Strategic Management Process

BE3310 - Organisational Management

Dr. Sachie Gunatilake

LIII - Department of Building Economics

University of Moratuwa
Learning Outcomes
• Explain what is strategy and strategic
management
• Explain the stages in the strategic
management process

2
What is Strategy?
• Strategy is;
- The long term direction of an organisation
- Concerned with the ability of an organisation to
fit with, or cope with, its environment
- ‘an integrated and coordinated set of
commitments and actions designed to exploit
core competencies and gain a competitive
advantage’
What do we mean by strategy?

• What is our present situation?

- Internal / external environment

• Where do we want to go from here?

- vision for firm’s future direction

• How are we going to get there?

- an action plan
Strategies try to answer…

• Where is the organisation going?

• What options are open to the organisation?
• What is the best way forward for the
organisation?
• How can this be done?
Strategic Management

• Sometimes also referred to as just ‘strategic

planning’ – However, now ‘strategic
management’
- Suggest a broader approach to activities involved

• In the past also referred to as;

- long-range planning, corporate planning, business
policy
Strategic Management

• Provides a disciplined way for managers to

make sense of the environment in which the
organisation operates
• A continuous and dynamic process
Strategic management - Definition

•Strategic management is;

‘a process, directed by top management, to
determine the fundamental aims or goals of
the organisation, and ensure a range of
decisions which will allow for the
achievement of those aims or goals in the
long-term, whilst providing adaptive
responses in the shorter term’ (Cole, 2003)
Strategic Management
• Strategic management, therefore, involves strategic
planning and acting on those plans (i.e. strategy
implementation)
- Incorporates a ‘planning’ component and an ‘action’
component

• Requires a good understanding of;

- resources (e.g. cash, employees)
- environment (e.g. competitors, customers, political/
economic issues)
- stakeholders and their expectations
03 Levels of Strategy

Corporate
Strategy

Business Strategy

Functional Strategy
 03 Levels of Strategy

• Corporate (or strategic) level

- Highest level - for the whole
organisation
- Addresses issues such as;
Corporate acquisitions, diversifications,
Strategy
entering new industries, etc
Business Strategy

Functional Strategy
 03 Levels of Strategy

• Business (or management) level

- Considers how the organisation
can be successful in the selected
markets
- Focus upon Strategic Business
Corporate
Units (SBUs) - (i.e. a unit within an
Strategy organisation for which there is a
external market for products
Business Strategy distinct from others)
- Addresses issues such as,
competitive advantage, customer
Functional Strategy
needs
E.g.
• Coca Cola is geographically split into 05
geographic operating segments or SBUs
- Eurasia & Africa
- Europe
- Latin America
- North America
- Pacific

• Unilever has 03 SBUs

- food & drink, personal care, and home care
 03 Levels of Strategy
• Functional (operational)
level
- day to day management
strategies of the organisation
Corporate
Strategy - will incorporate HR strategy,
marketing strategy, IT
Business Strategy
strategy, etc.
- could be unique to SBUs or
Functional Strategy
centralised for the whole
organisation
1
5
 03 Levels of Strategy

Corporate Office
Corporate
Strategy

Business Strategy SBU 1 SBU 2 SBU 3

Functional Strategy

IT Marketing HR Operations

The 03 Levels are linked

Strategic vs. Operational planning

• ‘Planning’ is;
- The process of setting goals and choosing the
means to achieve those goals
- Lets the managers know how to organise people and
resources effectively
- Essential to exercise control
Organisational Plans
Deals with the
Strategic Plans relationships between
Define the broad goals for the people in an
organisation organisation and
those in other
organisations

Operational Plans
Details for carrying out Deals with people
/implementing strategic plans in within one
day-to-day activities organisation
Strategic vs. Operational planning

Strategic Management Plan

(mission, goals, policies, structures, funding)

Direction & Priorities Feedback

Operational Plans
(sales targets, budgets, resourcing plans etc)

• Source: Cole (2003)

 Strategic vs. Operational Plans
Strategic Plans Operational Plans
Time Looks ahead for Generally for 01
Horizon several years year period

Scope Affects a wide Narrow and limited

range of scope
organisational
activities
Degree of Usually kept generic Stated in finer detail
detail and in simplistic
terms
Strategic Planning Process
• Different models or approaches available

• 02 such approaches:
- Rational model - a logical, step-by-step
approach. Can be too slow and become
outdated.
- Emergent approach - not always formally
planned. Allows strategies to emerge in
response to unexpected environment changes.

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Strategic Management Process:
The Rational Model

• The steps are;

1) Assessing the environment (internal and
external environment of organisation)
2) Establish mission and develop goals
3) Formulate strategies (need to match with
organisation’s strengths/ weaknesses of and
environment’s opportunities/ threats)
4) Select the best strategies and implement
5) Engage in strategic control activities
Strategic Management Process:
The Rational Model

Mission and Objectives

Environmental Assessment

Generate Options

Evaluation and Choice

Strategy Implementation

Review and Control

23
 Mission and Objectives

Environmental Assessment

Generate Options

Evaluation and Choice

Strategy Implementation

Review and Control

24
 1. Mission and Objectives
• First stage of strategy formulation is setting
goals in terms of vision, mission and objectives
• Why goals and objectives?
- To provide a sense of direction
- To focus efforts
- To guide plans and decisions
- Sets out the responsibilities of managers/
departments
- To help evaluate progress
Mission
• ‘Fundamental objective(s) of an organisation
expressed in general terms’
- organisation’s basic purpose for being
and how it aims to serve its key stakeholders
- contains in part the strategic direction of an
organisation
• Aims to provide stakeholders clarity about the
overriding purpose of the organisation (Johnson
et al., 2011)
Mission Statement
• Published statement of mission
- allows to communicate the mission internally and
externally

• Sets out the broad directions organisation

should/ will attempt to follow and summarises
the reasoning and values on which it is based
- help in strategic planning
• Intended to provide a rallying point for
everyone working in the organisation
Formulating Mission Statements

• Lynch (2003) summarises the following

steps;
- Consider the nature of business
- Customer or client perspective, rather than an
organisation perspective
- Reflect the basic values and beliefs of the
organisation
- Summarise the main reasons for organisation’s
choice of approach
An ideal Mission Statement will …

• Identify the firms products/ services

• Specify the buyer needs it seeks to satisfy
• Identify the customer groups/ markets it
aims to serve
• Specify approach to pleasing customers
• Set the firm apart from rivals
• Clarify the firm’s business to stakeholders

29
 Some examples…

‘We are a global family with a proud heritage

passionately committed to providing personal
mobility for people all around the world’

To empower every person and every

organization on the planet to achieve
more

To organise the world’s information

and make it universally accessible
and useful
Some examples…

As one of the largest food and beverage

companies in the world, our mission is to
provide consumers around the world
with delicious, affordable, convenient
and complementary foods and
beverages from wholesome breakfasts
to healthy and fun daytime snacks and
beverages to evening treats. We are
committed to investing in our people, our
company and the communities where we
operate to help position the company for
long-term, sustainable growth
Mission Statement - Criticisms
• Can be very broad and vague
- Might sometimes be too general and not make the
point clearly enough
• Is for public consumption - may not
summarise the true mission of the entity
- only reflects what the organisation wants the public
to believe its intentions are

• Often ignored
• Can become outdated
Vision
• Vision - a future-oriented declaration of the
organisation’s purpose and aspirations
• A picture of what the firm wants to be and
what it wants to ultimately achieve

• Mission vs. Vision:

- Mission - focuses on present;
- Vision - focus on ideal state company wish
to achieve in future
• Vision is the foundation of a firm’s mission
Some examples…

Mission: To help people and

businesses throughout the world
realise their full potential

Vision: A personal computer in

every home running Microsoft
software
Values Statement
• Increasingly, organisations also add
a values statement

• Values statement either reaffirms or states

outright the organisation’s values that might
not be evident in the mission or vision
statement

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Mission
Declares our purpose as a company and serves as the standard against which we
weigh our actions and decisions.
•To refresh the world...
•To inspire moments of optimism and happiness...
•To create value and make a difference
Vision Values
Our vision… guides every aspect of our business by Our values serve as a compass
describing what we need to accomplish in order to for our actions and describe
continue achieving sustainable, quality growth. how we behave in the world.
People: Be a great place to work where people are Leadership: The courage to
inspired to be the best they can be. shape a better future
Portfolio: Bring to the world a portfolio of quality Collaboration: Leverage
beverage brands that anticipate and satisfy people's collective genius
desires and needs. Integrity: Be real
Partners: Nurture a winning network of customers Accountability: If it is to be,
and suppliers, together we create mutual, enduring it's up to me
value. Passion: Committed in heart
Planet: Be a responsible citizen that makes a and mind
difference by helping build and support sustainable Diversity: As inclusive as our
communities. brands
Profit: Maximize long-term return to shareowners Quality: What we do, we do
while being mindful of our overall responsibilities. well
Productivity: Be a highly effective, lean and fast-
Objectives
• Mission - an open statement; Objectives - more
specific
• Translate the mission into strategic milestones
• Characteristics - Need to be SMART
• Specific - (i.e. should be clear on what is to be
achieved)
• Measurable (specified as a quantity)
• Attainable (i.e. within reach)
• Relevant (i.e. appropriate to mission &
stakeholders)
• Time-bound (specific completion date)
Objectives
• E.g. of SMART objectives
• Increase market share by 10% over the next
three years.
• Lower operating costs by 15% over the next
two years.
• Reduce the call-back time of customer
inquiries and questions to no more than four
hours.
• What the organisations want to achieve –
reflected by Vision, Mission and
Objectives
• How they are going to achieve the above
“what” - reflected by the Strategies
Organisational Objectives
Mission Statement

Strategic
Objectives

Tactical Objectives

Operational Objectives

Individual Performance Targets

 Mission and Objectives

Environmental Assessment

Generate Options

Evaluation and Choice

Strategy Implementation

Review and Control

42
2. Environmental Analysis
• Before generating possible strategies, firms
need to assess their existing circumstances:
- External analysis - to identify opportunities/
threats
- Internal analysis - to identify strengths /
weaknesses
- Stakeholder analysis - to identify their
objectives, power and interests
- Gap analysis - difference between desired
and current levels of performance
Environmental Analysis
• Common models available for environmental
analysis:
- SWOT
- PEST/ PESTEL/ DEEPLIST Analysis
- Five Forces Model (Porter, 1980)
- Benchmarking
- Value chain analysis etc
 Mission and Objectives

Environmental Assessment

Generate Options

Evaluation and Choice

Strategy Implementation

Review and Control

45
3. Strategy Formulation: Generating options
• The process of establishing a choice of
possible future strategies
Direction of Growth
[Ansoff]

How to Compete? Method of Growth

[Porter] [Internal or External
Development]

Strategic
Options
Generation
– 03 Key Areas
3. Strategic Options Generation:
How to Compete?

• Requires the choice of competitive strategy

- i.e. the business methods that the firm will
use to win customers and beat rivals
- How the firm competes?
- E.g. Generic strategies - Porter (1980)
Strategy Formulation - Generic Strategies

• Generic Strategies - how to outperform rivals and

deliver satisfactory returns to shareholders?
• 03 generic strategic approaches identified by
Porter (1980):
a) Overall cost leadership: lowest cost producer
relative to competitors
b) Differentiation: creating something that is
perceived as unique for which customers will pay
a premium
c) Focus: serving a narrow market more effectively
than rivals who are competing more broadly
Strategy Formulation - Generic Strategies

• Each generic strategy requires different

resources, strengths, organisational
arrangements and managerial styles
• Hence, all strategies will not be suited for all
firms
• Need to select most suitable type of strategy for
the firm
3. Strategy Formulation: Generating options
• Consider alternative directions
- deals with the future of the product and
customer portfolio
- Where the firm is going? - i.e. Strategic
direction - Ansoff's Product-Market Matrix
 Ansoff’s Product-market matrix
• Ansoff (1965) demonstrates the available
choices of strategic direction in a matrix

Existing Product New Product

Market Product
Existing Market
Penetration Development

Market
New Market Diversification
Development
• Market penetration strategies:
- increasing sales in firm's present line of business
- E.g. by price reductions; increases in promotions;
acquisition of a rival in the same market; etc

Existing Product New Product

Existing Market Product

Market Penetration Development

Market
New Market Diversification
Development
• Product development strategy:
- Involves extending the product range available to
the firm’s existing markets.
- E.g. investing in research and development of
additional products; acquisition of rights to
produce someone else’s product; etc

Existing Product New Product

Existing Market Product

Market Penetration Development

Market
New Market Diversification
Development
• Market development strategies:
- developing by finding another group of buyers for
firms products
- E.g. introducing younger people to goods, new
areas or regions of the country, foreign markets.

Existing Product New Product

Existing Market Product

Market Penetration Development

Market
New Market Diversification
Development
 • Diversification strategies:
- becoming involved in an entirely new industry,
or a different stage in the value chain of its
present industry

Existing Product New Product

Existing Market Product

Market Penetration Development

Market
New Market Diversification
Development
Ansoff’s Product-Market Matrix:
Benefits and Drawbacks

Benefits: Drawbacks:
• Can generate multiple •Interpretation is required
strategic options to make it fit organisation’s
circumstances
• Simple visual
representation of •Not sufficient on its own
complex ideas to determine strategy
• Log established and •Does not include means
familiar to management of achieving growth
 Mission and Objectives

Environmental Assessment

Generate Options

Evaluation and Choice

Strategy Implementation

Review and Control

58
Evaluating options

• Selection of the strategy or option that the

organisation will pursue.
• There could be more than one strategy chosen
• Choosing strategies
- firms need to make a choice among competing
alternatives
- Although there are techniques for evaluating specific
options, the selection is often subjective and likely to
be influenced by the values of managers and other
stakeholders
Evaluating options

• Generated strategic options need to be rationally

evaluated in order to select a strategy for the firm to
follow
• SFA criteria (Johnson and Scholes, 1997):
- Suitability – is the option is the right one given the strategic
position of the firm?
- Acceptability – Is the option consistent with the firm's
objectives? Will it be supported and accepted by the
stakeholders?
- Feasibility – is the organisation capable of carrying out the
strategy? (Are the necessary resources available? Track
record?)
 Mission and Objectives

Environmental Assessment

Generate Options

Evaluation and Choice

Strategy Implementation

Review and Control

61
Strategy Implementation
• A pattern of decisions/ actions intended to carry out the
strategic plan
• Means converting the selected strategy into action
• Involves creating functional strategies, system, structures
and processes needed by organisations to achieve
strategic ends
Effective strategy implementation

• Elements essential for strategy

implementation:
- Organisational structure
- Leadership
- Human resources
- Managing culture
- Budgeting to support strategy
 Mission and Objectives

Environmental Assessment

Generate Options

Evaluation and Choice

Strategy Implementation

Review and Control

64
Strategy Review & Control

• Control can be defined as ‘the process of

ensuring that which was supposed to
happen actually happens ’
Strategy Control
• Concerned with ‘tracking strategy as it is being
implemented, detecting problems or changes in its
underlying premises, and making necessary adjustments’
• In contrast to post action control, strategic control is
concerned with guiding action as that action is taking
place and when the end result is still several years off.
• Can lead to adjustments in the strategic direction,
strategies or the implementation plan as necessary
• May be due to new information about the environment