STRATEGIC MANAGEMENT

UNIT 1: INTRODUCTION

1. The Nature of Strategic Management

Definition
Strategic management involves the formulation, implementation, and
evaluation of decisions and actions that help an organization achieve its long-
term goals and objectives. It encompasses the processes that guide how
organizations navigate their competitive environment and adapt to changes.

Characteristics
- Long-Term Focus: Strategic management is concerned with the long-term
direction and performance of the organization.
- Comprehensive: It considers various aspects of the organization, including
internal capabilities and external environmental factors.
- Dynamic: The strategic management process is not static; it requires ongoing
assessment and adjustment in response to changes in the internal and external
environment.
- Integrative: It integrates various functional areas of the organization, such as
marketing, finance, operations, and human resources, to achieve strategic
objectives.
- Decision-Making: Involves critical decision-making at all levels, focusing on
resource allocation, competitive positioning, and risk management.

Importance:
- Enhances organizational effectiveness and efficiency.
- Provides a framework for responding to competition and market changes.
- Facilitates better resource utilization and prioritization.
- Improves communication and coordination across departments.

2. Key Terms in Strategic Management

- Strategy: A plan of action designed to achieve a long-term or overall aim. It

involves setting objectives and determining the actions to achieve them.
- Vision: A statement that outlines what an organization wants to become in
the future, providing direction and inspiration.
-Mission: A statement that defines the organization's purpose, core values, and
primary objectives, guiding its actions and decision-making.
- Goals: Specific, measurable outcomes that the organization aims to achieve in
the short to long term.
- Objectives: More specific than goals, objectives are the precise steps or
benchmarks that indicate progress toward achieving broader goals.
- Competitive Advantage: A condition or circumstance that puts an
organization in a favorable or superior business position, allowing it to
outperform competitors.
- SWOT Analysis: A strategic planning tool that identifies the organization’s —
Strengths, Weaknesses, Opportunities and Threats facilitating informed
decision-making.
- Environmental Scanning: The process of gathering, analyzing, and
interpreting information about external and internal environments to inform
strategic decision-making.
- Stakeholders: Individuals or groups with an interest in the organization,
including employees, customers, suppliers, investors, and the community.

3. Strategic Models
Strategic models provide frameworks for organizations to analyze their
environment, define their strategies, and implement plans.
Here are a few common strategic models:

- Porter’s Five Forces Model:

Analyses the competitive forces in an industry to assess its attractiveness and
profitability. It considers:
- Threat of New Entrants
- Bargaining Power of Suppliers
- Bargaining Power of Buyers
- Threat of Substitute Products or Services
- Industry Rivalry

- Ansoff Matrix: A tool for identifying growth strategies based on existing and
new products and markets. It outlines four growth strategies:
- Market Penetration
- Market Development
- Product Development
- Diversification

- BCG Matrix: A portfolio management tool that classifies a company’s business

units or products based on their market growth rate and relative market share.
It categorises them into four quadrants:
 - Stars
- Cash Cows
- Question Marks
- Dogs

- Balanced Scorecard: A strategic management tool that measures

organisational performance beyond financial metrics, incorporating
perspectives like customer, internal processes, and learning and growth.

4. Pitfalls in Strategic Planning

Strategic planning can significantly enhance an organisation’s success, but it
also comes with potential pitfalls that can hinder its effectiveness:

- Lack of Clarity: If the organisation does not have a clear vision or mission, it
can lead to confusion and misalignment in strategic goals.
- Inflexibility: Rigid adherence to a strategic plan without adapting to changes
in the environment can result in missed opportunities or failures to respond to
threats.
- Poor Communication: Ineffective communication of the strategic plan can
lead to misunderstandings among stakeholders, resulting in poor
implementation.
- Insufficient Analysis: Failing to conduct thorough environmental scanning and
analysis can result in a lack of awareness of key trends, competitors, and
potential disruptions.
- Overemphasis on Planning: Focusing too much on the planning phase
without effective execution can render the strategy useless. It's crucial to
balance planning with actionable steps.
- Neglecting Implementation: Without a clear plan for execution, even the best
strategies can fail. Implementation requires resources, timelines, and
accountability.
- Ignoring Stakeholder Input: Not involving key stakeholders in the strategic
planning process can lead to resistance, lack of buy-in, and ultimately, failure to
execute the plan.
UNIT 2: STRATEGY FORMULATION AND ENVIRONMENT ASSESSMENT

1. The Business Vision and Mission

Business Vision:
- Definition: A vision statement outlines what an organization aspires to
become in the future. It provides a long-term direction and serves as a source
of inspiration and motivation for stakeholders.
- Characteristics:
- Future-Oriented: Focuses on long-term aspirations and goals.
- Inspirational: Designed to inspire and engage employees and stakeholders.
- Broad: Generally high-level and conceptual, capturing the essence of the
organization's purpose.
Business Mission:
- Definition: A mission statement defines the organization's purpose, core
values, and primary objectives. It describes what the organization does, for
whom, and how it serves its customers or stakeholders.
- Characteristics
- Present-Focused: Addresses the organization's current purpose and
operations.
- Clear and Concise: Should be easily understandable and memorable.
- Specific: Details the organization's primary objectives and the target
audience.

2. Writing Vision and Mission Statements

Writing Vision Statements:
- Consider the Future: Think about where you see the organization in 5, 10, or
20 years.
- Keep it Concise: Aim for clarity and brevity, ideally one or two sentences.
- Make it Inspirational: Use motivational language that reflects the values and
aspirations of the organization.
- Involve Stakeholders: Engage employees and other stakeholders in the
process to ensure buy-in and diverse perspectives.
Writing Mission Statements:
- Define the Purpose: Start by clearly articulating the core purpose of the
organization.
- Identify Target Audience: Specify who the organization serves (e.g.,
customers, community).
- Highlight Key Activities: Describe the primary activities or services the
organization offers.
- Incorporate Core Values: Reflect the organization’s values and ethical
principles in the statement.
- Keep it Simple: Aim for a statement that is straightforward and easy to
understand.

3. The External Force

Definition: External forces are factors outside the organization that can impact
its operations, strategy, and overall performance. These forces can create
opportunities or pose threats.

Key External Forces:

- Economic Factors: Economic conditions such as inflation, unemployment
rates, and economic growth can influence consumer behaviour and business
operations.
- Political and Legal Factors: Government policies, regulations, and political
stability can affect how businesses operate, including compliance and legal
obligations.
- Social and Cultural Factors: Changes in social trends, demographics, and
cultural norms can influence consumer preferences and behaviours.
- Technological Factors: Rapid advancements in technology can create
opportunities for innovation but may also render existing products or services
obsolete.
- Environmental Factors: Environmental sustainability concerns and regulations
are increasingly influencing business practices and consumer preferences.

4. Porter’s Five Forces Model

Overview: Developed by Michael Porter, the Five Forces Model is a framework
for analyzing the competitive forces within an industry to understand its
attractiveness and profitability.

The Five Forces:

1. Threat of New Entrants: The ease or difficulty with which new competitors
can enter the market. High barriers to entry (e.g., capital requirements,
regulations) reduce the threat.
2. Bargaining Power of Suppliers: The influence suppliers have over the price
and availability of materials. Fewer suppliers or unique materials increase
supplier power.
3. Bargaining Power of Buyers: The influence customers have on pricing and
quality. When buyers have many options, they can demand better quality or
lower prices.
4. Threat of Substitute Products or Services: The availability of products or
services that can replace existing offerings. High threat of substitutes can limit
pricing power and market share.
5. Industry Rivalry: The intensity of competition among existing firms. High
rivalry can lead to price wars and reduced profitability.

Significance: By analyzing these forces, businesses can identify competitive

pressures and develop strategies to enhance their market position.

5. The Internal Forces

Definition: Internal forces are factors within the organization that affect its
operations and performance. These include resources, capabilities, and
organizational culture.

Key Internal Forces

- Resources: The tangible and intangible assets available to the organization,
including human resources, financial capital, and technology.
- Capabilities: The skills and competencies that enable the organization to
perform specific activities effectively and efficiently.
- Organizational Structure: The way the organization is structured can influence
communication, decision-making, and overall performance.
- Culture: The shared values, beliefs, and practices within the organization that
shape employee behavior and attitudes.

6. Value Chain Analysis

Overview: Value Chain Analysis, developed by Michael Porter, is a strategic tool
that helps organizations identify the primary and support activities that create
value for customers and contribute to competitive advantage.

Components of the Value Chain:

1. Primary Activities:
- Inbound Logistics: Receiving, warehousing, and inventory management of
raw materials.
-Operations: Processes that transform inputs into finished products or
services.
- Outbound Logistics: Activities required to get the finished product to
customers (e.g., distribution).
 - Marketing and Sales: Efforts to promote and sell products or services.
- Service: Activities that enhance or maintain the product's value, such as
customer support and repairs.
2. Support Activities:
- Procurement: The process of acquiring goods and services needed for
operations.
- Technology Development: Research and development, process automation,
and technological improvements.
- Human Resource Management : Recruitment, training, and development of
employees.
- Firm Infrastructure: Organizational systems, management, and governance
structures.
Purpose: By analyzing each activity in the value chain, organizations can
identify areas for improvement, cost reduction, and differentiation to enhance
competitiveness and profitability.

UNIT 3: STRATEGIC ANALYSIS & CHOICE

1. Types of Strategies
a. Integration Strategies:
- Definition: Integration strategies involve merging with or acquiring other
companies to achieve greater market power or efficiency.
- Types
- Vertical Integration: Controlling more than one stage of production or
distribution (e.g., a manufacturer acquiring a supplier).
- Horizontal Integration: Acquiring or merging with competitors to increase
market share and reduce competition.
- Advantages: Cost reduction, improved supply chain efficiency, increased
market share, and enhanced competitive advantage.

b. Intensive Strategies:
- Definition: Intensive strategies focus on increasing market share within
existing markets or developing new markets for existing products.
- Types:
- Market Penetration: Increasing sales of existing products in existing markets
(e.g., promotional strategies).
- Market Development: Expanding into new markets with existing products
(e.g., geographic expansion).
- Product Development: Introducing new products to existing markets to meet
customer needs.
c. Diversification Strategies:
- Definition: Diversification involves entering new markets or industries to
reduce risk and enhance growth.
- Types:
- Related Diversification: Expanding into areas that are related to existing
business operations (e.g., a car manufacturer entering the motorcycle market).
- Unrelated Diversification: Entering completely different industries or markets
(e.g., a technology company acquiring a food and beverage company).
- Advantages: Risk reduction, growth opportunities, and leveraging existing
competencies.

d. Defensive Strategies:
- Definition: Defensive strategies are designed to protect market share and
maintain competitive advantage in the face of competitive pressures.
- Types:
- Retrenchment: Reducing operations or downsizing to improve financial
stability.
- Divestiture: Selling off underperforming assets or divisions.
- Liquidation: Closing down operations that are no longer viable.

2. Michael Porter’s Five Generic Strategies

Michael Porter identifies five generic strategies that organizations can adopt to
achieve competitive advantage:
1. Cost Leadership:
- Focus: Becoming the lowest-cost producer in the industry.
-Implementation: Efficient production, economies of scale, and cost control
measures.
- Example: Walmart.
2. Differentiation:
- Focus: Offering unique products or services that stand out from
competitors.
- Implementation: Innovation, quality, branding, and customer service.
- Example: Apple.
3. Cost Focus
- Focus: Targeting a specific market segment while being the lowest-cost
producer in that niche.
- Implementation**: Tailored services or products for a particular group.
- Example: Aldi in the grocery sector.
4. Differentiation Focus
- Focus: Targeting a specific market segment with unique offerings.
- Implementation: Specialized features, quality, or service for niche
customers.
- Example: Rolls-Royce in luxury automobiles.
5. Integrated Cost Leadership/Differentiation:
- Focus: Combining cost leadership and differentiation to provide value at
lower prices.
- Implementation: Balancing cost efficiency with product uniqueness.
- Example: Toyota.

3. Red Ocean and Blue Ocean Strategy

Red Ocean Strategy:
- Definition: Competing in existing markets with established boundaries, where
the focus is on outperforming rivals.
- Characteristics:
- High competition leads to a focus on market share.
- Strategies include cost-cutting and differentiation within the existing market.
- Drawbacks: Saturated markets lead to price wars and reduced profitability.

Blue Ocean Strategy:

- Definition: Creating new market spaces (or "blue oceans") that are
uncontested, focusing on innovation rather than competition.
- Characteristics:
- Emphasis on value innovation to create new demand.
- Strategies involve identifying unmet customer needs and crafting offerings
that create new markets.
- Example: Cirque du Soleil created a new form of entertainment that blended
circus arts with theater.

4. Mergers and acquisitions (M&A):

Definition: Mergers and acquisitions are strategies used by companies to
achieve growth, diversification, and competitive advantage by combining with
or purchasing other businesses.

- Mergers: When two companies combine to form a new entity, often aimed at
increasing market share, reducing costs, or achieving synergies.
- Acquisitions: When one company purchases another, gaining control over its
assets and operations.

Benefits of M&A
- Increased market power.
- Enhanced capabilities and resources.
- Access to new markets and customer bases.
- Economies of scale and cost savings.

Challenges:
- Cultural integration issues.
- Overvaluation and financial risks.
- Regulatory hurdles and antitrust considerations.

5. The Nature of Strategy Analysis and Choice

Nature: Strategy analysis involves evaluating the internal and external
environments to make informed strategic decisions. It includes assessing
strengths, weaknesses, opportunities, and threats (SWOT).

Stages in the Process of Strategic Choice:

1. Identifying Strategic Issues: Recognizing key challenges and opportunities.
2. Analyzing Internal and External Environments: Using tools like SWOT and
PESTEL analysis.
3. Generating Strategic Options: Developing alternative strategies based on
analysis.
4. Evaluating Options: Assessing the feasibility, acceptability, and suitability of
each option.
5. Making the Choice: Selecting the most appropriate strategy based on
analysis and organizational goals.
6. Implementing the Strategy: Developing action plans and allocating
resources.
7. Reviewing and Monitoring: Continuously assessing performance and making
necessary adjustments.

6. Corporate Level Analysis (BCG & SWOT Analysis)

BCG Matrix (Boston Consulting Group):

- Purpose: A portfolio management tool used to assess business units based on
market growth and relative market share.
- Four Quadrants
1. Stars: High growth, high market share. Invest for growth.
2. Cash Cows: Low growth, high market share. Generate cash with minimal
investment.
 3. Question Marks: High growth, low market share. Requires investment to
grow market share.
4. Dogs: Low growth, low market share. Consider divestiture.

SWOT Analysis
- Purpose: A strategic planning tool to evaluate an organization's internal
strengths and weaknesses, as well as external opportunities and threats.
- Components:
- Strengths: Internal attributes that provide an advantage.
- Weaknesses: Internal limitations or deficiencies.
- Opportunities: External factors that could be exploited for growth.
- Threats: External challenges that could hinder performance.

7. Experience Curve Analysis

Definition: Experience curve analysis suggests that the more a company
produces a product, the lower its cost per unit due to learning effects and
operational efficiencies.

Key Concepts
- Learning Effect: As employees gain experience, they become more efficient in
their tasks, leading to lower costs and higher productivity.
- Economies of Scale: As production increases, the fixed costs are spread over a
larger number of units, reducing the average cost.
- Cost Reduction: Companies can expect a consistent reduction in costs as they
gain experience, which can be used to inform pricing strategies and
competitive positioning.

Implications: Companies can gain a competitive advantage by understanding

their position on the experience curve and leveraging it to reduce costs,
improve quality, and enhance customer value.
UNIT 4: STRATEGIC IMPLEMENTATION

1. The Nature of Strategy Implementation

Definition: Strategy implementation is the process of putting the formulated
strategies into action. It involves allocating resources, assigning tasks, and
establishing timelines to ensure that strategic goals are achieved.

Key Aspects
- Execution: The actual carrying out of strategies through various actions and
initiatives.
- Alignment: Ensuring that all organizational resources and activities are aligned
with the strategic goals.
- Monitoring and Control: Establishing mechanisms to track progress and make
necessary adjustments to keep the strategy on course.

Importance: Successful implementation is critical for achieving strategic

objectives, as even the best strategies may fail if not effectively executed.

2. Resource Allocation
Definition: Resource allocation involves distributing an organization’s resources
(financial, human, technological, etc.) to support the execution of strategic
initiatives.

Key Considerations:
- Prioritization: Allocating resources to the most critical areas that align with
strategic goals.
- Budgeting: Developing budgets that reflect the priorities of the organization
and ensure adequate funding for strategic initiatives.
- Flexibility: Being adaptable in reallocating resources as necessary based on
changing circumstances or performance outcomes.
- Efficiency: Ensuring that resources are used efficiently to maximize returns
and achieve strategic objectives.

Process:
1. Assessment: Evaluating current resources and capabilities.
2. Strategic Planning: Identifying the resource needs of various strategic
initiatives.
3. Allocation: Distributing resources based on identified priorities.
4. Monitoring: Continuously reviewing resource utilization to ensure alignment
with strategic goals
3. Organizational Structures
Organizational structure refers to how activities are directed to achieve the
goals of an organization. Different structures affect communication, decision-
making, and the implementation of strategies.

a. Functional Structure:
- Definition**: Organizes employees based on specialized functions (e.g.,
marketing, finance, operations).
- Advantages**: Clear hierarchy, specialization, and efficiency in specific
functions.
- Disadvantages**: Silo mentality, limited communication between
departments, and difficulty in aligning functional goals with overall strategy.

b. Divisional Structure:
- Definition: Divides the organization into semi-autonomous units or divisions
based on products, markets, or regions.
- Advantages: Focus on specific products or markets, flexibility, and faster
decision-making.
- Disadvantages: Duplication of resources, potential for competition among
divisions, and lack of standardization.

c. Strategic Business Unit (SBU) Structure:

- Definition: Similar to divisional structures but emphasizes autonomy and
strategic focus on specific business areas.
- Advantages: Greater accountability for performance, better alignment with
market needs, and specialized management.
- Disadvantages: Risk of fragmented strategy and potential inefficiencies due to
duplicative functions.

d. Matrix Structure:
- Definition: Combines functional and divisional structures, where employees
have dual reporting relationships (e.g., to both functional managers and project
managers).
- Advantages: Flexibility, enhanced communication, and resource sharing across
functions and projects.
- Disadvantages: Complexity, potential for confusion, and conflicts in authority
and priorities.
4. Managing Resistance to Change
Definition: Resistance to change refers to the reluctance or opposition of
employees to adapt to new strategies or organizational changes.

Key Reasons for Resistance:

- Fear of the Unknown: Uncertainty about the future or fear of losing job
security.
- Loss of Control: Employees may feel they are losing control over their work
processes or roles.
- Disruption of Routine: Changes may disrupt established routines and habits.
- Lack of Trust: Employees may distrust leadership or the motives behind
changes.

Strategies for Managing Resistance:

- Communication: Open, honest communication about the reasons for change
and its benefits.
- Involvement: Involving employees in the change process to foster ownership
and commitment.
- Training and Support: Providing training and resources to help employees
adapt to new processes or technologies.
- Incentives: Offering incentives for embracing change or reaching milestones.
- Feedback Mechanisms: Establishing channels for employees to express
concerns and provide input.

5. Developing a Strategy-Supportive Culture

Definition: A strategy-supportive culture is one that aligns with and enhances
the implementation of organizational strategies.

Key Characteristics:
- Shared Values: Employees share common beliefs and values that support the
strategic direction.
- Adaptability: A culture that encourages flexibility and responsiveness to
change.
- Collaboration: Encouraging teamwork and collaboration across functions and
levels.
- Accountability: Fostering a sense of responsibility for achieving strategic
objectives.
Steps to Develop a Supportive Culture:
1. Leadership Commitment: Leaders must model behaviors that align with the
desired culture.
2. Communication: Regularly communicate the importance of the culture in
achieving strategic goals.
3. Recognition and Rewards: Recognize and reward behaviors that support the
culture and strategy.
4. Training and Development: Provide training that reinforces the values and
behaviours needed to support the strategy.

6. Human Resource Concerns when Implementing Strategies

Definition: Human resource concerns involve the impact of strategy
implementation on employees and the workforce.

Key Concerns:
- Skill Gaps: Ensuring employees possess the necessary skills to implement new
strategies effectively.
- Workforce Planning: Aligning workforce size and structure with strategic goals
to avoid overstaffing or understaffing.
- Change Management: Addressing employee resistance and managing
transitions effectively.
- Performance Management: Aligning performance metrics and evaluation
systems with strategic objectives.
- Talent Acquisition and Retention: Attracting and retaining the right talent to
support strategic initiatives.

Strategies for Addressing HR Concerns:

1. Training and Development: Investing in employee training to build necessary
skills.
2. Recruitment: Hiring talent that aligns with strategic needs and organizational
culture.
3. Performance Management Systems: Developing systems that measure and
reward performance aligned with strategy.
4. Employee Engagement: Creating an engaging work environment to foster
commitment and reduce turnover.