CHAPTER ONE

Nature of Strategic Management

Management-an overview

What is management?
What is Strategy
The word strategy has entered the field of management
more recently. At first, the word was used in terms of
Military Science to mean what a manager does to
offset actual or potential actions of competitor.
Originally, the word strategy has been derived from
Greek ‘Strategos’, which means generalship
When the term strategy is used in military sense, it
refers to action that can be taken in the light of action
taken by opposite party
 Views and Opinions Expressed by Leading thinkers in
the Field of Business Strategy
Chandler defined strategy as: “The determination of the basic
long-term goals and objectives of an enterprise and the
adoption of the courses of action and the allocation of
resources necessary for carrying out these goals.”

Note that Chandler refers to three aspects:

 Determination of basic long-term goals and objectives,
 Adoption of courses of action to achieve these objectives, and
 Allocation of resources necessary for adopting the courses of
action
 Cont’d

 Andrew defines strategy as: “The pattern of objectives, purpose,

goals, and the major policies and plans for achieving these goals
stated in such a way so as to define what business the company is
in or is to be and the kind of company it is or is to be”.

 This definition refers to the ‘business definition’, which is a way

of stating the current and desired future position of company, and
the objectives, purposes, goals, major policies and plans required
to take the company from where it is to where it wants to be.
 Cont’d

Igor Ansoff explained the concept of strategy as: “The

common thread among the organization’s activities
and product markets…that defines the essential nature
of business that the organization was or planned to be
in future”.
Ansoff has stressed on the commonality of approach
that exists in diverse organizational activities
including the products and markets that define the
current and planned nature of business.
 Cont’d

Glueck defined strategy precisely as: ”A unified,

comprehensive and integrated plan designed to assure that
the basic objectives of the enterprise are achieved”.
‘Unified’ means that the plan joins all the parts of an
enterprise together; ‘comprehensive’ means it covers all
the major aspects of the enterprise, and ‘integrated’ means
that all parts of the plan are compatible with each other
 Cont’d

Mintzberg defines strategy as: “a pattern in a stream of

decisions and actions”. Mintzberg distinguishes between
intended strategies and emergent strategies.
Intended strategies refer to the plans that managers
develop, while emergent strategies are the actions that
actually take place over a period of time.
In this manner, an organization may start with a deliberate
design of strategy and end up with another form of
strategy that is actually realized.
 What is strategy?

Generally:
Strategy is organization's pattern of response to its environment
over a period of time to achieve its goals and mission.
strategy is “A unified, comprehensive and integrated plan
design to assure that the basic objectives of the enterprise are
achieved.”
Strategy is the company’s long-term plan for how it will balance
its internal strengths and weaknesses with its external
opportunities and threats to maintain a competitive advantage.

Strategy is "the determination of basic long term goals and

objective of an enterprise and the adoption of the courses of
action and the allocation of resources necessary for carrying out
these goals
Intended Vs Emergent strategy

Serendipity - stumbling across good things unexpectedly

Deliberate strategy- planned strategies actually put into
action
Emergent strategy: response to unforeseen circumstances.
Emergent strategies arise from within the organization
without prior planning(rational strategizing)
 Realized strategies are the actions that actually take place over
time
NB: In practice, the strategies of most organizations are
probably a combination of the intended (planned) and the
emergent particularly in an unstable environment
Managers must be able to judge the worth of emergent
strategies.
Intended Vs Emergent strategy

Planed
/intended Deliverable strategy Realized
strategy strategy

Unpredicted
change

. Unrealized Emergent Unplanned

strategy strategy Shift by top
serendipity
mgt

Autonomous
action by lower
level mgr
Cont’d

Strategy has four components.

Firstly, strategy should include a clear set of long term
goals
Second components are that it should define the scope of
the firm i.e. the types of products the firm will serve etc.
Thirdly, a strategy should have a clear statement of what
competitive advantage it will achieve and sustain.
Finally, the strategy must represent the firms’ internal
contest that will allow it to achieve a competitive
advantage in the environment in which it has chosen to
compete.
 Strategic Management
 SM is “a
set of managerial decisions and actions that
determines the long-run performance of an organization”

Strategic Management includes:

 Internal and external environment scanning
 Strategy formulation
 Strategy implementation
 Evaluation and control

Thus, the study of strategic management emphasizes the

monitoring and evaluating of external opportunities and
threats in light of a corporation’s strengths and
weaknesses
 Strategic planning Vs Strategic Management
Strategic planning , an important component of strategic
management, involves developing a strategy to meet
competition and ensure long term survival.

SM is “the process of formulating and executing the

organization’s strategic plan, by matching the company’s
capabilities and evaluating performance on a continuous
bases.

Define the Evaluat

Conduct Formula Formula Implem
current Set e
SWOT te new te ent
mission Goal perform
analysis mission strategy strategy ance
evaluatio
Strategic plan execution n
 Strategic planning in practices
Strategic planning is future oriented and the future is
inherently unpredictable as unforeseen contingencies occur
Thus, in dynamic environment, managers can use scenario
planning techniques to plan for different possible futures
Scenario planning: involves formulating plans that are based
on what-if scenarios about the future
Teams of managers are asked to develop specific strategies to
cope with optimistic & pessimistic scenario
Scenario planning approach

.
Formulate
Identify Invest in one
plans to deal
different plan but……
with those
possible
futures.
futures

Switch strategy if Hedge your bets by

tracking of signposts Preparing for other
Shows alternative scenarios
Scenarios becoming
more likely
 Phases of Strategic Management

Phase
Phase 3:2:
1:Externally
Basic
Phase
Phase 3:2:
1:strategic
financial Basic
Forecast-based
oriented Externally
financial
Forecast-based
planning
oriented strategic
planning
planning
planning

P
h
as
e
4:
St
ra
te
gi
c
m
a
n
a
ge
m
e
nt
1. Basic financial planning phase

 Basic financial planning-managers initiate serious

planning when they are requested to propose next year’s
budget.
Projects are proposed on the basis of very little analysis,
with most information coming from within the firm.
Usually they are one year plan.
2. Forecast-based planning phase

Forecast-based planning-managers now consider

projects that may take more than one year.
 In addition to internal information, managers gather any
available environmental data-usually on an ad hoc basis-
and extrapolate current trends five years into the future.
 The time horizon is usually 3 to 5 years.
3-Externally oriented planning (strategic planning)

Externally oriented planning (strategic planning)-

frustrated with highly political, yet ineffectual five year
plans, top mgt takes control of the planning process by
initiating strategic planning.
 Top mgt typically develops this plan with help from
consultants and minimal input from lower levels.
 4. Strategic management phase

Strategic management-input and commitment of lower

level managers; top mgt forms planning groups of
managers and key employees at many levels from various
departments and work groups.
The sophisticated annual five-year strategic plan is replaced
with strategic thinking at all levels of the organization
throughout the year.
Planning is typically interactive across levels and is no
longer top down. People at all levels are now involved.
 Benefits of Strategic Management
 Research has revealed that organizations that engage in
strategic management generally outperform those that
do not.
 The attainment of an appropriate match, or “fit,”
between an organization’s environment and its strategy,
structure and processes has positive effects on the
organization’s performance.
 Strategic planning becomes increasingly important as
the environment becomes more unstable. SM improved
understanding of a rapidly changing environment
 Features of Strategic management

Strategic issues are future oriented

Strategic management is never ending process
Strategic issues have multi business consequences
Strategic issues involves the allocation of large amount of
resources
Strategic issues warrant top management decisions
Strategic management stresses on both efficiency and
effectiveness
Strategic issues are likely to have impinging impact on the
long term prosperity of the firm
Basic Elements /model/ Process of the Strategic
Management
strategic management model
 Cont’d

 Environmental Scanning: is the monitoring, evaluating and

disseminating of information from the external and internal
environments to key people within the organization
Strategy formulation: includes developing a vision & mission,
identifying an organization’s external opportunities & threats,
determining internal strengths & weaknesses, establishing long-term
objectives, generating alternative strategies, & choosing particular
strategies to pursue
and setting policy guidelines.
 Mission
the purpose or reason for the organization’s existence

 Vision
describes what the organization would like to become

 Objectives
the end results of planned activity
 Cont’d

 Strategies- form a comprehensive master plan that states how the

corporation will achieve its mission and objectives. It maximizes
competitive advantage and minimizes competitive disadvantage.
 Policies- the broad guidelines for decision making that links the
formulation of a strategy with its implementation
 Strategy implementation: the process by which strategies and
policies are put into action through the development of:
 Programs
 Budgets
 Procedures

NB: the strategic-management process does not end when the

firm decides what strategy or strategies to pursue. There must
be a translation of strategic thought into strategic action.
 Cont’d

 Evaluation and Control: Strategy evaluation is the final

stage in the strategic management process.
• Management desperately needs to know when particular
strategies are not working well; strategy evaluation is the
primary means for obtaining this information. All strategies
are subject to future modification because external and
internal forces are constantly changing.
Performance: the end result of organizational activities
Feedback/Learning Process: revise or correct decisions
based on performance
Strategists do not go through the process in a lockstep
fashion. Generally there is a give and take among hierarchical
level.
 Levels of Strategy
The typical business firm usually considers three types
of strategy: corporate, business, and functional
 a) Corporate level strategy

Corporate level strategy concerned with the issue that are

corporate responsibilities like identifying the overall goals of
the corporation, the type of business in which the corporation
should be involved & the way in which business will be
integrated & managed.

Corporate strategies typically fit within the three main

categories of stability, growth, and retrenchment

Corporate level strategic managers include: CEO, other senior

executives, BODs, corporate staffs, etc
 cont’d

Corporate strategy seek to develop a synergies by sharing

and coordinating staff and investing financial resources
across business units so that the corporate whole is greater
than the some of its individual business unit parts

Corporation is responsible for creating value through their

business by managing their portfolio of business
 b) Business unit level strategy

Business strategy is the managerial game plan for a single

strategic business unit
Strategic business unit may be a division, product line, or
other profit centre that can be planned independently from
the other business units of the firm
At the business units level, strategic issues are less about the
coordination of operating units and more about developing
and sustaining a competitive advantage for goods and
services that are produced
Business strategies may fit within the two overall
categories, competitive and cooperative strategies
 c) Functional strategy
is the approach taken by a functional area to achieve corporate and
business unit objectives and strategies by maximizing resource
productivity.
A business’s marketing strategy, production strategy, finance
strategy, customer service strategy, and human resource strategy
should be in sync rather than serving their own narrower purposes
 Functional units of an organization are involved in higher level
strategies by providing inputs to business unit level and corporate
level strategy like information on resources & capabilities
 Once the higher level strategy is developed, the functional units
translate it in to action plan that each department must accomplish
for the strategy to succeed
 It is concerned with developing and nurturing a distinctive
competence to provide a company or business unit with a
competitive advantage
 Strategic decisions making

Decision may relates to general day to day operation. It may

be major or minor. It may also be strategic in nature

Strategic decision is different in nature than all other decision

which are taken at various levels of the organization during
day to day working of the organization

As organizations grow larger and more complex, with more

uncertain environments, decisions become increasingly
complicated and difficult to make hence strategic decision
become vital.
 Cont’d

Strategic decision deals with the long-term future of an

entire organization and have three characteristics:
 Rare
• Strategic decisions are unusual and typically have no
precedent to follow.
 Consequential(far reaching)
• Strategic decisions commit substantial resources and
demand a great deal of commitment from people at
all levels.
 Directive
• Strategic decisions set precedents for lesser decisions
and future actions throughout an organization
Modes/approaches of Strategic Decision Making

Entrepren
eurial
Adaptive

Logical
Planning incrementalism
 Cont’d

 Entrepreneurial mode: Strategy is made by one powerful

individual. The focus is on opportunities; problems are
secondary.
The dominant goal is growth of the corporation.

 Adaptive mode: Sometimes referred to as “muddling

through,” this decision-making mode is characterized by
reactive solutions to existing problems, rather than a
proactive search for new opportunities.
Cont’d

 Planning mode: This decision-making mode involves

the systematic gathering of appropriate information for
situation analysis, the generation of feasible alternative
strategies, and the rational selection of the most
appropriate strategy

• It includes both the proactive search for new

opportunities and the reactive solution of existing
problems.
 Cont’d

 Logical incrementalism: a fourth decision-making mode can be

viewed as a synthesis of the planning, adaptive, and, to a lesser
extent, the entrepreneurial modes

In this mode, top management chooses to use “an interactive

process in which the organization probes the future, experiments
and learns from a series of partial (incremental) commitments
rather than through global formulations of total strategies.”

This approach appears to be useful when the environment is

changing rapidly and when it is important to build consensus
and develop needed resources before committing an entire
corporation to a specific strategy.
 Cont’d

Good arguments can be made for using either the

entrepreneurial or adaptive modes (or logical
incrementalism) in certain situations.

 However, it is proposed that in most situations the planning

mode, which includes the basic elements of the strategic
management process, is a more rational.

Research indicates that the planning mode is not only more

analytical and less political than are the other modes, but it
is also more appropriate for dealing with complex, changing
environments.
 Strategic decision making process
1. Evaluate current performance results in terms of (a) return on investment,
profitability, and so forth, and (b) the current mission, objectives, strategies, and
policies.
2. Review corporate governance—that is, the performance of the firm’s board of
directors and top management.
3. Scan and assess the external environment to determine the strategic factors
that pose Opportunities and Threats.
4. Scan and assess the internal corporate environment to determine the strategic
factors that are Strengths (especially core competencies) and Weaknesses.
5. Analyze strategic (SWOT) factors to (a) pinpoint problem areas and (b) review
and revise the corporate mission and objectives, as necessary.
6. Generate, evaluate and select the best alternative strategy in light of the
analysis conducted in step 5.
7. Implement selected strategies via programs, budgets, and procedures.
8. Evaluate implemented strategies via feedback systems, and the control of
activities to ensure their minimum deviation from plans
Cont’d
 Strategic Decision-Making Process
Strategic
decision
making
process
 Advantage of SM
 Greenly stated that SM offers the following benefits:
 Increased employee productivity, sales and profitability
 It provides a cooperative, integrated, and enthusiastic approach to
tackle problems and exploit opportunities
 coordinates diverse organizational units to focus on organizational
goals
 Good techniques to manage changes
 It allows more effective allocation & utilization of resources
 It encourages forward thinking
 It helps organization to be more proactive then reactive
 It help to give company direction by reducing environmental
uncertainty and unraveling complexity
 Sharper focus on what is strategically important
 Why some managers failed to have strategy?
Some firms do not engage in strategic planning. Some reasons for poor or no
strategic planning are as follows:
Too Expensive—some organizations are culturally opposed to spending resources
 Poor Reward Structures—when an organization assumes success, it often fails
to reward success. Where failure occurs, then the firm may punish. In this
situation, it is better for an individual to do nothing (and not draw attention) than
risk trying to achieve something, fail, and be punished
Fire-fighting—an organization can be so deeply embroiled in crisis management
and fire-fighting that it does not have time to plan.
Waste of Time—some firms see planning as a waste of time since no marketable
product is produced. Time spent on planning is an investment.
 Laziness—People may not want to put forth the effort needed to formulate a plan
Content with Success—particularly if a firm is successful, individuals may feel
there is no need to plan because things are fine as they stand. But success today
does not guarantee success tomorrow.
Suspicion—Employees may not trust management and hence resist change
Lack of accuracy- Future is unpredictable
 Cont’d

 Fear of Failure—by not taking action, there is little risk of failure unless a
problem is urgent and pressing. Whenever something worthwhile is
attempted, there is some risk of failure.
 Overconfidence—as individuals amass experience, they may rely less on
formalized planning. Rarely, however, is this appropriate. Being
overconfident can bring demise. Forethought is rarely wasted and is often the
mark of professionalism.
 Prior Bad Experience—People may have had a previous bad experience
with planning, where plans have been long, cumbersome, impractical, or
inflexible. Planning, like anything, can be done badly.
 Self-Interest—when someone has achieved status, privilege, or self-esteem
through effectively using an old system, they often see a new plan as a threat.
 Fear of the Unknown—People may be uncertain of their abilities to learn
new skills, their aptitude with new systems, or their ability to take on new
roles.
 Honest Difference of Opinion—People may sincerely believe the plan is
wrong. Different people in different jobs have different perceptions of a
situation.
 When Strategic management fails?

Three main management errors that can occur during SM:

a) Ivory tower approach of planning: refers failing to involve key

employees in all phases of planning .
• Some managers treat strategic planning as an exclusively top
management responsibility. In some instance, Poor managers delegate
planning to a “planner” rather than involving all level of managers
• Solution: When designing the strategic plan, employees at all
levels in the company should be involved. More specifically,
when a company is doing the internal analysis, key employees
in all areas of the company should offer their inputs regarding
what should be the next steps for the organization. In this
equation, the top managers should act as facilitators
 Cont’d
b)  Procedural Justice: refers to the managers’ decision
making process, when they make decisions based on what
they believe is fair. he views the company’s opportunities
and threats only form the point of his beliefs
Solution: The strategic manager and/or the top managers
who are responsible with the decision making process
should not fundament the decisions on their own personal
beliefs of what is fair or not, but the process should be based
on what is important for the company
 Cont’d
c) Fit model
The fit model represents a model where a company limits its
ability to expand, by focusing too much on the existing
resources and current environmental opportunities, and not
enough on building new resources and capabilities to create and
exploit future opportunities
Solution: When designing the strategy plan, managers should
have a clear understanding about the internal resources and the
company’s opportunities. A tool that can be used for internal
analysis can be the SWOT or Value chain analyses, along with
Porter’s 5 forces model or PESTEL for the external environment.