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1
The Nature of
Strategic Management

LEARNING OUTCOMES
By the end of this chapter you should be able to:
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䉴 compare and contrast approaches to strategy formulation;


䉴 discuss concepts in established and emergent thinking in strategic management;
䉴 explain the relationship between different levels of strategy;
䉴 discuss the nature of competitive environments.

1.1 Introduction to the nature of strategic


management
The strategic management process is essentially concerned with the decisions organisa-
tions make about their future direction and the development and implementation of strat-
egies which will enhance the competitiveness of organisations. There are many different
approaches to strategic management but they all have the aim of establishing the purpose
of the organisation and guiding managers on how to implement strategies to achieve
organisational goals.
This chapter will start by defining the concept of strategy. It will explain the various
activities involved in the strategic management process, based on the formal rational
approach to strategy. The ways in which organisations can gain competitive advantage will
also be explored. Some of the alternative approaches to strategic management will then be
explained. The final part of the chapter will discuss the concept of stakeholders and exam-
ine how different stakeholders can influence the strategy process.

1.2 The concept of strategy


Strategy has many different interpretations and dimensions. These characteristics distinguish
strategic issues from operational issues in organisations. Listed below are just some definitions:
1. Strategy. ‘A course of action, including the specification of resources required, to achieve a
specific objective.’ CIMA: Management Accounting: Official Terminology, 2005 edition p. 54.

3
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4 STUDY MATERIAL E2

THE NATURE OF STRATEGIC MANAGEMENT


2. Strategic plan. ‘A statement of long-term goals along with a definition of the strate-
gies and policies which will ensure achievement of these goals.’ CIMA: Management
Accounting: Official Terminology, 2005 edition p. 54.
3. Strategy is the direction and scope of an organisation over the long term. Which
achieves advantage in a changing environment through its configuration of resources and
competences with the aim of fulfilling stakeholder expectations.’ Johnson et al. (2008).
4. ‘The basic characteristic of the match an organisation achieves with its environment is
called its strategy.’ Hofer and Schendel (1978, p. 4).
5. ‘Corporate strategy is the pattern of major objectives, purposes and goals and essen-
tial policies or plans for achieving those goals, stated in such a way as to define what
business the company is in or is to be in and the kind of company it is or is to be.’
Andrews, cited in Lynch (2006).
6. ‘Corporate strategy is concerned with an organisation’s basic direction for the future:
its purpose, its ambitions, its resources and how it interacts with the world in which it
operates.’Lynch (2006).

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1.2.1 Common themes in strategy
From these different definitions strategy is concerned with:
● The purpose and long-term direction of the business.
● The scope of an organisation’s activities and actions required to meet its objectives
(broad or narrow).
● Meeting the challenges from the firm’s business external environment, such as competi-
tors and the changing needs of customers.
● Using the organisation’s internal resources and competencies effectively and building on
its strengths to meet environmental challenges.
● Delivering value to the people who depend on the firm, its stakeholders, such as custom-
ers and shareholders, to achieve competitive advantage.
Whatever interpretation is put on strategy, the strategic actions of an organisation will have
widespread and long-term consequences for the position of the organisation in the market-
place, its relationship with different stakeholders, and overall performance.

1.3 Levels of strategy

Strategy occurs at different levels in the organisation. Figure 1.1 provides a


simplified model of the hierarchy at which different strategies are made. At the
top of the hierarchy is where corporate strategy is made; this provides the framework
for the development of business strategy, which in turn provides the framework for
functional strategies. The different levels of strategy formulation are therefore inter-
dependent in that one level should be consistent with the strategies at the next level.

Corporate strategy
The corporate centre is at the apex of the organisation. It is the head office of the firm and
will contain the corporate board.
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ENTERPRISE MANAGEMENT 5

THE NATURE OF STRATEGIC MANAGEMENT


Corporate Corporate centre
strategy of organisation

Business Strategic business Strategic business Strategic business


strategy unit unit unit

Functional Marketing Human resources


Financial strategy etc.
strategies strategy strategy

Figure 1.1 Organisation chart showing corporate, strategic business unit and functional strategies.
From GIDO/CLEMENTS. Successful Project Management with Microsoft Project CD, 1E.
© 1999 South-Western, a part of Cengage Learning, Inc. Reproduced by permission.
www.cengage.com/permissions

Corporate strategy is typically concerned with determining the overall purpose and scope
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of the organisation, in other words what type of business or businesses should the organi-
sation be in. Common issues at this level include:
● decisions on acquisitions, mergers and sell-offs or closure of business units;
● relations with key external stakeholders such as investors, the government and regulatory
bodies;
● decisions to enter new markets or embrace new technologies (sometimes termed diversi-
fication strategies);
● development of corporate policies on issues such as public image, employment practices
or information systems.
Decisions at this level tend to complex and non-routine in nature because they often
involve a high degree of uncertainty based on what might happen in the future.
The formal planning approach to strategy assumes that all strategy is formulated at cor-
porate level and then implemented in a ‘top-down’ manner by instructions to the business
divisions. During the 1980s, high-profile corporate planners like IBM, General Motors
and Ford ran into difficulties against newer and smaller ‘upstart’ competitors who seemed
to be more flexible and entrepreneurial. One consequence was the devolution of responsi-
bility for competitive strategy to strategic business units (SBUs).

Business strategy
This level of strategy is concerned with how an operating or strategic business unit
approaches a particular market.

A strategic business unit (SBU) is defined by CIMA as: A section, usually a


division, within a larger organisation, that has a significant degree of autonomy,
typically being responsible for developing and marketing its own products or services.
CIMA: Management Accounting: Official Terminology, 2005 edition, p. 27.
Chapter extract

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