A Module

in
STRATEGIC
MANAGEMENT

A Preliminary Issue
Exclusively for the Use of ESSU Students Only

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Vision

A technologically-advanced university
producing professionals and competitive leaders
for local and national development.

Mission

To provide quality education responsive to

the national and global needs focused on
generating knowledge and technology that will
improve the lives of the people.

Core Values

 Excellence
 Accountability
 Service

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 PREFACE

This course concentrates on the rudiments of strategic management. It is a

big picture course that will integrate all other business courses - accounting,
finance, marketing, production, human resource, and information system- as well
as other non-business courses taken in the course of your study program. The
center of attention is the firm- the industry and the competitive environment in
which it operates, its long-term direction and strategy, its resources and
competitive capabilities, and its prospects for success. Major topics covered are:
The Strategic Management Process, Creating Competitive Advantage; Strategy
Analysis and Choice; Implementing Strategies; and Strategy Review, Evaluation
and Control. Case studies and readings complement the conceptual content.

Unit 1 will introduce you to the fundamental concepts of Business Policy and
Strategy that are essential in strengthening one’s foundation in strategic
management. Unit 2 focuses on the rudiments of Strategic Management- its
benefits and the risks that are involved in the field. Unit 3 discusses the Strategic
Management Process- from environmental scanning down to strategy evaluation-
and how the different approaches could be utilized in managing a firm.

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 TABLE OF CONTENTS
UNIT I. Overview of Business Policy and Strategy
I. Business Policy and Strategy
Lesson 1: What is Business Policy? 2
Lesson 2: What is Strategy? 7
Assessment 11
UNIT II. Rudiments of Strategic Management
I. Strategic Management: Its Nature, Dimensions, Benefits
and Risks
Lesson 1: The Nature and Dimensions of Strategic 13
Management
Lesson 2: The Need for Strategic Management and Its 17
Benefits
Lesson 3: The Risks Involved in Strategic Management 18
Assessment 21
UNIT III. The Strategic Management Process
I. Environmental Scanning
Lesson 1: What is Environmental Scanning? 23
Lesson 2: Components of the Business Environment 26
Lesson 3: Environmental Scanning Techniques 27
Lesson 4: Assessing Industry Attractiveness and the
Competitive 34
Environment
Assessment 39
II. Strategy Formulation
Lesson 1: The Concept of Strategy Formulation 41
Lesson 2: The Business Vision and Mission 43
Lesson 3: Strategy Analysis and Choice 48
Assessment 53
III. Strategy Implementation
Lesson 1: The Nature of Strategy Implementation 54
Lesson 2: Issues in Strategy Implementation 56
Lesson 3: McKinsey’s 7S Framework 57
Assessment 63
IV. Strategy Evaluation
Lesson 1: The Significance of Strategy Evaluation 64
Lesson 2: The Strategy Evaluation Process 65
Assessment 69

References
Course Guide
Quality Policy and Credits

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 GENERAL INSTRUCTIONS

 Use this module with care

 Do not write, highlight, erase, alter or tear the pages

of this module.

 In answering activities or exercises, use a separate

sheet of paper or refer to your instructor for further
or other instructions.

 This module must be returned after the end of the

semester

 If lost, the holder of this module will pay its equivalent

value.

If this module is lost and found, please return to

EASTERN SAMAR STATE UNIVERSITY

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 UNIT 1
OVERVIEW OF BUSINESS
POLICY AND STRATEGY

INTRODUCTION:

Strategic management, in the field of management, entails the

formulation and implementation of key goals and initiatives by an
organization's managers on behalf of stakeholders, based on resource
considerations and an assessment of the organization's internal and
external surroundings. Strategic management gives an organization's
overall direction and include defining the organization's goals, formulating
policies and plans to attain those goals, and assigning resources to put the
plans into action.

LEARNING OUTCOMES:

At the end of this unit, you are expected to:

1. State the fundamental concepts of business policy and strategy;

2. Identify policies based on its different categories; and
3. Discuss the different approaches in forming a strategy.

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 I. BUSINESS POLICY
AND STRATEGY

LESSON 1: WHAT IS BUSINESS POLICY?

Enable for an organization to succeed it needs to have a shared sense of

direction. This will serve as a guide in management’s decision and policy-making,
and influencing employees’ attitude towards work.

In doing so, with the constant changes in the corporate world, an

organization has to adopt strategic management concepts and principles that are
considered vital in fostering competence, effectiveness and efficiency among all
its members with the end goal of long-term survival.

It is, therefore, important to learn the fundamentals of business policy and

strategy not just to enrich one’s knowledge in this context but also to strengthen
one’s foundation in strategic management.

Business Policy

The word policy is derived from the word “politeia” which means policy or
government. In the context of business, policy refers to the statements of the
organization that are framed in light of its objectives with respect to its operations.
Business policy, on the other hand, deals with the responsibilities and functions
of senior management, the factors that affect its success and the decisions that
shape an organization’s future. The very nature of business policy depends on
the needs of the organization. It has the following characteristics:

1. Simple: A policy should be simple , clear and easily understandable to

ensure that it would be interpreted the right way.
2. Clear: The policy should be clear and not confusing.
3. Flexible: A policy isn’t a permanent one. It should be modified as the
need arises.
4. Certain: The policy should give confidence to the line managers by
making it concrete and definite.

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 5. Consistent: A policy should result to smooth actions by the
subordinates even when handling recurring problems.
6. Relevant: The policy should be in-line with the goals of the organization;
7. Comprehensive: A policy should be comprehensive so as to avoid line
managers from frequently approaching the top management;
8. Stable: A policy, though not intended to be permanent, should also be
relatiively stable so as to avoid uncertainties in actions .

Business policy also emphasizes the analytical context of strategic

management. It provides a framework for getting to know strategic decision-
making. The four most important processes in business policy are: (1)
environmental scanning, (2) policy formulation, (3) policy implementation and (4)
evaluation and control.

Policy, Procedure and Process

Policy, according to Ralph Devis, is “a statement of a principle or set of

principles, along with their accompanying norms of conduct, that conditions and
governs the fulfillment of particular business objectives.” Policy is an internal law
that governs the organization's administrative actions. The management's
objective is expressed in policy. It establishes the parameters within which
decision-makers must function. Policy is a type of planning that serves as a guide
for making administrative decisions and outlines how things should be done.

Procedures, on the other hand, refers to the processes required to

complete a task. A procedural statement is more explicit and concrete than a
policy declaration. It emphasizes the order in which a specific action is carried out.
Procedures are a set of instructions that must be followed in a specific order. For
example, each company has its own protocol for processing orders, collecting
payments, and providing after-sales assistance. Procedures are used to show
how ordinary tasks can be completed. They are the vehicles through which
choices are carried out. Procedures should be examined and changed on a
regular basis. This results in work simplification, rationalization, efficiency gains,
and cost savings.

The big picture is defined by a process. It emphasizes one of the most

important aspects of business: diversity. These elements are captured in a

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procedure, which also includes additional information regarding functional roles,
objectives, and methods–depth.

Types of Business Policies

The types of business policies could be classified according to the

following categories:

Top management or managers are in charge of

developing policies for subordinates. This policy's
objective is to provide guidelines for subordinates and
Originated
their job. For example, a marketing director may
Policy
develop policies and then delegate implementation to
lower-level executives. The policy devised by the
marketing director is known as the Originated Policy.
The Ministry of Labour develops labor policies that are
According to
Imposed binding on businesses. External powers, such as the
Nature of
Policy state or the federal government, impose policy. The
Origin
organization is bound by the policies.
When an unusual circumstance emerges, the manager
may make a request to his supervisor for assistance in
resolving the issue. The policies are designed to deal
Appealed
with the current unforeseeable scenario. The regular
Policy
formulation of appealed policies may obstruct work
performance. This appealed policy should be replaced
with the original policies to avoid this.
Management creates internal regulations that serve as
guidance for subordinates. It defines the rules and
Internal parameters that subordinates must follow. It creates
Policy realm for subordinates working. The examples of
According to internal policies are recruitment and selection policy,
Structure budgetary policy etc.
External External challenges are addressed with such policies.
Policy In response to environmental variables or influences,
organizations reform or frame new policy.

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 Basic Policy This refers to the company's overall ideology.The top
management sets the basic policies.
Major Policy These policies deal with the most important issues of
According to
the organization's. For example, a promotion policy or
Importance
a distribution policy.
Minor Policy Minor policies are established to deal with routine
issues and are decided by managers on the front lines
Top Long-term planning is usually covered by these
Management policies. The highest management level makes the
Policies decision. Budgeting and product launch, for example.
According to Upper Middle The departmental head decides on these policies.
Levels of Management Managers should, however, link minor rules to the
Management Policies organization's major policies when drafting them.
Middle These policies are created by the superintendent or
Management junior management. The policies could be about sales,
Policies financing,etc.
Normal Such policies are developed to guide employees in
Policy their day-to-day job. Because the future is unclear and
unpredictable, these policies serve as a guide for
employees.
According to Composite It is a policy that is created by merging all of the
Situation Policy policies that have been submitted by each department.
Each department sends its policy to the budget officer
who coordinates the preparation of the unified
statement. The term "Composite Policy" refers to a
policy statement that has been approved by the Board.

Table 1: Categories of Policy

Policy Statement

A policy statement, according to Business Dictionary, is "a formal

document explaining how a business plans to conduct its affairs and act in
specific circumstances." As to Collins Dictionary, it is a proclamation of an
organization's or government's aims and intentions. The expectations of the
organization for employee behavior are outlined in a policy statement. Workplace

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behavior can be divided into two categories: work behavior and personal
behavior. By creating a policy, the authoring and implementation of a policy
statement establishes expectations of employee behavior.

The following is an example of an organization’s policy:

Source : https://www.raymondcorp.com/about-us/quality accessed on 2.1.2018

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LESSON 2: WHAT IS STRATEGY?

The word strategy was noted to have entered in the field of management
due to the military services where they apply forces against an enemy in order to
win a war. The word “strategy” was first used in 400 BC, is of Greek origin, and
derived from the word “strategos” which means Generalship.

In management, strategy, as a concept, is taken in broader terms. Ignor

Ansoff, known as the Father of Strategic Management, stated that it is essential
to systematically foresee the future challenges that may confront an organization
and come up with appropriate plans that would respond to these identified
challenges. To Michael Porter, strategy is the creation of a valued and unique
position that involves a different activity from competitors.

To contrast with a view of strategy, McGill University's Henry Mintzberg

defined strategy as a pattern in a stream of decisions, while Henrik von Scheel
defines the essence of strategy as the activities to deliver a unique mix of value –
choosing to perform activities differently or to perform different activities than
competitors. According to Max McKeown (2011), "strategy is about creating the
future" and is the human endeavour to achieve "preferred aims with available
methods." Dr. Vladimir Kvint describes strategy as "a technique of locating,
establishing, and developing a philosophy that, if rigorously followed, will ensure
long-term success."

The following are the approaches to forming a strategy:

1. Internally-Driven Organizations: Some organizations are internally-

driven which means that the strategies they are applying at present are
driven by what they have been doing in the past. However, this
approach has its downside as organization members fail to anticipate the
changes that are transpiring in the marketplace.
2. Customer-Driven Organizations: From the word itself, customer-driven
organizations are those that really listen to their customers. However,
just like internally-driven organizations, this approach has its own
downside, too, since organizations end up becoming “all things to all
people” when applying this type of approach.

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 3. Market-Driven Organizations: These organizations analyze which
markets will be served and the necessary ways on how to add value.

The Features and Characteristics of Strategy

The following are the features/characteristics of strategy:

1. Strategy is future-oriented. Strategizing entails foreseeing the future

enable to be ready for uncertain events that may happen in the business
environment.
2. Strategy focuses on long-term survival and developments rather than
routine operations;
3. Strategy prepares an organization for behaviors that may be observed
among customers and competitors;
4. Strategy oversees the internal and external factors that may affect an
organization;
5. Strategy gives a framework for an organization’s actions and thinking.

The Levels of Strategy

It is said that making strategic decisions is a primary responsibility of top

management. However, it is also considered useful to determine the levels of
operation of a strategy. Basically, there are three broad levels of strategy:

CORPORATE
LEVEL

BUSINESS
LEVEL

FUNCTIONAL
LEVEL

Figure 2: Levels of Strategy

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 As presented in the figure 2, the functional level of strategy falls on the
lowest part of the pyramid followed by business level strategy and corporate level
at the topmost part.

The functional level strategy is primarily concerned with how the

business-level strategy could be supported to improve the company’s
effectiveness in its operations within departments.

Business level strategy tends to be the most familiar strategy which

answers the following questions:

1. How do we compete?
2. How do we gain competitive advantage and how do we sustain it?

Corporate level strategy is concerned with decisions about the

organization’s scope and direction as a whole. This level of strategy is usually
seen on multinational enterprises.

LESSON 3: MINTZBERG’S 5 P’S OF STRATEGY

In 1987, Henry Mintzberg published his first article on the 5 Ps of strategy.

Various sorts of strategic thinking and approaches are required, according to him,
depending on the scenario and conditions. These could be linked and compatible.

Strategy is more than just a plan for dealing with an adversary, a group of
competitors, or a market. It also touches on some of the most fundamental
challenges surrounding organizations as tools for collective perception and action.

Mintzberg claimed that formulating a strategy that ignores competitor

reactions or fails to consider the organization's culture and capabilities is
pointless.

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 The 5 P’s of strategy as suggested by Mintzberg are:

1. Plan: We have a natural ability to plan things out. As a result, this is the
default, automatic method used. This entails generating ideas and
devising a strategy for capitalizing on the opportunity. Strategy has two
key elements, according to this definition: a) They are developed
deliberately and purposefully in advance of the activities to which they
apply. b) They are developed in advance of the actions to which they
apply.
2. Ploy: A Ploy is a specific ‘maneuver' designed to outwit a competition or
opponent. As part of a strategy, it entails plotting to disrupt, dissuade,
discourage, or otherwise affect opponents.
3. Pattern: Both strategic plans and ploys are planned actions. However,
strategy can sometimes be derived from historical organizational
behavior. A consistent and successful style of doing business might turn
into a strategy rather than being a conscious choice. As a result, simply
defining strategy as a plan is insufficient. We also require a definition
that considers the resulting behavior. As a result, the concept of strategy
as a "pattern" emerges. By this view, strategy is the intentional or
unintentional consistency of behavior.
4. Position: Another term for strategy is "position," which refers to how you
chose to position yourself in the marketplace. In this approach, strategy
aids in the exploration of the fit between your organization and its
surroundings, as well as the development of a long-term competitive
advantage.
5. Perspective: This strategy is centered on how a company views its
surroundings, including customers, competitors, and the environment.
As a result, they conduct their business and deal with circumstances in
this manner.

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ASSESSMENT:

Activity 1: Application

1. Assume that you are a CEO of a company. Craft a policy statement

relevant to the company that you are managing. Make sure to indicate
the name and nature of the business before you present your company
policies.

Activity 2: Answer the following through an essay

1. What are the drawbacks for customer-driven organizations when It

comes to forming strategies?
2. Comment on the following authors’ definition of strategy and highlight
some points of comparison: Mintzberg Henrik von Scheel, Max
McKeown, Dr. Vladimir Kvint

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 UNIT 2
THE RUDIMENTS OF STRATEGIC MANAGEMENT

INTRODUCTION

Strategic management is known for helping managers steer a firm

towards the achievement of its desired future. Not only does it help in
ascertaining the direction of the organization but it also defines the courses
of action that have to be taken to realize its purpose along with the people
working with it.

Strategic management doesn’t solely focus on the role of managers

in the firm but it also gives importance to the functions of other actors or
players in the organization such as its people, finances, methods, customers
and all other stakeholders of the organization, helping it grow to a more
effective, efficient and competitive player in the industry it belongs to.

LEARNING OUTCOMES:

At the end of this unit, you are expected to:

1. State the fundamental concepts of strategic management;

2. Describe the benefits of strategic management;
3. Discuss the benefits and risks that are involved in strategic
management.

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 I. STRATEGIC MANAGEMENT:
ITS NATURE, DIMENSIONS,
BENEFITS AND RISKS

LESSON 1: THE NATURE AND DIMENSIONS OF STRATEGIC

MANAGEMENT

Nature of Strategic Management

Strategic Management may be defined as the art and science of

formulating, implementing and evaluating decisions that are important for the
achievement of organizational goals and objectives.

A number of authors have already studied and gave their own definition
of strategic management. Some of which are as follows:

According to Alfred Chandler (1962), strategic management is concerned

with the determination of the basic long-term goals and the objectives of an
enterprise, and the adoption of courses of action and allocation of resources
necessary for carrying out these goals.

This definition emphasizes three (3) basic elements namely, ascertaining

goals; adoption of courses of action; and allocation of resources enable to
achieve identified goals. This may be associated to the fact that strategic
management, in the early 1960’s was considered as a separate discipline.

It could also be observed that Chandler’s definition is quite simple and

does not necessarily capture the essence of strategic management

To Glueck and Jauch (1984), strategic management is a stream of

decisions and actions which lead to the development of an effective strategy or
strategies to help achieve corporate objectives.

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 As to Johnson and Sholes (2002), strategic management includes
understanding the strategic position of an organization, making strategic choices
for the future and turning strategy into action.

To Dess, Lumpkin and Taylor (2005), strategic management consists of

the analysis, decisions, and actions an organization undertake in order to create
and sustain competitive advantages.

The definitions given by Glueck and Jauch, and Johnson and Sholes,
when carefully analyzed, capture the three (3) elements that pertain to the heart
of strategic management namely, strategic analysis, strategic formulation and
strategic implementation, thus, strategic management is basically concerned with:

1. Analysis of a firm’s goals and objectives along with the environment,

both internal and external, that surrounds it;
2. Decisions on questions such as: (a) industry where a firm should
compete and (b) how the firm should compete within the industry to
effectively implement strategies
3. Necessary actions that should be taken such as allocation of sufficient
resources to translate strategies into reality. This also includes
evaluation and control to ensure that strategies are well implemented.

Strategic management definitely poses a challenge among managers to

make the right decisions on strategies to be formulated and executed that would
result to a long-term and sustainable competitive advantage. These are what the
real essence of strategic management is.

Though all of them talk about management, strategic management differs

from other aspects of management in terms of its nature. An individual manager
basically deals with problems that are operational in nature, thereby focusing on
daily problems that may be related to efficient goods production, sales force
management or financial performance monitoring. On the other hand, strategic
management involves other elements that are related to a firms desire for long-
term survival and realization of management goals.

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Dimensions of Strategic Management

Strategic Management has the following dimensions:

1. Leadership: Leadership is at the heart of effective strategic

management. “My responsibility is to describe reality and to convey
hope,” said Ken Chenault, CEO of American Express. Leaders challenge
assumptions, look at challenges in fresh ways, and develop and convey
a future vision. Leadership encompasses the following characteristics in
the context of strategic management: a) Leaders establish a clear and
consistent vision or "picture of the future" for the organization; b)
Leaders are proactive in preparing the organization for the future; c)
Leaders are visible and engaged to ensure that employees understand
the common vision and can translate it into terms that are relevant to
their roles; d) Leaders "walk the talk" in exemplifying the values, ethics
and policy; e) Leaders don't micromanage; instead, they trust and
encourage employees to contribute ideas and advance in their careers;
and f) leaders "walk around" and work alongside employees to promote
teamwork.
2. Culture and Values: A leader leads by example. This dimension covers
leaders' and employees' common understanding and agreement with
stated values, and it relates to the organization's culture and values.
Most businesses have a values statement that includes a list of moral
phrases. The extent to which those principles are communicated,
understood, and applied – by both the CEO and all employees – is what
defines maturity. The following are examples of mature workforce culture
and values: a) leadership's intelligent application of change management
ideas and practices; b) the level of employee ownership in the
organization's vision and values; c) their level of involvement in shaping
the organization's culture and ways of working; d) the level of trust,
transparency, and freedom to communicate openly, as opposed to a
culture of fear and denial; e) the level of flexibility and willingness to
change to align with new strategic priorities.
3. Strategic Thinking and Planning: The process of developing a
strategy is not a "cookbook". It's a difficult heuristic exercise that
necessitates strategic thinking. There are various characteristics that go
into strategic thinking: a) the ability to use consistent definitions of

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 planning terms and understand their distinctions; b) awareness of the
differences between project planning and strategic planning; c) the ability
to discuss and describe items in plans at the appropriate "strategic
altitude"; d) awareness of the dynamic system effects in organizations,
such as delays and feedback; e) openness to new ideas and
encumbrances; f) openness of the planning process to a group of
employees of diverse levels and roles; g) degree of consideration of
alternative strategies and scenarios; h) linkage of strategic planning to
budgeting; I capacity to write and communicate clearly and simply. The
strategic planning documents of the company provide evidence of the
degree of strategic thinking.
4. Alignment: Strategic alignment, or the degree to which the
organization's people and resources are focused on the strategy, is
referred to as alignment. The polar opposite of alignment is "chaos,"
which occurs when management, programs, and projects all have
separate goals and lack a shared vision, resulting in wasted resources,
delays, conflict, and misunderstanding. Values, vision, mission, strategic
plans, budgets, policies, procedures, functions, themes, objectives,
information standards, and organizational structure are all elements that
might be aligned.
5. Performance Measurement: Managers are "flying blind" without
performance metrics or measures. As a result, most firms have learnt to
measure some items, whether for operational success or compliance
with external stakeholder obligations. Strategic performance measures
or metrics, on the other hand, are tied to the strategic plan – not simply
day-to-day operations and outputs, but strategic results that match with
the organization's goal.
6. Performance Management: It's one thing to collect data; it's quite
another to put it to good use. The degree to which performance
measures are used in decision making is called performance
management.
7. Process Improvement: Strategic management's job is to figure out
which processes in our entire portfolio are in desperate need of change
(doing the right things). This necessitates input from the strategy, which
guides resource allocation for near- and long-term improvements to the
most strategically significant processes.

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 8. Sustainability of Strategic Management: The organization's strategic
management is defined by: a) how well it keeps its focus on its strategic
vision, plans, and initiatives; b) the people, systems, and communication
activities in place to keep the momentum of desired change going; c) a
sense of urgency among the staff and workforce; and d) reward and
recognition systems that support efforts to.

LESSON 2: THE NEED FOR STRATEGIC MANAGEMENT AND ITS

BENEFITS

The Need for Strategic Management

A business operates better when it follows a road-map. This road-map,

which is strategic management, provides direction for the firm and helps it
become aware of certain decisions’ implications. It also offers a systematic way
of addressing uncertainties and effectively adapting to changes in the internal
and external environments that may affect a firms operations.

Through the involvement of management and employees in the process,

they become more committed in helping the organization reach its objectives and
take it to greater heights. This process becomes not only a learning activity but
also a supporting and educating one.

An increasing number of organizations employ strategic management for

the following reasons:

1. Rather than being reactive, strategic management helps a firm become

more proactive in shaping its future;
2. It helps the firm utilize its resources efficiently;
3. It helps prepare the firm for anticipated changes;
4. It helps firms to respond better to environmental changes;
5. It provides clearer objectives and direction for all members of the
organization; and
6. It minimizes the possibilities of mistakes and unpleasant occurrences.

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The Benefits of Strategic Management

Firms need strategic management to enjoy the benefits of business

opportunities, address the threats, and stay ahead of the competition. Some of
the benefits of strategic management are as follows:

1. It reduces uncertainty. Planning leads the managers to look ahead,

anticipate possible changes and develop appropriate courses of action
and even consider the risks that may be associated to it;
2. It facilitates control. Planning encourages every employee in all
departments to move in one direction towards the same goals;
3. It facilitates measurement. By setting out standards based on identified
objectives, planning provides good basis for measuring actual
performance.
4. It results to financial benefits. Research indicates that strategic
planning results to more profit and higher chances of success than firms
that do not. Business establishments that have used strategic
management were noted to have have shown improvement in terms of
sales, profitability and even productivity.
5. It gives non-financial benefits: Strategic management also leads to
non-financial benefits such as:
a) Better awareness of threats;
b) Better understanding of tactics employed by competitors;
c) Preparedness for change;
d) Enhanced prevention of problems;
e) Increased interactions among all management levels;
f) Increased discipline and order.

LESSON 3: THE RISKS INVOLVED IN STRATEGIC MANAGEMENT

Complex as it is, the strategic management process takes an organization

into an unchartered territory that allows it to explore more options and
possibilities in addressing questions and solving problems.

Strategic management does not give an assurance for success as it has its
own limitations. When done haphazardly, it can be dysfunctional and may even
result to bigger conflicts. The following are some of its limitations:

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 1. Planning takes a lot of time to finish and managers are expected to
devote their time onto it. Being away from their normal tasks for a long
time may result to negative effects.
2. Non-fulfillment of the tasks expected from the participating managers
may lead to disappointments and frustrations;
3. Negative effects may arise if managers involved in the process are not
intimately involved in the execution of the strategies.

Fred R. David noted some pitfalls that need to be avoided in strategic

planning:

1. Taking advantage of strategic planning to control over decisions and

resources;
2. Complying with strategic planning just to satisfy regulatory and
accreditation requirements;
3. Moving too hastily to strategy formulation from mission development;
4. Failing to communicate the plan to employees who seem to be working in
the dark continuously;
5. Conflicts in the formal plan due to management’s intuitive decision-
making;
6. Lack of support from top managers in the strategic planning process;
7. Failing to use the plan as basis in measuring performance;
8. Delegating the planning to a consultant instead of letting the managers
do it;
9. Failing to involve other key employees in the planning planning phase;
10. Failing to foster a collaborative climate;
11. Viewing planning as an unnecessary process;
12. Being engrossed in problems where no planning has been done;
13. Compromising creativity due to formalities.

How to Manage Risks

The following are deemed necessary to manage risks in an organization

which should be integrated or incorporated to the firm’s planning and execution
process:

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1. Defining business strategies and objectives: There are several
strategies that could be used in planning out a strategy which may come
in the form of a SWOT analysis or holistic scorecards. No matter what
framework is used by the management, it must be able to properly
determine risks and the necessary actions that should be employed as
these risks arise. Therefore, it is crucial that the management is able to
integrate these risks in the planning process.
2. Establishing key performance indicators (KPI’s) in measuring
results: Good KPI’s are those that can offer ideas as to how a company
can improve the performance of the organization. Therefore, KPI’s
measure a firm’s historical performance.
3. Identifying risks that can result to vulnerabilities or inconsistencies
in performance: These are unknown but projectable events that may
have an impact to the performance of the organization such as future
customer demands.
4. Establishing key risk indicators (KRI’s) and levels of tolerance for
risks that are identified as “critical”: The organization should identify
possible barricades that may hinder its performance. Compared to KPI’s,
KRI’s are futuristic or forward-looking indicators.
5. Providing integrated monitoring and reporting: The company should
monitor, on a continual basis, the KRI’s and results enable to mitigate
risks or address unpleasant surprises or grasp opportunities as they
arise.

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ASSESSMENT:

Activity 1: Modified TRUE or FALSE. In the space provided, write TRUE if the
statement is correct and FALSE if not.

_________1. Strategic management reduces uncertainty.

_________2. KPI’s are futuristic or forward-looking indicators
_________3. Strategic alignment results to chaos.
_________4. Performance metrics do not matter in strategic management.
_________5. Being engrossed in problems where no planning has been done is
one of the pitfalls that should be avoided in strategic planning.
_________6. KRI’s measure a firm’s historical performance.
_________7. In any organization, it is important that leader' and employees'
have a common understanding and agreement with stated values
_________8. Strategic Management is reactive.
_________9. A business functions better when it follows a road-map.
_________10. Strategic management process starts with evaluation

Activity 2: Answer the following through an essay.

1. How does strategic management result to financial and non-financial benefits?

2. Comment on Chandler’s definition of strategic management.

26
 UNIT 3
THE STRATEGIC MANAGEMENT PROCESS

INTRODUCTION:

Defining a process for managing an institution's strategy will assist

organizations in making rational decisions and promptly developing new
goals in order to stay up with changing technology, market, and business
situations. As a result, strategic management can assist a company in gaining
a competitive advantage, increasing market share, and planning for the
future.

The strategic management process which involves environmental

scanning, strategy formulation, strategy implementation and evaluation, gives
an idea as to how managers could formulate the best strategies for the
organization in consideration of the assessment of its environment, its current
resources, competition in the industry, its strengths and weaknesses, and
how these could be evaluated so as to make the necessary corrective
actions.

LEARNING OUTCOMES:

1. State the rudiments of strategic management;

2. Enumerate the processes involved in strategic management and the
salient information in each phase of the process;
3. Apply the different techniques in scanning the business environment

27
 I. ENVIRONMENTAL
SCANNING

LESSON 1: WHAT IS ENVIRONMENTAL SCANNING?

The Meaning of Environmental Scanning

“Environmental Scanning” is defined as “identifying and assessing

environmental impacts individually and collectively to determine their possible
effects on an organization and the resulting problems and threats”.

-William F. Glueck.

There is an internal and external environment for every company. Social,

economic, legal, technological, and other variables all have an impact on
businesses. Environmental scanning makes it possible to gather data on
prominent trends, patterns, events, and linkages that could have a negative
impact on the business in order to identify future possibilities or dangers. It is
critical for the organization's performance that it scans its environment on a
frequent basis. This way, the organization is able to keep track of their exterior
and internal environments and foresee their impact toward the organization.
This ultimately assists the management team in making well-informed judgments.

Figure 1: The Process of Environmental Scanning

28
 Environmental scanning should be used to detect opportunities and
threats in the organization's surroundings, as shown in the diagram above. After
these have been recognized, the company can devise a strategy to maximize
opportunities while limiting dangers.

Characteristics of Environmental Scanning

The following are the characteristics of environmental scanning:

1. Continuous Process: Rather from being sporadic, environmental analysis is

a continual activity. To stay on track, the quickly changing environment must
be documented on a regular basis.
2. Exploratory Process: Environmental scanning is an exploratory process
that involves continuously examining the surroundings in order to uncover
future possibilities and unknown aspects. It emphasizes the phrase "what
could happen," rather than "what will happen."
3. Dynamic Process: Scanning the environment is not a one-time event. It is a
dynamic process that is affected by changing circumstances.
4. Holistic View: Environmental scanning focuses on getting a whole picture of
the environment rather than just a partial picture.

Importance of Environmental Scanning

The environment in which the firm operates allows it to move and function
smoothly, consistently, and continually. Environmental analysis allows a
company to identify its strengths, weaknesses, opportunities, and risks in this
situation. A firm's ability to design efficient strategies in various areas of its
responsibilities is aided by proper environmental evaluation or analysis.

The following points suggest some importance of environmental scanning:

1. Identification of Strengths: The internal environment study aids in

identifying the firm's strengths, and every company makes every effort to
maintain and increase its strengths. Every organization, for example, will look
at how we keep skilled and dedicated personnel.
2. Identification of Weaknesses: The business analysis provides insight into
the company's weaknesses. The flaws act as roadblocks in the development

29
 process. As a result, every company seeks to identify its flaws and works to
improve them.
3. Identification of Opportunities: The majority of opportunities are found
outside of the company. As a result, external environment analysis aids in
identifying and utilizing business benefits. Businesses make the same efforts
to seize those chances. For example, if the government offers concessions
or subsidies, businesses may reduce the price of their products and gain a
significant advantage.
4. Identification of Threats: Competitors, rivals, and others may pose a threat
to the company. As a result, environmental analysis assists in identifying
hazards and assisting in defusing them before they have an impact on the
organization or its operations.
5. Effective Planning: Environmental scanning aids businesses in developing
efficient plans. The planning serves as the business's guidance, thus it must
be error-free. Environmental analysis accomplishes this while also assisting
businesses.
6. Survival and Growth of Business: Any company's primary goals are to
survive and grow. The existence of business has no purpose until these two
goals are met. As a result, the environment analysis verifies the existence of
the two objectives and the business unit that corresponds to them.
7. Facilitates Organizing of Resources: Different resources are required by
different business divisions, including natural, physical, and human resources.
There are a finite number of resources available. As a result, it should be
taken with caution. The examination of the environment allows businesses to
organize all of these resources in the most efficient and logical way possible.
8. Flexibility in Operations: A study of the environment allows a company to
change its actions in response to changing circumstances.
9. Corporate Image: The term "corporate image" refers to the process of
forming a mental image of a company in the minds of customers. Because of
the environmental study, the business's overall performance has improved,
and as a result, the company's image has improved among all stakeholders,
including customers, dealers, and suppliers.
10. Motivation to Employees: Employees in the firm are motivated as a result
of environmental analysis, which has resulted in good judgments, enhanced
performance, and the implementation of new HR policies.

30
LESSON 2: COMPONENTS OF THE BUSINESS ENVIRONMENT

A business organization's environment can be divided into two types: the

external environment and the internal environment and both of these have
various dimensions.

Figure 2: The Business Environment

As presented in the figure above, an organization's internal environment

comprises of a variety of aspects such as its value system, mission/objectives,
structure, culture, personnel quality, labor unions, technical capabilities, and so
on. These factors are found throughout the organization, and any modifications to
them can have an impact on the company's overall success.

Moreover, an organization cannot function in a vacuum. Other factors

outside of an organization's boundaries have an impact on its operations. These
elements make up an organization's external environment.

These two environments could further be categorized into micro

environment and macro environment. Micro environment refers to an
organization's immediate surroundings and has a direct impact on it on a daily

31
basis. As a result, it's often referred to as the task environment. It is critical for a
company to keep track of and assess all aspects of its micro environment, such
as customers, competitors, and so on. On the other hand, macro environment
outside the enterprise's control and influence, but it has a significant impact on its
operations. It also includes a variety of elements such as people, organizations,
and other factors that influence a company's operations. We shall concentrate on
the demographic environment in this paper.

LESSON 3: ENVIRONMENTAL SCANNING TECHNIQUES

Scanning the environment is so basic and strategic that strategic

management swears by it. Without environmental scanning, it is nearly
impossible for an organization to track possibilities and dangers, as well as
formulate and implement future-oriented strategies.

Environmental scanning reveals a slew of concerns that have an impact

on the company. As a result, there is a deluge of knowledge about various
aspects of the environment. Environmental scanning can be done using a variety
of approaches and techniques. Various strategies and approaches are used by
the organizations to monitor the environment and collect data in order to derive
information about the opportunities and hazards that affect their business.

The following are some of the most common environmental techniques

used by businesses:

1. Environmental Threat and Opportunity Profile Analysis (ETOP): ETOP is

a technique developed by Glueck which is considered to be a useful
instrument for assessing environmental information and identifying the
relative importance of external environment risks and opportunities in order
to systematically evaluate environmental scanning. The ETOP analysis aids
in examining the impact of the environment on the organization by splitting it
into several areas. The study is focused on environmental hazards and
possibilities.

Environmental factors that are considered in the conduct of ETOP

analysis are presented in Table 2.

32
 FACTORS MAY INCLUDE
Political International trade, taxation policies
Economic Exchange rates, interest rates, inflation, national
income, unemployment, stock market
Social Ageing population, attitude towards work, income
distribution
Technological New product development, rate of technological
obsolescence, innovation,
Environmental Global warming and other environmental issues
Legal Competition laws, employment laws, health and safety
regulations

Table 2: Factors that may be identified in ETOP Analysis

Shown above are the different factors that may be identified in conducting an
ETOP analysis. These factors are known as political, economic, social,
technological, environmental and legal. Alongside these factors are the variables
enumerated in the second column of the table.

Example: MIILIPORE COMPANY LTD, India

ABOUT MILLIPORE

Millipore is a high-tech, bioscience international corporation that develops

and manufactures innovative therapeutic pharmaceuticals by providing
technologies, tools, and services. Bedford, England is the company's
headquarters. It caters to the biotechnology, pharmaceutical, and life science
research businesses all around the world. Its sister company in India was based
in Bangalore.

PRODUCT LINE OF MILLIPORE

Life science, Bio production, Sample preparations, Lab water, Drug

discovery, Process development,& Process monitoring.

33
 ETOP PROFILE OF MILLIPORE
A.
FACTORS NATURE OF IMPACT OF EACH SECTOR
IMPACT

Political No significant change

Fluctuations in exchange rates;

Economic Increasing rate of inflation
Worsening economic conditions

Social No significant change

Better solution providers; Strong R&D

Technological
programs

Legal Strict IPR laws

Downfall in demand due to low-priced

Demand
products

Governmental No excise duty

Policies

Table 3: Environmental Factors of Millipore

Upward arrows indicate a favorable

impact

Downward arrows indicate a favorable

impact

Horizontal arrows indicate neutral impact

34
B. Threat Matrix

Competition due to low-priced products Weak IPR laws

Concentration on BIG FISHES Not well-defined patent laws

Expensive products Lack of geographical division

Unsatisfied customers due to bad Poor networking
rapport Low marketing investments

Table 4: Sample Threat Matrix for Millipore

As seen in Table 4, the threats are arranged according to its impact

(major or moderate); probability of occurrence (high or low) and attractiveness
(high or low). The manner of presenting these could be based on the guide below

MAJOR MODERATE
THREAT THREAT

MODERATE MAJOR
THREAT THREAT

HIGH LOW

PROBABILITY OF OCCURRENCE

Figure 3: The Threat Matrix

35
C. Opportunity Matrix

Brand value Customized protocol support

Brand awareness Dedicated service team
Special Offers

Large installation base Far saturation points of market

New low budget product lines Opening of new markets

Table 5: Sample Opportunity Matrix for Millipore

As seen in Table 5, the opportunities are arranged according to its i

probability of occurrence (high or low) and attractiveness (high or low). The
manner of presenting these could be based on the guide below.

LESS MODERATE
ATTRACTIVENESS ATTRACTIVENESS

MODERATE LESS
ATTRACTIVENESS ATTRACTIVENESS

HIGH LOW

PROBABILITY OF OCCURRENCE

Figure 3: The Opportunity Matrix

36
2. SWOT Analysis: SWOT analysis is a corporate environment analysis that
looks at the strengths, weaknesses, opportunities, and threats. Internal
variables such as strengths and weaknesses are considered internal factors,
whilst exterior factors such as threats and opportunities are considered
external factors. As a result, the SWOT analysis method entails a systematic
examination of these aspects in order to design a successful marketing plan.
It is a tool that the business employs for auditing purposes in order to identify
its many significant problems and difficulties.

INTERNAL

STRENGTHS WEAKNESSES
Are characteristics of a firm which Are characteristics of a firm which
gives it an advantage over the makes it disadvantageous with
others respect to comeptitors

OPPORTUNITIES THREATS
Elements in a firm’s external Elements in a firm’s external
environment that allow it create environment that may pose danger
strategies that would make a in the profitability and integrity of
business thrive more the firm

EXTERNAL

Figure 4: SWOT Analysis

Strengths: Any organization's strength is determined by its core capabilities,

which include efficient resources, technology, talents, and competitive
advantages. A firm's marketing skills, for example, can be an asset. Aside from
that, an organization's strength can come in a variety of forms such as: market

37
leader in its products or services; strong customer relations; sound market image
and reputation and smooth cash-flows

Weaknesses: An organization's weakness or limitation is tied to a paucity of

resources, personnel skill sets, or skills that has a negative impact on its
performance. Limited cash flow and excessive costs, for example, are regarded
financial weaknesses of the company. Other flaws, on the other hand, can be
numerous which may include: Low productivity; poor brand image; poor product
quality.

Opportunities: The most beneficial position in the organization's

surroundings is called an opportunity. These are conditions that are not related to
the business but can benefit the organization. Social media, for example, can
provide several chances for a company. Others may include: Tapping new
markets; merger or acquisitions; expansion to the international market; new
product development

Threats: An organization's threats are existing or potential negative events in

its external environment. For example, consider the following big challenges to a
company: slow growth in the market; changing customer preferences; increasing
bargaining power of consumers; changes in regulations.

3. PEST Analysis: Analysis of political, economic, social, and technical

components of the environment is included in the PEST technique for a firm's
environmental scanning, thus the acronym.

POLITICAL ECONOMIC
FACTORS FACTORS
PEST
ANALYSIS
SOCIAL TECHNOLOGICAL

FACTORS FACTORS

Figure 5: PEST Analysis

38
 Political/Legal Factors: Various factors, such as changes in tax policy,
raw material availability, and so on, have a direct impact on a corporation. Since
a result, businesses must keep a close eye on tax policy changes, as a rise in tax
might put them under even more financial strain. Similarly, several laws such as
play a significant role in an organization's operating operations because it is
necessary to follow the act.

Economic Factors: Economic factors such as the unemployment rate,

inflation, labor costs, economic trends, consumer disposable income, monetary
policies, and so on all play a part in environmental scanning.

Social/Cultural Factors: The organization's functioning is also influenced

by societal attitudes, trends, and behavioral factors. To target the proper
audience and deliver the right product or service based on their preferences, it's
critical to research and understand their lifestyles.

Technological Factors: Technological variables have an impact on how

businesses create and promote their goods and services. One of the main
aspects of a technological environment is "processes based on new
technologies." Production should be managed as cost-effectively as possible to
maximize revenues, and technology plays a significant role in this.

There are more techniques that could be used in environmental scanning

other than those enumerated in this lesson such as PEST/STEP/PESTLE/STEEP
Analysis,

LESSON 4: ASSESSING INDUSTRY ATTRACTIVENESS AND THE

COMPETITIVE ENVIRONMENT

Using some well-validated concepts and analytical techniques to generate

clear answers to seven questions about a company's industry and competitive
environment is part of strategic thinking.

Question 1: What are the Industry’s Dominant Economic Characteristics?

Identifying the industry's dominant economic characteristics is the first

step in analyzing a company's industry and competitive environment.

39
 Economic Characteristics Questions to Answer
Market Size and Growth Rate  How fast is the industry growing?
 How big is the industry?
 What does the industry’s position in the life
cycle reveal about the industry’s growth
prospects?
Scope of Competitive Rivalry Is the market in which most businesses compete
local, regional, national, multinational, or global?
Demand-Supply Conditions  Is the surplus of capacity pushing profit
margins and prices down?
 Are there many competitors in the market?
Market Segmentation Are there different product qualities or client
wants, needs, or preferences that divide the
market into different segments?
Pace of Technological  What does technology play in the industry?
Change
 Do the majority of industry participants have
or require significant technological
capabilities? Why?

Table 6: What to Consider in Identifying an Industry’s Dominant Economic

Features

Question 2: How Strong are the Industry’s Competitive Force?

Following a thorough understanding of the industry's broad economic

characteristics, industry and competitive analysis should concentrate on the
industry's competitive dynamics. The five-forces model of competition, which
holds that competitive forces affecting industry attractiveness go beyond rivalry
among competing sellers and include pressures from four coexisting sources, is
the most powerful and widely used tool for assessing the strength of the
industry's competitive forces.

40
 The Five (5) Forces Model of Competition

Porter's Five Forces analysis is a framework for assessing the amount of

competition in a particular industry. It's extremely helpful when beginning a new
company or entering a new field. Competitiveness does not come solely from
competitors, according to this theory. Rather, the threat of new entrants, supplier
negotiating strength, buyer bargaining power, threat of replacement products or
services, and existing industry rivalry all influence the status of competition in a
given business.

Figure 6: Porter’s 5 Forces Model of Competition

Threat of New Entrants

Newcomers to an industry bring with them new capacity and a drive to

obtain market share. The severity of the threat is determined by the barriers to
entry into a particular industry. The lower these entry barriers are, the less threat
established players face. The need for economies of scale, high customer loyalty
for existing brands, huge capital requirements (e.g. large marketing or R&D
investments), the need for accumulated experience, government laws, and
limited access to distribution channels are all examples of barriers to entry.

41
Bargaining Power of Suppliers

This force examines how much influence and control a company's

supplier (also known as the inputs market) has over the ability to raise prices or
diminish the quality of purchased goods or services, lowering an industry's
profitability potential. The availability of substitute suppliers and the concentration
of suppliers are crucial factors in determining supplier power. They have more
power the fewer there are. When a company has a large number of suppliers, it is
in a better position.

Bargaining Power of Buyers

The market of outputs is another term for purchasers' bargaining power.

This force examines the extent to which customers can exert pressure on the
company, which has an impact on the customer's price sensitivity. Customers
have a lot of power when there aren't many of them and they have a lot of options
to choose from. Furthermore, switching from one company to another should be
simple for them. Customers' purchasing power is minimal when they buy little
amounts of things, act independently, and the seller's product is extremely
different from any of its competitors.

Threat of Substitute Products

Customers are more likely to move to alternatives when products are

outside of the realm of the conventional product boundaries. To find these
options, one must go beyond similar products with different branding from
competitors. Rather, every product that fulfills a similar need for buyers should be
considered.

Rivalry Among Existing Competitors

The fifth and final force in Porter's Five Forces analysis looks at how
fierce the current market competition is, which is defined by the number of
existing competitors and what each competitor can accomplish. When there are
many competitors of nearly comparable size and power, when the industry is
slowing down, and when customers may simply move to a competitor's offering
for little cost, rivalry is intense. The concentration ratio of an industry is a solid

42
measure of competitive competition. The smaller this ration, the more severe the
competition is likely to be. When rivalry is high, competitors are more inclined to
engage in aggressive advertising and price wars, which can affect a company's
bottom line. Furthermore, when exit obstacles are high, competitiveness will be
more intense, encouraging enterprises to stay in the industry even though profit
margins are dropping. Long-term credit agreements and large fixed costs are
examples of departure obstacles.

Question 3: What are the Industry’s Driving Forces of Change and What
Impact Will They Have?

The intensity of competitive forces and the desirability of an industry are

almost always fluid and changeable. Understanding the present competitive
dynamics of the sector is critical for strategy makers.

The Concept of Industry Driving Forces

Because factors entice or pressurize specific industry participants

(competitors, customers, and suppliers) to change their actions in significant
ways, industry and competitive conditions change. Driving force analysis

1. Identifying an Industry’s Driving Forces;

2. Assessing the Impact of Industry Forces;
3. Determining Strategy Changes That are Needed to Prepare for the
Impact Posed by the Driving Forces.

Question 4: How are the Industry Rivals Positioned?

Companies competing in an industry are naturally divided into strategic

groups based on price/quality ranges, distribution methods, product attributes,
and geographic coverage due to the nature of competitive strategy. Strategic
group mapping is the most effective method for revealing industry competitors'
market positioning. This analytical tool is excellent for evaluating industry
competitors' market positions or grouping industry competitors into similar
positions.

43
Question 5: What Strategic Moves Are Rivals Likely to Make Next?

Competitive intelligence on rivals' strategies, recent actions and

announcements, resources and organizational capabilities, and executive
thinking and leadership styles is useful for forecasting what strategic moves
competitors will make next.

Question 6: What are the Industry Key Success Factors?

The key success factors (KSFs) of an industry are the competitive

elements that have the most impact on its members' ability to succeed in the
marketplace. Specific strategy aspects, product features, resources, competitive
competencies, and intangible assets may all be important success factors.

Question 7: Does the Industry Offer Good Prospects for Attractive Profits?

The results of the studies completed in Questions 1–6 are boiled down to
evaluate if the industry gives a company significant possibilities for attractive
earnings as the final stage in evaluating the industry and competitive environment.
When a firm determines that an industry is fundamentally appealing, it can make
a compelling argument for investing aggressively to capitalize on the
opportunities it sees.

44
ASSESSMENT:

Instructions: Read the case below and create a SWOT Analysis by writing all
the strengths, weaknesses, opportunities and threats that you can think of.
Present your SWOT analysis in a matrix form.

Vanessa owns and operates a business in Borongan City, Eastern Samar.

She oversees a group of persons with disabilities who produce pasalubong
items, both food and non-food items, and sell them to visitors through local
stores, paying them a minimal salary as well as a profit share. The food items are
truly of Boronganon origin and the non-food items are entirely handcrafted
according to Vanessa’s own designs, and they're unlike anything you'd see in a
tourist shop. Marites, who manages an established business that also make
pasalubong items and other tourist-friendly items, has noticed Vanessa’s unique
designs and their popularity with shoppers. Marites approaches Vanessa with the
proposal that she will buy the latter’s business, including her designs. Aside from
that, Marites wants Vanessa and her employees to work for her.

45
 II. STRATEGY
FORMULATION

LESSON 1: THE CONCEPT OF STRATEGY FORMULATION

The process of deciding on the appropriate course of action for achieving

organizational objectives and, as a result, achieving organizational purpose is
known as strategy formulation which comes after the firm has conducted an
environmental scan.

In strategy formulation, the managers develop corporate, business, and

functional plans that are all vital for the well-being of the organization or
company.

In the formulation phase of strategic management, the following three

components or levels of strategy development must be addressed, each with a
different focus. These levels of strategy have already been discussed as an
overview in the previous unit but will be discussed here more thoroughly.

1. Corporate Level Strategy: We are concerned with big decisions

concerning the scope and direction of the entire organization in this area
of strategy. Essentially, we analyze what changes should be made to our
growth aim and strategy for attaining it, as well as the areas of business
we are in and how they interact. It's helpful to consider three aspects of
company strategy:
a) Directional or Growth Strategy: (What should be our growth goal,
ranging from retrenchment to stability to varied degrees of
expansion, and how can we get there?)
b) Portfolio Strategy: (What should our line-of-business portfolio look
like, which implies rethinking how much concentration or diversity
we should have)
c) Parenting Strategy: (How do we allocate resources and manage
skills and activities throughout the portfolio - where do we place
specific emphasis, and how well do our different lines of business
integrate?)

46
 Furthermore, the corporate level strategy involves the following initiatives:

a) Taking the steps necessary to develop positions in several

businesses and achieve the proper level and type of diversification.
Making judgments about how many, what types, and which specific
lines of business the company should be in is an important part of
corporate strategy.
b) Taking steps to improve the company's overall performance by
diversifying its businesses.
c) Trying to figure out how to turn important cross strategic fits into
competitive advantages, such as transferring and sharing related
technologies, procurement clout, operating facilities, distribution
routes, and/or customers.
d) Establishing priorities in terms of investment.
2. Business Level Strategy (Competitive Strategy): This entails
deciding how the organization will compete inside each LOB or Strategic
Business Unit (SBU). The focus of the second part of a firm's strategy is
on how to compete successfully in each of the business lines that the
company has chosen to pursue. The main focus is on how to strengthen
and improve the company's competitive position in each of its business
areas. When a corporation can recruit customers and defend against
competitive forces better than its competitors, it has a competitive edge.
Companies want to develop competitive advantages that have some
sustainability.

Building unusually strong or distinctive competencies or

competitive advantage in one or more areas critical to success and
exploiting them to maintain a competitive edge over competitors is a
common component of successful competitive strategies. Higher
technology and/or product characteristics, better manufacturing
technologies and expertise, superior sales and distribution capabilities,
and better customer service and convenience are all examples of
distinguishing talents.

3. Functional Level Strategy: These more localized and shorter-horizon

strategies address how each functional area and unit will carry out its
functional activities in order to be efficient and productive with resources.

47
 Functional strategies are short-term operations carried out by each
functional unit of a corporation in order to accomplish the broader,
longer-term corporate and business objectives. Functional strategies are
distinguished from corporate and business level strategies by three
essential characteristics:
a) Greater specificity;
b) Shorter time horizon; and
c) Primary involvement of operating managers.

LESSON 2: BUSINESS VISION AND MISSION

A company's organizational purpose is defined by its vision and mission

statements. They constitute a "hierarchy of goals" when combined with objectives.

VISION

MISSION

GOALS

OBJECTIVES

PLANS

Figure 7: The Hierarchy of Goals

After examining the external and internal environment, a clear vision aids in
the development of a mission statement, which in turn aids in the creation of
strong objectives. Though the firm's vision, mission, and objectives all represent
its "strategic intent," each has its own unique features and plays a vital part in
strategic management.

Vision

“A mental representation of a feasible and desirable future condition of the

organization” is how vision is defined (Bennis and Nanus). It's "a powerfully
descriptive depiction of what a company aspires to be in the future." Top

48
management's objectives for the company's direction and emphasis are
represented through vision. Every company should create a vision for the future.
A well-articulated vision shapes an organization's identity, motivates managers,
and positions the company for the future.

“A vision articulates a picture of a realistic, credible, and appealing future for

the organization, one that is better in some crucial respects than what currently
exists.” As a result, vision not only acts as a backdrop for the formulation of a
firm's purpose and strategy, but it also encourages personnel to achieve it. A
well-conceived vision, according to Collins and Porras, has two essential
components:

1. Core Ideology; and

2. Envisioned Future

The organization's core ideology is founded on its enduring ideals (“what we

stand for and why we exist”), which are unaffected by environmental changes.
The envisioned future is made up of a long-term objective (what we want to be,
achieve, and create) that necessitates major change and advancement.

Example of a Vision Statement

The vision of Procter & Gamble is to be and be known as the top consumer
goods firm in the world.

Mission

The mission statement is a declaration of an organization's reason for

existing. It is an enduring statement of purpose that separates one organization
from others with similar missions. It provides a solution to the crucial question,
"What is our business?" For efficiently creating objectives and formulating
strategies, a clear mission statement is required.

49
Characteristics of a Mission Statement

The following are the characteristics of a good mission statement:

 Does not include monetary quantities, numbers, percentages, ratios, or

objectives; broad in scope;
 Does not exceed 250 words;
 Serves as an inspiration for the members of the organization (inspiring);
 Identifies what the products of the business or organization are for;
 Reveals the social responsibilities played by the organization.

Components of a Mission Statement

The following are the components of a mission statement:

Customers : Who are the customers of the firm?

Products or services : What are the firm’s products and services?
Markets : Where does the firm compete geographically?
Technology : Is the firm technologically up-to-date?
Concern for Survival, : Is the firm committed in achieving financial
Growth and Profitability soundness and growth?
Philosophy : What are the beliefs, aspirations, ethical
priorities and aspirations of the firm?
Self-Concept : What distinguished the firm from the others?
What is its competitive advantage?
Concern for Public Image ; Is the firm proactive in social, community and
environmental activities?
Concern for Employees : Does the firm give value to the employees

Example of a Mission Statement

Procter & Gamble will supply consumers across the world with branded
products and services of exceptional quality and value. As a result, customers will
reward us with industry leadership in sales, profit, and value creation, allowing
our people, shareholders, and communities to succeed.

50
Widely Used Approach in Developing Vision and Mission Statement

1. Select a few articles related to the statements and assign them to all
managers as background reading.
2. Request that managers draft a vision and purpose statement for the
company. These should then be merged by a facilitator or a committee of top
executives.
3. Write statements into a single document and send them to everyone
managers.
4. A request for changes, additions, and deletions is required next, as well as
includes a meeting to discuss the document's revisions.

The process of crafting a mission statement should foster an emotional

connection and sense of purpose between the firm and its personnel. An
emotional link is formed when a person personally identifies with a company's
core beliefs and actions, transforming intellectual agreement and strategy
commitment into a sense of mission.

Five (5) Benefits of Having a Clear Vision and Mission Statement

1. Ensure that all management and staff are on the same page.
2. Give instructions.
3. Create a focal point for all of the company's stakeholders.
4. Resolve differences of opinion among management.
5. Encourage all managers and staff to have a sense of shared expectations.

Goals and Objectives

Goals are the desired outcomes, whereas objectives are the particular
actions and measurable procedures that must be taken to accomplish a goal. To
be successful, goals and objectives must work together. You run the danger of
not achieving your aims if you set goals without specific objectives.

51
 Here are some key distinctions between goals and objectives:

Alignment and Order: Goals are set to achieve an organization's or

individual's mission, whilst objectives are created to achieve goals. As a result,
goals take precedence over objectives.

Scope: Goals are broad intentions that are frequently impossible to measure
in quantifiable units. Goals are broader than objectives, which are stated in terms
of specific actions.

Specificity: Goals are broad assertions of what should be accomplished.

They don't identify the tasks that must be completed in order to achieve them. On
the other hand, objectives are precise acts done within a specific timeline.

Tangibility: Objectives are specified in terms of quantifiable targets, whereas

goals are intangible and non-measurable. For example, while the aim of "great
customer service" is intangible, the goal of "reducing client wait time to one
minute" is measurable and contributes to the achievement of the main goal.

Timeframe: Goals are set to be achieved over a lengthy period of time,

whereas objectives are set for a shorter period of time. A goal is frequently
broken down into various objectives that are stretched out over several time
frames.

Language: The language used to describe goals is more conceptual,

whereas the language used to describe objectives is more creative.

Examples of Goals and Objectives

Company 1 Goal Build a membership base

Objective To have at least 500 members by December 2021

Company 2 Goal Identify and analyze market opportunities for

possible business ventures
Objective To identify 3 potential market opportunities by
November 2021

52
Company 3 Goal 1 To increase the number of visitors that come to our
Region
Objective 1: To develop a self-guided tour
guidebook to well-known agritourism facilities in
the region to educate visitors about our
agricultural resources
Objective 2: To develop tour itineraries design to
attract more motorcoach tours to the region

Goal 2 To increase visitor expenditures at the agritourism

facilities of the
Objective 1: To create directories of businesses
engaged in agritourism and have them installed in
visitor information centers as well as in villages
Objectives 2: To encourage farm operators to
open their farms to visitors for tours and/or to sell
their products to visitors

LESSON 3: STRATEGY ANALYSIS AND CHOICE

A large portion of strategy analysis and selection is making subjective

judgments based on empirical facts. This chapter covers essential principles that
can help strategists generate viable options, evaluate those possibilities, and
choose a course of action. As behavioral components of strategy formation,
politics, culture, ethics, and social responsibility are examined. The role of a
board of directors is discussed, as well as new instruments for strategy
development.

"Strategic management is not a box of tricks or a bundle of techniques. It

is analytical thinking and commitment of resources to action. But quantification
alone is not planning. Some of the most important issues in strategic
management cannot be quantified at all."

—Peter Drucker

53
 The goal of strategy analysis and selection is to identify various courses of
action that will best enable the company to achieve its mission and goals. The
firm's current strategies, objectives, and mission, as well as information from
external and internal audits, serve as a foundation for developing and analyzing
viable alternative strategies.

The Process of Generating and Selecting Strategies

Generating and selecting strategies involve the following process:

1. Create a manageable list of the most appealing alternative techniques;

2. Determine the advantages, disadvantages, trade-offs, costs, and benefits of
the strategies identified;
3. Identify and evaluate alternative strategies by involving the managers and
employees who earlier assembled the organizational vision and mission
goals and objectives and who took part in the internal and external audit.

 Internal Audit: An internal audit determines the organization's standing

within its industry in strategic management. This process, which typically
includes of at least one, if not a mix of, various analytical techniques, is
critical for establishing and maintaining a sustainable competitive edge.
The internal audit may include:
 GAP Analysis: A sort of internal audit that measures the difference
between the current state of the company and the desired state. A
gap between an organization's existing financial situation and its
desired financial position, for example, may occur. This could be as
a result of poor customer service, sales, or production.
Organizational leaders will set strategic objectives to close the gap,
such as new training methods or shelving a product that isn't selling,
depending on the reason and measure of the gap;
 SWOT Analysis (discussed in the previous Unit)
 Cultural Analysis: An analysis which assesses the organization's
current culture and identifies which areas need to change in order to
best support strategic goals. Employee surveys are frequently used
as part of a culture audit to determine whether employees believe
they are treated fairly by management and paid reasonably in
relation to their coworkers.

54
  Diversity Audit: A comprehensive examination of an organization's
hiring processes in relation to the diversity of its workforce. Audits
look at the workplace to see whether it's meeting legal requirements
and if it's achieving any goals related to diversity initiatives among its
employees. The audit is conducted by either an internal team or an
external contractor.
 External Audit: The goal of an external audit is to come up with a short
list of opportunities and threats that a company should be aware of. The
external audit does not try to produce an exhaustive list of every possible
aspect that could influence the firm; rather, it aims to identify essential
variables that provide actionable solutions, as the term finite suggests.
Firms should be able to respond to the elements either offensively or
defensively by devising strategies that take advantage of external
possibilities or mitigate the impact of prospective threats. The following
are the five main categories of key external audit:

 Economic Forces;
 Demographic, Social Cultural and Environmental Forces;
 Political, Legal and Governmental Forces;
 Competitive Forces; and
 Technological Forces

4. Consider and Discuss in a series of meetings the alternative strategies

proposed by participants;
5. Put into writing the proposed strategies; and
6. Rank the strategies

Comprehensive Strategy Formulation Framework

Stage 1: Input Stage

 Provides a summary of the basic input data required to develop strategies.

 Consists of the EFE Matrix, the IFE Matrix, and the Competitive Profile Matrix
(CPM)
 EFE Matrix: A strategic analysis tool that is used to assess a company's
external environment and identify its strengths and shortcomings. Both
tools are used to summarize the information obtained from the

55
 company's external and internal environment analyses, according to the
author.
 IFE Matrix: A tool for evaluating a company's internal environment and
revealing its strengths and flaws. The primary internal components in the
evaluation are strengths and shortcomings.
 Competitive Profile Matrix (CPM): The Competitive Profile Matrix (CPM)
is a tool that compares a company's strengths and shortcomings to
those of its competitors. The profile matrix identifies and compares a
company's top competitors based on industry vital success
characteristics.

Stage 2: Matching Stage

 Focuses on generating feasible alternative strategies by aligning key external

or internal issues /factors
 Techniques or tools may include:
 SWOT Matrix
 Strategic Position and Action Evaluation (SPACE): "A strategy to
hammer out an adequate strategic stance for a firm and its individual
business," according to the Strategic Position and Action Evaluation
Matrix (SPACE). SPACE is a four-dimensional portfolio study that
considers the company's competitive edge, financial strength, industry
strength, and environmental stability in the same way as a two-
dimensional portfolio analysis does.
 Boston Consulting Group (BCG Matrix): Designed to assist with long-
term strategic planning by examining a company's product portfolio to
choose where to invest, terminate, or develop items. The Growth/Share
Matrix is another name for it.
 Grand Strategy Matrix: The grand strategy matrix is a tool for
developing alternative and distinct organizational plans. Each of the
Grand Strategy Matrix's four strategy quadrants can be assigned to any
company or division. The competitive position and market growth are the
two elements of the Grand Strategy Matrix.
 IE Matrix: The IE Matrix is a nine-cell matrix that organizes an
organization's many divisions. The IE Matrix is a strategic management
tool that is used to assess the existing state of divisions and provide
future plans.

56
Stage 3: Decision Stage

 Involves the Quantitative Strategic Planning Matrix (QSPM), a strategic

management tool for assessing strategic choices and determining relative
strategy attractiveness. The QSPM method assesses which of the specified
strategic options is viable and prioritizes these possibilities.
 Provides an objective basis for picking certain methods by revealing the
relative attractiveness of various options.

57
ASSESSMENT:

1. Critique on the following vision statements:

 Amazon: “Our vision is to be earth’s most customer-centric company,

where customers can find and discover anything they might want to buy
online.”
 Avon: “To be the company that best understands and satisfies the
product, service, and self-fulfillment needs of women—globally.”
 IBM: “To be the world’s most successful and important information
technology company. Successful in helping our customers apply
technology to solve their problems. Successful in introducing this
extraordinary technology to new customers. Important because we will
continue to be the basic resource of much of what is invested in this
industry.”

2. Craft a vision, mission, goals and objectives statements for the following
companies:

 McDonald’s
 Jollibee
 Toyota

58
 III. STRATEGY
IMPLEMENTATION

LESSON 1: THE NATURE OF STRATEGY IMPLEMENTATION

The managerial task of putting a newly chosen strategy into effect is

known as strategy implementation. It is concerned with the managerial task of
overseeing the continual pursuit of strategy, putting it into action, increasing the
competence with which it is carried out, and demonstrating verifiable progress
toward the desired outcomes. Strategic implementation is concerned with putting
a strategic choice into action, assuming that the decision was made with some
consideration of practicality and acceptability. It will be necessary to allocate
resources, and the organization's structure may need to be adapted to
accommodate additional operations.

Successful strategy formulation is not a guarantee that strategies will be

implemented successfully. It is said that it is always harder to do something
(strategy implementation) than to plan for something (strategy formulation).

Strategy formulation is fundamentally different from strategy

implementation. These two could be contrasted in the following ways:

 Strategy formulation is positioning a firm’s forces before taking actions;

 Strategy implementation is managing a firm’s forces while in action;
 Strategy formulation focuses on effectiveness;
 Strategy implementation focuses on efficiency;
 Strategy formulation is basically an intellectual process;
 Strategy implementation is basically an operational process;
 Strategy formulation requires both good analytical and intuitive skills;
 Strategy implementation requires both leadership and motivation skills;
 Strategy formulation requires the coordination from a few individuals;
 Strategy implementation requires the coordination from many individuals.

59
 The figure below presents different combinations of strategy formulation
and implementation:

A B

C D

WEAK EXCELLENT
STRATEGY IMPLEMENTATION
Figure 8: Strategy Implementation and Formulation Matrix

The figure above shows the distinction between flawed/sound strategy

formulation and weak/excellent strategy implementation.

Square A describes a circumstance in which a corporation appears to

have developed a highly competitive plan but is having difficulty putting it into
action. This could be due to a variety of issues such as a lack of experience,
money, or leadership, among others. In this case, the corporation will attempt to
go from square A to square B, despite the fact that they are aware of their
implementation issues. Square B represents the ideal situation in which a
organization has successfully designed and implemented a sound competitive
strategy.

Square D is the situation wherein the strategy formulation is flawed but

the company is showing excellent implementation skills. When the company finds
itself in square D, the first thing they have to do is to redesign their strategy
before readjusting their implementation skills.

Square C denotes companies that have failed to come up with a sound strategy
formulation and are also inept at putting their flawed strategic model into action.
Their path to success also goes through redesign and implementation
readjustment

60
LESSON 2: ISSUES IN STRATEGY IMPLEMENTATION

Below are the issues in strategy implementation which need to be

considered in the strategic management process:

1. Project Implementation: A one-shot, time-limited goal-oriented major

activity that requires the commitment of varied resources and skills
2. Procedural Implementation: Strategy implementation requires the
execution of strategies based on rules, regulations and procedures that
are formulated by the government and that of the organization;
3. Resource Allocation: The process of allocating the resources of the
organization to various divisions, departments and business units
4. Organizational Structures and Strategies: A company builds its
organizational structure based on its strategies. An organizational
structure is known as the viewing glass or perspective in which people
can see, in bird’s eye view the organization and its environment.
5. Functional Policies: coordination between and among the various
functional units of the organization takes place once its strategy is
decided. Modification of the existing functional policies may be deemed
necessary in meeting the demands of the new business.
6. Behavioral Implementation: This deals with aspects of strategy
implementation that poses an impact on the behavior of the people in the
organization.

Factors Affecting Resource Allocation

1. Objectives of the Organization;

2. Preference of Dominant Strategies;
3. Internal Politics;
4. External Influences

Difficulties in Resource Allocation

1. Scarcity of resources;
2. Import restrictions;
3. Human resources; and
4. Departmental power politics

61
LESSON 3: MCKINSEY’S 7S FRAMEWORK

Organizational effectiveness models come and go, but the McKinsey 7-S
framework has been around for a long time.

Former McKinsey & Company consultants Tom Peters and Robert

Waterman created the concept in the late 1970s. They identified seven internal
organizational factors that must be in sync for a company to be successful.

The 7-S model can be applied to a variety of circumstances in which it is

beneficial to study how various components of the business interact. It can, for
example, assist managers in improving the organization's performance or
determining the best way to implement a particular strategy. The framework can
be used to assess the potential consequences of future organizational changes,
as well as to align departments and procedures during a merger or acquisition.
The McKinsey 7-S model can also be applied to team or project aspects and has
the following elements:

HARD ELEMENTS SOFT ELEMENTS

Strategy Shared Values
Structure Skills
System Style
Staff

Table 7: The Seven Elements of the McKinsey 7s Framework

As presented in the table, the three hard elements are Strategy, Structure
and System. Structures talk about organizational charts and reporting lines
while systems refer to formal processes and IT systems. These elements are
rather straightforward to spot, and management has direct control over them. The
four "soft" characteristics, on the other hand, are more difficult to define, less
concrete, and more influenced by your company's culture. However, if the
organization is to succeed, they are just as necessary as the hard elements.

62
 Figure 9: The McKinsey 7S Model

The figure above shows how the 7 elements depend on each other and how
change in one element affects all other elements.

Strategy: The company strategy is its plan for gaining and retaining a
competitive advantage over its rivals.

Structure: This is the way your business is organized (how departments and
teams are structured, including who reports to whom). Task allocation,
coordination, and supervision are examples of organizational structure activities
that are aimed at achieving organizational goals. It can also be thought of as the
lens or perspective through which people view their organization and its
surroundings.

An organizational structure can be centralized or decentralized.

Organizations have traditionally been organized with centralized leadership and a
well defined chain of command. The military is known for its highly centralized
structure, which includes a long and detailed hierarchy of superiors and
subordinates. In a centralized organizational system, each function has extremely
clear responsibilities, with junior roles relying on their superiors for guidance.

As is the case with many technological businesses, there has been an

increase in decentralized organizations. This enables businesses to be quick,

63
nimble, and adaptable, with nearly every employee having a high level of
personal agency. Johnson & Johnson, for example, is well-known for its
decentralized organization. As a huge corporation with over 200 business units
and brands operating in a variety of industries, each functions independently.
Even in decentralized businesses, hierarchies are usually present (such as the
chief operating officer operating at a higher level than an entry-level associate).
Teams, on the other hand, are free to make their own decisions and come to the
best conclusion without needing "approval" from the top.

The types of organizational structure include:

1. Functional Structure: In the actual world, four types of common

organizational structures are used. A functional structure is the first and
most prevalent. This is also known as a bureaucratic organizational
structure, and it divides a corporation into departments based on the
speciality of its employees. A functional structure is used by the majority
of small-to-medium-sized organizations. Using a bureaucratic
organizational structure means dividing the company into departments
such as marketing, sales, and operations.

Figure 10: Example of a Functional Organizational Structure

2. Divisional or Multidivisional Structure: A corporation that adopts this

strategy structures its leadership team based on the products, projects,
or subsidiaries they operate, which is known as the divisional or

64
 multidivisional structure. Johnson & Johnson is an excellent illustration of
this organization. The company organizes itself so that each business
unit runs as its own company with its own president, despite the fact that
it has hundreds of goods and lines of business.

Figure 11: Example of a Divisional Organizational Structure

3. Flatarchy Structure: The third form is flatarchy, which is a newer

structure that is popular among entrepreneurs. It flattens the structure
and chain of command. As the name implies, it allows its employees a
great deal of autonomy. Companies that employ this structure have a
rapid implementation rate.

Figure 12: Example of a Flatarchy Organizational Structure

Like all other types of organizational structure, the flat org chart
has pros and cons. Flat organizational structures may promote more
imaginative and creative decision-making, but they can also be time-
consuming when disagreements arise. As a result, it appears that the flat
type may not be appropriate for departments with a large number of
leadership sprint personnel.

65
 4. Matrix Structure: A matrix structure is the fourth and final
organizational structure. It's also the most perplexing and underutilized.
Employees are matrixed across superiors, divisions, and departments
under this system. Employees report to two or more supervisors rather
than a single manager who oversees all aspects of a project in a matrix
organizational structure. An employee, for example, may have a
principal boss as well as one or more project managers under whom
they work.

Figure 13: Example of a Matrix Organizational Structure

A matrix organizational structure can assist a better, more open

communication and provide a flexible, dynamic work environment in
which resources can be quickly shifted where they're needed, but it can
also cause confusion and aggravation due to competing priorities and
supervisors.

Benefits of an Organizational Structure

Putting in place an organizational structure can be quite advantageous to

a business. The structure not only establishes a company's hierarchy, but it also
allows the corporation to put out its employee pay structure. The firm can decide
on wage grades and ranges for each position after the organizational structure is
in place.

66
 The structure also improves the efficiency and effectiveness of
operations. The corporation can undertake many tasks at once by splitting people
and functions into various departments.

Systems: These are the procedures and flows that demonstrate how an
organization operates.

Shared Values: These are the organization's basic values, which reflect
its overall work ethic. When the model was first created, they were referred to as
"superordinate goals."

Style: Refers to the type of leadership adopted in the organization

Staff: This pertains to the employees in the organization and their

general capabilities.

Skills: Are the actual skills and competencies possessed by the

organization’s employees.

The 7S model's basic principle is that in order for a strategy to be

implemented properly, all seven of these variables must "fit" with one
another.However, because shared values are the heart and soul themes around
which an organization rallies, they are at the center of the framework.

The Concept of FIT

Jay Lorsch was the primary originator and empirical investigator of the fit
notion. He is the lead researcher looking at the concept of fit.

This method believes that each organizational feature, such as structure,

reward systems, and the process of allocating resources, must all be internally
consistent. Furthermore, an organization's strategy cannot be properly
implemented unless each organizational dimension is consistent with the strategy.
Harold J. Leavitt was one of the first to articulate how task, structure, people, and
procedures are all part of a larger totality.

67
ASSESSMENT:

Assume your company is transitioning to a matrix structure. You were

previously employed in a functional framework. Every employee will now report to
both a team leader and a department manager.

Instructions:

1. Draw a hypothetical organizational chart for both the previous and new
structure.
2. In essay form, explain what should be done by the management prior to and
after the change of structure.

68
 IV. STRATEGY
EVALUATION

LESSON 1: SIGNIFICANCE OF STRATEGY EVALUATION

The strategy evaluation process is examining your strategic plan and

determining how well you've done in terms of attaining your strategy's objectives.
When making strategy decisions, a strategy evaluation is an internal analysis tool
that should be used as part of a larger strategic analysis for the firm.

The importance of strategy evaluation resides in its ability to coordinate tasks

performed by managers, groups, departments, and others through performance
control. Strategic evaluation is important for a variety of reasons, including
producing inputs for future strategic planning, the desire for feedback, appraisal,
and reward, the development of the strategic management process, and
determining the validity of strategic decisions. Strategy evaluation is just as
important as strategy design since it reveals the comprehensive plans' efficiency
and effectiveness in reaching the targeted outcomes. Managers can also
evaluate the existing strategy's suitability in today's changing world of
socioeconomic, political, and technological changes.

According to Rumelt (1980), strategy evaluation is more than a basic

assessment of the company's growth rate and profit rate. The strategy evaluation
should go beyond the organization's current situation and look at the basic
aspects that influence its long-term success. In fact, one should assess the
suitability of corporate objectives, significant policies, and plans, as well as
whether the outcomes produced thus far support or refute the critical
assumptions on which the strategies are founded. Of course, providing answers
to these queries necessitates a high level of situational awareness.

69
LESSON 2: THE STRATEGY EVALUATION PROCESS

Strategy evaluation follows this process:

Figure 14: The Strategy Evaluation Process

1. Fixing Benchmark of Performance: Strategists face questions such as

what benchmarks to set, how to set them, and how to articulate them while
setting the benchmark. The particular criteria for executing the main work
must be discovered in order to decide the benchmark performance to be set.
The performance indicator that best identifies and expresses the unique
criteria can then be chosen for evaluation. For a comprehensive evaluation
of performance, the organization might employ both quantitative and
qualitative factors. Quantitative criteria include calculating net profit, return on
investment, earnings per share, cost of production, and staff turnover rate,
among others. Subjective evaluation of factors such as abilities and
competencies, risk-taking capacity, flexibility, and so on are among the
qualitative criteria.
2. Measurement of Performance: The standard performance serves as a
benchmark against which real performance can be measured. The reporting
and communication mechanism aids in performance evaluation. Strategy
review becomes easier if proper tools for measuring performance are
accessible and relevant standards are established. However, other aspects,
such as the influence of managers, are harder to quantify. Similarly, as
compared to individual achievement, divisional performance might be difficult
to assess. As a result, variable objectives must be established against which
performance can be measured. If the measurement is not done at the
appropriate time, the evaluation will not be effective. Financial statements
such as the balance sheet and profit and loss account must be created on an
annual basis to measure performance.
3. Analyzing Variance: There may be deviations that must be analyzed when
assessing actual performance and comparing it to standard performance.
The strategists must specify the tolerance levels within which the difference

70
 between actual and expected performance can be tolerated. Positive
deviation suggests higher performance, however it is unusual to consistently
exceed the aim. Negative deviation is a cause for concern because it implies
a performance deficiency. As a result, in this scenario, the strategists must
identify the sources of deviation and take corrective action to address them.

4. Taking Corrective Action: It is critical to plan for a remedial action once the
variance in performance has been recognized. If the performance is
constantly below the desired level, the strategists must do a thorough
investigation into the factors that are causing the poor results. If the
strategists discover that the organizational potential does not match with the
performance requirements, then the standards must be lowered. Another
rare and drastic corrective action is reformulating the strategy which requires
going back to the process of strategic management, reframing of plans
according to new resource allocation trend and consequent means going to
the beginning point of strategic management process.

Criteria of Strategy Evaluation

Richard Rumelt developed the four (4) criteria for evaluating strategies
presented below:

STRATEGY EVALUATION CRITERIA

CONSONANCE CONSISTENCY

ADVANTAGE FEASIBILITY

Figure 15: Rumelt’s Criteria for Strategy Evaluation

71
 Consistency: Are the external strategies in line with (and supported by)
the organization's numerous internal aspects? You must study the organization's
many functional and internal management strategies and compare them to its
external business strategy.
Consonance: Are the plans in line with the environment's numerous
external trends (and sets of trends)? To answer this question, you must consider
all important trends that have a favorable or negative impact on the chosen
strategy.

Feasibility: Is the strategy reasonable in terms of:

a) Money and capital;

b) Management, professional and technical resources;
c) Time span

Advantage: Does the strategy create competitive advantage in terms of:

d) Resources
e) Position;
f) Skills

Criteria Suggested by Seymour Tiles

Seymour Tiles suggested the following criteria in evaluating the strategy

soon after it has been implemented:

1. Internal Consistency: The consistency with which the strategy's policies are
implemented and how they fit into the organization's overall pattern should
also be considered in relation to the organization's other policies and goals.
2. Consistency with the Environment: Long-range planning enacts a strategy
aimed towards long-term success. For long-term success, ongoing review of
the degree to which previously established policies are consistent with the
environment, as well as how present policies are accounted for the
environment's future, is required.
3. Appropriateness of the Strategy in Relation to Available Resources:
The implementation of plan must make the most efficient use of vital
resources. The management should evaluate the available resources and

72
 determine which are the most important and which are the least important.
To assess competence in relation to strategy, the organization must first
determine its strengths, whether they be in marketing, production, or
research and development.
4. Acceptability of the Degree of Risk Involved in the Strategy: The
management's approach in the given environment is to eliminate the
strategy's risks. This does not imply that the strategy chosen is the one with
the lowest risk. High gains are frequently accompanied with a high level of
risk.
5. Appropriates of Time Horizon of the Strategy: Not only are strategies
goal-oriented, but they are also time-bound. Only if the task is completed
within the stipulated time frame can a new product, market, or plant be of
strategic importance. The plan is evaluated successfully and efficiently when
the goals are met within the acceptable time frame.
6. Workability of the Strategy: If the plan is evaluated based on its results, the
strategy's viability is assessed. The strategy's workability level clearly
expresses the strategy's expertise and appropriateness in implementation. If
the effectiveness of a plan cannot be determined just by its results, Seymour
Tiles provides another indicator that could be utilized instead.

73
ASSESSMENT:

Answer the following questions in not less than 5 sentences.

1. Is there always a need for corrective actions when it comes to strategy

evaluation?
2. Comment on Rumelt’s and Seymour Tiles’ criteria for strategy evaluation and
highlight some of their notable differences and/or similarities
3. It is said that strategy formulation and evaluation are directly linked to each
other. Expound on this.

74
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https://static.careers360.mobi/media/uploads/froala_editor/files/Strategy-
Implementation-and-Control.pdf

7. Strategic Management: An Overview. Retrieved fromL

http://osou.ac.in/eresources/Strategic%20Management-OSOU.pdf

8. Strategic Management Notes. http://www.rjspm.com/PDF/Strategic-

Management-Notes-PDF.pdf

9. Thakur, A. Strategic Management. Retrieved from:

https://ebooks.lpude.in/commerce/mcom/term_4/DCOM506_DMGT502_STR
ATEGIC_MANAGEMENT.pdf

10. Unit 1- Introduction to Business Policy. Retrieved from:

https://kkhsou.ac.in/eslm/ESLM_Main/3rd%20Sem/Master%20Degree/MBA
%203rd%20Sem/Business%20policy%20and%20strategic%20Management/
BP&SM%20-2/BPSM%20PDF%20file/BPSM%20Block-1/Unit-1.pdf

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 COURSE GUIDE

Course: BA 311, BA 313, ACC 216, Entrep 313 Semester 1st School Year 2021-
2022
Class Schedule: Professor: Hanzelle V. Obon
Course Description:

This course concentrates on the rudiments of strategic management. It is a big

picture course that will integrate all other business courses - accounting, finance,
marketing, production, human resource, and information system- as well as other non-
business courses taken in the course of your study program. The center of attention is
the firm- the industry and the competitive environment in which it operates, its long-term
direction and strategy, its resources and competitive capabilities, and its prospects for
success. Major topics covered are: The Strategic Management Process, Creating
Competitive Advantage; Strategy Analysis and Choice; Implementing Strategies; and
Strategy Review, Evaluation and Control. Case studies and readings complement the
conceptual content.
Course Outline
SCHEDULE TOPIC
Day 1 Orientation
Unit 1: Overview of Business Policy and Strategy
I. Business Policy and Strategy
Day 2-5
Lesson 1: What is Business Policy?
Lesson 2: What is Strategy?
Unit 2: Rudiments of Strategic Management
I. Strategic Management: Its Nature, dimensions, Benefits and
Risks
Day 6-12
Lesson 1: The Nature and Dimensions of Strategic Management
Lesson 2: The Need for Strategic Management and Its Benefits
Lesson 3: The Risks Involved in Strategic Management
Unit 3: The Strategic Management Process:
I. Environmental Scanning
Lesson 1: What is Environmental Scanning?
Day 13-16 Lesson 2: Components of the Business Environment
Lesson 3: Environmental Scanning Techniques
Lesson 4: Assessing the Industry Attractiveness and the
Competitive Environment
Day 17-18 Submission of Assessments
II. Strategy Formulation
Lesson 1: The Concept of Strategy Formulation
Day 19-24 Lesson 2: The Business Vision and Mission
Lesson 3: Strategy Analysis and Choice

III. Strategy Implementation

Lesson 1. The Nature of Strategy Implementation
Day 25-29
Lesson 2: Issues in Strategy Implementation
Lesson 3: McKinsey’s 7S Framework
IV. Strategy Evaluation
Day 30-34 Lesson 1: Significance of Strategy Evaluation
Lesson 2: The Strategy Evaluation
Submission of Assessments
Day 35-36

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Course Requirements
Course Learning Outcomes Required Output

CLO1. Narrate the fundamental concepts of  Assessments

distribution manaegment and the major roles
played by distribution in the market;
CLO2. Apply knowledge on distribution
management in reviewing the channels of
distribution, their members and its relative
importance;
CLO3. Conceptualize and illustrate the link between
and among different members of the
channels of distribution;
CLO4. Determine expenses that constitute
distribution costs; and
CLO5. Apply the methods and approaches that are
commonly used in distribution cost analysis.
Course Policies Grading System

The module could be learned in a self-paced or The grades for each rating
individual format and it is the responsibility of the period shall be computed as:
students to maximize their time and exert determination
in completing the course with the best learning Class Standing 60%
outcomes. However, the contents of this study guide Major Exam 40%
may not be enough for your learning needs, so it is 100%
suggested to consider reading other references related
to the topics.

Mid-terms will cover the whole Unit 1 and 2, and the

first chapter of Unit 3. All the rest of Unit 3 would be
intended for the final term. For each unit, there are
discussions and exercises which students are expected
to answer. The average of the said
exercises/assessment shall serve as the students’ grade
for class standing.

Major exams shall be given by the faculty on he

scheduled date.

Consultation Schedule

(thru 09262434303/FB/Messenger)

Monday and Wednesday : 9:00–10:30 AM

Tuesday and Thursday : 3:00 - 4:30 PM

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 Quality Policy

We commit to provide quality instruction, research,

extension, and production grounded on excellence,
accountability and service as we move towards
exceeding stakeholders’ satisfaction in compliance
with relevant requirements and well-defined continual
improvement measures

”De kalidad nga edukasyon

Kinabuhi nga mainuswagun”

HANZELLE V. OBON
Module Creator
CBMA, ESSU Main Campus

DR. JACQUELINE M. EVARDONE

Module Creator
College of Business Administration, ESSU Can-Avid Campus

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