Basic Concepts of Strategic

Management

"Effective managers live in the present – but concentrate on the future."

James L. Hayes
 What is Strategy?

• A combination of the words

stratos, which meant “army”, and
agein meaning “to lead”.
Greek Language (6th century BC)
 What is Strategy?

• A strategy is a comprehensive
action plan that identifies long-term
direction and guides resource
utilization to accomplish
organizational goals
with sustainable competitive
advantage.
 Strategic Management

Process of formulating,
implementing, and evaluating,
strategies to accomplish long-term
goals and sustain competitive
advantage.
 Strategic Audit
21st Century Challenges in
Strategic Management

• Process is more an “art” than

“science”
• Should strategies be visible or hidden
from stakeholders
• Should process be more top-down or
bottom up
 Phases of Strategic Management

Basic financial Forecast-based Strategic Strategic

planning: planning: planning: management:
-little analysis; -more thorough -more thorough -analysis of external
analysis; -analysis; and internal
environment;
-info coming from -internal info + -internal info +
within the firm; environmental data; environmental data + -implementation,
forecast future trends; evaluation and control;

-only managers are -only managers are -made by planning -made by lower level
involved; involved; staff (top managers) managers+
+ consultants; top managers+
-takes 2-3 weeks; -takes one month; consultants;
-meet once a year; -throughout the year;
- one year plan -three to five years
-plan - five-year plans - five-year plans
Benefits of Strategic Management

• Clear sense of strategic vision of

the firm
• Sharper focus on what is
strategically important
• Improved understanding of a
rapidly changing environment
 Main Questions

• Where is organization now?

• If no changes are made, where will
the organization be in 1,2,5 years?
• If the answers are not acceptable,
what specific actions should
management undertake?
• What are risks and payoffs
involved?
 Basic Model of Strategic
Management

Environmental Evaluation
Strategy Strategy
Scanning and
Formulation Implementation
Control
Environmental Scanning

External: Social Environment

External: Task Environment

Internal: Structure

Internal: Culture

Internal: Resources
Environmental Scanning

Opportunities & Threats (External)

Analysis of Trends:
• Economic
• Social
• Cultural
• Demographic/Environmental
• Political, Legal, Governmental
• Technological
• Competitors
Environmental Scanning

Strengths & Weaknesses (Internal)

Typically located in functional areas of the firm

• Management
• Marketing
• Finance/Accounting
• Production/Operations
• Research & Development
• Computer Information Systems
Strategy Formulation

Vision & Mission

Objectives

Strategies

Policies
Strategy Formulation

Vision Statement –
What do we want to become?

Mission Statement –
What is our business?
Strategy Formulation

Key Strategic Questions

by Peter Drucker
• What is our business mission?
• Who are our customers?
• What do our customers
consider value?
• What have been our results?
• What is our plan?
Vision Examples

To be the happiest place on earth.

To be the world’s best quick service restaurant.

Mission Statement Example

We should build good ships here

– at a profit if we can
– at a loss if we must
– but always good ships

-- Newport News Shipbuilding

(since foundation in 1886)
Mission Statement Example

The Bellevue Hospital, with respect,

compassion, integrity, and courage, honors the
individuality and confidentiality of our patients,
employees, and community, and is progressive
in anticipating and providing future health care
services.

-- The Bellevue Hospital

WellPont health Network’s
Vision and Mission

WellPoint redefine our industry: through a new

generation of consumer-friendly products that
put individuals back in control of their future.

The WellPoint companies provide health

security by offering a choice of quality branded
health and related financial services designed
to meet the changing expectations of
individuals, families, and their sponsors
throughout a lifelong relationship.
Importance of Mission

Benefits from a strong mission

Unanimity of Purpose

Resource Allocation
Mission
Organizational Climate

Focal point for work

structure
 Products
Services Markets
Customers

Technology
Mission
Employees
Elements

Survival
Growth
Profit
Public
Image
Self-Concept Philosophy
Strategy Formulation

Objectives
The end results of planned activity:
• what is to be accomplished
• by when
• it should be quantified if possible

“…increase profits 10% over last year”

 Strategy Formulation

Types of Strategies
Corp
Level
A Large Company

Division Level

Functional Level

Operational Level
Strategy Formulation

Strategies
• Corporate strategy directs the organization
as a whole toward sustainable competitive
advantage.

• Business strategy sets the strategic

direction for a single business unit or product
line.

• Functional strategy guides the use of

resources to implement business strategy.
 Being Better versus Being Different
Playing the Game Better
Focus on your existing
strategic position and try to
improve it and make it better.
Practices such as
restructuring, refocusing,
process reengineering, quality
programs, empowering
employees, and the like, all
aim to achieve this
Playing the Game Differently
Try to identify:
• new or unexploited customer
segments to focus on (a new
“WHO”)
• new customer needs that no
competitor is currently satisfying
(a new “WHAT”)
• new ways of producing,
delivering, selling or distributing
your products or services (a new
“HOW”)

…to be successful, a company must be able to do BOTH!

Constantinos Markides
Strategy Formulation

Policies
A policy is a broad guideline for decision making that
links the formulation of strategy with its implementation.

• Maytag Company: Maytag will not approve any cost reduction

proposal if it reduces product quality in any way.

• 3M: Researches should spend 15% of their time working on

something other than their primary project.

• GE: GE must be number one or two wherever it competes.

• Intel: Intel cannibalizes its own product line with better products
before a competitor does so.
Strategy Implementation

Programs

Budgets

Procedures
Strategy Implementation

• A program is a statement of the activities or

steps needed to accomplish a single-use
plan.

• A budget is a statement of a corporation’s

program in terms of dollars.

• Procedures are a system of steps or

techniques that describe in detail how a
particular task or job is to be done.
Strategy Evaluation & Control

Internal Review

External Review

Measuring Performance

Strategic audit
Feedback/Learning Process

Internal/External Review

Revision of Decisions

Corrective Actions
Strategic Decisions Characteristics:

• Rare: strategic decisions are unusual and

typically have no precedent to follow
• Consequential: strategic decisions commit
substantial resources and demand a great
deal of commitment from people on all
levels.
• Directive: strategic decisions set precedents
for lesser decisions and future actions
throughout an organization.