What Is Strategic Management? Once there were two company presidents who competed in the same industry.

These two presidents decided to go on a camping trip to discuss a possible merger. They hiked deep into the woods. Suddenly, they came upon a grizzly bear that rose up on its hind legs and snarled. Instantly, the first president took off his knapsack and got out a pair of jogging shoes. The second president said, ey, you can!t outrun that bear." The first president responded, #aybe I can!t outrun that bear, but I surely can outrun you$" This story captures the notion of strategic management, which is to achie%e and maintain competiti%e ad%antage. Defining Strategic Management Strategic management can be defined as the art and science of formulating, implementing, and e%aluating cross&functional decisions that enable an organization to achie%e its objecti%es. 's this definition implies, strategic management focuses on integrating management, marketing, finance(accounting, production(operations, research and de%elopment, and information systems to achie%e organizational success. The term strategic management in this te)t is used synonymously with the term strategic planning. The latter term is more often used in the business world, whereas the former is often used in academia. Sometimes the term strategic management is used to refer to strategy formulation, implementation, and e%aluation, with strategic planning referring only to strategy formulation. The purpose of strategic management is to e)ploit and create new and different opportunities for tomorrow* long&range planning, in contrast, tries to optimize for tomorrow the trends of today. The term strategic planning originated in the +,-.s and was %ery popular between the mid&+,/.s and the mid&+,0.s. 1uring these years, strategic planning was widely belie%ed to be the answer for all problems. 't the time, much of corporate 'merica was obsessed" with strategic planning. 2ollowing that boom," howe%er, strategic planning was cast aside during the +,3.s as %arious planning models did not yield higher returns. The +,,.s, howe%er, brought the re%i%al of strategic planning, and the process is widely practiced today in the business world. ' strategic plan is, in essence, a company!s game plan. 4ust as a football team needs a good game plan to ha%e a chance for success, a company must ha%e a good strategic plan to compete successfully. 5rofit margins among firms in most industries ha%e been so reduced by the global economic recession that there is little room for error in the o%erall strategic plan. ' strategic plan results from tough managerial choices among numerous good alternati%es, and it signals commitment to specific markets, policies, procedures, and operations in lieu of other, less desirable" courses of action. The term strategic management is used at many colleges and uni%ersities as the subtitle for the capstone course in business administration. This course integrates material from all business courses. The Strategic #anagement 6lub Online at www.strategyclub.com offers many benefits for business policy and strategic management students. 5rofessor ansen at Stetson 7ni%ersity pro%ides a strategic management slide show for this entire te)t 8www.stetson.edu(9rhansen(strategy:. Stages of Strategic Management The strategic&management process consists of three stages; strategy formulation, strategy implementation, and strategy e%aluation. Strategy formulation includes de%eloping a %ision and mission, identifying an organization!s e)ternal opportunities and threats, determining

internal strengths and weaknesses, establishing long&term objecti%es, generating alternati%e strategies, and choosing particular strategies to pursue. Strategy&formulation issues include deciding what new businesses to enter, what businesses to abandon, how to allocate resources, whether to e)pand operations or di%ersify, whether to enter international markets, whether to merge or form a joint %enture, and how to a%oid a hostile takeo%er. <ecause no organization has unlimited resources, strategists must decide which alternati%e strategies will benefit the firm most. Strategy&formulation decisions commit an organization to specific products, markets, resources, and technologies o%er an e)tended period of time. Strategies determine long&term competiti%e ad%antages. 2or better or worse, strategic decisions ha%e major multifunctional conse=uences and enduring effects on an organization. Top managers ha%e the best perspecti%e to understand fully the ramifications of strategy&formulation decisions* they ha%e the authority to commit the resources necessary for implementation. Strategy implementation re=uires a firm to establish annual objecti%es, de%ise policies, moti%ate employees, and allocate resources so that formulated strategies can be e)ecuted. Strategy implementation includes de%eloping a strategy&supporti%e culture, creating an effecti%e organizational structure, redirecting marketing efforts, preparing budgets, de%eloping and utilizing information systems, and linking employee compensation to organizational performance. Strategy implementation often is called the action stage" of strategic management. Implementing strategy means mobilizing employees and managers to put formulated strategies into action. Often considered to be the most difficult stage in strategic management, strategy implementation re=uires personal discipline, commitment, and sacrifice. Successful strategy implementation hinges upon managers! ability to moti%ate employees, which is more an art than a science. Strategies formulated but not implemented ser%e no useful purpose. Interpersonal skills are especially critical for successful strategy implementation. Strategy&implementation acti%ities affect all employees and managers in an organization. >%ery di%ision and department must decide on answers to =uestions, such as ?hat must we do to implement our part of the organization!s strategy@" and ow best can we get the job done@" The challenge of implementation is to stimulate managers and employees throughout an organization to work with pride and enthusiasm toward achie%ing stated objecti%es. Strategy e%aluation is the final stage in strategic management. #anagers desperately need to know when particular strategies are not working well* strategy e%aluation is the primary means for obtaining this information. 'll strategies are subject to future modification because e)ternal and internal factors are constantly changing. Three fundamental strategy&e%aluation acti%ities are 8+: re%iewing e)ternal and internal factors that are the bases for current strategies, 8A: measuring performance, and 8B: taking correcti%e actions. Strategy e%aluation is needed because success today is no guarantee of success tomorrow$ Success always creates new and different problems* complacent organizations e)perience demise. Strategy formulation, implementation, and e%aluation acti%ities occur at three hierarchical le%els in a large organization; corporate, di%isional or strategic business unit, and functional. <y fostering communication and interaction among managers and employees across hierarchical le%els, strategic management helps a firm function as a competiti%e team. #ost small businesses and some large businesses do not ha%e di%isions or strategic business units* they ha%e only the corporate and functional le%els. Ce%ertheless, managers and employees at these two le%els should be acti%ely in%ol%ed in strategic&management acti%ities.

5eter 1rucker says the prime task of strategic management is thinking through the o%erall mission of a business; . . . that is, of asking the =uestion, ?hat is our business@" This leads to the setting of objecti%es, the de%elopment of strategies, and the making of today!s decisions for tomorrow!s results. This clearly must be done by a part of the organization that can see the entire business* that can balance objecti%es and the needs of today against the needs of tomorrow* and that can allocate resources of men and money to key results.A Integrating Intuition and Analysis >dward 1eming once said, In Dod we trust. 'll others bring data." The strategicmanagement process can be described as an objecti%e, logical, systematic approach for making major decisions in an organization. It attempts to organize =ualitati%e and =uantitati%e information in a way that allows effecti%e decisions to be made under conditions of uncertainty. Eet strategic management is not a pure science that lends itself to a nice, neat, one&two&three approach. <ased on past e)periences, judgment, and feelings, most people recognize that intuition is essential to making good strategic decisions. Intuition is particularly useful for making decisions in situations of great uncertainty or little precedent. It is also helpful when highly interrelated %ariables e)ist or when it is necessary to choose from se%eral plausible alternati%es. Some managers and owners of businesses profess to ha%e e)traordinary abilities for using intuition alone in de%ising brilliant strategies. 2or e)ample, ?ill 1urant, who organized D#, was described by 'lfred Sloan as a man who would proceed on a course of action guided solely, as far as I could tell, by some intuiti%e flash of brilliance. e ne%er felt obliged to make an engineering hunt for the facts. Eet at times, he was astoundingly correct in his judgment."B 'lbert >instein acknowledged the importance of intuition when he said, I belie%e in intuition and inspiration. 't times I feel certain that I am right while not knowing the reason. Imagination is more important than knowledge, because knowledge is limited, whereas imagination embraces the entire world."F 'lthough some organizations today may sur%i%e and prosper because they ha%e intuiti%e geniuses managing them, most are not so fortunate. #ost organizations can benefit from strategic management, which is based upon integrating intuition and analysis in decision making. 6hoosing an intuiti%e or analytic approach to decision making is not an eitherGor proposition. #anagers at all le%els in an organization inject their intuition and judgment into strategic&management analyses. 'nalytical thinking and intuiti%e thinking complement each other. Operating from the I!%e&already&made&up&my&mind&don!t&bother&me&with&the&facts mode is not management by intuition* it is management by ignorance.- 1rucker says, I belie%e in intuition only if you discipline it. H unch! artists, who make a diagnosis but don!t check it out with the facts, are the ones in medicine who kill people, and in management kill businesses."/ 's enderson notes; The accelerating rate of change today is producing a business world in which customary managerial habits in organizations are increasingly inade=uate. >)perience alone was an ade=uate guide when changes could be made in small increments. <ut intuiti%e and e)perience&based management philosophies are grossly inade=uate when decisions are strategic and ha%e major, irre%ersible conse=uences.0 In a sense, the strategic&management process is an attempt both to duplicate what goes

on in the mind of a brilliant, intuiti%e person who knows the business and to couple it with analysis. Adapting to Change The strategic&management process is based on the belief that organizations should continually monitor internal and e)ternal e%ents and trends so that timely changes can be made as needed. The rate and magnitude of changes that affect organizations are increasing dramatically as e%idenced how the global economic recession has caught so many firms by surprise. 2irms, like organisms, must be adept at adapting" or they will not sur%i%e. 6orporate bankruptcies and defaults more than doubled in A.., from an already bad A..3 year. 'll industries were hit hard, especially retail, chemicals, autos, and financial. 's lenders tightened restrictions on borrowers, thousands of firms could not a%oid bankruptcy. >%en the economies of 6hina, 4apan, and South Iorea stalled as demand for their goods from the 7nited States and >urope dried up. 6hina!s annual growth slowed from +B percent in A..0 to , percent in A..3 and then - percent for A..,. 6onsumer confidence inde)es were falling all o%er the world as were housing prices. Cine of +. stocks in the SJ5 +-.. lost %alue in A..3. The Casda= composite inde) fell F..- percent in A..3, its worst year e%er. SJ5 -.. stocks lost B3.- percent of their %alue in A..3, the worst year since +,B0. The 1ow 4ones Industrial '%erage lost BB.3 percent of its %alue in A..3, the worst loss since +,B+ as shareholders lost K/.3 trillion in wealth. Only three SJ5 -.. stocks rose in A..3; 2amily 1ollar up B3 percent, making it the best performer in the SJ5 -..* ?al&#art Stores up +3 percent* and #c1onald!s up nearly / percent. The biggest decliner on the 1ow in A..3 was D#, whose stock fell 30 percent. 6itigroup lost 00 percent of its stock %alue in A..3. >%en Deneral >lectric lost -/ percent of its %alue. 2annie #ae and 2reddie #ac each slid ,3 percent as did 2leetwood >nterprises, which makes recreational %ehicles. 'nd losses were also e)tensi%e worldwide. 2or e)ample, Languard!s >urope(5acific Inde), composed of stocks firms based on those continents, fell FB percent in A..3. To sur%i%e, all organizations must astutely identify and adapt to change. The strategicmanagement process is aimed at allowing organizations to adapt effecti%ely to change o%er the long run. 's ?aterman has noted; In today!s business en%ironment, more than in any preceding era, the only constant is change. Successful organizations effecti%ely manage change, continuously adapting their bureaucracies, strategies, systems, products, and cultures to sur%i%e the shocks and prosper from the forces that decimate the competition.3 >&commerce and globalization are e)ternal changes that are transforming business and society today. On a political map, the boundaries between countries may be clear, but on a competiti%e map showing the real flow of financial and industrial acti%ity, the boundaries ha%e largely disappeared. The speedy flow of information has eaten away at national boundaries so that people worldwide readily see for themsel%es how other people li%e and work. ?e ha%e become a borderless world with global citizens, global competitors, global customers, global suppliers, and global distributors$ 7.S. firms are challenged by large ri%al companies in many industries. To say 7.S. firms are being challenged in the automobile industry is an understatement. <ut this situation is true in many industries.

The need to adapt to change leads organizations to key strategic&management =uestions, such as ?hat kind of business should we become@" 're we in the right field8s:@" Should we reshape our business@" ?hat new competitors are entering our industry@" ?hat strategies should we pursue@" ow are our customers changing@" 're new technologies being de%eloped that could put us out of business@" Key Terms in Strategic Management <efore we further discuss strategic management, we should define nine key terms; competiti%e ad%antage, strategists, %ision and mission statements, e)ternal opportunities and threats, internal strengths and weaknesses, long&term objecti%es, strategies, annual objecti%es, and policies. Competitive Advantage Strategic management is all about gaining and maintaining competiti%e ad%antage. This term can be defined as anything that a firm does especially well compared to ri%al firms." ?hen a firm can do something that ri%al firms cannot do, or owns something that ri%al firms desire, that can represent a competiti%e ad%antage. 2or e)ample, in a global economic recession, simply ha%ing ample cash on the firm!s balance sheet can pro%ide a major competiti%e ad%antage. Some cash&rich firms are buying distressed ri%als. 2or e)ample, < 5 <illiton, the world!s largest miner, is seeking to buy ri%al firms in 'ustralia and South 'merica. 2reeport&#c#oMan 6opper J Dold Inc. also desires to e)pand its portfolio by ac=uiring distressed ri%al companies. 2rench drug company Sanofi'%entis S' also is ac=uiring distressed ri%al firms to boost its drug de%elopment and di%ersification. 6ash&rich 4ohnson J 4ohnson in the 7nited States also is ac=uiring distressed ri%al firms. This can be an e)cellent strategy in a global economic recession. a%ing less fi)ed assets than ri%al firms also can pro%ide major competiti%e ad%antages in a global recession. 2or e)ample, 'pple has no manufacturing facilities of its own, and ri%al Sony has -0 electronics factories. 'pple relies e)clusi%ely on contract manufacturers for production of all of its products, whereas Sony owns its own plants. Ness fi)ed assets has enabled 'pple to remain financially lean with %irtually no long&term debt. Sony, in contrast, has built up massi%e debt on its balance sheet.

competencies, and resources* and by 8A: effecti%ely formulating, implementing, and e%aluating strategies that capitalize upon those factors. 2or e)ample, newspaper circulation in the 7nited States is steadily declining. #ost national newspapers are rapidly losing market share to the Internet, and other media that consumers use to stay informed. 1aily newspaper circulation in the 7nited States totals about -- million copies annually, which is about the same as it was in +,-F. Strategists ponder whether the newspaper circulation slide can be halted in the digital age. The si) broadcast networksO'<6, 6<S, 2o), C<6, 75C, and ?<Oare being assaulted by cable channels, %ideo games, broadband, wireless technologies, satellite radio, high&definition TL, and digital %ideo recorders. The three original broadcast networks captured about ,. percent of the prime&time audience in +,03, but today their combined market share is less than -. percent.+. 'n increasing number of companies are gaining a competiti%e ad%antage by using the Internet for direct selling and for communication with suppliers, customers, creditors, partners, shareholders, clients, and competitors who may be dispersed globally. >&commerce allows firms to sell products, ad%ertise, purchase supplies, bypass intermediaries, track in%entory, eliminate paperwork, and share information. In total, e&commerce is minimizing the e)pense and cumbersomeness of time, distance, and space in doing business, thus yielding better customer ser%ice, greater efficiency, impro%ed products, and higher profitability. The Internet has changed the way we organize our li%es* inhabit our homes* and relate to and interact with family, friends, neighbors, and e%en oursel%es. The Internet promotes endless comparison shopping, which thus enables consumers worldwide to band together to demand discounts. The Internet has transferred power from businesses to indi%iduals. <uyers used to face big obstacles when attempting to get the best price and ser%ice, such as limited time and data to compare, but now consumers can =uickly scan hundreds of %endor offerings. <oth the number of people shopping online and the a%erage amount they spend is increasing dramatically. 1igital communication has become the name of the game in marketing. 6onsumers today are flocking to blogs, short&post forums such as Twitter, %ideo sites such as EouTube, and social networking sites such as 2acebook, #ySpace, and NinkedIn instead of tele%ision, radio, newspapers, and magazines. 2acebook and #ySpace recently un%eiled features that further marry these social sites to the wider Internet. 7sers on these social sites now can log on to many business shopping sites with their I1s from their social site so their friends can see what items they ha%e purchased on %arious shopping sites. <oth of these social sites want their members to use their I1s to manage all their online identities. #ost traditional retailers ha%e learned that their online sales can boost in&store sales as they utilize their ?eb sites to promote in&store promotions.

6>O 5aco 7nderhill of >n%irosell says, ?here it used to be a polite war, it!s now a A+st&century bar fight, where e%erybody is competing with e%eryone else for the customers! money." Shoppers are trading down," so Cordstrom is taking customers from Ceiman #arcus and Saks 2ifth '%enue, T.4. #a)) and #arshalls are taking customers from most other stores in the mall, and e%en 2amily 1ollar is taking re%enues from ?al&#art., Detting and keeping competiti%e ad%antage is essential for long&term success in an organization. Strategists The Industrial(Organizational 8I(O: and the Mesource&<ased Liew 8M<L: theories of organization Strategists are the indi%iduals who are most responsible for the success or failure of an 8as discussed in 6hapters B and F, respecti%ely: present different perspecti%es on organization. Strategists ha%e %arious job titles, such as chief e)ecuti%e officer, president, owner, how best to capture and keep competiti%e ad%antageOthat is, how best to manage strategically. chair of the board, e)ecuti%e director, chancellor, dean, or entrepreneur. 4ay 6onger, professor 5ursuit of competiti%e ad%antage leads to organizational success or failure. Strategic of organizational beha%ior at the Nondon <usiness School and author of <uilding management researchers and practitioners alike desire to better understand the nature and Neaders, says, 'll strategists ha%e to be chief learning officers. ?e are in an e)tended period role of competiti%e ad%antage in %arious industries. of change. If our leaders aren!t highly adapti%e and great models during this period, then our companies won!t adapt either, because ultimately leadership is about being a role model." Cormally, a firm can sustain a competiti%e ad%antage for only a certain period due to ri%al firms imitating and undermining that ad%antage. Thus it is not ade=uate to simply obtain Strategists help an organization gather, analyze, and organize information. They track competiti%e ad%antage. ' firm must stri%e to achie%e sustained competiti%e ad%antage by industry and competiti%e trends, de%elop forecasting models and scenario analyses, e%aluate 8+: continually adapting to changes in e)ternal trends and e%ents and internal capabilities, corporate and di%isional performance, spot emerging market opportunities, identify business

threats, and de%elop creati%e action plans. Strategic planners usually ser%e in a support or staff role. 7sually found in higher le%els of management, they typically ha%e considerable authority for decision making in the firm. The 6>O is the most %isible and critical strategic manager. 'ny manager who has responsibility for a unit or di%ision, responsibility for profit and loss outcomes, or direct authority o%er a major piece of the business is a strategic manager 8strategist:. In the last fi%e years, the position of chief strategy officer 86SO: has emerged as a new addition to the top management ranks of many organizations, including Sun #icrosystems, Cetwork 'ssociates, 6larus, Nante, #arimba, Sapient, 6ommerce One, <<1O, 6adbury Schweppes, Deneral #otors, >llie #ae, 6endant, 6harles Schwab, Tyco, 6ampbell Soup, #organ Stanley, and Meed&>lse%ier. This new corporate officer title represents recognition of the growing importance of strategic planning in the business world.++ Strategists differ as much as organizations themsel%es, and these differences must be considered in the formulation, implementation, and e%aluation of strategies. Some strategists will not consider some types of strategies because of their personal philosophies. Strategists differ in their attitudes, %alues, ethics, willingness to take risks, concern for social responsibility, concern for profitability, concern for short&run %ersus long&run aims, and management style. The founder of ershey 2oods, #ilton ershey, built the company to manage an orphanage. 2rom corporate profits, ershey 2oods today cares for o%er a thousand boys and girls in its School for Orphans. Vision and Mission Statements #any organizations today de%elop a %ision statement that answers the =uestion ?hat do we want to become@" 1e%eloping a %ision statement is often considered the first step in strategic planning, preceding e%en de%elopment of a mission statement. #any %ision statements are a single sentence. 2or e)ample, the %ision statement of Stokes >ye 6linic in 2lorence, South 6arolina, is Our %ision is to take care of your %ision." #ission statements are enduring statements of purpose that distinguish one business from other similar firms. ' mission statement identifies the scope of a firm!s operations in product and market terms."+A It addresses the basic =uestion that faces all strategists; ?hat is our business@" ' clear mission statement describes the %alues and priorities of an organization. 1e%eloping a mission statement compels strategists to think about the nature and scope of present operations and to assess the potential attracti%eness of future markets and acti%ities. ' mission statement broadly charts the future direction of an organization. ' mission statement is a constant reminder to its employees of why the organization e)ists and what the founders en%isioned when they put their fame and fortune at risk to breathe life into their dreams. ere is an e)ample of a mission statement for <arnes J Coble; Our mission is to operate the best specialty retail business in 'merica, regardless of the product we sell. <ecause the product we sell is books, our aspirations must be consistent with the promise and the ideals of the %olumes which line our shel%es. To say that our mission e)ists independent of the product we sell is to demean the importance and the distinction of being booksellers. 's booksellers we are determined to be the %ery best in our business, regardless of the size, pedigree, or inclinations of our competitors. ?e will continue to bring our industry nuances of style and approaches to bookselling which are consistent with our e%ol%ing aspirations. 'bo%e all, we e)pect to be a credit to the communities we ser%e, a %aluable resource to our customers, and a place where our dedicated booksellers can grow and prosper. Toward this end we will not only listen to our customers

and booksellers but embrace the idea that the 6ompany is at their ser%ice. 8www.missionstatements.com: !ternal "pportunities and Threats >)ternal opportunities and e)ternal threats refer to economic, social, cultural, demographic, en%ironmental, political, legal, go%ernmental, technological, and competiti%e trends and e%ents that could significantly benefit or harm an organization in the future. Opportunities and threats are largely beyond the control of a single organizationOthus the word e)ternal. In a global economic recession, a few opportunities and threats that face many firms are listed here; P '%ailability of capital can no longer be taken for granted. P 6onsumers e)pect green operations and products. P #arketing has mo%ing rapidly to the Internet. P 6onsumers must see %alue in all that they consume. P Dlobal markets offer the highest growth in re%enues. P 's the price of oil has collapsed, oil rich countries are focused on supporting their own economies, rather than seeking out in%estments in other countries. P Too much debt can crush e%en the best firms. P Nayoffs are rampant among many firms as re%enues and profits fall and credit sources dry up. P The housing market is depressed. P 1emand for health ser%ices does not change much in a recession. 2or e)ample, 'lmost 2amily Inc., a Nouis%ille, Ientucky, pro%ider of home nursing care, more than doubled its stock price in A..3 to KF-. P 1ramatic slowdowns in consumer spending are apparent in %irtually all sectors, e)cept some discount retailers and restaurants. P >merging countriesQ economies could manage to grow - percent in A..,, but that is three full percentage points lower than in A..0. P 7.S. unemployment rates continue to rise to +. percent on a%erage. P <orrowers are faced with much bigger collateral re=uirements than in years past. P >=uity lines of credit often now are not being e)tended. P 2irms that ha%e cash or access to credit ha%e a competiti%e ad%antage o%er debt&laden firms. P 1iscretionary spending has fallen dramatically* consumers buy only essential items* this has crippled many lu)ury and recreational businesses such as boating and cycling. P The stock market crash of A..3 left senior citizens with retirement worries, so millions of people cut back on spending to the bare essentials. P The double whammy of falling demand and intense price competition is plaguing most firms, especially those with high fi)ed costs. P The business world has mo%ed from a credit&based economy to a cash&based economy. P There is reduced capital spending in response to reduced consumer spending. The types of changes mentioned abo%e are creating a different type of consumer and conse=uently a need for different types of products, ser%ices, and strategies. #any companies in many industries face the se%ere e)ternal threat of online sales capturing increasing market share in their industry. Other opportunities and threats may include the passage of a law, the introduction of a new product by a competitor, a national catastrophe, or the declining %alue of the dollar.

' competitor!s strength could be a threat. 7nrest in the #iddle >ast, rising energy costs, or the war against terrorism could represent an opportunity or a threat. ' basic tenet of strategic management is that firms need to formulate strategies to take ad%antage of e)ternal opportunities and to a%oid or reduce the impact of e)ternal threats. 2or this reason, identifying, monitoring, and e%aluating e)ternal opportunities and threats are essential for success. This process of conducting research and gathering and assimilating e)ternal information is sometimes called en%ironmental scanning or industry analysis. Nobbying is one acti%ity that some organizations utilize to influence e)ternal opportunities and threats. Internal Strengths and Wea#nesses Internal strengths and internal weaknesses are an organization!s controllable acti%ities that are performed especially well or poorly. They arise in the management, marketing, finance(accounting, production(operations, research and de%elopment, and management information systems acti%ities of a business. Identifying and e%aluating organizational strengths and weaknesses in the functional areas of a business is an essential strategic management acti%ity. Organizations stri%e to pursue strategies that capitalize on internal strengths and eliminate internal weaknesses. Strengths and weaknesses are determined relati%e to competitors. Melati%e deficiency or superiority is important information. 'lso, strengths and weaknesses can be determined by elements of being rather than performance. 2or e)ample, a strength may in%ol%e ownership of natural resources or a historic reputation for =uality. Strengths and weaknesses may be determined relati%e to a firm!s own objecti%es. 2or e)ample, high le%els of in%entory turno%er may not be a strength to a firm that seeks ne%er to stock&out. Internal factors can be determined in a number of ways, including computing ratios, measuring performance, and comparing to past periods and industry a%erages. Larious types of sur%eys also can be de%eloped and administered to e)amine internal factors such as employee morale, production efficiency, ad%ertising effecti%eness, and customer loyalty. $ong%Term "&'ectives Objecti%es can be defined as specific results that an organization seeks to achie%e in pursuing its basic mission. Nong&term means more than one year. Objecti%es are essential for organizational success because they state direction* aid in e%aluation* create synergy* re%eal priorities* focus coordination* and pro%ide a basis for effecti%e planning, organizing, moti%ating, and controlling acti%ities. Objecti%es should be challenging, measurable, consistent, reasonable, and clear. In a multidimensional firm, objecti%es should be established for the o%erall company and for each di%ision. Strategies Strategies are the means by which long&term objecti%es will be achie%ed. <usiness strategies may include geographic e)pansion, di%ersification, ac=uisition, product de%elopment, market penetration, retrenchment, di%estiture, li=uidation, and joint %entures. Strategies currently being pursued by some companies are described in Table +&+. Strategies are potential actions that re=uire top management decisions and large amounts of the firm!s resources. In addition, strategies affect an organization!s long&term prosperity, typically for at least fi%e years, and thus are future&oriented. Strategies ha%e

multifunctional or multidi%isional conse=uences and re=uire consideration of both the e)ternal and internal factors facing the firm. Annual "&'ectives 'nnual objecti%es are short&term milestones that organizations must achie%e to reach longterm objecti%es. Nike long&term objecti%es, annual objecti%es should be measurable, =uantitati%e, challenging, realistic, consistent, and prioritized. They should be established at the corporate, di%isional, and functional le%els in a large organization. 'nnual objecti%es should be stated in terms of management, marketing, finance(accounting, production(operations, research and de%elopment, and management information systems 8#IS: accomplishments. ' set of annual objecti%es is needed for each long&term objecti%e. 'nnual objecti%es are especially important in strategy implementation, whereas long&term objecti%es are particularly important in strategy formulation. 'nnual objecti%es represent the basis for allocating resources. (olicies 5olicies are the means by which annual objecti%es will be achie%ed. 5olicies include guidelines, rules, and procedures established to support efforts to achie%e stated objecti%es. 5olicies are guides to decision making and address repetiti%e or recurring situations. 5olicies are most often stated in terms of management, marketing, finance(accounting, production(operations, research and de%elopment, and computer information systems acti%ities. 5olicies can be established at the corporate le%el and apply to an entire organization at the di%isional le%el and apply to a single di%ision, or at the functional le%el and apply to particular operational acti%ities or departments. 5olicies, like annual objecti%es, are especially important in strategy implementation because they outline an organization!s e)pectations of its employees and managers. 5olicies allow consistency and coordination within and between organizational departments. Substantial research suggests that a healthier workforce can more effecti%ely and efficiently implement strategies. Smoking has become a hea%y burden for >urope!s state&run social welfare systems, with smoking&related diseases costing well o%er K+.. billion a year. Smoking also is a huge burden on companies worldwide, so firms are continually implementing policies to curtail smoking. Table +&A gi%es a ranking of some countries by percentage of people who smoke. The Strategic%Management Model The strategic&management process can best be studied and applied using a model. >%ery model represents some kind of process. The framework illustrated in 2igure +&+ is a widely accepted, comprehensi%e model of the strategic&management process.+B This model does not guarantee success, but it does represent a clear and practical approach for formulating, implementing, and e%aluating strategies. Melationships among major components of the strategic&management process are shown in the model, which appears in all subse=uent chapters with appropriate areas shaped to show the particular focus of each chapter. These are three important =uestions to answer in de%eloping a strategic plan; ?here are we now@ ?here do we want to go@ ow are we going to get there@ Identifying an organization!s e)isting %ision, mission, objecti%es, and strategies is the

logical starting point for strategic management because a firm!s present situation and condition may preclude certain strategies and may e%en dictate a particular course of action. >%ery organization has a %ision, mission, objecti%es, and strategy, e%en if these elements are not consciously designed, written, or communicated. The answer to where an organization is going can be determined largely by where the organization has been$ The strategic&management process is dynamic and continuous. ' change in any one of the major components in the model can necessitate a change in any or all of the other components. 2or instance, a shift in the economy could represent a major opportunity and re=uire a change in long&term objecti%es and strategies* a failure to accomplish annual objecti%es could re=uire a change in policy* or a major competitor!s change in strategy could re=uire a change in the firm!s mission. Therefore, strategy formulation, implementation, and e%aluation acti%ities should be performed on a continual basis, not just at the end of the year or semiannually. The strategic&management process ne%er really ends. Cote in the strategic&management model that business ethics(social responsibility( en%ironmental sustainability issues impact all acti%ities in the model as described in full in 6hapter +.. 'lso, note in the model that global(international issues also impact %irtually all strategic decisions today, e%en for small firms, as described in detail in 6hapter ++. 8<oth 6hapter +. and 6hapter ++ are new to this edition.: The strategic&management process is not as cleanly di%ided and neatly performed in practice as the strategic&management model suggests. Strategists do not go through the process in lockstep fashion. Denerally, there is gi%e&and&take among hierarchical le%els of an organization. #any organizations semiannually conduct formal meetings to discuss and update the firm!s %ision(mission, opportunities(threats, strengths(weaknesses, strategies, objecti%es, policies, and performance. These meetings are commonly held off&premises and are called retreats. The rationale for periodically conducting strategic&management meetings away from the work site is to encourage more creati%ity and candor from participants. Dood communication and feedback are needed throughout the strategic&management process. 'pplication of the strategic&management process is typically more formal in larger and well&established organizations. 2ormality refers to the e)tent that participants, responsibilities, authority, duties, and approach are specified. Smaller businesses tend to be less formal. 2irms that compete in comple), rapidly changing en%ironments, such as technology companies, tend to be more formal in strategic planning. 2irms that ha%e many di%isions, products, markets, and technologies also tend to be more formal in applying strategic&management concepts. Dreater formality in applying the strategic&management process is usually positi%ely associated with the cost, comprehensi%eness, accuracy, and success of planning across all types and sizes of organizations.+F )enefits of Strategic Management Strategic management allows an organization to be more proacti%e than reacti%e in shaping its own future* it allows an organization to initiate and influence 8rather than just respond to: acti%itiesOand thus to e)ert control o%er its own destiny. Small business owners, chief e)ecuti%e officers, presidents, and managers of many for&profit and nonprofit organizations ha%e recognized and realized the benefits of strategic management. istorically, 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.+6ommunication is a key to successful strategic management. Through in%ol%ement in the process, in other words, through dialogue and participation, managers and employees become committed to supporting the organization. 2igure +&A illustrates this intrinsic benefit of a firm engaging in strategic planning. Cote that all firms need all employees on a mission to help the firm succeed. The manner in which strategic management is carried out is thus e)ceptionally important. ' major aim of the process is to achie%e the understanding of and commitment from all managers and employees. 7nderstanding may be the most important benefit of strategic management, followed by commitment. ?hen managers and employees understand what the organization is doing and why, they often feel they are a part of the firm and become committed to assisting it. This is especially true when employees also understand linkages between their own compensation and organizational performance. #anagers and employees become surprisingly creati%e and inno%ati%e when they understand and support the firm!s mission, objecti%es, and strategies. ' great benefit of strategic management, then, is the opportunity that the process pro%ides to empower indi%iduals. >mpowerment is the act of strengthening employees! sense of effecti%eness by encouraging them to participate in decision making and to e)ercise initiati%e and imagination, and rewarding them for doing so. #ore and more organizations are decentralizing the strategic&management process, recognizing that planning must in%ol%e lower&le%el managers and employees. The notion of centralized staff planning is being replaced in organizations by decentralized line&manager planning. 2or e)ample, ?alt 1isney 6o. dismantled its strategic&planning department and ga%e those responsibilities back to the 1isney business di%isions. 2ormer 6>O #ichael >isner had fa%ored the centralized strategic&planning approach, but 6>O Mobert Iger dissol%ed 1isney!s strategic&planning department within weeks of his taking o%er the top office at 1isney. The process is a learning, helping, educating, and supporting acti%ity, not merely a paper&shuffling acti%ity among top e)ecuti%es. Strategic&management dialogue is more important than a nicely bound strategic&management document.+/ The worst thing strategists can do is de%elop strategic plans themsel%es and then present them to operating managers to e)ecute. Through in%ol%ement in the process, line managers become owners" of the strategy. Ownership of strategies by the people who ha%e to e)ecute them is a key to success$ 'lthough making good strategic decisions is the major responsibility of an organization!s owner or chief e)ecuti%e officer, both managers and employees must also be in%ol%ed in strategy formulation, implementation, and e%aluation acti%ities. 5articipation is a key to gaining commitment for needed changes. 'n increasing number of corporations and institutions are using strategic management to make effecti%e decisions. <ut strategic management is not a guarantee for success* it can be dysfunctional if conducted haphazardly. *inancial )enefits Mesearch indicates that organizations using strategic&management concepts are more profitable and successful than those that do not.+0 <usinesses using strategic&management

concepts show significant impro%ement in sales, profitability, and producti%ity compared to firms without systematic planning acti%ities. igh&performing firms tend to do systematic planning to prepare for future fluctuations in their e)ternal and internal en%ironments. 2irms with planning systems more closely resembling strategic&management theory generally e)hibit superior long&term financial performance relati%e to their industry. igh&performing firms seem to make more informed decisions with good anticipation of both short& and long&term conse=uences. In contrast, firms that perform poorly often engage in acti%ities that are shortsighted and do not reflect good forecasting of future conditions. Strategists of low&performing organizations are often preoccupied with sol%ing internal problems and meeting paperwork deadlines. They typically underestimate their competitors! strengths and o%erestimate their own firm!s strengths. They often attribute weak performance to uncontrollable factors such as a poor economy, technological change, or foreign competition. #ore than +..,... businesses in the 7nited States fail annually. <usiness failures include bankruptcies, foreclosures, li=uidations, and court&mandated recei%erships. 'lthough many factors besides a lack of effecti%e strategic management can lead to business failure, the planning concepts and tools described in this te)t can yield substantial financial benefits for any organization. 'n e)cellent ?eb site for businesses engaged in strategic planning is www.checkmateplan.com. +onfinancial )enefits <esides helping firms a%oid financial demise, strategic management offers other tangible benefits, such as an enhanced awareness of e)ternal threats, an impro%ed understanding of competitors! strategies, increased employee producti%ity, reduced resistance to change, and a clearer understanding of performanceGreward relationships. Strategic management enhances the problem&pre%ention capabilities of organizations because it promotes interaction among managers at all di%isional and functional le%els. 2irms that ha%e nurtured their managers and employees, shared organizational objecti%es with them, empowered them to help impro%e the product or ser%ice, and recognized their contributions can turn to them for help in a pinch because of this interaction. In addition to empowering managers and employees, strategic management often brings order and discipline to an otherwise floundering firm. It can be the beginning of an efficient and effecti%e managerial system. Strategic management may renew confidence in the current business strategy or point to the need for correcti%e actions. The strategic&management process pro%ides a basis for identifying and rationalizing the need for change to all managers and employees of a firm* it helps them %iew change as an opportunity rather than as a threat. Dreenley stated that strategic management offers the following benefits; +. It allows for identification, prioritization, and e)ploitation of opportunities. A. It pro%ides an objecti%e %iew of management problems. B. It represents a framework for impro%ed coordination and control of acti%ities. F. It minimizes the effects of ad%erse conditions and changes. -. It allows major decisions to better support established objecti%es. /. It allows more effecti%e allocation of time and resources to identified opportunities. 0. It allows fewer resources and less time to be de%oted to correcting erroneous or ad hoc decisions.

3. It creates a framework for internal communication among personnel. ,. It helps integrate the beha%ior of indi%iduals into a total effort. +.. It pro%ides a basis for clarifying indi%idual responsibilities. ++. It encourages forward thinking. +A. It pro%ides a cooperati%e, integrated, and enthusiastic approach to tackling problems and opportunities. +B. It encourages a fa%orable attitude toward change. +F. It gi%es a degree of discipline and formality to the management of a business.+3 Why Some *irms Do +o Strategic (lanning Some firms do not engage in strategic planning, and some firms do strategic planning but recei%e no support from managers and employees. Some reasons for poor or no strategic planning are as follows; P Nack of knowledge or e)perience in strategic planningOCo training in strategic planning. P 5oor reward structuresO?hen an organization assumes success, it often fails to reward success. ?hen failure occurs, then the firm may punish. P 2irefightingO'n organization can be so deeply embroiled in resol%ing crises and firefighting that it reser%es no time for planning. P ?aste of timeOSome firms see planning as a waste of time because no marketable product is produced. Time spent on planning is an in%estment. P Too e)pensi%eOSome organizations see planning as too e)pensi%e in time and money. P NazinessO5eople may not want to put forth the effort needed to formulate a plan. P 6ontent with successO5articularly if a firm is successful, indi%iduals may feel there is no need to plan because things are fine as they stand. <ut success today does not guarantee success tomorrow. P 2ear of failureO<y not taking action, there is little risk of failure unless a problem is urgent and pressing. ?hene%er something worthwhile is attempted, there is some risk of failure. P O%erconfidenceO's managers amass e)perience, they may rely less on formalized planning. Marely, howe%er, is this appropriate. <eing o%erconfident or o%erestimating e)perience can bring demise. 2orethought is rarely wasted and is often the mark of professionalism. P 5rior bad e)perienceO5eople may ha%e had a pre%ious bad e)perience with planning, that is, cases in which plans ha%e been long, cumbersome, impractical, or infle)ible. 5lanning, like anything else, can be done badly. P Self&interestO?hen someone has achie%ed status, pri%ilege, or self&esteem through effecti%ely using an old system, he or she often sees a new plan as a threat. P 2ear of the unknownO5eople may be uncertain of their abilities to learn new skills, of their aptitude with new systems, or of their ability to take on new roles. P onest difference of opinionO5eople may sincerely belie%e the plan is wrong. They may %iew the situation from a different %iewpoint, or they may ha%e aspirations for themsel%es or the organization that are different from the plan. 1ifferent people in different jobs ha%e different perceptions of a situation. P SuspicionO>mployees may not trust management.+, (itfalls in Strategic (lanning Strategic planning is an in%ol%ed, intricate, and comple) process that takes an organization

into uncharted territory. It does not pro%ide a ready&to&use prescription for success* instead, it takes the organization through a journey and offers a framework for addressing =uestions and sol%ing problems. <eing aware of potential pitfalls and being prepared to address them is essential to success. Some pitfalls to watch for and a%oid in strategic planning are these; P 7sing strategic planning to gain control o%er decisions and resources P 1oing strategic planning only to satisfy accreditation or regulatory re=uirements P Too hastily mo%ing from mission de%elopment to strategy formulation P 2ailing to communicate the plan to employees, who continue working in the dark P Top managers making many intuiti%e decisions that conflict with the formal plan P Top managers not acti%ely supporting the strategic&planning process P 2ailing to use plans as a standard for measuring performance P 1elegating planning to a planner" rather than in%ol%ing all managers P 2ailing to in%ol%e key employees in all phases of planning P 2ailing to create a collaborati%e climate supporti%e of change P Liewing planning as unnecessary or unimportant P <ecoming so engrossed in current problems that insufficient or no planning is done P <eing so formal in planning that fle)ibility and creati%ity are stifledA. ,uidelines for ffective Strategic Management 2ailing to follow certain guidelines in conducting strategic management can foster criticisms of the process and create problems for the organization. Issues such as Is strategic management in our firm a people process or a paper process@" should be addressed. >%en the most technically perfect strategic plan will ser%e little purpose if it is not implemented. #any organizations tend to spend an inordinate amount of time, money, and effort on de%eloping the strategic plan, treating the means and circumstances under which it will be implemented as afterthoughts$ 6hange comes through implementation and e%aluation, not through the plan. ' technically imperfect plan that is implemented well will achie%e more than the perfect plan that ne%er gets off the paper on which it is typed.A+ Strategic management must not become a self&perpetuating bureaucratic mechanism. Mather, it must be a self&reflecti%e learning process that familiarizes managers and employees in the organization with key strategic issues and feasible alternati%es for resol%ing those issues. Strategic management must not become ritualistic, stilted, orchestrated, or too formal, predictable, and rigid. ?ords supported by numbers, rather than numbers supported by words, should represent the medium for e)plaining strategic issues and organizational responses. ' key role of strategists is to facilitate continuous organizational learning and change. M. T. Nenz offered some important guidelines for effecti%e strategic management; Ieep the strategic&management process as simple and nonroutine as possible. >liminate jargon and arcane planning language. Memember, strategic management is a process for fostering learning and action, not merely a formal system for control. To a%oid routinized beha%ior, %ary assignments, team membership, meeting formats, and the planning calendar. The process should not be totally predictable, and settings must be changed to stimulate creati%ity. >mphasize word&oriented plans with numbers as back&up material. If managers cannot e)press their strategy in a paragraph or so, they either do not ha%e one or do not understand it. Stimulate thinking and action

that challenge the assumptions underlying current corporate strategy. ?elcome bad news. If strategy is not working, managers desperately need to know it. 2urther, no pertinent information should be classified as inadmissible merely because it cannot be =uantified. <uild a corporate culture in which the role of strategic management and its essential purposes are understood. 1o not permit technicians" to co&opt the process. It is ultimately a process for learning and action. Speak of it in these terms. 'ttend to psychological, social, and political dimensions, as well as the information infrastructure and administrati%e procedures supporting it.AA 'n important guideline for effecti%e strategic management is open&mindedness. ' willingness and eagerness to consider new information, new %iewpoints, new ideas, and new possibilities is essential* all organizational members must share a spirit of in=uiry and learning. Strategists such as chief e)ecuti%e officers, presidents, owners of small businesses, and heads of go%ernment agencies must commit themsel%es to listen to and understand managers! positions well enough to be able to restate those positions to the managers! satisfaction. In addition, managers and employees throughout the firm should be able to describe the strategists! positions to the satisfaction of the strategists. This degree of discipline will promote understanding and learning. Co organization has unlimited resources. Co firm can take on an unlimited amount of debt or issue an unlimited amount of stock to raise capital. Therefore, no organization can pursue all the strategies that potentially could benefit the firm. Strategic decisions thus always ha%e to be made to eliminate some courses of action and to allocate organizational resources among others. #ost organizations can afford to pursue only a few corporatele%el strategies at any gi%en time. It is a critical mistake for managers to pursue too many strategies at the same time, thereby spreading the firm!s resources so thin that all strategies are jeopardized. 4oseph 6haryk, 6>O of the 6ommunication Satellite 6orporation 86omsat:, said, ?e ha%e to face the cold fact that 6omsat may not be able to do all it wants. ?e must make hard choices on which %entures to keep and which to fold." Strategic decisions re=uire trade&offs such as long&range %ersus short&range considerations or ma)imizing profits %ersus increasing shareholders! wealth. There are ethics issues too. Strategy trade&offs re=uire subjecti%e judgments and preferences. In many cases, a lack of objecti%ity in formulating strategy results in a loss of competiti%e posture and profitability. #ost organizations today recognize that strategic&management concepts and techni=ues can enhance the effecti%eness of decisions. Subjecti%e factors such as attitudes toward risk, concern for social responsibility, and organizational culture will always affect strategy&formulation decisions, but organizations need to be as objecti%e as possible in considering =ualitati%e factors. Table +&B summarizes important guidelines for the strategic&planning process to be effecti%e. T'<N> +&B Se%enteen Duidelines for the Strategic&5lanning 5rocess to <e >ffecti%e +. It should be a people process more than a paper process. A. It should be a learning process for all managers and employees. B. It should be words supported by numbers rather than numbers supported by words. F. It should be simple and nonroutine. -. It should %ary assignments, team memberships, meeting formats, and e%en the planning calendar. /. It should challenge the assumptions underlying the current corporate strategy. 0. It should welcome bad news.

3. It should welcome open&mindness and a spirit of in=uiry and learning. ,. It should not be a bureaucratic mechanism. +.. It should not become ritualistic, stilted, or orchestrated. ++. It should not be too formal, predictable, or rigid. +A. It should not contain jargon or arcane planning language. +B. It should not be a formal system for control. +F. It should not disregard =ualitati%e information. +-. It should not be controlled by technicians." +/. 1o not pursue too many strategies at once. +0. 6ontinually strengthen the good ethics is good business" policy. Comparing )usiness and Military Strategy ' strong military heritage underlies the study of strategic management. Terms such as objecti%es, mission, strengths, and weaknesses first were formulated to address problems on the battlefield. 'ccording to ?ebster!s Cew ?orld 1ictionary, strategy is the science of planning and directing large&scale military operations, of maneu%ering forces into the most ad%antageous position prior to actual engagement with the enemy." The word strategy comes from the Dreek strategos, which refers to a military general and combines stratos 8the army: and ago 8to lead:. The history of strategic planning began in the military. ' key aim of both business and military strategy is to gain competiti%e ad%antage." In many respects, business strategy is like military strategy, and military strategists ha%e learned much o%er the centuries that can benefit business strategists today. <oth business and military organizations try to use their own strengths to e)ploit competitors! weaknesses. If an organization!s o%erall strategy is wrong 8ineffecti%e:, then all the efficiency in the world may not be enough to allow success. <usiness or military success is generally not the happy result of accidental strategies. Mather, success is the product of both continuous attention to changing e)ternal and internal conditions and the formulation

and implementation of insightful adaptations to those conditions. The element of surprise pro%ides great competiti%e ad%antages in both military and business strategy* information systems that pro%ide data on opponents! or competitors! strategies and resources are also %itally important. Of course, a fundamental difference between military and business strategy is that business strategy is formulated, implemented, and e%aluated with an assumption of competition, whereas military strategy is based on an assumption of conflict. Conetheless, military conflict and business competition are so similar that many strategic&management techni=ues apply e=ually to both. <usiness strategists ha%e access to %aluable insights that military thinkers ha%e refined o%er time. Superior strategy formulation and implementation can o%ercome an opponent!s superiority in numbers and resources. <oth business and military organizations must adapt to change and constantly impro%e to be successful. Too often, firms do not change their strategies when their en%ironment and competiti%e conditions dictate the need to change. Dluck offered a classic military e)ample of this; ?hen Capoleon won, it was because his opponents were committed to the strategy, tactics, and organization of earlier wars. ?hen he lostOagainst ?ellington, the Mussians, and the SpaniardsOit was because he, in turn, used tried&and&true strategies against enemies who thought afresh, who were de%eloping the strategies not of the last war but of the ne)t.AB Similarities can be construed from Sun Tzu!s writings to the practice of formulating and implementing strategies among businesses today. Table +&F pro%ides narrati%e