Strategic Management

Concept and Process

 Concept of Strategic Management
•Managing activities internal to the firm is only part of the modern
executive’s responsibilities.
•The modern executive also must respond to the challenges posed
by the firm’s immediate and remote external environments.
•The immediate external environment includes competitors,
suppliers, increasingly scarce resources, government agencies and
their ever more numerous regulations, and customers whose
preferences often shift inexplicably.
•The remote external environment comprises economic and social
conditions, political priorities, and technological developments, all
of which must ne anticipated, monitored, assessed, and
incorporated into the executive’s decision making.
• Strategic management is defined as the set of
decisions and actions that result in the formulation
and implementation of plans designed to achieve a
company’s objectives.
• Strategic management comprises nine critical tasks:
1. Formulate the company’s mission, including broad
statements about its purpose, philosophy, and goals.
2. Conduct an analysis that reflects the company’s internal
conditions and capabilities.
3. Assess the company’s external environment including
both the competitive and the general contextual factors.
4. Analyze the company’s options by matching its resources
with the external environment.
5. Identify the most desirable options by evaluating
each option in light of the company’s mission.
6. Select a set of long-term objectives and grand
strategies that will achieve the most desirable
options.
7. Develop annual objectives and short-term
strategies that are compatible with the selected
set of long-term objectives and grand strategies
8. Implement the strategic choices by means of
resource allocations
9. Evaluate the success of strategic process.
 Strategic Management Process

ENENVIRONMENT MSTRATEGY STRATEGY EVALUATION

SCANNING
FORMULATION IMPLEMENTATION & CONTROL
Programs
Mission (Activities needed to
(Reason for existence) accomplish a plan)
External Objectives Budgets
(what results to accomplish (cost of the
by when) programs)

Strategies Procedures
Internal (Plan to achieve the mission (Sequence of steps
& objectives) needed to do the
job) Performance
(Actual
Policies results)
(Broad guidelines)

Feedback/Learning
 Environmental Scanning
• Environmental scanning is the monitoring,
evaluating, and disseminating of information
from the external and internal environments
to key people within the corporation.
• Its purpose is to identify strategic factors
(those external and internal elements that will
determine the future of the corporation).
• The simplest way to conduct environmental
scanning is through SWOT analysis.
 Strategy Formulation
• Strategy formulation is the development of long-range plans
for the effective management of environmental opportunities
and threats, in light of corporate strengths and weaknesses
MISSION
• A mission of an organization is the purpose or reason for the
organization’s existence.
• It tells what the company is providing to society.
• A well-conceived mission statement defines the
fundamental, unique purpose that sets a company apart from
other firms of its type and defines the scope of the company’s
operations in terms of products and markets.
 OBJECTIVES
• Objectives are the end results of planned activities.
• They state what to be accomplished by when and should be
quantified if possible.
– Profitability
– Efficiency
– Growth
– Shareholder wealth
– Utilization of resources reputation
– Contribution to employees
– Contribution to society
– Market leadership
– Technological leadership
– Survival personal needs of top management
 STRATEGIES
• A strategy is a master plan stating how the
company will achieve its mission and objectives.
• It maximizes competitive advantage and
minimizes competitive disadvantages.
• A typical business firm usually considers three
types of strategies based on the decision making
hierarchy.
– Corporate strategy
– Business strategy
– Functional strategy
• Corporate strategy
– Describes a company’s overall direction in terms of its general attitude
toward growth and the management of its various businesses and product
lines.
– The main categories of corporate strategy are stability, growth,
retrenchment, and combination.
• Business strategy
– Usually formulated at the business units mainly focusing on the
competitive position of a company’s product.
– Business strategy comprises of two categories, i.e., competitive and
collaborative strategies.
• Functional strategy
– The decisions taken by a functional area to achieve corporate and business
level unit objectives and strategies by maximizing resource productivity.
– It is concerned with developing and nurturing a distinctive competence to
provide a company or business unit with a competitive advantage.
 POLICIES
• A policy is a broad guidelines for decision
making that links the formulation of strategy
with its implementation.
• Policies are necessary to make sure that
employees make decisions and take actions
that support the company’s mission,
objectives, and strategies.
 Strategy Implementation
• Strategy implementation is the process by which strategies and
policies are put into action through the development of
programs, budgets, and procedures.
• This process involves changes within the overall culture,
structure, and management system of the entire organization.
• A program is a statement of the activities or steps needed to
accomplish a single-use plan.
• A program makes the strategy action oriented.
• A budget is a statement of a company’s programs in terms of
monetary value.
• procedures are a system of sequential steps or techniques that
describe in detail how a particular task or job is to be done.
 Evaluation and Control
• Evaluation and control is the process in which
corporate activities and performance results
are monitored so that actual performance can
be compared with desired performance.
FEEDBACK/LEARNING
• Feedback is the information coming from the
performance indicating the need for
corrective actions in each of the components
of strategic management process.
 Strategic Decision Making

• The distinguishing characteristic of strategic management is its

emphasis on strategic decision making.
• Strategic decisions have become substantially important as the
organizations grow larger and more complex with more uncertain
environments.
• Strategic decisions are those convictions of the company which
provides long-term directions and commitments.
• Strategic decisions deal with the long-run future of the company
which have three characteristics:
– Rare: Unusual and typical with no precedents to follow.
– Consequential: commit substantial resources and demand a great deal of
commitment from people at all levels.
– Directive: set precedents for lesser decisions and future actions.
 Strategic Decision Making Process

Scan and
Analyze
assess
opportunities
external
and threats
environment

Examine and
evaluate the Select
Evaluate
current Review strategic
current
mission, corporate factors
performanc
objectives, governance (SWOT)
e results
strategies,
and policies

Scan and Analyze

assess strengths
internal and
environment weaknesses
 Dimensions of Strategic Decisions

• Strategic issues require top-management decisions

• Strategic issues require large amounts of the firm’s
resources
• Strategic issues often affect the firm’s long-term
prosperity
• Strategic issues are future oriented
• Strategic issues usually have multifunctional or multi
business consequences
• Strategic issues require considering the firm’s external
environment
Mintzberg’s Modes of Strategic Decision Making

• Some strategic decisions are made in flash depending on

the decision maker’s ability and competence in gaining the
insight into the changing situations.
• However, many strategic decisions are made on the basis of
some approaches preferred by the executives.
• Henry Mintzberg proposes four approaches for making
strategic decisions:
– Entrepreneurial Mode
– Adaptive Mode
– Planning Mode
– Logical Incremenatalism
Entrepreneurial Mode of Strategic Decision
making
• Under this mode/approach, strategy is
developed by one powerful individual.
• The decision maker’s vision of direction works
as the basis for making strategic decisions.
• Opportunities are focused more, whereas
problems are second.
• Usually, growth is the dominant goal when
this approach is applied.
 Adaptive Mode of Strategic Decision
Making
• This approach of decision making is reactive
rather than proactive.
• Solutions to existing problems is sought rather
than seeing new opportunities.
• Fragmented strategies are developed which are
employed in incremental basis.
• This approach is typical of most universities,
large hospital, governmental agencies, and large
organizations.
 Planning Mode of Strategic Decision
Making
• This approach of decision making is the rational
approach in which relevant and appropriate
information are gathered for:
– situation analysis
– Generation of feasible alternative strategies
– Selection of most appropriate strategy.
• It includes both the proactive search for new
opportunities and the reactive solution of
existing problems.
 Logical Incrementalism
• This approach of strategic decision making synthesizes the
previous approaches.
• In this approach, top management has a reasonably clear idea of
the corporation’s mission and objectives, but while developing the
strategies, it chooses to use an interactive process which involves:
– Probing of future
– Experimentation
– Learning from a series of partial commitments
• This approach is useful when the environment is changing rapidly
and when it is important to build consensus and develop needed
resources before committing the entire corporation to a specific
strategy.