CHAPTER 1

THE NATURE OF STRATEGIC MANAGEMENT

Strategic management can be defined
as the art and science of:
 formulating,

 implementing, and
 evaluating cross-functional decisions
that enable an organization to achieve
its objectives.
contd

 strategic management focuses on

integrating
management,
marketing,
finance/accounting,
production/operations,
research and development, and
information systems to achieve
organizational success.
 .

The purpose of strategic management is to

exploit and create new and different
opportunities for tomorrow.
strategic management is used to refer to
strategy formulation, implementation, and
evaluation.
 Where as strategic planning referring only
to strategy formulation.
 Stages of Strategic Management:
It consists of three stages:-
1. Strategy formulation includes:-
 developing a vision and mission,
identifying an organization’s external
opportunities and threats,
contd
Determining internal strengths and
weaknesses
Establishing
long-term objectives,
generating alternative strategies, and

choosing particular strategies to

pursue.
2. Strategy implementation requires a
firm to establish:
 annual objectives,
devise policies,
motivate employees, and
allocate resources so that formulated
strategies can be executed.
contd
 strategy implementation includes:-
creating an effective organizational structure,
redirecting marketing efforts,
preparing budgets,
developing and utilizing information
systems, and
linking employee compensation to
organizational performance.
Strategy implementation often is called the
“action stage” of strategic management.

Implementing strategy means mobilizing

employees and managers to put formulated
strategies into action.
contd
Often considered to be the most difficult
stage in strategic management,
 Strategy implementation requires
personal discipline,

commitment, and

sacrifice.
.

Interpersonal skills are especially critical for

successful strategy implementation.

3. Strategy evaluation is the final stage in

strategic management.
Managers desperately need to know when
particular strategies are not working well;

Strategy evaluation is the primary means

for obtaining this information.
 Three fundamental strategy
evaluation activities are provided
below:

a. Reviewing external and internal

factors that are the bases for current
strategies
b. Measuring performance
c. Taking corrective action
Strategy formulation,
implementation, and evaluation
activities occur at three hierarchical
levels in a large organization:
corporate, divisional, and functional.
Smaller businesses may only have the
corporate and functional levels.
Adapting to Change
The strategic-management process is based on the
belief that organizations should continually
monitor internal and external events and trends so
that timely changes can be made as needed.

"Most of us fear change.

But for strategists and managers today, there is no
choice but to change."
 .

 KEY TERMS IN STRATEGIC MANAGEMENT

A. Strategists: Strategists are individuals
who are most responsible for the success or
failure of an organization.

Strategists hold various job titles, such as

chief executive officers, president, owner,
chair of the board, executive director,
chancellor, dean, or entrepreneur.
.

B. Vision and Mission Statements:

Vision statements answer the question:
“What do we want to become?”
Many vision statements are a single
sentence.
For example, the vision statement of Stokes
Eye Clinic in Florence, South Carolina, is
“Our vision is to take care of your vision.”
The vision statement ofDMU: Debre
Markos University strives to be one of the
top ten Universities in Africa by 2025.
C. Mission statements are “enduring
statements of purpose that distinguish
one business from other similar firms.

A mission statement identifies the

scope of a firm’s operations in product
and market terms.”
.

d. External Opportunities and

Threats:
Opportunities and threats are largely
beyond the control of a single
organization, thus the term external.
e. Internal Strengths and
Weaknesses:
They are largely under the control of
the organization.
f. Long-Term Objectives:
Objectives can be defined as specific
results that an organization seeks to
achieve in pursuing its basic mission.

Objectives should be challenging,

measurable, consistent, reasonable,
and clear.
g. Strategies:
Strategies are the means by which long-
term objectives will be achieved.

Business strategies may include

geographic expansion, diversification,
acquisition, product development, market
penetration etc.
.

h. Annual Objectives:
Annual objectives are short-term milestones that
organizations must achieve to reach long-term
objectives and they are the basis for allocating resources.

Like long-term objectives, annual objectives should be

measurable, quantitative, challenging, realistic,
consistent, and prioritized.

Annual objectives are especially important in strategy

implementation, whereas long-term objectives are
particularly important in strategy formulation.
i. Policies:
Policies are the means by which
annual objectives will be achieved.

Policies include guidelines, rules, and

procedures established to achieve
stated objectives.
Importance of Policy
Policies are the guideline for the members of
organization to take decision
Policies help in accomplishing the predetermined
goals and objectives and prevent unwanted deviations
from planned course of action.
Written down policies serve as a means of
communication and help to avoid misunderstandings
between employees and management.
Written down policies control creative thinking and
reduce management flexibility.
Demerits of Policy
It is difficult to adopt written policies
to situations and conditions, which
change from time to time.

It is likely to be interpreted in many

cases differently depending on the
background of the interpreter.
Essential Feature of Business Policy
1) A policy must be worthy of belief. The worthiness
of policy depends on the trust and faith on policy
makers.
2) A policy should be formulated in such a way that
shareholders, management and workers all must
perceive it as conducive to their interest.
3) It should be accepted by every one in the
organization.
contd
4) A policy should be definite, clear flexible and
understandable to every one in the organization and
must not leave any scope for ambiguity.

5) Policy should be related to objectives and

compatible with public interest.

6) Policies should be based on fact and sound

judgment and should not constitute merely
personal reflections.
Formulation of Polices:
1) Analysis of Environment
the management should understand and analyses the
internal and external environment of the company.
2) Goal Specification
Policies should be formulated in the light of corporate
goals.
Corporate goals based on market conditions,
competition, government policies, input supply
position, resources etc.
contd
3) Policy Alternatives
Every policy should have an alternative, which may be
used in the situation when the original policy does not
work.
The environmental analysis will reveal the strength,
weakness and risk of the organization, which will lead
to generate alternative policies.
contd
4) Evaluation of Policy Alternatives
Alternative policies should be evaluated in terms of
their contribution to corporate goals.

The effectiveness of a policy can be tested by

evaluating the profitability, growth, and image of the
company in the minds of customers.
contd
5) Selection of Policy
The last step in the process of policy
formulation is the selection of policy from
the alternatives.
The policy finally chosen should be tested
in terms of its influences on organization.
If it is suitable must be used if not suitable
should be reviewed and revised.
BENEFITS OF STRATEGIC MANAGEMENT

 It helps to enhance communication.

Communication is the key to success.
A. Financial Benefits:
Research indicates that organizations using
strategic-management concepts are more
profitable and successful than those that do
not.
.

B. Nonfinancial Benefits
Enhanced awareness of external threats, know
your competitors’ strengths etc.
Strategic management enhances the problem-
prevention capabilities of organizations.
It can be the beginning of an efficient and
effective managerial system.
Strategic management may renew confidence in
the current business strategy.
contd
It allows for identification, prioritization, and
exploitation of opportunities.
It minimizes the effects of adverse conditions and
changes.
It provides a basis for clarifying individual
responsibilities.
WHY SOME FIRMS DO NOT STRATEGIC PLANNING
Reasons for poor or no strategic planning are as follows:
Lack of knowledge or experience in strategic planning
—No training in strategic planning.

Firefighting—An organization can be so deeply involved

in resolving crises and firefighting that it reserves no time
for planning.
Waste of time—Some firms see planning as a waste of
time because no marketable product is produced.

Too expensive—Some organizations see planning as

too expensive in time and money.
Laziness—People may not want to put forth the effort
needed to formulate a plan.

Content with success—Particularly if a firm is

successful, individuals may feel there is no need to
plan because things are fine as they stand.

 But success today does not guarantee success tomorrow.

 .

Over confidence—As managers has mass

experience, they may rely less on formalized
planning.
Prior bad experience—People previous
bad experience with planning.
Fear of the unknown—People may be
uncertain of their abilities to learn new
skills, of their aptitude with new systems, or
of their ability to take on new roles.
Honest difference of opinion—People
may sincerely believe the plan is wrong.
 Pitfalls in strategic planning
Some pitfalls to watch for and avoid in strategic
planning are provided below:

Doing strategic planning only to satisfy

accreditation or regulatory requirements.
Failing to communicate the plan to employees,
who continue working in the dark.
Failing to involve key employees in all phases of
planning
Too quickly moving from mission development
to strategy formulation.
Guidelines for the Strategic-Planning Process to
Be Effective:
It should be a people process more
than a paper process.
It should be simple and non routine.
It should welcome bad news.
It should welcome open-mindness and
a spirit of inquiry and learning.
contd
It should not be a bureaucratic
mechanism.
It should not become ritualistic,
overformal, or orchestrated.
It should not contain jargon or arcane
planning language.
 BUSINESS ETHICS AND STRATEGIC MANAGEMENT
Business ethics are principles of conduct within
organizations that guide decision making and
behavior.
Good business ethics are a prerequisite for good
strategic management.
Product safety: will be influenced to an extent by
legislation, but an organization can build in more
safety features than the law requires.
Working conditions: these can include safety at
work
Honesty, including not offering or accepting bribes.
 Avoiding pollution.
 Avoiding discrimination
 International Firms or Multinational Corporations
Organizations that conduct business
operations across national borders are
called international firms or multinational
corporations.
Also called as parent company

host country is the country where that

business is conducted.
Advantages of International Operations
Joint ventures can enable firms to learn
the technology, culture, and business
practices of other people;
It open contacts with customers, suppliers,
creditors, and distributors in foreign
countries.
Foreign operations may result in reduced
tariffs, lower taxes, and favorable political
treatment in other countries.
Disadvantages of International Operations
Firms confront different social,
cultural, demographic, political, legal,
technological, economic, and competitive
forces.
Weaknesses of competitors in foreign
lands are often overestimated and
strengths underestimated.
contd
Dealing with two or more monetary
systems can complicate international
business operations.
The availability, depth, and
reliability of economic and
marketing information in different
countries vary extensively.
Because of – industry structure
- business practice