CHAPTER 1 THE NATURE OF STRATEGIC MANAGEMENT
Focus company: McDonalds
Strategic management/planning: The art and science of formulating, implementing, and
evaluating cross-functional decisions that enable an organization to achieve its objectives.
Long-range planning: Tries to optimize for tomorrow the trends of today.
States of strategic management:
1. Strategy formulation: Includes developing a vision and mission, identifying an
organizations external opportunities and threats, determining internal strengths and
weaknesses, establish long-term objectives, generating alternative strategies, and
choosing particular strategies to pursue.
2. Strategy implementation: Requires a firm to establish annual objectives, devise policies,
motivate employees, and allocate resources so that formulated strategies can be
executed. The action stage.
3. Strategy evaluation: Three fundamental activities reviewing external and internal
factors that are the bases for current strategies, measuring performance, and taking
Key Terms in Strategic Management
Competitive advantage: Anything that a firm does especially well compared to rival firms.
Strategists: The individuals who are most responsible for the success or failure of an
Vision statement: What do we want to become? Often considered the first step in strategic
planning, preceding even the development of a mission statement.
Mission statement: Enduring statements of purpose that distinguish one business from other
similar firms. A mission statement describes the scope of a firms operations in product and
market terms. Addresses the question what is our business?
External opportunities and threats: 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.
Internal strengths and weaknesses: An organizations controllable activities that are performed
especially well or poorly.
Long-term objectives: Specific results that an organization seeks to achieve in pursuing its basic
mission in more than one year.
Strategies: The means by which long-term objectives will be achieved.
Annual objectives: Short-term milestones that organizations must achieve to reach long-term
1 Policies: The means by which annual objectives will be achieved. Include guidelines, rules, and
procedures established to support efforts to achieve stated objectives.
Three important questions to answer when developing a strategic plan:
1. Where are we now?
2. Where do we want to go?
3. How are we going to get there?
Communication is a key to successful strategic management.
Empowerment: The act of strengthening employees sense of effectiveness by encouraging
them to participate in decision making and to exercise initiative and imagination, and rewarding
them for doing so.
Some reasons for lack of strategic planning:
Lack of knowledge or experience in strategic planning
Poor reward structures
Waste of time
Content with success
CHAPTER 3 THE EXTERNAL ASSESSMENT
Focus company: Dunkin Brands, Inc.
External audit: Its purpose is to develop a finite list of opportunities that could benefit a firm and
threats that should be avoided.
2. Social, cultural, demographic and natural environment
3. Political, government, and legal
Industrial Organization (I/O) approach: Advocates that external (industry) factors are more
important than internal factors in a firm achieving competitive advantage. Ex: Porters Five
Seven characteristics describe the most competitive companies:
1. Market share matters
2. Understand and remember precisely what business youre in
3. Whether its broke or not, fix it
4. Innovate or evaporate
5. Acquisition is essential to growth
6. People make a difference
2 7. There is no substitute for quality and no greater threat than failing to be cost-competitive
on a global basis
Competitive intelligence (CI): A systematic and ethical process for gathering and analyzing
information about the competitions activities and general business trends to further a businesss
Market commonality: The number and significance of markets that a firm competes in with
Resource commonality: The extent to which the type and amount of a firms internal resources
are comparable to a rival.
Porters Five Forces:
1. Rivalry among competing firms
o Usually the most powerful
2. Potential entry of new competitors
3. Potential development of substitute products
4. Bargaining power of suppliers
5. Bargaining power of consumers
o Can be the most important force affecting competitive advantage
o Consumers increase bargaining power if
i. They can inexpensively switch to competing brands or substitutes
ii. They are particularly important to the seller
iii. Sellers are struggling in the face of falling consumer demand
iv. They are informed about sellers products, prices, and costs
v. They have discretion in whether and when they purchase the product
External Factor Evaluation (EFE) Matrix: Allows strategists to summarize and evaluate
economic, social, cultural, demographic, environmental, political, governmental, legal,
technological, and competitive information.
Competitive Profile Matrix (CPM): Identifies a firms major competitors and its particular
strengths and weaknesses in relation to a sample firms strategic position.
CHAPTER 4 THE INTERNAL ASSESSMENT
Focus company: Amazon.com, Inc.
Marketing affiliate: A business that gets sales commission by featuring links to outside e-
commerce sites on their own website.
The process of gaining competitive advantage in a firm:
Weaknesses Strengths Distinctive Competencies Competitive Advantage
Resource-Based View (RBV): This approach to competitive advantage contends that internal
resources are far more important for a firm than external factors in achieving and sustaining