Strategic management

Chapter One: The Nature of Strategic Management

1.1 Defining strategic management

1.2 Stages of strategic management
1.3 Key terms in strategic management
1.4 The strategic management model
1.5 Benefits of strategic management
1.6 Business ethics and strategic management

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 Strategic Management Defined

Art and science of formulating, implementing, and evaluating cross-

functional decisions that enable an organization to achieve its
objectives.
- As this definition implies, strategic management focuses on integrating
management, marketing, finance/accounting, production/operations,
research and development, and information systems to achieve
organizational success.

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Strategic Management Defined (Cont’d)

SM is all about looking outside the organization and

developing long range plans that anticipate change and
to develop plans of action in order to take advantage of
them(Michael Porter) .
SM is all about developing and managing of organization
strategy where strategy is defined as a means to
provide direction to the organization that allow it to
achieve its objectives while responding to both
environmental opportunities and threats(Hofer &
Schendel ).
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 Strategic Management Defined (Cont’d)

SM can better defined as a process that encompasses the

following main activities:
- Strategy formulation(SF) i.e. developing vision, mission
,long term objectives and specific strategies
- Strategy implementation (SI)
- Strategy evaluation(SE)
N.B. Information is a blood in SF decision making

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 Strategic management Vs strategic planning

• The term strategic management is often used

synonymously with the term strategic planning.
• But strictly speaking, the term strategic management is
used to refer to strategy formulation, implementation, and
evaluation, with strategic planning referring only to
strategy formulation.
• Strategic management
⮚Used more often in academia
• Strategic planning
⮚Used more often in the business world

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Stages of SM/Strategic-Management Process:
Three Stages

Strategy Formulation

Strategy Implementation

Strategy Evaluation
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 Strategy
Formulation
Vision &
Mission

Opportunities
& Threats

Strengths &
Weaknesses

Long-Term
Objectives

Alternative
Strategies

Strategy
Selection

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 Strategy
Implementation

Annual
Objectives

Policies

Motivate
Employees

Resource
Allocation

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Strategy Evaluation

Review
External &
Internal

Measure
Performance

Corrective
Action

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Key Strategic Management Terms

1. Strategists
2. Vision statements
3. Mission statements
4. External opportunities and threats
5. Internal strengths and weaknesses
6. Long-term objectives
7. Strategies
8. Annual objectives
9. Policies

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 Strategic Management Terms (Cont’d)

Strategists
• Usually found in high levels of management (CEO)

⮚Help organization gather, organize, and analyze

information

⮚Track industry and competitive trends

⮚Develop forecasting model

⮚Evaluate corporate and divisional performance

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 Strategic Management Terms
(Cont’d)
Vision Statements
• Answers the question: “What do we want to become?”

⮚First step in strategic planning

⮚Oftentimes a single sentence

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 Strategic Management Terms (Cont’d)

External Opportunities & Threats

• Largely beyond the control of a single organization
⮚ Economic
⮚ Social
⮚ Cultural
⮚ Demographic
⮚ Environmental
⮚ Political
⮚ Governmental
⮚ Technological
⮚ Competitive trends & events
N.B. Organizations strive to pursue strategies that exploit opportunities and
minimize threats

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Strategic Management Terms (Cont’d)

Internal Strengths & Weaknesses

• Controllable activities that are performed well or poorly relative
to competitors
⮚ Based on functional analysis of activities in the firm’s:
▪ Management
▪ Marketing
▪ Finance/accounting
⮚ Production/operations
⮚ Research and development
⮚ Computer information systems
• Organizations strive to pursue strategies that capitalize on
strengths and improve weaknesses

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 Strategic Management Terms (Cont’d)

Long-Term Objectives
• Results to be achieved in pursuing the organization’s
mission. Time frame is beyond one year.
⮚State direction
⮚Aid in evaluation
⮚Create synergy
⮚Reveal priorities
⮚Focus coordination
⮚Provide basis for effective management

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 Strategic Management Terms (Cont’d)
Strategies
• Potential actions that require top management decisions and
large amounts of firm’s resources
Mechanisms by which long-term objectives are realized
⮚ Geographic expansion
⮚ Diversification
⮚ Acquisition
⮚ Product development
⮚ Market penetration
⮚ Retrenchment
⮚ Divestiture
⮚ Liquidation
⮚ Joint venture

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 Strategic Management Terms (Cont’d)

Annual Objectives
• Short-term milestones necessary to achieve
long-term objectives.

⮚Represent the basis for allocating resources

⮚Established at corporate, divisional, and functional

levels

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 Strategic Management Terms
(Cont’d)
Annual Objectives (cont’d)

• Stated in terms of accomplishments for:

⮚management
⮚ marketing
⮚ finance/accounting
⮚ production/operations
⮚ research and development
⮚ information systems accomplishments

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 Strategic Management Terms
(Cont’d)
Policies
• Important in strategy implementation as the means by
which annual objectives will be achieved

⮚ Guide to decision making and address repetitive situations

⮚ Established at corporate, divisional, or functional levels
⮚ Allow consistency & coordination within and between
organizational departments

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 Comprehensive Strategic Management Model

Externa
l
Audit

Implem
Generat Implem ent Measur
Long-
e, ent Strategi e&
Term
Vision Evaluat Strategi es: Evaluat
Objecti
& e, es: Marketi e
ves
Select Mgmt ng, Perfor
Mission Strategi Issues Fin/Acc mance
es t,
Statem R&D,
ents CIS

Interna
l
Audit

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 Benefits of Strategic Management

• Proactive
⮚ Initiate and influence activities (EX. HISTORY OF BABY BOOMERS)
▪ Helps shape firm’s own future
• Principal Benefit
⮚ Formulate better strategies
▪ Systematic, logical, and rational approach
• Communication
⮚ Key to successful strategic management
• Financial Benefits
⮚ More profitable and successful

⮚ Improvements in sales, profitability, and productivity

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 Benefits of Strategic Management
(Cont’d)
• Nonfinancial Benefits
⮚Enhanced awareness of external threats
⮚Understanding of competitors’ strategies
⮚Increased employee productivity
⮚Reduced resistance to change
⮚Clear performance-reward relationships
⮚Order and discipline to the firm
⮚View change as opportunity

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Business Ethics & Strategic Planning

Defined:
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!

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 Business Ethics & Strategic Planning
(Cont’d)
Business actions always unethical include:
• Misleading advertising
• Misleading labeling
• Environmental harm
• Poor product or service safety
• Padding expense accounts
• Insider trading
• Dumping flawed products on foreign markets
What companies experience in china tell us about
business ethics and SP nexus?

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 Chapter Two: Strategies in Action

2.1 Types of strategies

2.2 Michael Porter’s generic strategies
2.3 Guidelines for pursuing strategic
management

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Types of Strategies

Forward
Integration

Vertical
Integratio Backward
n Integration
Strategies

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 Vertical Integration Strategies
Gaining ownership or increased
Forward
control over distributors or
Integration retailers(EX. franchising)

Backward Seeking ownership or increased

Integration control of a firm’s suppliers

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 Horizontal Integration Strategy
Gaining ownership or increased
Horizontal control over competitors through
Integration merger or acquisition . It is taken as
growth strategy

N.B. firm capacity as compared to

competitors and government
monopoly rules are vital to pursue
the above strategy.

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Types of Strategies

Market
Penetration

Intensive Market
Strategies Development

Product
Development

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 Intensive Strategies
Seeking increased market share for
Market present products or services in
Penetration present markets through greater
marketing efforts

Market Introducing present products or

Development services into new geographic areas

Seeking increased sales by

Product
improving present products or
Development services or developing new ones

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Types of Strategies

Related
Diversification

Diversific
ation
Strategies

Unrelated
Diversification

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 Diversification Strategies

Related Adding new but related products or

Diversification services

Unrelated Adding new, unrelated products or

Diversification services

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Types of Strategies

Retrenchment

Defensive Divestiture
Strategies

Liquidation

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 Defensive Strategies
Regrouping through cost and asset
Retrenchment reduction to reverse declining sales
and profit

Divestiture Selling a division or part of an

organization

Selling all of a company’s assets, in

Liquidation parts, for their tangible worth

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 Porter’s Five Generic Strategies

• Type 1 Cost Leadership – Low cost

• Type 2 Cost Leadership – Best value
• Type 3 Differentiation
• Type 4 Focus – Low cost
• Type 5 Focus – Best value

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Porter’s Five Generic Strategies

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 Guidelines for pursuing strategic
management

1. It should be a people process more than a paper process.

2. It should be a learning process for all managers and employees.
3. It should be words supported by numbers rather than numbers
supported by words.
4. It should be simple and non-routine.
5. It should vary assignments, team memberships, meeting formats, and
even the planning calendar.
6. It should challenge the assumptions underlying the current corporate
strategy.

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 Guidelines for pursuing strategic
management (Cont’d)
7. It should welcome bad news.
8. It should welcome open-mindedness and a spirit of inquiry and
learning.
9. It should not be a bureaucratic mechanism.
10. It should not become ritualistic, stilted, or orchestrated.
11. It should not be too formal, predictable, or rigid.
12. It should not contain jargon or arcane planning language.
13. It should not be a formal system for control.
14. It should not disregard qualitative information.
15. It should not be controlled by “technicians.”
16. Do not pursue too many strategies at once.

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Levels of Strategies –
Large Company

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Levels of Strategies –
Small Company

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 Chapter Three: The Business Mission and Vision

3.1 What Is Vision Statement? What Is Mission

Statement?
3.2 The importance of a clear mission
3.3 The nature of business mission
3.4 Components of a mission statement

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 Vision & Mission

• While a company must continually adapt to its

competitive environment, there are certain core
values that remain relatively steady and provide
guidance in the process of strategic decision-
making.
• These unchanging ideals form the business vision
and are expressed in the company’s mission.

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 Vision Statement

Vision statement answers the question:

“What do we want to become?”
• Vision statement developed first
• Short – preferably one sentence
• Broad management involvement
Vision Statement Examples
Our vision is to be the world’s best quick service
restaurant. (McDonald’s)

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 Mission

Mission statement answers the question:

“What is our business?”
• Reveals:
– what the organization doing
whom we want to serve
Mission Statements
– Essential for effectively establishing objectives and formulating
strategies.
– It sets the foundation for priorities, strategies, plans and work
assignments.
– What do you think is the main difference b/n Private and public
sector in mission development?

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Importance of Mission

Benefits from a strong mission

Unanimity of Purpose

Resource Allocation
Mission
Organizational Climate

Focal point for work

structure
 Components of mission statement

• Clear mission is needed before alternative

strategies can be formulated and implemented
• Important to have as broad range of
participation as possible among managers
in developing the mission

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 Product
s/
Custom Service Markets
ers s

Technol
ogy
9 Components
Employ
ees Of Mission
Statement
Survival
Growth
Profit
Public
Image Self- Philoso
Concep phy
t

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 Components of Mission (Cont’d)
• Components of mission and corresponding
questions to be answered:
1. Customers:
⮚ “Who are the firm’s customers?”

2. Products or services:
⮚ “What are the firm's major products or services?”
3. Markets:
⮚ “Geographically, where does the firm compete?”

4. Technology:
⮚ “Is the firm technologically current?”

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 Components of Mission (Cont’d)
5. Concern for survival, growth, and profitability:
⮚ “Is the firm committed to growth and financial soundness?”

6. Philosophy:
⮚ “What are the basic beliefs, values, aspirations, and ethical
priorities of the firm?”
7. Self-concept:
⮚ “What is the firm’s distinctive competence or major competitive advantage?”

8. Concern for public image:

⮚ “Is the firm responsive to social, community, and environmental concerns?”

9. Concern for employees:

⮚ “Are employees a valuable asset of the firm?”

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 Components of Mission (Cont’d)
N.B. based on its components, mission can be
divided into two categories:
- Narrow Mission
- Broad Mission
Narrow mission identifies our mission but it
restrict in terms of:
1. Product and services offered
2. Technology used
3. Market served
4. Opportunity of growth

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 Components of Mission (Cont’d)
• Broad mission wider our mission values in
terms of product and services offered, market
served, technology used and opportunity of
growth. But main flaw of this mission is that it
creates confusion among employees due to
its wider sense.
• N.B. most organization mission statement
fall between wider and narrower mission.
• Example of mission statement:
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 Components of Mission (Cont’d)
BDU mission statement
Our mission is to significantly contribute for the
social, cultural, economic, political, scientific and
technological development of the nation;
through the provision of high quality education,
and active engagement in research activities; and
facilitating outreach activities for better serving
our community need, while offering our
employees a more conducive and rewarding
work environment that values, recognizes and
appreciates their contributions.

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