402 – STRATEGIC MANAGEMENT

UNIT – I
Strategic Management–The Nature and Value of Strategic Management–The Strategic
management Process–Components of Strategic Management Model

Introduction & Concept

Strategic management is the ongoing  planning, monitoring, analysis and
assessment of all necessities an organization needs to meet its goals and objectives. Changes
in business environments will require organizations to constantly assess their strategies for
success. The strategic management process helps organizations take stock of their present
situation, chalk out strategies, deploy them and analyze the effectiveness of the implemented
management strategies. Strategic management strategies consist of five basic strategies and
can differ in implementation depending on the surrounding environment. Strategic
management applies both to on-premise and mobile platforms.
Definitions
Strategic management is the process of managing the pursuit of organizational
mission while managing the relationship of the organization to its environment (James M.
Higgins).
Strategic management is defined as the set of decisions and actions resulting in the
formulation and implementation of strategies designed to achieve the objectives of the
organization (John A. Pearce II and Richard B. Robinson, Jr.).
Strategic management is the process of examining both present and future
environments, formulating the organization's objectives, and making, implementing, and
controlling decisions focused on achieving these objectives in the present and future
environments (Garry D. Smith, Danny R. Arnold, Bobby G. Bizzell).
Strategic management is a continuous process that involves attempts to match or fit
the organization with its changing environment in the most advantageous way
possible (Lester A. Digman).
Elements Of Strategic Management
Strategic management, as minimum, includes strategic planning and strategic
control. Strategic planning describes the periodic activities undertaken by organizations to
cope with changes in their external environments (Lester A. Digman).

402 – Strategic Management – Unit - I Page 1

 It involves formulating and evaluating alternative strategies, selecting a strategy, and
developing detailed plans for putting the strategy into practice. Strategic planning consists of
formulating strategies from which overall plans for implementing the strategy are
developed. Strategic control consists of ensuring that the chosen strategy is being
implemented properly and that it is producing the desired results.
Based on Robert Anthony's framework, three types of planning and control are
required by organizations:
* Strategic Planning and Control - the process of deciding on changes in organizational
objectives, in the resources to be used in attaining these objectives, in policies governing the
acquisition and use of these resources, and in the means (strategies) of attaining the
objectives. Strategic planning and control involve actions that change the character or
direction of the organization.
* Management Planning and Control - the process of ensuring that resources are obtained
and used efficiently in the accomplishment of the organization's objectives. Management
planning and control is carried on within the framework established by strategic planning and
is analogous to operating control.
* Technical Planning and Control - the process of ensuring efficient acquisition and use of
resources, with respect to those activities for which the optimum relationship between outputs
and resources can be accurately estimated (e.g., financial, accounting, and quality controls).
Another important term in the study of strategic management is long-range planning. Long-
range planning, planning for events beyond the current year, is not synonymous with
strategic management (or strategic planning). Not all long-range planning is strategic. Certain
strategic actions and reactions can be relatively short range and may include more than just
planning aspects. It is perfectly reasonable to have long-range operating or technical plans
that are not strategic. However, it should be noted that most strategic decisions have long-
term ramifications.
The Nature and Value of Strategic Management
Strategic management is a process which determines whether an organization excels,
survives, or dies.
All organizations engage in the strategic management process either formally or
informally. Strategic management is equally applicable to public, private, not-for-profit, and
religious organizations. An attempt is made in this thesis to show the applicability of strategic
management to all types of organizations, but the emphasis is on private-enterprise
organizations.
402 – Strategic Management – Unit - I Page 2
Organizations usually employ one of the three general decision-making processes:
1. Managers want to resolve current problems. Firms often face problems resulting from
falling sales, low profit rates, or production inefficiencies. Managers try to identify
the sources of those problems and resolve them as best they can.
2. Managers want to solve current problems and prevent future problems. For example,
faced with rising production costs, managers may apply statistical techniques to create
an optimal solution.
3. Managers want to design or create a better relationship between the firm and its
operating and general environments. That involves the firm in strategic decision
making.
Three factors distinguish strategic decisions from other business considerations:
1. Strategic decisions deal with concerns that are central to the livelihood and survival of
the entire organization and usually involve a large portion of the organization's
resources.
2. Strategic decisions represent new activities or areas of concern and typically address
issues that are unusual for the organization rather than issues that lend themselves to
routine decision making.
3. Strategic decisions have repercussions for the way other, lower-level decisions in the
organization are made.
To summarize, there are two essential areas of management tasks: strategic management and
operating management. Operating management deals with the ongoing, day-to day
"operations" of the business.
Process / Stages Of Strategic Management
The strategic management process represents a logical, systematic, and objective
approach for determining an enterprise's future direction. However, a clear separation is
needed between the managerial process by which an organization formulates, evaluates,
implements, and controls the relationships between its objectives, its strategies, and its
environment.
Researchers usually distinguish three stages in the process of strategic management: strategy
formulation,  strategy implementation, and  evaluation and control.

402 – Strategic Management – Unit - I Page 3

 Strategy
Evaluation and
Strategy Control
Implementation
Strategy
Formulation
Environmental
Scanning

1. Environmental Scanning:
Environmental scanning is the monitoring, evaluating, and disseminating of
information from the external and internal environment to key people within the organization
in order to identify strategic factors that will determine the future of the corporation. The
external environment of a business is scanned through SWOT analysis.
SWOT stands for Strengths, Weaknesses, Opportunities, and Threats that are strategic
factors for a specific company. The external environment consists of variables in terms of
Opportunities and Threats that are outside the organization and typically beyond the short-run
control of the top management.
These variables provide the context within which the organizations operate. The key
environment variables may be general forces and trends within the overall societal
environment or specific factors that operate within an organization’s specific task
environment often called its industry.
The internal environment of firm consists of variables in terms of Strengths and
Weaknesses that are within the organization itself and are usually within the short- run
control of the top management.
These variables form the context in which work is done and include the corporation’s
structure, culture, and resources. Key strengths form a set of core competencies a firm uses to
gain competitive advantage.
2. Strategy Formulation
Strategy formulation is the process of establishing the organization's mission,
objectives, and choosing among alternative strategies. Sometimes strategy formulation is
called "strategic planning."

402 – Strategic Management – Unit - I Page 4

 Mission and Vision Statement Examples

For quick reference, here are 15 examples of mission and vision statements from highly successful
businesses:

 Tesla: To accelerate the world’s transition to sustainable energy.

 Nike: Bring inspiration and innovation to every athlete* in the world. *If you have a body, you
are an athlete.

 Shopify: Make commerce better for everyone, so businesses can focus on what they do best:
building and selling their products.

 TED: Spread ideas.

 Amazon: To be Earth’s most customer-centric company, where customers can find and
discover anything they might want to buy online.

 Southwest Airlines: To become the world’s most loved, most flown, and most profitable airline.

 Google: To organize the world’s information and make it universally accessible and useful.

 Loreal: To provide the best in cosmetics innovation to women and men around the world with
respect for their diversity.

 Bulletproof: Help people perform better, think faster, and live better.

 Honest Tea: Create and promote great-tasting, healthy, organic beverages.

 Mission:
The mission of a business is the fundamental, unique purpose that sets it apart from
other firms of its type and identifies the scope of its operations in product and market terms.
It is a general, enduring statement of company intent embodying the business philosophy of
strategic decision makers.
 Objectives:
Objectives are the end results of planned activity that state what is to be accomplished
by when and should be quantified if possible and their achievement should result in the
fulfillment of a corporation’s mission.
 Strategies:
A strategy of a corporation forms a comprehensive plan of action stating how the
corporation will achieve its mission and objectives. It maximizes competitive advantage and
minimizes competitive disadvantage.

402 – Strategic Management – Unit - I Page 5

 A typical business firm usually considers three types of strategy: corporate, business
and functional.
 Corporate Strategy:
Corporate strategy provides a company overall directions in terms of its
general attitude toward growth and the management of its various businesses
and product lines.
 Business Strategy:
The business level strategies are the alternative courses of action that a firm
can adopt for each of its businesses separately to serve identified customer
groups and give value to the customers in order to satisfy their needs. In the
process the firm uses its competencies to acquire, sustain and increase its
competitive advantage.
 Functional Strategies:
Within the general framework of the grand strategy, each distinctive business
function needs a specific and integrative plan of action. A functional strategy
is the short- term game plan for a key functional area within a company. Such
strategies provide more specific details about how key functional areas are to
be managed in the near future.
 Policies:
Policies are directives that guide the thinking, decisions, and actions of managers and
their subordinates in implementing the organization’s strategy. Policies provide guidelines for
establishing and controlling the ongoing operating processes of the firm consistent with the
firm’s strategic objectives.
3. Strategy Implementation
Strategy implementation is the action stage of strategic management. It refers to
decisions that are made to install new strategy or reinforce existing strategy. The basic
strategy - implementation activities are establishing annual objectives, devising policies, and
allocated resources.
Strategy implementation also includes the making of decisions with regard to
matching strategy and organizational structure; developing budgets, and motivational
systems.
 Programs:

402 – Strategic Management – Unit - I Page 6

 Programs are a complex of goals, policies, procedures, rules, task assignments, steps
to be taken, resources to be employed, and other elements necessary to carry out a given
course of action; they are ordinarily supported by budgets. It may involve restructuring the
corporation, changing the company’s internal culture, or beginning a new research effort.
 Budgets:
A budget is a statement of expected results expressed in numerical terms. A budget
may be expressed either in financial terms or in terms of labor-hours, units of product,
machine-hours, or any other numerically measurable term. It may deal with operations, as the
expense budget does; it may reflect capital outlays, as the capital expenditure budget does; or
it may show cash flow, as the cash budget does.
 Procedure:
Procedures are plans that establish a required method of handling future activities.
They are guides to action, rather than to thinking, and they detail the exact manner in which
certain activities must be accomplished. They are chronological sequences of required
actions. For example, Delta Airlines used various procedures to cut costs.
4. Strategy Evaluation And Control
Strategy evaluation is the final stage in strategic management. Managers need to
know when and why particular strategies are not working well; strategy evaluation is the
primary means for obtaining this information.
Evaluation is the process in which corporate activities and performance results are
monitored so that actual performance can be compared with desired performance. All
strategists are subject to future modification because external and internal factors are
constantly changing.
Three fundamental strategy evaluation activities are:
(1) Reviewing external and internal factors that are the bases for current strategies,
(2) Measuring performance, and
(3) Taking corrective actions.
Strategy evaluation is needed because success today is no guarantee of success
tomorrow. Managers at all levels use the resulting information to take corrective action and
resolve problems. Although evaluation is the final major element of strategic management, it
also can pinpoint weaknesses in previously implemented strategic plans and thus stimulate
the entire process to begin again.
The Strategic Decision Makers

402 – Strategic Management – Unit - I Page 7

 The strategic management process requires competent individuals to ensure its
success. Therefore, to understand strategic management, we must know where strategic
decisions are made in organizations.
Inputs to strategic decisions can be generated in a number of ways. Overall, top
management, board of directors, and planning staff tend to be those positions that have the
most significant involvement and influence in the strategic management process of
organizations. The failure of an organization to achieve its objectives can often be traced to a
breakdown at the level of the board or top management. However, the final responsibility
rests with top management.
Top Management
The term "top management" refers to a relatively small group of people include
president, chief executive officer, vice president, and executive vice president. Because the
insights of these executives play such a critical role, a number of writers have stressed the
importance of matching the characteristics of these executives with the firm's strategies.
Other Managers And Staff Members
In many organizations, the job of strategic management can become so
overwhelming, that the chief executive must assign individuals, usually called planning staff
personnel, to help with the tasks. Recent theory and studies suggest that middle-level
managers attempt to influence business strategy and often initiate strategic proposals.
Board Of Directors
The business which exists in corporate form has a board of directors, elected by
stockholders and given ultimate authority and responsibility. Boards typically elect a
chairperson who is responsible for overseeing board business, and they form standing
committees which meet regularly to conduct their business. A strategy committee is a board
committee that works with CEO to develop strategic management process.
Strategic Management – Need:
Some managers argue that why should firms engage themselves in strategic management?
They argue that firms can exist, develop and continue in business without strategic
management. Some other managers argue that strategic management is essential in this
competitive era.
The following factors help us to know the need for strategic management:
i. Due to Change:
Everything, except change is not permanent. It does mean that only change is
permanent. Change makes planning difficult. But, firms may pro-act to the change rather than
402 – Strategic Management – Unit - I Page 8
just react to it. Strategic management encourages the top executives to forecast change and
provides direction and control.
It will also allow the firm to take advantage of the opportunities provided by the
changes in the environment and avoid the threats or reduce the risk as the future is
anticipated. Thus, strategic management allows an enterprise to base its decisions on long-
range forecasts.
ii. To Provide Guidelines:
Strategic management provides guidelines to the employer about the organisation’s
expectations from them. This would minimise conflict between job performance and job
demands. Thus, it provides incentive for employer and helps the organisation in achieving its
objectives.
iii. Developed Field of Study by Research:
Strategic management was just based on case studies or anecdotal evidence 30 years
ago. But recently, there are methodological problem researches in this field of study. More
systematic knowledge in this area is available at present. Therefore, today it is worthwhile to
study strategic management.
iv. Probability for Better Performance:
There is no clear research evidence that strategic management leads to higher
performance. But the majority of studies suggest that there is a relationship between better
performance and formal planning. It is also stated that businesses which plan strategically
have a higher probability of success than those which do not have.
v. Systematize Business Decisions:
Strategic management provides data and information about different business
transactions to managers and helps them to make decisions systematically.
vi. Improves Communication:
Strategic management provides effective communication of information from lower
level managers to middle level managers and to top level managers.
vii. Improves Coordination:
Strategic management improves coordination not only among the functional areas of
management, but also among individual projects.
viii. Improves Allocation of Resources:
Strategic planning helps in deciding upon most feasible and viable projects and
thereby improves the allocation of resources to the viable projects.
ix. Helps the Managers to have a Holistic Approach:
402 – Strategic Management – Unit - I Page 9
 Strategic management helps the managers to have complete understanding of the
company and to have a holistic approach towards business problems and proportions.
The Importance and Value Of Strategic Management

Financial Benefits Non - Financial Benefits

1. Increased Sales 1. Anticipate future problems and
2. Profit opportunities.
3. Return on Assets 2. It increases employee satisfaction and
motivation.
3. It results in faster and better decision
making and
4. It results on cost savings.

The strategic management of business will enable an organization in the following ways:
1. It helps integrate the behaviour of individuals into a total effort.
2. It gives a sense of long-term direction and provides a framework for guidance in
medium-term and short-term planning.
3. It allows for identification, prioritization, and exploitation of opportunities.
4. It minimizes the effects of adverse conditions and changes.
5. It is a conscious and a rational management exercise, which involves defining and
achieving an organization’s objective and implementing its mission.
6. It provides a basis for clarifying individual responsibilities.
7. It is the only means by which the future opportunities and problems can be
anticipated by the management.
8. It focuses on long-term issues, which affect the organization.
9. It allows major decisions to better support established objectives.
10. It helps the organization in managing risks and reducing risks.
11. It allows more effective allocation of time and resources to identified
opportunities.
12. It gives a sense of purpose leading to better quality of management overall.
13. It allows fewer resources and less time to be devoted to correcting erroneous or ad
hoc decisions.
14. It encourages creativity and initiative.

402 – Strategic Management – Unit - I Page 10

 15. It leads to better analysis and diagnosis of the current and likely future
environment, identifying opportunities and threats.
16. It encourages a favourable attitude toward change.
17. It will have positive impact on the long-term prosperity of the firm.
18. It provides an objective view of management problems.
19. It involves planning, implementation and control of an organization’s strategy.
20. It gives a degree of discipline and formality to the management of a business.
21. It creates a framework for internal communication among personnel.
22. It enables the organization to be more aware of its external environment and
enables it to adapt to achieve a better fit with its environment.
23. It encourages forward thinking.
24. It is concerned with implementation of policies that are considered to be
appropriate.
25. It represents a framework for improved coordination and control of activities.
26. It is the adoption of a course of action so as to achieve a given objective with the
specified reasons.
27. It is conducive to greater harmony and goal congruence.
28. It provides a cooperative, integrated and enthusiastic approach to tackling
problems and opportunities.
29. It improves quality of strategic decisions through group interaction.
30. It reduces gaps and overlaps in activities.
Strategic Management – Components:
The five components of strategic management process are:
1. Selection of the corporate mission and major corporate goals,
2. Analysis of the organization’s external competitive environment to identify opportunities
and threats,
3. Analysis of the organization’s internal operating environment to identify the organization’s
strengths and weaknesses,
4. Selection of strategies that build on the organization’s strengths and correct its weaknesses
in order to take advantage of external opportunities and counter external threats.
5. Strategy implementation.
Each component constitutes a sequential step in the strategic management process.
Each cycle of the management process begins with a statement of the corporate mission and
major corporate goals followed by external and internal analysis, strategic choice. The
402 – Strategic Management – Unit - I Page 11
strategy formulation ends with the design of the organizational structure and control systems
necessary to implement the organization’s chosen strategy.
Now each of the components will be discussed one by one:
Component # 1. Mission and Major Goals:
Most organizations define the basic reason for their existence in terms of a mission
statement that provides the basic philosophy of the firm. A mission statement usually
emanates from the entrepreneur or from major strategists in the firm’s development overtime.
The mission of a company is an important element in establishing the strategy of the
organization.
“The mission can be seen as a link between performing some social function and
more specific targets or objectives of the organization”. Thus the mission legitimizes the
existence of a firm. A carefully defined mission of a business provides an explicit statement
to insiders and outsiders ‘of what the company stands for—its purpose, image and character.’
Mission definitions can be as broad as to loose meaning, or so abstract that they
appear only public pronouncements of ideals that are difficult to achieve. A good mission
statement should be brief, specific and clear enough to lead to action and must focus around
customer needs and utilities.
Mission statements need to be communicated throughout the organization. Top
management must also demonstrate their importance by “living” them as an example. A clear
mission statement can become an important inspiration to employees and can lead to
commitment and loyalty to the corporation.

Component # 2. External Analysis:

A firm’s external environment consists of all the conditions and forces that affect its
strategic options but are typically beyond the firm’s control.
The analysis of the organization’s external environment aims at identifying strategic
opportunities and threats in the organization’s operating environment. Three interrelated
environments should be analyzed at this stage- the industry environment, the national
environment and the wider macro-environment.
The industry environment consists of the forces and conditions within a specific
industry and a specific competitive operating situation, external to the firm, that influence the
selection and attainment of alternative objective/strategy combinations. Analysis of the
industry environment assesses the competitive structure of the industry to which an
organization belongs.
402 – Strategic Management – Unit - I Page 12
 It examines the major competitors, the stage of industry development as well
assessing the impact of globalization upon competition within an industry. Changes in the
operating environment often result from strategic actions taken by the firm or its competitors,
customers, suppliers and creditors.

Component # 3. Internal Environment:

‘An organization’s internal environment analysis determines its performance
capabilities based on existing or accessible resources.’ It identifies the strengths and
weaknesses of the organization and considers such issues as determining the quantity and
quality of resources available to the organization in which the sources of competitive
advantage lie.
Building and maintaining a competitive advantage requires a company to achieve
superior efficiency, quality, innovation, and customer responsiveness. A company’s strengths
lead to superiority in these areas, whereas a company’s weaknesses translate into inferior
performance.

Component # 4. SWOT and Strategic Choice:

Given a company’s internal strengths and weaknesses and its external opportunities
and threats, a company needs to generate a series of strategic alternatives. The comparison of
strengths, weaknesses, opportunities and threats is normally referred to as a SWOT analysis.
The main purpose of SWOT analysis is to identify strategies that align, fit, or match a
company’s resources and capabilities to the demands of the environment in which the
company operates. In other words, the purpose of generating strategic alternatives by a
SWOT analysis should be to build on a company’s strengths in order to exploit opportunities,
counter threats, and correct weaknesses.
SWOT analysis provides a simple but powerful tool for evaluating the strategic
position of the firm. It is especially useful for senior executives undertaking a fundamental
reappraisal of a business, in that it permits a free-thinking environment unencumbered by the
constraints often imposed by a finance-driven budgetary planning system.
Strategic Choice:
Strategic choice is a process of choosing from among the alternatives generated by a
SWOT analysis. The strategic alternatives are evaluated against each other with regard to
their ability to achieve major goals.

402 – Strategic Management – Unit - I Page 13

Corporate-Level Strategy:
An organization’s corporate strategy identifies the businesses that maximize its long-
term profitability. For many organizations competing successfully often means vertical
integration, diversification, strategic alliance or acquisition.
Some companies may be successful in establishing a sustainable competitive
advantage and may be able to generate resources in excess of their investment requirements
within their business. For such organizations, long-term profitability maximization may mean
diversification in new businesses.
Business Level Strategies:
Business level strategy is concerned with shaping the future of the business unit
concerned. It is essentially competitive strategy that signifies the interface between the
market and the business unit. Business level strategy is concerned with meeting competition,
protecting market shares and achieving profits at the business unit level.
Functional Strategies:
From the business strategies, managers develop operational strategies and tactics to
implement selected business level strategy. Functional level strategies may be defined as
strategies ‘directed at improving the effectiveness of functional operations within a
company’. The functional operations include manufacturing, marketing, research and
development, materials management and human resources management.
Global Strategies:
Today markets have become global and firms have to be competitive globally.
Attaining competitive advantage and maximizing a company’s performance needs a company
needs to expand its business activities beyond its home country. Therefore, a company must
ponder over various global strategies to adopt to compete in the global market-place.

Component # 5. Strategy Implementation:

After the strategic choice has been made, the chosen strategy has to be put into action.
The strategy implementation is divided into four main components:
1. Design Organizational Structure: 2. Designing Control Systems:
Strategy implementation is effected In addition to choosing an appropriate
through the people in the organization, and organizational structure, a company must
the way in which they are organized. The also establish suitable organizational control
allocation of various roles and systems. Control systems enable strategists
responsibilities relating to different aspects of monitor the progress and performance of a
402 – Strategic Management – Unit - I Page 14
the strategy to different managers and strategy. The control systems may range from
subunits is necessary for the implementation market and output controls to bureaucratic
of the selected strategy. controls and controls through organizational
A company’s organizational structure, structure. An organization also requires an
therefore, delineates roles and responsibilities appropriate sort of reward and incentive
as well as their reporting relationships. If the systems to encourage performance.
existing structure of an organization is not
appropriate for the company’s strategy, it
may have to design a new structure. We
describe the different types of organizational
structures that can be used to implement
strategy.

3. Matching, Strategy, Structure and 4. Managing Strategic Change:

Controls: In today’s world the only constant is
For a successful strategy change. Because the change is so pervasive,
implementation, a company’s strategy must the companies that are able to adapt their
match with its structure and controls. The strategy and structure to a changing world
strategic managers can create a structure and achieve long run success.
control systems to encourage the
development of various distinctive functional
competencies or skills.

The Feedback Loop:

Feedback can be defined as post-implementation results collected as inputs for the
enhancement of future decision-making. Once a strategy is implemented, its execution must
be monitored to know to what extent the strategic objectives are actually being achieved.
The information received though feedback is fed into the next round of strategy formulation
and implementation. The feedback serves either to reaffirm existing corporate goals and
strategies or to suggest changes. Feedback may also reveal that strategic objectives were
attainable but implementation was poor.

[END OF UNIT - I]

402 – Strategic Management – Unit - I Page 15