INTRODUCTION

Strategic Management
Lecture 1

1-1

What is Strategy?
Large-scale, future-oriented

plan
Used to interact within competitive
environment to achieve company goals
Provides a framework for managerial
decisions
Reflects a companys awareness of the
main elements of competition

1-2
1-2

The Nature and Value of Strategic

Management
Strategic

management:

The set of decisions and actions that

result in the formulation and
implementation of plans designed to
achieve a companys objectives

1-3
1-3

Strategic Management Process

Businesses vary in formulation and other
processes
The basic components of the models used to
analyze strategic management are similar
Strategic management is a processa flow of
information through interrelated stages of
analysis toward the achievement of some goal

1-4
1-4

Ex. 1.6 Strategic

Management Model

1-5
1-5

Nine Critical Tasks of Strategic Management

-- Tasks 1-5:

Formulate the companys mission

Conduct an internal analysis
Assess the external environment
competitive and general contexts
Analyze the companys options by matching
its resources with the external environment
Identify the most desirable options in light of
the mission

1-6
1-6

Nine Critical Tasks of Strategic Management

-- Tasks 6-9:

Select a set of long-term objectives and grand

strategies that will achieve the most desirable
options
Develop annual objectives and short-term
strategies that are compatible with long-term
objectives and grand strategies
Implement the strategic choices
Evaluate the success of the strategic process
for future decision making

1-7
1-7

Dimensions of Strategic Decisions

Strategic issues require top-management decisions

Strategic issues require large amounts of the firms
resources
Strategic issues often affect the firms long-term
prosperity
Strategic issues are future oriented
Strategic issues usually have multifunctional or
multibusiness consequences
Strategic issues require considering the firms
external environment
1-8
1-8

Dimensions of Strategic Decisions

(in detail)
Strategic issues require top-management
decisions

Strategic decisions overarch several

areas of a firms operations
Usually only top management has
the perspective needed to
understand their broad implications
Usually only top managers have the
power to authorize necessary
resource allocations

1-9
1-9

Dimensions of Strategic Decisions (contd.)

Strategic issues require large amounts of the

firms resources
They involve substantial allocations of
people, physical assets, and money
Strategic decisions commit the firm to
actions over an extended period
In highly competitive firms, achieving and
maintaining customer satisfaction
frequently involves commitment from
every facet of the firm

1-10
1-10

Dimensions of Strategic Decisions (contd.)

Strategic issues often affect the firms long-term

prosperity
Strategic decisions commit the firm for a long
time, typically 5 years; however the impact
lasts much longer
Once a firm has committed itself to a
strategy, its image and competitive advantages
are usually tied to that strategy
Firms become known for what they do and
where they compete. Shifting away from that
can jeopardize their previous gains.

1-11
1-11

Dimensions of Strategic Decisions (contd.)

Strategic issues are future-oriented

They are based on what managers forecast,
rather than what they know
Emphasis is on the development of solid
projections that will enable a firm to seek the
most promising strategic options
A firm will succeed only if it takes a proactive
(anticipatory) stance toward change

1-12
1-12

Dimensions of Strategic Decisions (contd.)

Strategic issues usually have

multifunctional or multibusiness
consequences.
Strategic decisions have complex
implications for most areas of the firm
Decisions about customer mix,
competitive emphasis, or
organizational structure involve a
number of the firms SBUs, divisions,
or program units
1-13
1-13

Dimensions of Strategic Decisions (contd.)

Strategic issues require considering the

firms external environment
All businesses exist in an open system.
They affect and are affected by external
conditions that are largely beyond their
control
Successful positioning requires that
strategic managers look beyond
operations and consider what relevant
others are likely to do
1-14
1-14

Three Levels of Strategy

Corporate

level: board of directors, CEO

& administration [Highest]
Business level: business and corporate
managers [Middle]
Functional level: Product, geographic, and
functional area managers [Lowest]

1-15
1-15

Ex. 1.4 Alternative

Strategic Management

Structures

1-16
1-16

Hierarchy of Objectives and

Strategy
Ex. 1.5

1-17
1-17

Characteristics of Strategic Management

Decisions: Corporate
Often

carry greater risk, cost, and profit

potential
Greater need for flexibility
Longer time horizons
Choice of businesses, dividend policies, sources
of long-term financing, and priorities for
growth

1-18
1-18

Characteristics of Strategic Management

Decisions: Functional

Implement the overall strategy formulated at the

corporate and business levels
Involve action-oriented operational issues
Relatively short range and low risk
Modest costs: depend upon available resources
Relatively concrete and quantifiable

1-19
1-19

Characteristics of Strategic Management

Decisions: Business
Help bridge decisions at the corporate and
functional levels
Less costly, risky, and potentially profitable than
corporate-level decisions
More costly, risky, and potentially profitable than
functional-level decisions
Include decisions on plant location, marketing
segmentation, and distribution

1-20
1-20

Formality in Strategic Management

Formality

is the degree to which

participation, responsibility, authority,
and discretion in decision-making are
specified in strategic management

1-21
1-21

Forces Determining Formality

Organizational
Predominant

Size

Management Styles
Complexity of
Environment
Production Process

Problems

in the

Firm
Purpose of the
Planning System
Stage of Firms
Development

1-22
1-22

Three Modes of Formality

Entrepreneurial

Mode most small firms

Planning Mode most large firms
Adaptive Mode most medium size firms

1-23
1-23

Strategy Makers
Ideal

strategic team includes decision

makers from all three levels
Top managers must give final approval
Strategic decisions coincide with
managers responsibilities

1-24
1-24

Strategy Makers: The CEO

A firms CEO plays a dominant role in
strategic planning
The CEOs principal duty is giving
long-term direction to the firm
The CEO bears ultimate responsibility
for the firms success and strategic
success
CEOs are typically strong-willed,
company-oriented individuals

1-25
1-25

Benefits of Strategic Management

Managers at all levels interact in planning and
implementing strategy
Similar to participative decision making
Assessing strategy formulation requires looking
at nonfinancial evaluations as well as financial
ones
Promoting positive behavioral consequences
enables achievement of financial goals

1-26
1-26

The Vocabulary Of Strategy

(Johnson, Schole & Whittington, Chapter 1)

1-27
1-27

Challenges of Strategic Management

Prevent strategic drift

Progressive failure to address strategic position
Deterioration of performance
Understand and address contemporary issues
Internationalisation
E-Commerce
Changing purposes
Knowledge and learning
View strategy in more than one way
Four strategy lenses Design, Experience, Variety (Ideas),
Discourse
1-28
1-28

Strategic drift
Strategic drift is the tendency for strategies to
develop incrementally on the basis of historical
and cultural influences but fail to keep pace with
a changing environment.

1-29
1-29

The risk of strategic drift

Exhibit 1.4
1-30
1-30

Incremental change to avoid

strategic drift

Gradual change in alignment with environmental

change.
Building on successful strategies used in the past
(built around core competences)
Making changes based on experimentation around
a theme (incremental change built on a successful
formula)
This approach is called Logical Incrementalism

1-31
1-31

The tendency towards strategic drift (1)

Strategies fail to keep pace with environmental change
because :
Steady as you go reluctance to accept that change
requires moving away from strategies that have been
successful.
Building on the familiar uncertainty of change
is met with a tendency to stick to the familiar.
Core rigidities capabilities that are taken for
granted and deeply ingrained in routines are
difficult to change even when they are no longer
suitable.
1-32
1-32

The tendency towards strategic drift (2)

Relationships become shackles organisations

become reluctant to disturb relationships with
customers, suppliers or the workforce even if they
need to change.
Lagged performance effects the financial
performance of the organisation may hold up
initially (e.g. due to loyal customers or cost cutting)
masking the need for change.

1-33
1-33

A period of flux
As performance declines and the organisation loses
track of the environment then a period of Flux
occurs typified by:
Strategies that change, but in no clear direction.
Top management conflict and managerial
changes.
Internal disagreement on the right strategies.
Declining performance and morale.
Customers becoming alienated.

1-34
1-34

Three Strategy Lenses

Exhibit I.v

The strategy lenses summary

Exhibit I.iv

References
Pearce, J.A. & Robinson, R.B. 2013. Strategic
Management: Formulation, Implementation & Control,
13th Edition. McGraw-Hill International edition, Chapter
1.
Johnson, G., Scholes, K. & Whittington, R. 2008. Exploring
Corporate Strategy, 8th Edition, Prentice Hall. Chapter 1.
Johnson, G., Scholes, K. & Whittington, R. 2011. Exploring
Corporate Strategy, 9th Edition, Prentice Hall. Pg. 158162.

37
1-37
1-37