Key Terms in Strategic Management¶
Understanding key terms in strategic management is crucial for grasping how organizations plan, implement, and evaluate strategies to achieve their objectives. Here are nine essential terms:
1. Competitive Advantage¶
Competitive Advantage refers to:
- Any activity a firm excels at, compared to its rivals.
- Any resource a firm possesses that is highly desired by its competitors.
Importance: Strategic management revolves around achieving and maintaining a competitive advantage, which enables a firm to outperform its competitors.
Sustainable Competitive Advantage¶
- A competitive advantage is typically short-lived as rival firms catch up.
- To achieve Sustainable Competitive Advantage, a firm must:
- Continually adapt to changes in external trends and internal capabilities.
- Effectively formulate, implement, and evaluate strategies.
2. Strategists¶
Strategists are individuals within an organization responsible for the strategic management process. They guide the organization through the stages of formulating, implementing, and evaluating strategies. Their decisions significantly impact the organization's long-term success.
3. Vision and Mission Statements¶
Vision Statement¶
- Vision Statement answers the question: "What do we want to become?"
- It reflects the organization's aspirations and serves as the first step in strategic planning.
- Example: An eye care company's vision might be, "Our vision is to take care of your vision."
Mission Statement¶
- Mission Statement answers the question: "What is our business?"
- It outlines the organization's purpose, values, and priorities, guiding its long-term direction.
- Example: BMW's mission statement is "To move people with products that evoke emotions."
4. External Opportunities and Threats¶
External Opportunities and Threats refer to factors outside the organization that could significantly benefit or harm it.
Strategic Importance¶
- Firms must formulate strategies to:
- Capitalize on external opportunities.
- Mitigate the impact of external threats.
Environmental Scanning or Industry Analysis¶
- The process of researching and analyzing external opportunities and threats is known as Environmental Scanning or Industry Analysis. This is a critical step in the strategic management process.
5. Internal Strengths and Weaknesses¶
Internal Strengths and Weaknesses are controllable activities within an organization.
Strategic Importance¶
- Firms must formulate strategies to:
- Leverage internal strengths.
- Address and minimize weaknesses.
- Identifying and evaluating these factors is essential for organizational success.
6. Long Term Objectives¶
Long Term Objectives are specific results that an organization aims to achieve in pursuit of its mission.
Characteristics¶
- These objectives typically extend beyond one year.
- They are essential for guiding an organization's strategic direction and ensuring its long-term success.
7. Strategies¶
Strategies are the means by which long-term objectives are achieved.
Types of Strategies¶
- Expansion
- Diversification
- Acquisition
- Product Development
- Market Penetration
- Retrenchment
- Liquidation
- Joint Venture
Strategy vs. Tactics¶
- Strategies: Long-term plans designed to achieve major objectives.
- Tactics: Smaller, focused action plans that support the overall strategy.
8. Annual Objectives¶
Annual Objectives are short-term milestones that organizations must achieve to reach their long-term objectives.
Characteristics¶
- Annual objectives should be established at various levels, including:
- Corporate
- Divisional
- Functional
- These objectives should be clearly defined across different areas such as:
- Management
- Marketing
- Finance and Accounting
- Production
- Research and Development (R&D)
- Management Information Systems (MIS)
9. Policies¶
Policies are the guidelines, rules, and procedures established to achieve annual objectives.
Characteristics¶
- Policies should be set at the corporate, divisional, and functional levels.
- They provide a framework for decision-making and ensure consistency in achieving the organization's objectives.
How can I help you today?