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Lecture 1: The Nature of Strategic Management

What is Strategic Management?
Definition: "Strategic management is the art and science of creating, implementing, and
evaluating decisions that enable an organization to achieve its objectives." Fred R. David
(2011)
Purpose: It helps organizations create new opportunities for the future and maintain a
competitive advantage in the market.
The Strategic Plan
A strategic plan is a comprehensive blueprint outlining how an organization intends to
achieve its long-term goals. According to Wheelen and Hunger (2012), it serves as a "game
plan" that aligns resources and efforts towards success.
Three Stages of Strategic Management
1 Strategy Formulation: This involves planning what the organization should do.
Pearce and Robinson (2009) emphasize that it includes creating a vision (what the
organization aspires to become) and a mission (the organization’s purpose). It also involves
analyzing external opportunities and threats (using tools like PESTEL or Porter’s Five
Forces) and internal strengths and weaknesses (SWOT analysis). Based on this, long-term
goals are set, and strategies are developed to achieve them.
2 Strategy Implementation: This is the action phase. Hitt, Ireland, and Hoskisson (2017)
explain that implementation requires setting annual objectives, developing policies,
motivating employees, and allocating resources. Key steps include:
 Building a supportive organizational culture.
 Establishing an effective structure.
 Allocating budgets and using information systems effectively.
 Aligning employee rewards with organizational performance.
3 Strategy Evaluation: This involves monitoring the effectiveness of strategies. According
to Kaplan and Norton (1996), it includes measuring performance through tools like Balanced
Scorecards, analyzing internal and external factors, and making necessary adjustments.
Key Concepts in Strategic Management
 Competitive Advantage: Defined by Porter (1985) as "the value a firm creates for its
customers that exceeds the firm's cost of creating it." it means creating something
worthwhile for customers while still being profitable.
 Vision Statement: "A description of what an organization intends to achieve in the
long-term." (Collins and Porras, 1996)
 Mission Statement: "A statement defining an organization’s core purpose and focus
that normally remains unchanged over time." (Drucker, 1974)
 External Opportunities and Threats: These arise from the external environment,
such as market trends, competition, or technological changes. (Ansoff, 1965)
 Internal Strengths and Weaknesses: These refer to the capabilities and limitations
within the organization, such as skilled employees or outdated equipment. (Barney,
1991)
 Long-Term Objectives: Goals that span more than one year and align with the
strategic direction of the organization. (Wheelen & Hunger, 2012)
 Strategies: Plans or actions that enable an organization to achieve its objectives.
Examples include diversification or market expansion. (Mintzberg, 1994)
 Examples of Strategies
 Geographic Expansion: Entering new markets.
 Diversification: Adding new products or services.
 Acquisition: Buying another company.
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 Market Penetration: Selling more of existing products in current markets.

 Joint Venture: Partnering with another company.
 Annual Objectives: Short-term milestones to help achieve long-term goals. (David,
2011)
 Policies: "Guidelines or rules for decision-making that link strategy formulation and
implementation." (Anthony, 1965)
Strategic Management Model and Process
1. Dynamic and Continuous: Strategic management is an ongoing process. Wheelen
and Hunger (2012) state that it involves regularly reviewing goals, strategies, and
performance to adapt to market trends, competition, and technological changes,
ensuring the organization stays relevant.
2. Formality in Larger Organizations: Larger companies adopt a more structured
approach to strategic management. Pearce and Robinson (2013) highlight that formal
planning aligns departments, clarifies objectives, and improves coordination, which is
crucial in complex organizations.
Importance of Strategic Management
Strategic management is essential for guiding organizations toward long-term success by
providing clear direction and aligning resources with goals. It helps businesses gain a
competitive edge, adapt to market changes, and optimize resources effectively. By identifying
risks and opportunities, it ensures resilience and promotes innovation. Additionally, it allows
organizations to monitor performance and make necessary adjustments, enabling sustainable
growth in a dynamic environment.
 Strategic management helps organizations adapt to environmental changes, maintain
competitiveness, and ensure alignment of efforts. (David, 2011)
 It improves communication, decision-making, and employee commitment. (Wheelen
& Hunger, 2012)
Benefits of Strategic Management
Financial Benefits:
Strategic management helps businesses grow and become more profitable by using resources
wisely and improving their position in the market.
Nonfinancial Benefits:
 Improves understanding of competitors.
 Boosts employee productivity.
 Reduces resistance to change.
 Aligns performance with rewards clearly.
Why Some Companies Don’t Do Strategic Planning
 Fear of failure in implementing or achieving goals.
 Overconfidence in existing methods or strategies.
 Negative experiences with past planning efforts.
 Self-interest or reluctance to change established practices.
 Fear of the unknown and uncertainty about future outcomes.
 Genuine differences in opinions among decision-makers.
 Distrust or suspicion of the planning process or its outcomes.
 Companies may avoid strategic planning due to lack of knowledge, perceived high costs, or
fear of failure. (Mintzberg, 1994)
 They may also be preoccupied with immediate operational challenges. (Ansoff, 1965)
Pitfalls in Strategic Planning
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Strategic planning is a detailed process that helps organizations explore new areas to achieve
goals but may face challenges like resistance to change, limited resources, or adapting to
uncertainties, according to:
 (Hamel & Prahalad, 1994) Strategic planning requires open-mindedness, teamwork, and
challenging assumptions.
 It should balance flexibility with structure to avoid bureaucracy. (Mintzberg, 1994)
Characteristics of Effective Strategic Planning:
 People-Oriented Process: Strategic planning works best when it involves collaboration
and participation from everyone.
 Learning-Focused: It promotes ongoing learning and adaptability throughout the
process.
 Data and Simplicity: Plans should be based on relevant data and kept simple for better
understanding.
 Flexibility: Changing roles, meeting styles, and schedules keep the process dynamic and
engaging.
 Critical Thinking: It challenges old strategies to ensure they align with current needs and
realities.
Qualities of an Effective Strategic Planning Process:
Welcomes Bad News: The process embraces constructive criticism and learns from
mistakes.
Encourages Open-Mindedness: An inquisitive and flexible mindset is vital for effective
decision-making.
Avoids Bureaucracy: It steers clear of rigid and overly formal mechanisms.
Promotes Simplicity: The approach avoids predictability and rigid patterns, ensuring plans
remain adaptable and practical.
Uses Clear Language: Jargon and complex terminology are avoided, making the strategy
accessible to everyone involved (Ch 1-43).
Common Pitfalls to Avoid:
Over-Control: Strategic planning should not be used as a formal control system.
Ignoring Qualitative Insights: Balancing both qualitative and quantitative data is essential
for well-rounded strategies.
Over-Reliance on Technicians: The process should involve broad organizational
participation, not just technical experts.
Lack of Focus: Pursuing too many strategies simultaneously can dilute effectiveness.
Neglecting Ethics: Strong ethical practices are integral to successful and sustainable strategic
management.
By addressing these aspects, organizations can create strategic plans that are effective,
practical, and aligned with their goals.
Business vs. Military Strategy
 Strategic management has its roots in military planning. (Chandler, 1962)
 Similarity: Both require adaptation and continuous improvement.
 Difference: Business strategies emphasize competition, while military strategies focus on
conflict and conquest. (Porter, 1985)
Final Thoughts
Strategic management is like a roadmap for a company. It helps the company navigate
through challenges, take advantage of opportunities, and achieve its goals. By planning
carefully, implementing effectively, and reviewing regularly, companies can stay competitive
and successful in the long run.
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Lecture 2: Strategic Management Process

According to Wheelen and Hunger (2012), "The strategic management process is a set of
managerial decisions and actions that determines the long-term performance of an
organization."
Strategic Intent
Definition: "Strategic intent is the philosophical base of the strategic management process. It
implies the purpose, which an organization endeavors to achieve." (Hamel & Prahalad, 1989)
Strategic intent defines what the organization desires to attain in the future, indicating its
long-term market position and potential for exploring new opportunities.
Components of Strategic Intent
Vision:
Definition: "Vision is a statement that expresses the organization’s ultimate long-run
objectives." (Kotter, 1996)
Example: Microsoft’s vision—"A computer software on every desk and in every home."
Mission:
Definition: "A mission statement defines the company’s business, its objectives, and its
approach to reach those objectives." (Drucker, 1974)
Example: Google’s mission—"To organize the world's information and make it universally
accessible and useful."
Objectives:
Definition: "Objectives state specifically how the goals shall be achieved." (Anthony, 1965)
Areas for objectives include profit, marketing, and production goals.
Strategic Vision
Definition: "Strategic vision defines how a business wants to be perceived externally by
clients, suppliers, investors, and competitors." (Kotter, 1996)
Example: DHL’s vision—"To be a post office for Germany and a logistics company for the
world."
Characteristics of a Good Mission and Objectives
Mission should be:
 Feasible, precise, and motivating.
 Distinctive and indicative of major components of strategy.
Objectives should be:
 Understandable, measurable, specific, and challenging.
 Aligned with time frames and organizational constraints.
Steps in Strategic Management Process
Step 1: Strategic Intent
Focuses on defining vision, mission, and objectives to guide the organization.
Step 2: Strategy Formulation:
Definition: "The process of choosing the most appropriate course of action for achieving
organizational goals." (Mintzberg, 1994)
Key aspects:
 Environmental appraisal: Identifying external and internal factors.
 Organizational appraisal: Assessing internal strengths and weaknesses.
Step 3: Strategy Implementation:
Definition: "Putting formulated strategies into action." (Hitt, Ireland, & Hoskisson, 2017)
Steps include:
1. Formulating plans.
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2. Identifying activities.
3. Grouping and organizing resources.
4. Allocating resources effectively.\
Step 4: Strategy Evaluation and Control:
Definition: "Monitoring corporate activities to compare actual performance with desired
performance." (Kaplan & Norton, 1996)
 Strategic control involves identifying objectives, setting control standards, and
measuring outcomes.
Business Environment
Introduction
 Businesses make decisions based on two factors:
1. Internal environmental factors – These are within the company and can be
controlled or managed as needed.
2. External environmental factors – These exist outside the company and cannot be
controlled.
 Businesses face two main challenges:
i) Dealing with threats from the environment (e.g., competition, regulations).
ii) Using opportunities for growth and success.
Business Environment
 Businesses cannot work in isolation. They need support from their surroundings, such as
resources, customers, and policies.
 Definition:
 Keith Davis: "The environment of the business means the total of all conditions, events,
and influences that surround and affect it."
 Arthur M. Weimer: "Business environment is the overall climate or conditions under
which a business operates, including economic, social, political, and institutional
factors."
Features of Business Environment
1. Dynamic in nature – The environment keeps changing.
2. Direct and indirect impact – Affects business directly (e.g., government laws) or
indirectly (e.g., changing customer preferences).
3. Two types of factors – Internal factors (like employees) and external factors (like
competitors).
4. Integral to business – Businesses cannot function without the support of their
environment.
5. Influences decisions – Drives proactive or reactive actions in business operations.
6. Regulates business scope – For example, government bans on certain products force
businesses to adapt.
7. Multi-dimensional – Every factor has positive and negative impacts.
Components of Business Environment
1. Internal Environment (Controllable factors within the company):
 Value System – The company’s core values and beliefs guide its operations.
 Mission and Objectives – The purpose for which the business exists and its goals.
 Plans and Policies – Decisions made in advance to guide actions and achieve
objectives.
 Human Resources – Employees are crucial and must be treated carefully.
 Physical Resources – Includes machinery, buildings, and other assets; their proper
management is necessary.
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
Financial Resources – Finance is essential for running the business and includes
budgets, capital, and reserves.
 Labour Management Relations – Good relationships with employees improve
productivity and satisfaction.
2. External Environment (Uncontrollable factors outside the company):
 Micro Environment – Factors close to the business, like suppliers, competitors,
customers, and the public.
 Macro Environment – Broader factors like economic conditions, technology, laws,
demographics, and natural resources.
Environmental Scanning
 Definition: According to Aguilar, F. J. (1967), "Environmental scanning is the process of
observing and analyzing both internal and external factors of a business to find
opportunities and address potential threats that could impact its present and future
activities."
 Focuses on identifying strengths, weaknesses, opportunities, and threats (SWOT) for
better planning.
Importance of Environmental Scanning
1. Identify strengths – Helps maintain and improve positive aspects of the business.
2. Identify weaknesses – Points out problems or barriers and ways to overcome them.
3. Spot opportunities – Helps the business find and use chances for growth and success.
4. Detect threats – Identifies risks from competitors or market changes to avoid damage.
5. Effective planning – Assists in preparing better strategies for the future.
6. Survival and growth – Ensures the business stays relevant and grows over time.
7. Resource organization – Ensures proper use of limited resources like money, time, and
manpower.
8. Flexibility in operations – Helps the business adjust to changing situations.
9. Corporate image – Builds a good reputation and trust among customers.
10. Employee motivation – Better decisions and HR policies improve employee morale and
performance.
Techniques of Environmental Scanning
1. Forecasting – Predicting future trends based on available data.
2. Scenarios – Imagining possible future situations to prepare for them.
3. Spying – Secretly collecting information about competitors.
4. Gathering verbal information – Talking to stakeholders like customers, employees, or
suppliers to gain insights.
5. QUEST (Quick Environmental Scanning Technique) – A quick method to study
environmental factors systematically.
Summary
 The strategic management process involves defining intent, formulating and
implementing strategies, and evaluating outcomes.
 A clear understanding of the business environment is essential for success, with a
focus on internal and external factors influencing operations.