Arsi University

College of Business and Economics

Department of Management
MBA Program

Strategic Management (MBA 733)

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By: Nuru Mohammed (Ph.D.)

2022/2023
Asella, Ehiopia
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Chapter 1
Strategic Management Essentials
 Chapter Objectives:
At the end of this chapter you should be able to;
Define key terms in SM.
Describe the SM process.
Illustrate the comprehensive SM mode
Describe the benefits of engaging in SM.
Describe the pitfalls in actually doing strategic planning.
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“Greater is an army of sheep led by a lion, than an army of

lions led by a sheep.”
-Alexander The Great

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 1.1 Introduction
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 The term SP originated in the 1950s

 Popular between the mid-1960s and the mid-1970s.
 Believed to be the answer for all problems.
 It was cast aside during the 1980s
 As various planning models did not yield higher returns.
 The 1990s, brought its revival
 Many companies today have a chief strategy officer (CSO).

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 Continued…
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Nuru M. (Ph.D.)
 1.2.What is Strategy?
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 The word strategy comes from the Greek “strategos”, which refers to a
military general and combines “stratos” (the army)
 Strategy formerly refers to planning and managing an operation for a
particular purpose such as in a war.
 A typical dictionary will define the word strategy as something that has
to do with war and a plan of action to win over the enemy.
 Strategy is about winning

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 1.3 What Is Strategic Management?
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 SM is the art and science of formulating, implementing, and
evaluating cross-functional decisions that enable an organization to
achieve its objectives.
 a company’s game plan
 It helps a firm function as a competitive team
 Focuses on integrating different functional unites to achieve
organizational success.
 long-range planning, in contrast, tries to optimize for tomorrow the
trends of today.
 The purpose SM is to exploit and create new and different
opportunities for tomorrow
 Strategic management (in academia) vs. Strategic planning (in the
business world).
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1.4 Stages of Strategic Management
 SM process consists of three stages:
1. Formulation: includes developing a vision and a mission, identifying SWOT,
setting long-term objectives, generating alternatives and choosing
particular strategies to pursue.
what new businesses to enter?
what businesses to abandon?
whether to expand operations or diversify
whether to enter international markets etc.
2. Implementation (action stage): requires a firm to establish annual
objectives, devise policies, motivate employees, and allocate
resources.
Difficult stage in SM
3. Strategy evaluation: Managers desperately need to know when
particular strategies are not working well.
 9 Continued…
 Evaluation a means to check weather the strategy is working or not.
 Three fundamental strategy-evaluation activities
 Reviewing external and internal factors that are the bases for current
strategies
 Measuring performance
 Taking corrective actions

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 1.5 Key Terms in SM
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1. Competitive Advantage: SM is all about gaining and maintaining
competitive advantage.
 Any activity a firm does well compared to activities done by rival firms.
 Any resource a firm possesses that rival firms desire.
 It must be Valuable
 It must be rare
 It must be imperfectly imitable
 Do not have a perfect substitute.
 A firm must strive to achieve sustained competitive advantage by;
 Continually adapting to changes
 Effectively formulating, implementing, and evaluating strategies
2. Strategists (Strategic Manager): individuals most responsible for the
success or failure of an organization.
 Their title includes, CEO, president, owner, chair of the board, executive
director, chancellor, dean, and entrepreneur
 Continued…
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3. Vision and Mission Statements :
 vision statement: answers the question “What do we want to become?”
It is often the first step in SM, preceding even mission statement.
Single sentence.
e.g., the vision statement of Stokes Eye Clinic in Florence, South Carolina, is “Our vision is to
take care of your vision.”
 Mission statements: is statements of purpose that distinguish one business from
other similar firms.
It identifies the scope of a firm’s operations in product and market terms.
It answers “What is our business?”
It describes the values and priorities.

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 Continued…
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4. Opportunities and Threats: refer to External factors (PESTLE) that could
significantly benefit or harm an organization in the future.
 Beyond the control of a single organization.
 They create a different type of consumer and a need for different types of products.
 A basic tenet of SM is take advantage of opportunities and avoid/reduce the impact of threats.

5. Strengths and weaknesses: refers activities that the organization performs

well or poorly.
 They arise in the functional units of a business.
 S&W are determined relative to:
 Competitors.
 Firm’s own objectives.
 past periods and industry averages
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 Continued…
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6. Long-Term Objectives:
 Objectives: specific results needed to be achieved in pursuing a mission.
 Long-term objectives: Objective that takes more than a year to achieve.
It must be challenging, measurable, consistent, reasonable, and clear
7. Strategies: are the means by which long-term objectives will be achieved.
 Require top-management decisions and large amounts of the resources.
e.g., geographic expansion, diversification, acquisition, product development, market
penetration, retrenchment, divestiture, liquidation, and joint ventures.

8. Annual objectives: short-term milestones to reach long-term objectives.

 It should be measurable, challenging, realistic, consistent, and prioritized
 A set of annual objectives is needed for each long-term objective.
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 Continued…
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9. Policies: are the means by which annual objectives will be achieved.

 It guides to decision making and address recurring situations.
 it include guidelines, rules, and procedures to achieve stated objectives.
10. Tactic Vs. Strategy: strategy describes the destination and how you are
going to get there, and tactics describe the specific actions
you are going to take along the way.

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 1.6 The Strategic-Management Model
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 Three important questions to answer in developing a strategic plan are :
 Where are we now?
 Where do we want to go?
 How are we going to get there?
 The process is dynamic and
continuous

 Business ethics, social

responsibility, and
environmental sustainability
issues impact all activities in
the model

Figure 1.1A
Comprehensive
SM Model
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 1.7 Levels of Strategy in Organizations

Corporate-Level Strategy:
What business are we in?
Corporation

Business-Level Strategy:
How do we compete? Means to beat
competition
Textiles Unit Construction Unit Minerals

Functional-Level Strategy:
How do we support the business-level
strategy?

Finance R&D Manufacturing Marketing

 1.8 Business and Military Strategy
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 key aim of both business and military strategy is “to gain competitive
advantage.”
 In many respects, business strategy is like military strategy, and military
strategists have learned much over the centuries that can benefit business
strategists today.
 Both business and military organizations try to use their own strengths to
exploit competitors’ weaknesses.
 Of course, a fundamental difference between military and business
strategy is that business strategy is formulated, implemented, and
evaluated with an assumption of competition, whereas military strategy is
based on an assumption of conflict.

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 1.9 Benefits of Engaging in SM
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 It allows an organization;
 To be more proactive than reactive.
 Formulate better strategies through the use of a more systematic, logical,
and rational approach.
 To insures communication.
 Makes managers and employees creative and innovative
 Empower individuals.
 Financial benefit

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 1.10 Why Some Firms Do No Strategic Planning
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 Reasons (excuses) often given for poor or no strategic planning includes;

 No formal training in strategic management
 No understanding of the benefits of planning
 No monetary rewards for doing planning
 No punishment for not planning
 Too busy with “firefighting”.
 View planning as a waste of time
 Laziness: effective planning takes time and effort; time is money
 Content with current success;
 Overconfidence
 Prior bad experience with strategic planning done sometime/somewhere

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 1.11 Pitfalls in Strategic Planning
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 Here are some;
 Using strategic planning to gain control over decisions and resources.
 Doing strategic planning only to satisfy accreditation or regulatory requirements
 Too hastily moving from mission development to strategy formulation
 Failing to communicate the plan to employees, who continue working in the dark
 Top managers making many intuitive decisions that conflict with the formal plan
 Top managers not actively supporting and participating the process
 Failing to use plans as a standard for measuring performance
 Failing to involve key employees in the process.
 Failing to create a collaborative climate supportive of change
 Viewing planning as unnecessary or unimportant
 Becoming so engrossed in current problems that insufficient or no planning is done
 Being so
Nuruformal
M. (Ph.D.) in planning that flexibility and creativity are stifled
 1.12 How to Gain and Sustain Competitive Advantages
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Any Question?
Nuru M. (Ph.D.)