U U N IT

1A
The Nature of Strategic
Management

Unit Overview

Welcome to the world of Business Strategy and Policy. This course is intended to
be a challenging experience which integrates, develops and builds upon your skill
set developed in previous courses. In preparing you to be leaders and managers
functioning in a global landscape, you will be expected to have a firm grasp on all the
aspects of strategic management.

For your guidance and information, Unit 1 is divided into two sections: Unit 1A &
Unit 1B. In this Unit, we will look at The Nature of Strategic Management, especially
in the 21st century and seek to understand the importance, benefits and limitations of
strategic management.

Unit Objectives

By the end of this Unit you will be able to:

1. Illustrate the value of strategic thinking;

2. Recognise the importance of strategic management;

3. Identify some of the limitations of strategic management.

This Unit is divided into three sessions as follows:

Session 1.1: What is Strategic Management in the 21st Century?

Session 1.2: Understanding the Importance and Benefits of Strategic Management

Session 1.3: Understanding some Limitations of Strategic Management

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 Readings and Resources

Required Reading

Strategic Management: Evaluation and Execution (2016). Chapter 1: Mastering

Art and Science. Available at
http://2012books.lardbucket.org/pdfs/strategic-management-evaluation-
and-execution/s05-mastering-strategy-art-and-sci.pdf

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 SSession 1.1

What is Strategic Management in the 21st

Century?

Introduction
This first session concentrates on examining Strategic Management in the 21st century.
The current business environment fluctuates in response to various factors. Such factors
include, but are not limited to the following: fluctuating oil prices, currency changes,
consumer debt, global markets, relocation of work to other countries, e-commerce,
globalisation and more. In describing the fundamentals of strategic management,
key terms related to Strategic Management will be discussed including the 5 P’s of
Strategy along with other types of strategies.

What is Strategic Management

David (2007) defines Strategic Management as “the art of science of formulating,
implementing, and evaluating cross-functional decisions that enable an organisation
to effectively achieve its objectives” (p. 5). It therefore focuses on the successful
integration between management, accounting and finance, production and operations,
research and development, and computer information systems. The purpose of
strategic management is necessary to develop new and innovative opportunities for
long-term planning in an effort to capitalise on trends within the 21st century.

Key Terms in Strategic Management

When examining the nature of Strategic Management, there are significant key terms
that should be properly understood. Unless denoted, the key terms which are defined
and/or explained were adapted from David (2007). All others are taken from the
required course readings.

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 Key Term Definition
Viewed as short-term milestones that organisations must achieve to reach desired
Annual Objectives long-term objectives. These should be measurable, quantitative, challenging, realistic,
consistent and prioritised.
Business Model The process through which a firm hopes to earn profits.
The principles of conduct within an organisation that guide strategic decisions making
Business Ethics and behavior; viewed as a prerequisite for good Strategic Management (David, 2007,
p. 21).
The actions of an organisation that are done exceptionally well in comparison to other
organisations. It can be viewed as a firm’s unique “edge” to the market to have long-term
Competitive organisational success or “sustained competitive advantage.” David (2007) asserts that
Advantage this can only be achieved through (1) continuous adaptation of the external trends and
internal capabilities, and (2) effective formulating, implementing and evaluating strategies
that capitalise on those factors.
Economies A cost advantage created when a firm can produce goods or service at a lower per unit
of Scale price due to producing the goods or service in large quantities.
Threats refer to economic, social, cultural, demographic, environmental, political, legal,
governmental, technological, and competitive trends and events that could significantly
benefit or harm an organisation in the future. Opportunities and threats are largely
beyond the control of a single organisation. Thus, they are external. The passage of
External a new law can be an opportunity or threat. A basic tenet of Strategic Management is
Opportunities that firms need to formulate strategies to take advantage of external opportunities, and
& Threats to avoid or reduce the impact of external threats (David, 2007). Therefore, identifying,
monitoring and evaluating the external environment for possible opportunities and
threats are essential for success. The process of conducting research and gathering
and assimilating external information about emerging trends and /or critical events is
sometimes called environmental scanning or industry analysis.
This refers to an organisation’s controllable activities that are performed especially well
or poorly. They arise in the management, marketing, finance/accounting, production/
Internal operations, research and development, and management information systems activities
Strengths of a business. Identifying and evaluating organisational strengths and weaknesses
& Weaknesses in the functional areas of a business is an essential Strategic Management activity.
Organisations strive to pursue strategies that capitalise on internal strengths and
eliminate internal weaknesses.
Strategy and/or
How long-term objectives are achieved.
Strategies
This person is usually viewed as a leader and is expected to be highly adaptive. He/she
is primarily responsible for: gathering, analysing and organising information regarding
Strategist industry and competitive trends; forecasting and evaluating performance; identifying
threats and opportunities; and developing creative action plans. The strategist is primarily
responsible for the success or failure of an organisation (David, 2007).
These are likely to be concerned with the scope of an organisation’s activities. Such
Strategic decisions that the organisation concentrates on one area of activity, or several. It determines the
product range or geographical coverage boundaries of the organisation
Strategic Plans A carefully crafted set of steps that a firm intends to follow to be successful.
“Enduring statements of purpose that distinguish one business from another similar
firm” (David, 2007, p. 11), through the identification of the scope of a firm’s operation
Mission
in product and market term. A clearly defined mission statement directly addresses the
Statement
question “What is our business?” from an organisational standpoint and distinguishes it
from another similar firm.

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 Key Term Definition
How annual objectives will be achieved. Policies include guidelines, rules, and procedures
Policies established to support efforts to achieve stated objectives. They serve as guides to
decision making and address repetitive or recurring situations.
It serves as a future organisational roadmap by directly answering the question “What do
Vision Statement
we want to become?’ from an organisational standpoint.

The Five P’s: Varied Perspectives on Defining Strategy

Henry Mintzberg (1987) defines the complexities of strategy through different lenses,
referred to as the Five P’s.

Strategy as a Plan A carefully crafted set of steps that a firm intends to follow to be
successful.
• A business model is central to a strategic plan.
• Action of a single firm.

Strategy as a Ploy
A specific move designed to outwit or trick competitors

• Involves using creative measures to enhance success.

• Beneficial in situations with stronger opponents.
• Action of a single firm.

Strategy as a Pattern
The extent to which a firm’s actions over time are consistent.
• Strategies that originate from past organisational behaviour.
• Normally implemented from consistent and successful business choices.
• Action of a single firm.

Strategy as a Position
A firm’s place in the industry relative to competitors.

• Firms can carve out a position by performing certain activities in a different manner than
their rivals.
• To gain competitive advantage and greater success, firms sometimes change position.
• Viewed as a ‘risky’ move.

Strategy as a Perspective
How executives interpret the competitive landscape around them.
• An inside perspective through the minds of executive running a firm.

Figure 1.1. The Five P’s of Strategy

Source: Reproduced from Strategic Management: Evaluation (v. 10) (2016)

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 Strategic Planning: Identifying Types of Strategies
Within strategic planning, a strategic manager must be mindful of the types of
strategies he/she wishes to implement. There are several types of strategies that must
be understood and these are explained in the course text. Below is a depiction of 5
types of strategies that will be explored.

Figure 1.2: A Model of Intended, Deliberate and Realised Strategies

Source: Reproduced from section 1.2 of Strategic Management: Evaluation (v. 10) (2016)

Type of Strategy Definition

Intended Strategy A type of strategy a business or organisation intends.

Realised Strategy A strategy that an organisation follows.
Emergent Strategy An unplanned strategy that an organisation identifies in response to
unexpected opportunities and challenges.
Non-realised strategy The abandoned parts of an intended strategy.
Deliberate Strategy The portion of an intended strategy that is still pursued over time.

Play Video
Horwath, R. (2015, July 23). “Richard Horwath on on Strategic Thinking”.
[YouTube]. Available at

uu https://www.youtube.com/watch?v=XVs43Pgp9F4

The following non-graded learning activity is meant to gauge the knowledge gained
from the preceeding session. Note that these questions may be discussed within the
unit’s weekly discussion forum.

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 LEARNING ACTIVITY 1.1
Strategic Thinking Through Your Lens
After watching Horwath (2015) found in the link above, share your
perspectives on the following:

1. How do your views on strategic thinking differ and/or align with

Horwath’s view on strategic thinking?

2. List two key takeaways from the video listed above.

3. How do you think these takeaways can be used to reframe your

current perspectives on strategic thinking in regard to its value?
Post your answers on the Discussion Forum or as directed by your tutor.

Session Summary

Regardless of the size of an organisation or a firm, Strategic Management is essential.

A strategic leader should engage in Strategic Management proactively to influence,
anticipate, initiate organisational activities, and at times, capitalise on them. Strategic
managers must have a good hold on the Strategic Management process, and the
intricacies that it entails. The different lenses of strategy that Mintzberg (1957)
introduce as the “Five P’s” depict various lenses that the strategic managers operate
through. While looking through any lens, it must be noted that regardless of the type
of strategy (intended, deliberate and/or realised), strategic managers have a key
role in an intricate and complex environment and should integrate the appropriate
perspective to sustain the organisation.

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 SSession 1.2

Understanding the Importance and

Benefits of Strategic Management

Introduction and Importance of Strategic Management

Strategic Management holds great importance for firms and organisations. In terms
of importance, if understood and implemented properly, Strategic Management can
provide a great framework for decision-making. Thus, it holds great organisational
importance by putting a measurement of progress in place at different stages. Secondly,
organisations can create a strong Strategic Management process and perspective
which can enable an organisation to develop and maintain a competitive advantage
over many competitors. Such a structure provides great organisational perspective by
showing the interrelationship of the key organisational components.

Thirdly, if implemented properly, Strategic Management can serve as a pivot for

strategic sustainability for organisations. Preley, Meade & Sparks (2007) define
strategic sustainability as “a ‘triple-bottom line’ factor of economic, environmental,
and social dimensions is the underlying framework we use to develop and apply a
strategic justification tool for project evaluation with sustainability implications” (p.
1). The notion of sustainability has become progressively important for organisations,
and impacts decision-making at various organisational levels.

Fourth, if adopted, Strategic Management can serve as a needed catalyst for change
and make provisions in anticipation for many changing factors. Such factors can
include, but not be limited to the repositioning of resources, which can highlight some
of benefits discussed below.

Finally, Strategic Management can create a framework for Total Quality Management.
Sadikoglu & Olcay (2013) define TQM as “a firm-wide management philosophy of
continuously improving the quality of the products/services/processes by focusing
on the customers’ needs and expectations to enhance customer satisfaction and firm
performance” (p. 1).

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 Benefits of Strategic Management
1. Organisations have a proactive nature in long-term organisational sustainability,
as opposed to reactive decision making.

2. Historically, Strategic Management is largely credited in assisting organisations

to formulate better strategies through a systematic approach to strategic choice.
David (2007) asserts that research has indicated that the process, rather than the
decision, is more crucial to strategic management.

3. Strategic management relies heavily on communication at different organisational

levels. Communication is key to effective Strategic Management. Increased
communication between managers, employees, and top management is heightened
through the need for improved Strategic Management. Strategic managers are
instrumental in fostering healthy communication with various organisational
stakeholders.

4. Strategic Management requires a keen understanding of and an individual

commitment to a team mission. Increased organisational understanding requires
stakeholder involvement which is a great benefit of Strategic Management.

5. When employees and managers have a clear understanding of the mission and
the vision of the organisation, they are often empowered within their roles to
contribute to the bigger goal, and commitment increases. Empowerment through
an organisation reduces conflict.

6. Strategic Management creates an environment for creativity and innovation.

7. There are various financial benefits of strategic planning that David (2007) supports
through research. Research indicates that:

• Firms that implement Strategic Management are more profitable than firms
that do not.

• Firms that implement Strategic Management show significant improvement.

• Organisations that implement Strategic Management tend to show notable

long-term financial performance.

8. There are also various non-financial benefits of Strategic Management that David
(2007) introduces as well:

• Organisations can identify, prioritise and capitalise on opportunities.

• Strategic Management reduces the effect of negative internal weaknesses and

external organisational threats.

• Major organisational decisions are aligned with organisational goals.

• Stronger integration of employees.

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 • A stronger framework for internal communication must be developed.

• It encourages forward thinking.

• It promotes the most effective allocation of resources.

The following non-graded learning activity is meant to gauge the knowledge gained
from the preceeding session. Note that these questions may be discussed within the
unit’s weekly discussion forum.

LEARNING ACTIVITY 1.2

Determining Your Perspective on Strategic Management
Select an organisation (local and/or international) and address the
following questions:

1. Describe their Strategic Management approach. Highlight 3

benefits of Strategic Management that is relative to that company.

2. At what stage of the Strategic Management process would these

benefits be noticeable?
Post your answer on the Discussion Forum or as directed by your tutor.

Session Summary

Through intentional actions geared at Strategic Management, firms can overcome

key organisational challenges and capitalise on many opportunities. Key benefits
can also streamline organisations to develop new objectives and welcome change
to organisations, if needed. Thus, the Strategic Management process is an essential
element for organisational development because it fosters improved decision-making,
setting priorities, focuses energy, resources availability and encourages staff members
to take an active role and motivation.

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 SSession 1.3

Understanding Some Limitations of

Strategic Management

Introduction
Strategic Management requires time management and planning to avoid many pitfalls.
Generally, this is a difficult adjustment for organisations. Thus, limitations of strategic
planning are presented.

Major Limitations of Strategic Planning

Strategic Management requires time management and planning which is often
challenging for organisations. Limitations of strategic management exist within
organisations. It is key to understand these limitations in an effort to regulate them.
Figure 1.4 depicts the central limitations of Strategic Management.

Time
Consuming

Limitations
High Difficult to
of Strategic
Complexity Implement
Management

Skillful
Planning
Required

Figure 1.4: Central Limitations of Strategic Management

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 High Complexity
In addressing the limitations in high complexity, it must be noted that complexity is
a limitation if firms are not ready to adjust and respond to internal and environment
concerns. Thus, continuous assessment is critical to respond in a timely manner. As the
components of Strategic Management are closely interrelated, a change and/or impact
in one organisational aspect can directly impact other organisational factors. Thus, in
an instance where the desired results are not achieved, strategic planning may result in
revision and performing aspects of the Strategic Management process simultaneously.

Difficult to Implement
Strategic Management is often viewed as quite costly as it takes a lot of resources.
Thus, while an organisation may need to implement a Strategic Management process,
it would be wise to ensure the implementation of such a process is cost effective.

Skillful Planning Required

Two primary benefits of strategic planning are the reduction of uncertainty and the
capitalisation of opportunities. Taking these benefits into consideration, Strategic
Management and planning still involves a high degree of risks. Skill planning is required
not only to formulate strategies and action plans, but to monitor the progress of these
plans and develop and implement contingency plans if needed. Contingency plans
are needed to address changes within the external environment such as competitive
forces, shifting market demands and economic factors that could potentially impact an
organisation firm. Thus, skillful planning is required not only to plan and orchestrate
a Strategic Management process, but also to plan and implement a contingency plan.

Time Consuming
Strategic Management and the Strategic Management process is established to lay a
good organisational foundation. Its benefits are anticipated to be long-term, not short
term. Thus, the Strategic Management process is not designed to addressed immediate
organisational predicaments and this lack of flexibility can, and is often viewed as a
limitation.

Additionally, managers and decision-makers directly involved within the Strategic

Management process devote time to adequately prepare, research and communicate
this process to all stakeholders. At times, the time devoted to Strategic Management
can be viewed as ‘distracting’ for every day managerial decisions which are more
short term. These decisions and issues require immediate attention which may hinder
strategic management or daily managerial operations if time management is not
balanced by decision makers.

The following non-graded learning activity is meant to gauge the knowledge gained
from the preceeding session. Note that these questions may be discussed within the
unit’s weekly discussion forum.

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 LEARNING ACTIVITY 1.3
Discussion: Exploring Limitations About Strategic
Management
While Strategic Management cannot provide a road map for
organisational success, strategic managers must find a balance between
strategic planning and management.

1. Pick an organisation that you have identified which has one of the
limitations mentioned in the session.

2. Suggest how strategic managers can address the limitation.

Post your answers to the Discussion Forum or as directed by your tutor.

Session Summary

The four chief limitations of strategic planning can be viewed as universal to most
organisations. By gaining a perspective on the limitations of Strategic Management,
we also gain a more in-depth understanding of what a strategic manager engages
in while applying decisions making, strategic planning, evaluation etc. By further
understanding such limitations, strategic managers and leaders are positioning
organisations in a better market position. Thus, Strategic Management, strategy
formulation, implementation, and evaluation would be limited without an in-depth
understanding of these strategic limitations.

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 UNIT SUMMARY

The main task of Unit 1A was to introduce the notion of Strategic Management within
the 21st century. We discussed key terms regularly used along with the benefits,
importance and limitations. Key takeaways include:

• The 5 P’s of defining strategy as outlined by Mintzberg (1987) takes into

consideration various perspectives on defining strategy by strategic leaders. The
perspective implemented depends on the strategic leader, and the objective of the
strategy. It also impacts strategic thinking.

• When engaging in strategic planning, it is important to understand the varied

types of strategies, intended and emergent, and the outcomes of these strategies.

• The benefits of strategic management far outweigh the limitations. However, to

capitalise on the benefits, understanding the limitations of strategic management
must be properly understood.

Unit 1B will build on this foundation and delve more into the strategic management
process.

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 References

Bossidy, L., & Charan, R. (2002). Execution: The Art of Getting Things Done. New
York: Crown Business.

David, F. & David, F. (2007). Strategic Management: Concept and Cases. New York:
Pearson PLC.

Esin Sadikoglu and Hilal Olcay, “The Effects of Total Quality Management
Practices on Performance and the Reasons of and the Barriers to TQM
Practices in Turkey,”. Advances in Decision Sciences, vol. 2014, Article ID
537605, 17 pages, 2014. doi:10.1155/2014/537605

Mintzberg, H. 1987. The strategy concept I: Five Ps for strategy. California

Management Review, 30(1), 11–24.

Presley, A., Meade, L., & Sarkis, J. (2007). A strategic sustainability

justification methodology for organisational decisions: a reverse logistics
illustration. International Journal of Production Research, 45(18-19), 4595-4620.

Thompson, A. A., & Strickland, A. J. (1998). Crafting and implementing strategy: text
and readings. Boston: Irwin/McGraw-Hill.

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