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Strategic Management
In simple terms a strategy is how we get from where we are now to where we
want to be in the future. A successful business will have a vision or ultimate goal. Its
strategy will be a clear plan and set of policies that should push it towards achieving this
vision.
Corporate Strategy A long term plan of action for the whole organization design to
achieve a particular goal.
Tactic Short term policy or decisions aims at resolving a particular problem or meeting
a specified park of the overall strategy.
Strategic Management The role of management when setting long term goals and
implementing cross functional decisions that should enable a business to reach these
goals.
Key stages of Strategic Management
1. Assessing the current position of the company in relation to its market,
competitors and the external environment.
2. Setting the companies mission, vision and objectives This may be new if the
business is under going a significant change of direction.
3. Taking important long term decisions that will push the business towards the
objectives set.
4. Integrating and co-ordinating the activities of different functional areas.
5. Allocating sufficient resources to put decision in to effect.
6. Evaluating success Evaluating the overall performance of the business and its
progress towards objectives.
Establishing Corporate Strategy
Strength of the business

Resources Available

STRATEGY

Competitive environment

Objectives

Influences on Strategy formation corporate strategy will be influenced by four

main factors. They are
1. Resource available
2. Other strengths of the business

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3. Competitive environment
4. Objectives
1. Resources Available All business resources are finite, scarce resources will
force firms to decide which strategy will continue and which strategy to drop. A
strategy of launching a new product nation wide may have to be dropped because
of lack of resources.
2. Other strengths of the business If a business has proven capabilities in certain
areas it is better to apply these strengths when devising future strategies. The
expansion of the business may be best achieved if some low performing areas of
the business are sold off. In this way, the firm will be concentrating on its current
successes for achieving growth.
3. Competetive environment Competitors actions are a major constraint or limit
on business strategy. Innovations by competitors may be difficult to copy. Major
new promotional activities may prove effective all businesses operate in a
competitive environment to a greater or lesser degree.
4. Objectives Objectives of the business will influence strategy. In fact
maximizing share holders return may not be the central objective of the business.
If a business has a clear social responsibility objective, it will help them perform
will in future.
The process of strategic management has three key stages.
1. Strategic Analysis
2. Strategic Choice
3. Strategic Implementation
Strategic Analysis
Strategic Analysis is the process of conducting research in to the business
environment within which an organization operates and in to the organization itself to
help to form future strategy. Strategic Analysis tries to final answer to three key
questions.
1. Where is the business now?
2. How the business might be affected by what is happening or likely to happen?
3. How could the business respond to these likely changes?
Strategic Analysis is added by number different techniques. They are
1. SWOT Analysis
2. PEST Analysis
SWOT ANALYSIS
A form of strategic analysis that identifies and analyses the main internal strengths
and weakness and external opportunities and threats that will influence the future
direction and success of a business.

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A SWOT analysis provides information that can be helpful in matching the firms
resources and strengths to the competitive environment in which it operates. It is
therefore useful in strategy formulation and selection. It comprises
1. Strengths These are the internal factors about a business that can be looked upon as
real advantage. This could be used as a basis for developing a competitive advantage. For
ega. Experienced Management
b. Specialist Marketing Expertise
c. A new innovative product or service
d. Location of your business
e. Quality processes
f. Any other area your business is showing effectiveness.
2. Weakness These are the internal factors about a business that can be seen as negative
factors. Weakness might include poorly trained work force, limited production capacity
and old equipments. Some other areas are
1. Lack of marketing expertise
2. Undifferentiated products or services (in relation to your competitors)
3. Location of your business.
4. Poor quality goods or services.
5. Damaged reputation.
Opportunities These are the potential areas for expansion of the business and future
profits. These factors are identified by an external audit of the market the firm operates in
and its major competitors. Examples include
1. New technologies
2. Export markets
3. A developing market such as the Internet.
4. A new International market.
5. Mergers, Joint Ventures etc.
Threats These are also external factors gained from an external audit. This audit
analyses the business and economic environment market conditions and strength of
competitors. Examples of threats are new competitors entering in to the market, change in
government economic policy. Other areas are
1. Price wars with competitors.
2. A competitor has a new innovative product or service.
3. Competitors have superior access to channels of distribution.
4. Taxation of your product or service.
PEST ANALYSIS
This is another form of strategic analysis. It focuses on analyzing the macro
environment in which a business operates. PEST Analysis is the strategic analysis of a
firms macro environment including political, economic, social and technological factors.
PEST means

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P = Political and legal factors.
E = Economic factors.
S = Social factors.
T = Technological factors.
Political Factors includes.
1. Stability of the government
2. Laws affecting a particular industry
3. Environmental regulations
4. Employment law
5. Competition regulations
6. Consumer protection laws
7. Government attitudes to free markets or control over business
Economic Factors includes
1.
Rate of economic growth (or recession)
2.
Exchange rate stability
3.
Countries membership of free trade areas
4.
Membership of a common currency scheme such as euro
5.
Tax rates and likely changes
6.
Interest rates and likely changes
7.
Inflation rates and stage of business cycle
Social Factors includes
1. Demographic Factors (more youthful population)
2. Dominant religion
3. Education Standards
4. Roles of men and women in society.
5. One or many languages spoken
6. Labour and social mobility.
Technological Factors includes
1. Rapidly changing technology allowing products to be made more cheaply.
2. Government support research and development spending.
3. Internet access, speed of broad band and its impact on marketing and other
strategies.
4. Speed of technological obsolescence.
5. New product inventions and the importance of these to consumers.
6. Changes in IT speed and range of applications.

1.
2.
3.
4.
5.

Porters Five Forces Analysis

According to Michael porter an industry is influenced by five forces. They are
Barriers to entry.
The power of buyers.
The power of suppliers.
The threat of substitutes.
Competitive rivalry.

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Barriers to entry
This means the case with which other firms join the industry and compete with
existing businesses. This threat of entry is greatest when
1. Economics of scale are low in the industry.
2. The technology needed to enter the industry is relatively cheap.
3. Distribution channels are easy to access. Eg- retail.
4. There are no legal or patent restrictions on entry.
5. The importance of product differentiation is low.
The power of buyers
This refers to the powers that customers have on the producing industry. For eg- if
there are four major supermarket groups that dominate this sector of retailing their buyer
power over food and other products will be great. Buyer power will also be increased
when
1. There are many small supplying firms.
2. Buyers can easily buy from other suppliers.
The power of Suppliers
Suppliers will be relatively powerful compared with buyers when
1. The cost of switching is high.
2. When the brand being sold is very powerful and well known
The threat of substitutes
In porters model substitute products does not mean alternatives in the same
industry such Toyota for Honda cars. It refers to substitute products in other industries.
Threats of substitutes will exist when
1. New technology makes other option available such as satellite TV instead of
traditional antenna reception.
2. Price competition forces consumers to consider alternatives. For eg- low bus fare
forced some travelers to change from rail transport.
3. Any significant new product leads to consumer spending those results in less
being spent on other goods. For eg- increasing spending on mobile phones by
young people reduces the available cash they have to spend on clothes.
Competitive rivalry
This is the key part of this analysis competitive rivalry is most likely to be high
where
1. It is cheap and easy for new firms to enter an industry
2. There is threat from substitute products.
3. Suppliers have much power
4. Buyers have much power
There will also be great rivalry between competing firms in an industry when

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1. There is large number of firms with similar market share.
2. High fixed costs force firms to try to obtain economics of scale.
Strategic Choice
Strategic choice is the next logical element in the strategic decision making
process. There are logical techniques available to assist managers in making strategic
choices but judgment and skills are also very important.
Ansoffs Matrix This tool is one of the most widely used methods for analyzing
corporate growth strategies. Ansoffs matrix is a model used to show the degree of risk
associated with four growth strategies like
Market penetration
Market development
Product development and
Diversification
Market penetration means achieving higher market shares in existing markets with
existing products.
Market development The strategy of selling existing products in new markets.
Product development The development and sale of new products or new
developments of existing products in existing markets.
Diversification The process of selling different unrelated products in different markets.
Possible management strategies include
1. Staff could be trained to eliminate the fear of technology.
2. It would be important to show staff that change is necessary for
survival.
3. Management could raise wages to reward staff for higher productivity.
Decision Trees
Decision tree is a diagram that sets out the options connected with a decision and
the outcomes and economic returns that may result. This technique is based on a diagram
that is drawn to represent four main features of a business decision.
1.
2.
3.
4.

All the options open to a manager.

The different possible outcomes resulting from these options.
The chances of these outcomes occurring.
The economic returns from these outcomes.

By comparing the likely financial results from each option the manager can minimize
the risk involved.

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Decision trees How they are constructed
The tree is a diagram which has the following features.
1. It is constructed from left to right.
2. Each branch of the tree represents an option together with a range of outcomes
and the chances of these occurring.
3. Decision points are denoted by a square. These are decision modes.
4. A circle shows that a range of outcomes that may result from a decision a
chance mode.
5. Probabilities are shown along side of these possible out comes. These
probabilities are the numerical values of an event occurring they measure the
chance of an outcome occurring.
6. The economic returns are the expected financial gains or losses of a particular
outcome.
Expected is the likely financial result of an outcome obtained by multiplying the
probability of an event occurring by the forecast economic returns if it does occur.
Example The management of an events organizing business has to decide between
holding a fund raising auction indoor or outdoors. The financial success of the event
depends not only on the weather, but also on the decision to hold it indoors or outdoors.
The following table shows the expected net financial returns or economic returns from
each of these different circumstances.
Weather

Indoors

Outdoors

Fine

$5,000

$10,000

Poor

$7,000

$4,000

The possible economic returns from the alternative options.

From the past weather records for August there is a 60% chance for fine weather and a
40% chance of it being poor. The indoor event will cost $ 2000 to arrange and the
outdoor event will cost $ 3000.

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Indoors
($2000)

Outdoors
($3000)

0.6

Fine

$5000

0.4

Poor

$7000

0.6

Fine

$10000

0.4

Poor

$4000

$3000

Fine

0.6x5000

$2800

Poor

0.4x7000

$6000

Fine

0.6x10000

$1600

Poor

0.4x4000

Decision tree for the fund raising opion

Indoor $5800
($2000)

$3800

$4600
Outdoor $7600
($3000)

Calculating expected values Working from right to left

The above working is made from right to left.
1. The expected value of mode is $ 5800 ($ 3000 + $ 2800)
2. The expected value of mode 2 is $ 7600 ($ 6000 + $ 1600)
3. Substract cost of holding events both indoor and outdoor.
Indoor = $ 5800 - $ 2000 = $3800
Outdoors = $7600 - $ 3000 = $ 4600
Strategic Implementation
Strategic Implementation is the process of allocating and controlling resources to
support the chosen strategies without successful implementation of these choses

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strategies there can be no effective change with in the organization. This is an important
area and involves the following factors.
1.
2.
3.
4.
5.

An appropriate organizational structure to deal with change.

Adequate resources to make the change happen.
Well-motivated staffs who want the change to happen successfully.
A leader ship style.
Control and review systems for assessing the progress of changes.

Following are some of the key factors which are taken into consideration before a
new strategy can be implemented.
Business plan This is a written document that describes a business, its objectives and
its strategies, the market it is in and its financial forecasts. The concepts of a typical
business plan for a new business are
1. The executive summary an overview of the new business and its strategies.
2. Description of the business opportunity details of the entrepreneur, what is going
to be sold why and to whom.
3. Marketing and sales strategy The method of selling and marketing strategies
developed.
4. Management team and personnel the skills and experience of the entrepreneur
and the people they intends to recruit.
5. Operations Premises to be used, production facilities, IT systems.
6. Financial forecasts The future projections of sales, profit and cash flow for at
least one year ahead.
Importance of business plans
1. The main purpose of a business plan for a new business is to obtain finance to
start with.
2. The planning process is important, that is what to do in future.
3. The financial and other forecast, contained in the plan can be used as the targets
that the business should aim for.
Corporate Plans This is a methodical plan containing details of the organizations
central objectives and the strategies to be followed to achieve them.
A typical corporate plan will include
1. The overall objectives of the organization with in a time frame perhaps 3 to 4 years.
These could be
1. Profit target
2. Sales growth
3. Market share target
2. The strategy or strategies to be used to attempt to meet these objectives. That is
1. Market penetration (Increased sales of existing products.)

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2. Market development (develop new markets for existing products)
3. Product development (research and develop for new products for existing
markets)
4. Diversity (new products for new markets)
3. The main objective for the key department of the business derived from the overall
objective.
Mission

Objectives

Situation analysis

Strategy choice

Implementation

Control
The above chart shows the corporate planning process linking objectives and
strategies.
The corporate plans is not just for senior management but it is essential to share
the contents of such a document with
1. Potential investors 2. Major lenders to the organization 3. Other stake holder
groups and for all staff.
The main influences on a corporate plan internal They are
1. Financial resources.
2. Operating capacity
3. Managerial skills and experience
4. Staff numbers and skills
5. Culture of the organization
External They are
1. Maco economic conditions (expansion may have to be put on hold during a
recession)
2. Central bank and government economic policy changes.
3. Likely technological changes.
4. Competitors activities.
Corporate Culture
Corporate culture means how the people within the organization look at the world
and how they respond to it in trying to achieve certain goals. It is widely understood that

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different organization has different cultures. This is very true of business as well as other
organizations such as schools and colleges. The values, attitudes and beliefs of the people
working in an organization that control the way they interact with each other and with
external stake holders. Values, attitudes and beliefs have a powerful influence on the way
staff in a business will act. So it is possible for the same person to act in different ways in
different organizations.
The main types of corporate culture
Following are the widely used culture types
a. Power Culture This means concentrating power among just few people.
It is associated with autocratic leadership. Power is concentrate at the
centre of the organization.
b. Role Culture This means each member of staff has a clearly defined job
title and job. This is most associated with beaurocratic organizations.
People in an organization with this culture operate with in the rules and
show little creativity. The structure of the organization is well defined and
each individual has clear delegated authority. Power and influence come
from a persons position with in the organization.
c. Task Culture This is based on co-operation and team work. Groups are
formed to solve problems and there will be communication similar to a
matrix structure. Such teams often develop a distinct culture because they
have been empowered to take decisions. Team members are encouraged to
be creative.
d. Person Culture This is when individuals are given the freedom to
express themselves fully and make decision for them selves. There may be
some conflict between individual goals and organizational goals, but this
is the most creative type of culture.
e. Entrepreneurial Culture This encourage management and workers to
take risks, to come up with new ideas and test out new business ventures.
Success is rewarded in an organization with this culture but failure is not
necessarily criticized as it is considered as part of risk taking.
Changing organizational culture possible reasons for change
The existing organizational structure stands in the way of growth, development
and success. Here are some examples of situations when changing culture would seem to
be essential.
1. A traditional family firm which has favoural members of the family for promotion
in to senior posts. New investors are demanding for considering efficient
employees from outside.
2. A product led business needs to respond to changing market conditions by
encouraging more staff involvement.
3. A recently privatized business run on beaurocratic principles needs to become
more profit oriented and consumer oriented.

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4. A manager or take over may result in one of the business having to adopt its
culture to ensure consistency with in the newly created larger business unit.
5. Declining profits and market share may some leads to change in existing culture.
The problems of changing organizational culture
Much work has been done on analyzing the best way to bring about change to an
organizations culture. The key common elements to these different approaches are
1. Concentrate on the positive aspects and let them to continue like that and make
changes in negative areas only.
2. Obtain full commitment of people at the top of the business and from all key
personals.
3. Establish new objectives and mission and communicate these to all staffs.
4. Participate workers also when defining existing problems and developing new
ones.
5. Train the workers in new procedures and if people believe in the change and
understand the benefits of it, then it will become more acceptable to them.
6. Change the staff reward system.
How does a corporations culture affect strategic implementation
A business that has power culture will not consult or communicate with staff affected by
major strategic changes. These changes will be imposed on them possibly with a take or
leave it attitude.
In contrast businesses that operate with task or people based cultures are more
likely to encourage active participation in implementing major strategic change. Two way
communications could lead to staff willingly accepting change.
The other link between culture and strategic implementation occurs when culture
is either strong or weak. Strong culture promotes and facilitates successful strategy
implementation while weak culture does not.
Multi National Business
Multi national business is those with factories, production or service operations in
more than one country. These are sometimes known as transnational business.
Multinational business is some of the largest organizations in the world. They
include
a. Oil companies. For eg. Shell
b. Tobacco companies British American Tobacco
c. Car manufactures Nissan, general motors.
Why do firms become multinational?
There are some reasons why firms become multinational organizations.
1. To produce goods in countries with low costs such as low wages.

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2.
3.
4.
5.

To extract raw materials which the firm may need for production or refining.
To produce goods nearer to the market to reduce costs.
To avoid barriers to trade put up by countries to reduce the import of goods.
To expand in to different market areas to spread risks.

So there is no doubt that the business gain from becoming multinational.

Advantages of multinational's operating in a country.
1. Jobs will be created which will reduce the level of unemployment.
2. Taxes paid by the multinationals which will increase the funds to the government.
3. All imports could be reduced as more goods are now made in the country.
Disadvantages of multinationals operating
1. Jobs created are often unskilled assembly line tasks.
2. They may force local firms out of the business multinationals are often more
efficient and have lower costs them local businesses.
3. Profits are often sent back to the multinationals home country and not kept in the
country where they are earned.
4. As the businesses are very large they could have a lot of influences on both the
government and economy of the country. They might ask the government for
large grants to keep them operating in the country.
Evolution of MNCS
Multinationals involves a variety of strategies. These strategies may be
summarized as follows.
1. In the first step of the strategy only import and export activities are involved.
2. In the second step foreign licensing and transfer of technologies are involved.
3. In the third step direct investments in overseas operations may be involved. This
may include setting up of manufacturing facilities, transfer of technology or even
management of these foreign units.
Questions
1. What do you understand by corporate culture? Discuss.
2. What is meant by strategic management? What are the factors influencing
strategic management?
3. Explain
(1) SWOT Analysis
(2) PEST Analysis
4. What do you understand by strategic implementation? What factors are taken in to
consideration before implementing a new strategy?
5. What is a Decision Tree? Explain with an example and present it in the form of a
chart.
6. Explain porters five forces analysis.
7. What do you meant by strategic implementation? How does a corporate structure
affect strategic implementation?

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8. What is a Multinational company? What are its advantages and disadvantages?
Also evaluate multinational companies.