University of the Cordilleras

College of Business Administration

Module in CBME 2 – Strategic Management

Prepared by: Grace G. Sumali, Ph.D.

I. NATURE AND DEFINITION OF STRATEGIC MANAGEMENT

Nature of Strategic Management

The strategic-management process does not end when the firm decides
what strategy or strategies to pursue. There must be a translation of strategic
thought into strategic action. This translation is much easier if managers and
employees of the firm understand the business, feel a part of the company,
and through involvement in strategy-formulation activities have become
committed to helping the organization succeed. Without understanding and
commitment, strategy-implementation efforts face major problems.

Implementing strategy affects an organization from top to bottom; it impacts

all the functional and divisional areas of a business. It is beyond the purpose
and scope of this text to examine all the business administration concepts
and tools important in strategy implementation.

Even the most technically perfect strategic plan will serve little purpose if it is
not implemented. Many organizations tend to spend an inordinate amount
of time, money, and effort on developing the strategic plan, treating the
means and circumstances under which it will be implemented as
afterthoughts! Change comes through implementation and evaluation, not
through the plan. A technically imperfect plan that is implemented well will
achieve more than the perfect plan that never gets off the paper on which it
is typed.

What is strategic management?

Strategic Management can be defined as -
 “the art and science of formulating, implementing and evaluating
cross-functional decisions that enable an organization to achieve its
objective.”

 It consist of analysis, decisions and actions an organization undertakes

in order to create and sustain competitive advantage.

Integrating Intuition and Analysis

The strategic management process can be described as an objective,
logical, systematic approach for making major decisions in an organization.
It attempts to organize qualitative and quantitative information in a way that
allows effective decisions to be made under conditions of uncertainty. Yet
strategic management is not a pure science that lends itself to a nice, neat,
one-two-three approach.

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Based on past experiences, judgment, and feelings, most people recognize

that intuition is essential to making good strategic decisions. Intuition is
particularly useful for making decisions in situations of great uncertainty or
little precedent. It is also helpful when highly interrelated variables exist or
when it is necessary to choose from several plausible alternatives. Some
managers and owners of businesses profess to have extraordinary abilities for
using intuition alone in devising brilliant strategies.

Although some organizations today may survive and prosper because they
have intuitive geniuses managing them, most are not so fortunate. Most
organizations can benefit from strategic management, which is based upon
integrating intuition and analysis in decision making. Choosing an intuitive or
analytic approach to decision making is not an either–or proposition.

Key Terms in Strategic Management

a) 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 competitive
advantage.
 Normally, a firm can sustain a competitive advantage for only a
certain period due to rival firms imitating and undermining that
advantage. Thus it is not adequate to simply obtain competitive
advantage.
 A firm must strive to achieve sustained competitive advantage,
meaning when firm is able to maintain above average profitability for
a number of years.
Strategies to sustain competitive advantage:
 Continually adapting to changes in external trends and
events.
 Continuously improve internal capabilities, competencies
and resources.
 Effective formulation, implementation and evaluation of
strategies.

b) 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, analyze, and organize
information. They track industry and competitive trends, develop
forecasting models and scenario analyses, evaluate corporate and

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divisional performance, spot emerging market opportunities, identify

business threats, and develop creative action plans.
 The CEO is the most visible and critical strategic manager. Any
manager who has responsibility for a unit or division, responsibility for
profit and loss outcomes, or direct authority over a major piece of the
business is a strategic manager (strategist).

c) Vision 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.

d) Mission Statements
 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. A mission statement
broadly charts the future direction of an organization.
 A mission statement is a constant reminder to its employees of why the
organization exists and what the founders envisioned when they put
their fame and fortune at risk to breathe life into their dreams.

e) 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.

f) Environmental Scanning:
 The process of conducting research and gathering and assimilating
external information is sometimes called environmental scanning or
industry analysis. Lobbying is one activity that some organizations
utilize to influence external opportunities and threats.
 Environment scanning has the management scan eternal
environment for opportunities and threats and internal environment
for strengths and weaknesses. The factor which are most important for
corporation factor are referred as a strategic factor and summarized
as SWOT standing for strength, weaknesses, opportunities and threats.

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Environmental Scanning

Internal Analysis External Analysis

The external environment consist of opportunities and threats variables that

outside the organization. External environment has two parts:
 Task Environment
 Social Environment

g) Task Environment
 Task environment includes all those factors which affect the
organization and itself affected by the organization. These factor
effects the specific related organizations. These factors are
shareholders community, labor unions, creditor, customers,
competitors, trade associations.

h) Social Environment
 Social environment is an environment which includes those forces
effect does not the short run activities of the organization but it
influenced the long run activities or decisions. PEST analysis are taken
for social environment PEST analysis stands for political and legal
economic socio cultural logical and technological.

i) 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.
 Strengths and weaknesses are determined relative to competitors.
Relative deficiency or superiority is important information. Also,
strengths and weaknesses can be determined by elements of being
rather than performance.

j) 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

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planning, organizing, motivating, and controlling activities. Objectives

should be challenging, measurable, consistent, reasonable, and
clear. In a multidimensional firm, objectives should be established for
the overall company and for each division.

k) 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. In addition,
strategies affect an organization’s long-term prosperity, typically for
at least five years, and thus are future-oriented. Strategies have
multifunctional or multidivisional consequences and require
consideration of both the external and internal factors facing the firm.
 Strategies are set of actions that managers take to increase their
company’s competitive advantage / company’s performance
relative to rivals.
 A goal directed actions a firm intends to take in its quest to gain and
sustain competitive advantage. These are large scale, future oriented
plans for interacting with the competitive environment to achieve
accompany objectives.

l) Annual Objectives
 Annual objectives are short-term milestones that organizations must
achieve to reach longterm 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.
 A set of annual objectives is needed for each long-term objective.
Annual objectives are especially important in strategy
implementation, whereas long-term objectives are particularly
important in strategy formulation. Annual objectives represent the
basis for allocating resources.

m) Business 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 recurring situations.
 Policies are most often stated in terms of management, marketing,
finance/accounting, production/operations, research and

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development, and computer information systems activities. Policies

can be established at the corporate level and apply to an entire
organization at the divisional level and apply to a single division, or at
the functional level and apply to particular operational activities or
departments. Policies, like annual objectives, are especially important
in strategy implementation because they outline an organization’s
expectations of its employees and managers.

II. STRATEGIC MANAGEMENT TASK / RESPONSIBILITIES OF STRATEGIC

MANAGERS

1. Formulate the company’s mission, including broad statements about its

purpose, philosophy and goals.
2. Conduct and analysis that reflects the company’s internal conditions and
capabilities.
3. Assess the company’s external environment, including both the
competitive and general context factors.
4. Analyze the company’s options by matching its resources with the
external environment.
5. Identify the most desirable prions by evaluating each options in light with
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 budgeted resource
allocation in which the matching of task, people, structure, technologies
and rewards system is emphasized.
9. Evaluate the success of the strategic process as an audit for future
decision making.

III. DECISIONS FROM THE LEVELS OF MANAGEMENT

i. TOP level management / corporate level – the team oversee the

development of strategies for the whole organization.

Role: Define the goals, determine the business direction. The top level/
corporate level attempt to exploit the firm’s distinct competencies.
 Allocate resources among the different business units.
 Formulate and implement strategies.
 Provide leadership for the entire organization.

ii. MIDDLE level management / business level – the group provides a

product/service for a particular market.

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Role: Translate the general statements of directions and intent from the top
into concrete strategies. Business level strategic managers determine how the
firm will compete in the selected market arena. They strive to identify and
secure the most promising market segment.

iii. LOWER level management /functional level – the teams responsibility is

contained to one organizational activity.

Role: Responsible for a specific business operations. This department address

such issues on efficiency and effectiveness of production, marketing and
management system, quality of customer service.

IV. CHARACTERISTICS OF STRATEGIC MANAGEMENT

1. Directed toward overall organizational goals and objectives.

2. Includes multiple stakeholders in decision making.
3. Requires both short-term and long-term perspective.
4. Involves the recognition of trade-offs between effectiveness and efficiency.

V. BENEFITS OF STRATEGIC MANAGEMENT

1. Group based strategic decision can be drawn from best available

alternatives.
2. Involvement of employees improves their understanding of every
strategic plan.
3. Enhance the firm’s ability to prevent problems.
4. Reduce resistance to change, gaps and overlap of activities.
5. Improve understanding of the rapidly changing environment.
6. Firms have sharper focus on what is strategically important.
7. Clear sense of strategic vision for the firm.

VI. RISK OF STRATEGIC MANAGEMENT

1. Spent time on the strategic management process may have a negative

impact on operational responsibilities.
2. Formulators of strategies are not ultimately involved in its implementation
they may shirk /evade their individual responsibilities for the decision
reached.
3. Strategic managers must be trained to anticipate and respond to the
disappointment of participating subordinates over unattained
expectations.

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VII. STRATEGIC MANAGEMENT PROCESS

Stages of Strategic management:

The strategic management process consists of three stages:
 Strategy Formulation (strategy planning)
 Strategy Implementations
 Strategy Evaluation

A. Strategic formulation
Strategic formulation means a strategy formulate to execute the business
activities. Strategy formulation includes developing:-

 Vision and Mission (The target of the business)

 Strength and weakness (Strong points of business and also weaknesses)
 Opportunities and threats (These are related with external
environment for the business)

Strategy formulation is also concerned with setting long term goals and
objectives, generating alternative strategies to achieve that long term goals
and choosing particular strategy to pursue.

The considerations for the best strategy formulation should be as follows:

 Allocation of resources
 Business to enter or retain
 Business to divest or liquidate
 Joint ventures or mergers
 Whether to expand or not
 Moving into foreign markets
 Trying to avoid take over

Before a firm executes strategy formulation, the strategic managers must:

a) Understand the current position of the firm.
b) Diagnose the company’s past and present performance.

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c) Set objectives for the company’s operations.

Phases of strategy formulation:

a) Analysis of the internal and external environment includes and
understanding of the current position of the firm. The strategic managers
must conduct environmental scanning.
INTERNAL – determines the strength and weaknesses of the firm. This
includes the firm’s culture (beliefs, expectations & values), structure
(chain of command) and resources (assets, skills, competencies &
knowledge).
EXTERNAL – evaluates the opportunities and threat of the firm.

b) The firm must determine what they want to accomplish, and the
strategies to accomplish it.

B. Strategy Implementation
Strategy implementation requires a firm to establish annual objectives, devise
policies, motivating employees and allocate resources so that formulated
strategies can be executed. Strategy implementation includes developing
strategy supportive culture, creating an effective organizational structure,
redirecting marketing efforts, preparing budgets, developing and utilizing
information system and linking employee compensation to organizational
performance.

Strategy implementation is often called the action stage of strategic

management, ensuring proper strategic controls and organizational design
which includes establishing effective means to coordinate and integrate
activities within the firm and its external environment. Implementing means
mobilizing employees and managers in order to put formulated strategies
into action. It is often considered to be most difficult stage of strategic
management. It requires personal discipline, commitment and sacrifice.
Strategy formulated but not implemented serve no useful purpose.

C. Strategy evaluation
Strategy evaluation is the final stage in the strategic management process.
Process of continuously monitoring the company’s progress toward its long
range goals and mission. Management desperately needs to know when
particular strategies are not working well; strategy evaluation is the primary
means for obtaining this information. All strategies are subject to future
modification because external and internal forces are constantly changing.

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Strategic Management Model

The strategic-management process can best be studied and applied using a

model. Every model represents some kind of process.

Relationships among major components of the strategic-management

process are shown in the model.

Three important questions to answer in developing a strategic plan:

 Where are we now?
 Where do we want to go?
 How are we going to get there?

Identifying an organization’s existing vision, mission, objectives, and strategies

is the logical starting point for strategic management because a firm’s
present situation and condition may preclude certain strategies and may
even dictate a particular course of action.

The strategic-management process is dynamic and continuous. A change in

any one of the major components in the model can necessitate a change in
any or all of the other components.

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Strategy formulation, implementation, and evaluation activities should be

performed on a continual basis, not just at the end of the year or
semiannually. The strategic-management process never really ends.

The strategic-management process is not as cleanly divided and neatly

performed in practice as the strategic-management model suggests.
Strategists do not go through the process in lockstep fashion. Generally,
there is give-and-take among hierarchical levels of an organization. Many
organizations semiannually conduct formal meetings to discuss and update
the firm’s vision/mission, opportunities/threats, strengths/weaknesses,
strategies, objectives, policies, and performance. These meetings are
commonly held off-premises and are called retreats. The rationale for
periodically conducting strategic-management meetings away from the
work site is to encourage more creativity and candor from participants.
Good communication and feedback are needed throughout the strategic-
management process.

Application of the strategic-management process is typically more formal in

larger and well-established organizations. Formality refers to the extent that
participants, responsibilities, authority, duties, and approach are specified.
Smaller businesses tend to be less formal. Firms that compete in complex,
rapidly changing environments, such as technology companies, tend to be
more formal in strategic planning. Firms that have many divisions, products,
markets, and technologies also tend to be more formal in applying strategic-
management concepts. Greater formality in applying the strategic-
management process is usually positively associated with the cost,
comprehensiveness, accuracy, and success of planning across all types and
sizes of organizations.

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