13-12-2019

Ch 1 – Nature of Strategic
Strategic Management (SM)
Origins of Strategy
SM Framework
Dr Karunakar B
Management
Session 1 –Session Outline:
• What is Strategic Management
• Key Terms in Strategic Management
• Strategic Management Model
• Benefits of Strategic Management
• Risks in Strategic Management
• Guidelines for effective Strategic Management
• Business and Military Strategy

1.1

What is Strategic Management?

• Defining Strategic Management • Defining Strategic Management

• Stages of Strategic Management.
• Integrating intuition and analysis
• Adapting to change
– Art and science of formulating, implementing and
evaluating cross functional decisions that enable an
organization to achieve its objectives
• Stages of Strategic Management
– Three stages of formulation, implementation and
evaluation

1.2 1.2

Key Terms in Strategic Management

Perform
External
Audit

Strategic Management Provides: Chapter 3

• Vision & Mission

Develop Vision and Establish Generate, Implement Implemented
Measure and
Mission Evaluate, and Strategies Strategies Marketing,

• External Opportunities ad Threats Statements Long Term select Strategies Management Finance, Accounting, Evaluate
R & D and MIS Issues
Chapter 2 Objectives Chapter 6 Issues Chapter 7
Chapter 8 Performance
Chapter 5 Chapter 9
• Internal Strengths & Weaknesses

• LT Objectives Perform
Internal
• Strategies (Competitive Advantage) Audit
Chapter 4
• Annual Objectives

• Policies
Strategy Formulation Strategy Implementation Strategy Evaluation
• Quantifiable Results 1.10

• Strategists

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Strategic Management Model

Company mission The origins of Strategy (Ch 1-PG)

What is
possible? External
Internal S&W
O&T • Background
Desired?
• Academic Underpinnings (Andrew’s Strategy
Strategic analysis and choice Framework + Ansoff’s Matrix)
• Rise of Strategy Consultants
Long-term objectives Grand strategy
– Experience curve and BCG Portfolio Analysis
Annual objectives Operating strategies Policies • Emerging Problems (4 Phases of Strategy, 2
Determinants of Profitability)
Legend
Institutionalization
Major impact
Minor impact
Control and evaluation

Background Background
• Carl von Clausewitz: tactics involve the use of armed • Alfred Sloan, CEO of GM (1923-1946)
forces in the engagement, strategy is the use of • Chester Barnard with New Jersey Bell (1930s): pay
engagements for the object of the war attention to strategic factors
• First Industrial Revolution (mid 1700s to mid 1800s): • John von Neumann and Oskar Morgenstern (1944);
small businesses, Adam Smith (refers to the market The Theory of Games and Economic Behavior
forces as invisible hand) • Peter Drucker on Management
• Second Industrial Revolution (after 1850s): rail roads,
• Concept of Distinctive Competence: its relevance in the
large vertically integrated companies in US and Europe debate on the unification of the military forces by
sociologist, Philip Selznick

Academic Underpinnings
• Wharton Business School in 1881
• Harvard Business School in 1908: introduction of Business Policy Course in
1912
• Ronald Coase, Organizational economist (1937): Why firms exist?
• Joseph Schumpeter, technologist (1942): Business strategy encompassed
much more than price setting contemplated in orthodox microeconomics
• Edith Penrose (1959): growth of firms related to the resources under their
control and the administrative framework used to coordinate their use
• George Albert Smith Jr and C. Roland Christensen (early 1950s): matching
strategy with its competitive environment
• Kenneth Andrews (late 1950s): expanded upon this thinking in moving an
organization in a deliberately chosen direction by setting clearly defined goals
• SWOT Framework

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Academic Underpinnings
• Theodore Levitt, Marketing Myopia (1960s): Debate on Distinctive
Competence and firm’s willingness to gamble on it
• Igor Ansoff, disagreed with the above position arguing that it propels firms to
take unnecessary risks by investing in new products that might not match the
firm’s distinctive competence; a firm should ask whether a new product had a
common thread or mission (its commitment to exploit an existing need in the
market as a whole)
• Ansoff suggested 4 categories for defining the common thread in its
business/corporate strategy
• Translated the logic built into the SWOT framework into complex flowcharts
of concrete questions that needed to be answered in strategy development.
• By 1963, companies had set up formal planning departments. GE developed
PROM (Profit Optimization Model) that appeared to explain a significant
fraction of the variation in ROI of its various businesses.

Rise of Strategy Consultants

• BCG and the Experience Curve
– For each doubling of cumulated output, TOTAL COSTS would decline roughly 20%
because of economies of scale, organizational learning and technological innovation
– Experience Curve for Ford’s Model T, 1910-1926
• From the Experience Curve to Portfolio Planning
– BCG’s Growth-Share Matrix
• SBUs and Portfolio Planning
– GE/Mckinsey Matrix
– PIMS (Profit Impact of Market Strategies): multi-company successor to the PROM; data on
620 SBUs drawn from 57 diversified corporations; regression on ROI with several variables
(market share, product quality, investment intensity, marketing and R&D expenditures etc)

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Problems and Promise

• 4 Phases of Strategy
• 2 Determinants of Profitability

Benefits of Strategic Management

• Understanding and commitment
• Communication is the key to successful strategic management
• Participation is a key to gaining commitment
• Allows a company to be more proactive than reactive in shaping its own future
• Helps take Right decisions at Right time
• Prevents problems
• Helps make best use of Environmental Factors
• Helps take decisions based on Best Available Alternatives
• It is applicable to all fundamental management activities as
– Marketing
– HR
– Finance
– Operations
• Provides clear Direction to all activities
1.11

Why some firms do no Strategic

Benefits of Strategic Management
Planning
• Financial
• Time consuming
• Non financial benefits
– Allows for identification, prioritization and exploitation of opportunities • Unwillingness to take Responsibility
– Provides an objective view of management problems • Reward mismatch
– Represents a framework for improved coordination and control of activities • Content with success
– Minimizes the effects of adverse conditions and changes
– Allows major decisions to better support established objectives
• Overconfidence
– Helps take decisions based on Best Available Alternatives
– More effective allocation of time and resources to identified opportunities
– Provides clear Direction to all activities

1.11 1.12

4

Pitfalls in Strategic Planning
• Only to satisfy accreditation or regulatory requirements
• Too hastily moving from mission development to strategy
formulation
• Using the strategic planning to gain control over decisions and
resources
• Failing to communicate the plan to the employees
• Failing to use the plan as a standard for measuring performance
• Failing to involve key employees in all phases of planning
1.12
Comparing Business and Military
Strategy
• Alike
• Most advantageous position prior to actual engagement
• Element of surprise provides competitive edge
• Information systems
• Superior strategy formulation and implementation can overcome
an opponent’s superiority in numbers and resources
• Success is the product of both continuous attention to changing
external and internal conditions and the formulation and
implementation of insightful adaptations to those conditions
• Art of War – Sun Tzu
1.12
13-12-2019
Guidelines for Effective Strategic
Management
• Simple and non routine (vary assignments, team membership,
meeting formats and the planning calendar)
• Eliminate jargon and arcane planning language
• Process for fostering learning and action
• Stimulate thinking and action that challenge assumptions
• Express the strategy in a paragraph or so
• Need for open mindedness
1.12
Summary
• Strategic Management is set of decisions and actions
formulated and implemented to achieve the objectives of the
firm.
• Strategic Management is a three level process:
• Corporate level
• Business level
• Functional level
• Strategic Decision Making is a logical step by step process.
• Strategic Management has its own importance, benefits and
risks.