Module 1

The Nature of
Strategic Management

CBME2
Strategic Management

to your first module!

This module is a combination of

synchronous & asynchronous learning
and will last for two weeks

Feb. 25, 2023

Date Initiated
March 11, 2023
Date of Completion
 MODULE 1
The Nature of Strategic Management Overview

Table of Contents

MODULE OUTLINE
MODULE DURATION ................................................................................................................................................................................ 3
LEARNING OBJECTIVES .......................................................................................................................................................................... 3
LEARNING ACTIVITIES ............................................................................................................................................................................ 3
ASSESSMENT/EVALUATION ................................................................................................................................................................... 4
ASSIGNMENT............................................................................................................................................................................................ 4
LEARNING RESOURCES ......................................................................................................................................................................... 4

MODULE PROPER
INTRODUCTION ........................................................................................................................................................................................ 5
What is Strategy ......................................................................................................................................................................................... 5
Strategic Management ............................................................................................................................................................................... 5
Who is the Strategist? ................................................................................................................................................................................ 5
Strategic Managers ...................................................................................................................................................................... 6
A Brief History of the Concept .................................................................................................................................................................... 7
The Basis of Strategy: Structure ................................................................................................................................................................ 8
Different Structures of Strategy .................................................................................................................................................... 8
Different Strategic Perspectives ................................................................................................................................................. 10
The Strategy-making Process .................................................................................................................................................................. 10
Strategic Leadership ................................................................................................................................................................................ 13
Benefits of Strategic Management ........................................................................................................................................................... 15
Why some firms do no Strategic Planning?.............................................................................................................................................. 16
References ............................................................................................................................................................................................... 17

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 THE NATURE OF STRATEGIC MANAGEMENT
MODULE 1 OUTLINE

MODULE DURATION

I. February 25 to March 11, 2023 Synchronous Meeting

II. Our online class is every Saturday from 2:30 pm to 5:30 pm

LEARNING OBJECTIVES

After completing this module, you are expected to:

I. Explain what is meant by strategy;
II. discuss the strategic role of managers at different levels in an organization;
III. identify the main steps in a strategic planning process;
IV. explain the main pitfalls of planning, and how those pitfalls can be avoided; and
V. discuss the role played by strategic leaders in the strategy-making process.

LEARNING ACTIVITIES

1. Group discussion during a synchronous meeting

2. Assignment

Individual activity:

1. As a manager, why does strategy matter?

2. Discuss the accuracy of this statement: Formal strategic planning systems are irrelevant for firms competing in high-
technology industries where the pace of change is so rapid that plans are routinely made obsolete by unforeseen events.

3. Pick the current or a past President of the Philippines and evaluate his performance against the leadership characteristics
comparison, do you think that the President was/is a good strategic leader? Why?

ASSESSMENT/EVALUATION
I.Synchronous Test with a time limit.

A long test link will be provided through our group chat. This is a synchronous test with a time
limit.

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 THE NATURE OF STRATEGIC MANAGEMENT
MODULE 1

INTRODUCTION

Strategy is arguably the most important concept in management studies. Strategy making is arguably the most important activity of a
practising manager. Yet it is a concept difficult to define, and an activity difficult to pursue with effectiveness. There are many people
involved in the process of strategy making. There are also many different ways of interpreting what strategy is. The main aim of the
introductory chapter is to explore the different possible meanings of strategy and to highlight the practical constraints on what strategists
and strategy can do. There are clear practical limitations on what is possible which must be understood from the start.

What is Strategy?

In its simplest conception strategy is regarded as a unifying idea which links purpose and action. For de Wit and Meyer (1998), in an
intelligent treatment of the subject, strategy is any course of action for achieving an organization’s purpose(s). In the words of Alfred
Chandler, the first modern business strategy theorist, strategy in the area of business is defined as ‘the determination of the basic, long-
term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for those
goals’. Although still tentative and preliminary as a definition, it is possible to advance a little further and say that strategy is ‘a coordinated
series of actions which involve the deployment of resources to which one has access for the achievement of a given purpose.’

Strategy therefore combines the articulation of human goals and the organization of human activity to achieve those goals. The setting of
goals involves the identification of opportunity. Strategy is a process of translating perceived opportunity into successful outcomes, by
means of purposive action sustained over a significant
period of time. At a minimum there must be a clear intent
translatable into specific objectives and some defined and
effective means of achieving these objectives by
deliberate action involving the use of resources to which
one has access (Figure 1). Strategy may or may not
reflect a fully self-conscious, deliberative and systematic
approach to the setting of objectives and their
achievement which then require detailed planning. It may
be an implicit or unconscious activity.

Figure 1: The Four Main Elements of Strategy

STRATEGIC MANAGEMENT

Strategic management can be defined as the art and science of formulating, implementing, and evaluating cross-functional decisions that
enable an organization to achieve its objectives. As this definition implies, strategic management focuses on integrating management,
marketing, finance/accounting, production/operations, research and development, and information systems to achieve organizational
success.

Sometimes, the term strategic management is used to refer to strategy formulation, implementation, and evaluation, with strategic planning
referring only to strategy formulation. The purpose of strategic management is to exploit and create new and different opportunities for
tomorrow;long-range planning, in contrast, tries to optimize for tomorrow the trends of today.

WHO IS THE STRATEGIST?

Initially, strategy making assumes the existence of at least one strategist, commonly the chief executive officer, who takes responsibility for
the successful formulation and implementation of strategy. Few commercial enterprises are run as a democracy, and very few not-for-profit
organizations. However, in practice, strategy making is usually done by a large number of people, not just a few. It is often a group activity,
involving cooperation.

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Not all strategists realize that they are strategists. However, with hindsight, strategy making can always be recognized. Strategy is often
conducted in an intuitive way, implicit rather than explicit. Because strategy is universal, embracing a multitude of different activities and
circumstances, appropriate definition is difficult.

Strategic Managers

Managers are the lynch pin in the strategy- making process. It is individual managers who must take responsibility for formulating
strategies to attain a competitive advantage and putting those strategies into effect. They must lead the strategy- making process. Here we
look at the strategic roles of different managers. Later in the chapter we discuss strategic leadership, which is how managers can
effectively lead the strategy- making process.

In most companies, there are two main types of managers: general managers, who bear responsibility for the overall performance of the
company or for one of its major self- contained subunits or divisions, and functional managers, who are responsible for supervising a
particular function, that is, a task, activity, or operation, like accounting, marketing, Research & Development, information technology, or
logistics.

A company is a collection of functions or departments that work together to bring a particular product or service to the market. If a company
provides several different kinds of products or services, it often duplicates these functions and creates a series of self- contained divisions
(each of which contains its own set of functions) to manage each different product or service. The general managers of these divisions
then become responsible for their particular product line. The overriding concern of general managers is for the health of the whole
company or division under their direction; they are responsible for deciding how to create a competitive advantage and achieve high
profitability with the resources and capital they have at their disposal. Figure 2 shows the organization of a multidivisional company, that is,
a company that competes in several different businesses and has created a separate self- contained division to manage each of these. As
you can see, there are three main levels of
management: corporate, business, and functional.
General managers are found at the first two of these
levels, but their strategic roles differ depending on
their sphere of responsibility.

General Managers
Managers who bear responsibility for the overall
performance of the company or for that of one of its
major self-contained subunits or divisions.

Functional Managers
Managers responsible for supervising a particular
function— that is, a task, activity, or operation, like
accounting, marketing, Research & Development,
information technology, or logistics.

Multidivisional Company
A company that competes in several different
businesses and has created a separate, self-
contained division to manage each of them.
Figure 2: Levels of Strategic Management

Corporate- Level Managers

The corporate level of management consists of the chief executive officer (CEO), other senior executives, the board of directors, and
corporate staff. These individuals occupy the apex of decision making within the organization. The CEO is the principal general manager.
In consultation with other senior executives, the role of corporate- level managers is to oversee the development of strategies for the whole
organization. This role includes defining the goals of the organization, determining what businesses it should be in, allocating resources
among the different businesses, formulating and implementing strategies that span individual businesses, and providing leadership for the
entire organization.

Business- Level Managers

A business unit is a self- contained division (with its own functions— for example, finance, purchasing, production, and marketing
departments) that provides a product or service for a particular market. The principal general manager at the business level, or the
business- level manager, is the head of the division. The strategic role of these managers is to translate the general statements of direction
and intent that come from the corporate level into concrete strategies for individual businesses. Thus, corporate- level general managers

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are concerned with strategies that span individual businesses, whereas business- level general managers are concerned with strategies
that are specific to a particular business.

Functional- Level Managers

Functional- level managers are responsible for the specific business functions or operations (human resources, purchasing, product
development, customer service, etc.) that constitute a company or one of its divisions. Thus, a functional manager’s sphere of
responsibility is generally confined to one organizational activity, whereas general managers oversee the operation of a whole company or
division. Although they are not responsible for the overall performance of the organization, functional managers nevertheless have a major
strategic role: to develop functional strategies in their area that help fulfill the strategic objectives set by business- and corporate- level
general managers.

A BRIEF HISTORY OF THE CONCEPT

Today strategy is one of the most commonly used words in management studies, but its use was not, and is not, limited to that area.
Thinking and writing about strategy has a history stretching back far earlier than management studies, a history which is interesting in its
own right. It has been one of the most debated concepts, both in its definition and significance.

The history goes back to Greek and Chinese military thinkers, whose insights it has recently become fashionable to quote. In ancient
Greek the term strategos means an army or its leader. Strategic thinking, in the sense of systematized and institutionalized military
thinking, was revived by German military thinkers during the nineteenth century.

In war the overall aim is obvious, the military defeat of the enemy, but the means of achieving that aim need to be carefully articulated. A
clear distinction is made between strategy and tactics. For example, Carl von Clausewitz (1984) distinguished tactics from strategy: ‘tactics
… [involve] the use of armed forces in the engagement, strategy is the use of engagements for the object of war’. Strategy involves both
the formulation of the overall aim as specific military objectives and the successful implementation of these objectives. It therefore involves
both the marshalling of a wide range of resources to the task and their deployment in a way which maximizes their effectiveness, but also
the simultaneous anticipation of what the enemy will do, given its own resources and its likely knowledge of the enemy’s resources. The
strategy needs to be efficiently implemented, which involves careful preparation, good training and the use of effective tactics. More
attention is often concentrated on the effective use of tactics by, for example, Julius Caesar, Alexander the Great or Napoleon than on their
ability to get the strategy right, the core of which is the repeated concentration of strength in the right place at the right time.

The military link has continued through to the present day. Many still see a parallel between military strategy and business strategy,
drawing a further parallel between tactics and management. The influence of this view clearly underpins the assumptions of the classical
approach to strategy discussed below. While the business enterprise remained small and of low capital intensity and while the invisible
hand of Adam Smith appeared to rule economic life, strategy remained dormant as an idea relevant to the business world. When, in the
second half of the nineteenth century, the large modern business corporation emerged and, alongside it, the visible hand of deliberate
business policy, strategy began its life as a practical application to the business world of a simple principle, shaping one’s own fate. As
enterprises grew larger, they began to try to control market forces and impose their stamp upon their environment. The first real
practitioner in any systematic way was probably Alfred Sloan of General Motors and the first academic commentator was Alfred Chandler
(1962), who chronicled, using a number of comparative treatments, the history of the modern business enterprise. Alfred Chandler’s main
achievement was to explore the implications for strategy of the emergence of the modern corporation. In particular he traced in some detail
the interaction between strategy and organizational structure.

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THE BASIS OF STRATEGY: STRUCTURE

This implies power relationships based on the acceptance of managerial power by subordinates and society – this use of power is termed
the ‘legitimacy’ of management – which Max Weber called its ‘authority’.

All organizations have some form of structure, based on the ‘established pattern of relationships among the individuals, groups, and
departments within it’.

Strategy comprises thinking about action in two different ways:

1. Vertical (rational) thinking - can be thought of as a sequence of direct & logical steps that are used to come a conclusion. It is a
rigid way of thinking. It’s about sticking to approach you have taken from the beginning & excluding any other approach.

2. Lateral (intuitive) thinking - It is about using an indirect & creative approach to come a conclusion. It is flexible. It’s all about
thinking about a problem from different angles, if they’re a bit controversial & generating new approaches to same old thing.

Different Structures of Strategy

1. Functional Structure

This is the most common form of structure. This divides the organization up into its main activities or functions (production, sale,
accounting, and so on) in which all similar specialist activities are grouped together into interdependent departments.

A manager is placed in charge of each function under the overall control of the owner or a senior manager.

Figure 3:Functional Structure

2. Divisional Structure

A divisional structure can help to overcome the limitations

of the holding company and/or a functional structure, as it
contains within it functional specialists but groups its
activities around products or geographical regions.

These two way of grouping activities are supposed to

ensure a closeness to the customer which is not really
possible in a functional structure. It is particularly useful
for large organizations.

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 Figure 4: Divisional Structure

3. Product Structure

People and resources are grouped according to an organization’s products. This enables technical excellence and concentration
on fewer product lines, and a liaison with a smaller set of customers, realizing more creativity in marketing and sales through
focus, teamwork, and goal consensus. This format is used most successfully where there is a variety of products, each
addressing different markets.

General Motors, has specific products – Chevrolet, Cadillac and Pontiac.

4. Geographical Structure

Where organizations have few products, such as IBM, they may group activities according to sales area and be literally closer to
the customer. This enables regional differences to appear in marketing research. In this way, IBM gets to know the details of the
businesses in an area and its sales team focus on local contacts. E.g. meeting senior people from potential clients informally at
the golf club or race track.

5. Matrix Structure

It seeks to add flexibility and lateral

coordination to the traditional vertical
hierarchy. One way of doing is to
create project teams made up of
members drawn from a variety of
different functions or divisions: each
individual then has a dual role, as he or
she maintains functional/divisional
responsibilities as well as membership
of the project team.

Figure 5: Matrix Structure

Different Strategic Perspectives

We have already discussed the four main elements of strategy and the two main ways of engaging in strategic thinking. A strategic
approach also involves a number of distinctive perspectives, which follow from the analysis above. Any strategy lacking the following
perspectives is unlikely to be successful:

 Strategy involves looking into the future, not simply focusing on the present or extrapolating what has happened in the past. It
involves intent, which both establishes a future direction or destination, and the importance of time because that intent cannot be
realized immediately.
 Strategy tries to achieve a balance between flexibility and stability and so avoid either the straitjacket of excessive rigidity or the
anarchy of repeated and random changes of direction.
 Strategy emphasizes asking pertinent question(s) as much as providing the answer(s). This means the finding of a problem
worthy of serious consideration as much as the resolution of marginal problems thrown up by current operations. Others may be

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 happily unaware that a problem exists or that such a question can even be asked. In this way the strategist moves from known
into unknown territory.
 Strategy is complex, dealing in highly intricate systems of cause and effect. It is concerned with what have been called, rather
aptly, ‘wicked problems of organized complexity’.
 Strategy is itself holistic in that it recognizes the many interconnections between superficially different aspects of business activity
and different problems. Strategy integrates all the functional business activities – marketing, finance, human resource
management, information systems – and gives them coherence.
 Strategy is rooted in particular historical experiences – it is always path-dependent, reflecting the experience through which an
organization has reached its present situation.
 Strategy is interactive. The quality of a strategy reflects the degree to which it takes account of the strategies of other players –
competitors, governments and cooperators.

THE STRATEGY-MAKING PROCESS

Now that we know something about the strategic roles of managers, we can turn our attention to the process by which managers formulate
and implement strategies. Many writers have emphasized that strategy is the outcome of a formal planning process and that top
management plays the most important role in this
process. Although this view has some basis in reality, it is
not the whole story. As we shall see later in the chapter,
valuable strategies often emerge from deep within the
organization without prior planning. Nevertheless, a
consideration of formal, rational planning is a useful
starting point for our journey into the world of strategy.
Here we consider what might be described as a typical
formal strategic planning model for making strategy.

A Model of the Strategic Planning Process

The formal strategic planning process has five main

steps:

1. Select the corporate mission and major corporate goals.

2. Analyze the organization’s external competitive environment to identify opportunities and threats.
3. Analyze the organization’s internal operating environment to identify the organization’s strengths and weaknesses.
4. Select strategies that build on the organization’s strengths and correct its weaknesses in order to take advantage of external
opportunities and counter external threats. These strategies should be consistent with the mission and major goals of the
organization. They should be congruent and constitute a viable business model.
5. Implement the strategies.

The task of analyzing the organization’s external and internal environment and then selecting appropriate strategies is known as strategy
formulation. In contrast, strategy implementation involves putting the strategies (or plans) into action. This includes taking actions
consistent with the selected strategies of the company at the corporate, business, and functional level, allocating roles and responsibilities
among managers (typically through the design of organization structure), allocating resources (including capital and people), setting short-
term objectives, and designing the organization’s control and reward systems. These steps are illustrated in Figure 6.

Each step in Figure 6 constitutes a sequential step in the strategic planning process. At step 1, each round or cycle of the planning process
begins with a statement of the corporate mission and major corporate goals. As shown in Figure 6, this statement is shaped by the existing
business model of the company. The mission statement is followed by the foundation of strategic thinking: external analysis, internal
analysis, and strategic choice. The strategy- making process ends with the design of the organizational structure, culture, and control
systems necessary to implement the organization’s chosen strategy.

Some organizations go through a new cycle of the strategic planning process every year. This does not necessarily mean that managers
choose a new strategy each year. In many instances, the result is simply to modify and reaffirm a strategy and structure already in place.
The strategic plans generated by the planning process generally look out over a period of 1 to 5 years, with the plan being updated, or
rolled forward, every year. In most organizations, the results of the annual strategic planning process are used as input into the budgetary
process for the coming year so that strategic planning is used to shape resource allocation within the organization.

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 Figure 6: A Model of a Strategic Management Process

Mission Statement
The first component of the strategic management
process is crafting the organization’s mission
statement, which provides the framework or
context within which strategies are formulated. A
mission statement has four main components: a
statement of the raison d’être of a company or
organization— its reason for existence— which is
normally referred to as the mission; a statement
of some desired future state, usually referred to
as the vision; a statement of the key values that
the organization is committed to; and a statement
of major goals.

For example, the current mission of Microsoft is to

“to enable people and business throughout the world to realize their full potential.” The vision of the company— the overarching goal— is
to be the major player in the software industry. The key values that the company is committed to include “integrity and honesty,” “passion
for our customers, our partners, and out technology,” “openness and respectfulness,” and “taking on big challenges and seeing them
through.” Microsoft’s mission statement has absolutely set the context for strategy formulation within the company. Thus, the company’s
perseverance first with Windows, and now with X- box, both of which took a long time to bear fruit, exemplifies the idea of “taking on big
challenges and seeing them through.”

External Analysis
The second component of the strategic management process is an analysis of the organization’s external operating environment. The
essential purpose of the external analysis is to identify strategic opportunities and threats in the organization’s operating environment that
will affect how it pursues its mission. Three interrelated environments should be examined at this stage: the industry environment in which
the company operates, the country or national environment, and the wider socioeconomic or macro- environment.
Analyzing the industry environment requires an assessment of the competitive structure of the company’s industry, including the
competitive position of the company and its major rivals. It also requires analysis of the nature, stage, dynamics, and history of the
industry. Because many markets are now global markets, analyzing the industry environment also means assessing the impact of
globalization on competition within an industry. Such an analysis may reveal that a company should move some production facilities to
another nation, that it should aggressively expand in emerging markets such as China, or that it should beware of new competition from

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emerging nations. Analyzing the macro- environment consists of examining macroeconomic, social, government, legal, international, and
technological factors that may affect the company and its industry.

Internal Analysis
Internal analysis, the third component of the strategic planning process, serves to pinpoint the strengths and weaknesses of the
organization. Such issues as identifying the quantity and quality of a company’s resources and capabilities and ways of building unique
skills and company- specific or distinctive competencies are considered here when we probe the sources of competitive advantage.
Building and sustaining a competitive advantage requires a company to achieve superior efficiency, quality, innovation, and
responsiveness to its customers.

SWOT Analysis
The next component of strategic thinking requires the generation of a series of strategic alternatives, or choices of future strategies to
pursue, given the company’s internal strengths and weaknesses and its external opportunities and threats. The comparison of strengths,
weaknesses, opportunities, and threats is normally referred
to as a SWOT analysis. Its central purpose is to identify
the strategies that will create a company- specific business
model that will best align, fit, or match a company’s
resources and capabilities to the demands of the
environment in which it operates. Managers compare and
contrast the various alternative possible strategies against
each other with respect to their ability to achieve a
competitive advantage.

Thinking strategically requires managers to identify the set

of strategies that will create and sustain a competitive
advantage:

 Functional- level strategy, directed at improving the effectiveness of operations within a company, such as manufacturing,
marketing, materials management, product development, and customer service.

 Business- level strategy, which encompasses the business’s overall competitive theme, the way it positions itself in the
marketplace to gain a competitive advantage, and the different positioning strategies that can be used in different industry
settings— for example, cost leadership, differentiation, focusing on a particular niche or segment of the industry, or some
combination of these.

 Global strategy, addressing how to expand operations outside the home country to grow and prosper in a world where
competitive advantage is determined at a global level.

 Corporate- level strategy, which answers the primary questions: What business or businesses should we be in to maximize the
long- run profitability and profit growth of the organization, and how should we enter and increase our presence in these
businesses to gain a competitive advantage?

The set of strategies identified through a SWOT analysis should be congruent with each other. Thus, functional- level strategies should be
consistent with, or support, the business- level strategy and global strategy of the company. Moreover, as we explain later in this book,
corporate- level strategies should support business- level strategies.

Strategy Implementation
Having chosen a set of congruent strategies to achieve a competitive advantage and increase performance, managers must put those
strategies into action: strategy has to be implemented. Strategy implementation involves taking actions at the functional, business and
corporate level to execute a strategic plan. Thus implementation can include, for
example, putting quality improvement programs into place, changing the way a
product is designed, positioning the product differently in the marketplace,
segmenting the marketing and offering different versions of the product to
different consumer groups, implementing price increases, or decreases,
expanding through mergers and acquisitions, or downsizing the company by
closing down or selling off parts of the company.

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Strategy implementation also entails designing the best organization structure, culture, and control systems to put a chosen strategy into
action.

The Feedback Loop

The feedback loop in Figure 6 indicates that strategic planning is ongoing: it never ends. Once a strategy has been implemented, its
execution must be monitored to determine the extent to which strategic goals and objectives are actually being achieved and to what
degree competitive advantage is being created and sustained. This information and knowledge is passed back up to the corporate level
through feedback loops and become the input for the next round of strategy formulation and implementation. Top managers can then
decide whether to reaffirm existing strategies, and goals, or suggest changes for the future. For example, a strategic goal may prove to be
too optimistic, and so the next time a more conservative goal is set. Or feedback may reveal that the strategy is not working, so managers
may seek ways to change it.

STRATEGIC LEADERSHIP

One of the key strategic roles of both general and functional managers is to use all their knowledge, energy, and enthusiasm to provide
strategic leadership for their subordinates and develop a high- performing organization. Several authors have identified a few key
characteristics of good strategic leaders that do lead to high performance: (1) vision, eloquence, and consistency, (2) commitment, (3)
being wellinformed, (3) willingness to delegate and empower,
(5) astute use of power, and (6) emotional intelligence.

1. Vision, Eloquence, and Consistency

One of the key tasks of leadership is to give an

organization a sense of direction. Strong leaders seem
to have clear and compelling visions of where their
organizations should go, are eloquent enough to
communicate their visions to others within their
organization in terms that energize people, and
consistently articulate their visions until they become
part of the organization’s culture.

Examples of strong business leaders include Microsoft’s Bill Gates, Jack Welch, the former CEO of GE and Sam Walton,
Walmart’s founder. For years, Bill Gates’ vision of a world in which there would be a Windows- based personal computer on every
desk was a driving force at Microsoft. More recently, the vision has evolved into one of a world in which Windows- based software
can be found on any computing device— from PCs and servers to video game consoles (X- Box), cell phones, and handheld
computers. At GE, Jack Welch was responsible for articulating the simple but powerful vision that GE should be first or second in
every business in which it competed, or exit from that business. Similarly, it was Sam Walton who established and articulated the
vision that has been central to Walmart’s success— passing on cost savings from suppliers and operating efficiencies to
customers in the form of everyday low prices.

2. Commitment

Strong leaders demonstrate their commitment to their vision and business model by actions and words, and they often lead by
example. Consider Nucor’s former CEO, Ken Iverson. Nucor is a very efficient steelmaker with perhaps the lowest cost structure
in the steel industry. It has turned in 30 years of profitable performance in an industry where most other companies have lost
money because of a relentless focus on cost minimization. In his tenure as CEO, Iverson set the example: he answered his own
phone, employed only one secretary, drove an old car, flew coach class, and was proud of the fact that his base salary was the
lowest in the Fortune 500 (Iverson made most of his money from performance- based pay bonuses). This commitment was a
powerful signal to employees that Iverson was serious about doing everything possible to minimize costs. It earned him the
respect of Nucor employees, which made them more willing to work hard. Although Iverson has retired, his legacy lives on in the
cost- conscious organization culture that has been built at Nucor, and, like all other great leaders, his impact will go beyond his
tenure as a leader.

3. Being Well Informed

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 Effective strategic leaders develop a network of formal and informal sources who keep them well informed about what is going on
within their company. Herb Kelleher at Southwest Airlines, for example, was able to find out a lot about the health of his company
by dropping in unannounced on aircraft maintenance facilities and helping workers there to perform their tasks; McDonald’s Ray
Kroc and Walmart’s. Sam Walton routinely dropped in unannounced to
visit their restaurants and stores. Using informal and unconventional
ways to gather information is wise because formal channels can be
captured by special interests within the organization or by gatekeepers,
managers who may misrepresent the true state of affairs within the
company to the leader, such as may have happened at Enron. People
like Kelleher who constantly interact with employees at all levels are
better able to build informal information networks than leaders who
closet themselves and never interact with lower- level employees.

4. Willingness to Delegate and Empower

High- performance leaders are skilled at delegation. They recognize that unless they learn how to delegate effectively they can
quickly become overloaded with responsibilities. They also recognize that empowering subordinates to make decisions is a good
motivation tool. Delegating also makes sense when it results in decisions being made by those who must implement them. At the
same time, astute leaders recognize that they need to maintain control over certain key decisions. Thus, although they will
delegate many important decisions to lower- level employees, they will not delegate those that they judge to be of critical
importance to the future success of the organization under their leadership— such as articulating the vision and business model.

5. The Astute Use of Power

In a now classic article on leadership, Edward Wrapp noted that effective leaders
tend to be very astute in their use of power.36 He argued that strategic leaders
must often play the power game with skill and attempt to build consensus for their
ideas rather than use their authority to force ideas through; they act as members
or democratic leaders of a coalition rather than as dictators. Jeffery Pfeffer has
articulated a similar vision of the politically astute manager who gets things done
in organizations by the intelligent use of power. In Pfeffer’s view, power comes
from control over resources: budgets, capital, positions, information, and
knowledge that is important to the organization. Politically astute managers use
these resources to acquire another critical resource: critically placed allies who
can help a manager attain preferred strategic objectives. Pfeffer stresses that one
does not need to be a CEO to assemble power in an organization. Sometimes
quite junior functional managers can build a surprisingly effective power base and use it to influence organizational outcomes.

6. Emotional Intelligence

Emotional intelligence is a term that Daniel Goldman coined to describe a bundle of psychological attributes that many strong and
effective leaders.

 Self- awareness— the ability to understand one’s own moods, emotions, and drives, as well as their effect on others.

 Self- regulation— the ability to control or redirect disruptive impulses or moods that is, to think before acting.

 Motivation— a passion for work that goes beyond money or status and a propensity to pursue goals with energy and
persistence.

 Empathy— understanding the feelings and viewpoints of subordinates and taking those into account when making
decisions.

 Social skills— friendliness with a purpose

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College of Business and Accountancy

 According to Goldman, leaders who
possess these attributes— who exhibit a
high degree of emotional intelligence— tend
to be more effective than those who lack
these attributes. Their self- awareness and
self- regulation help to elicit the trust and
confidence of subordinates. In Goldman’s
view, people respect leaders who, because
they are self- aware, recognize their own
limitations and because they are self-
regulating consider decisions carefully.
Goldman also argues that self- aware and
self- regulating individuals tend to be more
self- confident and therefore better able to
cope with ambiguity and more open to
change. A strong motivation exhibited in a
passion for work can also be infectious,
helping to persuade others to join together
in pursuit of a common goal or
organizational mission. Finally, strong
empathy and social skills can help leaders earn the loyalty of subordinates. Empathetic and socially adept individuals tend to be
skilled at managing disputes between managers, better able to find common ground and purpose among diverse constituencies,
and better able to move people in a desired direction than leaders who lack these skills.

In short, Goldman’s arguments are that the psychological makeup of a leader matters.

BENEFITS OF STRATEGIC MANAGEMENT

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 respond to) activities—and thus to exert control over its own destiny. Small business owners, chief
executive officers, presidents, and managers of many for-profit and nonprofit organization shave recognized and realized the benefits of
strategic management.

Historically, the principal benefit of strategic management has been to help organizations formulate better strategies through the use of a
more systematic, logical, and rational approach to strategic choice. This certainly continues to be a major benefit of strategic management,
but research studies now indicate that the process, rather than the decision or document, is the more important contribution of strategic
management.

Communication is a key to successful strategic management.

Financial Benefits

Research indicates that organizations using strategic-management concepts

are more profitable and successful than those that do not. Businesses using
strategic-management concepts show significant improvement in the following:

 Sales
 Profitability
 Productivity

Nonfinancial Benefits

Besides helping firms avoid financial demise, strategic management offers other tangible benefits, such as:

 an enhanced awareness of external threats

 an improved understanding of competitors’ strategies

San Mateo Municipal College

College of Business and Accountancy

  increased employee productivity
 reduced resistance to change
 a clearer understanding of performance–reward relationships
 empowered managers and employees

WHY SOME FIRMS DO NO STRATEGIC PLANNING?

Some firms do not engage in strategic planning, and some firms do strategic planning but receive no support from managers and
employees. Some reasons for poor or no strategic planning are as follows:

1. Lack of knowledge or experience in strategic planning—No training in strategic planning.

2. Poor reward structures—When an organization assumes success, it often fails to reward success. When failure occurs, then the
firm may punish.
3. Firefighting—An organization can be so deeply embroiled in resolving crises and firefighting that it reserves no time for planning.
4. Waste of time—Some firms see planning as a waste of time because no marketable product is produced. Time spent on
planning is an investment.
5. Too expensive—Some organizations see planning as too expensive in time and money.
6. Laziness—People may not want to put forth the effort needed to formulate a plan.
7. Content with success—Particularly if a firm is successful, individuals may feel there is no need to plan because
things are fine as they stand. But success today does not guarantee success tomorrow.
8. Fear of failure—By not taking action, there is little risk of failure unless a problem is urgent and pressing. Whenever
something worthwhile is attempted, there is some risk of failure.
9. Overconfidence—As managers amass experience, they may rely less on formalized planning. Rarely, however, is
this appropriate. Being overconfident or overestimating experience can bring demise. Forethought is rarely wasted
and is often the mark of professionalism.
10. Prior bad experience—People may have had a previous bad experience with planning, that is, cases in which plans
have been long, cumbersome, impractical, or inflexible. Planning, like anything else, can be done badly.
11. Self-interest—When someone has achieved status, privilege, or self-esteem through effectively using an old
system, he or she often sees a new plan as a threat.
12. Fear of the unknown—People may be uncertain of their abilities to learn new skills, of their aptitude with new
systems, or of their ability to take on new roles.
13. Honest difference of opinion—People may sincerely believe the plan is wrong. They may view the situation from a
different viewpoint, or they may have aspirations for themselves or the organization that are different from the plan.
Different people in different jobs have different perceptions of a situation.
14. Suspicion—Employees may not trust management.

What we think, know,

or believe in is, in the
end, of little
consequence. The only
consequence . . . is
what we do.

John Ruskin

San Mateo Municipal College

College of Business and Accountancy

References

David, F. R. (2011). Strategic Management Concepts and Cases 13th Edition. Retrieved from Pearson Education:
https://www.pdfdrive.com/strategic-management-d29174092.html

Hill, C. W., & Jones, G. R. (2012). Essentials of Strategic Management 3rd Edition. Washington D.C., USA.

Ritson, N. (2011). Strategic Management. Retrieved from Bookboon:

https://www.kau.edu.sa/Files/0057862/Subjects/Strategic%20Management%20Book.pdf

Virk, T. L. (2019, May 17). Vertical Thinking VS Horizontal Thinking. Retrieved from Medium:
https://medium.com/@tuba.virk2/vertical-thinking-vs-horizontal-thinking-546cad9ce369

Wells, D. L. (2014). Strategic Management for Senior Leaders: A Handbook for Implementation. Retrieved from GovInfo
Library: https://govinfo.library.unt.edu/npr/initiati/mfr/managebk.pdf

White, C. (2004). Strategic Management. Retrieved from Palgrave Macmillan: http://dr-ama.com/wp-

content/uploads/2013/10/Strategic-Management.pdf

San Mateo Municipal College

College of Business and Accountancy