INTRODUCTION TO STRATEGIC MANAGEMENT

1.1 Strategy Defined

Strategy: The concept of strategy has been borrowed from the military and adapted for
use in business. In business, as in the military, strategy bridges the gap between policy
and tactics. Together, strategy and tactics bridge the gap between ends and means.
Detailing it further, strategy is all about gaining or being prepared to gain a position of
advantage over adversaries or best exploiting emerging possibilities. As there is always
an element of uncertainty about the future, strategy is more about a set of options than a
fixed plan.

Strategy can also be defined as the determination of the long-term goals and objectives of an
enterprise and the adoption of the courses of action and the allocation of resources necessary
for carrying out these goals. It is therefore management’s game plan for strengthening the
organization’s position, pleasing customers, and achieving performance targets.

According to Barney and Hastley is a firm’s theory about how to gain competitive advantage.

Strategy According to Henry Mintzberg

Henry Mintzberg, in his 1994 book, The Rise and Fall of Strategic Planning points out that
people use "strategy" in several different ways, the most common being these four:

1. Strategy is a plan, a "how," a means of getting from here to there.

2. Strategy is a pattern in actions over time; for example, a company that regularly
markets very expensive products is using a "high end" strategy.
3. Strategy is position; that is, it reflects decisions to offer particular products or
services in particular markets.
4. Strategy is perspective, that is, vision and direction.

Henry Mintzberg argues that strategy emerges over time as intentions collide with and
accommodate a changing reality. Thus, one might start with a perspective and conclude
that it calls for a certain position, which is to be achieved by way of a carefully crafted
plan, with the eventual outcome and strategy reflected in a pattern evident in decisions

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and actions over time. This pattern in decisions and actions defines what Mintzberg
called "realized" or emergent strategy.

Strategy According to Michael Porter

In a 1996 Harvard Business Review article, Porter argues that competitive strategy is about
being different and it means deliberately choosing a different set of activities to deliver a
unique mix of value. In short, Porter argues that strategy is about:

a) Competitive position
b) Differentiating yourself in the eyes of the customer,
c) Adding value through a mix of activities different from those used by competitors.

Porter defines competitive strategy as “a combination of the ends (goals) for which
the firm is striving and the means (policies) by which it is seeking to get there."Thus,
Porter seems to embrace strategy as both plan and position. (It should be noted that
Porter writes about competitive strategy, not about strategy in general.)

Strategy is therefore a set of actions through which an organization, by accident or

design, develops resources and uses them to deliver services or products in a way that
its users find valuable while meeting the financial and other objectives and
constraints imposed by key stake holders in order to attain and sustain competitive
advantage.

Business strategy decisions

Not all decisions made in an organization contribute equally to strategy. There are three
main ways of distinguishing strategic decisions from other types of decisions:
1. Magnitude-Strategic decisions are big decisions-they affect entire organization or
a large part of it such as a whole division or a major function and entail significant
degree of interaction with the world around it eg. Organization’s competitors,
suppliers and customers.
2. Time scale-They set the direction for the organization over the medium to long
term but they will have a short term impact as well. What constitutes medium or
long term depends on nature of organization eg 18months can be long term for
computers or consumer goods. In capital goods industries such as oil production,
10-15 years can be considered long term. It is therefore helpful to measure time
scales in terms of product life cycles with the short term being one product life
cycle and medium being two and long term being more than two. For most
industries, this gives a time horizon of about 3 to 5 years.
3. Commitment- They involve making choices and committing resources in ways
which cannot be reversed cheaply or easily. This may involve investing large
amounts of money in buildings, high profile long term marketing campaigns etc
Exercise
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 Identify strategic decisions among the following decisions as under listed
a) Uchumi Supermarket reduced prices of most goods to increase sales
b) Uchumi Supermarket adopted overtime operation to increase output
c) Uchumi Supermarket expanded and opened outlets countrywide
d) Mumias Sugar Company laid off 20% of its workforce in order to manage
operation costs.

Strategic Management Process and Competitive Advantage

Strategic management is defined as the art and science of formulating, implementing,

and evaluating cross-functional decisions that enable the organization to achieve its
objectives." Generally, strategic management is not only related to a single specialization
but covers cross-functional or overall organization. The strategic management process is
illustrated in the diagram below.

Strategic Management Process

External Analysis
Vision&Mission Objectives Strategic choice Strategy implementation Competitive Advantage

Internal Analysis

Competitive Advantage?

According to Barney and Hastley it is the ability to create more economic value than
competitors. All other elements of the strategic management process ranging from the
formulation of the vision statement to strategy evaluation and control are aimed at
achieving competitive advantage for the firm. Generally, a company’s strategy should
be aimed either at providing a product or ser-vice that is distinctive from what
competitors are offering or at developing competitive capabilities that rivals cannot quite
match. What separates a powerful strategy from a weak one is management’s ability to
forge a series of moves, both in the market place and internally that makes the company
distinctive, tilts the playing field in favour of the company by giving buyers a reason to
prefer its products or services and produces a sustainable competitive advantage over
rivals. A company achieves sustainable competitive advantage when an attractive
number of buyers prefer its products or services over the offerings of competitors and
when the basis for this preference is durable. Four of the most frequently used strategic
approaches to setting a company apart from rivals and achieving a sustainable
competitive advantage are:

a. Being the industry’s low-cost provider.

b. Outcompeting rivals based on such differentiating features as higher quality, wider
product selection, added performance, better service, more attractive styling,
technological superiority, or unusually good value for the money.
c. Focusing on a narrow market niche.
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d. Developing expertise and resource strengths that give the company competitive
capabilities that rivals cannot easily imitate or trump with capabilities of their own.
Temporary and Sustainable Competitive Advantage

One of the fundamentals of economics, and human behavior for that matter, is that if
something proves to be profitable (or otherwise desirable) others will attempt to imitate
or acquire it. Thus, if a firm develops a competitive advantage other firms will attempt
to imitate whatever it is that gives that firm an advantage. This means that most
advantages will be relatively short-lived because of imitation. Some competitive
advantages are sustainable if competitors are unable to imitate the source of advantage
and if no one conceives of a better offering. Of course with time even sustainable
competitive advantage may be lost.

Competitive Parity

Competitive parity means that a firm and/or its output are viewed as being about the
same as other firms, or in other words, about average in the marketplace. A firm
operating at competitive parity exhibits the following

a) the firm’s offerings are ‘average

b) people do not have a preference for the firm’s offering
c) the firm does not have a cost advantage over others d) some things that may lead
to competitive parity may still be critical to success (e.g., telephones)

Competitive Disadvantage

A competitive disadvantage can occur for many reasons:

a) Potential customers may have an aversion (preference not to buy) to a firm’s market
offering
b) An unfavorable cost structure due to outdated and inefficient equipment and/or
technology
c) A bad reputation if the firm or the firm’s output is viewed as being inferior to most
other firms, almost anything could potentially become a source of competitive
disadvantage.

1.5 Deliberate, Emergent, imposed and Realized Strategies, Unrealized

Deliberate Strategy
These are strategies conceived by senior managers as a planned response to the
challenges confronting an organization after systematic analysis of the organization’s
environment and resources. Strategies that are decided on in advance are called intended
strategies. Intended strategies that are put into operation are called deliberate strategies

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while intended or deliberate strategies that do not happen are called unrealized
strategies.

Emergent Strategy
There has been increasing recognition that strategic direction of the whole organization
can be shaped by opportunistic decisions that can happen at any level in the organization.
These have been termed emergent strategies. That is, a strategy that is not intentionally
planned but emerges from lower down the organization without direct senior
management intervention.

Example
A company dealing in men’s jeans sends out salesmen to their target markets. One
salesman realizes that some women are also interested in the product. He makes sales to
the women. The firm considers this as a good idea and ends up supplying more of the
product to cater for women’s interest hence ends up diversifying the target market.

Imposed Strategy
These are strategies about which the members of an organization have little effective
choice such that the managers would not otherwise have chosen such a strategy but it is
forced on them. Government policies often generate imposed strategies.

Realized Strategies
A combination of strategies that are in the end adopted, whether intended, deliberate,
imposed or emergent, constitute the realized strategies. That is the strategy that the
organization ends up implementing.

Vision Statement

Vision statement provides direction and inspiration for organizational goal setting.
Vision is where you see yourself at the end of the horizon OR milestone therein. It is a
single statement dream OR aspiration. Typically a vision has the flavors of Being Most
admired, among the top league, being known for innovation, being largest and greatest
and so on. Typically most profitable, Cheapest etc. don’t figure in vision statement.
Unlike goals, vision is not SMART. It does not have mathematics OR timelines attached
to it. Vision is a symbol, and a cause to which we want to bond the stakeholders, (mostly
employees and sometime share-holders). As they say, the people work best, when they
are working for a cause, than for a goal. Vision provides them that cause. Vision is long-
term statement and typically generic & grand. Therefore a vision statement does not
change unless the company is getting into a totally different kind of business. Vision
should never carry the how part. For example to be the most admired brand in Aviation
Industry is a fine vision statement, which can be spoiled by extending it to “To be the

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most admired brand in the Aviation Industry by providing world-class in-flight
services.” The reason for not including how that how is may keep on changing with time.

Challenges related to Vision Statement

Putting-up a vision is not a challenge. The problem is to make employee’s engaged with
it. Many a time, terms like vision, mission and strategy become more a subject of scorn
than being looked up-to. This is primarily because leaders may not be able to make a
connection between the vision/mission and people’s every day work. Too often,
employees see a gap between the vision, mission and their goals & priorities. Even if there
is a valid/tactical reason for this mis-match, it is not explained.

Horizon of Vision

Vision should be the horizon of 5-10 years. If it is less than that, it becomes tactical. If it is
of a horizon of 20+ years (say), it becomes difficult for the strategy to relate to the vision.

Features of a good vision statement:

1. Easy to read and understand.

2. Compact and Crisp to leave something to people’s imagination.
3. Gives the destination and not the road-map.
4. Is meaningful and not too open ended and far-fetched.
5. Excite people and make them get goose-bumps.
6. Provides a motivating force, even in hard times.
7. Is perceived as achievable and at the same time is challenging and compelling,
stretching us beyond what is comfortable.

Vision is a dream/aspiration, fine-tuned to reality: The Entire process starting from

Vision down to the business objectives is highly iterative. The question is from where we
should start. We strongly recommend that vision and mission statement should be made
first without being colored by constraints, capabilities and environment. This can said
akin to the vision of armed forces, that’s Safe and Secure country from external threats.
This vision is a non-negotiable and it drives the organization to find ways and means to
achieve their vision, by overcoming constraints on capabilities and resources. Vision
should be a stake in the ground, a position, a dream, which should be prudent, but should
be non-negotiable barring few rare circumstances.

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 Mission Statement

Mission of an organization is the purpose for which the organization is. Mission is again
a single statement, and carries the statement in verb. Mission in one way is the road to
achieve the vision. For example, for a luxury products company, the vision could be To
be among most admired luxury brands in the world and mission could be To add style
to the lives. A good mission statement will be:

a) Clear and Crisp: While there are different views, it is strongly recommened that
mission should only provide what, and not how and when. We would prefer the
mission of Making People meet their career to ‘Making people meet their career
through effective career counseling and education.”

b) A mission statement without how & when element leaves a creative space with
the organization to enable them take-up wider strategic choices.

c) Have to have a very visible linkage to the business goals and strategy: For example
you cannot have a mission (for a home furnishing company) of Bringing Style to
People’s lives while your strategy asks for mass product and selling. It’s better that
either you start selling high-end products to high value customers, OR change
your mission statement to Help people build homes.

d) Should not be same as the mission of a competing organization. It should touch

upon how its purpose is unique.

Mission follows the Vision: The Entire process starting from Vision down to the business
objectives is highly iterative. The question is from where should be start. I strongly
recommend that mission should follow the vision. This is because the purpose of the
organization could change to achieve their vision. For example, to achieve the 17 vision
of an Insurance company to be the most trusted Insurance Company, the mission could
be first making people financially secure as their emphasis is on Traditional Insurance
product. At a later stage the company can make its mission as making money work for
the people when they also include the non-traditional unit linked investment products.
TOYOTA Vision-Toyota aims to achieve long-term, stable growth economy, the local
communities it serves, and its stakeholders. Mission-Toyota seeks to create a more
prosperous society through automotive manufacturing. IBM Vision Solutions for a small
planet Mission at IBM, we strive to lead in the invention, development and manufacture
of the industry’s most advanced information technologies, including computer systems,
software, storage systems and microelectronics. We translate these advanced
technologies into value for our customers through our professional solutions, services
and consulting businesses worldwide.

Business Objectives and Goals

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A business (also known as enterprise or firm) is an organization engaged in the trade of
goods, services, or both to consumers. Businesses are predominant in capitalist
economies, in which most of them are privately owned and administered to earn profit
to increase the wealth of their owners. Businesses may also be not-for-profit or state-
owned. A business owned by multiple individuals may be referred to as a company,
although that term also has a more precise meaning.

Goals: It is where the business wants to go in the future, its aim. It is a statement of
purpose, e.g. we want to grow the business into Europe.

Objectives: Objectives give the business a clearly defined target. Plans can then be made
to achieve these targets. This can motivate the employees. It also enables the business to
measure the progress towards to its stated aims. Objectives must be SMART

The Difference between goals and objectives

Goals are broad; objectives are narrow.

Goals are general intentions; objectives are precise.
Goals are intangible; objectives are tangible.
Goals are abstract; objectives are concrete.
Goals can’t be validated as is; objectives can be validated.

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