Syllabus

MGT 523: Strategic Management

Objective

The main objective of this course is to familiarize the students with the
fundamentals of strategic management. To succeed in the future, managers must
develop the resources and capabilities needed to gain and sustain advantage in
competitive markets both traditional and emerging.
Prepared by:
Binod Ghimire
1 Binod Ghimire, Ph.D. Lecturer, TU
 Unit 1: Introduction to Strategic Management
 Concept, characteristics and importance of strategic management;
 Evolution of strategic management;
 Paradigm shift in strategic management;
 Concept and characteristics of strategic decisions;
 Approaches to strategic decision making;
 Components of strategic management: strategic planning, strategic
implementation and strategic control;
 Strategy and diversification;
 Strategic plan: mission, objectives, strategies;
 Red ocean strategy versus blue ocean strategy;
 Strategic leadership and role of chief executive officers (CEO) as strategic
leader;

2
Importance of strategic
Binod Ghimire, Ph.D. Lecturer, TU management in Nepal;

 Case discussion
 Basic References
 Jaunch,L., Gupta, R. and Gueck, W. Business Policy and Strategic Management. New
Delhi: Frank Bros. and Company Limited.
 Johnson,G. and Scholas, K. Exploring Corporate Strategy. New Delhi: Prentice Hall
of India.
 Pearce, J.A. and Robinson, R.B. Strategy Formulation and Strategic Management
Implementation. New Delhi: AITBS.
 Wheelen, T.L. and Hunger, J.D. Strategic Management and Business Policy. New
Delhi: Pearson Education.
 Rao, P. S. Business Policy and Strategic Management. Mumbai: Himalaya Publishing
House.
 Hitt M.A., Ireland, R.D., Hoskisson, R.E. Strategic Management, Cengage South-
Western
 Aswatthapa, K. Business Environment for Strategic Management. New Delhi:
Himalayan Publishing House.
 Kazmi, A. Business Policy and Strategic Management. New Delhi: Tata McGraw Hill.
 Rao, P. S. Business Policy and Strategic Management. Mumbai: Himalaya Publishing
3 House.
Binod Ghimire, Ph.D. Lecturer, TU
 Opening Case
 Crispy Biscuit Company(CBC) is one of the pioneer biscuit
company in Nepal. The company, which started operation in
Nepal over twenty years ago with a workforce of about 30
staff, employed 200 people during last ten years.
 With an initial capital of 2 million rupees, the company had
grown to a turnover of 6 million annually.
 As a pioneer company which operated as an import
substitution industry, company had auspicious time favored
by positive attitude of government, people’s changing their
food habit, and the sincerity and loyalty value of the workers.

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  Company had tremendous opportunity to seize the bigger market.
However, the risk averse attitude of the managers abstained the
company to grab the opportunity and rather adopted “ go slow”
strategy .
 It resulted only growth steady but slowly, the company otherwise
could have made rapid and fast growth.
 During the first ten years of its operation, company did not
expand its product lines and operated with the same
organizational structure and management style.
 It failed to notice the undergoing changes in the people’s taste,
consumption pattern, competition, rising income and changing
life style of the urban people.

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  Situation changed during the last decade. Government introduced
liberalization policy which resulted in the flooded inflow of imported
better biscuits in the country at almost same prices as CBC company
was offering.
 Multinational companies with sophisticated technology and improved
marketing network also operated their activities in the country.
 Within few years of time, CBC witnessed a very tough and difficult
situation. Its sales dropped by more than thirty percent causing the
profit to decline sharply.
 Employees turned dissatisfied with the pay and their performance
dropped by more than 20 percent.
 Now the situation become gloomier. Trade unions started agitation for
additional pay and other facilities. Now CBC is in the verge of collapse.

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 Discussion Questions
 What factors favored CBC to grow from a 30 staff company
to a 200 staff organization?
 How do you assess the functioning of CBC?
 What factors do you think responsible for the decline of the
company?
 What measures can be adopted to rescue the company from
the troubles?

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 Concept of Strategy
 MBS fourth semester -----objective
Strategy

 Loosing weight-----Objective
Strategy

Key concept
 Identifying key formula for success
 Getting it on usual practice
 Being distinct from others

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 Strategy is defined as the broad action plan designed to achieve the objectives
of an organization. It is a road map for future. It answers the question of 'How
an organization is going to achieve its objectives. Its main purpose is to search
for competitive advantage.
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  Derived from military principle. (plan of action, responding
quickly in war)
Mintzberg has identified the 5 P’s of strategy.
1. A perspective, a vision and direction, a view of what an
organization is to become.
2. A plan, a “how do I get there”
3. A pattern, in consistent actions over time
4. A position, it reflects the decision of the firm to offer
particular products or services in particular markets.
5. A ploy, a trick intended to be better than a competitor.

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 Concept of strategy
 Strategy is a key planning tool for the smooth running of an
organization and the achievement of its goal of long-term
survival and growth.
 It is regarded as the most important tool of top management
to cope with external environmental challenges.
 Strategies are the long term action plans that seeks to achieve
sustainable competitive advantage. They are formulated and
implemented considering the internal as well as external
factors of the organization.

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 Key characteristics of Strategy
 It is either a plan or a pattern of action set to achieve long
term objective of organizations. Action occurs in a sequence.
 It is about coordinating resources in a unique way both to use
internal competencies and to cope with the shortcomings.
 It is all about planning action with the best coordination to
ensure competitive advantage and getting organizational
success.
 It ensures strategic fit i.e. proper match between the
organizational capabilities with the opportunities in the
environment.

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 The need for strategy
The need for strategy arises due to the following
reasons:
 To defeat new entrants
 To maximize earnings
 To minimize the supplier’s pressure
 To counter substitute products through quality or
product differentiation.
 To acquire a strategic position.

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  Effective use strategy reduces the likelihood of business failure in
today’s competitive business environment. Strategy is concerned
with the following issues:
 Current and future business
 Products to be offered by the business.
 Target customer and market of the business.
 Value to be generated for competitive advantage
 Resource allocation
 Environment adaptation
 Stakeholders’ expectation
 Organizational structure

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 LEVELS OF STRATEGY

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 LEVELS OF STRATEGY
 Corporate level strategy is the overall strategy for the
organization that describes its long term direction and
scope. This level answers the fundamental question of what
an organization want to achieve. Is it stability, growth,
retrenchment, or combination?
 Stability strategy: retain its present strategy or do not
change any strategy
 Growth strategy: win larger market share. common are
market penetration, market development, product
development, and diversification strategy.
 Retrenchment strategy: reduce or eliminate the diversity or
overall size of the operations.
 Combination strategy:
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  Business level strategy: It is the strategy that focuses on achieving
advantage over competitors. It is concerned with strategic business
units (SBU) as large organizations.This level answers the question
of how an organization is going to compete. Will it be through cost
leadership, differentiation, or focus strategy?

 Functional level strategy: It is the day-to-day strategy which is

formulated to assist in the execution of corporate and business
level strategies. It answers the question of how an organization is
going to grow. Will it be through the improvement in various
functional areas such as production, marketing, HRM, R&D, or so
forth.

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 Red Ocean Vs. Blue Ocean Strategy
 This term is first coined by W. Chan Kim & Renee Mauborgne in 2005.
Red oceans are all the industries existing today with the cut-throat
competition resulting the ocean bloody for the cause of profit and
growth.
Example of a successful execution of a red ocean strategy is a soft drink
industry.

 Blue oceans indicate all the industries none in existence today where the
markets are unexplored and unattained by competition. In Blue ocean,
competition is irrelevant.The main aim of this strategy is to capture
new demand and to make competition irrelevant by introducing an
innovative product or product with superior features.
Example of a successful execution of a blue ocean strategy is the iPod.
When the iPod was introduced in 2001

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 Strategic Management
 Strategic management is defined as the process of
formulating, implementing, evaluating and
controlling strategy to achieve the objectives of
an organization.
 It includes understanding the strategic position of
an organization, strategic choices for the future
and turning strategy into action. .

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  Strategic management is a managerial process of forming
vision, setting objectives, formulating strategies,
implementing strategies, evaluating strategic
performance and making corrective strategic
adjustments to adapt to the changing environmental
forces.
 It ensures best fit between the organization and its
environment and help achieve organizational goal

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 The main purposes of strategic management are:
 To have long-term survival.
 To achieve sustainable competitive advantage.
 To develop appropriate strategies to achieve organizational
objectives.
Characteristics
 Goal oriented process
 Contingency plan
 Primary process
 Top-level management involvement
 Flexibility
 Innovation

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 IMPORTANCE OF STRATEGIC MANAGEMENT
 Provides direction
 Makes proactive
 Enables measurement of progress
 Provide opportunities
 Competitive capability
 Provides financial and non-financial benefits
 Better resource management

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 EVOLUTION OF STRATEGIC MANAGEMENT
 In a static environment, planning works successfully, but in a
dynamic and changing environment plans rarely work. As a
discipline, strategic management was originated in the 1950s
and 60s. Strategic management has slowly developed over a
five decades:
 Budgetary planning and control (1950s – 1960s): During
the 1950s, it focused in the embryonic stage, where the focus
of the top management team was on budgetary planning and
controls and key concepts revolved around financial control.
Used accounting tools such as capital budgeting and financial
planning.

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  Corporate planning (1960s – 1970s): During the 1960s
and 1970s, management teams started focusing on corporate
planning. Most companies initiated corporate planning
departments to plan for growth and diversification and used
forecasting as the primary tool to visualize growth.
Macroeconomic forecasts provided the foundation for the
new corporate planning

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  Emergence of strategic management (1970s – 1980s): By
the 1970s, strategic management started evolving on more
serious note, extending beyond the budgetary planning and
control, and corporate planning, to include positioning
companies in relation to competitors. During this period,
companies analyzed industry to determine attractiveness in
terms of entry barriers, available suppliers, and potential
buyers.

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  The quest for competitive advantage (1980s – 19990s): By
the late 1980s through 1990s, the growth of strategic
management as a separate discipline started taking its own
shape. This can be seen in terms of companies attempting to
secure competitive advantage. Increasingly, the resources and
capabilities of the firm were regarded as the main source of
competitive advantage and the primary basis for
implementing strategy. It was called the resource based view
of the firm.

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  Adapting to turbulence⁄ hyper competition (1990s to till):
The term hyper competition was first used by D’ Aveni in
1994. It explains a relentless mode of competitive behaviors
of the firms to force the competitors out of the industry.
Presence of high level of uncertainty, dynamism,
heterogeneity of the players and hostility. The organizations
started co-opetition which means cooperation between
competing companies.

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 PARADIGM SHIFT IN STRATEGIC MANAGEMENT
 Paradigm shift is defined as the dramatic change in approach
or underlying assumptions. It is a change that happens when
the usual way of thinking about or doing something is
replaced by a new and different way. Factors responsible for
paradigm shift in strategic management are:
 Change in industry boundaries: The boundaries of
industries are changing largely due to the increased
competition, advancement in technologies, and increased
globalization. (finance companies competing with bank)

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  Shifts in mindset: The mindsets of customers are changing. They
preferred products with high-quality, have good brand image, can
be delivered on time, transacted through online, unique, and
innovative rather than traditional thoughts of products with low
price. Today’s customers are more informed, educated, and are
conscious about health, lifestyle, and brand image
 Hyper Competition: Today, there is a hyper competition in any
business. Hyper competition is a situation in which there is a
tough competition between companies, markets instability,
environmental uncertainties, and new entrants can explode the
established markets of previously dominant firms.

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  Deregulation and privatization:Today, deregulation and
privatization has created both opportunities and threats to
businesses. Deregulation is the process of removing or
reducing government rules and regulations in industries in
order to increase efficiency. Similarly, privatization is the
process of transferring ownership or business from
government to private sector.

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  Corporate social responsibility (CSR) and sustainability:
Today, a strategic approach to CSR is increasingly important
to company’s competitiveness. If companies want to sustain
in today’s competitive environment, they should be
responsible for society.

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 Strategic Decision
 Strategic decision is the process of selecting the
best strategy for competitive advantage. It
determines the scope and direction of an
organization.
 Strategic decisions are the decisions made by top
level management to select the best strategy
among alternative strategies by considering
various factors such as policies, available
resources and the insights of the strategists.
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 Features of Strategic Decision
 Non programmed
 Involvement of top management
 Rare
 Define scope
 Strategic fit
 Competitive advantage
 Different from administrative and operational
decisions
 Complex

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 APPROACHES TO STRATEGIC DECISION
 Intuitive-emotional approach: In this approach, decisions
are based on intuition. Decision maker prefers habit or
experience, relative thinking, and instinct using the
unconscious cognitive process to make the decisions.
 Rational-analytical approach: In this approach, decision is
based on rationality. Decision maker is assumed as a unique
actor who believes intelligently and rationally. S/he is fully
aware of all available feasible alternatives.

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  Satisfying approach: In this approach, decision is based on
satisfying level of decision maker. Satisfying means choosing
the first alternative that meets the decision maker’s minimum
standard of satisfaction.
 Political-behavioral approach: In this approach, decision is
made by considering the influence of government,
customers, trade unions, suppliers, and other stake holders.

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 COMPONENTS OF STRATEGIC MANAGEMENT
 Strategic Planning: This is the first step in strategic
management. Strategic planning is a long run plan of an
organization that establishes its direction i.e. vision, mission,
objectives, and strategies.
Strategic planning mainly involves:
Development of vision, mission, and objectives.
The analysis of internal and external environment of the
organization.
The generation of strategic options, evaluation, and selection
of strategies.

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  Strategic Implementation: This is the second step in strategy
implementation.
Strategy implementation is the process of putting
organization’s strategies into action to achieve the objectives
by setting annual or short-term objectives, allocating
resources, developing programmes, policies, structures,
functional strategies etc.

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  Strategic Control: Strategy evaluation is the process of
determining or testing the effectiveness of a strategy
implementation in achieving the organizational objectives.

Evaluation and control is a process of comparing the actual

performance with the set standards of the company to ensure
that activities are performed according to the plans and if not
then taking corrective action.

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 STRATEGIC PLAN
 Strategic plan is a long run plan of an organization that
establishes its direction i.e. vision, mission, objectives, and
strategies. It determines exactly where an organization is
going over the next few years and how it is going to get
there.
 Components or tools of strategic planning are: vision
statement, mission statement, and objectives.

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 Vision statement: A vision is a big picture of “What” the organization wants to achieve in
future. Vision answers the question of “Where the organization wants to be in the future?”
For example, vision of the dairy business would be 'A successful family dairy business.'

Mission statement: A mission statement is a concise explanation of the

organization's reason for existence. It describes the organization's purpose and its overall intention.
A mission statement is similar to a vision statement, but includes more specific details on actions.
For example, mission of the dairy business would be ' To provide unique and high-quality dairy
products to local consumers. '

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  Objectives: Objectives are an organization‘s performance
targets—the results management wants to achieve. They are the
end results of a planned activity and are stated in quantifiable
terms.
 For example, objective of the dairy business would be ' Earn at
least a 20 percent after-tax rate of return on our investment
during the next fiscal year.'
 Strategies: Strategies are broad action plans to achieve the
objectives. These are statement of how an organization is going to
achieve the objectives. The more unique the organization, the
more creative and innovative organization need to be in crafting
strategies.
 For example, strategies of the dairy business would be 'advertising,
hiring skilled employees, economies of scales.'

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 STRATEGIC LEADERSHIP
 Strategic leadership can be defined as the manager’s ability to
develop a strategic vision for the organization and motivate
employees to acquire that vision.
 The main objectives of strategic leadership are to streamline
processes, boost strategic productivity, promote innovation
and cultivate an environment that encourages employees to
be productive, independent and to push forward their own
ideas.

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 Characteristics of strategic leadership
 Commitment
 Willingness to delegate and empower
 Future oriented
 Communicator
 Inspiring
 Judicious use of power
 Well informed

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 ROLES OF CHIEF EXECUTIVE OFFICER
(CEO) AS STRATEGIC LEADER
 The chief executive officer (CEO) is the most important
strategist who is responsible for all aspects of strategic
management viz., strategy formulation, implementation and
evaluation.

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 CEO’s Role in Strategy Formulation

Strategy formulation refers to the process of choosing the most appropriate strategies to
achieve the objectives. The roles of CEO in strategy formulation are:

Key strategist role:While formulating strategy, CEO plays the role of chief architect
in defining strategic vision, mission, and objectives of the group. Similarly, s/he also
crafts strategies to achieve the objectives.
Decision making role:While formulating strategy, CEO initially gathered and
analyzed information from internal and external environment to make strategic
alternatives or options and then makes decision for strategic choice or strategy
formulation from these strategic options.
Resource planning role:While formulating strategy, CEO makes action plans for
required resources to implement the best strategies. These resources can be 5M
word model: Manpower, Machines, Materials, Money, and Methods. Plans for
required resources can be made organization wide or strategic business unit or functional
level.

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 CEO’s Role in Strategy Implementation

Strategy implementation is the process that puts plans and

strategies into action to research the desired goals. The roles
of CEO in strategy implementation are:
Resource manager role:While implementing strategy,
resources are required. CEO ensures effective and efficient
mobilization, allocation, and utilization of resources for
implementing strategy. Resources can be 5M word model:
Manpower, Machines, Materials, Money, and Methods.

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 Cont…
Informational role:While implementing strategy, effective
communication serves as the key. Proper flow of information in the
organizational structure is the must to implement strategy. CEO
disseminates information about the strategy from top level to lower level
staffs.
Organizer role:While implementing strategy, organizational
structure, authority, responsibility, and span of control should be well
defined. All of these are determined by CEO in the organization. S/he
establishes organizational structure, span of control, authority, and
reporting relationships to implement the strategy.
Leadership role:While implementing strategy, CEO should inspire,
motivate, build trust, and provide direction to the employees. Similarly,
s/he should create favourable working environment and also ought to
manage conflicts and changes.

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 CEO’s Role in Strategy Evaluation

Strategy evaluation is the process of determining the effectiveness of a given

strategy in achieving the organizational objectives and taking corrective action
whenever required.

The role of CEO in strategy evaluation are:

Strategic control role: While evaluating and controlling strategy, CEO
conduct continuous assessment of changing environment to uncover events that
considerably influence the course of strategy. For strategic control, CEO
perform the following activities: Setting standard, Performance measurement,
and Taking corrective action
Special alert control role: While evaluating and controlling strategy, CEO
monitors sudden and unexpected events that may influence strategy. S/he
provides response through reassessment of strategy during crisis situation.
Strategic surveillance role: While evaluating and controlling strategy,
CEO monitors the broad range of both internal and external forces of
organization not previously identified that may affect the course of strategy.

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 IMPORTANCE OF STRATEGIC
MANAGEMENT IN NEPAL
 i. Makes proactive
 ii. Provides strategic fit
 iii. Provides direction
 iv. Support long-term plans
 v. Understand environmental dynamics
 vi. Align strategy with management practices
 vii. Have competitive advantage
 viii. Acceptance of organizational change

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