LESSON 1 – Introduction to Strategic Management

1.1. Introduction
Strategic Management is exciting and challenging. It makes fundamental decisions about the
future direction of a firm – its purpose, its resources and how it interacts with the environment
in which it operates. Every aspect of the organization plays a role in strategy – its people, its
finances, its production methods, its customers and so on.

Strategic Management can be described as the identification of the purpose of the organization
and the plans and actions to achieve that purpose. It is that set of managerial decisions and
actions that determine the long-term performance of a business enterprise. It involves
formulating and implementing strategies that will help in aligning the organisation and its
environment to achieve organisational goals. Strategic management does not replace the
traditional management activities such as planning, organising, leading or controlling. Rather, it
integrates them into a broader context taking into account the external environment and
internal capabilities and the organisation’s overall purpose and direction. Thus, strategic
management involves those management processes in organisations through which future
impact of change is determined and current decisions are taken to reach a desired future. In
short, strategic management is about envisioning the future and realizing it.

1.2. Definition of Strategic Management

We have so far discussed the concepts of strategic thinking, strategic decision-making and
strategic approach which, it is hoped, will serve as an a background understand the nature of
strategic management. However, to get an understanding of what goes on in strategic
management, it is useful to begin with definitions of strategic management. Later in the unit,
we introduce the elements and the process of strategic management and the importance,
benefits and limitations of strategic management.

Some of the important definitions are:

1. “Strategic management is concerned with the determination of the basic long-term goals
and the objectives of an enterprise, and the adoption of courses of action and allocation of
resources necessary for carrying out these goals”.
– Alfred Chandler, 1962

2. “Strategic management is a stream of decisions and actions which lead to the development
of an effective strategy or strategies to help achieve corporate objectives”.
– Glueck and Jauch, 1984

3. “Strategic management is a process of formulating, implementing and evaluating cross-

functional decisions that enable an organisation to achieve its objective”.
– Fed R David, 1997

4. “Strategic management is the set of decisions and actions resulting in the formulation and
implementation of plans designed to achieve a company’s objectives.”
– Pearce and Robinson, 1988

5. “Strategic management includes understanding the strategic position of an organisation,

making strategic choices for the future and turning strategy into action.”
– Johnson and Sholes, 2002

6. “Strategic management consists of the analysis, decisions, and actions an organisation

undertakes in order to create and sustain competitive advantages.”
– Dess, Lumpkin & Taylor, 2005

We observe from the above definitions that different authors have defined strategic
management in different ways. Note that the definition of Chandler that we have quoted above
is from the early 1960s, the period when strategic management was being recognized as a
separate discipline.

This definition consists of three basic elements:

 1. Determination of long-term goals
2. Adoption of courses of action
3. Allocation of resources to achieve those goals

Though this definition is simple, it does not consist of all the elements and does not capture the
essence of strategic management.

The definitions of Fred R. David, Pearce and Robinson, Johnson and Sholes and Dell,
Lumpkin and Taylor are some of the definitions of recent origin. Taken together, these
definitions capture three main elements that go to the heart of strategic management. The
three on-going processes are strategic analysis, strategic formulation and strategic
implementation. These three components parallel the processes of analysis, decisions and
actions. That is, strategic management is basically concerned with:
1. Analysis of strategic goals (vision, mission and objectives) along with the analysis of the
external and internal environment of the organisation.
2. Decisions about two basic questions:
a. What businesses should we compete in?
b. How should we compete in those businesses to implement strategies?

3. Actions to implement strategies. This requires leaders to allocate the necessary resources
and to design the organisation to bring the intended strategies to reality. This also involves
evaluation and control to ensure that the strategies are effectively implemented.

The real strategic challenge to managers is to decide on strategies that provide competitive
advantage which can be sustained over time. This is the essence of strategic management,
and Dess, Lumpkin and Taylor have rightly captured this element in their definition.

1.3. Nature of Strategic Management

Strategic Management can be defined as the art & science of formulating, implementing, and
evaluating, cross-functional decisions that enable an organisation to achieve its objectives.
Strategic management is different in nature from other aspects of management. An individual
manager is most often required to deal with problems of operational nature. He generally
focuses on day-to-day problems such as the efficient production of goods, the management of
a sales force, the monitoring of financial performance or the design of some new system that
will improve the level of customer service.

Strategic management involves elements geared toward a firm's long term survival and
achievement of management goals. The components of the content of a strategy making
process include a desirable future, resource allocation, management of the firm-environment
and a competitive business ethics. However, some conflicts may result in defining the content
of strategy such as differences in interaction patterns among associates, inadequacy of
available resources and conflicts between the firm's objectives and its environment.

1.4. Dimensions of Strategic Management

The characteristics of strategic management are as follows:

1. Top management involvement: Strategic management relates to several areas of a firm’s
operations. So, it requires top management’s involvement. Generally, only the top
management has the perspective needed to understand the broad implications of its
decisions and the power to authorize the necessary resource allocations.
2. Requirement of large amounts of resources: Strategic management requires
commitment of the firm to actions over an extended period of time. So they require
substantial resources, such as, physical assets, money, manpower etc.
Example: Decisions to expand geographically would have significant financial implications
in terms of the need to build and support a new customer base.
3. Affect the firm’s long-term prosperity: Once a firm has committed itself to a particular
strategy, its image and competitive advantage are tied to that strategy; its prosperity is
dependent upon such a strategy for a long time.
4. Future-oriented: Strategic management encompasses forecasts, what is anticipated by
the managers. In such decisions, emphasis is placed on the development of projections
 that will enable the firm to select the most promising strategic options. In the turbulent
environment, a firm will succeed only if it takes a proactive stance towards change.
5. Multi-functional or multi-business consequences: Strategic management has complex
implications for most areas of the firm. They impact various strategic business units
especially in areas relating to customer-mix, competitive focus, organisational structure etc.
All these areas will be affected by allocations or reallocations of responsibilities and
resources that result from these decisions.
6. Non-self-generative decisions: While strategic management may involve making
decisions relatively infrequently, the organisation must have the preparedness to make
strategic decisions at any point of time. That is why Ansoff calls them “non-self-generative
decisions.”

1.5. Need for Strategic Management

No business firm can afford to travel in a haphazard manner. It has to travel with the support of
some route map. Strategic management provides the route map for the firm. It makes it
possible for the firm to take decisions concerning the future with a greater awareness of their
implications.

It provides direction to the company; it indicates how growth could be achieved. The external
environment influences the management practices within any organisation. Strategy links the
organisation to this external world. Changes in these external forces create both opportunities
and threats to an organisation’s position – but above all, they create uncertainty.
Strategic planning offers a systematic means of coping with uncertainty and adapting to
change.

It enables managers to consider how to grasp opportunities and avoid problems, to establish
and coordinate appropriate courses of action and to set targets for achievement.
Thirdly, strategic management helps to formulate better strategies through the use of a more
systematic, logical and rational approach. Through involvement in the process, managers and
employees become committed to supporting the organisation. The process is a learning,
helping, educating and supporting activity. An increasing number of firms are using strategic
management for the following reasons:
1. It helps the firm to be more proactive than reactive in shaping its own future.
2. It provides the roadmap for the firm. It helps the firm utilize its resources in the best
possible manner.
3. It allows the firm to anticipate change and be prepared to manage it.
4. It helps the firm to respond to environmental changes in a better way.
5. It minimizes the chances of mistakes and unpleasant surprises.
6. It provides clear objectives and direction for employees.

1.6. Benefits of Strategic Management

A structured approach to strategy planning brings several benefits (Smith, 1995; Robbins,
2000)
1. It reduces uncertainty: Planning forces managers to look ahead, anticipate change and
develop appropriate responses. It also encourages managers to consider the risks
associated with alternative responses or options.
2. It provides a link between long and short terms: Planning establishes a means of
coordination between strategic objectives and the operational activities that support the
objectives.
3. It facilitates control: By setting out the organisation’s overall strategic objectives and
ensuring that these are replicated at operational level, planning helps departments to move
in the same direction towards the same set of goals.
4. It facilitates measurement: By setting out objectives and standards, planning provides a
basis for measuring actual performance.

Strategic management has thus both financial and non-financial benefits:

1. Financial Benefits: Research indicates that organisations that engage in strategic
management are more profitable and successful than those that do not. Businesses that
followed strategic management concepts have shown significant improvements in sales,
profitability and productivity compared to firms without systematic planning activities.
 2. Non-financial benefits: Besides financial benefits, strategic management offers other
intangible benefits to a firm. They are;
a. Enhanced awareness of external threats
b. Improved understanding of competitors’ strategies
c. Reduced resistance to change
d. Clearer understanding of performance-reward relationship
e. Enhanced problem-prevention capabilities of organisation
f. Increased interaction among managers at all divisional and functional levels
g. Increased order and discipline.

According to Gordon Greenley, strategic management offers the following benefits:

1. It allows for identification, prioritization and exploitation of opportunities.
2. It provides objective view of management problems.
3. It provides a framework for improved coordination and control of activities.
4. It minimizes the effects of adverse conditions and changes.
5. It allows decision-making to support established objectives.
6. It allows more effective allocation of time and resources to identified opportunities.
7. It allows fewer resources and less time to be devoted to correcting erroneous and ad hoc
decisions.
8. It creates a framework for internal communication among personnel.
9. It helps integrate the behaviour of individuals into a total effort.
10. It provides a basis for clarifying individual responsibilities.
11. It encourages forward thinking.
12. It provides a cooperative, integrated enthusiastic approach to tackling problems and
opportunities.
13. It encourages a favourable attitude towards change.
14. It gives a degree of discipline and formality to the management of a business.

1.7. Risks involved in Strategic Management

Strategic management is an intricate and complex process that takes an organisation into
unchartered territory. It does not provide a ready-to-use prescription for success. Instead, it
takes the organisation through a journey and offers a framework for addressing questions and
solving problems.

Strategic management is not, therefore, a guarantee for success; it can be dysfunctional if

conducted haphazardly. The following are its limitations:
1. It is a costly exercise in terms of the time that needs to be devoted to it by managers. The
negative effect of managers spending time away from their normal tasks may be quite
serious.
2. A negative effect may arise due to the non-fulfillment of the expectations of the participating
managers, leading to frustration and disappointment.
3. Another negative effect of strategic management may arise if those associated with the
formulation of strategy are not intimately involved in the implementation of strategies.

The participants in formulation of the policy may shirk their responsibility for the decisions
taken.
As quoted by Fred R. David, some pitfalls to watch for and avoid in strategic planning are:
1. Using strategic planning to control over decisions and resources
2. Doing strategic planning only to satisfy accreditation or regulatory requirements
3. Moving too hastily from mission development to strategy formulation
4. Failing to communicate the strategic plan to the employees, who continue working in the
dark
5. Top managers making many intuitive decisions that conflict with the formal plan
6. Top managers not actively supporting the strategic planning process
7. Failing to use plans as a standard for measuring performance
8. Delegating strategic planning to a consultant rather than involving all managers Notes
9. Failing to involve key employees in all phases of planning
10. Failing to create a collaborative climate supportive of change
11. Viewing planning to be unnecessary or unimportant
12. Becoming so engrossed in current problems that insufficient or no planning is done
13. Being so formal in planning that flexibility and creativity are stifled.
1.8. Strategic Management Process

Developing an organisational strategy involves four main elements – strategic analysis,

strategic choice, strategy implementation and strategy evaluation and control. Each of these
contains further steps, corresponding to a series of decisions and actions, that form the basis
of strategic management process.
1. Strategic Analysis: The foundation of strategy is a definition of organisational purpose.
This defines the business of an organisation and what type of organisation it wants to be.
Many organisations develop broad statements of purpose, in the form of vision and mission
statements. These form the spring – boards for the development of more specific objectives
and the choice of strategies to achieve them.

Environmental analysis – assessing both the external and internal environments is the next
step in the strategy process. Managers need to assess the opportunities and threats of the
external environment in the light of the organisation’s strengths and weaknesses keeping in
view the expectations of the stakeholders.

This analysis allows the organisation to set more specific goals or objectives which might
specify where people are expected to focus their efforts. With a more specific set of
objectives in hand, managers can then plan how to achieve them.

2. Strategic Choice: The analysis stage provides the basis for strategic choice. It allows
managers to consider what the organisation could do given the mission, environment and
capabilities – a choice which also reflects the values of managers and other stakeholders.
(Dobson et al. 2004). These choices are about the overall scope and direction of the
business.

Since managers usually face several strategic options, they often need to analyze these in
terms of their feasibility, suitability and acceptability before finally deciding on their
direction.

3. Strategy Implementation: Implementation depends on ensuring that the organisation has

a suitable structure, the right resources and competencies (skills, finance, technology etc.),
right leadership and culture. Strategy implementation depends on operational factors being
put into place.

4. Strategy Evaluation and Control: Organisations set up appropriate monitoring and

control systems, develop standards and targets to judge performance.

ELEMENTS IN STRATEGY
PROCESS QUESTIONS DESCRIPTION
STRATEGY FORMULATION
Strategic analysis
Defining organizational What is our purpose? Organizational purpose is
purposes What kind of organization do generally articulated in vision
we want to be? and mission statements. The
first task is, therefore, to
identify vision and mission of
the organization. Environmental
analysis involves the gathering
and analysis of intelligence on
the business environment. This
encompasses the external
environment (general and
competitive forces), the internal
environment (resources,
competences, performance
relative to competitors), and
stakeholder expectations.
Strategic choice
Objectives Where do we want to be? Objectives provide a more
 detailed articulation of purpose
and a basis for monitoring
performance.
Options analysis Are there alternative routes? Alternative strategic options
may be identified; options
require to be appraised in order
that the best can be selected.
Strategies How are we going to get there? Strategies are the means or
courses of action to achieve
the purpose of the organization
STRATEGY IMPLEMENTATION
Actions How do we turn plans into A specification of the
reality? operational activities and tasks
required to enable strategies to
be implemented.
STRATEGY EVALUATION AND CONTROL
Monitoring and control How will we know if we are Monitoring performance and
getting there? progress in meeting objectives,
taking corrective action as
necessary and reviewing
strategy.