Chapter 1: The Nature of Strategic Management

1. What is strategic management?

Strategic management is the art and science of formulating, implementing, and evaluating cross-
functional decision that enable an organization to achieve its objectives. Focuses on integrating
management, marketing, finance and accounting, production and operations, research and
development, and information systems to achieve organizational success.
 Strategy formulation, implementation, and evaluation with strategic planning
 Exploit and create new and different opportunities
Synonymous with strategic planning
2. What are the stages of the strategic management process?
Strategy formulation, strategy implementation, and strategy evaluation
3. What types of activities are performed in each of these stages?
Strategy formulation: developing a vision and a mission, identifying an organization’s external
opportunities and threats, determining internal strengths and weaknesses, establishing long-
term objectives, generating alternative strategies, and choosing particular strategies to pursue.
Strategy implementation: requires a firm to establish annual objectives, devise policies,
motivate employees, and allocate resources so that formulated strategies can be executed.
Includes developing a strategy-supportive culture, creating an effective organizational structure,
redirecting marketing efforts, preparing budgets, developing and using information systems, and
linking employee compensation to organizational performance.
 “action stage” of strategic management
Strategy evaluation: final stage to know when particular strategies are not working well.
 Reviewing external and internal factors that are the bases for current strategies
 Measuring performance
 Taking corrective actions

Chapter 2: The Business Vision and Mission

1. What is a vision vs. a mission statement?
A vision statement should answer the statement, “what do we want to become?” and provides
the foundation for developing a comprehensive mission statement. Should reveal the type of
business the firm engages
Mission statement is a declaration of an organization’s “reason for being.” It answers the pivotal
question, “what is our business?” a clear mission statement is essential for effectively
establishing objectives and formulating strategies. Reveals what an organization wants to be and
whom it wants to serve.
The importance of vision and mission statements:
 To make sure all employees/managers understand the firm’s purpose or reason for
being
 To provide a basis for prioritization of key internal and external factors utilized to
formulate feasible strategies
 To provide a basis for the allocation of resources
 To provide a basis for organizing work, departments, activities, and segments
around a common purpose
2. What are the differences between a vision and a mission statement?
A mission statement is a declaration of attitude and outlook. Allows for the generation and
consideration of a range of feasible alternative objectives and strategies without unduly stifling
 management creativity. A mission statement needs to be broad to reconcile differences
effectively among, and appeal to, an organization’s diverse stakeholders
3. What are the characteristics of an effective mission statement?

4. What are the 9 essential components of a mission statement?

Chapter 3: The External Assessment

1. What are the I/O view and how is it related to the practice of external audit?
An external audit focuses on identifying and evaluating trends and events beyond the control of
a single firm. An external audit reveals key opportunities and threats confronting an
organization, so managers can formulate strategies to take advantage of the opportunities and
avoid or reduce the impact of threats. Purpose of an external audit is to develop a finite list of
opportunities that could benefit a firm as well as threats that should be avoided.
Five broad categories of external forces: (1) economic forces; (2) social, cultural, demographic,
and, natural environmental force; (3) political, governmental, and legal forces; (4) technological
forces; and (5) competitive forces
I/O, or industrial organization, advocates that external (industry) factors are more important
than internal ones for gaining and sustaining competitive advantage, Porter, contend that
organizational performance will be primarily determined by industry forces that no single firm
can control.
Porter’s five-forces model is an example of the I/O perspective, which focuses on analyzing
external forces and industry variables as a basis for getting and keeping competitive advantage
determined by competitive positioning within an industry.
 Porter’s five-forces mode:

2. What does an external audit involve?

10 external forces that effect organizations
1. Economic forces
2. Social, cultural, demographic, and natural environmental forces
3. Political, governmental, and legal forces
4. Technological forces
5. Competitive forces
 6.
7.

3. What elements are typically examined as part of the general environment?

4. What elements are typically examined as part of the industry environment?
5. How does each of Porter’s 5 forces in the industry environment affect a firm’s survival?

Rivalry among competing firms: the most powerful of the 5 forces. Can be successful only to the
extent that they provide competitive advantage over the strategies pursued by rival firms.
Changes in strategy may be met with retaliatory countermoves, such as lowering prices,
enhancing quality, adding features, providing services, extending warranties, and increasing
advertising.
 Potential entry of new competitors: whenever new firms can easily enter a particular industry,
the intensity of competitive among firms increases. Barriers to entry can include the need to
gain economies of scale quickly, the need to gain technology and specialized know-how, the lack
of experience, strong customer loyalty, strong brand preferences, large capital requirements,
lack of adequate distribution channels, government regulatory policies, tariffs, lack of access to
raw materials, possession of patents, undesirable locations, counterattack by entrench firms,
and potential saturation of the market.
Potential development of substitute products: firms are in close competition with producers of
substitute products in other industries. The presence of substitute products puts a ceiling on the
price that can be charged before consumers will switch to the substitute product. Price ceilings
equate to profit ceilings and more intense competition among rivals. Competitive pressures
arising from substitute products increase as the relative price of substitute products declines
and as consumers’ costs of switch decreases. The competitive strength of substitute products is
best measured by the inroads into the market share those products obtain, as well as those
firms’ plans for increased capacity and market penetration
Bargain power of suppliers: affects the intensity of competition in an industry, especially when
there are few suppliers, where area few good substitute raw materials, or when the cost of
switching raw materials is especially high. It is often in the best interest of both suppliers and
producers to assist each other with reasonable prices, improved quality, development of new
services, just-in-time deliveries, and reduced inventory costs, thus enhancing long-term
profitability for all concerned.
In more and more industries, sellers are forging strategic partnerships with select suppliers in an
effort to (1) reduce inventory and logistics costs (e.g., through just-in-time deliveries), (2)
accelerate the availability of next-generation components, (3) enhance the quality of the parts
and components being supplied and reduce defect rates, and (4) squeeze out important cost
savings for both themselves and their suppliers
Bargaining power of consumers: when customers are concentrated or large in number or buy in
volume, their bargaining power represents a major force affecting the intensity of competition
in an industry. Rival firms may offer extended warranties or special services to gain customer
loyalty whenever the bargaining power of consumers is substantial. Bargaining power of
consumers also is higher when the products being purchased are standard or undifferentiated.
When this is the case, consumers often can negotiate selling price, warranty coverage, and
accessory packages to a greater extent.

6. What are typically examined as part of a competitor analysis?

7. Which part of the external environment does the EFE analyze?
Economic, social, cultural, demographic, environmental, political, governmental, legal,
technological, and competitive information
8. What are the steps to build an EFE?
9. Which parts of the external environment does the CPM analyze?
Identifies a firm’s major competitors and its particular strengths and weaknesses in relation to a
sample firm’s strategic position. Critical success factors in a CPM include both internal and
external issues; therefore, the ratings refer to strengths and weaknesses, where 4 = major
strength and 1 = major weakness
10. What are the steps to build a CPM?
 11. What do the numbers in a CPM mean?

Chapter 4: The Internal Assessment

1. What is the RBV and how is it related to the practice of internal audits?
The resource-based view approach to competitive advantage contends that internal resources
are more important for a firm than external factors in achieving and sustaining competitive
advantage.
Physical resources, human resources, and organizational resources
2. What does an internal audit involve?
 A firm’s resources can be tangible such as labor, capital, land, plant and equipment, or resources
can be intangible, such as culture, knowledge, brand equity, reputation, and intellectual
property
3. What elements are typically examined as part of the internal audit?
The basic premise of the RBV is that the mix, type, amount, and nature of a firm’s internal
resources should be considered first and foremost in devising strategies that can lead to
sustainable competitive advantage. Includes developing and exploiting a firm’s unique resources
and capabilities, and continually maintaining and strengthening those resources. Advantageous
for a firm to pursue a strategy that is not currently being implemented by any competing firm.
A resource can be considered valuable to the extent that it is (1) rare, (2) hard to imitate, or (3)
not easily substitutable. (AKA empirical indicators)
4. What are VCA, benchmarking, opportunity analysis, and cost-benefit analysis?
Value chain analysis, VCA, refers to the process whereby a firm determines the costs associated
with organizational activities from purchasing raw materials to manufacturing product(s) to
marketing those products. Value chain analysis aims to identify where low-cost advantages or
disadvantages exist anywhere along the value chain to better identify its own strengths and
weaknesses, especially as compared to competitors’ value chain analyses and their own data
examined over time.
Benchmarking is an analytical tool used to determine whether a firm’s value chain analysis is
competitive compared to those of rivals and thus conductive to winning in the marketplace. It
entails measuring costs of value chain activities across an industry to determine “best practices”
among competing firms for the purpose of duplicating or improving on those best practices.
Cost/benefit analysis involves assessing the costs, benefits, and risks associated with marketing
decision. Three steps are: (1) compute the total costs associated with a decision, (2) estimate
the total benefits from the decision, and (3) compare the total costs with the total benefits.
When expected benefits exceed total costs, an opportunity becomes more attractive. The
variables included in a cost/benefit analysis cannot be quantified or even measure, but usually
reasonable estimates can be made to allow the analysis to be performed.
5. What are the 5 categories of finance ratios introduced in the text, and how are they different
from one another?
6. Which does the IFE analyze?
The major strengths and weaknesses in the functional areas of a business, and it also provides a
basis for identifying an IFE Matrix, so the appearance of a scientific approach should not be
interpreted to mean this is an all-powerful technique.
7. What are the steps to build an IFE?

8. What do the numbers in an IFE mean?

the total weighted score can range from a low of 1.0 to a high of 4.0, with the average score
being 2.5.
the weighted scores well below 2.5 characterize organizations that are weak internally, whereas
scores significantly above 2.5 indicates a strong internal position
Chapter 5: Strategies in Action
1. What are the 5 major growth strategies?
Market penetration, seeks to increase market share for present products or services in present
markets through greater marketing efforts

Market development, involves introducing present products or services into new geographic
areas

Product development, seeks increased sales by improving or modifying present products or

services. Usually entails large research and development expenditures
Related diversification, when value chains possess competitively valuable cross-business
strategic fits

Unrelated diversification, when value chains are so dissimilar that no competitively valuably
cross-business relationships exist
2. What are the 3 retrenchment strategies?
Bankruptcy
Divestiture, selling a division or part of an organization to raise capital for further strategic
acquisitions or investments
Liquidation, selling all of a company’s assets in parts for their tangible worth. Associated with
Ch. 7 bankruptcy.
 3. What are the 5 generic strategies?

Type 1 and Type 2, cost leadership, emphasizes producing standardized products at a low per-unit costs
for consumers who are price sensitive. Targets a large market
 Low costs, emphasizes offers products or services to a wide range of customers at
the lowest price available on the market
 Best value, offers products or services to a wide range of customers at the best
price-value available on the market.
Type 3, differentiation, focus aims a producing products and services unique to the industry and directed
at Type 4 and Type 5, consumers are relatively price insensitive.
Focus means producing products and services that fulfill the needs of small groups of consumers
 Low costs, offers products or services to a small range (niche) of customers at the
lowest price available on the market
 Best value, offers products or services to a small range or customers at the best-
value available on the market. Focused differentiation, aims to offer a niche group
of customers the products or services that meet their tastes and requirements
better than rivals’ products do.
4. What are the right conditions to use of each of these strategies?
Type 1 & 2

Type 3

Type 4 & 5

Chapter 6:
1. What are the 3 stages in the strategy formulation framework?
Stage 1 of the strategy formulation analytical framework consists of the External Factor
Evaluation (EFE) matrix, the Internal Factor Evaluation (IFE) matrix, and the Competitive Profile
Matrix (CPM). Called the input stage, it summarizes the basic input information needed to
formulate strategies.
Stage 2, called the matching stage, focuses on generating feasible alternative strategies by
aligning key external and internal factors. Includes the Strengths-Weaknesses-Opportunities-
Threats (SWOT) matrix, the Strategic Positioning and Action Evaluation (SPACE), the Boston
Consulting Group (BCG), the Internal-External (IE) matrix, and the Grand Strategy Matrix
Stage 3, called the decision stage, involves a single technique, the Quantitative Strategic
Planning Matrix (QSPM). QSPM uses input information from Stage 1 to objectively evaluate
feasible alternative strategies identified in Stage 2. It reveals the relative attractiveness of
alternative strategies and thus provides an objective basis for selecting specific strategies.
The QSPM is a more robust way to determine the relative attractiveness of strategies than the
(1) summed ranking method described above, or the (2) individual vs. group ranking method
2. What matrices are produced in each stage?
3. How are each of these matrices constructed and interpreted?