CHAPTER 1

THE NATURE OF STRATEGIC MANAGEMENT

 Learning Objectives

Upon completion of this topic, students should

be able to:

1.Define the strategic management concept

and some key terminologies in strategic
management
2.Describe the strategic management process
 What is Strategic Management?

◉According to David and David (2015) strategic

management (SM) can be defined as “the art and science of
formulating, implementing, and evaluating cross-functional
decisions that enable an organisation to achieve its
objectives” (p.39).

◉According to Zainal, Ho and Wong (2010) defined

strategic management as “drafting, implementing and
evaluating cross-functional decisions that will enable an
organisation to achieve its long-terms objectives (p.2).
◉According to Ireland, Hoskisson and Hitt (2011) defined
strategy as “an integrated and coordinated set of
commitments and actions designed to exploit core
competencies and gain a competitive advantage” (p.3).
◉Synonymously with the term Strategic planning
(SP = SM)
◉Purpose: to exploit and create new and different
opportunities.
◉In essence, the strategic plan is a company’s game plan.
◉A strategic planning results from tough managerial choices
among numerous good alternatives, and it signals
commitment to specific markets, policies, procedures, and
operations.
THE STRATEGIC MANAGEMENT PROCESS
 Define Perform
Establish Formulate Implement Evaluate
vision and situational
objectives strategies strategies and correct
mission analysis

Strategy Strategy Strategy

Formulation Implementation Evaluation
 Development in
Strategic Management
◉Strategic Management originated in the 1950s, popular
between mid-1960s and mid-1970s and its was known as
strategic planning.
◉As competition increased, businesses for the colonising
countries began to deteriorate (Clarke, 1966) – developments
in technology, explore new markets, high-production and open
markets.
◉Ansoff (1977) had introduced the concept of “strategic
planning” in management – suggested that planning was
better than long-term planning. Also carried a proposition that
a systematic and precise analysis on the abilities and
opportunities should be combined in the decision-making
process.
◉Taylor (1975), Ansoff (1977), Glueck (1983) and
Ansoff (1980) listed the characteristics based on
years of SM as below:
◉1920: stable
◉1930: responsive
◉1950: within expectation
◉1980: exploratory
◉1990 – 2000: creative
Stages of STRATEGIC MANAGEMENT

Strategic
Management

Implementation
Strategy
 Strategy Formulation
Strategy Formulation
Vision & Mission
External Opportunities & Threats
Internal Strengths & Weaknesses
Long-Term Objectives
Alternative Strategies
Strategy Selection
Strategy formulation includes:
• What new businesses to enter
• What business to abandon
• Whether to expand operations or diversify
• Whether to enter international markets
• Whether to merge or form a joint venture,
and
• How to avoid a hostile takeover.
 Strategy Implementation

Strategy Implementation includes:

Strategy Implementation
• Developing a strategy-supportive culture
• Creating an effective organizational structure
• Redirecting marketing efforts
Annual Objectives • Preparing budgets
Devise Policies • Developing and using information systems, and
• Linking employee compensation to organizational
Employee Motivation
performance
Resource Allocation • Also known as “action stage” – formulates strategies
into action.
 Strategy Evaluation
Strategy Evaluation (SE)
Internal Review
External Review
Performance Metrics
(measurement)
Taking Corrective Actions
• Final stage. Managers need to know when
particular strategies are not working well:
primary means for obtaining this information.
• All strategies are subject to future modification
because external and internal factors are
constantly changing.
• Three fundamental activities:
(i) reviewing external and internal factors,
(ii) measuring performance, and
(iii) taking corrective actions.
 Where to IMPLEMENT Strategic Management?
Corporate level strategies Business level strategies
• The overall movement • A competitive
of the organization environment requires the
and the decisions organization to think of
Business Level
have to be made at how to outwit the
the top corporate level competitors in general.
with the inputs and
participation from the
various divisions.
Corporate Level Functional Level Functional level
strategies
• Also known as
departmental level
Occur at three strategy, is the actions
levels of
organization: to be considered at the
various functional or
operational levels of
organization .
.
 Integrating Intuition and Analysis

Intuition is useful for

The strategic management
Intuition is based on: decision making in:
process attempts to organize
Past experiences Conditions of great
quantitative and qualitative
Judgment uncertainty
information under conditions of
Feelings Conditions with little
uncertainty
precedent

Analytical thinking Intuition thinking

• is a critical component of visual
• instinctive and unconscious
thinking that gives one the ability
knowing without deduction or
to solve problems quickly and
reasoning.
effectively.
• Intuition is receiving input and
• It involves a methodical step-by-
ideas without knowing
step approach to thinking that
exactly how and where you
allows you to break down
got them from.
complex problems into single and
manageable components.
 1. Competitive Advantage
9 Key Terms 2.
3.
Strategies
Vision and Mission Statements
4. External Opportunities and Threats
in Strategic 5.
6.
Internal Strength and Weaknesses
Long term Objectives
Management 7.
8.
Annual Objectives
Policies
Key Terms &
Comcpets
 Competitive ADVANTAGE

DEFINITION How to Achieve Sustained

◉ “Anything that a firm does
especially well compared to rival
firms”.
◉ Also referred to “unique
capability” that differentiate one
company with other companies.
Competitive Advantage?
1. Adapting to change in external
trends, internal capabilities, and
resources.
2. Effectively formulating,
implementing and evaluating
strategies.
 STRATEGISTS

DEFINITION what strategies do?

◉ Individuals that responsible for ◉ They formulate, implement and
firm’s success/failure. evaluate strategies.

VARIOUS JOB TITLES: HOW THEY DO?

◉ Chief Executive Officer (CEO) ◉ Keep track on industry / market trend.
◉ Chief Strategy Officer (CSO) ◉ Develop forecasting model
◉ President ◉ Analyze organization SWOT.
◉ Business Owner ◉ Develop creative plans.
◉ Board Chair ◉ Evaluate corporate, business and
◉ Executive Director functional performance.
 VISION & MISSION

VISION STATEMENT MISSION STATEMENT

◉ What do we want to ◉ What is our business?
become?
 EXTERNAL OPPORTUNITIES & THREATS

◉ Largely beyond the control ANALYSIS OF TRENDS:

of a single organization. ◉ Economic
◉ Factors “beyond your ◉ Social
◉ Cultural
control” but very influential.
◉ Demographic/Environmental
◉ Political, Legal, Governmental
◉ Technological
◉ Competitors
 INTERNAL STRENGTHS & WEAKNESSES
◉ Controllable activities
performed especially well or
poorly
◉ Factors within your control.
TYPICALLY LOCATED IN
FUNCTIONAL AREAS OF THE
FIRM:
◉ Management
◉ Marketing
◉ Finance / Accounting
◉ Production / Operations
◉ Research and Development
◉ Computer Information Systems
 LONG-TERM OBJECTIVES

◉ Mission-driven pursuit of ◉ Must be specific,

specified results more than
one year out.
◉ Specific results in order to
achieve mission.
◉ The duration is normally
more than a year.
achievable, measurable,
reasonable, timely,
consistent and clear.
◉ Very important in SF stage.
 ANNUAL OBJECTIVES

◉ Short-term milestones that ◉ Must be achievable,

firms must achieve to attain measurable, realistic,
long-term objective. consistent and prioritized.
◉ Also called ‘short-term ◉ Very important in SI stage.
objectives’.
 POLICIES

◉ Means by which annual ◉ It guides in decision making

objectives will be achieved. process.
◉ Also refer to ways / ◉ Very important in SI stage.
techniques / methods to
achieve short-term objectives.
 • Proactive rather than
reactive in shaping firm’s
future
• Initiate and influence firm’s
activities
Benefits of • Allow total participations at
all level.
• Achieve understanding and
Strategic commitment from top to
bottom

Management • Make effective decisions

• Formulate better strategies
• Systematic, logical, rational
Financial Benefits Vs. Nonfinancial Benefits
FINANCIAL BENEFITS
◉ Improvement in sales
◉ Improvement in profitability
◉ Productivity improvement
◉ Superior long term financial
performance
NONFINANCIAL BENEFITS
◉ Improved understanding of
competitors’ strategies
◉ Enhanced awareness of threats
◉ Reduced resistance to change
◉ Enhanced problem-prevention
capabilities
◉ Promote all level
interactions/communications
Why Some Firms Do No STRATEGIC PLANNING
1. Poor reward structures
2. Fire-fighting
3. Waste of time
4. Too expensive
5. Laziness
6. Content with success
7. Fear of failure
8. Overconfidence
9. Prior bad experience
10. Self-interest
11. Fear of the unknown
12. Suspicion
 1. Avoid being too formal, too rigid and
Guidelines for predictable
2. Keep it simple and non routine
3. Eliminate jargon
effective 4. Stimulate creativity
5. Open-minded – allow ideas from others
strategy 6. Facilitate and encourage continuous
learning
management
THANKS!
Any questions?