Chapter One

1.The Overview of Strategic Management

1.1. The overview of Strategic Management
Strategic Management is all about identification and description of the strategies that
managers can carry so as to achieve better performance and a competitive advantage for their
organization. An organization is said to have competitive advantage if its profitability is
higher than the average profitability for all companies in its industry.

What is Strategy? Strategy is a high level plan to achieve one or more goals under
conditions of uncertainty. The concept of strategy is central to understanding the process of
strategic management. The term “strategy” is derived from the Greek word strategos, which
means general-ship (the actual direction of military force, as distinct from the policy
governing its deployment). Therefore, the word strategy means the art of the general. Next
we shall see few definitions of strategy given by different authors:

1.2. Definition of Strategic Management

 Strategic Management: - are the art and science of formulating, implementing and
evaluating a cross-functional decision that enable an organization to achieve its
objectives.
 Strategic management: is a set of managerial decisions and actions that determines
the long-run performance of a company.
 Strategic Management: is all about identification and description of the strategies
that managers can carry to achieve better performance.

Strategic management is nothing but planning for both predictable as well as unfeasible
contingencies. It is applicable to both small as well as large organizations as even the smallest
organization face competition and, by formulating and implementing appropriate strategies,
they can attain sustainable competitive advantage.

1.3.Why Strategic Management? Importance of strategic Management

Strategic management becomes so important due to the following reasons:
Globalization: The survival for business
First, global considerations impact virtually all strategic decisions! The boundaries of
countries no longer can define the limits of our imaginations. The underpinnings of strategic
management hinge upon managers' gaining an understanding of competitors, markets,
prices, suppliers, distributors, governments, creditors, shareholders, and customers
worldwide.
E-Commerce: A business tool
A second theme is that electronic commerce (e-commerce) has become a vital strategic-
management tool. An increasing number of companies are gaining competitive advantage by
using the Internet for direct selling and for communication with suppliers, customers,
creditors, partners, shareholders, clients, and competitors who may be dispersed globally. E-
commerce allows firms to sell products, advertise, purchase supplies, bypass
intermediaries, track inventory, eliminate paperwork, and share information. In total,
electronic commerce is minimizing the expense and cumbersomeness of time, distance and

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space in doing business, which yields better customer service, greater efficiency, improved
products and higher profitability.
Environment has become a major strategic issue
A third theme is that the natural environment has become an important strategic issue. With
the demise of communism and the end of the Cold War, perhaps there is now no greater
threat to business and society than the continuous exploitation and decimation of our
natural environment. The resources are scarce but the wants are unlimited. In order to meet
the wants of the world, the resources should be efficiently utilized. For example, the use of
oil resources or energy resources will make the people to use these resources for a long time.
Climate change is another threat for businesses.

1.4. Key Terms in Strategic Management

A) Strategists: are the individuals who are most responsible for the success or failure
of an organization. The strategists have various job titles such as
 Chief executive  Chair,  Dean etc
officer,  Executive
 President, director,
 Owner  Chancellor,
B) Vision Statements
Many organizations today develop a "vision statement" which answers the question, what do
we want to become?
C) Mission Statements
Mission statements are "enduring statements of purpose that distinguish one business from
other similar firms. What is our business? A clear mission statement describes the values and
priorities of an organization. It should answer the question, who we are? What we value?
D) 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.
E) Internal Strengths and Weaknesses/Internal assessments
Internal strengths and internal weaknesses are an organization's controllable activities that are
performed especially well or poorly.
F) Long-Term Objectives
Long-term objectives represent the results expected from pursuing certain strategies.
G) Annual Objectives
Annual objectives are short-term milestones that organizations must achieve to reach long-
term objectives.
H) Strategies
Strategies are the means by which long-term objectives will be achieved. How we will
achieve our vision?

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 I) Management: -is the process of planning, organizing, staffing, leading and
coordinating in order to achieve the organizational objectives
J) 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.
1.5. The Nature of Strategic Management
Managers should conduct a SWOT analysis:
 They should make best possible utilization of strengths,
 Minimize the organizational weaknesses,
 Make use of arising opportunities from the business environment
 Should not ignore the threats.( Risk/hazard)

1.6. Stages of strategic management process

The strategic management process consists of four stages:
 Environmental scanning
 Strategy formulation
 Strategy implementation
 Strategy evaluation and control
A) Environmental scanning :( both external and internal) is the monitoring, evaluating
and disseminating of the information from external and internal factors to key people
within the organization in order to identify the strategic factors that will determine the
future corporation.
 External Environment of the firm: is consisting of variable in terms of
opportunities and threats that are outside of the organization and typically beyond the
short run control of top management.
 Internal Environment of the firm: is consisting of variable in terms of strengths and
weakness that are within organization itself and usually within the short run control of
the top management.
B) Strategy Formulation: includes the developing a vision and mission, identifying an
organization external opportunities and threats, determining internal strengths and weakness,
establishing long term objective, generating alternative strategies and choose a particular
strategy to pursue with.
C) Strategy implementation: is the process of putting strategies and policies into action
through the development of the program, budgets and procedures they might involve changes
within overall culture, structure and management system of the entire organization. This
includes:
 Requires a firm to establish annual objectives
 Devise(plan) policies
 Motivate employees
 Allocate the resources so that formulated strategies can be executed
 Creating effective organizational structure
 Redirecting market effort
 Prepared budgets
 Developing and utilizing information systems
D) Strategy Evaluation: is the process in which corporate activities and the performance
result are monitored so that, actual performance can be compared with desired performance.
This includes:
 Reviewing external & internal factors that are the bases for current strategies

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  Measuring performances
 Taking corrective action
1.7. The levels of strategy Management
 Corporate level
 Business level
 Functional level
 Global level

1. Corporate Level
At the top, the corporate level, decisions are taken by the senior executive officer and the
CEO in conjunction with the board of directors. This includes:
 They are responsible for providing the vision of determine where the company wants
to and does go.
 They are responsible for legal structure
 They are responsible for establishing overall corporate image and social
responsibility.
2. Business Level
The second level of strategic management occurs at the level of the business unit. At
business level, strategy is concerned to:
 Competition in market
 What products or services should be developed and offered to which market
 Extent to which they meet the customer need
3. Functional Level

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 The third ties of strategic management apply at the functional level of each business at
which managers form the principal function of business such as Market, Production and
Operation Research and Development, Information Technology, Accounting and human
relation to implement the selected business level strategy.
4. Global Level
Today market has expanded globally and competition in the market is intensifying
rapidly. In such a situation achieving a competitive advantage and maximizing a
company’s performance requires a company to expand its business operation beyond it
domestic market.
1.8. Strategic management model
A. Traditional Perspective/ The Industrial/Organization (I/O) Model
The traditional process for developing strategy consists of analyzing the internal and
external environments of the company to arrive at organizational strengths, weaknesses,
opportunities, and threats (SWOT). The results from this “situation analysis,” as this
process is sometimes called, are the basis for developing missions, goals, and strategies.
B. The Resource-Based View Model
The model proposes that a firm’s unique resources and capabilities should define its strategic
actions and be used effectively to exploit opportunities in the external environment to ensure
successful performance.
Not all of a firm’s resources and capabilities have the potential to be a competitive advantage.
The types of resources and capabilities that can realize this potential are those which are:

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  Valuable
 Rare
 Costly to imitate
 Non-substitutable
C. The Stakeholder Model
The model proposes that a firm can effectively manage stakeholder relationships to create a
competitive advantage and outperform its competitors. This model presents a framework, based
on both moral and economic foundations, for understanding how firms can simultaneously
manage relationships with internal and external stakeholders to create and sustain competitive
advantage.
The three stakeholder groups of primary interest to a firm includes: Capital market stakeholders,
Product market stakeholders and Organizational stakeholders. Besides, the secondary
stakeholders who should not be ignored are: Government entities and administrators, Activists
and advocacy groups, Religious organizations, and other non-governmental organizations.
1.9. Benefits of strategic management
The principal benefit of strategic management has been to help organization to make better
strategies with more systematic, logical and rational approach to strategic choice.
This includes
 To achieve objectives
 To implement strategies
 To work hard
 Clearer sense of strategic vision for the firm
 Focus on what strategically important
 Improved understanding of a rapidly changing environment
 Provides an objectives view management problems
 Represent a framework for improved coordination & control of the activities.

1.10. The need for strategic management

 To increase scale and pace of change within and outside organization
 More efficient methods of serving customers while remaining at the edge of competition
 Refocusing on organizational activities
1.11. The characteristics of strategic management
 Motivate people to participate in the process
 Seeking out and balancing view points
 Creating a cohesive set of organizational values to guideline the behavior
 Fostering ideas
 Managing the risk profile etc.
1.12. Business ethics and strategic management
Business ethics: are principles of conduct with in organizations that guide decision-making and
behavior. Good business ethics is a pre-requisition for good strategic management; good ethics is
just a good business.