The Nature of Strategic

Management
 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.
• It may also be referred to as “Strategy
Formulation” for an organization.
• The purpose of Strategic Management is to
exploit and create new and different opportunities
for tomorrow.
 Strategic Management
Art and science of formulating, implementing, and
evaluating cross-functional decisions that enable
an organization to achieve its objectives.
 Strategic Management is Synonymous with
“Strategic Planning”.
 Strategic management is usually used in
academia whereas Strategic planning is used more
often in the business world.
 Important Terminologies
• Vision. It is a long term desired status or a general
statement of its intended direction that evokes emotional
feelings in organization members.

• Mission. Spells out who the company is and what is

purpose of its existence.

• Strategy / Strategic Plan. The company’s long term

plan for how it will balance its internal Strengths &
Weaknesses with its external Opportunities & Threats to
maintain a competitive advantage.

• Strategic Management. The process of identifying

and executing the organization’s mission by matching its
capabilities with demands of its environment.
 Important Terminologies
• SWOT Analysis. The process of identifying company’s
Strengths, Weaknesses, Opportunities & Threats.

• Strategic Control. The process of monitoring and

assessing progress toward strategic goals and taking
corrective action as needed.

• Competitive Advantage. Any factors that allow an

organization to differentiate its product or services from
those of its competitors to increase market share.

• Outsourcing. Letting outside venders to provide services

or part (s) of a product/equipment/machinery.

• Leveraging. Supplementing what you have and doing

more with what you have.
 Strategic Management Process
(Three Stages)
Objective, logical and systematic approach for making
major decisions

Strategy Formulation

Strategy Implementation

Strategy Evaluation
Strategy is formulated by the top managers who are in a better
position to understand impact of various strategies on the business.
It is “Planning Stage” of Strategic
Strategy Formulation Management; too demanding.

Vision & Mission

Opportunities & Threats

Strengths & Weaknesses

Long-Term Objectives

Alternative Strategies

Strategy Selection
 Also called “Action Stage” of
Strategic Management; is most
Strategy Implementation difficult stage.

Annual Objectives

Policies

Motivate Employees

Resource Allocation
 Also called “Final Stage” of Strategic
Strategy Evaluation Management; is most difficult stage.

Review
External & Internal

Measure Performance

Corrective Action

A thorough evaluation from planning/start till complete

implementation is carried out to know about strong and weak
areas and to learn lessons/take actions.
 Integrating Intuition and Analysis
• Intuition is based on past experience,
judgments & feelings; helps in making quick
decisions.
• More helpful in situations of uncertainty and no
precedence.
• Ability to take intuitive decisions vary from
manager to manager.
• Although not always correct, most decisions
based on intuition prove correct.
• It is not applied in dark – rather based on some
symptoms.
 Adapting to Change
• Strategic management process is based on
belief that Org should continuously monitor
Internal & External events and trends – helping
in adapting to changing requirements.
• Rate & magnitude of changes are much more
than ever before.
• The only constant thing is the change.
• E-commerce, laser surgery, are the causes
• More immigrations, traveling, improved lifestyle
• Ever-growing needs of customers
Key Strategic Management Terms
(Nine Terms)

1. Strategists

2. Vision statements

3. Mission statements

4. External opportunities and threats

5. Internal strengths and weaknesses

Key Strategic Management Terms

6. Long-term objectives

7. Strategies

8. Annual objectives

9. Policies
 Strategic Management Terms
Strategists:
• Usually found in high levels of management:
Help organization gather, analyze, and
organize information
Track industry and competitive trends
Develop forecasting model
Evaluate corporate and divisional
performance
 Strategic Management Terms
Vision Statement:
• Answers the question: “What do we want to
become”:
 First step in strategic planning
 Oftentimes a single sentence – our vision
is to take care of your vision.

“Our vision is to be the market

leader by the year 2020.”
 Strategic Management Terms
Mission Statement:
• Answers the question: “What is purpose of
our existence”:
 Second step in strategic planning
 Often a brief – may comprise one or few
sentences. Mission statement of Business
School could be:

“Our mission is to impart quality

business education .”
 Strategic Management Terms

External Opportunities & Threats:

• Largely beyond the control of a single
organization:
 Economic
 Social
 Cultural
 Demographic
 Environmental
 Strategic Management Terms

External Opportunities & Threats:

 Political
 Governmental
 Technological
 Competitive trends & events
 Strategic Management Terms

Internal Strengths & Weaknesses:

• Controllable activities that are performed
well or poorly relative to competitors:
• Based on functional analysis of activities in
the firm’s:
 Management
 Marketing
 Finance/accounting
Conti…
 Strategic Management Terms

Internal Strengths & Weaknesses:

• Production/operations
• Research and development
• Computer information systems

• Organizations strive to pursue strategies

that capitalize on strengths and improve
weaknesses.
 Strategic Management Terms

Long-Term Objectives:
• Results to be achieved in pursuing the mission of
the organization. Time frame is beyond one year:
 Objectives state direction of organization
 Help in evaluation
 Create synergy through team work
 Reveal priorities – what to do first
 Focus coordination – whom to coordinate with
 Provide basis for effective management
 Strategic Management Terms
Strategies:
• Potential actions that require top management
decisions and large amounts of firm’s
resources.
• Mechanisms by which long-term objectives
are realized:
 Geographic expansion
 Diversification
 Acquisition
 Product development
 Strategic Management Terms
Strategies:
• Mechanisms/means to achieve long-term
objectives/goals.
• They are potential actions that require top
management decisions. Business strategies
may include:
Market penetration – increase share in present
market and existing products / services through
greater marketing efforts.
 Retrenchment – reverse declining sales and
profits by reducing cost & other assets. Also
called turn around or re-organizational strategy.
 Strategic Management Terms
Strategies:
 Divestiture. Selling a division or part of an
organization, thereby improving financial health
as a short term measure.
 Liquidation. Selling all of the company’s
assets, in parts for their tangible worth.
 Joint venture. Forming of a temporary
partnership or consortium by two or more
partners for the purpose of capitalizing on
some opportunity.
 Strategic Management Terms

Annual Objectives:
• Short-term milestones necessary to achieve
long-term objectives:

Represent the basis for allocating

resources
Established at corporate, divisional, and
functional levels
 Strategic Management Terms
Annual Objectives (cont’d)
– Stated in terms of accomplishments for:

 Management
 Marketing
 Finance/accounting
 Production/operations
 Research and development
 Information systems accomplishments
 Strategic Management Terms

Policies:
• Important in strategy implementation as the
means by which annual objectives will be
achieved:
Guide to decision making and address
repetitive situations
Established at corporate, divisional, or
functional levels
Allow consistency & coordination within and
between organizational departments.
 Benefits of Strategic Management
• Proactive Vs. Reactive:
Initiate and influence activities
 Helps shape firm’s own future

• Principal Benefit:
Formulate better strategies
 Systematic, logical, and rational approach

• Communication:
Key to successful strategic management
 Benefits of Strategic Management

• Financial Benefits:
More profitable and successful

Improvements in sales, profitability, and

productivity
High-Performing Firms:
 Systematic planning – fluctuations in
external and internal environments
 Benefits of Strategic Management

• Non-financial Benefits:
 Enhanced awareness of external threats
 Understanding of competitors’ strategies
 Increased employee productivity
 Reduced resistance to change
 Clear performance-reward relationships
 Order and discipline to the firm
 View change as opportunity
 Why Some Firms Do ‘No
Strategic Planning’

• Poor reward structures

• Fire-fighting
• Waste of time
• Too expensive
• Laziness
• Content with existing level of success
 Why Some Firms Do ‘No
Strategic Planning’

• Fear of failure
• Overconfidence
• Prior bad experience
• Self-interest
• Fear of the unknown
• Suspicion
 Pitfalls to be Avoided
in Strategic Planning
• Using to gain control over decisions & resources
• Doing only to satisfy regulatory requirements
• Moving hastily from mission to strategy
formulation
• Failing to communicate to employees
• Intuitive decisions that conflict with formal plan
• Top management not supportive of process
 Pitfalls to be Avoided
in Strategic Planning
• Failing to use standard performance
measurement tools/procedures.
• Delegating to a “planner” without involvement of
own managers
• Failing to involve key personnel
• Failing to create collaborative environment
• Formality that stifles creativity and flexibility
 Business Ethics & Strategic
Planning
• Principles of conduct within organizations that
guide decision making and behavior.
• Good business ethics is a prerequisite for good
strategic management.
• Good ethics is just good business.

• Strategists are responsible for high ethical

principles
Business Ethics & Strategic Planning

• All strategic processes have ethical ramifications

• Formal codes of ethics are in place for many

businesses
• Internet privacy emerging as ethical issue of
immense proportions
Business Ethics & Strategic Planning
Business actions which are always unethical and
should be avoided, include:

• Misleading advertising

• Misleading labeling

• Environmental harm

• Poor product or service safety

• Dumping flawed products on foreign markets

• Mixing poor quality with better one - deception

 Nature of Global Competition
• Companies conduct business across
borders:
 Multinational corporations:
 Parent company
 Host country

• Strategy implementation more difficult:

 Cultural differences – norms, values, work
ethics.
 Advantages of International
Operations
• Absorb excess capacity
• Reduce unit costs
• Low-cost production facilities
• Lower labor costs
• Competition less intense
• Reduced tariffs, lower taxes
• Favorable political climate
• Economies of scale
 Disadvantages of International
Operations

Communication difficulties between Parent

and Subsidiaries:

• Based on cultural, political, social, language,

demographic, and competitive forces

Foreign-based competitors:

• Strengths underestimated

• Weaknesses overestimated
 Assignment # 1
Q # 1. What do you understand by Intuition;
how & why it should be used by
managers to make decisions. (3)
Q # 2. Describe Strategic Management
Process; explain all components, giving
suitable example for each. (7)