Strategic Management

By: LEMMA .B (PhD)

 Chapter One
The Nature of Strategic Management
1.2. The Meaning of Strategic Management
• strategy is a long range blueprint of an organization's
desired image, direction and destination, what it wants to be,
what it wants to do and where it wants to go.
• It is an overall ‘plan’ which an organization chooses in order
to move or react towards the set of objectives by using its
resource.
• Strategy is an idea, plan and action taken by people and /or
firm in successful competition with competitors.
• Strategic management is the art and science of formulating,
implementing and evaluating cross functional decisions that
will enable an organization to achieve its objectives.
 Contd…

Strategic Management achieves a

firm’s success through integration ––

Management Marketing

Finance/Accounting Production/Operations

Research & Development MIS

• Strategic management is the process of
specifying the organization’s objectives,
developing policies, and plan to achieve these
objectives, and allocating resources to
implement the policies and plans to achieve
the organization’s objectives.
• Managers at all companies face three basic
critical questions in thinking strategically
about their company’s present circumstances
and prospects:-
 Contd…
• Where are we now? Must consider the
company’s:
 Market position and the competitive pressures it
confronts
 Its resources strengths and capabilities,
 Its competitive shortcomings
 The appeal its products and services have to
customers, and
 Its current performance.
 Contd..

• Where do we want to go? Deals with the direction

in which management believes the company should
be headed in light of the company’s present situation
and the winds of market change – i,e,
-New markets and customer groups that the
company should be adding,
-The improvements in competitive market position
the company is aiming for, and
-The geographic scope and product line makeup of
the company’s business in the years to come.
 Contd…
• How will we get there? Concerns the ins and outs
of crafting and executing a strategy to get the
company from where it is to where it wants to go.
• “Without strategy, the organization is like a ship
without a rudder.”
• It is like a tramp, which has no particular
destination to go to. Without an appropriate strategy
effectively formulated and implemented, the future
is always dark and hence, more are the chances of
business failure.
 1.3. Stages of Strategic Management

• The strategic management process consists of

three stages:
(i) Strategic Formulation:
• It includes:
Developing a business vision and mission
 Identifying an organization’s external opportunities
and threats
Determining internal strengths and weaknesses,
Establishing long-term objectives
Generating alternatives strategies, and
Choosing particular strategies to pursue.
 Contd…

• Strategic-formulation issues include deciding:

 What new business to enter?
 What business to abandon?
 Whether to expand operations or diversify
 Whether to enter international markets
 Whether to merge or form a joint venture, and
 How to avoid a hostile takeover.
• Since no organization has unlimited resources,
strategists must decide which alternative
strategies will benefit the firm most.
(ii) Strategy Implementation:
• This is action stage of strategic management.
• It requires a firm to establish:
 Annual objectives
 Devise policies
 Motivate employees
 Allocate resources
 Creating an effective organizational structure
 Preparing budgets
 Developing and utilizing information systems, and
 linking employee compensation to organization to
organizational performance, so that formulated
strategies can be executed.
• Strategy Implementing means mobilizing
employees and managers to put formulated
strategies into action.
• It is often considered to the most difficult stage
in management, it requires personal discipline,
commitment, and sacrifice.
• The challenge of implementation is to stimulate
managers and employee’s through-out an
organization to work with pride and enthusiasm
toward achieving stated objectives.
(iii) Strategy Evaluation:
 It is the final stage in strategic management.
 Managers desperately need to know 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 :
1. Reviewing external and internal factors that
are the bases for current strategies
2. Measuring performance, and
3. Taking corrective actions.
 Contd..

Discussion Questions
1. Does strategic management is more of
science or art ? Which comes first
(art/science in strategic management?
2. Do you agree, if the vision statements may
not have time frame?
1.4. The Strategic Management Model
 Contd…

• The strategic management model begins with the

development of the organizational vision and mission.
• The organizational vision and mission would then be
translated into the organizational goals.
• Once these elements have been determined, the role of
the manager or strategist is to perform an analysis of
the organization.
–the external analysis of the environment and
– the internal analysis of the organization.
 1.5. Benefits of Strategic Management

 It enhances the firms ability to prevent the problem.

 It allows to be more proactive than reactive in shaping
its own future.
 It helps an organization to take decisions on long range
forecasts and to deal with a new trend and meet
competition in an effective manner.
 improves the capability of management in coping with
the volatile external environmental forces.
 Efficient strategy formulation and implementation result
into financial benefits to the organization in the form of
increased profits.
 It helps effective allocation of scarce resources.
 It provides an objective basis for measuring performance.
1.6. Challenges to Strategic Management

 In the modern business

context strategic management faces many
challenges such as:
– Orientation for globalization
– Emerging e-commerce and internet culture
– Competition
– Diversification
– Active pressure groups
– Motive for Corporate Social Responsibility (CSR)
and ethics
 Contd…
Orientation for globalization
• Every aspect of the business is getting globalized and
business organizations step in to global operations
with MNC and other foreign business operations
methods.
• Due to the globalized operations of the business
world there are new orientations such as international
human resource management (IHRM) and
international finance are emerging.
• Company’s strategic management process has to be
updated to cope up with these new orientations.
 Contd..

Emerging e-commerce and internet culture

• With the wide expansion of world wide wed
(www) and the technology businesses have moved
on to e-commerce where they conduct business
electronic means such as online purchasing/selling
and online advertising.
• Strategic management process of the business
should be able to accommodate e-commerce
motives into the business process.
 Contd…

Competition
• With the globalization, e-commerce and other
changes in the business environment, todays
business world has become hyper competitive
where the organization can no longer survive
without executing proper competitive strategy.
• Strategic management process should generate
competitive intelligence and predict the next moves
of the competitors and build the competitive
strategy to win the battle with competitors.
 Contd…

Diversification
• With the rapid changing business environment and
increased uncertainty the business risk has increased
drastically.
• To diversify the business risk companies now engage
in diversified operations where they focus on more
than one business area/industry rather than
specializing in one area.
• The strategic management should be able to identify
diversified business opportunities and manage them
well.
 Contd…
Active pressure groups
• In the modern world there are active pressure groups
operating such as environmental activism and
consumer protectionism.
• Thus, Strategic management should identify these
external pressure groups and hear about their concerns.
 Motive for Corporate Social Responsibility (CSR) and
ethics
• The modern business organizations have engage in
CSR and ethics to keep up their corporate reputation
and be competitive in the environment.
• Strategic management should look into possible CSR
activities and implement those to be in line with
expectations of the society.