Strategic Management Principles

• Strategic management principle: effective strategy making begins

with a vision of where the organization needs to head.

• The Three Elements of a Strategic Vision:

a) Coming up with a mission statement that defines what business the

company is presently in and conveys the essence of ‘who we are,
what we do and where we are now’
b) Using the mission statement as a basis for deciding on a long-term
course, making choices about ‘what we are going’ and charting a
strategic path for the company to pursue.
c) Communicating the strategic vision in clear, exciting terms that arouse
organization wide commitment
• The mission is not to make a profit. One of the roles
of a mission statement is to give the organization its
own special identity, business emphasis, and path
for development. It incorporates:
- Customer needs or what is being satisfied
- Customer groups or who is being satisfied
- The company’s activities, technologies and
competencies or how the enterprise goes about
creating and delivering value to customers and
satisfying their needs.
 Kinds of objectives to set
• Every company needs both strategic objectives relating to achieving acceptable
strategic performance i.e to sustaining and improving the company’s long-term
market position and competitiveness and financial objectives relating to financial
performance i.e ability to fund needed initiatives, can alarm creditors and
shareholders, survival at risk.
• Financial objectives are:
- Growth in revenue
- Growth in earnings
- Higher dividends
- Bigger profit margins
- Higher return on invested capital
- Strong bond and credit ratings
- Bigger cash flow
- A rising stock price
- Stable earnings during periods of recession
• Strategic objectives:
- A bigger market share
- An ability to get newly developed products to market quicker
- Higher product quality than rivals
- Lower costs relative to key competitors
- Broader or more attractive product line than rivals
- Superior on-time delivery
- A stronger brand name than rivals
- Superior customer service compared to rivals
- Stronger global distribution and sales capabilities than rivals
- Recognition as a leader in technology and/or product innovation wider
geographic coverage than rivals
- Higher levels of customer satisfaction than rivals
The Strtegic Making Pyramid

Corporate strategy

Business Strategies

Functional Strategies

Operating Strategies
• Corporate strategy: responsibility of corporate-level managers. Concerns
to establish business position
• Business strategies: responsibility of business-level general managers.
Concerns to produce successful performance in one specific line of
business
• Functional strategies: responsibility of heads of major functional
activities within a business unit or division. Concerns to business process
in tune with what buyers are looking for (new product development)
• Operating strategies: responsibility of plant managers, geographic unit
managers, and lower level supervisors. Concerns how to manage front
line organizational units within a business and how to perform
strategically significant operating tasks ( material purchase, inventory
control, advertising campaigns)
 The factors shaping the choice of company
strategy
• Economic, societal, political, regulatory, community citizenship consideration
• Competitive conditions and overall industry attractiveness
• Company’s opportunity and threats
• Company resource, strengths, weaknesses, competencies and competitive
capabilities
• Personal ambitions, business philosophies and ethical principles of key
executives
• Shared values and company culture.
After analyzing these factors:
• Conclusions concerning how internal and external factors stack up: their
implications for strategy
• Identification and evaluation of strategy alternatives
• Crafting a strategy that fits the overall situation.
 Test of a winning strategy
• The goodness of Fit Test: a good strategy has to be well matched to
industry and competitive conditions, market opportunities and threats
and other aspects of the enterprises external environment, at the same
time, it has to be tailored to the company’s resource strength and
weaknesses, competencies and competitive capabilities. Unless a
strategy exhibits tight fit with a company’s external and internal
circumstances, it is suspects and likely to produce less than the best
possible business results.
• The competitive advantage test: a good strategy leads to sustainable
competitive advantage. The bigger the competitive edge that a strategy
helps build, the more powerful and effective it is
• The performance test: a good strategy boosts company performance i.e
gains in profitability and gains in the company’s competitive strength
and long term market position.
The Five forces of Competition(Micheal and
Porter)
• The rivalry among competing sellers in the industry
• The potential entry of new competitors
• The market attempts of companies in other
industries to win customers over to their own
substitute products
• The competitive pressures stemming from
supplier-seller collaboration and bargaining
• The competitive pressures stemming from seller-
buyer collaboration and bargaining