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1.2.5.

STRATEGIC MANAGEMET AND PLANNING ITS PURPOSE, METHODS USED,


THE EFFECTS OF THE EXTERNAL ENVIRONMENT ON PLANNING,
UNDERSTANDING AND MANAGING RISK.
A. Defining Strategic Management
Art and science of formulating, implementing, and evaluating decisions enabling an
organization achieve its goals
Focuses on integrating management, marketing, finance/accounting,
production/operations, research and development, and information systems to achieve
success

B. Purposes of Strategic Management


Exploit and create new and different opportunities
Aim to formulate and implement effective strategies

C. Tools and Techniques used in Strategic Management & Planning


Critical Question Analysis
o Formulating appropriate organizational strategy
o Answer the following four basic questions:
o What are the purpose(s) and objectives of the organization?
o Where is the organization presently going?
o In what kind of environment does the organization now exist?
o What can be done to better achieve organizational objectives in the future?
SWOT Analysis
o Useful technique for analyzing a firms position in the market
o Considers the firms internal strengths and weaknesses against external opportunities
and threats
o Can allow a firm to exploit opportunities using its strengths, while at the same time
improving upon its weaknesses in order to avoid external threats
Boston Consulting Group (BCG) Matrix
o Most common tool for performing a portfolio analysis
o Considers products and services according to MARKET GROWTH and RELATIVE
MARKET SHARE
o Products and services with high growth and high market share are the most desirable,
while those with low growth and low market share are undesirable.
GE Multifactor Portfolio Matrix
o Based on Industry attractiveness and Business Strength
o Industry Attractiveness might be determined by such factors as:
No. of Competitors in the Industry
Rate of Industry Growth
Weakness of Competitors within an Industry
o Business Strengths might be determined by such factors as:
Companys Financial Solid Position
Its Good Bargaining Position over Suppliers
Its high level of Technology Use.
PESTLE Analysis
o Way of working out whats going on out there so the company can respond to it
o PESTLE stands for:
POLITICAL
ECONOMIC
SOCIAL
TECHNOLOGICAL
LEGAL
ENVIRONMENTAL
Balanced Scorecard
o Developed by Robert S. Kaplan and David P. Norton.
o Used by organization to measure its performance.
o Includes both financial and non-financial metrics of the organizations performance.
o Includes various non-financial measures like customer, business process and learning
measures.
VRIO Analysis
o It was developed by Barney, J.B (1991).
o Used to analyze firms internal resources and capabilities to find out if they can be a
source of sustained competitive advantage.
o VRIO is an acronym for the four questions- the question of Value, the question of
Rarity, the question of Imitability, and question of Organization.
o The Question of Value: -"Is the firm able to exploit an opportunity or neutralize an
external threat with the resource/capability?
o The Question of Rarity -"Is control of the resource/capability in the hands of a relative
few?
o The Question of Imitability - "Is it difficult to imitate, and will there be significant
cost disadvantage to a firm trying to obtain, develop, or duplicate the
resource/capability?
o The Question of Organization -"Is the firm organized, ready, and able to exploit the
resource/capability?"
Mintzbergs 5Ps of Strategy
o Developed by Henry Mintzberg in 1987.
o Each of the 5Ps of Mintzberg framework has different approach to strategy.
o The 5Ps are Plan, Ploy, Pattern, Position and Perspective.
o By understanding each P, the organization and take advantage of its full capabilities
and strengths.
o Strategy as a Plan Strategy is developed consciously and purposely for a future
situation.
o Strategy as a Ploy - Mintzberg says that getting the better of competitors, by plotting
to disrupt, dissuade, discourage, or otherwise influence them, can be part of a
strategy.
o Strategy as a Pattern With strategy as a pattern, we learn to appreciate that what was
successful in the past can lead to success in the future.
o Strategy as a Position With position, strategy is about how the organization relates
to its competitive environment, and what it can do to make its products unique in the
marketplace.
o Strategy as a Perspective - Perspective emphasizes the substantial influence that
organizational culture and collective thinking can have on strategic decision making
within a company.
Porters Five Forces Model
o Developed by Michael E. Porter.
o An important tool for assessing the potential for profitability in an industry. With a
little adaptation, it is also useful as a way of assessing the balance of power in more
general situations.
o It works by looking at the strength of five important forces that affect competition
o Supplier Power- The power of suppliers to drive up the prices of your inputs.
o Buyer Power - The power of your customers to drive down your prices.
o Competitive Rivalry - The strength of competition in the industry.
o The Threat of Substitution - The extent to which different products and services can
be used in place of your own.
o The Threat of New Entry - The ease with which new competitors can enter the market
if they see that you are making good profits.

D. Effects of External Environment on Planning


In the process of formulating policy options, the organization must take account of
external environmental opportunities and threats, present and future but internal potential,
the forces and weaknesses of the organization, competitive advantage over competitors.
Any organization is an open system between itself and its external environment up to a
series of relationships that influence each other. Organization influence the external
environment primarily through its products and services, but also that it is socially
responsible, is geared to various relationships with other organizations make their mark
on the social community to which they belong. In turn, the external environment affecting
the organization's work available in market information, input supply, the looming trends,
new organizational and managerial changes.
It can be said that the following types of external environment are:
turbulent, characterized by rapid changes caused by technology, economic changes,
political, legislative;
hostility, characterized by strong competition between customers, resources, or both,
diffrented, characterized by a variety of technologies, markets and cultures.
As a result, the organization must be attentive to any stimulus from the external
environment, must continually adapt to it, and primarily involves adapting knowledge
and information.

E. Understanding and Managing Risk


Risk management is a central part of any organization's strategic management.
Sources of Risk

Long Term Risks


o These can impact upon the organization's long-term strategy.
Medium Term Risks
o These can affect a school's tactics. By tactics we mean how the school intends to go
about achieving its long-term aims. For example, a school may have a long-term goal
of increasing its pupil numbers. One tactic to achieve this might be to appoint a
marketing manager.
Short Term Risks
o These can affect the school's day-to-day operations.