Lecture 1 Broad View of Strategic Management PDF

Real Estate Management
 Lecture 1 Broad view of a strategic

Management
 Zerihun Ayenew Birbirsa (Ph.D)
 Email: birbirsa2018@gmail.com
Lucy Academy 10-07-2018

Chapter One
Fundamentals of Strategic Management
Learning Objectives
After completing this session, you will be able to:
Define and give examples of key terms in strategic
management.
Describe the strategic-management process/model.
Explain challenges to strategic Management
Discuss the nature of strategy formulation, implementation,
and evaluation activities.
Describe the benefits of good strategic management.

Chapter One
Fundamentals of Strategic Management
1.1 Definition of strategic Management
What is strategic management ?
 Strategic management is a set of managerial decisions and actions
that determines the long run performance of a corporation.
 It includes environmental scanning (both external and internal),
strategy formulation (long-range planning), strategy
implementation, and evaluation and control.
 The study of strategic management, therefore, emphasizes the
monitoring and evaluating of external opportunities and threats in
light of a corporation’s strengths and weaknesses

Benefits of Strategic Management
Strategic management offer benefits, such as:
 an enhanced awareness of external opportunities and threats
 Strategic management allows an organization to be more proactive
than reactive in shaping its own future.
 it allows an organization to initiate and influence (rather than just
responding to) activities, and thus to exert control over its own
destiny
 an improved understanding of competitors’ strategies,
 increased employee productivity,
 reduced resistance to change, and
 a clearer understanding of performance–reward relationships

Benefits ---
 creates a framework for internal communication among personnel.
 It allows the firm to deal with a new trend and meet competition in an
effective manner
 Gives sharper focus on what is strategically important
 Improve understanding of a rapidly changing environment and minimizes the

effects of adverse conditions
 result into financial benefits to the organization in the form of increased profits.
 It rationalizes allocation of scarce resources
 encourages forward thinking

Benefits ---
 provides clarity of direction for achieving the objectives.
 It provides an objective basis for measuring performance.

Point for Reflection
 What is the of benefits of strategic management for
organizations

Phases of strategic management
 Many of the concepts and techniques that deal with strategic
management have been developed and used successfully by
business corporations such as General Electric and the
Boston Consulting Group
 Over time, business practitioners and academic researchers
have expanded and refined these concepts
 Initially, strategic management was of most use to large
corporations operating in multiple industries

Phases ---
 Increasing risks of error, and costly mistakes, are causing
today’s managers in all organizations to take strategic
management to keep their companies competitive
 As managers attempt to better deal with their changing
world, firms generally evolved through the following four
phases of strategic management
1) Basic financial planning
2) Forecast based planning
3) Externally oriented (Strategic) planning
4) Strategic Management

Phases ---
 Phase 1—basic financial planning: Managers initiate
serious planning when they are requested to propose the
following year’s budget
 Projects are proposed on the basis of very little analysis
 Most information come from within the organization
 Time consuming
 The time horizon is only one year
 become less useful at stimulating long-term planning

Phases ---
 Phase 2 Forecast-based planning: As annual budgets
become less useful at stimulating long-term planning,
managers attempt to propose five-year plans
 Manager consider projects that take more than one year
 Manager gather both internal and external data
 manager take long time to make sure that all the proposed
budgets fit together
 The process gets very political as managers compete for
larger shares of funds but it is ineffective.
 Endless meetings take place to evaluate proposals and justify
assumptions.

Phases ---
▪ Phase 3: Externally oriented (strategic) planning:
The company seeks to increase its responsiveness to changing
markets and competition by thinking strategically
▪ Planning is taken out of the hands of lower-level managers
▪ Planning is concentrated in the hands of a planning staff
whose task is to develop strategic plans for the corporation
▪ Consultants often provide the sophisticated techniques that
the planning staff uses to gather information and forecast
future trends

Phases ---
 Phase 4—Strategic management: managers and key
employees at many levels, from various departments and
workgroups are involved in strategic mgt
 Strategic plans at this point detail the implementation,
evaluation, and control issues.
 Rather than attempting to perfectly forecast the future, the
plans emphasize probable scenarios and contingency
strategies

1.2 Challenges to Strategic Management
❑ Impact of Globalization
❑ Impact of Demanding Environmental Sustainability

Challenges --------
1. Impact of Globalization
 Globalization refers to the shift toward a more
integrated and interdependent world economy
 the integrated internationalization of markets and
corporations
 Globalization has several facets, including the
globalization of markets and the globalization of
production
Globalization of Markets
 The merging of historically distinct and separate national
Lucymarkets
Academy into one huge global marketplace. 10-07-2018
Challenges --------
Globalization of Production
 Sourcing goods and services from locations around the globe
to take advantage of national differences in the cost and
quality of various factors of production (such as labor, energy,
land, and capital)
Why globalization of corporations?
a) Declining of trade barriers
 Through the formation of regional trade associations
and agreements, such as the European Union, NAFTA,
CAFTA, and ASEAN( Association of Southeast
Asian Nations),WTO
Challenges ----
 These associations have led to the increasing harmonization

of standards so that products can more easily be sold and
moved across national boundaries
 As a result, a firm might design a product in one country,
produce component parts in more other countries, assemble
the product in yet another country, and then export the
finished product around the world.
EXAMPLE ………..

Challenges ----
b) The role of technological change
 Technological change has made integration a tangible reality.
➢ major advances in communication, information processing, and
transportation technology, including the explosive emergence of
the Internet and World Wide Web.
✓ Telecommunications is creating a global audience.
✓ Transportation is creating a global village (eg containerization )
✓ Internets creates disintermediation of traditional distribution
channels; dealing direct with end consumer.
✓ Sites: Jabong,Yepme, Myntra, Snapedeal, Jungle, Amazon,
Flipcart, Tradus, moodsofcloe

Impact of Demanding Environmental Sustainability
 Environmental Sustainability: refers to the use of business
practices to reduce a company’s impact upon the natural,
and physical environment
 From market shifts to regulatory constraints, climate change poses
real risks and opportunities
 Currently, climate change is playing a growing role in business
decisions

Challenges------
The effects of climate change on industries and companies
throughout the world can be grouped into the following risks:
 regulatory risks
 supply chain risks
 product and technology risks
 litigation risks
 reputational risks
 physical risks

Challenges-----
1) Regulatory Risk:
Companies in much of the world are subject to a protocol ( Kyoto)that
forces :
➢ To reduce their carbon and greenhouse gases emissions
➢ To take part emission trading program to buy additional allowances

from other companies whose emissions are lower than that allowed
➢ To earn credits toward their emissions by investing in emissions
reduction projects outside their own firms

Challenges-----
2) Supply Chain Risk due to:

➢ Global supply chain will be at risk from an increasing intensity of
major storms and flooding
➢ Higher sea level resulting from the melting of polar ice will create
problem of seaports
➢ The increasing scarcity of fossil-based fuel is boosting
transportation costs significantly

Challenges ----
3) Product and Technology Risk
➢ A strategy to produce carbon-friendly products using new
technologies are becoming increasingly competitive advantage
➢ Worldwide investments in sustainable energy (including wind,
solar, and water power) is significantly increasing
➢ Carbon-friendly products using new technologies are becoming
increasingly popular with consumers

Challenges ----
4) Litigation Risk
➢ Companies that generate significant carbon emissions face the
threat of lawsuits.
5) Reputational Risk
➢ A company’s impact on the environment can heavily affect its
overall reputation.
➢ The value of a company’s brand could be at risk because of
negative perceptions related to climate change
➢ A company with a good strategy and record of environmental
sustainability may create a competitive advantage in terms of
attracting and keeping loyal consumers, employees, and investors

Challenges ----
5) Physical Risk:
➢ The direct risk posed by climate change includes the physical
effects of droughts, floods, storms, and rising sea levels
➢ If the global warming will continue at current rate, it is forecasted
that there will be:
✓ a high reduction in agricultural output;
✓ more droughts, floods and typhoons ( cyclone, tornado,
hurricane, tropical storm and monsoon) ; and
➢ A 40% increase in population threatened by plague ( disease,
infection, outbreak, curse, epidemic) by 2030

DISCUSSION QUESTIONS
 How can any one company keep track of all the changing
technological, economic, political–legal, and socio-cultural
trends around the world and make the necessary
adjustments?

Theories of organizational adaptation
▪ Globalization and environmental sustainability present real
challenges to the strategic management of business corporations.
▪ Various theories have been proposed to account for how
organizations obtain fit with their environment.

Theories of organizational adaptation---
These theories are:
1) The theory of population ecology
2) Institution theory
3) The strategic choice perspective
4) Organizational learning theory

1) The theory of population ecology
➢ proposes that once an organization is successfully established in a
particular environmental niche, it is unable to adapt to changing

conditions. The company is thus replaced (is bought out or goes
bankrupt) by other organizations more suited to the new
environment

2) Institution theory
➢ proposes that organizations can and do adapt to changing
conditions by imitating strategies of other successful
organizations.
➢ The theory does not, however, explain how or by whom
successful new strategies are developed in the first place

Theories of organizational adaptation ---
3) The strategic choice perspective
➢ goes one step further by proposing that not only do
organizations adapt to a changing environment, but they
also have the opportunity and power to reshape their
environment

Theories of organizational adaptation
4) Organizational learning theory.
 which says that an organization adjusts defensively to a
changing environment and uses knowledge offensively to
improve the fit between itself and its environment.
 This perspective expands the strategic choice perspective
to include people at all levels becoming involved in
providing input into strategic decisions

Basic Model of Strategic Management
Strategic management consists of four basic elements:

 Environmental scanning
 Strategy formulation
 Strategy implementation
 Evaluation and control

Basic Model of Strategic Management
 Basic
Environmental scanning 1
Information gathering
Internal: Strengths and Weaknesses

External opportunity and treats •Structure:
• Natural Environment:
➢Chain of command
➢ Resources and climate
•Culture:
•Societal Environment:
➢Beliefs, expectations, values
➢ General forces
•Resources:
•Task Environment: ➢Assets, skills, competencies, knowledge
➢Industry analysis

Basic Model of Strategic Management---
1. Environmental Scanning
 It is the monitoring, evaluating, and disseminating of
information from the external and internal environments to key
people within the corporation.
 Its purpose is to identify strategic factors—those external
and internal elements that will determine the future of the
corporation.

 consists of variables (Opportunities and Threats) that are
outside the organization
 not typically within the short-run control of top management.
 consists of variables (strength and weakness) that are inside
the organization
 These variables are within the control of top management

2. Strategy Formulation
 Strategy Formulation: the development of long-range plans for the
effective management of environmental opportunities and threats
in light of organizational strengths and weaknesses
 It includes defining the corporate mission, specifying
achievable objectives, developing strategies, and setting policy
guidelines

 Basic
Strategic Formulation 2
Developing long-range plans
Mission: Objectives: Strategies: Policies:

•Reason for •What results •Plan to •Broad
existence accomplished achieve guidelines for
by when mission and decision
1ST objectives making
2nd
•3rd •4th

Vision
▪ A vision statement that answers the question “What do we want to
become?”
▪ A clear vision provides the foundation for developing a
comprehensive mission statement.
▪ Developing a vision statement is often considered the first step in
strategic planning
▪ Many managers should have input into developing the statement.
▪ Many vision statements are a single sentence.
 For example, the vision statement of one Eye Clinic is,
“Our vision is to take care of your vision.”

Basic Model of Strategic Management----
1) Mission
 It is the purpose or reason for the organization’s existence
 Tells what the company is providing to society
 Describes what the organization is now

 A business mission is the foundation for objectives, strategies,
policies, and work assignments.

 Mission statements are “enduring statements of purpose that
distinguish one business from other similar firms.
 A clear mission statement describes the values and priorities of an
organization
 A mission statement is a constant reminder to its employees of
why the organization exists.

2) Corporate or long term objectives
 Objectives can be defined as specific results that an organization seeks to

achieve in pursuing its basic mission.
 Long-term means more than one year
 Objectives are essential for organizational Success:
✓ because they state direction; aid in evaluation; create synergy; reveal
priorities; focus coordination; and
✓ provide a basis for effective planning, organizing, motivating, and
controlling activities.
 In a multidimensional firm, objectives should be established for the
overall company and for each division.

some of the area in which a Corporate might establish objectives are:
• Profit
• Growth (increase in total assets, etc.)
• Utilization of resources (ROE or ROI)
• Market leadership (market share)
• Shareholder wealth (dividends plus stock price appreciation)
• Contributions to employees (incentives, wages)
• Contributions to society (taxes paid, participation in charities,
providing a needed product or service)

Strategies
 form a comprehensive master plan that states how the corporation
will achieve its mission and objectives
 It maximizes competitive advantage and minimizes competitive
disadvantage.
 Some examples of strategy are cutting cost by a certain percent,
reducing employees, increasing product line, shutting part of a
company, selling part of a plant, acquisition of other company etc

 The typical business firm usually considers three types of strategy
• Corporate level strategy
• Business level strategy
• Functional level strategy
Corporate level strategy

 describes a company’s overall direction in terms of its general
attitude toward growth and the management of its various businesses
and product lines.
 typically fit within the three main categories of stability, growth, and
retrenchment.

Basic Model of Strategic Management-
Business level strategy
 usually occurs at the business unit or product level
 Emphasizes improvement of the competitive position of a
corporation’s products or services in the specific industry or
market segment served by that business unit
 It can be Competitive strategies and /or Cooperative strategies

▪ Functional level strategy
 is the approach taken by a functional area to achieve corporate and
business unit objectives and strategies by maximizing resource
productivity.
 It is concerned with developing and nurturing a distinctive
competence to provide a company or business unit with a
competitive advantage
❖ Based on their hierarchy, they compliment among each
other

Hierarchy of strategy

Policies- the broad guidelines for decision making that

links the formulation of a strategy with its
implementation

3. Strategy Implementation
 is a process by which strategies and policies are put into action
through the development of programs, budgets, and
procedures.
 This process might involve changes within the overall culture,

structure, and/or management system of the entire organization.
 The implementation of strategy is typically conducted by middle-

and lower-level managers, with review by top management.

4. Evaluation and Control
 is a process in which corporate activities and performance results
are monitored so that actual performance can be compared with
desired performance.
 Managers at all levels use the resulting information to take
corrective action and resolve problems
 Feedback/Learning Process: It is the process of revising or
correcting decisions based on performance

Initiation of Strategy: Triggering Events
A triggering event is something that acts as a stimulus for a change in
strategy. Some possible triggering events are
▪ New CEO
▪ External intervention
▪ Threat of change of ownership
▪ Performance gap

Point of Discussion
 What Makes A given decision strategic decision

Strategic Decision Making
What Makes A Decision Strategic( characteristics )?

▪ Strategic decisions are decisions that affect the long-run future of
an entire organization
▪ Strategic decisions have three characteristics:
1. Rare: Strategic decisions are unusual and typically have no
precedent to follow.
2. Consequential: Strategic decisions commit substantial resources
and demand a great deal of commitment from people at all levels.
3. Directive: Strategic decisions set precedents for lesser decisions
and future actions throughout an organization

 Mintzberg’s Modes Of Strategic Decision Making
1. Entrepreneurial mode
2. Adaptive mode:
3. Planning mode
1. Entrepreneurial mode
 Strategy is made by one powerful individual.
The focus is on opportunities; problems are secondary.
 Strategy is guided by the founder’s own vision of direction and is
exemplified by large, bold decisions.
 The dominant goal is growth of the corporation

2. Adaptive mode: is characterized by reactive solutions to existing
problems, rather than a proactive search for new opportunities
3. Planning mode:
▪ This decision-making mode involves:
✓ the systematic gathering of appropriate information for situation
analysis,
✓ the generation of feasible alternative strategies, and
✓ the rational selection of the most appropriate strategy.
▪ It includes both the Proactive search for new opportunities and
the reactive solution of existing problems.
Point for Reflection
Among modes Of Strategic Decision Making which is best? And
why?

Strategic Decision Making ---
Strategic Decision-making Process: Aid to Better Decisions(Planning
mode)
 The following are steps of strategic decision-making process to improve
the making of strategic decisions
1. Evaluate:
a) current performance results in terms of return on investment,
profitability, and so forth, and
b) the current mission, objectives, strategies, and policies.

Strategic Decision Making---
2. Review corporate governance—that is, the performance of the firm’s
board of directors and top management.
3. Scan and assess the external environment to determine the strategic
factors that pose Opportunities and Threats
4. Scan and assess the internal corporate environment to determine the
strategic factors that are Strengths (especially core competencies) and
Weaknesses.
5. Analyze strategic (SWOT) factors to (a) pinpoint problem areas and (b)
review and revise the corporate mission and objectives, as necessary.

Strategic Decision Making ---
6. Generate, evaluate, and select the best alternative strategy in light
of the analysis conducted in step 5
7. Implement selected strategies via programs, budgets, and
procedures.
8. Evaluate implemented strategies via feedback systems, and the
control of activities to ensure their minimum deviation from
plans.


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Real Estate Management

 Lecture 1 Broad view of a strategic

 Zerihun Ayenew Birbirsa (Ph.D)

Lucy Academy 10-07-2018

Lucy Academy 10-07-2018

Lucy Academy 10-07-2018

Lucy Academy 10-07-2018

 Improve understanding of a rapidly changing environment and minimizes the

 It rationalizes allocation of scarce resources

 encourages forward thinking

Lucy Academy 10-07-2018

Lucy Academy 10-07-2018

Lucy Academy 10-07-2018

Lucy Academy 10-07-2018

Lucy Academy 10-07-2018

Lucy Academy 10-07-2018

Lucy Academy 10-07-2018

Lucy Academy 10-07-2018

Lucy Academy 10-07-2018

Lucy Academy 10-07-2018

 These associations have led to the increasing harmonization

Lucy Academy 10-07-2018

Lucy Academy 10-07-2018

Lucy Academy 10-07-2018

Lucy Academy 10-07-2018

➢ To take part emission trading program to buy additional allowances

Lucy Academy 10-07-2018

2) Supply Chain Risk due to:

Lucy Academy 10-07-2018

Lucy Academy 10-07-2018

Lucy Academy 10-07-2018

Lucy Academy 10-07-2018

Lucy Academy 10-07-2018

challenges to the strategic management of business corporations.

▪ Various theories have been proposed to account for how

organizations obtain fit with their environment.

Lucy Academy 10-07-2018

1) The theory of population ecology

3) The strategic choice perspective

4) Organizational learning theory

Lucy Academy 10-07-2018

particular environmental niche, it is unable to adapt to changing

Lucy Academy 10-07-2018

Lucy Academy 10-07-2018

Lucy Academy 10-07-2018

Lucy Academy 10-07-2018

Strategic management consists of four basic elements:

Lucy Academy 10-07-2018

Internal: Strengths and Weaknesses

Lucy Academy 10-07-2018

Lucy Academy 10-07-2018

Lucy Academy 10-07-2018

Lucy Academy 10-07-2018

Mission: Objectives: Strategies: Policies:

Lucy Academy 10-07-2018

Lucy Academy 10-07-2018

 Tells what the company is providing to society

 Describes what the organization is now

Lucy Academy 10-07-2018

Lucy Academy 10-07-2018

 Objectives can be defined as specific results that an organization seeks to

Lucy Academy 10-07-2018

Lucy Academy 10-07-2018