CHAPTER ONE

AN OVERVIEW OF
STRATEGIC MANAGEMENT
 Contents
1. Definitions of Strategy
2. Difference & similarity B/t public and private sector
SM
3. Evolution of strategic management
4. Levels of Strategy (briefly)
5. Characteristics of Strategic decisions
6. Advantages and challenges of Strategic
Management
7. Strategic Management Process Model
 Unit Learning Outcomes

Upon completion of this unit, students are

expected to:
Define strategy and strategic management;
Describe the different levels of strategy and
their importance;
Discuss the nature and values of strategic
management; and
Explain the strategic management process.
 Reflection

What does strategy

mean?

How do you explain

strategic management?
 1.1 Definition of Strategy
Strategy refers to the formulation of
basic organizational mission,
purpose, policy and program
strategies to achieve organizational
goals.
 A more comprehensive definition of strategy
(Quinn, 1980)

 Strategy as a pattern or plan to integrate

the organization’s major goals, policies,
and action sequences into a cohesive
whole
 Strategy as a tool to organize and
allocate an organization’s resources in a
viable way based on its internal
competencies and shortcomings,
anticipated changes in the environment,
and contingent moves by intelligent
opponents
 Definitions of Strategic Management

 Strategic management
 the art and science of formulating, implementing, and
evaluating cross-functional decisions that enable an
organization to achieve its objectives

 Strategic Mgt. represents the management

responsibility for defining the organization’s
mission, formulating strategies, and guiding long-
term organizational activities consistent with
internal & external conditions.
 Definition Cont’d …
 St. Mgt. is the decision that aligns the
organization’s internal capability with the
opportunities and threats it faces in its
environment.

 St. Mgt. is concerned with deciding on

strategy & planning how that strategy is
to be put into effect via: strategic
analysis, strategic choice, & strategic
implementation.
 According to Pearce II & Robinson

St. Mgt. is defined as the set of decisions &

actions that result the formulation &
implementation of plans designed to
achieve organization’s objectives.

Sometimes the term strategic management

is used to refer to strategy formulation,
implementation, and evaluation, with
strategic planning referring only to strategy
formulation.
 Pearce II & Robinson Cont’d …
It comprises nine critical tasks:
1. Formulate the organization’s mission,
including broad statements about its
purposes, philosophy, & goals;
2. Develop an organizational profile that
reflects its internal conditions and
capabilities;
3. Assess the organization’s external
environment, including both the competitive
& general contextual factors;
 Pearce II & Robinson Cont’d …
4. Analyze the organization’s options by matching its
resources with the external environment;
5. Identify the most desirable options by evaluating
each option in light of the organization’s mission;
6. Select a set of long-term objectives & grand
strategies that will achieve the most desirable
options;
7. Develop annual objectives & short-term strategies
that are compatible with the selected set of long-
term objectives & grand strategies;
 Pearce II & Robinson Cont’d …

8. Implement the strategic choices by

means of budgeted resource allocations
in which the matching of tasks, people,
structures, technologies, & reward
systems is emphasized;

9. Evaluate the success of the strategic

process as an input to decision making.
Differences and similarities between
private and public sector?
 Similarities:

– Managers are concerned with the issues related to

organisation‘s creation, development and
strengthening
– Management, planning and rational allocation of
resources
– Selection, training and qualification development of
personnel
 Differences:

–Objective and evaluation of activity

– Decision-making.
– Publicity and transparency.
Stages of Strategic Management
 Contd.

1. Strategy Formulation
 includes developing a vision and mission,
identifying an organization’s external
opportunities and threats, determining
internal strengths and weaknesses,
establishing long-term objectives, generating
alternative strategies, and choosing particular
strategies to pursue
Strategy Formulation contd.

 Deciding what new businesses to enter,

 What businesses to abandon,
 How to allocate resources,
 Whether to expand operations or
diversify,
 Whether to enter international markets,
 Whether to merge or form a joint venture,
 How to avoid a hostile takeover.
2. Strategy Implementation

 Requires a firm to establish annual

objectives, devise policies, motivate
employees, and allocate resources so that
formulated strategies can be executed
 Often called the action stage
 3. Strategy Evaluation

 Reviewing external and internal factors that

are the bases for current strategies,
measuring performance, and taking
corrective actions
Key Terms in Strategic Management

 Competitive  Strategists
advantage  the individuals
 anything that a who are most
firm does responsible for the
especially well success or failure
compared to rival of an organization
firms
Key Terms in Strategic Management

 Vision statement
 answers the question “What do we want to
become?”
 often considered the first step in strategic
planning
Key Terms in Strategic Management

 Mission statements
 enduring statements of purpose that
distinguish one business from other similar
firms
 identifies the scope of a firm’s operations in
product and market terms
 addresses the basic question that faces all
strategists: “What is our business?”
Key Terms in Strategic Management

 External opportunities and external

threats
 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
Key Terms in Strategic Management

 Internal strengths and internal

weaknesses
 an organization’s controllable activities that
are performed especially well or poorly
 determined relative to competitors
Key Terms in Strategic Management

 Objectives
 specific results that an organization seeks to
achieve in pursuing its basic mission
 long-term means more than one year
 should be challenging, measurable,
consistent, reasonable, and clear
Key Terms in Strategic Management

 Strategies
 the means by which long-term objectives will
be achieved
 may include geographic expansion,
diversification, acquisition, product
development, market penetration,
retrenchment, divestiture, liquidation, and
joint ventures
Key Terms in Strategic Management

 Annual objectives
 short-term milestones that organizations
must achieve to reach long-term objectives
 should be measurable, quantitative,
challenging, realistic, consistent, and
prioritized
 should be established at the corporate,
divisional, and functional levels in a large
organization
Key Terms in Strategic Management

 Policies
 the means by which annual objectives will be
achieved
 include guidelines, rules, and procedures
established to support efforts to achieve
stated objectives
 guides to decision making and address
repetitive or recurring situations
A Comprehensive Strategic-
Management Model
 Why Some Firms Do No
Strategic Planning
 Lack of knowledge in strategic planning
 Poor reward structures
 Firefighting
 Waste of time
 Too expensive
 Laziness
 Content with success
 Why Some Firms Do No
Strategic Planning
 Fear of failure
 Overconfidence
 Prior bad experience
 Self-interest
 Fear of the unknown
 Honest difference of opinion
 Suspicion
 1.2 Levels of Strategy
Reflection
What are levels of
strategy?

How do you distinguish/

characterize different levels
of strategy?
 Corporate strategy

It is also called portfolio-level

strategy & primarily concerned with
top management, chief executive or
board level decisions for
acquisitions, mergers, major
expansions, & divestitures that add
or reduce product line.
 Corporate strategy cont’d …

 It identifies the businesses that the

organization is taking and should take,
and attempts to determine the roles each
business activity is playing and should
play in the organization.
 At this level; only the global objectives that
are likely to be growth, stability or
retrenchment (defense); & strategic
orientation in order to achieve them are
clearly defined.
 Business strategy
 It is found in the middle of the decision
making hierarchy and composed mainly
of business & corporate managers.

 It is concerned with a single strategic

business unit (SUB) and how each
business attempts to achieve its mission
within its chosen area of activity.
 Business strategy cont’d …

 Managers at this level translate the

statements of direction and intent
generated at the corporate level into
concrete objectives & strategies for
individual SUBs.
 The strategy is directed towards identifying
products that should be developed and offered
to selected markets; and taking care of
meeting the customer’s needs while
achieving the objectives of the organization.
 Functional strategy
 It is found at the bottom of the decision making
hierarchy composed of mainly of managers of
product, geographic and functional areas.

 This strategy is implemented in order to support

the business strategy by each functional area.

 Functional level decisions are concerned with how

to implement new technologies, develop new
products, open new markets, expand new facilities,
and institute new human resource programs.
 1.3 CHARACTERISTICS OF
STRATEGIC DECISIONS
CORPORATE-LEVEL DECISION:
 As we move from corporate to functional level
strategies, the decisions become more detailed &
specific
 The decisions at corporate level tend to be more value
oriented, conceptual, & less concrete
 Corporate level decisions are characterized by greater
risk, cost of risk, profit potential, greater need of
flexibility & longer time horizons
 Such decisions include the choice of businesses,
dividend policies, sources of long-term financing, &
priorities of growth
 CHARACTERISTICS Cont’d …

BUSINESS-LEVEL DECISION:

 Helps to bridge decisions at corporate &

functional levels

 Common business level decisions include

plant location, market segmentation,
geographic coverage, & distribution
channels
 CHARACTERISTICS Cont’d …
FUNCTIONAL-LEVEL DECISION:
 Implement the overall strategy formulated at
the corporate & business levels
 Involves action-oriented operational issues,
relatively short range & low risk
 Incurs modest costs because it depends on
available resources
 Critically analyzed because it is relatively
concrete & quantifiable
 1.4 Benefits and Challenges
of Strategic Management
Reflection
What are the benefits as
well as challenges of
Strategic Management?
 Advantages & Challenges of St. Mgt

Advantages:
 Prevent or mitigate the effects of risks
 Helps the managers to discharge their
responsibilities since they know what is
expected of them
 Encourages & permits to evaluate alternative
courses of action
 It reveals & clarifies the SWOT analysis
 Advantages Cont’d …
 It provides an overall framework for decision
making & resource allocation effectively
 Serves as a means of communicating objectives,
strategies, & detailed operating plans
 It helps managers' master change
 It develops attitudes, perspectives, ways of
thinking, decision-making habits, & planning
philosophy that will produce better decisions
 Advantages Cont’d …
 It provides a basis for measuring qualitative
performance – creativity, innovation,
imagination, motivation
 It keeps the org. invariably tied with its
customers & stakeholders and provide
relevant service to the society it stands for
 It makes the organization a learning-
organization whereby others consider it as a
model to be followed
 Constraints/ Challenges
 The difficulties of forecasting the uncertain
future accurately
 The complexity of the environment to be
forecasted and the complex relations
involved between environmental variables
 The limitations of the data available & the distrust
of mgt. techniques applied such as forecasting,
modeling, cost analysis & operational research
 Constraints Cont’d …

 The costly endeavor of the St. mgt process that

entails the use of specialists, taking up mgt. time,
requiring the support of many individuals and even
other orgs.

 The rapidity and novelty of environmental change

(the main leading forces of change are
globalization, resource scarcity, & technological
revolution).

 Hence, the survival & success of organizations can

be guaranteed with new creativity & innovation
1.5 The framework for Strategic
Management
Involves a nine-step process:
1. Creating a vision for the organization
2. Outlining the missions & legal mandates
that define the organization
3. Examining internal factors that influence
its performance
4. Examining external factors that influence
its performance
 CONT’D …
5. Examining the trends & potential futures of the
organization
6. Setting goals for improving organizational
performance over a specified period
7. Designing a strategic plan for reaching the
goals set
8. Implementing or operationalizing the strategic
plan
9. Evaluating both ongoing activities & the final
outcomes
Analysis of the Strategic Management
Process
 Vision
 Mission/Mandate
 Internal Analysis
 Eternal Analysis
 Trend Analysis
 Goal Setting based on Vision
 Strategic Planning
 Implementation / Operational Mgt
 Evaluation
THE END!!!