THE NATURE OF

STRATEGIC
MANAGEMENT
MR. ARVIN C. IQUIN
AFTER STUDYING THIS CHAPTER, YOU SHOULD BE ABLE TO DO THE
FOLLOWING:

• 1. Describe the strategic-management process.

• 2. Explain the need for integrating analysis and intuition in strategic management.

• 3. Define and give examples of key terms in strategic management.

• 4. Discuss the nature of strategy formulation, implementation, and evaluation activities.

WHAT IS STRATEGIC MANAGEMENT?

• Strategic management can be defined as the art and science of formulating,

implementing, and evaluating cross-functional decisions that enable an organization to
achieve its objectives.
• Strategic management focuses on integrating management, marketing,
finance/accounting, production/operations, research and development, and information
systems to achieve organizational success.
STRATEGIC MANAGEMENT

• The term strategic management in this text is used synonymously with the term strategic
planning.
• Sometimes the term strategic management is used to refer to strategy formulation,
implementation, and evaluation, with strategic planning referring only to strategy
formulation. The purpose of strategic management is to exploit and create new and
different opportunities for tomorrow; long-range planning, in contrast, tries to
optimize for tomorrow the trends of today.
STRATEGIC PLANNING

• A strategic plan is, in essence, a company’s game plan.

• A strategic plan results from tough managerial choices among numerous good
alternatives, and it signals commitment to specific markets, policies, procedures, and
operations in lieu of other, “less desirable” courses of action.
 STAGES OF STRATEGIC MANAGEMENT

• The strategic-management process consists of three stages:

• strategy formulation,
• strategy implementation,
• strategy evaluation.
1. STRATEGY FORMULATION

• Strategy formulation includes developing a vision and mission, identifying an

organization’s external opportunities and threats, determining internal strengths and
weaknesses, establishing long-term objectives, generating alternative strategies, and
choosing particular strategies to pursue.
1. STRATEGY FORMULATION

• Strategy-formulation issues include deciding:

• what new businesses to enter,
• what businesses to abandon,
• how to allocate resources,
• 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.
1. STRATEGY-FORMULATION

• Strategy-formulation decisions commit an organization to specific products, markets,

resources, and technologies over an extended period of time.
• Strategies determine long-term competitive advantages. For better or worse, strategic
decisions have major multifunctional consequences and enduring effects on an
organization. Top managers have the best perspective to understand fully the
ramifications of strategy-formulation decisions; they have the authority to commit the
resources necessary for implementation.
2. STRATEGY IMPLEMENTATION

• Strategy implementation requires a firm to establish annual objectives, devise policies,

motivate employees, and allocate resources so that formulated strategies can be executed.
• It includes developing a strategy-supportive culture, creating an effective organizational
structure, redirecting marketing efforts, preparing budgets, developing and utilizing
information systems, and linking employee compensation to organizational performance.
• Strategy implementation often is called the “action stage” of strategic management.
2. STRATEGY IMPLEMENTATION

• considered to be the most difficult stage in strategic management.

• strategy implementation requires personal discipline, commitment, and sacrifice.
Successful strategy implementation hinges upon managers’ ability to motivate employees,
which is more an art than a science. Strategies formulated but not implemented serve no
useful purpose.
• Interpersonal skills are especially critical for successful strategy implementation.
3. STRATEGY EVALUATION

• Strategy evaluation is the final stage in strategic management. Managers desperately need
to know when particular strategies are not working well;
• strategy evaluation is the primary means for obtaining this information. All strategies are
subject to future modification because external and internal factors are constantly
changing.
THREE FUNDAMENTAL STRATEGY-EVALUATION

• (1) reviewing external and internal factors that are the bases for current strategies,
• (2) measuring performance,
• and (3) taking corrective actions.

• Strategy evaluation is needed because success today is no guarantee of success tomorrow!

Success always creates new and different problems; complacent organizations experience
demise.
HIERARCHICAL LEVELS

• Strategy formulation, implementation, and evaluation activities occur at three hierarchical

levels in a large organization:
• corporate,
• divisional or strategic business unit,
• functional
Peter Drucker says the prime task of strategic management is
thinking through the overall mission of a business:

that is, of asking the question, “What is our business?” This leads to
the setting of objectives, the development of strategies, and the
making of today’s decisions for tomorrow’s results.

This clearly must be done by a part of the organization that can see
the entire business; that can balance objectives and the needs of today
against the needs of tomorrow; and that can allocate resources of men
and money to key results.
1. INTEGRATING INTUITION AND ANALYSIS

• “In God we trust. All others bring data.”- Edward Deming

• The strategic-management process can be described as an objective, logical, systematic

approach for making major decisions in an organization.
• It attempts to organize qualitative and quantitative information in a way that allows
effective decisions to be made under conditions of uncertainty.
• Strategic management is not a pure science that lends itself to a nice, neat, one-two-three
approach.
INTEGRATING INTUITION AND ANALYSIS

• Experiences, judgment, and feelings, most people recognize that intuition is essential to
making good strategic decisions.

- Intuition is particularly useful for making decisions in situations of great uncertainty or

little precedent. It is also helpful when highly interrelated variables exist or when it is
necessary to choose from several plausible alternatives.
• Albert Einstein acknowledged the importance of intuition

“I believe in intuition and inspiration. At times I feel certain that I am right while not
knowing the reason. Imagination is more important than knowledge, because knowledge is
limited, whereas imagination embraces the entire world.”
INTEGRATING INTUITION AND ANALYSIS

• Most organizations can benefit from strategic management, which is based upon
integrating intuition and analysis in decision making. Choosing an intuitive or analytic
approach to decision making is not an either–or proposition.
• Managers at all levels in an organization inject their intuition and judgment into strategic-
management analyses. Analytical thinking and intuitive thinking complement each other.
INTEGRATING INTUITION AND ANALYSIS

• In a sense, the strategic-management process is an attempt both to duplicate what goes on

in the mind of a brilliant, intuitive person who knows the business and to couple it with
analysis.
ADAPTING TO CHANGE

• The strategic-management process is based on the belief that organizations should

continually monitor internal and external events and trends so that timely changes can be
made as needed.
• The rate and magnitude of changes that affect organizations are increasing dramatically as
evidenced how the global economic recession has caught so many firms by surprise.
• Firms, like organisms, must be “adept at adapting” or they will not survive.
• To survive, all organizations must astutely identify and adapt to change. The strategic-
management process is aimed at allowing organizations to adapt effectively to change
over the long run.
 STRATEGY VS. STRATEGIC MANAGEMENT

• strategy is about making you think ahead regarding key issues affecting organizations;

• strategic management is about giving you concepts, frameworks, tools and techniques to
help you do so.
 THREE ELEMENTS OF STRATEGIC

• This definition clearly shows the three elements (or components) of strategy.
• The italics in the definition above emphasize long-term goals; actions to achieve the goals
and allocation of resources:
● The determination of the basic long-term goals and objectives concerns the
conceptualization of coherent and attainable strategic objectives. Without objectives,
nothing else can happen. If you do not know where you want to go, how can you act in such
a way as to get there?
THE ELEMENTS OF STRATEGY

• The adoption of courses of action refers to the actions taken to arrive at the objectives that
have been previously set.
● The allocation of resources refers to the fact that there is likely to be a cost associated
with the actions required in order to achieve the objectives.
If the course of action is not supported with adequate levels of resource, then the objective
will not be accomplished.
RESOURCES

• Resource inputs (sometimes called factors of production) are those inputs that are
essential to the normal functioning of the organizational process.

These are the inputs without which an organization simply could not continue to exist or
meet its objectives. We can readily appreciate that human beings rely upon certain vital
inputs such as air, water, nutrition, warmth, shelter, etc., but organizations have similar
needs.
 AN ORGANIZATION’S RESOURCE INPUTS FALL
INTO FOUR KEY CATEGORIES:
• 1. Financial resources – Money for capital investment and working capital. Sources include
shareholders, banks, bondholders, etc.
• 2. Human resources – Appropriately skilled employees to add value in operations and to support those
that add value (e.g. supporting employees in marketing, accounting, personnel, etc.). Sources include
the labour markets for the appropriate skill levels required by the organization.
• 3. Physical (tangible) resources – Land, buildings (offices, accommodation, warehouses, etc.), plant,
equipment, stock for production, transport equipment, etc.
• 4. Intellectual (intangible) resources – Inputs that cannot be seen or felt but which are essential for
continuing business success, for example ‘know-how’, legally defensible patents and licences, brand
names, registered designs, logos, ‘secret’ formulations and recipes, business contact networks,
databases, etc.
 THE PRACTICE OF STRATEGY

• The number and range of academics, consultants, authors and practitioners claiming to be
involved in strategy in some way is vast.

Given this diversity, it is unsurprising that, notwithstanding how we might formally define
the term strategy, in practice the term has been used in numerous ways.
MINTZBERG’S 5 P’S

• five Ps Mintzberg suggested that nobody can claim to own the word ‘strategy’ and that the term
can legitimately be used in several ways.
• A strategy can be:
• ● a plan;
• ● a ploy;
• ● a pattern of behaviour;
• ● a position in respect to others;
• ● perspective.
PLAN STRATEGIES

• A plan is probably the way in which most people use the word strategy. It tends to imply
something that is intentionally put in place and its progress is monitored from the start to
a predetermined finish. Some business strategies follow this model. ‘Planners’ tend to
produce internal documents that detail what the company will do for a period of time in
the future (say five years). It might include a statement on the overall direction that the
organization will take in seeking new business opportunities as well as a schedule for new
product launches, acquisitions, financing (i.e. raising money), human resource changes,
marketing,
PLOY STRATEGIES

• A ploy is generally taken to mean a short-term strategy, and is concerned with the detailed
tactical actions that will be taken. It tends to have very limited objectives and it may be
subject to change at very short notice. Mintzberg describes a ploy as ‘a manoeuvre
intended to outwit an opponent or competitor’ (Mintzberg et al., 2002: 3). He points out
that some companies may use ploy strategies as threats. They may threaten to, say,
decrease the price of their products simply to destabilize competitors.
PATTERN STRATEGIES

• A ‘pattern of behaviour’ strategy is one in which progress is made by adopting a

consistent form of behaviour. Unlike plans and ploys, patterns ‘just happen’ as a result of
the consistent behaviour.
POSITION STRATEGIES

• A position strategy is appropriate when the most important issue to an organization is

perceived to be how it relates or is positioned in respect to its competitors or its markets
(i.e. its customers). In other words, the organization wishes to achieve or defend a certain
position. In business, companies tend to seek objectives such as market share,
profitability, superior research, reputation, etc. It is plainly obvious that not all companies
are equal when such criteria are considered.
PERSPECTIVE STRATEGIES

• Perspective strategies are about changing the culture (the beliefs and the ‘feel’; the way of
looking at the world) of a certain group of people – usually the members of the
organization itself. Some companies want to make their employees think in a certain way,
believing this to be an important way of achieving success. They may, for example, try to
get all employees to think and act courteously, professionally or helpfully.