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Chapter 1

Strategic Management
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What is Strategic Management?

The set of decisions and actions that result

in the formulation and implementation of
plans designed to achieve a company’s
objectives.
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What is Strategy?

• Large-scale, future-oriented plan for

interacting with the competitive
environment to achieve objectives
• Company’s “game plan”
• Framework for managerial decisions
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Dimensions of Strategic Decisions

• Strategic issues
• Require top-management decisions
• Require large amounts of the firm’s resources
• Often affect the firm’s long-term prosperity
• Are future oriented
• Usually have multifunctional or multibusiness
consequences
• Require considering the firm’s external
environment
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Strategy Vs Tactics
• Strategy refers to a plan of action designed
to achieve a
• Tactic(s) may refer to a plan, procedure, or
expedient for promoting a desired end or
resultparticular goal.
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Strategy Vs Tactics (Contd)

• Improve market share • on-line advertising
of a brand • brand through
celebrities
• Become the market • Use low price as a
leader tactic
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Three Levels of Strategy

1. Corporate level
2. Business level
3. Functional level
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Exhibit 1-3: Single-business Firms

C o rp o ra te /
b u s in e s s le v e l

Functional Level
P O M /R & D F i n a n c i a l/ M a r k e t in g H um an
s t r a te g ie s a c c o u n t in g s t r a te g ie s r e la t io n s
s t r a te g ie s s t r a te g ie s
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Ex 1-3: Multiple business Firms

Corporate
strategies

Business Level
Business 1 Business 2
Business 3

Functional Level
Financial/ Human
POM/R&D Marketing
accounting relations
strategies strategies
strategies strategies
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Characteristics of Strategic Management

Decisions

Greater risk,cost,
and profit potential

Corporate-level Greater need for

decisions flexibility

Longer time horizons

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Characteristics of Strategic Management

Decisions (contd.)
Bridge decisions at
corporate and functional
levels

Are less costly, risky, and

Business-level potentially profitable than
decisions corporate-level decisions

Are more costly, risky, and

potentially profitable than
functional-level decisions
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Characteristics of Strategic Management

Decisions (contd.)

Implement overall strategy

Involve action-oriented
Functional-
Functional- operational issues
level
level
decisions
decisions Are relatively short range
and low risk

Incur only modest costs

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Formality in Strategic Management

• Definition
• Degree to which participants, responsibilities,
authority, and discretion in decision making are
specified
• Forces affecting degree of formality
• Size of organization
• Predominant management styles
• Complexity of environment
• Production process
• Problems
• Purpose of planning system
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The Strategy Makers

• The ideal strategic management team
includes
• Chief executive officer (CEO)
• Product managers
• Heads of functional areas
• The strategic management team obtains
input from
• Planning staff
• Lower-level management and supervisors
• Role of CEO
• Provides long-term direction
• Assumes ultimate responsibility for firm’s success
• Solicits guidance from Board of Directors
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Benefits of Strategic Management

Enhances the firm’s ability to prevent problems

Emphasizes group-based strategic decisions likely to be based on
best available alternatives
Improves employees’ understanding of the productivity-reward
relationship
Reduces gaps/overlaps in activities among employees as their
participation clarifies differences in roles

Resistance to change is reduced

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Risks of Strategic Management

• Time involved may negatively impact
operational responsibilities of
managers
• Lack of involvement of strategy
makers in strategy implementation
may result in shirking of responsibility
for strategic decisions
• Potential disappointment of employees
over unattained expectations requires
managerial time and training
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Ex 1-6:
Strategic
Company mission
Management
and social
Process
responsibility

Possible?
External
Internal analysis
environment
Desired?
Feedback

Strategic analysis and choice

Feedback
Long-term
Generic and grand strategies
objectives

Short-term objectives; Policies that

Functional tactics
reward systems empower action

Restructuring, reengineering
and refocusing the organization
Legend Strategic control and
Major impact continuous improvement
Minor
impact
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Components of the Strategic

Management Model
• Company Mission
• Specifies unique purpose of company
• Identifies scope of operations
• Describes product, market, and technological areas
of emphasis
• Reflects values and priorities of decision makers
• Expresses approach to social responsibility efforts
• Internal Analysis
• Depicts quantity and quality of company’s
financial, human, and physical resources
• Assesses company’s strengths and weaknesses
• Contrasts past successes and concerns with current
capabilities to identify future capabilities
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Components of the Strategic

Management Model (contd.)
• External Environment
• Consists of all conditions and forces affecting
firm’s strategic options and define its competitive
situation
• Includes three interactive segments – remote,
industry, and operating environments
• Strategic Analysis and Choice
• Involves simultaneous assessment of external
environment and company profile
• Incorporates screening process based on mission
to generate possible and desired opportunities
• Results in selection of options from which a
strategic choice is made
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Components of the Strategic

Management Model (contd.)
• Long-term Objectives
 Profitability
 Return on investment
 Competitive position
 Technological leadership
 Productivity
 Employee relations
 Public responsibility
 Employee development
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Components of the Strategic

Management Model (contd.)

• Generic Strategies
• Low cost
• Differentiation
• Focus
• Grand Strategies
• Comprehensive, general plan of major
actions through which the firm intends to
achieve its long-term objectives in a
dynamic environment
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Components of the Strategic

Management Model (contd.)

• Action Plans and Short-Term Objectives

• Translate generic and grand strategies into
“action”
• Identify specific functional tactics to be taken in the
near term
• Establish a clear time frame for completion
• Creates accountability
• Specify one or more immediate objectives as
outcomes of the action
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Components of the Strategic

Management Model (contd.)
• Functional Tactics
• Involve identifying activities unique to the
function to help build competitive advantage
• Specify detailed statements of “means” to be used
to achieve short-term objectives
• Policies that Empower Action
• Include broad, precedent-setting decisions that
substitute for repetitive or time-sensitive decision
making
• Often increase managerial effectiveness by
empowering discretion of subordinates in
implementing strategies
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Components of the Strategic

Management Model (contd.)
• Restructuring, Reengineering, and
Refocusing the Organization
• Involves an internal focus – getting work done
efficiently and effectively to make the strategy
work
• Downsizing, restructuring and reengineering
reflect the critical stage in strategy
implementation wherein managers attempt to
recast their organization.
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Components of the Strategic

Management Model (contd.)
• Strategic Control and Continuous
Improvement
• Control
• Tracks a strategy during implementation
• Detects problems
• Involves making necessary adjustments
• Continuous improvement
• Provides another approach to strategic control
• Allows an organization to respond more
proactively and timely to rapid developments
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Implications of Viewing Strategic

Management as a Process
 Changes in any one component will
affect other components
 Strategy formulation and
implementation are sequential
 Necessity of feedback from
institutionalization, review, and
evaluation to early stages of process
 Need to regard it as dynamic,
involving constant changes in
interdependent strategic activities