PMG Note Chapter 4

PMG1123 – FUNDAMENTALS OF MANAGEMENT CHAPTER 4
4.0 Strategic Management
4.1. Overview of strategic management
The role that the environment plays has influenced managers in developing a systematic
means of analyzing the environment, assessing their organization’s strengths and
weaknesses, identifying opportunities that would give the organization a competitive
advantage, and incorporating these findings into their planning. The value of thinking
strategically has an important impact on organization performance.
4.1.1. Definition of strategic management
Strategic management can be describes as;
1. It is what managers do to develop the organization’s strategies.

2. A set of managerial decisions and actions that determines the long-run
performance of an organization.
 One reason strategic management is important is because it can make a

difference in how well an organization performs.
 Another reason has to do with the fact that organizations of all types and
sizes face continually changing situations.
 Strategic management is also important because of the nature of
organizations. They are composed of diverse divisions, units, functions,
and work activities that need to be coordinated.
 Strategic management is also important because it’s involved in many of
the decisions that managers make.
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4.1.2. Basic elements (model) of strategic management
Strategic management consists of four basic elements:
1. Environment scanning: monitoring, evaluating and disseminating of
information from the external and internal environment to key people within the
organization.
2. Strategic formulation: the development of long range plans for the effective
management of environment opportunities and treats in light of organizational
strengths and weaknesses.
3. Strategy implementation: the process by which strategies and policies are put into
action through the development of programs, budgets and procedures.
4. Evaluation and control: the process in which corporate activities and performance
results are monitored so that actual performance can be compared to desired
performance.
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4.2. Strategic analysis
1. External analysis
 Manager do an external analysis so they know, for instance, what the
competition is doing, what pending legislation might affect the organization,
or what the labor supply is like in location where it operates.
 Manager should examine all components of the environment (economic,
demographic, political/ legal, sociocultural, technological and global) to see
the trends and changes.
 Once they’ve analyzed the environment, managers need to pinpoint
opportunities that the organization ca exploit and threats that it must be
counteract or buffer against.
2. Internal analysis
 Internal analysis provide important information about an organization’s
specific resources and capabilities.
 An organization’s resources are its assets (financial, physical, human an
intangible) that it use to develop, manufacture and deliver products to its
customers. They’re “what” the organization has.
 Capabilities are the skills and abilities needed to do the work activities in its
business – “how” it does its work.
 After completing an internal analysis, managers should be able to identify
organizational strengths and weaknesses.
4.2.1. Definition of SWOT analysis
The combination external and internal analyses are called SWOT ANALYSIS because
it’s an analysis of the organization’s strengths, weaknesses, opportunities and threats.
1. Strength = Any activities the organization does well or any unique resources
that it has.
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2. Weakness = Activities the organization does not do well or resources it needs

but does not possess.
3. Opportunity = Positive trends in the external environment.
4. Threat = Negative trends in the external environment.
4.2.2 Examples of SWOT analysis
To get a better picture of a SWOT analysis, consider the example of a fictitious

organic smoothie company. To better understand how it competes within the
smoothie market and what it can do better, it conducted a SWOT analysis.
Through this analysis, it identified that its strengths were good sourcing of
ingredients, personalized customer service, and a strong relationship with
suppliers.
Peering within its operations, it identified a few areas of weakness: little product
diversification, high turnover rates, and outdated equipment.
Examining how the external environment affects its business, it identified

opportunities in emerging technology, untapped demographics, and a culture shift
towards healthy living.
It also found threats, such as a winter freeze damaging crops, a global pandemic,
and kinks in the supply chain. In conjunction with other planning techniques, the
company used the SWOT analysis to leverage its strengths and external
opportunities to eliminate threats and strengthen areas where it is weak.
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SWOT Analysis – The Coca-Cola Company

In 2015, a Value Line SWOT analysis of The Coca-Cola Company noted
strengths such as its globally famous brand name, vast distribution network, and
opportunities in emerging markets.
However, it also noted weaknesses and threats such as foreign currency
fluctuations, growing public interest in "healthy" beverages, and competition from
healthy beverage providers.
Its SWOT analysis prompted Value Line to pose some tough questions about
Coca-Cola's strategy, but also to note that the company "will probably remain a
top-tier beverage provider" that offered conservative investors "a reliable source
of income and a bit of capital gains exposure."
Five years later, the Value Line SWOT analysis proved effective as Coca-Cola
remains the 6th strongest brand in the world (as it was then). Coca-Cola's shares
(traded under ticker symbol KO) have increased in value by over 60% during the
five years after the analysis was completed.
4.3. Business strategies
Focuses on improving the competitive position of a company’s or business unit’s products

or services within the specific industry or market segment it serves.
4.3.1. Porter's competitive strategies
1. Lower cost strategy: the ability of a company or a business unit to design,

produce and market a comparable product more efficiently than its competitors.
2. Differentiation strategy: the ability of a company or a business unit to provide

a unique or superior value to the buyer in terms of product quality, special
features, or after sale service.
3. Cost focus: low-cost competitive strategy that focuses on a particular buyer

group or geographic market and attempts to serve only this niche exclusion.
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4. Differentiate focus: concentrate on a particular buyer group, product line

segment, or geographical market to serve the needs of narrow strategic market
more effectively than its competitors.
4.3.2 Cooperative strategies and types of cooperative agreements
Cooperatives strategies: used to gain a competitive advantage within an industry

by working with other firms.
Types of cooperative agreements:
1. Mutual service consortia: a partnership of a similar companies in similar

industries that pool their resources to gain a benefit that is too expensive to develop
alone.
2. Joint venture: a cooperative business activity, formed by two or more separate

organizations for strategic purposes.
3. Licensing arrangements: an agreement in which the licensing firm grants

rights to another firm in another country or market to produce/sell a product.
4. Value-chain partnership: a strong and close alliance in which one company or

unit forms a long-term arrangement with a key supplier or distributor for mutual
advantage.

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PMG1123 – FUNDAMENTALS OF MANAGEMENT CHAPTER 4

4.0 Strategic Management

4.1. Overview of strategic management

4.1.1. Definition of strategic management

Strategic management can be describes as;

1. It is what managers do to develop the organization’s strategies.

 One reason strategic management is important is because it can make a

4.1.2. Basic elements (model) of strategic management

Strategic management consists of four basic elements:

1. Environment scanning: monitoring, evaluating and disseminating of

management of environment opportunities and treats in light of organizational

strengths and weaknesses.

action through the development of programs, budgets and procedures.

results are monitored so that actual performance can be compared to desired

4.2. Strategic analysis

4.2.1. Definition of SWOT analysis

2. Weakness = Activities the organization does not do well or resources it needs

4.2.2 Examples of SWOT analysis

To get a better picture of a SWOT analysis, consider the example of a fictitious

Examining how the external environment affects its business, it identified

SWOT Analysis – The Coca-Cola Company

4.3. Business strategies

Focuses on improving the competitive position of a company’s or business unit’s products

4.3.1. Porter's competitive strategies

1. Lower cost strategy: the ability of a company or a business unit to design,

2. Differentiation strategy: the ability of a company or a business unit to provide

3. Cost focus: low-cost competitive strategy that focuses on a particular buyer

4. Differentiate focus: concentrate on a particular buyer group, product line

4.3.2 Cooperative strategies and types of cooperative agreements

Cooperatives strategies: used to gain a competitive advantage within an industry

Types of cooperative agreements:

1. Mutual service consortia: a partnership of a similar companies in similar

2. Joint venture: a cooperative business activity, formed by two or more separate

3. Licensing arrangements: an agreement in which the licensing firm grants

4. Value-chain partnership: a strong and close alliance in which one company or

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