STRATEGIC MANAGEMENT

(MBA 631)

Berhanu Endeshaw
[email protected]

October 2019

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 CHAPTER ONE: STRATEGY AND STRATEGIC
MANAGEMENT: AN OVERVIEW
The contents of this chapter:
1.1 Concept of Strategy
1.2 Definition of Strategy
1.3 Essence and Importance of Strategy
1.4 Strategic Management Defined
1.5 Features of Strategic Management
1.6 Benefits of Strategic Management
1.7 Key Terms in Strategic Management
1.8 Factors Affecting Strategic Management in today’s World
1.9 Strategic Management Process Model

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1.1 Concept of Strategy
• Came from the Greek term “strategia” meaning the art
of being a general
• In ancient Greek refers to an important plan to deploy
the available resources in a manner to defeat the
enemy
• Nowadays, it is being used as a basic instrument to
achieve agreed goals & objectives.
• Strategy is an action that managers take to attain one
or more of the organization's goals.
• Strategy in simple terms refers to the plans
organization formulates to meet its end objectives,
Strategies are devised to ensure market success and
achieve competitive advantage.

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 1.2 Definition of Strategy

• Is a tool to organize & allocate an organization’s

resources in a viable way based on its internal
competencies & shortcomings, anticipated changes in the
environment
• Is the use of entity’s resources in the pursuit of its
objectives against competition from rival organizations
(ACCA, 1995:2)
• It’s a bridge to somewhere, not a bridge to nowhere.
• Strategy can also be defined as “A general direction set
for the company and its various components to achieve a
desired state in the future.

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 Definition of strategy cont’d
• Strategies are the means by which long-term objectives will
be achieved. Business strategies may include geographic
expansion, diversification, acquisition, product development,
market penetration, retrenchment, divestiture, liquidation,
and joint ventures (David and David, 2017).
• Strategies are potential actions that require top-management
decisions and large amounts of the firm’s resources(David
and David, 2017). They affect an organization’s long-term
prosperity, typically for at least five years, and thus are
future-oriented. Strategies also have multifunctional and
multidivisional consequences and require consideration of
both the external and internal factors facing the firm.

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1.3 Essence and Importance of Strategy
• The main role of strategy is how to accomplish or
achieve objectives by using the organization’s resources
& taking into consideration the external environment
• Generally, strategy is:
• A tool to implement policy
• The means used to achieve the ends / objectives
• A future plan that guides the scope & direction of an
organization
• Unified plan: it ties all the parts of the enterprise
together
• Comprehensive plan: it covers all major aspects of
the enterprise
• Integrated plan: all parts of the plan are compatible
with each other & fit together well
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• “Strategy is a unified, comprehensive, & integrated plan
relating the strategic advantages of the firm to the
challenges of the environment. It is designed to ensure
that basic objectives of the enterprise are achieved.”
(Glueck, 1980:9)

• Exercise:
1. According to Henry Mintzberg, the five definitions of
strategy are stated – as a plan, ploy, pattern, position
& perspective. Explain each of these concepts.

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1.4 Definitions of Strategic Management
• Strategic Management refers to defining the organization’s
vision, mission, formulating strategies, and guiding long-
term organizational activities consistent with internal &
external conditions (Holt, 1993)
• Strategic management is the set of decisions & actions
which leads to the development of an effective strategy or
strategies help to achieve corporate objectives. It
includes environmental scanning (both external and
internal), strategy formulation (strategic or long range
planning), strategy implementation, and evaluation and
control.

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 Cont’d Strategic…
• Strategic management is the art and science of formulating,
implementing, and evaluating cross-functional decisions that
enable an organization to achieve its objectives (David and
David, 2017).
• Strategic management focuses on integrating management,
marketing, finance and accounting, production and operations,
research and development (R&D), and information systems to
achieve organizational success.
• The term strategic management is used at many colleges and
universities as the title for the capstone course in business
administration. This course integrates material from all business
courses, and, in addition, introduces new strategic-
management concepts and techniques being widely used by
firms in strategic planning.
• Strategic management is the study of why some firms
outperform others. How to create a competitive advantage in
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the market place that is unique, valuable, and difficult to copy.
Strategic Management vs. strategic Planning
• The term strategic planning is more often used in the business
world, whereas strategic management is often used in
academia.
• Sometimes the term strategic management is used to refer to
strategy formulation, implementation, and evaluation, however,
strategic planning referring only to strategy formulation.
• The purpose of strategic management is to exploit and create
new and different opportunities for tomorrow; long-range
planning, in contrast, tries to optimize for tomorrow the trends of
today.
• Strategic planning is the process of formulating a direction for
an organization, while strategic management is the process of
determining how this direction can be achieved. ... The strategic
process begins with strategic planning, at which point the
organization decides upon its mission statement and objectives.
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 1. 5 Features of Strategic Management
• Has support of organization’s executive officer.
• Is user friendly.
• Is participatory, not left to planners.
• Is flexible.
• Leads to resources decisions.
• Engages and motivates all staff.
• Is fresh and continuous, not static and stale.
• Is Proactive
• Not a Quick Fix
• Part of Quality Management
• Payoffs Increase over Time
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 1.6 Benefits of Strategic Management
The Importance of Strategic Management
• The pursuit of competitiveness is at the heart of strategic
management
• Thus, effective use of the interdependent parts of strategic
management process results in:
• selecting the direction the firm will pursue
• achieving the desired outcomes of strategic competitiveness
• gaining access to the resources needed to earn above-average
returns
• providing superior satisfaction for their stakeholders'
• The strategic management process is intended to be a
rational approach to help a firm respond effectively to the
challenges of the 21st - Century Competitive Landscape

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 Benefits of…Cont’d
Moreover, strategic management:
• Prevents or mitigates the effects of risks
• Helps managers to discharge their responsibilities since they
know what is expected of them
• Encourages & permits to evaluate alternative courses of action
• It reveals & clarifies the SWOT analysis
• It provides an overall framework for decision making &
resource allocation effectively
• Serves as a means of communicating objectives, & detailed
operating plans
• Generally, implementing appropriate strategic mgt. may be
crucial for the survival & success of organizations in the
face of fast changing environment

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 1.7 Key Terms in Strategic Management
Key terms in strategic management includes:
• competitive advantage,
• vision and mission statements,
• external opportunities and threats,
• internal strengths and weaknesses,
• strategy,
• Goals and
• objectives.

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 The Five Tasks of Strategic Management
• The Five-tasks (Processes) Framework of Strategic Management

• Evaluating
Developing Crafting Performance
a Strategic Executing
Setting Strategy to • Monitoring new
Vision & the
Objectives Achieve Developments
Business Strategy
Objectives • Initiating
Mission
Corrective
Adjustment

Improve/ Improve/ Recycle to the

Review Review
Change Change Other Tasks

Source: Thompson & Strickland, Strategic Mgt. Concepts & Cases, 2001:7

Crafting…...exercise skill in making something 15

Executing…….the action of executing a plan
1.8 Factors Affecting Strategic Management
in today’s World
The Challenges of Strategic Management
• The main challenges of Strategic Mgt. is change
• The main leading forces (factors) of change are
globalization, resource scarcity, & technological
revolution
• As a result, organizations face tough competition, shortage
of raw materials, and high labor & equipment costs
• Hence, the survival & success of organizations can be
guaranteed with new creativity & innovation.
• Creativity & innovation are seen as essential instruments
for growth, profit generation, & gaining competitive
advantage over competitors. 16
• Creativity is the process of bringing a new idea into
being
• Innovation is the process of transforming (adopting)
new idea into an organization, service, product, etc.
The Need for Change
• Change is "the process of alteration or transformation
of individuals, groups, & organizations undergo in
response to internal and external factors" (Coffey, et
al; 1994: 638)
• Thus, change implies disruption in regular functioning
of an organization.
• Since the environment changes, organizations must
continually change & adapt to the changing
environment

If not, their growth & even survival is unlikely 17

 • Why from the top 100 companies listed by Fortune
Magazine in 1956 only 29 companies remain in
1994?
• Why the Swiss watch manufacturer lost its
competitive position for quartz watches?

• Resistance to change
• Maintaining the status quo of enterprise culture
& value

• Therefore, organizations should realize that they are

subject to perpetual/continuous state of change.

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• In a turbulent & unpredictable world, innovation in all
aspects of the firm is the only route to sustained
success
• In a dynamic world, any strategy must be modified as
the world changes
• Environmental changes pose both opportunities &
challenges:
• Some companies prosper while others weaken
& even disappear,
• Significant new firms arise while others fail to
survive
• Hence, strategic management is an ongoing,
continual process, not a single event or decision

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 Factors…cont’d
Waterman noted:
“In today’s business environment, more than in any
preceding era, the only constant is change.
Successful organizations effectively manage change,
continuously adapting their bureaucracies, strategies,
systems, products, and cultures to survive the shocks
and prosper from the forces that decimate the
competition.”

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1.9 Strategic Management Process Model
• The model of the strategic management process
Source: The simplified strategic management model (Fitzroy & Hulbert, 2005)

Context
(Changing environment)

Strategy Implementation
(How to do) (Making it happen)

Performance
(Creating value)

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• From the model, it is observable that the strategic
management processes are interconnected – they
are not linear processes but are interactive &
recursive/derivatives
• Strategy aims at achieving organizational purpose
• For example, “become global” for a firm is a strategy
• In strategy nothing about the firm is fixed: it is all variable (the
strategy may change a firm’s scope, its culture, etc.)
• Strategic decisions are those that affect the long-term
well-being of the organization
• They involve major resource commitments & are difficult to
reverse
• For example, merger & acquisition are strategic decisions
• Strategic management is a management task that
makes a difference to organizational performance
• It is managing for the present as well as creating value so that
the firm continues to prosper in a global uncertain world

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• A firm’s success depending upon the perspective of different
stakeholders:
• Shareholders: The firm is successful when it is making
above-average returns on the investments made
• Employees: The firm is successful when it can retain its
current employees
• Customers: The firm is successful when it is able to provide
customers with the products & services they need
• For example, DuPont the world’s largest chemicals concern
has been in business for more than 150 years – as a successful
firm.
• Why Coca-Cola is still in business?
• To be successful firms must create value over a sustained
period of time – earning above-average returns
• Above-average returns represent returns that exceed
investors’ expected levels of return for given levels of risk
• Firms must earn at least average returns if they are to
survive 23
• There are two main models of successful performance:
– The industrial organization (IO) model – believes that
the conditions present in the external environment
determine (has more influence on) a firm’s performance.
The industry in which a firm chooses to compete given
their strategically relevant resources determine its level
of competitiveness
– The resource-based (RB) model – asserts that an
internal perspective (resources & capabilities) is more
critical to a firm’s performance (value-creating
strategies). Thus, strategies should be selected that
enable the firm to best exploit its core competencies,
relative to opportunities in the external environment
• However, strategy involves a synthesis of external analysis
coupled with an understanding of the internal resources &
capabilities of the firm

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• Sustained success will occur only when strategic
managers are able to manage for both today &
tomorrow (Abell, 1999)
– Managing for today involves exploiting existing
external opportunities & internal competencies
– Managing for tomorrow involves developing new
opportunities & competencies.
– It requires creating a vision of what the firm & its
environment are likely to look in uncertain future
– To ensure sustainability of success, a firm needs
short-term & long-term strategy initiatives.
• Strategic intent
– From a competitive perspective, strategic intent is
about winning – beating the competition – in the battle
for market share & global dominance

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END

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