Chapter 1

CHAPTER 1
STRATEGIC MANAGEMENT
ESSENTIALS
By Shakeela Kousar
Department of Management Sciences

The Islamia University of Bahawalpur
Copyright © 2011 Pearson Education, Inc. Ch 1

Publishing as Prentice Hall -1
Strategic Management –Defined
“The art of maximizing competitive advantage &

minimizing competitive disadvantage”
“The science of how formulating, implementing &

evaluating the ‘the plans of actions’ designed to achieve
business objectives”

PURPOSE OF STRATEGIC
MANAGEMENT
To exploit and create new and different opportunities for

tomorrow

Strategic Management
In essence, the strategic plan is a company’s game plan

3 STAGES OF THE STRATEGIC
MANAGEMENT PROCESS
Strategy formulation
Strategy implementation
Strategy evaluation
Strategy Formulation
Vision & Mission
External Opportunities & Threats
Internal Strengths & Weaknesses
Long-Term Objectives
Alternative Strategies
Strategy Selection

Issues in Strategy
Formulation
Businesses to enter
Businesses to abandon
Allocation of resources
Expansion or
diversification
International markets
Mergers or joint
ventures
Avoidance of hostile
takeover

Strategy Implementation
Annual Objectives
Policies
Employee Motivation
Resource Allocation

STRATEGY IMPLEMENTATION
STEPS
 Developing a strategy-supportive culture
 Creating an effective organizational structure
 Redirecting marketing efforts
 Preparing budgets
 Developing and utilizing information systems
 Linking employee compensation to organizational performance

Issues in Strategy
Implementation
Action Stage of Strategic

Management
 Mobilization of
employees & managers
 Most difficult stage
 Interpersonal skills
critical

Strategy Evaluation
Internal Review
External Review
Performance Measurement
Corrective Action

Integrating Intuition & Analysis
The strategic management process attempts to organize

quantitative and qualitative information under conditions of
uncertainty

Intuition is based on:

 Past experiences
 Judgment
 Feelings
Intuition is useful for decision making in

conditions of:
 Great uncertainty
 Little precedent
 Highly interrelated variables
 Several plausible alternatives

Intuition & Judgment
Involve management at all levels
Influence all analyses

Adapting to Change
Organizations should continually monitor internal and

external events and trends so that timely changes can be
made as needed

KEY TERMS IN STRATEGIC
MANAGEMENT
 Competitive advantage
 Strategists
 Vision and mission statements
 External opportunities and threats
 Internal strengths and weaknesses
 Long-term objectives
 Strategies
 Annual objectives
 Policies
Strategic Management is
Gaining and Maintaining
Competitive Advantage
Anything that a firm does especially well

compared to rival firms

Achieving Sustained Competitive
Advantage
1. Continually adapting to changes in external

trends and events and internal capabilities,
competencies, and resources
2. Effectively formulating, implementing, and

evaluating strategies that capitalize on those
factors

Strategists
Gather Information
Analyze Information
Organize Information

Vision and Mission Statements
Vision Statement –
What do we want to become?
Mission Statement –
What is our business?

External Opportunities and Threats
Analysis of Trends
 Economic
 Social
 Cultural
 Demographic/Environmental
 Political, Legal, Governmental
 Technological
 Competitors

External Opportunities and Threats
Basic Tenet of Strategic Management
Take advantage of
External Opportunities
Strategy Formulation
Avoid/minimize impact of
External Threats

Internal Strengths and Weaknesses
Controllable activities performed

especially well or poorly
Determined relative to competitors

 Typically located in functional areas of the firm
 Management
 Marketing
 Finance/Accounting
 Production/Operations
 Research & Development
 Management Information Systems

Assessing the Internal Environment
Ratios
Performance Measures
Internal Factors
Industry Averages
Survey Data

Specific results that an organization seeks

to achieve in pursuing its basic mission
Long-term means more than one year

 Essential for ensuring the firm’s success

 Provide direction
 Aid in evaluation
 Create synergy
 Reveal priorities
 Focus coordination
 Provide basis for planning, organizing,
motivating, and controlling

Strategies
Means by which long-term objectives are

achieved

Strategies
 Examples
 Geographic expansion
 Diversification
 Acquisition
 Product development
 Market penetration
 Retrenchment
 Divestiture
 Liquidation
 Joint venture

Annual Objectives
Short-term milestones that firms must

achieve to reach long-term objectives

Policies
Means by which annual objectives will be

achieved

Model of Strategic Management

Strategic Management Model
Strategic Management Process

 Dynamic & continuous
 More formal in larger organizations

STRATEGIC MANAGEMENT
Communication is a key to successful

strategic management

Benefits of Strategic Management

BENEFITS OF STRATEGIC
MANAGEMENT
 Nonfinancial Benefits
 Enhanced awareness of threats
 Improved understanding of competitors’ strategies
 Increased employee productivity
 Reduced resistance to change
 Clearer understanding of performance-reward relationship
 Enhanced problem-prevention capabilities

WHY SOME FIRMS DO NO
STRATEGIC PLANNING
 Lack of knowledge of strategic planning
 Poor reward structures
 Fire fighting
 Waste of time
 Too expensive
 Laziness
 Content with success

WHY SOME FIRMS DO NO
STRATEGIC PLANNING
(CONTINUED)
 Fear of failure
 Overconfidence
 Prior bad experience
 Self-interest
 Fear of the unknown
 Honest difference of opinion
 Suspicion

PITFALLS IN STRATEGIC
PLANNING
Strategic planning is an involved, intricate, and
complex process that takes an organization into
uncharted territory

EFFECTIVE STRATEGIC
PLANNING IS:
 A people process more than a paper process
 A learning process
 Words supported by numbers
 Simple and nonroutine
 Varying assignments, team membership, meeting formats, and planning
calendars
 Challenging assumptions underlying corporate strategy

EFFECTIVE STRATEGIC
PLANNING CONTINUED
 Welcomes bad news
 Requires open-mindedness and a spirit of inquiry
 Is not a bureaucratic mechanism
 Is not ritualistic or stilted
 Is not too formal, predictable, or rigid
 Does not contain jargon or arcane language

EFFECTIVE STRATEGIC
PLANNING CONTINUED
 Is not a formal system for control
 Does not disregard qualitative information
 Is not controlled by “technicians”
 Does not pursue too many strategies at once
 Continually strengthens the “good ethics is good business” policy

COMPARING BUSINESS AND
MILITARY STRATEGY
 Strategic planning started in the military
 Similarity
 Both business and military organizations must adapt to
change and constantly improve
 Difference
 Business strategy assumes competition
 Military strategy assumes conflict
 https://hbr.org/2008/06/the-contradictions-that-
drive-toyotas-success

All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior written
permission of the publisher. Printed in the United States of America.


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CHAPTER 1

Department of Management Sciences

Copyright © 2011 Pearson Education, Inc. Ch 1

“The art of maximizing competitive advantage &

“The science of how formulating, implementing &

Copyright © 2011 Pearson Education, Inc. Ch 1

To exploit and create new and different opportunities for

Copyright © 2011 Pearson Education, Inc. Ch 1

In essence, the strategic plan is a company’s game plan

Copyright © 2011 Pearson Education, Inc. Ch 1

Vision & Mission

External Opportunities & Threats

Internal Strengths & Weaknesses

Copyright © 2011 Pearson Education, Inc. Ch 1

Copyright © 2011 Pearson Education, Inc. Ch 1

Copyright © 2011 Pearson Education, Inc. Ch 1

Copyright © 2011 Pearson Education, Inc. Ch 1

Action Stage of Strategic

 Most difficult stage

Copyright © 2011 Pearson Education, Inc. Ch 1

Copyright © 2011 Pearson Education, Inc. Ch 1

The strategic management process attempts to organize

Copyright © 2011 Pearson Education, Inc. Ch 1

Intuition is based on:

Intuition is useful for decision making in

Copyright © 2011 Pearson Education, Inc. Ch 1

Intuition & Judgment

Involve management at all levels

Influence all analyses

Copyright © 2011 Pearson Education, Inc. Ch 1

Organizations should continually monitor internal and

Copyright © 2011 Pearson Education, Inc. Ch 1

Anything that a firm does especially well

Copyright © 2011 Pearson Education, Inc. Ch 1

1. Continually adapting to changes in external

2. Effectively formulating, implementing, and

Copyright © 2011 Pearson Education, Inc. Ch 1

Copyright © 2011 Pearson Education, Inc. Ch 1

Copyright © 2011 Pearson Education, Inc. Ch 1

Copyright © 2011 Pearson Education, Inc. Ch 1

Basic Tenet of Strategic Management

Copyright © 2011 Pearson Education, Inc. Ch 1

Controllable activities performed

Determined relative to competitors

Copyright © 2011 Pearson Education, Inc. Ch 1

Copyright © 2011 Pearson Education, Inc. Ch 1

Assessing the Internal Environment

Copyright © 2011 Pearson Education, Inc. Ch 1

Specific results that an organization seeks

Long-term means more than one year

Copyright © 2011 Pearson Education, Inc. Ch 1

 Essential for ensuring the firm’s success

Copyright © 2011 Pearson Education, Inc. Ch 1

Means by which long-term objectives are

Copyright © 2011 Pearson Education, Inc. Ch 1

Copyright © 2011 Pearson Education, Inc. Ch 1

Short-term milestones that firms must

Copyright © 2011 Pearson Education, Inc. Ch 1

Means by which annual objectives will be

Copyright © 2011 Pearson Education, Inc. Ch 1

Copyright © 2011 Pearson Education, Inc. Ch 1

Strategic Management Process

Copyright © 2011 Pearson Education, Inc. Ch 1