Introduction to Strategic Management

Strategic management can be defined as ---

Business policy and its elements: -
Mission: - A company's mission is its reason for being. The mission often is expressed in
the form of a mission statement, which conveys a sense of purpose to employees and
projects a company image to customers. In the strategy formulation process, the mission
statement sets the mood of where the company should go.
Corporate Mission: - Statement can help an organisation to link its activities to the needs
of society and its legitimized existence value. (Scope and direction of business
endeavors)
Elements of Mission: -
o It is history … aims, policies and achievements
o Current performance of the owners and management
o Market environment which influence the organisation
o Organistations resources
o Distinctive competence of organisation.

Purpose: - Companies statement on the basic characteristics of the organisation, and it

specifies the purpose towards employee and employer.

Objectives: - Objectives are concrete goals that the organization seeks to reach, for
example, an earnings growth target. Objectives can be defined as ‘Open-ended attributes,
denoting future state or outcome that an organisation strives for…’ Objectives must
characterised as SMART. Acronym of smart is…
 S – Specific
 M – Measurable
 A - Attainable
 R – Relative (Realistic)
 T – Time bond.
Objectives are the statement of measurable results and these are tied to Goals; provide the
basis for operational planning and budgeting. Four general characteristics:
Starts with the word “To”
Specifies a single measurable result
Specifies a target date or time span for Completion
Must be realistic and attainable, but represents a significant challenge.

Goals: - Define the key areas in which to expect strategic results and what is expected.
These are not measurable as stated, but contain factors that will be measurable as
Objectives. Goals can be defined as ‘Closed ended attributes – precise and
expressed in specific terms.’ Objectives and goals provide the foundation for all
managerial activities they are the ends or aims. These are similar and both
connected with the results to be achieved.
Importance of goals:
o Provides a sense of direction
o Focus out efforts
 o Guides our plans and directions
o Help us evaluate our progress

Procedure: - A series of related activities.

Rule: - Prescribed course of action.

Corporate program or Program: - Complex of goals, policies, procedures, rules, tasks,

steps, resources to be employed and others necessary to carry out a given action.
Program is collection of activities that are designed to achieve a end or specific purpose.

Tactics: - An organised but ceaseless stream of specific actions designed to execute

strategic decisions. (Action plan for strategy implementation)

Forecast: - Anticipating or prediction of future for preparation of best course of action.

Plan: -
o Is a specific documented intention consisting of an objective (end) and
an action statement (means).
o States what, when, and how something is to be done.
A plan prescribed proposed methods of moving towards or achieving one or more
objectives or goals. Often structured, plans can occur in projects, diplomacy, careers,
economic development, military campaigns, combat, or in the conduct of some business.

Planning: - The process of determining the best course of action for a particular period.

Decision-making: - Selecting the best’s alternative solution or result among the available
alternatives.

Budget: - Plan statement for a given period of time in future expressed in financial or
physical units. In other words ‘budget is a statement which indicated all revenue and
expenditure for a particular assessment or accounting year’.

Strategy: - A master plan that delineates critical courses of action toward the attainment
of company objective and a blue print that defines the means of deploying resources to
exploit resent and future opportunities and to counteract present and future threat.

Strategy-making: - An integrated activity composed of a series of decisions and actions

that include strategic planning, formulation and management. It is outmaneuver of
opponent.

Corporate planning: - According to Chartered Institute of Management Accountant

(CIMA) … Establishment of objectives and formulation, evolution and selection of
policies, strategies, tactics and action required to achieving these objectives.
 Plans of an Organisation
Types of Planning
• Strategic planning: determining how to pursue long-term goals with available
resources.
• Intermediate planning: determining subunits’ contribution with allocated
resources.
• Operational planning: determining how to accomplish specific tasks with
available resources.

Robert B. Anthony described three levels of business activities i.e. Top level, Middle
level and Lower level management. According to these levels planning is done in an
organisation.
1. Based upon business policy, mission of company and objectives, corporate plans
or strategic plans are prepared by top level management or real Owners.
2. Based upon function of the concerned department, functional plans or
tactical/development plans are done by middle level management or Functional
Heads
3. Based upon operational task, operative plans are done by lower level
management.

Characteristics of top level plans:

o Time horizons
o Scope
o Complexity and impact
o Independent

Distinction between corporate plans and other lower level plans:

Corporate plans Vs development or tactical plans:
Corporate plans Development plans
1 Concerned of top level Developed by functional level
management
2 Long term planning mid or short term planning
3 Based on forecasting about technological Based on past performance of the
political and social environment organization
4 Less detailed More detailed
5 Planing is done under high uncertainty Planing is done under less uncertainty

Corporate plans Vs operational plans:

Corporate plans Operational plans
1 Long term planning Very short term planning
2 Internal organisation is related to Focuses on internal organisational
external one environment
3 Precedes operational planing Succeeds strategic plans
4 Concerned of top level management Focus is on functional aspect.
Focus is on strategy Focus is on functional aspect
Process of Strategic Planning:
Formulation Implementation Evaluation

Feed back

I) Strategic Planning Formulation:

o Identifying corporate mission and purpose of organisation
o Formulate strategic objectives [SMART – oriented]
o Environmental analysis – apprising the internal and external environment by
SWOT analysis * detailed description must write *
o Develop various alternative course of actions
o Select one best course of action

II) Corporate Planning Implementation:

o Program implementation
o Project implementation
o Procedural implementation
 o Resources implementation
o Behavioural implementation

III) Corporate Planning Evaluation:

Measurement and Control progress consists of the following steps: -
o Define parameters to be measured
o Define target values for those parameters
o Perform measurements
o Compare measured results to the pre-defined standard
o Make necessary changes
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SWOT Analysis

A scan of the internal and external environment is an important part of the

strategic planning process. Environmental factors internal to the firm usually can be
classified as strengths (S) or weaknesses (W), and those external to the firm can be
classified as opportunities (O) or threats (T). Such an analysis of the strategic
environment is referred to as a SWOT (sometimes referred to as TOWS) analysis.
SWOT analysis is a simple framework for generating strategic alternatives from a
situation analysis. It is applicable to either the corporate level or the business unit level
and frequently appears in marketing plans.
The SWOT framework was described in the late 1960's by Edmund P. Learned,
C. Roland Christiansen, Kenneth Andrews, and William D. Guth in Business Policy, Text
and Cases (Homewood, IL: Irwin, 1969).
The General Electric Growth Council used this form of analysis in the 1980's.
Because it concentrates on the issues that potentially have the most impact, the SWOT
analysis is useful when a very limited amount of time is available to address a complex
strategic situation.
The SWOT analysis provides information that is helpful in matching the firm's
resources and capabilities to the competitive environment in which it operates. As such, it
is instrumental in strategy formulation and selection. The following diagram shows how a
SWOT analysis fits into an environmental scan:

SWOT Analysis Framework

Environmental Scan
/\
Internal Analysis External Analysis
/\ /\
Strengths Weaknesses Opportunities Threats
|
SWOT Matrix

Strengths
 A firm's strengths are its resources and capabilities that can be used as a basis for
developing a competitive advantage. Examples of such strengths include:
o Patents
o Strong brand names
o Good reputation among customers
o Cost advantages from proprietary know-how
o Exclusive access to high grade natural resources
o Favorable access to distribution networks
Weaknesses
The absence of certain strengths may be viewed as a weakness. For example, each
of the following may be considered weaknesses:
o Lack of patent protection
o A weak brand name
o Poor reputation among customers
o High cost structure
o Lack of access to the best natural resources
o Lack of access to key distribution channels
In some cases, a weakness may be the flip side of a strength. Take the case in
which a firm has a large amount of manufacturing capacity. While this capacity may be
considered a strength that competitors do not share, it also may be a considered a
weakness if the large investment in manufacturing capacity prevents the firm from
reacting quickly to changes in the strategic environment.

Opportunities
The external environmental analysis may reveal certain new opportunities for
profit and growth. Some examples of such opportunities include:
o An unfulfilled customer need
o Arrival of new technologies
o Loosening of regulations
o Removal of international trade barriers
Threats
Changes in the external environmental also may present threats to the firm. Some
examples of such threats include:
o Shifts in consumer tastes away from the firm's products
o Emergence of substitute products
o New regulations
o Increased trade barriers

The SWOT Matrix

A firm should not necessarily pursue the more lucrative opportunities. Rather, it
may have a better chance at developing a competitive advantage by identifying a fit
between the firm's strengths and upcoming opportunities. In some cases, the firm can
overcome a weakness in order to prepare itself to pursue a compelling opportunity.
 To develop strategies that take into account the SWOT profile, a matrix of these
factors can be constructed. The SWOT matrix (also known as a TOWS Matrix) is shown
below:
SWOT / TOWS Matrix
Strengths Weaknesses

Opportunities S-O strategies W-O strategies

Threats S-T strategies W-T strategies

o S-O strategies pursue opportunities that are a good fit to the companies¡¯
strengths.
o W-O strategies overcome weaknesses to pursue opportunities.
o S-T strategies identify ways that the firm can use its strengths to reduce its
vulnerability to external threats.
o W-T strategies establish a defensive plan to prevent the firm's weaknesses from
making it highly susceptible to external threats.

Multiple Perspectives Needed

The method used to acquire the inputs to the SWOT matrix will affect the quality
of the analysis. If the information is obtained hastily during a quick interview with the
CEO, even though this one person may have a broad view of the company and industry,
the information would represent a single viewpoint. The quality of the analysis will be
improved greatly if interviews are held with a spectrum of stakeholders such as
employees, suppliers, customers, strategic partners, etc.

SWOT Analysis Limitations

While useful for reducing a large quantity of situational factors into a more
manageable profile, the SWOT framework has a tendency to oversimplify the situation
by classifying the firm's environmental factors into categories in which they may not
always fit. The classification of some factors as strengths or weaknesses, or as
opportunities or threats is somewhat arbitrary. For example, a particular company culture
can be either a strength or a weakness. A technological change can be a either a threat or
an opportunity. Perhaps what is more important than the superficial classification of these
factors is the firm's awareness of them and its development of a strategic plan to use them
to its advantage.

PEST Analysis

A scan of the external macro-environment in which the firm operates can be expressed in
terms of the following factors:
 Political
 Economic
 Social
 Technological
 The acronym PEST (or sometimes rearranged as "STEP") is used to describe a
framework for the analysis of these macro-environmental factors. A PEST analysis fits
into an overall environmental scan as shown in the following diagram:

Environmental Scan
/ \
External Analysis Internal Analysis
/ \
Macro-environment Microenvironment
|
P. E. S. T.

Political Factors
Political factors include government regulations and legal issues and define both
formal and informal rules under which the firm must operate. Some examples include:
o Tax policy
o Employment laws
o Environmental regulations
o Trade restrictions and tariffs
o Political stability

Economic Factors
Economic factors affect the purchasing power of potential customers and the
firm's cost of capital. The following are examples of factors in the macro-economy:
o economic growth
o Interest rates
o Exchange rates
o Inflation rate

Social Factors
Social factors include the demographic and cultural aspects of the external macro-
environment. These factors affect customer needs and the size of potential markets. Some
social factors include:
o Health consciousness
o Population growth rate
o Age distribution
o Career attitudes
o Emphasis on safety

Technological Factors
Technological factors can lower barriers to entry, reduce minimum efficient
production levels, and influence outsourcing decisions. Some technological factors clude:
o R&D activity
o Automation
o Technology incentives
 o Rate of technological change
o External Opportunities and Threats
The PEST factors combined with external micro-environmental factors can be
classified as opportunities and threats in a SWOT analysis.

The Strategic Management Process

Four Steps in the Strategic Management Process
1. Formulation of a grand strategy.
2. Formulation of strategic plans.
3. Implementation of strategic plans.
4. Strategic control.
Corrective action based on evaluation and feedback is takes place throughout the entire
strategic management process.

Formulation of a Grand Strategy

Grand Strategy - A general explanation of how the organization’s mission is to be
accomplished.

Situational Analysis - Finding the organization’s niche by performing a SWOT

(Strengths, Weaknesses, Opportunities, and Threats) analysis to match unfolding
opportunities with resources being acquired.

Capability profile - Identifying the organization’s strengths and weaknesses.

Key capabilities for today’s companies

• Quick response to market trends.
• Rapid product development.
• Rapid production and delivery.
• Continuous cost reduction.
• Continuous improvement of processes, human resources, and products.
• Greater flexibility of operations.

Formulation of Strategic Plans

Criteria for Formulating Strategic Plans
• Develop clear results-oriented objectives stated in measurable terms.
• Identify activities required to accomplish the objectives.
• Assign specific responsibilities to the appropriate personnel.
• Estimate times to accomplish activities and their appropriate sequencing.
• Determine resources required to accomplish the activities.
• Communicate and coordinate the above elements and complete the action plan.

Strategic Implementation and Control

Implementation of Strategic Plans
• Execution is fundamental to strategy and has to shape it.
• Developing a systematic filtering down process (“selling the strategy”) that
facilitates the translation of strategic plans into lower-level plans requires
considering:
1. Organizational structure.
2. People.
3. Culture.
4. Control systems.

Strategic Control
• A formal control system should be developed that helps keep
strategic plans on track by
• Setting up and testing channels for information on progress,
problems, and the fit of strategic assumptions to the environment.
• Using software programs for real-time tracking of production,
financial, and marketing reports.

Corrective Action Based on Evaluation and Feedback

Negative feedback should prompt corrective action at the step immediately before the
problem occurs.

Possible corrective actions include:

• Updating strategic assumptions.

• Reformulating strategic plans.
• Rewriting policies.
• Making personnel changes.
• Modifying budget allocations.