LECTURE 03

Strategic
Management
 LEARNING OBJECTIVES OF THIS
CHAPTER
After studying this unit, you will be able to understand:
1. Strategic Management
2. Models of Strategy
3. Contrasting the Two Approaches
4. The Process of Strategic Management
5. Corporate Strategy
6. Business Unit Strategies
7. Benefits of a Strategic Approach to HR
1. STRATEGIC MANAGEMENT
 1. STRATEGIC MANAGEMENT
 In the field of management,
strategic management involves the formulation and
implementation of the major goals and initiatives
taken by an organization's top management on behalf of
owners, based on consideration of resources and an
assessment of the internal and external environments
in which the organization operates.
 Strategic management is the management of an
organization’s resources to achieve its goals and objectives.
Strategic management involves setting objectives, analyzing the
competitive environment, analyzing the internal organization,
evaluating strategies, and ensuring that management rolls out
the strategies across the organization.
 1. STRATEGIC MANAGEMENT
 Strategic management is the continuous planning, monitoring,
analysis and assessment of all that is necessary for an
organization to meet its goals and objectives.
 Strategic management typically involves:
 Analyzing internal and external strengths and weaknesses.
 Formulating action plans.
 Executing action plans.
 Evaluating to what degree action plans have been
successful and making changes when desired results are not
being produced.
 2. MODELS OF STRATEGY

Models of
Strategy

Industrial Resource-
Organization Based View
(I/O) Model (RBV)
2.1. INDUSTRIAL ORGANIZATION
 External environment is primary determinant of
organizational strategy rather than internal decisions
of managers
 Environment presents threats & opportunities
 All competing organizations control or have equal access to
resources
 Resources are highly mobile between firms
 Organizational success is achieved by
 Offering goods & services at lower costs than competitors
 Differentiating products to bring premium prices
2.2. RESOURCE-BASED VIEW (RBV)
RBV is an approach to achieving competitive advantage. Organizations
should look inside the company to find the sources of competitive
advantage instead of looking at competitive environment for it.
 An organization’s resources & capabilities, not external
environmental conditions, should be basis for strategic
decisions
 Competitive advantage is gained through acquisition & value of
organizational resources
 Organizations can identify, locate & acquire key valuable
resources
 Resources are not highly mobile across organizations & once
acquired are retained
 Valuable resources are costly to imitate & non-substitutable
 3. CONTRASTING THE TWO
APPROACHES
Research provides support for both positions
What drives strategy?
•I/O: External considerations
•RBV: Internal considerations
I/O: Strategy drives resource acquisition
RBV: Strategy determined by resources
 4. THE PROCESS OF STRATEGIC
MANAGEMENT
1. Mission statement
2. Environmental analysis
3. Organizational self-assessment
4. Establishing goals & objectives
5. Setting Strategy
4. THE PROCESS OF STRATEGIC
MANAGEMENT
 4.1. MISSION STATEMENT
A vision statement focuses on tomorrow and what an
organization wants to ultimately become. A mission
statement focuses on today and what an organization
does to achieve it. Both are vital in directing goals.

Explains purpose & reason for existence

Usually very broad
No more than a couple of sentences
Serves as foundation for everything organization
does
 MISSION STATEMENT: APOLLO
HOSPITAL

Our Mission is to bring healthcare of

International standards within the
reach of every individual. We are
committed to the achievement and
maintenance of excellence in
Education, Research and Healthcare
for the benefit of humanity.
 4.2. ANALYSIS OF ENVIRONMENT
(EXTERNAL)
Critical components of external environment (I/O model)
Competition
Industry structure
Government regulations (laws and regulations and
Employment relationship)
Technology (Automation, defensive or offensive acquire)
Market trends (Identifying existing and potential customer,
demographic analysis)
Economic trends (Forecasting national and international
trends, Interest, Inflation and Employment rate)
 4.3. ORGANIZATION SELF-ASSESSMENT
 Identify primary strengths & weaknesses (RBV
model)
 Find ways to capitalize on strengths
 Find ways to improve or minimize weaknesses
 Examine Resources
• Financial (Internal/External fund)
• Physical (Equipment, Machineries, Raw materials,)
• Human (Knowledge of employees, Commitment,
Motivation)
• Technological (Process of producing goods and services)
• Capital (Brand names, Relationship with customers)
 4.3. ORGANIZATION SELF-
ASSESSMENT
Examine internal management systems
Culture (Values and Philosophies, Attitude and
Behavior)
Organization structure (Communication channel,
Accountability)
Power dynamics & policy (Control and Hierarchy)
Decision-making processes (Individual/Group,
Information sharing)
Past strategy & performance (Success/Failure rate)
Work systems (Designing jobs for current & future
objectives)
 4.4. ESTABLISHING GOALS &
OBJECTIVES
 A company’s goals and objectives are the foundation, which
measures how much distance it has covered to attain its vision.
 Goals are defined as the lifelong aims, which an individual or
entity endeavor to achieve something. It determines what the
company is attempting to accomplish.
 On the other hand, objectives are the specific milestones which
a person plans to achieve in a limited period. These are precise,
measurable, time-based, actions that assist in the achievement
of goal.
 Goals should be:
SMART.
ESTABLISHING GOALS & OBJECTIVES
 4.5. SETTING STRATEGY
Once goals have been defined, an organization is
then ready to determine its strategy.
HR strategy will serve as a framework by which the
organization can develop a consistent and aligned
set of practices, policies and programs that will allow
employees to achieve the organization’s objectives.
Every organization is unique.
 5. CORPORATE STRATEGY
 Corporate strategy is a companywide plan to choose and
develop particular markets in which to compete while
improving the various divisions or units of the business.
 Corporate Strategy is a long term strategy which highlights
the direction which a business intends to take.
 In a marketing context, the strategy would involve long term
branding of the company.
 The corporate strategy would involve the amount of resource
allocation for each item in the marketing mix. It would involve
directives to market a product.
 5.1. CORPORATE STRATEGIES:
GROWTH
Benefits
◦ Gaining economies of scale in
operations & functions
◦ Enhancing competitive position
in respect of industry competitors
◦ Providing opportunities for
employee professional
development & advancement
HR Issues
◦ Planning for new hiring
◦ Alerting current employees
◦ Ensuring quality & performance
standards are maintained
Internal Growth
◦ Penetration of existing markets
◦ Developing new markets
◦ Developing new products or
services for existing or new
markets
External Growth
◦ Acquiring other organizations
◦ Vertical integration
HR Issues
◦ Merging organizations
◦ Dismissing redundant
employees
 5.2. CORPORATE STRATEGIES:
STABILITY
Maintaining status quo due to limited
environmental opportunities for gaining
competitive advantage
Few employees will have opportunities for
advancement
Critical that management identify key employees &
develop specific HR retention strategies to keep
them
 5.3. CORPORATE STRATEGIES:
TURNAROUND OR RETRENCHMENT
 Downsizing or streamlining organization in cost-
cutting attempt to adjust to competitive
environment
 Few opportunities & many environmental threats
 Important to develop HR practices to manage
“survivors”
6. BUSINESS UNIT STRATEGIES: COST
LEADERSHIP
Increases in efficiency & cutting of costs, then
passing savings to consumer
Assumes price elasticity in demand for products
or services is high
Assumes that customers are more price sensitive
than brand loyal
HR strategy focuses on short-term performance
measures of results & promoting efficiency
through job specialization & cross-training
 6.1. BUSINESS UNIT STRATEGIES:
DIFFERENTIATION
 In order to demand a premium
price from consumers
◦ Attempting to distinguish
organizational products or services
from other competitors or
◦ Creating perception of difference
 Organization offers employees
incentives & compensation for
creativity
 HR strategy focuses on external
hiring of unique individuals & on
retaining creative employees
 6.2. BUSINESS UNIT STRATEGIES:
FOCUS
 Business attempts to satisfy needs of only a particular
group or narrow market segment
 Strategic intent is to gain consumer loyalty of neglected
groups of consumers
 Strategic HR issue is ensuring employee awareness of
uniqueness of market segment
◦ Thorough employee training & focus on customer satisfaction
are critical factors
◦ Hiring members of target segment who are empathetic to
customer in target segment
 7. BENEFITS OF A STRATEGIC
APPROACH TO HR
 Facilitates development of high-quality workforce
through focus on types of people & skills needed
 Facilitates cost-effective utilization of labor,
particularly in service industries where labor is
generally greatest cost
 Facilitates planning & assessment of
environmental uncertainty & adaptation of
organization to external forces