Chapter 1

Introduction to Strategic Management

 1. The origins of Strategy
2. What is Strategic Management
3. The Phases of Strategic Management
Lecture ➢ Environmental Scanning
Outline ➢ Strategy Formulation
➢ Strategy Implementation
➢ Evaluation and Control
The origin of Strategy
• The term strategy comes from the Greek army, and refers to
a military general.
• The Greek verb “stratego” means to “plan the destruction
of one's enemies through effective use of resources”.
• A strategy is a set of related actions that managers take to
increase their company’s performance.
• For most, if not all, companies, achieving superior
performance relative to rivals is the ultimate challenge.
• If a company’s strategies result in superior performance, it is
said to have a competitive advantage.
The origin of Strategy
• Strategy: the link/ fit between the Firm and its Environment
Example: Dell Corporation
• Dell’s competitive advantage was based on a business model
of selling directly to customers.
• By cutting out wholesalers and retailers, Dell gained the profit these
wholesalers and retailers would have otherwise received.

• Dell gave part of these profits back to customers in the form of

lower prices, which increased sales volumes and market share
gains, and boosted profit growth.

• Another reason for Dell’s competitive advantage was the way it

managed its supply chain to minimize the costs of holding inventory.
Example: Dell Corporation
Why, then, did Dell’s competitive advantage erode in the later
half of the 2000s?
1. a large portion of Dell’s sales came from business customers. During the
2008–2009 recession, demand from businesses slumped.
2. Hewlett-Packard gained share in the business market by selling not only
personal computers, but a “bundle” that included a combination of PCs,
servers, printers, storage devices, network equipment, and consulting services
that helped businesses install, manage, and service this equipment.
3. to grow its consumer business, Dell needed to sell through retail channels
such where profit margins were much lower.
4. Apple gained share from Dell in the consumer market by differentiating its
products through design and ease of use.
What is Strategic Management ?
• Strategic management is a set of management decisions and
actions that determines the long-run performance of a
corporation.
• It includes environmental scanning (both external and
internal), strategy formulation (strategic or long-range
planning), strategy implementation, and evaluation and
control.
 Strategic Management –
Defined

Art & science of formulating,

implementing, and evaluating,
cross-functional decisions that
enable an organization to achieve its
objectives

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Copyright 2007 Prentice Hall
 Strategic Management
achieves a firm’s success
through integration ––

Management Marketing

Finance/Accounting Production/Operations

Research & Development MIS

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Copyright 2007 Prentice Hall
Phases of Strategic Management?
• Strategic management consists of four basic elements:
1. Environmental scanning
2. Strategy formulation
3. Strategy implementation
4. Evaluation and control
Environmental Scanning
• Environmental scanning is the monitoring, evaluating, and
disseminating of information from the external and internal
environments to key people within the corporation.
• The simplest way to conduct environmental scanning is
through SWOT analysis.
• SWOT is an acronym used to describe the particular
Strengths, Weaknesses, Opportunities, and Threats that are
strategic factors for a specific company.
Environmental Scanning
• The external environment consists of variables
(Opportunities and Threats) that are outside the
organization and not typically within the short-run control of
top management.
• The internal environment of a corporation consists of
variables (Strengths and Weaknesses) that are within the
organization itself and are not usually within the short-run
control of top management.
Strengths
• Positive tangible and intangible attributes, internal to an
organization.
• Examples- Abundant financial resources, Well-known brand
name, Economies of scale, Lower costs [raw materials or
processes], Superior management talent, Better marketing
skills, Good distribution skills, Committed employees.
Weaknesses
• Characteristics that place the firm at a disadvantage relative
to others.
• Examples - Limited financial resources, Weak spending on R
& D, Very narrow product line, Limited distribution, Higher
costs, Out-of-date products / technology, Weak market image,
Poor marketing skills, Under-trained employees.
Opportunities
• Chances to make greater profits in the environment - External
attractive factors that represent the reason for an organization
to exist & develop.
• Examples - Rapid market growth, Changing customer
needs/tastes, New uses for product discovered, Economic
boom, Government deregulation, Sales decline for a
substitute product .
Threats
• External elements in the environment that could cause trouble
for the business.
• Examples - Entry of foreign competitors, Introduction of new
substitute products, Product life cycle in decline, Changing
customer needs/tastes, Rival firms adopt new strategies,
Increased government regulation, Economic downturn.
 Exercises
1. External analysis sheds light on which parts of SWOT?
A. Opportunities and Strengths
B. Strengths and weaknesses
C. Weaknesses and Threats
D. Opportunities and Threats
2. Internal analysis sheds light on which parts of SWOT?
A. Weaknesses and Opportunities
B. Strengths and Opportunities
C. Strengths and Weaknesses
D. Opportunities and Threats
3. If a company has sound capital structure, where would this
feature would be placed in the SWOT analysis?
A. Strength
B. Weakness
C. Opportunity
D. Threat
4. Which of the following could be an opportunity?
A) Moving into new market segments that offer improved profits
B) Damaged reputation
C) A new competitor in your home market
D) Having quality processes and procedures
E) A and D
5. The company decides to open its market to foreign countries
where there is a need for your product. How does this information
fit into the SWOT analysis?
A. It's a threat
B. It's an opportunity
C. It's a strength
D. It's a weakness
 Basic Tenet of Strategic Formulation

Take advantage of
External Opportunities

Strategy Formulation

Avoid/minimize impact of
External Threats

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Copyright 2007 Prentice Hall
Strategy Formulation
• Strategy formulation is the development of long-range plans
for the effective management of environmental opportunities
and threats, in light of corporate strengths and weaknesses
(SWOT).
• It includes:
1. Defining the corporate mission,
2. Specifying achievable objectives,
3. Developing strategies
4. Setting policy guidelines.
1. Mission
• An organization’s mission is the purpose or reason for the
organization’s existence.
• It tells what the company is providing to society—either a
service such as housecleaning or a product such as
automobiles.
• A well-conceived mission statement defines the fundamental,
unique purpose that sets a company apart from other firms of
its type and identifies the scope or domain of the company’s
operations in terms of products (including services) offered
and markets served.
Mission (Examples)
• Google: To organize the world’s information and make it
universally accessible and useful.
• Kodak : To provide “customers with the solutions they
need to capture, store, process, output, and communicate
images—anywhere, anytime.
Vision and Mission
• Some people like to consider vision and mission as two
different concepts:
• Mission describes what the organization is now;
• Vision describes what the organization would like to become.
 Vision Statement

A mission statement explains what the

organization does, for whom and the benefit.

A vision statement, on the other hand,

describes how the future will look if the
organization achieves its mission.
 Vision Statement
A vision statement describes how the future
will look if the organization achieves its
mission.

A mission statement gives the overall purpose of

an organization, while a vision statement
describes a picture of the "preferred future."
Example: Mansoura University
Mission
Mansoura University aims to be a smart university that provides
outstanding educational programs that contribute to the
preparation of graduates who are professionally and humanly
qualified; capable of keeping pace with the scientific and
technological changes and achieving competitiveness in the
regional and global labor markets in accordance with the
comprehensive quality standards; and committed to professional
values and ethics.
Example: New Mansoura University
Vision
To be locally and internationally outstanding in education,
scientific research and community service in the light of
international standards; contribute to achieving the goals of
sustainable development within the framework of community
values for a better life and competitive capabilities at the
regional and global levels; and to have students who will
become future leaders capable of bringing about tangible
change for themselves, their countries and their regional and
international environment and have the ability of lifelong
learning.
2. Objectives
• Objectives are the end results of planned activity. They
should be stated as action verbs and tell what is to be
accomplished by when and quantified if possible.
• For example- I want to finish my assignment by 10 o’clock
this morning. This indicates to perform a number of tasks
including typing text into computer, reviewing some
questions/criteria that have already be written, printing out
the assignment for proofreading and so on.
Goals Vs. Objectives
Goal
• In contrast to an objective, we consider a goal as an open-
ended statement of what one wants to accomplish, with no
quantification of what is to be achieved and no time criteria
for completion.
• Example: a simple statement of “increased profitability” is
thus a goal, not an objective, because it does not state how
much profit the firm wants to make the next year.
Goals Vs. Objectives
Objectives
• A good objective should be action-oriented and begin with
the word to.
• They should be SMART: Specific, Measurable, Attainable,
Realistic, Time Frame.
• An example of an objective is “to increase the firm’s
profitability in 2022 by 10% over 2021.”
1. (T/F) A vision statement answers the question, “What is our business?,” whereas a mission
statement answers, “What do we want to become?”

2. Which of these basic questions should a vision statement answer?

a. What is our business?
b. Who are our employees?
c. Why do we exist?
d. What do we want to become?
e. Who are our competitors?
3. Long-term objectives should be all of the following except:
a. measurable.
b. continually changing.
c. reasonable.
d. challenging.
e. consistent.
4. A goal differs from an objective because it
a. is open-ended.
b. is quantified.
c. specifies measurable results.
d. is clearly specified.
e. provides a time horizon.
3. Strategy
• A strategy of a corporation forms a comprehensive master
plan that states how the corporation will achieve its mission
and objectives.
• It maximizes competitive advantage and minimizes
competitive disadvantage.
• Business strategies may include geographic expansion,
diversification, acquisition, product development, market
penetration, retrenchment, liquidation, and joint ventures.
 Basic Concepts of Strategic Management

Hierarchy of
Strategy

Prentice Hall, Inc. © 2008 1-40

A. Corporate Strategy
• Describe a company’s overall direction in terms of its
general attitude toward growth and the management of its
various businesses and product lines.
• Corporate strategies typically fit within the three main
categories of stability, growth, and retrenchment.
• Example: your firm may have four distinct lines of business operations,
namely, automobiles, steel, tea, and telecom. The corporate level strategy will
outline whether the organization should compete in or withdraw from each of
these lines of businesses, and in which business unit, investments should be
increased, in line with the vision of your firm.
B. Business Strategy
• Usually occurs at the business unit or product level, and it
emphasizes improvement of the competitive position of a
corporation’s products or services in the specific industry or
market segment served by that business unit.
• Based upon the generic strategies of overall cost leadership, differentiation, and
focus.
• For example, your firm may choose overall cost leadership as a strategy to be
pursued in its steel business, differentiation in its tea business, and focus in its
automobile business.
Business Strategy (Cont’d)
• Business strategies may fit within the two overall categories,
competitive and cooperative strategies.
• For example, Staples, the U.S. office supply store chain, has
used a competitive strategy to differentiate its retail stores
from its competitors by adding services to its stores, such as
copying, UPS shipping, and hiring mobile technicians who
can fix computers and install networks.
• British Airways has followed a cooperative strategy by
forming an alliance with American Airlines in order to
provide global service
C. Functional Strategy
• It is the approach taken by a functional area to achieve
corporate and business unit objectives and strategies by
maximizing resource productivity.
• The strategies at the functional level involve setting up short-term functional
objectives, the attainment of which will lead to the realization of the business
level strategy.
Functional Strategy: Example
• For example, the marketing strategy for a tea business
which is following the differentiation strategy may translate
into launching and selling a wide variety of tea variants
through company-owned retail outlets.
• This may result in the distribution objective of opening 25
retail outlets in a city; and producing 15 varieties of tea may
be the objective for the production department.
• The realization of the functional strategies in the form of
quantifiable and measurable objectives will result in the
achievement of business level strategies as well.
4. Policy
• A policy is a broad guideline for decision making that links
the formulation of a strategy with its implementation.
• Companies use policies to make sure that employees
throughout the firm make decisions and take actions that
support the corporation’s mission, objectives, and strategies.
 Policy: Examples
• 3M: 3M says researchers should spend 15% of their time working on
something other than their primary project. (This supports 3M’s strong
product development strategy.)
• Intel: Intel cannibalizes its own product line (undercuts the sales of its
current products) with better products before a competitor does so. (This
supports Intel’s objective of market leadership.)
• General Electric: GE must be number one or two wherever it competes.
(This supports GE’s objective to be number one in market capitalization.)
• Southwest Airlines: Southwest offers no meals or reserved seating on
airplanes. (This supports Southwest’s competitive strategy of having the
lowest costs in the industry.)
• ExxonMobil: Exxon pursues only projects that will be profitable even
when the price of oil drops to a low level. (This supports Exxon’s
profitability objective.)