Strategic Management Lesson 1-5 PDF

#### HBM3 41 STRATEGIC MANAGEMENT AND TOTAL QUALITY MANAGEMENT LESSON 1-5: PRELIMINARY ##### What is Strategy? ##### What is about strategic management in the tourism and hospitality industry? ##### What is Strategic Management? ##### Purpose of Strategic Management ##### Benefits of Strategic...

#### HBM3 41 STRATEGIC MANAGEMENT AND TOTAL QUALITY MANAGEMENT LESSON 1-5: PRELIMINARY ##### What is Strategy? ##### What is about strategic management in the tourism and hospitality industry? ##### What is Strategic Management? ##### Purpose of Strategic Management ##### Benefits of Strategic Management - **Competitive Advantage:** Strategic management gives businesses an advantage over competitors because its proactive nature means your company will always be aware of the changing market - **Achieving Goals:** Strategic management helps keep goals achievable by using a clear and dynamic process for formulating steps and implementation. QF-PQM-035 (03.07.2024) Rev.07 - **Sustainable Growth:** Strategic management has been shown to lead to more efficient organizational performance, which leads to manageable growth. - **Cohesive Organization:** Strategic management necessitates communication and goal implementation company-wide. An organization that is working in unison towards a goal is more likely to achieve that goal. - **Increased Managerial Awareness:** Strategic management means looking toward the company\'s future. If managers do this consistently, they will be more aware of industry trends and challenges. By implementing strategic planning and thinking, they will be better prepared to face future challenges. ##### How does strategic management work? - Prescriptive strategic management means developing strategies in advance of an organizational issue. - Descriptive strategic management means putting strategies into practice when needed. Both methods of strategic management employ management theory and practices. 1. Identification 2. Analysis 3. Formation 4. Execution 5. Evaluation ##### Identification 2. **Analysis** 3. **Formation** QF-PQM-035 (03.07.2024) Rev.07 4. **Execution** 5. **Evaluation** 1. **Identification -** A furniture company named Wood\'s Fine Furnishings is preparing to introduce a new line of kitchen tables. They decided to implement strategic management to ensure that the product release goes smoothly, efficiently, and consistently across all of their retail locations. 2. **Analysis -** In the past, Wood\'s Fine Furnishings has suffered from inconsistent marketing and incorrect shipping costs with the release of new products in its multiple retail locations. Before the release of their new kitchen table line, they decided to run a SWOT analysis to see how they can improve the process. - Quality Product - Several locations for ease of purchase - Flat shipping rate - Poor communication between store managers and between store employees. - Shipping rate applied multiple times at some stores. - Inconsistent marketing strategy - Unified marketing - Transparent fees - Wood's Fine Furnishings' main competitor released a line of kitchen tables last 3. **Formation** - Using their SWOT analysis, Wood\'s Fine Furnishings creates a strategic plan for the release of their kitchen tables. It includes providing consistent marketing collateral, both print and digital, to all retail locations. It also includes sending a representative to each retail location to explain how to correctly apply the shipping rate to all purchases. Lastly, the support team sets up an internal messaging system so store managers can communicate quickly and easily about challenges and successes in their stores. QF-PQM-035 (03.07.2024) Rev.07 4. **Execution** - One month before the release of the new kitchen tables, the marketing team provides the marketing collateral to all retail stores. Every store is given the same guidance on how to implement the marketing items effectively. Two weeks before the launch, store managers are trained as a group on the new messaging system. The trainer field questions and make sure every manager has the messaging service set up on their company cell phone and office computer to be always accessible One week before the launch, a representative from company headquarters trains every retail employee on how to appropriately apply shipping costs to a sale. Managers are also present to make sure this process is carried out correctly with customers. 5. **Evaluation** - Wood\'s Fine Furnishings reviews the data from their kitchen table release one month after the first day of sales. They find that the marketing plan drove consumers to the retail location closest to them to see the tables in person. The internal messaging system was under-utilized by most managers, many of whom did not like customers seeing them on their phones while out on the floor. There were no issues with shipping costs during this release. The strategic managers take this data and use it as they begin to plan for their next new product release. ##### 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, and 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. In addition, 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 strategies are not working well; strategy evaluation is the primary means for obtaining this information. 2. Three fundamental strategy evaluation activities are provided below: d. Reviewing external and internal factors that are bases for current strategies e. Measuring performance f. Taking corrective action 3. Strategy formulation, implementation, and evaluation activities occur at three hierarchical levels in a large organization: corporate, divisional, and functional. Small businesses may only have the corporate and functional levels. 4. Integrating Intuition and Analysis QF-PQM-035 (03.07.2024) Rev.07  5. Adapting Change ##### The Key Strategic Management Questions 1. What kind of business should we become? - Type of business: - Sole proprietorship is owned and operated by a single person. There is no legal separation between the business and the owner, which means the tax and legal liabilities of the business are the responsibility of the owner. - Partnership is a business relationship between two or more people who together conduct business. Each partner contributes resources and money to the business and shares in the profits and losses of the business. The shared profits and losses are recorded on each partner\'s tax return. - Corporation is a business in which a group of people acts as a single entity. Owners are commonly referred to as shareholders who exchange consideration for the corporation\'s common stock. Incorporating a business releases owners of the financial liability of business obligations. A corporation comes with unfavorable taxation rules for the owners of the business. - Limited liability companies - This is a relatively new business structure and was first available in Wyoming in 1677 and in other states in the 1660s. A limited liability company combines the pass-through taxation benefits of a partnership with the limited liability benefits of a corporation. - Size: - Small owner-operated companies are called **small businesses**. Commonly managed by one person or a small group of people with less than 100 employees, these companies include family restaurants, home-based companies, clothing, books, publishing companies, and small manufacturers. As of 2021, 32.5 million small businesses with 61.2 million employees were operating in the United States. QF-PQM-035 (03.07.2024) Rev.07 - Mid-sized Business - There is no definitive specification in the U.S. to define a mid-sized or medium-sized company. However, when large U.S. cities such as Philadelphia, Baltimore, and Boston evaluate the landscape of operating businesses, a medium-sized company is defined as one with 100 to 466 employees or \$10 million to less than \$50 million in annual gross sales. - Large businesses commonly have more than 1000 employees and garner \$50 million or more in gross receipts. They may issue corporate stock to finance operations as a publicly traded company. 2. Are we in the right field? - Different fields: Accounting, Consulting, Entrepreneurship/Small Business, Event - ​ 3. Should we reshape our business? - Prioritize people's safety and continuous engagement - Ensuring the safety and well-being of the employees in the workplace is essential. People are looking to their employers, community, and government leaders for guidance. Addressing their concerns openly and transparently will go a long way to engaging them and reassuring business continuity. - Reshape strategy for business continuity - Evaluate short-term liquidity. Companies will want to instill short-term cash flow monitoring discipline that allows them to predict cash flow pressures and intervene promptly. Assess financial and operational risks and respond quickly. Companies will need to monitor direct cost escalations and their impact on overall product margins, intervening and renegotiating, where necessary. - Communicate with relevant stakeholders - Clear, transparent, and timely communications are necessary when creating a platform to reshape the business and secure ongoing support from customers, employees, suppliers, creditors, investors, and regulatory authorities. - Maximize the use of government support policies - Companies should monitor nationwide on-wide government and organizational opportunities for support and how they may best serve the individual circumstances of their situation. It is important to note that government support may differ based on jurisdiction and QF-PQM-035 (03.07.2024) Rev.07 - Build resilience in preparation for the new normal - Once companies have solidified strategies based on stress tests and communicated any new directions with relevant stakeholders, they will need to execute them based on revised plans while monitoring what continues to be a fluid situation. Senior management should report any material deviation from the plan promptly so that their companies can take additional action to avoid further negative impacts. 4. What new competitors are entering our industry? - Knowing the type of competitors - Direct Competitors -- this probably comes to mind when you think of your competition. These are businesses offering similar (or identical) products or services in the same market. They also view the same customer base - Indirect Competitors - are businesses in the same category that sell different products or services to solve the same problem. - Replacement Competitors - offers an alternative to the product or service that you offer. You both seek to solve the same pain points, but the means are different. - Identify the competition - Check the first page of Google - An easy starting point is doing a quick Google search. Think of a few keywords someone might search to find you, such as \[service or product\] + \[location\]. For example, *general contractor Sacramento*. - Research targeted keywords - Check the keywords you are currently targeting to identify other businesses targeting the same ones. This is a solid strategy for finding your indirect competition since they likely target the same keywords. For example, the keyword \"fast-food\" may reveal Subway and Taco Bell --- both indirect competitors ---as the top two results. - Monitor social media conversations - Opinions are aplenty on social media --- so it\'s relatively easy to find what your customers are saying. To find relevant conversations, enter your business's name in the search bar and check the results. - Perform market research - Check the market for your product or service and note any companies with a competing offer. Market research can be done in several ways --- whether that be with a Google search, by browsing through trade journals, or by talking with your sales team to see what other companies are commonly brought up by customers (to name a few). - Ask your customers - Customers are crucial to identifying your competition --- after all, they likely sifted through most of them before landing on you. There are many ways to solicit feedback from customers --- both online and in person. That could mean striking up conversations while cashing them out or sending an email survey after each sale. One way or another, try to find the best approach and regularly check the feedback for any trends. QF-PQM-035 (03.07.2024) Rev.07 ##### Key Terms in Strategic Management A. **Competitive Advantage --** is defined as anything that a firm does exceptionally well compared to rival firms. 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. An increasing number of companies are gaining a competitive advantage by using the Internet for direct selling and communication with suppliers, customers, creditors, partners, shareholders, clients, and competitors who may be dispersed globally. B. **Strategists --** are individuals who are most responsible for the success or failure of an organization. Strategists hold various job titles, such as chief executive officer, president, owner, chair of the board, executive director, chancellor, dean, or entrepreneur. 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 --** Vision statements answer the question: "What do we want to become?" 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 fundamental question that faces all strategists: "What is our business?" It should include the values and priorities of an organization. D. **External Opportunities and Threats --** 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. E. **Internal Strengths and Weaknesses --** Internal strengths and internal weaknesses are an organization's controllable activities that are performed exceptionally well or poorly. Identifying and evaluating organizational strengths and weaknesses in the functional areas is an essential strategic management activity. F. **Long-term Objectives --** Objectives can define as specific results that an organization seeks to achieve in pursuing its primary mission. Long-term means more than one year. Objectives state direction, aid in evaluation, create synergy, reveal priorities, focus coordination, and provide a basis for effective planning, organizing, motivating, and controllable activities. Objectives should be challenging, measurable, consistent, reasonable, and straightforward. G. **Strategies --** are how long-term objectives will be achieved. For example, business strategies may include geographic expansion, diversification, acquisition, product development, market penetration, retrenchment, divestiture, liquidation, and joint ventures. H. **Annual Objectives --** short-term milestones that organizations must achieve to reach long- term objectives. Like long-term objectives, annual objectives should be measurable, quantitative, challenging, realistic, consistent, and prioritized. QF-PQM-035 (03.07.2024) Rev.07 I. **Policies --** are how annual objectives will be achieved. Policies include guidelines, rules, and procedures established to support efforts to achieve stated goals. Policies are most often stated in management, marketing, finance/accounting, production/operations, research and development, and computer information system activities. ##### Why some firms do not do Strategic planning 1. **Lack of knowledge or experience** -- No training in strategic planning. 2. **Poor reward structure -** When an organization assumes success, it often fails to reward success. When failure occurs, then the firm may punish. 3. **Firefighting -** An organization can be so deeply embroiled in resolving crises and firefighting that reserves no time for planning. 4. **Waste of time --** Some firms see planning as a waste of time because no marketable product is produced. Time spent on planning is an investment. 5. **Too expensive --** some organizations see planning as too expensive in time and money. 6. **Laziness --** People may not want to put forth the effort needed to formulate a plan. 7. **Content with success --** Particularly if a firm is successful, individuals may feel there is no need to plan because things are fine as they stand. But success today does not guarantee success tomorrow. 8. **Fear of Failure --** By not taking action, there is little risk of failure unless a problem 6. **Overconfidence --** As managers amass experience, they may rely less on formalized planning. Rarely, however, is this appropriate. Being overconfident or overestimating experience can bring demise. Forethought is rarely wasted and is often the mark of professionalism. 10. **Prior bad experience --** People may have had a previous bad experience with planning, that is, cases in which plans have been long, cumbersome, impractical, or inflexible. planning, like anything else, can be done badly. 11. **Self-interest --** When someone has achieved status, privilege, or self-esteem through effectively using an old system, he or she often sees a new plan as a threat. 12. **Fear of the unknown --** People may be uncertain of their abilities to learn new skills, of their aptitude with new systems, or of their ability to take on new roles. 13. **Honest difference of opinion --** People may sincerely believe the plan is wrong. 14. **Suspicion -** Employees may not trust management. ##### Guidelines For Effective Strategic Management 1. An integral part of strategy evaluation must be to evaluate the qualifications 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 are essential. QF-PQM-035 (03.07.2024) Rev.07 3. Strategic decisions require trade-offs such as long-range versus short-range 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. #### LESSON 2: BUSINESS VISION AND MISSION ##### Introduction: ##### B. Mission and Vision Statements 1. **Mission and Vision Statements Explained** QF-PQM-035 (03.07.2024) Rev.07 ##### Vision Statements QF-PQM-035 (03.07.2024) Rev.07 - Walgreens (drugstores) -- "Champions the health and well-being of every community in - Nike (athletics)- "To bring inspiration and innovation to every athlete in the world. - The Dow Chemical Company (chemicals) -- "Become the most innovative, customer- centric, inclusive and sustainable Materials Science Company in the world." 5. ##### Vision Statement Examples - Amazon (online retail) -- "Our vision is to be earth's most customer-centric company where customers can find and discover anything they might want to buy online...at the lowest possible prices. - PepsiCo (online retail) -- "Be the global leader in convenient foods and beverages by winning ##### Figure 1: 6. **Importance of Vision and Mission Statements** QF-PQM-035 (03.07.2024) Rev.07 1. To ensure unanimity of purpose within the organization 2. To provide a basis, or standard, for allocating organizational resources 3. To establish a general tone or organizational climate 4. To serve as a focal point for individuals to identify with the organization's purpose and direction, and to deter those who cannot from participating further in the organization's activities 5. To facilitate the translation of objectives into a work structure involving the assignment of tasks The core purpose ---------------- ##### Figure 2: QF-PQM-035 (03.07.2024) Rev.07 ##### How to Create a Mission Statement ##### How to Create a Vision Statement QF-PQM-035 (03.07.2024) Rev.07 ##### B. Mission Components **Ten Benefits of Having a Clear Mission and Vision** QF-PQM-035 (03.07.2024) Rev.07  Customers ========= - **Who are the firm\'s customers?** B. Products or services ==================== - **What are the firm\'s major products or services?** C. Market ====== - **Geographically, where does firm compete?** D. **Technology** - **Is the firm technologically current?** E. **Concern for survival, growth, profitability** - **Is the firm committed to growth and financial soundness?** F. Philosophy ========== - **What are the basic beliefs, values, aspirations, and ethical priorities of the firm?** G. Self-concept ============ - **What is the firm\'s distinctive competence or major** H. ### Concern for Public image - **Is the firm responsive social,, community, and environment concerns?** ### I. Concern for employees ##### Figure 4: QF-PQM-035 (03.07.2024) Rev.07 #### LESSON 3: ANALYZING A COMPANY'S EXTERNAL ENVIRONMENT ##### Night Audit A. ##### Key External Forces 1. External forces can be divided into five broad categories: (1) economic forces; (2) social, cultural, demographic, and natural environment forces; (3) political, governmental, legal forces; (4) technological forces; and competitive forces. 2. External trends and events significantly affect all products, services, markets, and organizations in the world. 3. Changes in external forces translate into changes in consume demand for both industrial and consumer products and services.An example of this is a ##### The Process of Performing an External Audit 1. The process of performing an external audit must involve as many managers a. and employees as possible. 2. To perform an external audit, a company first must gather competitive intelligence, and information about social, cultural, demographic, environmental, economic, political, legal, governmental, and technological trends. 3. Once, information is gathered, it should be assimilated, evaluated, and 4. prioritized. 5. Key external factors should be important to achieving long term and annual objectives, measurable, applicable to all competing firms, and hierarchical, in the sense that some will pertain to the overall company while others will be more narrowly focused. ##### C Industrial Organization ##### D Economic Forces QF-PQM-035 (03.07.2024) Rev.07 ##### E Social, Cultural, Demographic, and Natural Environment Forces ##### Competitive Intelligence Programs ##### F Competitive Analysis: Porter's Five-Forces Model  QF-PQM-035 (03.07.2024) Rev.07 ##### Rivalry Among Competing Firms ##### Potential Entry of New Competitors ##### Potential Development of Substitute Products ##### Bargaining Power of Suppliers ##### Bargaining Power of Consumers ##### G Forecasting Tools and Techniques ##### H Industry Analysis: The External Factor Evaluation (EFE) Matrix QF-PQM-035 (03.07.2024) Rev.07 ##### I Competitive Profile Matrix (CPM) #### LESSON 4: ANALYZING COMPANY'S RESOURCES AND COMPETITIVE POSITION 1. Objectives are commonly stated in terms such as growth in assets, growth in sales, profitability, market share, degree and nature of diversification, degree, and nature of vertical integration, QF-PQM-035 (03.07.2024) Rev.07  QF-PQM-035 (03.07.2024) Rev.07 1. Financial objective includes those associated with growth in revenues, growth in earnings, higher dividends, larger profit margins, greater return on investment, higher earnings per share, a rising stock, price-improved cash flow, and so on 2. Strategic objectives include things such as a larger market share, quicker on-time delivery than rivals, shorter design-to-market times than rivals, lower costs than rivals, higher product quality than rivals, wider geographic coverage than rivals, achieving technological leadership, consistently getting new or improved products to market ahead of rivals, and so on. 3. And there are other trade-offs between financial and strategic objectives, related to riskiness of actions, concern for business ethics, need to preserve the natural environment, and social responsibility issues. Both financial and strategic objectives should include both QF-PQM-035 (03.07.2024) Rev.07 ##### Figure 7: BALANCE SCORECARD QF-PQM-035 (03.07.2024) Rev.07 ##### Figure 8: QF-PQM-035 (03.07.2024) Rev.07 ##### Integration Strategies 1. Forward Integration - involves gaining ownership or increased control over distributors on QF-PQM-035 (03.07.2024) Rev.07 - When an organization has both the capital and human resources needed to manage the new business of distributing its own products. - When the advantages of stable production are particularly high; this is a consideration because an organization can increase the predictability of the demand for its output through forward integration. - When present distributors or retailers have high-profit margins; this situation suggests that a company profitably could distribute its own products and price them more competitively by integrating forward. 2. Backward Integration - a strategy of seeking ownership or increased control of a firm's suppliers. This strategy can be especially appropriate when a firm's current suppliers are unreliable, too QF-PQM-035 (03.07.2024) Rev.07 - When an organization can gain monopolistic characteristics in a particular area or region without being challenged by the federal government for "tending substantially" to reduce competition. - When an organization competes in a growing industry. - When increased economies of scale provide major competitive advantages. - When an organization has both the capital and human talent needed to successfully manage an expanded organization. - When competitors are faltering due to a lack of managerial expertise or a need for particular resources that an organization possesses; note that horizontal integration would not be appropriate if competitors are doing poorly, because in that case overall industry sales are declining. QF-PQM-035 (03.07.2024) Rev.07 - When new untapped or unsaturated markets exist. - When an organization has the needed capital and human resources to manage expanded operations. - When an organization has excess production capacity. - When an organization's basic industry is rapidly becoming global in scope. 3. Product Development - a strategy that seeks increased sales by improving or modifying present products or services. Product development usually entails large research and development QF-PQM-035 (03.07.2024) Rev.07 d. Cross-business collaboration to create competitively valuable resource strengths and capabilities. Diversification strategies are becoming less popular as organizations are finding it more difficult to manage diverse business activities. 4. The greatest risk of being in a single industry is having all of the firm's eggs in one basket. However, diversification must do more than simply spread business risk across different industries. It makes sense only when it adds to shareholder value. A. Related Diversification - In a related diversification move in 2009, Tyson Foods entered the dog food business, selling refrigerated pet food targeted to consumers who give their pets everything from clothes and car seats to cemetery graves. Prior to this move by Tyson, meatpacking companies has been content to sell scraps such as chicken fat and by-products to makers of canned and dry pet food. Scott Morris of Fresh pet Company in Secaucus, New Jersey, says this move by Tyson will change the fact that "pet food today looks the same as it did 30 years ago." QF-PQM-035 (03.07.2024) Rev.07 e. When an organization's basic industry is experiencing declining annual sales and profits. f. When an organization has the capital and managerial talent needed to compete successfully in a new industry. g. When an organization has the opportunity to purchase an unrelated business that is an attractive investment opportunity. h. When there exists a financial synergy between the acquired and acquiring firm. (Note that a key difference between related and unrelated diversification is that the former should be based on some commonality in markets, products, or technology, whereas the latter should be based more on profit considerations.) i. When existing markets for an organization's present products are saturated. QF-PQM-035 (03.07.2024) Rev.07 - When an organization is plagued by inefficiency, low profitability, poor employee morale, and pressure from stockholders to improve performance. - When an organization has failed to capitalize on external opportunities, minimize external threats, take advantage of internal strengths, and overcome internal weaknesses over time; that is, when the organization's strategic managers have failed (and possibly will be replaced by more competent individuals). - When an organization has grown so large so quickly that major internal reorganization is needed. B. Divestiture QF-PQM-035 (03.07.2024) Rev.07 - When an organization has pursued both a retrenchment strategy and a divestiture strategy and neither has been successful. - When an organization's only alternative is bankruptcy. Liquidation represents an orderly and planned means of obtaining the greatest possible cash for an QF-PQM-035 (03.07.2024) Rev.07