Chapter One

The Nature of Strategic Management

 1.1. An Introduction
• A typical dictionary will define the word strategy
as something that has to do with war and
deception of an enemy.
• In business organizational context the term is not
much different.
• Businesses have to respond to a dynamic and
often hostile environment for pursuit of their
mission.
• Strategy seeks to relate the goals of the
organization to the means of achieving them.
 1.2. The Meaning of Strategic Management
• The word strategy is derived from Greek word called
“strategos”, which means, generalship-actual direction of
military force as directed from policy governing its deployment.
• strategy is a long range blueprint of an organization's desired
image, direction and destination, what it wants to be, what it
wants to do and where it wants to go.

• Strategy is the grand design or an overall ‘plan’ which an

organization chooses in order to move or react towards the set
of objectives by using its resource.

• Strategy is an idea, plan and action taken by people and /or firm
in successful competition with competitors.
 Contd..

• According to Glueck, “strategy is the unified,

comprehensive and integrated plan that relates the
strategic advantage of the firm to the challenges of the
environment and is designed to ensure that basic
objectives of the enterprise are achieved through
proper implementation process.”

• According to Michael Porter, strategy is “Creation of a

unique and valued position involving a different set of
activities.’
 Contd…

• The top management of an organization is concerned

with selection of a course of action from among
different alternatives to meet the organizational
objectives. Thus, the process by which objectives are
formulated and achieved is known as a strategic
management and strategy acts as the means to achieve
the objective.

• Strategic management is the art and science of

formulating, implementing and evaluating cross
functional decisions that will enable an organization to
achieve its objectives.
 Contd…

Strategic Management achieves a

firm’s success through integration ––

Management Marketing

Finance/Accounting Production/Operations

Research & Development MIS

 Contd…
• Strategic management is the process of
specifying the organization’s objectives,
developing policies, and plan to achieve these
objectives, and allocating resources to
implement the policies and plans to achieve
the organization’s objectives.
 Contd…
• Strategic management is the highest level of
managerial activity, usually formulated by the Board
of directors and performed by the organization's
Chief Executive Officer (CEO) and executive team.

• Managers at all companies face three basic critical

questions in thinking strategically about their
company’s present circumstances and prospects:-
 Contd…
• Where are we now? Must consider the
company’s:
 Market position and the competitive pressures it
confronts
 Its resources strengths and capabilities,
 Its competitive shortcomings
 The appeal its products and services have to
customers, and
 Its current performance.
 Contd..

• Where do we want to go? Deals with the direction

in which management believes the company should
be headed in light of the company’s present
situation and the winds of market change – I,e,
-New markets and customer groups that the
company should be adding,
-The improvements in competitive market position
the company is aiming for, and
-The geographic scope and product line makeup of
the company’s business in the years to come.
 Contd…
• How will we get there? Concerns the ins and outs
of crafting and executing a strategy to get the
company from where it is to where it wants to go.

• “Without strategy, the organization is like a ship

without a rudder.” It is like a tramp, which has no
particular destination to go to. Without an
appropriate strategy effectively formulated and
implemented, the future is always dark and hence,
more are the chances of business failure.
 Contd…

• Strategic management is used synonymously with

the term strategic planning.

• Sometimes the term strategic management is used

to refer to strategy formulation, implementation,
and evaluation, while strategic planning referring
only to strategy formulation.
 1.3. Stages of Strategic Management

• The strategic management process consists of

three stages:
 Contd…
(i) Strategic Formulation:
• It includes:
Developing a business vision and mission
 Identifying an organization’s external opportunities
and threats
Determining internal strengths and weaknesses,
Establishing long-term objectives
Generating alternatives strategies, and
Choosing particular strategies to pursue.
 Contd…

• Strategic-formulation issues include deciding:

 What new business to enter?
 What business to abandon?
 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.
• Since no organization has unlimited resources,
strategists must decide which alternative
strategies will benefit the firm most.
 Contd…
(ii) Strategy Implementation:
• Strategic implementation is often called action stage of strategic
management.
• It requires a firm to establish:
Annual objectives
Devise policies
Motivate employees
Allocate resources
Creating an effective organizational structure
Preparing budgets
Developing and utilizing information systems, and
linking employee compensation to organization to organizational
performance, so that formulated strategies can be executed.
 Contd…
• Strategy Implementing means mobilizing
employees and managers to put formulated
strategies into action.
• It is often considered to the most difficult stage
in management, it requires personal discipline,
commitment, and sacrifice.
• The challenge of implementation is to stimulate
managers and employee’s through-out an
organization to work with pride and enthusiasm
toward achieving stated objectives.
 Contd….
(iii) Strategy Evaluation:
 Is the final stage in strategic management.
 Managers desperately need to know when
particular strategies are not working well.
 All strategies are subject to future modification
because external and internal factors are
constantly changing.
 Contd…
• 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.
 Contd..

Discussion Questions
1. Does strategic management is more of
science or art ? Which comes first
(art/science in strategic management?
2. Do you agree, if the vision statements may
not have time frame?
1.4. The Strategic Management Model
 Contd…
• The strategic management process can best be studied
and applied using a model. Every model represents
some kind of process.

• As illustrates on the figure above, the strategic

management model begins with the development of the
organizational vision and mission.

• The organizational vision and mission would then be

translated into the organizational goals.
 Contd…

• Once these elements have been determined, the role

of the manager or strategist is to perform an analysis
of the organization.

• This involves the two major types of analysis,

namely, the external analysis of the environment and
the internal analysis of the organisation.

• Each of these analyses will provide information on

opportunities and threats, strengths and weaknesses.
 1.5. Benefits of Strategic Management

It enhances the firms ability to prevent the problem.

It allows an organization to be more proactive than

reactive in shaping its own future.

It helps an organization to take decisions on long

range forecasts.
 Contd…
It allows the firm to deal with a new trend and meet
competition in an effective manner.

 Corporate strategy improves the capability of

management in coping with the volatile external
environmental forces.

Efficient strategy formulation and implementation

result into financial benefits to the organization in the
form of increased profits.
 It helps effective allocation of scarce resources.
 Contd..

It provides an objective basis for measuring

performance.

It provides a cooperative, integrated, and

enthusiastic approach to tackling problems and
opportunities.
 Contd…
• The results of the strategic analysis will then
help managers or strategists to determine the
potential alternatives available to the
organization.
• A selection of the appropriate strategic choices
will be made ready for implementation.
1.6. Challenges to Strategic Management

• Strategic management includes strategic

planning, implementation and review/control of
the strategy of an organization.

• All most all the modern organizations engage in

strategic management to ensure that they achieve
the desired level of performance. But in the
modern business context strategic management
faces many challenges such as:
 Contd…
Orientation for globalization
• Every aspect of the business is getting globalised and
business organizations step in to global operations
with MNC and other foreign business operations
methods.
• Due to the globlised operations of the business world
there are new orientations such as international
human resource management (IHRM) and
international finance are emerging.
• Company’s strategic management process has to be
updated to cope up with these new orientations.
 Contd..

Emerging e-commerce and internet culture

• With the wide expansion of world wide wed
(www) and the technology businesses have moved
on to e-commerce where they conduct business
electronic means such as online purchasing/selling
and online advertising.
• Strategic management process of the business
should be able to accommodate e-commerce
motives into the business process.
 Contd…

Competition
• With the globalization, e-commerce and other
changes in the business environment, todays
business world has become hyper competitive
where the organization can no longer survive
without executing proper competitive strategy.

• Strategic management process should generate

competitive intelligence and predict the next moves
of the competitors and build the competitive
strategy to win the battle with competitors.
 Contd…

Diversification
• With the rapid changing business environment and
increased uncertainty the business risk has increased
drastically.
• To diversify the business risk companies now engage
in diversified operations where they focus on more
than one business area/industry rather than
specializing in one area.
• The strategic management should be able to identify
diversified business opportunities and manage them
well.
 Contd…
Active pressure groups
• In the modern world there are active pressure
groups operating such as environmental activism
and consumer protectionism.
• Thus, Strategic management should identify
these external pressure groups and hear about
their concerns.
 Contd…

Motive for Corporate Social Responsibility

(CSR) and ethics
• The modern business organizations have engage in
CSR and ethics to keep up their corporate
reputation and be competitive in the environment.

• Strategic management should look into possible

CSR activities and implement those to be in line
with expectations of the society.