Course:

Strategic Management
 CHAPTER ONE
1.1 Definition of strategic management
 Strategic management is the art and science of
formulating, implementing, and evaluating cross-
functional decisions that enable an organization to
achieve its objectives.
 Strategic management focuses on integrating
management, marketing, finance/accounting,
production/operations, research and development, and
information systems to achieve organizational success.
08/19/2025 2
 Cont..
Strategic Management is “The on-going process of
formulating, implementing and controlling broad
plans guide the organizational in achieving the
strategic goals given its internal and external
environment”.

08/19/2025 3
 Cont...
Interpretation:

1. On-going process:
 Strategic management is on-going process which is in existence throughout the
life of organization.

2. Shaping broad plans:

 First, it is an on-going process in which broad plans are firstly formulated than
implementing and finally controlled.

3. Strategic goals:
 Strategic goals are those which are set by top management.

4. Internal and external environment:

 External environment forced internal environment to set the goals and guide
08/19/2025 4
 Strategic management is a field that deals with
the major intended and emergent initiatives taken
by general managers on behalf of owners,
involving utilization of resources, to enhance the
performance of firms in their external
environments.
 It entails specifying the organization's mission,
vision and objectives, developing policies and
plans, often in terms of projects and programs.
08/19/2025 5
 Strategic management is a set of managerial
decisions and actions that determines the long run
performance of a corporation.
 It includes environmental scanning (both external
and internal), strategy formulation (strategic or
long-range planning), strategy implementation,
and evaluation and control.
08/19/2025 6
 Cont..

 The study of strategic management, therefore,

emphasizes the monitoring and evaluating of
external opportunities and threats in light of a
corporation’s strengths and weakness.

08/19/2025 7
 Strategic Management

 Strategic management is used to refer to strategy

formulation, implementation, and evaluation, while
 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.

08/19/2025 8
 1.2 Strategic management process:

 Analyze the environmental opportunity and threat

 Analyze the organization’s internal strengths and
weaknesses
 Establish the organizational direction: mission and goals
 Strategy formulation
 Strategy implementation
 Strategy control
Strategic Management: Chapter 08/19/2025 9
 Cont..

 OR/
Environmental scanning
Strategy formulation
Strategy implementation
Strategy evaluation

08/19/2025 10
The strategic-management process consists of four
stages:

1. Environmental scanning
 Involves identifying opportunities and threats in the
external environment and firm’s strengths and weakness.
2. Strategy formulation
 Involves developing a vision and mission, establishing
long-term objectives, generating alternative strategies, and
choosing particular strategies to pursue.

08/19/2025 11
 2. Strategy formulation…………

 It is the development of long-range plans for

the effective management of environmental
opportunities and threats, in light of corporate
strengths and weaknesses (SWOT).
 It includes defining the corporate mission,
specifying achievable objectives, developing
strategies, and setting policy guidelines.
08/19/2025 12
2. Strategy formulation…………

 Strategic formulation means a strategy formulate to

execute the business activities. Strategy formulation
includes developing:-
 Vision and Mission (The target of the business)
 Strength and weakness (Strong points of business
and also weaknesses)
 Opportunities and threats (These are related with
external environment for the business)
08/19/2025 13
 Strategy-formulation issues include;

 Deciding what new businesses to enter,

 What businesses to abandon,
 How to allocate resources,
 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. 08/19/2025 14
 3. Strategy implementation
 “action stage” of strategic management.
 Mobilizing employees and managers to put formulated
strategies into action.
 The most difficult stage in strategic management,
 Requires personal discipline, commitment, and sacrifice.
 Successful strategy implementation hinges upon
managers’ ability to motivate employees, which is more
an art than a science.
08/19/2025 15
 Cont..

 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.
08/19/2025 16
1.3 Key Terms in Strategic Management

 Vision Statement – explains what an organization

wants to become? Or where it wants to go?
 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 even development of
a mission statement.
 Many vision statements are a single sentence.
08/19/2025 17
Mission Statement…..
 Mission Statement – States the reason why an
organization exists.
 Mission should convey (communicate) the following
information:

i-Why the organization exists, its purpose, in terms of:

(a) Its basic products or service

(b) Its primary market

(c) Its major production technology.

ii- Moral and ethical principles

08/19/2025 18
 Characteristics of a mission statement

 It should be feasible (realistic and achievable).

 It depends on the availability of resources to achieve a

mission.
 It should be clear- to lead to action.
 It should be distinctive (unique) - to have great impact.
 It should indicate major components of strategy.
 It should indicate how objectives are to be
Strategic Management: Chapter 08/19/2025 19
 SWOT

 Opportunities and Threats (External)

 They are largely beyond the control of a single
organization.
 Strengths & Weaknesses (Internal)
 They are controllable activities performed especially well
or poorly.

08/19/2025 20
 OT

 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.
08/19/2025 21
 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.
08/19/2025 22
 Competitive Advantage:

 Competitive Advantage:

 This term can be defined as “anything that a firm

does especially well compare to rival firms.”
 When a firm can do something that rival firms
cannot do, or owns something that rival firm’s
desire, that can represent a competitive advantage.

08/19/2025 23
  Objective:
 is a target (end result) that an organization wants to achieve so as to realize its vision

and mission.

Short term as well as long term objectives should be identified

 Characteristics of objectives
 They should be understandable
 They should be specific and concrete
 They should be time bounded
 They should be measurable and controllable
 They should be challenging
 Objectives of different areas in an organization should be interrelated
Strategic Management: Chapter 08/19/2025 24

 Long-Term Objectives

 Objectives can be defined as specific results that an

organization seeks to achieve in pursuing its basic
mission.
 Long-term objectives cover more than one year.
 Objectives are essential for organizational success
because they state direction; aid in evaluation; create
synergy; reveal priorities; focus coordination; and
provide a basis for effective planning, organizing,
motivating, and controlling activities. 08/19/2025 25
 Annual Objectives:
 are short-term milestones that organizations must achieve to reach

long term objectives.

 Like long-term objectives, annual objectives should be measurable,

quantitative, challenging, realistic, consistent, and prioritized.

Strategies:
 are the means by which long-term objectives will be achieved.
 Business strategies may include geographic expansion,

diversification, acquisition, product development, market

penetration, retrenchment, divestiture, liquidation, and joint ventures 26

08/19/2025
 Strategists:

 Individuals who are most responsible for the success and failure
of an organization
 Job titles include: Chief executive Officer, President, Owner,
Dean, Entrepreneur etc.

 Policies:

 are the means by which annual objectives will be achieved.

 Policies include guidelines, rules, and procedures established to
support efforts to achieve stated objectives.
 Policies are guides to decision making and address repetitive or
recurring situations. 08/19/2025 27
1.4 Types of Strategies

 Offensive strategy- for growth related goals.

 Defensive strategy- for goals that require constricting
(limiting, narrowing) operation because of
inefficiencies.

Corporate level strategies

1. Concentric growth strategies
2. Integrative growth strategies
3. Diversification Growth strategies
Strategic Management: Chapter 08/19/2025 28
 Corporate level strategies

1. Concentric growth strategies-

 are primarily marketing moves attempted to improve
sales or profitability by getting more out of resources
currently available within the firm.
 Types of concentrated growth strategies (Intensive
growth strategies):
A) Market penetration- to increase sales within the
firm’s present market with its present products
Strategic Management: Chapter 08/19/2025 29
 Corporate level strategies…….

 Guidelines for Market Penetration: when

 Current markets are not saturated
 Usage rate of present customers can be increased
significantly
 Market shares of competitors declining while total industry
sales increasing
 Increased economies of scale provide major competitive
advantages

Strategic Management: Chapter 08/19/2025 30

 Corporate level strategies…….
 Functional actions include:
 Increase current customers’ usage rates by
product modification
 Find new uses for the product which will
increase sales
 Increase the number of customers with in a
segment by intensified advertising or promotion
Strategic Management: Chapter 08/19/2025 31
Corporate level strategies…….
B) Market Development-
 by expanding the geographical regions or the number of market
segments they serve with their product.
 Guidelines for Market Development: when
 New channels of distribution that are reliable, inexpensive, and good
quality
 Firm is very successful at what it does
 Untapped or unsaturated markets
 Capital and human resources necessary to manage expanded operations
 Excess production capacity
Strategic Management: Chapter 08/19/2025 32
Corporate level strategies…….
 Action plans include:
 Identifying new segments of the existing market
 Establishing the necessary supply and distribution
systems, along with promotion and advertising
strategies, to take the product to different geographical
areas.
 Developing new versions of the product to appeal to a
new segment.
Strategic Management: Chapter 08/19/2025 33
 Corporate level strategies…….
C) Product development- to increase sales in present segments
by augmenting (making effective) the present product line.
 Guidelines for Product Development
 Products in maturity stage of life cycle

 Competes in industry characterized by rapid technological developments

 Major competitors offer better-quality products at comparable prices

 Compete in high-growth industry

 Strong research and development capabilities

 It can be operationalized by:

 Developing new features for present products
 Designing additional models and sizes of the product
Strategic Management: Chapter 08/19/2025 34
 Creating improved versions of products
Corporate level strategies…….
2. Integrative growth strategies

A) Back ward integration-

 it entails gaining increased control over the firm’s supply (input) activities

through mergers or acquisition. Or by growing one’s own supply system.

 E.g. - Manufacturing firm and supplier
 Guidelines for Backward Integration

 When present suppliers are expensive, unreliable, or incapable of

meeting needs

 Number of suppliers is small and number of competitors large

 High growth in industry sector

 Firm has both capital and human resources to manage new

08/19/2025
business 35
Corporate level strategies…….

B) Forward integration-
 To obtain control over the external portions of the firm’s marketing
systems by either acquiring a distribution system or establishing it
internally.
 E.g. - Manufacturing firm with distributors.
 Guidelines for Forward Integration
 Present distributors are expensive, unreliable, or incapable of meeting firm’s

needs
 Availability of quality distributors is limited

 When firm competes in an industry that is expected to grow markedly

 Advantages of stable production are high

Strategic Management: Chapter 08/19/2025 36
Corporate level strategies…….

C) Horizontal Integration
 Horizontal integration refers to a strategy of seeking
ownership of or increased control over a firm’s competitors.
 One of the most significant trends in strategic management
today is the increased use of horizontal integration as a
growth strategy.
 Mergers, acquisitions, and takeovers among competitors
allow for increased economies of scale and enhanced
transfer of resources and competencies.
08/19/2025 37
 Corporate level strategies…….
3. Diversification Growth strategies
 Strategists should ask the following questions to choose
diversification-
A) Is diversification the best way?
B) Is the firm diversifying out of strength in its present operation?
 There are two approaches for diversification
1. Concentric diversification-the development of business with
products that have marketing or technological synergies with the
firm’s present products.
 Adding new, but related, products or services, for current
customers Strategic Management: Chapter 08/19/2025 38
Corporate level strategies…….

 Guidelines for Concentric Diversification

 Competes in no- or slow-growth industry
◦ Adding new & related products increases sales of
current products
◦ New & related products offered at competitive prices
◦ Current products are in decline stage of the product
life cycle
◦ Strong management team
Strategic Management: Chapter 08/19/2025 39
Corporate level strategies…….
2. Conglomerate diversification- this is the combination of business units

with products that have no marketing, technological or other synergies and

appeal to new customer classes.

 Note: The selected diversification approach should have the greatest

chance of making use of the firm’s strengths or external opportunities or

dealing constructively with a correctable weakness or external threat.

 Guidelines for Conglomerate Diversification
 Declining annual sales and profits
 Capital and managerial talent to compete successfully in a new industry
 Financial synergy between the acquired and acquiring firms
 Exiting markets for present productsStrategic
are saturated
Management: Chapter 08/19/2025 40
Corporate level strategies…….
3. Horizontal diversification
 Adding new, unrelated products or services for present customers
 Guidelines for Horizontal Diversification
Revenues from current products/services would increase

significantly by adding the new unrelated products

Highly competitive and/or no-growth industry with low margins

and returns
Present distribution channels can be used to market new products to

current customers
New products have counter cyclical sales patterns compared to
Strategic Management: Chapter 08/19/2025 41
Reasons for diversity and integration

 Internal pressures
 Psychological pressure for expansion- getting tired of doing the same thing.
 Business can reach a non-optimal size which integration can rectify.
 To increase profitability by turning a cost center in to a revenue (profit) center
 The desire to increase control of supply streams

 External pressure
 To reach the growth limits of the firm’s economic environment-diversifying in to other industries.
 The expansion of domestic markets to international scale.
 Technological branching
 Nature of tax laws
Strategic Management: Chapter 08/19/2025 42
 Career expectation of managers
Benefits of vertical integration strategies

 Reduction/elimination of transaction costs

 Assurance of continued supplies
 Cost reduction through improved coordination
 Easier innovation
 Creation of higher entry barriers

Strategic Management: Chapter 08/19/2025 43

 Costs and risks of integration

 Capital requirement rises which leads to lower

profitability by raising the breakeven point.
 Unbalanced scales of operation appear when
different stages of production are combined.
 Limited flexibility accompanies commitment to
the stage of production.
A firm that integrates is no longer specialized in
just one stage. Strategic Management: Chapter 08/19/2025 44
1.5 Defensive strategies

1. Retrenchment Strategies-
2. Divestiture
3. Liquidation
4. Harvesting

Strategic Management: Chapter 08/19/2025 45

Defensive strategies…..

1. Retrenchment Strategies-
 These strategies are attempts to regain control of a faltering
(uncertain or weak) business or to prevent it from faltering by
temporarily “reining in” its operation.
 Retrenchment occurs when an organization regroups through
cost and asset reduction to reverse declining sales and profits.
 Sometimes called a turnaround or reorganizational strategy,
retrenchment is designed to fortify an organization’s basic
distinctive competence.
Strategic Management: Chapter 08/19/2025 46
Defensive strategies…..
 Guidelines for Retrenchment:
 Firm has failed to meet its objectives and goals
consistently over time but has distinctive competencies
 Firm is one of the weaker competitors
 Inefficiency, low profitability, poor employee morale,
and pressure from stockholders to improve performance.
 When an organization’s strategic managers have failed

Strategic Management: Chapter 08/19/2025 47

Defensive strategies…..

2. Divestiture- Selling of, otherwise disposal of firm’s assets to

achieve a desired objective.
 Profitability shrinkage, sales decline, and other operational
problems of a diversified firm can be stopped by divestment.
 Selling a division or part of an organization is called divestiture.
Divestiture often is used to raise capital for further strategic
acquisitions or investments.
 Divestiture can be part of an overall retrenchment strategy to rid
an organization of businesses that are unprofitable, that require too
much capital, or that do not fit well with the firm’s other activities.
08/19/2025 48
Defensive strategies…..
 Guidelines for Divestiture
 When firm has pursued retrenchment but failed to

attain needed improvements

 When a division needs more resources than the firm

can provide
 When a division is responsible for the firm’s overall

poor performance
08/19/2025 49
Defensive strategies…..

3. Liquidation- Selling all of a company’s assets, in parts, for their

tangible worth is called liquidation. Liquidation is recognition of defeat

and consequently can be an emotionally difficult strategy.

 When a firm or unit of a firm is worth more dead than alive, it can be

liquidated (ceases or stops to exist).

 -The fund remaining after payment of creditors and liquidation cost are

distributed to stock holders.

 -Firms most of the time liquidate when they are unable to correct

financial distress and failure to locate a buyer for divestiture. Ways to

liquidate: Strategic Management: Chapter 08/19/2025 50

Defensive strategies…..
 Ways to liquidate:
A) Voluntary Closure-
 It takes place when a firm simply pays off its creditors,
closes its door, and quietly goes out of business.
 When the liquidating value is greater than its debt the
owners will not liquidate rather sell it as a going business.
B) Bankruptcy-
 When the liquidation value of assets is less than the debt
of the firm (when the firm is insolvent).
Strategic Management: Chapter 08/19/2025 51
Defensive strategies…..
Guidelines for Liquidation
When both retrenchment and divestiture have
been pursued unsuccessfully
If the only alternative is bankruptcy,
liquidation is an orderly alternative
When stockholders can minimize their losses
by selling the firm’s assets
Strategic Management: Chapter 08/19/2025 52
Defensive strategies…..

4. Harvesting
 Deliberately exchanging points of market share for higher

short-term cash flow and or profits.

 It is appropriate for “CASH COW” business with low growth

rate and high market share.

 Kotler suggested the following conditions for harvesting:
 The market is stable or declining

 The product is not strategically important

 Total sales depend little on the unit

 Opportunity costs are significant 08/19/2025 53

Defensive strategies…..
 Merger refers to a combination of two or more
companies in to one company and may be possible in
to 2 ways.
A. Absorption
B. Consolidation.
 Absorption takes place in mergers and acquisitions
where the company acquires another company.
 Consolidation takes place when two or more
companies combine to form another new company.
Strategic Management: Chapter 08/19/2025 54
Defensive strategies…..
Reasons For a merger
 For a merger to take place there should be two firms to

act. (Seller and buyer)

1. Strategic issues
 Consider if merger leads to positive synergy.
 Analyze strategic advantages and distinctive

competencies of merging companies.

 There should be match between objectives of the firms.
08/19/2025 55
 Cont..
2. Financial issues
 relates to evaluation of sellers firm and sources of financing to take
place. Sources can be debt or equity.

3. Managerial issues
 relates with how the management will take place after the merger. If
the merger needed to be friendly, it should be in the way that
executives and top managers do not lose their position.

4. Legal issues
 Are related with the provision made in law for the purpose of
mergers.
08/19/2025 56
 Joint Venture
 Two or more sponsoring firms forming a separate
organization for cooperative purposes
 Guidelines for Joint Venture
 Combination of privately held and publicly held can be
synergistically combined
 Domestic forms joint venture with foreign firm, can obtain
local management to reduce certain risks
 Distinctive competencies of two or more firms are
complementary
 Overwhelming resources and risks where project is
potentially very profitable Two or more smaller firms have
trouble competing with larger firm
 A need exists to introduce a new technology quickly

Operations Management: Chapter 08/19/2025 57

 Conditions for joint venture
 When an activity is uneconomical for an

organization to do alone
 To share business risk
 When distinctive (unique) competencies of

firms can be brought together

 To overcome difficulties like import quotas,

cultural roadblocks

Operations Management: Chapter 08/19/2025 58

 Types of joint venture
 Between two firms in one industry
 Between two firms across different

industries
 Between internal firm and foreign company

in its country
 Between internal firm and a foreign

company in a foreign country

 Between an internal firm and foreign

company in a third country (another

country)
Operations Management: Chapter 08/19/2025 59
 Business level strategy
 Firms compete directly with others at business
level.
 Business level strategy comprises of alternative
competitive strategies or what is commonly called
the 5 generic competitive strategies and the
strategies pursued (followed) to maintain
competitive advantage over the various stages of
the market life cycle. 08/19/2025 60
The Five Generic Competitive Strategies

1. A low-cost provider strategy

2. A broad differentiation strategy
3. A best-cost provider strategy –
4. A focused (or market niche) strategy based on
low costs –
5. A focused (or market niche) strategy based on
differentiation
08/19/2025 61
1.6 Benefits of Strategic Management

 Strategic management allows an organization to be more

proactive than reactive in shaping its own future; it
allows an organization to initiate and influence (rather
than just respond to) activities—and thus to exert control
over its own destiny.
 Small business owners, chief executive officers,
presidents, and managers of many for-profit and
nonprofit organizations have recognized and realized the
benefits of strategic management. 08/19/2025 62
 Cont…
 Historically, the principal benefit of strategic
management has been to help
organizations formulate better strategies
through the use of a more systematic,
logical, and rational approach to strategic
choice.
 This certainly continues to be a major
benefit of strategic management, but
research studies now indicate that the
process, rather than the decision or
document, is the more important
contribution of strategic management.
 Communication is a key to successful

strategic management. 08/19/2025 63

Benefits to a Firm That Does Strategic Planning

1. Enhanced Communication.
2. Deeper/Improved Understanding.
3. Greater Commitment.
4. All Managers and Employees Help the Firm Succeed.

08/19/2025 64
 1.7 Business ethics and corporate social responsibility

 Business ethics can be defined as principles of conduct

within organizations that guide decision making and
behavior.
 Good business ethics is a prerequisite for good strategic
management; good ethics is just good business!
 All strategy formulation, implementation, and evaluation
decisions have ethical ramifications.

08/19/2025 65
 Cont..
 Business actions considered to be unethical include
misleading advertising or labeling, causing
environmental harm, poor product or service safety,
padding expense accounts, insider trading, dumping
banned or flawed products in foreign markets, not
providing equal opportunities for women and
minorities, overpricing, moving jobs overseas, and
sexual harassment.
08/19/2025 66
 Corporate social responsibility (CSR)

 Corporate social responsibility (CSR) refers to a business

practice that involves participating in initiatives that benefit
society.
 Corporate social responsibility (CSR, also called
corporate conscience, corporate citizenship or
sustainable responsible business/ Responsible Business)
is a form of corporate self-regulation integrated into a
business model
08/19/2025 67
 Types of corporate social responsibility

 Environment:
 One primary focus of corporate social responsibility is the environment.
Businesses, both large and small, have a large carbon footprint. Any steps they
can take to reduce those footprints are considered both good for the company
and society as a whole.
 Philanthropy:
 Businesses also practice social responsibility by donating to national and local
charities. Whether it involves giving money or time, businesses have a lot of
resources that can benefit charities and local community programs.
 Ethical labor practices:
 By treating employees fairly and ethically, companies can also demonstrate
08/19/2025 68
END OF CHAPTER ONE!!!

08/19/2025 69
 CHAPTER TWO
STRATEGY FORMULATION:
THE BUSINESS MISSION, VISION AND VALUE
2.1 Vision
 Vision - A vision statement is a mental picture of what
you want to accomplish or achieve.
A vision statement is a future-oriented declaration of
the organization’s purpose and aspirations.
A vision is an attempt to articulate what a desired
future for a company would look like. 08/19/2025 70
 A vision statement……

 It gives the company direction and it's the basic

premise for the success of the mission statement
 An organizational dream - it stretches the imagination
and motivates people to rethink what is possible
A vision is not the same as a mission, strategic
objectives, or philosophy
 Visions tend to be evocative, rather than precise.
08/19/2025 71
 A vision statement……
 Vision Statement Should Answer :
“What do we want to become?”,
 How will we do it?,
 For whom will we do this?,
 What makes us different?,
 What do we wish to become in the future?
 What and how do we want to be?
08/19/2025 72
 A vision statement……
 Examples of Vision Statement:
 Land O’Lakes: Be one of the best food and agricultural
companies in the world by being: Our customers' first
choice; our employees' first choice; Responsible to our
owners; and A leader in our communities.
 McDonalds: Be the world's best quick service
restaurant experience
 Henry Ford: Make the automobile accessible to every
American 08/19/2025 73
 2.2 Mission Statement

 Mission – is the general statement of how you will

achieve your vision.
 It expresses the essential characteristics of the
organization, the reasons for its existence, the nature of
its business, the groups who are served by the company
(its corporate responsibilities), and the
principles/values under which it operates.
 It becomes the definition of the company, the
declaration of its corporate identity.
08/19/2025 74
 Mission Statement…….
 A personal mission or a farm business mission statement
deals with questions like,
 “Why are we here?”, “Why do we exist?”,
 “Why do we get up each day and do what we do?”,
“What is it that we get paid for?”, “What function does
the organization perform?, For whom?, and How?”
 The mission is a broad statement of personal or business
scope, purpose and operation that distinguishes me, or
my farm, from others. 08/19/2025 75
Mission Statement…….
A mission statement should include:
 social responsibility
 quality
 commitment to survival, growth, and profitability
 identify customers and markets
 identify products and/or services
 family values
 Mission statement should not designate; Details, Timetable,
Assignments, Measurements and Tasks 08/19/2025 76
 Examples of Mission Statements

 McDonalds Mission: Be the best employer for our

people in each community around the world, Deliver
operational excellence to our customers in each of our
restaurants; and achieve enduring (lasting) profitable
growth by expanding the brand and leveraging the
strengths of the McDonald's system through innovation
and technology.

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 2.2.1 Characteristics of Good Mission Statements

 Simple

 The statement should be short and concise.

 Your statements of vision and mission should be
a single thought that can easily be carried in the
mind.
 Fluid Process
 Unique Businesses
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2.2.3 Benefits of Mission Statements

 Better financial results

 Unanimity of purpose
 Resource allocation
 Establishment of culture
 Focal point for individuals
 Establishment of work structure
 Basis of assessment and control
Resolution of divergent views
08/19/2025 79
 Vision versus Mission

 In many ways, you can say that the mission statement

lays out the organization’s “purpose for being,” and the
vision statement then says, “Based on that purpose, this
is what we want to become.”
 A mission statement communicates the organization’s
reason for being and how it aspires to serve its key
stakeholders.
 The vision statement is a narrower, future-oriented
declaration of the organization’s purpose and aspirations.
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2.2.4 Roles Played by Mission and Vision

Mission and vision statements play three critical roles:

(1) communicate the purpose of the organization to
stakeholders,
(2) inform strategy development, and
(3) develop the measurable goals and objectives by
which to gauge (measure) the success of the
organization’s strategy.

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 These interdependent, cascading roles, and the relationships among them, are summarized in the figure.

 Figure 2.1Key Roles of Mission and Vision

 FF

08/19/2025 82
 First, mission and vision provide a vehicle for
communicating an organization’s purpose and values to
all key stakeholders.
 Second, mission and vision create a target for strategy
development. That is, one criterion of a good strategy is
how well it helps the firm achieve its mission and vision.
 Third, mission and vision provide a high-level guide,
and the strategy provides a specific guide, to the goals and
objectives showing success or failure of the strategy and
satisfaction of the larger set of objectives stated in the
08/19/2025 83
 2.3 Business Values

 Define the group beliefs, and rules that control

the management of the company.
 It represents the institutional philosophy and the
support to the cultural organization.
 The main objective of corporative values is to
have a framework of reference that inspire and
control the life of a company.
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2.3.1 Basis for values

 Orientation and commitment to customers

 Sustainability.

 Interest in the people

 Social responsibility.
 Integrity.

 Team work
 Respect to people

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 Examples of values:

 Ambition, competency, individuality, equality, integrity, service,

responsibility, accuracy, respect, dedication, diversity,
improvement, enjoyment/fun, loyalty, credibility, honesty,
innovativeness, teamwork, excellence, accountability,
empowerment, quality, efficiency, dignity, collaboration,
stewardship, empathy, accomplishment, courage, wisdom,
independence, security, challenge, influence, learning,
compassion, friendliness, discipline/order, generosity,
persistency, optimism, dependability, flexibility.

08/19/2025 86
 2.3.2 Benefits of values

 People demonstrate and model the values in action in

their personal work behaviors, decision making,
contribution, and interpersonal interaction.
 Organizational values help each person establish
priorities in their daily work life.
 Values guide every decision that is made once the
organization has cooperatively created the values and
the value statements.
08/19/2025 87
2.4 Strategic Planning Issues

 Many companies have a problem with the actual

planning system. It often breaks down because of faulty
preparation and implementation.
1. Line managers not involved
2. Business units not designed correctly
3. Action steps not defined in detail
4. Strategic plans not integrated with other organisational
controls like budgeting
5. Objectives not defined properly by top management
08/19/2025 88
2.5 Setting Goals and Objectives

1. Goals:
 Goals are general statements of what you want
to achieve.
 So they need to be integrated with your vision.
 They also need to be integrated with your
mission of how you are going to achieve your
vision.
08/19/2025 89
Examples of company goals are:

 To improve profitability
 To increase efficiency
 To capture a bigger market share
 To provide better customer service
 To improve employee training
 To reduce carbon emissions
08/19/2025 90
A goal should meet the following criteria :

 Suitable: Does it fit with the vision and mission?

 Acceptable: Does it fit with the values of the
company and the employees?
 Understandable: Is it stated simply and easy to
understand?
 Flexible: Can it be adapted and changed as
needed?
08/19/2025 91
 2. Objectives:
 Objectives are specific, quantifiable, time-sensitive statements
of what is going to be achieved and when it will be achieved.
Examples of company objectives are:
 To earn at least a 20 percent after-tax rate of return on our net
investment during the next fiscal year
 To increase market share by 10 percent over the next three
years.
 To lower operating costs by 15 percent over the next two years
by improving the efficiency of the manufacturing process.
 To reduce the call-back time of customers inquiries and
08/19/2025 92
Objectives should meet the following criteria:

 Measurable: What will happen and when?

 Suitable: Does it fit as a measurement for achieving the
goal?
 Feasible: Is it possible to achieve?
 Commitment: Are people committed to achieving the
objective?
 Ownership: Are the people responsible for achieving
the objective included in the objective-setting process?
08/19/2025 93
 END OF
CHAPTER
TWO !!!!!!

08/19/2025 94
 Chapter Three
The External Environmental Audit

3.1 The Nature of an External Audit

 The purpose of an external audit is to develop a finite list
of opportunities that could benefit a firm and threats that
should be avoided.
 As the term finite suggests, the external audit is not aimed
at developing an exhaustive list of every possible factor
that could influence the business; rather, it is aimed at
identifying key variables that offer actionable responses.
08/19/2025 95
 3.2 The Process of Performing an External Audit

 To perform an external audit, a company first must gather

competitive intelligence and information about economic,
social, cultural, demographic, environmental, political,
governmental, legal, and technological trends.
 Individuals can be asked to monitor various sources of
information, such as key magazines, trade journals, and
newspapers.
 These persons can submit periodic scanning reports to a
committee of managers charged with performing external audit
08/19/2025 96
The Process of Performing an External Audit…..

 This approach provides a continuous stream of timely

strategic information and involves many individuals in
the external-audit process.
 The Internet provides another source for gathering
strategic information, as do corporate, university, and
public libraries.
 Suppliers, distributors, salespersons, customers, and
competitors represent other sources of vital information.
08/19/2025 97
3.3 Analysis of key External Forces

3.3.1General external factors

 General External forces can be divided into five broad
categories:
(1) economic forces;
(2) social, cultural, demographic, and natural environment
forces;
(3) political, governmental, and legal forces;
(4) technological forces; and (5) competitive forces.
Both opportunities and threats can be key external factors.
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1. Economic Forces

 Economic factors have a direct impact on the potential

attractiveness of various strategies.
 For example, when interest rates rise, funds needed for capital
expansion become more costly or unavailable.
 Also when interest rates rise, discretionary income declines, and
the demand for discretionary goods will falls.
 When stock prices increase, the desirability of equity as a
source of capital for market development increases.
 Also, when the market rises, consumer and business wealth
expands. 08/19/2025 99
 1. Social, Cultural, Demographic, and Natural Environment Forces

 Social, cultural, demographic, and environmental

changes have a major impact on virtually all products,
services, markets, and customers.
 Small, large, for-profit, and nonprofit organizations in
all industries are being staggered and challenged by the
opportunities and threats arising from changes in
social, cultural, demographic, and environmental
variables.
08/19/2025 10
0
3. Political, Governmental, and Legal Forces

 Federal, state, local, and foreign governments

are major regulators, deregulators, subsidizers,
employers, and customers of organizations.
 Political, governmental, and legal factors,
therefore, can represent key opportunities or
threats for both small and large organizations

08/19/2025 10
1
4. Technological Forces

 The Internet has changed the very nature of

opportunities and threats by altering the life
cycles of products, increasing the speed of
distribution, creating new products and
services, erasing limitations of traditional
geographic markets, and changing the
historical trade-off between production
standardization and flexibility 08/19/2025 10
2
 Cont..
 The Internet is altering economies of scale, changing entry

barriers, and redefining the relationship between industries

and various suppliers, creditors, customers, and competitors.

 Technological forces represent major opportunities and threats

that must be considered in formulating strategies.

Technological advancements can dramatically affect

organizations’ products, services, markets, suppliers,

distributors, competitors, customers, manufacturing processes,

marketing practices, and competitive position 08/19/2025 10

3
 5. Competitive Forces

 An important part of an external audit is identifying rival

firms and determining their strengths, weaknesses,
capabilities, opportunities, threats, objectives, and
strategies.
 Collecting and evaluating information on competitors is
essential for successful strategy formulation.
 Identifying major competitors is not always easy because
many firms have divisions that compete in different
industries. 08/19/2025 10
4
 Addressing the following questions about
competitors is important in performing an external
audit.

1. What are the major competitors’ strengths?

2. What are the major competitors’ weaknesses?
3. What are the major competitors’ objectives and strategies?
4. How will the major competitors most likely respond to current economic,
social, cultural, demographic, environmental, political, governmental, legal,
technological, and competitive trends affecting our industry?
5. How vulnerable are the major competitors to our alternative company
strategies?
6. How vulnerable are our alternative strategies to successful counterattack
by our ajor competitors?
08/19/2025 10
5
 Cont..
7. How are our products or services positioned relative to major competitors?

8. To what extent are new firms entering and old firms leaving this industry?

9. What key factors have resulted in our present competitive position in this
industry?

10. How have the sales and profit rankings of major competitors in the
industry changed over recent years? Why have these rankings changed that
way?

11. What is the nature of supplier and distributor relationships in this

industry?

12. To what extent could substitute products or services be a threat to

competitors in this industry?
08/19/2025 10
6
Competitive Intelligence Programs

 What is competitive intelligence? Competitive

intelligence (CI), as formally defined by the Society of
Competitive Intelligence Professionals (SCIP), is a
systematic and ethical process for gathering and
analyzing information about the competition’s
activities and general business trends to further a
business’s own goals.
 The more information and knowledge a firm can obtain

about its competitors, the more likely it is that it can

formulate and implement effective strategies.

08/19/2025 10
7
 3.3.2 Competitive Analysis: Porter’s Five-Force Model

 Porter’s Five-Forces Model of competitive analysis is a

widely used approach for developing strategies in many
industries.
 The intensity of competition among firms varies widely
across industries.
 Intensity of competition is highest in lower-return industries.
 The collective impact of competitive forces is so brutal in
some industries that the market is clearly “unattractive”
from a profit-making standpoint
08/19/2025 10
8
Cont..

08/19/2025 10
9
 The following three steps for using Porter’s Five-Forces
Model can indicate whether competition in a given
industry is such that the firm can make an acceptable
profit:

1. Identify key aspects or elements of each competitive

force that impact the firm.

2. Evaluate how strong and important each element is for

the firm.

3. Decide whether the collective strength of the elements is

worth the firm entering or staying in the industry.
08/19/2025 11
0
1. Rivalry Among Competing Firms

 Changes in strategy by one firm may be met with

retaliatory countermoves, such as lowering prices,
enhancing quality, adding features, providing services,
extending warranties, and increasing advertising.
 The intensity of rivalry among competing firms tends to
increase as the number of competitors increases, as
competitors become more equal in size and capability, as
demand for the industry’s products declines, and as price
cutting becomes common. 08/19/2025 11
1
 Conditions That Cause High Rivalry among Competing Firms

 1. High number of competing firms

 2. Similar size of firms competing
 3. Similar capability of firms competing
 4. Falling demand for the industry’s

products
 5. Falling product/service prices in the

industry
 6. When consumers can switch brands

easily
 7. When barriers to leaving the market are

high
08/19/2025 11
2
 8. When barriers to entering the market are low
 9. When fixed costs are high among firms
competing
 10. When the product is perishable
 11. When rivals have excess capacity
 12. When consumer demand is falling
 13. When rivals have excess inventory
 14. When rivals sell similar products/services
 15. When mergers are common in the industry

08/19/2025 11
3
2. Potential Entry of New Competitors

 Whenever new firms can easily enter a particular industry, the

intensity of competitiveness among firms will be increased.
 Barriers to entry, however, can include the need to gain
economies of scale quickly, the need to gain technology and
specialized know-how, the lack of experience, strong customer
loyalty, strong brand preferences, large capital requirements,
lack of adequate distribution channels, government regulatory
policies, tariffs, lack of access to raw materials, possession of
patents, undesirable locations, counterattack by entrenched
firms, and potential saturation of the market. 08/19/2025 11
4
3. Potential Development of Substitute Products

 In many industries, firms are in close competition with

producers of substitute products in other industries.
 Newspapers and magazines face substitute-product
competitive pressures from the Internet and 24-hour cable
television.
 The magnitude of competitive pressure derived from
development of substitute products is generally evidenced by
rivals’ plans for expanding production capacity, as well as by
their sales and profit growth numbers.
08/19/2025 11
5
 4. Bargaining Power of Suppliers

 It is often in the best interest of both suppliers and

producers to assist each other with reasonable prices,
improved quality, and development of new services,
just-in-time deliveries, and reduced inventory costs,
thus enhancing long-term profitability for all
concerned.
 Firms may pursue a backward integration strategy to
gain control or ownership of suppliers.
08/19/2025 11
6
 Cont..

 In more and more industries, sellers are forging

strategic partnerships with select suppliers in efforts to
(1) reduce inventory and logistics costs (e.g., through
just-in-time deliveries);
(2) speed the availability of next-generation components;
(3) enhance the quality of the parts and components
being supplied and reduce defect rates; and
(4) squeeze out important cost savings for both
08/19/2025 11
7
 [Link] Power of Consumers

 Rival firms may offer extended warranties or special

services to gain customer loyalty whenever the bargaining
power of consumers is substantial.
 Bargaining power of consumers also is higher when the
products being purchased are standard or undifferentiated.
 When this is the case, consumers often can negotiate
selling price, warranty coverage, and accessory packages
to a greater extent.
08/19/2025 11
8
 3.3.3 Industry Analysis: The External Factor Evaluation

 EFE) Matrix
 An External Factor Evaluation (EFE) Matrix
allows strategists to summarize and evaluate
economic, social, cultural, demographic,
environmental, political, governmental, legal,
technological, and competitive information.

08/19/2025 11
9
THE END OF CHAPTER
THREE

THANKYOU IN
ADVANCE!!!!
08/19/2025 12
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