Introduction to

Strategic Management 1

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Definition

Strategic Management is the process of defining the organization's strategy, setting goals, and
making decisions on allocating resources to pursue this strategy. It involves analyzing the internal and
external environments and implementing plans to achieve long-term objectives.

Strategic management involves developing and implementing plans to help an organization achieve its goals and objectives.
This process can include formulating strategy, planning organizational structure and resource allocation, leading change
initiatives, and controlling processes and resources.

Strategic management is the process of planning, monitoring, analyzing, and assessing an

organization's resources and environment to achieve its long-term goals and objectives. It involves the
formulation and implementation of major goals and initiatives, considering both internal and external
factors that could impact the organization.
Importance of Strategic Management

•Long-Term Direction: It provides a sense of direction and outlines measurable goals.

•Competitive Advantage: Helps organizations to achieve and sustain a competitive

edge.

•Resource Allocation: Ensures optimal use of resources.

•Adaptability: Allows organizations to adapt to changes in the environment.

•Stakeholder Expectations: Aligns with the needs and expectations of stakeholders .

Benefits of Strategic Management

Financial benefits:
•Increase market share and profitability.
•Prevent legal risk.
•Improve revenue and cash flow.
Non-financial benefits:
•Relieves the board of directors of responsibilities.
•Allows for an objective review and assessment.
•Enables an organization to measure progress throughout time.
•Provides a big-picture perspective of the organization's future.
Key Components of Strategic
Management

1. Vision and Mission 2. Environmental

Statements: Scanning:
- Vision: The long-term - Internal Analysis:
desired change Strengths and
resulting from the weaknesses within
organization's work. the organization.
- Mission: The - External Analysis:
organization's Opportunities and
purpose and the threats in the
means to achieve its environment (PESTEL,
vision. Porter's Five Forces).
Continuation….

3. Strategy Formulation: 5. Evaluation and

Developing strategies to Control:
achieve organizational
objectives (e.g., corporate, Monitoring
business, and functional performance, reviewing
strategies strategies, and making
necessary adjustments.
4. Strategy
Implementation:
Putting formulated strategies
into action through proper
resource allocation,
organizational structure, and
leadership.
 Porter’s Five Forces
• It’s used to analyze the competitive dynamics within an industry,
helping businesses understand the underlying levers of profitability and
the attractiveness of the market.

1. Threat of New Entrants

The threat of new entrants refers to the possibility of new companies entering the
industry, which can reduce the profitability of existing firms. When new competitors
enter a market, they bring new capacity, a desire to gain market share, and often
substantial resources.
2. Bargaining Power of Suppliers
The bargaining power of suppliers describes how much influence suppliers have over
the price and terms of supply. Powerful suppliers can demand higher prices or supply
lower-quality goods, which can squeeze the profitability of companies in the industry.
Continuation……

3. Bargaining Power of Buyers

The bargaining power of buyers refers to the pressure that customers can exert on
businesses to get better products, lower prices, or improved service. When buyers have
significant power, they can influence the market dynamics and profitability of the
companies within the industry.
4. Threat of Substitute Products or Services
The threat of substitutes refers to the potential for customers to switch to alternative
products or services that can fulfill the same need. The presence of substitutes can limit
the price that companies in the industry can charge and therefore impact profitability.

5. Industry Rivalry
Industry rivalry refers to the intensity of competition among existing firms in the industry.
High rivalry limits profitability because firms compete aggressively on price, innovation,
and customer service.
 Main Levels of Strategic Management

Strategy operates at different levels within an organization, each addressing distinct aspects
of the business and focusing on various time horizons and objectives.

1. Corporate-Level Strategy

•Scope: This is the highest level of strategy, concerning the overall purpose and scope of the
organization.

•Focus: It addresses decisions about which industries or markets the organization should
compete in, and how resources should be allocated across the various business units.

•Examples: Decisions about mergers and acquisitions, diversification, entering new markets,
and the allocation of capital among business units fall under corporate-level strategy.

•Objective: The main goal is to maximize overall organizational value and ensure long-term
sustainability and growth.
 Continuation…

2. Business-Level Strategy

•Scope: This strategy level is focused on how the organization competes within a particular
industry or market.

•Focus: It deals with how to achieve a competitive advantage, how to position the business
against competitors, and how to meet customer needs effectively.

•Examples: Decisions around pricing, product differentiation, innovation, market

segmentation, and competitive positioning are part of business-level strategy.

•Objective: The primary aim is to outperform competitors within the industry or market and
achieve sustained profitability.
3. Functional-Level Strategy

•Scope: This level focuses on the specific functions within the organization, such as
marketing, operations, finance, human resources, and R&D.

•Focus: It involves decisions that support the business-level strategy, optimizing resources,
and processes within each functional area.

•Examples: Marketing strategies might involve promotional campaigns or product

development, while operational strategies could focus on supply chain management or
efficiency improvements.

•Objective: The goal is to ensure that each function effectively contributes to the overall
business objectives and competitive strategy.
4. Operational-Level Strategy

•Scope: This is the most granular level of strategy, dealing with day-to-day operations and the
execution of functional strategies.

•Focus: It is concerned with specific, short-term actions, processes, and procedures that ensure
the efficient and effective implementation of higher-level strategies.

•Examples: Production schedules, inventory management, quality control measures, and daily
workforce management are all aspects of operational-level strategy.

•Objective: The aim is to achieve efficiency, quality, and consistency in daily operations,
ensuring that the functional strategies are executed successfully.
 Each level of strategy must align with and support the others to ensure coherence
and effectiveness. For instance, the corporate strategy sets the overarching goals and
directions, which the business strategies interpret and pursue within specific markets or
industries. Functional and operational strategies, in turn, ensure that the day-to-day
activities align with these broader objectives.

In summary, the levels of strategy are interconnected, with each level playing a
crucial role in the overall success and competitiveness of an organization. The integration
of these levels ensures that the organization operates cohesively and efficiently towards
achieving its long-term goals.
PESTEL Analysis

- a strategic framework used to assess the external environment affecting an

organization.
- The acronym PESTEL stands for Political, Economic, Social, Technological,
Environmental, and Legal factors.
- By analyzing these areas, businesses can identify potential opportunities and
threats in the broader environment.
1. Political Factors
•Government Policies: Changes in government policy can have a direct impact on
business operations. For example, a change in tax policy, trade restrictions, or tariffs can
affect profitability and market strategies.

•Regulatory Environment: This includes regulations related to labor laws, environmental

laws, and industry-specific regulations that can influence how a company operates.

•Political Stability: Political stability in a region can affect investor confidence and
business operations. Political instability might lead to disruptions or changes in the
business environment.
2. Economic Factors

•Economic Growth: The overall economic growth of a country or region influences

business performance. In a growing economy, consumer spending generally increases,
benefiting businesses.

•Inflation Rates: Inflation can erode purchasing power and impact pricing strategies,
affecting both costs and sales.

•Exchange Rates: Fluctuations in currency exchange rates can affect the cost of imports
and exports, influencing competitiveness in the global market.

•Interest Rates: Interest rates influence the cost of borrowing and can impact capital
investment decisions.
3. Social Factors

•Demographics: Changes in population size, age distribution, and ethnic composition

can influence market demand for products and services.

•Cultural Trends: Shifts in cultural attitudes and social trends can affect consumer
behavior and demand. For example, increasing health consciousness can drive
demand for healthier products.

•Education Levels: The level of education in a population can influence the labor
market and the types of products and services in demand.
4. Technological Factors

•Innovation: Advances in technology can create new opportunities for businesses to improve
efficiency, develop new products, or enter new markets.

•Automation: Increased automation can reduce costs and improve productivity but may also
lead to job displacement.

•Research and Development (R&D): Investment in R&D can lead to innovation and a
competitive advantage but also requires significant resources.
5. Environmental Factors

•Climate Change: Businesses may need to adapt to the effects of climate change, such
as extreme weather events or shifts in resource availability.

•Sustainability: Increasing concern for sustainability can influence consumer

preferences and lead to new regulations. Companies may need to adopt environmentally
friendly practices to maintain their reputation and market share.

•Resource Scarcity: Limited availability of natural resources can affect supply chains
and production processes.
 6. Legal Factors

•Laws and Regulations: Changes in laws, such as consumer protection laws, antitrust
laws, and health and safety regulations, can affect business operations.

•Intellectual Property Rights: Protection of intellectual property is crucial for

innovation and maintaining a competitive edge.

•Employment Laws: Labor laws, including minimum wage regulations, working

conditions, and employment rights, can impact human resource practices.

PESTEL analysis is often used alongside other strategic tools, such as SWOT analysis, to provide
a comprehensive view of the internal and external factors affecting an organization.
 SWOT Analysis
is a strategic planning tool used to identify and analyze the internal and external factors that can
impact an organization, project, or decision.

•Strengths: Internal attributes and resources that support a successful outcome. These are the
positive aspects that give an organization an advantage over others. Strengths could include a
strong brand, loyal customer base, strong financial position, proprietary technology, skilled
workforce, etc.

•Weaknesses: Internal attributes and resources that could hinder a successful outcome. These
are the areas where the organization might struggle or lack the necessary resources.
Weaknesses could include poor brand recognition, high debt levels, limited resources, gaps in
capabilities, lack of expertise, etc.
•Opportunities: External factors that the organization could exploit to its advantage. These are the
external conditions that could benefit the organization if leveraged effectively. Opportunities might
include market growth, technological advancements, changes in consumer behavior, regulatory
changes that benefit the organization, etc.

•Threats: External factors that could cause trouble for the organization. These are external
conditions that could pose challenges or risks to the organization’s success. Threats could include
economic downturns, increasing competition, changes in regulatory environment, negative press,
etc.
 Application of SWOT Analysis

•Strategic Planning: Organizations use •Competitive Analysis: By understanding the

SWOT analysis to identify the best ways to strengths and weaknesses of competitors, an
achieve their goals by leveraging strengths, organization can better position itself in the
addressing weaknesses, taking advantage of market.
opportunities, and mitigating threats.
•Product Development: SWOT analysis can
•Decision-Making: SWOT analysis is often guide the development and launch of new
used in decision-making processes to weigh products by identifying key areas to focus on
the pros and cons of different options. and potential challenges.
Example of SWOT Analysis for a
Company

•Strengths: Strong brand recognition, extensive distribution network, high customer loyalty.

•Weaknesses: Dependence on a single supplier, limited online presence, high operational costs.

•Opportunities: Expansion into emerging markets, growing demand for eco-friendly products,
partnerships with tech companies.

•Threats: Economic recession, new regulations, rising raw material costs, increasing competition.
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