Chapter 3

CHAPTER 3
STRATEGIC MANAGEMENT: AN OVERVIEW
Definition
Strategic Management is the ongoing planning, monitoring analysis, and assessment of all
necessities an organization needs to meet its goals and objectives. Changes in Business
environment will require organizations to constantly assess their strategies for success. The
strategic management process helps organizations take stock of their present situation, chalk out
strategies, deploy them and analyze the effectiveness of the implemented management strategies.
Benefits of Strategic Management

Strategic Management is generally thought to have financial and nonfinancial benefits. A
strategic management process helps an organization and its leadership to think about and plan for
its future existence, fulfilling a chief responsibility of a board of directors.
In summary, strategic management offers many benefits to companies that use it. Including:
 Competitive advantage: Strategic management gives business an advantage over
competitors because its proactive nature means your company will always be aware of
the changing market.
 Achieving goals: Strategic management helps keep goals achievable by using a clear and
dynamic process for formulating steps and implementation.
 Sustainable growth: Strategic management has been shown to lead more efficient
organizational performance, which leads to manageable growth.
 Cohesive organization: Strategic management necessitates communication and goal
implementation company-wide. An organization that is working in unison towards a goal
is more likely to achieve that goal.
 Increased managerial awareness: Strategic management means looking toward the
company’s future. If managers do this consistently, they will be more aware of industry
trends and challenges. By implementing strategic planning and thinking, they will be
better prepared to face future challenges.
Basic Strategic Management Concepts

Strategic management is based around an organization’s clear understanding of its mission; its
vision for where it wants to be in the future; and the values that will guide its actions. The
process requires a commitment to strategic planning, a subset of business management that
involves an organization’s ability to set both short and long-term goals. Strategic planning also
includes the planning of strategic decisions, activities and resource allocation needed to achieve
those goals.
Strategic management requires setting objectives for the company, analyzing the actions of
competitors, reviewing the organization’s internal structure, evaluating current strategies and
confirming that strategies are implemented company-wide.
Strategic management can be either prescriptive or descriptive. Prescriptive strategic

management means developing strategies in advance of an organizational issue. Descriptive
strategic management means putting strategies into practice when needed, both methods of
strategic management employ management theory and practices.
TYPES OF STRATEGIC MANAGEMENT
The types of strategic management frameworks have changed over time. The modern discipline
of strategic management traces its roots to the 1950s and 1960s. Prominent thinkers in the field
include the Peter Drucker, sometimes referred to as the founding father of management studies.
Among his contributions was the seminal idea that purpose of a business is to create a customer,
and what the customer wants determines what a business is. Management’s main job is
marshalling the resources and enabling employees to efficiently address customer’ evolving
needs and preferences.
SWOT ANALYSIS
A SWOT analysis is one of the types of strategic management frameworks used by organizations
to build and test their business strategies. A SWOT analysis identifies and compares the strengths
and weaknesses of an organization with the external opportunities and threats of its environment.
The SWOT analysis clarifies the internal, external, and other factors that can have an impact on
organization’s goals and objectives.
BALANCED SCORECARD IN STRATEGIC MANAGEMENT

The Balanced Scorecard is a strategic management system that translates the vision and strategy
of an organization into operational objectives and measures. Objectives and measures are
developed for each of four perspectives: the financial perspective, the customer perspective, the
process perspective and the learning and growth perspective. The objectives and measures of the
four perspectives are linked by a series of cause-and-effects hypotheses.
The balance scorecard translates an organization’s mission and strategy into operational
objectives and performance measures or four different perspectives: The financial perspective,
the customer perspective, the internal business process perspective and the learning and growth
(infrastructure) perspective.
a) The financial perspective describes the economic consequences of actions taken in the
other three perspectives.
b) The customer perspective defines the customer and market segments in which the
business unit will compete.
c) The internal business process perspective describes the internal processes needed to
provide value for customers and owners.
d) The learning and growth (infrastructure) perspective defines the capabilities that an
organization needs to create long-term growth and improvement. This last perspective is
concerned with three major enabling factors: employee capabilities, information systems
capabilities, and employee attitudes (motivation, empowerment, and alignment).
Strategy Translation
Strategy, according to the creators of the Balance Scorecard framework, is defined as
“…. Choosing the market and customer segments the business unit intends to serve, identifying
the critical internal and business processes that the unit must excel at to deliver the value
propositions to customers in the targeted market segments, and selecting the individual and
organizational capabilities require for the internal, customer, and financial objectives.”
Strategy, then, is specifying management’s desired relationships among the four perspectives.
Strategy translation, on the other hand, means specifying objectives, measures, targets, and
initiatives for each perspective. The strategy-translation process is illustrated in Figure 3-2.
Consider, for example, the financial perspective. For the financial perspective, a company may
specify an objective of growing revenues by introducing new products.
The performance measure may be the percentage of revenues from the sale of new products. The
target or standard for the coming year for the measure may be 20 percent (that is, 20 percent of
the total revenues for the coming year must be from the sale of new products). The initiative
describes how this is to be accomplished. The “how”, of course, involves the other three
perspectives.
THE FOUR PERSPECTIVES AND PERFORMANCE MEASURES
a. The Financial Perspective
The financial perspective establishes the long-and short-term financial performance objectives.
The financial perspective is concerned with the global financial consequences of the other three
perspectives. Thus, the objectives and measure of the other perspectives must be linked to the
financial objectives. The financial perspective has three strategic themes: revenue growth, cost
reduction, and asset utilization. These themes serve as the building blocks for the development of
specific operational objectives and measures.
b. Customer Perspective
The customer perspective is the source of the revenue component for the financial
objectives. This perspective defines and selects the customer and market segments in
which the company chooses to compete.
c. Process Perspective
Processes are the means for creating customer and shareholder value. Thus, the process
perspective entails the identification of the processes needed to achieve the customer and
financial objectives. The process value chain is made up of three processes: the
innovation process, the operations process, and the post sales process.
d. Learning and Growth (Infrastructure) Perspective

The learning and growth perspective is the source of the capabilities that enable the
accomplishment of the other three perspective’s objectives. This perspective has three
major objectives: increase employee capabilities; increase motivation, empowerment, and
alignment; and increase information systems capabilities.
BASIC PRINCIPLES THAT CAN HELP STRATEGIC MANAGEMENT TO BE

SUCCESSFUL
Creating a Unique Strategic Position for the Proposition
Focus on who your customers are, the attractiveness of the offer (known as the value
proposition), and how you can connect the two as efficiently as possible. The benefits of a
unique position are highlighted by the concept of value innovation.
Consider the Availability or Potential Availability of Resources

Money and other resources are limited, even though the balance can be improved through
alliances to bring in other kinds of resources such as knowledge and skills. Realistic decisions
must be made about how to use them to the greatest benefit. For example, if a company wants to
existing customers but expand the customer base, it must widen its product range and the range
of value propositions.
Understand the Importance of Values and Incentives

Strategy must be based on reality about both the external and internal environments. The external
forces shaping business strategy include regulatory developments, demographics, economic
growth, and political stability. Internal factors include skills, people’s attitude to their work, their
commitment or “engagement”, the way they operate and the overall culture of the business. If the
aspects of employee’s work in achieving a company’s strategy are measured and incentives are
given, they will respond accordingly, and the strategy will progress. The converse is also true: if
a company ignores the need to get people working in a way that is consistent with the strategy,
progress will be haphazard at best.
Gain People’s Emotional Commitment to the Strategy

Any strategy, however brilliant, will fail unless people understand it and are emotionally
committed to its success. Therefore, it is crucial to explain why the strategy is important to the
organization and the individual.
Be Open to Strategic Ideas Wherever They Originate

Although the top people must decide a company’s strategy, there is a mistaken view that only
they can develop strategic ideas. Ideas can come from anybody, anytime, anywhere.
Keep the Strategy Flexible

All ideas are good for limited time, not forever. Continually question the answers to the “who,
what, how” questions. Strategy should not be changed too often, but it will require adjusting to
altered circumstances. Give employees the freedom to respond and to adjust without waiting for
permission or instructions.
Most major business recognize the need to empower their employees and focus on their
customers.

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CHAPTER 3

STRATEGIC MANAGEMENT: AN OVERVIEW

Benefits of Strategic Management

Basic Strategic Management Concepts

Strategic management can be either prescriptive or descriptive. Prescriptive strategic

BALANCED SCORECARD IN STRATEGIC MANAGEMENT

d. Learning and Growth (Infrastructure) Perspective

BASIC PRINCIPLES THAT CAN HELP STRATEGIC MANAGEMENT TO BE

Consider the Availability or Potential Availability of Resources

Understand the Importance of Values and Incentives

Gain People’s Emotional Commitment to the Strategy

Be Open to Strategic Ideas Wherever They Originate

Keep the Strategy Flexible

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