Chapter 1

Introduction to
Strategic Management
 For this lecture
O We run through history
O We define management
O We define strategy
O We study strategic management
O We check on the components of
strategic management
O We study corporate governance
 Sun Tzu’s Art of War
O “Know your enemy and know yourself
and in 100 battles you will never be in
peril.” – intelligence is key.
O “To win 100 battles is not the height
of skill – To subdue the enemy without
fighting is.” – outwit your opponent.
O “Avoid what is strong. Attack what is
weak.” – do not go head to head in
battles.
O ”It is better to out wit than out fight
an opponent.”
History of Management
O Sumer, located in what is today
southern Iraq and the first urban-
based civilization, contained the
genesis of management.
 Evolution of
Management
Scientific Management
O Fredrick Winslow Taylor, an engineer, proposed and
developed the Scientific Management Theory. He is
also known as the Father of Scientific Management
and his school of thought came to be known as
Taylorism.
O Taylor is focused on maximizing efficiency through
scientific means.
Administrative Management
O Henry Fayol, a French mining engineer, laid down five
functions and 14 principles of management under the
theory of Fayolism. This gave way to the school of
administrative management.
O Fayol focused on the functions of management.
 Evolution of
Management
Human Relations Management
O Developed by Elton Mayo, an Australian psychologist,
the Human Relations Theory of Management.
O This theory emerged as a response to the criticism
faced by the classical management theories, where
social factors such as human behavior and attitudes
weren’t considered important.
Behavioral Management
O Behavioral approaches to management set the pace for
how modern workplaces build an employee-friendly
culture.
O Abraham Maslow, an American psychologist, proposed
the hierarchy of need, where employee need and
expectations were prioritized.
Three Big Strategic
Questions
What is Strategy?
 Why are Strategies
Needed?
O To proactively shape how a
company’s business will be
conducted.
O To mold the independent actions and
decisions of managers and
employees into a coordinated
company-wide game plan.

“The imagination is a weapon. Those

who don't use it die first.”
Strategic Management
Strategic Management Components:
O Setting objectives
O Analyzing the competitive
environment
O Analyzing the internal organization
O Evaluating strategies
O Ensuring that management rolls out
the strategies across the
organization.
The 5 Simple Key Components
of Strategic Management
Environmental Analysis:
Assessing the external factors that
may impact the organization.
The 5 Simple Key Components
of Strategic Management
Internal Analysis:
Evaluating the organization's strengths
and weaknesses.
 The 5 Simple Key Components
of Strategic Management
Strategy Formulation:
Developing strategies based on the
analysis.
 The 5 Simple Key Components
of Strategic Management
Strategy Formulation:
Developing strategies based on the
analysis.
The 5 Simple Key Components
of Strategic Management
Strategy Implementation:
Executing the chosen strategies effectively. Good Strategic
Planning is not enough.

O Clear Communication: Ensure everyone understands the

strategy and their role in it.

O Aligned Resources: Allocate resources in line with strategic

priorities.

O Flexible Adaptation: Be open to adjusting strategies based

on feedback and changing circumstances.

O Leadership Support: Strong leadership backing is crucial

for successful implementation.
The 5 Simple Key Components
of Strategic Management
Strategy Implementation:
Executing the chosen strategies effectively. Good Strategic
Planning is not enough.

O Employee Involvement: Involve employees in the process

to enhance commitment and motivation.

O Monitoring Progress: Regularly track and evaluate

progress toward strategic goals.

O Training and Development: Equip employees with the

necessary skills to execute the strategy.

O Celebrate Achievements: Recognize and celebrate

milestones to boost morale and motivation.
The 5 Simple Key Components
of Strategic Management
Evaluation and Control:
Monitoring progress and making
adjustments as needed.
 Key Terms in Setting
Objectives
O Mission – Purpose
O Strategy – Management’s Plans
O Competitive Advantage – Successful
Strategies that cannot be duplicated
What Differs Mission from
Vision Statement?
Mission Statement
O The mission statement drives the
company. It outlines both what you do and what
comprises the core of the business, and from
this, objectives are made clear, followed finally
by what it takes to reach those objectives.

Questions that guide mission statements include:

• What do we do?
• Whom do we serve?
• How do we serve them?
Shell Company Profile
What Differs Mission from
Vision Statement?
The vision statement gives the
company direction.

Because it describes the future of the

business, it emphasizes the
organization’s overall purpose.
What Differs Mission from
Vision Statement?
The vision statement is about what you want
to become – it is meant to be aspirational.
Questions that guide vision statements
include:

• What are our hopes and dreams for the

company?
• What problem are we solving for the
greater good?
• Who and what are we inspiring to change?
Shell Mission
Statement
Management Gone
Wrong
Levels of Strategy
 Areas Impacted by
Corporate Strategy
O Organizational Structure
O Portfolio Management
O Resource Allocation
O Diversification and Integration
O Market Positioning
 Areas Impacted by
Corporate Strategy
O Competitive Advantage
O Global Expansion
O Innovation and Technology
O Brand Image and Reputation
O Corporate Culture and Values
O Risk Management
O Stakeholder Relationships
Corporate Level Strategy
Examples
O Typically, major investment and divestment decisions are
made at this level by top management.

O Mergers and Acquisitions (M&A) is also an important part of

corporate strategy.

O This level of strategy is only necessary when the company

operates in two or more business areas through different
business units with different business-level strategies that
need to be aligned to form an internally consistent
corporate-level strategy.

O That is why corporate strategy is often not seen in small-

medium enterprises (SME’s), but in multinational
enterprises (MNE’s) or conglomerates.
 Business Level
Strategy
O The Business-level strategy is what most people are
familiar with and is about the question “How do we
compete?”, “How do we gain (a sustainable) competitive
advantage over rivals?”.

O At this level, we can use internal analysis frameworks like

the Value Chain Analysis and the VRIO Model and external
analysis frameworks like Porter’s Five Forces and PESTEL
Analysis. This also includes Blue Ocean Strategy and
Porter’s Generic Strategies.

O In the end, the business-level strategy is aimed at gaining

a competitive advantage by offering true value for
customers while being a unique and hard-to-imitate player
within the competitive landscape.
Examples of Business Level
Strategies
O Broaden exposure
O Increase marketing budget
O Improve quality
O Rebrand
O Tap new and emerging markets
 Functional Strategy
O Functional-level strategy is concerned with the question
“How do we support the business-level strategy within
functional departments, such as Marketing, HR, Production
and R&D?”.

O These strategies are often aimed at improving the

effectiveness of a company’s operations within
departments.

O Within these departments, workers often refer to their

‘Marketing Strategy’, ‘Human Resource Strategy’ or ‘R&D
Strategy’.

O The goal is to align these strategies as much as possible

with the greater business strategy.
 Example of Functional
Strategy
O If the business strategy is for
example aimed at offering products
to students and young adults, the
marketing department should target
these people as accurately as
possible through their marketing
campaigns by choosing the right
(social) media channels.
 So what differs business
from functional strategies?
The business level strategy defines the
strategic goals for the business to
evolve and grow.

A functional level strategies define the

way each functional areas - sales,
marketing, operations, finance, etc.-
will deliver their contribution to the
business goals.
 So what differs business
from functional strategies?
For example, a business-level strategy
may define a goal to expand into a new
geographic territory with a certain
revenue or market share goals at the end
of 24 months.

The functional area head needs to

examine this goal, define what they must
do to support achieving that goal and
articulate their own strategy to deliver.
 So what differs business
from functional strategies?
O In this example, the marketing team could create a strategy that
tells their story of supporting this goal with objectives like…

Objective 1 - Launch: research the market, determine the

competitive set, identify any unique to new market trends or
dynamics to success, source and win go-to-market partners and plan
marketing introduction

Objective 2 - Assist in building strong presence (with Sales)

Objective 3 - Increase awareness and positioning, etc…

In conclusion:
Business level sets business goals.
Function level details strategy to achieve goals within each
functional area.
The Hierarchy
Benefits of Strategic
Management
 5 Characteristics of a
Successful Strategy
1. Understand the competitive
environment
2. Strengths and weaknesess are
assessed
3. The strategy is consistent with the
mission and goals
4. Plans for putting the strategy into
action are designed before it is
implemented
5. Possible future changes are
anticipated
 Business Model

O A business model explains how the

organization seeks to earn a profit by
selling its goods.
 Business Model
O Strategic management involves the
formulation and execution of
strategies to achieve organizational
objectives, while the business model
outlines how a company creates,
delivers, and captures value.
 Business Models
1. E-commerce Model
2. Subscription Model
3. Freemium Model
4. Advertising Model
5. Franchise Model
6. Razor and Blades Model
7. On-Demand Model
8. Marketplace Model
9. Direct Sales Model
10.Platform Model
11.Asset-Light Model
12.Affiliate Marketing Model
13.B2B (Business-to-Business) Model
14.B2C (Business-to-Consumer) Model
3 Theoretical Perspectives
on Strategic Management
O Industrial organization – a branch of
microeconomics, emphasizes the influence of
the industry environment on the firm.

O Resource-based theory – views performance of

the firm’s ability to use resources to develop a
distinctive competence.

O Contingency theory – represents a middle

ground perspective. This uses joint outcome of
environmental forces and firm’s strategic
actions.
Corporate Governance
O Corporate governance refers to the
system of rules, practices, and
processes by which a company is
directed and controlled.
O It involves the relationships among a
company's management, its board of
directors, its shareholders, and other
stakeholders.
Corporate Governance
O Refers to the board of directors,
institutional investors, and large
shareholders who monitor firm
strategies to ensure effective
management.
 Board of Directors
O Evaluating top management’s
strategic proposals
O Establishing board direction for the
firm
O Selecting and determining the
compensation for the chief executive
The Executives
Corporate Governance
 4 Characteristics of
Strategic Decisions
1. Based on a systematic,
comprehensive analysis internal
and external factors.
2. Long-term and future-oriented –
usually several years to a decade or
longer.
3. Seek to capitalize on favorable
situations outside the organization.
4. Involve choices and trade-offs
The Global Imperative
O Most firms are involved globally to
some extent.
O The basis for global involvement is
comparative advantage
 Next Topic
O The Basis of Strategy -- Structure