Chapter – I

The Nature of Strategic Management

 Chapter – I
The Nature of Strategic Management
1.1 Definition
A strategy is a long-term plan of action designed to achieve a
particular goal.
Strategic Management is the dynamic process of formulation,
implementation, evaluation & control of strategies to realize an
organization’s strategic intent.
 Characteristics of strategic Management

 Future oriented
 Requires considering the external environment
 Requires larger resource commitment
 Requires involvement of top management
1.2 Phases/Process in Strategic Management
1) Environmental Scanning
2) Strategy Formulation
3) Strategy Implementation
4) Evaluation and Control
1) Environmental Scanning
is the gathering, monitoring, evaluating, & disseminating of
information from the external & internal environment to key
people within the corporation.
2) Strategy Formulation
Is concerned with developing a strategy to execute the business
objectives and/or activities.

It includes :-
 Developing Vision & Mission (the target of the business)
 SWOT Analysis (Internal & External Forces)
 Setting long term goals and objectives.
3) Strategy Implementation

Requires a firm to
 Establish Annual objectives
 Devise policies
 Motivate employees & allocate resources so that formulated
strategies can be executed.
4) Strategy Evaluation
 Provides the information whether particular strategies are
working well or not.
 Since external and internal forces are constantly changing,
all strategies are subject to future modification.
1.3 Key Terms in Strategic Management
1) Competitive Advantage
 Strategic management is all about gaining and maintaining
competitive advantage.
It means, “anything that a firm does especially well
compared to rival firms.”
2) Strategists
are the individuals who are most responsible for the success/failure of an
organization.
gather, analyze, and organize information.
develop forecasting models & scenario analyses,
 evaluate corporate & divisional performance, spot emerging market
opportunities,
identify business threats, and develop creative action plans.
3) Vision and Mission Statements

Vision
 Answers the question, “What do we want to become?”
 Logical starting point for strategic management.

Mission
 Purpose or reason for existence.
 Answers the question, “What is our business?”
4) External Opportunities and Threats
Refer to economic, social, cultural, demographic,
environmental, political, legal, governmental, technological,
and competitive trends and events that could significantly
benefit or harm an organization in the future.
5) Internal Strengths and Weaknesses
 are an organization’s controllable activities that are
performed especially well or poorly.
 Identifying and evaluating organizational strengths and
weaknesses in the functional areas of a business is an essential
strategic management activity.
 Organizations strive to pursue strategies that capitalize on
internal strengths and eliminate internal weaknesses.
6) Strategies
 the means by which long-term objectives will be achieved.
 it includes geographic expansion, diversification, acquisition,
product development, market penetration, retrenchment or cost-
cutting, divestiture, liquidation, & joint venture.
7) Long-Term Objectives
 specific results that an organization seeks to achieve in pursuing
its basic mission.
 Objectives are vital for organizational success because they:
 state direction;
 aid in evaluation;
 create synergy;
 reveal priorities;
 focus coordination; & provide a basis for effective
planning, organizing, motivating, and controlling activities.
8) Annual Objectives (important in strategy implementation)

 short-term milestones that organizations must achieve to

reach long-term objectives.
 Like long-term objectives, annual objectives should be
measurable, quantitative, challenging, realistic, consistent, and
prioritized.
9) Policies (important in strategy implementation)
include guidelines, rules, and procedures established to
support efforts to achieve stated objectives.
 are guides to decision making and address repetitive or
recurring situations.
1.4 The Strategic Management Model
The model doesn’t guarantee success, but it does represent a
clear & practical approach for formulating, implementing &
evaluating strategies.
Relationships among major components of the strategic-
management process are shown in the model.
1.5 Benefits of Strategic Management

Major benefits
 Proactive in shaping firm’s future
 Initiate and influence actions
 Formulate better strategies (Systematic, logical, rational
approach)
Specific benefits
 Financial
 Non-Financial
 Non-Financial benefits
Financial benefits
 Improved understanding of competitors’
 Improved productivity strategies
 Greater awareness of external threats
 Improved sales  Understanding of performance reward
 Improved profitability relationships
 Better problem-avoidance
 Lesser resistance to change
1.6 Business Ethics and Strategic Management
Business Ethics
 principles of conduct within organizations that guide
decision making and behavior.
 good business ethics is a prerequisite for good strategic
management;
 good ethics is just good business.
1.6 Why Some Firms Do No Strategic Planning?
Some reasons for poor or no strategic planning are as
follows:
Poor Reward Structures - When an organization
assumes success, it often fails to reward success.
Fire-Fighting - An organization can be so deeply
engaged in crisis management that it does not have time
to plan.
Waste of Time - Some firms see planning as a waste of
time since no marketable product is produced. But time
spent on planning is an investment as they stand. But
success today does not guarantee success tomorrow.
 Too Expensive - Some organizations are culturally opposed
to spending resources.
 Laziness - People may not want to put forth the effort
needed to formulate a plan.
 Content with Success - Particularly if a firm is successful,
individuals may feel there is no need to plan because things
are fine.
 Fear of Failure - By not taking action, there is little risk of
failure unless a problem is urgent and pressing. Whenever
something worthwhile is attempted, there is some risk of
failure.
 Suspicion - Employees may not trust management.
 Overconfidence - As individuals amass experience,
they may rely less on formalized planning. Being
overconfident or overestimating experience can bring
demise.
 Prior Bad Experience - People may have had a
previous bad experience with planning, that is, cases
in which plans have been long, cumbersome,
impractical, or inflexible.
 Self-Interest - When someone has achieved status,
privilege, or self-esteem through effectively using an
old system, he or she often sees a new plan as a
threat.
 Fear of the Unknown - People may be uncertain of
their abilities to learn new skills, of their aptitude
with new systems, or of their ability to take on new
roles.

 Honest Difference of Opinion - People may sincerely

believe the plan is wrong. They may view the
situation from a different viewpoint.
1.7 Pitfalls to avoid in Strategic Planning
1. Using strategic planning to gain control over
decisions and resources
2. Doing strategic planning only to satisfy
accreditation or regulatory requirements
3. Too hastily moving from mission development to
strategy formulation
4. Failing to communicate the plan to employees,
5. Top managers making many intuitive decisions
that conflict with the formal plan
6. Top managers not actively supporting the strategic-
planning process
7. Failing to use plans as a standard for measuring
performance
8. Delegating planning to a "planner" rather than
involving all managers
9. Failing to involve key employees in all phases of
planning
10. Failing to create a collaborative climate
supportive of change
1.9 Guidelines for Effective Strategic Management
An integral part of strategy evaluation must be to
evaluate the quality of the strategic management
process.
Issues such as “Is strategic management in
our firm a people process or a paper
process?” should be addressed.
Even the most technically perfect strategic
plan will serve little purpose if it is not
implemented well.
Change comes through implementation
and evaluation, not through the plan.
A technically imperfect plan that is
implemented well will achieve more than
the perfect plan that never gets off the
paper on which it is typed.
 Strategic management;
must not become a self-perpetuating
bureaucratic mechanism.
Rather, it must be a self-reflective learning
process that familiarizes managers and
employees in the organization with key
strategic issues and feasible alternatives for
resolving those issues.
Strategic management:
must not become ritualistic, stilted,
orchestrated, or too formal, predictable, and
rigid.
rather it must represent the medium for
explaining strategic issues and
organizational responses. i.e., Words
supported by numbers, rather than numbers
supported by words,
The other guideline for effective
strategic management is open
mindedness. A willingness and
eagerness to consider new
information, new viewpoints, new
ideas, and new possibilities is
essential.
 Strategic decisions require trade-offs such as :

long-range versus short-range

considerations or

maximizing profits versus increasing

shareholders’ wealth.

 there are ethics issues too. Strategy trade-offs

require subjective judgments and preferences.
 Subjective factors such as;
attitudes toward risk,
concern for social responsibility, and
organizational culture will always affect
strategy-formulation decisions, but
organizations need to be as objective as
possible in considering qualitative factors.
 In many cases, a lack of objectivity in
formulating strategy results in a loss of
competitive posture and profitability.
1.10 Challenges in Strategic Management – the
21st century challenges
Three particular challenges or decisions that
face all strategists today are deciding whether
the process should be:
1.more an art or a science,
2.visible to or hidden from stakeholders,
and
3.more top-down or bottom-up in their
firm.
The Art or Science Issue
The Science Advocates/Strategic Scientists
contend that firms need to;
 systematically assess their external and internal
environments,
conduct research,
carefully evaluate the pros and cons of various
alternatives, perform analyses, and
then decide upon a particular course of action.
 promote objective analysis.
 reject strategies that emerge from emotion,
intuition, creativity, and politics.
 insist on more formality.
 Refer strategic planning as a “deliberate”
process.
The Art Advocates: The Mintzberg Philosophy
Based on Mintzberg’s notion of “crafting”
strategies-artistic model.
“Crafting” strategy embodies that the
strategic decision making be based primarily
on;
holistic thinking,
intuition,

creativity, and imagination.

 reject strategies that result from objective
analysis, preferring instead subjective
imagination.
 consider time spent on strategic planning is a
time spent poorly.
 insists on informality.
 refersto strategic planning as an “emergent”
process.
The Visible or Hidden Issue
Why Visible?
Reasons to be completely open with the
strategy process and resultant decisions are:
Managers, employees, and other
stakeholders can readily contribute to the
process. They often have excellent ideas.
Secrecy would forgo many excellent ideas.
Investors, creditors, and other stakeholders
have greater basis for supporting a firm when
they know what the firm is doing and where
the firm is going.
Visibility promotes democracy whereas
secrecy promotes autocracy.
Participation and openness enhances
understanding, commitment, and
communication within the firm.
 
Why Hidden?
Reasons why some firms prefer to conduct
strategic planning in secret and keep strategies
hidden from all but the highest-level executives
are as follows:
Participants in a visible strategy process
become more attractive to rival firms who may
lure them away.
Secrecy limits criticism, second guessing, and
hindsight.
Secrecy limits rival firms from imitating or
duplicating the firm’s strategies and
undermining the firm.
The Top-Down or Bottom-Up Approach
Top-Down Proponents
top executives are the only persons in the firm with
the collective experience, and responsibility to make
key strategy decisions.
Bottom-up advocates
lower and middle-level managers and employees who
will be implementing the strategies need to be actively
involved in the process of formulating the strategies to
assure their support and commitment.
In a nut shell, strategists in
successful organizations realize that
strategic management;
is a people process.
isan excellent vehicle for fostering
organizational communication.
people are what make the
difference in organizations.
 Chapter Two
The Business Mission
• Drucker says that asking the question “What is our business?” is synonymous
with asking the question “What is our mission?”
• The mission statement is a declaration of an organization’s “reason for being.”

• While the mission statement answers the question “What is our business’’ the
vision statement answers the question “What do we want to become?”
• As the first step in SM, the vision and mission statements provide direction
for all planning activities.
• A mission statement needs to be broad to effectively reconcile differences
among, and appeal to, an organization’s diverse stakeholders.
Stakeholders include employees, managers, stockholders, boards of directors,
customers, suppliers, distributors, creditors, governments (local, state, federal, and
foreign), unions, competitors, environmental groups, and the general public.
A good mission statement reflects the anticipations of customers.

A major reason for developing a business mission statement is to attract customers

who give meaning to an organization.
Social issues mandate that strategists consider not only what the organization owes
its various stakeholders but also what responsibilities the firm has to consumers,
environmentalists, minorities, communities, and other groups.
 The Process of Developing a Mission Statement

i. It is important to involve as many managers as possible

ii. To select several articles about mission statement, ask all

managers to read these as background information.

iii. Then ask managers themselves to prepare a mission statement

for the organization individually

iv. Request for modifications, additions and deletions along with a

meeting to revise the document.
2-52
 Components of a Mission Statement
1. Customers —who are the firm’s customers?
2. Products or services—what are the firm’s major products or services?
3. Markets—geographically, where does the firm compete?
4. Technology—is the firm technologically current?
5. Concern for survival, growth, and profitability—is the firm committed to growth and
financial soundness?
6. Philosophy—what are the basic beliefs, values, aspirations, and ethical priorities of the
firm?
7. Self-concept—what is the firm’s distinctive competence or major competitive advantage?
8. Concern for public image—is the firm responsive to social, community, and
environmental concerns?
9. Concern for employees—Are employees a valuable asset of the firm?
VISION Vs. MISSION
 VISION

©2013 Cengage Learning.  All Rights Reserved.  May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a
certain product or service or otherwise on a password-protected website for classroom use.
©2013 Cengage Learning.  All Rights Reserved.  May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a
certain product or service or otherwise on a password-protected website for classroom use.
©2013 Cengage Learning.  All Rights Reserved.  May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a
certain product or service or otherwise on a password-protected website for classroom use.
 MISSION

©2013 Cengage Learning.  All Rights Reserved.  May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a
certain product or service or otherwise on a password-protected website for classroom use.
©2013 Cengage Learning.  All Rights Reserved.  May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a
certain product or service or otherwise on a password-protected website for classroom use.
 MISSION

©2013 Cengage Learning.  All Rights Reserved.  May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a
certain product or service or otherwise on a password-protected website for classroom use.
 VISION, MISSION AND ETHICS

Business
ethics
are a
vital
part
of:
THANK YOU!!!