Strategic Management

Author: Charles W. L. Hill

Gareth R. Jones
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Part I: Introduction to strategic
management

Chapter 1: The strategic

management process

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Content

• Superior performance and competitive advantage

• Strategic managers
• Strategic planning
• SWOT analysis
• Strategy as an emergent process
• Strategic leadership and decision making
• Practicing strategic management

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Overview
• Why do some firms succeed while others fail?
– A central objective of strategic management is
to learn why this happens.
• What is strategy?
– An action a company takes to attain superior
performance.
– What is the strategic management process?
– The process by which managers choose a set
of strategies for the enterprise to pursue its
vision.
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Definition of strategy
• Strategy: it is the direction and scope of an
organization over the long term, which achieves
advantage for the organization through its
configuration of resources within a changing
environment and to fulfill stakeholder
expectation.
• Business model: it is management’s model of
how the strategies they pursue will allow the
company to gain competitive advantage and
superior profitability

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 Characteristics of strategic decisions

• Strategy Is Likely to be concerned with the long

term direction of the organization.
• Strategic Decisions Are normally about trying to
achieve something for the organization over
competition.
• Strategic Decisions are likely to be concerned
with the scope of an organizations activities.
(Supply chain and value chain)

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Continue..

• Strategy can be seen as the matching of the

resources and activities of the organization to the
environment in which it operates. Which is
sometimes called as a Strategic Fit.
• Strategic Fit is developing strategy by identifying
opportunities in the business environment and
adapting resources and competences so as to take
advantage of this.

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Continue..

• However strategy can also be seen as building on

or Stretching an organizations resources and
competences to create opportunities, Which can
be called as a Stretch. (Resource based view)
• Stretch Is the leverage of the resources and
competences of the organization to provide
competitive advantage and to yield new
opportunities.

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Continue..

• Strategies may require resource changes for an

organization
• Strategic Decisions are likely to affect the
operational decisions.
• The strategy of an organization is affected not
only by the environmental forces and resource
availability but also by the values and
expectations of those who have power in the
organization.

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Continue..

• Strategic Decisions are likely to be complex in

Nature.
• Strategic Decisions may also have to be made in
situations of uncertainty.
• Strategic Decisions are also likely to demand an
integrated approach to managing the
organizations.
• They may also have to manage and perhaps

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Continue..

• It affects operational decisions

• Change relationships and networks outside the
organizations. (e.g. Supplier, distributor).
• Strategic decisions will very often involve
change in organization culture.

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 Layers of business environment

1. Macro Environment: It Contains environmental

factors and PESTEL frame work.

2. Industry: It is the group of organization producing

the same products or service.
It contains Concepts like scenario, Five force
concept and hyper competition.

3. Sector: It is the idea through which the Concept of

the industry can be extended in to the public
services
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Strategic Managers

• General managers
– Responsible for the overall (strategic)
performance and health of the total
organization.
• Operations managers
– Responsible for specific business
functions or operations.

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Strategic Managers for All Levels

FIGURE 1.2
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Strategic Planning

• Rational planning by top management?

Basic Strategic Planning Model

Defining the Mission and Setting Top-Level Goals

External Analysis of Opportunities and Threats

Internal Analysis of Strengths and Weaknesses

Selection of Appropriate Strategies

Implementation of Chosen Strategies

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The Main Components
of the Strategic
Planning Process

FIGURE 1.1
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Mission and Goals

• Mission
– Sets out why the organization
exists and what it should be doing.
• Major goals
– Specify what the organization hopes
to fulfill in the medium to long term.
• Secondary goals
– Are objectives to be attained that lead to superior
performance.

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The Vocabulary of Strategy
• Mission: Overriding Purpose in line with the
values or expectations of Stakeholders.
• Vision or Strategic intent: Desired Future State,
The aspiration of the organization.
• Goal: General Statement of Aim or purpose.
• Objective: A more precise aim in line with the
goal.

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External Analysis

• Identify strategic opportunities and threats in the

operating environment.

Immediate (Industry)

Macroenvironment National

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The PESTEL Framework

• It describes the factors of surrounding

environment affecting the organization.
1.Political factors
• Government Stability
• Taxation policy
• Foreign trade Regulation
• Social Welfare Policy

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Continue..
2. Economic Factors
• Business Cycle
• GNP trends
• Interest Rates
• Money supply
• Inflation
• Unemployment
• Disposable income

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Continue..
3. Sociocultural Factors
• Population Demographics
• Income distribution
• Social Mobility
• Lifestyle changes
• Attitudes to work and leisure
• Consumerism
• Levels of education

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Continue..

4.Technological Factors
• Government Spending on research
• Govt. and industry focus on technological effort
• New discoveries/Development
• Speed of technology Transfer
• Rates of obsolescence

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Continue..

5.Environmental factors
• Environmental Protection laws
• Waste Disposal
• Energy Consumption

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Continue..

6. Legal factors
• Monopolies Legislation
• Employment law
• Health and Safety
• Product Safety

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Internal Analysis

• Identify strengths
– Quality and quantity of resources available
– Distinctive competencies
• Identify weaknesses
– Inadequate resources
– Managerial and
organizational deficiencies

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 SWOT and Strategic Choice

•Strengths and Weaknesses

•Opportunities and Threats
(SWOT Analysis)

Strategic Choice
Business
Functional
Global
Corporate

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Business-Level Strategies

• Cost leadership
– Attaining, then using the lowest total cost basis as a
competitive advantage.
• Differentiation
– Using product features or services to distinguish the
firm’s offerings from its competitors.
• Market niche focus
– Concentrating competitively on
a specific market segment.

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Generic competitive strategies: business level

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 1. Cost leadership
• It is the clearest of the three generic strategies.
• Here firm sets target of overall low cost producer in
the industry or compare to the close rival.
• However there are different sources for achieving
cost advantage, but among them there are some
main like, Economy of scale, experience curve,
supply cost and product and process design.
• Even though for cost leadership approach it is
necessary to count differentiation also to gain higher
profits.
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 Or scope !!

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 2. Differentiation
• The essence of a broad differentiation strategy is
to be unique in ways that are valuable to a wide
range of customer.
• Here firm studies the need of the buyers and what
they value and based on that provides features in
the product or service.
• Successful differentiation allows firm to
1. Command a premium price for its product.
2. Increase unit sales
3. Gain buyer loyalty to it’s brand.
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 Types of differentiation themes
• Differentiation can be from many angles like,
unique taste( Dew), Multiple features ( Microsoft),
Wide selection and one stop shopping
( Amazon.com), Superior Service (Fed ex), Spare
parts Availability ( Hundai), Engineering design and
performance (BMW, Mercedez), Prestige and
distinctiveness (Rolex), Product reliability (Johnson
and johnson baby product), Quality manufacture
(honda), Technological Leadership (Intel), Full
range of service, complete line of product and top of
the line image and reputation
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 Focused or market niche strategies
• What makes focused strategies apart from low cost
leadership or broad differentiation strategies is
concentrated attention on a narrow piece of total
market.
• The target market or niche can be defined by
geographic uniqueness, specialized requirement in
the product or special product attributes that appeal
to relatively small number of buyers.
• Ex. E bay (online auctions), google ( specialist in
internet searching.
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 3. A focused low cost strategy
• It is based on low cost aims at securing a
competitive advantage by serving buyers in the
target market niche at lower cost and lower price
than rival competitors.
• Here firm aims to serve only limited number of
buyers with overall low cost approach.
• Firm can also use focused low cost strategy against
big firms because they have overall low cost in each
of the department like production, marketing,
distribution and advertising. (Maruti 800)
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 4. A focused differentiation strategy
• It aims at securing a competitive advantage by
offering niche members a product they perceive as
well suited to their own unique taste and preference.
• The main idea behind this strategy is that most
markets contain a buyer segment willing to pay a
big price premium for the finest item available.
• If firm is capable of differentiating their product or
service from the rivals they can have premium price.
• Ex. Mercedez, BMW

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Functional-Level Strategies

• Focus is on improving the effectiveness of

operations within a company.
– Manufacturing
– Marketing
– Materials management
– Research and development
– Human resources

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Global-Level Strategies

• Multidomestic
• International
• Global
• Transnational

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Corporate-Level Strategies

• Vertical integration
• Diversification
• Strategic alliances
• Acquisitions
• New ventures
• Business portfolio
restructuring

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Strategy Implementation
• Designing organizational structure
• Designing control systems
Structure
– Market and output controls
– Bureaucratic controls
– Control through organizational culture
– Rewards and incentives Controls

• Matching strategy, structure,

and controls
– Congruence (fit) among strategy, Strategy
structure, and controls
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Managing Strategic Change

• The only constant is change.

• Success requires adapting strategy and structure
to a changing world.
• The feedback loop in
strategic planning.
Corporate

Operational Business

Functional
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Strategic Leadership

• Vision, eloquence, and consistency

• Commitment to the vision
• Being well informed
• Willingness to
delegate and empower
• Astute use of power
• Emotional intelligence

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Strategy as an Emergent Process
• Strategy making in an unpredictable world
– Creates the necessity for flexible strategic approaches.
• Strategy making by lower-level managers
– Strategy evolves through autonomous action.
• Serendipity and strategy
– Accidental discoveries and happenstances can have
dramatic effects on strategic direction.
• Intended and emergent strategies
– Realized strategies are combinations of intended and
emergent strategies.
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Intended and Emergent Strategies

FIGURE 1.3 Source: Reprinted from “Strategy Formation in an Adhocracy,”

by Henry Mintzberg and Alexandra McGugh, published in
12/08/21 Administrative Science Quarterly, Vol. 30, No. 2, June 1985, by
44
permission of Administrative Science Quarterly.
The Strategic Management Process for Intended and
Emergent Strategies

FIGURE 1.4
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Strategic Planning in Practice
• Planning under uncertainty
– Scenario planning for dynamic environmental change
• Ivory tower planning
– Lack of contact with operational realities
– The importance of involving operating managers
– Procedural justice in the decision-making process
• Engagement, explanation, and expectations
• Planning for the present: Strategic Intent
– Recognition of the static nature of the strategic fit model
– Strategic intent in focusing the organization on winning by
achieving stretch goals
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Improving Strategic Decision Making

• Cognitive biases systematically influence the

rationality of decision makers.

FIGURE 1.5
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Techniques for Improving Decision Making

• Two decision-
making processes
that counteract
cognitive biases
and groupthink.

FIGURE 1.6
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