Part 1 Overview of Strategic

Management

Chapter 1
The Nature of Strategic
Management
“Without a strategy an
organization is like a ship without
a rudder, going round in circles.
It’s like a tramp; it has no place to
go”
“He who will not worry about
what is far off will soon find
something worse than worry”
THE PURPOSE

This chapter provides an over view of

 Strategic Management
 Model of Strategic Management Process
 Definition of Basic Activities & Terms
 Some Important Themes
What is strategic
management
 All firms have strategy even if it is
informal, unstructured & sporadic all
organizations do not know where they
are heading.
 Game plan for sustainable
competitive advantage
 By adapting to changes
 Taking advantage of external opportunities
& reduce impact of external threats

 capitalize on their internal strengths &

eliminate internal weaknesses

 Represents a systematic, logical, & objective

approach

 Multiple functions

 Tough managerial choices

Strategic Management
Process
 Integrating Intuition & Analysis.

 An objective, logical, systematic

approach for making major decisions
Three Stages of Strategic
Management Process
 Strategy formulation
 Strategy implementation
 Strategy evaluation

*communication is the key:-

understanding, commitment,
ownership
Strategy Formulation
Includes
 Developing a vision & mission
 Identifying external opportunities & threats
 Determining internal strengths &
weaknesses
 Establishing long-term objectives
 Generating alternative strategies
 Choosing particular strategy
Strategy formulation issues
 What new business to enter, what business to
abandon
 Whether to expand operations or diversify,
whether to enter international markets
 Whether to merge or form a joint venture or
Partnering or to buy a business or how to avoid
a hostile take over
 How to allocate resources
 Business ethics
 Global Vs. domestic operations
 Vision/Mission
 Matrix analysis
 Partnering
 Competitive analysis
 Governance
 & guidelines for conducting an internal/
external strategy assessment
Strategy Implementation (action
stage, the most difficult one)

 Establish annual objectives

 Devise policies
 Motivate employees
 Allocate resources
Strategy implementation
issues includes
 Developing a strategy supportive culture
 Creating an effective organizational structure
 Redirecting Marketing efforts or introducing new
marketing concepts
 Outsourcing
 Preparing budgets & doing financial analysis,
developing new controls
 Developing & utilizing information systems
 Linking employee compensation to organizational
performance
 Business ethics
Strategy Evaluation

Why:-
 To know

 Strategies need modification

Three fundamental strategy evaluation

activities
 Reviewing Internal & External factors

 Measuring performance

 Taking Corrective actions

The Hierarchical Levels
Involved

 Corporate level

 Divisional or Strategic Business Unit level

 Functional
Definition of Key terms &
Activities
 Competitive Advantage

 Strategists
• They help gather, analyze & organize
information. Track industry & competitive
rends, develop forecasting models &
scenario analysis, evaluate corporate &
divisional performance, spot emerging
market opportunities, identify business
threats & develop creative action plans.
 Vision Statement
 Mission Statement
 Opportunities & Threats (external)
 Economic
 Social
 Cultural
 Demographic
 Environmental
 Political, legal, governmental
 Technological
 Customers
 Competitors

These changes create different type of consumer

& consequently need for different type of
product, services & strategies.
 Strength & Weaknesses (internal)
 Typically related to functional areas of the firm
(determined relative to competitors)
 Long Term Objectives
 Objectives: - specific results in pursuing basic
mission
 Long-Term:- more than one year
 Why objectives:-
 Give a direction
 Helps in evaluation
 Reveal priorities & create synergies &
coordination
 Basis for planning, organizing, motivating &
controlling activities
 Strategies
 Means for achieving long term objectives.,
important for formulation
 Business Strategies include
 Geographic expansion (market development)
 Diversification
 Acquisition
 Product development
 Market penetration
 Retrenchment
 Divestiture
 Liquidation
 Joint ventures & partnership
 Annual Objectives

 Short term milestones to reach long term

objectives important for strategy
implementation, become basis for
resource allocation

 Established at levels

 Set for
 Policies
 Means by which annual objectives are
achieved, important for strategy
implementation
 Set for
 Developed at
 Outlines expectations
 Guidelines, rules & procedures to support
efforts to achieve the objectives.
Particularly includes guides to decision
making & address recurring situations
Strategic Management
Model
 Logical starting point
 Dynamic & continuous
 Strategic meetings (retreats )
 to update firms’ vision / mission, opportunities /
threats, strengths/ weaknesses, strategies,
objectives, policies & performance
 Formality
--------- Long------------------------------------------------------------------------------------------------
Term Generate, Implement Implement
Objectives Evaluate & strategies strategies:
CH-5 select Manageme Marketing,
strategies nt Issues fin / Acc,
CH-6 CH-7 R&D, MIS
External Audit CH-8
CH-3

Measure &
Evaluate
performanc
e
CH- 9

Vision
& Mission
Ch_2

Internal Audit
CH-4

-----------------------------------------------------------------------------------------------------
Benefits of Strategic
Management

Financial Benefits
 Improvement in sales

 Improvement in profitability

 Improvement in productivity

.
Non Financial Benefits: More proactive than
reactive
 Improved understanding of competitors’
strategy
 Enhanced awareness of threats

 Reduced resistance to change

 Enhanced problem prevention capabilities

 Enhances interaction
 Better strategies for being more
systematic, rationale, & logical
 Leads to ownership & empowerment

Decentralized line manager planning is

replacing centralized staff planning
Guidelines for Effective
Strategic Management
1. Ensure implementation
2. People not paper process. Keep it as simple & non
routine, eliminate jargon
3. Attend to psychological, social, political,
information, administrative dimensions
4. Stimulate thinking
5. Open mindedness
6. Subjective factors such as attitudes towards risk,
concern for social responsibility & organizational
culture will always affect strategy.
Avoid Pitfalls
 Pursuing too many strategies
 using SM to gain control over
decision & resources
 doing SM for sake of regulatory
requirements
 hastiness in formulation
 failure to communicate
 intuitive decision making
 Lack of top management support
 failure to measure performance
 not involving all the managers or key
employees
 failure to create a supportive climate for
change
 being over formal in planning that
flexibility & creativity are stifled
Why Some Firms Do Not Do
Strategy Planning
 Poor reward structure
 Fire fighting
 Waste of time
 Too expensive
 Laziness
 Content with success
 Fear of failure
 Overconfidence
 Prior bad experience
 Self esteem
 Fear of the unknown
 Honest difference of opinion
 suspicion
Themes

1. Global Considerations Impact

Virtually All Strategic Decisions
 A necessity
 A borderless world with global
citizens
 The dynamics of political, economic &
cultural differences `
2. Electronic commerce Has Become
A Vital Strategic Management Tool
 competitive advantage:-
 Direct Selling
 Communication
 Information
 B2B
 Expense, time, distance, space
3. Natural Environment Has Become
An Important Strategic Issue
 defined as “surroundings in which an
organization operates, including air,
water, land, natural resources, flora,
fauna, humans & their interrelation.”
Some burning issues are global warming,
bio-terrorism, increased pollution etc
 social responsibility & business ethics
issues