Chapter 1

The Nature of Strategic Management

Ch 1 -1
 After studying this chapter, you need to be able to do
the following:
 Describe the strategic-management process.
 Explain the need for integrating analysis and intuition
in strategic management.
 Define and give examples of key terms in strategic
management.
 Discuss the nature of strategy formulation,
implementation, and evaluation activities.
 Describe the benefits of good strategic management.

Ch 1 -2
“Without a strategy, an organization is like
a ship without a rudder, going around in
circles. It’s like a tramp; it has no
place to go.” Joel Ross and Michael Kami

Ch 1 -3
“If a man takes no thought about what is
distant, he will find sorrow near at hand.
He who will not worry about what is far
off will soon find something worse than
worry.”
Confucius

Ch 1 -4
 Defining and Explaining Strategy
 Alfred Chandler(1962) defined strategy as
“the determination of the basic long-term
goals and objectives of an enterprise and the
adoption of the course of action and the
allocation of resources necessary for carrying
out these goals.”
 Implicit in Chandler’s definition is the idea that
strategy involves rational planning.

Ch 1 -5
Defining and Explaining Strategy…..
 Kenneth Andrew(1965) defines strategy as “the
pattern of objectives, purpose, goals, and the
major policies and plans for achieving these
goals stated in such a way so as to define what
business the company is in or is to be and the
kind of company it is or is to be.”

Ch 1 -6
Defining and Explaining Strategy…..
 Igor Asnoff(1965) explained the concept of
strategy as “the common thread among the
organization’s activities and product-
markets…that defines the essential nature of
business that the organization was or
planned to be in future.”

Ch 1 -7
Defining and Explaining Strategy…..
 William F Gluek (1972) defined strategy as “ a unified,
comprehensive, and integrated plan designed to ensure
that the basic objectives of the enterprise are achieved.”
 The three components:
 “Unified” means that the plan joins all the parts of an enterprise
together.
 “Comprehensive” means it covers all the major aspects of the
enterprise, and
 “Integrated” means that all parts of the plan are compatible with
each other.
 James B. Quinn (1982) has defined strategy as “the
pattern or plan that integrates an organization’s major
goals, policies, and action sequences into a cohesive
whole.”
Ch 1 -8
Defining and Explaining Strategy…..
 Henry Mintzberg (1987) defined strategy as “ a
pattern in a stream of decisions or actions.”
 For him the pattern being a product of
whatever intended (planned) strategies are
actually realized and of any emergent
(unplanned) strategies.

Ch 1 -9
Views of Strategy
 In general, views of strategy fall into three
camps.
 The Rational planning approach
 The Rational and emergent planning approach
 The Process approach

Ch 1 -10
 Views of Strategy….
1. The Rational Planning Approach
These are those who equate strategy with formal planning.

2. The Rational and Emergent planning view

Strategy that stress the role of planning ignore the fact that

strategies can emerge from within an organization without any

formal plan as stated by Henry Mintzberg.
That is to say, even in the absence of intent, strategies can

emerge from the grassroots of an organization.

Due to:

Serendipity

Autonomous action of lower level managers

Unplanned shaft of top level managers

Ch 1 -11
Views of Strategy….
3. The Process Approach
Others have a view of strategy as being about

the process of management.

According to this perspective, the key strategic

issue is to put in place a system of

management that will facilitate the capability of
the organization to respond to an environment
that is essentially unknowable, unpredictable
and, therefore, not amenable to a planning
approach.
Ch 1 -12
Ch 1 -13
 Strategic Management –Defined

Harrison and John (1998) define strategic

management as “the process through which
organizations analyse and learn from their internal
and external environments, establish strategic
direction, create strategies that are intended to help
achieve established goals, and execute these
strategies, all in an effort to satisfy key
organizational stakeholders.”

Ch 1 -14
Strategic Management–Defined…

 Art & science of formulating,

implementing and evaluating cross-
functional decisions that enable
an organization to achieve its
objectives.

Ch 1 -15
Purpose of Strategic Management-General

To exploit and create new and different

opportunities for tomorrow.

Organizations should continually monitor

internal and external events and trends so
that timely changes can be made as needed-
Adapting to change.

Ch 1 -16
Approaches of Strategic Management
 The three perspectives to study strategic
management:
1. The traditional perspective,
2. The resource - based view , and
3. The stakeholder approach

Ch 1 -17
The traditional perspective
 Origin
 Economics
 Source of Competitive Advantage
 Best adapting the organization to its environment by taking
advantage of strengths and opportunities, and overcoming
weaknesses and threats.
 Approach to Strategy Formulation
 Situation analysis of internal and external environments leading
to formulation of mission and Strategies.

Ch 1 -18
The resource - based view
 Origin:
 Business disciplines, and consulting firms
 Source of Competitive Advantage
 Possession of resources, skills, and abilities that is
valuable, rare, and difficult to imitate by competitors.
 Approach to Strategy Formulation
 Analysis of organizational resources, skills, and
abilities.

Ch 1 -19
 The stakeholder approach
 Origin
 Business ethics and social responsibility
 Source of Competitive Advantage
 Superior linkages with stakeholders leading to trust, goodwill,
reduced uncertainty, improved business dealings, and ultimately
higher firm performance.
 Approach to Strategy Formulation
 Analysis of the economic power, political influence, rights, and
demands of various stakeholders.

Ch 1 -20
The Strategy Hierarchy
 In most (large) corporations, there are
several levels of management.
1. Corporate Level Strategy- what you want to
achieve...
2. Business Level Strategy- how you are going
to complete…
3. Functional Strategy- how you are going to
grow…

Ch 1 -21
Corporate Level Strategy

 In general, corporate strategy describes a

company’s overall direction in terms of its
general attitude toward growth and the
management of its various businesses and
product lines.
 Corporate strategies typically fit within the
three main categories: stability, growth, and
retrenchment.

Ch 1 -22
Business Level Strategy

 Business-level strategy is about how the various

businesses included in the corporate strategy
should compete in their particular markets (for
this reason, business-level strategy is
sometimes called ‘competitive strategy’).
 According to Michael Porter, a firm must
formulate a business strategy that incorporates
either cost leadership, differentiation, or focus to
achieve a sustainable competitive advantage
and long-term success.
Ch 1 -23
 Functional Strategy
 It includes marketing strategies, new product
development strategies, human resource
strategies, financial strategies, legal strategies,
supply-chain strategies, and information
technology management strategies.
 Operational strategy: It is very narrow in focus
and deals with day-to-day operational
activities such as scheduling criteria.

Ch 1 -24
3 Stages of the Strategic Management Process

 Strategy formulation

 Strategy implementation

 Strategy evaluation

Ch 1 -25
Strategy Formulation

Vision & Mission

External Opportunities & Threats

Internal Strengths & Weaknesses

Long-Term Objectives

Alternative Strategies

Strategy Selection

Ch 1 -26
Strategy Implementation

Annual Objectives

Policies

Employee Motivation

Resource Allocation

Ch 1 -27
Strategy Evaluation

Internal Review

External Review

Performance Measurement

Corrective Action

Ch 1 -28
Integrating Intuition & Analysis

The strategic management process attempts to

organize quantitative and qualitative
information under conditions of
uncertainty.

 It influences all analyses at all levels.

Ch 1 -29
Integrating Intuition & Analysis…

Intuition is based on:

 Past experiences (pattern)

 Judgment (expert-based)

 Feelings (exposure-based)

Intuition is useful for decision making in

conditions of:
 Great uncertainty

 Little precedent

 Highly interrelated variables

 Several plausible alternatives

Ch 1 -30
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

Ch 1 -31
Strategic Management is Gaining and
Maintaining Competitive Advantage

Anything that a firm does especially well

compared to rival firms.

Ch 1 -32
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.

Ch 1 -33
Strategists

Gather Information

Organize Information

Analyze Information

Ch 1 -34
 Vision and Mission Statements

Vision Statement–

What do we want to become?

Mission Statement–

What is our business?

Ch 1 -35
External Opportunities and Threats

Analysis of Trends’ of the below factors:

 Economic

 Social

 Cultural

 Demographic/Environmental

 Political, Legal, Governmental

 Technological

 Competitors

Ch 1 -36
Internal Strengths and Weaknesses

 Controllable activities performed

especially well or poorly.

 Determined relative to competitors.

Ch 1 -37
Internal Strengths and Weaknesses…

 Typically located in functional areas of the

firm, like:
 Management

 Marketing

 Finance/Accounting

 Production/Operations

 Research & Development

 Management Information Systems

Ch 1 -38
Long-Term Objectives

 Specific results that an organization

seeks to achieve in pursuing its basic
mission.

 Long-term means more than one year, only

for this case.

Ch 1 -39
Long-Term Objectives…

 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.

Ch 1 -40
Strategies

Means by which long-term objectives are

achieved.

Ch 1 -41
Strategies…
 Examples
 Geographic expansion

 Diversification

 Acquisition

 Product development

 Market penetration

 Retrenchment

 Divestiture

 Liquidation

 Joint venture

 Etc…

Ch 1 -42
Annual Objectives

Short-term milestones that firms must

achieve to reach long-term objectives.

Ch 1 -43
Policies

Means by which annual objectives will be

achieved.

Ch 1 -44
.

Ch 1 -45
Benefits of Strategic Management

1. Mapping your future

 A strategy has more than the destination in mind. It
enables you to map the roads and junctions along the
way, so that you can plot your way and, critically,
measure your progress.
2. Attracting funding
3. Unifying the organization
 A well-communicated strategy sends the message:
“We’re all in this together.”

Ch 1 -46
Benefits of Strategic Management…

Ch 1 -47
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

Ch 1 -48
Why Some Firms Do No have Strategic Planning

 Lack of knowledge of strategic planning

 Poor reward structures
 Fire fighting
 Waste of time
 Too expensive
 Laziness
 Content with success

Ch 1 -49
Why Some Firms Do No have Strategic Planning
(continued)

 Fear of failure
 Overconfidence
 Prior bad experience
 Self-interest
 Fear of the unknown
 Honest difference of opinion
 Suspicion

Ch 1 -50
Pitfalls in Strategic Planning

Strategic planning is an involved, intricate,

and complex process that takes an
organization into uncharted territory.

Ch 1 -51
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

Ch 1 -52
Effective Strategic Planning…

 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

Ch 1 -53
Effective Strategic Planning…

 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

Ch 1 -54
Business ethics and strategic management

 Business ethics is one of the prerequisites

of strategic management.
 Principles of conduct within organizations
can guide decisions and behaviors.
 Good ethics is just good business.

 A code of business ethics can provide a basis

on which policies can be devised to guide
daily behaviour and decisions at the work
site.

Ch 1 -55
Thank You

Ch 1 -56