Strategic Management

Chapter one
Concepts of Strategic
Management
 Contents
– What is strategy?
– Notion of strategy
– Benefits of strategic management
– Stages of Strategic Management
– Impact of globalization, innovation and
sustainability
– Theories of organizational adaptation
– Model of strategic management
 What is Strategy?
• The term “Strategy” was adopted from military field
and taken from Greek word “stratego” meaning
“General”.

• Stratego means to “plan the destruction of one’s

enemies through effective use of resources.”

– The art of a commander-in-chief to project and

direct the larger military movements and operations
of a campaign.
 Strategy…
• Strategy- is a set of goal-directed actions a firm
takes to gain and sustain superior performance
relative to competitors (Rothaermel, 2017).

• He wrote that, “in any competitive situation, a

good strategy enables a firm to achieve superior
performance”.
 So What is Good Strategy?
• A good strategy consists of three elements
– A diagnosis of the competitive environment (internal and
external analysis).
– A preparation of guiding policy to address the competitive
challenges and opportunities (Strategy formulation)
– A set of coherent actions to implement the firm’s guiding
policy (Strategy implementation).
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• Child (1972) defined strategy as “a set of fundamental
or critical choices about the ends and means of a
business”.

• Mulcaster (2009) demonstrates strategic management as

looking out, looking in, and looking ahead.

• In summary the goal of strategy is building competitive

advantage over the rivals.
 Phases of Strategic Management
• The development of the concept of the SM undergoes
four phases (Gluck, Kaufman and Walleck, 1980).
• Phase 1: Basic Financial Planning
– planning focus was the preparation of the financial budget
with a time horizon barely beyond 12 months.
– Little analysis with most information coming from within
the firm.
– Simplistic operational planning
• Phase 2: Forecast-based planning
– Managers attempt to propose five-year plans.
– environmental analysis,
– multi-year forecasts
– a static resource allocation as the firm responded to the
demands of growth
– Available information from both internal and outside
environment will be gathered on an ad hoc basis
– Time consuming
– Contribution in the field
• Broad definition of strategy by Chandler (1962) & Andrews
(1965)
• Introduction of the concept of SWOT by Andrews (1965)
• Phase 3:Externally Oriented Planning
– Planning in response to market and
competition(planning should be customer derived)
– Planning involves
• thorough situation analysis
• review of competition,
• an evaluation of alternative strategies and
• dynamic resource allocation (Gluck et al, 1980)
– Frameworks put forwarded
• Experience curve
• Boston Consulting Groups
• Profit impact of marketing strategies
• Phase 4: Strategic management
– Focuses on the combination of the firm’s resources to
achieve competitive advantage.
– Managers develop and integrate a series of plans
focused on emphasizing the company’s true
competitive advantages.
– Strategic plans detail the implementation, evaluation,
and control issues.
– Strategy process come to be increasingly performed by
line managers with occasional assistant from internal
experts.
 Question

• What is the difference between

strategic management and
strategic planning?
 Strategic Management
• an art and science of formulating, implementing,
and evaluating cross-functional decisions that
enable an organization to achieve its objectives
(David, 2011, P. 6.).

• It focuses on integrating management, marketing,

finance, operations, and infrastructures of the
organization for better performance.

• The basic notion of SM is to achieve and sustain

competitive advantage.
 Strategic Management
• SM is the set of managerial decisions and
actions that determine the long-run
performance of the firm.
• It is viewing the organization as a whole and
thinking how it will gain and sustain
competitiveness.
 Strategic Management Terminologies
• Strategic Competitiveness: Ability of the firm to gain and sustain
better competitive advantage via selecting the right goal .
ic
Strateg

Competitiveness

• Competitive Advantage: is superior performance relative to

other competitors in the same industry or the industry average.
 Competitive Advantage (CA)
• No competitive advantage is permanent.
• CA is always relative, not absolute.
• To assess competitive advantage, we compare firm
performance to a benchmark: either the performance of other
firms in the same industry or an industry average.

• Profit of above-average return.

– Above-average returns - are returns in excess of what an investor
expects to earn from other investments with a similar amount of risk.
• Sustainable competitive advantage: Outperforming
competitors or the industry average over a prolonged period of
time.
• Competitive disadvantage: Underperformance
relative to other competitors in the same industry
or the industry average.
– E.g. Google is visible than Facebook in online
advertisement. Facebook has competitive
disadvantage.
 Sign

Competitive parity: a situation where

two or more firms perform at the same
level.
• E.g. Google and Facebook have the
same position in visibility of online
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 Benefits of Strategic Management
• Emphasizes long-term Performance

• Out-perform the competitors

• Provide clearer sense of strategic vision

• Insure that all managers have the same goals.

• Provide sharper focus on what is strategically

important.
• Help understand environmental dynamics

• Help identifying new opportunities for growth

How a firms can achieve Competitive Advantage?
• Firm’s competitive advantage and it’s sustainability
depends on its strategic intent and strategic
capability.

• Strategic intent is a very broad statement

of mission and vision.

– It more specifically spell out the goals and objectives to

be attained over the longer term.
 Strategic Capability
• is the ability of an organization to develop and implement
strategies that will achieve sustained competitive
advantage.
• It is the capacity
– to select the most appropriate (realistic) vision and mission
– to prepare and implement strategic plans
– to match resources(strengths & weaknesses) to opportunities and
threats
 Resources and Capabilities
• Related to resource based competitive advantage,

Barney (1995) commented that “managers must address four

important questions about their resources and capabilities:

1. The question of value,

2. The question of rareness,

3. The question of imitability, and

4. The question of organization.”

• Firm strategic capability includes:
Distinctive capability:
– characteristics that cannot be replicated by competitors
or can only be imitated with great difficulty.

Reproductive capability:
– are those that can be bought or created by any
company with reasonable management skills,
diligence and financial resources.
How a firms can achieve Competitive Advantage?

Through External Changes By Developing it Inside

• Changes in PEST factors • VRIO

• Unique Competencies
• Firm’s ability to respond
fast to changes • Innovative capabilities

Three Types of competitive advantage strategies

(Porter, 1985)

Cost strategy Focus strategy

Differentiation strategy
 Resource-Based View
• Emphasized that firms strategic capability
depends on how well the organization identify,
organize, and utilize important resources to
achieve its objectives as compared to its rivals?
• Resource includes
human, financial, physical,
technological,
reputation,
Organizational
Management system and
The Industrial Organization (I/O) View
• advocates that external (industry) factors are
more important than internal factors to affect a
firm’s competitive advantage.
• Michael Porter contend that organizational
performance will be primarily determined by
industry forces.
• The key to this model is identifying and
competing successfully in an attractive (i.e.,
profitable) industry.
 Questions
• What are the Porter’s five forces of
competitive advantage?

• What do you think the importance of strategic

management?
Challenges of Firm’s Strategic Management
• Globalization
– Integrated internationalization of markets
• Jobs, knowledge & capital are easily exchanged across the boarder.
• Internet
– Improved supply chain logistics
• Interest to get economies of scale via serving larger market
– Formations of regional trade associations
• Environmental sustainability: use of business practices to
reduce a company’s impact upon the natural, physical environment.
 Impact of Environmental changes

• Regulatory risk

• Supply chain risk

• Product & technology risk,

• Litigation risk

• Reputational risk

• Physical risk
 Organizational Adaptability Theory
• In fast-paced business environment(challenges),
managers should strategically consider the
changes and trends in the environment either to;
– Cope up with or
– Pose a change
• Organizational adaptability-means how quickly
organizations adjust their business processes and
improvise themselves to achieve their goals.
• In short, adaptability is essential for competitive
advantage.
• Organization needs to be ready and willing to
embrace change in the form of;
– new products and services,
– pricing,
– location, or

– concept.
 Question for discussion

• What type of firm’s competitive

advantage is permanent?

• What determines how long the

competitive advantage will last?
 Components Strategic Management

• Strategic-management process consists of four

components;

Environmental Scanning

Strategy formulation

Strategy implementation, and

Strategy evaluation.
 Comprehensive Model of Strategic Management
Business Ethics, Social Responsibility, and Environmental Sustainability, International Issues

Strategy formulation Strategy Implementation Strategy evaluation

Develop Vision,
and Mission Measure
Statements Implement and Evaluate
Strategies— Performance
Marketing,
Scan Environment
Finance,
Accounting, R&D,
and MIS Issues
Establish
Long-Term
Objectives
Implement
Generate, Strategies—
Evaluate, Management
and Select Issues
Strategies David,
Thank You