Republic of the Philippines

Laguna State Polytechnic University

ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

LSPU Self-Paced Learning Module (SLM)

Course Strategic Management
Sem/AY Second Semester/2023-2024
Module No. 1
Lesson Title Introduction and Overview
Week Duration 2-5
Date February 6 – March 3, 2024
Description of This lesson will discuss introduction and overview. This lesson will also provide
the Lesson activities and exercises that will practice the teachers’ competence in choosing
projected materials as their instructional materials in their teaching practices.

Learning Outcomes
Intended Students should be able to meet the following intended learning outcomes:
Learning • Define Strategies
Outcomes • Identify the three tests of a winning strategy
• Recognize the importance of a clear strategic vision
Targets/ At the end of the lesson, students should be able to:
Objectives • Discuss strategies
• Analyze the three tests of a winning strategy
• Discuss the importance of a clear strategic vision

Student Learning Strategies

Online Activities 1. Online Discussion via Google Meet

(Synchronous/
You will be directed to attend a series of ONE-Hour class discussions on
Asynchronous) introduction and overview.

(For further instructions, refer to your Google Classroom or our group in FB

Messenger group to know the schedule of activities for this module)

2. Learning Guide Questions:

1. What is strategy?
2. What is a business model?
3. What makes a strategy a winner?
4. How to execute strategy?

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

Lecture Guide

Offline Activities
(e-Learning/Self-
Paced)

WHAT DO WE MEAN BY STRATEGY?

A company’s strategy is the set of coordinated actions that its managers take in
order to outperform the company’s competitors and achieve superior
profitability. The objective of a well-crafted strategy is not merely temporary
competitive success and profits in the short run, but rather the sort of lasting
success that can support growth and secure the company’s future over the long
term. Achieving this entails making a managerial commitment to a coherent
array of well-considered choices about how to compete. These include:

• How to position the company in the marketplace.

• How to attract customers.
• How to compete against rivals.
• How to achieve the company’s performance targets.
• How to capitalize on opportunities to grow the business.
• How to respond to changing economic and market conditions.

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

In most industries, companies have considerable freedom in choosing the how’s

of strategy. Some companies strive to achieve lower costs than rivals, while others
aim for product superiority or more personalized customer service dimensions that
rivals cannot match. Some companies opt for wide product lines, while others
concentrate their energies on a narrow product lineup. Some deliberately confine
their operations to local or regional markets; others opt to compete nationally,
internationally (several countries), or globally (all or most of the major country
markets worldwide). Choices of how best to compete against rivals have to
be made in light of the firm’s resources and capabilities and in light of the
competitive approaches rival companies are employing.

Strategy Is about Competing Differently

Mimicking the strategies of successful industry rivals—with either copycat

product offerings or maneuvers to stake out the same market position—rarely
works. Rather, every company’s strategy needs to have some distinctive element
that draws in customers and provides a competitive edge. Strategy, at its
essence, is about competing differently—doing what rival firms don’t do or what
rival firms can’t do. This does not mean that the key elements of a company’s
strategy have to be 100 percent different, but rather that they must differ in at
least some important respects. A strategy stands a better chance of succeeding
when it is predicated on actions, business approaches, and competitive moves
aimed at (1) appealing to buyers in ways that set a company apart from its rivals
and (2) staking out a market position that is not crowded with strong
competitors.

A company’s strategy provides direction and guidance, in terms of not only what
the company should do but also what it should not do. Knowing what not to do
can be as important as knowing what to do, strategically. At best, making the
wrong strategic moves will prove a distraction and a waste of company
resources. At worst, it can bring about unintended long-term consequences that
put the company’s very survival at risk.

Figure below illustrates the broad types of actions and approaches that often
characterize a company’s strategy in a particular business or industry.

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

Strategy and the Quest for Competitive Advantage

The heart and soul of any strategy are the actions in the marketplace that
managers take to gain a competitive advantage over rivals. A company has a
competitive advantage whenever it has some type of edge over rivals in
attracting buyers and coping with competitive forces. A competitive advantage
is essential for realizing greater marketplace success and higher profitability
over the long term.

There are many routes to competitive advantage, but they all involve one of two
basic mechanisms. Either they provide the customer with a product or
service that the customer values more highly than others (higher
perceived value), or they produce their product or service more efficiently
(lower costs). Delivering superior value or delivering value more efficiently —
whatever form it takes—nearly always requires performing value chain
activities differently than rivals and building capabilities that are not readily
matched. As for illustration Apple, Inc. has gained a competitive advantage over

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

its rivals in the technological device industry through its efforts to create “must-
have,” exciting new products, that are beautifully designed, technologically
advanced, easy to use, and sold in appealing stores that offer a fun experience,
knowledgeable staff, and excellent service.

By differentiating itself in this manner from its competitors Apple has been able
to charge prices for its products that are well above those of its rivals and far
exceed the low cost of its inputs. Its expansion policies have allowed the
company to make it easy for customers to find an Apple store in almost any high-
quality mall or urban shopping district, further enhancing the brand and
cementing customer loyalty. A creative distinctive strategy such as that used by
Apple is a company’s most reliable ticket for developing a competitive advantage
over its rivals. If a strategy is not distinctive, then there can be no competitive
advantage, since no firm would be meeting customer needs better or operating
more efficiently than any
other.

If a company’s competitive edge holds promise for being sustainable (as opposed
to just temporary), then so much the better for both the strategy and the
company’s future profitability. What makes a competitive advantage sustainable
(or durable), as opposed to temporary, are elements of the strategy that give
buyers lasting reasons to prefer a company’s products or services over those of
competitors—reasons that competitors are unable to nullify, duplicate, or
overcome despite their best efforts. In the case of Apple, the company’s
unparalleled name recognition, its reputation for technically superior,
beautifully designed, “must-have” products, and the accessibility of the
appealing, consumer-friendly stores with knowledgeable staff, make it difficult
for competitors to weaken or overcome Apple’s competitive advantage. Not only
has Apple’s strategy provided the company with a sustainable competitive
advantage, but it has made Apple, Inc. one of the most admired companies on the
planet.

Five of the most frequently used and dependable strategic approaches to

setting a company apart from rivals, building strong customer loyalty, and
gaining a competitive advantage are:

1. A low-cost provider strategy—achieving a cost-based advantage over

rivals. Walmart and Southwest Airlines have earned strong market
positions because of the low-cost advantages they have achieved over
their rivals. Low-cost provider strategies can produce a durable
competitive edge when rivals find it hard to match the low-cost leader’s
approach to driving costs out of the business.
2. A broad differentiation strategy—seeking to differentiate the
company’s product or service from that of rivals in ways that will appeal
to a broad spectrum of buyers. Successful adopters of differentiation
strategies include Apple (innovative products), Johnson & Johnson in
baby products (product reliability), Rolex (luxury and prestige), and

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

BMW (engineering design and performance). One way to sustain this type
of competitive advantage is to be sufficiently innovative to thwart the
efforts of clever rivals to copy or closely imitate the product offering.
3. A focused low-cost strategy—concentrating on a narrow buyer
segment (or market niche) and outcompeting rivals by having lower costs
and thus being able to serve niche members at a lower price. Private-label
manufacturers of food, health and beauty products, and nutritional
supplements use their low-cost advantage to offer supermarket buyers
lower prices than those demanded by producers of branded products.
IKEA’s emphasis on modular furniture, ready for assembly, makes it a
focused low-cost player in the furniture market.
4. A focused differentiation strategy—concentrating on a narrow buyer
segment (or market niche) and outcompeting rivals by offering buyers
customized attributes that meet their specialized needs and tastes better
than rivals’ products. Lululemon, for example, specializes in high-quality
yoga clothing and the like, attracting a devoted set of buyers in the
process. Tesla, Inc., with its electric cars, LinkedIn specializing in the
business and employment aspects of social networking, and Goya Foods
in Hispanic specialty food products provide some other examples of this
strategy.
5. A best-cost provider strategy—giving customers more value for the
money by satisfying their expectations on key quality features,
performance, and/or service attributes while beating their price
expectations. This approach is a hybrid strategy that blends elements of
low-cost provider and differentiation strategies; the aim is to have lower
costs than rivals while simultaneously offering better differentiating
attributes. Target is an example of a company that is known for its hip
product design (a reputation it built by featuring limited edition lines by
designers such as Rodarte, Victoria Beckham, and Jason Wu), as well as a
more appealing shopping ambience for discount store shoppers. Its dual
focus on low costs as well as differentiation shows how a best-cost
provider strategy can offer customers great value for the money.

Winning a sustainable competitive edge over rivals with any of the preceding
five strategies generally hinges as much on building competitively valuable
expertise and capabilities that rivals cannot readily match as it does on having a
distinctive product offering. Clever rivals can nearly always copy the attributes
of a popular product or service, but for rivals to match the experience, know-
how, and specialized capabilities that a company has developed and perfected
over a long period of time is substantially harder to do and takes much longer.
The success of the Swatch in watches, for example, was driven by impressive
design, marketing, and engineering capabilities, while Apple has demonstrated
outstanding product innovation capabilities in digital music players,
smartphones, and e-readers. Hyundai has become the world’s fastest-growing
automaker as a result of its advanced manufacturing processes and unparalleled
quality control systems. Capabilities such as these have been hard for
competitors to imitate or best.

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

Why a Company’s Strategy Evolves over Time

The appeal of a strategy that yields a sustainable competitive advantage is that

it offers the potential for a more enduring edge than a temporary advantage over
rivals. But sustainability is a relative term, with some advantages lasting longer
than others. And regardless of how sustainable a competitive advantage may
appear to be at a given point in time, conditions change. Even a substantial
competitive advantage over rivals may crumble in the face of drastic shifts in
market conditions or disruptive innovations. Therefore, managers of every
company must be willing and ready to modify the strategy in response to
changing market conditions, advancing technology, unexpected moves by
competitors, shifting buyer needs, emerging market opportunities, and new
ideas for improving the strategy.

Most of the time, a company’s strategy evolves incrementally as management

fine-tunes various pieces of the strategy and adjusts the strategy in response to
unfolding events. However, on occasion, major strategy shifts are called for, such
as when the strategy is clearly failing or when industry conditions change in
dramatic ways. Industry environments characterized by high-velocity change
require companies to repeatedly adapt their strategies. For example, companies
in industries with rapid-fire advances in technology like 3-D printing, shale
fracking, and genetic engineering often find it essential to adjust key elements of
their strategies several times a year. When the technological change is drastic
enough to “disrupt” the entire industry, displacing market leaders and altering
market boundaries, companies may find it necessary to “reinvent” entirely their
approach to providing value to their customers.

Regardless of whether a company’s strategy changes gradually or swiftly, the

important point is that the task of crafting strategy is not a one-time event but
always a work in progress. Adapting to new conditions and constantly
evaluating what is working well enough to continue and what needs to be
improved are normal parts of the strategy-making process, resulting in an
evolving strategy.

Strategy and Ethics: Passing the Test of Moral Scrutiny

In choosing among strategic alternatives, company managers are well advised to

embrace actions that can pass the test of moral scrutiny. Just keeping a
company’s strategic actions within the bounds of what is legal does not mean the
strategy is ethical. Ethical and moral standards are not fully governed by what is
legal. Rather, they involve issues of “right” versus “wrong” and duty—what one
should do. A strategy is ethical only if it does not entail actions that cross the
moral line from “can do” to “should not do.”

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

For example, a company’s strategy definitely crosses into the “should not do”
zone and cannot pass moral scrutiny if it entails actions and behaviors that are
deceitful, unfair or harmful to others, disreputable, or unreasonably damaging
to the environment. A company’s strategic actions cross over into the “should
not do” zone and are likely to be deemed unethical when (1) they reflect badly
on the company or (2) they adversely impact the legitimate interests and well-
being of shareholders, customers, employees, suppliers, the communities where
it operates, and society at large or (3) they provoke public outcries about
inappropriate or “irresponsible” actions, behavior, or outcomes.

Admittedly, it is not always easy to categorize a given strategic behavior as

ethical or unethical. Many strategic actions fall in a gray zone and can be deemed
ethical or unethical depending on how high one sets the bar for what qualifies as
ethical behavior. For example, is it ethical for advertisers of alcoholic products
to place ads in media having an audience of as much as 50 percent underage
viewers? Is it ethical for companies to employ undocumented workers who may
have been brought to the United States as children? Is it ethical for Nike, Under
Armour, and other makers of athletic wear to pay a university athletic
department large sum of money as an “inducement” for the university’s athletic
teams to use their brand of products? Is it ethical for pharmaceutical
manufacturers to charge higher prices for life-saving drugs in some countries
than they charge in others? Is it ethical for a company to ignore the damage done
to the environment by its operations in a particular country, even though they
are in compliance with current environmental regulations in that country?

Senior executives with strong ethical convictions are generally proactive in

linking strategic action and ethics; they forbid the pursuit of ethically
questionable business opportunities and insist that all aspects of company
strategy are in accord with high ethical standards. They make it clear that all
company personnel are expected to act with integrity, and they put
organizational checks and balances into place to monitor behavior, enforce
ethical codes of conduct, and provide guidance to employees regarding any gray
areas. Their commitment to ethical business conduct is genuine, not hypocritical
lip service.

The reputational and financial damage that unethical strategies and behavior
can do is substantial. When a company is put in the public spotlight because
certain personnel are alleged to have engaged in misdeeds, unethical behavior,
fraudulent accounting, or criminal behavior, its revenues and stock price are
usually hammered hard. Many customers and suppliers shy away from doing
business with a company that engages in sleazy practices or turns a blind eye to
its employees’ illegal or unethical behavior. Repulsed by unethical strategies or
behavior, wary customers take their business elsewhere and wary suppliers
tread carefully. Moreover, employees with character and integrity do not want
to work for a company whose strategies are shady or whose executives lack
character and integrity. Consequently, solid business reasons exist for

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

companies to shun the use of unethical strategy elements. Besides, immoral or

unethical actions are just plain wrong.

A COMPANY’S STRATEGY AND ITS BUSINESS MODEL

At the core of every sound strategy is the company’s business model. A business
model is management’s blueprint for delivering a valuable product or service to
customers in a manner that will generate revenues sufficient to cover costs and
yield an attractive profit.9 The two elements of a company’s business model are
(1) its customer value proposition and (2) its profit formula. The customer value
proposition lays out the company’s approach to satisfying buyer wants and
needs at a price customers will consider a good value. The profit formula
describes the company’s approach to determining a cost structure that will allow
for acceptable profits, given the pricing tied to its customer value proposition.
Figure below illustrates the elements of the business model in terms of what is
known as the value-price-cost framework. As the framework indicates, the
customer value proposition can be expressed as V − P, which is essentially the
customers’ perception of how much value they are getting for the money. The
profit formula, on a per-unit basis, can be expressed as P − C. Plainly, from a
customer perspective, the greater the value delivered (V) and the lower the price
(P), the more attractive is the company’s value proposition. On the other hand,
the lower the costs (C), given the customer value proposition (V − P), the greater
the ability of the business model to be a moneymaker. Thus, the profit formula
reveals how efficiently a company can meet customer wants and needs and
deliver on the value proposition. The nitty-gritty issue surrounding a company’s
business model is whether it can execute its customer value proposition
profitably. Just because company managers have crafted a strategy for
competing and running the business does not automatically mean that the
strategy will lead to profitability—it may or it may not.

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

Aircraft engine manufacturer Rolls-Royce employs an innovative “power by-the-

hour” business model that charges airlines leasing fees for engine use,
maintenance, and repairs based on actual hours flown. The company retains
ownership of the engines and is able to minimize engine maintenance costs
through the use of sophisticated sensors that optimize maintenance and repair
schedules. Gillette’s business model in razor blades involves selling a “master
product”—the razor—at an attractively low price and then making money on
repeat purchases of razor blades that can be produced cheaply and sold at high
profit margins. Printer manufacturers like Hewlett-Packard, Canon, and Epson
pursue much the same business model as Gillette—selling printers at a low
(virtually break-even) price and making large profit margins on the repeat
purchases of ink cartridges and other printer supplies. McDonald’s invented the
business model for fast food—providing value to customers in the form of
economical quick-service meals at clean, convenient locations. Its profit formula
involves such elements as standardized cost-efficient store design, stringent
specifications for ingredients, detailed operating procedures for each unit,
sizable investment in human resources and training, and heavy reliance on
advertising and in-store promotions to drive volume.

WHAT MAKES A STRATEGY A WINNER?

Three tests can be applied to determine whether a strategy is a winning strategy:

1. The Fit Test: How well does the strategy fit the company’s situation? To
qualify as a winner, a strategy has to be well matched to industry and
competitive conditions, a company’s best market opportunities, and
other pertinent aspects of the business environment in which the
company operates. No strategy can work well unless it exhibits good
external fit with respect to prevailing market conditions. At the same
time, a winning strategy must be tailored to the company’s resources and
competitive capabilities and be supported by a complementary set of
functional activities (i.e., activities in the realms of supply chain
management, operations, sales and marketing, and so on). That is, it must
also exhibit internal fit and be compatible with a company’s ability to
execute the strategy in a competent manner. Unless a strategy exhibits
good fit with both the external and internal aspects of a company’s overall
situation, it is likely to be an underperformer and fall short of producing
winning results. Winning strategies also exhibit dynamic fit in the sense
that they evolve over time in a manner that maintains close and effective
alignment with the company’s situation even as external and internal
conditions change.
2. The Competitive Advantage Test: Is the strategy helping the company
achieve a competitive advantage? Is the competitive advantage likely to
be sustainable? Strategies that fail to achieve a competitive advantage
over rivals are unlikely to produce superior performance. And unless the
competitive advantage is sustainable, superior performance is unlikely to

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

last for more than a brief period of time. Winning strategies enable a
company to achieve a competitive advantage over key rivals that is long-
lasting. The bigger and more durable the competitive advantage, the
more powerful it is.
3. The Performance Test: Is the strategy producing superior company
performance? The mark of a winning strategy is strong company
performance. Two kinds of performance indicators tell the most about
the caliber of a company’s strategy: (1) competitive strength and market
standing and (2) profitability and financial strength. Above-average
financial performance or gains in market share, competitive position, or
profitability are signs of a winning strategy.

Strategies—either existing or proposed—that come up short on one or more of

the preceding tests are plainly less desirable than strategies passing all three
tests with flying colors. New initiatives that don’t seem to match the company’s
internal and external situations should be scrapped before they come to fruition,
while existing strategies must be scrutinized on a regular basis to ensure they
have good fit, offer a competitive advantage, and are contributing to above-
average performance or performance improvements. Failure to pass one or
more of the three tests should prompt managers to make immediate changes in
an existing strategy.

WHY CRAFTING AND EXECUTING STRATEGY ARE IMPORTANT TASKS

Crafting and executing strategy are top-priority managerial tasks for two big
reasons. First, a clear and reasoned strategy is management’s prescription for
doing business, its road map to competitive advantage, its game plan for pleasing
customers, and its formula for improving performance. High performing
enterprises are nearly always the product of astute, creative, and proactive
strategy making. Companies don’t get to the top of the industry rankings or stay
there with flawed strategies, copycat strategies, or timid attempts to try to do
better. Only a handful of companies can boast of hitting home runs in the
marketplace due to lucky breaks or the good fortune of having stumbled into the
right market at the right time with the right product. Even if this is the case,
success will not be lasting unless the companies subsequently craft a strategy
that capitalizes on their luck, builds on what is working, and discards the rest.
So, there can be little argument that the process of crafting a company’s strategy
matters—and matters a lot. Second, even the best-conceived strategies will
result in performance shortfalls if they are not executed proficiently. The
processes of crafting and executing strategies must go hand in hand if a company
is to be successful in the long term. The chief executive officer of one successful
company put it well when he said,

In the main, our competitors are acquainted with the same fundamental concepts
and techniques and approaches that we follow, and they are as free to pursue them
as we are. More often than not, the difference between their level of success and

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

ours lies in the relative thoroughness and self-discipline with which we and they
develop and execute our strategies for the future.

Good Strategy + Good Strategy Execution = Good Management

Crafting and executing strategy are thus core management tasks. Among all the
things managers do, nothing affects a company’s ultimate success or failure
more fundamentally than how well its management team charts the company’s
direction, develops competitively effective strategic moves, and pursues what
needs to be done internally to produce good day-in, day-out strategy execution
and operating excellence. Indeed, good strategy and good strategy execution are
the most telling and trustworthy signs of good management. The rationale for
using the twin standards of good strategy making and good strategy execution
to determine whether a company is well managed is therefore compelling: The
better conceived a company’s strategy and the more competently it is executed,
the more likely the company will be a standout performer in the marketplace. In
stark contrast, a company that lacks clear-cut direction, has a flawed strategy, or
can’t execute its strategy competently is a company whose financial
performance is probably suffering, whose business is at long-term risk, and
whose management is sorely lacking.

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

Charting a Company’s Direction: Its Vision, Mission, Objectives, and

Strategy

WHAT DOES THE STRATEGY-MAKING, STRATEGY-EXECUTING PROCESS

ENTAIL?

Crafting and executing a company’s strategy is an ongoing process that consists

of five interrelated stages:

1. Developing a strategic vision that charts the company’s long-term

direction, a mission statement that describes the company’s purpose, and
a set of core values to guide the pursuit of the vision and mission.
2. Setting objectives for measuring the company’s performance and tracking
its progress in moving in the intended long-term direction.
3. Crafting a strategy for advancing the company along the path
management has charted and achieving its performance objectives.
4. Executing the chosen strategy efficiently and effectively.
5. Monitoring developments, evaluating performance, and initiating
corrective adjustments in the company’s vision and mission statement,
objectives, strategy, or approach to strategy execution in light of actual
experience, changing conditions, new ideas, and new opportunities.

Figure below displays this five-stage process, which we examine next in some
detail. The first three stages of the strategic management process involve making
a strategic plan. A strategic plan maps out where a company is headed,
establishes strategic and financial targets, and outlines the basic business model,
competitive moves, and approaches to be used in achieving the desired business
results.

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

The five-stage process model illustrates the need for management to evaluate a
number of external and internal factors in deciding upon a strategic direction,
appropriate objectives, and approaches to crafting and executing strategy (see
Table below). Management’s decisions that are made in the strategic
management process must be shaped by the prevailing economic conditions and
competitive environment and the company’s own internal resources and
competitive capabilities.

The model shown above illustrates the need for management to evaluate the
company’s performance on an ongoing basis. Any indication that the company is
failing to achieve its objectives calls for corrective adjustments in one of the first
four stages of the process. The company’s implementation efforts might have
fallen short, and new tactics must be devised to fully exploit the potential of the
company’s strategy. If management determines that the company’s execution
efforts are sufficient, it should challenge the assumptions underlying the
company’s business model and strategy, and make alterations to better fit
competitive conditions and the company’s internal capabilities. If the company’s
strategic approach to competition is rated as sound, then perhaps management
set overly ambitious targets for the company’s performance.

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

The evaluation stage of the strategic management process shown in above also
allows for a change in the company’s vision, but this should be necessary only
when it becomes evident to management that the industry has changed in a
significant way that renders the vision obsolete. Such occasions can be referred
to as strategic inflection points. When a company reaches a strategic inflection
point, management has tough decisions to make about the company’s direction
because abandoning an established course carries considerable risk. However,
responding to unfolding changes in the marketplace in a timely fashion lessens
a company’s chances of becoming trapped in a stagnant or declining business or
letting attractive new growth opportunities slip away.

STAGE 1: DEVELOPING A STRATEGIC VISION, MISSION STATEMENT, AND

SET OF CORE VALUES

Very early in the strategy-making process, a company’s senior managers must

wrestle with the issue of what directional path the company should take. Can the
company’s prospects be improved by changing its product offerings, or the
markets in which it participates, or the customers it aims to serve? Deciding to
commit the company to one path versus another pushes managers to draw some
carefully reasoned conclusions about whether the company’s present strategic
course offers attractive opportunities for growth and profitability or whether
changes of one kind or another in the company’s strategy and long-term
direction are needed.

Developing a Strategic Vision

Top management’s views about the company’s long-term direction and what
product-market-customer business mix seems optimal for the road ahead
constitute a strategic vision for the company. A strategic vision delineates
management’s aspirations for the company’s future, providing a panoramic view
of “where we are going” and a convincing rationale for why this makes good
business sense. A strategic vision thus points an organization in a particular
direction, charts a strategic path for it to follow, builds commitment to the future
course of action, and molds organizational identity. A clearly articulated
strategic vision communicates management’s aspirations to stakeholders
(customers, employees, stockholders, suppliers, etc.) and helps steer the
energies of company personnel in a common direction. The vision of Google’s
cofounders Larry Page and Sergey Brin “to organize the world’s information and
make it universally accessible and useful” provides a good example. In serving
as the company’s guiding light, it has captured the imagination of stakeholders
and the public at large, served as the basis for crafting the company’s strategic
actions, and aided internal efforts to mobilize and direct the company’s
resources.

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

Well-conceived visions are distinctive and specific to a particular organization;

they avoid generic, feel-good statements like “We will become a global leader
and the first choice of customers in every market we serve.” Likewise, a strategic
vision proclaiming management’s quest “to be the most innovative” or “to be
recognized as the best company in the industry” offers scant guidance about a
company’s long-term direction or the kind of company that management is
striving to build.

A surprising number of the vision statements found on company websites and

in annual reports are vague and unrevealing, saying very little about the
company’s future direction. Some could apply to almost any company in any
industry. Many read like a public relations statement—high-sounding words
that someone came up with because it is fashionable for companies to have an
official vision statement. An example is Hilton Hotel’s vision “to fill the earth with
light and the warmth of hospitality,” which simply borders on the incredulous.
The real purpose of a vision statement is to serve as a management tool for giving
the organization a sense of direction.

For a strategic vision to function as a valuable management tool, it must convey

what top executives want the business to look like and provide managers at all
organizational levels with a reference point in making strategic decisions and
preparing the company for the future. It must say something definitive about
how the company’s leaders intend to position the company beyond where it is
today. Table below provides some dos and don’ts in composing an effectively
worded vision statement.

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

Sources: John P. Kotter, Leading Change (Boston: Harvard Business School Press, 1996); Hugh Davidson, The
Committed Enterprise (Oxford: Butterworth Heinemann, 2002); Michel Robert, Strategy Pure and Simple II (New York:
McGraw-Hill, 1992).

Communicating the Strategic Vision

A strategic vision offers little value to the organization unless it’s effectively
communicated down the line to lower-level managers and employees. A vision
cannot provide direction for middle managers or inspire and energize
employees unless everyone in the company is familiar with it and can observe
senior management’s commitment to the vision. It is particularly important for
executives to provide a compelling rationale for a dramatically new strategic
vision and company direction. When company personnel don’t understand or
accept the need for redirecting organizational efforts, they are prone to resist
change. Hence, explaining the basis for the new direction, addressing employee
concerns head-on, calming fears, lifting spirits, and providing updates and
progress reports as events unfold all become part of the task in mobilizing
support for the vision and winning commitment to needed actions.

Winning the support of organization members for the vision nearly always
requires putting “where we are going and why” in writing, distributing the
statement organization wide, and having top executives personally explain the
vision and its rationale to as many people as feasible. Ideally, executives should
present their vision for the company in a manner that reaches out and grabs
people. An engaging and convincing strategic vision has enormous motivational
value—for the same reason that a stonemason is more inspired by the

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

opportunity to build a great cathedral for the ages than a house. Thus, executive
ability to paint a convincing and inspiring picture of a company’s journey to a
future destination is an important element of effective strategic leadership.

Expressing the Essence of the Vision in a Slogan. The task of effectively

conveying the vision to company personnel is assisted when management can
capture the vision of where to head in a catchy or easily remembered slogan. A
number of organizations have summed up their vision in a brief phrase.
Instagram’s vision is “Capture and share the world’s moments,” while Charles
Schwab’s is simply “Helping investors help themselves.” Habitat for Humanity’s
aspirational vision is “A world where everyone has a decent place to live.” Even
Scotland Yard has a catchy vision, which is to “make London the safest major city
in the world.” Creating a short slogan to illuminate an organization’s direction
and using it repeatedly as a reminder of “where we are headed and why” helps
rally organization members to maintain their focus and hurdle whatever
obstacles lie in the company’s path.

Why a Sound, Well-Communicated Strategic Vision Matters. A well thought-

out, forcefully communicated strategic vision pays off in several respects: (1) It
crystallizes senior executives’ own views about the firm’s long-term direction;
(2) it reduces the risk of rudderless decision making; (3) it is a tool for winning
the support of organization members to help make the vision a reality; (4) it
provides a beacon for lower-level managers in setting departmental objectives
and crafting departmental strategies that are in sync with the company’s overall
strategy; and (5) it helps an organization prepare for the future. When top
executives are able to demonstrate significant progress in achieving these five
benefits, the first step in organizational direction setting has been successfully
completed.

Developing a Company Mission Statement

The defining characteristic of a strategic vision is what it says about the

company’s future strategic course— “the direction we are headed and the shape
of our business in the future.” It is aspirational. In contrast, a mission statement
describes the enterprise’s present business and purpose— “who we are, what
we do, and why we are here.” It is purely descriptive. Ideally, a company mission
statement (1) identifies the company’s products and/or services, (2) specifies
the buyer needs that the company seeks to satisfy and the customer groups or
markets that it serves, and (3) gives the company its own identity. The mission
statements that one finds in company annual reports or posted on company
websites are typically quite brief; some do a better job than others of conveying
what the enterprise’s current business operations and purpose are all about.

Consider, for example, the mission statement of FedEx Corporation, which has
long been known for its overnight shipping service, but also for pioneering the
package tracking system now in general use:

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

The FedEx Corporation offers express and fast delivery transportation services,
delivering an estimated 3 million packages daily all around the globe. Its services
include overnight courier, ground, heavy freight, document copying, and logistics
services.

Note that FedEx’s mission statement does a good job of conveying “who we are,
what we do, and why we are here,” but it provides no sense of “where we are
headed.” This is as it should be, since a company’s vision statement is that which
speaks to the future.

Another example of a well-stated mission statement with ample specifics about

what the organization does is that of St. Jude Children’s Research Hospital: “to
advance cures, and means of prevention, for pediatric catastrophic diseases
through research and treatment. Consistent with the vision of our founder
Danny Thomas, no child is denied treatment based on race, religion or a family’s
ability to pay.” Twitter’s mission statement, while short, still captures the
essence of what the company is about: “To give everyone the power to create
and share ideas and information instantly, without barriers.” An example of a
not-so-revealing mission statement is that of JetBlue: “To inspire humanity—
both in the air and on the ground.” It says nothing about the company’s activities
or business makeup and could apply to many companies in many different
industries. A person unfamiliar with JetBlue could not even discern from its
mission statement that it is an airline, without reading between the lines. Coca-
Cola, which markets more than 500 beverage brands in over 200 countries, also
has an uninformative mission statement: “to refresh the world; to inspire
moments of optimism and happiness; to create value and make a difference.” The
usefulness of a mission statement that cannot convey the essence of a company’s
business activities and purpose is unclear.

All too often, companies couch their mission in terms of making a profit, like
Dean Foods with its mission “To maximize long-term stockholder value.” This,
too, is flawed. Profit is more correctly an objective and a result of what a
company does. Moreover, earning a profit is the obvious intent of every
commercial enterprise. Companies such as Gap, Inc., Edward Jones, Honda, The
Boston Consulting Group, Citigroup, DreamWorks Animation, and Intuit are all
striving to earn a profit for shareholders; but plainly the fundamentals of their
businesses are substantially different when it comes to “who we are and what
we do.” It is management’s answer to “make a profit doing what and for whom?”
that reveals the substance of a company’s true mission and business purpose.

Linking the Vision and Mission with Company Values

Companies commonly develop a set of values to guide the actions and behavior
of company personnel in conducting the company’s business and pursuing its
strategic vision and mission. By values (or core values, as they are often called)
we mean certain designated beliefs, traits, and behavioral norms that
management has determined should guide the pursuit of its vision and mission.

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

Values relate to such things as fair treatment, honor and integrity, ethical
behavior, innovativeness, teamwork, a passion for top-notch quality or
superior customer service, social responsibility, and community citizenship.

Most companies articulate four to eight core values that company personnel are
expected to display and that are supposed to be mirrored in how the company
conducts its business. Build-A-Bear Workshop, with its cuddly Teddy bears and
stuffed animals, credits six core values with creating its highly acclaimed
working environment: (1) Reach, (2) Learn, (3) Di-bear-sity (4) Colla-bear-ate,
(5) Give, and (6) Cele-bear-ate. Zappos prides itself on its 10 core values, which
employees are expected to embody:

1. Deliver WOW Through Service

2. Embrace and Drive Change
3. Create Fun and a Little Weirdness
4. Be Adventurous, Creative, and Open-Minded
5. Pursue Growth and Learning
6. Build Open and Honest Relationships with Communication
7. Build a Positive Team and Family Spirit
8. Do More with Less
9. Be Passionate and Determined
10. Be Humble

Do companies practice what they preach when it comes to their professed

values? Sometimes no, sometimes yes—it runs the gamut. At one extreme are
companies with window-dressing values; the values are given lip service by top
executives but have little discernible impact on either how company personnel
behave or how the company operates. Such companies have value statements
because they are in vogue and make the company look good. The limitation of
these value statements becomes apparent whenever corporate misdeeds come
to light. Prime examples include Volkswagen, with its emissions scandal, and
Uber, facing multiple allegations of misbehavior and a criminal probe of illegal
operations. At the other extreme are companies whose executives are
committed to grounding company operations on sound values and principled
ways of doing business. Executives at these companies deliberately seek to
ingrain the designated core values into the corporate culture—the core values
thus become an integral part of the company’s DNA and what makes the
company tick. At such values-driven companies, executives “walk the talk” and
company personnel are held accountable for embodying the stated values in
their behavior.

At companies where the stated values are real rather than cosmetic, managers
connect values to the pursuit of the strategic vision and mission in one of two
ways. In companies with long-standing values that are deeply entrenched in the
corporate culture, senior managers are careful to craft a vision, mission, strategy,
and set of operating practices that match established values; moreover, they
repeatedly emphasize how the value-based behavioral norms contribute to the

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

company’s business success. If the company changes to a different vision or

strategy, executives make a point of explaining how and why the core values
continue to be relevant. Few companies with sincere commitment to established
core values ever undertake strategic moves that conflict with ingrained values.
In new companies, top management has to consider what values and business
conduct should characterize the company and then draft a value statement that
is circulated among managers and employees for discussion and possible
modification. A final value statement that incorporates the desired behaviors
and that connects to the vision and mission is then officially adopted. Some
companies combine their vision, mission, and values into a single statement or
document, circulate it to all organization members, and in many instances post
the vision, mission, and value statement on the company’s website.

STAGE 2: SETTING OBJECTIVES

The managerial purpose of setting objectives is to convert the vision and mission
into specific performance targets. Objectives reflect management’s aspirations
for company performance in light of the industry’s prevailing economic and
competitive conditions and the company’s internal capabilities. Well-stated
objectives must be specific, as well as quantifiable or measurable. As Bill
Hewlett, cofounder of Hewlett-Packard, shrewdly observed, “You cannot
manage what you cannot measure and what gets measured gets done.”4
Concrete, measurable objectives are managerially valuable for three reasons: (1)
They focus organizational attention and align actions throughout the
organization, (2) they serve as yardsticks for tracking a company’s performance
and progress, and (3) they motivate employees to expend greater effort and
perform at a high level. For company objectives to serve their purpose well, they
must also meet three other criteria: they must contain a deadline for
achievement and they must be challenging, yet achievable.

Setting Stretch Objectives

The experiences of countless companies teach that one of the best ways to
promote outstanding company performance is for managers to set performance
targets high enough to stretch an organization to perform at its full potential and
deliver the best possible results. Challenging company personnel to go all out
and deliver “stretch” gains in performance pushes an enterprise to be more
inventive, to exhibit more urgency in improving both its financial performance
and its business position, and to be more intentional and focused in its actions.
Employing stretch goals can help create an exciting work environment and
attract the best people. In many cases, stretch objectives spur exceptional
performance and help build a firewall against contentment with modest gains in
organizational performance.

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

There is a difference, however, between stretch goals that are clearly reachable
with enough effort, and those that are well beyond the organization’s current
capabilities, regardless of the level of effort. Extreme stretch goals, involving
radical expectations, fail more often than not. And failure to meet such goals can
kill motivation, erode employee confidence, and damage both worker and
company performance. CEO Marissa Mayer’s inability to return Yahoo to
greatness is a case in point.

Extreme stretch goals can work as envisioned under certain circumstances. High
profile success stories at companies such as Southwest Airlines, 3M, SpaceX, and
General Electric provide evidence. But research suggests that success of this sort
depends upon two conditions being met: (1) the company must have ample
resources available, and (2) its recent performance must be strong. Under any
other circumstances, managers would be well advised not to pursue overly
ambitious stretch goals.

What Kinds of Objectives to Set

Two distinct types of performance targets are required: those relating to

financial performance and those relating to strategic performance. Financial
objectives communicate management’s goals for financial performance.
Strategic objectives are goals concerning a company’s marketing standing and
competitive position. A company’s set of financial and strategic objectives should
include both near-term and longer-term performance targets. Short-term
(quarterly or annual) objectives focus attention on delivering performance
improvements in the current period and satisfy shareholder expectations for
near-term progress. Longer-term targets (three to five years off) force managers
to consider what to do now to put the company in position to perform better
later. Long-term objectives are critical for achieving optimal long-term
performance and stand as a barrier to a nearsighted management philosophy
and an undue focus on short-term results. When trade-offs have to be made
between achieving long-term objectives and achieving short-term objectives,
long-term objectives should take precedence (unless the achievement of one or
more short-term performance targets has unique importance).

Common Financial and Strategic Objectives

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

STAGE 3: CRAFTING A STRATEGY

As indicated in the previous lesson, the task of stitching a strategy together

entails addressing a series of “how’s”: how to attract and please customers, how
to compete against rivals, how to position the company in the marketplace, how
to respond to changing market conditions, how to capitalize on attractive
opportunities to grow the business, and how to achieve strategic and financial
objectives. Choosing among the alternatives available in a way that coheres into
a viable business model requires an understanding of the basic principles of
strategic management. Fast-changing business environments demand astute
entrepreneurship searching for opportunities to do new things or to do existing
things in new or better ways.

In choosing among opportunities and addressing the how’s of strategy,

strategists must embrace the risks of uncertainty and the discomfort that
naturally accompanies such risks. Bold strategies involve making difficult
choices and placing bets on the future. Good strategic planning is not about
eliminating risks, but increasing the odds of success.

This places a premium on astute entrepreneurship searching for opportunities

to do new things or to do existing things in new or better ways. The faster a
company’s business environment is changing, the more critical it becomes for its
managers to be good entrepreneurs in diagnosing the direction and force of the
changes underway and in responding with timely adjustments in strategy.
Strategy makers have to pay attention to early warnings of future change and be

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

willing to experiment with dare-to-be different ways to establish a market

position in that future. When obstacles appear unexpectedly in a company’s
path, it is up to management to adapt rapidly and innovatively. Masterful
strategies come from doing things differently from competitors where it counts—
out-innovating them, being more efficient, being more imaginative, adapting
faster—rather than running with the herd. Good strategy making is therefore
inseparable from good business entrepreneurship. One cannot exist without the
other.

Strategy Making Involves Managers at All Organizational Levels

A company’s senior executives obviously have lead strategy-making roles and

responsibilities. The chief executive officer (CEO), as captain of the ship, carries
the mantles of chief direction setter, chief objective setter, chief strategy maker,
and chief strategy implementer for the total enterprise. Ultimate responsibility
for leading the strategy-making, strategy-executing process rests with the CEO.
And the CEO is always fully accountable for the results the strategy produces,
whether good or bad. In some enterprises, the CEO or owner functions as chief
architect of the strategy, personally deciding what the key elements of the
company’s strategy will be, although he or she may seek the advice of key
subordinates and board members. A CEO centered approach to strategy
development is characteristic of small owner/managed companies and some
large corporations that were founded by the present CEO or that have a CEO with
strong strategic leadership skills. Elon Musk at Tesla Motors and SpaceX, Mark
Zuckerberg at Facebook, Jeff Bezos at Amazon, Jack Ma of Alibaba, Warren
Buffett at Berkshire Hathaway, and Marillyn Hewson at Lockheed Martin are
examples of high-profile corporate CEOs who have wielded a heavy hand in
shaping their company’s strategy.

In most corporations, however, strategy is the product of more than just the
CEO’s handiwork. Typically, other senior executives—business unit heads, the
chief financial officer, and vice presidents for production, marketing, and other
functional departments—have influential strategy making roles and help
fashion the chief strategy components. Normally, a company’s chief financial
officer is in charge of devising and implementing an appropriate financial
strategy; the production vice president takes the lead in developing the
company’s production strategy; the marketing vice president orchestrates sales
and marketing strategy; a brand manager is in charge of the strategy for a
particular brand in the company’s product lineup; and so on. Moreover, the
strategy-making efforts of top managers are complemented by advice and
counsel from the company’s board of directors; normally, all major strategic
decisions are submitted to the board of directors for review, discussion, perhaps
modification, and official approval.

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

But strategy making is by no means solely a top management function, the

exclusive province of owner-entrepreneurs, CEOs, high-ranking executives, and
board members. The more a company’s operations cut across different products,
industries, and geographic areas, the more that headquarters executives have
little option but to delegate considerable strategy-making authority to down-
the-line managers in charge of particular subsidiaries, divisions, product lines,
geographic sales offices, distribution centers, and plants. On-the-scene
managers who oversee specific operating units can be reliably counted on to
have more detailed command of the strategic issues for the particular operating
unit under their supervision since they have more intimate knowledge of the
prevailing market and competitive conditions, customer requirements and
expectations, and all the other relevant aspects affecting the several strategic
options available. Managers with day-to-day familiarity of, and authority over, a
specific operating unit thus have a big edge over headquarters executives in
making wise strategic choices for their unit. The result is that, in most of today’s
companies, crafting and executing strategy is a collaborative team effort in which
every company manager plays a strategy-making role—ranging from minor to
major—for the area he or she heads.

A Company’s Strategy-Making Hierarchy In diversified companies like GE, where

multiple and sometimes strikingly different businesses have to be managed,
crafting a full-fledged strategy involves four distinct types of strategic actions
and initiatives. Each of these involves different facets of the company’s overall
strategy and calls for the participation of different types of managers, as shown
in Figure below.

Shown below, corporate strategy is orchestrated by the CEO and other senior
executives and establishes an overall strategy for managing a set of businesses
in a diversified, multi-business company. Corporate strategy concerns how to
improve the combined performance of the set of businesses the company has
diversified into by capturing cross-business synergies and turning them into
competitive advantage. It addresses the questions of what businesses to hold or
divest, which new markets to enter, and how to best enter new markets (by
acquisition, creation of a strategic alliance, or through internal development, for
example).

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

Business strategy is concerned with strengthening the market position,

building competitive advantage, and improving the performance of a single line
of business. Business strategy is primarily the responsibility of business unit
heads, although corporate-level executives may well exert strong influence; in
diversified companies it is not unusual for corporate officers to insist that
business-level objectives and strategy conform to corporate-level objectives and
strategy themes. The business head has at least two other strategy-related roles:
(1) seeing that lower-level strategies are well conceived, consistent, and

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

adequately matched to the overall business strategy; and (2) keeping corporate-
level officers (and sometimes the board of directors) informed of emerging
strategic issues.

Functional-area strategies concern the approaches employed in managing

particular functions within a business—like research and development (R&D),
production, procurement of inputs, sales and marketing, distribution, customer
service, and finance. A company’s marketing strategy, for example, represents
the managerial game plan for running the sales and marketing part of the
business. A company’s product development strategy represents the game plan
for keeping the company’s product lineup in tune with what buyers are looking
for.

Functional strategies flesh out the details of a company’s business strategy. Lead
responsibility for functional strategies within a business is normally delegated
to the heads of the respective functions, with the general manager of the
business having final approval. Since the different functional-level strategies
must be compatible with the overall business strategy and with one another to
have beneficial impact, there are times when the general business manager
exerts strong influence on the content of the functional strategies.

Operating strategies concern the relatively narrow approaches for managing

key operating units (e.g., plants, distribution centers, purchasing centers) and
specific operating activities with strategic significance (e.g., quality control,
materials purchasing, brand management, Internet sales). A plant manager
needs a strategy for accomplishing the plant’s objectives, carrying out the plant’s
part of the company’s overall manufacturing game plan, and dealing with any
strategy-related problems that exist at the plant. A company’s advertising
manager needs a strategy for getting maximum audience exposure and sales
impact from the ad budget. Operating strategies, while of limited scope, add
further detail and completeness to functional strategies and to the overall
business strategy. Lead responsibility for operating strategies is usually
delegated to frontline managers, subject to the review and approval of higher-
ranking managers.

Even though operating strategy is at the bottom of the strategy-making

hierarchy, its importance should not be downplayed. A major plant that fails in
its strategy to achieve production volume, unit cost, and quality targets can
damage the company’s reputation for quality products and undercut the
achievement of company sales and profit objectives. Frontline managers are
thus an important part of an organization’s strategy-making team. One cannot
reliably judge the strategic importance of a given action simply by the strategy
level or location within the managerial hierarchy where it is initiated.

In single-business companies, the uppermost level of the strategy-making

hierarchy is the business strategy, so a single-business company has three levels
of strategy: business strategy, functional-area strategies, and operating

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

strategies. Proprietorships, partnerships, and owner-managed enterprises may

have only one or two strategy-making levels since it takes only a few key people
to craft and oversee the firm’s strategy. The larger and more diverse the
operations of an enterprise, the more points of strategic initiative it has and the
more levels of management that have a significant strategy-making role.

A Strategic Vision + Mission + Objectives + Strategy = A Strategic Plan

Developing a strategic vision and mission, setting objectives, and crafting a

strategy are basic direction-setting tasks. They map out where a company is
headed, delineate its strategic and financial targets, articulate the basic business
model, and outline the competitive moves and operating approaches to be used
in achieving the desired business results. Together, these elements constitute a
strategic plan for coping with industry conditions, competing against rivals,
meeting objectives, and making progress along the chosen strategic course.
Typically, a strategic plan includes a commitment to allocate resources to
carrying out the plan and specifies a time period for achieving goals.

In companies that do regular strategy reviews and develop explicit strategic

plans, the strategic plan usually ends up as a written document that is circulated
to most managers. Near-term performance targets are the part of the strategic
plan most often communicated to employees more generally and spelled out
explicitly. A number of companies summarize key elements of their strategic
plans in the company’s annual report to shareholders, in postings on their
websites, or in statements provided to the business media; others, perhaps for
reasons of competitive sensitivity, make only vague, general statements about
their strategic plans. In small, privately owned companies it is rare for strategic
plans to exist in written form. Small-company strategic plans tend to reside in
the thinking and directives of owner-executives; aspects of the plan are revealed
in conversations with company personnel about where to head, what to
accomplish, and how to proceed.

STAGE 4: EXECUTING THE STRATEGY

Managing the implementation of a strategy is easily the most demanding and

time-consuming part of the strategic management process. Converting strategic
plans into actions and results tests a manager’s ability to direct organizational
change, motivate company personnel, build and strengthen competitive
capabilities, create and nurture a strategy-supportive work climate, and meet or
beat performance targets. Initiatives to put the strategy in place and execute it
proficiently must be launched and managed on many organizational fronts.

Management’s action agenda for executing the chosen strategy emerges from
assessing what the company will have to do to achieve the financial and strategic
performance targets. Each company manager has to think through the answer to
the question “What needs to be done in my area to execute my piece of the
strategic plan, and what actions should I take to get the process under way?”

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

How much internal change is needed depends on how much of the strategy is
new, how far internal practices and competencies deviate from what the strategy
requires, and how well the present work culture supports good strategy
execution. Depending on the amount of internal change involved, full
implementation and proficient execution of the company strategy (or important
new pieces thereof) can take several months to several years.

In most situations, managing the strategy execution process includes the

following principal aspects:

• Creating a strategy-supporting structure. Staffing the organization to

obtain needed skills and expertise.
• Developing and strengthening strategy-supporting resources and
capabilities.
• Allocating ample resources to the activities critical to strategic success.
• Ensuring that policies and procedures facilitate effective strategy
execution. Organizing the work effort along the lines of best practice.
• Installing information and operating systems that enable company
personnel to perform essential activities.
• Motivating people and tying rewards directly to the achievement of
performance objectives. Creating a company culture conducive to
successful strategy execution.
• Exerting the internal leadership needed to propel implementation
forward.

Good strategy execution requires diligent pursuit of operating excellence. It is a

job for a company’s whole management team. Success hinges on the skills and
cooperation of operating managers who can push for needed changes in their
organizational units and consistently deliver good results. Management’s
handling of the strategy implementation process can be considered successful if
things go smoothly enough that the company meets or beats its strategic and
financial performance targets and shows good progress in achieving
management’s strategic vision.

STAGE 5: EVALUATING PERFORMANCE AND INITIATING CORRECTIVE

ADJUSTMENTS

The fifth component of the strategy management process—monitoring new

external developments, evaluating the company’s progress, and making
corrective adjustments—is the trigger point for deciding whether to continue or
change the company’s vision and mission, objectives, strategy, business model
and/or strategy execution methods. As long as the company’s strategy continues
to pass the three tests of a winning strategy (good fit, competitive advantage,
strong performance), company executives may decide to stay the course. Simply
fine-tuning the strategic plan and continuing with efforts to improve strategy
execution are sufficient.

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

But whenever a company encounters disruptive changes in its environment,

questions need to be raised about the appropriateness of its direction and
strategy. If a company experiences a downturn in its market position or
persistent shortfalls in performance, then company managers are obligated to
ferret out the causes—do they relate to poor strategy, poor strategy execution,
or both? —and take timely corrective action. A company’s direction, objectives,
business model, and strategy have to be revisited anytime external or internal
conditions warrant.

Likewise, managers are obligated to assess which of the company’s operating

methods and approaches to strategy execution merit continuation and which
need improvement. Proficient strategy execution is always the product of much
organizational learning. It is achieved unevenly—coming quickly in some areas
and proving troublesome in others. Consequently, topnotch strategy execution
entails vigilantly searching for ways to improve and then making corrective
adjustments whenever and wherever it is useful to do so.

Engaging Activities

Read about Corporate Governance below, and share your reaction after.

CORPORATE GOVERNANCE: THE ROLE OF THE BOARD OF DIRECTORS IN

THE STRATEGY-CRAFTING, STRATEGY-EXECUTING PROCESS
Although senior managers have the lead responsibility for crafting and executing
a company’s strategy, it is the duty of a company’s board of directors to exercise
strong oversight and see that management performs the various tasks involved
in each of the five stages of the strategy-making, strategy-executing process in a
manner that best serves the interests of shareholders and other stakeholders,
including the company’s customers, employees, and the communities in which
the company operates. A company’s board of directors has four important
obligations to fulfill:
1. Oversee the company’s financial accounting and financial reporting
practices. While top executives, particularly the company’s CEO and CFO
(chief financial officer), are primarily responsible for seeing that the
company’s financial statements fairly and accurately report the results of
the company’s operations, board members have a legal obligation to
warrant the accuracy of the company’s financial reports and protect
shareholders. It is their job to ensure that generally accepted accounting
principles (GAAP) are used properly in preparing the company’s financial
statements and that proper financial controls are in place to prevent
fraud and misuse of funds. Virtually all boards of directors have an audit
committee, always composed entirely of outside directors (inside
directors hold management positions in the company and either directly
or indirectly report to the CEO). The members of the audit committee

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

have the lead responsibility for overseeing the decisions of the company’s
financial officers and consulting with both internal and external auditors
to ensure accurate financial reporting and adequate financial controls.
2. Critically appraise the company’s direction, strategy, and business
approaches. Board members are also expected to guide management in
choosing a strategic direction and to make independent judgments about
the validity and wisdom of management’s proposed strategic actions.
This aspect of their duties takes on heightened importance when the
company’s strategy is failing or is plagued with faulty execution, and
certainly when there is a precipitous collapse in profitability. But under
more normal circumstances, many boards have found that meeting
agendas become consumed by compliance matters with little time left to
discuss matters of strategic importance. The board of directors and
management at Philips Electronics hold annual two- to three-day retreats
devoted exclusively to evaluating the company’s long-term direction and
various strategic proposals. The company’s exit from the semiconductor
business and its increased focus on medical technology and home health
care resulted from management-board discussions during such retreats.
3. Evaluate the caliber of senior executives’ strategic leadership skills. The
board is always responsible for determining whether the current CEO is
doing a good job of strategic leadership (as a basis for awarding salary
increases and bonuses and deciding on retention or removal). Boards
must also exercise due diligence in evaluating the strategic leadership
skills of other senior executives in line to succeed the CEO. When the
incumbent CEO steps down or leaves for a position elsewhere, the board
must elect a successor, either going with an insider or deciding that a
outsider is needed to perhaps radically change the company’s strategic
course. Often, the outside directors on a board visit company facilities
and talk with company personnel personally to evaluate whether the
strategy is on track, how well the strategy is being executed, and how well
issues and problems are being addressed by various managers. For
example, independent board members at GE visit operating executives at
each major business unit once a year to assess the company’s talent pool
and stay abreast of emerging strategic and operating issues affecting the
company’s divisions. Home Depot board members visit a store once per
quarter to determine the health of the company’s operations.
4. Institute a compensation plan for top executives that rewards them for
actions and results that serve stakeholder interests, and most especially
those of shareholders. A basic principle of corporate governance is that
the owners of a corporation (the shareholders) delegate operating
authority and managerial control to top management in return for
compensation. In their role as agents of shareholders, top executives have
a clear and unequivocal duty to make decisions and operate the company
in accord with shareholder interests. (This does not mean disregarding

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

the interests of other stakeholders—employees, suppliers, the

communities in which the company operates, and society at large.) Most
boards of directors have a compensation committee, composed entirely
of directors from outside the company, to develop a salary and incentive
compensation plan that rewards senior executives for boosting the
company’s long-term performance on behalf of shareholders. The
compensation committee’s recommendations are presented to the full
board for approval. But during the past 10 years, many boards of
directors have done a poor job of ensuring that executive salary
increases, bonuses, and stock option awards are tied tightly to
performance measures that are truly in the long-term interests of
shareholders. Rather, compensation packages at many companies have
increasingly rewarded executives for short-term performance
improvements—most notably, for achieving quarterly and annual
earnings targets and boosting the stock price by specified percentages.
This has had the perverse effect of causing company managers to become
preoccupied with actions to improve a company’s near-term
performance, often motivating them to take unwise business risks to
boost short-term earnings by amounts sufficient to qualify for
multimillion-dollar compensation packages (that many see as obscenely
large). The focus on short-term performance has proved damaging to
long-term company performance and shareholder interests—witness the
huge loss of shareholder wealth that occurred at many financial
institutions during the banking crisis of 2008–2009 because of executive
risk-taking in subprime loans, credit default swaps, and collateralized
mortgage securities. As a consequence, the need to overhaul and reform
executive compensation has become a hot topic in both public circles and
corporate boardrooms.

Performance Tasks

PT 1

Directions: Research about, vision, mission, and objective of a Philippine company of your choosing.
Provide, important information, your analysis and you’re learning.

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

Answer Sheet
Use the provided space below to answer the Engaging Activities questions and the Performance Tasks.

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

Answer Sheet
Use the provided space below to answer the Engaging Activities questions and the Performance Tasks.

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

Answer Sheet
Use the provided space below to answer the Engaging Activities questions and the Performance Tasks.

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

Understanding Directed Assess

Rubric for Engaging Activities

Adopted from: https://www.studiesweekly.com/blog/using-rubrics/

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

Rubric for Performance Tasks

Adopted from: https://www.jessicasingerman.com/wssu-drawing-rubric/

Learning Resources

Thompson A. A. Peteraf M. A. & Gamble J. E. (2019). Crafting and executing strategy: the quest for
competitive advantage (22th ed.). McGraw-Hill Higher Education. February 4 2024

LSPU SELF-PACED LEARNING MODULE: Macro Economics Abigail M. Lim