Unit 1

The Nature of Strategic Management

Strategic Management: by
Indrajit C

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Strategic Management Defined

Art & science of formulating,

implementing, and evaluating,
cross-functional
decisions
that
enable an organization to achieve its
objectives

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Purpose of Strategic Management

To exploit and create new and different

opportunities for tomorrow

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Strategic Management

In essence, the strategic plan is a

companys game plan

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3 Stages of the Strategic

Management Process

Strategy formulation

Strategy implementation

Strategy evaluation
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Strategy Formulation
Vision & Mission
External Opportunities & Threats
Internal Strengths & Weaknesses
Long-Term Objectives
Alternative Strategies
Strategy Selection

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Ch 1 -6

Issues in Strategy
Formulation

Businesses
Businessesto
toenter
enter

Businesses
Businessesto
toabandon
abandon

Allocation
Allocationof
ofresources
resources

Expansion
Expansionor
or
diversification
diversification

International
Internationalmarkets
markets

Mergers
Mergersor
orjoint
joint
ventures
ventures

Avoidance
Avoidanceof
ofhostile
hostile
takeover
takeover

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Ch 1 -7

Strategy Implementation

Annual Objectives
Policies
Employee Motivation
Resource Allocation

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Ch 1 -8

Issues in Strategy
Implementation
Action
ActionStage
Stageof
ofStrategic
Strategic
Management
Management

Mobilization
Mobilizationof
of
employees
employees&&managers
managers

Most
Mostdifficult
difficultstage
stage

Interpersonal
Interpersonalskills
skills
critical
critical

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Ch 1 -9

Strategy Evaluation

Internal Review
External Review
Performance Measurement
Corrective Action

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Prime Task of
Strategic Management

Peter Drucker: Think through the

overall mission of a business. Ask
the key question:
What is our Business?

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Adapting to Change

Organizations should continually

monitor internal and external
events and trends so that timely
changes can be made as needed

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Key Terms in Strategic Management

Competitive advantage
Strategists
Vision and mission statements
External opportunities and threats
Internal strengths and weaknesses
Long-term objectives
Strategies
Annual objectives
Policies
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Strategic Management is
Gaining and Maintaining
Competitive Advantage

Anything that a firm does especially

well compared to rival firms

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Ch 1 -14

Strategic Management Model

Environmental
Scanning
External
Societal
Environment
General Forces
Task
Environment
Industry Analysis

Internal
Structure
Chain of Command
Culture
Beliefs, Expectations,
Values

Strategy
Formulation

Strategy
Implementation

Evaluation
and Control

Mission
Reason for
existence

Objectives
What results
to
accomplish
by when

Strategies
Plan to
achieve the
mission &
objectives

Policies
Broad
guidelines for
decision
making

Programs
Activities
needed to
accomplish
a plan

Resources
Assets, Skills
Competencies,
Knowledge

Budgets
Cost of the
programs

Procedures
Sequence
of steps
needed to
do the job

Feedback/Learning

Process
to monitor
performance
and take
corrective
action

Performance

Strategists
Gather Information
Analyze Information
Organize Information

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Vision and Mission Statements

Vision Statement
What do we want to become?

Mission Statement
What is our business?

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External Opportunities and Threats

Analysis of Trends

Economic
Social
Cultural
Demographic/Environmental
Political, Legal, Governmental
Technological
Competitors
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External Opportunities and Threats

Basic Tenet of Strategic Management

Take
Takeadvantage
advantageof
of
External
ExternalOpportunities
Opportunities
Strategy Formulation

Avoid/minimize
Avoid/minimizeimpact
impactof
of
External
ExternalThreats
Threats

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Internal Strengths and Weaknesses

Controllable

activities performed
especially well or poorly

Determined

relative to competitors

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Internal Strengths and Weaknesses

Assessing the Internal Environment
Ratios

Performance Measures

Internal Factors
Industry Averages

Survey Data

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Long-Term Objectives

Specific results that an organization

seeks to achieve in pursuing its basic
mission

Long-term means more than one year

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Long-Term Objectives

Essential for ensuring the firms success

Provide direction
Aid in evaluation
Create synergy
Reveal priorities
Focus coordination
Provide basis for planning, organizing,
motivating, and controlling
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Strategies

Means by which long-term objectives

are achieved

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Strategies

Examples
Geographic expansion
Diversification
Acquisition
Product development
Market penetration
Retrenchment
Divestiture
Liquidation
Joint venture
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Annual Objectives

Short-term milestones that firms must

achieve to reach long-term objectives

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Policies

Means by which annual objectives will

be achieved

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Strategic Management Model

Strategic

Management Process
Dynamic & continuous
More formal in larger
organizations

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Evaluation and Control

The process of monitoring corporate activities

and performance results so that actual
performance can be compared with desired
performance

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Strategic Management

Communication

is a key to
successful strategic management

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Hierarchy of Strategy
Corporate
Headquarters

Strategic
Business
Unit

Manufacturing

Finance

Strategic
Business
Unit

Marketing

Corporate
Strategy

Business
(Division
Level)
Strategy

Strategic
Business
Unit

Research
and
Development

Human
Resources

Functional
Strategy

Strategic Decision-Making Process

3(b)

3(a)
Scan and
Assess
External
Environment:
Societal
Task

1(a)
Evaluate
Current
Performance
Results

1(b)
Examine and
Evaluate the
Current:
Mission
Objectives
Strategies
Policies

Analyze
External
Factors:
Opportunities
Threats

5(a)
Select
Strategic
Factors
(SWOT)
in Light of
Current
Situation

Review
Corporate
Governance:
Board of
Directors
Top Management

4(a)

5(b)
Review and
Revise as
Necessary:
Mission
Objectives

6(a)
Generate
and
Evaluate
Strategic
Alternatives

6(b)
Select
and
Recommend
Best
Alternative

8
Implement
Strategies:
Programs
Budgets
Procedures

Evaluate
and
Control

4(b)

Scan and
Assess
Internal
Environment:
Structure
Culture
Resources

Analyze
Internal
Factors:
Strengths
Weaknesses

Strategy
Formulation:
Steps 1 6

Evaluation
Strategy
and
Implementation
Control:
Step 7
Step 8

Benefits of Strategic Management

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Ch 1 -33

Benefits of Strategic Management

Nonfinancial Benefits

Enhanced awareness of threats

Improved understanding of competitors strategies
Increased employee productivity
Reduced resistance to change
Clearer understanding of performance-reward
relationship
Enhanced problem-prevention capabilities

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Ch 1 -34

Types of Takeovers
Takeover
The transfer of control from one ownership group to another.
Acquisition
The purchase of one firm by another
Merger
The combination of two firms into a new legal entity
A new company is created
Both sets of shareholders have to approve the transaction.
Amalgamation
A genuine merger in which both sets of shareholders must approve the transaction
Requires a opinion by an independent expert on the true value of the firms
shares
when a public minority exists
Conglomerate
A merger in which two firms in unrelated businesses combine.
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Thank

Indrajit

You
Ch 1 -36