The Nature Of Strategic Management

1. Describe the strategic-management process. 2. Explain the need for integrating analysis and intuition in strategic management. 3. Define and give examples of key terms in strategic management. 4. Discuss the nature of strategy formulation, implementation, and evaluation activities. 5. Describe the benefits of good strategic management. 6. Discuss the relevance of Sun Tzu’s The Art of War to strategic management. 7. Discuss how a firm may achieve sustained competitive advantage.

CHAPTER OVERVIEW

Chapter 1 provides an overview of strategic management. A practical, integrative model of the strategic-management process is introduced. Basic activities and terms in strategic management are defined. The benefits of strategic management are presented. This chapter also introduces the notion of boxed inserts. A boxed insert in each chapter showcases excellent strategic management under harsh economic conditions.

VTN (Visit the Net): The website www.strategyclub.com, designed by Dr. David, provides strategic planning tools, templates, links, and information to help strategic management students analyze cases.

VTN (Visit the Net): The website http://www.pearsonhighered.com/david/ provides sample tests and supplemental material for each chapter.

Doing Great in a Weak Economy – McDonalds
Despite the fact that most firms were struggling in 2008, McDonald’s increased its revenues in 2008 and nearly doubled its net income. Fortune Magazine in 2009 rated McDonald’s as the 16th “Most Admired Company in the World”. McDonald’s low prices and expanded menu items have attracted millions of new customers.

EXTENDED CHAPTER OUTLINE WITH TEACHING TIPS

I.WHAT IS STRATEGIC MANAGEMENT?

A. Strategic management can be defined as the art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives.

1. The term strategic management is used synonymously with strategic planning.

2. The purpose of strategic management is to exploit and create new and different opportunities for tomorrow while long-range planning tries to optimize for tomorrow the trends of today.

B.Stages of Strategic Management

1.The strategic-management process consists of three stages.

a.Strategy formulation includes developing a vision and 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.

b.Strategy implementation requires a firm to establish annual objectives, devise policies, motivate employees, and allocate resources so that formulated strategies can be executed; strategy implementation includes developing a strategy-supportive culture, creating an effective organizational structure, redirecting marketing efforts, preparing budgets, developing and utilizing information systems, and linking employee compensation to organizational performance.

c. Strategy evaluation is the final stage in strategic management. Managers desperately need to know when particular strategies are not working well; strategy evaluation is the primary means for obtaining this information.

VTN (Visit The Net): The website www.spsu.edu/planassess/strategic.htm
provides a narrative on strategy formulation and implementation at Southern Polytechnic State University.

2. Three fundamental strategy evaluation activities are provided below: a. Reviewing external and internal factors that are the bases for current strategies b. Measuring performance

c. Taking corrective action

3. Strategy formulation, implementation, and evaluation activities occur at three hierarchical levels in a large organization: corporate, divisional, and functional. Smaller businesses may only have the corporate and functional levels.

C.Integrating Intuition and Analysis

1. The strategic-management process can be described as an objective, logical, systematic approach for making major decisions in an organization. It attempts to organize qualitative and quantitative information in a way that allows effective decisions to be made under conditions of uncertainty.

2. Most people recognize that intuition is essential to making good strategic management decisions. Intuition is particularly useful for making decisions in situations of great uncertainty or little precedent.

D.Adapting to Change

1. The strategic-management process is based on the belief that organizations should continually monitor internal and external events and trends so that timely changes can be made as needed. The rate and magnitude of changes that affect organizations are increasing dramatically.

2. By eliminating boundaries and speeding the flow of information, e-commerce and globalization are transforming business and society.

3. 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 the right field?” “Should we reshape our business?” “What new competitors are entering our industry?”

Teaching Tip: Strategy & Business is a magazine that publishes articles that focus on strategic management issues. The magazine, which contains excellent feature articles, is available online at http://www.strategy-business.com/.

Teaching Tip: The Business Policy & Strategy Division of the Academy of Management maintains a website that contains a wide variety of useful information on strategic management topics. The Academy of Management website is available at

http://www.aomonline.org/aom.asp. The website for the Business Policy and Strategy Division is available at http://www.bpsdiv.org/.

VTN (Visit The Net): The website www.csuchico.edu/mgmt/strategy/module1/sld041.htm provides an overview of how firms evolve using strategic management.

VTN (Visit The Net): The website www.csuchico.edu/mgmt/strategy/module1/sld032.htm reveals that actual strategy results from planned strategy coupled with reactive changes.

II.KEY TERMS IN STRATEGIC MANAGEMENT

A.Competitive Advantage

1.Competitive advantage is defined as anything that a firm does especially well compared to rival firms.

2. Firms should seek a sustained competitive advantage by continually adapting to changes in external trends and internal capabilities and evaluating strategies that capitalize on those factors.

3.An increasing number of companies are gaining a competitive advantage by using the Internet for direct selling and for communication with suppliers, customers, creditors, partners, shareholders, clients, and competitors who may be dispersed globally.

B. Strategists

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

2. Strategists hold various job titles, such as chief executive officers, president, owner, chair of the board, executive director, chancellor, dean, or entrepreneur.

3. 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.

C.Vision and Mission Statements

1. Vision statements answer the question: “What do we want to become?”

2. 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?” It should include the values and priorities of an organization.

D.External Opportunities and Threats

1. 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.

2. Opportunities and threats are largely beyond the control of a single organization, thus the term external.

3. To survive in a global economic recession, firms must be aware of the new opportunities and threats that have surfaced as a result.

4. 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.

5. The process of conducting research and gathering and assimilating external information is called environmental scanning or industry analysis.

E.Internal Strengths and Weaknesses

1. Internal strengths and internal weaknesses are an organization’s controllable activities that are performed especially well or poorly.

2. Identifying and evaluating organizational strengths and weaknesses in the functional areas of a business is an essential strategic-management activity.

3. Strengths and weaknesses are determined relative to competitors and may be determined by both performance and elements of being.

F.Long-Term Objectives

1.Objectives can be defined as specific results that an organization seeks to achieve in pursuing its basic mission.

2.Long term means more than one year.

3. Objectives state direction, aid in evaluation, create synergy, reveal priorities, focus coordination, and provide a basis for effective planning, organizing, motivating and controlling activities.

4. Objectives should be challenging, measurable, consistent, reasonable, and clear.

G.Strategies

1.Strategies are the means by which long-term objectives will be achieved. Business strategies may include geographic expansion, diversification, acquisition, product development, market penetration, retrenchment, divestiture, liquidation, and joint venture.

2.Strategies currently being pursued by Best Buy, Levi Strauss, and New York Times Company are described in Table 1-1.

H.Annual Objectives

1.Annual objectives are short-term milestones that organizations must achieve to reach long-term objectives.

2.Like long-term objectives, annual objectives should be measurable, quantitative, challenging, realistic, consistent, and prioritized.

I.Policies

1. Policies are the means by which annual objectives will be achieved. Policies include guidelines, rules, and procedures established to support efforts to achieve stated objectives.

2. Policies are most often stated in terms of management, marketing, finance/accounting, production/operations, research and development, and computer information systems activities.

3. Because smoking is a huge burden on companies worldwide, some firms are implementing policies to curtail smoking. Table 1-2 gives a ranking of the countries by percentage of people who smoke.

III.THE STRATEGIC MANAGEMENT MODEL

A.The Strategic Management Model is shown in Figure 1-1.

1.The framework illustrated in Figure 1-1 is a widely accepted, comprehensive model of the strategic-management process. This model does not guarantee success, but it does represent a clear and practical approach for formulating, implementing, and evaluating strategies.

2.The strategic-management process is dynamic and continuous. A change in any one of the major components in the model can necessitate a change in any or all of the other components.

VTN (Visit The Net): The website www.planware.org/strategy.htm#1 explains in detail how to prepare a strategic plan and compares this document to a business plan.

IV. BENEFITS OF STRATEGIC MANAGEMENT

The principle benefit of strategic management has been to help organizations formulate better strategies through the use of a more systematic, logical, and rational approach to strategic choice. Communication is a key to successful strategic management. The major aim of the communication process is to achieve understanding and commitment throughout the organization. It results in the great benefit of empowerment. More and more organizations are decentralizing the strategic-management process. Figure 1-2 illustrates the benefits of engaging in strategic planning.

A. Financial Benefits

1.Research indicates that organizations using strategic-management concepts are more profitable and successful than those that do not.

2.High-performing firms tend to do systematic planning to prepare for future fluctuations in the external and internal environments. Firms with planning systems more closely resembling strategic-management theory generally exhibit superior long-term financial performance relative to their industries.

B.Nonfinancial Benefits

1. Besides helping firms avoid financial demise, strategic management offers other tangible benefits, such as an enhanced awareness of external threats, an improved understanding of competitors’ strengths, increased employee productivity, reduced resistance to change, and a clearer understanding of performance-reward relationships.

2. In addition to empowering managers and employees, strategic management often brings order and discipline to an otherwise floundering firm.

3. Greenley stated that strategic management offers these benefits:

a. It allows for identification, prioritization, and exploitation of opportunities. b. It provides an objective view of management problems. c. It represents a framework for improved coordination and control of activities. d. It minimizes the effects of adverse conditions and changes. e. It allows major decisions to better support established objectives. f. It allows more effective allocation of time and resources to identified opportunities. g. It allows fewer resources and less time to be devoted to correcting erroneous or ad hoc decisions. h. It creates a framework for internal communication among personnel. i. It helps integrate the behavior of individuals into a total effort. j. It provides a basis for clarifying individual responsibilities. k. It encourages forward thinking.

l. It provides a cooperative, integrated, and enthusiastic approach to tackling problems and opportunities. m. It encourages a favorable attitude toward change. n. It gives a degree of discipline and formality to the management of a business.

VTN (Visit the Net): The website www.entarga.com/stratplan/index.htm provides an excellent narrative on the benefits of strategic planning, pitfalls in planning, and steps in doing strategic planning.

V.WHY SOME FIRMS DO NO STRATEGIC PLANNING

Some reasons for poor or no strategic planning are as follows:

← Lack of knowledge or experience
← Poor reward structures
← Fire fighting
← Waste of time
← Too expensive
← Laziness
← Content with success
← Fear of failure
← Overconfidence
← Prior bad experience
← Self-interest
← Fear of the unknown
← Honest difference of opinion
← Suspicion

VTN (Visit the Net): The website www.mindtools.com/plfailpl.html gives reasons many organizations avoid strategic planning.

VI.PITFALLS IN STRATEGIC PLANNING

Some pitfalls to watch for and avoid in strategic planning are provided below:

← Using strategic planning to gain control over decisions and resources ← Doing strategic planning only to satisfy accreditation or regulatory requirements ← Too hastily moving from mission development to strategy formulation ← Failing to communicate the plan to employees, who continue working in the dark ← Top managers making many intuitive decisions that conflict with the formal plan ← Top managers not actively supporting the strategic-planning process ← Failing to use plans as a standard for measuring performance ← Delegating planning to a “planner” rather than involving all managers ← Failing to involve key employees in all phases of planning ← Failing to create a collaborative climate supportive of change ← Viewing planning to be unnecessary or unimportant

← Becoming so engrossed in current problems that insufficient or no planning is done ← Being so formal in planning that flexibility and creativity are stifled

VII.GUIDELINES FOR EFFECTIVE STRATEGIC MANAGEMENT

A.Failure to Follow Certain Guidelines in Planning Can Cause Problems

1. An integral part of strategy evaluation must be to evaluate the quality of the strategic-management process. Issues such as “Is strategic management in our firm a people process or a paper process?” should be addressed.

2. An important guideline for effective strategic management is open-mindedness. A willingness to consider new information, viewpoints, ideas, and possibilities is essential.

3. Strategic decisions require trade-offs such as long-range versus short-range considerations or maximizing profits versus increasing shareholders’ wealth.

4. Subjective factors such as attitudes toward risk, concern for social responsibility, and organizational culture will always affect strategy-formulation decisions, but organizations must remain as objective as possible.

5. Table 1-3 summarizes important guidelines for the strategic planning process to be effective.

VIII.COMPARING BUSINESS AND MILITARY STRATEGY

A.A Strong Military Heritage Underlies the Study of Strategic Management

1. Terms such as objectives, mission, strengths, and weaknesses were first formulated to address problems on the battlefield.

2. A fundamental difference between military and business strategy is that business strategy is formulated, implemented, and evaluated with the assumption of competition, while military strategy is based on an assumption of conflict.

3. The similarities between military and business strategy can be seen in Sun Tzu’s The Art of War. Table 1-4 provides excerpts.

ISSUES FOR REVIEW AND DISCUSSION

1. Distinguish between long-range planning and strategic planning.

Answer: Long-range planning is used to optimize for tomorrow the trends of today, whereas strategic planning is used to exploit and create new and different opportunities for tomorrow.

2. Compare a company’s strategic plan with a football team’s game plan.

Answer: A strategic plan is, in essence, a company’s game plan. Just as a football team needs a good game plan to have a chance for success, a company must have a good strategic plan to compete successfully.

3. Describe the three activities that comprise strategy evaluation.

Answer: The three fundamental strategy-evaluation activities are (1) reviewing external and internal factors that are the bases for current strategies, (2) measuring performance, and (3) taking corrective actions.

4. How important do you think “being adept at adapting is for business firms? Explain.

Answer: The strategic-management process is based on the belief that organizations should continually monitor internal and external events and trends so that timely changes can be made as needed.

5. Compare the opossum and turtle to the woolly mammoth and saber tooth tiger in terms of being adept at adapting.

Answer: Students’ answers will vary, but students are likely to make the argument that those species that are adept at adapting are able to survive, while those that are unable to adapt are more likely to perish and become extinct.

6. As cited in the chapter, Edward Deming, a famous businessman, once said, “in God we trust. All others bring data.” What did Deming mean in terms of developing a strategic plan?

Answer: The strategic-management process can be described as an objective, logical, systematic approach for making major business decisions in an organization. It attempts to organize qualitative and quantitative information in a way that allows effective decisions to be made under conditions of uncertainty.

7. What strategies do you believe can save newspaper companies from extinction?

Answer: Students’ answers will vary and may draw from the “External Opportunities and Threats” portion of the chapter, as well as Table 1-1. A potential strategic move for newspaper companies would be to invest in Internet technologies.

8. Distinguish between the concepts of mission and vision.

Answer: Mission statements are “enduring statements of purpose that distinguish one business from other similar firms”. Visions statements answer the question “What do we want to become?”

9. Your university has fierce competitors. List three external opportunities and three external threats that face your university.

Answer: Students’ answers will vary and should draw from the “External Opportunities and Threats” section of the chapter.

10. List three internal strengths and three internal weaknesses that characterize your university.

Answer: Students’ answers will vary and should draw from the “Internal Strengths and Weaknesses” section of the chapter.

11. List reasons why objectives are essential for organizational success.

Answer: Objectives are essential for organizational success because they state direction, aid in evaluation, create synergy, reveal priorities, focus coordination, and provide a basis for effective planning, organizing, motivating, and controlling activities.

12. List four strategies and a hypothetical example of each.

Answer: Business strategies include geographic expansion, diversification, acquisition, product development, market penetration, retrenchment, divestiture, liquidation, and joint ventures. Examples of strategies should vary.

13. List six characteristics of annual objectives.

Answer: Like long-term objectives, annual objectives should be measurable, quantitative, challenging, realistic, consistent, and prioritized.

14. Why are policies especially important in strategy formulation?

Answer: Policies, like annual objectives, are especially important in strategy implementation because they outline an organization’s expectations of its employees and managers. Policies allow consistency and coordination within and between organizational departments.

15. What is a “retreat” and why do firms take the time and spend the money to have these?

Answer: Retreats are formal meetings conducted semiannually to discuss and update the firm’s vision/mission, opportunities/threats, strengths/weaknesses, strategies, objectives, policies, and performance. Retreats are commonly held off-premises to encourage more creativity and candor from participants.

16. Discuss the notion of strategic planning being more formal versus informal in an organization. On a 1 to 10 scale from formal to informal, what number best represents your view of the most effective approach? Why?

Answer: Formality refers to the extent that participants, responsibilities, authority, duties, and approach are specified. Application of the strategic-management process is typically more formal in larger and well-established organizations. Smaller businesses tend to be less formal. Firms that compete in complex, rapidly changing environments, such as technology companies, tend to be more formal in strategic planning. Firms that have many divisions, products, markets, and technologies also tend to be more formal in applying strategic-management concepts. Greater formality in applying the strategic-management process is usually positively associated with the cost, comprehensiveness, accuracy, and success of planning across all types and sizes of organizations.

17. List ten guidelines for making the strategic-planning process effective. Arrange your guidelines in prioritized order of importance in your opinion.

Answer: Table 1-3 presents 17 guidelines for the strategic-planning process to be effective: 1. It should be a people process more than a paper process. 2. It should be a learning process for all managers and employees. 3. It should be words supported by numbers rather than numbers supported by words. 4. It should be simple and non-routine.

5. It should vary assignments, team memberships, meeting formats, and even the planning calendar. 6. It should challenge the assumptions underlying the current corporate strategy. 7. It should welcome bad news.

8. It should welcome open-mindedness and a spirit of inquiry and learning. 9. It should not be a bureaucratic mechanism.
10. It should not become ritualistic, stilted, or orchestrated. 11. It should not be too formal, predictable, or rigid. 12. It should not contain jargon or arcane planning language. 13. It should not be a formal system of control.

14. It should not disregard qualitative information.
15. It should not be controlled by “technicians”. 16. Do not pursue too many strategies at once.
17. Continually strengthen the “good ethics is good business” policy.

18. List what you feel are the five most important lessons for business that can be garnered from The Art of War book.

Answer: Both business and military organizations must adapt to change and constantly improve to be successful. Table1-4 provides narrative excerpts from The Art of War, including these examples:. o War is a matter of vital importance to the state.

o Warfare is based on deception.
o A speedy victory is the main object in war.
o Generally, in war the best policy is to take a state intact; to ruin it is inferior to this. o When ten to the enemy’s one, surround him. When five times his strength, attack him. If double his strength, divide him. If equally matched, you may engage him with some good plan. If weaker, be capable of withdrawing. An if in all respects unequal, be capable of eluding him. o Know the enemy and know yourself.

o He who occupies the field of battle first and awaits his enemy is at ease, and he who comes later to the scene and rushes into the fight is weary. o Analyze the enemy’s plans so that you will know his shortcomings as well as his strong points. o An army should be likened to water: Just as flowing water avoids the heights and hastens to the lowlands, so an army should avoid strength and strike weakness. o If you decide to go into battle, do not announce your intentions or plans.

o Unskilled leaders work out their conflicts in courtrooms and battlefields. Brilliant strategists rarely go to battle or to court; they generally achieve their objectives through tactical positioning well in advance of any confrontation. o When you do decide to challenge another company, much calculating estimating, analyzing, and positioning bring triumph. o Skillful leaders do not let a strategy inhibit creative counter-movement. o When a decisive advantage is gained over a rival, skillful leaders do not press on. They hold their position and give their rivals the opportunity to surrender or merge. o Brilliant strategists forge ahead with illusion, obscuring the areas of major confrontation, so that opponents divide their forces in an attempt to defend many areas.

19. What is the fundamental difference between business strategy and military strategy in terms of basic assumptions?

Answer: The fundamental difference between military and business strategy is that business strategy is formulated, implemented, and evaluated with an assumption of competition, whereas military strategy is based on an assumption of conflict.

20. Explain why the strategic management class is often is called a “capstone course.”

Answer: Business policy is commonly called a capstone course because students’ major responsibility in this class is to use all knowledge gained in prior courses to chart the future direction of different organizations.

21. What aspect of strategy formulation do you think requires the most time? Why?

Answer: Important aspects of strategy formulation include developing a business mission, performing an external audit, conducting an internal audit, generating alternative strategies, and choosing among alternative strategies. Performing an external audit generally takes the most time. For example, identifying competitors’ strengths and weaknesses is an essential aspect of the external audit. Effective use of the Internet can reduce the time required for performing an external audit.

22. Why is strategy implementation often considered the most difficult stage in the strategic-management process?

Answer: Strategy implementation is often considered to be the most difficult stage in strategic management because it requires discipline, sacrifice, commitment, and hard work from all employees and managers. It is always more difficult to do something than to say you’re going to do it.

23. Why is it so important to integrate intuition and analysis in strategic management?

Answer: Neither intuition nor analysis alone is sufficient for making good strategic decisions. Intuition, based on one’s past experiences, judgment, and “gut” feelings, does not include the use of analytical strategic-management concepts that have been developed and successfully tested in the business world. To ignore these techniques that are based on historical learning is like trying to reinvent the wheel. However, no analytical tools can capture all aspects of a given organization’s culture and situation. Nor can analytical tools assimilate all the subjective information that must be considered in strategic management, such as personalities, emotions, values, beliefs, customs, and ethical factors. Thus, it is very important to integrate intuition and analysis in strategic management.

24. Explain the importance of a vision and mission statement.

Answer: Reaching agreement on formal vision and mission statements can greatly facilitate the process of reaching agreement on an organization’s strategies, objectives, and policies. Organizational success depends on reasonable agreement on these issues, so a clear mission statement is a most important strategic-management tool.

25. Discuss relationships among objectives, strategies, and policies.

Answer: Long-term objectives and strategies are products of strategy formulation. Short-term (annual) objectives and policies are products of strategy implementation. Firms should translate long-term objectives into annual objectives. Similarly, strategies should be supported with clear policies.

26. Why do you think some chief executive officers fail to use a strategic-management approach to decision making?

Answer: Some chief executive officers, strategists, and organizations have been successful, to date, without using strategic-management concepts and techniques. However, success today is no guarantee for success tomorrow. The business world is becoming global in scope; technology is changing the nature of competition in all industries. Strategic management enables organizations to recognize and adapt to change more readily. Successfully adapting to change is the key to survival and prosperity. There is no good alternative approach to strategic management.

27. Discuss the importance of feedback in the strategic-management model.

Answer: Note in the strategic-management model that feedback is critically important. Changes can occur that impact all strategic-management activities. Feedback allows these changes to be identified and adjustments to be made. Feedback in the strategic-management process promotes the creation of a climate for two-way communication and, thus, allows esprit de corps to be achieved in an organization.

28. How can strategists best ensure that strategies will be effectively implemented?

Answer: Strategists can best assure that strategies formulated will be effectively implemented by involving as many managers as possible in the strategy formulation process. Also, it is important to communicate effectively why changes are needed.

29. Give an example of a recent political development that changed the overall strategy of an organization.

Answer: Students’ answers will vary. Some possible examples might include 1) the series of federal bailouts in 2008 and 2009 have caused corporations to become more financially transparent, 2) the economic downturn of 2008 and 2009 has caused U.S. automobile companies to downsize, become more efficient, and in many cases, to change their entire business models, 3) the political investigations into the Bernard Madoff case and potential changes for investment firms and individual investors that may have resulted

30. Who are the major competitors of your college or university? What are their strengths and weaknesses? What are their strategies? How successful are these institutions compared to your college?

Answer: Answers to this question will vary by institution.

31. Would strategic-management concepts and techniques benefit foreign businesses as much as domestic firms? Justify your answer.

Answer: The answer to this question is yes. Many foreign businesses are using strategic-management concepts and techniques effectively. Students could look in the England-based journal Long Range Planning to read about foreign firms also benefiting from strategic-management ideas. Another good foreign-based business journal that carries strategic-management articles is the Journal of Management Studies.

32. What do you believe are some potential pitfalls or risks in using a strategic-management approach to decision making?

Answer: There is a risk of too little top management support for the process. There is a risk of too little involvement by line managers and employees. There is a risk that top managers will underestimate the importance of understanding and commitment.

33. In your opinion, what is the single major benefit of using a strategic-management approach to decision making? Justify your answer.

Answer: The single major benefit is the potential for improved understanding of the business and industry on the part of all managers and employees. Understanding generally leads to increased commitment, which, in turn, leads to creativity, innovativeness, and overall cooperativeness. The process is more important than the plan. Also, the strategic-management process allows an organization to initiate and influence, rather than just respond and react to its environment. That is, it allows an organization to be proactive, rather than reactive, in controlling its own destiny. Strategic-management concepts provide an objective basis for allocating resources and for reducing internal conflicts that can arise when subjectivity alone is the basis for major decisions.

34. Compare business strategy and military strategy.

Answer: As discussed in the latter part of this chapter, business and military strategy are similar in many respects. Many of the ideas developed in business strategy were first formulated as military strategy. Both military and business organizations have competitors. A fundamental difference between military and business strategy is that business strategy is formulated, implemented, and evaluated with the assumption of competition, while military strategy is based on an assumption of conflict.

35. Why is it important for all business majors to study strategic management since most students will never become a chief executive officer or even a top manager in a large company?

Answer: Strategic management takes place at multiple levels within an organization. Although most students may never become the CEO of a corporation, they may become the “branch manager” or department head of a larger firm. In these roles, they may be asked to complete a strategic plan for their branch or department. In addition, employees at all levels are frequently asked to contribute to the development of their firm’s strategic plan. As a result, an understanding of the strategic-management process is important.

36. Describe the content available on the SMCO Web site at www.strategyclub.com.

Answer: The SMCO website provides links to websites with information useful for case analysis such as corporate websites, business analysis services, news sites, magazines, governmental sites, and financial ratio analyses. It also provides links to job search websites, graduate school websites, and websites related to strategic planning. Several software packages are available for purchase on the site including a template for generating the matrices required for case analyses.

37. List four financial and four nonfinancial benefits of a firm engaging in strategic planning.

Answer: Businesses engaging in strategic planning experience the following financial benefits. They show significant improvement in sales, profitability, and productivity compared to firms without strategic planning activities. Firms using strategic planning generally exhibit superior long-term financial performance relative to their industry and seem to make more informed decisions with good anticipation of both short and long-term consequences. They are also prepared for fluctuations in their external and internal environments.

In addition to the financial benefits, firms using strategic planning also experience nonfinancial benefits. These include an enhanced awareness of external threats, an improved understanding of competitors’ strategies, increased employee productivity, reduced resistance to change, and a clearer understanding of performance-reward relationships.

38. Why is it that a firm can sustain a competitive advantage normally for only a limited period of time?

Answer: A firm can sustain a competitive advantage for only a certain period of time due to rival firms. These competing firms will attempt to imitate the competitive advantage in order to undermine the leader.

39. Why is it not adequate to simply obtain competitive advantage?

Answer: Because other firms will constantly attempt to undermine firms with competitive advantages and imitate those advantages, organizations must constantly strive to achieve sustained competitive advantage.

40. How can a firm best achieve sustained competitive advantage?

Answer: Sustained competitive advantage can best be achieved by 1) continually adapting to changes in external trends and events and internal capabilities, competencies, and resources, and by 2) effectively formulating, implementing, and evaluating strategies that capitalize upon those factors.