Handout for the Course of Strategic Management

Chapter One

Meaning and Definitions of strategy

1. Introduction
In the beginning, strategy took on a military significance and represented the action of
commanding or leading armies in times of war, i.e. a military campaign [30]. It meant a way of
prevailing over the adversary, a tool of victory in war and only afterwards was it applied to other
contexts and fields of human relationships: political, economics, business, among others, but
always retaining in all its uses the semantic root, to define paths.
The greatest challenge for a successful organization is change. This threatening change may
either be internal or external to the enterprise. The concept of strategy in business has been
borrowed from military science and sports where it implies out- maneuvering the opponent. The
term strategy began to be used in business with increase in competition and complexity of
business operations. A strategy is an administrative course of action designed to achieve success
in the face of difficulties. It is a plan for meeting challenges posed by the activities of
competitors and environmental forces.
Defining strategy is not simple. Strategy is a complex concept that involves many different
processes and activities within an organization. The word strategy is derived from the Greek
word "strategtia" which was used first around 400 B.C. This implies the art and science of
directing military forces. In business parlance, there is no definite meaning assigned to strategy.
After several phases and meanings, the concept of strategy has evolved into a field of knowledge
in management, strategic management, with content, concepts and practical reasoning, ending up
by carving out its own role in the academic and business fields. Management uses this old
military concept to associate the activities of a general with those of an organization’s manager.
Since it represents an important tool for business management in a competitive and turbulent
marketplace, the main objective of strategy involves preparing the organization to confront the
current hostile environment, to this end systematically and objectively deploying the skills,
qualifications and internal resources of the enterprise. On the other hand, the concept of strategy
still seems to be a very vague concept and subject to various interpretations.
Strategy and Strategic Management: a Historical Perspective
Strategy was created by the Greeks, who endowed the concept with a military connotation. The
term derives from the Greek strategos, translated as a general in command of troops or the art of
the general or plan to destroy enemies through effective use of resources. According to
Mintzberg and Quinn, strategy was already considered as an organizational skill at the time of

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work (450 BC), meaning management skills (administrative, leadership, public speaking,
power). However, it was only after World War II that strategy fully entered into the business
world, which has since grown significantly and needed guidance, lines and paths to be followed
by their entire structures.
However, there has never been a single and definite definition of strategy. The term has had
several meanings, different in scale and complexity which can mean policies, objectives, tactics,
goals, programs, among others, in an attempt to express the concepts necessary for its definition.
However, the concept of strategy has been used indiscriminately in the field of management,
meaning anything from a precisely formulated course of action, a positioning in a particular
environment, through to the entire personality, the soul and existential rationale behind a
company’s existence. It is a concept often put forward in the academic and business worlds,
filled with a great diversity and width, which in some aspects is complementary while divergent
in others.
Definitions of strategy in organizational contexts
Strategy is a series of actions undertaken by a company according to a particular situation
(Morgenstern 1947).
Strategy is analyzing the present situation and changing it whenever necessary. Incorporated
within this is finding out what one’s resources are or what they should be (Drucker, 1954).
Strategy is the determinant of the basic long-term goals of a firm, and the adoption of courses of
action and the allocation of resources necessary for carrying out these goals (Ansoff, 1965).
Strategy is a rule for making decisions determined by product/market scope, growth vector,
competitive advantage, and synergy (Mintzberg, 1967). Strategy is the pattern of objectives,
purposes, or goals and major policies and plans for achieving these goals, stated in such a way as
to define what business the company is in or is to be in and the kind of company it is or is to be
(Andrews & Guth, 1969). Strategies are forward-looking plans that anticipate change and initiate
action to take advantage of opportunities that are integrated into the concepts or mission of the
company (Schendel & Hatten, 1971).
Strategy is the basic goals and objectives of the organization, the major programs of action
chosen to reach these goals and objectives, and the major pattern of resource allocation used to
relate the organization to its environment (Uyterhoeven, 1972). Strategy is an analysis of the
environment where the organization is located and the selection of alternatives that will direct the
resources and objectives of the organization, taking into consideration the risk and potential
profits, and the feasibility that each alternative offers (Glueck, 1976).

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Strategy is a unified, comprehensive, and integrated plan designed to assure that the basic
objectives of the enterprise are achieved. Strategy is to decide which resources should be
acquired and used so they can take advantage of opportunities and minimize factors that threaten
the achievement of desired results. Strategy is embedded into policy-making: it contains a series
of decisions that reflect the basic objectives of the organization's business, and how to use the
capabilities and internal resources to achieve these objectives. Strategy is the formulation of
missions, purposes and basic organizational goals, policies and programs to meet them, and the
methods needed to ensure that strategies are implemented to achieve organizational objectives
(Steiner &Miner, 1977).
Strategy is a set of rules for decision making under conditions of partial unfamiliarity.
Strategy provides suggested directions for the organization, which allows the company to
achieve its objectives and to respond to opportunities and threats in the external environment.
Strategy is the pattern of decisions that guide the organization in its relationship with the
environment, affect the processes and internal structures, as well as influencing the performance
of organizations.
Strategy explains how the company will use its resources and capabilities to build and sustain the
competitive advantages that favorably influence customer purchasing decisions.
Strategy is a set of rules for decision making to guide the behaviour of an organization. There are
four distinct types of rules: standards by which the present and future performance of the
company is measured (objectives, targets); rules for the development of relationships with the
external environment (product strategy and marketing, or business strategy), rules for
establishing relations and internal processes in the organization (organizational concept); and
rules by which the company shall conduct its activities in the day-to-day (operational policies).
The definition of what strategy means is neither closed nor simple to establish a consensus on.
We cannot say any particular definition is correct. Each existing definition is correct but contains
limitations in its set of assumptions and related dimensions.
1.1 Defining Strategic Management
According to Quinn and Rogers, strategy comes from the Greek word, “strategos” meaning
“generalship”, “stratos” – army “agein” – to lead and which described the role of general in the
command of the army/ the art of war, drafting the plan of war .The analogy with business is that
business too is on a war footing as competition becomes more and more fierce and survival more
problematic.

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It is the process of developing and implementing plans to reach goals and objectives. A strategy
is an organization’s way of saying how it creates unique value and thus attracts the custom that is
its lifeblood. 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 is a continuous process that evaluates and controls the
business and the industries in which an organization is involved; evaluates its competitors and
sets goals and strategies to meet all existing and potential competitors; and then reevaluates
strategies on a regular basis to determine how it has been implemented and whether it was
successful or does it needs replacement.
Strategic management is the decision process that aligns the organization’s internal capability
with the opportunities and threats it faces in its environment (Rowe et al, 1994).
Three big questions involved in a strategy
Where are we now?
Where do we want to go?
How will we get there?
A good strategy is
Clear goals: Helps making to tactical choices made during the lifetime of the strategy.
Supports initiative: Rewarding initiative behavior results in better commitment and motivation.
Concentrated: Resources and energy is concentrated when and where it matters most.
Flexible: Taking advantage of changes.
Well managed: Good leadership is needed.
An effective strategist makes reasoned and reasonable recommendations for how an organization
should position itself relative to its peers and for assessing what actions the organization should
take to maximize value creation for its various stakeholders.
Strategic management techniques can be viewed in two major ways. The first is the bottom-up or
collaborative processes. Using this approach, the employees initiate a proposal which they
subsequently submit to their managers or their superiors, who put the idea further up in the
establishment. These proposals may be assessed based on financial criteria and other concrete
economic terms such as cost-benefit evaluation and returns on investment. The second is the top-
down approach which is more common than any other method. Here, the chief executive officer
and his team decide on the overall direction which the organization should go.

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1.2 Stages of Strategic Management

The strategic-management process consists of three stages: strategy formulation, strategy
implementation, and strategy evaluation.
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. 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. Because no organization has unlimited resources, strategists must
decide which alternative strategies will benefit the firm most. 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.
Strategy implementation requires a firm to establish annual objectives, devise policies, motivate
employees, and allocate resources so that formulated strategies can be executed.
Strategy implementation 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.
Implementing strategy means mobilizing employees and managers to put formulated strategies
into action. Often 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.
Interpersonal skills are especially critical for successful strategy implementation.
Strategy-implementation activities affect all employees and managers in an organization.
Every division and department must decide on answers to questions, such as “What must we do
to implement our part of the organization’s strategy?” and “How best can we get the job done?”

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Strategy making requires person with vision while strategy implementation requires a
person with administrative ability.

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 activities are
(1) reviewing external and internal factors that are the bases for current strategies, (2) measuring
performance, and (3) taking corrective actions.
1.3 Key Terms in Strategic Management
Before we further discuss strategic management, we should define nine key terms: competitive
advantage, strategists, vision and mission statements, external opportunities and threats, internal
strengths and weaknesses, long-term objectives, strategies, annual objectives, and policies.
1. Competitive Advantage
Strategic management is all about gaining and maintaining competitive advantage. This term can
be defined as “anything that a firm does especially well compare to rival firms.”
When a firm can do something that rival firms cannot do, or owns something that rival firm’s
desire, that can represent a competitive advantage. Normally, a firm can sustain a competitive
advantage for only a certain period due to rival firms imitating and undermining that advantage.
Thus it is not adequate to simply obtain competitive advantage. A firm must strive to achieve
sustained competitive advantage by (1) continually adapting to changes in external trends and
events and internal capabilities, competencies, and resources; and by (2) effectively formulating,
implementing, and evaluating strategies that capitalize upon those factors.
2. Strategists
Strategists are the individuals who are most responsible for the success or failure of an
organization.
Strategists have various job titles, such as chief executive officer, president, and owner, chair of
the board, executive director, chancellor, dean, or entrepreneur. Strategists help an organization
gather, analyze, and organize information. They track industry and competitive trends, develop
forecasting models and scenario analyses, evaluate corporate and divisional performance, spot
emerging market opportunities, identify business threats, and develop creative action plans.
Strategic planners usually serve in a support or staff role. Usually found in higher levels of
management, they typically have considerable authority for decision making in the firm. The

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CEO is the most visible and critical strategic manager. Any manager who has responsibility for a
unit or division, responsibility for profit and loss outcomes, or direct authority over a major piece
of the business is a strategic manager (strategist).
3. Vision and Mission Statements
Many organizations today develop a vision statement that answers the question “What do we
want to become?” Developing a vision statement is often considered the first step in strategic
planning, preceding even development of a mission statement. Many vision statements are a
single sentence.
Mission statements are “enduring statements of purpose that distinguish one business from other
similar firms. A mission statement identifies the scope of a firm’s operations in product and
market terms.” It addresses the basic question that faces all strategists:
“What is our business?” A clear mission statement describes the values and priorities of an
organization. Developing a mission statement compels strategists to think about the nature and
scope of present operations and to assess the potential attractiveness of future markets and
activities. A mission statement broadly charts the future direction of an organization.
A mission statement is a constant reminder to its employees of why the organization exists and
what the founders envisioned when they put their fame and fortune at risk to breathe life into
their dreams.
4. External Opportunities and Threats
External opportunities and external threats refer to economic, social, cultural, demographic,
environmental, political, legal, governmental, technological, and competitive trends and events
that could significantly benefit or harm an organization in the future.
Opportunities and threats are largely beyond the control of a single organization—thus the word
external. E.g. Global economic recession
A basic principle of strategic management is that firms need to formulate strategies to take
advantage of external opportunities and to avoid or reduce the impact of external threats. For this
reason, identifying, monitoring, and evaluating external opportunities and threats are essential for
success. This process of conducting research and gathering and assimilating external information
is sometimes called environmental scanning or industry analysis.
5. Internal Strengths and Weaknesses
Internal strengths and internal weaknesses are an organization’s controllable activities that are
performed especially well or poorly. They arise in the management, marketing,
finance/accounting, production/operations, research and development, and management

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information systems activities of a business. Identifying and evaluating organizational strengths

and weaknesses in the functional areas of a business is an essential strategic management
activity. Organizations strive to pursue strategies that capitalize on internal strengths and
eliminate internal weaknesses.
Strengths and weaknesses are determined relative to competitors. Relative deficiency or
superiority is important information. Also, strengths and weaknesses can be determined by
elements of being rather than performance. For example, strength may involve ownership of
natural resources or a historic reputation for quality. Strengths and weaknesses may be
determined relative to a firm’s own objectives. For example, high levels of inventory turnover
may not be strength to a firm that seeks never to stock-out.
Internal factors can be determined in a number of ways, including computing ratios, measuring
performance, and comparing to past periods and industry averages. Various types of surveys
also can be developed and administered to examine internal factors such as employee morale,
production efficiency, advertising effectiveness, and customer loyalty.
6. Long-Term Objectives
Objectives can be defined as specific results that an organization seeks to achieve in pursuing its
basic mission. Long-term means more than three year. Objectives are essential for organizational
success because they state direction; aid in evaluation; create synergy; reveal priorities;
focus coordination; and provide a basis for effective planning, organizing, motivating, and
controlling activities. Objectives should be challenging, measurable, consistent, reasonable,
and clear. In a multidimensional firm, objectives should be established for the overall company
and for each division.
7. Strategies
Strategies are the means by which long-term objectives will be achieved. Business strategies
may include geographic expansion, diversification, acquisition, product development, market
penetration, retrenchment, divestiture, liquidation, and joint ventures.

Strategies are potential actions that require top management decisions and large amounts of the
firm’s resources. In addition, strategies affect an organization’s long-term prosperity, typically
for at least five years, and thus are future-oriented. Strategies have multifunctional or
multidivisional consequences and require consideration of both the external and internal factors
facing the firm.

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8. Annual Objectives
Annual objectives are short-term milestones that organizations must achieve to reach long-term
objectives. Like long-term objectives, annual objectives should be measurable, quantitative,
challenging, realistic, consistent, and prioritized. They should be established at the corporate,
divisional, and functional levels in a large organization.
A set of annual objectives is needed for each long-term objective. Annual objectives are
especially important in strategy implementation, whereas long-term objectives are particularly
important in strategy formulation. Annual objectives represent the basis for allocating resources.
9. Policies
Policies are the means by which annual objectives will be achieved. Policies include guidelines,
rules, and procedures established to support efforts to achieve stated objectives.
Policies are guides to decision making and address repetitive or recurring situations.
Policies are most often stated in terms of management, marketing, finance/accounting,
production/operations, research and development, and computer information systems activities.
Policies can be established at the corporate level and apply to an entire organization at the
divisional level and apply to a single division or at the functional level and apply to particular
operational activities or departments. Policies, like annual objectives, are especially important in
strategy implementation because they outline an organization’s expectations of its employees
and managers. Policies allow consistency and coordination within and between organizational
departments.
1.4 Benefits of Strategic Management
Financial Benefits
Organizations using strategic-management concepts are more profitable and successful than
those that do not.
Businesses using strategic-management concepts show significant improvement in sales,
profitability, and productivity compared to firms without systematic planning activities.
Strategic-management theory generally exhibit superior long-term financial performance relative
to their industry.
Non-financial Benefits
 It allows for identification, prioritization, and exploitation of opportunities.
 It provides an objective view of management problems.
 It represents a framework for improved coordination and control of activities.
 It minimizes the effects of adverse conditions and changes.

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 It allows major decisions to better support established objectives.

 It allows more effective allocation of time and resources to identified opportunities.
 It allows fewer resources and less time to be devoted to correcting erroneous or ad hoc
decisions.
 It creates a framework for internal communication among personnel.
 It helps integrate the behavior of individuals into a total effort.
 It provides a basis for clarifying individual responsibilities leads to increased employee
productivity.
 It encourages forward thinking.
 It provides a cooperative, integrated, and enthusiastic approach to tackling problems and
opportunities.
 It encourages a favorable attitude toward change.
 It gives a degree of discipline and formality to the management of a business
1.7 Why Some Firms Do No Strategic Planning
Some reasons for poor or no strategic planning are as follows:
 Lack of knowledge or experience in strategic planning—No training in strategic
planning.
 Poor reward structures—when an organization assumes success, it often fails to reward
success. When failure occurs, then the firm may punish.
 Firefighting—an organization can be so deeply embroiled in resolving crises and
firefighting that it reserves no time for planning.
 Waste of time—some firms see planning as a waste of time because no marketable
product is produced. Time spent on planning is an investment.
 Too expensive—some organizations see planning as too expensive in time and money.
 Laziness—People may not want to put forth the effort needed to formulate a plan.
 Content with success—particularly if a firm is successful, individuals may feel there is no
need to plan because things are fine as they stand. But success today does not guarantee
success tomorrow.
 Fear of failure—by not taking action, there is little risk of failure unless a problem is
urgent and pressing. Whenever something worthwhile is attempted, there is some risk of
failure.
 Overconfidence—as managers amass experience, they may rely less on formalized
planning. Rarely, however, is this appropriate. Being overconfident or overestimating

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experience can bring demise. Forethought is rarely wasted and is often the mark of
professionalism.
 Prior bad experience—People may have had a previous bad experience with planning,
that is, cases in which plans have been long, cumbersome, impractical, or inflexible.

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