TOPIC 2 - The Strategic Management Process

TOPIC 2 - The Strategic Management Process
Introduction
The strategic management process begins with a careful review and clarification of the
mission, values and objectives of an organization. This sets the stage for critically assessing the
organization’s resources and capabilities as well as competitive opportunities and threats in the
external environment.
A. ANALYSIS OF MISSION, VALUES AND OBJECTIVES
MISSION
– (Or the purpose of the organization) is the organization’s reason for existence in society. It
describes what the strategy or underlying business model is trying to accomplish.
Ask the questions like: “What are we moving to?” “What is our dream?” “What kind of
difference do we want to make in the world?” “What do we want to be known for?”
When the mission is clear and compelling, it is easier for an organization to rally
resources and systems to pursue its strategic intent.
Example from a retailer of outdoor clothing and equipment, Patagonia. Their mission is: “To
produce the highest quality products while doing the least possible harm to the
environment.” (There is a business direction and a distinctive value commitment.)
Other examples:
Mary Kay, Inc. -“To enrich women’s lives”
Starbucks -“To be the premier purveyor of the finest coffee in the
world while maintaining our uncompromising principles as we
grow”.
Coca Cola -“To refresh the world…To inspire moments of optimism and
happiness…To create value and make a difference.
Procter & Gamble “We will provide branded products and services of superior
quality and value that improve the lives of the world’s consumers.
(CSU Mission Statement?)
A mission statement should identify the purpose and philosophy of the organization in a
way that inspires the employees and external stakeholders. Stakeholders are the individuals
and groups – including customers, shareholders, suppliers, creditors, community groups,
and others who are directly affected by the organization and its strategic accomplishments
An example of how stakeholders’ interest is reflected in the mission of a business firm:
Mission:
- For Employees – We respect the individuality of each employee . . . creativity and
productivity are encouraged, valued, and rewarded.
- For Communities – We are committed to being caring and supportive corporate citizens
within the worldwide communities in which we operate.
- For Shareholders – We are dedicated to . . . performing in a manner that will enhance
returns on investments.
- For Customers – We are committed to providing superior value in our products and
services
- For Suppliers – We think of our suppliers as partners who share our goal of . . . highest
quality.
CORE VALUES
Behavior in and by organizations will always be affected in part by values, which are broad
beliefs of what is or is not appropriate. (We know what is good and most of us want to do
good things but we do not.)
Core values are reflected in and shaped by organizational culture (the predominant value
system of the organization as a whole). In strategic management, the presence of strong
core values for an organization helps build institutional identity. It gives character to an
organization in the eyes of its employees and external stakeholders, and it backs up the
mission statement. Shared values help guide the behavior of the organization members in
meaningful and consistent ways.
Patagonia’s website for Job openings: “We’re especially interested in people who share our
love of outdoors, our passion for quality and our desire to make a difference.”
OBJECTIVES
Whereas a mission statement sets forth an official purpose for the organization, and the
core values describe appropriate standards of behavior for its accomplishment, operating
objectives direct activities toward key and specific performance results. These objectives are
shorter-term targets against which actual performance results can be measured as
indicators of progress and continuous improvement.
According to Peter Drucker (management consultant and author), the operating objectives
of a business might include the following:
 Profitability – producing at a net profit in business

 Market share – gaining and holding a specific market share (the portion of a
market controlled by a particular company or product)
 Human talent – recruiting and maintaining a high-quality workforce
 Financial health – acquiring capital, earning positive returns
 Cost-efficiency – using resources well to operate at low cost
 Product quality – producing high-quality goods or services
 Innovation – developing new product or processes
 Social responsibility – making a positive contribution to society
B. ANALYSIS OF RESOURCES AND CAPABILITIES

- The techniques used is SWOT analysis – the internal analysis of organizational
Strengths and Weaknesses as well as the external analysis of environmental
Opportunities and Threats.
The SWOT analysis begins with a systematic evaluation of the organization’s resources
and capabilities. A major goal is to identify core competencies in the form of special
strengths that an organization has or does exceptionally well in comparison with
competitors. They are capabilities that by virtue of being rare, costly to imitate, and
non-substitutable, become viable sources of competitive advantage. Core competencies
may be found in special knowledge or expertise, superior technologies, efficient
manufacturing technologies, or unique product distribution systems, among many other
possibilities.
Organizational weaknesses must also be identified to gain a realistic perspective on the

formulation of strategies. The goal in strategy formulation is to create the strategies that
build upon organizational strengths and minimize the impact of weaknesses.
Internal Assessment of the Organization
What are our strengths? What are our weaknesses?

 Manufacturing efficiency?  Outdated facilities
 Skilled workforce?  Inadequate R&D?
 Good market share?  Obsolete technologies?
 Strong financing?  Weak management?
 Superior reputation?  Past planning failure
SWOT ANALYSIS
What are our opportunities? What are our threats?

 Possible new markets?  New competitors?
 Strong economy?  Shortage of resources?
 Weak market rivals?  Changing market tastes?
 Emerging technologies?  New regulations?
 Growth of existing market?  Substitute products?
External Assessment of the Environment
C. Analysis of Industry and Environment

Opportunities and Threats can be found among macro environmental factors such as
technology, government, social structures, population demographics, the global
economy and the natural environment. They can also include developments in the
industry environment of resource suppliers, competitors, and customers.
The critical issue in the external environment (according to Michael Porter, a scholar
and consultant) is the nature of rivalry and competition within the industry. He offers
the five forces model as a framework for competitive industry analysis.
The five strategic forces are:
1. Competitors – intensity of rivalry among firms within the industry.
2. New entrants – threats of new competitors entering the market.
3. Suppliers – bargaining power of suppliers.
4. Customers – bargaining power of customers.
5. Substitutes – threats of substitute products or services.
From his (Michael Porter) perspective, these competitive forces constitute the “industry
structure.” The strategic management challenge is to position an organization
strategically within its industry, taking into account the implications of forces that make
it more or less attractive.
Porter’s Model of five strategic forces affecting industry competition:
New Entrants
Threat of potential new
competitors
Suppliers Industry Competition Customers

Bargaining power of Rivalry among competing Bargaining power of
suppliers firms buyers
Substitute Products
Threat of substitute
products or services
In general an unattractive industry is one in which rivalry among competitors is intense, substantial
threats exist in the form of possible new entrants and substitute products, and suppliers and buyers are
powerful in bargaining over such things as prices and quality. An attractive industry, by contrast, has less
existing competition, few threats from new entrants and substitutes, and low bargaining power among
suppliers and buyers. By systematically analyzing industry attractiveness in respect to the five forces,
Porter believes that strategies can be chosen to give the organization a competitive advantage relative
to its rivals.

TOPIC 2 - The Strategic Management Process

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TOPIC 2 - The Strategic Management Process

A. ANALYSIS OF MISSION, VALUES AND OBJECTIVES

(CSU Mission Statement?)

An example of how stakeholders’ interest is reflected in the mission of a business firm:

 Profitability – producing at a net profit in business

B. ANALYSIS OF RESOURCES AND CAPABILITIES

Organizational weaknesses must also be identified to gain a realistic perspective on the

Internal Assessment of the Organization

What are our strengths? What are our weaknesses?

What are our opportunities? What are our threats?

C. Analysis of Industry and Environment

Porter’s Model of five strategic forces affecting industry competition:

Suppliers Industry Competition Customers

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