What is Strategic Management?

Strategic management is defined as the art and science of formulating, implementing,

and evaluating cross-functional decisions that enable an organization to achieve its long

term objectives. Strategic management makes a difference in how well an organization

performs and provides managers with a systematic approach for dealing with the

uncertain environments that organizations increasingly face in today’s dynamic

business environment. The key purpose of strategic management is to enable

organizations to create and take advantage of new opportunities for the future

success of the organization.

Own definition –

Function – Profitability, sustainability and growth

Explain briefly^

Stages of Strategic Management

 Strategic Management Role

Directors Organizational
Employees
Management

The strategic-management process consists of three stages, namely strategy

formulation, strategy implementation and strategy evaluation.

1. Strategy formulation includes developing a vision and mission, identifying an

organization’s external opportunities and threats, 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. Strategy implementation includes developing a strategy

supportive culture, creating an effective organizational structure, redirecting

marketing efforts, preparing budgets, developing and utilizing information systems,

and linking employee compensation to organizational performance.

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.

Steps for Strategy Formation

 Developing a vision and mission statement

 Conducting a SWOT Analysis to study the internal and external environment of
the organization
 Establishing long-term objectives
 Generating alternate strategies to achieve the previously set objectives
 Choosing particular strategies to pursue from the list of alternatives

Key Considerations in Strategy Formulation

In formulating strategies for the organization, strategic managers have to make
important decisions in relation to the future direction of the organization. Such
decisions would include consideration of entering new industries, closing down some
of the less profitable operations or expanding the current operations to new markets
both domestically and internationally. In addition, organizations would also have to
decide on how the resources are to be allocated in line with the new strategies to be
undertaken. The key questions to address would thus include:
 What New Businesses to Enter?
 What Businesses to Abandon?
 How to Allocate Resources?
 Expand Operations or Diversify?
 Enter International Markets?

Types Of Strategies

Competitive Strategies (Business Strategies)

- Goal-directed plans
- Actions concerned with how an organization competes in a specific business or industry.

Competitive strategies address the competitive advantages an organization

Functional Corporate

Competitive
currently has or wants to develop.

Organizations’ competitive strategies:

 Are concerned with how organizations compete in a specific business or
industry
 Involve all aspects of an organization’s strategies and actions
 Analyse what organizations can currently do and what organizations want to
do in the future to ensure organizational success
 Explore how organizations can compete more effectively

7 Steps to Strategic Management

 Step 1 - Review or develop Vision & Mission. ...

 Step 2 - Business and operation analysis (SWOT Analysis etc) ...

 Step 3 - Develop and Select Strategic Options. ...

 Step 4 - Establish Strategic Objectives. ...

 Step 5 - Strategy Execution Plan. ...

 Step 6 - Establish Resource Allocation. ...

 Step 7 - Execution Review.

Topic 2

-Porter 5 Forces /Industry Analysis (APPLICATION)

- 5 Defensive Strategies

1. Reengineering
2. Restructuring
3. Liquidation
4. Retrenchment
5. Divestiture

Defensive Strategies

Defensive strategies include retrenchment, divestiture and liquidation. These

strategies will be discussed in detail in the following slides.

Retrenchment

Retrenchment occurs when an organization regroups through cost and asset reduction to
reverse declining sales and profits. It is sometimes called a turnaround or reorganizational
strategy.
Retrenchment can comprise of selling off land and buildings, pruning or reducing product lines,
closing marginal businesses, closing obsolete factories, automating processes, reducing the
number of employees, and instituting expense control systems.

In some cases, bankruptcy can be an effective retrenchment strategy.

Guidelines to identify when retrenchment may be an especially effective strategy to

pursue include:
 When an organization has a clearly distinctive competence but has failed to
meet objectives consistently.
 When an organization is one of the weaker competitors in a given industry.
 When an organization is plagued by inefficiency, low profitability, poor employee
morale, and pressure from stockholders to improve performance.
 When an organization has failed to capitalize on external opportunities, minimize
external threats, take advantage of internal strengths, and overcome internal
weaknesses over time.
 When an organization has grown so large so quickly that major internal
reorganization is needed.

Guidelines

Strong Competition

Low Productivity, staff morale and productivity

Organization has failed to seize opportunities

Divestiture (still want to open, sell things)

Selling a division or part of an organization is called divestiture. Divestiture is often used to raise
capital for further strategic acquisitions or investments. Divestiture can also be used to rid an
organization of businesses that are unprofitable, that require too much capital, or that do not fit
well with the firm’s other activities. Divestiture has become a very popular strategy as firms try
to focus on their core strengths, lessening their level of diversification.

Guidelines for when to use divestiture include:

 When an organization has pursued a retrenchment strategy and it failed to
accomplish needed improvement.
 When a division needs more resources to be competitive than the company can
provide.
 When a division is responsible for an organization’s overall poor performance.
 When a division is a misfit with the rest of an organization.
 When a large amount of cash is needed quickly and cannot be obtained.
 When government antitrust action threatens an organization.

Guidelines

Failed retrenchment strategy

Insufficient resources
Division is misfit with the rest of the organization

Liquidation (Close shop dw do anymore)

Selling all of a company’s assets, in parts, for their tangible worth is called liquidation.
Liquidation is recognition of defeat and consequently can be an emotionally difficult
strategy. Three guidelines of when to use liquidation:
 When an organization has pursued both a retrenchment and a divestiture
strategy and neither has been successful.
 When an organization’s only alternative is bankruptcy.

Guidelines

Failed retrenchment and divestiture strategies

Bankruptcy is only alternative

Reduces shareholders losses

Restructuring and Reengineering

Restructuring (looking at the firm)

 - downsizing, rightsizing, or delayering. It involves reducing the size of the firm in terms of
number of employees, divisions or units, and hierarchical levels in the firm’s
organizational structure.

Reengineering (looking at processes)

- concerned more with employee and customer well-being than with shareholder well-
being.
- Process management, process innovation, or process redesign involves reconfiguring or
redesigning work, jobs, and processes for the purpose of improving cost, quality, service,
and speed.

Reengineering is characterized by many tactical decisions, whereas restructuring is

characterized by strategic decisions.

Porter’s Five Forces

Porter’s Five-Forces Model of competitive analysis is a widely used approach for

developing strategies in many industries. The intensity of competition among firms varies

widely from industry to industry. According to Porter, the nature of competitiveness in a

given industry can be viewed as a composite of five forces:

1. Rivalry among competitive firms

2. Potential entry of new competitors
3. Potential development of substitute products
4. Bargaining power of suppliers
5. Bargaining power of consumers

These three steps can reveal whether competition in a given industry is such that a firm

can make an acceptable profit:

- Identify key aspects or elements of each competitive force that impact the firm.
- Evaluate how strong and important each element is for the firm.
- Decide whether the collective strength of the elements is worth the firm entering or
staying in the industry.

Topic 3

Mission Statement Components

1. Customers: Who are the firm’s customers?

 2. Products or services: What are the firm’s major products or services?
3. Markets: Geographically, where does the firm compete?
4. Technology: Is the firm technologically current?
5. Concern for survival, growth, and profitability: Is the firm committed to growth and
financial soundness?
6. Philosophy: What are the basic beliefs, values, aspirations, and ethical priorities of
the firm?
7. Self-concept: What is the firm’s distinctive competence or competitive advantage?
8. Concern for public image: Is the firm responsive to social, community, and
environmental concerns?
9. Concern for employees:

Customers
Product and services
Market
Technology
Concern for survival
Philosophy
Self-concept
Concern for public image
Concern for employees

Topic 4
Ansoff Matrix (Intensive)

Topic 5