Strategic Management

LECTURE 1
Class Introduction

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What is Strategy?
•The word “strategy” is derived from the word stratus (meaning army) and “ago”
(meaning leading/moving).
•Strategy is an action that managers take to attain one or more of the
organization’s goals. Strategy can also be defined as “A general direction set for
the company and its various components to achieve a desired state in the
future. Strategy results from the detailed strategic planning process”.

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Strategic Management- Defined
•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.
•As this definition implies, strategic management focuses on integrating
management, marketing, finance/accounting, production/operations, research
and development, and information systems to achieve organizational success.
•The purpose of strategic management is to exploit and create new and different
opportunities for tomorrow; long-range planning, in contrast, tries to optimize
for tomorrow the trends of today.

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Features of Strategy
•Strategy is Significant because it is not possible to foresee the future. Without a
perfect foresight, the firms must be ready to deal with the uncertain events
which constitute the business environment.
•Strategy deals with long term developments rather than routine operations, i.e.
it deals with probability of innovations or new products, new methods of
productions, or new markets to be developed in future.
•Strategy is created to take into account the probable behavior of customers and
competitors. Strategies dealing with employees will predict the employee
behavior.

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Strategic Management Process

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Strategy Formulation

Vision & Mission

External Opportunities & Threats

Internal Strengths & Weaknesses

Long-Term Objectives

Alternative Strategies

Strategy Selection

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Strategy Formulation
•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 issues include 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, and how to avoid a hostile takeover.
•Because no organization has unlimited resources, strategists must decide which
alternative strategies will benefit the firm most.

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Strategy Implementation

Annual Objectives

Policies

Employee Motivation

Resource Allocation

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Strategy Implementation
•Strategy implementation requires a firm to establish annual objectives, devise
policies, motivate employees, and allocate resources so that formulated
strategies can be executed.
• Strategy implementation includes developing a strategy-supportive culture,
creating an effective organizational structure, redirecting marketing efforts,
preparing budgets, developing and utilizing information systems, and linking
employee compensation to organizational performance.
•Action stage of the process
•Interpersonal skills are key during this stage

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Strategy Evaluation

Internal Review

External Review

Performance Measurement

Corrective Action

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Strategy Evaluation
•Strategy evaluation is the final stage in strategic management. Managers
desperately need to know when particular strategies are not working well;
strategy evaluation is the primary means for obtaining this information.
•Three fundamental strategy-evaluation activities are (1) reviewing external and
internal factors that are the bases for current strategies, (2) measuring
performance, and (3) taking corrective actions.
•Strategy evaluation is needed because success today is no guarantee of success
tomorrow! Success always creates new and different problems; complacent
organizations experience demise.

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Three Levels of Strategy

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Corporate Level Strategy
•The corporate level is the highest, and therefore
the most broad, level of strategy in business.
Corporate-level strategy should define your
organization’s main purpose. It should also direct
all your downstream decision-making. For
example, the objectives (e.g. high-level goals) in
the levels below this one should all have a direct
line to the goals defined here.
•Corporate Level Strategy mostly consists of:
• Confirm your overall mission and vision
• Create your corporate objectives

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The Business Unit Strategy
•Your business unit strategy is used for different areas of your business (like
services and products, or multiple departments or divisions, for example). The
complexity of this level will depend on how many businesses you are in, and how
your company is structured. It’s important to create a strategy for each business
unit so that you can see which units are excelling and which need improvement.
•Having a strategy at the business unit level allows you to weigh the costs and
benefits of each business unit and to decide where you should spend your
resources.
•In this stage companies Differentiate from competitors & create objectives that
link to corporate strategy.

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The Functional Level
•The functional level of your strategy involves each department—and what those
at the department level are doing day-to-day to support corporate initiatives.
Whereas your business unit strategy would be defined and evaluated by senior
leadership, your functional strategy is typically produced by department heads
(e.g. leaders in marketing, operations, finance, IT, etc.).
•These individuals can help ensure that the departments execute the defined
strategic elements, and that the components laid out at the functional level help
support both the department level and corporate level strategies.

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Benefits of Strategic Management

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Benefits of Strategic Management
•Communication is a key to successful strategic management. Through involvement in the
process, in other words, through dialogue and participation, managers and employees become
committed to supporting the organization.
•A major aim of the process is to achieve the understanding of and commitment from all
managers and employees. When managers and employees understand what the organization is
doing and why, they often feel they are a part of the firm and become committed to assisting it.
•Empowerment is the act of strengthening employees’ sense of effectiveness by encouraging
them to participate in decision making and to exercise initiative and imagination, and rewarding
them for doing so.
•Strategic-management dialogue is more important than a nicely bound strategic-management
document.

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Financial Benefits
Research indicates that organizations using strategic-management concepts are
more profitable and successful than those that do not. Businesses using
strategic-management concepts show significant improvement in sales,
profitability, and productivity compared to firms without systematic planning
activities.

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Why Some Firms Do No Strategic
Planning
•Lack of knowledge or experience in strategic planning—No training in strategic
planning.
•Poor reward structures—When an organization assumes success, it often fails to
reward success. When failure occurs, then the firm may punish.
•Firefighting—An organization can be so deeply embroiled in resolving crises and
firefighting that it reserves no time for planning.
• Waste of time—Some firms see planning as a waste of time because no marketable
product is produced. Time spent on planning is an investment.
•Too expensive—Some organizations see planning as too expensive in time and money.
•Laziness—People may not want to put forth the effort needed to formulate a plan.

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Why Some Firms Do No Strategic
Planning
•Fear of failure—By not taking action, there is little risk of failure unless a problem is urgent
and pressing. Whenever something worthwhile is attempted, there is some risk of failure.
•Overconfidence—As managers amass experience, they may rely less on formalized planning.
Rarely, however, is this appropriate. Being overconfident or overestimating experience can
bring demise. Forethought is rarely wasted and is often the mark of professionalism.
• Prior bad experience—People may have had a previous bad experience with planning, that is,
cases in which plans have been long, cumbersome, impractical, or inflexible. Planning, like
anything else, can be done badly.
•Honest difference of opinion—People may sincerely believe the plan is wrong.
•Suspicion—Employees may not trust management.

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Relation of Strategic Management with
Competitive Advantage
•Strategic management is all about gaining and
maintaining competitive advantage. This term can
be defined as “anything that a firm does
especially well compared to rival firms.”
•When a firm can do something that rival firms
cannot do, or owns something that rival firms
desire, that can represent a competitive
advantage.

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Case of Sony and Apple
•Apple has no manufacturing facilities of
its own, and rival Sony has 57
electronics factories. Apple relies
exclusively on contract manufacturers
for production of all of its products,
whereas Sony owns its own plants. Less
fixed assets has enabled Apple to
remain financially lean with virtually no
long-term debt. Sony, in contrast, has
built up massive debt on its balance
sheet.
•What's the competitive advantage here?

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