STRATEGIC MANAGEMENT:

BASIC CONCEPTS
 WHAT IS STRATEGIC MANAGEMENT?
 THE ROLE OF STRATEGIC MANAGEMENT
 FRAMEWORK OF STRATEGIC MANAGEMENT
 MARKET-BASED VIEW VERSUS RESOURCE-BASED VIEW OF
STRATEGIC MANAGEMENT

Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 1

WHAT IS STRATEGIC MANAGEMENT?
 David & David (2017):
 Strategic management is the art and science of
formulating, implementing, and evaluating cross-
functional decisions that enable an organization
to achieve its objectives.

 The purpose of strategic management is to exploit

and create new and different opportunities for
tomorrow.

 Strategic management is all about competitive

advantage.

Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 2

 Wheelen, Hunger, Hoffman, & Bamford (2018):
Strategic management is a set of managerial
decisions and actions that help determine the long-
term performance of an organization. It includes
environmental scanning (both external and internal),
strategy formulation (strategic or long-range
planning), strategy implementation, and evaluation
and control.

 Strategic management emphasizes long-term

performance. To be successful in the long-run,
companies must not only be able to execute
current activities to satisfy an existing
market, but they must also adapt those
activities to satisfy new and changing markets
Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 3
Benefits of Strategic Management
 Organizations that engage in strategic
management generally outperform those that
do not.

 Financial benefits s of strategic management:

 More profitable and successful: significant
improvement in sales, profitability, and
productivity.

Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 4

Non-Financial Benefits of Strategic
Management

Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 5

Stages of Strategic Management

 The strategic-management process consists of

three stages: strategy formulation, strategy
implementation, and strategy evaluation.

 Strategy formulation includes developing a

vision and a 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.
Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 6
 Strategy implementation requires a firm to establish
annual objectives, devise policies, motivate
employees, and allocate resources so that
formulated strategies can be executed (David &
David, 2017).

 Strategy implementation is a process by which

strategies and policies are put into action through
the development of programs, budgets, and
procedures. This process might involve changes
within the overall culture, structure, and/or
management system of the entire organization
(Wheelen, Hunger, Hoffman, & Bamford, 2018).
Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 7
 Evaluation and control is a process in which
corporate activities and performance results are
monitored so that actual performance can be
compared with desired performance. Managers at
all levels use the resulting information to take
corrective action and resolve problems.

 Strategy evaluation:
(1) Reviewing external and internal factors that are
the bases for current strategies.
(2) Measuring performance.
(3) Taking corrective actions.

Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 8

 Performance is the end result of activities. It
includes the actual outcomes of the strategic
management process.
 The practice of strategic management is
justified in terms of its ability to improve an
organization’s performance, typically measured
in terms of profits and return on investment.
 For evaluation and control to be effective,
managers must obtain clear, prompt, and
unbiased information from the people below
them in the corporation’s hierarchy.

Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 9

 Levels of Strategy-Making
 Formulation, implementation, and evaluation of
strategy activities occur at three hierarchical levels
in a large organization: corporate, divisional or
strategic business unit, and functional.

 Most small businesses and some large businesses do

not have divisions or strategic business units; they
have only the corporate and functional levels.

Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 10

 Levels of Strategy-Making in
a Diversified Company

Corporate-Level Corporate
Managers Strategy

Two-Way Influence
Business-
Level Business Strategies
Managers
Two-Way Influence

Function-
al Functional Strategies
Managers
Two-Way Influence

Opera- Operating Strategies

Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 11
ting
Managers
 Levels of Strategy-Making in
a Single-Business Company

Executive-Level
Managers Business
Strategy

Two-Way Influence

Functional
Managers Functional Strategies

Two-Way Influence

Operating Strategies
Operating
Dr. WilfridusManagers
B. Elu. Perbanas Institute Jakarta. Strategic Management. 12
 Corporate Strategy: company’s overall direction
in terms of growth and the management of its
various businesses. Corporate strategies generally
fit within the three main categories of stability,
growth, and retrenchment.

 Business strategy usually occurs at the business

unit or product level, and it emphasizes
improvement of the competitive position of a
corporation’s products or services in the specific
industry or market segment served by that business
unit. Business strategies may fit within the two
overall categories: competitive and cooperative
strategies.

Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 13

 Functional strategy is the approach taken by
a functional area to achieve corporate and
business unit objectives and strategies by
maximizing resource productivity. It is
concerned with developing and nurturing a
distinctive competence to provide a company
or business unit with a competitive advantage.

Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 14

 Hierarchy of Strategy (Wheelen, Hunger,
Hoffman, & Bamford, 2018)

Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 15

 Integrating Intuition and Analysis
 In a sense, the strategic-management process is
an attempt to duplicate what goes on in the
mind of a brilliant, intuitive person who knows
the business and assimilates and integrates that
knowledge using analysis to formulate effective
strategies
 The strategic-management process can be
described as an objective, logical, systematic
approach for making major decisions in an
organization. But past experiences, judgment,
and feelings, or intuition is essential to making
good strategic decisions.
Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 16
 Intuition is particularly useful for making
decisions in situations of great uncertainty or
little precedent or when highly interrelated
variables exist or when it is necessary to
choose from several plausible alternatives.

 Imagination is more important than knowledge,

because knowledge is limited, whereas
imagination embraces the entire world (Albert
Einstein).

Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 17

Key Terms in Strategic Management
 Competitive advantage
 Strategists
 vision and mission statements
 external opportunities and threats
 internal strengths and weaknesses
 long-term objectives
 Strategies
 annual objectives
 Policies
 Program
 Tactics
Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 18
 Budget
 Competitive advantage is any activity a firm does
especially well compared to activities done by rival
firms, or any resource a firm possesses that rival firms
desire (David & David, 2017).

 A firm has a competitive advantage when it is able to

create more economic value than rival firms (Barney &
Hesterley, 2015).

 A firm must strive to achieve sustained competitive

advantage by (1) continually adapting to changes in
external trends and events and internal capabilities,
competencies, and resources; and (2) effectively
formulating, implementing, and evaluating strategies
that capitalize on those factors.
Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 19
 Strategists are the individuals most responsible
for the success or failure of an organization.
They have various job titles, such as chief
executive officer, president, owner, chair of the
board, executive director, chancellor, dean, and
entrepreneur.

 Strategists help an organization gather, analyze,

and organize information.

Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 20

 Vision and Mission Statements

 A vision statement answers the question “What

do we want to become?”

 Mission statements are “enduring statements of

purpose that distinguish one business from
other similar firms. A mission statement
identifies the scope of a firm’s operations in
product and market terms.” It addresses the
basic question that faces all strategists: “What
is our business?”
Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 21
 External Opportunities and Threats
 External opportunities and external threats refer
to economic, social, cultural, demographic,
environmental, political, legal, governmental,
technological, and competitive trends and events
that could significantly benefit or harm an
organization in the future.

 Opportunities and threats are largely beyond the

control of a single organization—thus the word
external.

Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 22

 A basic tenet of strategic management is that
firms need to formulate strategies to take
advantage of external opportunities and avoid
or reduce the impact of external threats.

 Identifying, monitoring, and evaluating external

opportunities and threats are essential for
success. This process of conducting research
and gathering and assimilating external
information is sometimes called environmental
scanning or industry analysis.

Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 23

 Internal Strengths and Weaknesses
 Internal strengths and internal weaknesses are
an organization’s controllable activities that are
performed especially well or poorly. They arise
in the management, marketing,
finance/accounting, production/operations,
research and development, and management
information systems (MIS) activities of a
business.

 Strengths and weaknesses are determined

relative to competitors.
Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 24
 Long-Term Objectives
 Objectives can be defined as specific results
that an organization seeks to achieve in
pursuing its basic mission.
 Long-term means more than one year.
 Objectives are essential for organizational
success because they provide direction; aid in
evaluation; create synergy; reveal priorities;
focus coordination; and provide a basis for
effective planning, organizing, motivating, and
controlling activities.
 Objectives should be challenging, measurable,
consistent, reasonable, and clear.
Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 25
 Strategies
 Strategies are the means by which long-term
objectives will be achieved.

 Business strategies may include geographic

expansion, diversification, acquisition, product
development, market penetration, retrenchment,
divestiture, liquidation, and joint ventures.

Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 26

 Annual Objectives
 Annual objectives are short-term milestones that
organizations must achieve to reach longterm
objectives.

 Annual objectives should be measurable,

quantitative, challenging, realistic, consistent,
and prioritized.

 Annual objectives must be established at the

 corporate, divisional, and functional levels in a
large organization

Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 27

 Policies
 Policies are the means by which annual objectives will be
achieved.

 Policies include guidelines, rules, and procedures

established to support efforts to achieve stated
objectives. Policies are guides to decision making and
address repetitive or recurring situations.

 Policies are stated in terms of management, marketing,

finance/accounting, production/operations, R&D, and
MIS activities.
 Policies may be established at the corporate level and
apply to an entire organization, at the divisional level
and apply to a single division, or they may be established
at the functional level and apply to particular
operational activities or departments.
Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 28
 Examples of Policies
 3M: 3M says researchers should spend 15% of their time working on
something other than their primary project. (This supports 3M’s
strong product development strategy.)

 Google: Google’s health care plan includes their onsite medical

staff. Any employee who feels ill at work can make an appointment
with the doctor at the Googleplex. This supports the Google HRM
functional strategy to support its employees.
 General Electric: GE must be number one or two wherever it
competes. (This supports GE’s objective to be number one in market
capitalization.)
 Starbucks: All Starbucks employees are offered a Total Pay Package
that includes a 401(k) savings plan, stock options, and an employee
stock purchase plan. This goes a long way toward their goal of
having every employee feel like a partner in the business.
Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 29
 Programs and Tactics: Defining Actions
 A program or a tactic is a statement of the activities
or steps needed to support a strategy. The terms are
interchangeable.
 In practice, a program is a collection of tactics where
a tactic is the individual action taken by the
organization as an element of the effort to
accomplish a plan.
 A program or tactic makes a strategy action-oriented.
It may involve restructuring the corporation,
changing the company’s internal culture, or
beginning a new research effort.

Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 30

Example of Program and Tactics
 A set of programs or tactics used by automaker
BMW to achieve its objective of increasing
production efficiency by 5% each year:
a) Shorten new model development time from 60
to 30 months.
b) Reduce preproduction time from a year to no
more than five months.
c) Build at least two vehicles in each plant so that
production can shift among models depending upon
demand.
Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 31
 Budgets: Costing Programs
 A budget is a statement of a corporation’s
programs in terms of dollars.
 Used in planning and control, a budget lists the
detailed cost of each program.

 Many corporations demand a certain percentage

return on investment, often called a “hurdle
rate,” before management will approve a new
program.

Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 32

 Procedures: Detailing Activities
 Procedures, sometimes termed Standard Operating
Procedures (SOP), are a system of sequential steps or
techniques that describe in detail how a particular task or
job is to be done. They typically detail the various
activities that must be carried out in order to complete
the corporation’s program.

 For example, when the home improvement retailer Home

Depot noted that sales were lagging because its stores
were full of clogged aisles and had long checkout times
and too few salespeople, management changed its
procedures for restocking shelves and pricing the
products. Instead of requiring its employees to do these
activities at the same time they were working with
customers, management moved these activities to when
the stores were closed at night. Employees were then able
to focus on increasing customer sales during the day.
Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 33
The Strategic-Management Model (David & David, 2017)

Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 34

 The Strategic-Management Model (Wheelen,
Hunger, Hoffman, & Bamford, 2018)

Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 35

The Strategic-Management Model (Wheelen,
Hunger, Hoffman, & Bamford, 2018)

Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 36

The Strategic-Management Model
(Barney & Hesterley, 2015)

Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 37

 Strategy Development (Kaplan & Norton, 2004)
Mission
Why We Exist
Values
What’s important to Us
Vision
What We Want to Be
Strategy
Our Game Plan
Strategy Map
Translate the Strategy
Balanced Scorecard
Measure and Foucus
Targets and Initiatives
What We Need to Do
Personal Objectives
What I Need to Do
Strategic Outcomes

Satisfied Delighted Efficient & Effective Motivated and Prepared

Shareholders Customers Processes Workforce
Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 38
Why Some Firms Do No Strategic Planning

1. No formal training in strategic management

2. No understanding of or appreciation for the
benefits of planning
3. No monetary rewards for doing planning
4. No punishment for not planning
5. Too busy “firefighting” (resolving internal crises)
to plan ahead

Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 39

6. View planning as a waste of time, since no
product/service is made
7. Laziness; effective planning takes time and
effort; time is money
8. Content with current success; failure to realize
that success today is no guarantee for success
tomorrow; even Apple Inc. is an example.
9. Overconfident.
10. Prior bad experience with strategic planning
done sometime/somewhere

Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 40

Pitfalls in Strategic Planning
 Using strategic planning to gain control over decisions
and resources
 Doing strategic planning only to satisfy accreditation or
regulatory requirements
 Too hastily moving from mission development to strategy
formulation
 Failing to communicate the plan to employees, who
continue working in the dark
 Top managers making many intuitive decisions that
conflict with the formal plan
 Top managers not actively supporting the strategic-
planning process

Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 41

 Failing to use plans as a standard for measuring
performance
 Delegating planning to a “planner” rather than involving
all managers
 Failing to involve key employees in all phases of
planning
 Failing to create a collaborative climate supportive of
change
 Viewing planning as unnecessary or unimportant
 Becoming so engrossed in current problems that
insufficient or no planning is done
 Being so formal in planning that flexibility and
creativity are stifled.
Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 42
 How to Gain and Sustain
Competitive Advantage

Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 43

GLOBALIZATION AND ENVIRONMENTAL
SUSTAINABILITY: CHALLENGES TO STRATEGIC
MANAGEMENT

 Environmental sustainability: Tripple Bottom

Line (profit; people; planet)

 Six categories of risks:

1. Regulatory risk: Kyoto Protocol
2. Supply risk
3. Product and technology risk
4. Litigation risk
5. Reputational risk
6. Physical risk
Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 44
Types of Competitive advantage (Barney
& Hesterley, 2015)

Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 45

Dr. Wilfridus B. Elu. Perbanas Institute Jakarta. Strategic Management. 46