Strategic Management

1. Introduction
The word “strategy” has been in use since Sun Tzu
wrote the Art of War in the fourth century B.C. (Sun Tzu
1971). Sun Tzu wrote, of course, about military strategy.
The literature on corporate strategy, which emerged in
the 1950s and 1960s is vast and continues to grow at an
astonishing rate.
Strategic management – the way in which a firm
identifies its strategic direction and aligns its operational
processes to its strategy – has become an academic
discipline in its own right, like marketing and finance
 Definitions of Strategy
Many strategic management textbooks exist, each
with its own definition of strategy.
• For instance, Mintzberg and Quinn define a strategy
as the pattern or plan that integrates an
organization’s major goals, policies, and action
sequences into a cohesive whole.
• A well-formulated strategy helps to marshal and
allocate an organization’s resources into a unique
and viable posture based on its relative internal
competencies and shortcomings, anticipated
changes in the environment and contingent moves
by intelligent opponents
• Thompson and Strickland define strategy as “the
pattern of organizational moves and managerial
approaches used to achieve organizational
objectives and to pursue the organization’s
mission.”
• Michael Porter states: “The essence of strategy is
choosing to perform activities differently than rivals
do.”
• Alfred Chandler
“The determination of long-term goals and objectives
of an enterprise and the courses of action and the
allocation of resources necessary to carry out the
goals”
• The five P’s (plan, pattern, position, perspective,
and ploy) serve as a key aspect of Mintzberg`s
framework for analyzing different schools of
thought about strategy.
 Strategy is “plan”-the outline of intended major
activities
 Strategy is “pattern”- way of doing major activities
 Strategy is “position” – selling particular products
in particular markets.
 Strategy is “perspective” – an organization’s
fundamental way of doing things
 Strategy is “ploy” – a specific maneuver intended to
out win a competitor.
• In essence, strategy has to do with understanding
where an organization will go in the future and how
it will get there.
• Most academicians and corporate managers believe
strategy affects the overall welfare of the
corporation, and strategy making is an important
activity, though a few believe firms are better off
without a strategy.
• Many who believe strategy is important, however,
find fault with the ability of formalized strategic
planning processes to deal adequately with the
pace of change facing organizations in today’s
environment.
 The concept of Business Strategy
• A business is generally an organizational unit that has a
distinct business strategy and a manager with sales
and profit responsibility
• Then an organization will have many business units
that relate to each other horizontally and vertically.
• strategically, there are tradeoffs in deciding how many
businesses an organization is active in
• On one hand, it can be compelling to have many
businesses so as to develop a strategy that is optimal
for each market, on the other hand, having too many
business units can result in inefficiency through
programs that lack scale economies and fail leverage
the strategic skills of the best managers
The four dimensions of business strategy
The competition arena
The scope of product market
investment

Business
strategy

How to compete
Value assets and functional
Proposition competencies area
strategies
and programs
(a) The product-market strategy-scope
the scope of business is defined by the products it offers
and by the market an organization seeks to serve; the
competitors it chooses to compete with
more important than the scope itself is its dynamics:
what product-market will be entered or exited in the
coming years
The investment pattern will determine the future direction
of the firm:
* invest to grow
* invest only to maintain the existing position
* milk the business by minimizing investment
* recover as many of the assets possible by
liquidating or divesting
(b) The customer value proposition: it is the perceived
functional, emotional, social, or self expressive
benefit that is provided by the organization`s
offerings
To support a successful strategy, the propositions
should be sustainable over time:
- a good value
- the best overall quality
- product line breadth
- innovative offerings
- global connections and prestige
(c) Assets and competencies: it is what the business
unit does exceptionally well, such as manufacturing
or promotion which is key-success-factor for the
business
A strategic asset is a resource, such as brand name or
installed customer-base that is strong relative to
that of competitors
(d) Functional strategies and programs

Some of the functional strategies or programs that could derive the

business strategy are:

- manufacturing strategy
- distribution strategy
- brand-building strategy
- communication strategy
- information technology strategy
- global strategy
- segmentation strategy
- quality program
- customer relationship program
 Remote external E. Task environment Internal
analysis analysis analysis
Technological, • Industry analysis Performance
governmental, • Competitors analysis; strategic
economic, cultural, analysis options
demographic, scenarios • Market analysis

Strategic analysis output

Strategic strengths,
Opportunities, threats, trends, and strategic weaknesses, problems,
uncertainties constraints, and uncertainties

Strategy identification, selection and implementation

Identify business strategy alternatives
 Hierarchies of strategy
(a) Corporate level: allocation of resources in
various business lines

(b) Business level: how to compete in a given

competition arena

(c) Functional level: specific strategies and

policies in the context of individual
departments
 The development of Strategic Management Thought
• The development of business strategy has aroused from the use of
planning techniques by managers;
• managers have tried to anticipate the future through the preparation of
budgets by using control systems like capital budgeting and
management by objectives.

• However, as these techniques were unable to emphasize the role of

future adequately, long-range-planning came into use.
• Long-range planning: (1950s and 1960s) it focuses on anticipating
growth and managing complexity

• The basic assumption is that the past trends will continue in the future

• The planning process typically involves projecting sales, costs,

technology…..
• Increasing complexity and accelerating changes in
the environment made the planned policy paradigm
irrelevant since the needs of a business could no
longer be served by policy making and functional
area integration only
• As a result 1970s the concept of strategic planning
introduced (analyzing and determining industry
attractiveness and is mainly concerned with
positioning of the firm)
• The fourth stage is Strategic Management
(implementation phase of strategy is given due
emphasis: competitive advantage based on unique
positioning of firms)
 Strategic Decision-making approaches
(a) The prescriptive school:
* design school where strategy formation is a
process of conception
* planning school where strategy formation is
a formal process
* positioning school where strategy formation
is an analytical process
* strategy making is logical and normative
process
* the future of an organization can really be
planned
 In late 1970s portfolio concept emerged because
previous approaches were inappropriate for
diversified multi-business companies

 BCG, MC-KINSEY, The Hofer Matrices have been

introduced;

 PIMS as a model has been developed

 Competitive strategic view (Porter`s five force

model)
(b) The descriptive schools
 Entrepreneurial and cognitive school where
strategy formation is a mental and visionary
process

• The essence of this approach is emphasizing on

intuitive capabilities, new patterns and ideas
instead of specific search for cause and effect

• Key managerial processes are enormously complex

and mysterious drawing in the vaguest of
information and using the least articulated of
mental processes
 Learning school where strategy formation is an emergent
process
• Changes are considered to be ad-hoc and incremental

• Strategic changes as responsive method to environmental

discontinuities

• Constant environmental scanning and testing changes in

strategy in small-scale steps

 Power school where strategy making is a negotiation

process
Environmental school where strategy formation is a
collective process
 2. Strategic Intent
• It refers to the purposes the organization strives for
• Strategic intent lays down the framework with in
which organizations would operate, adopt a
predetermined direction, and attempt to achieve
their goals
• An obsession with having ambitions that may even
be out of proportion to their resources and
capabilities (Hamel and Prahald)
• In general it is about vision and mission statement
for the organization as a whole
• At the business level it is expressed as the business
definition
 (a) Vision
• A mental perception of the kind of environment an
individual, or organization, aspires to create within
a broad time horizon and the underlying conditions
for the actualization of this perception (El. Namaki,
1992)
• Category of intentions that are broad, all-inclusive,
and forward thinking (Miller and Dess, 1996)
• It is what the firm or a person would ultimately like
to become
• It is commonly dreamt than articulated-that is the
reason why it is difficult to say what vision an
organization has
 The benefits of Having Vision
• Vision statements inspire and exhilarate
• They represent a discontinuity
• They create common identity and shared sense of
purpose
• They indicate competitiveness, originality, and
uniqueness of an organization
• They foster risk taking and experimentation
• They fosters long-term thinking
 (b) Mission
• Unlike vision which is the forward-looking view of
what an organization wishes to become, mission is
what an organization is and why it exists
• In short “mission” is defined as a purpose behind
the existence of an organization
• Mission statements reflect the corporate
philosophy, identity, character and image of an
organization
 characteristics of good “mission” statements
• It should be feasible
• It should be precise
• It should be clear
• It should be motivating
• It should be distinctive
• It should indicate major components of strategy
• It should indicate how objectives are to be
accomplished
 Business definition

• Understanding business in terms of: “what is our

business?”; “what will it be?”; “what it should be?”
is vital to manage an organization
• The Dimensions of business definition are:
Customer groups, customer functions, and alternative
technologies
 What is being
satisfied?
Customer
Definition needs
Who is being of business
satisfied:
Customer groups

How are
customers needs
being satisfied?
Distinctive
competencies
 Goals and Objectives
• Goals denote what an organization hopes to
accomplish in the future period of time
• A broad category of financial and non-financial
issues are addressed
• Objectives are the ends that state specifically how
the goals shall be achieved
• Unlike goals they are concrete and specific and in
this manner objectives make the goals operational
• Objectives play an important role in strategic
management
• Objectives enable to define the organization`s
relationship with its environment
• They help an organization to pursue its vision and
mission
• They provide the basis for strategic decision making
• They provide the standards of performance
appraisal
 characteristics of good objectives
• Objectives should be understandable
• Objectives should be concrete and specific
• Objectives should be related to a time frame
• Objectives should be measurable and controllable
• Objectives should be challenging
• Objectives should be coherent
• Objectives should be set within constraints
Financial objectives Strategic objectives
Faster revenue growth A bigger market share
Faster earnings growth A higher more secure industry rank
Higher dividends Higher product quality
Wider profit margin Low costs relative to key competitors

Higher ROI Broader or more attractive product line

Stronger credit ratings A stronger reputation with customers

Bigger cash flows Superior customer service
A rising stock price Recognition as a leader in
technology/product innovation
A more diversified revenue Increased ability to compete in
base international market
Stable earning during Expand growth opportunities
recessionary periods
 3. Strategic Analysis
3.1 External Environmental (outbound) factors that
shape strategy
The classification of general environment into sectors
helps an organization to cope with its complexities,
to comprehend the difference influences operating
in the environment, and to relate the environmental
changes to its strategic management process
3.1.1 Macro-factors factors
(a). The economic facet: it consists of macro-level
factors related to the means of production and
distribution of wealth which have an impact on the
business of an organization
• The economic stage at which a country exists at a
given point of time
• The economic structure adopted, such as a
capitalist, socialistic, or mixed economy
• The major economic plans of the government
• Economic indices like rate and growth of GNP, per
capita income, disposable personal income, rate of
savings and investments,, balance of payments,
interest rates, currency exchange rates, inflation,
monetary and fiscal policy…..
(b) political/legal facet:
• The political system and its features like the nature
of political system, ideological forces, political
parties and centers of power
• The political structure, its goals and stability
• Political philosophy, government`s role in the
business, and its policies and interventions in the
economic and business development
• it consists of factors related with regulation of
economic activities
• Policies related with licensing, monopolies, foreign
investment, and financing of industries
• Policies related with imports and exports
• Policies related to distribution and pricing and their
control
• Policies related to special support packaged
provided to certain types of industries
(c) socio/cultural facet:
• it consists of factors related to human relationships
within a society
• Demographic characteristics such as population, it
density and distribution, changes in in population
and age composition, mobility income distribution…
• Socio-cultural concerns such as environmental
pollution, consumerism, corruption, the role of
business in society
• Socio-cultural values and attitudes, expectation of
society from business, social customs, beliefs, ritual
and practices, the changing of life-style patterns
• Family structure and changes in it attitude towards
and within the family *
• The role and position of men, women, children in
family and society
(d) Technological facet:
• it consists of those factors that are related to the
knowledge applied, and the materials and the
machines used in the production of goods and
services which have an impact on the business of an
organization
• sources of technology (external, internal), cost of
technology acquisition, collaboration in and transfer
of technology
• Technological development, stages of development,
change and rate of change of technology, and
research and development
• Impact of technology, ergonomic, and
environmental effects
• Infrastructural technology
• The speed of diffusion, adoption and imitation of
technology
 (e) the international facet:
• it consists of all those factors that operate at the
transnational, cross cultural, and across the boarder level
which have an impact on the business of an organization
• Global economic forces, organizations, blocks..
• Global financial system, sources of financing
• Global demographic patterns and shifts
• Global information system, communication networks,
and media
• Global technological and quality systems and standards
• Global market and competitiveness
• Global legal systems and arbitration mechanisms…
 3.1.2 The task environment
The task environment of a form can be best
identified through industry and competitive
analysis
• Industries differ widely in their economic
characteristics, competitive situation, and future
outlooks
• The pace of technological change, capital
requirements, the market scope, level of product
standardization and differentiation, competition
structure….
• The industry and competitive analysis aims at
developing probing answers to the following questions:
(a) the industry`s dominant economic traits
* market size
* scope of competition rivalry (local,
regional, national, international,
global)
* market growth rate and stage of
industry growth cycle
* number of competitors and their
relative market sizes (fragmented,
concentrated)
• The prevalence of backward and forward integration
• Ease of entry and exit
• The pace of technological change (product, process
innovation)
• Level of product standardization
• The existence of scale economies
• If capacity utilization are crucial to achieve low-cost
production
• Whether experience curve effect is strong
• Capital requirements
• Industry profitability comparing with other industries
(b) Competitive forces: the nature and degree of competition in
an industry hinge on five forces as often known as Porter`s five
forces model
i. The rivalry among competing sellers:
 it is usually the jockeying for position among existing rival firms
The followings are common factors influencing the tempo of
rivalry:
• rivalry is intensifies as the number of competitors increases
and competitors become more equal in size and capability
• Rivalry is usually stronger when demand for the product is
growing slowly
• Rivalry is more intense when industry conditions tempt
competitors to use price-cuts or other competitive weapons to
boost unit volume
 New
entrants

Bargaining Rivalry among Bargaining

power of competing power of
suppliers sellers buyers

Substitute
products

Porter`s five force model of competition

• Rivalry is stronger when customer`s costs to
switch brands are low
• Rivalry increases with proportion to the size of
the payoff from a successful strategic move
• Rivalry tends to be more vigorous when it costs
more to get out of business than to stay in and
compete (exit barriers)
• Rivalry becomes more volatile and
unpredictable the more diverse competitors
are in terms of their strategies, personalities,
corporate priorities, resources and countries of
origin
ii. The competitive forces of potential entry:
 new entrants to an industry bring new production
capacity
The threat of entry in a particular market depends on
barriers to entry and the expected reaction of existing
firms to new entry
Entry barriers:
• economies of scale
• Inability to gain access to technology and specialized
know-how
• The existence of learning and experience curve
effects
• Brand preferences and customer loyalty
• Capital requirements
• Cost disadvantage independent of size
• Access to distribution channels
• Regulatory policies
iii. Competitive pressures from substitute products:
Firms in one industry are quite often in close
competition with firms in another industry because
their respective products are good substitutes
Competitive pressures from substitute products
operate in several ways:
• The relative price and performance of substitutes
• Switching costs for customers
• Buyers propensity to substitute
iv. The bargaining power of suppliers:
 the suppliers competitive force depends on market
conditions in their industry and the significance of
the item they supply
• Switching costs changing to alternative supplier
• Availability of substitute suppliers
• Supplier concentration
• cost relative to the purchasing industry`s total costs
• The impact of product to cost and differentiations
v. The power of buyers:
Buyers have substantial bargaining leverage in a
number of situations:
• When buyers are large and purchase a sizable
percentage of the industry`s output
• Switching costs of buyers (if they are low)
• Backward vertical integration
• Standard versus differentiated products
(c) Change drivers in the industry
Driving forces are dominant forces that create
incentives or pressures for change
The analysis has two steps: identifying what the
driving forces are and assessing the impact they will
have on the industry:
• Changes in the long tern industry growth rate
• Changes in who buys the product and how they use
it
• Product innovation: it can broaden an industry`s
customer base, rejuvenate industry growth
• Technological changes
• Marketing innovation
• Entry and exit of major firms
• Diffusion of technical know-how
(d) Assessing the competitive position of rival
companies
• Industry segmentation
• Strategic group mapping: it is a technique for
displaying the different competitive positions that
rival firms occupy in an industry
• It is most useful when an industry has too many
competitors to examine each one in depth
• Companies in the same strategic group can
resemble one another in several ways
 * comparable product lines
* officering similar services
* target to similar types of buyers
* emphasize the same distribution
channels
* use identical technology
* same price/quality range
-identifying competitors strategic current positions
and strategic intents
high
P
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i
c
e
General Motors
a Ford
n Mercedes Chrysler
d Jaguar Nissan
BMW Toyota
q Honda
VW
u
a Hyundai
l low Yugo
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Number of market segments
 (e) Pinpointing Key-success-factors
• Major determinants of financial and competitive
success in a particular industry
• Companies frequently win competitive advantage
by concentrating on being distinctively better than
rivals in one or more of the industry`s KSFs:
• Technology related KSFs
-scientific research expertise
-product/process innovation capability
• Manufacturing related KSFs
-low-cost production efficiency
 -high utilization of fixed assets
• Distribution related KSFs
-a strong network of whole-sale distributors
- fast delivery
-having company-owned retail outlets
• Marketing related KSFs
- a well trained effective sales force
- marketing mix
• Skill-related KSFs
- superior talent
- quality control know-how
(f) Overall Industry attractiveness
-based on previous information making conclusions
on the overall industry attractiveness
• The industry growth potential
• The potential for exit/entry of major firms
• Stability/dependability of demand
• The trend of competitive forces
• The severity of problems confronting the industry as
a whole
• The degree of uncertainty in the industry`s future
 The scope of customer analysis

In crafting Strategic marketing planning the first

logical step is to analyze the customers

It can be done through the understanding of the

market segments; an analysis of customer
motivation; and an exploration of unmet needs
Here, stimuli in the form both of the external
environment and the elements of the marketing
mix enter the buyer’s ‘black box’ and interact with
the buyer’s characteristics and decision processes to
produce a series of outputs in the form of purchase
decisions.

what is included is the question of whether to buy

and, if so, which product and brand, which dealer,
when, and in what quantities.
The task faced by the marketing planner therefore
involves understanding how this black box operates.
To do this, it is required to consider the two
principal components of the box:
firstly, the factors that the individual brings to the
buying situation;
secondly, the decision processes that are used.
It begins by focusing upon these background factors
– cultural, social, personal and psychological – as a
prelude to examining the detail of the decision
process itself.
 input output

The buyer’s black

External stimuli box
Marketin Buyer Buyer The buyer’s
g charact decision
Recognition
buying decision
factors eristics of
the problem
Economi processes The choice of:
Product Cultural
c Product
Price Social The search
Social for Brand
Advertisi Personal
Political information
ng Psycholo Dealer
Technolo Evaluation
gical
Distributi gical Decision Quality
on Post Purchasing timing
purchase
behaviour

A stimulus–response model of buyer behaviour

 Factors influencing consumer behaviour
In consumer markets, not only do buyers typically
differ in terms of their age, income, educational levels
and geographical location, but more fundamentally in
terms of their personality, their lifestyles and their
expectations.
From the viewpoint of the marketing planner, the mix
of cultural, social, personal and psychological factors
that influence behaviour is largely un-controllable.
 the influence of these upon patterns of buying is
essential and as much effort as possible is put into
understanding how they interact and, ultimately, how
they influence purchase behaviour.
 it is important not to lose sight of the differences
that exist between customers and consumers, and
the implications of these differences for strategy.
The term ‘consumer’ is typically taken to mean the
final user, who is not necessarily the customer.
 In the case of foodstuffs such as breakfast cereals,
for example, the buyer (generally still the
housewife) acts on behalf of her family.
For the marketing mix to be effective, it is quite
obviously essential that the strategist understands
not just what the customer wants (e.g. value for
money), but also what the consumer wants (e.g.
taste, free gifts, image).
 Factors influencing consumer behaviour

Cultural
Culture
Sub-culture
Social class

Social
Reference groups
Family
Roles and status

Psychological
Personal
Motivation
Age and life cycle stage The
Occupation Learning
Economic circumstances
Perception buyer
Lifestyle and personality
Beliefs and attitudes
• The most fundamental of the four influencing
forces is the buyer’s set of cultural factors.
• These include culture, subculture and social
class.
• Of these, it is the culture of the society itself
that typically proves to be the most fundamental
and enduring influence on behaviour, since
human behaviour is very largely the result of our
socialization of different levels
• This broad set of values is then influenced in turn
by the subcultures in which individuals develop.
• These include nationality groups, religious
groups, racial groups and geographical areas, all
of which exhibit degrees of difference in ethnic
taste, cultural preferences, taboos, attitudes and
lifestyle.
• The influence of subcultures is subsequently
affected by a third set of variables: that of social
stratification and, in particular, social class.
1 People within a particular social class are more
similar than those from different social class
2 Social class is determined by a series of variables,
such as occupation, income, education and values,
rather than by a single variable
3 Individuals can move from one social class to
another.
Against this background of cultural forces, the
strategist needs then to turn to an examination of
the influence exerted by a series of social factors,
including reference groups, family, social role and
status.
Reference groups can be divided into four types:
1 Primary membership groups, which are generally
informal and to which individuals belong and within
which they interact. These include family, neighbors,
colleagues and friends.
2 Secondary membership groups, which tend to be more
formal than primary groups and within which less
interaction typically takes place. Included within these
are trade unions, religious groups and professional
societies.
3 Aspirational groups, to which an individual would like
to belong.
4 Dissociative groups, whose values and behaviour the
individual rejects.
The third major category of influences upon
behaviour is made up of the buyer’s set of
personal characteristics, including age and life-
cycle stage, occupation, economic
circumstances, lifestyle and personality
The fourth and final set of influences upon
behaviour consists of the four principal
psychological factors – motivation, perception,
learning, beliefs and attitudes.

The first of these, motivation, is in many ways

both the most important to understand and the
most complex to analyze.
Some study results revealed that the psychological
factors that influence behaviour are for the most
part unconscious, and that as a consequence we
can only rarely understand our true motivations.
Equally, in the process of growing up and
conforming to the rules of society, we repress a
series of urges.
The obvious implication of this for marketing is that
a consumer’s stated motive for buying a particular
brand or product may well be very different from
the more fundamental underlying motive.
Two of the most vociferous opponents of
motivational research proved to be (Galbraith
and Packard1958), for example, levelled a series
of criticisms against the development of the
consumer society, arguing that consumers were
being persuaded to act against their true
interests.
Packard’s criticisms, in his book The Hidden
Persuaders (1957), were aimed even more
specifically at techniques of motivational
research and raised the spectre of the wholesale
manipulation of society by marketing people for
their own ends
 Issues of perception
Against the background of an understanding of
the factors influencing motivation, the marketing
strategist needs then to consider the influence
of perception, since it is the way in which
motivated individuals perceive a given situation
that determines precisely how they will behave.
 It has long been understood that because of the
three elements of the perceptual process –
selective attention, selective distortion and
selective retention – individuals can perceive the
same object in very different ways.
• Irrespective of whether the marketing planner is operating in a
consumer, industrial or organizational market, there are eight
questions which underpin any understanding of buyer behaviour:
1 Who is in the market and what is the extent of their power with
regard to the organization?
2 What do they buy?
3 Why do they buy?
4 Who is involved in the buying?
5 How do they buy?
6 When do they buy?
7 Where do they buy?
8 What are the customers’ ‘hot’ and ‘cold’ spots? (‘Hot’ spots are
those elements of the marketing offer that the customer sees to be
particularly important and reassuring –and on which the organization
delivers. ‘Cold’ spots are those elements that alienate the customer.
An example of this might be poor or inconsistent service.)
 The buying decision process
*The buying roles within the decision-making unit
* The type of buying behaviour
* The decision process.
(a) The buying roles within the decision-making unit
1 The initiator, who first suggests buying the product or
service
2 The influencer, whose comments affect the decision made
3 The decider, who ultimately makes all or part of the
buying decision
4 The buyer, who physically makes the purchase
5 The user(s), who consume(s) the product or service.
 (b) Different types of buying behaviour
So far in this discussion, we have referred simply to
‘buying behaviour’.
In practice, of course, it is possible to identify
several types of buying decision and hence several
types of buying behaviour.
The most obvious distinction to make is based on
the expense, complexity, risk and opportunity cost
of the purchase decision
– the process a consumer goes through in deciding
on a new car, for example, will be radically
different from the process in deciding whether to
buy a chocolate bar.
Understanding the buying decision process
The third and final stage that we are concerned with here
is the structure of the buying decision process that
consumers go through.
In other words, precisely how do consumers buy particular
products?
Do they, for example, search for information and make
detailed comparisons, or do they rely largely upon the
advice of a store assistant?
Are they influenced significantly by price or by advertising?
Questions such as these have led to a considerable amount
of research into the buying process and subsequently to
consumers being categorized either as deliberate buyers or
compulsive buyers.
 Organizational buying behaviour
Although there are certain factors common to both
consumer and organizational buying behaviour, there are
also numerous points of difference
➡ Organizations generally buy goods and services to satisfy a
variety of goals such as making profits, reducing costs,
meeting employees’ needs, and meeting social and legal
obligations.
➡ A greater number of people are generally involved in
organizational buying decisions than in consumer buying
decisions, especially when the value of the purchase is
particularly high.
Those involved in the decision usually have different and
specific organizational responsibilities and apply different
criteria to the purchase decision.
 The three types of buying decision
There are, three distinct buying situations or buy classes, each of
which requires a different pattern of behaviour from the supplier.
They are the straight rebuy, the modified rebuy and the new task.
Of these, the straight rebuy is the most straightforward and describes
a buying situation where products are reordered on a largely routine
basis, often by someone at a fairly junior level in the organization.
Eg. the products ordered in this way is office stationery.
Here, the person responsible for the ordering simply reorders when
stocks fall below a predetermined level and will typically use the
same supplier from one year to another until either something goes
wrong or a potential new supplier offers a sufficiently attractive
incentive for the initial decision to be reconsidered.
The implications of this sort of buying situation are for the most part
straightforward, and require the supplier to maintain both product
and service quality.
The second type of buying situation – the
modified rebuy – often represents an extension of
the straight rebuy and occurs when the buyer
wants to modify the specification,price or
delivery terms.
Although the current supplier is often in a
relatively strong position to protect the account,
the buyer will frequently give at least cursory
consideration to other possible sources of supply.
The third type of buying situation – the new task
– is the most radical of the three, and provides
the marketing strategist with a series of
opportunities and challenges.
The buyer typically approaches the new task with
a set of criteria that have to be satisfied, and in
order to do this will frequently consider a
number of possible suppliers,
each of whom then faced with the task of
convincing the buyer that his product or service
will outperform or be more cost-effective than
the others
 Who is involved in the buying process
1 Users of the product or service, who in many cases
initiate the buying process and help in defining the
purchase specifications
2 Influencers, who again help to define the
specification, but who also provide an input to the
process of evaluating the alternatives available
3 Deciders, who have the responsibility for deciding on
product requirements and suppliers
4 Approvers, who give the authorization for the
proposals of deciders and buyers
5 Buyers, who have the formal authority for selecting
suppliers and negotiating purchase terms
 Environmental
Levels of demand
Economic prospects
Interest rates Factors influencing industrial
The pace of technological buying behaviour
change
Political and legal structures
Competitive structures

Organizational
Objectives
Policies Structures
Systems and the degree of
centralization Process and
procedures Managerial
attitudes to risk
Financial resources
Previous experiences
Individual
Interpersonal Age
Authority Income
Status Job position Buyer
Persuasiveness Attitude to risk
Technical knowledge
 Sources of information for environmental scanning
• International publications: Un and its derivative
organizations like UNESCO, ILO, WHO, UNDP, FAO,
World Bank, OECD…etc are a rich source of
international statistical data
• Government publications: government information
sources such as the census of Ethiopian reports,
major growth plan reports, Central Ethiopian
statistics agency reports…
• Periodical reports on the performance of various
ministerial organizations
• Online data-bases and systems: they are rich
sources of statistical data and other types of data
regarding the economy, industry, and the
corporate sector, several online databases are
available worldwide covering a vast range of
subjects
• Competitive intelligence: gathering, analyzing and
interpreting data about the companies key rivals
• The mission of CI may be informational, defensive,
and/or offensive
• Sources may be both primary and secondary
• Competitor`s publications
• Industry wide publications
• Surveying customers suppliers; surveillance of
competitors; asking former employees; visiting
facilities
• CI is highly required to analyze data & infer the
impact on particular company
 3.3 The company profile (Internal Analysis)
It centers on the following issues:
(a) Assessment of the present strategy
 major strategy (striving to be a low cost leader;
stressing ways to differentiate its products;
concentrating its efforts on a narrow market niche)
 Company`s functional strategies
 The firm`s competitive scope within the industry
 The size and diversity of its geographic market
coverage
 The size and diversity of its customer base
 quantitative indicators of strategic and financial
performance
- the firm`s market share ranking in the sales
growth industry
-profit-margins comparing with rival companies
- trends in the firm`s net profits and ROI
- the company`s credit rating
- Sales growth
(b) Identification of the company`s strengths,
weaknesses, opportunities, and threats
 a strength is something a company is good at doing
or a characteristics that gives it an important
capability
 a weakness, on the other hand, is an inherent
limitation or constraint which creates a strategic
disadvantage for an organization
Strengths and weaknesses do not exist in
isolation but combine within a functional area,
and also across different functional areas, to
create synergistic effects.
 STRENGTHS : Areas of (distinctive) competence that:
• Must always be looked at relative to the competition
• If managed properly, are the basis for competitive advantage
• Derive from the marketing asset base

WEAKNESSES : Areas of relative disadvantage that:

• Indicate priorities for marketing improvement
• Highlight the areas and strategies that the planner should avoid

THREATS : Trends within the environment with potentially negative impacts that:
• Increase the risks of a strategy
• Hinder the implementation of strategy
• Increase the resources required
• Reduce performance expectations

OPPORTUNITIES : Environmental trends with positive outcomes that offer scope for higher
levels of performance if pursued effectively:
• Highlight new areas for competitive advantage
 SWOT analysis is therefore designed to achieve two principal
objectives:
1 To separate meaningful data from that which is merely interesting
2 To discover what management must do to exploit its distinctive
competencies within each of the market segments both now and in
the longer term.
 However, in examining opportunities and threats, strategists needs
to recognize that they can never be viewed as ‘absolutes’.

 What might appear at first sight to be an opportunity may not be so

when examined against the organization’s resources, its culture, the
expectations of its stakeholders, the strategies available, or the
feasibility of implementing the strategy.
 At the risk of oversimplification, however, the purpose of strategy
formulation is to develop a strategy which will take advantage of
the opportunities and overcome or circumvent the threats.
(c) The company`s strategic prices and cost
competitiveness

Pri Purchased operation Outboun Sales and

ma supplies and d marketin
ry service
inbound logistics g
acti logistics s
viti
es Profit
margin

Production, R&D, technology and systems development

Sup
port
acti
Human Resources Management
vitie
s
General administration
 The five primary activities identified by Porter (1985a) are:
1 Inbound logistics, which are the activities that are concerned
with the reception, storing and internal distribution of the raw
materials or components for assembly.
2 Operations, which turn these into the final product.
3 Outbound logistics, which distribute the product or service to
customers.
 In the case of a manufacturing operation, this would include
warehousing, materials handling and transportation.
For a service, this would involve the way in which customers are
brought to the location in which the service is to be delivered.
4 Marketing and sales, which make sure the customers are
aware of the product or service and are able to buy it.
5 Service activities, which include installation, repair and
training.
Each of these primary activities is, in turn, linked
to the support activities, which are grouped
under four headings:
1 The procurement of the various inputs
2 Technology development, including research
and development, process improvements and
raw material improvements
3 Human resource management, including the
recruitment, training, development and
rewarding of staff
4 The firm’s infrastructure and the approach to
organization, including the systems
Porter suggests that competitive advantage is
determined to a very large extent by how each
of these elements is managed and the nature of
the interactions between them.
In the case of inbound logistics, for example,
many organizations have developed just-in-time
systems in order to avoid or minimize their
stockholding costs.
 In this way, the value of the activity is
increased and the firm’s competitive advantage
improved
Equally, in the case of operations, manufacturers are
paying increasing attention to lean manufacturing
processes as a means of improving levels of efficiency.
 Porter’s message is therefore straightforward.
Managers need to examine the nature and dimensions
of each of the nine activities with a view to identifying
how the value-added component can best be increased.
He then goes on to argue that value chain analysis
should not simply stop with the manager’s own
organization,
 but in the case of a manufacturer should also include
the suppliers and distribution networks, since the value
of much of what an organization does will be magnified
or constrained by what they do.
(d) The company's competitive position
 how strongly the firm holds its present
competitive position
Vulnerability of the firm position in the future
The firm's rank relative to key rivals on selected Key
Success Factors
Key success Factors A firm Rival 1 Rival 2 Rival 3 Rival 4

Quality/product
performance
Reputation

Financial strength

Market Share

Price/cost

Overall Strength
(e) Major strategic Issues the company face
 driving forces with present strategy
How closely the present strategy matches the
industry's future key success factors
Where strong spots and weak spots are in the
present strategy
Whether additional actions are needed
 3.3.2 Resource based view of competitive
advantage
The concept is associated with the work of
Prahald and Hammel (1990)
It deals with competitive environment facing an
organization but takes “inside-out” approach i.e.
its starting point is the organization`s internal
environment
Internal capabilities of an organization are given
due emphasis- its internal capabilities determine
the strategic choices it makes in competing in its
external environment
The VRIO framework, in a wider scope, is part
of a much larger strategic scheme of a firm.
The basic strategic process that any firm goes
through begins with a vision statement, and
continues on through objectives, internal &
external analysis, strategic choices (both
business-level and corporate-level), and
strategic implementation.
The firm will hope that this process results in a
competitive advantage in the marketplace they
operate in.
VRIO falls into the Internal Analysis step of these
procedures, but is used as a framework in
evaluating just about all resources and capabilities
of a firm, regardless of what phase of the strategic
model it falls under.
VRIO is an acronym for the four question
framework you ask about a resource or capability to
determine its competitive potential:
the question of Value, the question of Rarity, the
question of inimitability (Ease/Difficulty to Imitate),
and the question of Organization (ability to exploit
the resource or capability
Value: "Is the firm able to exploit an opportunity or
neutralize an external threat with the
resource/capability?"
 Rarity: "Is control of the resource/capability in the
hands of a relative few?"
 Inimitability: "Is it difficult to imitate, and will there
be significant cost disadvantage to a firm trying to
obtain, develop, or duplicate the
resource/capability?"
 Organization: "Is the firm organized, ready, and
able to exploit the resource/capability?"
Value: Generally, this exploitation of opportunity or
mitigation of threat will result in one of two more
outcomes: an increase in revenues or a decrease in
costs (or both).
A great way to identify possibly valuable resources
or capabilities is by looking into the company’s
value chain.
In the value chain, a business develops its products
and services step-by-step, with each function along
the way adding some sort of value to the product or
service.
The choices a firm makes regarding its value chain
(including how to operate, and which steps to
operate in) is closely tied to the firms resources
and capabilities, therefore making it a valuable tool
in identifying value in resources and capabilities.
 If some asset that your company has, allows you
to operate more effectively in a certain portion of
the value chain, chances are that resource will be
considered valuable by the VRIO framework
Rarity is when a firm has a valuable resource or
capability that is absolutely unique among a set of
current and potential competitors, (which can lead to a
competitive advantage).
 How to determine of your resource is rare and creates
competitive advantage?
A firm’s resources and capabilities must be both short
in supply and persist over time to be a source of
sustained competitive advantage.
If both elements (short supply and persist over time)
aren’t met, than the resources and capabilities a firm
has can’t be sustained competitive advantage.
 If a resource is not rare, then perfect competition
dynamics are likely to be observed
Inimitability: the innovative companies that
implement its strategies based on costly-to-imitate
and valuable resources can gain long-term
competitive advantage, which ensures a company’s
sustained success.
 In most cases, imitation appears in two ways, direct
duplication or substitution.
After observing other firms’ competitive advantage,
a firm can directly imitate the resource possessed
by the innovative firm.
If the cost to imitate is high, the competitive
advantage will be sustained.
If not, the competitive advantage will be temporary.
 Otherwise, an imitating firm can attempt to use a
substitute in order to gain similar competitive
advantage of the innovative firm.
Cost of imitation is usually high in order to gain a
competitive advantage due to the following
reasons:
 unique historical conditions;
 casual ambiguity;
 social complexity;
 patents
Organization includes, but are not limited to, the
company’s formal reporting structure,
management control systems and compensation
policies.
Formal reporting structures are simply a
description of who in the firm reports to whom.
 Management control systems include both
formal and informal means to make sure that
managers’ decisions align with a firm’s strategies.
Formal control systems can consist of budgeting
and reporting activities that keep top
management informed of decisions made by
employee’s lower down in the firm.
Informal controls can include a company’s
culture and encouraging employees to monitor
each other.
 Firms incentivize their employees to behave a
desired way through compensation policies.
These policies can include bonuses, stocks or
salary increases but can also include non-
monetary incentives such as additional vacation
days or a larger office.
 These components of organization are known at
complementary capabilities and resources
because alone they do not provide much value
 Corporate Level Generic Strategies
 Corporate level strategies are basically about the choice of
direction that a firm adopts in order to achieve its objectives
I. Stability Strategies
 they refer the attempts made by an organization at
incremental improvement of functional performance
 It is suitable for firms operating in a reasonably certain and
predictable environment
(a) No-change strategy: continuing with present strategy
(b) profit strategy: when temporary problems faced firms
sometimes try to sustain their profitability by artificial
measures reduce investment; cut costs; raise prices….
 (c) pause-proceed-with-caution strategy
It is employed by firms that wish to test the ground
before moving ahead with a full-fledge grand
strategy
II. Expansion strategies
(a) concentration:
 it involves converging resources in one or more of
a firm`s businesses in terms of their core market,
product, technology……
 It is a type of “stick-to-the knitting” strategy
 It is recommendable if the industry a firm belongs
to possesses a high potential for growth
 Forms:
(a) Product development: providing new or modified
products for existing market
(b) Market development: introducing existing
products for new market
 With this type of strategy minimal organizational
changes are required so that it is less threatening
 It also enables the firm to master one or a few
businesses and gain in-depth knowledge
 The decision-making process in under a lesser
strain as there is a high level of predictability
However there are also some limitations in applying
these types of grand strategy
Adverse conditions in an industry can and do affect
firms if they are intensely concentrated
The potential for industry growth, industry
attractiveness and industry maturity are variable
factors
Product obsolescence; emergence of newer
technologies are threats to concentrated firms
It may lead to cash-flow problems
(b) Integration
Combining activities relating to the present activity of a
firm
Such combinations are often based on the “the value-
chain)
(i) horizontal integration:
growth strategy through acquisition of one or more
similar businesses
 motives may be seeking new markets; eliminate
competitor`s economies of scale..
(ii) vertical integration:
It involves the acquisition of businesses that either
supply the firm with inputs or serve as a customer for the
firms outputs
Example:
Textile producer.....................textile producer

Shirt manufacturer……………….Shirt manufacturer

Clothing store………………………..Clothing store

…….. = horizontal integration

= vertical integration
 Motives:
The desire to increase the dependability supply or
quality of raw materials or production inputs
(D) Diversification
It represents distinctive departures from a firm`s
existing base of operations
(i) Concentric diversification: acquiring businesses
which are related to the firm`s current business
Motives:
 To increase the growth rate of the firm
 To improve the stability of earning and sales (the
firm`s peaks and valleys)
 balance or fill out the product line
 Transferring skills and expertise (strategic fit)
(ii) Conglomerate diversification
Unlike concentric diversification, it involves
diversifying into whatever industries and businesses
hold promise for attractive financial gain
There is little concern given to creating
product/market synergy with existing businesses
motives:
 To make a company less dependent on any one
business (risk-spreading)
 Portfolio management
 Stable profitability
 Expansion through cooperative Strategies
Though much of strategy literature assumes
competition as important, collaboration may have its
own benefit
It is simultaneous cooperation and competition
among rival companies for mutual benefit
forms of cooperation:
(a) mergers: integration of two or more organizations
 for the organization which acquires another, it is
acquisition
 For the organization it is acquired, it is a merger
 If both organizations dissolve their identity to create
a new organization, it is consolidation
 Forms:
 Horizontal
 Vertical (forward and /or backward)
 Concentric merger (related in terms of market,
technology, product…..)
 Conglomerate mergers (unrelated business)
motives:
• To increase growth rate
• To improve stability of earning and sales
• To reduce competition to take advantage of synergy
(b) Joint venture Strategies
Joint-ventures are a special case of consolidation
when two or more companies form a temporary
partnership for a specified purpose
Conditions for joint ventures:
1. If an activity is uneconomical for an organization to
do alone
2. Spreading (sharing) risks
3. Distinctive competencies (possibilities of bring
together)
4. When setting-up criteria of an organization is full
of risk
 advantages:
 Minimizing risk
 Having access to foreign technology
 Broad-based equity participation
 Synergetic advantages
Disadvantages:
 Foreign exchange regulations
 Coordination (challenging)
 Cultural and behavioral differences)
 Possibility of conflict among participating
companies
(c) Strategic alliance:
 It is a cooperative arrangement between two or more
companies
Types:
 Pro-competitive alliances (vertical value-chain
relationships)
 Non-competitive alliances (by firms operating in the
same industry)
 Competitive alliances: two or more rival firms`
cooperative arrangement where intense interaction is
necessary
 Precompetitive alliance: cooperation among unrelated
industries to work on well-defined activities such as
new technology development
 Motives:
Entering new market
Reducing manufacturing costs
Developing and diffusing technology
III. Retrenchment Strategies
These grand strategies are followed when an
organization substantially reduces the scope of its
activity
It involves reducing the scope of diversification to a
smaller number of businesses
It is commonly recommended when some symptoms
are observed: diminishing profitability; shrinking
market-share…….
 Forms:
(a) Turnaround strategies
 It focuses on efforts to restore money losing
businesses to profitability instead of divesting
them
 It is appropriate when the reasons for poor
performance are short-term
 It can be accomplished through
 cost-reduction (decreasing the work-force; leasing
rather than purchasing equipment…)
 Asset reduction (sale of land, buildings,
equipment…)
 (b) Divestiture
This strategy involves the sale of a business or major
business component
Different reasons force to use this strategy:
 Mismatch between the acquired business and the
parent company
 The organization financial needs
(c) Liquidation
It is usually seen as the least attractive of all grand
strategies
In hopeless situations an early liquidation effort
usually serves stakeholders interests better than an
inevitable bankruptcy
 Business level grand strategies
As Michael Porter “the basic unit of analysis for
understanding competition is the industry
Factors which determine the choices of competitive
strategy
 Industry structure (five forces)
 The positioning of a firm in the industry
(competitive advantage and competitive scope)
 Competitive advantage can raise through low cost
and differentiation
 Competitive scope options are broad target and
narrow target
 when two factors are combined the result is a set
of generic competitive strategies
Competitive advantage
differentiated
C
Low-cost
o Broad
m target
p Cost differentiation
e
t leadership
i
t
i
v Narro
e w
target
s Focused cost Focused
c leadership
o differentiation
p
e
 (a) Overall cost leadership
By pursuing a strategy of cost leadership, the
organization concentrates upon achieving the
lowest costs of production and distribution so that
it has the capability of setting its prices at a lower
level than its competitors.
Whether it then chooses to do this depends on its
objectives and its perception of the market
Customers prefer a lower cost product particularly if
it offers the same utility to them as the comparable
products available in the market
The value-chain for a product of a firm is the basis
to analyze and achieve cost leadership
The globalization of operations, including brands, in
order to benefit from the economies that are not
possible by operating purely on a regional basis
 Concentrating the manufacturing effort in one or
two very large plants in countries such as South
Korea, Taiwan and the Philippines, which (currently
at least) offer a low-cost base
 Modifying designs to simplify the manufacturing
process and make use of new materials
 Achieving greater labor effectiveness by investing in
new plant and processes.
Cost leadership requires :
 aggressive construction of efficient-scale facilities,
(attain economies of scale)
 Investments in cost saving technologies,
 tight cost and overhead control,
 cost minimization in areas like R&D, service, sales
force, advertising…
 Product standardization-mass production
Benefits:
Cost advantage is possibly the best insurance against
industry competition
The threat of cheaper substitutes can be offset by
lowering prices
Cost advantage acts as an entry barrier
Less affected by bargaining power of suppliers and
buyers
Risks:
Cost advantage is temporal (competitors can
imitate easily)
It may discourage product innovation
Technological shifts are a great threat to a cost
leader
(b) Differentiation Strategy
By pursuing a strategy of differentiation, the
organization gives emphasis to a particular element
of the marketing mix that is seen by customers to
be important
 as a result, it provides a meaningful basis for
competitive advantage.
The firm might therefore attempt to be the quality
leader
 approaches to differentiation
Speed, by being the first into new market segments
 Levels of reliability that are higher than those of
the competition
Design
Levels of service and delight
 Unique product features
The brand image and personality
New technologies
A greater number and/or more relevant product
features
Stronger and more meaningful relationships
 appropriate conditions:
The market is too large to be catered to by a few
firms offering a standardized product/services
The customers needs and preferences are too
diversified to be satisfied by a standardized
products/ services
It is possible for the firm to charge a premium price
for differentiation that is valued by the customer
Benefits:
Firms distinguish themselves successfully on the
basis of differentiation thereby lessening
competitive rivalry
Powerful suppliers if negotiate on price increases,
the firm can accommodate to the extent it has
brand loyal customers
Powerful buyers do not usually negotiate price
decreases
Differentiation is an expensive proposition for new
entrants
Substitute product can not pose significant threat to
established differentiator firms
Risks:
Long term perceived uniqueness-the basis for
differentiation-is difficult to sustain
 Focus strategy
The third of the generic strategies identified by
Porter involves the organization in concentrating its
efforts upon one or more narrow market segments,
rather than pursuing a broader-based strategy.
By doing this the firm is able to build a greater in-
depth knowledge of each of the segments, as well
as creating barriers to entry by virtue of its
specialist reputation.
 Having established itself, the firm will typically
then, depending upon the specific demands of the
market, develop either a cost-based or
differentiated strategy
appropriate conditions:
There should be some type of uniqueness in the
segment which could either be geographical,
demographic, or based on life-style
The niche market is large enough to be profitable
for the focused firm
Advantages:
a focused firm is protected from competition
The specialization of focused firms can be used as a
barrier to new entrants
The bargaining power of suppliers is often weak to
the extent that focused firms buy in small quantities
Disadvantages:
The development of distinctive competencies may
be a long-drawn and difficult process
Risks related with the cost configuration
Niches are often transient: they may disappear as a
result of technology and/or market factors
 UNITY UNIVERSITY
School of Graduate Studies
Course Outline

CourseTitle: Strategic Management

Course Code: MBA-732
Credit and Contact Hours: 3/3
Course Description
This course focuses on the nature and role of strategic
management in business organizations.
The course enables to analyze the factors influencing
strategic planning, process and discusses in detail the
elements and formulation of strategic and tactical
plans.Due attention is given in this course to develop mind-
set of candidates long-term thinking; integrative approach
of solving business problems;
the process of making strategic decisions and developing
plans for implementing and evaluating these decisions.
The course aims to broaden and deepen the basic
management tools acquired in the first year general
management courses and to develop the skills in
relation to designing a strategic plan that effectively
integrates various tools into a consistent program
that aims at achieving a sustainable robust growth of
organizations. Additionally, the course is designed to
develop and enhance trainee’s analytical,
communication, leadership and teamwork skills from
a professional perspective.
 
Course objectives
• understanding the nature and role of strategic planning
in business organizations
• analyzing the internal and external factors influencing
the strategic planning process
• discussing the elements and formulation of the
strategic plans
• enabling students to enhance their skills in relation to
the development of strategic plan that effectively
integrate various management tools into a consistent
strategic program
• developing attitude of generalist which enables the
learners to approach assess situation from all possible
angle
Course Content
 
1. Introduction
1.1 Meaning of Strategic Management
1.2 Developmental stages of Strategic Management thought
1.3 Overview of Strategic Management; elements of
strategic management
1.4 Organizational guiding philosophy
 
Strategic Intent
2.1 Vision and Mission
2.2 Business Definition
2.3 Goals and Objectives
3. Environmental Appraisal and Strategic Analysis
3.1 Remote External Environmental Appraisal
3.1.1 The economic facet
3.1.2 The political facet
3.1.3 The technological facet
3.1.4 The social facet

3.2 Task External Environmental Appraisal

3.2.1 Industry and Market Analysis
3.2.2 Competitors Analysis

3.3 Internal Analysis

3.3.1 Strategic value-chain analysis
3.3.2 Resource-based view of internal analysis
 4. Strategic Options
4.1 Corporate Level analysis and Generic Strategies
4.2 Business Level analysis and Generic Strategies
4.3 Functional Level analysis and Strategies
 
5. Strategy Implementation
5.1 Activating Strategies
5.2 Structural Implementation
5.3 Behavioral Implementation
5.4 Functional and Operational Implementation

6. Strategic Evaluation and Control

6.1 strategy evaluation
6.2 Strategic Control
References
Main reading texts:
• Thomson, Strickland and Gamble. Strategic Management: Concepts
and cases. (2020-seventeeth ed.) Mc-Graw Hills Inc.. New York
• David, Fred R. (2011) Strategic Management: Concepts and cases,
Pearson education
• Hunger, D.J., Wheelen, Th.L. Starategic Management (1998). Adison
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