CHAPTER ONE

THE CONCEPT OF
STRATEGIC MANAGEMENT
 Contents
1. Definitions of Terminologies
– The nature and scope of strategic management
– Essence of strategic / corporate planning
– The process of strategic management
2. Characteristics of Strategic decisions
3. Levels of Strategy (briefly)
• Agency or Corporate level strategy
• Business unit level strategy
• Operational level strategy
4. Benefits of Strategic Management
 Learning Objectives
• Describe what strategy, planning, strategic planning are
• Explain strategic management, and SPM
• Characterize strategic decisions
• Describe benefits and pitfalls in strategic planning
• Describe the different levels of strategy and their
importance;
• Discuss the nature and values of strategic planning and
management;
1.1. The nature and scope of strategic management
• Introduction:
• Why do some companies succeed while others fail?
• Why has Wal-Mart been able to do business well in the
fiercely competitive retail industry, while others like
Kmart have struggled?
• In the airline industry, how has Southwest Airlines
managed to keep increasing its revenues and profits
through both good times and bad, while rivals such as US
Airways and United Airlines have had to seek bankruptcy
protection?
• The strategies a company’s managers pursue have a
major impact on its performance relative to rivals.
 What is Strategy?
• Strategy literally meant the art and science of directing
military forces.
• Strategy is an integrated and coordinated set of
commitments and actions designed to exploit core
competencies and gain a competitive advantage.
• A set of actions that managers take to increase their
company’s performance relative to rivals.
• Strategy is used in all types of organizations to describe
the steps taken by the organization to achieve its
mission and objectives.
 Cont’d…..
• A business strategy represents the game plan that a
company will use to run its business, gain market share,
and conduct operations.
• This plan of action determines how the company appeal
to and satisfy customers, compete effectively, and
accomplish managerial objectives.
• More comprehensively, Strategy is 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 (Quinn, 1980)
• Strategies may change according to environmental
changes.
 Mintzberg’s 5 Ps of Strategy

– Henry Mintzberg first wrote about the 5 Ps of strategy

in 1987. According to him different types of strategic
thinking and approaches are required as per
situations and conditions. These may be inter-related
and compatible.
– Mintzberg argued that there is no point in developing
a strategy process that ignores the competitor’s
reactions, the organization's culture and capabilities.
 Mintzberg’s 5 Ps of Strategy

• Mintzberg presented 5 different approaches

or concepts of strategy. These are known as
‘5 Ps’ of strategy.

1. Plan
2. Ploy

3. Pattern
4. Position

5. Perspective
 Cont’d….
1. Strategy as a Plan
•Planning is something that comes naturally to us. As such, this is
the default, automatic approach that is adopted.
•This involves brainstorming options and planning how to exploit
the opportunity.
•By this definition, strategy has two essential characteristics :

•a) They are made in advance of the actions to which they apply.

•b) They are developed consciously and purposefully.

•As plans, strategies can be general or specific.

Cont’d…
2. Strategy as a Ploy
•A Ploy is a specific ‘maneuvers’ intended to outwit an opponent
or competitor. It involves plotting to disrupt, dissuade, discourage
or otherwise influence competitors as a part of a strategy.
•Some examples of ‘ploys’.
– A major retail store threatening to expand its size and
capacity to discourage a competitor from opening a store in
the area,
– A corporation luring away some key employees or
distributors of a competitor in order to weaken the
operating capability of the competitor.
– But should be ethical and legal
Cont’d….
3. Strategy as a Pattern
•Strategic plans and ploys are both deliberate exercises.

•Sometimes, however, strategy emerges from past organizational

behavior. Rather than being an intentional choice, a consistent and
successful way of doing business can develop into a strategy.
•Thus, defining strategy as a plan is not sufficient. We also need a
definition which takes into account the resulting behavior.
•By this definition strategy is consistency in behavior, whether or
not intended.
 Cont’d….
4. Strategy as position:
•"Position" is another way to define strategy - that is,
how you decide to position yourself in the marketplace.
•In this way, strategy helps you:
– explore the fit between your organization and your
environment, and
– it helps you develop a sustainable competitive
advantage.
•By this definition, strategy becomes a ‘mediating force’
between the organization and its environment – both
internal and external.
5. Strategy as a Perspective
• This approach is based on the way an organization
views the world around itself – the customers,
competitors and the environment. Accordingly they
conduct their business and deal with situations.
• It is every organization's perspective that becomes the
basis for all its actions and the way it reacts to
situations.
• Some companies are aggressive marketers, some
believe in developing new technologies while there are
some who believe in productive efficiency.
 Cont’d….
• The 5 Ps should be seen as a variety of viewpoints that
one should consider while developing a robust and
successful strategy.
• While various relationships exist among the different
definitions, not any single definition takes precedence
over the others. In many ways the definitions
compliment each other.
• Each definition adds important elements to our
understanding of strategy, indeed encourages us to
address fundamental questions about organizations in
general.
 Business Policy

– Business Policy defines the scope or spheres within which

decisions can be taken by the subordinates in an organization.
– Policies are guides to decision making and address repetitive or
recurring situations.
– Policy defines the area in which decisions are to be made, but it
does not give the decision.
– Business policies are the guidelines developed by an
organization to govern its actions. They define the limits (Do’s
& Don'ts) within which decisions must be made.
 Examples of Business Policies :

HR Policy Materials Policy

• Hiring-Firing • Quality-Quantity
•Training • Vendors
• Transfers • Payment terms
• Promotions • Stores & Handling
• Wages • Documentation
• Incentives & Bonus •Procurement policy

Marketing Policy Quality Policy

• Customer handling policy • Standards

• Complain handling • Checks & Controls
• Discounting policy • Feedbacks
• Damage treatment policy • Corrective Measures
 What Is Strategic Management?
• Strategic Management - is a set of managerial decisions
and actions that determines the long run performance of a
corporation.
• It is the managerial process that focuses on identifying ,
building and sustaining competitive advantage by
Generating good ideas and implementing them effectively.
• It includes environmental scanning (both external and
internal), strategy formulation (strategic or long-range
planning), strategy implementation, and evaluation and
 Features of strategic management.
– Definition of the organizational process within a
mission statement;
– Identification of objectives in a vision statement to be
achieved in the future;
– The adoption of a time frame (or “planning horizon”)
in which these objectives are to be achieved;
– A systematic analysis of the current circumstances of
an organization, especially its capabilities;
Cont’d..
– An assessment of the environment surrounding the
organization,
– The selection of a strategy for the achievement of
desired objectives by a future date often comparing
various alternatives;
– The integration of organizational efforts around this
strategy; and
– The creation of control and evaluation systems for
continuing feedback.
 Initiation of Strategy
• New CEO
• External Intervention
• Threat of a Change in Ownership, public vs private
• Performance Gap
• introduction of new technologies
• Different Regulatory Environment
• A change in customers’ values And preference
 Levels of Strategy
1. Corporate strategy - a company’s overall direction in terms of
its general attitude toward growth and the management of
its various Businesses and product lines.
• What businesses are we in?
• What businesses should we be in?
• Four areas of focus
– Investment priorities
– Synergy between units
– Business level strategy approval (but not crafting)
– Diversification management
 Cont’d…..
• 2. Business Unit Strategy - Occurs at the business unit
or product Level emphasizes improvement of the
competitive position of a company's products or
services in the specific industry or market segment
served that business unit.
– How do we support the corporate strategy?
– How do we compete in a specific business arena?

• Four areas of focus

– Generate sustainable competitive advantages

– Develop and nurture (potentially) valuable capabilities

– Respond to environmental changes

 Cont’d….
3. Functional Strategy - The approach taken by a
functional area to achieve corporate and business unit
strategies by maximizing resource productivity
– e.g. HR strategy, Finance strategy, etc

•Concerned with developing and nurturing a distinctive

competence to provide a company or a business unit
with a competitive advantage
Benefits Of Strategic Management
– Strategic management emphasizes long-term
performance.
– Many companies can achieve high performance in the
short-term , but only a few can sustain it over a longer
period of time.
– The attainment of an appropriate match, or “fit,”
between an organization’s environment and its
strategy, structure, and processes has positive effects
on the organization’s performance.
• A survey of nearly 50 corporations in a variety of
countries and industries found the three most highly
rated benefits of strategic management to be:
– Clearer sense of strategic vision for the firm.
– Sharper focus on what is strategically important.
– Improved understanding of a rapidly changing
environment
 1.2. Essence of strategic / corporate planning
• What is Planning?
• Process to establish priorities on what you will
accomplish in the future
• Forces you to make choice on what you will do and
what you will not do
• Broad outline on where resources will get allocated
The need for Planning
Why do we Plan ?

 To communicate every one what is most important

 To put our resources at their best use

 To resolve potential conflicts between

Short – term and long term needs

 Interests of present and future generation

 To integrate actions of different dev’t actors

 To improve management performance at all levels

 What is Strategic Planning?
• A strategy is an overall approach and plan.
• Strategic planning gives you clarity about what you
actually want to achieve and how to go about
achieving it, rather than a plan of action for day-to-day
operations.
• Strategic planning takes you outside the Day-to-day
activities of your organization or project.
• it’s projecting where your organization expects to be in
five, ten, or fifteen years—and
• how your organization will get there.
 Strategic Planning in Government Agencies
• Profitability and shareholder value are the drivers behind
private sector planning exercises.
• Firms ask,
– How can we capture more market share?
– What new markets should we go after?
– What innovative products should we be developing?

• Rather than achieving the goal of profitability, government

agencies must ask:
– How should we be better serve the public?
– How do we measure success?
 SP Has The Following Benefits
– It helps management understand the current situation. This in
turn allows management to plan for the future.
– Prevent or mitigate the effects of risks

– Encourages & permits to evaluate alternative courses of action

– It provides an overall framework for decision making &

resource allocation effectively
– It is an opportunity to draw a road map for your organization,
one which lays out the steps it must take to reach its vision.
 SP Has The Following Benefits
– Serves as a means of communicating objectives, strategies, &
detailed operating plans

– It develops attitudes, perspectives, ways of thinking, decision-

making habits, & planning philosophy that will produce better
decisions
– It provides a basis for measuring qualitative performance –
creativity, innovation, imagination, motivation

• In general, those who fail to plan, planned to fail.

What Questions Does It Answer?
• the strategic planning process adresses the following
questions.

1. Where Does Your Organization Wish To Go?

• Your response to this question will be a vision statement which
briefly describes a shared picture of your organization’s best
future—what it wishes to create or what it hopes to be.

2. Why Does the Organization Exist?

• Your response to this question will be a mission statement
(sometimes called a statement of purpose) which describes the
organization’s main purpose and values.
 Cont’d……
3. What Gives Your Organization Life and Meaning?

• when your organization was at its best You will identify the
energizing forces which give it life and meaning.

4. What Does Your Organization Want To Do?

• Your response to this question will be a set of strategic goals
which describe your organization’s ideal state of being.

• Put differently, goals for the future express what the

organization would be doing if it was performing at its best.
 Cont’d…
5. What Does Your Organization Do Well?
• Your response to this question will emerge as you
determine what factors made the high points
(successes) possible for your organization.
6. How Will Your Organization Get There?
• Your response to this question will be an action plan
which outlines the specific actions your organization
will take to make each proposition for the future
happen.
• The action plan will also identify who is responsible for
the actions, and it will include a schedule for
completing them.
 Difficulties in Strategic Planning
• 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.

• The costly endeavor of the Strategic management process that

involves the use of specialists, taking up mgt. time, requiring the
support of many individuals and even other orgs.
 Cont’d …
• 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
 Who Should Be Involved?

• The determination of who is involved in strategic planning is

crucial to the success of the strategic planning process.
– Each part of the process requires different things from
different people.
– Who participates in strategic planning can also influence
whether or not the plan is implemented effectively.
– Who should be involved is equivalent to Who is responsible,
or accountable for the formulation and execution of the
corporate strategic plan.
Cont’d….
• The key to an effective plan is that the planning must be
performed by a team of top-level executives.
• A team consisting of the chief executive and their closest
colleagues, is by far the most appropriate group of people to
accept accountability for formulating, and implementing, the
overall strategic plan of the organization.
 Participants in Corporate planning
1. The chief executive must lead the planning process
through teamwork.....
•Of course, this is contingent to the leadership theory
pursued by the CEO.
•The increasingly common CEO as team leader, however,
must do so.
•They must obtain the involvement and endorsement of
their most senior colleagues for all the most significant
things they do.
Cont’d…
2. Those in the know!
•A corporate strategic planning team made up of the CEO, and a few
other of the top managers, will know more about their organization
than anyone else on the planet.
•While the CEO has the accountability for the process, this does not
mean they alone are involved.
•Workers’ Scope for involvement in the process determines:

– Their commitment to organizational purpose, and

– Adherence to corporate cultural norms.

 Cont’d….
• This applies across the spectrum from governing board
members, who represent the Intended Beneficiaries of
the organization, to a range of managers, who are
chartered with achieving the benefits for the Intended
Beneficiaries.
• Therefore, involving the whole organization, in at least
part of the planning process, is important to ensure the
levels of commitment required.
 1.3. Basic Model of Strategic Management
• Strategic management consists of four basic
elements:
• Environmental scanning
• Strategy formulation
• Strategy implementation
• Evaluation and control
 Brief explanation…..
• 1. Management scans both
– External environment
• Opportunities
• Threats
– Internal environment
• Strengths
• Weakness
 Brief explanation…..
2. Strategy Formulation includes:
– Defining the corporate mission
• An org’s mission is the reason for its existence
– Specifying achievable objectives
• Objectives are the end result of planned activity
– Developing strategies
• An org’s strategy is a comprehensive plan stating how it will
achieve its mission and objectives
– Setting policy guidelines
• A policy is a broad guideline for decision making that links
the formulation of strategy with its implementation
 Brief explanation…..
3. Strategy Implementation
• It is the process by which strategies and policies are put into action
through the development of programs, budgets, and procedures.
– Program- is a statement of the activities or steps needed to
accomplish a single-use plan
– Budget - is a statement of an organization’s programs in
financial terms
– Procedures - are a system of sequential steps or techniques
that describe how a particular task or job is to be done
•4. Evaluation and Control
•It is the process by which corporate activities and performance
results are monitored so that actual performance can be compared
with desired performance.
 1.4. Strategic Decision Making
1.4.1 What is Decision-Making?
•Business schools generally train students to follow
scientific decision-making models.
•Decision making is a multi-step process for
making choices between alternatives.
•It is the management function that consists of choosing
one course of action from all the available alternatives.
 Models of Decision Making
• 1. Rational-economic decision model
• A prescriptive framework of how a decision should be
made.
• The process of rational decision making favors logic,
objectivity, and analysis over subjectivity and insight
– assumes :
• Managers have completely accurate Information
• The decision maker has an extensive list of Alternatives
and consider them in an unbiased manner.
• The manager will be rational, systematic, and logical
• The manager will work in the best interests of the orgn.
 2. Behavioral Decision model
• A descriptive framework for understanding that a person’s
cognitive ability to process information is limited.
• Recognizes that people are limited by such organizational
constraints as time, information, resources, & their own
mental capabilities (bounded rationality).
• There is an unconscious analysis based on past
experiences (intuition).
• There is search and acceptance of something that is
satisfactory rather than perfect (satisfying)
• Tendency to increase commitment to a previously
selected course of action if effective.
 What Makes a Decision Strategic?
• The distinguishing characteristic of SM is its
emphasis on strategic decision making
• As organizations grow larger & become complex
with more uncertain environments, decisions
become increasingly complicated and difficult to
make.
 What Makes a Decision Strategic?
• Strategic decisions deal with the long-run future
of the entire organization.
• 1. Rareness
– Unusual
– Have no precedent or instance to follow
• 2. Consequentiality
– Commit substantial resources
– Demand a great deal of commitment
• 3. Directiveness
– Set precedents for lesser decision and future
actions
 Strategic Decision- Making Process
• 1. Evaluate the current performance results in terms
of:
– ROI, profitability, etc
– The current strategic posture of the company
(MOSP)
• 2. Review corporate governance (i.e. the performance
of the firm’s board of directors and top mgt)
• 3. Scan the external environment
• 4. Scan the internal corporate environment
• 5. Analyze strategic factors (SWOT analyze)
 Cont’d….
• 6. Generate, evaluate, and select the best alternative
strategy in light of the analysis
• 7. Implement selected strategies
• 8. Evaluate implemented strategies
?