BASIC CONCEPTS OF
STRATEGIC MANAGEMENT
Definition - Strategy
Strategy refers to large scale, future-oriented plans
for interacting with the competitive environment to
achieve company objectives.
It reflects a company’s awareness of how, when
and where it should compete; against whom it
should compete; and for what purpose it should
compete.
Dimensions of Strategic
Decisions
Strategic issues require top management
support.
Strategic issues require large amounts of the
firm’s resources.
Strategic issues often affect the firm’s long-term
prosperity.
Strategic issues are future oriented.
Strategic issues usually have multifunctional or
multi business consequences.
Strategic issues require considering the firm’s
external environment.
Strategic Management
StrategicManagement is that set of
managerial decisions and actions
that determines the long-run
performance of a corporation.
It
emphasises the monitoring and
evaluating of external opportunities
and threats in light of a corporation’s
strengths and weaknesses.
Prime Task of
Strategic Management
Peter Drucker: Think through
the overall mission of a
business. Ask the key question:
“What is our Business?”
Strategic Management is
Gaining and Maintaining
Competitive Advantage
“Anything that a firm does
especially well compared to
rival firms”
Benefits of Strategic
Management
• Proactive in shaping firm’s future
• Initiate and influence firm’s activities
• Formulate better strategies
• Systematic, logical, rational
Benefits of Strategic
Management
Financial Benefits
• Improvement in sales
• Improvement in profitability
• Productivity improvement
Benefits of Strategic
Management
Nonfinancial Benefits
• Improved understanding of competitors’
strategies
• Enhanced awareness of threats
• Reduced resistance to change
• Enhanced problem-prevention capabilities
Benefits of Strategic
Management (Greenley)
1. Identification of opportunities
2. Objective view of management
problems
3. Improved coordination & control
4. Minimizes unfavorable conditions &
changes
5. Decisions that better support
objectives
6. Effective allocation of time & resources
Benefits of Strategic
Management (Greenley –
cont’d)
7. Internal communication among
personnel
8. Integration of individual behaviors
9. Clarify individual responsibilities
10. Encourage forward thinking
11. Encourages favorable attitude toward
change
12. Provides discipline and formality to
the management of the business
Strategic Management Process
StrategicManagement consists of
four basic elements:
1. Environmental Scanning
2. Strategy Formulation
3. Strategy Implementation
4. Evaluation and Control
Environmental Scanning
The simplest way to conduct
environmental scanning is through SWOT
analysis.
S – STRENGTHS
W – WEAKNESSES
O – OPPORTUNITIES
T - THREATS
Environmental Variables
Affecting Business
1. External Environment
Economic Forces
Socio-Cultural Forces
Political-Legal Forces
Technological Forces
Environmental Variables
Affecting Business
2. Industry Environment
Shareholders
Governments
Suppliers
Customers
Creditors
Employees/Labour Unions
Competitors
Trade Associations
Communities
Environmental Variables
Affecting Business
3. Internal Environment
Structure
Culture
Resources
Strategy Formulation
It includes the following:
1. Defining the corporate mission
2. Specifying achievable objectives
3. Developing strategies
4. Setting policy guidelines
Strategy Implementation
It
is the process by which strategies
and policies are put into action
through the development of
programs, budgets and procedures.
It
is also referred to as operational
planning. It involves day-to-day
decisions in resource allocation.
Evaluation and Control
It is the process in which corporate activities and
performance results are monitored so that
actual performance can be compared with
desired performance.
Managers at all levels use the resulting
information to take corrective action and resolve
problems. For evaluation and control to be
effective, managers must obtain clear, prompt
and unbiased information from the people below
them in the corporation’s hierarchy.
Adapting to Change
Organizations must monitor
events
Ongoing process
Internal and external events
Timely changes
Adapting to Change
The need to adapt to change leads
organizations to key strategic-
management questions, such as, “What
kind of business should be become?”
“Are we in the right field?” “Should we
reshape our business?” “What new
competitors are entering our industry?”
Achieving Sustained
Competitive Advantage
1. Adapting to change in external
trends, internal capabilities, and
resources
2. Effectively formulating,
implementing, and evaluating
strategies
Adapting to Change
Rate & magnitude of change
increasing dramatically
E-commerce
Demographics
Technology
Hall
Adapting to Change
Effective Adaptation
Requires long-term
focus
Adapting to Change – Key
Strategic Management
Questions
What kind of business
should we become?
Are we in the right fields?
Are there new competitors?
What strategies should we
pursue?
How are our customers
changing?
Why Some Firms Do No
Strategic Planning
Poor reward structures
Fire-fighting
Waste of time
Too expensive
Laziness
Content\happy with success
Why Some Firms Do No
Strategic Planning
Fear of failure
Overconfidence
Prior bad experience
Self-interest: self-esteem through
effectively using old system.
Fear of the unknown: uncertain of their
ability to learn new skills.
Suspicion: employees may not trust
management.
Pitfalls In Strategic Planning
•Using strategic planning to gain
control over decisions and resources
•Doing strategic planning only to
satisfy accreditation or regulatory
requirements
•Too hastily\quickly moving from
mission development to strategy
formulation
Pitfalls In Strategic Planning
Failing to communicate the plan to
employees, who continue working in the
dark
Top managers making many intuitive
decisions that conflict with the formal plan
Top managers not actively supporting the
strategic-planning process
Pitfalls In Strategic Planning
Failing to use plans as a standard for
measuring performance
Delegating planning to a “planner” rather than
involving all managers
Failing to involve key employees in all phases
of planning
Failing to create a collaborative climate
supportive of change
Pitfalls In Strategic Planning
Viewing planning to be unnecessary or
unimportant
Becoming so engrossed in current
problems that insufficient or no
planning is done
Being so formal in planning that
flexibility and creativity are stifled
Guidelines for Effective
Strategic Management
“Is strategic management in our firm a people
process or a paper process?” should be addressed.
Balancing between long-range versus short-range
or maximizing profits versus increasing
shareholders’ wealth.
Subjective factors such as attitudes toward risk,
concern for social responsibility, and organizational
culture will always affect strategy-formulation
decisions, but organizations must remain as
objective as possible.
