MGT603 - Strategic Management - Lecture Handout 02

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KEY TERMS IN STRATEGIC MANAGEMENT

Objectives

This Lecture provides an overview of strategic management. It introduces a practical, integrative model of the strategic-management process and defines basic activities and terms in strategic management and discusses the importance of business ethics. After reading this lecture you will be able to know that:
Key Terms in Strategic Management What is meant by adopting to change?

Adapting to change

Organizational survival depends on:

  • Continuous monitoring of internal and external factors
  • Well-timed changes
  • Effective adaptation calls for a long-run focus
  • Incremental rise in degree of change
    1. Technology
    2. E-commerce
    3. Merger-mania
    4. Demographics

The strategic management process is based on the belief that organization should continuously monitor internal and external events and trends so that timely change can be made as needed. The rate and magnitude of changes that affect the organization are increasing dramatically. Consider for example, Ecommerce, laser surgery, the war on terrorism, economic recession and the aging population etc. To survive all organizations must be capable of astutely identifying and adapting to change. The need to adapt to change leads organizations to key strategic management questions, such as “What kind of business should we become?” “Are we in right field?” “Should we reshape our business?” “Are new technologies being developed that could put us out of business?”

Key Terms in Strategic Management

Before we further discuss strategic management, we should define eight key terms: strategists, mission statements, external opportunities and threats, internal strengths and weaknesses, long-term objectives, strategies, annual objectives, and policies.

  • Strategists
    Strategists are individuals who are most responsible for the success or failure of an organization. Strategists are individuals who form strategies. Strategists have various job titles, such as chief executive officer, president
    and owner, chair of the board, executive director, chancellor, dean, or entrepreneur.
    Strategists help an organization gather, analyze, and organize information. They track industry and competitive trends, develop forecasting models and scenario analyses, evaluate corporate and divisional performance, spot emerging market opportunities, identify business threats, and develop creative action plans. Strategic planners usually serve in a support or staff role. Usually found in higher levels of management, they typically have considerable authority for decision making in the firm. The CEO is the most visible and critical strategic manager. Any manager who has responsibility for a unit or division, responsibility for profit and loss outcomes, or direct authority over a major piece of the business is a strategic manager (strategist).
    Strategists differ as much as organizations themselves and these differences must be considered in the formulation, implementation, and evaluation of strategies. Some strategists will not consider some types of strategies because of their personal philosophies. Strategists 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 Statements
    Many organizations today develop a "vision statement" which answers the question, what do we want to become? Developing a vision statement is often considered the first step in strategic planning, preceding even development of a mission statement. Many vision statements are a single sentence. For example the vision statement of Stokes Eye Clinic in Florence, South Carolina, is "Our vision is to take care of your vision." The vision of the Institute of Management Accountants is "Global leadership in education, certification, and practice of management accounting and financial management."
  • Mission Statements
    Mission statements are "enduring statements of purpose that distinguish one business from other similar firms. A mission statement identifies the scope of a firm's operations in product and market terms. It addresses the basic question that faces all strategists: What is our business? A clear mission statement describes the values and priorities of an organization. Developing a mission statement compels strategists to think about the nature and scope of present operations and to assess the potential attractiveness of future markets and activities. A mission statement broadly charts the future direction of an organization. An example mission statement is provided below for Microsoft.
    Microsoft's mission is to create software for the personal computer that empowers and enriches people in the workplace, at school and at home. Microsoft's early vision of a computer on every desk and in every home is coupled today with a strong commitment to Internet-related technologies that expand the power and reach of the PC and its users. As the world's leading software provider, Microsoft strives to produce innovative products that meet our customers' evolving needs.
  • External Opportunities and Threats
    External opportunities and external threats refer to economic, social, cultural, demographic, environmental, political, legal, governmental, technological, and competitive trends and events that could significantly benefit or harm an organization in the future. Opportunities and threats are largely beyond the control of a single organization, thus the term external. The computer revolution, biotechnology, population shifts, changing work values and attitudes, space exploration, recyclable packages, and increased competition from foreign companies are examples of opportunities or threats for companies. These types of changes are creating a different type of consumer and consequently a need for different types of products, services, and strategies.
    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 value of the dollar. A competitor's strength could be a threat. Unrest in the Balkans, rising interest rates, or the war against drugs could represent an opportunity or a threat.
    A basic tenet of strategic management is that firms need to formulate strategies to take advantage of external opportunities and to avoid or reduce the impact of external threats. For this reason, identifying, monitoring, and evaluating external opportunities and threats are essential for success.
  • Environmental Scanning:
    The process of conducting research and gathering and assimilating external information is sometimes called environmental scanning or industry analysis. Lobbying is one activity that some organizations utilize to influence external opportunities and threats.
    Environment scanning has the management scan eternal environment for opportunities and threats and internal environment for strengths and weaknesses. The factor which are most important for corporation factor are referred as a strategic factor and summarized as SWOT standing for strength, weaknesses, opportunities and threats.
    Environmental Scanning
    Environmental Scanning
    The external environment consist of opportunities and threats variables that outside the organization.
    External environment has two parts:
    • Task Environment
    • Social Environment
    Task Environment:
    Task environment includes all those factors which affect the organization and itself affected by the organization. These factor effects the specific related organizations. These factors are shareholders community, labor unions, creditor, customers, competitors, trade associations.
    Social Environment:
    Social environment is an environment which includes those forces effect does not the short run activities of the organization but it influenced the long run activities or decisions. PEST analysis are taken for social environment PEST analysis stands for political and legal economic socio cultural logical and technological.
  • Internal Strengths and Weaknesses/Internal assessments
    Internal strengths and internal weaknesses are an organization's controllable activities that are performed especially well or poorly. They arise in the management, marketing, finance/accounting, production/operations, research and development, and computer information systems activities of a business. Identifying and evaluating organizational strengths and weaknesses in the functional areas of a business is an essential strategic-management activity. Organizations strive to pursue strategies that capitalize on internal strengths and improve on internal weaknesses.
    Strengths and weaknesses are determined relative to competitors. Relative deficiency or superiority is important information. Also, strengths and weaknesses can be determined by elements of being rather than performance. For example, strength may involve ownership of natural resources or an historic reputation for quality. Strengths and weaknesses may be determined relative to a firm's own objectives. For example, high levels of inventory turnover may not be strength to a firm that seeks never to stock-out. Internal factors can be determined in a number of ways that include computing ratios, measuring performance, and comparing to past periods and industry averages. Various types of surveys also can be developed and administered to examine internal factors such as employee morale, production efficiency, advertising effectiveness, and customer loyalty.

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