Strategic Management

Unit 1
STRATEGIC MANAGEMENT

Meaning

Strategic Management is the set of managerial decisions and actions that determines the long-run performance of a
corporation. It includes environmental scanning, strategy formulation, strategy implementation, and evaluation & control.
It emphasizes the monitoring and evaluating of external opportunities and threats in light of a corporation’s strengths and
weaknesses. The major focus of Strategic Management is getting Competitive Advantage by pursuing the best strategy in
dynamic environment. It involves attention to following critical areas:

 Determining the mission of the company

 Developing a company profile that reflects internal conditions and capabilities
 Assessment of the company’s external environment, in terms of both competitive and general contextual factors
 Analysis of possible options uncovered in the matching of the company profile with the external environment
 Identifying the desired options uncovered when possibilities are considered in light of the company mission
 Strategic choice of a particular set of long-term objectives and grand strategies needed to achieve the desired
options
 Development of annual objectives and short-term strategies compatible with long-term objectives and grand
strategies
 Implementing strategic choice decisions based on budgeted resource allocations and emphasizing the matching
of tasks, people, structures, technologies, and reward systems
 Review and evaluation of the success of the strategic process to serve as a basis for control and as an input for
future decision-making.

Dimensions of Strategic Decisions

Strategic issues have six identifiable dimensions. They are:

a. Strategic Issues Require Top-management Decisions: Top management involvement in decision-making is

imperative. Top-management has the power to authorize the resource allocations necessary for implementation.

b. Strategic Issues Involve the Allocation of Large Amounts of Company Resources: Strategic decisions naturally
involve substantial resource deployment. The people, physical assets, or moneys needed must be either
redirected from internal sources or secured from outside the firm.

c. Strategic Issues Are Likely to Have a Significant Impact in the Long-term Prosperity of the Firm: Strategic
decisions commit the firm for a long period of time, typically for the five years or more. Once a firm has
committed itself to a particular strategic option in a major way, its competitive image are usually tied to that
strategy. Firms become known in certain markets, for certain products, with certain characteristics. Strategic
decisions have enduring effects on the firm for better or worse.

d. Strategic Issues Are Future-oriented: Strategic decisions are based on what managers anticipate or forecast
rather than on what they know. In the turbulent and competitive free enterprise environment, a successful firm
must take a proactive stance toward change.

e. Strategic Issues Usually Have Major Multifunctional or Multi-business Consequences: A strategic decision is
coordinative. Decisions about such factors as customer mix, competitive emphasis, or organizational structure
necessarily involve a number of a firm’s strategic business units (SBUs), functions, divisions, or program units.

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Each of these areas will be affected by the allocation or reallocation of responsibilities and resources related to
the decisions.

f. Strategic Issues Necessitate Considering Factors in the Firm’s External Environment: All business firms exist in
an open system. They impact and are impacted by external conditions largely beyond their control. Therefore, if
a firm is to succeed in positioning itself in future competitive situations, its strategic managers must look beyond
the limits of the firm’s own operations. They must consider the footstep of and changes in competitors,
customers, suppliers, creditors, government, labor etc. that are relevant to the firm.

Characteristics of Strategic Management Decisions

The characteristics of strategic management decisions vary with the level of strategic activity considered. Corporate level
decisions tend to be value oriented, conceptual, and less concrete than those at the business or functional level of strategy
formulation and implementation. They are relatively costly and take longer time to make. Examples of corporate level
decisions include the choice of business, dividend policies, sources of long-term financing, and priorities for growth.

Functional level decisions are relatively short range and involve low risk and modest costs because they are
dependent on available resources. These decisions are relatively concrete and quantifiable. They receive critical attention
and analysis even though their comparative profit potential is low. Examples of functional level decisions include generic
versus brand-name labeling, basic versus applied R&D, high versus low inventory level, general versus specific-purpose
production equipment.

Business-level decisions fall between corporate-level and functional-level decisions. These decisions are less
costly, risky, and potentially profitable than corporate-level decisions, but they are more costly, risky, and potentially
profitable than functional-level decisions. Examples of business-level decisions include plant location, market
segmentation and geographic coverage, and distribution channels.

Characteristics of Strategic Management Decisions at Different Levels:

Characteristics Corporate Level Business Level Functional Level

Type Conceptual Mixed Operational

Measurability Value judgment dominant Semi-quantifiable Usually quantifiable
Frequency Periodic or sporadic Periodic or sporadic Periodic
Adaptability Low Medium High
Relation to present activities Innovative Mixed Supplementary
Risk Wide range Moderate Low
Profit potential Large Medium Small
Cost Major Medium Modest
Time horizon Long-term Medium-range Short-range
Flexibility High Medium Low
Cooperation required Considerable Moderate Little

Formality in Strategic Management

Formality refers to the degree to which membership, responsibility, authority, and discretion in decision making are
specified. The degree of formality is usually positively correlated with the cost, comprehensiveness, accuracy, and success
of planning. Formality is often associated with two factors: size and stage of development of the company. Smaller firms

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are basically under the control of a single individual and produce a limited number of products or services. With this mode,
performance evaluation is very informal, intuitive, and limited in scope. On the other hand, large companies have more
formalities to be completed. Similarly, in stable environment, the companies have more formalities than in the turbulent
(fast changing) environment.

The Strategy Makers:

The ideal strategic management process is developed and governed by a strategic management team. The team consists
principally of decision makers at all three levels (corporate, business and functional) in the corporation. The team also
relies on input from two types of support personnel: company planning staffs and lower-level managers. The latter provide
data for strate4gic decision making and are responsible for implementing strategies.

Top management shoulders responsibility for broadly approving plans and strategies. They are assisted in the
execution of these responsibilities by the corporate planning department, staff, or personnel, who actually prepare major
components of the corporate plan. Top management also reviews, evaluates, and counsels on most major phases of the
plan’s preparation.

General Managers at the business level have principal responsibilities for approving environmental analysis and
forecasting, establishing business objectives, and developing business plans prepared by staff groups. One final point must
be made about strategic decision makers: a company’s president or CEO characteristically plays a dominant role in the
process. The principal duty of a CEO is often defined as giving long-term direction to the firm. He is ultimately
responsible for the success of the business and therefore of its strategy. However, his personality often prevents him from
delegating substantive authority to others in formulation or approval of strategic decisions.

Hierarchy of Objectives and Strategies:

Ends Means BOD Corporate Business Functional

(What is to be achieved) (How it is to be achieved) Managers Managers Managers
Mission and goals √√ √√ √
Long-term objectives Grand strategy √ √√ √√
Annual objectives Short-term strategy √ √√ √√
Functional Objectives Tactics √ √√

Note: √√ indicates a principal responsibility

√ indicates a secondary responsibility

Value of Strategic Management

Financial Benefits:

The principal appeal of any managerial approach is the expectation that it will lead to increased profit for the firm.
Financial goals of a firm are increase in sales, assets, sales price, earnings per share, and earnings growth. The
improvement in a firm’s profitability is achieved through changes in the company’s strategic direction. Organizations that
adopt a strategic management approach do so with the strong and reasonable expectation that the new system will lead to
improves financial performance.

Benefits of Strategic Management:

The strategic management approach emphasizes on participative decision-making that has certain behavioral consequence.
Therefore, an accurate assessment of the impact of strategy formulation on organizational performance also requires a set
of non-financial evaluation criteria – measures of behavioral based effects. However, regardless of the eventual
profitability of particular strategic plans, several behavioral effects can be expected to improve the welfare of the firm.

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a. Strategy formulation activities should enhance the problem prevention capabilities of the firm.
b. Group-based strategic decisions are most likely to reflect the best available alternatives.
c. Employee motivation should improve as employees better appreciate the productivity-reward relationships
inherent in every strategic plan.
d. Gaps and overlaps in activities among diverse individuals and groups should be reduced as participation in
strategy formulation leads to a clarification of role differentiation.
e. Resistance to change should be reduced. The participative decision-making helps eliminate the uncertainty
associated with change.
Risks of Strategic Management:

While involvement in strategy formulation generates financial and behavioral based benefits for participants and for the
firm, managers must regard three types of unintended negative consequences. First, strategic management process is costly
in terms of hours invested by participants. Second, if the formulators of strategy are not intimately involved in
implementation, individual responsibility for input to the decision process and subsequent conclusions can be shirked.
Third, strategic managers must be trained to anticipate, minimize, or constructively respond when participating
subordinates become disappointed or frustrated over unattained expectations. In the collective view, strategic management
clearly is critical to managers and organizational success.

Role of Chief Executives in Strategic Management

Chief executive is a person whose responsibility is to make major decisions for the organization and implementation of
those decisions to secure the ends. In most Nepalese companies, the chief executive is referred as Chief Executive Officer,
Managing Director, Chairman, President, and General Manager etc. The CEO of the firm has to perform the roles of
strategists, organizational builder, and a leader.

CEO is basically responsible for setting major organizational objectives including corporate mission, long-term
goals, and major policies. He scans the external environment, analyzes opportunities and threats of the corporation as well
as business units it has. Furthermore, a CEO is also responsible for implementing projects, committing new projects,
measurement of performance against plans, monitoring deviations, and measuring organizational effectiveness. In this
way, a CEO is an architect of strategy and a leader to lead organizational resources.

In sum, a CEO plays every role that a manager has to play. But his major focus is on the long-run issues of the
corporate that has implication for each and every division. However, the role of CEO includes the following more specific
roles in the organization –

a. Interpersonal Roles (Figurehead, Leader, Liaison)

b. Informational Roles (Monitor, Disseminator, Spokesperson)

c. Decisional Roles (Entrepreneur, Disturbance handler, Resource Allocation, Negotiator)

Strategic Management is top management and all other managements are operational managements. There are
vast differences in the thought processes, attitudes, the perspective, the frame of reference, the method of analysis, and the
skills between these two types of management. The operating managers – the specialists in the particular areas say
marketing, finance, production devote their entire lifetime to specialize in the particular area that suits them, where as the
CEO or General Manager considers all the relevant functional areas and makes decisions which are in the best interest of
the organization.

The End

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