1. Compare and contrast strategic planning with strategic management.

Strategic planning is more often used in the business world, whereas strategic management is often used in academia. Sometimes, strategic management is used to refer to strategy formulation, implementation and evaluation, with strategic planning referring only to strategy formulation. The purpose of strategic management is to exploit and create new and different opportunities for tomorrow; long-range planning, in contrast, tries to optimize for tomorrow the trends of today.

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2. Which stage in the strategic-management process is most difficult? Explain why.

Strategy implementation is the most difficult stage in the strategic-management process because it requires personal discipline, commitment and sacrifice. Successful strategy implementation hinges upon managers’ ability to motivate employees, which is more of an art than a science.

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3. Define and discuss the differences between vision and mission statements.

Many organizations today develop a vision statement that answers the question “What do we want to become?” Developing a vision statement is often considered the first step in strategic planning, preceding 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 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.

4 Describe why a mission statement is so important in the strategic-management process.

A clear mission statement is essential for effectively establishing objectives and formulating strategies. It reveals what an organization wants to be and whom it wants to serve. A business mission is the foundation for priorities, strategies, plans and work assignments. It is the starting point for the design of managerial jobs and for the design of managerial structures.

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5 Explain the process of developing a mission statement.

A widely used approach to developing a mission statement is first to select several articles about mission statements and ask all managers to read these as background information. Then ask managers themselves to prepare a mission statement for the organization. A facilitator or committee of top managers should then merge these statements into a single document and distribute this draft mission statement to all managers. A request for modifications, additions and deletions is needed next, along with a meeting to revise the document. To the extent all managers have input into and support the

final mission statement document, organizations can more easily obtain managers’ support for other strategy formulation, implementation and evaluation activities.

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6 List and define the major components of an effective mission statement.

Students should list and define the following components of an effective mission statement: (1) customers, (2) products or services, (3) markets, (4) technology, (5) concern for survival, growth and profitability, (6) philosophy, (7) self-concept, (8) concern for public image and (9) concern for employees.

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7 What are the five major types of external forces that should be examined as part of an external audit? Give an example of each type of force.

External forces can be divided into five broad categories: (1) economic forces, (2) social, cultural, demographic and environmental forces, (3) political, governmental and legal forces, (4) technological forces and (5) competitive forces. Relationships among these forces and an organization are depicted in Figure 3-2.

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8 Discuss the process of performing an external audit.

To perform an external audit, a company first must gather competitive intelligence and information about economic, social, cultural, demographic, environmental, political, governmental, legal and technological trends. Once information is gathered, it should be assimilated and evaluated. A meeting or series of meetings of managers is needed to collectively identify the most important opportunities and threats facing the firm. These key external factors should be listed on flip charts or a blackboard. A prioritized list of these factors could be obtained by requesting that all managers to rank the factors identified, from 1 for the most important opportunity/threat to 20 for the least important opportunity/threat.

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9 Discuss the I/O approach in relation to competitive advantage.

The I/O approach to competitive advantage advocates that external factors are more important than internal factors in a firm achieving competitive advantage. Proponents of the I/O view contend that organizational performance will be primarily determined by industry forces, rather than the firm’s internal functional decisions made. Research findings suggest that approximately 20 percent of a firm’s profitability can be explained by the industry, whereas 36 percent of the variance in profitability is attributed to the firm’s internal factors. Effective integration of both external and internal factors is the key to securing and keeping a competitive advantage.

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10 According to Michael Porter, what are the five competitive forces that create vital opportunities and threats for organizations? Which force do you feel is most important in the computer industry today? Why?

The first one is rivalry among competing firms. The second is potential entry of new competitors. The third is potential development of substitute products. The fourth is bargaining power of suppliers. The last one is bargaining power of consumers.

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11 List five steps that comprise an effective framework for conducting an EFE Matrix. Explain the details involved in performing any one of the steps.

The EFE Matrix can be developed in five steps: 1) list key external factors as identified in the external-audit process with a total of from 10 to 20 factors, including both opportunities and threats that affect the firm and its industry; 2) assign to each factor a weight that ranges from 0.0 to 1.0; 3) assign a 1 to 4 rating to each key external factor to indicate how effectively the firm’s current strategies respond to the factor, where 4 = the response is superior, 3 = the response is above average, 2 = the response is average, and 1 = the response is poor; 4) multiply each factor’s weight by its rating to determine a weighted score; and 5) sum the weighted scores for each variable to determine the total weighted score for the organization.

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12 Explain the resource-based view and its relation to strategic management.

The resource-based view (RBV) approach to competitive advantage contends that internal resources are more important than external factors for a firm in achieving and sustaining competitive advantage, in contrast to the I/O theory. According to this view, organizational performance is determined by physical resources, human resources and organizational resources. RBV theory asserts that resources are actually what help a firm exploit opportunities and neutralize threats. The theory also asserts that in order to maintain a competitive advantage, a resource must either be rare, not easily substitutable, or hard to imitate. The RBV has continued to grow in popularity and continues to seek a better understanding of the relationship between resources and sustained competitive advantage.

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13 Discuss the five steps involved in performing an IFE Matrix.

The first step is to list ten to twenty internal factors, including strengths and weaknesses using percentages, ratios and comparative numbers. The second step is to assign a weight that ranges from 0.00 (not important) to 1.0 (all-important) to each factor based on its relative importance. The third step is to assign a 1 to 4 rating to each factor to indicate whether that factor represents a major weakness, a minor weakness, a major strength, or a minor strength. Next, multiply each factor’s weight by its rating to determine a weighted score for each variable. Finally, sum the weighted scores for each variable to determine the total weighted score for the organization.

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14 Define and give an example of three integrative strategies.

The three integrative strategies are forward integration, backward integration and horizontal integration. Forward integration is the gaining of ownership or increased control over distributors or retailers. An example of forward integration is Gateway Computer Company opening its own chain of retail computer stores. Backward integration is the seeking of ownership or increased control of a

firm’s suppliers. J.P. Morgan outsourcing its technology operations to firms such as EDS and IBM is an example of backward integration. Horizontal integration is the seeking of ownership or increased control over competitors. An example of horizontal integration is when Reader’s Digest Association acquired Reiman Publications LLC.

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15 Define and give an example of three intensive strategies.

Market penetration, market development and product development are the three types of intensive strategies. Seeking increased market share for present products or services in present markets through marketing efforts is called market penetration. An example of this is when American Express launched a $100 million + advertising campaign in 2002 to boost its lead over Citigroup in the credit card industry. Market development is introducing present products or services into new geographic areas. South African Breweries PLC trying to acquire Miller Brewing Company for about $5 billion is an example of market development. Product development is seeking increased sales by improving present products or services or developing new ones. An example of product development is Miller Brewing Company developing the new Skyy Blue citrus and “vodka-flavored” malt beverage.

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16 Define and give an example of the two diversification strategies.

Related and unrelated are the two types of diversification strategies. Businesses are said to be related when their value chains posses competitively valuable cross-business strategic fits; businesses are said to be unrelated when their value chains are so dissimilar that no competitively valuable cross-business relationships exist. An example of related diversification is Amazon.com Inc.’s recent move to sell personal computers though its online store. An example of unrelated diversification is Trump Entertainment Resorts starting Trump university, an online business university.

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17 Discuss Michael Porter’s five generic strategies.

According to Porter, strategies allow organizations to gain competitive advantage from three different bases: cost leadership, differentiation and focus. Porter calls these bases generic strategies. Cost leadership emphasizes producing standardized products at a very low per-unit cost for consumers who are price-sensitive. Two alternative types of cost leadership strategies can be defined. Type 1 is a low-cost strategy that offers products or services to a wide range of customers at the lowest price available on the market. Type 2 is best-value strategy that offers products or services to a wide range of customers at the best price-value available on the market.; the best value strategy aims to offer customers a range of products or services at the lowest price available compared to a rival’s products with similar attributes. Differentiation is a strategy aimed at producing products and services considered unique industrywide and directed at consumers who are relatively price-insensitive. A low-cost focus strategy offers products or services to a small range of customers at the lowest price available on the market. A best-value focus strategy offers products or services to a small range of customers at the best price-value available on the market.

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