Strategic Management

Chap-1
 What is Strategic Management

Strategic management can be described as the identification of the purpose of the

organization and the plans and actions to achieve that purpose.

Strategic management can be described as finding market opportunities,

experimenting and developing competitive advantage over time.

‘The field of strategic management deals with the major intended and emergent
initiatives taken by general managers on behalf of owners, involving utilization of
resources, to enhance the performance of fi rms in their external environments.’
Competitive advantage refers to factors that allow a company to produce goods
or services better or more cheaply than its rivals. It is a favorable position sought
by a business to be more profitable than its rivals.

In the business world, companies with a long-term competitive advantage are

considered to have a sustainable competitive advantage. For a company to
have a long-term competitive edge, it must consistently earn more profits than
its competitors.

The competitive edge of a corporation is what distinguishes it from its

competitors. There is a direct correlation between higher prices, more
customers, and brand loyalty. A company's most crucial goal is to build a
competitive edge.
 Strategic management consists of two main elements: corporate-level strategy and
business-level strategy

Corporate-level strategy can also be seen in the following definition of strategic

management: Strategic management is the pattern of major objectives, purposes or
goals and essential policies or plans for achieving those goals, stated in such a way
as to defi ne what business the company is in or is to be in and the kind of company
it is or is to be.

Business-level strategy can be seen in the following definition of strategic management:

The strategy of the firm relationships is the match between its internal capabilities
and its external. It describes how it responds to its suppliers, its customers, its
competitors and the social and economic environment within which it operates.
 Contents Covered In Strategy

1. The organization's internal resources.

2 . The external environment within which the organization operates.

3 . The organization's ability to add value to what it does.

 Resource Strategy

The resources and capabilities of an organization include its human resource skills, the
investment and the capital in every part of the organization. Organizations need to
develop strategies to optimize the use of these resources. In particular, it is essential to
investigate the sustainable competitive advantage that will allow the organization to
survive and prosper against competition.

Environmental Strategy

Environment encompasses every aspect external to the organization itself: not only the
economic and political circumstances, but also competitors, customers and suppliers.
Organizations therefore need to develop strategies that are best suited to their strengths
and weaknesses in relation to the environment in which they operate.
 Adding Value

The purpose of strategic management is to bring about the conditions under

which the organization is able to create this vital additional value. Strategic
management must also ensure that the organization adapts to changing
circumstances so that it can continue to add value in the future. The ways in
which value can be added and enhanced are crucial to strategic management.
 Key Elements of Strategic Decisions

1. Existing and New customers

2. Implementation process to deliver the strategy

3. Offer sustainable competitive advantage

4. Exploit linkage between the organization and environment

5. Vision and purpose

 Core Areas
1. Strategic Analysis

2. Strategy Development

3. Strategy Implementation

There are two important qualifications to the three core areas. Judgement and values play
an important role in determining the objectives and choice. Moreover, some elements are
highly speculative and may involve major assumptions and risks.

There is considerable overlap between the three core areas, which are separated out
for the sake of clarity but, in practice, may operate concurrently.
 Context
Content
Elements
1. Context (Environment)

2. Content (Action)

3. Process (Linkage)
Strategy
Process

In most strategic management situations, the context and content are reasonably clear. It is
the way in which strategy is developed and enacted – the process – that usually causes the
most problems. Processes need investigation and are vague and quixotic because they
involve people and rapidly changing environments.
 Approaches to the Process

The prescriptive approach:

Some commentators have judged strategic management to be essentially a linear and
rational process, starting with where-we-are-now and then developing new strategies for
the future . A prescriptive strategy is one whose objective has been defined in advance
and whose main elements have been developed before the strategy commences

Strategic Strategic Strategy

Analysis Development Implementation
The emergent approach:
Other commentators take the view that strategic management emerges, adapting to
human needs and continuing to develop over time. It is evolving, incremental and
continuous, and therefore cannot be easily or usefully summarized in a plan which
then requires to be implemented. An emergent strategy is one whose final objective is
unclear and whose elements are developed during the course of its life, as the strategy
proceeds. The theorists of this approach often argue that long-term prescriptive
strategies are of limited value

Strategic Strategic Strategy

Analysis Development Implementation
 Developing models of strategic management

Strategic Analysis:
The analytical phase of both the prescriptive and the emergent approach can be
divided into two parts:
1 Analysis of the environment – examining what is happening or
likely to happen outside the organization (e.g. economic and political developments,
competition).
2 Analysis of resources – exploring the skills and resources available
inside the organization (e.g. human resources, plant, finance).
3 Identification of vision, mission and objectives – developing and
reviewing the strategic direction and the more specific objectives (e.g. the
maximization of profit or return on capital, or in some cases a social service).
 Strategy Development and Implementation

This is followed by a rational selection from the options according to identified criteria, in
order to arrive at the prescriptive strategy. In most cases, this choice is implemented after
considering the necessary organization, controls and other matters that will be important in
practice. The decisions then feed back into the resources and the environment of the
organization.

Strategy Development and Implementation

Essentially, this takes a much more experimental view of the strategy choice and its
implementation. It seeks to learn by trial, experimentation and discussion as strategies are
developed. There is no final, agreed strategy but rather a series of experimental approaches that
are considered by those involved and then developed further. Strategies emerge during a process
of crafting and testing.