Strategic Management - An Introduction

CHAPTER 1
• 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.
• Strategic Management 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
• 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 re-evaluates 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
• 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.).
•
• Strategic management is the process of examining both present and future
environments, formulating the organization's objectives, and making, implementing,
and controlling decisions focused on achieving these objectives in the present and
future environments (Garry D. Smith, Danny R. Arnold, Bobby G. Bizzell).
•
• Strategic management is a continuous process that involves attempts to match or fit
the organization with its changing environment in the most advantageous way
possible (Lester A. Digman).
•
• Strategic management can be defined as the process whereby all the organizational functions
and resources are integrated and coordinated to implement formulated strategies which are
aligned with the environment, in order to achieve the long-term objectives of the organization
and therefore gain a competitive advantage through adding value for the stakeholders (Tiene
Ehlers and Kobus Lazenby, 2004)
• What makes one firm better than another?
• Why do some companies out-perform their rivals with
less resource, capital and even specialist employees?
• The answer lies in competitive advantage
• Competitive advantage is the edge that an
organization has that other organizations do not have
• This could be achieved through lower costs, wider
range of products/services (differentiation) or a focus
on a specific niche market segment
• A strategy can be defined as an effort or deliberate
action that an organization implements to out-perform
its rivals.
• Twenty years ago a competitive advantage lasted
much longer than it does today
• In those days, when an organization had this
competitive edge it could be sure it would be the
leader in that segment of the market for some time
• In today’s business environment, with modern
technology and management processes, your
competitive advantage only lasts for a short period of
time
• It is easy for competitors to emulate your strategy
and to retaliate in a more competitive way
• This is called a leap-frog effect
• Organizations struggle to be better than their rivals, not
simply to be at par with them as in the past
• This phenomenon is one reason why business is escalating at
such a fast pace (in respect of products, services, technology
etc.) in the 21st century
• To be able to achieve such a competitive advantage, an
organization needs to meet the needs of the stakeholders
• To satisfy the needs of stakeholders is actually to add value
• Adding value can be defined as adding certain characteristics
to the product/service that the competitor and customer (or
stakeholders) cannot do themselves
• In order to achieve competitive advantage, value should be
added and this is done by the process of strategic
management
 ELEMENTS OF STRATEGIC MANAGEMENT

• Strategic management, as minimum, includes strategic

planning and strategic control. Strategic planning
describes the periodic activities undertaken by
organizations to cope with changes in their external
environments (Lester A. Digman) It involves formulating and
evaluating alternative strategies, selecting a strategy, and
developing detailed plans for putting the strategy into practice.
Strategic planning consists of formulating strategies from
which overall plans for implementing the strategy are
developed. Strategic control consists of ensuring that the
chosen strategy is being implemented properly and that it is
producing the desired results.
• Based on Robert Anthony's framework, three types of planning
and control are required by organizations:
• 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. Long-
range planning, planning for events beyond the
current year, is not synonymous with strategic
management (or strategic planning). Not all long-
range planning is strategic. Certain strategic
actions and reactions can be relatively short
range and may include more than just planning
aspects. It is perfectly reasonable to have long-
range operating or technical plans that are not
strategic. However, it should be noted that most
strategic decisions have long-term ramifications
 EVOLUTION OF STRATEGIC MANAGEMENT

Strategy - Definition and Features

• The word “strategy” is derived from the Greek word “strategos”; 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 behaviour 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.
 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
behaviour of customers and competitors. Strategies dealing
with employees will predict the employee behaviour.

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.
 THINKING STRATEGICALLY:

The Three Big Strategic Questions

• Where are we now … what is our situation?
• Where do we want to go?
• Business (es) we want to be in and market positions we
want to stake out
• Buyer needs and groups we want to serve
• Outcomes we want to achieve How will we get there?
 WHAT IS STRATEGY?

• Competitive moves and business approaches

management employs in running a company
• Management’s “game plan” to
• Please customers
• Position a company in its chosen market
• Compete successfully
• Achieve good business performance
WHY ARE STRATEGIES NEEDED?

• To proactively shape how a company’s business

will be conducted
• To mold the independent actions and decisions of
managers and employees into a coordinated,
companywide game plan
 THE FIVE TASKS OF STRATEGIC
MANAGEMENT
• Missions vs. Strategic Visions
• A mission statement focuses on current business
activities
• Business(es) company is in now
• Customer needs currently being served
• A strategic vision concerns a firm’s future
business path
• The kind of company it is trying to become
• Customer needs to be satisfied in the future
• Strategic Management Concept
DEVELOPING A VISION AND MISSION

• The first task of Strategic Management

• Begins with thinking strategically about
• The firm’s future business makeup
• Where to take the firm
• The task is to
• Create a roadmap of a company’s future
• Decide what future business position to stake out
• Provide long-term direction
• Give the firm a strong identity
DEVELOPING A STRATEGIC VISION

• A strategic vision is a roadmap of a company’s

future –
• Direction it is headed
• Business position it intends to stake out
• Capabilities it plans to develop
• Customer needs it intends to serve
EXAMPLES: MISSION AND VISION
STATEMENTS
• McDonald’s Corporation
• McDonald’s vision is to dominate the global
foodservice industry. Global dominance means
setting the performance standard for customer
satisfaction while increasing market share and
profitability through our Convenience, Value and
Execution Strategies.
EXAMPLES: MISSION AND VISION
STATEMENTS
• Otis Elevator
• Our mission is to provide any customer a means of
moving people and things up, down, and sideways over
short distances with higher reliability than any similar
enterprise in the world.
• Microsoft Corporation
• One vision drives everything we do: A computer on every
desk and in every home using great software as an
empowering tool.
 TYPES OF OBJECTIVES REQUIRED

• Financial Objectives
• Outcomes focused on improving a firm’s financial performance
• Strategic Objectives
• Outcomes focused on improving a firm’s competitiveness and
its long term business position
• Examples: Strategic Objectives
• Increase firm’s market share
• Overtake key rivals on quality or customer service or product
performance.
• Attain lower overall costs than rivals
• Boost firm’s reputation with customers
• Attain stronger foothold in international markets
• Achieve technological superiority
• Become leader in new product introductions
• Capture attractive growth opportunities
 SETTING OBJECTIVES

• Establishing Objectives-
• Converts vision into specific performance targets.
• Create yardsticks to track performance
• Pushes firm to be inventive and focused
• Helps prevent coasting and complacency if targets require stretch
• Examples: Financial Objectives
• Grow earnings per share 15% annually
• Boost annual return on investment (or EVA) from 15% to 20%
• Increase annual dividends per share to stockholders by 5%
each year.
• Strive for stock price appreciation equal to or above the S & P
500 average
• Maintain a positive cash flow
• Achieve and maintain a AA bond rating
EXAMPLE: CORPORATE OBJECTIVES

• Protect and improve Nike's position as the number one

athletic brand in America.
• Build a strong momentum in growing fitness market.
• Intensify the company’s effort to develop products that
women need and want
• Explore the market for products specifically designed for
the requirements of maturing Americans.
• Direct and manage the company’s international business
as it continues to develop.
• Continue the drive for increased margins through
proper inventory management and fewer, better
products.
EXAMPLE: MCCORMICK’S CORPORATE
OBJECTIVES
• Dispose of those parts of our business which cannot
generate adequate returns or do not fit with our business
strategy
• Achieve a 20% return on equity
• Achieve net sales growth rate of 10% per year
• Maintain an average earning per share growth rate of
15% per year
• Maintain a total debt to total capital at 40% or less
• Pay out 25% to 35% of net income in dividends
 EXAMPLE: STRATEGIC AND
FINANCIAL OBJECTIVES
• Ford Motor Company
• To satisfy our customers by providing
• Quality cars and trucks.
• Developing new products
• Reducing the time it takes to bring new vehicles to market
• Improving the efficiency of all our plants & processes, and
• Building on our teamwork with employees’ unions, dealers, and
suppliers.
• Example: Strategic and Financial Objectives
• General Electric
• To become the most competitive enterprise in the world by
being number one or number two in market share in every
business the company is in. To achieve an average of 10
inventory turns and a corporate operating profit margin of
16% by 1998.
 CRAFTING A STRATEGY:

• Involves deciding how to:

• Respond to changing buyer preferences
• Outcompete rivals
• Respond to new market conditions
• Grow the business over the long term
• Achieve performance targets
Strategy is Both Planned and Reactive to Changing
circumstances
 THE HOW’S THAT DEFINE A FIRM’S
STRATEGY
• How to grow the business
• How to please customer
• How to out complete rivals
• How to respond to changing market conditions
• How to manage each functional piece of the business and develop
needed organizational capabilities
• How to achieve strategic and financial objectives
• Crafting a Strategy
• Strategy involves determining whether to
• Concentrate on a single business or several business (diversification)
• Cater to a broad range of customers or focus on a particular niche
• Develop a wide or narrow product line
• Pursue a competitive advantage based on
• Low cost or
• Product superiority or
• Unique organizational capabilities
 STRATEGY: MCDONALD’S

• Strategic Priorities
• Continued growth
• Providing
• Remaining an efficient and quality producer
• Offering high value and good tasting products.
• Effectively marketing McDonald’s brand on a global scale

• Core Elements of Mc Donald’s Strategy

• Add 2500 restaurants annually
• Promote frequent customer visits via attractive menu items, low-price
specials and extra value meals
• Be highly selective in granting franchises
• Locate on sites offering convince to customers and profitable growth potential
• Focus on limited menu and consistent quality
• Careful attention to store efficiency
• Extensive advertising and use of Mc prefix
• Hire courteous personnel, pay an equitable wage, provide good training
 CRAFTING STRATEGY IS AN
EXERCISE IN ENTREPRENEURSHIP
• Strategy – making is a market- driven and customer – driven
activity that involves
• Risk – taking and venturesome
• Innovation and business creativity
• Keen eye for spotting market opportunities
• Keen observation of customer needs
• Choosing among alternatives
• Characteristics of Entrepreneurial Managers
• Boldly pursue new strategic opportunities
• Emphasize out-innovating the competition
• Lead the way to improve firm performance
• Willing to be first-mover and take risks
• Respond quickly and opportunistically to new developments
• Devise trail blazing strategies
WHY DO STRATEGIES EVOLVE?

• There is always an ongoing need to react to

• Shifting market conditions
• Fresh moves of competitions
• New technologies
• Evolving customer preferences
• Political and regulatory changes
• New windows of opportunity
• Then crisis of the moment
 WHAT IS A STRATEGIC PLAN?

• Where firm is headed

• Strategic vision and business mission
• Short and long term performance
• Strategic and financial objectives
• Action approaches to achieve targeted results
• A comprehensive strategy
 IMPLEMENTING STRATEGY

• Creating fits between way things are done and what it takes for
effective strategy execution
• Getting the organization to execute strategy proficiency and efficiently
• Producing excellent results in a timely manner
• Strategy Implementation
• Strategy implementation is an internal, operation-driven activity
involving organizing, budgeting, motivating, culture-building,
supervising and leading to “make the strategy work” as intended!
• What does strategy implementation include?
• Building a capable organization
• Allocating resources to strategy-critical activities
• Establishing strategy-supportive policies
• Motivating people to pursue objectives
• Tying rewards to achievement of results
• Creating a strategy-supportive corporate culture
• Installing needed information, communication, and operating systems
• Instituting best practices for continuous improvement
• Exerting strategic leadership
 EVALUATING PERFORMANCE

• The tasks of strategy are not a one-time only exercise

• Times and conditions change
• Events unfold
• Better ways to do things emerge
• New managers with different ideas take over
• Evaluating Performance
• The tasks of strategy are not a one-time only exercise
• Times and conditions change
• Events unfold
• Better ways to do things emerge
• New managers with different ideas take over
• Evaluating Performance
• Corrective adjustments
• Alter long-term direction
• Redefine the business
• Raise or lower performance objectives
• Modify the strategy
• Improve strategy execution
WHO PERFORMS THE FIVE STRATEGIC
MANAGEMENT TASKS?
• Senior corporate level executives
• Subsidiary unit managers
• Functional area managers
• Operating managers
• Strategizing an Individual or Group Responsibility?
• Teams are increasingly used because
• Strategic issues cut across departmental lines
• Ideas of people with different backgrounds can be tapped into
• More people will have an ownership stake in the strategy
• Role of Strategic Planners
• Gather necessary information
• Provide support in revising strategic plans
• Coordinate review and approval process
• Crystallize strategic issues to be addressed
• Conduct studies of industry and competitive conditions
• Establish an annual review cycle
• Develop strategy performance assessments
• Why Planers should not be strategy makers
• Managers may toss tough decisions to planners
• Planers know less about company’s situation
• Difficult to fix accountability for poor results
• Managers have no “buy in” to strategy
• Strategic planning may be viewed as an unproductive
“bureaucratic” activity
• Strategic Role of a Board of Directors
• Continuously audit validity of a company’s long-term direction ad
strategy
• Evaluate strategic leadership skills of the CEO and candidates to
succeed the CEO
• A board of director’s role in the strategic management process is
to critically appraise and ultimately approve strategic action plans,
but rarely, if ever, to develop the details!
• Benefits of Strategic Approach to Managing
• Guides entire firm regarding “what is we are trying to do
and to achieve”
• Lowers management’s threshold to change
• Provides basis for evaluating competing budget requests
• Unifies numerous strategy-related decisions
• Creates a proactive atmosphere
• Enhances long range performance
BASICS OF STRATEGIC PLANNING

• The objectives of strategic planning including understanding the benefits of strategic planning;
understanding the products of strategic planning; and learning the keys to successful planning and
implementation.
• Many organizations spend most of their time reacting to unexpected changes instead of anticipating
and preparing for them. This is called crisis management. Organizations caught off guard may
spend a great deal of time and energy "playing catch up". They use up their energy coping with
immediate problems with little energy left to anticipate and prepare for the next challenges. This
vicious cycle locks many organizations into a reactive posture.
• It does not have to be that way. A sensible alternative is a well-tested process called strategic
planning which provides a viable alternative to crisis management.
• Strategic planning is a step by step process with definite objectives and end products that can be
implemented and evaluated. Very simply, it is a process by which we look into the future, paint a
picture of that future based on current trends, and influence the forces that will affect us.
• Strategic planning looks three to five years ahead. It charts a definite course based on strong
indicators of what the business environment will be like in those years.
• Indicators include census demographic statistics, economic indicators, government policies, and
technological advances. They reveal strong trends regarding changes in lifestyles and the economic
and political climates, which are important factors influencing the facilities planning and
management industry. Some of these trends are potential opportunities, some potential threats, and
some are both. Examining the possibilities and formulating strategies to meet the challenges can
help the organization take full advantage of opportunities and minimize threats. In short, we can
take control of the future. We can use our energies and resources more effectively and conduct our
business more successfully, despite changes in the environment.
 WHY STRATEGIC PLANNING?

• Besides the personal satisfaction of taking charge of the

organizations future, strategic planning offers at least five
compelling reasons for its use:
• Forces a look into the future and therefore provides an opportunity
to influence the future, or assume a proactive posture.
• Provides better awareness of needs and of the facilities related
issues and environment.
• Helps define the overall mission of the organization and focuses on
the objectives.
• Provides a sense of direction, continuity, and effective staffing and
leadership.
• Plugs everyone into the system and provides standards of
accountability for people, programs, and allocated resources.
• In summary, strategic planning is the key to helping us collectively
and cooperatively gain control of the future and the destiny of our
organization
 FOUR KEY ATTRIBUTES OF
STRATEGIC MANAGEMENT
• Before discussing the strategic management process on more detail, lets
briefly talk about four attributes of strategic management. in doing do it will
become clear how this course differs from other courses that you have had in
functional arrears such as accounting, marketing and operations etc.
•
• First strategic management is directed towards overall organizational goals
and objectives. That is effort must be directed at what is best for the total
organization not just a single functional area. That is what might look rational
or most appropriate for one functional area such as operations may not be in
the best interest of the overall firm.
•
• Second strategic management includes multiple stakeholders in decision
making. Managers must incorporate the demands of many stakeholders
when making decisions. Stakeholders are those individuals, groups and
organisations who have a stake in the success of the organization including
owners, employees, customers, suppliers, the community at large and so on.
For example if the overwhelming emphasis is on generating profits for the
owners, employees may become alienated, customer service may suffer, and
the suppliers may become resentful of continual demands for pricing
concessions.
• The third strategic management requires incorporating both short term
and long term perspectives. Peter Senge referred to this need as a
creative tension. That is managers must maintain both a vision for the
future of the orgainisation as well as a focus on its present operating
needs. All managers throughout the organization must maintain a
strategic management perspective and assess how their actions impact
the overall attainment of organizational objectives. For example laying off
several valuable employees may help cut costs and improve profits in the
short term but the long term implications for employee morale and
customer relationship may suffer leading to subsequent performance
declines.
•
• Fourth strategic management involves the recognition of trade-offs
between effectiveness and efficiency. This recognition means being aware
of the need for organization to strive to act effectively and efficiently. That
is doing the right thing and doing things right. While managers must
allocate and use resources wisely they must still direct their efforts toward
the attainment of overall organizational objectives