Strategic Management

Chapter # 1

Introduction to Strategic Management

 What’s Meant by a Company’s Strategy?
• A company’s strategy is the set of actions and moves that its managers take to
outperform the company’s competitors and achieve superior profitability
• Strategy’s focus is not on short-term competitiveness but lasting success that
can support growth and secure the company’s future over the long term
• Strategy is about making managerial choices. Choice include:
• How to create products or services that attract and please customers.
• How to position the company in the industry.
• How to develop and deploy resources to build valuable competitive
capabilities.
• How each functional piece of the business will be operated.
• How to achieve the company’s performance targets
 Definition of Strategic Management
• “Strategic management is concerned with the determination of the basic
long-term goals and the objectives of an enterprise, and the adoption of
courses of action and allocation of resources necessary for carrying out these
goals”.
• Alfred Chandler, 1962

• 3 basic elements of SM as per this definition:

• Determination of long-term goal
• Adoption of courses of action
• Allocation of resources to achieve those goals
 Definition of Strategic Management

• Strategic Management can be defined as the art & science of

formulating, implementing, and evaluating, cross-functional decisions
that enable an organization to achieve its objectives.
• Strategic management involves elements geared toward a firm's long
term survival and achievement of management goals.
 Definition of Strategic Management
• 3 on going process that every definition of SM indicate:
• Strategic analysis, strategic formulation and strategic implementation
• Hence, SM is concerned with:
1. Analysis of strategic goals (vision, mission and objectives) along with
the analysis of the external and internal environment of the org
2. Decisions about two basic questions:
(a) What businesses should we compete in?
(b) What strategies should we use to help firm to compete in those
areas?
3. Actions to implement strategies. Allocation of resources and design the
organization to implement the strategies to reality. Also, evaluation
and control to ensure that strategies are effectively implemented.
 What is Strategic Management?
• SM is not a replacement to traditional/operational management
• Operational management is the “what” a company does, strategic
management is the “how” it does things
• SM = (planning + organizing + leading + controlling) + (internal and
external environment) + (organizational purpose + long-term
goals/objectives)
• End result = long term success, competitiveness, survival, growth,
profitability, performance
• SM integrates management, marketing, finance/accounting,
production/operations, research and development, and information
systems to achieve organizational success
 Nature Strategic Management?
• Strategic management and strategic planning… synonyms
• A strategic plan is, in essence, a company’s game plan , approach used
in forming an organization's direction
• SM is about envisioning the future and realizing it: the overall process
of achieving that direction, from planning to executing
• SM involves those management processes in organizations through
which future impact of change is determined and current decisions are
taken to reach a desired future

• SM… exploit and create new and different opportunities for tomorrow
Characteristics of Strategic Management
1. Top management involvement
2. Requirement of large amounts of resources
3. Affect the firm’s long-term prosperity
4. Future-oriented
5. Multi-functional or multi-business consequences
6. Infrequent, non-recurrent, non-programmed and non-self-
generative decisions
 Origin of Strategic Management
• Originated in the 1950s… boomed in the 80s… revived in the 90s

• Era of industrial revolution vs era post 1980s

• Change, flux and transformation in today’s business world
• Organizations are now open systems as opposed to closed
systems
• Competition, globalization, e-commerce, economic constraints
• Unstable, unpredictable, uncertain business times
• To overcome the threats, convert challenges into opportunities,
and stay ahead in the race… SM is the key
 Need for Strategic Management
• Firms are using SM for the following reasons:
1. Firms want to be more proactive than reactive in shaping its own
future
2. Firms want a proper roadmap. They want to firm utilize its
resources in the best possible manner
3. Firms want to anticipate change and be prepared to manage it
4. Firms want to respond to environmental changes in a better way
5. Firms want to minimize the chances of mistakes and unpleasant
surprises
6. Firms want clear objectives and direction for employees
 Benefits of Strategic Management
• SM brings several benefits:
1. It reduces uncertainty
2. It provides a link between long and short terms
3. It facilitates measurement
4. It facilitates control Greater Commitment
Enhanced Communication a. To achieve objectives
a. Dialogue b. To implement strategies
b. Participation c. To work hard
Improved Understanding THE RESULT
a. Of others’ views All managers & Employees
b. Of what the firm is on a Mission to help the
doing/Planning & why Firm Succeed
 Benefits of Strategic Management
• Strategic management has, both financial and non-financial benefits:
• Financial Benefits
• Research indicates that organizations using strategic-management
concepts are more profitable and successful than those that do not.
• Businesses using strategic-management concepts show significant
improvement in sales, profitability, and productivity compared to firms
without systematic planning activities
• High-performing firms tend to do systematic planning to prepare for
future fluctuations in their external and internal environments. Firms with
planning systems more closely resembling strategic-management theory
generally exhibit superior long-term financial performance relative to their
 Benefits of Strategic Management
• Non-Financial Benefits…
• It allows for identification, prioritization, and exploitation of
opportunities
• It provides an objective view of management problems
• It represents a framework for improved coordination and control of
activities
• It minimizes the effects of adverse conditions and changes
• It allows major decisions to better support established objectives
• It allows more effective allocation of time and resources to
identified opportunities
• It allows fewer resources and less time to be devoted to correcting
erroneous or ad hoc decisions
 Benefits of Strategic Management
• Non-Financial Benefits…cont
• It creates a framework for internal communication among personnel
• It helps integrate the behavior of individuals into a total effort
• It provides a basis for clarifying individual responsibilities
• It encourages forward thinking
• It provides a cooperative, integrated, and enthusiastic approach to
tackling problems and opportunities
• It encourages a favorable attitude toward change
• It gives a degree of discipline and formality to the management of a
business
Risks involved in Strategic Management

• Strategic management is an intricate and complex process that takes

an organization into unchartered territory

• SM gives no guarantee for success

 Pitfalls to Watch for and in SM
• It is a costly exercise in terms of the time and resources to be devoted
to it by managers
• May cause non-fulfillment of the expectations of the participating
managers, leading to frustration and disappointment
• Often those associated with the formulation of strategy are not
intimately involved in the implementation of strategies
• Doing SP only to satisfy regulatory requirements
 Pitfalls to Watch for and in SM
• Moving too hastily from mission development to strategy
formulation
• Failing to communicate the strategic plan to the employees, who
continue working in the dark
• Top managers making many intuitive decisions that conflict with
the formal plan
• Top managers not actively supporting the strategic planning
process
• Failing to use plans as a standard for measuring performance
 Pitfalls to Watch for and in SM
• Delegating strategic planning to a consultant rather than involving
all managers
• Failing to involve key employees in all phases of planning
• Failing to create a collaborative climate supportive of change
• Viewing planning to be unnecessary or unimportant
• Becoming so engrossed in current problems that insufficient or no
planning is done
• Being so formal in planning that flexibility and creativity are stifled
The Importance of a Distinctive Strategy
• A creative, distinctive strategy that sets a company apart from rivals
and yields a competitive advantage is a company’s most reliable
ticket for earning above-average profits
• Simply trying to mimic the strategies of the industry’s successful
companies never works
• Strategy cannot be 100 percent different, but should be at least
different in several important respects
Why Some Firms Do No Strategic Planning
• Lack of knowledge or • Content with success
experience in strategic • Fear of failure
planning • Overconfidence
• Poor reward structures • Prior bad experience
• Firefighting • Self-interest
• Waste of time • Fear of the unknown
• Too expensive • Honest difference of
• Laziness opinion
• Laziness • Suspicion
Most Frequently Used and Dependable
Strategies
• low-cost provider strategy
• broad differentiation strategy
• focused low-cost strategy
• focused differentiation strategy
• best-cost provider strategy
• Integrated strategy
• Customer intimacy strategy
 Strategy and Ethics
• A company’s strategic actions cross over into the “should not do” zone
and are likely to be deemed unethical when:
(1) they reflect badly on the company
(2) they adversely impact the legitimate interests and well-being
of shareholders, customers, employees, suppliers, the
communities where it operates, and society at large
(3) they provoke public outcries about inappropriate or
“irresponsible” actions, behavior, or outcomes