CHAPTER 1: OVERVIEW OF STRATEGIC MANAGEMENT

Strategy
 The central, integrated, externally oriented concept of how a firm will achieve its
objectives
 Tactical course of action which is design to achieve long term adjectives
 Art and science of planning and marshalling resources
 Game plan of management

STRATEGIC MANAGEMENT
 The art and science of formulating, implementing, and evaluating cross-functional
decisions that enable an organization to achieve its objectives
 Set of management decisions that determines the long-run performance of a
corporation
 Refer to strategy formulation, implementation, and evaluation
 Synonymous with strategic planning (formulation only)

STAGES OF STRATEGIC MANAGEMENT

Strategic formulation and implementation are interdependent from the standpoint that
implementation should provide information that is used to periodically modify the strategy.

STRATEGY FORMULATION

 vision and mission, identifying external opportunities and threats, determining internal
strengths and weaknesses
 establishing long term objectives
 process of deciding what to do

 Environmental Appraisal – aggregate of all conditions, events, and influences that

surround and affect it (it is dynamic and consists of external and internal environment)
 Organizational Appraisal – process of observing an organizational internal environment
to identify the strengths and weaknesses that may influence the organization’s ability to
achieve goals

STRATEGY IMPLEMENTATION

 the process of performing all the activities necessary to do what has been planned
 requires to establish annual objectives, devise policies, motivate employees, and
allocate resources so that formulated strategies can be executed
 developing 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

 Designing structure, process, & system – decision making with regard to organizational
structure, budgets, programs, and procedures in order to accomplish certain activities
 Functional implementation – carried out through functional plan and policies
 Behavioral implementation – denotes mobilizing employees and managers to put and
formulate strategies into action and require personal discipline, commitment, and
sacrifice
 Operational strategy – annual objectives, devising policies, and allocating resources
STRATEGY EVALUATION

 Final stage
 Evaluation is the primary means for obtaining information

LEVELS OF STRATEGY

CORPORATE STRATEGY: strategic decisions relate to organization-wide policies and are

taken care by top-level management

 2 mains aspects: strategic planning and implementation

 Major financial policy decisions involving acquisition, diversification, and structural
redesigning belong to this level
 involves high-level strategic decisions that will help a company sustain a competitive
advantage and remain profitable in the foreseeable future

BUSINESS STRATEGY: related to a unit within the whole

 Concerns with product development, marketing mix, research and development,

personnel, etc.
 At the median level of strategy are business-level decisions

FUNCTIONAL STRATEGY: decision-making with respect to specific functional areas-product,

marketing, personnel, finance etc.

 At the lowest level are functional-level decisions

 They focus on activities within and between different functions, aimed at improving the
efficiency of the overall business
 Concerned with strategic approaches for managing frontline operating units and for
handling day to day tasks of strategic significance

CHAPTER 2: VISION AND MISSION STATEMENT

VISION STATEMENT

 “what do we want to become?”

 First step of strategic planning that proceeds to mission statement
 a future-oriented declaration of the organization’s purpose

MISSION STATEMENT

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

 “What is our business?”
 the organization’s statement of purpose and describes who the company is and what it
does

OBJECTIVES

 end results of planned activity that state what is to be accomplished by when and
should be quantified if possible and their achievement should result in the fulfillment of a
corporation’s mission
OTHER TERMS TO REMEMBER:
Strategic plan: a company’s game plan
corporate strategy: is concerned with “in which businesses we should compete.”
Addresses three fundamental questions:
 In what businesses will we compete?
o The Hortalezas, for instance, say that they are in the wellness business; but form the
opening case, you can see that they're talking about specific niche markets related to
wellness.
 How can we, as a corporate parent, add value to our various lines of business?
o By having two or more owned businesses cooperate and share resources
 How can diversifying our business or entering a new industry, help us compete in our other
industries?
o The Hortaleza's experience with the HBC retailers can provide valuable insights into
which new products to develop through the Splash Research Institute; in addition,
Splash can sell more of its own products through HBD outlets
business strategy: refers to the ways in which a firm plans to achieve its objectives within a
particular business (doing the right things)
INTERNATIONAL STRATEGY: specialized in the sense that corporate strategy guides the
choice of which markets, including different countries, a firm competes in
FUNCTIONAL STRATEGY: doing things right

CHAPTER 3: INTERNAL ASSESSMENT

NATURE OF AN INTERNAL AUDIT

 Internal strengths and weaknesses, coupled with external opportunities/threats and a
clear statement of mission, provide the basis for establishing objectives and
strategies

THE PROCESS OF PERFORMING AN INTERNAL AUDIT

 Representative managers and employees from throughout the firm need to be involved
in determining a firm’s strengths and weaknesses
 Requires the gathering and assimilating information about the firm’s management,
marketing, finance/accounting, production/operations, research and development
(R&D), and management information systems operations
 Provides more opportunity for participants to understand how their jobs, departments,
and divisions fit into the whole organization

RESOURCE-BASED VIEW (RBV)

 Approach to competitive advantage
 Internal resources are more important than external factors
 Organizational performance will primarily be determined by physical resources, human
resources, and organizational resources
EMPIRICAL INDICATORS
1. Rare – resources competitor firms do not possess
2. Hard to imitate – same resources are hard to imitate
3. Not easily substitutable – no viable substitutes = competitive advantage

INTEGRATING STRATEGY AND CULTURE

ORGANIZATIONAL CULTURE

 Pattern of behavior developed by an organization as it learns to cope with its problem of

external adaptation and internal integration is considered valid and taught to new
members

MARKETING
 The process of defining, anticipating, creating, and fulfilling customers’ needs and wants
for products and services
 Defining, anticipating, creating, fulfilling

CUSTOMER ANALYSIS: examination and evaluation of consumer needs, desires, and wants

SELLING PRODUCTS/SERVICES: advertising, sales promotion, publicity, personal selling

PRODUCT AND SERVICE PLANNING: test marketing; product and brand positioning

PRICING: 5 major stakeholders affect price; consumers, government, suppliers, distributors,

and competitors

DISTRIBUTION: warehousing, distribution channels, distribution coverage

MARKETING RESEARCH: systematic gathering and analyzing data about problems relating
to the marketing of goods and services

COST/BENEFIT ANALYSIS: assessing the costs, benefits, and risks associated with
marketing decisions

FINANCE/ACCOUNTING

 Considered the single best measure of a firm’s competitive position and overall
attractiveness to investors
INVESTING DECISION: allocation and reallocation of capital and resources to products,
projects, assets, and divisions of an organization

FINANCING DECISION: determines the best capital structure for the firm and includes
examining various methods by which the firm can raise capital

DIVIDEND DECISION: concern issues such as the percentage of earnings paid to

stockholders, the stability of dividends paid overtime, and the repurchase of issuance of stock

FINANCIAL ANALYSIS: widely used method for determining an organization’s strengths and
weaknesses in the investment, financing, and dividend areas

PRODUCTION/OPERATIONS

 Transforms inputs into goods and services

BASIC FUNCTIONS

1. Process - include choice of technology, facility layout, process flow analysis, facility
location, line balancing, process control, and transportation analysis (distance from raw
materials to production)
2. Capacity - include forecasting, facilities planning, aggregate planning, scheduling,
capacity planning, and queuing analysis. Capacity utilization is a major consideration
3. Inventory - involve managing the level of raw materials, work-in-process, and finished
goods, especially considering what to order, when to order, how much to order, and
materials handling.
4. Workforce - involve managing the skilled, unskilled, clerical, and managerial
employees by caring for job design, work measurement, job enrichment, work
standards, and motivation techniques.
5. Quality - aimed at ensuring that high-quality goods and services are produced by
caring for quality control, sampling, testing, quality assurance, and cost control.

RESEARCH AND DEVELOPMENT

 Development of new product BEFORE competitors

 Improving product quality
 Improving manufacturing processes to reduce costs

MANAGEMENT INFORMATION SYSTEMS

 Improve performance of an enterprise by improving quality of managerial decisions

 CIO/CTO, Security, User-friendly, E-commerce

INTERNAL FACTR EVALUATION (IFE) MATRIX

 Basically a summary step in conducting an internal strategic-management audit

 Summarizes and evaluates the major strengths and weaknesses in the functional areas
of a business, and it also provides a basis for identifying and evaluating relationships
among those areas

STEPS:

1. 10-20 key internal factors identified in the internal-audit process

2. Assign a weight: 0.0 (not important) – 1.0 (all-important) to each factor
 3. Assign a 1-to-4 rating to each factor to indicate whether that factor represents a major
weakness, 1 = major weakness, 2 = minor weakness, 3 = minor strength, 4 = major
strength; Strengths must receive 3-4, weaknesses must receive 1-2 rating
4. Factor weight x Rating = Weighted Score
5. Sum weighted scores for each variable

Note: 1.0 = low, 4.0 = high, 2.5 – weak internally, higher than 2.5 indicates strong internal
position

CHAPTER 4: EXTERNAL ASSESSMENT

NATURE OF AN EXTERNAL AUDIT

 Develop a finite list of opportunities that could benefit a firm and threats that should be
avoided
 Not aimed at developing a list of every possible factor that could influence the business,
it is aimed at identifying key variables that offer actionable responses

PROCESS OF PERFORMING AN EXTERNAL AUDIT

 Must involve as many managers and employees as possible

 Gather competitive intelligence and information about economic, social, cultural,
demographic, environmental, political, governmental, legal, and technological trends
 Monitor various sources of information

INDUSTRIAL ORGANIZATION (I/O) VIEW

 Approach to competitive advantage advocates that external (industry) factors are more
important than internal factors in a firm achieving competitive advantage
 Porter’s Five-Forces is an example

External Factor Evaluation (EFE) Matrix 

 a strategy tool used to examine company’s external environment and to identify the
available opportunities and threats.

External Factor Evaluation Matrix

Weighted
Key External Factors Weight Rating
Score

Opportunities

1. New trade agreement that lifts the ban of imported food is

0.11 3 0.33
signed with a neighboring country.
 Weighted
Key External Factors Weight Rating
Score

2. Signing a contract with a new supplier. 0.09 1 0.09

3. Processed food market growing by 15% next year in our

0.24 2 0.48
largest market.

4. Incorporating a new company in neighboring country, where

0.10 1 0.10
the tax rate is decreasing by 3% next year.

Threats

5. The contract with the main customer expires in 2 months. 0.17 4 0.68

6. Extreme cases of natural disasters occurring next year. 0.03 2 0.06

7. New law, requiring decreasing the amount of sugar in the food

0.14 3 0.42
by 20%, could be passed next year.

8. Competitors opening 3 new stores in the town. 0.12 2 0.24

Total 1.00 – 2.40

Key External and Internal Factors

EFE Matrix 

 identify the key external opportunities and threats that are affecting or might affect a
company
 analyzing the external environment with the tools like PEST analysis, Porter’s Five
Forces or Competitive Profile Matrix.

STEPS:

1. 10-20 key external factors identified in the external-audit process

2. Assign a weight: 0.0 (not important) – 1.0 (all-important) to each factor
 3. Assign a 1-to-4 rating to each factor to indicate how effectively the firm’s current
strategies respond to the factor, 4 = response is superior, 3 = response is above
average, 2 = response is average, and 1 = response is poor
4. Factor weight x Rating = Weighted Score
5. Sum weighted scores for each variable

Note: 1.0 = low, 4.0 = high, 2.5 – weak response, implement strategies, higher than 2.5
indicates effective strategy

BENEFITS

Both matrices have the following benefits:

 Easy to understand. The input factors have a clear meaning to everyone inside or
outside the company.

 Easy to use. The matrices do not require extensive expertise, many personnel or lots of
time to build.

 Focuses on the key internal and external factors. Unlike some other analyses (e.g.
value chain analysis, which identifies all the activities in the company’s value chain,
despite their importance), the IFE and EFE only highlight the key factors that are
affecting a company or its strategy.

 Multi-purpose. The tools can be used to build SWOT analysis, IE matrix, GE-McKinsey
matrix or for benchmarking.

Limitations

 Easily replaced. IFE and EFE matrices can be replaced almost completely by PEST
analysis, SWOT analysis, competitive profile matrix and partly some other analysis.

 Doesn’t directly help in strategy formation. Both analyses only identify and evaluate the
factors but do not help the company directly in determining the next strategic move or
the best strategy.

 Too broad factors. SWOT matrix has the same limitation and it means that some factors
that are not specific enough can be confused with each other. Some strengths can be
weaknesses as well, e.g. brand reputation, which can be a strong and valuable brand
reputation or a poor brand reputation. The same situation is with opportunities and
threats. Therefore, each factor has to be as specific as possible to avoid confusion over
where the factor should be assigned.

Step 1. Identify the key external/internal factors

EFE matrix. Do the PEST analysis first. The information from the PEST analysis reveals which
factors currently affect or may affect the company in the future. At this point, the factors can be
either opportunities or threats and your next task is to sort them into one or the other category.
Try to look at which factors could benefit the company and which ones would harm it.

You should also analyze your competitors’ actions and their strategies. This way you would
know what competitors are doing right and what their strategies lack.
IFE matrix. In case you have done a SWOT analysis already, you can gather some of the
factors from there. The SWOT analysis will usually have no more than 10 strengths and
weaknesses, so you’ll have to do additional analysis to identify more key internal factors for the
matrix.

Look again into the company’s resources, capabilities, organizational structure, culture,
functional areas and value chain analysis and recognize the strong and weak points of the
organization.

Step 2. Assign the weights and ratings

Weights and ratings are assigned subjectively. Therefore, it is a more difficult process than
identifying the key factors. We assign weights based on industry analysts’ opinions. Find out
what the analysts say about the industry’s success factors and then use their opinion or
analysis to assign the appropriate weights. The same process is with ratings. Although, this
time you or the members of your group will have to decide what ratings should be assigned.
Ratings from 1-4 can be assigned to each opportunity and threat, but only the ratings from 1-2
can be assigned to each weakness and 3-4 to each strength.

Step 3. Use the results

IFE or EFE matrices have little value on their own. You should do both analyses and combine
their results to discuss new strategies or for further analysis. They are especially useful when
building advanced SWOT analysis, SWOT matrix for strategies or IE matrix.

EFE Matrix Example

Ratin Weighted
Key External Factors Weight
g Score

Opportunities

1. New immigration laws abolish the restrictions for

0.02 1 0.02
immigrants to live and work freely in the country.

2. A government increases budget spending for our

0.17 4 0.68
products.

3. New product market, worth $1 billion a year, could be

0.05 4 0.20
introduced for the consumers.

4. Consumers are 20 % more likely to by the products that

0.12 4 0.48
share the same ecosystem.
 Ratin Weighted
Key External Factors Weight
g Score

5. We have patented the technology that increases the

quality of our products and lowers the amount of the 0.03 3 0.09
materials needed to produce it.

6. Our largest competitor is selling their subsidiary in TV

0.14 2 0.28
market.

Threats

7. Tax rates will increase by 10% for the polluting

0.06 2 0.12
companies.

8. Due to the fast economic growth credit availability will

0.04 4 0.16
tighten.

9. Credit rates are growing by 5%. 0.02 2 0.04

10. Natural disasters disrupt our suppliers’ or our

0.08 3 0.24
operations.

11. Rivalry in the market is intensifying. 0.12 4 0.48

12. Competitor is pursuing horizontal integration strategy. 0.10 3 0.30

13. Inflation has increased to 6%. 0.05 2 0.10

Total 1.00 – 3.19

IFE Matrix Example

 Weighted
Key Internal Factors Weight Rating
Score

Strengths

1. Diversified income (5 different brands earning more

0.10 4 0.40
than $4 billion each)

2. Brand reputation valued at $35 billion 0.08 3 0.24

3. Strong patents portfolio (13,000 patents) 0.07 4 0.28

4. Excellent employee management 0.02 3 0.06

5. Competency in mergers and acquisitions 0.06 3 0.18

6. Extensive distribution channels 0.11 4 0.44

7. Strong product ecosystem 0.08 4 0.32

Weaknesses

8. High debt level ($3 billion) 0.10 1 0.10

9. Over-dependence on sales from U.S. 0.13 2 0.26

10. Too low net profit margin 0.07 2 0.14

11. Competition based on prices 0.09 2 0.18

12. Rigid (bureaucratic) organizational culture impeding 0.04 1 0.04

 Weighted
Key Internal Factors Weight Rating
Score

fast introduction of new products

13. Negative publicity 0.05 2 0.10

Total 1.00 – 2.74

CHAPTER 5: STRATEGIC ANALYSIS

CASE STUDY ANALYSIS

Step 1: Investigate the Company's History and Growth.

Step 2: Identify Strengths and Weaknesses.

Step 3: Examine the External Environment.

Step 4: Analyze Your Findings.

Step 5: Identify Corporate-Level Strategy.

Step 6: Identify Business-Level Strategy.

Step 7: Analyze Implementations.

STRATEGIC ANALYSIS

 process of conducting research on a company and its operating environment to

formulate a strategy
 involves several factors…
o Identifying and evaluating data relevant to the company’s strategy
o Defining the internal and external environments to be analyzed
o Using several analytic methods such as Porter’s five forces analysis, SWOT
analysis, and value chain analysis
PROCESS

1. Perform an environmental analysis of current strategies

Starting from the beginning, a company needs to complete an environmental analysis of its
current strategies. Internal environment considerations include issues such as operational
inefficiencies, employee morale, and constraints from financial issues. External environment
considerations include political trends, economic shifts, and changes in consumer tastes.

2. Determine the effectiveness of existing strategies

A key purpose of a strategic analysis is to determine the effectiveness of the current strategy
amid the prevailing business environment. Strategists must ask themselves questions such as:
Is our strategy failing or succeeding? Will we meet our stated goals? Does our strategy align
with our vision, mission, and values?

3. Formulate plans

If the answer to the questions posed in the assessment stage is “No” or “Unsure,” we undergo
a planning stage where the company proposes strategic alternatives. Strategists may propose
ways to keep costs low and operations leaner. Potential strategic alternatives include changes
in capital structure, changes in supply chain management, or any other alternative to a
business process.

4. Recommend and implement the most viable strategy

Lastly, after assessing strategies and proposing alternatives, we reach a recommendation.

After assessing all possible strategic alternatives, we choose to implement the most viable and
quantitatively profitable strategy. After producing a recommendation, we iteratively repeat the
entire process. Strategies must be implemented, assessed, and re-assessed. They must
change because business environments are not static.

CHAPTER 6: STRATEGIC PLANNING

STRATEGIC PLAN

 A document that says why an organization exists, what it aims to do, and how it will do it
 Helps to focus the organization’s vision and priorities

It does not…

a. Predict the future

b. Replace good leadership and judgement
c. Follow a smooth, straightforward process

Keys to effective strategic planning:

 Focus only on the most important issues

 Be willing to question
 Produce a document
STEPS OF STRATEGIC PLANNING

1. Assess organization
2. Develop vision and mission
3. Assess environment
4. Agree on priorities
5. Write it all down
6. Implementation
7. Monitor and evaluate