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Chapter 1

Introduction to
Strategic Management

Prof. Purushottam Bung

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The Nature and Value
of Strategic Management

• Strategic management:
The set of decisions and actions that result in
formulation and implementation of plans
designed to achieve a company’s objectives
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What is Strategy?
• Large-scale, future-oriented plan
• Used to interact within competitive
environment to achieve company goals
• Provides a framework for managerial
decisions
• Reflects a company’s awareness of the main
elements of competition
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Dimensions of Strategic Decisions

• Strategic issues require top-
management decisions
– Strategic decisions overarch several
areas of a firm’s operations
– Usually only top management has
the perspective needed to
understand their broad implications
– Usually only top managers have the
power to authorize necessary
resource allocations
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Dimensions of Strategic Decisions

• Strategic issues require large amounts
of the firm’s resources
– They involve substantial allocations of
people, physical assets, and money
– Strategic decisions commit the firm to
actions over an extended period
– In highly competitive firms, achieving
and maintaining customer satisfaction
frequently involves commitment from
every facet of the firm
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Dimensions of Strategic Decisions

• Strategic issues often affect the firm’s
long-term prosperity
– Strategic decisions commit the firm for a
long time, typically 5 years; however the
impact lasts much longer
– Once a firm has committed itself to a
strategy, its image and competitive
advantages are usually tied to that strategy
– Firms become known for what they do and
where they compete. Shifting away from
that can jeopardize their previous gains.
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Dimensions of Strategic Decisions

• Strategic issues are future-oriented
– They are based on what managers
forecast, rather than what they know
– Emphasis is on the development of solid
projections that will enable a firm to seek
the most promising strategic options
– A firm will succeed only if it takes a
proactive (anticipatory) stance toward
change
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Dimensions of Strategic Decisions

• Strategic issues usually have
multifunctional or multibusiness
consequences.
– Strategic decisions have complex
implications for most areas of the firm
– Decisions about customer mix,
competitive emphasis, or organizational
structure involve a number of the firm’s
SBUs, divisions, or program units
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Dimensions of Strategic Decisions

• Strategic issues require considering the
firm’s external environment
– All businesses exist in an open system.
They affect and are affected by external
conditions that are largely beyond their
control
– Successful positioning requires that
strategic managers look beyond operations
and consider what relevant others are
likely to do
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Three Levels of Strategy

• Corporate level: board of directors,
CEO & administration [Highest]
• Business level: business and corporate
managers [Middle]
• Functional level: Product, geographic,
and functional area managers [Lowest]
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Alternative Strategic Management
Structures
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Characteristics of Strategic
Management Decisions: Corporate
• Often carry greater risk, cost, and profit
potential
• Greater need for flexibility
• Longer time horizons
• Choice of businesses, dividend policies,
sources of long-term financing, and
priorities for growth
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Characteristics of Strategic
Management Decisions: Functional
• Implement the overall strategy formulated
at the corporate and business levels
• Involve action-oriented and operational
issues
• Relatively short range and low risk
• Modest costs: depend upon available
resources
• Relatively concrete and quantifiable
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Characteristics of Strategic
Management Decisions: Business
• Help bridge decisions at the corporate and
functional levels
• Less costly, risky, and potentially
profitable than corporate-level decisions
• More costly, risky, and potentially
profitable than functional-level decisions
• Include decisions on plant location,
marketing segmentation, and distribution
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Formality in Strategic Management

• Formality is the degree to which
participation, responsibility, authority,
and discretion in decision-making are
specified in strategic management
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Three Modes of Formality

• Entrepreneurial Mode – most small firms
• Planning Mode – most large firms
• Adaptive Mode – most medium size firms
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Forces Determining Formality

• Organizational
Size
• Predominant • Problems in the
Management
Firm
Styles
• Complexity of • Purpose of the
Environment Planning System
• Production Process • Stage of Firm’s
Development
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Strategy Makers
• Ideal strategic team includes decision
makers from all three levels
• Top managers must give final approval
• Strategic decisions coincide with
managers’ responsibilities
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Strategy Makers: The CEO

• A firm’s CEO plays a dominant role
in strategic planning
• The CEO’s principal duty is giving
long-term direction to the firm
• The CEO bears ultimate
responsibility for the firm’s success
and strategic success
• CEOs are typically strong-willed,
company-oriented individuals
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Benefits of Strategic Management

• Managers at all levels interact in planning and
implementing strategy
• Similar to participative decision making
• Assessing strategy formulation requires
looking at non financial evaluations as well as
financial ones
• Promoting positive behavioral consequences
enables achievement of financial goals
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Risks of Strategic Management

• Managers’ time away from other
responsibilities
• Unrealistic expectations promised by strategy
formulators
• Possible disappointment of participating
subordinates if goal is not reached
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Strategic Management Process

• Businesses vary in formulation and other
processes
• The basic components of the models used to
analyze strategic management are similar
• Strategic management is a process—a flow
of information through interrelated stages of
analysis toward the achievement of some
goal
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Nine Critical Tasks of Strategic
Management -- Tasks 1-5:
• Formulate the company’s mission
• Conduct an internal analysis
• Assess the external environment – competitive
and general contexts
• Analyze the company’s options by matching its
resources with the external environment
• Identify the most desirable options in light of the
mission
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Nine Critical Tasks of Strategic
Management -- Tasks 6-9:
• Select a set of long-term objectives and grand
strategies that will achieve the most desirable
options
• Develop annual objectives and short-term
strategies that are compatible with long-term
objectives and grand strategies
• Implement the strategic choices
• Evaluate the success of the strategic process for
future decision making
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Strategic Management Model

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Components of Strategic
Management Model
• Company Mission • Internal Analysis
• External Analysis • Strategic Analysis &
Choice
• Long-Term Objectives
• Generic & Grand
• Short-Term Objectives Strategies
• Policies Empowering • Functional Tactics
Action • Restructuring,
• Strategic Control & Reengineering &
Continuous Refocusing
Improvement
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Why do some organizations
succeed while others fail?
Strategy is a set of related actions / decisions that
managers take to increase their company’s
performance.
• Strategic Leadership
– Task of most effectively managing a
company’s strategy-making process
• Strategy Formulation
– Task of determining and selecting strategies
• Strategy Implementation
– Task of putting strategies into action to improve a
company’s efficiency and effectiveness
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Strategic Leadership
Good leaders of the strategy-making process
have a number of key attributes:

• Commitment
• Vision, eloquence, and consistency
• Being well informed
• Willingness to delegate and empower
• The astute use of power
• Emotional intelligence
– Self-awareness
– Self-regulation
– Motivation
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 Selecting / formulating
Strategies:
• SWOT analyses help to identify strategies that align a
company’s resources and capabilities to its environment – in
order to create and sustain a competitive advantage.
• Functional strategies should be consistent with and support the
company’s business level and global strategies.
– Functional-level strategy – directed at operational
effectiveness
– Business-level strategy – businesses’ overall competitive
themes
– Global strategy – expand, grow and prosper at a global level
– Corporate-level strategy – to maximize profitability and
profit growth
When taken together, the various strategies pursued by a
company must lead to a viable business model.
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 Strategy Implementation
• After choosing a set of congruent strategies to achieve competitive
advantage, managers must put those strategies into action:
– Implementation and execution of the strategic plans
– Design of the best organization structure
– Consistency of strategy with company culture
– Control systems to measure and monitor progress
– Governance systems for legal and ethical compliance
– Consistency with maximizing profit and profit growth
• The feedback loop – strategic planning is ongoing
– Managers must monitor strategy execution:
• To determine if strategic goals and objectives are being achieved
• To evaluate to what extent competitive advantage is being
created and sustained
– Managers must monitor and reevaluate for the next round of
strategy formulation and implementation
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Determinants of Shareholder Value

To increase shareholder value, managers must

pursue strategies that increase the profitability
of the company and grow the profits.
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“If you don’t have a strategy you

will be . . . part of somebody
else’s strategy.”
- Alvin Toffler

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