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Chapter 1 (Basic Concepts of Strategic Management)


Strategic management is the set of managerial decisions and actions that determines the long run performance of corporation. The following area are including in the managerial decision making. ENVIROMENTAL SCANING (Both external and internal). STRATEGY FORMULATION (Strategic planning). STRATEGIC IMPLEMENTATION AND CONTROL.


Many of the concepts and techniques dealing with long range (no call strategic) planning and strategic management have been developed and used successfully by Business Corporation such as General electric and Boston consulting group. From his extensive work in the field Bruce Henderson Boston consulting group concluded that intuition strategies cannot be continued successfully if. The corporation becomes large. If the layers of management increase. If the environment change substantially.

PHASES FO STRATEGIC MANAGEMENT: Following are the Phases of the Strategic Management.
1. BASIC FINANCIAL PLANING: Seeking better operational control by trying to meet annual budgets. 2. FORECASTING BASED PLANING: Seeking more effective planning for growth by trying to predict the future beyond the next year. 3. EXTERNAL ORIENTED PLANING (Strategic planning): Seeking increase responsiveness to market and competition by try to think strategically. 4. STRATEGIC MANAGEMENT: Seeking a competitive advantage by considering implementation and evaluation and control when formulating strategy.

Henry Mintzberg Discovered that strategic formulation typically is not a regular and continuous process. It is most often an irregular, discontinuous process, proceeding in fit and starts. There are periods of stability in strategy development, but also there are periods of flux, of grouping, of piecemeal change and of global change. This period of so called strategy draft may simple be a result of organizations inertia, or it may reflects the managements believe that the current strategy is still appropriate and need only some fine tuning.

A triggering event something that stimulates a change in strategy some of these possible triggering events are as follows. 1. NEW CEO: By asking a series of embarrassing questions. 2. EXTERNAL INTERVENTION: The firms bank suddenly refused to agree to a new loan or suddenly call for payment in full on an old one. 3. Threat of change in ownership: Another firm may initiated a takeover by buying the companys common stock. 4. PERFORMANCE GAP: Performance gaps exist when performance does not meet expectation, sale and profit are no longer increasing or many even are falling.

Basic Model of Strategic Management:

Strategic management consists of four basic models. 1. 2. 3. 4. Environmental scanning Strategy formulation Strategy implementation Evaluation and control

1. Environmental scanning: Environmental scanning is monitoring, evaluating and discriminating of information from external and internal environment to keep people within the corporation. The external environment consists of variable (opportunity and threat). 2. Strategy formulation: Strategy formulation is the development of long range plans for the effective management of environmental opportunities and threats, in light of corporate strength and weaknesses. 3. Strategy Implementation: Strategy implementation is the process by which strategies and policies are put into the action through developments programs, budgets and procedures. 4. Evaluation and Control: Evaluation and control is the process by which corporate activities and performances result are monitored so that actual performance can be compared with desired performance. Performance is the end result of activities the actual outcome. The practice of strategic management is justified in terms of ability to improve an organization performance, typically measure in term of profit and return on investment

What are objectives?

Objectives are the end result of planned activity. They start what is to be accomplished by when and should be qualified if possibly.

What is a strategy? A strategy of a corporation is comprehensive plan starting how the corporation will achieved its mission and objective.

After Rockwell International Corporation realized that it can no longer achieved its objectives by continuousing with its strategy of diversification into multiple line of business.

Types of Strategy:
Following are the types of the Strategy 1. Corporate strategy: Describes a company overall direction in terms of its general attitude toward growth and management of its various business and product line. 2. Business Strategy: Usually occurs in the business unit or product level, and it emphasis improvement of the competitive position of a corporation product or services. e.g. Apple computer user a differentiation competitive strategy that emphasis an innovative product with creative design. 3. Functional strategy: Functional strategy is the approach by a functional area, such as marketing or R&D, to achieve corporate and business unit objectives and strategies by maximize resource productivity.

What are Programs?

A program is the statements of activities or steps needed to accomplish a single user plan. It makes the strategy action oriented, e.g. consider intercorporation, the micro processor manufacture.

What make a decision strategy?

Strategic decision that deal with the long run future of entire organization. Decision Strategy has three characteristics. 1. Rare: strategic decisions are unusual and typically have no precedent to follow. 2. Consequential: strategic decisions commit substain resource and demand a great deal of commitment. 3. Directive: strategic decision set precent for looser decision in future action throughout organization.

Strategic decision making process: Following are the steps of Decision Making Process.
Evaluated current performance result in term of (a) Return on investment, profitability and so forth. (b) The current strategy posture of the company (mission, objective and policies). Review corporate governance, i.e. the performance of firms, board of directors and management. Scan the external environment to locate strategic factors that pose opportunities and threats. Scan the internal corporate environment to determine strategic factor that are strength and weaknesses. Analyze strategic factors SWOT analyses. Generate, evaluate and select the best alternative strategy in light of analyses conduct in step 5. Implement select strategies via programs, budgets and procedures. Evaluated implemented strategies via feedback systems and the control of activities to ensure their minimum deviation from plans.

Chapter -2 (Basic Concepts of Strategic Management) Strategic management:

Strategic Management can be defined as the art & Science for formulating, implementing and evaluating cross functional decisions that enables organization to achieve its objectives. Strategic Management focuses on integrating management and MIS (Management Information System) to achieve organizational success.

Strategic Plan:
Strategic Plan is a companys just as football team needs a good game plan to have a chance for success. A strategic plan results from tough managerial choices among many good alternatives. It signals commitment to specific market, policies, procedures and operations.

Stages of Strategic Management:

The Strategic Management process consists of three stages.

1) Strategy Formulation:
Strategy formulation decisions commit in organization to specific product, market, resources and technologies over an extended period of time. Strategy formulation includes deciding what new business to enter, how to allocate resources, weather to expand operations or diversify.

2) Strategy Implementation:
Strategy Implementation requires a firm to establish annual objectives, devise policies, motivate employees and allocate resources so that formulated strategies can be executed. Strategy Implementation includes developing a strategy supporting culture, creating an effective organizational structure and preparing budgets.

3) Strategy Evaluation:
It is the final stage in strategic management. Managers desparately need to know when particular strategies are not working well. Strategy Evaluation is the primary mean for obtaining this information. Following are three fundamental activities. Reviewing external & Internal factors that are the basis for the current strategies. Measuring performance. Taking correct actions.

Key terms in Strategic Management:

Following are the key term in strategic management.

Competitive Advantage:
Strategic Management is all about gaining and maintaining Competitive Advantage. Competitive Advantage can be defined as Anything that a firm does especially will compare to rival firms. When a firm can do something that rival firms cant do, on something that rival firms desires that can represent a Competitive Advantage.

Having less fixed assets than rival firms also can provide major Competitive Advantages in the global recession. Apple has no manufacturing facilities of its own where as rival Sony has 57 electronics factories. Apple relies on contract manufacturers for the production of all of it products.

How to get Competitive Advantage:

A firm must strive to achieve sustained Competitive Advantage by the following two ways. Continually adapting to changes in external trends, events, internal capabilities and resources. Effectively formulating, Implementing and evaluating strategies that capitalizes upon those factors.

Adapting to Change:
The strategic management process is based on the belief that organizations should continuously monitor internal and external events and trends so that timely changes can be made as needed. The rate and magnitude of changes that effect organizations are increasing dramatically. Firms that dont change dont survive. Example: Corporate Bankcurrupcies had become doubled in 2009 from an already bad 2008 year. All industries were hit hard. China annual growth slowed down from 13 % 2007 to 9% in 2008 and than 5 % for 2009.

External opportunities and threats:

External opportunities and external threats refer to economic, social, cultural, demographic, environment, political, legal, governmental, technological and competitive trends and events that could significantly benefit are harm an organization in the future. In a global economic recession, a few opportunities and threats that face many firms are listed here: Availability of capital can no longer be taken for guaranteed. Consumers expect green operations and products. Marketing has moving rapidly to the internet. Consumers must see value in all that they consume. Global markets offer the highest growth in revenues. Too much debt can crush even the best firms. The housing market is depressed. Borrowers are faced with much bigger collateral requirements than in the years past.

Internal Strengths and Weaknesses:

Internal strengths and internal weaknesses are organization controllable activities that are performed especially well or poorly. Strengths and weaknesses are determined relative to competitors.

Strength may involve ownership of natural resources of a historic reputation for quality. Strengths and weaknesses may be determined relative to a firms own objectives. Internal factors can be determined in number of ways including computing ratios, measuring performance and comparing to past period and industry average. Various types of service also can be developed and administered to examine internal factors such as employees morale, production efficiency, advertising effectiveness and customer loyalty.

Long term Objectives:

Long term means more than one year. Objectives are essential for organizational success because they state direction, aid in evaluation, create synergy, reveal priorities, focus coordination and provide basis for effective planning, organizing, motivating and controlling activities.

Strategies are the mean by which long term objective will be achieved. Business strategies may include geographic expansion, diversification, acquisition, product development, market penetration, retrenchment, liquidation and joint ventures.

Annual Objectives:
Annual Objectives are short term mile stones that organization must achieve to reach long term objectives. Like long term objectives, annual objectives should be measureable, quantitative, challenging, realistic and consistent. They should be established at the corporate, divisional and functional levels in a large organization. Annual Objectives should be stated in terms of management, marketing, finance, production, R&D and MIS accomplishments.

Policies are the means by which annual objective will be achieved. Policies include guidelines, rules and procedures established to support efforts to achieve static objectives. Policies are guides to decision making and address repetitive recurring situations. Policies are most often stated in terms of management, marketing, finance, production, R&D and Computer information System activities. Policies can be established at the corporate level and apply to an entire organization.

The Strategic Management Model:

Chapter 10: Business Ethics, Social Responsibility and Environmental Sustainability

Perform External Audit Chapter 3

Develop Vision and Mission Statements Chapter 2

Establish Long Term Objectives Chapter 5

Generate, Evaluate and Select Strategies Chapter 6

Implement Strategies Manageme nt Issues Chapter 7

Implement Strategies Marketing, Finance, R&D and MIS Issues Chapter 8

Measure and Evaluate Performanc e chapter 9

Perform Internal Audit Chapter 4

Chapter 11: Global / International Issues

Strategy Formulation Strategy Implementation Strategy Evaluation

Benefits of Strategic Management:

Following are the benefits of the Strategic Management. It allows an organization to be more proactive than reactive I shaping its own future. It allows an organization to initiate an influence (rather than just respond to) activities. It allows for identification & exploitation of opportunities. It minimizes the effects of adverse conditions and changes. It creates a frame work for internal communication among personnel. It encourages forward thinking. It encourages a favorable attitude towards change.

Benefits of Strategic Planning:

Following are the benefits of the Strategic Planning to a firm.
Enhanced Communication
a. Dialogue. a. of others views. b. Participation b. Of what the firm is doing / Planning & Why b. Implement Strategies. c. To work hard.

Deeper / Improved Understanding

Greater Commitment
a. To achieve objectives.

The Result
All managers and employees on a mission to help the firm Succeed.

Why some firms do no Strategic Planning:

Following are the reasons that firms dont do strategic planning. Lack of Knowledge and experience in strategic planning. Poor reward structures. Fire fighting. Waste of time. Too expensive. Laziness. Content with success. Fear of failure. Over confidence. Self Interest. Fear of Unknown. Honest difference of opinion. Employees may not trust management.

Pitfalls in Strategic Planning:

Following are the pitfalls of Strategic Planning.

Using Strategic planning to gain control over decisions and resources. Doing Strategic planning only to satisfy regulatory requirements. Too fast moving from mission development to strategy formulation. Failing to communicate the plan to the employees. Top managers not actively supporting the strategic planning process. Delegating planning to a Planner rather the involving all managers. Viewing planning as unimportant.

Guidelines for the Strategic Planning Process to Be Effective:

Following are the guidelines for the Strategic Planning Process to Be Effective. It should be a people Process more than a paper process. It should be learning process for all managers and employees. It should be simple and non routine. It should welcome bad news. It should not be a bureaucratic mechanism. It should not be a formal system for control. It should not be controlled by technicians. Dont pursue to many strategies at once.

Chapter 3 (Schools of Thought) Designating School of thought:

This school sees strategic formation as a process of conception.

Clear & unique strategies are formulated in a deliberate process. In this process, the internal situation of the organization is matched to the external situation OF THE ENVIRONMENT.

Architecture as a metaphor.

Order. Reduced ambiguity. Simplicity. Useful in the relatively stable environment. It supports strong, visionary leadership.

Simplification may distort reality. Strategy has many variables and is inherently complex. Bypassing learning. Inflexible. Weak and fast changing environment. The risk of resistance.

The planning School:

This school sees strategy formation as formal process.

A rigorous set of sets are taken, from the analysis of the situation to the execution of the strategy.

System theory, Cybernetics.

In short strategy should be like a machine.

Give clear direction. Enable firm resources allocation. Control.

Strategy can become too static. The risk exists of group thing. Predicting is difficult. Strategy is partly an art.

The positioning School of Thought:

This school sees strategy formation as an analytical process.

It places the business within the contact its industry, and looks it how the organization can improve its strategic position with in that industry.

Industrial organization (Economics) and military strategy.

In short:
Analyze, Nothing but the facts.

This school made strategic management into a science, enabling future progress. Provides content in a systematic way to the existing way of looking its strategy. Focus on hard (Economic facts).

Neglects power, politics, culture and social element.

This school sees strategy formation as a visionary process.

The visionary process takes place within the mind of charismatic leader of an organization. Intuition, judgment, wisdom, experience and insight. Economics.

In short:
Envision The CEO is the architect of the strategy.

A sound vision and a visionary CEO can help organization to sail cohesively through muddy waters. Flexible and emerged in the details.

How can you find the right leader, with all of the many needed qualities? Entrepreneurial visionary leaders have a tendency to go too far. Being CEO is an extremely demanding job in the perspective.

The cognitive School:

This school sees strategy formation as mental process.

It analyzes how people pursue pattern and process information. It concentrates on what is happening in the mind of the strategist, and how it processes the information.


In short:
Frame I will see it when I believe it.

Sees strategy as a cognitive process in the mind of the strategist. Strategies emerge as concepts, maps, schemas and frames of reality. Stresses the creative side of the strategy process. Very useful to explain why our minds are imperfect.

Not very practical beyond the conceptual stage. Not very practical to conceive great ideas or strategies. Currently not very useful to guide collective strategy processes.

The learning School of thought:

This school sees strategy formation as an Emergent Process.

The management pays close attention over time to what does work, and what doesnt work.

It offers a solution to deal with complexity and unpredictability in strategy formation. More people can learn that just the leader. No need for omnipotent leader. (All powerful). Strong in complex conditions with continuous change. Strong in professional organization.

The power school of thought:

This school Sees strategy formation as process of negotiation. The art of using words in a sequence is known as negotiation.

Political Science

In short:
Look out for number one.

The strategy is developed as a process of negotiation between power holders within the company, and/or between the company and its external stakeholder.

Micro Power:
The development of strategy within in the org as in entity that uses its power over other and among its partner in alliances, joint venture, and other network relationships. To negotiate collective strategies in its interests.

The cultural school:

This school sees strategy formulation as a collective process. Approach: It involves the various groups and departments within the company. The strategy that is developed is a reflection of the corporate culture of the org. Basis:


In short:
An apple never falls far from the tree.

Emphasizes the crucial role that social process, believe and vales are playing in decision making and in strategy formation. It explains ressistance to strategic change and helps to deal with dominant values in organization.

Unclear, can feed resistance to change and can be misused to justified the status-quo.gives few clues on how things should become.

The environmental school:

This school sees strategy formation as a reactive process.

The strategy is a response to the challenges imposed by the external enorvitment. Where other school sees the environment as a factor, the environmental school sees it as an actor-indeed the actor.

Biology. Contributions: It gives a central role to the environmental in strategy formation. Limitation: The dimensions of the environment are often vague and aggregated.

The Configuration School:

This school sees strategy formation as a process of transformation. Approach: Strategy formation is a process of transforming the organization from one type of decisionmaking structure into another. Basis: Context.

In short: Integrate, transform! To everything there is a season. Contributions: Strategy and organizational shape (organizational development) are closely integrated and should be reconciled. An organization can be described in terms of some stable configuration of its characteristics, which it adopts for a period of time in a particular type of context. This causes it to behave in a particular ways that give rise to a particular set of strategies. Limitations: In reality there are many shades of grey, not just a limited number of valid configurations. Also, pattern is in the eye of the beholder. If you describe the reality by using configurations, you are distorting the reality in order to explain it.

Chapter -4 (Vision & Mission Statement) Business Mission:

A business mission is foundation, for priorities, strategies, planning and working assignment. Its a starting point for designing managerial jobs.

Mission Statement:
Drucker says that asking a question What is our business is similar is asking the question What is our Business the mission statement is a declaration for any organization Reasoning for being. It is the statement of purpose that distinguishes one organization from the other. All the organization has a reason for being, even if strategist have not consciously transformed this reason into writing the figure below tells us about the Carefully prepared vision and mission statement.

Vision Statement:
Many organizations develop their mission statement and vision statement. The vision statement answers the question What do we want to become.

The process of developing the vision and mission statement:

In strategic management clear vision and mission statement is needed before alternative strategies can be formulated and implemented. In the process of vision and mission statement as many as possible managers should be involved. The involvement of people enables them to become committed with the organization. Following is the process of developing vision and mission statement. Select several articles about statement. Ask all managers to read these articles as background information. Ask managers themselves to prepare vision and mission statement for the organization from these articles. Top managers should than merge these statements into individual statements. Distribute the redrafted statement again to all managers. A request for modification, additions and deletions is needed next. Revise the document in the meeting.

Importance of vision and mission statement:

Vision and mission statement represents a great opportunity for the strategists to obtain needed support for all managers in the firm. Vision and mission statement should create an Emotion bond between the organization and its employees. The emotion bond keeps the employees committed with organization and hence the turnover rate decreases.

Benefits of Vision and mission Statement:

King and Cleland recommend that organization should carefully develop a vision and mission statement in order to gain the following benefits. To ensure agreement of purpose within the organization, to provide a basic organization resources. To establish an organizational climate. To facilitate the translation of objective into working structure. To serve as a focal point from individual to identify with organization purpose.

Characteristics of mission statement:

Following are the characteristics of the mission statement: Broad in scope. Should be less than 250 words in length. Inspiring. Identifying the utility of a firm product. To reveal that firm is socially responsible. To reveal that a firm is environmentally responsible. Reconciliatory. Enduring. (Permanent)

Nine Essential Components of Mission Statement:

Most of researchers feel that an effective statement should include nine components because mission statement is often the most visible and public part of strategic management. The following are basic components of mission statement.

1) Customer: Who are the firms customers?

Example: We believe our first responsibility is to the doctor, nurses, patient, mothers and all others who use our product and services. (Johnson & Johnson). 2) Product or services: What are the firms major products or services? Example: AMAXs principle product are molybdenum, coal, Iron ore, Copper, lead, natural gas, nickel and gold. (AMAX Engg Co). 3) Market: geographically where does the firm compete?



6) 7)

8) 9)

Example: Our emphasis is North America market, although global opportunities will be explored. (BlockWay). Technology: is the firm technologically current? Example: We will continually strive to meet the preference of adult smoker by developing technologies that have the potential to reduce the health risk associated with smoke. (RJ Reynolds). Concern for survival, growth and profitability: Is the firm committed to growth financial soundness? Example: in this respect, the company will conduct its operations prudently and will [provide the profits and growth which will ensure Hoovers ultimate success. Philosophy: What are the basic believes values, inspiration and ethically priorities of the firm? Example: Our world class leadership is delegated to a management philosophy that holds people above profit. (Kellogg). Self Concept: What is the firm destructive component or major competitive advantage? Example: Crown Zellerbach is committed to leapfrogging ongoing competition within one thousand days by unleashing the constructive and creative abilities and energies of each of its employees. Concern for Public Image: Is the firm responsive to social, community and environmental concern? Example: To share the worlds obligation for the protection of environment. (Dow Chemicals). Concern for employee: Are employees a valuable asset of the firm? Example: To compensate its employees with remuneration and fringe benefits competitive with other employment opportunity it. Its geographically area and commensurate with their contributions towards efficient corporate operations. (Public service Electric and Gas Co).