usually the most powerful force. High rivalry
occurs when consumers can switch brands easily or when barriers to leaving the
industry are high.
2.​ Potential Entry of New Competitors: Intensified when "Barriers to Entry" are low.
Barriers include economies of scale, patents, and strong brand loyalty.
3.​ Potential Development of Substitute Products: Pressure increases when the price
of substitutes falls or when consumer switching costs are low.
4.​ Bargaining Power of Suppliers: High if there are few suppliers or if switching raw
materials is expensive.
5.​ Bargaining Power of Consumers: High if customers buy in large volumes or if the
products are "standard" (undifferentiated).

4. Analytical Tools for External Assessment

External Factor Evaluation (EFE) Matrix

A tool used to summarize and evaluate the economic, social, cultural, demographic,
environmental, political, governmental, legal, technological, and competitive information.

1.​ Weight (0.0 to 1.0): Indicates the importance of the factor to the industry.
2.​ Rating (1 to 4): Indicates how effectively the firm’s current strategies respond to
that factor ($1 = \text{Poor}$, $4 = \text{Superior}$).
3.​ Weighted Score: Multiply weight by rating. Sum them up to get a total (max is 4.0,
average is 2.5).

Competitive Profile Matrix (CPM)

This matrix identifies a firm's major competitors and compares them using Critical
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Success Factors (CSFs).

●​ Unlike the EFE, the CPM includes both internal and external issues.
●​ It reveals which competitors are strongest in specific areas like advertising,
product quality, or financial position.

5. Forecasting and Business Analytics

●​ Forecasts: Educated assumptions about future trends. No forecast is perfect, but
they are essential for planning.
●​ Business Analytics: The use of software and "Big Data" to mine volumes of
information to help executives make better decisions.

Chapter 4 - 1. The Nature of an Internal Audit

While the external audit looks at the world, the internal audit looks in the mirror. All
organizations have strengths and weaknesses in the functional areas of business.

●​ Distinctive Competencies: These are a firm's specific strengths that cannot be

easily matched or imitated by competitors. Building strategy involves leveraging
these to create a competitive advantage.
●​ The Process: Requires gathering and prioritizing information about management,
marketing, finance/accounting, production, R&D, and MIS. It helps employees
understand how their specific jobs fit into the whole organization.

2. The Resource-Based View (RBV)

The RBV approach contends that internal resources are more important for a firm than
external factors in achieving sustained competitive advantage.

●​ Three Categories of Resources:

○​ Physical: Plant, equipment, location, raw materials.
○​ Human: Employees, training, experience, intelligence.
○​ Organizational: Structure, planning processes, information systems,
patents.
●​ Empirical Indicators: For a resource to provide a competitive advantage, it must
be:
○​ Rare
○​ Hard to Imitate
○​ Not easily substitutable
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3. Organizational Culture
Culture is a pattern of behavior developed by an organization. It is the "correct" way to
perceive, think, and feel within the company.

●​ Significance: If a strategy aligns with cultural strengths (like a strong work ethic),
implementation is swift. If it conflicts, it will likely fail.
●​ Cultural Products: These include values, beliefs, rituals, ceremonies, legends,
symbols, and heroes/heroines.

4. Management Functions
Management is broken down into five basic activities:

1.​ Planning: Forecasting, setting objectives, and devising strategies. (The bridge
between present and future).
2.​ Organizing: Organizational design, job descriptions, and span of control.
3.​ Motivating: Leadership, communication, and morale.
4.​ Staffing: Hiring, training, and wage/salary administration.
5.​ Controlling: Quality control, financial control, and expense analysis.

5. Marketing Functions
Marketing is the process of defining, creating, and fulfilling customer needs.

●​ Customer Analysis: Evaluating consumer needs via surveys and market

segmentation.
●​ Selling: Advertising, sales promotion, and customer relations.
●​ Product/Service Planning: Test marketing, brand positioning, and packaging.
●​ Pricing: Influenced by consumers, governments, suppliers, and competitors.
●​ Distribution: Warehousing, retail site selection, and inventory levels.
●​ Marketing Research: Systematic data gathering to find strengths/weaknesses.
●​ Cost/Benefit Analysis: Determining if the benefits of a marketing decision
outweigh the costs.

6. Finance and Accounting Functions

Financial condition is often considered the best single measure of a firm's competitive
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position.

●​ Three Key Decisions:

1.​ Investment (Capital Budgeting): Allocating capital to projects and assets.
2.​ Financing: Determining the best capital structure (debt vs. equity).
3.​ Dividend: Deciding how much of the earnings to pay to stockholders vs.
retaining in the firm.
●​ Ratio Analysis: Calculating ratios (Liquidity, Leverage, Activity, Profitability,
Growth) and comparing them to industry norms and competitors.

7. Other Functional Areas

●​ Production/Operations: Transforming inputs (raw materials) into goods and
services. Key decisions include capacity, inventory, and quality.
●​ Research & Development (R&D): Developing new products and improving old
ones. Essential for firms pursuing product development or diversification.
●​ Management Information Systems (MIS): Collecting and synthesizing data to help
managers make better decisions. A "user-friendly" MIS is a major internal
strength.

8. Value Chain Analysis (VCA) & Benchmarking

●​ Value Chain Analysis: Determining the costs associated with every activity from
buying raw materials to customer service. The goal is to see where the firm is
cost-effective or inefficient.
●​ Benchmarking: An analytical tool used to compare a firm’s value chain costs
against rivals' to determine "best practices."

9. The Internal Factor Evaluation (IFE) Matrix

This tool summarizes and evaluates the major strengths and weaknesses in the
functional areas of a business.

1.​ List Factors: Identify key internal strengths and weaknesses.

2.​ Weight (0.0 to 1.0): Importance of the factor to the industry.
3.​ Rating (1 to 4):
○​ 1 = Major Weakness
○​ 2 = Minor Weakness
○​ 3 = Minor Strength
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○​ 4 = Major Strength
4.​ Weighted Score: Weight x Rating.
5.​ Total Score: Sum of weighted scores. An average score is 2.5. Below 2.5 indicates
a weak internal position; above 2.5 indicates a strong internal position.