Unit 1

Introduction to Strategic Management

 What is Strategic management?
The art & science of ‘formulating’, ‘implementing’, and ‘evaluating’
cross-functional decisions that enable an organization to achieve its
objectives.
• An ongoing process that evaluates and controls the business and the
industries in which the company is involved;
• assesses its competitors and sets goals & strategies to meet all
existing and potential competitors;
• and then reassesses each strategy annually or quarterly 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
Strategic management consists of the analysis,
decisions, and actions an organization
undertakes in order to create and sustain
competitive advantages.
• Analysis
– Strategic goals (vision, mission, strategic objectives)
– Internal and external environment of the firm
• Decisions
– What industries should we compete in?
– How should we compete in those industries?
• Actions
– Allocate necessary resources
– Design the organization to bring intended strategies
to reality
 Strategy
• Strategy is:
• the direction and scope of an organisation,
• over the long term,
• which achieves advantage for the organisation,
• through configuration of its resources,
• within a changing environment,
• to meet the needs of markets, and
• to fulfill stakeholder expectations.
 • Where are we going
And
how will we get there?

• Strategy sets out the route

a business intends to take
to achieve its goals
• The purpose of strategy is to help organizations
achieve a sustainable competitive advantage.

• The difference b/w you and your competitors are

the basis of your advantage.

• It allows to use org.’s resources & capabilities to

exploit opportunities and limit threats in external
environment.
 Purpose of Strategy
The strategy are likely to be concerned with scope of an organization’s
activities,
The strategy is to do with the matching of activities of an organizaton
to the environment in which it operates
The strategy is also to do with the matching of the organizaton’s
activities to its resource capability,
The strategy have major resource implications for the organization
The strategy are likely to affect operational decisions,
The strategy will be affected by values and expectations of those who
have power in and around the organizaton,
The strategy is likely to affect the long term direction of an
organization
 Strategic management process
Stage 1: Strategy Formulation
• Developing a vision & mission, identifying an organization’s
external opportunities and threats, determining internal
strengths & weaknesses, establishing long-term objectives,
generating alternative strategies, and choosing particular
strategies to pursue.
• Deciding what new businesses to enter, what businesses to
abandon, how to allocate resources, whether to expand
operations or diversify, whether to enter international markets,
whether to merge or form a joint venture.
• Limited resources (decide which alternatives will benefit firm
most) | Wrong decisions (enduring negative impact)
Stage 2: Strategy Implementation
• Establish annual objectives, devise policies, motivate
employees, and allocate resources so that the formulated
strategies can be executed.
• Creating an effective organizational structure, redirecting
marketing efforts, preparing budgets, developing & utilizing
information systems, and linking employee compensation
to organizational performance.
• Mobilizing employees & managers to put the formulated
strategies into action. Requires personal discipline,
commitment, and sacrifice.
Stage 3: Strategy Evaluation
• Three fundamental activities
1. Reviewing external & internal factors that are the bases
of current strategies
2. Measuring performance
3. Taking corrective actions.

Success today is no guarantee of success tomorrow.

Success creates new & different problems; complacent
organizations experience demise
 Key terms in Strategic Management
Competitive Advantage
• “Anything that a firm does especially well compared to
rival firms.”
Sustainable competitive advantage
• Continually adapting to changes in external trends &
events and internal capabilities, competencies & resources
• Effectively formulating, implementing and evaluating
strategies that capitalize upon the above factors
• Example: Internet for direct selling and communication
with suppliers & customers dispersed globally
Strategists
• Individuals who are responsible for the success or
failure of an organization
• Help organizations gather, analyze & organize
information.
• Track industry & competitive trends, develop
forecasting models, evaluate corporate & divisional
performance, spot emerging market opportunities,
identify business threats, and develop creative action
plans
Vision & Mission Statements
• Vision Statement answers the question “What do we want to
become?”
• First step in strategy planning; precedes development of mission
statement
• Example, vision statement of Institute of Management Accountants
is “Global leadership in education, certification, and practice of
management accounting & financial management.”
• Mission statement address the basic question “What is our
business?”
• Enduring statements of purpose that distinguish one business from
other similar firms
FedEx: Vision Statement
• "FedEx is committed to providing outstanding
customer experience, to being a great place to
work, a thoughtful steward of the environment
and a caring citizen in the communities where
we live and work. At FedEx, we are passionate
about sustainably connecting people and
places and improving the quality of life around
the world.”
 FedEx: Mission, Strategy, Values
Mission
• FedEx Corporation will produce superior financial returns
for its shareowners by providing high value-added logistics,
transportation and related business services through
focused operating companies. Customer requirements will
be met in the highest quality manner appropriate to each
market segment served. FedEx will strive to develop
mutually rewarding relationships with its employees,
partners and suppliers. Safety will be the first consideration
in all operations. Corporate activities will be conducted to
the highest ethical and professional standards.
Strategy
• The unique FedEx operating strategy works seamlessly -
and simultaneously - on three levels.
Compete collectively by standing as one brand
worldwide and speaking with one voice.
 Operate independently by focusing on our independent
networks to meet distinct customer needs.
Manage collaboratively by working together to sustain
loyal relationships with our workforce, customers and
investors.
Values
• People: We value our people and promote diversity in our workplace and
in our thinking.
• Service: Our absolutely, positively spirit puts our customers at the heart
of everything we do.
• Innovation: We invent and inspire the services and technologies that
improve the way we work and live.
• Integrity: We manage our operations, finances and services with
honesty, efficiency and reliability.
• Responsibility: We champion safe and healthy environments for the
communities in which we live and work.
• Loyalty: We earn the respect and confidence of our FedEx people,
customers and investors every day, in everything we do.
 Key terms
External Opportunities & Threats
• Refer to the economic, social, cultural, demographic, legal, etc. that
could significantly benefit or harm an organization in the future.
• Largely, beyond the control of a single organization
Examples, wireless revolution, biotechnology, population shifts, high gas
prices, changing work values & attitudes, increased competition from
foreign companies, natural catastrophe, declining value of dollar
Organizations need to constantly identify, monitor and evaluate external
opportunities & threats for success (environmental scanning)
Some organizations use lobbying to influence external opportunities &
threats
Internal Strengths & Weaknesses
• Organization’s controllable activities that are
performed especially well or poorly
• Functions such as Management, Marketing,
Finance/Accounting, Production/Operations, Research
& Development, Management Information System
(MIS)
• Usually assessed, relative to competitors’
• Example, Ownership of Natural Resources or a historic
reputation for quality
Long-Term Objectives & Annual Objectives
• Objectives are specific results that an organization seeks to
achieve in pursuing its basic mission
• Objectives are essential for organizational success because they
state direction, aid in evaluation, reveal priorities, basis for
effective planning, organizing, motivating & controlling activities
• Objectives should be challenging, measurable, consistent,
reasonable & clear
• Long-Term means more than one year
• Annual means short term milestones that organizations must
achieve to reach long-term objectives
 Levels of Strategy
• Strategy is at the heart of business. All
businesses have competition, and it is strategy
that allows one business to rise above the
others to become successful.
• Even if you have a great idea for a business,
and you have a great product, you are unlikely
to go anywhere without strategy.
 Corporate Strategy
• The first level of strategy in the business world is
corporate strategy, which sits at the ‘top of the
heap’. Before you dive into deeper, more specific
strategy, you need to outline a general strategy that
is going to oversee everything else that you do.
• At a most basic level, corporate strategy will outline
exactly what businesses you are going to engage in,
and how you plan to enter and win in those
markets.
 Business Strategy
• It is best to think of this level of strategy as a ‘step down’ from the corporate
strategy level. In other words, the strategies that you outline at this level are
slightly more specific and they usually relate to the smaller businesses
within the larger organization.
• Example, you would be outlining separate strategies for selling cookies and
selling cookie-making equipment at this level. You may be going after
convenience stores and grocery stores to sell your cookies, while you may be
looking at department stores and the internet to sell your equipment. Those
are dramatically different strategies, so they will be broken out at this level.
• Even in smaller businesses, it is a good idea to pay attention to the business
strategy level so you can decide on how you are going to handle each
various part of your operation. The strategy that you highlighted at the
corporate level should be broad in scope, so now is the time to boil it down
into smaller parts which will enable you to take action.
 Functional Strategy
• This is the day-to-day strategy that is going to keep your
organization moving in the right direction. Just as some
businesses fail to plan from a top-level perspective, other
businesses fail to plan at this bottom-level.
• This level of strategy is perhaps the most important of all,
as without a daily plan you are going to be stuck in neutral
while your competition continues to drive forward. As you
work on putting together your functional strategies,
remember to keep in mind your higher level goals so that
everything is coordinated and working toward the same
end.
• It is at this bottom-level of strategy where you should start to think
about the various departments within your business and how they
will work together to reach goals. Your marketing, finance,
operations, IT and other departments will all have responsibilities
to handle, and it is your job as an owner or manager to oversee
them all to ensure satisfactory results in the end.
• Again, the success or failure of the entire organization will likely
rest on the ability of your business to hit on its functional strategy
goals regularly. As the saying goes, a journey of a million miles
starts with a single step – take small steps in strategy on a daily
basis and your overall corporate strategy will quickly become
successful.
• Good strategy alone isn’t going to automatically lead you
to success in business, but it certainly is a good place to
start. Once you have sound strategies in place, the focus
of the organization will shift toward executing those
strategies properly day after day.
• Of course, your strategies will need to be continually
monitored and adjusted as you move forward to ensure
you are staying on a path that is consistent with the goals
of the business, so always keep the three levels of
strategy near the front of your mind as you guide your
company.
 Strategic Intent

Vision, Mission, Objectives and Goals

 Strategic Intent
• The word ‘intent’ in general means an anticipated outcome that is
intended or that guides our planned actions.

• Strategic intent is the leveraging of firm’s internal resources,

capabilities and core competencies to accomplish the firm’s vision,
mission and objectives in a competitive environment.
• It is all about winning competitive battles and gaining leadership
position by putting organizational resources to best use.

• According to R Howard, “strategic intent tries to establish the

parameters that shape the values, motives and actions of people
throughout their organization.”
 Hierarchy of Strategic Intent
Most Integrative Fewest in Number

Most Specific Greatest in Number

 Vision
• Vision refers to an inspirational picture of a future that can be
created, offering clarity amidst confusion, hope against
despair, and unity of purpose amidst diversity of personal
causes.

• Basic elements of a Vision:-

– An organization’s fundamental reason for existence beyond just
making money
– Its timeless, unchanging core values.
– Huge and audacious but achievable aspirations for its future.
 Examples of Vision
• BHEL:- “A world class innovative, competitive and
profitable engineering enterprise providing total business
solutions.”

• Colgate - Palmolive:- “To be the company of first choice

in oral and personal hygiene by continuously caring for
consumers and partners.”

• NTPC:- “To make available, reliable and quality power in

increasingly large quantities.”
 Features of a good vision statement
• Easy to read and understand.
• Compact and Crisp to leave something to people’s
imagination.
• Gives the destination and not the road-map.
• Excite people and make them get goose-bumps.
• Provides a motivating force, even in hard times.
• Is perceived as achievable and at the same time is
challenging and compelling, stretching us beyond
what is comfortable
 Mission
• Mission provides the fundamental philosophy that what is the
firm in reality and what it wants to be.
• It clarifies the very purpose of the corporation.
• It also represents the corporation’s guiding principles.
• Pearce and Robinson say that “the company mission is
defined as the fundamental, unique purpose that sets a
business apart from other firms of its type and identifies the
scope of its operations in product and market terms.”
• Hunger and Whalen have defined mission as “purpose or
reason for organization’s existence.”
 Examples of Mission
• Cadbury India:- “To attain leadership position in the
confectionery market and achieve a strong national
presence in the food drinks sector.”

• Ranbaxy Laboratories:- “To become a research- based

international pharmaceutical company.”

• ONGC:- “To stimulate, continue and accelerate efforts to

develop and maximize the contribution of the energy
sector to the economy of the country.”
 Features of Mission
• Mission is the basic reason of existence and legitimization of an
organization.
• It is defined in terms of benefits which are provided by the firm to
society.
• It is defined from the outside of an organization.
• It shows long-term commitment of an organization.
• It is dynamic and can be changed according to change in environment.
• It is a fundamental work and responsibility which is given by society to
an organization.
• It is very comprehensive term which is the basis of objectives goals and
strategies.
• It shows philosophy, values, character and principles of an organization.
 Qualities of Mission
• Feasible
• Precise
• Clear
• Motivating
• Distinctive
• Specific
• Dynamic
• Values, beliefs and philosophy
 Objectives
• An objective indicates the result that the organization expects to achieve
in the long run.
• It is an end result, the end point, something that you aim for and try to
reach.
• McFarland defines that “Objectives are the goals, aims or purposes that
organization wish to achieve over varying period of time.”
• According to Glueck and Jauch , “Objectives are those ends which the
organization seeks to achieve through its existence and operation.”
• Thus, it is clear that objectives are that requisite result which an
organization want to achieve in fix time duration.
• These are the end results which are explained in qualitative and
quantitative form. Every organization’s members make efforts to achieve
them.
 Features of objectives
• Objectives are that result which every organization and its
member want to achieve together.
• They are based on organization’s mission and purpose.
• They are related to future but which are determined in
present.
• They are determined not only for an organization but also for
every part (department, employees etc.) of an organization.
• They have certain time duration.
• They are inter-related.
• They remain according to organization hierarchy.
 Classification of objectives
• Primary Objectives
• Secondary Objectives
• Short-term Objectives
• Long-term Objectives
• Equilibrium Objectives
• Improvement Objectives
• Individual Objectives
• Social Objectives
• Performance Objectives
• Official Objectives
 Goals
• Goals are those basic plans that directs final results of projected
action of any unit. Every organization has multiple goals that can
be personal, organizational, or can be on official level.

• According to Peter Brian Quinn, “goals state what is to be

achieved and when results are to be accomplished.”

• According to Ansoff, “Goals have the following features, they (i)

are derived from objectives, (ii) offer a standard for measuring
performance, (iii) are expressed in concrete term, (iv) are time-
bound and work-oriented.
 Importance of goal setting
• Help in decision making
• It gives base to a company for long term
existence
• Stability
• Provide guidelines
• Support in control.
• Define responsibilty
Vision, Mission, Objectives and Goals:
Mutual relationship

Vision
Contribute at societal level

Mission
At enterprise level

Objectives
At top management level

Goals At corporate and strategic

Business Unit level
 Forms of Strategy

• Intended versus realized - intended strategies are the

plans managers develop; realized strategies are the
actions that actually take place over time.
 Forms of Strategy

Source:H. Mintzberg and J. A. Waters, “Of Strategies, Deliberate and

Emergent,” Strategic Management Journal 6 (1985), pp. 257-72.
 ature s
tegy fe
stra
a ndo ned
Ab
Planned Strate
Company New initiative
g y
Experiences, s plus ongoing
strategy featu
res continued
Know-how, prior periods
from
Resource Actual
Company
Strengths and Strategy
Weaknesses, hang ing
s to c
and Competitive ve re a ction
Adapti um sta n ces
Capabilities circ
ve S trategy
Reacti

A Company’s Strategy is Partly Planned and

Partly Reactive
Social, political, Competitive
Company  External Factors
opportunities
regulatory and conditions and
and threats to
community industry
company’s well-
factors attractiveness
being

Determine
relevance of Identify and Craft
Company’s Strategic Situation internal and evaluate the
external alternatives strategy
factors

Resource
strengths, Shared values
Influences of key
capabilities, and and company
executives
weaknesses culture
 Internal Factors

Factors Shaping the Choice of Company Strategy

 Concept of Stretch, leverage and Fit
• To achieve Strategic Intent – you need to Stretch. As of today
there is a misfit between resources and aspirations. So instead
of looking at resources, you will look at resourcefulness. To
achieve you will stretch and make innovative use of your
resources.

This leads to Leveraging your resources. Leverage refers to

concentrating your resources to your strategic intent,
accumulating learning, experiences and competencies, in a
manner that a scarce resource base can be stretched to meet
the aspirations that an organizational resources can be used to
the best.
• The strategic fit is the traditional way of looking at strategy. Using
techniques such as SWOT analysis, which are used to assess
organizational capabilities and environmental opportunities,
Strategy is taken as a compromise between what the environment
has got to offer in terms of opportunities and the counteroffer that
the organization makes in the form of its capabilities.

Under fit, the strategic intent is conservative and seems to be

more realistic, but you may not be aware of the potential; under
stretch and leverage it could be improbable, even idealistic, but
then you look at something far beyond present possibilities and
look at the potential possibilities.
 Elements of strategy
Source: Adapted from Donald C. Hambrick and James W. Fredrickson, “Are You Sure You Have a
Strategy?,” Academy of Management Executive 19, no. 4 (2005): 51–62.

• A strategy is an integrated and externally

oriented concept of how a firm will achieve its
objectives—how it will compete against its
rivals. A strategy consists of an integrated set
of choices. These choices relate to five
elements managers must consider when
making decisions: (1) arenas, (2)
differentiators, (3) vehicles, (4) staging and
pacing, and (5) economic logic.
• This group of elements, which are central to the strategic
management process outlined "The Strategy Diamond",
makes up the strategy diamond. Most strategic plans focus
on one or two such elements, often leaving large gaps in the
overall strategy. Only when you have answers to questions
about each of these five elements can you determine
whether your strategy is an integrated whole; you’ll also
have a better idea of the areas in which your strategy needs
to be revised or overhauled. As the strategy diamond figure
shows, a good strategy considers the five key elements in
order to arrive at specific answers to five questions:
 Arenas: Where will we be active?
• Arenas are areas in which a firm will be active. Decisions
about a firm’s arenas may encompass its products,
services, distribution channels, market segments,
geographic areas, technologies, and even stages of the
value-creation process. Unlike vision statements, which
tend to be fairly general, the identification of arenas must
be very specific. It clearly tells managers what the firm
should and should not do. In addition, because firms can
contract with outside parties for everything from
employees to manufacturing services, the choice of
arenas can be fairly narrowly defined for some firms.
 Differentiators: How will we get there?
• Differentiators are features and attributes of a company’s product or
service that help it beat its competitors in the marketplace. Firms can be
successful in the marketplace along a number of common dimensions,
including image, customization, technical superiority, price, quality, and
reliability.
• Japanese automakers Toyota and Honda have done very well by providing
effective combinations of differentiators. They sell both inexpensive cars
and high-end cars with high-quality features, and many consumers find
the value that they provide hard to match. However, even though the
best strategies often combine differentiators, history has shown that firms
often perform poorly when they try to be all things to all consumers. It’s
difficult to imagine, for instance, a single product that boasts both state-
of-the-art technology and the lowest price on the market.
There are two critical factors in selecting differentiators:
• Decisions must be made early. Key differentiators rarely
materialize without significant up-front decisions, and
without valuable differentiators firms tend to lose
marketplace battles.
• Identifying and executing successful differentiators mean
making tough choices—trade-offs. Managers who can’t
make tough decisions about trade-offs often end up trying
to satisfy too broad a spectrum of customer needs; as a
result, they execute poorly on most dimensions.
 Example-case
• Audi is an example of a company that has aligned these two factors successfully.
Several years ago, Audi management realized that its cars were perceived as low-
quality but high-priced German automobiles—obviously a poor competitive position.
The firm decided that it had to move one way or another—up market or down market.
It had to do one of two things:
• (1) lower its costs so that its pricing was consistent with customers’ perceptions of
product quality or
• (2) improve quality sufficiently to justify premium pricing. Given limited resources, the
firm couldn’t go in both directions; that is, it couldn’t produce cars in both the low-
price and high-quality strata.
• Audi made a decision to invest heavily in quality programs and in refining its marketing
efforts. Ten years later, the quality of Audi cars has increased significantly, and
customer perception has moved them much closer to the level of BMW and
Mercedes-Benz. Audi has reaped the benefits of premium pricing and improved
profitability, but the decisions behind the strategic up-market move entailed
significant trade-offs.
 Vehicles: How will we win in the
marketplace?
• Vehicles are the means for participating in targeted arenas. For instance, a firm that
wants to go international can do so in different ways. In a recent drive to enter
certain international markets (e.g., Argentina), Walmart has opened new stores and
grown organically—meaning that it developed all the stores internally as opposed
to acquiring stores already based in the countries it wanted to enter.
• Elsewhere (namely, in England and Germany), Walmart has purchased existing
retailers and is in the process of transferring its unique way of doing business to the
acquired companies.
• Likewise, a firm that requires a new technology could develop it through
investments in research and development (R&D). Or it could opt to form an alliance
with a competitor or a supplier that already possesses the technology, accelerating
the integration of the missing piece into its set of resources and capabilities.
• Finally, it could simply buy another firm that owns the technology. In this case, the
possible vehicles for entering a new arena include acquisitions, alliances, and
organic investment and growth.
 Staging and pacing: What will be our speed
and sequence of moves?
• Staging and pacing refer to the timing and speed, or pace,
of strategic moves. Staging choices typically reflect
available resources, including cash, human capital, and
knowledge.
• Staging decisions should be driven by several factors—
resources, urgency, credibility, and the need for early
wins. Because few firms have the resources to do
everything they’d like to do immediately, they usually
have to match opportunities with available resources. In
addition, not all opportunities to enter new arenas are
permanent; some have only brief windows.
 Economic logic: How will we obtain our
returns?
• Economic logic refers to how the firm will earn
a profit—that is, how the firm will generate
positive returns over and above its cost of
capital. Economic logic is the “fulcrum” for
profit creation. Earning normal profits, of
course, requires a firm to meet all fixed,
variable, and financing costs.
Thank you