STRATEGIC

MANAGEMENT
Unit – I

Dr.S.Susendiran
INTRODUCTION &
CONCEPT
 Introduction & Concept
 Strategic management is the ongoing 
planning, monitoring, analysis and assessment of all
necessities an organization needs to meet its goals and
objectives.
 The strategic management process helps organizations
take stock of their present situation, chalk out strategies,
deploy them and analyze the effectiveness of the
implemented management strategies.
Definitions
 Strategic management is the process of managing the pursuit
of organizational mission while managing the relationship of the
organization to its environment (James M. Higgins).
 Strategic management is defined as the set of decisions and
actions resulting in the formulation and implementation of
strategies designed to achieve the objectives of the
organization (John A. Pearce II and Richard B. Robinson, Jr.).
ELEMENTS OF
STRATEGIC
MANAGEMENT
 Elements Of Strategic Management
 Strategic Planning and Control - the process of deciding on changes in organizational objectives, in the

resources to be used in attaining these objectives, in policies governing the acquisition and use of these

resources, and in the means (strategies) of attaining the objectives. Strategic planning and control involve

actions that change the character or direction of the organization.

 Management Planning and Control - the process of ensuring that resources are obtained and used

efficiently in the accomplishment of the organization's objectives. Management planning and control is

carried on within the framework established by strategic planning and is analogous to operating control.

 Technical Planning and Control - the process of ensuring efficient acquisition and use of resources, with

respect to those activities for which the optimum relationship between outputs and resources can be

accurately estimated (e.g., financial, accounting, and quality controls).

 Another important term in the study of strategic management is long-range planning. 

THE NATURE AND VALUE
OF STRATEGIC
MANAGEMENT
The Nature and Value of Strategic Management

Strategic management is a process which determines whether an organization

excels, survives, or dies.

All organizations engage in the strategic management process either formally or

informally.

Strategic management is equally applicable to public, private, not-for-profit, and

religious organizations.

 An attempt is made in this thesis to show the applicability of strategic management

to all types of organizations, but the emphasis is on private-enterprise organizations.

PROCESS / STAGES OF
STRATEGIC
MANAGEMENT
Process / Stages Of Strategic Management

Strategy
Evaluation and
Strategy Control
Implementation
Strategy
Formulation
Environmental
Scanning
1. Environmental Scanning:
Environmental scanning is the monitoring, evaluating, and

disseminating of information from the external and internal

environment to key people within the organization in order to identify

strategic factors that will determine the future of the corporation. The

external environment of a business is scanned through SWOT analysis.

1. Environmental Scanning:
SWOT stands for Strengths, Weaknesses, Opportunities, and

Threats that are strategic factors for a specific company. The

external environment consists of variables in terms of

Opportunities and Threats that are outside the organization and

typically beyond the short-run control of the top management.

2. Strategy Formulation
 Strategy formulation is the process of establishing

the organization's mission, objectives, and choosing

among alternative strategies. Sometimes strategy

formulation is called "strategic planning."

2. Strategy Formulation
Mission

◦ The mission of a business is the fundamental, unique purpose that sets it apart from other firms of

its type and identifies the scope of its operations in product and market terms. It is a general,

enduring statement of company intent embodying the business philosophy of strategic decision

makers.

Objectives:

◦ Objectives are the end results of planned activity that state what is to be accomplished by when

and should be quantified if possible and their achievement should result in the fulfillment of a

corporation’s mission.
 2. Strategy Formulation … Contd..
 Strategies: A strategy of a corporation forms a comprehensive plan of action stating how the corporation will achieve

its mission and objectives. It maximizes competitive advantage and minimizes competitive disadvantage. A typical

business firm usually considers three types of strategy: corporate, business and functional.

◦ Corporate Strategy: Corporate strategy provides a company overall directions in terms of its general attitude toward growth and

the management of its various businesses and product lines.

◦ Business Strategy: The business level strategies are the alternative courses of action that a firm can adopt for each of its businesses

separately to serve identified customer groups and give value to the customers in order to satisfy their needs. In the process the firm

uses its competencies to acquire, sustain and increase its competitive advantage.

◦ Functional Strategies: Within the general framework of the grand strategy, each distinctive business function needs a specific and

integrative plan of action. A functional strategy is the short- term game plan for a key functional area within a company. Such

strategies provide more specific details about how key functional areas are to be managed in the near future.
2. Strategy Formulation.. Contd…
Policies:

Policies are directives that guide the thinking, decisions, and actions
of managers and their subordinates in implementing the
organization’s strategy.
Policies provide guidelines for establishing and controlling the
ongoing operating processes of the firm consistent with the firm’s
strategic objectives.
3. Strategy Implementation
Strategy implementation is the action stage of strategic management. It

refers to decisions that are made to install new strategy or reinforce

existing strategy. The basic strategy - implementation activities are

establishing annual objectives, devising policies, and allocated resources.

Strategy implementation also includes the making of decisions with

regard to matching strategy and organizational structure; developing

budgets, and motivational systems.

 3. Strategy Implementation
 Programs: Programs are a complex of goals, policies, procedures, rules, task

assignments, steps to be taken, resources to be employed, and other elements

necessary to carry out a given course of action; they are ordinarily supported

by budgets. It may involve restructuring the corporation, changing the

company’s internal culture, or beginning a new research effort.

 3. Strategy Implementation
 Budgets: A budget is a statement of expected results expressed in numerical terms. A budget may be

expressed either in financial terms or in terms of labor-hours, units of product, machine-hours, or

any other numerically measurable term. It may deal with operations, as the expense budget does; it

may reflect capital outlays, as the capital expenditure budget does; or it may show cash flow, as the

cash budget does.

 Procedure: Procedures are plans that establish a required method of handling future activities. They

are guides to action, rather than to thinking, and they detail the exact manner in which certain

activities must be accomplished. They are chronological sequences of required actions. For example,

Delta Airlines used various procedures to cut costs.

4. Strategy Evaluation And Control
 Strategy evaluation is the final stage in strategic management. Managers

need to know when and why particular strategies are not working well;

strategy evaluation is the primary means for obtaining this information.

 Evaluation is the process in which corporate activities and performance

results are monitored so that actual performance can be compared with

desired performance. All strategists are subject to future modification

because external and internal factors are constantly changing.

4. Strategy Evaluation And Control
Three fundamental strategy evaluation activities are:

(1) Reviewing external and internal factors that are the

bases for current strategies,

(2) Measuring performance, and

(3) Taking corrective actions.

THE STRATEGIC
DECISION MAKERS
 The Strategic Decision Makers
 Top Management

 The term "top management" refers to a relatively small group of people include president, chief
executive officer, vice president, and executive vice president. Because the insights of these
executives play such a critical role, a number of writers have stressed the importance of matching
the characteristics of these executives with the firm's strategies.
 The Strategic Decision Makers
 Other Managers And Staff Members

 In many organizations, the job of strategic management can become so overwhelming, that the chief
executive must assign individuals, usually called planning staff personnel, to help with the tasks.
Recent theory and studies suggest that middle-level managers attempt to influence business strategy
and often initiate strategic proposals.

 Board Of Directors

 The business which exists in corporate form has a board of directors, elected by stockholders and
given ultimate authority and responsibility. Boards typically elect a chairperson who is responsible
for overseeing board business, and they form standing committees which meet regularly to conduct
their business. A strategy committee is a board committee that works with CEO to develop strategic
management process.
STRATEGIC
MANAGEMENT – NEED
 Strategic Management – Need
i. Due to Change: Everything, except change is not permanent. It does mean that only change is

permanent. Change makes planning difficult. But, firms may pro-act to the change rather than just react to

it. Strategic management encourages the top executives to forecast change and provides direction and

control. It will also allow the firm to take advantage of the opportunities provided by the changes in the

environment and avoid the threats or reduce the risk as the future is anticipated. Thus, strategic

management allows an enterprise to base its decisions on long-range forecasts.

ii. To Provide Guidelines: Strategic management provides guidelines to the employer about the

organisation’s expectations from them. This would minimise conflict between job performance and job

demands. Thus, it provides incentive for employer and helps the organisation in achieving its objectives.
 Strategic Management – Need
iii. Developed Field of Study by Research: Strategic management was just based on case studies or

anecdotal evidence 30 years ago. But recently, there are methodological problem researches in this field

of study. More systematic knowledge in this area is available at present. Therefore, today it is worthwhile

to study strategic management.

iv. Probability for Better Performance: There is no clear research evidence that strategic management

leads to higher performance. But the majority of studies suggest that there is a relationship between better

performance and formal planning. It is also stated that businesses which plan strategically have a higher

probability of success than those which do not have.

v. Systematize Business Decisions:

 Strategic Management – Need
Strategic management provides data and information about different business transactions to managers
and helps them to make decisions systematically.
vi. Improves Communication: Strategic management provides effective communication of information
from lower level managers to middle level managers and to top level managers.
vii. Improves Coordination: Strategic management improves coordination not only among the
functional areas of management, but also among individual projects.
viii. Improves Allocation of Resources: Strategic planning helps in deciding upon most feasible and
viable projects and thereby improves the allocation of resources to the viable projects.
ix. Helps the Managers to have a Holistic Approach: Strategic management helps the managers to have
complete understanding of the company and to have a holistic approach towards business problems and
proportions.
THE IMPORTANCE AND
VALUE OF STRATEGIC
MANAGEMENT
 The Importance and Value Of Strategic Management

1. It helps integrate the behaviour of individuals into a total effort.

2. It gives a sense of long-term direction and provides a framework for guidance in medium-term and short-term planning.
3. It allows for identification, prioritization, and exploitation of opportunities.
4. It minimizes the effects of adverse conditions and changes.
5. It is a conscious and a rational management exercise, which involves defining and achieving an organization’s objective and
implementing its mission.
6. It provides a basis for clarifying individual responsibilities.
7. It is the only means by which the future opportunities and problems can be anticipated by the management.
8. It focuses on long-term issues, which affect the organization.
9. It allows major decisions to better support established objectives.
10. It helps the organization in managing risks and reducing risks.
11. It allows more effective allocation of time and resources to identified opportunities.
12. It gives a sense of purpose leading to better quality of management overall.
13. It allows fewer resources and less time to be devoted to correcting erroneous or ad hoc decisions.
14. It encourages creativity and initiative.
15. It leads to better analysis and diagnosis of the current and likely future environment, identifying opportunities and threats.
 The Importance and Value Of Strategic Management
16. It encourages a favourable attitude toward change.
17. It will have positive impact on the long-term prosperity of the firm.
18. It provides an objective view of management problems.
19. It involves planning, implementation and control of an organization’s strategy.
20. It gives a degree of discipline and formality to the management of a business.
21. It creates a framework for internal communication among personnel.
22. It enables the organization to be more aware of its external environment and enables it to adapt to achieve a better fit
with its environment.
23. It encourages forward thinking.
24. It is concerned with implementation of policies that are considered to be appropriate.
25. It represents a framework for improved coordination and control of activities.
26. It is the adoption of a course of action so as to achieve a given objective with the specified reasons.
27. It is conducive to greater harmony and goal congruence.
28. It provides a cooperative, integrated and enthusiastic approach to tackling problems and opportu­nities.
29. It improves quality of strategic decisions through group interaction.
30. It reduces gaps and overlaps in activities.
STRATEGIC
MANAGEMENT
– COMPONENTS
 Strategic Management – Components
The five components of strategic management process are:

1. Selection of the corporate mission and major corporate goals,

2. Analysis of the organization’s external competitive environment to identify opportunities

and threats,

3. Analysis of the organization’s internal operating environment to identify the organization’s

strengths and weaknesses,

4. Selection of strategies that build on the organization’s strengths and correct its weaknesses

in order to take advantage of external opportunities and counter external threats.

5. Strategy implementation.
Component # 1. Mission and Major Goals
 Most organizations define the basic reason for their existence in terms of a mission statement that

provides the basic philosophy of the firm.

 A mission statement usually emanates from the entrepreneur or from major strategists in the firm’s

development overtime.

 The mission of a company is an important element in establishing the strategy of the organization.

 “The mission can be seen as a link between performing some social function and more specific

targets or objectives of the organization”.

 Thus the mission legitimizes the existence of a firm.

A carefully defined mission of a business provides an explicit statement to insiders and outsiders

‘of what the company stands for—its purpose, image and character.’
Component # 2. External Analysis
A firm’s external environment consists of all the conditions and forces

that affect its strategic options but are typically beyond the firm’s control.

 The analysis of the organization’s external environment aims at

identifying strategic opportunities and threats in the organization’s

operating environment.

 Three interrelated environments should be analyzed at this stage- the

industry environment, the national environment and the wider macro-

environment.
 Component # 3. Internal Environment
 ‘An organization’s internal environment analysis determines its performance capabilities

based on existing or accessible resources.’

 It identifies the strengths and weaknesses of the organization and considers such issues

as determining the quantity and quality of resources available to the organization in

which the sources of competitive advantage lie.

 Building and maintaining a competitive advantage requires a company to achieve

superior efficiency, quality, innovation, and customer responsiveness.

 A company’s strengths lead to superiority in these areas, whereas a company’s

weaknesses translate into inferior performance.

 Component # 4. SWOT and Strategic Choice
 The main purpose of SWOT analysis is to identify strategies that align, fit, or match a company’s

resources and capabilities to the demands of the environment in which the company operates.
 In other words, the purpose of generating strategic alternatives by a SWOT analysis should be to

build on a company’s strengths in order to exploit opportunities, counter threats, and correct

weaknesses.
 SWOT analysis provides a simple but powerful tool for evaluating the strategic position of the

firm.
 It is especially useful for senior executives undertaking a fundamental reappraisal of a business, in

that it permits a free-thinking environment unencumbered by the constraints often imposed by a

finance-driven budgetary planning system.

Strategic Choice
 Corporate-Level Strategy: An organization’s corporate strategy identifies the businesses that maximize its long- term profitability. For many

organizations competing successfully often means vertical integration, diversification, strategic alliance or acquisition. Some companies may

be successful in establishing a sustainable competitive advantage and may be able to generate resources in excess of their investment

requirements within their business. For such organizations, long-term profitability maximization may mean diversification in new businesses.
 Business Level Strategies: Business level strategy is concerned with shaping the future of the business unit concerned. It is essentially

competitive strategy that signifies the interface between the market and the business unit. Business level strategy is concerned with meeting

competition, protecting market shares and achieving profits at the business unit level.
 Functional Strategies: From the business strategies, managers develop operational strategies and tactics to implement selected business level

strategy. Functional level strategies may be defined as strategies ‘directed at improving the effectiveness of functional operations within a

company’. The functional operations include manufacturing, marketing, research and development, materials management and human

resources management.
 Global Strategies: Today markets have become global and firms have to be competitive globally. Attaining competitive advantage and

maximizing a company’s performance needs a company needs to expand its business activities beyond its home country. Therefore, a

company must ponder over various global strategies to adopt to compete in the global market-place.
 Component # 5. Strategy Implementation
1. Design Organizational Structure: 2. Designing Control Systems:
Strategy implementation is effected through the In addition to choosing an appropriate
people in the organization, and the way in which they are organizational structure, a company must also establish
organized. The allocation of various roles and suitable organizational control systems. Control systems
responsibilities relating to different aspects of the enable strategists monitor the progress and performance
strategy to different managers and subunits is necessary of a strategy. The control systems may range from market
for the implementation of the selected strategy. and output controls to bureaucratic controls and controls
A company’s organizational structure, therefore, through organizational structure. An organization also
delineates roles and responsibilities as well as their requires an appropriate sort of reward and incentive
reporting relationships. If the existing structure of an systems to encourage performance.
organization is not appropriate for the company’s  
strategy, it may have to design a new structure. We
describe the different types of organizational structures
that can be used to implement strategy.
 
Component # 5. Strategy Implementation
3. Matching, Strategy, Structure and Controls: 4. Managing Strategic Change:
For a successful strategy implementation, a In today’s world the only constant is change.
company’s strategy must match with its structure and Because the change is so pervasive, the companies that
controls. The strategic managers can create a structure are able to adapt their strategy and structure to a
and control systems to encourage the development of changing world achieve long run success.
various distinctive functional competencies or skills.  
 

The Feedback Loop:

Feedback can be defined as post-implementation results collected as inputs for the enhancement of future
decision-making. Once a strategy is implemented, its execution must be monitored to know to what extent the
strategic objectives are actually being achieved.
The information received though feedback is fed into the next round of strategy formulation and
implementation. The feedback serves either to reaffirm existing corporate goals and strategies or to suggest changes.
Feedback may also reveal that strategic objectives were attainable but implementation was poor.
END OF CHAP - I