MGT 131

STRATEGIC MANAGEMENT

RONALD REAGAN T. ALONZO

Assistant Professor II

LEARNING MODULE
 About this Module
Strategic Management

About this Module

Strategic Management Module has been produced by Institute of Management of
Bulacan Agricultural State College. All the modules produced by the College are
structured in the same way, as outlined below.

How this module is structured

The course overview gives you a general introduction to the course. Information
contained in the course overview will help you determine:

 If the course is suitable for you.

 What you will already need to know.
 What you can expect from the course.
 How much time you will need to invest to complete the
course.
 The overview also provides guidance on:
 Study skills.
 Where to get help.
 Course assignments and assessments.
 Activity icons.
 Units.

I strongly recommend that you read the overview carefully

before starting your study.

The course content

The course is broken down into modules. Each module comprises:
 An introduction to the module content.
 Module outcomes.
 Core content of the module with a variety of learning activities.
 A module summary.
 Assessments, as applicable.

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 About this Module
Strategic Management

Your comments
After completing Strategic Management module we would appreciate
it if you would take a few moments to give us your feedback on any
aspect of this course. Your feedback might include comments on:
 Course content and structure.
 Course reading materials and resources.
 Course assignments.
 Course assessments.
 Course duration.
 Course support (assigned tutors, technical help, etc.)
Your constructive feedback will help us to improve and enhance this
course.

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 Course Overview
Strategic Management

Course overview
Welcome to Strategic Management

Strategic Management as a capstone draws together various strands of business

courses to provide a holistic view of the organisation and to develop a strategic
perspective of business management. Students will be introduced to a number of
key strategic questions regarding the future direction of the firm such as;

 How to survive in a competitive global environment

 How to leverage an organization’s competences to gain competitive
advantage
 What strategy needs to be pursued in order to survive and / or prosper
 Whether there is a need for the firm to grow, acquire , merge, divest or
downsize
 How a firm should react to the ever – changing environment; and
 How to implement strategy and manage strategic change

The course will also introduce students the concept of international strategy and
globalization as well as the corporate governance issues.

Course outcomes

Upon completion of this module you will be able to:

a. Acquire a better guidance to the entire organisation on the crucial point of

“what is it we are trying to do”.
b. Describe a strategic management process.
c. Evaluate the relationship between the general and the competitive
environment.
d. Explain the differential firm performance.
e. Explain the possible growth strategies for organisations
f. Discus the role of business strategy in achieving competitive advantage.
g. The motives for organizations to expand abroad.
h. Assess the different approaches to strategic change.
i. Explain what is meant by corporate governance

Timeframe

The expected duration of this course is five (5) months and you will be required to
go online to download study materials through the dedicated Facebook Group for
the purpose. The rest of the time you will be required to study on your own.
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 Course Overview
Strategic Management

Study skills

As an adult learner your approach to learning will be different to that from your
school days: you will choose what you want to study, you will have professional
and/or personal motivation for doing so and you will most likely be fitting your
study activities around other personal or domestic responsibilities.

Essentially you will be taking control of your learning environment. As a

consequence, you will need to consider performance issues related to time
management, goal setting, stress management, etc. Perhaps you will also need
to reacquaint yourself in areas such as essay planning, coping with exams and
using the web as a learning resource.

Your most significant considerations will be time and space i.e. the time you
dedicate to your learning and the environment in which you engage in that
learning.

Need help?

For help, please contact the course lecturer, through the contact details to be
given separately from this learning material.

Quizzes/Term Exams

This course would include quizzes and term exams (preliminary, midterm, finals)
to be distributed separately from this module through the use of Google Forms
and/or Facebook Group.

Assessments

There are self-assessments at the end of each unit which should be done by
students after completing each unit.

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 Module 1
Strategic Management

MODULE 1
INTRODUCTION TO STRATEGIC MANAGEMENT
Introduction

This module describes what a strategy is, how it’s formulated, and how it is
implemented. It also looks at the importance in determining which markets
organizations seek to compete in. Finally, the module will also look at strategic
management process which includes a strategy analysis, formulation and
implementation. The module will end with the discussion of a strategic
management framework which will be useful for navigating subsequent modules.

Learning Objectives

Upon completion of this module you will be able to:

 Explain what is meant by strategy

 Describe a strategic management process

 Understand the characteristics of strategic decisions

 You will understand that strategic management activities are

undertaken at three levels: corporate, business and functional.

 Discuss the role of values, vision and mission statements

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Module 1: Introduction to Strategic Management

INTRODUCTION
The word strategy has entered the field of management more recently dating back 40
years. At first, the word was used in terms of Military Science to mean what a manager
does to offset actual or potential actions of competitors. The word is still being used in
the same sense, though by few only. Originally, the word strategy has been derived
from Greek ‘Strategos’, which means generalship. The word strategy, therefore, means
the art of the general. The word was born out of military conflict and the use of a
superior strategy enabled one warring party to defeat another.

There is an agreement that the role of strategy is to achieve competitive advantage for
an organization. Competitive advantage may usefully thought of as that which allows an
organization to meet customer’s needs better than its rivals. The use of strategy in
decision making is the primary way in which managers take account of a constantly
changing external environment. An effective strategy allows them to use their
organization’s resources and capabilities to exploit opportunities and limits threats in the
external environment.

What is strategy?

There are so many definitions of strategy. Originally, the term was used to describe the
patterns of decisions that determined a company’s goals produced the principle policies
for achieving these goals and defined the range of businesses the company wants to
pursue.

Porter (1996) asserts that ‘competitive strategy is about being different. This means that
deliberately choosing a different set of activities to deliver a unique mix of value’. Kay
(1993) described strategy of an organization as the match between its internal
capabilities and its external relationships. The match between what an organizations is
particularly capable of doing and its relationship with its stakeholders. Here is an
example of a hypothetical business strategy statement.

Our strategy is to leverage our know-how in the formulation and manufacture of

polymer-based composites, concentrating on geographic areas in Southern
Africa where demand is growing and we can provide superior technical support.
We seek niche applications in market segments where we can design
differentiated products.

Strategy is simply an outline of how the business intends to achieve its goals. The goals
are the objectives. Therefore the strategy sets out the route to achieve the company’s
objectives. Strategy as a decision-making process is defined as: Those decisions which
have high medium-term to long-term impact on the activities of the organization,

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including the implementation of those decisions, to create value for customers and key
stakeholders and to outperform competitors

Why have strategies?

 A genuine strategy is always needed when the potential actions or responses of

intelligent opponents can seriously affect the endeavor’s outcome – regardless of
that endeavor’s organizational level in the total enterprise.
 Strategies may be looked at as either a priori statements to guide action or a
posteriori results of actual decision making.

What is Strategic management?

If a strategy allows an organization to match its resources and capabilities to the needs
of the external environment in order to achieve competitive advantage, the process of
bringing about the strategy is what is called strategic management. Strategic
management is concerned with making decisions about an organizations’ future
direction and implementing those decisions. It is about analyzing the situation facing the
firm, and on that basis of this analysis formulating a strategy, implementing that strategy
and finally evaluation of strategies.

There are four essential phases of strategic management process. In different

companies these phases may have different, nomenclatures and the phases may have
different sequences, however, the basic content remains same. The four phases can be
listed as below.

Figure 1.1 Strategic Management Process

These phases are linked to each other in a sequence as shown in figure 1.1 above. It
may not be possible to draw a clear line of difference between each phase, and the
change over from one phase to another is gradual. The next phase in the sequence
may gradually evolve and merge into the following phase. An important linkage between
the phases is established through a feedback mechanism or corrective action. The
feedback mechanism results in a course of action for revising, reformulating, and
redefining the past phase. The process is highly dynamic and compartmentalization of
the process is difficult. The changeover is not clear and boundaries of phases overlap.

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The elements of strategic management are co-dependent, i.e., in formulating a strategy

an organization must also consider how the strategy will be implemented. Analysis,
formulation and implementation all needs to be considered if the organization’s strategy
is to meet the needs of its environment. The diagram below shows strategic
management model in detail.

Figure 1.2 Strategic Management Model

What are the Benefits of Strategic Management?

Studies have revealed that organizations following strategic management have

outperformed those that do not. Strategic planning ensures a rational allocation of
resources and improves co-ordination between divisions of the organization. It helps
managers to think ahead and anticipate problems before they occur. The main benefit
of the planning process is a continuous dialogue about the organization’s future
between the hierarchical levels in the organization. In short, the most highly rated
benefits of strategic management are:

 Clarity of strategic vision for the organization.

 Focus on what is strategically important to the organization
 Better understanding of the rapidly changing business environment.

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Values, Visions and Mission statements

Vision

Aspirations, expressed as strategic intent, should lead to an end; otherwise they would
just be castles in the air. That end is the vision of an organization or an individual. It is
what the firm or a person would ultimately like to become. For instance, some of you,
say in 10 years, or may be even earlier, would like to become general managers
managing an SBU in a large, diversified multinational corporation. Or some others
among you would like to believe that you will be an entrepreneur in 2022, owning your
own company dealing with management services and employing cutting edge
technology to serve global clientele. A firm thinks like that too. A vision, therefore,
articulates the position that a firm would like to attain in the distant future. Seen from this
perspective, the vision encapsulates the basic strategic intent.

A vision is often associated with the founder of the organization and represents a
desired state that the organization aspires to achieve in the future.

In contrast with the goals and objectives, a vision does not change over time. A vision
must tap into the personal goals and values of the organization’s employees if it is to be
internalized by them. When it bears little resemblance to reality, disregards the
capabilities of the organization, and the problems of the organization, it will be rejected
by employees.

What are the benefits of having a vision?

Many management authors point out the several benefits accruing to an, organization
having a vision. Here is what they say:

 Good visions are inspiring and exhilarating

 Visions represent a discontinuity, a step function and a jump ahead so that the
company knows what it is to be

 Good visions help in the creation of a common identity and a shared sense of
purpose

 Good visions are competitive, original and unique. They make sense in the
market place, as they are practical

 Good visions foster risk taking and experimentation

 Good visions foster long term thinking.

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 Good visions represent integrity; they are truly genuine and can be used for the
benefit of people.

Mission Statement

While the essence of vision is a forward looking view of what an organization wishes to
become, mission is what an organization is and why it exists. Drucker (1995) argues
that a mission statement is the same as asking the questions: What business are we in?
What will it be? And what should it be? These three questions, though simply worded,
are in reality the most fundamental questions that any organization can put to itself. The
answers are based on the analysis of the underlying needs of the society that any
organization serves to fulfill. The satisfaction of that need is, then, the business of the
organization.

Organizations relate their existence to satisfying a particular need of the society. They
do this in terms of their mission. Mission is a statement, which defines the role that an
organization plays in a society. It refers to the particular needs of that society, for
instance, its information needs. A book publisher and a magazine editor are both
engaged in satisfying the information needs of society but they do it through different
means. A book publisher may aim at producing excellent reading material while a
magazine editor may strive to present news analysis in a balanced and unbiased
manner. Both have different objectives but an identical mission.

Characteristics of a Mission Statement

Organizations legitimize themselves by performing some function that is valued by

society. A mission statement defines the basic reason for the existence of that
organization. Such a statement reflects the corporate philosophy, identity, character,
and image of an organization. It may be defined explicitly or could be deduced from the
management’s actions, decisions, or the chief executive’s press statements. When
explicitly defined it provides enlightenment to the insiders and outsiders on what the
organization stand for. In order to be effective, a mission statement should possess the
following seven characteristics.

 It should be feasible. A mission should always aim high but it should not be an
impossible statement. It should be realistic and achievable its followers must find
it to be credible. But feasibility depends on the resources available to work
towards a mission. In the sixties, the US National Aeronautics and Space
Administration (NASA) had a mission to land on the moon. It was a feasible
mission that was ultimately realized.

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 It should be precise. A mission statement should not be so narrow as to restrict

the organization’s activities nor should it be too broad to make itself meaningless.
For instance, ‘Manufacturing bicycles’ is a narrow mission statement since it
severely limits the organization’s activities, while mobility business’ is too broad a
term, as it does not define the reasonable contour within which the organization
could operate.

 It should be clear. A mission should be clear enough to lead to action. It should

not be a high sounding set of platitudes meant for publicity purposes. Many
organizations do adopt such statements but probably they do so for emphasizing
their identity and character.

 It should be motivating. A mission statement should be motivating for members

of the organization and of society, and they should feel it worthwhile working for
such an organization or being its customers. A bank, which lays great emphasis
on customer service, is likely to motivate its employees to serve its customers
well and to attract clients. Customer service therefore is an important purpose for
a banking institution.

 It should be distinctive. A mission statement, which is indiscriminate, is likely to

have little impact.

 It should indicate major components of strategy. A mission statement along

with the organizational purpose should indicate the major components of the
strategy to be adopted.

 It should indicate how objectives are to be accomplished. Besides indicating

the broad strategies to be adopted a mission statement should also provide clues
regarding the manner in which the objectives are to be accomplished.

Goals and Objectives

The next step for the company, after formulating the mission statement, is the
establishment of major goals. The goals designate specific results the businesses want
to achieve. In this context, the purpose of goals is to specify, as accurately as possible,
as to what is to be done, if the company is to attain its mission. They refer to qualitative
intentions in the same time frame. Goals are more specific than the mission but less
specific than objectives.

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Objectives define and refine the goals further. The objectives refer to short and medium
quantitative targets. Strategic goals help managers to establish end results of activities
in general without getting bogged down in issues of measurement and timing.

Values

The core values are organization’s essential and enduring tenets which will not be
compromised for financial expediency and short-term gains. They do not shift as
competitive conditions change but remain largely inviolatea. More than that, it will attract
individuals to these types of organizations in the first place.

Strategic management is also concerned with understanding the strategic position of an

organization, strategic choices for the future and managing strategy in action (Johnson
et al, 2008).

The Strategic Position (where are we now?)

This is concerned with identifying the impact on strategy of the external environment, an
organization’s strategic capability (resources and competences) and the expectations
and influence of stakeholders.

Strategic Choices/Options (How do we get there?)

According to Johnson et al (2008), strategic choices involve the options for strategy in
terms of both the directions in which strategy might move and the methods by which
strategy might be pursued. For example an organization might have to choose between
alternative diversification moves (entering into new products and markets). As it
diversifies, it can also choose the method of either developing the product itself or
acquiring the organization active in that area.

Within the generic strategic option identified for the organization, there are probably
several directions, identified in the list at the beginning of this section, that are possible
for the organization to take in order to develop its competitive position. By what criteria
can an organization judge the relative merits of strategic directions?

The following categories of evaluation criteria may be used by organizations:

 Suitability: how well does the strategy fit the situation identified by the ‘where are
we now?’ analyses? How well does it match the findings of the SWOT analysis?
How well does it match the culture of the organization?

 Feasibility: is this strategy achievable in resource terms? Do we have the

necessary expertise, technology, access to materials and so on?

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 Acceptability: will this give the results that the stakeholders want? Is the level of
risk acceptable?

Within each of these categories of criteria are many techniques that can be used to test
the strategic options under consideration. In the classical perspective it is understood
that carrying out these analyses will make the future more predictable and the choice of
strategy more likely to be the ‘right’ one.

Strategy in Action

This is about ensuring that strategies are working in practice by considering the strategy
development process, structuring, resourcing, strategic change and actual practice of
strategy.

TYPES OF STRATEGY

There are three basic levels of strategy that interest organizations. These are corporate
strategy, business strategy and functional strategy. These are described below.

Corporate Level Strategy

Corporate level strategy occupies the highest level of strategic decision-making and
covers actions dealing with the objective of the firm, acquisition and allocation of
resources and coordination of strategies of various SBUs for optimal performance. Top
management of the organization makes such decisions. The nature of strategic
decisions tends to be value oriented, conceptual and less concrete than decisions at the
business or functional level. Corporate strategy can be defined as the way a company
creates value through the configuration and coordination of its multimarket activities.

Business-Level Strategy

Business-level strategy is - applicable in those organizations, which have different

businesses-and each business is treated as strategic business unit (SBU). The
fundamental concept in SBU is to identify the discrete independent product/market
segments served by an organization. Since each product/market segment has a distinct
environment, an SBU is created for each such segment. For example, Madson group of
companies operates in insurance, general services, investment, financial services etc.
For each product group, the nature of market in terms of customers, competition, and
marketing channel differs. There-fore, it requires different strategies for its different
product groups. Thus, where SBU concept is applied, each SBU sets its own strategies
to make the best use of its resources (its strategic advantages) given the environment it
faces. At such a level, strategy is a comprehensive plan providing objectives for SBUs,

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allocation of re-sources among functional areas and coordination between them for
making optimal contribution to the achievement of corporate-level objectives. Such
strategies operate within the overall strategies of the organization. The corporate
strategy sets the long-term objectives of the firm and the broad constraints and policies
within which a SBU operates. The corporate level will help the SBU define its scope of
operations and also limit or enhance the SBUs operations by the resources the
corporate level assigns to it. There is a difference between corporate-level and business
level strategies. In other words, business strategy relates to the ‘how’ and corporate
strategy to the ‘what’. Corporate strategy defines the business in which a company will
compete preferably in a way that focuses resources to convert distinctive competence
into competitive advantage.’ Corporate strategy is not the sum total of business
strategies of the corporation but it deals with different subject matter. While the
corporation is concerned with and has impact on business strategy, the former is
concerned with the shape and balancing of growth and renewal rather than in market
execution.

Functional-Level Strategy

Functional strategy, as is suggested by the title, relates to a single functional operation

and the activities involved therein. This deals with decisions according to functional lines
such as R&D, marketing, production, finance etc. Decisions at this level within the
organization are often described as tactical. Such decisions are guided and constrained
by some overall strategic considerations. Functional strategy deals with relatively
restricted plan providing objectives for specific function, allocation of resources among
different operations within that functional area and coordination between them for
optimal contribution to the achievement of the SBU and corporate-level objectives.
Below the functional level strategy, there may be operations-level strategies as each
function may be divided into several sub functions. For example, marketing strategy, a
functional strategy, can be subdivided into promotion, sales, distribution, pricing
strategies with each sub function strategy contributing to functional strategy. Strategies
at all the three levels are interlinked in which a higher level strategy generates a lower-
level strategy and a lower-level strategy contributes to the achievement of the objectives
of higher-level strategy.

The diagram below shows the three types or levels of strategy.

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Figure 1.3 Levels of Strategies

STRATEGIC MANAGEMENT FRAMEWORK

This framework helps to structure our thoughts and navigates around the different
aspects of strategic management. For example, if the purpose of strategy is to enable
an organization to achieve a sustainable competitive advantage, then any framework
needs to address the process necessary for this. The framework will include the
analysis of the organizations external environment and its internal resources and
capabilities as shown in the figure below.

Values are important in strategy making process because they determine the goals the
organization sets, the resources and capabilities it requires and the structures and
processes necessary to achieve those goals. From the framework it can be seen that
organization’s goals will reflect its internal strength and weaknesses and the
opportunities and threats within its internal environment. Stakeholders are those
individuals and groups (in the internal and external environment) who are impacted by
the behavior of the organization and whose own behavior can, in turn, have an impact
on the organization’s strategy. The framework link the strategy and the internal since
each new strategy adopted should meet the organization’s goals and values. There is
also a link between an organization and its external environment since its values will
determine the types of markets it will and will not operate within (Henry, 2008).

Figure 1.4 below shows the importance of values in the strategy-making process.

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Figure 1.4 Importance of Values in the Strategy Making Process

Module summary

In this module you learned that:

 The word strategy was used in terms of Military Science to mean what a
manager does to offset actual or potential actions of competitors.

 Strategy is simply an outline of how the business intends to achieve its goals and
that the strategy sets out the route to achieve the company’s objectives.

 Strategic management is concerned with making decisions about an

organizations’ future direction and implementing those decisions

 There are three basic levels of strategy that interest organizations. These are
corporate strategy, business strategy and functional strategy.

 Values are important in strategy making process because they determine the
goals the organization sets, the resources and capabilities it requires and the
structures and processes necessary to achieve those goals

 The framework of strategic management helps to structure our thoughts and

navigates around the different aspects of strategic management

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