Republic of the Philippines

UNIVERSITY OF EASTERN PHILIPPINES

PEDRO REBADULLA MEMORIAL CAMPUS
Catubig, Northern Samar
Web: http://uep.edu.ph; Email: [email protected]

MODULE IN

MARY ANN C. ESTUDILLO- Subject Facilitator

 OVERVIEW OF THE MODULE
Course Description:
The course covers the identification and description of strategies that managers must
use to achieve better performance and have a competitive advantage for their organization.
It deals with making and implementing decisions about future direction of the organization.

The following lesson will be covered in this module

MODULE 1: The Nature of Strategic Management
MODULE 2: The Business Vision and Mission
MODULE 3: The External Assessment
MODULE 4: The Internal Assessment
How to learn this module:
There are some pointers that you need to follow as you go over this module. These pointers
will help you achieve the objectives of this module successfully.
• Go through the pages one by one since the topics are related to one another. If you
miss one page, you may not understand the succeeding pages.
• Perform the activities as instructed and be sure to finish them.
• If ideas are not clear, you can always go back to the pages where they are
discussed.
• Perform the final task.
Gentle Reminders
• Make sure that your handwritten answers are clear and readable.
• If your answers did not suffice the space provided, use extra paper and do not
forget to label these attachments.
• If you have queries and clarifications, do not hesitate to contact me (your subject
facilitator) using any of the contact details provided in the learning modules.
• Keep your modules clean and presentable.
• Stay safe!
Course Learning outcome
1. Exhibit proficiency in their chosen fields of discipline through their involvement
in various types of employment;
2. Utilize research methodologies that will allow them to generate new knowledge
and address problems and issues and promote development.

At the end of this course, the students should be able to:

1. Identify and describe the strategies for managers to have a competitive advantage for
their organization.
2. Analyze how decisions should be implemented for the future directions of the
organization
3. Explain the interaction of the various components of a business
4. Integrate the knowledge gained in prior business courses
5. Analyze the environment and identify strategic issues and options
6. Integrate financial, managerial, accounting, marketing, and human resources
decisions into a coherent business strategy
7. Explain how to implement strategic plans
8. Explain how to evaluate strategic plan outcomes and how to adjust strategies in
response to environmental contingencies.
 MODULE 1 The Nature of Strategic Management

Lesson 1 Introduction to Strategic Management

Overview:
The course covers the identification and description of strategies that managers
must use to achieve better performance and have a competitive advantage for their
organization. It deals with making and implementing decisions about future direction of
the organization.

Learning Outcome: Identify and describe the strategies for managers to have a
competitive advantage for their organization. Analyze how decisions should be
implemented for the future directions of the organization.

INTRODUCTION
What Is Strategic Management?
In the field of management, strategic management involves the formulation and
implementation of the major goals and initiatives taken by an organization's managers
on behalf of stakeholders, based on consideration of resources and an assessment of the
internal and external environments in which the organization operates. Strategic
management provides overall direction to an enterprise and involves specifying the
organization's objectives, developing policies and plans to achieve those objectives, and
then allocating resources to implement the plans. Academics and practicing managers
have developed numerous models and frameworks to assist in strategic decision-
making in the context of complex environments and competitive dynamics. Strategic
management is not static in nature; the models often include a feedback loop to monitor
execution and to inform the next round of planning.

Strategic management is nothing but planning for both predictable as well as

unfeasible contingencies. It is applicable to both small as well as large organizations as
even the smallest organization face competition and, by formulating and implementing
appropriate strategies, they can attain sustainable competitive advantage.
It is a way in which strategists set the objectives and proceed about attaining them.
It deals with making and implementing decisions about future direction of an
organization. It helps us to identify the direction in which an organization is moving.
Strategic management is a continuous process that evaluates and controls the
business and the industries in which an organization is involved; evaluates its
competitors and sets goals and strategies to meet all existing and potential competitors;
and then reevaluates strategies on a regular basis to determine how it has been
implemented and whether it was successful or does it needs replacement.
Strategic Management gives a broader perspective to the employees of an
organization and they can better understand how their job fits into the entire
organizational plan and how it is co-related to other organizational members. It is
nothing but the art of managing employees in a manner which maximizes the ability of
achieving business objectives. The employees become more trustworthy, more
committed and more satisfied as they can co-relate themselves very well with each
organizational task. They can understand the reaction of environmental changes on the
organization and the probable response of the organization with the help of strategic
management. Thus, the employees can judge the impact of such changes on their own
job and can effectively face the changes. The managers and employees must do
appropriate things in appropriate manner. They need to be both effective as well as
efficient.
One of the major roles of strategic management is to incorporate various
functional areas of the organization completely, as well as, to ensure these functional
areas harmonize and get together well. Another role of strategic management is to keep
a continuous eye on the goals and objectives of the organization.

DISCUSSION
Defining Strategic Management
Strategic Management is all about identification and description of the strategies
that managers can carry so as to achieve better performance and a competitive
advantage for their organization. An organization is said to have competitive advantage
if its profitability is higher than the average profitability for all companies in its industry.
Strategic management can also be defined as a bundle of decisions and acts which
a manager undertakes and which decides the result of the firm’s performance. The
manager must have a thorough knowledge and analysis of the general and competitive
organizational environment so as to take right decisions. They should conduct a SWOT
Analysis (Strengths, Weaknesses, Opportunities, and Threats), i.e., they should make
best possible utilization of strengths, minimize the organizational weaknesses, make use
of arising opportunities from the business environment and shouldn’t ignore the threats.
Since the development of strategic management, there have been many definitions
of strategic management as there are many books written in this area.
According to Gluck and Jaunch (1984), strategic management refers to a set of
decisions and actions that lead to the formulation of an effective strategy to
achieve the objectives of the organization.

Pearce and Robinson (1985) define strategic management as a set of decisions

and actions that lead to the formulation and implementation of a strategy so as to achieve
the objectives of the organization.

Hunger and Wheelen (1996) define strategic management as a set of

managerial decisions and actions which determine the long-run performance
of an organization. It also includes environmental scanning, strategy
formulation, strategy implementation, and evaluation and control.

David (2003) defines strategic management as the art and science of

formulating, implementing and evaluating cross-functional decisions that
enable an organization to achieve its objectives.

Stages of Strategic Management

The strategic management process represents a logical, systematic, and objective
approach for determining an enterprise's future direction. However, a clear separation
is needed between the managerial process by which an organization formulates,
evaluates, implements, and controls the relationships between its objectives, its
strategies, and its environment.
Researchers usually distinguish three stages in the process of strategic management:
strategy formulation, strategy implementation, and evaluation and control.

1. Strategy Formulation
It is the process of establishing the organization's mission, objectives, and
choosing among alternative strategies. Sometimes strategy formulation is called
"strategic planning."
2. Strategy Implementation
It is the action stage of strategic management. It refers to decisions that are made
to install new strategy or reinforce existing strategy. The basic strategy -
implementation activities are establishing annual objectives, devising policies, and
allocated resources. Strategy implementation also includes the making of
decisions with regard to matching strategy and organizational structure;
developing budgets, and motivational systems.
3. Strategy Evaluation and Control
The final stage in strategic management is strategy evaluation and control. All
strategies are subject to future modification because internal and external factors
are constantly changing. In the strategy evaluation and control process managers
determine whether the chosen strategy is achieving the organization's objectives.
The fundamental strategy evaluation and control activities are: reviewing internal
and external factors that are the bases for current strategies, measuring
performance, and taking corrective actions.

LEARNING ACTIVITY 1:
1. Based on your understanding. What is the difference between strategy
formulation and strategy implementation?
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Key Terms in Strategic Management

There are some of basic strategic management key terms that need to be
considered at the beginning in order to completely understand strategic management.
These strategic management key terms are eight in numbers and are the base of strategic
management.

COMPETITIVE ADVANTAGE
• Anything that a firm does especially well compared to rival firms.
• Getting and keeping competitive advantage is essential for the long-term success
in an organization.
• A firm must strive for sustained competitive advantage.
 STRATEGISTS
Strategists are individuals who are most responsible for the
success or failure of an organization. Strategists are individuals
who form strategies. Strategists have various job titles, such as
chief executive officer, president, and owner, chair of the board,
executive director, chancellor, dean, or entrepreneur. Strategists
help an organization gather, analyze, and organize information.

VISION & MISSION STATEMENT

Vision Statement: Vision statement is quite necessary for the
operation of the organization as it provides answer to the question
that should be the organization wants to become? The first step in
the strategic planning is to develop the vision statement and after
that mission statement is prepared. Mostly the organizations
develop single sentence vision statements.
Mission Statement: Mission statement is long lasting statement that differentiates one
organization from other similar organization. The scope of the operations of the
organization in terms of market and product is identified through
mission statement.

EXTERNAL OPPORTUNITIES & 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. Opportunities and threats are largely beyond the control of a single
organization, thus the term external. The computer revolution, biotechnology,
population shifts, changing work values and attitudes, space exploration, recyclable
packages, and increased competition from foreign companies are examples of
opportunities or threats for companies. These types of changes are creating a different
type of consumer and consequently a need for different types of products, services, and
strategies.

INTERNAL STRENGTHS & WEAKNESSES

Those activities of the organization that are under control of
the organization, and may show good and bad impact on the
organization are known as internal strengths and
weaknesses of organization. These are present in the
marketing, management, production/operation,
finance/accounting, and information technology research
and development activities of the organization. It is quite essential strategic activity for
an organization to identify and evaluate organizational strengths and weaknesses.

LONG TERM OBJECTIVES

Long term objectives are also from one of the important strategic management key
terms. Long term objectives are referred to as particular results that organization wants
to accomplish in targeting the mission. Expected results by targeting certain strategies
are represented by long term objectives. Strategies include those actions that are
executed for the accomplishment of the long term objectives. There should be consistent
time frame for strategies & objectives which range from two to five years.
The objectives are important for the success of the organization because of the following
reasons:
 – Provide direction
– Helps in evaluation
– Create synergy
– Reveal priorities
– Focus coordination
– Assist in making plans, organizing data, motivating
employee and controlling each and everything

STRATEGIES
The means through which allow us to achieved long-term objectives. Following are
included in the business strategies.
– Geographic Expansion
– Diversification
– Product development
– Acquisition
– Retrenchment
– Market penetration
– Liquidation & Joint venture
Large amount of the resources of organization are required along with the
decisions of top management for the application of strategies in the form of
actions.

ANNUAL OBJECTIVES
Those short-term targets that are helpful in achieving long term objectives of the
organization are called annual objectives. The annual objectives must be quantitative,
measurable, realistic, challenging, consistent and prioritized. These must be developed
at functional, divisional & corporate levels in large organizations. Annual objectives are
significant for strategy implementation whereas strategy formulation phase contains
long term objectives.

POLICIES
Annual objectives are accomplished by the means of
policies. Policies contain rules, guidelines & procedures
developed to assist efforts to accomplish stated objectives.
Decision making is guided through policies & recurring and
repetitive situations are also addressed through policies.
Policies are usually mentioned in terms of marketing, finance/accounting,
Management and production/operation, activities related to information technology
and research and development.

PURPOSE
The organization's purpose outlines why the organization exists; it includes a
description of its current and future business (Leslie W. Rue, and Loyd L. Byars) The
purpose of an organization is its primary role in society, a broadly defined aim (such as
manufacturing electronic equipment) that it may share with many other organizations
of its type.
GOALS
A goal is a desired future state that the organization attempts to realize (Amitai Etzioni).
OBJECTIVES
The term objective is often used interchangeably with goal but usually refers to specific
targets for which measurable results can be obtained. Organizational objectives are the
end points of an organization's mission. Objectives refer to the specific kinds of results
the organizations seek to achieve through its existence and operations (William F.
Glueck, and Lawrence R. Jauch) Objective define what it is the organization hopes to
accomplish, both over the long and short term.

TACTICS
In contrast, tactics are specifics actions the organization might undertake in carrying its
strategy.

LEARNING ACTIVITY 3: A Case Study Analysis about: McDonalds Corporation. Using the
following format below;

CASE STUDY 1: MacDonald Corporation

I. INTRODUCTION INSTRUCTIONS:
II. SWOT Analysis • Print it in A4 Bond Paper
a. Strengths • Margin- 1 inch, Font Style &
b. Weaknesses Size- Arial (12)
c. Opportunities • 1.15 paragraph spacing
d. Threats (content paragraph use justify)
III. PESTEL ANALYSIS • For the cover page do not forget
the heading of the school, the
• Resources
activity title, your name and
• Capabilities
name of your subject teacher. )
• Core Competencies
IV. CONCLUSION

Review Questions on your case study:

1. What are the real issues in operations strategy in MacDonald? Classify them.
2. Assume you are the manager of MacDonald and give your views / solutions to the
issues in MacDonald.
3. which characteristics of McDonald’s production system have been most important
in building its record of success and growth in the industry?
4. What are the primary new challenges mcdonald’s faced in the 1990s? Mcdonald.
5. How would you adopt the system to accommodate these changes in the US?
6. How can mcdonald’s lay the basis for future growth

S U M M AR Y

Strategic management is a continuous process. There are three stages in this process:
strategy formulation, strategy implementation, and evaluation and control.
Strategy management is also viewed as series of steps. Therefore, the strategic-
management process can be best be studied and applied using the model. A review of
the major strategic management models indicates that they all include the following
steps: performing an environmental analysis, establishing organizational direction,
formulating organizational strategy, implementing organizational strategy, evaluating
and controlling strategy.
 The strategic management process mostly involves top management, board of
directors, and planning staff. In its final form, a strategic decision is molded from the
streams of inputs, decisions, and actions.
All organizations engage in the strategic management process. The success of an
organization is generally dependent upon the strategic management and
organizational abilities of the managers.
Many research studies show both financial and nonfinancial benefits which can be
derived from a strategic-management approach to decision making.
Moreover, the concept of strategic management is still involving and will continue to
undergo change. Therefore, understanding and following and complete process of
strategic management can be helpful to practicing managers to gain organizations'
objectives.

Lesson 2: The Strategic-Management Model

Learning Outcomes
By the end of this topic, you should be able to:
1. Distinguish the key components of strategic management;
2. Describe the strategic management model; and
3. Explain the interrelationships in the strategic management process.

INTRODUCTION
Components and Elements of Strategic Management
There are three major components in strategic management, namely, strategy
formulation, strategy implementation and strategy evaluation and control as shown in
Figure 2.1. There are several elements that make up each component. In the strategy
formulation component, the key elements are vision, mission, goals and objectives of the
organisation. The other elements are the external analysis, internal analysis, industry
analysis and competitive analysis. Identifying strategic alternatives and selection of the
strategic choices also form part of the strategy formulation component.
In the strategy implementation component, there are at least three key elements
that affect strategy implementation. These are organisational structure, people and
leadership, and organisational systems and processes. It is in this component where
action begins for the organisation and it presents a major challenge to many
organisations. In the strategy evaluation and control component, the key elements are
the evaluation model and processes, evaluation criteria, and control methods and
mechanisms for improving organisational performance and meeting the organisational
objectives. In order to better understand these elements and components (see Table 2.1
and Figure 2.2), it is important to know some basic concepts in strategic management.

Table 2.1: Components and Elements in Strategic Management

 The term ‰strategy„ refers to the means by which organizations try to achieve
their long-terms objectives (David, 2003). It also refers to the actions that
managers have to take or do in order to ensure that what has been set in the
objective can be achieved.

For example, Yahoo's strategy is to obtain 80% of its revenue from advertising to
obtain more revenue from customers who pay for services. As such, Yahoos strategy is to
offer services like personalized Web pages, audio subscriptions and music videos for a fee
(David, 2003). Strategists are, therefore, people in the organization who are responsible for
the success or failure of the organization (David, 2003). They are also people who can make
key decisions affecting the survival of the organization. These are people with job titles like
the chief executive officer, vice-chancellor, president, executive director, managing director,
dean, chairman of the board and business owner or entrepreneur.
Another familiar term in strategic management is policy. Policies include guidelines,
rules and procedures that were established or created to support the efforts in achieving
organizational objectives. Policies provide broad guidelines for managers to operate their
business activities without indicating the specific approaches or ways of doing things. In
order to know how to do things, procedures and rules are developed so as to ensure
consistency in the way things are done. For example, the policy of an organization is to give
a performance bonus of four months basic salary to employees with excellent performance.
The organization has found that 10 of its 100 employees deserve this performance bonus,
and to implement this policy, the human resource department is required to determine the
criteria for excellent performance (which is generally defined in the performance appraisal
process), and then apply the rule to the affected employees. Procedures will explain how
things should be done, while rules will explain what would be done within the parameters
set by the organization. So the rule is that only excellent employees will receive the four
months bonus. The procedure is outlined in the annual performance appraisal evaluation
form as set out by the human resource department.

DISCUSSION
Strategic Management Model
As mentioned in the earlier subtopic, the strategic management model comprises
three parts, namely, strategy formulation, strategy implementation, and strategy
evaluation and control. As shown in Figure 2.1 earlier, the generic model of strategic
management is at the macro level. However, at the micro level of the organization, the
strategic management model comprises several elements in the components of the
strategic management model. Figure 2.2 shows the components and elements of the
strategic management model.
Developing the strategic management model is important as it provides the basic
framework for understanding how strategic management can be operationalized at the
firm level. Furthermore, the strategic management model provides managers and
strategists a greater comprehension of the iterative approach in conducting real
strategic management in the organizational setting. Figure 2.2 illustrates that the
strategic management model begins with the development of the organizational vision
and mission. The organizational vision and mission would then be translated into the
organizational goals. Definitions of these terms are explained in Topic 4. These elements
show the direction and the areas of concern to be achieved by an organization. Once
these elements have been determined, the role of the manager or strategist is to perform
an analysis of the organization. This involves the three major types of analysis, namely,
the external analysis of the environment, the internal analysis of the organization, and
then the industry analysis. Each of these analyses will provide information on
opportunities and threats, strengths and weaknesses, and help the organization to
position itself vis-à-vis the other competing organizations in the industry. The results of
these analyses would, therefore, help managers and strategists to match the niche areas
to be focused, identify distinctive competence of the organization and determine the
competitive position the organization should take in order to sustain its competitive
edge in the industry.
The results of the strategic analysis will then help managers or strategists to
determine the potential alternatives available to the organization. A selection of the
appropriate strategic choices will be made ready for implementation.
In implementing strategy, the organization has to make sure that the elements in
implementation are in place. This means that the organizational goals have to be defined
at the operational level, and translated into objectives, which are more specific and
precise than the goals set by the organization. Policies in the organization need to be
developed and put in place. Then, specific programs or plans of action should be
prepared to ensure effective implementation of the organizational strategy. Strategy
implementation would not be complete without ensuring that the fundamental elements
in strategy implementation are all in place. This includes ensuring that the organization
has the appropriate structure, people and leadership required to manage the
implementation of the selected plan of action. Finally, implementation also requires
managers or strategists to coordinate and integrate the various functional areas in the
organization so that the systems and processes of managing the various multifunctional
areas are synchronized with the organizational objectives that have been set earlier.
The final part of the strategic management model comprises strategy evaluation
and control. In this component, managers or strategists have to ensure that the
implemented strategy is evaluated accordingly and reviewed periodically, say every half
yearly or quarterly. The evaluation criteria and expected performance are benchmarked
with the standards of the industry or firm. Comparisons are made with other
competitors or firms or in time dimension (against the previous year). Control
mechanisms should be put in place so that organizations can assure that the desired
objectives set can be met in the next phase of implementation. Once the strategic
management model is clearly defined and set, the next phase involves understanding the
processes of strategic management.
Strategic Management Process
Based on Figure 2.2, it can be concluded that the strategic management model is
an interactive process. In other words, in trying to operationalize the strategic
management model, managers or strategists have to make sure that they must begin the
process by determining the vision of the organization. The mission of the organization
must also be clarified. Then, the organizational goals are defined and set by the managers
or strategists.
Operationalizing the strategic management model involves a series of steps that
are continuous and ever changing with the dynamics of the environment. A change in
one of the elements can affect the other elements in the strategic management model.
Thus, the strategy formulation, implementation, evaluation and control must be done on
a continual basis and not a one-time approach. For example, in a situation where the
organization has already set its vision, mission and goals to be achieved, the process of
strategy formulation begins by analyzing the strategic situation of the organization. In
other words, analyzing the external environment, organizational strengths and
weaknesses, and industry analysis (and/or competitive analysis) should be the first
stage in the strategic management process.
Of course, organizations can also review their goals consistent with the ever-
changing business environment so that the organization would not remain less
competitive. For example, in an airline industry, the organization may set its mission to
be the leader in the airline services industry. However, the airline industry landscape is
changing fast and not only provides airline services but also other related services like
hotel, tourism, holiday packages and even car rentals. As rivalry within the industry
becomes more intense, redefining the organizational mission becomes inevitable and a
necessity to ensure that the organization continues to survive in the hostile
environment.
At the implementation phase, the strategic management process may begin by
reviewing the organizational structure and people available in the organization before
setting the policies and programmes or plans of action. The organizational systems and
processes may also have to be revised accordingly. Consequently, the strategy
implementation process may differ under different circumstances and situations.

Finally, at the strategy evaluation and control phase, the process may require
organizations to review the control mechanisms more than the strategy evaluation
processes.
Since the strategic management model is a dynamic process and requires
constant updating and reviews, the process of strategic management practice can be as
fluid as the rapid changes in business dynamics. At this stage, it should be realized that
there are, however, several key aspects which do not change despite being fluid in the
practice of strategic management. The first is the key elements in the strategic
management component, and the second is the three major components of strategic
management. These two aspects do not change as long as the concept of strategic
management is defined in a manner mentioned earlier in this topic.
LEARNING ACTIVITY 1
How do changes in the business environment affect strategic management?

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BENEFITS OF STRATEGIC MANAGEMENT

There are many benefits of strategic management and they include identification,
prioritization, and exploration of opportunities. For instance, newer products, newer
markets, and newer forays into business lines are only possible if firms indulge in
strategic planning. Next, strategic management allows firms to take an objective view of
the activities being done by it and do a cost benefit analysis as to whether the firm is
profitable.

Just to differentiate, by this, we do not mean the financial benefits alone (which would
be discussed below) but also the assessment of profitability that has to do with
evaluating whether the business is strategically aligned to its goals and priorities.

The key point to be noted here is that strategic management allows a firm to orient itself
to its market and consumers and ensure that it is actualizing the right strategy.

Financial Benefits
It has been shown in many studies that firms that engage in strategic management are
more profitable and successful than those that do not have the benefit of strategic
planning and strategic management.

When firms engage in forward looking planning and careful evaluation of their priorities,
they have control over the future, which is necessary in the fast changing business
landscape of the 21st century.

It has been estimated that more than 100,000 businesses fail in the US every year and
most of these failures are to do with a lack of strategic focus and strategic direction.
Further, high performing firms tend to make more informed decisions because they have
considered both the short term and long-term consequences and hence, have oriented
their strategies accordingly. In contrast, firms that do not engage themselves in
meaningful strategic planning are often bogged down by internal problems and lack of
focus that leads to failure.

Non-Financial Benefits
The section above discussed some of the tangible benefits of strategic management.
Apart from these benefits, firms that engage in strategic management are more aware of
the external threats, an improved understanding of competitor strengths and
weaknesses and increased employee productivity. They also have lesser resistance to
change and a clear understanding of the link between performance and rewards.

The key aspect of strategic management is that the problem solving and problem
preventing capabilities of the firms are enhanced through strategic management.
Strategic management is essential as it helps firms to rationalize change and actualize
change and communicate the need to change better to its employees. Finally, strategic
management helps in bringing order and discipline to the activities of the firm in its both
internal processes and external activities.

Closing Thoughts
In recent years, virtually all firms have realized the importance of strategic management.
However, the key difference between those who succeed and those who fail is that the
way in which strategic management is done and strategic planning is carried out makes
the difference between success and failure. Of course, there are still firms that do not
engage in strategic planning or where the planners do not receive the support from
management. These firms ought to realize the benefits of strategic management and
ensure their longer-term viability and success in the marketplace.
PLANNING PITFALLS IN STRATEGIC PLANNING
The Seven Most Common Pitfalls in Strategic Planning
The common pitfalls in strategic planning are:

1. Producing a plan that is not actually strategic . The strategic plan may have a
mission and vision statement that sounds great but unless it addresses the key
issues facing the organization it is not useful.
2. Getting caught up in the day-to-day or operational issues. Strategic planning is
designed to address the big issues of direction for the organization and not the
day-to-day issues.
3. Internal focus. Unless consideration is given to the client, members at large or
other key stakeholders, the plan risks becoming unrealistic.
4. Trying to do it all with inside staff. Surgeons do not operate on themselves or their
family, and lawyers maintain that, “he who represents himself has a fool for a
client.” The dynamics are the same in a good planning process.The most common
solution is to have an outside facilitator and outside (i.e. non staff) board members
or other stakeholders attend.
5. Developing a plan that is not meaningful. Unless the board, executive director and
staff know, understand and support the plan – it won’t happen! For it to work, the
plan must be effectively communicated and ”sold” both inside and outside the
organization.

6. Developing a wish list instead of a plan. No strategy is worth much until it’s
implemented. The plan needs to be translated into measurable components and
discrete individual activities. Plus there must be enough follow-up, rewards, and
consequences to put teeth into the actions.
7. Strategic planning is treated as an event. To be effective, your planning team must
treat strategic planning as a process not an event. Reporting regularly against the
plan helps participants realize when it is time to revisit the plan. The best
strategies usually evolve: they seldom just happen over one weekend a year.

GUIDELINES FOR EFFECTIVE STRATEGIC MANAGEMENT

R. T. Lenz offers six guidelines for effective strategic management
1. Keep the process simple and easily understandable
2. Eliminate vague planning jargon
3. Keep the process nonroutine, so vary assignments, team membership, meeting
formats, settings, and even the planning calendar.
4. Welcome bad news and encourage devil’s advocate thinking.
5. Do not allow technicians to monopolize the planning process.
6. To the extent possible, involve managers from all areas of the firm
FEEDBACK:
1. Do you understand what you are supposed to be learning on this module? Share
your thoughts.
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2. Kindly share your utmost and least experience while reading the lessons.
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References:
https://www.introduction-to-management.24xls.com/en242

http://natureofstrategicmanagement.blogspot.com/2016/10/key-terms-in-strategic-
management_22.html
Ryszard Barnat, LLM., DBA, PHD, Strategic Management: Formulation and
Implementation.
(https://morleyconsulting.com/common-pitfalls)
 MODULE 2 The Business Vision and Mission
Lesson 1 Importance of Vision and Mission Statements

Learning Objective:
1. Define vision and mission and distinguish between them.
2. Know what the acronym SMART represents.
3. Be able to write a SMART goal.

I N T R O D U C T I O N:
Good business leaders create a vision, articulate the vision, passionately own the vision, and
relentlessly drive it to completion.

-Jack Welch, former CEO of General Electric

One of the first things that any observer of management thought and practice asks is
whether a particular organization has a vision and mission statement. In addition, one
of the first things that one learns in a business school is the importance of vision and
mission statements.

This article is intended to elucidate on the reasons why vision and mission statements
are important and the benefits that such statements provide to the organizations. It has
been found in studies that organizations that have lucid, coherent, and meaningful vision
and mission statements return more than double the numbers in shareholder benefits
when compared to the organizations that do not have vision and mission statements.
Indeed, the importance of vision and mission statements is such that it is the first thing
that is discussed in management textbooks on strategy.

DISCUSSION

The Importance of Vision

What Do We Want to Become?
Many skills and abilities separate effective strategic leaders like Howard Schultz from
poor strategic leaders. One of them is the ability to inspire employees to work hard to
improve their organization’s performance. Effective strategic leaders are able to
convince employees to embrace lofty ambitions and move the organization forward. In
contrast, poor strategic leaders struggle to rally their people and channel their collective
energy in a positive, focused direction.

As the quote from Jack Welch suggests, a vision is one key tool available to executives to
inspire the people in an organization (Figure 2.2 “The Big Picture: Organizational
Vision”). An organization’s vision describes what the organization hopes to become in
the future. Well-constructed visions clearly articulate an organization’s aspirations.
Google’s mission is to organize the world’s information and make it universally
accessible and useful (Edwards, 2012). Google expands on its mission by listing “Ten
things we know,” including “Focus on
the user and all else will follow,” “It’s
best to do one thing really, really well,”
and “Fast is better than slow” (Google
Inc., 2014).

Figure 2-2: Organizational Vision

Figure 2.2 The Big Picture:
Organizational Vision

This brief but powerful statement

emphasizes several aims that are
important to Google, including
excellence in customer service, and
setting high standards for employees
and Google’s products. McDonald’s
brand mission is “to be our customers’
favorite place and way to eat. Our
worldwide operations are aligned
around a global strategy called the Plan to Win, which center on an exceptional customer
experience – People, Products, Place, Price and Promotion. We are committed to
continuously improving our operations and enhancing our customers’ experience.” To
be effective, this mission statement must filter down to all employees and inspire them
to adopt that mission. (Edwards, 2012).

One limitation of such all-encompassing goals is that front line and operational
employees will not relate or connect with the goals, and will disengage from the process
– flavour of the month…. The CEO/management team who can effectively translate the
high-level objectives to on-the-ground activities will have good success in engaging staff!
Of course, a strong element of walk-the-talk is required by management as well.

The results of a survey of 1,500 executives illustrate how the need to create an inspiring
vision creates a tremendous challenge for executives. When asked to identify the most
important characteristics of effective strategic leaders, 98 percent of the executives
listed “a strong sense of vision” first. Meanwhile, 90 percent of the executives expressed
serious doubts about their own ability to create a vision. Not surprisingly, many
organizations do not have formal visions. Many organizations that do have visions find
that employees do not embrace and pursue the visions. Having a well-formulated vision
that employees embrace can therefore give an organization an edge over its rivals.

Mission Statements
At WestJet, Clive Beddoe and his team developed its mission statement: “To enrich the
lives of everyone in WestJet’s world by providing safe, friendly and affordable air travel.”
A mission such as WestJet’s states the reasons for an organization’s existence. Well-
written mission statements effectively capture an organization’s identity and provide
answers to the fundamental question “Who are we?” While a vision looks to the future,
a mission captures the key elements of the organization’s past and present.
Organizations need support from their key
stakeholders, such as employees, owners, suppliers,
and customers, if they are to prosper. A mission
statement which engages stakeholders will help
develop an understanding of why they should support
the organization and make clear what important role
or purpose the organization plays in society – also
called a “social license to operate.” Google’s mission, for
example, is “to organize the world’s information and
make it universally accessible and useful.” Google
pursued this mission in its early days by developing a
very popular Internet search engine. The firm
continues to serve its mission through various strategic
actions, including offering its Internet browser Google
Chrome to the online community, providing free email
via its Gmail service, and making books available online for browsing.

In ancient times, Aesop said, “United we stand, divided we fall.” This provides a helpful
way of thinking about the relationship between vision and mission. Executives ask for
trouble if their organization’s vision and mission are divided by emphasizing different
domains. Some universities have fallen into this trap. Many large public universities
were established in the late 1800s with missions that centered on educating citizens. As
the 20th century unfolded, however, creating scientific knowledge through research
became increasingly important to these universities. Many university presidents
responded by creating visions centered on building the scientific prestige of their
schools. This created a dilemma for professors: Should they devote most of their time
and energy to teaching students (as the mission required) or on their research studies
(as ambitious presidents demanded via their visions)? Some universities continue to
struggle with this trade-off today and remain houses divided against themselves. In sum,
an organization is more effective to the extent that its vision and its mission target
employees’ effort in the same direction.

Pursuing the Vision and Mission through SMART Goals

An organization’s vision and mission combined offer a broad, overall sense of the
organization’s direction. To work toward achieving these overall aspirations,
organizations also need to create goals—narrower aims that should provide clear and
tangible guidance to employees as they perform their work on a daily basis. The most
effective goals are those that are

Specific, Measurable, Achievable,

Realistic, and Time-bound.

An easy way to remember these dimensions is to combine the first letter of each into one
word: SMART (Figure 2.4 “Creating SMART Goals”). Employees are in a much better
position to succeed to the extent that an organization’s goals are SMART.A goal is specific
if it is explicit rather than vague. WestJet’s vision is that “By 2016, WestJet will be one of
the five most successful international airlines in the world providing our guests with a
friendly caring experience that will change air travel forever.”
A goal is measurable to the extent that whether the goal is achieved can be quantified.
WestJet’s goal of being one of the five most successful international airlines in the world
by 2016 offers very simple and clear
measurability: Either WestJet will be in the top
five by 2016 or they will not.

A goal is aggressive if achieving it presents a

significant (as opposed to easy) challenge to the
organization. A series of research studies have
demonstrated that performance is strongest
when goals are challenging but attainable. Such
goals force people to test and extend the limits of
their abilities. This can result in reaching
surprising heights.

WestJet committed to growing responsibly and

ensuring that it is an environmentally
sustainable airline, and supports the IATA goal
of carbon neutral growth in its industry beyond
2020. WestJet already operates one of the most
modern and fuel-efficient fleets in North America.
Achieving carbon neutral growth will be a challenge for WestJet requiring the
combined efforts of the airline and its supplier partners such as aircraft manufacturers,
airports and government. In 2012, WestJet reported that “Our significant investments
in fleet and technology have greatly improved our aircraft fuel efficiency and ability to
operate our business more cost effectively. Between 2000 and 2012, we improved our
fuel efficiency by 44.8 per cent per revenue tonne kilometre. The resulting fuel savings
are equivalent to the amount of fuel that would have been used to fly a Boeing Next-
Generation 737 from Calgary to Toronto and back approximately 44,135 times (based
on our 2012 fuel usage).” (Quigley, 1994)
It is useful to know that easily achievable goals are not only easy, but they tend to
undermine overall motivation and effort by employees, Michelangelo said, “The greater
danger for most of us lies not in setting our aim too high and falling short, but in setting
our aim too low, and achieving our mark.” Consider a situation in which you have done
so well in a course that you only need a score of 60 percent on the final exam to earn an
A for the course. Understandably, few students would study hard enough to score 90
percent or 100 percent on the final exam under these circumstances Similarly, setting
organizational goals that are easy to reach encourages employees to work just hard
enough to reach the goals.
Learning Activity 1
Take a look at the website of your college or university. What is the organization’s
vision and mission? Were they easy or hard to find?
As a member of the student body, do you find the vision and mission of your college or
university to be motivating and inspirational? Why or why not?
What is an important goal that you have established for your career? Could this goal be
improved by applying the SMART goal concept?

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Key Takeaway

Strategic leaders need to ensure that their organizations have three types of aims. A
vision states what the organization aspires to become in the future. A mission reflects
the organization’s past and present by stating why the organization exists and what role
it plays in society. Goals are the more specific aims that organizations pursue to reach
their visions and missions. The best goals are SMART: specific, measurable, achievable,
realistic, and time-bound.

Examples to Consider
Many companies have vision and mission statements that don't serve them well. Still, there are
companies with outstanding statements. LinkedIn is a good example:
• Vision: To create economic opportunity for every member of the global workforce.
• Mission: To connect the world’s professionals to make them more productive and
successful.
Notice how LinkedIn's vision statement refers to "every member of the global workforce." That's
a huge goal that won't be accomplished in the near future. Maybe never. But it is inspiring and
makes employees want to achieve it.
The mission statement, on the other hand, is achievable. By connecting professionals, they give
them the contacts they need to make them more productive and successful.
Now consider the example of Southwest airlines:
• Vision: To become the world’s most loved, most flown, and most profitable airline.
• Mission: The mission of Southwest Airlines is dedication to the highest quality of
customer service delivered with a sense of warmth, friendliness, individual pride, and
company spirit.
There's no question Southwest's vision statement is for the future. Many people currently love
Southwest, but everyone in the world? Hardly. Will they ever be "most loved, most flown, and most
profitable"? That's a lot to ask of any business. But by striving for all three, they're encouraging
employees to be at their best
Southwest's mission statement is much more down-to-earth, current and achievable. Their
employees have the choice to dedicate themselves to having the highest quality service, to be warm
and friendly, proud and filled with company spirit.
SUMMARY
The vision and mission statements serve as focal points for individuals to identify
themselves with the organizational processes and to give them a sense of direction while at
the same time deterring those who do not wish to follow them from participating in the
organization’s activities.
The vision and mission statements help to translate the objectives of the organization into
work structures and to assign tasks to the elements in the organization that are responsible
for actualizing them in practice.
To specify the core structure on which the organizational edifice stands and to help in the
translation of objectives into actionable cost, performance, and time related measures.
Finally, vision and mission statements provide a philosophy of existence to the employees,
which is very crucial because as humans, we need meaning from the work to do and the
vision and mission statements provide the necessary meaning for working in a particular
organization.
As can be seen from the above, articulate, coherent, and meaningful vision and mission
statements go a long way in setting the base performance and actionable parameters and
embody the spirit of the organization. In other words, vision and mission statements are as
important as the various identities that individuals have in their everyday lives.

It is for this reason that organizations spend a lot of time in defining their vision and mission
statements and ensure that they come up with the statements that provide meaning instead
of being mere sentences that are devoid of any meaning.

References
Edwards, A. (2012). Mission Statements–World’s Top 10 Brands. Retrieved from
http://communicatingasiapacific.com/2012/06/15/mission-statements-worlds-top-10-
brands/

Google Inc. (2014). Ten things we know to be true. Retrieved from

https://www.google.com.sg/about/company/philosophy/

Quigley, J. V. (1994). Vision: How leaders develop it, share it, and sustain it. Business
Horizons, 37(5), 37–41.

WestJet Airlines Ltd. (2012). WestJet 2012 Global Reporting Initiative report [PDF].
Retrieved from https://www.westjet.com/pdf/global-reporting.pdf
 MODULE 3 The External Assessment
Lesson 1: The Nature of the External Audit
Objectives:
1. Describe how to conduct an external strategic-management audit
2. Discuss 10 major external forces that affect Organization
3. Identify key sources of external information, including the internet
4. Discuss forecasting tools used in SM
5. Explain how to develop an EFE Matrix
6. Explain how to develop a Competitive Profile Matrix

INTRODUCTION
o It will examine the tools and concepts needed to conduct an external strategic
management audit (sometimes called environmental scanning or industry analysis).
o An external audit focuses on identifying and evaluating trends and events beyond the
control of single firm.
o An external audit reveals key opportunities and threats confronting an organization
so that managers can formulate strategies and avoid or reduce the impact of threats.

External Strategic Management Audit is also called Environmental scanning and or

Industry analysis. It identifies and evaluate trends and events beyond control of single firm
(Increased foreign competitions, populations shift, aging society, information technology,
and computer revolutions.)
o The purpose of an external audit is to develop a finite list of opportunities that could
benefit a firm and threats that should be avoided.
o As the term finite suggests, the external audit is not aimed at developing an
exhaustive list of every possible factor that could influence the business.
o It aimed at identifying key variables that offer actionable responses.
o Firms should be able to respond to the factors by formulating strategies that take
advantage of external opportunities or that minimize the impact of potential threats.

DISCUSSION
Key External Forces
External Forces can be divided into five broad categories:
1. Economic forces- Affect products, services, markets & Organizations in the world
(acquire & sell)
2. Social, cultural, demographic, and natural environment forces- Affect products,
services, markets & Organizations in the world (acquire & sell)
3. Political, governmental, and legal forces- Affect products, services, markets &
Organizations in the world (acquire & sell)
4. Technological forces
5. Competitive forces- Affect products, services, markets & Organizations in the world
(acquire & sell)
 KEY EXTERNAL FORCES AND THE ORGANIZATION

The Process of Performing an External Audit

• The process of performing an external audit must involve as many managers and
employees as possible.
• Involvement in the strategic-management process can lead to understanding and
commitment from organizational member.
• A company first must gather competitive intelligence and information about
economic, social, cultural, demographic, environmental, political, governmental,
legal, and technological trends.
• Individuals can be asked to monitor various sources of information, such as key
magazines, trade journals, and newspapers.
• 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 chalkboard. A prioritized
list of these factors could be obtained by requesting that all managers rank the factors
identified, from 1 for the most important opportunity/ threat to 20 for the least
important opportunity/ threat.
• Freund emphasized that these key external factors should be:
1. Important to achieving long-term and annual objectives.
2. Measurable
3. Applicable to all competing firms.
4. Hierarchical in the sense.
• A final list of the most important key external factors should be communicated and
distributed widely in the organization.
• Both opportunities and threats can be key external factors.

THE INDUSTRIAL ORGANIZATION

• The Industrial Organization (I/O) approach to competitive advantage advocates that
external (industry) factors are more important than internal factors in a firm
achieving competitive advantage.
• Proponents of the I/O view, such as Michael Porter, contend that organizational
performance will be primarily determined by industry force.
• Competitive advantage id determined largely by competitive positioning within an
industry, according to I/O advocates.
 • Many thousands of internally strong firms in 2006-2007 disappeared in 2008-2009.

FIVE FORCES MODEL OF COMPETITATION

• Helps managers isolate particular forces in the external environment that are
potential threats
• Porter argued that when managers analyze O/T they should pay particular attention
to these five forces
• They affect how much a profit organization competing within the same industry can
expect to make
Rivalry among competing firms;
1. Powerful of the five competitive forces
2. The more the companies compete against one another for customers– (by
lowering prices of the products/ increasing advertising) – the lower is the level
of industry profits (low prices mean less profits)
3. As rivalry among competing firms intensifies, industry profits decline– industry
becomes unattractive.

Potential Entry of New Competitors

1. Whenever new firms can easily enter a particular industry, the intensity of
competitiveness among firms increases
2. Barriers to entry, such as economies of the scale, strong customer loyalty,
strong brand preferences….. Are low the easier it is for companies to enter an
industry (industry profits to be low)
3. Example: GM offering employee discounts- to all customers purchasing new
cars.

• When the threats of new firms entering the market is strong, Firms generally fortify
their positions and take actions to deter new entrants, such as lowering prices,
extending warranties and adding features………

Sources of External Information

• Published & Unpublished sources
• Customer survey-Market research- Speeches at meetings- TV programs-Interviews
• Journals-Government documents- books- newspaper
• Internet
Industry Analysis: The External Factor Evaluation (EFE) Matrix
Summarize & Evaluate

Five steps in developing EFE Matrix

Step 1
• List key external factors as identified in the External audit process
• Include 10-20 factors including both opportunities & threats that affect the firm & its
industry
• List opportunities first & then the threats
• Be specific as possible using percentages, ratios and comparative numbers whenever
possible.
Step 2
• Assign to each factor a weight that ranges from 0.0(not important) to 1.0(very
important)
• The weight indicates the relative importance of that factor to being successful in the
firm’s industry.
 • Opportunities often receive higher weights than threats, but threats too can receive
high weights if they are especially severe or threatening
• Appropriate weights can be determined by comparing successful with unsuccessful
competitors or discussing a factor (reaching a consensus)
• The sum of all weights assigned to the factors must equal 1.0
Step 3
• assign rating between 1&4 to each key external factor indicate how effectively the
firm’s current strategies respond to the factor , where 4= the response is superior,
3= response is above average, 2=average, 1=poor
• Ratings are based on effectiveness of the firm’s strategies
• Ratings are company based, whereas the weights in step 2 are industry based
• Both threats & opp can receive a 1,2,3 or 4.
Step 4 & 5
• Multiply each factor’s weight by its rating to determine a weighted score
• Sum the weighted score for each variable to determine total weighted score for the
organization

Industry Analysis EFE

Total weighted score of 4.0
• Organization response is outstanding to threats and weaknesses
• Firms strategy effectively taking advantage of existing opportunities and
minimizing the effects of external threats
Total weighted score of 1.0
• Firm’s strategies not capitalizing on opportunities or avoiding threats

Industry Analysis: Competitive Profile Matrix (CPM)

Identifies firm’s major competitors and their strengths & weaknesses in relation to a sample
firm’s strategic positions

CPM
4 ----- Major Strength
3 ----- Minor Strength
2 ----- Minor Weakness
1 ----- Major Weakness

Critical success factors in a CPM are broader (do not include factual or specific date)
CSF in CPM not grouped into O/T as they are in EFE
Ratings & Total weighted scores for rival firms can be compared to the sample firm
Comparative analysis provides important internal strategic information
FEEDBACK:
1. Which lesson activity do you want extra assistance from your teacher?
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2. What I learned in this Module?

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SUMMARY

The 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. As the term finite suggests, the
external audit is not aimed at developing an exhaustive list of every possible factor that
could influence the business; rather, it is aimed at identifying key variables that offer
actionable responses. Firms should be able to respond either offensively or defensively to
the factors by formulating strategies that take advantage of external opportunities or that
minimize the impact of potential threats. Figure 3-1 illustrates with white shading how the
external audit fits into the strategic-management process.
External Strategic Management Audit is also called Environmental scanning and or
Industry analysis. External Forces can be divided into five broad categories: (a) economic,
(b) social, cultural, demographic and natural environment forces, (c) political,
governmental and legal forces, (d) Technological forces and (e)competitive forces.

References:
https://www.slideshare.net/CabdulaahiSulayman/chapter3-external-assessment-in-
strategic-management

Abdalla Suleiman Hashi, Chapter-3 External Assessment in Strategic Management

http://sajidrasool.weebly.com/uploads/1/9/9/4/19948325/chapter__3.ppt
 MODULE 4 The Internal Assessment
Lesson 1: THE NATURE OF INTERNAL AUDIT

INTRODUCTION
An internal audit is the examination, monitoring and analysis of activities related to a
company's operations, including its business structure, employee behavior and information
systems. Internal audit regulations, such as the Sarbanes-Oxley Act of 2002, have increased
corporate requirements for performing internal audits. Audits are important components
of a company's risk management as they help to identify issues before they become
substantial problems, such as attempts to steal intellectual property.

Internal Audit is a control that is concerned with the examination and appraisal of other
controls. The ultimate purpose of internal audit is protection of the properties or assets of
the business, not only from fraud but also from other factors like waste, loss, etc.

DISCUSSION
Nature of Internal Audit
The following are the nature of internal audit:
1. Independent: The internal auditor should work independently. The word
independent implies that the audit work should be free from any sort of restrictions
that may have a significant impact on the scope and effectiveness of the review
process and on the reporting of the findings and conclusions. Therefore, the internal
audit work is detached from regular day-to-day operations of the organization.
2. Appraisal: The word appraisal implies a critical evaluation and assessment of the
existing controls and operations of the business enterprise. The internal auditor
should appraise them on the basis of appropriate criteria.
3. Established: The management should organize an independent internal audit
department and duties should be specifically assigned to the department.
4. Examine and Evaluate: The terms of examination and evaluation describe the two-
fold functional roles and responsibilities of the internal auditor. Firstly, the internal
auditor should make an examination and enquiry for fact finding. Secondly, he should
make a judgmental evaluation after thorough examination.
5. Activities of the Organization: Internal audit aims at conducting a systematic
examination of records, procedures and operations of an organization. The internal
auditor should carefully examine the controls established inside the organization. In
this sense internal audit can be described as Control Over Other Controls. Controls
are essential for every organization. In the absence of controls, it would be impossible
for any organization to protect its assets, rely on the records and perform its functions
successfully. The internal auditor examines the effectiveness of each control system
and traces out the deficiencies in each system.
6. Service: Internal audit is a service to the whole organization. The internal auditor is
an employee of the organization. His services can be availed at any time of emergency.
His advice can be obtained on any matter or point significant from the business and
strategic point of view. His services can also be effectively utilized by other employees
from the top to bottom. Any employee can consult him in solving the day-to-day
problems.
 7. To the Organization: The primary concern of an internal auditor is the phase of
business activity where he can render any service to the management not only top
management but all other managerial as well as operating staff. Therefore, the
internal auditor should be an expert in all branches of business. In this respect, the
internal auditor is superior to the financial auditor and even the cost auditor. His
services are very useful to all the employees throughout the organization at all times.
The terms ‘To the Organization ‘also signifies that internal audit is a total concept of
service having a broad meaning and connotation.

Scope or Functions of Internal Auditing

Internal audit involves five major functions or areas of operation. They are as below:
1. Reliability and Integrity of Information: The internal auditor should review the
reliability and integrity of financial and operating information and examine the
effectiveness of the means used to identify, measure, classify, and to report such
information.

2. Compliance with Policies and Procedures: The systems and procedure also. Have
considerable impact on the operation of the business enterprise. The internal auditor
should gauge the effectiveness and impact of such systems and report thereon.

3. Safeguarding the Assets: The internal auditor should review the existing system for
safeguarding the assets and if necessary should verify the existence of such assets.

4. Economical and Efficient Use of Resources: The internal auditor should also appraise
the economy and efficiency with which the resources are employed. Further the
internal auditor should identify the conditions, which would prevent the economical
use of resources. They are as follows:
a. Underutilization of capacity.
b. Non-productive work.
c. Procedures, which are not cost, justified.
d. Over staffing or under staffing.
5. Accomplishment of the Established Objectives and Goals: The internal auditor should
make a review of the operations or programme’s of the enterprise and should
ascertain whether the results are not inconsistent with the established goals and
objectives of the enterprise. He should also ascertain whether the programme’s are
carried out as per plan.
Lesson 2: The Resource-Based View (RBV)

Learning Objective
1. Define the four characteristics of resources that lead to sustained competitive
advantage as articulated by the resource-based theory of the firm.
2. Understand the difference between resources and capabilities.
3. Be able to explain the difference between tangible and intangible resources.
4. Know the elements of the marketing mix.

INTRODUCTION
The resource-based view (RBV) is a managerial framework used to determine the
strategic resources a firm can exploit to achieve sustainable competitive advantage.

Barney's 1991 article "Firm Resources and Sustained Competitive Advantage" is widely
cited as a pivotal work in the emergence of the resource-based view.[1] However, some
scholars argue that there was evidence for a fragmentary resource-based theory from the
1930s.[citation needed] RBV proposes that firms are heterogeneous because they possess
heterogeneous resources, meaning firms can have different strategies because they have
different resource mixes.
The RBV focuses managerial attention on the firm's internal resources in an effort to
identify those assets, capabilities and competencies with the potential to deliver superior
competitive advantages.

DISCUSSION
RBV and strategy formulation
Firms in possession of a resource, or mix of resources that are rare among
competitors, are said to have a comparative advantage. This comparative advantage
enables firms to produce marketing offerings that are either (a) perceived as having
superior value or (b) can be produced at lower costs. Therefore, a comparative advantage
in resources can lead to a competitive advantage in market position.

In the resource-based view, strategists select the strategy or competitive position that
best exploits the internal resources and capabilities relative to external opportunities.
Given that strategic resources represent a complex network of inter-related assets and
capabilities, organizations can adopt many possible competitive positions. Although
scholars debate the precise categories of competitive positions that are used, there is
general agreement, within the literature, that the resource-based view is much more
flexible than Porter's prescriptive approach to strategy formulation. Hooley et al. suggest
the following classification of competitive positions:
a. Price positioning
b. Quality positioning
c. Innovation positioning
d. Service positioning
e. Benefit positioning
f. Tailored positioning (one-to-one marketing)

Value-Based view of strategy

In addition to the resource-based views, value-based views provide an additional way to
create organizational management links between employees at a company, based on their
core values and beliefs. [31]

The steps to a values-based view of strategy are as followed:

• Fundamental Values or Beliefs

• Design Management Practices That Reflect and Embody These Values
• Use These to Build Core Capabilities
• Invent a Strategy That is Consistent with the Values and Uses the Capabilities to
Compete in New and Unusual Ways
• Senior Management's role
The main reason for these alternate steps to view strategy is to provide a method that
concentrates on the values of management practices, rather than simply resourced-based
straegy.

Four Characteristics of Strategic Resources

Southwest Airlines provides an illustration of resource-based theory in action. Resource-
based theory contends that the possession of strategic resources provides an organization
with a golden opportunity to develop competitive advantages over its rivals (Figure 4.2
“Resource-Based Theory: The Basics”) (Barney, 1991). These competitive advantages in
turn can help the organization enjoy strong profits, especially over time.

Resource-based theory can be confusing because the term resources is used in many
different ways within everyday common language. It is important to distinguish strategic
resources from other resources. To most individuals, cash is an important resource.
Tangible goods such as one’s car and home are also vital resources. When analyzing
organizations, however, common resources such as cash and vehicles are not considered to
be strategic resources. Resources such as cash and vehicles are valuable, of course, but an
organization’s competitors can readily acquire them. Thus, an organization cannot hope to
create an enduring competitive advantage around common resources.

A strategic resource is an asset that is valuable, rare, difficult to imitate, and no

substitutable. Apple has many strategic resources, including their proprietary software and
hardware platforms, which have evolved from numerous innovations and improvements
over literally decades; the Apple store; many aspects of the overall buying experience
including price; and a culture of innovation. It didn’t hurt to have Steve Jobs, a charismatic,
innovative thinker, as their CEO for many years. Many computer companies have struggled
to make money with razor-thin profit margins. Apple, using a different business model
focused on their strategic resources, has succeeded with years of record profits. At one time,
based on stocks, Apple was the most valuable company in the world.

Strategic resources that are valuable or rare are valuable simply due to the relatively high
cost of acquiring them (e.g., an airplane) or scarcity (e.g., diamonds).

Competitors have a hard time replicating resources that are difficult to imitate. Certain
resources can be and are protected by various legal means, including trademarks, patents,
and copyrights, which ensures they are difficult for the competition to imitate. Other
resources are hard to copy because they evolve over time and reflect unique aspects of the
firm. Southwest’s culture arose from its very humble beginnings. The airline had so little
money that at times, it had to temporarily “borrow” luggage carts from other airlines and
put magnets with the Southwest logo on top of the rivals’ logo. While in theory, other
airlines could replicate Southwest’s culture, Southwest’s “rags to riches” story evolved
across several decades. Unless the airline is brand new and with no existing culture, it takes
a lot of time and continuous effort to create a Southwest or WestJet culture.

A resource is no substitutable when competitors cannot find alternative ways to gain the
benefits that a resource provides. A key benefit of Southwest’s culture is that it leads
employees to treat customers well, which in turn creates loyalty to Southwest among
passengers. Executives at other airlines would love to attract the customer loyalty that
Southwest enjoys, but they have yet to find
ways to inspire the kind of customer service
that the Southwest culture encourages.

Figure 4.3: Westjet 737

Ideally, a firm will have a culture, like Southwest’s or WestJet’s cultures, that embrace the
four qualities shown in Figure 4.2 “Resource-Based Theory: The Basics.” If so, these
resources can provide not only a competitive advantage but also a sustained competitive
advantage—one that will endure over time and help the firm stay successful far into the
future. Resources that do not have all four qualities can still be very useful, but they are
unlikely to provide long-term advantages. A resource that is valuable and rare but that can
be imitated, for example, might provide an edge in the short term, but competitors can
overcome such an advantage eventually.

Resource-based theory also stresses the merit of an old saying: The whole is greater than
the sum of its parts. Specifically, it is also important to recognize that overall strategic
resources are often created by taking several strategies and resources that each could be
copied and bundling them together in a way that is difficult to duplicate. For example,
WestJet’s culture is complemented by approaches that individually could be copied—the
airline’s reliance on one type of plane and its unique system for passenger boarding (in
bigger centers, WestJet loads passengers through both front and rear airplane doors,
reducing turnaround time)—to create a unique business model whose performance is
without peer in the Canadian industry.

On occasion, events in the environment can turn a common resource into a strategic
resource. Consider, for example, a very generic commodity: water. Humans simply cannot
live without water, so water has inherent value. Also, water cannot be imitated (at least not
on a large scale), and no other substance can substitute for the life-sustaining properties of
water. Despite having three of the four properties of strategic resources, water in North
America has remained cheap. Yet this may be changing. Major cities in hot climates are
confronted by dramatically shrinking water supplies. As water becomes more and more
rare, landowners in water-rich areas stand to benefit. Twenty percent of the world’s
freshwater lies in the Great Lakes. It is not hard to imagine a day when companies make
profits by sending giant trucks filled with water south and west or even by building water
pipelines to service arid regions.
Integrating Strategy and Culture Management
Every business entity has a unique organizational culture that impacts strategic-
planning activities. Organizational culture is “a pattern of behavior that has been developed
by an organization as it learns to cope with its problem of external adaptation and internal
integration, and that has worked well enough to be considered valid and to be taught to new
members as the correct way to perceive, think, and feel.”4 This definition emphasizes the
importance of matching external with internal factors in making strategic decisions.
Organizational culture captures the subtle, elusive, and largely unconscious forces that
shape a workplace. Remarkably resistant to change, culture can represent a major strength
or weakness ...

Organizational Culture
Pattern of behavior developed by an organization as it learns to cope with its problem of
external adaptation and internal integration…is considered valid and taught to new
members.
Organizational Culture is defined as "a pattern of behavior that has been developed by the
organization". Is the way the employee perceives, thinks and feels.

Values
• Customer Focus
• Responsibility
• Trust
• Commitment
• Transparency
• Working to make a
difference in the world
Value Chain Analysis (VCA) • Supporting craftsmen
Learning Objective
1. Define the primary activities of the value chain.
2. Know the different support activities within the value chain.
3. Be able to apply the value chain to an organization of your choosing.
4. Understand the difference between a value chain and supply chain.

Value chain analysis (VCA) is a process where a firm identifies its primary and
support activities that add value to its final product and then analyze these activities to
reduce costs or increase differentiation.
Value chain represents the internal activities a firm engages in when transforming
inputs into outputs.
The value chain provides a useful tool for managers to examine systematically where
value may be added to their organizations. This tool is useful in that it examines key
elements in the production of a good or service, as well as areas in which value may be
added in support of those primary activities.

Elements of the Value Chain

When executives choose strategies, an organization’s resources and capabilities should be
examined alongside consideration of its value chain. A value chain charts the path by which
products and services are created and eventually sold to customers (Porter, 1985

The term value chain reflects the fact that, as each step of this path is completed, the product
becomes more valuable than it was at the previous step (Figure 4.17 “Adding Value within
a Value Chain”). Within the lumber business, for example, value is added when a tree is
transformed into usable wooden boards; the boards created from a tree can be sold for
more money than the price of the tree.
Value chains include both primary and secondary activities. Primary activities are actions
directly involved in the creation and distribution of goods and services. Consider a simple
illustrative example: doughnut shops. Doughnut shops transform basic commodity
products such as flour, sugar, butter, and grease into delectable treats. Value is added
through this process because consumers are willing to pay much more for doughnuts than
they would be willing to pay for the underlying ingredients.

There are five primary activities.

Inbound logistics refers to the arrival of

raw materials. Although doughnuts are
seen by most consumers as notoriously
unhealthy, the Doughnut Plant in New
York City has carved out a unique niche
for itself by obtaining organic
ingredients from a local farmer’s
market.

Operations centers on the production process of a good or service.

Outbound logistics tracks the movement of a finished product to customers. One of

Southwest Airlines’ unique capabilities is moving passengers more quickly than its rivals.
This advantage in operations is based in part on Southwest’s reliance on one type of
airplane (which speeds maintenance) and its avoidance of advance seat assignments
(which accelerates the passenger boarding process) and boarding from both front and rear
of the airplane.

Attracting potential customers and convincing them to make purchases is the domain of
marketing and sales. For example, people cannot help but notice Randy’s Donuts in
Inglewood, California, because the building has a giant doughnut on top of it. Finally, service.

Service focuses on the extent to which a firm provides assistance to its customers. Voodoo
Donuts in Portland, Oregon, has developed a clever website (voodoodoughnut.com) that
helps customers understand their uniquely named products, such as the Voodoo Doll, the
Texas Challenge, the Memphis Mafia, and the Dirty Snowball.

Support or secondary activities are all the actions not directly involved in the evolution of a
product, but instead provides important underlying support for a primary activity. There
are four main forms of support activities for most manufacturers.

Firm infrastructure refers to how the firm is organized and led by executives. The effects of
this organizing and leadership can be profound. For example, Ron Joyce’s leadership of
Canadian doughnut shop chain Tim Hortons was so successful that Canadians consume
more doughnuts per person than all other countries. In terms of resource-based theory,
Joyce’s leadership was clearly a valuable and rare resource that helped his firm prosper.

Also important is human resource management which includes activities involved in

recruiting, training, and compensating employees. A recent research study used data from
more than 12,000 organizations to demonstrate that how the level of knowledge, skills, and
abilities of a firm’s employees can act as a strategic resource and strongly influence the
firm’s performance (Crook et al., 2011). Certainly, the unique level of dedication
demonstrated by employees at WestJet has contributed to that firm’s excellent performance
over several decades.

Technology – The use of electronic devices, computer systems, and telecommunications to

support primary activities. Although doughnut making is not a high-tech business,
technology plays a variety of roles for doughnut shops, such as allowing customers to use
debit cards, just in time delivery systems, online ordering, and supply management systems.

Procurement – The process of negotiating for and purchasing raw materials. Large
doughnut chains such as Tim Hortons can gain cost advantages over their smaller rivals by
purchasing flour, sugar, and other ingredients in bulk. Meanwhile, WestJet has gained an
advantage over its rivals by using futures contracts within its procurement process to
minimize the effects of rising fuel prices.

This example is partially adopted from R. M. Grant’s book ‘Contemporary Strategy Analysis’
p.241. It illustrates the basic VCA for an automobile manufacturing company that competes
on cost advantage. This analysis doesn’t include support activities that are essential to any
firm’s value chain, thus the analysis itself is not complete.

The Internal Factor Evaluation (IFE) Matrix

Internal Factor Evaluation (IFE) Matrix is a strategy tool used to evaluate firm’s internal
environment and to reveal its strengths as well as weaknesses.
External Factor Evaluation (EFE) Matrix is a strategy tool used to examine company’s
external environment and to identify the available opportunities and threats.

The internal and external factor evaluation matrices have been introduced by Fred R. David
in his book ‘Strategic Management’ (at least I found them there and couldn’t trace their
origins anywhere else). According to the author, both tools are used to summarize the
information gained from company’s external and internal environment analyses. The
summarized information is evaluated and used for further purposes, such as, to build SWOT
analysis or IE matrix. Even though, the tools are quite simplistic, they do the best job
possible in identifying and evaluating the key affecting factors. Both tools are nearly
identical so we’ll only show an example of an EFE matrix right now.

Key External and Internal Factors

EFE Matrix. When using the EFE matrix we identify the key external opportunities and
threats that are affecting or might affect a company. Where do we get these factors from?
Simply by analysing the external environment with the tools like PEST analysis, Porter’s
Five Forces or Competitive Profile Matrix.

IFE Matrix. Strengths and weaknesses are used as the key internal factors in the evaluation.
When looking for the strengths, ask what do you do better or have more valuable than your
competitors have? In case of the weaknesses, ask which areas of your company you could
improve and at least catch up with your competitors?

The general rule is to identify 10-20 key external factors and additional 10-20 key internal
factors, but you should identify as many factors as possible.
Weights
Each key factor should be assigned a weight ranging from 0.0 (low importance) to 1.0 (high
importance). The number indicates how important the factor is if a company wants to
succeed in an industry. If there were no weights assigned, all the factors would be equally
important, which is an impossible scenario in the real world. The sum of all the weights
must equal 1.0. Separate factors should not be given too much emphasis (assigning a weight
of 0.30 or more) because the success in an industry is rarely determined by one or few
factors.

Weights have the same meaning in both matrices.

In our first example, the most significant factors are ‘Processed food market growing by
15% next year in our largest market.’ (0.24 points), ‘The contract with the main customer
expires in 2 months.’ (0.17 points) and ‘New law, requiring decreasing the amount of sugar
in the food by 20%, could be passed next year.’ (0.14 points).

Ratings
EFE Matrix. The ratings in external matrix refer to how effectively company’s current
strategy responds to the opportunities and threats. The numbers range from 4 to 1, where
4 means a superior response, 3 – above average response, 2 – average response and 1 –
poor response. Ratings, as well as weights, are assigned subjectively to each factor. In our
example, we can see that the company’s response to the opportunities is rather poor,
because only one opportunity has received a rating of 3, while the rest have received the
rating of 1. The company is better prepared to meet the threats, especially the first threat.

IFE Matrix. The ratings in internal matrix refer to how strong or weak each factor is in a
firm. The numbers range from 4 to 1, where 4 means a major strength, 3 – minor strength,
2 – minor weakness and 1 – major weakness. Strengths can only receive ratings 3 & 4,
weaknesses – 2 & 1. The process of assigning ratings in IFE matrix can be done easier using
benchmarking tool.

Weighted Scores & Total Weighted Score

The score is the result of weight multiplied by rating. Each key factor must receive a score.
Total weighted score is simply the sum of all individual weighted scores. The firm can
receive the same total score from 1 to 4 in both matrices. The total score of 2.5 is an average
score. In external evaluation a low total score indicates that company’s strategies aren’t well
designed to meet the opportunities and defend against threats. In internal evaluation a low
score indicates that the company is weak against its competitors.

In our example, the company has received total score 2.40, which indicates that company’s
strategies are neither effective nor ineffective in exploiting opportunities or defending
against threats. The company should improve its strategy and focus more on how take
advantage of the opportunities.

Learning Activity 1 Process Questions

1. If you were hired as a consultant for your university, what specific element of the
value chain would you seek to improve first?
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2. What local business in your town could be improved most dramatically by applying
the value chain? Would improvements of primary or support activities help to
improve this firm most? Could knowledge of strategic supply chain management add
further value to this firm?
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SUMMARY
Internal Audit is a control that is concerned with the examination and appraisal of other
controls. The ultimate purpose of internal audit is protection of the properties or assets of
the business, not only from fraud but also from other factors like waste, loss, etc.
The nature of Internal Audit are: Independent, Appraisal, established, examine and
evaluate, activities o the organization, service and to the organization.
Internal Factor Evaluation (IFE) Matrix is a strategy tool used to evaluate firm’s
internal environment and to reveal its strengths as well as weaknesses.

References
http://natureofstrategicmanagement.blogspot.com/2016/11/internal-audit.html
https://accountlearning.com/nature-and-scope-of-internal-audit/
https://opentextbc.ca/strategicmanagement/chapter/resource-based-theory/

Priem, R. L.; Butler, J. (2001). "Is the Resource-Based 'View' a Useful Perspective for
Strategic Management Research?". Academy of Management Review. 26 (1): 20–40.
doi:10.5465/amr.2001.4011928.
Mahoney, J.T.; Pandian, J.R. (1992). "The Resource-Based View Within the Conversation of
Strategic Management". Strategic Management Journal. 15 (5): 363–380.
doi:10.1002/smj.4250130505. hdl:2142/30019

https://en.wikipedia.org/wiki/Resource-based_view
https://direccionamientoes0.wixsite.com/proyecto/integrating-strategy-and-culture

Crook, T. R., Todd, S. Y., Combs, J. G., Woehr, D. J., & Ketchen, D. J. (2011). Does human capital
matter? A meta-analysis of the relationship between human capital and firm performance
concluded that there is a strong positive correlation. Journal of Applied Psychology, 96(3),
443–456.

Lee, H. L. (2004, October). The triple-A supply chain. Harvard Business Review, 83, 102–
112.

Porter, M. E. 1985. Competitive advantage: Creating and sustaining superior performance.

New York, NY: Free Press.

Ketchen, D. J., Rebarick, W., Hult, G. T., & Meyer, D. 2008. Best value supply chains: A key
competitive weapon for the 21st century. Business Horizons, 51, 235–243.
https://opentextbc.ca/strategicmanagement/chapter/value-chain/

https://strategicmanagementinsight.com/tools/value-chain-analysis.html

David, F.R. (2009). Strategic Management: Concepts and Cases. 12th ed. FT Prentice Hall
Wikipedia (2014). IFE matrix. Available at: http://en.wikipedia.org/wiki/IFE_matrix
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