Strategic

Management
UNIT 1
INTRODUCTION
Pearce, J.A.,
Robins, R.B., Mital,
Strategic
Management :
Formulation,
Implementation
and Control
Strategic
Management
UNIT 1
INTRODUCTION
Meaning of Strategy

Strategy
u It is a company’s game plan: which is large scale, future oriented
plans for interacting with the competitive environment to achieve
company objectives.
u It reflects a company’s awareness of how, when and where it
should compete, against whom it should compete, and for what
purpose it should compete.
u Plan of action.
Meaning of strategic management

u Strategic Management is defined as the set of decisions and actions,

that result in the formulation and implementation of plans designed to
achieve a company’s objectives.
u It has nine critical task
1. Formulating the company’s mission
2. Analysis of company’s internal conditions & capabilities.
3. Conduct external environment analysis.
4. Analysis Company’s options with external environment
5. Identify the options
6. Select long term objectives & Grand strategies.
7. Develop annual objectives & short term strategies.
8. Implement the strategic choices / options
9. Evaluate the strategic choices / options
strategic management

u In short, it includes
Ø Environmental  scanning  (  internal  &  external  )
Ø Strategy  formulation
Ø Strategy  implementation
Ø Strategy  evaluation
Environmental  scanning  (  SWOT  
analysis  )
The SWOT Analysis –
The Internal Environment
Strengths
u Any existing or potential resources or capability within the
organization that provides a competitive advantage in the market.
Example :
Ø Strong distribution network
Ø Intense Staff commitment and loyalty
Ø Increasing profit margin etc.

Activity: Can you identify some of your college strengths ??

The SWOT Analysis –
The Internal Environment
Weakness
u Any existing or potential force which could serve as a barrier to
maintaining or achieving a competitive advantage in the market.

Example:
Ø Lack of clear company strategy
Ø Lack of training opportunities for using new software.

Activity : Can you think of some of your college weakness ? Good

suggestion can be forwarded to college management for
improvement.
The SWOT Analysis –
The External Environment
Opportunity
u Any existing or potential force in the external environment that, if
properly leveraged, could provide a competitive advantage.
Example:
Ø Organization’s geographic location
Ø New technology.

Activities: Can you think of some opportunities available to your college ?

The SWOT Analysis –
The External Environment
Threat
u Any existing or potential force in the external environment that could
erode a competitive advantage.

Example:
Ø A new competitor
Ø A recession, rising interest rate etc.

Activity : can you think of some threats to your college ?

Aim of SWOT Analysis

u Take advantage of strengths and opportunities.

u Minimize weaknesses and eliminate threats
How to do SWOT Analysis ?

Analyze
Prepare
Step Internal & Step Perform Step Action
external SWOT
1 Environmen 2 Analysis 3 Plans,
Strategy
t

A SWOT analysis is useful only when action

plans and strategies are developed from the
result.
Benefits of SWOT Analysis

u Solving Problems
u Implementing change
u Developing strategies for achieving the organization’s objectives
and mission.
 Dimensions of Strategic Decisions

Strategic issues require top-

management decisions
u Strategic decisions include several
areas of a firm’s operations
u Usually only
top management has the
perspective needed to understand their
broad implications
u Usually only
top managers have the
power to authorize necessary resource
allocations
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 Dimensions of Strategic Decisions
(contd.)

Strategic issues require large amounts of

the firm’s resources
— They involve substantial allocations of people,
physical assets, and money
— Strategic decisions commit
the firm to take
actions over an extended period of time.
— In highlycompetitive firms, achieving and
maintaining customer satisfaction frequently
involves commitment from every component
of the firm
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 Dimensions of Strategic Decisions
(contd.)

Strategic issues often affect the firm’s 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.

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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
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 Dimensions of Strategic Decisions
(contd.)

Strategic issues usually have

multifunctional or multi business
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 firm’s SBUs, divisions, or
program units
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 Dimensions of Strategic Decisions
(contd.)

Strategic issues require considering

the firm’s external environment
uAllbusinesses exist in an open
system. They affect and are
affected by external conditions
that are largely beyond their
control
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Levels of Strategy

Corporate
— Corporate level: board of
level directors, CEO &
administration [Highest]
— Business level: business
Business level and corporate managers
[Middle]
— Functional level: Product,
geographic, and
Functional level functional area managers
[Lowest]
Ex. 1.3 Alternative
Strategic
Management Structures

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 Levels of Strategy
Level Action
Responsible for firm’s
Board of Directors, Chief financial performance,
Develop long term plans,
Corporate Level Executives, Administrative and non financial goals
3 to 5 years period.
officer like firms image and social
responsibilities.
Responsible for translating
the statement of direction Identify product market
Business managers and
Business level into objective and arena, and its competitive
Corporate managers
strategies for individual advantages.
business units.
Develop annual
objectives and short term
Responsible for product, strategies such as
Functional level Managers geographic, and production, operations
functional areas. research & development,
Finance & accounting,
human relations.
Characteristics of strategic
management decision
Level Characteristics
Great risk, cost and profit potential.
Greater need for flexibility, and longer time horizons.
Corporate Level Decision such as choice of business, dividend policies, source of long
term financing and priorities for growth etc. need to be made.

Low risk and short range of time frame.

Modest cost as they depend on available resource.
It is a bridge decisions at corporate and functional levels.
Business level
Decision such as less costly, risky and potentially profitable that
corporate level decisions are made.

It includes decision such as plant location, marketing segmentation,

Functional level
geographical coverage & distribution channel.
Strategic Management Process

u The strategic management process means

defining the organization’s strategy.
u It is the process by which managers make a
choice of a set of strategies for the organization
that will enable it to achieve better
performance.
u Strategic management is a continuous process.
 Strategic
Management
Model
Formality in Strategic Management

— Formality
is the degree to which
participation, responsibility, authority,
and discretion in decision-making are
specified in strategic management

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Forces Determining Formality

— Organizational — Problems in the

Size Firm
— Predominant — Purpose of the
Management Planning System
Styles
— Complexity of — Stage of Firm’s
Environment Development
— Production
Process

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Three Modes of Formality

— Entrepreneurial Mode – most small

firms
— Planning Mode – most large firms
— Adaptive Mode – most medium size
firms

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Entrepreneurial Mode

u Entrepreneurial mode is an informal, intuitive and limited approach

to strategic management associated with owner-manager of small
firms.
u Under this, Strategies decision are made by one power individual
mostly the CEO.
u The focus is on opportunities; problems are secondary.
u The solo goal is growth of the company.
u The decision are made without a series of analysis.
Adaptive Mode

u It is associated with medium sized firms that emphasize the

incremental modification of existing competitive approach.
u It is also called mudding through.
u It is characterized by reactive solutions to existing problems
opportunities.
u The decision maker reviews the decision and makes necessary
adaptation if required.
u It is followed in a stable environment.
Planning Mode

u Planning mode is associated with large firms that operate under a

comprehensive, formal planning system.
u Decision are made in systematic and rational way.
u Before making decision, information is collected formally and the
best alternative is selected in a rational manner.
u It includes both proactive search for new opportunities and reactive
solutions of exiting problems.
u It incorporate both long and short term issues of the organization.
Strategy Makers

— Ideal strategic team includes decision

makers from all three levels
— Top managers must give final
approval
— Strategic decisions comes along with
managers’ responsibilities

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Blue Ocean and Red Ocean
Strategy
u BLUE
Blue ocean strategy indicates all the industry not in existence today
where the market are unexplored and unattained by competition.
u In this strategy , competition is irrelevant.

u RED
Red ocean are all the industry existing today where industry
boundaries are defined and companies compete for a greater
share of the existing market.
u In this strategy, competition are very high and prospect for profit
and growth reduce.
Blue Ocean Vs Red Ocean
Strategy
Bases of difference Blue Ocean Red Ocean
1. Competitions Create uncontested Compete in existing
market space. market space
2. Aim Market the competition Beat the competition
irrelevant.
3. Demand Create and capture Exploit existing demand
new demand
4. Trade-off Break value-cost Make the value-cost
tradeoff tradeoff
5. Alignment of Align the whole system Align the whole system
Organizational system of a firm’s activities in of a firm’s activities with
pursuit of differentiation its strategic choice of
differentiation or low-
cost.
Why do we need strategy

u To understand the competitive environment and compete

successfully
u To adopt a suitable business model
u To acquire and utilize resources optimally
u To retain the customers by building long term relationship
u To expand the business
u To fulfill the stakeholders expectations
u To ensure sustainability of the business
Strategy Makers: The CEO
— A firm’s CEO plays a dominant
role in strategic planning
— The CEO’s principal duty is
giving long-term direction to the
firm
— The CEO bears ultimate
responsibility for the firm’s
success and strategic success

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