UNIT 1 – INTRODUCTION TO STRATEGIC MANAGEMENT

1) Strategy - A strategy is a business approach to a set of competitive moves that are

designed to generate a successful outcome. Strategies are means by which long-term
objectives are achieved. Some examples of strategies are –
• Geographic expansion
• Diversification
• Acquisition
• Market penetration
• Retrenchment
• Liquidation
• Joint venture
2) Strategic management - Strategic management is the management of an
organization’s resources to achieve its goals and objectives. Strategic management is
the process of setting goals, procedures, and objectives to make a company or
organization more competitive. Typically, strategic management looks at effectively
deploying staff and resources to achieve these goals. Often, strategic management
includes strategy evaluation, internal organization analysis, and strategy execution
throughout the company.
Example) A technical college wishes to increase new student enrolment and enrolled
student graduation rates over the next three years. The purpose is to make the college
known as the best buy for a student's money among five for-profit technical colleges
in the region, with a goal of increasing revenue.
In that case, strategic management means ensuring the school has funds to create high-
tech classrooms and hire the most qualified instructors. The college also invests in
marketing and recruitment and implements student retention strategies. The college’s
leadership assesses whether its goals have been achieved on a periodic basis.
3) Questions involved in strategic management –
a) Where are we now?
b) Where do we want to go?
c) How will we get there?
d) How do we know if we got there?
4) Strategic management model –
a) Defining the Mission and Setting Top-Level
Goals
b) External Analysis of Opportunities and Threats
c) Internal Analysis of Strengths and Weaknesses
d) Selection of Appropriate Strategies
e) Implementation of Chosen Strategies

5) Strategic management process –

6) Strategic management approach –
a) Formulation
b) Implementation
c) Evaluation
7) Military vs business strategies –
a) Similarity: Many organisations are attracted to apply strategic, tactical, and
operational strategies used in war, in formulating their strategy. A fact is that
many military strategies are applicable in the business world. Phrases such as
“we won the industry leadership battle” and “we defended our position in the
market” are military phrases used to express success in business. For both
military and business, the primary concern is competition and how to succeed
in the face of determined adversaries. Both parties use mental activity that
seeks to pinpoint winning ways, defined as a strategy. Businesses face a lot of
pressure as they pursue profits. The military is a public institution, unlike
businesses they don’t struggle to find and maintain customers.
The primary goal is to destabilise various forces working against your force,
rendering them ineffective and unable to fight back rather than terminating
them. A good example is Apple versus Microsoft in home computing, though,
the companies wager very expensive commercial conflict. Neither intends to
end the other.
b) Difference: Strategy in a military situation is either a win or a loss. The strategy
aims at achieving military objectives by employing the least effort. The goal is
to paralyse the opponents while continuing the conflict and ending the war.
However, business strategy is a means to achieve business objectives not
stopping a competitor’s business continuity. Military planning and doctrine
centre on one enemy and the purpose is to design the best approach that brings
the enemy down. Whereas with business, we have financial survival in the
military we have physical survival.
8) Vision statement - A vision statement reflects what an organization should look like
once it has successfully implemented its strategies and achieved its full potential.
Example)
• Medtronics – Restoring patients to full life
• McDonald’s – Our vision is to be the world’s best quick-service restaurant.
• Disney - To be the happiest place on earth
9) Basic elements of a vision statement -
a) The organization’s fundamental reason for existence beyond just making
money.
b) It’s timeless, unchanging core values. The core value defines the enduring
character of an organization that remains unchanged.
c) Huge but achievable aspirations for its future.
10) Process of making a vision statement –
a) No more than two sentences and keep it under 30 words
b) Keep it simple and digestible
c) Avoid metrics – these don’t belong in your Vision
d) Be specific in your wording and make it relevant to your market
e) Make it inspiring and ambitious
f) Align it to your culture and company's core values
11) Mission statement – It is a declaration of the organizational purpose/role an organization
plays in society. It also provides the social justification for its existence. It contains the
following details -
a) Brief description of the company’s fundamental purpose
b) To describe why the organization exists?
c) What’s its function?
d) What is value addition?
e) What does it do to achieve its vision?
Example)
• Ford - we are a global, diverse family with a proud heritage, passionately
committed to providing outstanding products and services.
• HP - To provide products, services and solutions of the highest quality and
deliver more value to our customers that earns their respect and loyalty.
12) Components of a mission statement –
a) Customers
b) Products or Services
c) Markets
d) Technology
e) Concern for Survival, Growth, & Profitability
f) Philosophy
g) Self-Concept
h) Concern for Public Image
i) Concern for Employees
 UNIT 2 – INTENRAL ANALYSIS

1) Nature of internal audit - Internal audit determines the organization's position within
its industry. All organizations have strengths and weaknesses in the functional areas of
business. No enterprise is equally strong or weak in all areas.
Example) Toyota is known for Excellent Production and Product Design, whereas
Procter & Gamble is known for superb marketing.
Internal strengths/weaknesses, coupled with external opportunities/threats and a clear
statement of mission, provide the basis for establishing objectives and strategies.
Objectives and strategies are established with the intention of capitalizing upon internal
strengths and overcoming weaknesses.
2) Process of internal audit - The process of performing an internal audit closely parallels
the process of performing an external audit. Representative managers and employees
from throughout the firm need to be involved in determining a firm’s strengths and
weaknesses.
Performing an internal audit requires gathering, assimilating, and evaluating
information about the firm’s operations. Critical success factors, consisting of both
strengths and weaknesses, are to be identified and prioritized
Strategic management is a highly interactive process that requires effective
coordination among management, marketing, finance/accounting,
production/operations, R&D, and management information systems (MIS) managers.
A failure to recognize and understand relationships among the functional areas of
business can be detrimental to strategic management.
3) Management - The functions of management consist of five basic activities: planning,
organizing, motivating, staffing, and controlling. These activities are important to
assess in strategic planning because an organization should continually capitalize on its
management strengths and improve on its management weaknesses.
4) Marketing - The process of defining, anticipating, creating, and fulfilling customers’
needs and wants for products and services is called marketing. Marketing includes the
following components or functions –
a) Customer analysis: the examination and evaluation of consumer needs, desires,
and wants. It is essential in developing an effective mission statement.
b) Product and service planning: it includes activities such as test marketing;
product and brand positioning; devising warranties; packaging; determining
 product options, features, style, and quality; deleting old products; and
providing customer service.
c) Pricing: Five major stakeholders affect pricing decisions: consumers,
governments, suppliers, distributors, and competitors. Sometimes an
organization will pursue a forward integration strategy primarily to gain better
control over prices charged to consumers.
d) Distribution: It includes warehousing, distribution channels, distribution
coverage, retail site locations, sales territories, inventory levels and location,
transportation carriers, wholesaling, and retailing.
e) Market research: The systematic gathering, recording, and analyzing of data
about problems relating to the marketing of goods and services.
5) Finance/ accounting functions – Finance functions comprise mainly three decisions -
a) Investment decision: Allocation and re-allocation of the firm’s resources
b) Financing decision: Capital structure strategies
c) Dividend decision: Percentage of earnings to be paid to shareholders, etc.
6) Production/operations – It consists of all those activities that transforms inputs into
goods and services. Production/operations management deals with inputs,
transformations, and outputs that vary across industries and markets.
7) Research and development audit – R&D audit mainly answers the following
questions –
a) Does the firm have R&D facilities? Are they adequate?
b) If outside R&D firms are used, are they cost-effective?
c) Are the organization’s R&D personnel well-qualified?
d) Are R&D resources allocated effectively?
e) Are management information and computer systems adequate?
f) Is communication between R&D and other organizational units effective?
g) Are present products technologically competitive?
8) Management information systems (MIS) - A management information system’s
purpose is to improve the performance of an enterprise by improving the quality of
managerial decisions.
An effective information system thus collects, codes, stores, synthesizes, and presents
information in such a manner that it answers important operating and strategic
questions.
9) Resource-based view (RBV) - Proponents of the RBV contend that organizational
performance will primarily be determined by internal resources that can be grouped
into three all-encompassing categories: physical resources, human resources, and
organizational resources.
RBV states that for a resource to be useful it must meet the following conditions –
a) It must be rare
b) It must be hard to imitate
c) Should not be easily substitutable
These three characteristics of resources enable a firm to implement strategies that
improve its efficiency and effectiveness and lead to sustainable competitive advantage.
10) Value chain analysis (VCA) - Refers to the process whereby a firm determines the
costs associated with organizational activities from purchasing raw materials to
manufacturing product(s) to marketing those products.
Aims to identify where low-cost advantages or disadvantages exist anywhere along the
value chain from raw material to customer service activities.
The value is the total amount (i.e., total revenue) that buyers are willing to pay for a
firm’s products. The difference between the total value (or revenue) and the total cost
of performing all the firm’s activities provides the margin.
The value chain is concentrating on the activities starting with raw materials till the
conversion into final goods or services. The two main categories of activities are -
a) Primary Activities: Those that are involved in the creation, sale and transfer of
products including after-sales service (logistics, operations, distribution, sales,
service, and support)
b) Support Activities: Those that merely support the primary activities (R&D,
Human Resources, technology)
11) Value chain model –
12) Uses of value chain analysis –
a) The sources of the competitive advantage of a firm can be seen from its discrete
activities and how they interact with one another.
b) A value chain is a tool for systematically examining the activities of a firm and
how they interact with one another and affect each other’s cost and performance.
c) A firm gains a competitive advantage by performing these activities better or at
a lower cost than competitors.
d) Helps you to stay out of the “No Profit Zone”.
e) Presents opportunities for integration.
f) Aligns spending with value processes.
13) Benchmarking - An analytical tool used to determine whether a firm’s value chain
activities are competitive compared to rivals and thus conducive to winning in the
marketplace.
Entails measuring the costs of value chain activities across the industry to determine
“best practices”.
14) Internal factor evaluation matrix (IFE) – The steps under the matrix –
a) List key internal factors as identified in the internal audit process.
b) Assign a weight that ranges from 0.0 (not important) to 1.0 (all-important) to
each factor.
c) Assign a 1-to-4 rating to each factor to indicate whether that factor represents a
strength or weakness.
d) Multiply each factor’s weight by its rating to determine a weighted score for
each variable.
e) Sum the weighted scores for each variable to determine the total weighted score
for the organization.
15) Mckinsey 7s model –
 UNIT 3 – EXTERNAL ANALYSIS

1) External analysis - Business Organizations interact with the outside world apart from
their own internal systems, processes, people, and environment.
It is a process to identify all the external and internal elements, which can affect the
organization's performance. The analysis entails assessing the level of threat or
opportunity the factors might present. The analysis helps align strategies with the firm's
environment.

2) PESTEL analysis –
3) Porter’s five force analysis –

4) Sources of external information - A wealth of strategic information is available to

organizations from both published and unpublished sources.
Unpublished sources include customer surveys, market research, speeches at
professional and shareholders’ meetings, television programs, interviews, and
conversations with stakeholders.
Published sources of strategic information include periodicals, journals, reports,
government documents, abstracts, books, directories, newspapers, and
manuals.
The Internet has made it easier for firms to gather, assimilate, and evaluate information.
5) Forecasting tools and techniques - Forecasts are educated assumptions about future
trends and events. Forecasting is a complex activity because of factors such as
technological innovation, cultural changes, new products, improved services, stronger
competitors, shifts in government priorities, changing social values, unstable economic
conditions, and unforeseen events.
Managers often must rely on published forecasts to effectively identify key external
opportunities and threats.
Sometimes organizations must develop their own projections. Most organizations
forecast (project) their own revenues and profits annually.
Forecasting tools can be broadly categorized into two groups: Quantitative techniques
and qualitative techniques.
 Quantitative forecasts are most appropriate when historical data are available and when
the relationships among key variables are expected to remain the same in the future.
6) External factor evaluation (EFE) matrix - External Factor Evaluation (EFE) Matrix
is a strategic-management tool often used for the assessment of current business
conditions and it is used to examine company's external environment and to identify
the available opportunities and threats
An External Factor Evaluation Matrix allows strategists to summarize and evaluate
economic, social, cultural, demographic, environmental, political, governmental, legal,
technological, and competitive information.
EFE matrix can be developed in 5 steps –
a) List factors: The first step is to gather a list of external factors. Divide factors
into two groups: opportunities and threats.
b) Assign weights: Assign a weight to each factor. The value of each weight should
be between 0 and 1 (or alternatively between 10 and 100 if you use the 10 to
100 scale). Zero means the factor is not important. One or hundred means that
the factor is the most influential and critical one. The total value of all weights
together should equal 1 or 100.
c) Rate factors: Assign a rating to each factor. The rating should be between 1 and
4. The rating indicates how effective the firm’s current strategies respond to the
factor. 1 = the response is poor. 2 = the response is below average. 3 = above
average. 4 = superior. Weights are industry specific. Ratings are company
specific.
d) Multiply weights by ratings: Multiply each factor weight with its rating. This
will calculate the weighted score for each factor.
e) Total all weighted scores: Add all weighted scores for each factor. This will
calculate the total weighted score for the company.
7) Competitive evaluation matrix (CEM) - The Competitive Profile Matrix (CPM) is a
tool that compares the firm and its rivals and reveals their relative strengths and
weaknesses.
The weights and total weighted scores in both a CPM and an EFE have the same
meaning. However, critical success factors in a CPM include both internal and external
issues.
 UNIT 4 – TYPES OF STRATEGIES
1) Levels of strategy – For many companies, a single strategy is not enough. There is a
need for multiple strategies at different levels. Strategy-making is not just a task for
top executives. Middle- and lower-level managers also must be involved in the
strategic-planning process to the extent possible.
a) Corporate level strategies: It is a plan of action, covering the various functions
performed by different strategic business units (SBUs). The plan deals with the
objectives of the company, allocation of resources and coordination of the SBUs
for optimal performance.
b) SBU level strategy: SBU strategy is a comprehensive plan providing objectives
for SBUs, allocation of resources among functional areas, and coordination
between them for making an optimal contribution to the achievement of
corporate-level objectives.
c) Functional strategies: Functional-level strategies deal with a relatively restricted
plan to provide objectives for a specific function, allocation of resources among
different operations within that functional area, and coordination between them
for optimal contribution to the achievement of SBU and corporate level
objectives.
2) Growth strategy options –
a) Merger- Involves a transaction involving two or more corporations in which a
stock is exchanged or swapped among independent business organizations from
which only one company services.
b) Acquisition- This is an option that involves the purchase of a company and then
completely absorbed as an operating subsidiary or division of the acquiring
corporation.
c) Strategic alliance- another option involving a partnership among two or more
corporations or business units to achieve strategically significant objectives that
are mutually beneficial.
3) Integration strategies –
Vertical integration: It is the degree to which a firm owns its upstream suppliers and its
downstream buyers. It has two varieties - backward (upstream) vertical integration and
forward (downstream) vertical integration.
Horizontal integration: It is a strategy where a company acquires, mergers or takes over
another company in the same industry value chain - mergers and acquisition.
4) Stability strategies –
a) Pause/proceed with caution: This is in effect, a sort of time out. It is an
opportunity to rest before continuing a growth or retrenchment strategy.
b) No change strategy: It involves a decision to do nothing new.
c) Profit strategy: It involves a decision to do nothing new in a worsening situation
and instead, to act as though the company’s problems are only temporary.
5) Retrenchment strategies –
a) Turnaround strategy: This strategy emphasizes the improvement of operational
efficiency and is probably most appropriate when a corporation’s problems are
pervasive but not yet critical.
b) Sell-out/Divestment strategy: This strategy is resorted to when a company has
a weak competitive position in its industry.
c) Bankruptcy strategy: Involves giving up management of the firm to the courts
in return for some settlement of the corporation’s obligations.
d) Liquidation strategy: Is the termination of the firm’s business operation.
6) Business level strategies – Business-level strategies are intended to create differences
between the firm’s position relative to those of its rivals.
Firm must make a deliberate choice to –
• Perform activities differently
• Perform different activities
7) Types of business level strategies –
a) Cost Leadership Strategies: Firms must offer relatively standardized products
with features or characteristics that are acceptable to customers at the lowest
competitive price.
Firms must consider their value chain of primary and secondary activities and
link those activities to implement a cost leadership strategy.
Example) Walmart, McDonald’s
b) Differentiation Strategies: The goal is to provide value to customers through
unique features and characteristics of a firm’s products. Differentiators focus or
concentrate on product innovation and developing product features that
customers value. Products generally cost more (offset the cost of
differentiation).
Example) Starbucks
c) Focus Strategies: Firms can also use core competencies to serve a narrow
segment of the market or a particular customer group.
Primary goals of a focused strategy:
• Focus on a particular buyer group, a segment of the market, etc.
• To serve a narrow target or market segment more effectively than broad-
based competitors can be due to core competencies.
• Select target segments which are the least vulnerable to substitutes or
where competitors are the weakest.
8) Functional strategies - These deal with a relatively restricted plan that provides the
objectives for a specific business function for the allocation of resources among
operations within that functional area and for facilitating coordination between them
for an optimal contribution to the achievement of the business and corporate-level
objectives.
The most common functional strategies used in management are financial strategy,
marketing strategy, production strategy, human resources strategy (personnel strategy)
and research and development strategy.
9) Blue ocean and red ocean strategies –
a) Red ocean strategy: It refers to the traditional marketing strategy to compete
with the competitors. It is demonstrated when many companies compete to
 achieve a competitive advantage in the existing market. These companies
contest in the same marketplace to beat their opponents.
b) Blue ocean strategy: It refers to the uncontested marketing policy that focuses
more on innovation to reinvent the business than the head-to-head competition.
It is a simultaneous process of opening a new business market and creating new
demand; therefore, competition is irrelevant.
Hence, the red ocean strategy refers to competing for the existing marketplace, whereas
the blue ocean strategy denotes making a new uncontested marketplace.

10) Strategic management in NPO and government organizations - Federal, state,

county, and municipal agencies, and departments, such as police departments, cham-
bers of commerce, forestry associations, and health departments, are responsible for
formulating, implementing, and evaluating strategies that use taxpayers’ money in the
most cost-effective. Strategic-management concepts are generally required and thus
widely used to enable government organizations to be more effective and efficient.
Public enterprises generally cannot diversify into unrelated businesses or merge with
other firms. Governmental strategists usually enjoy little freedom in altering the
organizations’ missions or redirecting objectives. Legislators and politicians often have
direct or indirect control over major decisions and resources. Strategic issues get
discussed and debated in the media and legislatures. Issues become politicized,
resulting in fewer strategic choices and alternatives. Government agencies are using a
strategic-management approach to develop and substantiate formal requests for
additional funding.

11) Strategic management in small firms - The strategic-management process is just as

vital for small companies as it is for large firms. From their inception, all organizations
have a strategy, even if the strategy just evolves from day-to-day operations. Even if
conducted informally or by a single owner or entrepreneur, the strategic-management
process can significantly enhance small firms’ growth and prosperity. However, a lack
of strategic-management knowledge is a serious obstacle for many small business
owners, as is a lack of sufficient capital to exploit external opportunities and a day-to-
day cognitive frame of reference. Research indicates that strategic management in small
firms is more informal than in large firms, but small firms that engage in strategic
management generally outperform those that do not.