KEY TERMS IN STRATEGIC MANAGEMENT:Adapting to change, Mission Statements

<< NATURE OF STRATEGIC MANAGEMENT:Interpretation, Strategy evaluation

INTERNAL FACTORS & LONG TERM GOALS:Strategies, Annual Objectives >>

Strategic Management MGT603

Lesson 2

KEY TERMS IN STRATEGIC MANAGEMENT

Objectives

This Lecture provides an overview of strategic management. It introduces a practical,

integrative model of the strategic-management process and defines basic activities and terms in

strategic management and discusses the importance of business ethics. After reading this lecture

you will be able to know that:

Key Terms in Strategic Management

What is meant by adopting to change?

Adapting to change

Organizational survival depends on:

Continuous monitoring of internal and external factors

Well-timed changes

Effective adaptation calls for a long-run focus

Incremental rise in degree of change

1. Technology

2. E-commerce

3. Merger-mania

4. Demographics

The strategic management process is based on the belief that organization should continuously monitor

internal and external events and trends so that timely change can be made as needed. The rate and

magnitude of changes that affect the organization are increasing dramatically. Consider for example, E-

commerce, laser surgery, the war on terrorism, economic recession and the aging population etc.

To survive all organizations must be capable of astutely identifying and adapting to change. The need to

adapt to change leads organizations to key strategic management questions, such as "What kind of business

should we become?" "Are we in right field?" "Should we reshape our business?" "Are new technologies

being developed that could put us out of business?"

Key Terms in Strategic Management

Before we further discuss strategic management, we should define eight key terms: strategists, mission

statements, external opportunities and threats, internal strengths and weaknesses, long-term objectives,

strategies, annual objectives, and policies.

Strategists

Strategists are individuals who are most responsible for the success or failure of an organization. Strategists are

individuals who form strategies. Strategists have various job titles, such as chief executive officer, president,

and owner, chair of the board, executive director, chancellor, dean, or entrepreneur.

Strategists help an organization gather, analyze, and organize information. They track industry and

competitive trends, develop forecasting models and scenario analyses, evaluate corporate and divisional

performance, spot emerging market opportunities, identify business threats, and develop creative action

plans. Strategic planners usually serve in a support or staff role. Usually found in higher levels of

management, they typically have considerable authority for decision making in the firm. The CEO is the

most visible and critical strategic manager. Any manager who has responsibility for a unit or division,

responsibility for profit and loss outcomes, or direct authority over a major piece of the business is a

strategic manager (strategist).

Strategists differ as much as organizations themselves and these differences must be considered in the

formulation, implementation, and evaluation of strategies. Some strategists will not consider some types of

strategies because of their personal philosophies. Strategists differ in their attitudes, values, ethics,

willingness to take risks, concern for social responsibility, concern for profitability, concern for short-run

versus long-run aims and management style.

Vision Statements

Many organizations today develop a "vision statement" which answers the question, what do we want to

become? Developing a vision statement is often considered the first step in strategic planning, preceding

Strategic Management MGT603

even development of a mission statement. Many vision statements are a single sentence. For example the

vision statement of Stokes Eye Clinic in Florence, South Carolina, is "Our vision is to take care of your

vision." The vision of the Institute of Management Accountants is "Global leadership in education,

certification, and practice of management accounting and financial management."

Mission Statements

Mission statements are "enduring statements of purpose that distinguish one business from other similar firms.

A mission statement identifies the scope of a firm's operations in product and market terms. It addresses

the basic question that faces all strategists: What is our business? A clear mission statement describes the

values and priorities of an organization. Developing a mission statement compels strategists to think about

the nature and scope of present operations and to assess the potential attractiveness of future markets and

activities. A mission statement broadly charts the future direction of an organization. An example mission

statement is provided below for Microsoft.

Microsoft's mission is to create software for the personal computer that empowers and enriches people in

the workplace, at school and at home. Microsoft's early vision of a computer on every desk and in every

home is coupled today with a strong commitment to Internet-related technologies that expand the power

and reach of the PC and its users. As the world's leading software provider, Microsoft strives to produce

innovative products that meet our customers' evolving needs.

External Opportunities and Threats

External opportunities and external threats refer to economic, social, cultural, demographic, environmental,

political, legal, governmental, technological, and competitive trends and events that could significantly

benefit or harm an organization in the future. Opportunities and threats are largely beyond the control of a

single organization, thus the term external. The computer revolution, biotechnology, population shifts,

changing work values and attitudes, space exploration, recyclable packages, and increased competition from

foreign companies are examples of opportunities or threats for companies. These types of changes are

creating a different type of consumer and consequently a need for different types of products, services, and

strategies.

Other opportunities and threats may include the passage of a law, the introduction of a new product by a

competitor, a national catastrophe, or the declining value of the dollar. A competitor's strength could be a

threat. Unrest in the Balkans, rising interest rates, or the war against drugs could represent an opportunity or

a threat.

A basic tenet of strategic management is that firms need to formulate strategies to take advantage of

external opportunities and to avoid or reduce the impact of external threats. For this reason, identifying,

monitoring, and evaluating external opportunities and threats are essential for success.

Environmental Scanning:

The process of conducting research and gathering and assimilating external information is

sometimes called environmental scanning or industry analysis. Lobbying is one activity that some

organizations utilize to influence external opportunities and threats.

Environment scanning has the management scan eternal environment for opportunities and threats and

internal environment for strengths and weaknesses. The factor which are most important for corporation

factor are referred as a strategic factor and summarized as SWOT standing for strength, weaknesses,

opportunities and threats.

Environmental Scanning

Internal Analysis

External Analysis

The external environment consist of opportunities and threats variables that outside the organization.

External environment has two parts:

Strategic Management MGT603

Task Environment

Social Environment

Task Environment:

Task environment includes all those factors which affect the organization and itself affected by the

organization. These factor effects the specific related organizations. These factors are shareholders

community, labor unions, creditor, customers, competitors, trade associations.

Social Environment:

Social environment is an environment which includes those forces effect does not the short run activities of

the organization but it influenced the long run activities or decisions. PEST analysis are taken for social

environment PEST analysis stands for political and legal economic socio cultural logical and technological.

Internal Strengths and Weaknesses/Internal assessments

Internal strengths and internal weaknesses are an organization's controllable activities that are performed

especially well or poorly. They arise in the management, marketing, finance/accounting,

production/operations, research and development, and computer information systems activities of a

business. Identifying and evaluating organizational strengths and weaknesses in the functional areas of a

business is an essential strategic-management activity. Organizations strive to pursue strategies that

capitalize on internal strengths and improve on internal weaknesses.

Strengths and weaknesses are determined relative to competitors. Relative deficiency or superiority is

important information. Also, strengths and weaknesses can be determined by elements of being rather than

performance. For example, strength may involve ownership of natural resources or an historic reputation

for quality. Strengths and weaknesses may be determined relative to a firm's own objectives. For example,

high levels of inventory turnover may not be strength to a firm that seeks never to stock-out.

Internal factors can be determined in a number of ways that include computing ratios, measuring

performance, and comparing to past periods and industry averages. Various types of surveys also can be

developed and administered to examine internal factors such as employee morale, production efficiency,

advertising effectiveness, and customer loyalty.

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