STEPS IN STRATEGIC MANAGEMENT 

1 of 8 steps-proper order

1. Define the Firm's Vision and Mission Statements Organizational mission statements usually represent one or two line descriptions of what the organization is in business to do.

2 of 8

3 of 8

3. Define the Objectives of the Firm

a. Financial Objectives( profit cash flow, eliminate debt)

improvement of the overall financial outcomes

b. Non-Financial Objectives

(improve product quality and customer)

improvement of the overall ability of the firm to 

compete in the market in the long run, which is the ultimate focus for overall 

shareholder wealth maximization. 

4. Decide What to Measure and Take a Baseline Measurement 

a. Financial Measures (Financial) -Financial statement

b. Internal Business Processes (Non-Financial) 

Quality control measures

c. Customer Measures (Non-Financial) 

survey customer sanctification level

d. Advance Learning and Innovation (Non-Financial)

measure employees

5. Strategic Analysis (SWOT) 

Organizations use strategic or SWOT (Strengths, Weaknesses, Opportunities, and 

Threats) analysis to ascertain the overall strategy and critical success factors that the 

organization will measure. Factors internal to an organization that impact strategy are 

the sources of strengths and weaknesses. Outstanding skills that represent strengths 

in relation to competitors are referred to as core competencies.Factors external to the 

organization are the sources of opportunities and threats.

6.Create the Strategic Plan

In general, a strategic plan of a company must create a set of steps to achieve 

the objectives of the firm while staying in line with the firm's vision and mission 

statement.

7.Implement the Strategic Plan 

(from top to bottom) include:

<everyone need to follow the plan>

a. Corporate level, 

b. Business level, 

c. Functional level, and 

d. Operating level

8.Evaluate and Revise the Plan as Necessary

THE LAWS OF DEMAND AND SUPPLY

--Change in quantity demand

microeconomic theory-focus on specific product

Change in Quantity Demanded 

A change in quantity demanded is a change in the amount of a good demanded 

resulting solely from a change in price.

P↑, D↓; P↓,D↑

A change in demand is a change in the amount of a good demanded resulting 

from a change in something other than the price of the good.

D↑,P↑; D↓,P↓

Quantity demanded is inversely 

related to price for two reasons: 

a. Substitution Effect 

coke vs Pepsi 

P↑, D↓

The substitution effect refers to the fact that consumers tend to purchase more 

(less) of a good when its price falls (rises) in relation to the price of other goods. For 

example, if the price of Pepsi-Cola decreases, it will be used as a substitute for 

Coca-Cola (a similar good). 

P↓,D↑

The income effect means that as prices are lowered with income remaining 

constant (i.e., as purchasing power or real income increases), people will 

purchase more of all of the lower priced products

Factors that Shift Demand Curves (Factors Other than Price) 

Mnemonic:

WRITEN

a. Changes in Wealth ,D↑

b. Changes in the Price of Related Goods (substitutes and complements)

C.Changes in Consumer Income D↑

d. Changes in Consumer Tastes or Preferences for a Product

“bell-bottom jeans”

e. Changes in Consumer Expectations

For example, if consumers anticipate that there will be a future price increase, 

immediate demand will increase for that product (at the current lower price). 

f. Changes in the Number of Buyers Served by the Market 

Supply

--change in quantity supply

P↑, S↑; P↓ S↓

A change in quantity supplied is a change in the amount producers are willing 

and able to produce resulting solely from a change in price.

S↑,P↓; S↓,P↑

A change in supply is a change in the amount of a good supplied resulting from a 

change in something other than the price of the good.

Factors that Shift Supply Curves 

Mnemonic:E C O S T

a. Changes in Price Expectations of the Supplying Firm 

For example, if prices are expected to decrease, the firm will supply more now at 

each price level to take advantage of the currently higher prices. 

b. Changes in Production Costs (Price of Inputs) ↑,S↓

c. Changes in the Price or Demand for Other Goods 

D↓,S_{other goods}↑

a decrease in the demand for another good supplied by a firm 

would cause the firm to shift its resources and increase the supply of its 

remaining goods.

d. Changes in Subsidies↑ or Taxes↓ S↑

 a decrease in taxes or an increase in subsidies would increase the 

amount supplied at each price level. 

e. Changes in Production Technology↑ S↑

 an improvement in technology would cause a shift to the right of 

the supply curve. 

S=D

A market is in equilibrium when there are no forces acting to change the current 

price/quantity combination. 

 four scenarios

ΔD ΔS  Price P_D P_S  Q Q_D  QS

D↑   S↑     ?     P↑ P↓  Q↑ Q↑Q↑

D↑   S↓       ↑    ↑   ↑    ?   ↑    ↓

D↓   S↓      ?     ↓   ↑    ↓   ↓    ↓

D↓   S↑      ↓     ↓   ↓    ?   ↓    ↑

As price changes, so does demand.

 the percentage change in quantity demanded divided by the 

percentage change in price. 

Elasticity is a measure of how sensitive the demand for or the supply of a product is to a change in its price.

Measuring the Price Elasticity of Demand 

 two ways. 

The Point Method 

e_p=ΔQ_D/ΔP

=% Change in quantity/%change in price

Only take absolute value

(Demand < 1.0)

price change will not cause a demand change

Demand for a good is price inelastic if the absolute price elasticity of demand is less 

than 1.0.

(Demand > 1.0) 

Demand is price elastic if the absolute price elasticity of demand is greater than 1.0. 

price change will cause demand change

a. 

 more elastic with more substitutes available

b. 

The longer the time period, becomes elastic because 

more choices are available. 

es=ΔQs/ΔP

=% Change in quantity/%change in price

most competitive

1.perfect competition

2. monopolistic competition

3. oligopoly

4.monopoly

least competitive

very competitive(selling bottle of water

no individual firm can influence the market price of its product, nor shift the 

market supply sufficiently to make a good more scarce or abundant

a. A large number of suppliers and customers acting independently. 

b. Very little product differentiation (homogeneous products). 

c. No barriers to entry 

firm is a "price taker"

include maintaining the market share and responsiveness of the sales price to market conditions.

likely include a plan for enhanced product  differentiation and extensive allocation of resources to advertising, marketing, product research, etc. Monopolistic competition exists when many sellers compete to sell a differentiated product in a market into which the entry of new sellers is possible (e.g., brand name cosmetic products). 

eg "Starbucks coffee"

a. 

Numerous firms with differentiated products 

An oligopoly is a market structure in which a few sellers (e.g., the "Big Three" automotive manufacturers) dominate the sales of a product and entry of new sellers is difficult or impossible. 

 focus on market share and call for the proper amount of 

advertising (to ensure appropriate product differentiation) and ways to properly adapt to price 

changes or required changes in production volume. 

a. Relatively few firms with differentiated products 

b. Fairly significant barriers to entry (e.g., high capital cost of designing a safety tested car and building an auto plant) 

Oligopolists face a kinked demand curve because firms match price cuts of  competitors but ignore price increases. This causes the demand curves to have 

different slopes above and below the prevailing price. 

least competitive

Under a monopoly, strategic plans will likely ignore market share and focus on profitability from production levels that maximize profits. Monopoly (e.g., the classic utility company, which was a "regulated" monopoly) represents concentration of supply in the hands of a 

single firm.

a. A single firm with a unique product 

b. Significant barriers to market entry 

c. The ability of the firm to set output and prices 

Firm is a Price Setter 

Company need to take a good, long look at what drives the consumers in the marketplace. Firms desiring to achieve competitive advantage must focus on the needs and preferences of the buyers and then either meet or exceed their expectations. 

in conjunction with the organizational objectives and goals as well as the strategic plan that the firm employs so that competitive advantage can be assessed.

FACTORS THAT INFLUENCE STRATEGY

--External Factors (Opportunities and Threats) 

Factors that Affect the Competitive Environment of the Firm A detailed discussion of the following five factors that affect the competitive 

environment of the firm is provided 

(1) Barriers to market entry 

(2) Market competitiveness 

(3) Existence of substitute products 

(4) Bargaining power of the customers 

(5) Bargaining power of the suppliers 

1. Cost Leadership Focused on a Broad Range of Buyers 

2. Cost Leadership Focused on a Narrow Range (Niche) of Buyers 

3. Differentiation Focused on a Broad Range of Buyers 

4. Differentiation Focused on a Narrow Range (Niche) of Buyers 

5. Best Cost Provider  Combination--reasonable price with differentiation.

When Cost Leadership Strategies Work Well ,

where the buyers have large amounts of bargaining power 

&heavy price competition and where firms

fail--If firms focus too much on cutting costs of the current process, they may end up 

overlooking technological advances that may also assist in lowering costs 

When Differentiation Strategies Work Well ,when customers are able to see value in a product, 

fail-- firms that focus too 

much on one area (or the wrong area) may "overdo it" and end up creating a product 

whose value does not exceed the higher price that must be charged for the feature.

OTHER TYPES OF STRATEGIES 

merger and acqusition

cost reduction

combine research and development activities  

A firm may desire to improve its competitive advantage through vertical integration, a 

strategy in which the firm seeks to control the value chain on the supply end (backward integration to the suppliers)

The use of minimum wage laws to increase the wages of low skilled labor is controversial. If the minimum wage is set above the equilibrium wage, an excess supply of labor will result. In other words, if the minimum wage is above the equilibrium wage, the result is unemployment. As a result, the imposition of a minimum wage increases the income of those workers who have a job, but it decreases the income of workers who find themselves unemployed as a result of the imposition of the minimum wage. 

price elastically     P↑ on total         P↓ on total of demand        revenue         revenue

elastic >1                     R ↓                    R↑

Inelastic <1                  R↑                    R ↓ 

Unit Elastic=1              N/A               N/A

a price that is established below the equilibrium price, which cause shortage to develop.

A price floor is a minimum price set above the equilibrium price, which causes surpluses to develop. Price floors are minimum prices established by law, such as minimum wages and agricultural price supports.

MICHAEL PORTER'S WORK IN 1985

2 business activities

• primary

involved with the direct manufacture of products, 

the delivery of the products through distribution channels, and the support of the 

product that exists after the sale is made (handling the raw materials, the 

manufacturing process, taking orders for the product, advertising the product, and 

servicing the product after it is sold)

• support

performed by the support staff of an organization  purchasing of the materials and supplies, development of the 

technology used, management of employees, accounting, finance, strategic planning, 

etc.). 

A. INTERNAL COSTS ANALYSIS 

B. INTERNAL DIFFERENTIATION ANALYSIS 

C. VERTICAL LINKAGE ANALYSIS 

1. Barriers to market entry 

2. Market competitiveness 

3. Existence of substitute products 

4. Bargaining power of the customers 

5. Bargaining power of the suppliers

identify CC

a. Reduce the threat that competitors may copy the product, 

b. Increase perceived customer value, and 

c. Provide leverage (i.e., Can a large amount of markets be accessed?)

A. Industry structure

B. Core Competence

C. Segment analysis 

A. CONDITIONS OF THE FACTORS OF PRODUCTION 

B. CONDITIONS OF DOMESTIC DEMAND 

C. RELATED AND SUPPORTING INDUSTRIES 

D. FIRM STRATEGY, STRUCTURE, AND RIVALRY 

• market is not fast growing
• several equal-size firms
• customer do not have strong brand preference
• cost of exiting the market> the cost of continuing operation
• some firm profit from making certain moves to increase market share
• the various firm in the market use different types of strategic plan

a. ability of rival firms to respond to change

b. adversing of rival firms

c. research and development of rival firms

d.alliances of rival firms and suppliers

e.increase in competition

The SCOR Model was developed by the Supply Chain Council, which attempted to create a generic model for any organization to use in order to look at the activities of the organization from the "supplier of the supplier" (the ultimate supplier) to the "customer of the customer" (the ultimate 

customer), which is essentially the entire supply chain

4 key management process

plan source make deliver

developing a way to properly balance aggregate demand 

and aggregate supply within the goals and objectives of the firm and plan for the necessary infrastructure.

1. Determining the demand requirements 

2. Assessing the ability of the suppliers to supply resources 

3. Planning the inventory levels 

4. Planning the distribution of inventory 

5. Planning for the purchase of raw materials 

6. Assessing capacity concerns and capabilities 

7. Identifying viable distribution channels 

8. Configuring the supply chain 

9. Managing the product's life cycle 

10. Making make/buy decisions 

1. Selecting vendors 

2. Obtaining vendor feedback and certification 

3. Overseeing and obtaining proper vendor contracts 

4. Collecting and processing vendor payments 

5. Ordering, inspecting, and storing inputs to the production process 

6. Overseeing the quality assurance process 

7. Assessing vendor performance

The "make" process encompasses all the activities that turn the raw materials into finished products that are produced to meet a planned demand

1. Managing the production process 

2. Implementing changes in engineering 

3. Requesting products for use in the production process 

4. Manufacturing the product 

5. Testing the product 

6. Packaging the product 

7. Releasing inventory for shipment 

8. Maintaining the production equipment and the facilities 

9. Performing quality assurance measures 

10. Scheduling production runs 

11. Analyzing capacity availability 

encompasses all the activities of getting the finished product into the hands of the ultimate consumers to meet their planned demand.

1. Managing of orders (e.g., provide quotes, grant credit, enter orders, etc.) 

2. Forecasting 

3. Pricing 

4. Managing transportation (e.g., freight, import/export issues, truck coordination, etc.) 

5. Managing accounts receivable and collections 

6. Shipping of products 

7. Labeling of products 

8. Scheduling installation of products 

9. Delivering the inventory according to channel distribution rules 

A Fundamental--day-to-day operations and internal practices

B.Cross functional team

consolidation of the various departments that make up operations in order to solve the firm's problems.(unreliable order fulfillment)

C. Integrated Enterprise

internally-integrated supply chain

D.Extend Supply Chain

 f integration of the supply chain moves external to the firm, firms may see potential for increased profits by unifying the supply chain and forming mutual objectives.

E. Supply chain communities

forms a single competitive entity, a synchronized 

supply chain community is formed.

Negative Income Elasticity

opposite of normal good

Strategic positioning 

Value Chain analysis

Balance scorecard development