Introduction to Strategic Management

By
Dr. S.N. Nandi
Management Consultant & Professor
New Delhi
 Strategic Focus
There are issues that have strategic focus involving following
characteristics:
• Strategic issues required top management decisions.
• Strategic issues required large amounts of Firm’s resources.
• Strategic issues often affect the firms' long term prosperity.
• Strategic issues are future oriented.
• Strategic issues usually have multi-functional or multi-business
consequences.
• Strategic issues required considering the firm’s external
environment.
• Strategic issues involves making choices and committing resources
in ways that cannot be reversed cheaply or easily.
 Levels of Strategy
• Corporate Level
• Business Level
• Functional Level
 Corporate Life Cycle
• No Corporate could succeeds forever. Environment changes
Corporate needs to adopt. Even then it is only very few
Corporate which survive more than 100 years. It is said that
longest surviving organization is one existing in Sweden only
over 700 years.
• Since business environment changes in many directions by
many magnitudes, an organization has to steer it through
continuous changes.
• There are two factors which have made the organization
changes very fast in recent times. These are i) Globalization
and ii) Technological Advancement.
• Globalization is an opportunity as well as a challenge.
 Technology and its effect

• Broadly, there are two types of technology : i) Core

Technology and ii) Information Technology.
• Technology is a driving force for process changes as
well as for product changes.
• Technological change may be major or minor.
• Examples are abound
 Input – Output Model

• PIMS data base is the only real time data base to

demonstrate effects of various strategic factors on
organizational performance.
• PIMS data base has been developed by Strategic
Planning Institute, U.S.A. principally on the basis of
Michael Porter’s model.
 Top Strategist
Ratan N. Tata, Chairman - Tata Group
In four years, starting 2003, Ratan Tata embarked on an investment
spree to build his group from a regional player into a global
heavyweight. The Tata Group bought the truck unit of South Korea’s
Daewoo Motors, a stake in one of Indonesia’s biggest coal mines,
and steel mills in Singapore, Thailand, and Vietnam. It took over a
slew of hotels, including New York’s Pierre, the Ritz-Carlton in
Boston, and San Francisco’s Camden Place. The 2004 purchase of
Tyco International’s under-sea telecom cables for $130 million, a
price that in hindsight looks like a steal, turned Tata into the world’s
biggest carrier of international phone calls. With its $91 million
buyout of British engineering firm Incat International Tata
Technologies is now a major supplier of outsourced industrial design
for American auto and aerospace companies, with 3,300 engineers
in India, the US, and Europe.
 Top Strategist
Ratan Tata, Chairman - Tata Group (Contd.)

The crowning deal was Tata Steel’s $13 billion takeover of Dutch-
British steel giant Corus Group, a target that would have been
unthinkable just a few years ago in April 2007. In one swoop, the
move greatly expanded Tata Steel’s range of finished products,
secured access to automakers across the US and Europe, and
boosted its capacity fivefold, with mills added in Pennsylvania and
Ohio. The group also planned $28 billion in capital investments at
home over the next five years in steel, autos, telecom, power and
chamicals.
 Introduction
• Main documents
– Syllabus, List of Expectations, and Welcome Letter
• Assignments
– Individual Projects
– Discussion Boards
– Group Project
• Academic Integrity
– All assignments should be formatted using the APA standard
methodology
– All assignments should contain at a minimum two references
per document and one citation per paragraph.
 Introduction (Cont’d)

Use of TurnitIn
 What is Strategic Management?
• Strategic management is set of managerial decisions
and actions that guide the long-term direction of the firm.
• In turn, these strategic decisions are formulated into
business policies that guide the various functional areas
of the firm in completing and achieving the firm’s
strategic goals.
• The overall benefit of strategic management is making
sure the firm has a clear vision for the future and a
sharpened focus on what is important.
 Strategic Management answer the
following questions
• Where is the organization now?
• Performs SWOT analysis:
– What are our strengths and weaknesses currently?
– What are the threats and opportunities ahead in the next 1 to 20
years?
• Where does the organization want to be in those 1 to 20
years?
• What needs to be done to achieve those long-term
objectives?

Once top management has provided answers to

these questions the organization is ready to move
ahead with its strategic plan.
 Environmental Variables

Source: Wheelen and Hunger (2006)

 Strategic Decision Making
• Strategic decision-making is considered a long-term
process that will determine the future direction of a firm.
• These are not daily operating decisions. Normally these
decisions are rare, have significant consequence for a
firm, and set a direction for future policies and
procedures for the entire organization.
• An example might be a firm’s decision to shift its
marketing and production from solely a domestic
operation to a global organization. This level of decision
making will impact the entire firm for a very long period
of time.
Hierarchy of Strategies

Corporate Strategy
(Overall direction of the firm)
Business Strategy
(Competitive & Cooperative Strategy)
Functional Strategy
(Maximize Resources)
 Corporate Governance

• Is composed of three groups of stakeholders:

– the corporate Board of Directors,
– the Shareholders of the company,
– and top management.
• The role of the Board of Directors is to monitor the
corporation’s top management, to evaluate and
influence the decisions about future events, and to
remain active in determining the corporation’s mission.
• Top management is considered to serve at the
pleasure of the corporate board whose members are
elected by the shareholders.
 Social Responsibility

• Every company has an inherent responsibility to remain

profitable and viable. Beyond that there is also social
responsibility that a firm should assume.
• Essentially, social responsibility is that which the company's
management envisions it is performing in support of socially
desirable behavior.
• In many cases, these might be responsibilities that go beyond
the requirements of the law and companies may accept far
more responsibility than normally expected.
• An example might be the construction industry. While the law
may require only a certain level of quality in the building
materials, the firm, being socially responsible, will construct a
facility with only environmentally safe and appropriate, superior
quality materials—thus aiding society in environmental matters.
 Responsibility of a Business
Firm
There is only one social responsibility of business – to use its
resources and engage in activities designed to increase its
profits so long as it stays within the rules of the game, which
is to say, engages in open and free competition without
deception or fraud (Friedman 1970 as cited by Wheelen & Hunger,
2006, p.57)

Highest priority Economic Profit maximization

(Must do) cannot be the primary
objective of a business
Legal
(Have to do)
(Byron, as cited as
Wheleen & Hunger, 2006,
Ethical p.57)
(Should do)

Discretionary
(Might do)
Lowest priority
 Ethical Decision Making

• Ethical decision making makes good business

sense because if companies don’t act in an
ethical manner, then the government will be
forced to enact laws, maybe more strict laws than
absolutely necessary, to insure legal and ethical
behavior.
• It is really important is that top management act in
a sound and ethical way to set an example for all
company employees.
• Code of Ethics should clarify the company’s
expectations of the employee’s conduct and
make it clear that the company means business
with enforcement.
• Generally firms will communicate their ethical Law Code of Hammurabi, king
standards via a formal written Code of Ethics or of Babylon 1792-1750 BC
through a written Guideline policy book. © R.M.N./H. Lewandowski
 Disciplinary Focus
• Various disciplines in “management”
emerge from the functions of
management:
– Business Policy (formally called Strategic
Planning) from the planning function.
– Organizational Behavior primarily from the
leading function.
– Human Resources Management primarily
from the organizing function.
– Strategic Management, originated from
Business Policy, but focuses on overall
management – PLOC – and beyond.
 What is Strategic Management?
• Focuses on how managers formulate and
implement, and evaluate strategies aimed at
developing and maintaining competitive advantage:
– the reason some firms enjoy higher levels of
performance than their rivals or competitors.
• Strategic management is therefore concerned with
overall PLOC
• Four aspects that set strategic management apart:
– Interdisciplinary
– External focus “Big picture” view of an
– Internal focus organization influenced by
– Future directions its external environment
 Strategic Management’s
Uniqueness
• Level of Analysis
• Field of Study – The economy
– Macroeconomics – Industries & markets
– Microeconomics – Firms & businesses
– Strategic Management
– Investment Projects
– Finance
– Products & services
– Marketing
– Individuals & Groups
– Org. Behavior
– Tasks & Structure
– Human Resource Mgmt.
–
– Plants
Operations Mgmt.
Importance of Strategic Management
• Provides systematic approach to uncertainties that
organizations face
– Competitive & global environment are dynamic (changing)
– Change, whether significant of minor, must be recognized and
analyzed, & dealt with
– Strategic management allows for the analysis of the situation
(identifying the sources of change in environment)
• Coordinates and focuses employees to achieve
organization’s goals
– Allows for team effort which is coordinated for firm success
– Allows for development of a plan, communication,
coordination, & cooperation among diverse depts & functions
 The Strategic Management
Process

Internal
Analysis

Strategy Strategy Strategic

Mission,
Formul- Implem- Eval. &
Vision &
ation entation Control
Objectives

Environ.
Analysis
 Mission, Vision & Objectives
• A company’s mission is a statement of
– the basic purpose or reason for its existence
– its values (role to stakeholders - customers,
employees, society, etc.).

• The vision goes beyond the mission statement

– clarifies the long-term direction of the company
(where the company is going)
– reflects management’s aspirations for the company
 Mission, Vision & Objectives
• Objectives are yardsticks for tracking a
company’s performance or end result.
– Financial performance objectives (e.g.,
ROA, ROI, ROE, Dividend growth, Stock
price, etc.).

– Strategic performance objectives (e.g.,

market share, growth, innovation leader,
customer service, community &
environmental responsibility, etc.)
Examples of Mission & Vision
• Southwest Airlines:
– Mission: To provide high quality service at a
lower price in the airline industry.
– Vision: Opening air travel to a wider group
of leisure travelers while infusing the
organization with a sense of fun.
• Apple Computer:
– Mission: To bring the best personal
computing products and support to
consumers around the world.
– Vision: One person, one computer.
 Financial & Strategic
Objectives
• Alcan Aluminum
– Financial: To outperform the average return on
equity of the S&P’s industrial stock index.
– Strategic: To be lowest-cost producer of aluminum.
• GE
– Financial: To achieve an average of 10 inventory
turns and a corporate operation profits margin of
16% by 1998.
– Strategic: To become most competitive enterprise
in the world by being #1 or #2 in market share in
every business the company is in.
 Environmental Analysis
• Involves the evaluation of the business
environment of the organization.
– All external influences that impact a
company’s decision and performance.

• Environment of firm classified by

proximity into
(1) Macro-environment; and
(2) Micro-environment or task environment.
 Environmental Analysis
• The macro-environment consists of
– The international/national economy; changes
in demographic structures; social and political
trends; technology; and the natural
environment.

• The micro-environment consists of

– The industry environment such as
competitors, suppliers, customers; unions and
employees; owners and shareholders, etc.
 Internal Analysis
• Involves the evaluation of the inventory of the
firm’s resources and capabilities.
• Resources/Capabilities can be classified as:
– Tangible resources: Financial or physical assets
– Intangible resources: brand name, reputation
(product & firm), organizational culture, etc.
– Capabilities or competencies: managerial ability,
specialized skill & knowledge base of employees,
etc.
 Strategy Formulation
• The strategy formulation process
– involves designing a course of action for
addressing strategic issues facing the firm
after going through the external and internal
evaluation processes.
• Actual strategy of a company involves:
– Planned or Intended Actions (Deliberate &
purposeful actions).
– Reactive or Emergent Actions (As-need
reactions to unanticipated events in firm’s
micro and macro environments).
 Strategy Formulation
• Strategy formulation is concerned with the
following parts of a company:
– Corporate (whole company) -- Corporate
strategies: Deals with businesses company
wants to be in & how to manage those
businesses
– Businesses -- Competitive strategies: How to
compete in specific business or industry
– Functional areas -- Functional strategies: short
goal-directed decisions & actions of an
organization’s various functional departments.
 Strategy Implementation
• Strategy implementation is the process of
putting a company’s various strategies into
action
– development of programs, policies, budgets &
procedures.
• It can take several months to years to
complete.
• Most difficult part of the strategy process.
• The job of implementing strategy involves
managers at all levels
Strategic Control & Evaluation
• Process by which desired outcomes
(mission, vision, & objectives) are
compared with realized outcomes to
determine if there are gaps.
• Initiate corrective actions by
monitoring changes in environment -
competitor actions, new market
opportunities, customer needs &
expectations.
Strategic Management Process

• On-going and continuous cycle of

– Situation Analysis : Internal evaluation &
Environmental scanning
– Strategy formulation
– Strategy implementation
– Strategy evaluation
Misconceptions about Strategy &
Strategic Management
• Strategy & strategic planning are dead
– Every organization needs the focus and direction
provided by its strategies and the strategic
management process
• Strategy is strictly for top management
– Top management play a crucial role, but
everyone in the organization has a part to play.
• Strategy is about planning
– Strategic management process shows that
strategy is not only about planning, but also about
doing.
Misconceptions about Strategy &
Strategic Management
• Strategy is stable and constant
– Organizations compete in dynamic
environments. Flexibility and change needed to
respond to environmental opportunities &
threats, & strength and weaknesses
• Strategic management outlines ultimate
destination & route
– It establishes a systematic approach to analyzing
relevant information & using it to design,
implement, & evaluate appropriate strategies.