CHAPTER ONE

OVERVIEW OF STRATEGIC MANAGEMENT

Mulugeta K. (MBA, PhD Scholar at Punjabi

University)
Department of Management
Debre Markos University
1.1. Defining Strategic Management?
• The term strategy is derived from a Greek word
“Strategos” which means generalship.
• Strategy is a plan or course of action or a set of
decision rules making a pattern or creating a
common thread (line).
• Strategy is a plan of action that prescribes resource
allocation and other activities for dealing with
environment, achieving a competitive advantage,
which help the organization to attain its goals.
• Strategies are actions that determine whether an
organization survives, prospers, or dies.
 Cont…
• Some other meanings of strategy are:
● Strategy is the pattern of activities followed by an
organization in pursuit of its long-term purposes.
● Strategy is a course of action that helps to achieve
organizational goals.
● Strategy is about winning.
● Strategy is about charting an unknown future.
o It is also about how decisions are taken.
● determination of the long run goals and objectives
of an enterprise
 Cont…
• Strategic management is the art and science of
formulating, implementing, and evaluating cross-
functional decisions that enable an organization to
achieve its objectives.
• It is the dynamic process of formulation,
implementation, evaluation and control of strategies
to realize the firms strategic intent.
• Success calls for a consistent, coherent, effective and
appropriate strategy
 Cont…
• Managers of any organization must address and timely
answer three central questions.
1. What is the company’s present situation? Where are we
now?
• Pushes managers to evaluate the industry conditions
and competitive pressure; the company’s current
performance and market standing; its resource
strengths and capabilities; and the competitive
weaknesses.
2. Where does the company need to go from here?
• Where do we want to go or to be?
• Businesses to be in & market positions to stake out;
buyer’s needs & groups to serve; outcomes to achieve.
 Cont…
3. How should the company get there?
• How do we get there?
• The ‘how’s that define a firm’s strategy.
– How to grow the business
– How to please customers
– How to outcompete rivals
– How to respond to changing market conditions
– How to manage each functional pieces of the
business
– How to achieve goals & objectives
 Cont…
• The four common/ critical elements in
successful strategies:
A Framework for Analyzing Business Strategy

• The framework views strategy as forming a link

between the firm and its environment.
• Business strategy: determines how the firm will
deploy its resources within its environment and
satisfies the long-term goals, and how to organize
itself to implement that strategy.
Stages of strategic management
• The strategic-management process consists of three stages:
a) strategy formulation,
b) strategy implementation, and
c) strategy evaluation
A. Strategy Formulation
• includes:
– developing a vision and mission,
– identifying an organization’s external opportunities and threats,
– determining internal strengths and weaknesses,
– establishing long-term objectives,
– generating alternative strategies, and
– choosing particular strategies to pursue
 Cont…
B. Strategy Implementation
• It requires a firm to establish annual objectives, devise
policies, motivate employees, and allocate resources so
that formulated strategies can be executed.
• Strategy implementation includes:
– developing a strategy-supportive culture,
– creating an effective organizational structure,
– redirecting marketing efforts,
– preparing budgets,
– developing and utilizing information systems, and
– linking employee compensation to organizational
performance
 Cont…

• Strategy implementation often is called the “action

stage” of strategic management.
• Often considered to be the most difficult stage in
strategic management.
• Strategy implementation requires personal discipline,
commitment, and sacrifice.
 Cont…

C. Strategy Evaluation
• Strategy evaluation is concerned with the follow up and
evaluation of the preceding stages or activities.
• It helps to get information about when particular
strategies are not working well.
• All strategies are subject to future modification because
external and internal factors are constantly changing.
• Three fundamental strategy-evaluation activities are:
– reviewing external and internal factors
– measuring performance, and
– taking corrective actions
 Cont…
• Strategy formulation, implementation, and evaluation
activities occur at three hierarchical levels in a large
organization:
1. Corporate level
2. Divisional or strategic business unit, and
3. Functional level
Key Terms in Strategic Management
• Before we further discuss strategic management, we
should define nine key terms:
1. Competitive advantage,
2. Strategists,
3. Vision and mission statements
4. External opportunities and threats,
5. Internal strengths and weaknesses,
6. Long-term objectives,
7. Strategies,
8. Annual objectives, and
9. Policies.
A. Competitive Advantage
• Strategic management is all about gaining and
maintaining competitive advantage.
• Competitive Advantage can be defined as “anything
that a firm does especially well compared to rival
firms.”
• It is when a firm can do something that rival firms
cannot do, or owns something that rival firm’s
desire.
• For example, in a global economic recession, simply
having ample cash on the firm’s balance sheet can
provide a major competitive advantage.
 Cont…
• Some cash-rich firms did buy distressed rivals.
• For example:
– BHP Billiton, the world’s largest miner, was seeking to
buy rival firms in Australia and South America.
– Freeport-McMoRan Copper & Gold Inc. also desired
to expand its portfolio by acquiring distressed rival
companies.
– Cash-rich Johnson & Johnson in the United States
also is acquiring distressed rival firms.
• This can be an excellent strategy in a global economic
recession.
 Cont…
• Having less fixed assets than rival firms also can provide
major competitive advantages in a global recession.
• For example:
– Apple has no manufacturing facilities of its own, and rival
Sony has 57 electronics factories. Apple relies exclusively on
contract manufacturers for production of all of its products.
Less fixed assets has enabled Apple to remain financially lean
with virtually no long-term debt. Sony, in contrast, has built
up massive debt on its balance sheet.
– Maxx and Marshalls are taking customers from most other
stores in the mall
– Family Dollar is taking revenues from Wal-Mart.
 Cont…
• Sustained competitive advantage can be obtained
by continually adapting to changes in external
trends and events and internal capabilities,
competencies, and resources.
• For example:
– Most national newspapers in USA are rapidly
losing market share to the Internet, and other
media . Daily newspaper circulation in the United
States totals about 55 million copies annually,
which is about the same as it was in 1954.
 Cont…
• TV broadcast networks are being beaten by cable
channels, video games, broadband, wireless
technologies, satellite radio, high-definition TV, and
digital video recorders.
• For Example:
– The three original broadcast networks in USA-
CBS, NBC, ABC captured about 90 percent of the
prime-time audience in 1978, but today their
combined market share is less than 50 percent.
(32% in 2005).
 Cont…
• Internet as a tool for obtaining competitive advantage
– E-commerce: allows firms to sell products, advertise,
purchase supplies, bypass intermediaries, track inventory,
eliminate paperwork, and share information.
• minimizes the expense of time, distance, and space in
doing business, thus yielding better customer service,
greater efficiency, improved products, and higher
profitability.
– Digital communication: Consumers today are flocking to
blogs, short-post forums, video sites, and social networking
sites instead of television/radio, newspapers, and magazines.
• Users can log on to many business shopping sites with
their IDs from their social site
B. Strategists
• Strategists are the individuals who are most responsible
for the success or failure of an organization.
• Can also be called CEO, president, owner, chair of the
board, executive director, chancellor, dean, or
entrepreneur.
• Strategists help an organization gather, analyze, and
organize information.
• They track industry and competitive trends, develop
forecasting models, evaluate firm’s performance, spot
emerging market opportunities, identify business
threats, and develop creative action plans.
C. Vision and Mission Statements
• Vision Statement
– Vision statement answers the question “What do we
want to become?”
– Is the first step in strategic planning, preceding even
a mission statement
– Many vision statements are single sentence.
Example:
– The vision statement of Stokes Eye Clinic in
Florence, South Carolina, is “Our vision is to take
care of your vision.”
Mission statements
• Are enduring statements of purpose that distinguish one
business from other similar firms
• It identifies the scope of a firm’s operations in product
and market terms.”
• It addresses the basic question that faces all strategists:
“What is our business?”
• A mission statement is a constant reminder to its
employees of why the organization exists
• Example:
– Google’s mission is to organize the world’s information
and make it universally accessible and useful
D. External Opportunities and Threats

• They refer to economic, social, cultural, environmental,

political, technological, and competitive trends and events
that could significantly benefit or harm an organization.
• They are largely beyond the control of the organization.
• Opportunities and threats that face many firms in a global
economic recession are listed here:
– Availability of capital can no longer be taken for granted.
– Consumers expect green operations and products.
– Marketing has been moving rapidly to the Internet.
– As the price of oil has collapsed,
– Too much debt can crush even the best firms.
– The stock market crash of 2008 left senior citizens with retirement
worries (cut spending).
E. Internal Strengths and Weaknesses
• They are an organization’s controllable activities that
are performed especially well or poorly.
• They arise in the management, marketing, finance,
production, R&D, and MIS activities of a business.
• Strengths and weaknesses are determined relative to
competitors.
• Relative deficiency or superiority is important
information.
• Ownership of natural resources or a historic
reputation for quality can be strength; and high
turnover rate –weakness.
F. Long-Term Objectives

• Objectives can be defined as specific results that an

organization seeks to achieve in pursuing its basic
mission.
• Long-term means more than one year.
• Objectives should be challenging, measurable,
consistent, reasonable, and clear.
• In a multidimensional firm, objectives should be
established for the overall company and for each
division.
G. Strategies

• are the means by which long-term objectives will be

achieved.
• Business strategies may include geographic
expansion, diversification, acquisition, product
development, market penetration, retrenchment,
divestiture, liquidation, and joint ventures.
• Strategies are potential actions that require decisions
and resources.
H. Annual Objectives
• are short-term milestones that organizations must achieve
to reach long-term objectives.
• should be measurable, quantitative, challenging, realistic,
consistent, and prioritized.
• They should be established at the corporate, divisional, and
functional levels.
• Annual objectives are especially important in strategy
implementation,
• Long-term objectives are particularly important in strategy
formulation.
• Annual objectives represent the basis for allocating
resources.
I. Policies

• are the means by which annual objectives will be

achieved.
• Policies include guidelines, rules, and procedures
established to achieve stated objectives.
• Policies are guides to decision making
• They address repetitive or recurring situations.
• Policies allow consistency and coordination within
and between organizational departments.
The Strategic management Model
Levels of Strategizing

• Five Levels of Strategizing are Important within the

Organization (Huff et al, 2009)
 Cont…
A. Network strategy: coordinates actions among allies that are
not under the control of a single entity.
– Example: the partnership of aerospace companies to design
and build the Boeing Dreamliner.
B. Corporate strategy: makes broad domain and funding
decisions for a portfolio of business units.
– Example: General Electric’s goal to be either number one or
number two in all of the markets in which it competes.
C. Business (Organizational) strategy: defines what will be done,
by whom, how, from whom and why to meet the goals of one
organization
– Example: a business strategist in Procter & Gamble’s Duracell
battery division focuses on how to compete in the battery
industry..connection with battery utilizing goods producers
 Cont…
D. Functional strategy: supports business strategy in
functional areas such as IT, human relations, R&D, and
marketing.
– Example: a purchasing department’s decision to
implement an enterprise resource planning software
package.
E. Individual strategies: direct efforts by individuals, inside
or outside the organization, to protect and enhance
their own welfare.
– A SWOT analysis can be highly relevant to personal
career choices.
Benefits of Strategic Management
a) Financial Benefits
– significant improvement in sales, profitability, and
productivity /due to focus/
b) Non-Financial Benefits
– High awareness of external threats
– Improved understanding of competitors' strength
– It helps firms to rationalize, actualize and communicate
change
– It helps to bring order and discipline in the activities of the firm
– It allows firms to be more proactive than reactive in shaping its
own future.
– It improves employees understanding and commitment
Why Some Firms Do No Strategic Planning?
• Lack of knowledge or experience in strategic planning
• Poor reward structures
• Firefighting
• Too expensive
• Laziness
• Content with success
• Fear of failure
• Overconfidence
• Prior bad experience
• Fear of the unknown
• Suspicion
Business Ethics and Strategic Management

• Business ethics can be defined as principles of

conduct within organizations that guide decision
making and behavior.
• Good business ethics is a prerequisite for good
strategic management; good ethics is just good
business!
• Being unethical is substantially expensive and highly
destructive.
 Cont…
• Unethical business practices/actions include:
– misleading advertising or labeling,
– causing environmental harm,
– poor product or service safety,
– insider trading,
– dumping banned or flawed products in foreign markets,
– Giving unequal opportunities for women and minorities,
– overpricing,
– moving jobs overseas, and
– sexual harassment.
Code of Business Ethics

• A code of business ethics is a document that provides

behavioral guidelines that cover daily activities and
decisions within an organization.
• A code of ethics can be viewed as a public relations
gimmick, a set of platitudes, or window dressing.
• To ensure that the code is read, understood, believed,
and remembered, periodic ethics workshops are
needed to be organized.
• Social responsibility and environmental sustainability
are the current extended responsibilities of firms
THE END!