CHAPTER ONE

Introduction to Strategic
Management
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 CHAPTER OUTLINE

 Basic concepts of strategic management
 What is Strategic Management?
 Stages of Strategic Management
 Key Terms in Strategic Management
 Benefits of Strategic Management
 Types of strategies
 Business Ethics and Strategic Management
 Porter’s Generic Business Level Strategies 2
 “Thi n k a n d A c t

te g i c a l l y ”
Stra

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 Basic concepts of strategic management

The word


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 

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 Definition of strategic
 management
SM can be defined as the art and science of formulating,


implementing, and evaluating cross-functional decisions
that enable an organization to achieve its objectives.
 SM is the set of managerial decisions and actions that
determines the long-run performance of a corporation...
(Wheelen and Hunger )
 SM is a process for managing a firm’s relationship with
its environment…(Ansoff)
 It is the process of systematically analyzing
opportunities and threats in relation to organizational
strengths and weaknesses
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 Stages of Strategic Management

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 Key terms in SM
Strategies the means by which long-term

objectives will be achieved.
Strategists: Individuals (CEO, president,
executive director, chancellor, dean, or
entrepreneur) who are most responsible for the
success or failure of an organization.
Vision: The broad category of long-term
intentions that the organization wishes to
pursue. ”What do we want to become?”
It is an image of how the organization sees
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itself
 Cont’d
Mission: An organization’s mission is its

purpose or the reason for its existence.
Or “why the organization exists ?”
Opportunity: Competitive trends and
events that could significantly benefit
an organization in the future.
Threats: Competitive trends and
events that could significantly harm an
organization in the future.

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 Cont’d
 Strengths: are an organization’s
 that are performed
controllable activities
especially well
Weakness: are an organization’s
controllable activities that are performed
poorly.
Objectives: is specific results that an
organization seeks to achieve in pursuing
its basic mission. It must be SMART
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 Cont’d
Policies

 It is a general guideline to achieve the
designed objectives.
Rules
 a guideline that shows which one is right
and wrong
Procedures
 Sequence of activity to reach the
objective
 Benefits of strategic management
 Strategic management contain both
 benefit
financial and non-final
Financial benefits
 Research indicates that organizations using
strategic-management concepts are more
profitable and successful than those that do
not.
 It indicates superior long-term financial
performance relative to their industry.
 Nonfinancial Benefits
Enhanced awareness of external threats

Improved understanding of competitors strengths
 Increased employee productivity
 Reduced resistance to change
SM leads to a culture of problem prevention.
It encourages managers to be proactive

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 Cont’d
Other benefits in addition to the above

Framework for operational planning
Clarity in direction of activities
Increase organizational effectiveness
and efficiency
Personnel satisfaction
  Generally the role of strategy: It is
like a tramp; it has no place to go.

 Cause of most business failures is
lack of strategy or the wrong strategy
or lack of implementation of a
reasonably good strategy.

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 Types of strategies
o A strategy is a comprehensive plan stating
how the corporation will achieve its mission
and objectives. 
o The typical business firm usually considers
three types of strategy:
 Corporate strategy
 Business strategy
 Functional strategy

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 Corporate strategy
 Corporate strategy also known as the grand,

master or general strategies which are the
highest level of strategy is formulated by the
board of directors and top management.
 Corporate directional strategy is conceptualized
in terms of stability, growth, and retrenchment.
 Consider social responsibility and the
organizational image. Some examples of
Corporate strategy are growth strategy,
consolidation strategy, and global strategy
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 Business Strategy


 It is business level strategy or strategy of SBU
 SBUs are involved in a single line of business.
 Here strategies are about how to meet the
competitors in a particular product market.
 They identify the most profitable market
segment. Example product development, integration, and
market development.


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 Operational level or functional Strategy

Functional strategy takes place at the

functional level or  the departmental level
such as Marketing, Finance,
Production ,research and development.
The functional strategy is to support both
the corporate and business strategy by
enhancing efficiency and effectiveness at
the functional level.
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 Social Responsibilities and Ethics in Strategic Decision Making

 Organization has responsibilities to society that


extend beyond making a profit.
 Some business people believe profit maximization
is the primary goal of their firm.
 whereas concerned interest groups argue that
other goals should have a priority, such as the
hiring of minorities and women or community
development.
 Strategic managers must be able to deal with
these conflicting interests to formulate a viable
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strategic plan in an ethical manner.
 Therefore, managers of business
organizations have four responsibilities:
Economic responsibilities are to produce

goods and services of value to society so that
the firm may repay its creditors and
shareholders.
Legal responsibilities are defined by
governments in laws that management is
expected to obey
Ethical responsibilities are to follow the
generally held beliefs about how one should
act in a society
Discretionary responsibilities are the
purely
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assumes, for example, charitable

 Porter’s Generic Business Level
Strategies
Porter, classify business level strategies

into the following three types:
I. Cost leadership:(Lower cost/broad
target)
II. Differentiation: (Differentiation/broad
target).
III.Focus:(Lower cost or
differentiation/narrow target)
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 1. Cost Leadership Business Strategy

Reduce unit costs by, using cheaper

materials, producingproducts with no extra
cost, reducing labor costs and increasing
labor productivity.
Using high volume purchasing to obtain
discounts for bulk buying of materials
When the competitive advantage of a firm
lies in a lower cost of products or services
relative to what the competitors have to offer,
it is termed as cost leadership.
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 2. Differentiation Business
Strategy
 A differentiation strategy is based on persuading

customers that a product is superior to that
offered by competitors.
 Differentiation can be based on premium product
features or simply upon creating consumer
perceptions that a product is superior.
 A differentiation strategy is likely to necessitate
emphasis on innovation, design, research
and development, awareness of particular
customer needs and marketing.
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Differentiation can be :
 Design Differentiation-differentiate by design as compare to
rivalry

 Quality Differentiation- buyers believe the product is
reliable, durable, or has superior performance.
 Price Differentiation – if the market is price sensitive
 By creating a strong brand name through design, innovation,
advertising, etc. like highland spring water, colligate
 By offering after sales service
 By distinctive or superior product packaging, distribution
channels, etc
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 3. Focus Business Strategy

 Employing a focus strategy requires the

following circumstances:

Identification of a suitable target customer
group which forms a distinct market
segment.
 Identification of the specific needs of that
group
Establishing the extent of competition
within the segment
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 Cont’d
 Production of products to meet the
specific needs of that group
 Deciding whether  to operate a
differentiation or cost leadership
strategy within the market segment
 Establishing that segment is sufficiently
large to sustain the business

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 
End of Chapt
er
O ne

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