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Strategic Management and Business Policy

Strategic  It refers to the set of managerial decisions and actions that determines the long-
Management run performance of a firm.

Business  It refers to the general management orientation that looks inward for properly
Policy integrating the firm’s functional activities.

 Strategic management is needed as it achieves the following Highly-Rated Benefits:

1) Clearer sense of the strategic vision, which enables the whole organization to be ready and
more flexible than others.
2) Sharper focus on strategic importance.
3) Improved understanding of the surrounding rapidly changing environment.
4) Enhances the match between the organization’s environment and its strategy, structure, and
processes.
5) Strategic thinking and improved organizational performance.
6) Organizational learning.

Strategic Management Trends

Challenges to Strategic Management

1) Globalization
 It refers to the integration and internationalization of markets and corporations, which involve
dealing with global worldwide markets rather than focusing only on the national markets.

2) Environmental Sustainability:
 It involves the use of business practices to achieve the organizational objectives while using
the minimal resources to reduce the company’s impact and pollution on the natural and physical
environment.
 Risk of climate changes include:
a) The regulatory risks. d) Litigation risk.
b) The supply chain risks. e) Reputational risk.
c) Product and technology risks. f) Physical risk.

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 Strategic Management Evolution
Strategic Management 4 Phases
Strategic Management Evolutionary Stages
How to Compete?
Transition from Budget-Oriented Planning to Strategic Management

Phase Description
 It involves an internally-oriented planning for up to 1 year.
Basic-Financial  Managers plan when requested to suggest the next year’s budget.
Planning  It depends on internal information.
 It involves very little, if any, analysis.
 It involves an internally & externally oriented planning for growth that
covers a time interval of 1 to 5 years.
Forecast-Based
Planning  It depends on internal and external information, where managers gather
any available environmental data to predict trends for 5 coming years.
 It is a very time-consuming highly-political phase.
 It is a top-down planning that emphasizes formal strategy formulation and
leaves the implementation to lower management levels. Accordingly strategies
come only from the strategic organizational levels.
Externally-Oriented  It involves seeking to increase the responsiveness to markets and
Planning competition by trying to think strategically.
(Strategic Planning)
(Top-Down Planning)  It reflects a large centralized planning staff, where top managers develop
5-year plans with the help of highly-sophisticated internal and external
consultants with minimal, if any, input from the lower-levels.
 It is the last planning step, which is followed by Feedback.
 Top management initiate the planning process by forming planning
groups of managers and key employees at many levels to manage all the
company resources. Accordingly strategies may come from any organizational
level.
Strategic
Management  Internal and external planning consultants help in guiding the planning staff
at all the organizational levels.
 It emphasizes the probable scenarios and contingency plans instead of
the future.
 It involves detailing the implementation, evaluation and control issues.

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 Organizational Adaptation
 It refers to the Organizational-Fit with the Environment. It includes the following models:
Model Description
 It proposes that once an organization is established in a particular
Population Ecology environmental niche, it is unable to adapt to changing conditions (Stagnant
Theory Companies). Accordingly these successfully adapted companies can't
survive and are then replaced by other companies [Product Life Cycle].
 It proposes that organizations can adapt to changing conditions by
Institution Theory imitating other successful organizations, which represents a reactive way
of surviving.
 It proposes that top managers make choices to adapt to and reshape
Strategic Choice their environment (reactive and proactive way).
Perspective N.B.: The internal environment is more controllable than the external one.
N.B.: Adapt  Change my self … Reshape  Change others
 It proposes that an organization can adapt defensively by using
Organizational Learning knowledge to improve the fit between itself and its environment, where
Theory people at all levels provide input to strategic decisions.
 It involves learning from others (Benchmarking).

Strategic Flexibility
 It refers to the ability to shift from one dominant strategy to another. It requires 2 things:
1) Long-term commitment and development of critical resources (Allocation of Resources).
2) Become a learning organization.
 It is an organization skilled at:
a) Creating, acquiring, and transferring knowledge.
Learning Organization

b) Modifying its behavior to reflect new knowledge and insights.

Learning Organizations handle 4 Chief Activities:

a) Solving problems systematically.
b) Experimenting with new approaches,
c) Learning from experiences (whether theirs or of others).
d) Transferring knowledge quickly and efficiency through the organization (Intra-
organizational knowledge transfer).

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 Strategic Management
Model / Process / Stages
 The strategic management process involves the following 4 Basic Elements + Feedback:

Feedback

1) Environmental Scanning:
 It involves (1)monitoring, (2)evaluation, and (3)disseminating ‫ توزيع‬information from both external
and internal environments to key people (Decision-Makers) in the firm (2-way communication) to
(1)avoid strategic surprise and (2)ensure long-term health of the firm.

 The simplest way to conduct environmental scanning is through applying SWOT Analysis or
TOWS Analysis, which involves dealing with various environmental variables to determine the
companies’ strengths and weaknesses facing various opportunities and threats. [N.B.: Companies
should capitalize on strengths].
 It involves dealing with environmental variables, which include social-cultural forces,
economic forces, political and legal forces, technological forces.

 The External Environment consists of variables (OT) that are outside the organization and
not typically within the short-run control of top management. The Internal Environment
consists of variables (SW) that are within the organization, however they are not usually within
the short-run control of top management. Such factors are illustrated in the following figure:
 It involves preparing both External Factor Analysis Summary (EFAS) (OT) and the Internal
Factor Analysis Summary (IFAS) (SW).

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2) Strategy Formulation:
 It refers to the development of long-range plans for the effective management of opportunities
and threats in light of corporate strengths and weaknesses.

 It includes the following 4 steps:

A) Defining Corporate Mission :
 Corporate Mission refers to the purpose / reason for the organization’s existence.

 It involves preparing a Mission Statement, which is a non-detailed document that includes:

a) The fundamental unique purpose that sets a company apart ‫ تميس‬from its competitors.
b) The scope of the company’s operations (products offered and markets served).
c) The firm’s values and philosophy about how it does business and treats its employees.
d) Management’s strategic vision of the firm’s future.

Maytag Corporation Mission Statement:

"To improve the quality of home-life by designing, building, marketing, and servicing the best appliances in the world".

 The mission statement has the following benefits:

a) It promotes shared expectations among employees.
b) It communicates a public image to important stakeholders.

N.B.: Mission Statement describes what the organization is now, whereas Vision Statement
describes what the organization aspires to (what the organization would like to become).

Broad Mission Statement Narrow Mission Statement

 It keeps the company from  It clearly states the organization’s
restricting itself to one field or primary business.
Advantages
product line.  It keeps the firm focused on what it
does best.
 it fails to clearly identify the  It may limit the scope of the firm’s
Disadvantages
organization’s primary business. activities.
 Stable environment that lacks  Turbulent industry.
Suitable In
growth opportunities.

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B) Specifying achievable Objectives :
 Objectives are the end results of the planned activity.
 It involves Action Verbs that reflect (1)what is to be accomplished by (2)when in (3)quantifiable
terms if possible. [Example: "To increase the firm's profitability in 2007 by 10% over 2006”]. However
Goals are open-ended statement of what is to be accomplished, with no quantification of what is
to be achieved and no lime criteria for completion. [Example: "Increased Profitability"].

 Achieving the corporate objectives fulfills the corporation's mission.

 Companies must establish goals and objectives in areas such as: Profitability, Efficiency,
Growth, Utilization of Resources (ROE or ROI), Market Leadership (market share),
Technological Leadership (innovations, creativity), … etc.

C) Developing Strategies :
 Strategy is a comprehensive master-plan stating how the corporation will achieve its mission
and objectives. It maximizes competitive advantage and minimizes competitive disadvantage.
 There are 3 types of strategies:
Strategy Description
 It describes the company’s overall direction and general attitude towards
Corporate growth and the management of its various businesses and product lines.
Strategy  Corporate strategies typically fit within the three main categories of
Stability, Growth, and Retrenchment.
 It occurs at the business unit or product level.
 It focuses on improving the competitive position of a corporation's
products or services in the specific industry or market segment.
Business Unit  It includes 2 categories:
(Division Level) a) Competitive Strategies, such as Differentiation. [Example: Staples has used a
Strategy competitive strategy to differentiate its retail stores from its competitors by adding services to
its stores].
b) Cooperative Strategies, such as Strategic Alliance. [British Airways followed
a cooperative strategy by forming an alliance with American Airlines]
 It refers to the approach taken by a functional area to achieve corporate
and business unit objectives and strategies.
 It focuses on maximizing resources productivity and developing
Functional
distinctive competencies.
Strategy
 It includes various Research & Development (R&D) Strategies, such as:
a) Technological Leadership, which includes pioneering innovation.
b) Technological Followership, which includes imitating other companies.

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N.B.: Hierarchy of Strategy, refers to:
- The grouping of strategy types by level in the organization.
- Nesting of one strategy within another so that they complement and support one another.

Corporate Strategy
Business Unit Strategy
(Division Level Strategy)

Functional Strategy

D) Setting Policy Guidelines:

 Policy is a broad guideline for decision making that links the formulation of a strategy with its
implementation.
 It provides clear guidance to managers and employees throughout the organization.

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3) Strategy Implementation (Operational Planning):
 It is a process by which strategies and policies are put into action that involve day-to-day
decisions in resource allocation.

 It involves the development of:

 It refers to a statement of the activities or steps needed to accomplish
Programs a single-use plan.
 It may involve restructuring the corporation.
 It refers to a statement of a corporation's programs in terms of dollars.
 It involves the following benefits:
- It is used in planning and control.
- It serves as a detailed plan of the new strategy in action.
- It specifies the expected impact on the firm's financial future.
Budgets - It is used as a means of measuring success based on certain criteria
- It lists the detailed cost of each program.
N.B.: Many corporations demand a certain percentage return on investment,
often called a "Hurdle Rate," before management will approve a new
program.
Standard Operating  It refers to a system of sequential steps or techniques that describe in
Procedures detail the various activities that must be carried out in order to complete
(SOP) the corporation's program.

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4) Evaluation and Control
 It is a process in which corporate activities and performance results are monitored so that
actual performance can be compared with desired performance.

 It is needed by managers to take corrective actions and resolve problems.

 It sometimes pinpoint weaknesses in previously implemented strategic plans and thus
stimulate the entire process lo begin again.

 For evaluation and control to be effective, managers must obtain clear, prompt ‫سريع‬, and
unbiased information from the people below them in the corporation's hierarchy.

 The overall company performance is measured in terms of profits and return on investment
(ROI). Based on performance results, management may need to make adjustments in its
strategy formulation, in implementation, or in both

N.B.: Performance is the end result of the organizational activities.

5) Feedback/Learning Process
 The strategic management model includes a feedback / learning process, where firms often
must go back to revise or correct decisions made earlier in the process.

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 Triggering Events (Strategy Initiation)
 Strategy Formulation is typically not a regular, continuous process, where it is an irregular
process that reflects the human tendency to continue on a particular course of action until
something goes wrong.

 It refers to the phenomenon that describes that corporations develop through

Punctuated relatively long periods of stability (equilibrium periods) (usually 15 – 20 years)
Equilibrium punctuated / interrupted by relatively short bursts of fundamental change
(revolutionary periods).

 It refers to something that acts as a stimulus ‫ محفس‬for a change in strategy.

 Some possible triggering events are:
- New CEO.
Triggering - External intervention.
Event
- Threat of a change in ownership (Threat of Takeover).
- Performance gap.
- Strategic inflection point.

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 Strategic Decision Making
 As organizations grow larger and more complex, decisions become increasingly complicated
and difficult to make.
 It refers to decisions that deal with the long-run future of an entire organization
and have 3 characteristics:
1) Rare, which reflects that strategic decisions are unusual and typically have no
Strategic precedent to follow.
Decisions 2) Consequential, which reflects that the strategic decisions commit substantial
resources and demand a great deal of commitment from people at all levels.
3) Directive, which reflects that strategic decisions set precedents for lesser
decisions and future actions throughout an organization.

Strategic Audit
 It is a type of management audit that provides a detailed checklist of questions
that enables a systematic strategic analysis to be made of various corporate
functions and activities of any business corporation. However it is not an all-inclusive
Strategic list, where some questions might be inappropriate for a particular company and may
Audit
be insufficient for a complete analysis for another company.
 It is useful as a diagnostic tool to pinpoint corporate wide problem areas and to
highlight organizational strengths and weaknesses.

Elements of Good Strategy

1) Arenas, which reflects the areas where the company will be active.
2) Vehicles, which reflects the ways of getting to the active arenas.
3) Differentiators, which reflects the ways of wining the marketplace in these arenas.
4) Staging, which reflects the speed and sequence of moves for wining the marketplace.
5) Economic Logic, which reflects the ways of achieving returns.

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 Strategic Decision-Making Modes / Approaches
 The most typical approaches / modes of strategic decision making are:
Mode / Approach Description
 Strategy is made by one powerful individual who has a brilliant
Entrepreneurial insight and able to convince others.
(Non-Structured)  Decision making tends to be more proactive than reactive in the
Mode search for new opportunities (Dominant goal is growth), where dealing with
problems is a secondary priority.
 It is characterized by reactive solutions to existing problems rather
Adaptive than a proactive search for new opportunities.
Mintzberg

Mode  This mode is typically handled by most universities, hospitals, and

"Muddling Through"
governmental agencies.
 It is characterized by both the proactive search for new
opportunities and the reactive solution of existing problems.
 It involves:
Planning a) Systematic gathering of appropriate information for situation
Mode
analysis.
b) Generation of feasible alternative strategies.
c) Rational selection of the most appropriate strategy.

 It is referred to as a mixture of the planning, adaptive, and,

entrepreneurial modes.
 It is based on that the mission and objectives are set. However the
organization develops a series of incremental commitments rather
than a total strategy.
 The strategy emerges out of debate, discussion, and experimenta-
Quinn

Logical
Incrementalism tion.
 It is more analytical (less political), and more useful when:
a) The environment is changing rapidly.
b) It is important to build consensus ‫ إجماع‬and develop needed
resources before committing an entire corporation to a specific
strategy.

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