PART ONE: OVERVIEW OF STRATEGIC

MANAGEMENT

Chapter I - The Nature of Strategic

Management

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Definitions of Strategic Management

What do we mean by strategy? And so

strategic management?

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Quotes
Strategy means making clear-cut choices about how to

compete. Jack Welch (Former CEO, General Electric)

A strategy is a commitment to undertake one set of actions

rather than another. Sharon Oster (Professor, Yale University)

The process of developing superior strategies is part planning,

part trail and error, until you hit upon something that works.
Costas Markides(Professor , London Business Scholol)
Without a strategy the organization is like a ship without a

rudder. Joel Ross and Michael Kami (Authors and

consultants).

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Strategy
A company’s strategy is a management’s action

plan for running the business and conducting

operations.
A Strategy consists of the competitive moves
and the business approaches that managers are
employing to grow the business, attract and
please the customers, compete successfully,
conduct operations, and achieve the targeted
levels of organizational performance.
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Thus, a company’s strategy is all about how:

 How the management intends to grow the

business,
 How it will build loyal clients and outcompete
rivals,
 How each functional piece of the business ( R&D,

supply chain activities, production, sales and

marketing, distribution, finance, and human
resources) will be operated,
 How performance will be boosted.
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Strategic management
the set of managerial decisions and actions that
determines the long-run performance of an organization.
 It includes environmental scanning, strategy
formulation, strategy implementation, evaluation and
control.
 is the process of specifying an organization's objectives,

developing policies and plans to achieve these

objectives, and allocating resources so as to implement
the plans.
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Stages of Strategic Management
The managerial process of crafting and
executing a company’s strategy consists of
five interrelated and integrated phases:
1. DEVELOPING A STRATEGIC VISION of
where the company needs to head and
what its future product/market/customer
technology focus should be.

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2. SETTING OBJECTIVES and using them as yardsticks for
measuring the company’s performance and progress.

3. CRAFTING STRATEGY TO ACHIEVE THE OBJECTIVES

and move the company along the strategic course that
management has charted.

4. IMPLEMENTING AND EXECUTING THE CHOSEN

STRATEGY efficiently and effectively.

5. EVALUATING PERFORMANCE AND INITIATING

CORRECTIVE ADJUSTMENTS in the company ‘s long-
term direction, objectives, strategy, or execution in light
of actual experience, changing conditions, new ideas, and
new opportunities.
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THE STRATEGY MAKING, STRATEGY EXECUTING PROCESS

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Key Terms in Strategic Management
The following are common key terms in SM:
o competitive advantage;
o strategists;
o vision and mission statements;
o external opportunities and threats;
o internal strengths and weaknesses;
o long-term objectives;
o Strategies;
o annual objectives; and
o policies.

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Competitive Advantage

Strategic management is all about gaining

and maintaining competitive advantage.

This term can be defined as “anything that a

firm does especially well compared to rival

firms.”
When a firm can do something that rival firms

cannot do, or owns something that rival firms

desire, that can represent a competitive11
 Competency
 Competencies enable businesses to gain a competitive advantage

over others.

 Two types of competencies: Core Competency and

Distinctive Competency

 Core Competency can be defined as "a harmonized

combination of multiple resources and skills that

distinguish a firm in the marketplace".

 Core competencies fulfil three criteria:

 Provides potential access to a wide variety of markets.

 Should make a significant contribution to the perceived12

A distinctive competency is a competency unique to

a business organization, a competency superior in

some aspect than the competencies of other
organizations, which enables the production of a
unique value proposition in the function of the
business.
 A distinctive competency is the basis for the development

of an unassailable competitive advantage.

 The uniqueness differentiates this competency from all

others, whether a core competency or simply

a competency.

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It is not adequate to simply obtain
competitive advantage. A firm must strive to
achieve sustained competitive advantage by:
o continually adapting to changes in external

trends and events and internal capabilities,

competencies, and resources; and
o effectively formulating, implementing, and

evaluating strategies that capitalize upon

those factors.
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 Strategists

 Strategists are the individuals who are most responsible for the

success or failure of an organization.

 Strategists have various job titles, such as chief executive

officer, president, owner, chair of the board, executive

director, chancellor, dean, or entrepreneur.

• Strategists help an organization gather, analyse, and organize

information. They track industry and competitive trends,

develop forecasting models and scenario analyses, evaluate

corporate and divisional performance, spot emerging market

opportunities, identify business threats, and develop creative

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Vision and Mission Statements

Many organizations today develop a

vision statement that answers the
question “What do we want to become?”
Developing a vision statement is often

considered the first step in strategic

planning, preceding even development of
a mission statement.
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 Mission statements are “enduring statements of purpose

that distinguish one business from other similar firms. A

mission statement identifies the scope of a firm’s

operations in product and market terms.”

 It addresses the basic question that faces all strategists:

“What is our business?”

 A clear mission statement describes the values and

priorities of an organization. Developing a mission

statement compels strategists to think about the nature

and scope of present operations and to assess the

potential attractiveness of future markets and activities. 17

External Opportunities and Threats

External opportunities and external threats

refer to economic, social, cultural,

demographic, environmental, political, legal,
governmental, technological, and competitive
trends and events that could significantly
benefit or harm an organization in the future.
Opportunities and threats are largely beyond

the control of a single organization—thus the

word external. 18
Internal Strengths and Weaknesses

 Internal strengths and internal weaknesses are an organization’s

controllable activities that are performed especially well or

poorly.

 They arise in the management, marketing, finance/accounting,

production/operations, research and development, and

management information systems activities of a business.

 Identifying and evaluating organizational strengths and

weaknesses in the functional areas of a business is an essential

strategic management activity.

 Organizations strive to pursue strategies that capitalize on

internal strengths and eliminate internal weaknesses.

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 Long-Term Objectives

Objectives can be defined as specific results that an

organization seeks to achieve in pursuing its basic

mission. 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 a basis for effective planning,
organizing, motivating, and controlling activities.
Objectives should be challenging, measurable,
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Strategies

Strategies are the means by which long-term

objectives will be achieved.
Business strategies may include geographic
expansion, diversification, acquisition, product
development, market penetration, retrenchment,
divestiture, liquidation, and joint ventures.
Strategies are potential actions that require top

management decisions and large amounts of the

firm’s resources.
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 Annual Objectives

Annual objectives are short-term milestones that

organizations must achieve to reach long-term objectives.
Like long-term objectives, annual objectives should be

measurable, quantitative, challenging, realistic,

consistent, and prioritized. 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/accounting,
production/operations, research and development, and
management information systems (MIS) accomplishments.
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 Policies

Policies are the means by which

annual objectives will be achieved.

Policies include guidelines, rules, and
procedures established to support
efforts to achieve stated objectives.
Policies are guides to decision
making and address repetitive or
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Benefits Of Strategic Management

Strategic management :

 allows an organization to be more proactive

than reactive in shaping its own future;

 allows an organization to initiate and influence

(rather than just respond to) activities—and

thus to exert control over its own destiny.

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Moreover:

1. It results in higher organizational

performance.

2. It requires that managers examine and

adapt to business environment changes.

3. It coordinates diverse organizational units,

helping them focus on organizational goals.

4. It is very much involved in the managerial

decision-making process.
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Reading Assignment
Business Ethics and Corporate Social
Responsibility

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Business Ethics and Corporate Social Responsibility

What Is Business Ethics?

The term ethics refers to accepted principles of

right or wrong that govern the conduct of a

person, the members of a profession, or the actions of
an organization.
Business ethics are the accepted principles of

right or wrong governing the conduct of

businesspeople. Ethical decisions are in accordance with
those accepted principles, whereas unethical decisions
violate accepted principles.
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How Do Ethical Standards Impact the Tasks of Crafting and
Executing Strategy?
 Two sets of questions must be considered by senior

executives when reviewing a new strategic initiative:

 Is what we are proposing to do fully compliant with our

code of ethical conduct? Is there anything here that could

be considered ethically objectionable?
 Is it apparent that this proposed action is in harmony with

our core values? Are any conflicts or concerns evident?

The litmus test of a company’s code of ethics is

the extent to which it is embraced in crafting
strategy and in operating the business day to day!

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Are Ethical Standards Universal or Dependent
on Local Norms?
Three schools of thought regarding extent
to which ethical standards can be applied . . .
Ethical Universalism

Ethical Relativism

Integrative Social Contracts Theory

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Concept of Ethical Universalism
According to the school of ethical
universalism . . .
 Same standards of what is ethical and what is
unethical resonate with peoples of most
societies regardless of
Local traditions and
Cultural norms
Thus, common ethical standards can be used
to judge conduct of personnel at companies
operating in a variety of
Country markets and
Cultural circumstances
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Examples of Universal Ethical Principles or Norms

Honesty

Trustworthiness

Respecting rights of others

Practicing the Golden Rule

 Treating people with dignity and respect

Exercising due diligence in product safety

Acting in a manner that does not

 Harm others or
 Pillages the environment
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What Is the Appeal of Ethical Universalism?
Draws on collective views of multiple societies an

cultures to place clear boundaries on what constitutes

 Ethical business behavior and

 Unethical business behavior

Regardless of what country a company is operating in

When basic moral standards do not vary
significantly from country to country, a
multinational company can
 Apply a code of ethics more or less evenly across its

worldwide operations
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Concept of Ethical Relativism
According to the school of ethical relativism . .

.
 Different societies/cultures/countries

Put more/less emphasis on some values than

others
Have different standards of right and wrong
Have different social morms and behavioural
norms

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Payment of Bribes and Kickbacks
In some countries the payment of bribes and

kickbacks is normal and customary; in other

countries such payments are illegal

Companies forbidding payment of bribes in

their codes of ethics face a formidable

challenge in countries where such payments
are entrenched as a local custom
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Concept of Integrative Social Contracts Theory
According to the integrative social contracts theory,

the ethical standards a company should try to uphold

are governed by both
 A limited number of universal ethical principles that are

widely recognized as putting legitimate ethical boundaries

on actions and behaviour in all situations and
 The circumstances of local cultures, traditions, and shared

values that further prescribe what constitutes

Ethically permissible behavior and
What does not

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Appeal of Integrative Social Contracts Theory
 Universal ethical principles establish “moral free space” based

on the collective view of multiple societies and cultures

 Commonly held views about morality and ethical principles

combine to form a “social contract” with society

 It is appropriate for societies or companies to go beyond

universal ethical principles and specify local or second-order

Social contracts theory maintains adherence to universal or
ethical norms.
first-order ethical norms should always take precedence over
local or second-order norms!

 Where firms have developed ethical codes, the standards they call
for provide appropriate ethical guidance

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Three Categories of Management Morality

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Characteristics of a Moral Manager
Dedicated to high standards of ethical behavior in
 Own actions

 How the company’s business is to be conducted

Considers it important to
 Be a steward of ethical behavior

 Demonstrate ethical leadership

Pursues business success

 Within confines of both letter and spirit of laws

 With a habit of operating well above what laws require

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Characteristics of an Immoral Manager
Actively opposes ethical behavior in business

Wilfully ignores ethical principles in making decisions

Views legal standards as barriers to overcome

Pursues own self-interests

Is an example of self-serving greed

Ignores interests of others

Focuses only on bottom line –making one’s numbers

Will trample on others to avoid being trampled upon

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Characteristics of an Intentionally Amoral Manager
Believes business and ethics should not be mixed
since different rules apply to
 Business activities
 Other realms of life
Believes if a business-related action is legal then
it is OK; ethical considerations in business
activity don’t matter and lie outside sphere of
moral judgment
Views ethical considerations as inappropriate for
tough, competitive business world
Concept of right and wrong is lawyer-driven
(what can we get by with without running afoul of
the law)
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Characteristics of an Unintentionally Amoral Manager

 Is blind to or casual about ethics of decision-making and

business actions
 Displays lack of concern regarding whether ethics applies

to company actions
 Sees self as well-intentioned or

personally ethical
 Typical beliefs
 Do what is necessary to comply with laws and regulations

 Government provides legal framework stating what society

will put up with—if it is not illegal, it is allowed

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Many Managers in the Global Business Community Are
Unethical

Evidence indicates a sizable majority of

managers are either
 Amoral or

 Immoral

Results of recent issues of the Global Corruption

Report indicate corruption is widespread across the

world
Corruption extends beyond bribes and kickbacks
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Corruption Perceptions Index (CPI), Selected
Countries, 2007

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What Are the Drivers of Unethical Strategies and
Business Behavior?

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Overzealous Pursuit of Personal Gain, Wealth,
and Selfish Interests
People obsessed with wealth accumulation, greed,

power, status, and other self interests often

 Push ethical principles aside in their quest for

self gain
 Exhibit few qualms in

Skirting the rules or

Doing whatever is necessary to achieve their goals

Engage in all kinds of unethical

strategic manoeuvres and behaviours

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Why Ethical Strategies Matter
An unethical strategy
 Is morally wrong

 Reflects badly on the character of company

personnel
An ethical strategy is
 Good business

 In the best interest of shareholders

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The Business Costs of Ethical Failures

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What Is Corporate Social Responsibility?
 The thesis underlying the concept of corporate social

responsibility is that a company has a duty to

 Be a good corporate citizen

 Make a positive contribution to society, and

 Actively work to improve the well-being of all stakeholders

Employees

Local communities

Environment

Customers and suppliers

Society at large
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What Is a Social Responsibility Strategy?
A company’s social responsibility
strategy consists of its actions to improve
the well-being of all its stakeholder and to be
a good corporate citizen its contributions of
 Time
 Money
 Other resources

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What Is an Environmental Sustainability
Strategy?
A company’s environmental
sustainability strategy consists of its
actions to
 Protect the environment,
 Provide for the longevity of natural
resources,
 Maintain ecological support systems for
future generations, and
 Guard against ultimate endangerment of
the planet.

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