Chapter 1: Introduction To Strategic Management

Prepard By:
Dr.Firas Omar
Dr. Mohammad Fasha
 Strategic Management - An Introduction
• Strategic Management is all about identification and description of the strategies that managers can carry so as to achieve
better performance and a competitive advantage for their organization. An organization is said to have competitive
advantage if its profitability is higher than the average profitability for all companies in its industry.

• Strategic management can also be defined as a bundle of decisions and acts which a manager undertakes, and which
decides the result of the firm’s performance. The manager must have a thorough knowledge and analysis of the general
and competitive organizational environment so as to take right decisions. They should conduct a SWOT Analysis (Strengths,
Weaknesses, Opportunities, and Threats), i.e., they should make best possible utilization of strengths, minimize the
organizational weaknesses, make use of arising opportunities from the business environment and shouldn’t ignore the
threats.

• Strategic management is nothing but planning for both predictable as well as unfeasible contingencies. It is applicable to
both small as well as large organizations as even the smallest organization face competition and, by formulating and
implementing appropriate strategies, they can attain sustainable competitive advantage.

• It is a way in which strategists set the objectives and proceed about attaining them. It deals with making and implementing
decisions about future direction of an organization. It helps us to identify the direction in which an organization is moving.

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 Starting New Project
• Strategic management is a continuous process that evaluates and controls the business and the industries in which an
organization is involved; evaluates its competitors and sets goals and strategies to meet all existing and potential
competitors; and then reevaluates strategies on a regular basis to determine how it has been implemented and whether it
was successful or does it need replacement.

• Strategic Management gives a broader perspective to the employees of an organization and they can better understand
how their job fits into the entire organizational plan and how it is co-related to other organizational members. It is nothing
but the art of managing employees in a manner which maximizes the ability of achieving business objectives. The
employees become more trustworthy, more committed and more satisfied as they can co-relate themselves very well with
each organizational task. They can understand the reaction of environmental changes on the organization and the probable
response of the organization with the help of strategic management. Thus the employees can judge the impact of such
changes on their own job and can effectively face the changes. The managers and employees must do appropriate things in
appropriate manner. They need to be both effective as well as efficient.

• One of the major role of strategic management is to incorporate various functional areas of the organization completely, as
well as, to ensure these functional areas harmonize and get together well. Another role of strategic management is to keep
a continuous eye on the goals and objectives of the organization.

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 Important Concepts of Strategic Management:
Following are the important concepts of Strategic Management:

• Strategy - Definition and Features

• Components of a Strategy Statement
• Strategic Management Process
• Environmental Scanning
• Strategy Formulation
• Strategy Implementation
• Strategy Formulation vs Implementation
• Strategy Evaluation
• Strategic Decisions
• Business Policy
• BCG Matrix
• SWOT Analysis
• Competitor Analysis
• Porter’s Five Forces Model
• Strategic Leadership
• Corporate Governance
• Business Ethics
• Core Competencies
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 Strategy - Definition and Features
The word “strategy” is derived from the Greek word “stratçgos”; stratus (meaning army) and “ago” (meaning
leading/moving).

Strategy is an action that managers take to attain one or more of the organization’s goals. Strategy can also be defined
as “A general direction set for the company and its various components to achieve a desired state in the future.
Strategy results from the detailed strategic planning process”.

A strategy is all about integrating organizational activities and utilizing and allocating the scarce resources within the
organizational environment so as to meet the present objectives. While planning a strategy it is essential to consider
that decisions are not taken in a vacuum and that any act taken by a firm is likely to be met by a reaction from those
affected, competitors, customers, employees or suppliers.

Strategy can also be defined as knowledge of the goals, the uncertainty of events and the need to take into
consideration the likely or actual behavior of others. Strategy is the blueprint of decisions in an organization that
shows its objectives and goals, reduces the key policies, and plans for achieving these goals, and defines the business
the company is to carry on, the type of economic and human organization it wants to be, and the contribution it plans
to make to its shareholders, customers and society at large.

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 Features of Strategy

Strategy is Significant because it is not possible to foresee the future. Without a perfect foresight, the firms must
be ready to deal with the uncertain events which constitute the business environment.
• Strategy deals with long term developments rather than routine operations, i.e. it deals with probability of
innovations or new products, new methods of productions, or new markets to be developed in future.
• Strategy is created to take into account the probable behavior of customers and competitors. Strategies dealing
with employees will predict the employee behavior.
• Strategy is a well defined roadmap of an organization. It defines the overall mission, vision and direction of an
organization. The objective of a strategy is to maximize an organization’s strengths and to minimize the
strengths of the competitors.

Strategy, in short, bridges the gap between “where we are” and “where we want to be”.

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 Components of a Strategy Statement
The strategy statement of a firm sets the firm’s long-term strategic direction and broad policy directions. It gives
the firm a clear sense of direction and a blueprint for the firm’s activities for the upcoming years. The main
constituents of a strategic statement are as follows:

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 Components of a Strategy Statement
1. Strategic Intent
An organization’s strategic intent is the purpose that it exists and why it will continue to exist, providing it maintains a
competitive advantage. Strategic intent gives a picture about what an organization must get into immediately in order
to achieve the company’s vision. It motivates the people. It clarifies the vision of the vision of the company.

Strategic intent helps management to emphasize and concentrate on the priorities. Strategic intent is, nothing but, the
influencing of an organization’s resource potential and core competencies to achieve what at first may seem to be
unachievable goals in the competitive environment. A well expressed strategic intent should guide/steer the
development of strategic intent or the setting of goals and objectives that require that all of organization’s competencies
be controlled to maximum value.

Strategic intent includes directing organization’s attention on the need of winning; inspiring people by telling them that
the targets are valuable; encouraging individual and team participation as well as contribution; and utilizing intent to
direct allocation of resources.

Strategic intent differs from strategic fit in a way that while strategic fit deals with harmonizing available resources and
potentials to the external environment, strategic intent emphasizes on building new resources and potentials so as to
create and exploit future opportunities.

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 Components of a Strategy Statement
2. Mission Statement
Mission statement is the statement of the role by which an organization intends to serve it’s stakeholders. It
describes why an organization is operating and thus provides a framework within which strategies are formulated. It
describes what the organization does (i.e., present capabilities), who all it serves (i.e., stakeholders) and what makes an
organization unique (i.e., reason for existence).

A mission statement differentiates an organization from others by explaining its broad scope of activities, its products,
and technologies it uses to achieve its goals and objectives. It talks about an organization’s present (i.e., “about where
we are”). For instance, Microsoft’s mission is to help people and businesses throughout the world to realize their full
potential. Wal-Mart’s mission is “To give ordinary folk the chance to buy the same thing as rich people.” Mission
statements always exist at top level of an organization, but may also be made for various organizational levels. Chief
executive plays a significant role in formulation of mission statement. Once the mission statement is formulated, it
serves the organization in long run, but it may become ambiguous with organizational growth and innovations.

In today’s dynamic and competitive environment, mission may need to be redefined. However, care must be taken that
the redefined mission statement should have original fundamentals/components. Mission statement has three main
components-a statement of mission or vision of the company, a statement of the core values that shape the acts and
behaviour of the employees, and a statement of the goals and objectives.
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 Components of a Strategy Statement
2. Mission Statement

Features of a Mission
1. Mission must be feasible and attainable. It should be possible to achieve it.
2. Mission should be clear enough so that any action can be taken.
3. It should be inspiring for the management, staff and society at large.
4. It should be precise enough, i.e., it should be neither too broad nor too narrow.
5. It should be unique and distinctive to leave an impact in everyone’s mind.
6. It should be analytical,i.e., it should analyze the key components of the strategy.
7. It should be credible, i.e., all stakeholders should be able to believe it.

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 Components of a Strategy Statement

3. Vision
A vision statement identifies where the organization wants or intends to be in future or where it should be to
best meet the needs of the stakeholders. It describes dreams and aspirations for future. For instance, Microsoft’s
vision is “to empower people through great software, any time, any place, or any device.” Wal-Mart’s vision is to
become worldwide leader in retailing.

A vision is the potential to view things ahead of themselves. It answers the question “where we want to be”. It
gives us a reminder about what we attempt to develop. A vision statement is for the organization and it’s
members, unlike the mission statement which is for the customers/clients. It contributes in effective decision
making as well as effective business planning. It incorporates a shared understanding about the nature and aim of
the organization and utilizes this understanding to direct and guide the organization towards a better purpose. It
describes that on achieving the mission, how the organizational future would appear to be.

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 Components of a Strategy Statement
3. Vision

An effective vision statement must have following features-

1. It must be unambiguous.
2. It must be clear.
3. It must harmonize with organization’s culture and values.
4. The dreams and aspirations must be rational/realistic.
5. Vision statements should be shorter so that they are easier to memorize.

In order to realize the vision, it must be deeply instilled in the organization, being owned and shared by everyone
involved in the organization.

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 Components of a Strategy Statement

4. Goals and Objectives

A goal is a desired future state or objective that an organization tries to achieve. Goals specify in particular what must
be done if an organization is to attain mission or vision. Goals make mission more prominent and concrete. They co-
ordinate and integrate various functional and departmental areas in an organization. Well made goals have following
features-

1. These are precise and measurable.

2. These look after critical and significant issues.
3. These are realistic and challenging.
4. These must be achieved within a specific time frame.
5. These include both financial as well as non-financial components.
Objectives are defined as goals that organization wants to achieve over a period of time. These are the foundation of
planning. Policies are developed in an organization so as to achieve these objectives. Formulation of objectives is the
task of top level management.

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 Components of a Strategy Statement

4. Goals and Objectives

Effective objectives have following features-

1. These are not single for an organization, but multiple.

2. Objectives should be both short-term as well as long-term.
3. Objectives must respond and react to changes in environment, i.e., they must be flexible.
4. These must be feasible, realistic and operational.

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 Importance of Vision and Mission Statements

One of the first things that any observer of management thought and practice asks is whether a particular organization
has a vision and mission statement. In addition, one of the first things that one learns in a business school is the
importance of vision and mission statements.

This article is intended to elucidate on the reasons why vision and mission statements are important and the benefits
that such statements provide to the organizations. It has been found in studies that organizations that have lucid,
coherent, and meaningful vision and mission statements return more than double the numbers in shareholder benefits
when compared to the organizations that do not have vision and mission statements. Indeed, the importance of vision
and mission statements is such that it is the first thing that is discussed in management textbooks on strategy.

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 Importance of Vision and Mission Statements
Some of the benefits of having a vision and mission statement are discussed below:

• Above everything else, vision and mission statements provide unanimity of purpose to organizations and imbue the
employees with a sense of belonging and identity. Indeed, vision and mission statements are embodiments of
organizational identity and carry the organizations creed and motto. For this purpose, they are also called as
statements of creed.
• Vision and mission statements spell out the context in which the organization operates and provides the employees
with a tone that is to be followed in the organizational climate. Since they define the reason for existence of the
organization, they are indicators of the direction in which the organization must move to actualize the goals in the
vision and mission statements.
• The vision and mission statements serve as focal points for individuals to identify themselves with the organizational
processes and to give them a sense of direction while at the same time deterring those who do not wish to follow
them from participating in the organization’s activities.
• The vision and mission statements help to translate the objectives of the organization into work structures and to
assign tasks to the elements in the organization that are responsible for actualizing them in practice.
• To specify the core structure on which the organizational edifice stands and to help in the translation of objectives into
actionable cost, performance, and time related measures.
• Finally, vision and mission statements provide a philosophy of existence to the employees, which is very crucial
because as humans, we need meaning from the work to do and the vision and mission statements provide the
necessary meaning for working in a particular organization.
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 Importance of Vision and Mission Statements

As can be seen from the above, articulate, coherent, and meaningful vision and mission statements go a long way in
setting the base performance and actionable parameters and embody the spirit of the organization. In other words,
vision and mission statements are as important as the various identities that individuals have in their everyday lives.

It is for this reason that organizations spend a lot of time in defining their vision and mission statements and ensure
that they come up with the statements that provide meaning instead of being mere sentences that are devoid of any
meaning.

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 Strategic Management Process - Meaning, Steps
and Components
The strategic management process means defining the organization’s strategy. It is also defined as the process by
which managers make a choice of a set of strategies for the organization that will enable it to achieve better
performance.

Strategic management is a continuous process that appraises the business and industries in which the organization is
involved; appraises it’s competitors; and fixes goals to meet all the present and future competitor’s and then
reassesses each strategy.

Strategic management process has following four steps:

Environmental Scanning- Environmental scanning refers to a process of collecting, scrutinizing and providing
information for strategic purposes. It helps in analyzing the internal and external factors influencing an organization.
After executing the environmental analysis process, management should evaluate it on a continuous basis and strive to
improve it.

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 Strategic Management Process - Meaning, Steps
and Components
Strategic management process has following four steps:

1. Environmental Scanning- Environmental scanning refers to a process of collecting, scrutinizing and providing
information for strategic purposes. It helps in analyzing the internal and external factors influencing an
organization. After executing the environmental analysis process, management should evaluate it on a continuous
basis and strive to improve it.
2. Strategy Formulation- Strategy formulation is the process of deciding best course of action for accomplishing
organizational objectives and hence achieving organizational purpose. After conducting environment scanning,
managers formulate corporate, business and functional strategies.
3.Strategy Implementation- Strategy implementation implies making the strategy work as intended or putting the
organization’s chosen strategy into action. Strategy implementation includes designing the organization’s structure,
distributing resources, developing decision making process, and managing human resources.
4.Strategy Evaluation- Strategy evaluation is the final step of strategy management process. The key strategy
evaluation activities are: appraising internal and external factors that are the root of present strategies, measuring
performance, and taking remedial / corrective actions. Evaluation makes sure that the organizational strategy as well
as it’s implementation meets the organizational objectives.

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 Strategic Management Process - Meaning,
Steps and Components

These components are steps that are carried, in chronological order, when creating a new strategic management plan.
Present businesses that have already created a strategic management plan will revert to these steps as per the situation’s
requirement, so as to make essential changes.

Components of Strategic Management Process

Strategic management is an ongoing process. Therefore, it must be realized that each component interacts with the
other components and that this interaction often happens in chorus.

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 Environmental Scanning - Internal & External
Analysis of Environment

Organizational environment consists of both external and internal factors. Environment must be scanned so as to
determine development and forecasts of factors that will influence organizational success. Environmental scanning
refers to possession and utilization of information about occasions, patterns, trends, and relationships within an
organization’s internal and external environment. It helps the managers to decide the future path of the
organization. Scanning must identify the threats and opportunities existing in the environment. While strategy
formulation, an organization must take advantage of the opportunities and minimize the threats. A threat for one
organization may be an opportunity for another.

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 Environmental Scanning - Internal & External
Analysis of Environment
Internal analysis of the environment: is the first step of environment scanning. Organizations should observe the internal
organizational environment. This includes employee interaction with other employees, employee interaction with
management, manager interaction with other managers, and management interaction with shareholders, access to
natural resources, brand awareness, organizational structure, main staff, operational potential, etc. Also, discussions,
interviews, and surveys can be used to assess the internal environment. Analysis of internal environment helps in
identifying strengths and weaknesses of an organization.

As business becomes more competitive, and there are rapid changes in the external environment, information from
external environment adds crucial elements to the effectiveness of long-term plans. As environment is dynamic, it
becomes essential to identify competitors’ moves and actions. Organizations have also to update the core competencies
and internal environment as per external environment. Environmental factors are infinite, hence, organization should be
agile and vigile to accept and adjust to the environmental changes. For instance - Monitoring might indicate that an
original forecast of the prices of the raw materials that are involved in the product are no more credible, which could
imply the requirement for more focused scanning, forecasting and analysis to create a more trustworthy prediction about
the input costs. In a similar manner, there can be changes in factors such as competitor’s activities, technology, market
tastes and preferences.
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 Environmental Scanning - Internal & External
Analysis of Environment
in external analysis, three correlated environment should be studied and analyzed —

1. immediate / industry environment

2. national environment
3. broader socio-economic environment / macro-environment
Examining the industry environment needs an appraisal of the competitive structure of the organization’s industry,
including the competitive position of a particular organization and it’s main rivals. Also, an assessment of the nature,
stage, dynamics and history of the industry is essential. It also implies evaluating the effect of globalization on
competition within the industry. Analyzing the national environment needs an appraisal of whether the national
framework helps in achieving competitive advantage in the globalized environment. Analysis of macro-environment
includes exploring macro-economic, social, government, legal, technological and international factors that may
influence the environment. The analysis of organization’s external environment reveals opportunities and threats for an
organization.

Strategic managers must not only recognize the present state of the environment and their industry but also be able to
predict its future positions.
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 Steps in Strategy Formulation Process
Strategy formulation refers to the process of choosing the most appropriate course of action for the realization of
organizational goals and objectives and thereby achieving the organizational vision. The process of strategy
formulation basically involves six main steps. Though these steps do not follow a rigid chronological order, however
they are very rational and can be easily followed in this order.

1. Setting Organizations’ objectives - The key component of any strategy statement is to set the long-term objectives
of the organization. It is known that strategy is generally a medium for realization of organizational objectives.
Objectives stress the state of being there whereas Strategy stresses upon the process of reaching there. Strategy
includes both the fixation of objectives as well the medium to be used to realize those objectives. Thus, strategy is a
wider term which believes in the manner of deployment of resources so as to achieve the objectives.
While fixing the organizational objectives, it is essential that the factors which influence the selection of objectives
must be analyzed before the selection of objectives. Once the objectives and the factors influencing strategic decisions
have been determined, it is easy to take strategic decisions.

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 Steps in Strategy Formulation Process

2. Evaluating the Organizational Environment - The next step is to evaluate the general economic and industrial
environment in which the organization operates. This includes a review of the organizations competitive position. It is
essential to conduct a qualitative and quantitative review of an organizations existing product line. The purpose of such a
review is to make sure that the factors important for competitive success in the market can be discovered so that the
management can identify their own strengths and weaknesses as well as their competitors’ strengths and weaknesses.
After identifying its strengths and weaknesses, an organization must keep a track of competitors’ moves and actions so as
to discover probable opportunities of threats to its market or supply sources.

3. Setting Quantitative Targets - In this step, an organization must practically fix the quantitative target values for some of
the organizational objectives. The idea behind this is to compare with long term customers, so as to evaluate the
contribution that might be made by various product zones or operating departments.

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 Steps in Strategy Formulation Process

4. Aiming in context with the divisional plans - In this step, the contributions made by each department
or division or product category within the organization is identified and accordingly strategic planning is
done for each sub-unit. This requires a careful analysis of macroeconomic trends.

5. Performance Analysis - Performance analysis includes discovering and analyzing the gap between the
planned or desired considering
performance. A critical evaluation
organizational goals of the organizations past performance, present
condition and the desired future conditions must be done by the organization. This critical evaluation
identifies the degree of gap that persists between the actual reality and the long-term aspirations of the
organization. An attempt is made by the organization to estimate its probable future condition if the
current trends persist.

6. Choice of Strategy - This is the ultimate step in Strategy Formulation. The best course of action is
actually chosen after , organizational strengths, potential and limitations as well as the external
opportunities.

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 Strategy Implementation - Meaning and Steps in
Implementing a Strategy
Strategy implementation is the translation of chosen strategy into organizational action so as to achieve strategic goals and
objectives. Strategy implementation is also defined as the manner in which an organization should develop, utilize, and
amalgamate organizational structure, control systems, and culture to follow strategies that lead to competitive advantage and a
better performance.

Organizational structure allocates special value developing tasks and roles to the employees and states how these tasks and roles
can be correlated so as maximize efficiency, quality, and customer satisfaction-the pillars of competitive advantage. But,
organizational structure is not sufficient in itself to motivate the employees.

An organizational control system is also required. This control system equips managers with motivational incentives for employees
as well as feedback on employees and organizational performance. Organizational culture refers to the specialized collection of
values, attitudes, norms and beliefs shared by organizational members and groups.

Following are the main steps in implementing a strategy:

• Developing an organization having potential of carrying out strategy successfully.

• Disbursement of abundant resources to strategy-essential activities.
• Creating strategy-encouraging policies.
• Employing best policies and programs for constant improvement.
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 Strategy Implementation - Meaning and Steps in
Implementing a Strategy

• Linking reward structure to accomplishment of results.

• Making use of strategic leadership.
Excellently formulated strategies will fail if they are not properly implemented. Also, it is essential to note that strategy
implementation is not possible unless there is stability between strategy and each organizational dimension such as
organizational structure, reward structure, resource-allocation process, etc.

Strategy implementation poses a threat to many managers and employees in an organization. New power relationships
are predicted and achieved. New groups (formal as well as informal) are formed whose values, attitudes, beliefs and
concerns may not be known. With the change in power and status roles, the managers and employees may employ
confrontation behavior.

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 Strategy Formulation vs Strategy Implementation
Following are the main differences between Strategy Formulation and Strategy Implementation

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 Strategy Evaluation Process and its Significance

Strategy Evaluation is as significant as strategy formulation because it throws light on the efficiency and effectiveness of
the comprehensive plans in achieving the desired results. The managers can also assess the appropriateness of the
current strategy in todays dynamic world with socio-economic, political and technological innovations. Strategic
Evaluation is the final phase of strategic management.

The significance of strategy evaluation lies in its capacity to co-ordinate the task performed by managers, groups,
departments etc, through control of performance. Strategic Evaluation is significant because of various factors such as -
developing inputs for new strategic planning, the urge for feedback, appraisal and reward, development of the strategic
management process, judging the validity of strategic choice etc.

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 Strategy Evaluation Process and its Significance
The process of Strategy Evaluation consists of following steps-

1. Fixing benchmark of performance - While fixing the benchmark, strategists encounter questions such as - what
benchmarks to set, how to set them and how to express them. In order to determine the benchmark performance
to be set, it is essential to discover the special requirements for performing the main task. The performance
indicator that best identify and express the special requirements might then be determined to be used for
evaluation. The organization can use both quantitative and qualitative criteria for comprehensive assessment of
performance. Quantitative criteria includes determination of net profit, ROI, earning per share, cost of production,
rate of employee turnover etc. Among the Qualitative factors are subjective evaluation of factors such as - skills and
competencies, risk taking potential, flexibility etc.

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 Strategy Evaluation Process and its Significance
2. Measurement of performance - The standard performance is a bench mark with which the actual performance
is to be compared. The reporting and communication system help in measuring the performance. If appropriate
means are available for measuring the performance and if the standards are set in the right manner, strategy
evaluation becomes easier. But various factors such as managers contribution are difficult to measure. Similarly
divisional performance is sometimes difficult to measure as compared to individual performance. Thus, variable
objectives must be created against which measurement of performance can be done. The measurement must be
done at right time else evaluation will not meet its purpose. For measuring the performance, financial statements
like - balance sheet, profit and loss account must be prepared on an annual basis.

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 Strategy Evaluation Process and its Significance

3. Analyzing Variance - While measuring the actual performance and comparing it with standard performance
there may be variances which must be analyzed. The strategists must mention the degree of tolerance limits
between which the variance between actual and standard performance may be accepted. The positive
deviation indicates a better performance but it is quite unusual exceeding the target always. The negative
deviation is an issue of concern because it indicates a shortfall in performance. Thus in this case the strategists
must discover the causes of deviation and must take corrective action to overcome it.

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 Strategy Evaluation Process and its Significance

4. Taking Corrective Action - Once the deviation in performance is identified, it is essential to plan for a
corrective action. If the performance is consistently less than the desired performance, the strategists must
carry a detailed analysis of the factors responsible for such performance. If the strategists discover that the
organizational potential does not match with the performance requirements, then the standards must be
lowered. Another rare and drastic corrective action is reformulating the strategy which requires going back to
the process of strategic management, reframing of plans according to new resource allocation trend and
consequent means going to the beginning point of strategic management process.

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