De La Salle University Manila 2401 Taft Avenue 1004 Manila, Philippines

STRAMGT Research Paper

Submitted by: Jemie Umali Submitted to: Sir Glenn Sipin Course and Section: STRAMGT, S15 Submitted on: August 31, 2010

I. What is Strategic Management? Strategic Management is the art and science of formulating, implementing and evaluating, cross-functional decisions that enable an organization to achieve its objectives. It consists of the analysis (strategy formulation), actions (strategy implementation) and decisions (strategy evaluation) an organization undertakes in order to create and sustain competitive advantages. It focuses on integrating management, marketing, finance, accounting, production, operations, research and development, and mangament information systems to achieve organizational success. II. Stages in Strategic Managment The first stage is Strategy Formulation or sometimes called Strategic Planning, is the stage of strategic management that involves planning and decision making that lead to the establishment of the company or organization s goals and of a specific strategic plan. What is Strategic planning? The key role in solving strategic tasks belongs to strategic planning, which is the process of developing and maintaining strategic balance between organization s goals and resources in the changing market environment. The purpose of the strategic planning is to determine the most promising fields of activity providing its growth and success. Strategic planning is a component of a broader concept strategic management. All four management functions (planning, organizing, leading and controlling), when talking about strategic management include strategic orientation. When viewing strategic planning from the highest level possible within a company, the planning function is the area that stands out as the most important area which involves a great deal of development and focus. Strategic planning determines where an organization is going over the next year or more and how it's going to get there. Typically, the process is organization-wide, or focused on a major function such as a division, department or other major function. A strategic plan should not be confused with a business plan. A strategic plan is more likely to be a short document whereas a business plan is usually a much more extensive and detailed document. A strategic plan can provide the foundation and framework for a business plan. A strategic plan is the company s game plan. A strategic plan also, is not the same thing as an operational plan. The former should be visionary, conceptual and directional in contrast to an operational plan, which is likely to be shorter term, tactical, focused, implementable and measurable.

The second stage is Strategy Implementation. It requires the 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 information systems, and linking employee compensation to organizational performance. Strategy implementation is often called the action stage of strategic management. Implementing strategy means mobilizing employees and managers to put formulated strategies into action. It is often considered the most difficult stage in strategic management; strategy implementation requires personal discipline, commitment and sacrifice. The success of strategy implementation hinges upon managers ability to motivate employees, which is more an art than science. Inter-personal skills are especially critical for successful strategy implementation. Strategy-implementation activities affect all employees and managers in an organization. The third and final stage is Strategy Evaluation. When particular strategies are not working well, strategy evaluation is the primary means for obtaining this information. All strategies are subject to future modification because external and internal factors are constantly changing. 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. Strategy evaluation is needed because success today is no guarantee of success tomorrow. Success always creates new and different problems; complacent organizations experience demise.

III. Key Terms In Strategic Management

Competitive Advantage Gaining and maintaining competitive advantage is what strategic management is all about. A firm can sustain a competitive advantage for only a curtained period due to rival firms imitating and weakening that advantage thus it is not adequate to simply obtain competitive advantage. To achieve a sustained competitive advantage, a firm must continue adapting to the changes in their internal as well as to their external capabilities, competencies and resources and also to come up, implement and evaluate strategies that can be capitalize upon their factors.

Strategists Strategists are mostly responsible for the success or failure of an organization. They help an organization gather, analyze and organize information. They also differ in their attitudes, values, ethics, willingness to take risks, concern for social responsibility, concern for profitability, concern for short-run versus long-run aims, and management style. Vision & Mission Statements Many organizations today develop their own vision. Vision is defined as a realistic, credible, attractive future for an organization. Usually, organizations answer the question What do we want to become? in order to come up with their vision statement. This is considered as the first step in strategic planning and preceding even development of a mission statement. They are also known as the enduring statements of purpose that distinguish one business to other similar companies. It also identifies the scope of the firm s operations in product and market terms. It addresses the question What is our business? Developing this statement requires strategists to think about the nature and scope of present operations and to assess the potential attractiveness of future markets and activities. External Opportunities and Threats These refer to the economic, social, cultural, demographic, environmental, political, legal, governmental, technological, and competitive trends and events that could significantly benefit/opportunity or harm/threat an organization in the future. Opportunities and threats are largely beyond the control of a single organization thus the word external. The 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. For this reason, identifying, monitoring and evaluating external opportunities and threats are essential for success. This process of conducting research and gathering and assimilating external information is sometimes called environmental scanning or industry analysis. Internal Strengths and Weaknesses These are an organization s controllable activities that are performed well or poorly. Identifying and evaluating organizational strengths and weaknesses in the funcational areas of a business is an essential strategic-management activity. Organizations strive to pursue startegies that capitalize on internal strengths and eliminate internal weaknesses.

Also, strengths and weaknesses can be determined by its relativity to its competitor and also by elements of being rather than performance. These may also be determined through a firm s own objectives. Internal factors can be determined in a number of ways, including computing ratios, measuring performance, and comparing to past periods and industry averages. Long-Term Objectives Objectives can be defined as specific results that an ogranization seeks to achieve in pursuing its basic mission. Long-term means more than a year. Objecives are essential for organizational success because they state direction; aid in evalutaion; create synergy; reveal priorities; focus coordination; and provide a basis for effective planning, organizing, motivating and controlling activities. Objectives should be challenging, measurable, consistent, reasonable and clear. In a multi-dimensional firm, objectives should be established for the overall company and for each division. Strategies Strategies are the means by which long-term objectives will be achieved. Business strategies may include geographical expansion, diversification, acquisition, product development, market penetration, retrenchment, divestiture, liquidation and joint ventures. Annual Objectives Annual objectives are short-term milestones that organizations must achieve to reach long-term objectives. Like long-term objectives, annual objectives should be measurable, quantitative, challenging, realistic, consistent, and prioritized. A set of annual objectives is needed for each long-term objective. Annual objectives are especially important in strategy implementation, whereas long-term objectives are particularly important in strategy formulation. Annual objectives represent the basis for allocating resources. Policies Policies are the means by which annual objectives will be achieved. Policies include guidelines, rules, and procedures established to support efforts to achieve the stated objectives. Policies are guidelines to decision making and address repetitive or recurring situations. 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.

IV. The Strategic Management Model The strategic-management process can be studied and applied using a model. Every model represents some kind of process. This model does not guarantee an organizations success, but it does represent a clear approach for formulating, implementing and evaluating strategies. Identifying the organization s existing vision, mission, objectives and strategies is the logical starting point for strategic management because a firm s present situation and condition may stop certain strategies and may even dictate a particular course of action. Every organization has a vision, mission, objectives, and strategy, even if these elements are not consciously designed, written or communicated. The process is dynamic and continuous. A change in any one of the major components in the model can cause a change in any or all of the other components. The strategic-management process is not as cleanly divided and neatly performed in practice. Strategists do not go to through the process in lockstep fashion. Generally, there is give-and-take among hierarchical levels of an organization.

The Strategic-Management Model

V. Basic Approach to Strategic Planning Before developing a strategic plan, it is better if they clearly identify the current status, objectives and strategies of an existing business. If they are correctly defined, these can be used as the basis for a critical examination to look into existing or perceived Strengths, Weaknesses, Threats and Opportunities. This leads to strategy development covering the following issues discussed in more detail below: Vision Mission Values Objectives Strategies Goals Key Steps in Developing a Strategic Plan: In the preparation of a strategic plan, there is a multi-step process that covers the vision, mission, objectives, values, strategies, and goals.

VI. Formulating the Business Visions & Mission The Vision The first step is to develop a realistic Vision for the business. This should be presented as a pen picture of the business in three or more years time in terms of its likely physical appearance, size, activities etc. A vision statement is sometimes called a picture of your company in the future but it s so much more than that. Your vision statement is your inspiration, the framework for all your strategic planning. A vision statement may apply to an entire company or to a single division of that company. A clear vision provides the foundation for developing a comprehensive mission statement. Whether for all or part of an organization, the vision statement answers the question, Where do we want to go? or What do we want to become? Example of a good vision: To be the best and leading fast food provider around the globe. McDonalds Company

The Mission The nature of a business is often expressed in terms of its mission, which indicates the purpose and activities of the business. It also determines the direction and purpose of your company can be a very difficult process. It must be specific enough for you to focus the direction of the company, while also giving enough flexibility that the company can evolve with changing times. Mission statements are generally more focused on what the nature of the business is. Statement of purpose, statement of philosophy, statement of beliefs, statements of business, etc., are all analogous terms that can be used interchangeably. However, for our purposes we will use mission statement. Mission statements should include all of these essential components: 1. 2. 3. 4. 5. 6. 7. 8. 9. Customers Who are the firm s customers? Products or services What are the firm s major products or services? Markets Geographically, where does the firm compete? Technology Is the firm s technology current? Concern for survival, growth and profitability Is the firm committed to growth and financial soundness? Philosophy What are the basic beliefs, values, aspirations and ethical priorities of the firm? Self-concept What is the firm s distinctive competence or major competitive advantage? Concern for public image Is the firm responsive to social, community and environmental concerns? Concern for employees Are employees a valuable asset of the firm?

Example of a good mission: Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow. The following six guiding principles will help us measure the appropriateness of our decisions: y y y y y y Provide a great work environment and treat each other with respect and dignity. Embrace diversity as an essential component in the way we do business. Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffee. Develop enthusiastically satisfied customers all of the time. Contribute positively to our communities and our environment. Recognize that profitability is essential to our future success. Starbucks

The Values The next element is to address the values governing the operation of the business and its conduct or relationships with society at large, customers, suppliers, employees, local community and other stakeholders. Example of company values: Innovation Satisfying real-life needs with unique ideas Quality Fulfilling a promise to deliver the best Safety Ensuring high standards in everything we make Respect Caring for people, communities and the environment Integrity Doing the right thing Openness Listening to the ideas of others and encouraging an open dialogue These six values are what we stand for, the standard of conduct we hold ourselves to and our commitment to the people who work with us, invest in us, and purchase our products. They plainly communicate what the world can expect of Kraft and what we must expect of ourselves. Kraft Foods The Objectives The third key element is to explicitly state the business's objectives in terms of the results it needs/wants to achieve in the medium/long term. Aside from presumably indicating a necessity to achieve regular profits (expressed as return on shareholders' funds), objectives should relate to the expectations and requirements of all the major stakeholders, including employees, and should reflect the underlying reasons for running the business. These objectives could cover growth, profitability, technology, offerings and markets. Example of company objectives: Objectives: Establish strategic partnerships with our clients and industry peers Deliver value to our customers Provide our clients insight into the IT environment Integrate project teams and clients into a cohesive, successful working unit Provide innovative tool agnostic solutions IDL Solutions The Strategies Next are the Strategies, the rules and guidelines by which the mission, objectives etc. may be achieved. They can cover the business as a whole including such matters as diversification, organic growth, or acquisition plans, or they can relate to primary matters in key functional areas, for example:

y y y

The company's internal cash flow will fund all future growth. New products will progressively replace existing ones over the next 3 years. All assembly work will be contracted out to lower the company's break-even point.

The Goals Next come the Goals. These are specific interim or ultimate time-based measurements to be achieved by implementing strategies in pursuit of the company's objectives, for example, to achieve sales of $3m in three years time. Goals should be quantifiable, consistent, realistic and achievable. They can relate to factors like market (sizes and shares), products, finances, profitability, utilization, and efficiency. VII. Making an External Assessment

Environmental Scan The environmental scan includes the following components: y y y Internal analysis of the firm Analysis of the firm s industry External macro-environment (PEST Analysis)

The internal analysis can identify the firm s strength and weaknesses while the external analysis reveals opportunities and threats. A profile of the strengths, weaknesses, opportunities and threats is generated by a SWOT Analysis. The external Environment has two aspects: affects all firms and a microenvironment that particular industry. The macro-environmental economic, social and technological factors and is PEST Analysis. External Evaluation Matrix (EFE) The EFE matrix is the strategic tool used to evaluate firm existing strategies, EFE matrix can be defined as the strategic tool to evaluate external environment or macro-environment of the firm include economic, social, technological, government, political, legal and competitive information. It is a strategic-management tool often used for assessment of current business conditions. The EFE matrix is a good tool to visualize and prioritize the opportunities and threats that a business is facing. External factors are extracted after deep analysis of external environment. Obviously there are some good and some bad for the company in the external environment. That s the reason external factors are divided into two the macro-environment that affects only the firms in a analysis includes political, sometimes referred to as the

categories opportunities and threats. Opportunities are the chances exist in the external environment, it depends firm whether the firm is willing to exploit the opportunities or may be they ignore the opportunities due to lack of resources. Threats are always evil for the firm, if there is a minimum number of threats in the external environment, it may open many doors for the firm. If there is a maximum number of threats for the firm, it can reduce their power in the industry. Example of an EFE Matrix: (Taken from HP Case Analysis)

Competitive Profile Matrix (CPM) Competitive profile matrix is an essential strategic management tool to compare the firm with the major players of the industry. Competitive profile matrix shows the clear picture to the firm about their strong points and weak points relative to their competitors. The CPM score is measured on basis of critical success factors, each factor is measured in same scale mean the weight remain same for every firm only rating varies. The best thing about CPM that it includes your firm and also facilitate to add other competitors make easier the comparative analysis. CPM is composed of critical success factors. These factors are extracted after deep analysis of external and internal environment of the firm. Obviously there are some good and some bad for the company in the external environment and internal environment. The higher rating show that firm strategy is doing well to support this critical success factors and lower rating means firm strategy is lacking to support the factor.

Example of a CPM Matrix: (Taken from HP Case Analysis)

Porter s Five Force Model An industry analysis can be performed using the framework developed by Michael Porter known as Porter s Five Forces. This framework evaluates barriers to entry, customers, suppliers, substitute products and rivalry among competing firms.

VIII.

Making an Internal Assessment

Internal Factor Evaluation (IFE) Internal Factor Evaluation (IFE) matrix is a tool used in strategic management to evaluate strategic position of your business. It is one of the best strategic tools for internal audit of the company. IFE is used for internal audit of functional area of business such as finance, marketing, IT, accounts and others depend upon the nature of business and its size. Internal factors consist of a company s strengths and weaknesses. These external factors are extracted after deep internal analysis of the company. Obviously every company have some weak point and strong point that s the reasons internal factors are divided into two categories namely strengths and weakness. Strengths are the strong areas or attribute of the company, which are used to overcome weakness and capitalize to take advantage of the external opportunities available in the industry. Weakness are painful for the company means these are the weak factors which needs to be improve in future otherwise if they exposed to the competitors they can take the advantage of it. Example of an IFE Matrix: (Taken from HP Case Analysis)

Importance of Strategic Planning Strategic planning is a very important aspect of business activities and is practiced widely. Decision processes and strategic planning should ideally end with an objective and a set method to achieve the objective. Poor implementation and inappropriate strategy are the main reasons why a strategic plan sometimes fails. Other reasons include poor market research, failure to define the objectives and lack of creativity in identifying the objectives. Strategic planning can provide an overall strategic direction to the core management of the organization and also gives a specific direction to areas like financial strategy, marketing strategy, organizational development strategy and human resources strategy, to achieve success. Strategic planning has a focus on stabilizing the current environment, and it also support the organization's business plans and goals. Strategic planning helps to implement new projects, new technology, consolidation of data centers, data warehouses, exponential data growth, cost of ownership, and resources available in an organization to assess the future requirements. Strategic planning analyzes the business plan, potential blockage or other issues in the current architecture, processes and their implementation in new initiatives, and processes. Strategic planning helps to formulate the ideas about the key factors that are affecting the present and future development of the organization and the opportunities offered by the environment and the competence of the organization.

References: Most definitions from this paper came from Strategic Management: Concept and Cases 12 ed. By Fred R. David. Definitions found in Chapter 1 of the book, are from pp. 36-49. Definitions found in Chapter 2 of the book are from pp. 82-93. Definitions found in Chapter 3 of the book, including the CPM Matrix and Porter s Five Force Model, are from pp. 104-128. Definitions found in Chapter 4 of the book, including the IFE Matrix are from pp. 136-138 and pp. 166-168. Other definitions were found in the following websites: http://www.quickmba.com/strategy/strategic-planning/ http://managementhelp.org/plan_dec/str_plan/basics.htm http://www.netmba.com/strategy/process/