CHAPTER 1

INTRODUCTION TO STRATEGIC MANAGEMENT

Learning Objectives

 After reading this chapter, you should be able to:

 Discuss the historical origins of strategic management
 Identify the schools of thought on strategic management
 Assess the role of the “Experience Economy” in defining the firm’s strategic orientation
 Describe the strategic management framework and its objectives
 Define key terms pertaining to strategic management
 Assess various perspectives of strategic management and their significance

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 Opening Case

 What issues should Sara and the executive committee address? Why? (Hint: Make assumptions where
necessary, including mission and vision statements, as well as goals, strategies, and objectives.)

 Given the preceding information, what are Sara's options? How should they be evaluated? Make
assumptions where necessary.

 What should the hotel do in the short term and in the long term? Make assumptions where necessary to
arrive at your decisions.

 How should Sara and her executives define value and how should it be assessed? How do the definition
and assessment of value impact strategy formulation and implementation?

 Why is it difficult to answer the preceding questions? Do managers and executives in hospitality and
tourism organizations always have sufficient and reliable information to make decisions?

What is strategic management?

 Strategic management is a field of study that involves the process through which firms define their
missions, visions, goals, and objectives, as well as craft and execute strategies at various levels of the
firms’ hierarchies to create and sustain a competitive advantage.

 Are there other definitions of strategic management?

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 What is strategy?

 Strategy entails futuristic thinking and developing a course of action to meet goals and objectives.

 A strategy should be able to define and address the following:

 Our current position (where are we now?)

 Our intended future position (where do we want to go?)

 Our growth from the current position to the future position (how do we get there?)

Aims of Strategic Management

 A firm is in business to create value for its stakeholders.

 Value is created if firms are able to possess a competitive edge over its market rivals.

 A definitive and formalized approach should be at the core of the process.

 Relying on luck and intuition may not be the way to create and sustain a competitive advantage in the
firm’s market domain.

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 Aims of Strategic Management

 The firm should engage in constant evaluation of its market position, including benchmarking.

 This enables the firm to develop a strategic perspective to the value creation process.

 Changing factors in the external and internal environments affect the process of creating and sustaining
competitive advantage.

 Creating competitive advantage and sustaining it over a period of time requires definitive strategy
formation and implementation processes.

Class Discussion

 Why do we need strategic management?

 Where can we use it?

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 A Historical Perspective

 The term of strategy comes from “strategos” which in Greek means “general”.

 In literal terms, it means “leader of the army”.

 The roots of strategic management can be linked to the works of Sun Tzu that dates back to 400 B.C.
and von Clausewitz in the eighteenth century.

 It as a domain of study has evolved over the past 50 years.

A Historical Perspective

 In the 1950s and 1960s strategic management was viewed from a general management perspective with
emphasis on the role of the leader.

 The focus was on leadership, interpersonal relationships, and the systems, processes, and structure within
organizations.

 Firms used the top-down approach, with the top management at the core of the decision-making process.

 The strategic management process was not formalized and explicit during this phase; instead it was more
implicit and informal.

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 A Historical Perspective

 During the late 1960s, the 70s, and the early part of the 80s, firms adopted the strategic planning approach
with emphasis on analysis and formalized planning, with teams identified within organizations to develop
plans.

 The typologies and concepts related to business and corporate strategies, with strategy formulation at the
core of such conceptualizations, led to the evolution of the domain during this period.

 There was increased emphasis on formal planning and financial returns.

A Historical Perspective

 In the 1980s and 1990s, scholars emphasized more on strategy implementation as a process.

 There was a shift in emphasis from the leader to the development of organizational culture and its role in
defining and implementing strategies.

 Globalization led to the growth of the multidivisional corporation.

 Scholars focused on firms’ competencies to explain strategy, which led to the emergence of the resource-
based view of the firm.

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 A Historical Perspective

 In the 1990s, globalization led to the emergence of network strategies and strategic alliances became the
focal point.

 There was more focus on the firm’s internal competencies that enabled them to sustain competitive advantage.

 The shift toward internal competencies also saw a shift in perspective toward the knowledge-based view and
learning at the core of strategic competitive advantage in the late 1990s.

 There have been continued efforts using the knowledge perspective during the 2000s, with increased emphasis
on corporate social responsibility.

A Historical Perspective

 In the hospitality and tourism domain, strategic management emerged as a field of study in the mid- to late 1980s.

 Researchers aimed at applying the works of scholars in the strategic management domain to hospitality organizations.

 Studies aimed at confirming theories related to strategic planning, contingency, and competitive strategies in the 1980s.

 In the 1990s and 2000s, studies have focused on environmental scanning, strategy implementation, and knowledge-based
view, including corporate social responsibility.

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 Schools of Thought on Strategy

 Mintzberg et al. (1998) described the domain as consisting of ten schools/perspectives. They are:
 Design, planning, positioning, entrepreneurial, cognitive, learning, power, cultural, environmental, and
configuration.

 The first three schools are prescriptive with emphasis on strategy formulation, which developed from the
1960s to the 1980s.

 The next six schools are less prescriptive, while emphasizing on how strategies are developed .

 The tenth school conceptually combines and captures the other nine schools into an integrative whole.

Class Discussion

 Which school of thought do you tend to agree with?

 Why?

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 Strategic Management Framework

Mission, Vision, Values, Goals,

and Objectives

Strategic Analysis
External and Internal

Strategy Formation (Corporate

level, Business level, and
Functional level)

Strategy Implementation

Strategy Control

Strategic Management Framework

 Mission, vision and values statements

 Goals and objectives that are linked to the mission and vision

 Strategies and tactics that help achieve the goals and objectives

 Strategic analysis provides the firm with a clear picture of its situation, which includes internal and
external analysis.

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 Mission Statement

 The mission is a brief description of the very purpose of creating the organization.

 The mission statement includes a clear purpose and states why the organization is in existence.

Mission Statement

 The corporate mission statement for Shangri-La Hotels and Resorts is “To delight our guests every time by
creating engaging experiences straight from our heart.”

 Hilton Worldwide defines its mission as “creating heartfelt experiences for Guests, meaningful
opportunities for Team Members, high value for Owners and a positive impact in our Communities.”

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 Vision Statement

 The vision describes where the organization wants to go from where it is at present.

 Shangri-La’s vision is “To be the first choice for guests, colleagues, shareholders and business partners.”

 Hilton Worldwide defines its vision as “To fill the earth with the light and warmth of hospitality –by
delivering exceptional experiences – every hotel, every guest, every time.”

Goals

 Goals are more specific compared to vision in terms of what the organization aims to achieve in a
definite period of time.
 Increase revenues
 Reduce labor turnover

 Goals are planned over the short and long terms.

 Short-term goals are set for a period not exceeding one year.

 Long-term goals are set for a period of time exceeding three to five years.

 Goals need to be linked to objectives.

 Note that goals are more abstract than objectives.

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 Objectives

 Objectives need to be definite, quantifiable, and measurable.

 Increase sales revenue by 15% compared to last year

 Reduce our annual labor turnover ratio this year to 22%

 Strategies clearly identify how the objectives will be met in terms of the plan.

 Tactics are the actions that operationalize the strategy, those that lead to the attainment of goals and
objectives.

Internal And External Analyses

(SWOT Analysis)

 Internal analysis pertains to strengths and weaknesses analysis.

 External analysis pertains to opportunities and threats analysis.

 Internal and external analyses are also referred to as SWOT analysis.

 The analysis enables a firm to engage in strategic decision making.

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 Strategic Decision Making

 Strategic decisions pertain to choosing an alternative among a set of alternatives that leads to
strategy-related success.

 Strategic decisions are based on pros and cons analysis of the various alternatives.

 These decisions have an effect on the firm’s long-term orientation and direction.

Strategy Formation

 Strategic management includes two distinct phases: the strategy formation phase and the strategy
implementation phase.

 Strategic formation is the process of defining the direction of the firm’s futuristic course of action.

 This would enable the firm to allocate resources in order to achieve the set goals and objectives.

 An internal and external environment analysis is part of the assessment before strategy is formulated at
the corporate, business, and functional levels.

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 Strategy Implementation

 Strategy implementation is the process of putting strategy into action.

 This includes designing the organizational structure and related systems.

 This leads to effective resource allocation processes, including programs and activities such as setting
budgets, developing support systems, recruiting, hiring, and training, as well as designing performance
evaluation and rewards systems.

Strategic Control

 Strategic control refers to monitoring how the strategy implementation process is progressing and
whether the intended outcomes are achieved.

 It helps the organization to monitor the process and take any corrective actions.

 Strategy control is linked back to both strategic analysis and strategy implementation.

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 Levels of Strategy

 The three levels of strategy are:

 Corporate level

 Business level

 Functional level

Corporate Level Strategy

 At the corporate level, strategy is about asking questions about:

 What business the firm is in or would like to be in.

 The firm’s potential to create value by being in the business or expanding into a new line of business.

 The resources and capabilities it has/needs to have to create and sustain competitive advantage in its
business or businesses.

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 Business Level Strategy

 At the business level, firms need to ask the following questions:

 How could it create competitive advantage in its product-market domains in each of its strategic
business units (SBUs)?
 SBU is defined as a unit within a given corporate identity that is distinctly different from other units
within the corporation in terms of products and services as well as the markets it serves.
 A SBU has a distinct profit-making capability of its own.

 How could it continue to be an overall cost leader or a broad differentiator, or, for that matter, have a
cost focus or be a focused differentiator in its market domain?

Functional Level Strategy

 The firm’s objective at the functional level is to sustain its advantage by focusing on efficiencies related to
operations, marketing, human resources, finance and accounting, and other support functions.

 It also engages in constant innovation to ensure new product/service development rollout.

 This level includes activities that lead to service and product quality assurance and customer satisfaction.

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 Experience Economy

 Economic value is profitability related and is measured using performance metrics.

 Experiential value relates to experiences that materialize from the consumption of products and
services and are captured from the memories linked to such experiences.

 Managing customer experiences is an imperative in today’s firm-customer interaction.

Summary

 Strategic management is…

 Evolution of the strategic management field can be described as…

 Schools of thought on strategic management are:

 Definitions of key terms:

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