Strategic Management- I

U1- introduction of SM
What is strategy?
Strategy is the direction and scope of an
organization over the long term, which achieves
advantage in a changing environment through
its configuration of resources and competences
with
the
aim
of
fulfilling
stakeholder
expectations.
According to David (2005) Strategy are the
means by which long-term objectives will be
achieved.
According to pettinger (1996) The strategy of
an
organization
is
the
definition
and

According to Johnson and Scholes

Strategy is the direction and scope of an
organization over the long term which
achieves advantage for the
organization..
Characteristics of Business strategy
1. Long-term horizon
2. Action oriented
3. Value-addition
4. Strategic decisions
5. Environmental adaption
6. Stakeholder expectations

What is strategic management?

According to Pearce and Robinson

Strategic management is the set of decisions and

actions that result in the formulation and
implementation of plans designed to achieve a
companys objectives.
According to wheelen and hunger (2002)
strategic management is a set of managerial
decision and actions that determine the long term
performance of a corporation.
According to Johnson and Scholes (2004)
strategic management includes understanding the
strategic position of an organization, strategic
choices for the future and turning strategy in to
action.

SM comprises nine critical tasks

1. Formulate the companys vision and mission,
including broad statements about its purpose,
philosophy, and goals.
2. Conduct an analysis that reflects the
companys internal conditions and capabilities.
3. Assess the companys external environment,
including both the competitive and the
general contextual factors.
4. Analyze the companys options by matching
its resources with the external environment.
5. Identify the most desirable options by
evaluating each option in light of the
companys vision an d mission.

6. Select a set of long-term objectives and

grand strategies that will achieve the
most desirable options.
7. Develop annual objectives and shortterm strategies that are compatible with
the selected set of long-term objectives
and grand strategies.
8. Implement the strategic choices by
means of budgeted resource allocations
in which the matching of tasks, people,
structure, technologies and reward
system in emphasized.
9. Evaluate the success of the strategic

LevelsofStrategy
1. Corporate
2. Business
3. Functional/Operational
1.CorporateLevelStrategy
Corporatelevelstrategysisconcernedwiththe
overallpurposeandscopeofanorganizationandhow
valuewillbeaddedtothedifferentpartsofthe
organization
ByjohnsonandScholes

 It gives the answer of the question of .

What businesses are we in? What
businesses should we be in?
Four areas of focus
Diversification management (acquisitions and
divestitures)
Divestitures involve a sale, spinoff or liquidation of a
business unit, line or subsidiary. Liquidation involves
shutting down a business and selling off or distributing its
assets.

Synergy between units

Investment priorities craft
Business level strategy approval

Top level manager will involved in

formulation of corporate strategy.

Business Level Strategy

Accoding to johnson and scholes:
Business unit strategy is about how to compete successfully in
particular market.
How do we support the corporate strategy?
How do we compete in a specific business arena?
Three types of business level strategies:
Low cost producer
Differentiator
Focus

Four areas of focus

Generate sustainable competitive advantages
Develop and nurture (potentially) valuable
capabilities
Respond to environmental changes
Approval of functional level strategies

Functional/ operational level strategy

Functional business strategy is an area of
operational management based on a specific
department or discipline within an organization,
such as human resources, finance or marketing.
Functional: How do we support the business level
strategy?

Operational strategies are concerned with

how the component parts of an organization
deliver effectively the corporate and businesslevel strategies in terms of resources, processes
and people
Operational: How do we support the functional level
strategy?

Types of functional strategies

Production strategies
Marketing strategies
Financial strategies
HRM
Research and development.
An example.
Business L.S.: Become the low cost producer
of product-X
Functional L.S. (Mfg.): Reduce
manufacturing costs by 10%
Operational (Plant #1): Increase worker
productivity by 15%

Levels of strategy
Corporate
Level

Business
Level

Multibusiness
Corporation

Business 1
(Related)

Business 2
(Related)

Business 3
(Related)

Functional
Level
Research and
Manufacturing
Development

Marketing

Human
Resources

Finance

Characteristics of Strategic decisions

There are 5 key
elements/characteristics of strategic
decision that are related to the
organizations ability to add value
and compete in the market place.
1) sustainable decisions
2) develop process to deliver the
strategy
3) offer competitive advantage
4) Exploit linkages between the
organization and its environment

1) Sustainable decisions
) That can be maintain over time
) For the long-term survival of the
organization, it is important that the
strategy is sustainable
) Microsoft company spent millions of
dollars to develop Xbox games, which
takes some years to recover.
2) Develop process to deliver the strategy.
) Strategy is at least partly about how to
develop organizations or allow them to
evolve towards their chosen purpose.

 E.g. Microsoft began by launching Xbox

into the US market in autumn 2001,
followed by Japan in early spring 2002
and Europe about one month later. But
the whole strategic decision of Microsoft
to compete in this market had been taken
years earlier and then major investments
were undertaken to achieve this purpose.
3) Offer competitive advantage
A sustainable strategy is more likely if the
strategy delivers sustainable competitive
advantage over its actual or potential
competitors. Corporate strategy usually

 Microsoft was much later in entering the

global computer games market than its
main rivals Sony and Nintendo.
Microsoft therefore needed some special
competitive advantages in its new
machine to persuade customers of rival
products to change. It was offering what
it claimed to be the best video graphics
and the ability to play its games on-line.

4) Exploit linkages between the organization

and its environment .
Links that cannot easily be duplicated and will
contribute to superior performance.
the strategy has to exploit the many linkages
that exist between the organization and its
environment:- supplier, customers,
competitors and often the government itself.
Such linkages may be contractual and formal,
or they may be vague and informal.
In the case of video game machines,
Microsoft was able to offer compatibility and
connections with its other dominant computer
software products: Explorer and Windows XP.

5. Vision
The ability to move the organization forward in a
significant way beyond the current environment.
This is likely to involve innovative strategies.
In the highly competitive video games market, it
is vital to have a vision of the future. This may
involve the environment but is mainly for the
organization itself: a picture of how video games
might look in five to ten years time will
challenge and direct strategic decisions over the
intervening period. For Microsoft, its vision of the
Xbox would move it from its current involvement
primarily with office activities like report writing
to new, home entertainment applications-thus
providing a completely new source of revenue.

Role of CEO in strategic management

GENERAL FUNCTION:
The CEO has overall responsibility for the
leadership, strategic and management
direction and
business results of the Company. Working
closely with the Board and the
management team, he
ensures that the Company establishes
appropriate goals, and manages its
resources to meet these
goals.

Major Responsibilities:
1. Fiduciary (legal) duties
2. Leadership
3. Strategy Formulation
4. Strategic implementation
5. Financial performance
6. Risks and opportunities analysis
7. External relation
8. Succession
9. Board relations
10.Safety and environment

1. Fiduciary(legal) Duties
The CEO shall act as a Director and
officer of the Company in the best
interests of the Company with honesty
and good faith towards its shareholders,
employees and customers, suppliers, and
of the communities within which the
Company operates.
He shall use such personal and
professional skills in the role of Chief
Executive, together with such contacts,
experience and judgment as he may
possess with integrity (honesty) and

2. Leadership
The CEO exercises an appropriate level of
leadership for the organization, manages the
culture and builds a team atmosphere.
The CEO effectively communicates a vision,
management philosophy, and business strategy to
the Company's employees.
He actively seeks to motivate and inspire
employees to adopt the Company's values and to
realize the Company's vision.
The CEO is an effective role model for the
organization.
He ensures that there is clarity of objectives and
focus for all employees and that there are clear
and appropriate standards and measures of
performance.

3. Strategy Formulation
The CEO is responsible to develop a longterm, sound strategy for the Company
that is intended to increase the value as
well as meeting the needs of customers,
employees, and other corporate
stakeholders.
The CEO puts in place processes that
encourage effective strategic planning.
The Board of directors shall annually
approve the Companys strategic plan.

4. Strategic Implementation
The CEO ensures that Company
strategies are effectively implemented
with timely progress
towards strategic objectives. The CEO
obtains and allocates resources
consistent with strategic
objectives and makes timely adjustments
in strategies when market conditions and
other forces
demand a change.

5. Financial Performance
The CEO is responsible to carry out a
comprehensive (full) budgeting process
and monitor the Companys performance
against the budget.
The CEO proposes appropriate annual
and long- term financial objectives for the
Company and monitors the attainment of
these financial goals as well as
maintaining spending in accordance with
approved capital expenditure and other
investment budgets.

6. Risks and Opportunities

The CEO identifies and communicates risks and
opportunities to the Board of Directors and
deals with them appropriately.
The CEO ensures that the Company has
appropriate auditing and financial control
processes in place to protect assets, maintain
effective control of operations and provide
accurate and complete public disclosure of
results.
He fosters a culture of ethical behaviour for the
firm, promotes compliance with the Companys
Code of Business Conduct and proactively
ensures that the Company complies with all of
its legal obligations.

7. External Relations
The CEO as chief spokesperson for the
Company effectively communicates its
financial performance and outlook to the
investment community and shareholders.
He is visible and proactive in representing
the Company to customers, investors,
government and other stakeholders.

8. Succession plan
The CEO is responsible to develop an
evolving succession plan for all senior
levels in the Company.
He ensures that there is an effective plan
for attracting, retaining, motivating and
developing
candidates
for
senior
management positions for the long-term
success of the organization.
Furthermore, the Company has an
effective
performance
evaluation
program and a leadership training
program to develop and train new

9. Board Relations
The CEO keeps the Board fully informed of all
important issues and aspects of the Company
performance,
opportunities
and
market
developments, whether positive or negative.
Sufficient and appropriate information is
distributed monthly and quarterly to Board
members throughout the year to effectively
assess Company issues, strategies, their
implementation,
and
other
performance
outcomes.
Board members are able to initiate contact with
the CEO whenever necessary and the CEO
encourages candid debate and challenges in
boardroom discussions.

10. Safety and Environment

The CEO is responsible for the
implementation and communication of
health, safety and environmental policies.
Furthermore, the CEO ensures the
establishment and achievement of safety
objectives and that the Company
complies fully with all applicable federal
and state/provincial environmental
regulations.

Benefits (value) of Strategic Management

1. Strategy formulation activities enhance the
firms ability to prevent problems.
2. Group-based strategic decisions are likely to
be drawn from the best available alternatives.
3. The involvement of employees in strategy
formulation improves their understanding of the
productivity-reward relationship in every strategic
plan and thus heightens their motivation.
4. Gaps and overlaps in activities among
individuals and groups are reduced as
participation in strategy formulation clarifies
differences in roles.
5. Resistance to change is reduced.

Dimensions of Strategic Decisions

1. Strategic issues require topmanagement decisions
Strategic decisions is overarch (very
important) several areas of a firms
operations
Usually only top management has the
perspective needed to understand their
broad implications
Usually only top managers have the power
to authorize necessary resource allocations

2. Strategic issues require large amounts of

the firms resources
They involve substantial allocations of
people, physical assets, and money
Strategic decisions commit the firm to actions
over an extended period
In highly competitive firms, achieving and
maintaining customer satisfaction frequently
involves commitment from every surface of
the firm

3. Strategic issues often affect the firms

long-term success
Strategic decisions commit the firm for a long
time, typically 5 years; however the impact
lasts much longer
Once a firm has committed itself to a
strategy, its image and competitive
advantages are usually tied to that strategy
Firms become known for what they do and
where they compete. Shifting away from that
can put at risk their previous gains.

4.

Strategic issues are future-oriented

They are based on what managers forecast, rather
than what they know
Emphasis is on the development of solid projections
that will enable a firm to seek the most promising
strategic options
A firm will succeed only if it takes a proactive
(anticipatory) stance toward change

5. Strategic issues usually have multifunctional or

multi-business consequences.
Strategic decisions have complex implications for most
areas of the firm
Decisions about customer mix, competitive emphasis,
or organizational structure involve a number of the
firms SBUs, divisions, or program units

6. Strategic issues require considering the

firms external environment
All businesses exist in an open system. They
affect and are affected by external conditions
that are largely beyond their control
Successful positioning requires that strategic
managers look beyond operations and
consider what relevant others are likely to do

Formality in Strategic Management

Formality is the degree to which participation, responsibility,

authority, and judgment in decision-making are specified in
strategic management

Forces Determining Formality

Organizational Size
Predominant Management Styles
Complexity of Environment
Production Process
Problems in the Firm
Purpose of the Planning System
Stage of Firms Development

Three Modes of Formality

Entrepreneurial Mode most small firms
The informal, natural, and limited approach to
strategic management associated with ownermanagers of smaller firms.

Planning Mode most large firms

The strategic formality associated with large firms
that operate under a comprehensive, formal planning
system.

Adaptive Mode most medium size firms

The strategic formality associated with mediumsized firms that emphasize the incremental
modification of existing competitive approaches.

Thank YOU