David 13e Im 01 Strategic Management Controls Chapter 1

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David 13e im 01 - Strategic Management Controls Chapter 1
Strategic Management (COMSATS University Islamabad)
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Chapter 1: The Nature of Strategic Management
PART III
LECTURE NOTES
CHAPTER 1
THE NATURE OF STRATEGIC MANAGEMENT
CHAPTER OUTLINE
¨ What is Strategic Management?

¨ Key Terms in Strategic Management
¨ The Strategic-Management Model
¨ Benefits of Strategic Management
¨ Why Some Firms Do No Strategic Planning
¨ Pitfalls in Strategic Planning
¨ Guidelines for Effective Strategic Management
¨ Comparing Business and Military Strategy
¨ The Cohesion Case: McDonalds
CHAPTER OBJECTIVES
After studying this chapter, you should be able to do the following:
1. Describe the strategic-management process.

2. Explain the need for integrating analysis and intuition in strategic management.
3. Define and give examples of key terms in strategic management.
4. Discuss the nature of strategy formulation, implementation, and evaluation
activities.
5. Describe the benefits of good strategic management.
6. Discuss the relevance of Sun Tzu’s The Art of War to strategic management.
7. Discuss how a firm may achieve sustained competitive advantage.
CHAPTER OVERVIEW
Chapter 1 provides an overview of strategic management. A practical, integrative model of the

strategic-management process is introduced. Basic activities and terms in strategic management
are defined. The benefits of strategic management are presented. This chapter also introduces the
notion of boxed inserts. A boxed insert in each chapter showcases excellent strategic
management under harsh economic conditions.
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Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

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VTN (Visit the Net): The website www.strategyclub.com, designed by Dr. David, provides
strategic planning tools, templates, links, and information to help strategic management students
analyze cases.
VTN (Visit the Net): The website http://www.pearsonhighered.com/david/ provides sample tests
and supplemental material for each chapter.
Doing Great in a Weak Economy – McDonalds

Despite the fact that most firms were struggling in 2008, McDonald’s increased its revenues in
2008 and nearly doubled its net income. Fortune Magazine in 2009 rated McDonald’s as the
16th “Most Admired Company in the World”. McDonald’s low prices and expanded menu items
have attracted millions of new customers.
EXTENDED CHAPTER OUTLINE WITH TEACHING TIPS
I. WHAT IS STRATEGIC MANAGEMENT?
A. Strategic management can be defined as the art and science of formulating, implementing,
and evaluating cross-functional decisions that enable an organization to achieve its
objectives.
1. The term strategic management is used synonymously with strategic planning.
2. The purpose of strategic management is to exploit and create new and different
opportunities for tomorrow while long-range planning tries to optimize for
tomorrow the trends of today.
B. Stages of Strategic Management
1. The strategic-management process consists of three stages.
a. Strategy formulation includes developing a vision and mission, identifying an

organization’s external opportunities and threats, determining internal
strengths and weaknesses, establishing long-term objectives, generating
alternative strategies, and choosing particular strategies to pursue.
b. Strategy implementation requires a firm to establish annual objectives, devise

policies, motivate employees, and allocate resources so that formulated
strategies can be executed; strategy implementation includes developing a
strategy-supportive culture, creating an effective organizational structure,
redirecting marketing efforts, preparing budgets, developing and utilizing
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information systems, and linking employee compensation to organizational
performance.
c. Strategy evaluation is the final stage in strategic management. Managers

desperately need to know when particular strategies are not working well;
strategy evaluation is the primary means for obtaining this information.
VTN (Visit The Net): The website www.spsu.edu/planassess/strategic.htm provides a narrative

on strategy formulation and implementation at Southern Polytechnic State University.
2. Three fundamental strategy evaluation activities are provided below:

a. Reviewing external and internal factors that are the bases for current strategies
b. Measuring performance
c. Taking corrective action
3. Strategy formulation, implementation, and evaluation activities occur at three

hierarchical levels in a large organization: corporate, divisional, and functional.
Smaller businesses may only have the corporate and functional levels.
C. Integrating Intuition and Analysis
1. The strategic-management process can be described as an objective, logical,

systematic approach for making major decisions in an organization. It attempts to
organize qualitative and quantitative information in a way that allows effective
decisions to be made under conditions of uncertainty.
2. Most people recognize that intuition is essential to making good strategic

management decisions. Intuition is particularly useful for making decisions in
situations of great uncertainty or little precedent.
D. Adapting to Change
1. The strategic-management process is based on the belief that organizations should

continually monitor internal and external events and trends so that timely changes
can be made as needed. The rate and magnitude of changes that affect
organizations are increasing dramatically.
2. By eliminating boundaries and speeding the flow of information, e-commerce and

globalization are transforming business and society.
3. 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 the
right field?” “Should we reshape our business?” “What new competitors are
entering our industry?”
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Teaching Tip: Strategy & Business is a magazine that publishes articles that focus on strategic
management issues. The magazine, which contains excellent feature articles, is available online
at http://www.strategy-business.com/.
Teaching Tip: The Business Policy & Strategy Division of the Academy of Management
maintains a website that contains a wide variety of useful information on strategic management
topics. The Academy of Management website is available at http://www.aomonline.org/aom.asp.
The website for the Business Policy and Strategy Division is available at http://www.bpsdiv.org/.
VTN (Visit The Net): The website www.csuchico.edu/mgmt/strategy/module1/sld041.htm

provides an overview of how firms evolve using strategic management.
VTN (Visit The Net): The website www.csuchico.edu/mgmt/strategy/module1/sld032.htm reveals

that actual strategy results from planned strategy coupled with reactive changes.
II. KEY TERMS IN STRATEGIC MANAGEMENT
A. Competitive Advantage
1. Competitive advantage is defined as anything that a firm does especially well

compared to rival firms.
2. Firms should seek a sustained competitive advantage by continually adapting to

changes in external trends and internal capabilities and evaluating strategies that
capitalize on those factors.
3. An increasing number of companies are gaining a competitive advantage by using

the Internet for direct selling and for communication with suppliers, customers,
creditors, partners, shareholders, clients, and competitors who may be dispersed
globally.
B. Strategists
1. Strategists are individuals who are most responsible for the success or failure of an
organization.
2. Strategists hold various job titles, such as chief executive officers, president, owner,
chair of the board, executive director, chancellor, dean, or entrepreneur.
3. Strategists help an organization gather, analyze, and organize information. They track
industry and competitive trends, develop forecasting models and scenario analyses,
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evaluate corporate and divisional performance, spot emerging market opportunities,
identify business threats, and develop creative action plans.
C. Vision and Mission Statements
1. Vision statements answer the question: “What do we want to become?”
2. 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?” It should include the values and
priorities of an organization.
D. External Opportunities and Threats
1. 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.
2. Opportunities and threats are largely beyond the control of a single organization,
thus the term external.
3. To survive in a global economic recession, firms must be aware of the new

opportunities and threats that have surfaced as a result.
4. 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.
5. The process of conducting research and gathering and assimilating external

information is called environmental scanning or industry analysis.
E. Internal Strengths and Weaknesses
1. Internal strengths and internal weaknesses are an organization’s controllable

activities that are performed especially well or poorly.
2. Identifying and evaluating organizational strengths and weaknesses in the

functional areas of a business is an essential strategic-management activity.
3. Strengths and weaknesses are determined relative to competitors and may be

determined by both performance and elements of being.
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F. Long-Term Objectives
1. Objectives can be defined as specific results that an organization seeks to achieve

in pursuing its basic mission.
2. Long term means more than one year.
3. Objectives state direction, aid in evaluation, create synergy, reveal priorities, focus
coordination, and provide a basis for effective planning, organizing, motivating
and controlling activities.
4. Objectives should be challenging, measurable, consistent, reasonable, and clear.
G. Strategies
1. 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 venture.
2. Strategies currently being pursued by Best Buy, Levi Strauss, and New York
Times Company are described in Table 1-1.
H. Annual Objectives
1. Annual objectives are short-term milestones that organizations must achieve to

reach long-term objectives.
2. Like long-term objectives, annual objectives should be measurable, quantitative,

challenging, realistic, consistent, and prioritized.
I. Policies
1. 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.
2. Policies are most often stated in terms of management, marketing,

finance/accounting, production/operations, research and development, and
computer information systems activities.
3. Because smoking is a huge burden on companies worldwide, some firms are

implementing policies to curtail smoking. Table 1-2 gives a ranking of the
countries by percentage of people who smoke.
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III. THE STRATEGIC MANAGEMENT MODEL
A. The Strategic Management Model is shown in Figure 1-1.
1. The framework illustrated in Figure 1-1 is a widely accepted, comprehensive

model of the strategic-management process. This model does not guarantee
success, but it does represent a clear and practical approach for formulating,
implementing, and evaluating strategies.
2. The strategic-management process is dynamic and continuous. A change in any

one of the major components in the model can necessitate a change in any or all
of the other components.
VTN (Visit The Net): The website www.planware.org/strategy.htm#1 explains in detail how to
prepare a strategic plan and compares this document to a business plan.
IV. BENEFITS OF STRATEGIC MANAGEMENT
The principle 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. Communication is a key to successful strategic management. The major aim of the
communication process is to achieve understanding and commitment throughout the
organization. It results in the great benefit of empowerment. More and more organizations are
decentralizing the strategic-management process. Figure 1-2 illustrates the benefits of engaging
in strategic planning.
A. Financial Benefits
1. Research indicates that organizations using strategic-management concepts are

more profitable and successful than those that do not.
2. High-performing firms tend to do systematic planning to prepare for future

fluctuations in the external and internal environments. Firms with planning
systems more closely resembling strategic-management theory generally exhibit
superior long-term financial performance relative to their industries.
B. Nonfinancial Benefits
1. Besides helping firms avoid financial demise, strategic management offers other
tangible benefits, such as an enhanced awareness of external threats, an improved
understanding of competitors’ strengths, increased employee productivity,
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reduced resistance to change, and a clearer understanding of performance-reward
relationships.
2. In addition to empowering managers and employees, strategic management often

brings order and discipline to an otherwise floundering firm.
3. Greenley stated that strategic management offers these benefits:
a. It allows for identification, prioritization, and exploitation of opportunities.

b. It provides an objective view of management problems.
c. It represents a framework for improved coordination and control of activities.
d. It minimizes the effects of adverse conditions and changes.
e. It allows major decisions to better support established objectives.
f. It allows more effective allocation of time and resources to identified
opportunities.
g. It allows fewer resources and less time to be devoted to correcting erroneous
or ad hoc decisions.
h. It creates a framework for internal communication among personnel.
i. It helps integrate the behavior of individuals into a total effort.
j. It provides a basis for clarifying individual responsibilities.
k. It encourages forward thinking.
l. It provides a cooperative, integrated, and enthusiastic approach to tackling
problems and opportunities.
m. It encourages a favorable attitude toward change.
n. It gives a degree of discipline and formality to the management of a business.
VTN (Visit the Net): The website www.entarga.com/stratplan/index.htm provides an excellent

narrative on the benefits of strategic planning, pitfalls in planning, and steps in doing strategic
planning.
V. WHY SOME FIRMS DO NO STRATEGIC PLANNING
Some reasons for poor or no strategic planning are as follows:
 Lack of knowledge or experience

 Poor reward structures
 Fire fighting
 Waste of time
 Too expensive
 Laziness
 Content with success
 Fear of failure
 Overconfidence
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 Prior bad experience
 Self-interest
 Fear of the unknown
 Honest difference of opinion
 Suspicion
VTN (Visit the Net): The website www.mindtools.com/plfailpl.html gives reasons many
organizations avoid strategic planning.
VI. PITFALLS IN STRATEGIC PLANNING
Some pitfalls to watch for and avoid in strategic planning are provided below:
 Using strategic planning to gain control over decisions and resources

 Doing strategic planning only to satisfy accreditation or regulatory requirements
 Too hastily moving from mission development to strategy formulation
 Failing to communicate the plan to employees, who continue working in the dark
 Top managers making many intuitive decisions that conflict with the formal plan
 Top managers not actively supporting the strategic-planning process
 Failing to use plans as a standard for measuring performance
 Delegating planning to a “planner” rather than involving all managers
 Failing to involve key employees in all phases of planning
 Failing to create a collaborative climate supportive of change
 Viewing planning to be unnecessary or unimportant
 Becoming so engrossed in current problems that insufficient or no planning is
done
 Being so formal in planning that flexibility and creativity are stifled
VII. GUIDELINES FOR EFFECTIVE STRATEGIC MANAGEMENT
A. Failure to Follow Certain Guidelines in Planning Can Cause Problems
1. An integral part of strategy evaluation must be to evaluate the quality of the

strategic-management process. Issues such as “Is strategic management in our
firm a people process or a paper process?” should be addressed.
2. An important guideline for effective strategic management is open-mindedness.

A willingness to consider new information, viewpoints, ideas, and possibilities is
essential.
3. Strategic decisions require trade-offs such as long-range versus short-range

considerations or maximizing profits versus increasing shareholders’ wealth.
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4. Subjective factors such as attitudes toward risk, concern for social responsibility,
and organizational culture will always affect strategy-formulation decisions, but
organizations must remain as objective as possible.
5. Table 1-3 summarizes important guidelines for the strategic planning process to
be effective.
VIII. COMPARING BUSINESS AND MILITARY STRATEGY
A. A Strong Military Heritage Underlies the Study of Strategic Management
1. Terms such as objectives, mission, strengths, and weaknesses were first

formulated to address problems on the battlefield.
2. A fundamental difference between military and business strategy is that business

strategy is formulated, implemented, and evaluated with the assumption of
competition, while military strategy is based on an assumption of conflict.
3. The similarities between military and business strategy can be seen in Sun Tzu’s
The Art of War. Table 1-4 provides excerpts.
ISSUES FOR REVIEW AND DISCUSSION
1. Distinguish between long-range planning and strategic planning.
Answer: Long-range planning is used to optimize for tomorrow the trends of today, whereas
strategic planning is used to exploit and create new and different opportunities for tomorrow.
2. Compare a company’s strategic plan with a football team’s game plan.
Answer: A strategic plan is, in essence, a company’s game plan. Just as a football team needs a
good game plan to have a chance for success, a company must have a good strategic plan to
compete successfully.
3. Describe the three activities that comprise strategy evaluation.
Answer: The three fundamental strategy-evaluation activities are (1) reviewing external and
internal factors that are the bases for current strategies, (2) measuring performance, and (3) taking
corrective actions.
4. How important do you think “being adept at adapting is for business firms? Explain.
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Answer: The strategic-management process is based on the belief that organizations should
continually monitor internal and external events and trends so that timely changes can be made as
needed.
5. Compare the opossum and turtle to the woolly mammoth and saber tooth tiger in
terms of being adept at adapting.
Answer: Students’ answers will vary, but students are likely to make the argument that those
species that are adept at adapting are able to survive, while those that are unable to adapt are more
likely to perish and become extinct.
6. As cited in the chapter, Edward Deming, a famous businessman, once said, “in God we
trust. All others bring data.” What did Deming mean in terms of developing a
strategic plan?
Answer: The strategic-management process can be described as an objective, logical, systematic

approach for making major business decisions in an organization. It attempts to organize
qualitative and quantitative information in a way that allows effective decisions to be made under
conditions of uncertainty.
7. What strategies do you believe can save newspaper companies from extinction?
Answer: Students’ answers will vary and may draw from the “External Opportunities and
Threats” portion of the chapter, as well as Table 1-1. A potential strategic move for newspaper
companies would be to invest in Internet technologies.
8. Distinguish between the concepts of mission and vision.
Answer: Mission statements are “enduring statements of purpose that distinguish one business
from other similar firms”. Visions statements answer the question “What do we want to
become?”
9. Your university has fierce competitors. List three external opportunities and three
external threats that face your university.
Answer: Students’ answers will vary and should draw from the “External Opportunities and
Threats” section of the chapter.
10. List three internal strengths and three internal weaknesses that characterize your
university.
Answer: Students’ answers will vary and should draw from the “Internal Strengths and
Weaknesses” section of the chapter.
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11. List reasons why objectives are essential for organizational success.
Answer: 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.
12. List four strategies and a hypothetical example of each.
Answer: Business strategies include geographic expansion, diversification, acquisition, product

development, market penetration, retrenchment, divestiture, liquidation, and joint ventures.
Examples of strategies should vary.
13. List six characteristics of annual objectives.
Answer: Like long-term objectives, annual objectives should be measurable, quantitative,

challenging, realistic, consistent, and prioritized.
14. Why are policies especially important in strategy formulation?
Answer: Policies, like annual objectives, are especially important in strategy implementation
because they outline an organization’s expectations of its employees and managers. Policies
allow consistency and coordination within and between organizational departments.
15. What is a “retreat” and why do firms take the time and spend the money to have
these?
Answer: Retreats are formal meetings conducted semiannually to discuss and update the firm’s
vision/mission, opportunities/threats, strengths/weaknesses, strategies, objectives, policies, and
performance. Retreats are commonly held off-premises to encourage more creativity and candor
from participants.
16. Discuss the notion of strategic planning being more formal versus informal in an
organization. On a 1 to 10 scale from formal to informal, what number best represents
your view of the most effective approach? Why?
Answer: Formality refers to the extent that participants, responsibilities, authority, duties, and
approach are specified. Application of the strategic-management process is typically more formal
in larger and well-established organizations. Smaller businesses tend to be less formal. Firms that
compete in complex, rapidly changing environments, such as technology companies, tend to be
more formal in strategic planning. Firms that have many divisions, products, markets, and
technologies also tend to be more formal in applying strategic-management concepts. Greater
formality in applying the strategic-management process is usually positively associated with the
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cost, comprehensiveness, accuracy, and success of planning across all types and sizes of
organizations.
17. List ten guidelines for making the strategic-planning process effective. Arrange your
guidelines in prioritized order of importance in your opinion.
Answer: Table 1-3 presents 17 guidelines for the strategic-planning process to be effective:
1. It should be a people process more than a paper process.
2. It should be a learning process for all managers and employees.
3. It should be words supported by numbers rather than numbers supported by words.
4. It should be simple and non-routine.
5. It should vary assignments, team memberships, meeting formats, and even the
planning calendar.
6. It should challenge the assumptions underlying the current corporate strategy.
7. It should welcome bad news.
8. It should welcome open-mindedness and a spirit of inquiry and learning.
9. It should not be a bureaucratic mechanism.
10. It should not become ritualistic, stilted, or orchestrated.
11. It should not be too formal, predictable, or rigid.
12. It should not contain jargon or arcane planning language.
13. It should not be a formal system of control.
14. It should not disregard qualitative information.
15. It should not be controlled by “technicians”.
16. Do not pursue too many strategies at once.
17. Continually strengthen the “good ethics is good business” policy.
18. List what you feel are the five most important lessons for business that can be garnered
from The Art of War book.
Answer: Both business and military organizations must adapt to change and constantly improve to
be successful. Table1-4 provides narrative excerpts from The Art of War, including these
examples:.
o War is a matter of vital importance to the state.
o Warfare is based on deception.
o A speedy victory is the main object in war.
o Generally, in war the best policy is to take a state intact; to ruin it is inferior to this.
o When ten to the enemy’s one, surround him. When five times his strength, attack him. If
double his strength, divide him. If equally matched, you may engage him with some
good plan. If weaker, be capable of withdrawing. An if in all respects unequal, be
capable of eluding him.
o Know the enemy and know yourself.
o He who occupies the field of battle first and awaits his enemy is at ease, and he who
comes later to the scene and rushes into the fight is weary.
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o Analyze the enemy’s plans so that you will know his shortcomings as well as his strong
points.
o An army should be likened to water: Just as flowing water avoids the heights and hastens
to the lowlands, so an army should avoid strength and strike weakness.
o If you decide to go into battle, do not announce your intentions or plans.
o Unskilled leaders work out their conflicts in courtrooms and battlefields. Brilliant
strategists rarely go to battle or to court; they generally achieve their objectives through
tactical positioning well in advance of any confrontation.
o When you do decide to challenge another company, much calculating estimating,
analyzing, and positioning bring triumph.
o Skillful leaders do not let a strategy inhibit creative counter-movement.
o When a decisive advantage is gained over a rival, skillful leaders do not press on. They
hold their position and give their rivals the opportunity to surrender or merge.
o Brilliant strategists forge ahead with illusion, obscuring the areas of major confrontation,
so that opponents divide their forces in an attempt to defend many areas.
19. What is the fundamental difference between business strategy and military strategy in
terms of basic assumptions?
Answer: The fundamental difference between military and business strategy is that business
strategy is formulated, implemented, and evaluated with an assumption of competition, whereas
military strategy is based on an assumption of conflict.
20. Explain why the strategic management class is often is called a “capstone course.”
Answer: Business policy is commonly called a capstone course because students’ major
responsibility in this class is to use all knowledge gained in prior courses to chart the future
direction of different organizations.
21. What aspect of strategy formulation do you think requires the most time? Why?
Answer: Important aspects of strategy formulation include developing a business mission,

performing an external audit, conducting an internal audit, generating alternative strategies, and
choosing among alternative strategies. Performing an external audit generally takes the most time.
For example, identifying competitors’ strengths and weaknesses is an essential aspect of the
external audit. Effective use of the Internet can reduce the time required for performing an
external audit.
22. Why is strategy implementation often considered the most difficult stage in the
strategic-management process?
Answer: Strategy implementation is often considered to be the most difficult stage in strategic
management because it requires discipline, sacrifice, commitment, and hard work from all
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employees and managers. It is always more difficult to do something than to say you’re going to
do it.
23. Why is it so important to integrate intuition and analysis in strategic management?
Answer: Neither intuition nor analysis alone is sufficient for making good strategic decisions.
Intuition, based on one’s past experiences, judgment, and “gut” feelings, does not include the use
of analytical strategic-management concepts that have been developed and successfully tested in
the business world. To ignore these techniques that are based on historical learning is like trying
to reinvent the wheel. However, no analytical tools can capture all aspects of a given
organization’s culture and situation. Nor can analytical tools assimilate all the subjective
information that must be considered in strategic management, such as personalities, emotions,
values, beliefs, customs, and ethical factors. Thus, it is very important to integrate intuition and
analysis in strategic management.
24. Explain the importance of a vision and mission statement.
Answer: Reaching agreement on formal vision and mission statements can greatly facilitate the
process of reaching agreement on an organization’s strategies, objectives, and policies.
Organizational success depends on reasonable agreement on these issues, so a clear mission
statement is a most important strategic-management tool.
25. Discuss relationships among objectives, strategies, and policies.
Answer: Long-term objectives and strategies are products of strategy formulation. Short-term
(annual) objectives and policies are products of strategy implementation. Firms should translate
long-term objectives into annual objectives. Similarly, strategies should be supported with clear
policies.
26. Why do you think some chief executive officers fail to use a strategic-management
approach to decision making?
Answer: Some chief executive officers, strategists, and organizations have been successful, to
date, without using strategic-management concepts and techniques. However, success today is no
guarantee for success tomorrow. The business world is becoming global in scope; technology is
changing the nature of competition in all industries. Strategic management enables organizations
to recognize and adapt to change more readily. Successfully adapting to change is the key to
survival and prosperity. There is no good alternative approach to strategic management.
27. Discuss the importance of feedback in the strategic-management model.
Answer: Note in the strategic-management model that feedback is critically important. Changes
can occur that impact all strategic-management activities. Feedback allows these changes to be
identified and adjustments to be made. Feedback in the strategic-management process promotes
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the creation of a climate for two-way communication and, thus, allows esprit de corps to be
achieved in an organization.
28. How can strategists best ensure that strategies will be effectively implemented?
Answer: Strategists can best assure that strategies formulated will be effectively implemented by
involving as many managers as possible in the strategy formulation process. Also, it is important
to communicate effectively why changes are needed.
29. Give an example of a recent political development that changed the overall strategy of an
organization.
Answer: Students’ answers will vary. Some possible examples might include 1) the series of
federal bailouts in 2008 and 2009 have caused corporations to become more financially
transparent, 2) the economic downturn of 2008 and 2009 has caused U.S. automobile
companies to downsize, become more efficient, and in many cases, to change their entire
business models, 3) the political investigations into the Bernard Madoff case and potential
changes for investment firms and individual investors that may have resulted
30. Who are the major competitors of your college or university? What are their strengths and
weaknesses? What are their strategies? How successful are these institutions compared to
your college?
Answer: Answers to this question will vary by institution.
31. Would strategic-management concepts and techniques benefit foreign businesses as

much as domestic firms? Justify your answer.
Answer: The answer to this question is yes. Many foreign businesses are using strategic-
management concepts and techniques effectively. Students could look in the England-based
journal Long Range Planning to read about foreign firms also benefiting from strategic-
management ideas. Another good foreign-based business journal that carries strategic-
management articles is the Journal of Management Studies.
32. What do you believe are some potential pitfalls or risks in using a strategic-management
approach to decision making?
Answer: There is a risk of too little top management support for the process. There is a risk
of too little involvement by line managers and employees. There is a risk that top managers
will underestimate the importance of understanding and commitment.
33. In your opinion, what is the single major benefit of using a strategic-management
approach to decision making? Justify your answer.
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Answer: The single major benefit is the potential for improved understanding of the business
and industry on the part of all managers and employees. Understanding generally leads to
increased commitment, which, in turn, leads to creativity, innovativeness, and overall
cooperativeness. The process is more important than the plan. Also, the strategic-
management process allows an organization to initiate and influence, rather than just respond
and react to its environment. That is, it allows an organization to be proactive, rather than
reactive, in controlling its own destiny. Strategic-management concepts provide an objective
basis for allocating resources and for reducing internal conflicts that can arise when
subjectivity alone is the basis for major decisions.
34. Compare business strategy and military strategy.
Answer: As discussed in the latter part of this chapter, business and military strategy are
similar in many respects. Many of the ideas developed in business strategy were first
formulated as military strategy. Both military and business organizations have competitors.
A fundamental difference between military and business strategy is that business strategy is
formulated, implemented, and evaluated with the assumption of competition, while military
strategy is based on an assumption of conflict.
35. Why is it important for all business majors to study strategic management since most
students will never become a chief executive officer or even a top manager in a large
company?
Answer: Strategic management takes place at multiple levels within an organization.

Although most students may never become the CEO of a corporation, they may become the
“branch manager” or department head of a larger firm. In these roles, they may be asked to
complete a strategic plan for their branch or department. In addition, employees at all levels
are frequently asked to contribute to the development of their firm’s strategic plan. As a
result, an understanding of the strategic-management process is important.
36. Describe the content available on the SMCO Web site at www.strategyclub.com.
Answer: The SMCO website provides links to websites with information useful for case
analysis such as corporate websites, business analysis services, news sites, magazines,
governmental sites, and financial ratio analyses. It also provides links to job search
websites, graduate school websites, and websites related to strategic planning. Several
software packages are available for purchase on the site including a template for generating
the matrices required for case analyses.
37. List four financial and four nonfinancial benefits of a firm engaging in strategic
planning.
30

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Answer: Businesses engaging in strategic planning experience the following financial
benefits. They show significant improvement in sales, profitability, and productivity
compared to firms without strategic planning activities. Firms using strategic planning
generally exhibit superior long-term financial performance relative to their industry and
seem to make more informed decisions with good anticipation of both short and long-term
consequences. They are also prepared for fluctuations in their external and internal
environments.
In addition to the financial benefits, firms using strategic planning also experience
nonfinancial benefits. These include an enhanced awareness of external threats, an improved
understanding of competitors’ strategies, increased employee productivity, reduced
resistance to change, and a clearer understanding of performance-reward relationships.
38. Why is it that a firm can sustain a competitive advantage normally for only a limited
period of time?
Answer: A firm can sustain a competitive advantage for only a certain period of time due to
rival firms. These competing firms will attempt to imitate the competitive advantage in order
to undermine the leader.
39. Why is it not adequate to simply obtain competitive advantage?
Answer: Because other firms will constantly attempt to undermine firms with competitive
advantages and imitate those advantages, organizations must constantly strive to achieve
sustained competitive advantage.
40. How can a firm best achieve sustained competitive advantage?
Answer: Sustained competitive advantage can best be achieved by 1) continually adapting to

changes in external trends and events and internal capabilities, competencies, and resources,
and by 2) effectively formulating, implementing, and evaluating strategies that capitalize
upon those factors.
31

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David 13e im 01 - Strategic Management Controls Chapter 1

Strategic Management (COMSATS University Islamabad)

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Chapter 1: The Nature of Strategic Management

THE NATURE OF STRATEGIC MANAGEMENT

¨ What is Strategic Management?

After studying this chapter, you should be able to do the following:

1. Describe the strategic-management process.

Chapter 1 provides an overview of strategic management. A practical, integrative model of the

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Downloaded by Mahmoud Ahmed ([email protected])

Chapter 1: The Nature of Strategic Management

Doing Great in a Weak Economy – McDonalds

EXTENDED CHAPTER OUTLINE WITH TEACHING TIPS

I. WHAT IS STRATEGIC MANAGEMENT?

1. The term strategic management is used synonymously with strategic planning.

B. Stages of Strategic Management

1. The strategic-management process consists of three stages.

a. Strategy formulation includes developing a vision and mission, identifying an

b. Strategy implementation requires a firm to establish annual objectives, devise

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Downloaded by Mahmoud Ahmed ([email protected])

Chapter 1: The Nature of Strategic Management

c. Strategy evaluation is the final stage in strategic management. Managers

VTN (Visit The Net): The website www.spsu.edu/planassess/strategic.htm provides a narrative

2. Three fundamental strategy evaluation activities are provided below:

3. Strategy formulation, implementation, and evaluation activities occur at three

C. Integrating Intuition and Analysis

1. The strategic-management process can be described as an objective, logical,

2. Most people recognize that intuition is essential to making good strategic

1. The strategic-management process is based on the belief that organizations should

2. By eliminating boundaries and speeding the flow of information, e-commerce and

3. The need to adapt to change leads organizations to key strategic-management

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Downloaded by Mahmoud Ahmed ([email protected])

Chapter 1: The Nature of Strategic Management

VTN (Visit The Net): The website www.csuchico.edu/mgmt/strategy/module1/sld041.htm

VTN (Visit The Net): The website www.csuchico.edu/mgmt/strategy/module1/sld032.htm reveals

II. KEY TERMS IN STRATEGIC MANAGEMENT

1. Competitive advantage is defined as anything that a firm does especially well

2. Firms should seek a sustained competitive advantage by continually adapting to

3. An increasing number of companies are gaining a competitive advantage by using

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Downloaded by Mahmoud Ahmed ([email protected])

Chapter 1: The Nature of Strategic Management

C. Vision and Mission Statements

1. Vision statements answer the question: “What do we want to become?”

2. Mission statements are “enduring statements of purpose that distinguish one

D. External Opportunities and Threats

1. External opportunities and external threats refer to economic, social, cultural,

3. To survive in a global economic recession, firms must be aware of the new

4. A basic tenet of strategic management is that firms need to formulate strategies to

5. The process of conducting research and gathering and assimilating external

E. Internal Strengths and Weaknesses

1. Internal strengths and internal weaknesses are an organization’s controllable

2. Identifying and evaluating organizational strengths and weaknesses in the

3. Strengths and weaknesses are determined relative to competitors and may be

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall