Chapter One

Chapter 1. Overview of
Strategic Management

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1.1.Strategic thinking Vs Strategic
management Vs Strategic planning
Strategic thinking Vs. Strategic planning
►Strategic thinking refers to the question, “Where do you
want to go?”
►How to get there is the planning.

►Strategic thinking leads managers to successful strategy

planning now that corporations must compete in an
expanded marketplace

►Strategic planning is often used to refer to a

programmatic, analytical thought process, and
►strategic thinking refers to a creative, divergent process.

►Strategic thinking should precede strategic planning.

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 Strategic management Vs Strategic
planning
@The term strategic management is used
synonymously with the term strategic planning.

@The latter term is more often used in the

business world, whereas the former is often
used in academia.

@Sometimes the term strategic management is

used to refer to strategy formulation,
implementation, and evaluation, with strategic
planning referring only to strategy formulation.

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1.2 Definition of Strategic
Management
@Strategy originally the term applied to warfare
@Derived from the Greek word “strategos” which
means generalship.
@First used around 360 BC, when the chinese
military strategist Sun tzu wrote the art of war

@In the business parlance, strategy may be defined

as a set of related actions that managers take to
increase their company’s performance.

@A strategy is a means used to achieve the ends

(objectives)
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 Strategic management definition…

@ Strategic management is the art

and science of formulating,
implementing, and evaluating and
controlling cross-functional decisions
that enable an organization to
achieve its objectives
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 1.3 Concept of Strategy and Policy
@From a conceptual standpoint, the terms strategy and
policy have different and distinct meanings.

@ However, on the more practical level of day-today

usage, their distinctiveness often becomes blurred.

@ Frequently, these words are erroneously used as if

they were interchangeable.

@In general, policies are drafted to be used as broad

guidelines by the organization’s decision makers.

@These general guidelines indicate how an organization

should deal with recurring problems in its routine
operation.
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 Cont.…
@
By providing a prescribed path for handling
repetitive matters, they save time and effort.

@
In contrast, strategies represent an
organization’s specific plans of action.

@
Strategy refers to the method or route a
company chooses to achieve its objectives
after careful assessment of its resources and
environment.

@
Strategy is a comprehensive, long-term plan
indicating how the corporation will achieve
its missions and objectives. 1-7
1.4. Nature of Strategic Plan and Strategic Decision

@
A distinguishing characteristic of strategic

management is its emphasis on strategic

decision making.

@
What makes a decision strategic?
@Unlike many other decisions, strategic decisions

deal with the long-term future of an entire

organization and have three characteristics:

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 Cont..

Rare: Strategic decisions are unusual and typically

have no precedent to follow.
aren't made every day
Consequential: Strategic decisions commit
substantial resources and demand a great deal of
commitment from people at all levels.
has a major impact on the organization
It could affect the company's direction, profitability,
market position, or even survival. High stakes
involved here.
Directive: Strategic decisions set precedents for
lesser decisions and future actions throughout an
organization.
sets a course of action for the entire organization.
setting a policy or a strategic direction that everyone
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1.5 Approaches to Strategic Decision
Making
• According to Henry Mintzberg, the three most typical
approaches, or modes, of strategic decision making are
entrepreneurial, adaptive, and planning

1. Entrepreneurial mode: Strategy is made by one

powerful individual.
 The focus is on opportunities; problems are
secondary.

 Strategy is guided by the founder’s own vision

of direction and is exemplified by large, bold
decisions.

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 Cont..

2. 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.

3. 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.

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1.6.Levels of Strategies
• The typical larger business addresses three
types/levels of strategy: corporate, business,
and functional.

1. Corporate strategy describes a

company’s overall direction in terms of
growth and the management of its various
businesses. Corporate strategies generally
fit within the three main categories of
stability, growth, and retrenchment.

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 Cont..

2. 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

3. Functional strategy is the approach taken by

a functional area to achieve corporate and
business unit objectives and strategies by
maximizing resource productivity.
• Finance & Accounting
• Research & Development
• Personnel(HRM)
• Marketing
• Production 1-13
1.7. The Strategic Management Process

According to Fred strategic management

has three basic stages

Strategy Strategy Strategy

formulation implementation evaluation

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 1. Strategy formulation
Strategy formulation includes,
 Includes developing a vision and mission
 Identifying an organization’s external opportunities & threats
 Determining internal strengths and weaknesses
 Establishing long-term objectives
 Generating alternative strategies
 Choosing particular strategies to pursue
 Deciding what new businesses to enter
 Deciding What businesses to abandon
 How to allocate resources
 Whether to enter international markets
 Whether to merge or form a joint venture
 How to avoid a hostile takeover. 1-15
2. Strategy implementation

-Action stage
Requires a firm to establish annual
objectives,
 Devise policies,
Motivate employees, and
Allocate resources
Developing a strategy supportive culture
Creating an effective organizational
structure
Redirecting marketing efforts
Preparing budgets
Developing and utilizing information
systems 1-16
3. Strategy evaluation

The three fundamental strategy evaluation activities are:

1. Reviewing external and internal factors that are the
bases for current strategies,
2. Measuring performance,
3. Taking corrective actions

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Key terms in strategic management…

1. Competitive advantage
• Anything that a firm does especially well compared to rival firms
•Sustainable competitive advantage: is an advantage over
competitors that can not be easily be imitated
2. Strategies
•strategies are the means by which long term objectives will be
achieved

3. Strategists
• The individuals who are most responsible for the success or
failure of an organization

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Key Terms ……

4. Vision and Mission statements

Vision can be defined as ‘a mental image of possible and

desirable future state of the organization’.

• A vision statement should answer the basic question, “What do

we want to become?”

• Often considered the first step in strategic planning

Mission statements are Enduring statements of purpose

that distinguish one business from other similar firms

• Addresses the basic question “What is our business?”

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 Key Terms …
5. External opportunities and external threats

• refer to economic, social, cultural, demographic,

environmental, political, legal, governmental,
technological, and competitive trends and events
that could significantly benefit or harm an
organization in the future
• Opportunities and threats are largely beyond the
control of a single organization-thus the word
external.

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 Key Terms …

6. Internal strengths and internal

weaknesses
• An organization’s controllable activities that are
performed especially well or poorly.

7. Long term objectives:

• Objectives can be defined a specific results that an
organization seeks to achieve in pursuing its basic
mission.

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 Key Terms …

8. Annual objectives
• short-term milestones that organizations must
achieve to reach long-term objectives
• should be measurable, quantitative, challenging,
realistic, consistent, and prioritized
• should be established at the corporate, divisional,
and functional levels in a large organization

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 Key Terms …

9. Policies
• The means by which annual objectives will be
achieved
• Include guidelines, rules, and procedures
established to support efforts to achieve
stated objectives.
• Guides to decision making and address
repetitive or recurring situations.
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 1.8 Strategic Management: Merits and
Demerits
Strategic management allows an organization to be more proactive
than reactive in shaping its own future; it allows an organization to
initiate and influence (rather than just respond to) activities—and
thus to exert control over its own destiny.
It help organizations formulate better strategies through the use of a
more systematic, logical, and rational approach to strategic choice.

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 Cont.…

• Benefits to a firm that does strategic planning

It enhance Communication: is a key to successful strategic
management through dialogue and participation
Deeper/improved understanding: of others’ views and of what
the firm is doing/planning and why
Greater Commitment
To achieve objectives
To implement strategies
To work hard
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 Financial Benefits

Businesses using strategic-management

concepts show significant improvement in
sales, profitability, and productivity compared
to firms without systematic planning activities

High-performing firms seem to make more

informed decisions with good anticipation of
both short- and long-term consequences.
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 Non-financial Benefits
• It allows for identification, prioritization, and exploitation of
opportunities.

• It provides an objective view of management problems.

• It represents a framework for improved coordination and control of

activities.

• It minimizes the effects of adverse conditions & changes.

• It allows major decisions to better support established objectives.

• It allows more effective allocation of time and resources to identified

opportunities.

• It allows fewer resources and less time to be devoted to correcting

erroneous or ad hoc decisions.

• It creates a framework for internal communication among personnel.

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Why some firms do no strategic planning?

Lack of knowledge in strategic planning

Poor reward structures
Too expensive
Laziness
Fear of failure
Overconfidence
Prior bad experience
Self-interest
Fear of the unknown
Honest difference of opinion
Suspicion (doubt )

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 Pitfalls in Strategic Planning
Using strategic planning to gain control over decisions and
resources: lack creativity and innovation, over centralized resources
Doing strategic planning only to satisfy accreditation or
regulatory requirements
Too hastily moving from mission development to strategy
formulation: may lead to strategies don't align with core values or
purpose. Rushing-prevent analysis of SWOT.
Failing to communicate the plan to employees, who
continue working in the dark
Top managers making many intuitive decisions that
conflict with the formal plan

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 Pitfalls in Strategic Planning

• Top managers not actively supporting the strategic-planning

process

• Failing to use plans as a standard for measuring performance

• Delegating planning to a “planner” rather than involving all

managers

• Failing to involve key employees in all phases of planning

• Failing to create a collaborative climate supportive of change

The end!

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