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PAN African e-Network Project

Diploma in Business Management


Strategic Management
Session - 1

Vivek Singh Tomar

Session-1
Learning Objectives:
The objective of this course is to familiarize the students
with the core concepts, process and framework of
Strategic Management and to develop among them an
understanding of:
Strategy and its significance at Corporate Level, Business
Level and Functional/Operational Level Planning of
Business Organizations
Strategic Management Process and various issues
pertaining to different steps of Strategic Management
Process
Technique of Environmental appraisal and analysis
followed by internal organizational analysis
Application of Strategic Management framework in real
life case analysis involving formulation, implementation,
evaluation and control of strategies

Module-1 (Contents)
Managerial Challenges and Management
Concerns
Concept of Planning
Understanding Strategy
Understanding Strategic Management and
Strategic Management Process
Framework of Strategic Position, Strategic
Choices and Strategy into action
Levels of Strategy
Strategic Leadership

Managerial Challenges
Start up Challenges

Progress Challenges

Think Big

Forget

Start Small

Borrow

Scale up

Learn

Evolution of Management Concerns

Focus

Operation

Resources

Concern

Efficiency

Risk

Position

Execution

Renewal

Long
Range
Planning

Strategy

Excellence
in
Execution

Innovation

Phase-III
1980s

Phase-IV
1990s

Phase-V
2000
onwards

Budgeting
Response
&
Procedures

Phase-I
1950s

Phase-II
1960s &
1970s

Conception Performance

Change

Concept of Planning
Defining the organizations goals,
establishing an overall strategy,
and developing a hierarchy of
plans to achieve goals

The most popular ways to describe plans are by their


- breadth (strategic versus tactical)
- time frame (long term versus short term)
- specificity (directional versus specific) and
- frequency of use (single use versus standing)
These classifications are not mutually exclusive.
Top-level managers typically develop strategic plans that
apply to the entire organization. These plans drive the
organizations efforts to achieve its goals. Lower-level
managers focus on tactical plans (sometimes called
operational plans) that specify how the overall objectives
will be achieved. These plans differ in time frame and
scope: operational plans are limited in scope and are
measured daily, weekly, or monthly; strategic plans are
broader, less specific and encompass five or more years.

Planning can be either formal or informal, depending on the


time frame and amount of documentation. Because of the
dynamic and unpredictable business environment, it is
important that managers plan and plan well. There are four
reasons for planning.
First, planning coordinates effort by giving direction to
managers and non-managers.
Second, planning reduces uncertainty by forcing managers
to look ahead, anticipate change, and develop appropriate
responses.
Third, planning reduces redundancy.By coordinating
efforts, wasteful and inefficient activities can be prevented.
Fourth, planning establishes standards or objectives that
facilitate control over the process of achieving goals.

Concept 1: Organisations need a planning


architecture.

A planning architecture is an overview of how


different planning processes fit together.
It identifies:
different types of plan
the time horizon of each
when they have to be completed
time allowed for preparing the plan
the frequency of updating
who is responsible
how the different plans fit together.

A Planning Architecture

Concept 2: Planning is an intellectual process.

Concept 3: Planning is a social process.

Understanding Strategy

Strategy, the art of war, is especially the


planning of movement of troops and ships, into
favorable positions; plan of action or policy in
business or policies
Oxford Pocket Dictionary

Strategy is determination of long term goals


and objectives of an enterprise and the adoption
of courses of action and the allocation of
resources necessary for carrying out these
goals

Alfred Chandler
Strategy & Structure

Strategy is a set of managerial decisions and


actions involved in making a major marketcreating business offering

W. Chan Kim
INSEAD Faculty

What Business Strategy is all about is, in one


word Competitive Advantage. The sole
objective of Strategic Planning is to enable a
company to gain, as efficiently as possible, a
sustainable edge over its competitors. Corporate
Strategy thus implies an attempt to alter a
companys strength relative to that of its
competitors in the most efficient way

Kenichi Ohmae

The Mind of the Strategist

STRATEGY IS DEFINED AS THOSE ACTIONS THAT A


COMPANY PLANS, IN RESPONSE TO, OR IN
ANTICIPATION OF, CHANGES IN ITS EXTERNAL
ENVIRONMENT, ITS CUSTOMERS AND ITS
COMPETITORS.

STRATEGY IS A WAY COMPANY AIMS TO IMPROVE ITS


POSITION VIS--VIS COMPETITION.

Strategy narrowly defined as the art of general


(Greek StratAgos).
It defines what we want to achieve & chart out
course of action, to survive & sustain growth in
changing environments.
Strategy is a set of Key decisions made to meet
Objectives.

Domain of Strategy
strategic competitiveness and above normal returns
concerns managerial decisions and actions which materially
affect the success and survival of business enterprises
involves the judgment necessary to strategically position a
business and its resources so as to maximize long-term profits in
the face of irreducible uncertainty and aggressive competition
strategy is the linkage between a business and its current and
future environment

Common Elements in Successful Strategy


Source: Adapted from Robert S. Grant, 1991

Successful
Strategy

EFFECTIVE IMPLEMENTATION

Long-term, simple
and agreed upon
objectives

Profound
understanding of
the competitive
environment

Objective
appraisal of
resources

Thinking Strategically
Answers to the following define an overall
direction for the organization's grand strategy
Where is the organization now?
Where does the organization want to be?
What changes are among competitors?
What courses of action will help us achieve our
goals?

Understanding Strategic
Management

Strategic or institutional management is the


conduct of drafting, implementing and evaluating
cross-functional decisions that will enable an
organization to achieve its long-term objectives
It is the process of specifying the organization's
mission, vision and objectives, developing
policies and plans, often in terms of projects and
programs, which are designed to achieve these
objectives, and then allocating resources to
implement the policies and plans, projects and
programs.

Strategic management is a level of managerial


activity under setting goals and over Tactics.
Strategic management provides overall direction
to the enterprise and is closely related to the
field of Organization Studies
According to Arieu (2007), "there is strategic
consistency when the actions of an organization
are consistent with the expectations of
management, and these in turn are with the
market and the context."

Strategic management is an ongoing process that


evaluates and controls the business and the industries in
which the company is involved; assesses its competitors
and sets goals and strategies to meet all existing and
potential competitors; and then reassesses each strategy
annually or quarterly [i.e. regularly] to determine how it
has been implemented and whether it has succeeded or
needs replacement by a new strategy to meet changed
circumstances, new technology, new competitors, a new
economic environment., or a new social, financial, or
political environment. (Lamb, 1984:ix)

Strategic Management
Managers ask such questions as...
What changes and trends are
occurring?
Who are our customers?
What products or services should we
offer?
How can we offer these products or
services most efficiently?

The Strategic Management Process

Strategic Management Process


Scan External
Environment
National, Global

Evaluate Current
Mission,
objectives,
Strategies

Scan Internal
Environment Core
Competence, Synergy,
Value Creation

Identify Strategic
Factors
Opportunities, Threats

SWOT

Define new
Mission
objectives,
Grand Strategy

Identify Strategic
Factors Strengths,
Weaknesses

Formulate
Strategy
Corporate,
Business,
Functional

Implement
Strategy via
Changes in:
Leadership
culture,
Structure, HR,
Information &
control systems

global socio-cultural
forces

THE BROAD ENVIRONMENT

global technological
forces

THE TASK ENVIRONMENT

competitors
suppliers

THE ORGANIZATION
owners/board of directors
managers
employees

customers
unions

local communities

government

global economic
forces

financial
intermediaries

activists

global political/lega
forces

External Environmental Analysis


The external environment of business may be divided
into two sectors:

Broad
Task
All trends and stakeholders in the external environment
should be analyzed at both the domestic and
international level

Broad Environment
The broad environment consists of domestic and global
forces such as
socio-cultural trends (e.g. demographics)
technological trends (e.g. internet)
political trends (e.g. open markets)
economic trends (e.g. growing economy)
The broad environment forms the context within which
the firm and its task environment exist.

Task Environment
The task environment consists of external
stakeholders -- groups or individuals outside the
organization that are significantly influenced by
or have a major impact on the organization -such as\

Customers
Suppliers
Competitors

Internal Environmental Analysis


Internal stakeholders include managers,
employees and the owners and their
representatives (e.g., board of directors).
Internal analysis includes an evaluation of
internal stakeholders and the organizations
resources and capabilities
Purpose of internal analysis to determine
strengths and opportunities for competitive advantage,
and
weaknesses and organizational vulnerabilities that
should be corrected.

Strategic Direction
Strategic direction involves
setting long-term goals and objectives,
such as mission and vision
defines the purposes for which an
organization exists and operates

Strategy Formulation
Strategy is an organizational plan of action
intended to accomplish goals.
Corporate strategy formulation refers to domain
definition, or the choice of business areas. Usually
decided by the CEO and the board of directors.
Business strategy formulation involves domain
direction and navigation, or how to compete in a
given area. Usually decided by division heads and
business unit managers.
Functional strategy formulation contains the details
of how the functional areas such as marketing,
operations, finance, and research should work
together to achieve the business-level strategy.

Strategy Implementation and


Control
Strategy implementation involves creating the
functional strategies, systems, structures, and
processes needed by the organization in achieving
strategic ends.
Strategic control refers to the processes that lead to
adjustments in strategic direction, strategies, or the
implementation plan when necessary.
Strategic restructuring involves a renewed emphasis
on what an organization does well.

Alternative Perspectives on Strategy


Development
Traditional Strategic Management Process

Situation Analysis--Strengths, Weaknesses,


Opportunities and Threats (SWOT)
Strategies should take advantage of
strengths and opportunities or neutralize
or overcome weaknesses and threats
Environmental Determinism--the best strategy
involves adapting to environmental,
technical and human forces
Strategy is deliberate (always planned and
intended by management)

Alternative Perspectives on Strategy


Development
Contemporary Views

Adaptation--strategy involves submitting to existing


forces.
Enactment--firms can, in part, create their environments.
Deliberate--intended by management (planned)
Emergent--organizations learn as they go by trial and
error. Strategy is the pattern in a stream of decisions.
Stakeholder view

Organizations are at the center of a network of contacts


Increasing use of partnering

Alternative Perspectives on
Strategy Development
Resource-based View

Organization is made up of resources: financial,


physical, human, general organizational
(structure, systems, culture, reputation,
relationships with stakeholders).
Sustainable competitive advantage--Comes from
a resource that is valuable in the market,
possessed by only a small number of firms (rare),
and costly or difficult to imitate in the short term.
Effective development or acquisition of
organizational resources may be the most
important reason that some organizations are
more successful than others.

4 Phases of Strategic Management in a Company

Basic Financial Planning


-(Meeting annual budgets)

Forecasting-based Planning
-(Incorporating predictions
beyond next year)

Externally Oriented Planning


-(Thinking strategically,
Strategic Planning)

Strategic Management

-(Considering also the


implementation & control
aspects when formulating
strategies)

Levels of Strategy

Arrange the following terms in a logical hierarchy:

Company
Division
Strategic Business Unit (SBU)
Corporation
Industry
Value Chain
Person
Department
Market

Arrange the following terms in a logical


hierarchy:
Industry
Value Chain
Company
Department
Person

Corporation
Division / SBU
Company

A market refers to the place


where goods and services are
exchanged.

Functional Strategy supports Business Strategy which in turn


supports the Corporate Strategy

CORPORATE STRATEGY:
Overall Direction of Company and Management of Businesses

BUSINESS STRATEGY:
Competitive & Cooperative Strategies
It occurs at Business unit or Product level.
It emphasizes on improvement of competitive position of

Corporations product & services

FUNCTIONAL STRATEGY:
Maximize Resource Productivity
It is concerned with developing & nurturing a distinctive
competence to provide a company or business unit with a
competitive advantage

ORGANIZATIONAL STRUCTURE
&
LEVELS OF STRATEGY

Corporate
Head Office

Corporate
Strategy

Business
Strategy
Functional
Strategy

Div-B

Div-A

Prod.

HR

Fin.

Div-C

Marketing

Corporate Level Strategy


What businesses are we in? What
businesses should we be in?
Four areas of focus
Diversification management (acquisitions and
divestitures)
Synergy between units
Investment priorities
Business level strategy approval (but not crafting)

Valuable
strengths

Firm
Status

Corporate-Level Strategies
Concentric Diversification
(Economies of
Corporate
Scope)
growth
strategies
Conglomerate
Diversification
(Risk Mgt.)

Corporate
stability
strategies
Corporate
retrenchment
strategies

Critical
weaknesses
Abundant
environmental
opportunities

Can still go for business-level growth


(economies of scale)
Environmental Status

Critical
environmental
threats

Business Level Strategy


How do we support the corporate strategy?
How do we compete in a specific business arena?
Three types of business level strategies:
Low cost producer
Differentiator
Focus

Four areas of focus

Generate sustainable competitive advantages


Develop and nurture (potentially) valuable capabilities
Respond to environmental changes
Approval of functional level strategies

Functional / Operational Level Strategy


Functional: How do
we support the
business level
strategy?
Operational: How do
we support the
functional level
strategy?

An example.
Business L.S.: Become
the low cost producer of
widgets
Functional L.S. (Mfg.):
Reduce manufacturing
costs by 10%
Operational (Plant #1):
Increase worker
productivity by 15%

A Simple Organization Chart


(Single Product Business)
Business
Level
Strategy

Research and
Development
Functional
Level
Strategy

Business

Manufacturing

Marketing

Human
Resources

Finance

A Simple Organization Chart


(Dominant or Related Product Business)
Corporate
Level

Multibusiness
Corporation

Business
Level
Business 1
(Related)

Business 2
(Related)

Business 3
(Related)

Functional
Level
Research and
Development

Manufacturing

Marketing

Human
Resources

Finance

An example of an Unrelated Product Business


(Note: By itself, an SBU can be considered a related
product business)
a single business

SBU:
or collection of related
businesses that is
independent and
formulates its own
strategy

A
(Multi-business)
Corporation

Strategic Business
Unit 1

Company 1

Co. 2

Ex.: G.E. (General


Electric Corp.)

S.B.U.
2

Co. 3

Division 1

Div. 2

Div. 3

Strategic Leadership
1. Define and explain strategic leadership.
2. Define the meaning of a top management team and the
value of having a heterogeneous top management team.
3. Explain the importance of managerial succession.
4. Define human capital and social capital and describe their
value to the firm.
5. Describe an entrepreneurial culture and its contribution to a
firm.
6. Explain the importance of managerial integrity and ethical
behavior.
7. Discuss why firms should have a control system that
balances the use of strategic controls and financial controls.
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Strategic Leadership
Strategic leadership involves developing a
vision for the firm, designing strategic
actions to achieve this vision, and
empowering others to carry out those
strategic actions.
Is strategic leadership important?
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Establishing the Vision &


Mission
Strategic plans are designed for a 3- to 5year period, but a vision is usually targeted
for generally 10- to 20- years.
Contains the firms DNA
Contains a picture of the firm in the future
Defines the firms core intent and the
business(es) in which it operates

The mission flows from the vision.

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Strategic Leadership
Effective strategic leaders can develop a
vision of the future and inspire stakeholders
to commit to sharing it.
Example: Porsche and CEO Wendelin
Wiedeking
Strategic leaders use their team of managers to
help make major decisions esp. to define and
implement a vision for the firm and its strategy.
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Top Management Team


A top management team is the group of
managers charged with the responsibility to
develop and implement the firms strategies.
Generally, the top management team is
composed of officers of the company with
the title of vice president and higher.
Homogeneous team
Heterogeneous team
Example: Nissan and CEO Carlos Ghosn
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Management Succession
Strategic leaders must develop people
who can succeed them.
Example: GE and the Ten-Step Talent
program

Hiring from the inside motivates


employees
Example: PepsiCo and CEO Indra Nooyi
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Management Succession
Most new CEOs selected for the job in an
inside succession are unlikely to change in
any drastic way the strategies designed
under the leadership of the former CEO.
However, when the firm is performing
poorly, it is more common to select an
outside successor.
Example: GE & CEO Lou Gerstner
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Management Succession
Both insiders and outsiders have strengths
and weaknesses depending on the
conditions of the firm.
However, the key is forming a succession plan
and developing a strong set of training
programs for managers so that the firm can
develop internal candidates who have a
strong inside perspective.

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Managing the Resource


Portfolio
Resources are the basis for a firms
competitive advantages and strategies.
Tangible resources
Intangible resources
Financial capital
Example: TiVo and intellectual property
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Managing the Resource Portfolio


Intellectual property is produced by human
capital.
Human capital includes the knowledge and
skills of those working for the firm. Employees
knowledge and skills are critical for all
organizations.
Effective strategic leaders base their
strategies on the human capital in the firm.

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Managing the Resource Portfolio


Social capital is another important resource.
Social capital includes all internal and
external relationships that help the firm
provide value to customers and ultimately to
its other stakeholders.
Internal social capital
External social capital
Social capital is most effective when partners trust
each other (strong ties).

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Managing the Resource


Portfolio
Leaders of today need the essential
qualities of what we now call a CrossEnterprise Leadera leader adept at
building, fostering and influencing a
complex web of relationships across all
levelsfrom employees, partners and
suppliers to customers, citizens, and
even competitors.
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Building an Entrepreneurial
Culture
An entrepreneurial culture encourages
employees to identify and exploit new
opportunities.
encourages creativity and risk taking
tolerates failure
championing innovation is rewarded
Examples: Steve Jobs & Apple
3M
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Promoting Integrity and Ethical


Behavior
Strategic leaders should determine the
boundaries of acceptable behavior; establish the
tone for organizational actions; and ensure that
ethical behaviors are expected, praised, and
rewarded.
Recently, cases in which strategic leaders acted
opportunistically in managing their firms have
been a major concern: Enron & Tyco.
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Promoting Integrity and Ethical


Behavior
Sarbanes-Oxley Act supposed to curtail
CEO/corporate opportunistic behavior.
One form of potential opportunism, related-party
transactions, involves paying a person who has
a relationship with the firm extra money for
reasons other than his or her normal activities
on the firms behalf.
Examples: Steve Jobs and The Ford Motor Company
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Promoting Integrity and Ethical


Behavior
Often worse than opportunistic behavior is
fraud and other unlawful activities by
managers and companies representatives.
Sustained effective outcomes over time are
demonstrated only by leaders who have
integrity and are valued by all the
stakeholders of the firm.
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Using Effective Controls


Controls are necessary to ensure that
standards are met and that employees do not
misuse the firms resources.
Financial controls focus on shorter-term
financial outcomes.
Strategic controls focus on the content of
strategic actions rather than on outcomes.
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Using Effective Controls


Most effective: balanced strategic and financial
controls for long term evaluation of strategy
content.
Balanced Scorecard

Financial (profit, growth, and shareholder risk)


Customers (valued received from products)
Internal business processes (asset use)
Learning & growth (culture of innovation/change)
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Strategic Management
The Evolution

Some Questions

How has the strategy field developed?


How has the thinking in strategy evolved?
How is the thinking in strategy moving towards?
What are the questions in strategy that are not answered?
What are the dilemmas and confusions in the field of
strategy
What have been the loop holes in strategy making?
What are the potential models of sustainable strategy?

Major Timeline
DOMINANT
THEME

MAIN
ISSUES

KEY
CONCEPTS&
TOOLS

MANAGEMENT
IMPLICATIONS

1950s

1960s-early 70s Mid-70s-mid-80s

Late 80s 1990s

2000s

Budgetary
planning &
control

Corporate
planning

Positioning

Competitive
advantage

Strategic
innovation

Financial
control

Planning
growth &diversification

Selecting
sectors/markets.
Positioning for
leadership

Focusing on
sources of
competitive
advantage

Reconciling
size with
flexibility &
agility

Capital
budgeting.
Financial
planning

Forecasting.
Corporate
planning.
Synergy

Industry analysis
Segmentation
Experience curve
Portfolio analysis

Resources &
Cooperative
capabilities.
strategy.
Shareholder
Complexity.
value.
Owning
E-commerce.
standards.
Knowledge Management

Coordination
& control by
Budgeting
systems

Corporate
Diversification.
Restructuring. Alliances &
planning depts. Global strategies. Reengineering. networks
created. Rise of Matrix structures Refocusing.
Self-organiz
corporate
Outsourcing.
ation & virtual
planning
organization

Major Thought Schools


Alfred Chandler Corporate Strategy
John Dunning IB Strategy
C K Prahalad Inclusive Strategy
Sumantra Ghoshal Problems in T.C.E.

Historical development of Strategic


Management
Birth of strategic management
originated in the 1950s and 60s
Alfred D. Chandler, Jr.,
Philip Selznick,
Igor Ansoff,
Peter F. Drucker

Alfred Chandler
Strategy and Structure
structure follows strategy
Philip Selznick
Organization's internal factors with
external environmental circumstances
SWOT analysis

Igor Ansoff
market penetration strategies
product development strategies
market development strategies
horizontal and vertical integration
diversification strategies
Corporate strategy

Peter Drucker
stressed the importance of objectives
management by objectives (MBO)

Growth and portfolio theory


Profit Impact of Marketing Strategies (PIMS)
effect of market share
Started at General Electric, moved to Harvard in the early
1970s, and then moved to the Strategic Planning Institute
in the late 1970s, it now contains decades of information
on the relationship between profitability and strategy
"PIMS provides compelling quantitative evidence as to
which business strategies work and don't work" - Tom
Peters.

The Japanese challenge:

Higher employee morale, dedication, and loyalty;

Lower cost structure, including wages;

Effective government industrial policy;

Modernization after WWII leading to high capital intensity and productivity;

Economies of scale associated with increased exporting;

Relatively low value of the Yen leading to low interest rates and capital
costs, low dividend expectations, and inexpensive exports;

Superior quality control techniques such as Total Quality Management and


other systems introduced by W. Edwards Deming in the 1950s and 60s.

McKinsey 7S Framework
Strategy, Structure, Systems, Skills, Staff,
Style, and Supra-ordinate goals
The Mind of the Strategist was released in
America by Kenichi Ohmae
Tom Peters -In Search of Excellence

Gaining competitive advantage


Gary Hamel and C. K. Prahalad
Strategic intent and strategic architecture
Dave Packard and Bill Hewlett devised an active
management style that they called Management
By Walking Around (MBWA).
Michael Porter
cost minimization strategies, product
differentiation strategies, and market focus
strategies

The Military Theorists


Business War Games by Barrie James, 1984
Marketing Warfare by Al Ries and Jack Trout, 1986
Leadership Secrets of Attila the Hun by Wess Roberts ,
1987
Philip Kotler was a well-known proponent of marketing
warfare strategy

Offensive marketing warfare strategies


Defensive marketing warfare strategies
Flanking marketing warfare strategies
Guerrilla marketing warfare strategies

Strategic change
In 1968, Peter Drucker (1969) coined the phrase
Age of Discontinuity
In 2000, Gary Hamel discussed strategic decay
In 1978, Abell, D. described strategic windows
and stressed the importance of the timing (both
entrance and exit) of any given strategy

Clayton Christensen (1997)


1-disruptive technology
2-agnostic marketing (no one knows how in
what quantities a disruptive product will be used
before experiencing the product)

Henry Mintzberg (1988) Strategy was much


more fluid and unpredictable than people had
thought

Strategy as plan - a direction, guide, course of action intention rather than actual
Strategy as ploy - a maneuver intended to outwit a
competitor
Strategy as pattern - a consistent pattern of past
behaviour - realized rather than intended
Strategy as position - locating of brands, products, or
companies within the conceptual framework of
consumers or other stakeholders - strategy determined
primarily by factors outside the firm
Strategy as perspective - strategy determined primarily
by a master strategist

Information and technology driven


strategy

Peter Drucker had theorized the rise of the knowledge worker back
in the 1950s

In 1990, Peter Senge, who had collaborated with Arie de Geus at


Dutch Shell, borrowed de Geus' notion of the learning organization

People can continuously expand their capacity to learn and be


productive

New patterns of thinking are nurtured

Collective aspirations are encouraged, and

People are encouraged to see the whole picture together.

Senge identified five components of a learning


organization. They are:
Personal responsibility
Self reliance
Mastery of Mental models
Team learning -a spirit of advocacy to a spirit of enquiry
Systems thinking

The psychology of strategic


management
informal, intuitive, non-routinised, and
involving primarily oral, 2-way
communications
feeling, judgement, sense, proportion,
balance, appropriateness.

Criticisms of strategic
management
marketing myopia
In 2000, Gary Hamel coined the term strategic
convergence
Ram Charan, aligning with a popular marketing
tagline, believes that strategic planning must not
dominate action. "Just do it!",

Journals/Magazines devoted primarily to


Strategic Management

Strategic Management Journal


Harvard Business Review
Long Range Planning
The Economist
MIT Sloan Management Review
Academy of Management Journal

Strategy Toolbox

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Thank You
Please forward your query
To: vstomar@amity.edu