CHAPTER ONE:

OVERVIEW OF STRATEGIC
MANAGEMENT
 Chapter outline
◦ Defining strategic management
◦ Stages of strategic management
◦ The strategic management model
◦ Benefits of strategic management
◦ Types of strategies
◦ Michael Porter’s generic strategies

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INTRODUCTION
 The word strategy has entered the field of management
more recently. Originally, the word strategy has been
derived from Greek word ‘Strategoes’, which means
generalship.
 The word strategy, therefore, means the art of the

general. (a carefully formulated military style (plan

of campaign).
 When the term strategy is used in military sense, it refers
to action that can be taken in the light of action taken by
opposite party.

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 Cont.…
 Strategy is the creation of a unique and valuable position, involving a
different set of activities.
 Strategy requires you to make trade-offs in competing—to choose what
not to do.
 Strategy involves creating “fit” among a company’s activities.
 In sum, strategy is all about how to win the situation at hand.
 A strategy is a set of actions that managers take to increase their
company’s performance relative to rivals.
 If a company’s strategy does result in superior performance, it is said to
have a competitive advantage.
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 Definition of strategic management
 Strategic management can be defined as the art and
science of formulating, implementing, and evaluating
cross-functional decisions that enable an organization to
achieve its objectives.
 Strategic management has been defined by Loyd L. Byars

as a process which is concerned with making decisions

about an organization’s future direction and implementing
these decisions.
 The term strategic management is used synonymously

with strategic planning.

 It is also known by subtitle for the capstone course in

business administration, because, it integrates material

from all business disciplines . 4
 Cont..
 Strategic Management is “The on-going process of
formulating, implementing and controlling broad plans guide
the organizational in achieving the strategic goals given its
internal and external environment.
 Strategic management is a set of managerial decisions and
actions that determines the long run performance of a
corporation. It includes environmental scanning (both
external and internal), strategy formulation (strategic or long-
range planning), strategy implementation, and evaluation and
control.
 The study of strategic management, therefore, emphasizes the
monitoring and evaluating of external opportunities and
threats in light of a corporation’s strengths and weaknesses
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Stages of Strategic Management
 The strategic management process consists of three
stages:
◦ Strategy Formulation (strategy planning)
◦ Strategy Implementations
◦ Strategy Evaluation

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 1. Strategy Formulation
 It is the development of long-range plans for the
effective management of environmental opportunities
and threats, in light of corporate strengths and
weaknesses (SWOT).
 It includes defining the corporate mission, specifying
achievable objectives, developing strategies, and setting
policy guidelines.
 Strategic formulation means a strategy formulated to
execute the business activities.
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 Cont..
 Strategy formulation includes developing:-
◦ Vision and Mission
◦ Strength and weakness
◦ Opportunities and threats
 The considerations for the best strategy formulation

should be as follows:
◦ Allocation of resources
◦ Business to enter or retain
◦ Business to divest or liquidate
◦ Joint ventures or mergers
◦ Whether to expand or not
◦ Moving into foreign markets
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 2. Strategy Implementation
 It is a process by which strategies and policies are put into action
through the development of programs, budgets, and procedures.
 Involves changes within the overall culture, structure, and/or
management system of the entire organization.
 Strategy implementation includes:
◦ Developing strategy supportive culture,
◦ Creating an effective organizational structure,
◦ Redirecting marketing efforts,
◦ Preparing budgets,
◦ Developing and utilizing information system and
◦ linking employee compensation to organizational performance.
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Cont..
 It Requires a firm to establish annual objectives, devise policies,
motivating employees and allocate resources so that formulated
strategies can be executed.
 Strategy implementation is often called the action stage of strategic
management.
 Implementing means mobilizing employees and managers in order to
put formulated strategies into action.
 It is often considered to be most difficult stage of strategic
management.
 It requires personal discipline, commitment and sacrifice.
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 3. Strategy evaluation
 It is a process in which corporate activities and performance
results are monitored so that actual performance can be
compared with desired performance.
 Although evaluation and control is the final major element
of strategic management, it can also pinpoint weaknesses in
previously implemented strategic plans and thus stimulate
the entire process to begin again.

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Key terms in strategic management
 Competitive Advantage
 Strategists
 Vision Statements
 Mission Statements
 External Opportunities and Threats
 Internal Strengths and Weaknesses/Internal
assessments
 Long-Term Objectives
 Strategies
 Annual Objectives
 Policies
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 Key terms …
 Competitive advantage: anything that a firm does
especially well compared to rival firms.
◦ When a firm can do something that rival firms cannot do, or owns
something that rival firm’s desire, that can represent a competitive
advantage.
 Strategists: Strategists are individuals who are most
responsible for the success or failure of an organization.
◦ Strategists are individuals who form strategies.
 Vision Statements : a "vision statement" answers the
question, what do we want to become?
◦ Developing vision statement is often consider the first step in
strategic planning, preceding even development of a mission
statement.
◦ Many vision statements are a single sentence.
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 Key terms …
Mission Statements: Mission statements are "enduring
statements of purpose” that distinguish one business from other
similar firms.
 A mission statement tells why your business exists
 It identifies the scope of a firm's operations in product and market
terms.
 It addresses the basic question that faces all strategists: What is our
business?
 It describes the values and priorities of an organization.
External Opportunities and Threats:
 External O & T refer to economic, social, cultural,

demographic, environmental, political, legal, governmental,

technological, and competitive trends and events that could
significantly benefit or harm an organization in the future
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 Key terms …
 Internal assessments(S & W):
 Internal strengths and internal weaknesses are an organization's

controllable activities that are performed especially well or poorly.

 It arise in the management, marketing, finance/accounting,

production/operations, research and development, and computer

information systems activities of a business.
 Long-Term Objectives:

 a specific results that an organization seeks to achieve in pursuing

its basic mission.

◦ Long-term objectives represent the results expected from pursuing certain
strategies.
◦ Strategies represent the actions to be taken to accomplish long-term
objectives.
◦ The time frame for objectives and strategies should be consistent, usually
from two to five years
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 Key terms …
 Objectives are essential for organizational success
because they:
◦ state direction
◦ aid in evaluation
◦ create synergy
◦ reveal priorities
◦ focus coordination
◦ provide a basis for effective planning, organizing,
motivating and controlling activities.
◦ Objectives should be challenging, measurable,
consistent, reasonable, and clear.

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 Key terms …
 Annual Objectives: are short-term milestones that organizations
must achieve to reach long-term objectives.
 Like long-term objectives, annual objectives should be measurable,
quantitative, challenging, realistic, consistent, and prioritized.
 They should be established at the corporate, divisional, and functional
levels in a large organization.
 Annual objectives should be stated in terms of management,
marketing, finance/accounting, production/operations, research and
development, and information systems accomplishments
 Annual objectives are especially important in strategy implementation,
whereas long-term objectives are particularly important in strategy
formulation
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 Key terms …
 Strategies: are the means by which long-term objectives
will be achieved.
 Strategies are potential actions that require top
management decisions and large amounts of the firm's
resources.
 In addition, strategies affect an organization's long-term
prosperity, typically for at least five years, and thus are
future-oriented
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 Key terms …..
 Policies: are the means by which annual objectives will be achieved.
◦ Policies include guidelines, rules, and procedures established to support efforts
to achieve stated objectives.

◦ Policies are guides to decision making and address repetitive or recurring

situations.

◦ Policies can be established at the corporate level and apply to an entire

organization

 Policies, like annual objectives, are especially important in strategy

implementation because they outline an organization's expectations of
its employees and managers.
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 The Strategic-Management Model
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Benefits of strategic management
 Strategic management contain both financial and non-final
benefit
 Financial benefits
 Research indicates that organizations using strategic-

management concepts are more profitable and successful

than those that do not.
 Firms with planning systems more closely resembling
strategic-management theory generally exhibit superior
long-term financial performance relative to their industry.

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Nonfinancial Benefits

 Enhanced awareness of external threats

 Improved understanding of competitors strengths
 Increased employee productivity
 Reduced resistance to change
 Strategic management leads to a culture of problem

prevention.
 It encourages managers to be proactive.
 Framework for Operational Planning
 Clarity in Direction of Activities
 Increase Organizational Effectiveness
 Personnel Satisfaction
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Types of strategies

o A strategy of a corporation is a comprehensive plan

stating how the corporation will achieve its mission and
objectives.
o The typical business firm usually considers three types of
strategy:
 Corporate strategy
Business strategy
Functional strategy

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Corporate strategy
 In what industries and markets should we compete?
 Describes a company’s overall direction in terms of its
general attitude toward growth and the management of its
various businesses and product lines.
 Corporate-level strategy specifies actions a firm takes to gain

a competitive advantage by selecting and managing a group

of different businesses competing in different product
markets.
 Crafted by the top level managers of the organization

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Business Strategy
 How are we going to compete for customers in this industry and
market?
 Business-level strategy is an integrated and coordinated set of

actions the firm uses to gain a competitive advantage by exploiting

core competencies in specific product markets.
 This means that business-level strategy indicates the choices the firm

has made about how it intends to compete in individual product

markets.
 The purpose of a business-level strategy is to create differences

between the firm’s position and those of its competitors.

 To position itself differently from competitors, a firm must decide

whether it intends to perform activities differently or to perform

different activities.

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Types of Business-Level Strategies
 Porter, classify business level strategies into the following
types:
 Firms choose from among five business-level strategies to

establish and defend their desired strategic position against

competitors:
Cost leadership,
Differentiation,
Focused cost leadership,
Focused differentiation,
 Integrated cost leadership/differentiation
 Each business-level strategy helps the firm to establish and

exploit a particular competitive advantage within a particular

competitive scope. 26
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 1. Cost Leadership Strategy:

The cost leadership strategy is an integrated set of actions taken to

produce goods or services with features that are acceptable to
customers at the lowest cost, relative to that of competitors.
Cost leaders concentrate on finding ways to lower their costs
relative to those of their competitors by constantly rethinking how
to complete their primary and support activities to reduce costs
still further while maintaining competitive levels of
differentiation.
 Competitive risks associated with the cost leadership strategy
include:
 A loss of competitive advantage to newer technologies,
 A failure to detect changes in customers’ needs,
 The ability of competitors to imitate the cost leader’s
competitive advantage through their own unique strategic
actions. 28
 2. Differentiation Strategy:

The differentiation strategy is an integrated set of actions taken to

produce goods or services (at an acceptable cost) that customers
perceive as being different In ways that are important to them.
 Differentiators target customers who perceive that value is created
for them by the manner in which the firm’s products differ from
those produced and marketed by competitors.
Risks associated with the differentiation strategy include
 A customer group’s decision that the differences between the
differentiated product and the cost leader’s good or service are no longer
worth a premium price,
 The inability of a differentiated product to create the type of value for
which customers are willing to pay a premium price,
 The ability of competitors to provide customers with products that have
features similar to those associated with the differentiated product, but at
a lower cost
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 3. Focus Strategies:

Firms choose a focus strategy when they intend to use their core
competencies to serve the needs of a particular industry
segment or niche to the exclusion of others.
Examples of specific market segments that can be targeted by a
focus strategy include:
o A particular buyer group
o A different segment of a product line
o A different geographic market
The competitive risks of focus strategies include
 A competitor’s ability to use its core competencies to “out focus” the
focuser by serving an even more narrowly defined competitive segment,
 Decisions by industry-wide competitors to focus on a customer group’s
specialized needs, and
 A reduction in differences of the needs between customers in a narrow
competitive segment and the industry-wide market.
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 4. Integrated Cost Leadership/Differentiation Strategy:

 In a strategic context, this means that increasingly, customers want to

purchase low-priced, differentiated products.
 The objective of using this strategy is to efficiently produce products with
some differentiated attributes.
 Efficient production is the source of keeping costs low while some
differentiation is the source of unique value.
 Firms that successfully use the integrated cost leadership/differentiation
strategy have learned to quickly adapt to new technologies and rapid changes
in their external environments.
 The reason for this is that simultaneously concentrating on developing two
sources of competitive advantage (cost and differentiation) increases the
number of primary and support activities in which the firm must become
competent.
 The primary risk of this strategy is that a firm might produce products that do
not offer sufficient value in terms of either low cost or differentiation. When
this occurs, the company is “stuck in the middle.” Firms stuck in the middle
compete at a disadvantage and are unable to earn more than average returns.31
Operational level or functional Strategy
 How can we best utilize resources to implement our business strategy?
 Is the approach taken by a functional area, such as Marketing,
Finance, Production ,research and development, to achieve
corporate and business unit objectives and strategies by maximizing
resource productivity.
 It is concerned with developing and fostering a distinctive

competence to provide a company or business unit with a

competitive advantage.

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