The strategic management process (see Exhibit 5–2) is a six-step process that encompasses strategy planning, implementation, and evaluation. The first four steps describe the planning that must take place, but implementation and evaluation are just as important! Even the best strategies can fail if managers don’t implement or evaluate them properly.

Exhibit 5–2

The Strategic Management Process

1. Step 1: Identifying the organization’s current mission, goals, and strategies. Every organization needs a mission—a statement of its purpose. Defining the mission forces managers to identify what it’s in business to do. For instance, the mission of Avon is “To be the company that best understands and satisfies the product, service, and self-fulfillment needs of women on a global level.”17 The mission of the National Heart Foundation of Australia is to “reduce suffering and death from heart, stroke, and blood vessel disease in Australia.” These statements provide clues to what these organizations see as their purpose. What should a mission statement include? Exhibit 5–3 describes some typical components.

   Exhibit 5–3

   Components of a Mission Statement

   

   Figure 5–3 Full Alternative Text

   It’s also important for managers to identify current goals and strategies. Why? So managers have a basis for assessing whether they need to be changed.

2. Step 2: Doing an external analysis. We discussed the external environment in Chapter 2. Analyzing that environment is a critical step in the strategic management process. Managers do an external analysis so they know, for instance, what the competition is doing, what pending legislation might affect the organization, or what the labor supply is like in locations where it operates. In an external analysis, managers should examine all components of the environment (economic, demographic, political/legal, sociocultural, technological, and global) to see the trends and changes.

   Once they’ve analyzed the environment, managers need to pinpoint opportunities that the organization can exploit and threats that it must counteract or buffer against. Opportunities are positive trends in the external environment; threats are negative trends.

3. Step 3: Doing an internal analysis. Now we move to the internal analysis, which provides important information about an organization’s specific resources and capabilities. An organization’s resources are its assets—financial, physical, human, and intangible—that it uses to develop, manufacture, and deliver products to its customers. They’re “what” the organization has. On the other hand, its capabilities are the skills and abilities needed to do the work activities in its business—“how” it does its work. The major value-creating capabilities of the organization are known as its core competencies.18 Both resources and core competencies determine the organization’s competitive weapons.

   After completing an internal analysis, managers should be able to identify organizational strengths and weaknesses. Any activities the organization does well or any unique resources that it has are called strengths. Weaknesses are activities the organization doesn’t do well or resources it needs but doesn’t possess.

   The combined external and internal analyses are called the SWOT analysis because it’s an analysis of the organization’s strengths, weaknesses, opportunities, and threats. After completing the SWOT analysis, managers are ready to formulate appropriate strategies—that is, strategies that (1) exploit an organization’s strengths and external opportunities, (2) buffer or protect the organization from external threats, or (3) correct critical weaknesses.

4. Step 4: Formulating strategies. As managers formulate strategies, they should consider the realities of the external environment and their available resources and capabilities and design strategies that will help an organization achieve its goals. Managers typically formulate three main types of strategies: corporate, business, and functional. We’ll describe each shortly.

5. Step 5: Implementing strategies. Once strategies are formulated, they must be implemented. No matter how effectively an organization has planned its strategies, performance will suffer if the strategies aren’t implemented properly.

6. Step 6: Evaluating results. The final step in the strategic management process is evaluating results. How effective have the strategies been at helping the organization reach its goals? What adjustments are necessary: Do assets need to be acquired or sold? Does the organization need to be reorganized? and so forth.