BBA 8th Semester, IAU

BUS 400 Business Strategy and Policy

By:
Sajeeb K. Shrestha
Ph.D. Scholar (FOM), TU
Shanker Dev Campus, TU

CH-1_ Basic Concepts of Strategic

Management

Chapter Objectives
When you finish this chapter, you should
understand:
1.
2.
3.
4.
5.
6.

Understand the benefits of strategic management.

Explain how globalization and environmental sustainability
influence strategic management.
Understand the basic model of strategic management and its
components.
Identify some common triggering events that act as stimuli
for strategic change.
Understand strategic decision-making modes.
Use the strategic audit as a method of analyzing corporate
functions and activities.

1. Concept of Strategy
(Concept of Brand)

Strategy

Strategy is a key planning tool for the smooth running

of an organization and the achievement of its goal of
long-term survival and growth.
It is an essential tool of top management to cope with
external environmental challenges.
Military science, where the strategy concept
originated, defines strategy from a positional
perspective: the way troops are arranged and placed
on the battlefield to secure an advantage over them.
Imagine, a small army positioning its troops on the
top of a hill to gain an advantage a larger enemy.
4

Internal
(Special Capability)

External
Match

(Battle Terrain)

Military Strategy

Strategy is a set of decisions and actions that

managers make and take to attain superior
company performance relative to rivals.
Strategy guides to allocate resources in a way that
would endow the firm with an advantage over
rivals a strong market position, and exceptional
internal capabilities leading to superior company
performance.
Globalization, Liberalization, changes in economic
and political system and technological
advancement creates competition in the industry.
6

For e.g., in an industry where pricing power of the

firm is low, managers may allocate marketing
resources to the product so as to position it as a
premium brand (known as differentiation strategy
of Rolex watch).
When effective, a strong market position gives the
firm a pricing advantage the ability to charge a
higher price even when others are offering similar
product at a lower price.

Strategy

Decision and actions

aimed to achieve

Competitive Advantage

Market Position
Internal Capabilities

Performance

Profitability

Strategy, Competitive Advantage and Performance

"Strategy is the direction & scope of an organization

over long-term, which achieve advantage for the
organization through its configuration of resources
within a changing environment and to fulfill
stakeholders' expectations". Johnson and
Scholes.
"A strategy is a set of decision-making rules for
guidance of organizational behaviour."
..Ansoff.
"A strategy is a unified, comprehensive and
integrated plan that relates the strategic
advantages of the firm to the challenges of
environment" Jauch and Glueck.
9

"Strategy is the means by which long term

objectives will be achieved." .. Fred David.
"Moving from where you are to where you want to
be in the future through sustainable competitive
advantage".. Ansoff.
"Strategy as creative, imagination and analytical
process"G. Hamel.
"The cunning Plan"Quinn.
"Thing future and how will you compete differently
in the future"Hamel and Prahalad.

10

Strategy is the process of

matching the strength with
opportunitiesProf.
Puskar Bajracharya, TU.

11

Mission

Current
Business
(PBS College)

Vision

Future Business
Strategy

(PBS University)

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It defines:
i. Current and future business. (Future business is
guided by 'Vision' and Current business is guided
by 'Mission').
ii. Products to be offered, Customers and market
segments to be served.
iii. Resource allocation to business units.
iv. Competitive advantage.
vi. Ways for environmental adaptation. (Strategic
Fit).

13


Strategy should focus:
i. What is our business?
ii. What should it be?
iii. What are our products, markets and functions?
iv. What can our firm do to accomplish objectives?

14

Military and Business Strategy

Internal
(Special Capability)

External
Match

(Battle Terrain)

Military Strategy

Strength

Opportunities

Apply/Sustain

Discover

Strategy

Overcome

Weakness
Business Strategy

Avert

Threat
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Nature or Characteristics of Strategy

i.
ii.
iii.
iv.

Top management decision

Log-term direction.
To get some advantage (positioning)
Scope of an organization's activities/ boundary of
business
v. Should the organization concentrate on one area
of activity, or should it have many markets?
v. Environmental adaptation (strategic fit).
vi. Affect operational decision.
viii. Affect values & expectation of stakeholders.
16

2. Concept of Strategic
Management

17

Concept of Strategic Management

Strategic decision-making is done through the

process of strategic management.
Strategic management is defined as the dynamic
process of formulation, implementation, evaluation,
and control of strategies to realize the
organization's strategic intent.
Strategic management is that set of managerial
decisions and actions that determine the long-run
performance of the company.

18

It includes environmental scanning (both external

and internal), strategy formulation, strategy
implementation, evaluation and control.
The study of strategic management, therefore,
emphasizes the monitoring and evaluating of
external opportunities and threats in light of a
corporation's strengths and weaknesses.
Johnson and Scholes "Strategic management
includes understanding the strategic position of an
organization, strategic choices for the future, and
turning strategies into action".
19

Why the Concept Evolve

In earlier times, the managers focused on

Todays decisions for todays business.
They have prepared systems, procedures, allocated
budgets, monitoring & evaluation systems (i.e.
Capital Budgeting and MBO techniques).
Company managers have experienced that they
have to anticipate future & prepare it.
The inadequacy of these techniques has led to the
emergence of long-range planning which in turn
gives rise to strategic planning and subsequently
to strategic management.
20

Long-range
Planning

Strategic
Planning

Strategic
Management

21

3. Benefits of Strategic
Management

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Benefits
i. Strategic management emphasize long-term
performance:
Company can get more profit in the short term with
high performance, but for the long term survival
strategic orientation is must.
Strategic management helps firm to sustain over a
longer period of time.
For e.g., Forbes 100 companies listed in 1917, only
13 have survived to the present day.
To be successful in the long run, company should
execute activities that adapt to satisfy new and
changing markets.
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ii. To identify opportunities:
Strategic management helps organizations to
identify opportunities of competitive advantage in
the external environment.
It make companies alert to new opportunities from
a long term perspective.
iii. To compete:
Strategic management help companies to face
competition.
Companies develops its core competencies areas
where it can hit the competition.
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iv. Change management:
Strategic managers are always ready for accepting
change management.
Companies should be able to manage change process
to get new state.
Companies are doing activities to make strategic fit .
v. To enhance CSR:
Strategic management makes us aware the corporate
social responsibilities of a business firm so that firms
are concerned with the welfare of employees,
shareholders, customers, government and society at
a large.
25

A survey of nearly 50 companies in a variety of

countries and industries found that the three most
highly related benefits of strategic management to
be:
Clearer sense of strategic vision for the firm
Sharper focus on what is strategically important
Improved understanding of a rapidly changing
environment

26

4. Influence of Globalization
and Environmental
Sustainability

27

In the beginning, companies were successful only

selling goods and services in the national
boundaries.
International considerations were minimal.
Profits from foreign markets considered as jam on
the bread.
During 1990s American companies were focusing
their domestic markets with varieties of products
division. And global business were handled by only
one international division

28

Untill 20th century, business firm are not being

environmentally sensitive.
Companies dumped their waste products nearby
streams or lakes and freely polluted the air with
smoke containing harmful gases.
Responding to complaints, governments finally
passed laws restricting the freedom to pollute the
environment.
Lawsuits forced companies to stop old practices.
Until the dawn of the 21st century, most companies
considered pollution reduction measure as a part of
business that was either minimized or avoided.
29

Rather than cleaning up the manufacturing site,

they closed the plant and moved to establish their
plant in the developing nations with fewer
environmental restrictions.
For them, sustainability means competitive
advantage, not the environment.

30

Impact of Globalization

Globalization means the integrated internationalization

of markets and companies.
Globalization has changed the way modern companies
do business.
Thomas Friedman says The world is Flat because
jobs, knowledge, and capital are now easily move
across borders with far greater speed and far less
friction than was possible only a few years ago.
The world wide availability of the Internet and
supply chain logistical improvements, such as
containerized shipping, makes companies can operate
anywhere with multiple partners to service any
markets.
31

Companies are producing goods in low costs in

countries to make their prices low to achieve
economy of scale and competitive advantage. For
e.g., Nike, Reebok manufacture their athletic shoes
in various countries throughout Asia to sell in the
global markets.
Companies are doing outsourcing their
manufacturing, software development, or customer
service to companies in another countries. Large
talented pooled of software programmers, English
language proficiency and lower wages in South Asia
makes possible for outsourcing business.
32

Companies organizational has been changes from

one international division to matrix organizations
structure in which products unites are connected
with country or regional units.
Strategic management is becoming an increasing
important way to keep track of international
developments and position a company for longterm competitive advantage. For. E.g., General
Electric moved a R&D lab of medical divisions from
Japan to China in order to learn more about
developing new products for developing economies.

33

The formation of regional or global trading

blocks (SAFTA, ASEAN, WTO) has changed the way
of international business. They have focus on
enhancing foreign trade by making similar rules and
regulations on trade.

34

Impact of Environment Sustainability

Environmental sustainability refers to the use of

business practices to reduce a companys impact on
natural and physical environment.
For e.g., to meet environmental responsibilities
Johnson an Johnson Ltd. has invested a technology in
its plant where biodegradable waste is recycled.
Tata Energy Research System (TERI) is powered by
renewable energy system, which uses waste biomass
and solar radiation as source of energy. It also has
solar roof to generate energy. Air conditioning is
provided by an earth air tunnel. In short complex
emits no wate.
35

Grasim Industries an Aditya Birla Group is doing

experiment with alternate fuel for manufacturing
cement.
A survey by different groups revealed that climate
change is playing a growing role in the companies
business decisions. Similarly, government
regulation is also increasing during this decade.

The effect of climate change on industries and

companies throughout the world can be
grouped into six categories of risk.
36

Six categories of risk due to climate

change

Grasim Industries an Aditya Birla Group is doing

experiment with alternate fuel for manufacturing
cement.
A survey by different groups revealed that climate
change is playing a growing role in the companies
business decisions. Similarly, government
regulation is also increasing during this decade.

The effect of climate change on industries and

companies throughout the world can be
grouped into six categories of risk.
37

Regulatory Risk:

Regulatory risk is the risk of a change in regulations and law

that might affect an industry or a business. Such changes in
regulations can make significant changes in the framework of
an industry, changes in cost-structure, etc.
Regulatory Risk For some companies, the expectation of
greenhouse gas regulation (Kyoto Protocol) poses new costs
and compliance obligations to manage.
For others, regulation will not affect them directly, but a new
market environment may emerge through increased fuel
prices and/or changed consumer demand.
Supreme Court of India has obliges certain guidelines to
reduce emissions of Auto sector. All the buses and auto
rickshaws in Delhi are using CNG (Compressed natural gas).

38

Source: Ceres. (2010). Climate Change Risk Perception and Management: A Survey of Risk
Managers. Boston.

39

Supply Chain Risk:

Suppliers will be increasingly vulnerable to

government regulations leading to higher
component and energy costs as they pass along
increasing carbon-related costs to their customers.
Melting of polar ice will increase higher sea levels
that will create problems on seaport supply.
Chinese ministries reported on global warming
foreseeing a 5%-10% reduction in agricultural
output by 2030; more droughts, floods, typhoons,
and sandstorms; and 40% increase in population
threatened by plague.

40

Product and Technology Risk:

Worldwide investments in sustainable energy(wind

solar, and water power) is tremendously increasing.
Consumers are purchasing products of those
companies sensitive environmental consciousness.
Carbon-friendly products using new technologies
are being popular with consumers.
Automobiles companies that are adopting hybrid or
alternative energy cars gained a competitive
advantage.

41

Litigation Risk:

Companies that generate significant carbon

emissions face the threat of lawsuits similar to
those in the tobacco, pharmaceutical, and building
supplies industries.
Companies are charged costs for water pollution in
water-stressed areas, cost recovery related to the
relocation of human settlement away from land
reclaimed by rising seas, or damages from extreme
events intensified by greenhouse gas emissions.

42

Reputational Risk:
Firms exposed to any of the above risks may suffer
reputational risk if brand names are associated with
climate-related damages or perceived mismanagement
of the climate change risk environment.
Company with a good record of environmental
sustainability may create a competitive advantage in
terms of attracting and keeping loyal consumers,
employees and investors.
For e.g., Wal-Marts pursuit of environmental
sustainability as a core business strategy has helped
soften its negative reputation as low-wage, low-benefit
employer.
43

Physical Risk:
The direct risks posed by climate change includes the
physical effects of floods, droughts, storms, and
rising sea levels.
Temperature has been rising in the past fifty years,
affecting to melting glaciers and sea levels rising one
inch per decade.
Affecting industries are insurance, agriculture, fishing,
forestry, real estate, and tourism.

44

5. Basic Model of Strategic

Management and Its
Components

45

Environmental
Scanning

Strategy
Formulation

Strategy
Implementation

Evaluation and
Control

Model of Strategic Management Process

46

47

Environmental
Scanning

Strategy
Formulation

Strategy
Implementation

Evaluation and
Control

Basic model/Process of Strategic

Management
i. Environmental Scanning:

Environmental scanning is the monitoring,

evaluating and disseminating of information from
the external and internal environments to key
people within the organizations.
Organizations continuously monitors and evaluates
the changes and developments in the external and
internal environment to identify strategic factors.
External environment provides opportunities and
threats. Internal environmental provides strengths
and weaknesses.
48

Environmental
Scanning

Strategy
Formulation

Strategy
Implementation

Evaluation and
Control

ii. Strategy Formulation:

Strategy formulation is the development of longrange plan for the effective management of
environmental opportunities and threats, in the light
of organizations strengths and weaknesses (SWOT).
It includes the identify strategic intent. Strategic
intents are mission, vision, and long-term objectives.
Mission:
An organizations mission is the purpose or reason for
the organizations existence.
It tells what the organization is providing to society.
49

A well conceived mission statement defines the

fundamental, unique purpose that sets a company
apart from its competitors about companies
products, markets and customers.
A mission statement includes firms value and
philosophy about how it does business.
Mission describes What the organization is now
Vision:
Vision is the future aspiration of the organization.
Vision describes what the organization would like to
become in the future.
50

Mission statement of Google:

To organize the worlds information and make it
universally accessible and useful.

Objectives:
Objectives are the end results of planned activity. They
should be stated as action verbs and tell what is to be
accomplished by when and quantified if possible.
Goal vs objectives:
Goals are abstracts term. For e.g., increase profit. BHAG
(Big Hairy Audacious Goals)
Objectives are specific: Profit increase 5% in 2015.
SMART (Specific, Measurable, Attainable, Realistic, and
Time bound).
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Strategy:
A strategy of a company is a comprehensive master plan
that states how the company will achieve its mission and
objectives.
Policy:
A policy is broad guideline for decision making that links the
formulation of a strategy with its implementation.
Companies use policies to make sure that employees
throughout the firm make decisions and take actions that
support the corporations mission, objectives and strategies.
For e.g., Southwest Airlines offers no meals or reserved seating
on airplanes. This support Southwests competitive strategy of
having the budget airlines in the industry.
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Environmental
Scanning

Strategy
Formulation

Strategy
Implementation

Evaluation and
Control

iii. Strategy Implementation:

Strategy implementation is a process by which
strategies and policies are put into action through the
development of programs, budgets, and procedures.

Formulation of strategy addressed What & Why of

actions whereas implementation of strategy
addresses Who, Where, When and How.
Strategy formulation requires conceptual &
analytical skill while implementation needs
administrative skills.
The formulation strategy ends where
implementation.
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This process involves:

Organizational structure:
Organizational structure is designed to implement strategy
smoothly. It establishes reporting relationships, span of control
and level of hierarchy.
Duties and responsibility are clearly defined.
Resource planning:
Resources like people, money, technology, time and information
are matched with opportunities.
Resources are allocated to different Strategy Business Units
(SBUs).
Management System:
A system is maintained through HRM, Information management
(ICT) and Leadership.
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Environmental
Scanning

Strategy
Formulation

Strategy
Implementation

Evaluation and
Control

iv. Strategy Evaluation and Control:

Evaluation and control is a process in which organizational

activities and performance results are monitored so that
actual performance can be compared with desired
performance.
Performance is the actual output of the strategic management
process.
These are profit and return on investment.
Corrective actions are taken to resolve problems.
The evaluation and control of performance completes the
strategic management model.
Based on performance results, management may need to
make adjustments in its strategy formulation, in
implementation, or in both.
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6. Triggering Events for

Strategic Change.

56

Triggering Events

A triggering event is something that stimulates a

change in strategy.
Some of the possible triggering events is:
New CEO:
New CEO is asked what will he do for the
companies existence.
External Intervention:
External threat is encountered suddenly.
E.g., the bank suddenly refuses to provide a new
loan or suddenly calls for payment in full on an old
one.
57

Triggering Events

Threat of a change in ownership:

Another firm may initiate a takeover by buying the
companys common stock.
Performance gap:
A performance gap exists when performance does not
meet expectations.
Sales and profits either are no longer increasing or may
even be falling.
Strategic inflection point:
What happens to business when a major change take place
due to the introduction of new technologies, a different
regulatory environment, a change in customers value, and
customer preference.
58

7. Strategic Decision-Making
Modes.

59

Mintzbergs Modes of
Strategic Decision Making

Some strategic decisions are made in lead by one

person (an entrepreneur or powerful CEO) who has
insights and able to convince others.
Some decisions are taken as incremental choices
from time to time.
Henry Mintzberg has suggested three most typical
approach.
i. Entrepreneurial Mode:
Strategy is made by one powerful individual.
The focus is on opportunities; problems are
secondary.
60

Strategy is guided by the founders own vision of

direction and is exemplified by large, bold
decisions.
The dominant goal is growth of the organization.
E.g., Amazon.com, founded by Jeff Bezos, is run as
entrepreneurial mode.
The company reflected Bezos vision of using
internet to market books and more.
But, Bezos abnormal management style made it
difficult to retain senior executives.

61


ii. Adaptive Mode:
It referred as muddling through.
Decision making is characterized by reactive
solutions to existing problems.
It does not take a proactive approach to search
new opportunities.
Priority of objectives are not clear.
It is decided through bargaining.
Decision making is fragmented.
It takes an incremental approach to forward
movement of the organization.
62

Most universities, large hospitals, large number of

governmental departments, and large companies
use adaptive mode of strategic decision making.
Encyclopedia Britannica Inc. found in 1996 that
door-to-door selling of books had become old and
performance became worthless.
The company organized television advertising and
television marketing.
Now the company charges libraries and individual
subscribers for complete access to Brittanica.com
and offers CD-ROMs with 32-volume print set.
63


iii. Planning Mode:
Decision making mode involves the systematic
gathering of appropriate information for situational
analysis, the generation of feasible alternatives, and
the rational selection of most appropriate strategy.
It includes both the proactive search for new
opportunities and the reactive solution of existing
problems.
For e.g., IBM under CEO Louis Gerstner.
In 1993 when Louis Gerstner accepted the job of CEO
in IBM, he realized that IBM was is serious difficulty.
64

Sales and market share of the companys main product

mainframe computer was declining rapidly.
An in-depth analysis of IBMs product lines revealed that
only part of the company that was growing services and
it was relatively small segment and not profitable.
Rather than focusing of selling its own computer
hardware, IBM made the strategic decision to invest in
services that integrated IT.
IBM decided to provide a completed set of services from
building systems to defining architecture to running and
managing the computers.
Since the starting year 1993, 80 percent of IBMs
revenue growth had come from services.
65


iv. Logical Incrementalism:
The mode was added by Quinn to Mintzbergs modes.
It is a synthesis of planning, adaptive and
entrepreneurial modes.
Strategic decisions develop out of series of incremental
choices over time in a changing environment.
Top management has clear idea of mission and
objectives.
Decisions are not made at once.
Interaction on and discussion is allowed to take
decisions.
66

This approach appears to be useful when the

environment is changing rapidly and when it is
important to build consensus and develop needed
resources before committing a whole organization
to a specific strategy.
For e.g., in the petroleum industry, Grant described
strategic planning as planned emergence.
Corporate headquarters established the mission
and objectives but allowed the business units to
propose strategies to achieve them.

67

8. Use the strategic audit as a

method of analyzing
corporate functions and
activities.
(Strategic Audit)

68

Strategic decision making process is put into action

by strategic audit.
Strategic audit provides a checklist of questions, by
area or issue, that enables a systematic analysis to
be made of various corporate functions and activities.
Beginning with an evaluation of current performance,
the audit continues with environmental scanning,
strategy formulation, and strategy implementation,
and it concludes with evaluation and control.
It is a type of management audit that focus on
corporate problems and highlight organizational
strengths and weaknesses.
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70

Thank

You.

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