Chapter 1

The Nature of Strategic Management

Strategic Management:

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Historical Perspective

1950s and 1960s strategy was seen largely as a deliberate process of

analysis and long-term planning, controlled by the CEO.
Alfred Chandler (1962) and Igor Ansoff (1965)
As organizations and their operating environment became more
comples, strategy development became part of the organisations
corporate planning function.
1970s and 1980s, Boston Consulting Group, advocated strategy as
positioning the organization with the implementation of their very own
BCG matrix - organizations can analyse their position in relation to their
competitors and their industry, select which strategies would work best
for their circumstances.
1980s Japanese were able to offer both lower cost and superior
quality than their rivals UK and US turned their attention to the
internal resources of the organization: quality, continuous improvement
and operational effectiveness.
1990 search for competitive advantage fuelled by rapid change
adaptable and innovative and able to spearhead change, not merely to
respond to change. Emphasis on learning organization, core
competencies, innovation, making alliances and partnerships and on
global issues.
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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 Managers

Corporate Level Managers

General Managers

Oversee the development of strategies for the

whole organization
The CEO is the principle general manager who
consults with other senior executives
Responsible for overall company, business unit, or
divisional performance

Functional Managers

Responsible for supervising a particular task or

operation
e.g.
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marketing, operations, accounting, human resources

1|5

Levels of Strategic Management

Figure 1.3

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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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Issues in Strategy
Formulation
Businesses to enter
Businesses to abandon
Allocation of resources
Expansion or
diversification
International markets
Mergers or joint
ventures
Avoidance of hostile
takeover

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Strategy Implementation

Annual Objectives
Policies
Employee Motivation
Resource Allocation

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Strategy Implementation Steps

Developing a strategy-supportive culture

Creating an effective organizational structure
Redirecting marketing efforts
Preparing budgets
Developing and utilizing information systems
Linking employee compensation to
organizational performance

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Issues in Strategy
Implementation
Action Stage of Strategic
Management
Mobilization of
employees & managers
Most difficult stage
Interpersonal skills
critical

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Strategy Evaluation

Internal Review
External Review
Performance Measurement
Corrective Action

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TRANSPARENCY-14

Exhibit 1.2

The Strategic Management Process

Chapter 1
Analyzing Goals
and Objectives

Chapter 2

Chapter 3

Analyzing the
External
Environment

Analyzing the
Internal
Environment

Chapter 4
Assessing Intellectual
Capital

Strategy Analysis

Chapter 5

Chapter 9

Formulating Business-Level
Strategies

Implementation:
Strategic Controls

Chapter 6

Chapter 7

Chapter 10

Chapter 11

Formulating
Corporate-Level
Strategies

Formulating
International
Strategies

Implementation:
Organization Design

Strategic Leadership:
Excellence, Ethics, and
Change

Chapter 12

Chapter 8

Strategic Leadership:
Fostering Entrepreneurship

Formulating Internet
Strategies

Strategy Implementation

Strategy Formulation
Chapter 13

Case Analysis
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Figure 1.4

Main
Components
of the
StrategyMaking
Process(Hill)

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FIGURE 1.1

THE STRATEGIC
MANAGEMENT
PROCESS

The Strategic
Management
Process(Hitt)

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May not
be copied,
scanned,
or duplicated, in whole or in part, except for use as
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of central
punjab,
Gujranwala
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

16

Basic Concepts of Strategic Management

Strategic
Decision-Making
Process(Wheele
n)

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Integrating Intuition & Analysis

The strategic management process

attempts to organize quantitative and
qualitative information under conditions of
uncertainty

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Integrating Intuition & Analysis

Intuition is based on:
Past experiences
Judgment
Feelings
Intuition is useful for decision making in
conditions of:
Great uncertainty
Little precedent
Highly interrelated variables
Several plausible alternatives
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Integrating Intuition & Analysis

Intuition & Judgment

Involve management at all levels

Influence all analyses

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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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Achieving Sustained Competitive

Advantage
1. Continually adapting to changes in
external trends and events and internal
capabilities, competencies, and resources

2. Effectively formulating, implementing, and

evaluating strategies that capitalize on those
factors

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Sustainable competitive advantages

(SCA)(Pearce)

Resources possessed by an organization that

are innovative, unique, durable and not easily
imitable.
Comes by striving to exploit the relevant
resources of the individual organization when
compared with its competitors.

Relevance means the identification of resources that

are better than those of competitors, persuasive to the
customer and available from the range of strengths
contained inside the organization. May include the
way an organization combines its activities and
resource to add value to the products/ services offered
to customers.
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Strategies adopted to establish

SCA(Pearce)

Cost reduction low cost production/service operations

enables to offer products/services at lower price than
competitors.
Differentiation unique features of product/services that
appeal to part or whole market
Niche marketing focus to meet specified needs of
customers
Being truly competitive high innovative levels of
performance, quality, services or technology that cannot
be easily matched by competitors.
Culture and style of organization the way organization
leads, trains and supports its staff
Synergy combination of parts of a business to create an
end result worth more that the individual parts alone.
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No single route to achieving SCA but 3

possible test to check to see if advantages
are achieved. Advantages:

Sufficiently significant to make a difference i.e

hold REAL benefits to the organization and the
customer.
Sustainable against environmental change and
competitor attack i.e. not easily emulated.
Recognizable and linked to customer benefits i.e.
something consumers can relate to.

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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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TRANSPARENCY-29

Exhibit 1.6

Comparing Wellpoint Health Networks

Vision and Mission
Vision
WELLPOINT will redefine our industry:

Through a new generation of consumer-friendly

products that put individuals back in control of their
future.

Mission
The WELLPOINT companies provide health security by
offering a choice of quality branded health and related
financial services designed to meet the changing
expectations of individuals, families and their sponsors
throughout a lifelong relationship.(DESS)
Source: Company Records

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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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Basic Concepts of Strategic Management

Environmental
Variables(Hung
er)

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External Opportunities and Threats

Basic Tenet of Strategic Management

Take advantage of
External Opportunities
Strategy Formulation

Avoid/minimize impact of
External 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

Typically located in functional areas of the firm

Management
Marketing
Finance/Accounting
Production/Operations
Research & Development
Management Information Systems

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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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Strategy is a
set of related
actions that
managers take to
increase their
companys
performance(Hill
)
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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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Benefits of Strategic Management

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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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Why Some Firms Do No Strategic

Planning

Lack of knowledge of strategic planning

Poor reward structures
Fire fighting
Waste of time
Too expensive
Laziness
Content with success

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Why Some Firms Do No Strategic

Planning (continued)

Fear of failure
Overconfidence
Prior bad experience
Self-interest
Fear of the unknown
Honest difference of opinion
Suspicion

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Pitfalls in Strategic Planning

Strategic planning is an involved, intricate,

and complex process that takes an
organization into uncharted territory

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Effective Strategic Planning is:

A people process more than a paper process

A learning process
Words supported by numbers
Simple and nonroutine
Varying assignments, team membership,
meeting formats, and planning calendars
Challenging assumptions underlying
corporate strategy
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Effective Strategic Planning

continued

Welcomes bad news

Requires open-mindedness and a spirit of
inquiry
Is not a bureaucratic mechanism
Is not ritualistic or stilted
Is not too formal, predictable, or rigid
Does not contain jargon or arcane language

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Effective Strategic Planning

continued

Is not a formal system for control

Does not disregard qualitative information
Is not controlled by technicians
Does not pursue too many strategies at once
Continually strengthens the good ethics is
good business policy

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Strategic Management
Environement

Global Economy(EU,China,India,BRICS)
Globalization(Economic interdepence, Global
Competition, Global Thinking, Higher quality
demands, Free flow of resources,
WB,IMF,UNO,WTO)
Technological Advancement(Knowledge
sharing, information age, technical
innovations, production technology)
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