Page 46 -

12 PART 1 • OVERVIEW OF STRATEGIC MANAGEMENT

• As the price of oil has collapsed, oil rich countries are focused on supporting their
own economies, rather than seeking out investments in other countries.
• Too much debt can crush even the best firms.
• Layoffs are rampant among many firms as revenues and profits fall and credit
sources dry up.
• The housing market is depressed.
• Demand for health services does not change much in a recession. For example,
Almost Family Inc., a Louisville, Kentucky, provider of home nursing care, more
than doubled its stock price in 2008 to $45.
• Dramatic slowdowns in consumer spending are apparent in virtually all sectors,
except some discount retailers and restaurants.
• Emerging countries' economies could manage to grow 5 percent in 2009, but that is
three full percentage points lower than in 2007.
• U.S. unemployment rates continue to rise to 10 percent on average.
• Borrowers are faced with much bigger collateral requirements than in years past.
• Equity lines of credit often now are not being extended.
• Firms that have cash or access to credit have a competitive advantage over debt-laden
firms.
• Discretionary spending has fallen dramatically; consumers buy only essential items;
this has crippled many luxury and recreational businesses such as boating and cycling.
• The stock market crash of 2008 left senior citizens with retirement worries, so millions
of people cut back on spending to the bare essentials.
• The double whammy of falling demand and intense price competition is plaguing
most firms, especially those with high fixed costs.
• The business world has moved from a credit-based economy to a cash-based economy.
• There is reduced capital spending in response to reduced consumer spending.
The types of changes mentioned above are creating a different type of consumer and
consequently a need for different types of products, services, and strategies. Many compa-
nies in many industries face the severe external threat of online sales capturing increasing
market share in their industry.
Other opportunities and threats may include the passage of a law, the introduction of
a new product by a competitor, a national catastrophe, or the declining value of the dollar.
A competitor’s strength could be a threat. Unrest in the Middle East, rising energy costs,
or the war against terrorism could represent an opportunity or a threat.
A basic tenet of strategic management is that firms need to formulate strategies to
take advantage of external opportunities and to avoid or reduce the impact of external
threats. For this reason, identifying, monitoring, and evaluating external opportunities and
threats are essential for success. This process of conducting research and gathering and
assimilating external information is sometimes called environmental scanning or industry
analysis. Lobbying is one activity that some organizations utilize to influence external
opportunities and threats.

Internal Strengths and Weaknesses
Internal strengths and internal weaknesses are an organization’s controllable activities that
are performed especially well or poorly. They arise in the management, marketing,
finance/accounting, production/operations, research and development, and management
information systems activities of a business. Identifying and evaluating organizational
strengths and weaknesses in the functional areas of a business is an essential strategic-
management activity. Organizations strive to pursue strategies that capitalize on internal
strengths and eliminate internal weaknesses.
Strengths and weaknesses are determined relative to competitors. Relative deficiency
or superiority is important information. Also, strengths and weaknesses can be determined
by elements of being rather than performance. For example, a strength may involve owner-
ship of natural resources or a historic reputation for quality. Strengths and weaknesses may
be determined relative to a firm’s own objectives. For example, high levels of inventory
turnover may not be a strength to a firm that seeks never to stock-out.