Chapter 1

1. Strategic Management is all about identification and description of the strategies that managers
can carry so as to achieve better performance and a competitive advantage for their
organization. An organization is said to have competitive advantage if its profitability is higher
than the average profitability for all companies in its industry.
Strategic management can also be defined as a bundle of decisions and acts which a manager
undertakes and which decides the result of the firm’s performance. The manager must have a
thorough knowledge and analysis of the general and competitive organizational environment so
as to take right decisions. They should conduct a SWOT Analysis (Strengths, Weaknesses,
Opportunities, and Threats), i.e., they should make best possible utilization of strengths,
minimize the organizational weaknesses, make use of arising opportunities from the business
environment and shouldn’t ignore the threats.
Strategic management is nothing but planning for both predictable as well as unfeasible
contingencies. It is applicable to both small as well as large organizations as even the smallest
organization face competition and, by formulating and implementing appropriate strategies,
they can attain sustainable competitive advantage. It is a way in which strategists set the
objectives and proceed about attaining them. It deals with making and implementing decisions
about future direction of an organization. It helps us to identify the direction in which an
organization is moving.
Strategic management is a continuous process that evaluates and controls the business and the
industries in which an organization is involved; evaluates its competitors and sets goals and
strategies to meet all existing and potential competitors; and then reevaluates strategies on a
regular basis to determine how it has been implemented and whether it was successful or does
it needs replacement. Strategic Management gives a broader perspective to the employees
of an organization and they can better understand how their job fits into the entire
organizational plan and how it is co-related to other organizational members. It is nothing but
the art of managing employees in a manner which maximizes the ability of achieving business
objectives. The employees become more trustworthy, more committed and more satisfied as
they can co-relate themselves very well with each organizational task. They can understand the
reaction of environmental changes on the organization and the probable response of the
organization with the help of strategic management. Thus the employees can judge the impact
of such changes on their own job and can effectively face the changes. The managers and
employees must do appropriate things in appropriate manner. They need to be both effective as
well as efficient.
One of the major role of strategic management is to incorporate various functional areas of the
organization completely, as well as, to ensure these functional areas harmonize and get
together well. Another role of strategic management is to keep a continuous eye on the goals
and objectives of the organization.

2. Goal-Setting
The purpose of goal-setting is to clarify the vision for your business. This stage consists of identifying three
key facets: First, define both short- and long-term objectives. Second, identify the process of how to
accomplish your objective. Finally, customize the process for your staff, give each person a task with which he
can succeed. Keep in mind during this process your goals to be detailed, realistic and match the values of
your vision. Typically, the final step in this stage is to write a mission statement that succinctly communicates
your goals to both your shareholders and your staff.

Analysis

Analysis is a key stage because the information gained in this stage will shape the next two stages. In this
stage, gather as much information and data relevant to accomplishing your vision. The focus of the analysis
should be on understanding the needs of the business as a sustainable entity, its strategic direction and
identifying initiatives that will help your business grow. Examine any external or internal issues that can affect
your goals and objectives. Make sure to identify both the strengths and weaknesses of your organization as
well as any threats and opportunities that may arise along the path.

Strategy Formulation

The first step in forming a strategy is to review the information gleaned from completing the analysis.
Determine what resources the business currently has that can help reach the defined goals and objectives.
Identify any areas of which the business must seek external resources. The issues facing the company should
be prioritized by their importance to your success. Once prioritized, begin formulating the strategy. Because
business and economic situations are fluid, it is critical in this stage to develop alternative approaches that
target each step of the plan.

Strategy Implementation

Successful strategy implementation is critical to the success of the business venture. This is the action stage
of the strategic management process. If the overall strategy does not work with the business' current
structure, a new structure should be installed at the beginning of this stage. Everyone within the organization
must be made clear of their responsibilities and duties, and how that fits in with the overall goal. Additionally,
any resources or funding for the venture must be secured at this point. Once the funding is in place and the
employees are ready, execute the plan.

Evaluation and Control

Strategy evaluation and control actions include performance measurements, consistent review of internal
and external issues and making corrective actions when necessary. Any successful evaluation of the strategy
begins with defining the parameters to be measured. These parameters should mirror the goals set in Stage
1. Determine your progress by measuring the actual results versus the plan. Monitoring internal and external
issues will also enable you to react to any substantial change in your business environment. If you determine
that the strategy is not moving the company toward its goal, take corrective actions. If those actions are not
successful, then repeat the strategic management process. Because internal and external issues are
constantly evolving, any data gained in this stage should be retained to help with any future strategies

3. Strategy - a. A method or plan chosen to bring about a desired future, such as achievement of a
goal or solution to a problem.
b. The art and science of planning and marshalling resources for their most efficient and
effective use. The term is derived from the Greek word for generalship or leading an army.

Tactics - Means by which a strategy is carried out; planned and ad hoc activities meant to deal
with the demands of the moment, and to move from one milestone to other in pursuit of the
overall goal(s). In an organization, strategy is decided by the board of directors, and tactics by
the department heads for implementation by the junior officers and employees.

4. SWOT analysis (or SWOT matrix) is an acronym for strengths, weaknesses, opportunities,
and threats and is a structured planningmethod that evaluates those four elements of an
organization, project or business venture. A SWOT analysis can be carried out for a company,
product, place, industry, or person. It involves specifying the objectives of the business venture or
project and identifying the internal and external factors that are favorable and unfavorable to
achieve that objective. Some authors credit SWOT to Albert Humphrey, who led a convention at the
Stanford Research Institute (now SRI International) in the 1960s and 1970s using data from Fortune
500 companies.[1][2] However, Humphrey himself did not claim the creation of SWOT, and the origins
remain obscure. The degree to which the internal environment of the firm matches with the external
environment is expressed by the concept of strategic fit.

 Strengths: characteristics of the business or project that give it an advantage over others
 Weaknesses: characteristics of the business that place the business or project at a disadvantage
relative to others
 Opportunities: elements in the environment that the business or project could exploit to its
advantage
 Threats: elements in the environment that could cause trouble for the business or project
Identification of SWOTs is important because they can inform later steps in planning to achieve the
objective. First, decision-makers should consider whether the objective is attainable, given the SWOTs. If
the objective is not attainable, they must select a different objective and repeat the process.
Users of SWOT analysis must ask and answer questions that generate meaningful information for each
category (strengths, weaknesses, opportunities, and threats) to make the analysis useful and find their
competitive advantage.
 5. The strategic management process means defining the organization’s strategy. It is also defined as the
process by which managers make a choice of a set of strategies for the organization that will enable it to
achieve better performance.

Strategic management is a continuous process that appraises the business and industries in which the organization
is involved; appraises it’s competitors; and fixes goals to meet all the present and future competitor’s and then
reassesses each strategy.

Strategic management process has following four steps:

1. Environmental Scanning- Environmental scanning refers to a process of collecting, scrutinizing and

providing information for strategic purposes. It helps in analyzing the internal and external factors
influencing an organization. After executing the environmental analysis process, management should
evaluate it on a continuous basis and strive to improve it.
2. Strategy Formulation- Strategy formulation is the process of deciding best course of action for
accomplishing organizational objectives and hence achieving organizational purpose. After conducting
environment scanning, managers formulate corporate, business and functional strategies.
3. Strategy Implementation- Strategy implementation implies making the strategy work as intended or
putting the organization’s chosen strategy into action. Strategy implementation includes designing the
organization’s structure, distributing resources, developing decision making process, and managing
human resources.
4. Strategy Evaluation- Strategy evaluation is the final step of strategy management process. The key
strategy evaluation activities are: appraising internal and external factors that are the root of present
strategies, measuring performance, and taking remedial / corrective actions. Evaluation makes sure that
the organizational strategy as well as it’s implementation meets the organizational objectives.

These components are steps that are carried, in chronological order, when creating a new strategic management
plan. Present businesses that have already created a strategic management plan will revert to these steps as per
the situation’s requirement, so as to make essential changes.

6. There are many benefits of strategic management and they include identification, prioritization, and
exploration of opportunities. For instance, newer products, newer markets, and newer forays into
business lines are only possible if firms indulge in strategic planning. Next, strategic management allows
firms to take an objective view of the activities being done by it and do a cost benefit analysis as to
whether the firm is profitable.

Just to differentiate, by this, we do not mean the financial benefits alone (which would be discussed below) but
also the assessment of profitability that has to do with evaluating whether the business is strategically aligned to
its goals and priorities.

The key point to be noted here is that strategic management allows a firm to orient itself to its market and
consumers and ensure that it is actualizing the right strategy.

7. Financial Benefits

It has been shown in many studies that firms that engage in strategic management are more profitable and
successful than those that do not have the benefit of strategic planning and strategic management.
When firms engage in forward looking planning and careful evaluation of their priorities, they have control over
the future, which is necessary in the fast changing business landscape of the 21st century.

It has been estimated that more than 100,000 businesses fail in the US every year and most of these failures are to
do with a lack of strategic focus and strategic direction. Further, high performing firms tend to make more
informed decisions because they have considered both the short term and long-term consequences and hence,
have oriented their strategies accordingly. In contrast, firms that do not engage themselves in meaningful strategic
planning are often bogged down by internal problems and lack of focus that leads to failure.

Non-Financial Benefits

The section above discussed some of the tangible benefits of strategic management. Apart from these benefits,
firms that engage in strategic management are more aware of the external threats, an improved understanding of
competitor strengths and weaknesses and increased employee productivity. They also have lesser resistance to
change and a clear understanding of the link between performance and rewards.

The key aspect of strategic management is that the problem solving and problem preventing capabilities of the
firms are enhanced through strategic management. Strategic management is essential as it helps firms to
rationalize change and actualize change and communicate the need to change better to its employees. Finally,
strategic management helps in bringing order and discipline to the activities of the firm in its both internal
processes and external activities

8. A company with a differentiation strategy can charge a premium price. That

means it usually has a higher profit margin.

Companies typically achieve differentiation with innovation, quality or customer service.

Innovation means you meet the same needs in a new way. An excellent example of this
is Apple. The iPod was innovative because it allowed you to play whatever music you
want, in any order.

Quality means you provide the best product or service. Tiffany's can charge more
because patrons see it as the best. Customer service means going out of the way to
delight shoppers. Nordstrom's was the first to allow returns with no questions asked.

Focus means you understand and service your target market better than anyone else.
You can use either cost leadership or differentiation to do that. The key to focusing is to
choose one specific target market. Often it's a tiny niche that larger companies don't
serve. For example, community banks use a focus strategy to gain sustainable
competitive advantage. They target local small businesses or high net worth individuals.
Their target audience enjoys the personal touch that big banks may not be able to give.
They are willing to pay a little more in fees for this service. These banks are using a
differentiation form of the focus strategy.