Advanced Strategic Management

LECTURE 1
INTRODUCTION TO STRATEGIC
MANAGEMENT

What is Strategic
Management?

Art & science of formulating,

implementing, and evaluating,
cross-functional decisions that
enable an organization to
achieve its objectives

Strategic Management

In essence, the strategic plan

is a companys game plan

According to Arieu (2007),

there is strategic consistency when the

actions of an organization are consistent
with the expectations of management, and
these in turn are with the market and the
context."

Strategic Management achieves a firms

success through integration

Management

Marketing

Finance/Accounting

Production/Operations

Research & Development

MIS

Ellen-Earle Chaffee (1985)

Strategic management

involves adapting the organization to its

business environment.
is fluid and complex. Change creates novel
combinations of circumstances requiring
unstructured non-repetitive responses.
affects the entire organization by providing
direction.
involves both strategy formation and also
strategy implementation

is partially planned and partially unplanned.

is done at several levels: overall corporate
strategy, and individual business
strategies.
involves both conceptual and analytical
thought processes.

Emergence of Strategic
Management

The Art of WarbySun Tzu,

von Clausewitz,

dynamic and unpredictable nature of military

strategy

The Red BookbyMao Zedong

tactical side of military strategy and specific

tactical prescriptions

the principles of guerrilla warfare

The Strategic management discipline is

originated in the 1950s and 60s.

Early contributors

Alfred D. Chandler,
Philip Selznick,
Igor Ansoff, and
Peter Drucker.

Peter Drucker(1969) coined the

phraseAge of Discontinuity

to describe the way change forces disruptions

into the continuity of our lives.
Sources of discontinuity:

newtechnologies,globalization,cultural pluralism,
andknowledge capital.

In 1970,Alvin TofflerinFuture Shock

described a trend towards accelerating

rates of change.
he illustrated how social and technological
norms had shorter lifespans with each
generation
he questioned society's ability to cope with
the resulting turmoil and anxiety.

In 1978,Dereck Abelldescribedstrategic
windows

the limited amount of time in which a firm's resources

coincide with a particular market opportunity
the importance of the timing (both entrance and exit)
of any given strategy.
This has led some strategic planners to buildplanned
obsolescenceinto their strategies.

In 1983,Noel Tichystated that

because we are all beings of habit we tend to repeat

what we are comfortable with.
This is a trap that constrains ourcreativity

In 1989,Charles Handyidentified two types

of change.

In 1990,Richard Pascalewrote that

Strategic drift:a gradual change that occurs

so subtly that it is not noticed until it is too late.
Transformational changeis sudden and
radical.
relentless change requires that businesses
continuously reinvent themselves

Amit & Schoemaker (1993) divided

"resources into resources and capabilities

In 1996,Adrian Slywotzky

showed how changes in the business environment

are reflected invalue migrationsbetween
industries, between companies, and within
companies.
claimed that recognizing the patterns behind these
value migrations is necessary to understand the
world of chaotic change.

In 1999, Constantinos Markides describes

strategy formation and implementation

as an on-going, never-ending, integrated process

requiring continuous reassessment and
reformation.

In 2000,Malcolm Gladwelldiscussed the

importance of thetipping point,

that point where a trend or fad acquires

critical mass and takes off.

In 2000,Gary
Hameldiscussedstrategic decay

the notion that the value of all strategies,

no matter how brilliant, decays over time

Makadok (2001)drew distinction between

resources and capabilities

Resources are tradable and non-specific to the

firm,
Capabilities are firm-specific and are used to
engage the resources within the firm, such as
implicit processes to transfer knowledge within
the firm

Armstrong & Green (2007)

competitor-oriented objectives harm

performance

In 2010, IBM released a study

summarizing three conclusions of 1500
CEOs around the world:

1) complexity is escalating,
2) enterprises are not equipped to cope
with this complexity, and
3) creativity is now the single most
important leadership competency. IBM said
that it is needed in all aspects of leadership,
including strategic thinking and planning

Strategy Cycle

Strategy Formulation
Vision & Mission
External Opportunities & Threats
Internal Strengths & Weaknesses
Long-Term Objectives
Alternative Strategies
Strategy Selection

Issues in Strategy
Formulation

New
Newbusiness
businessopportunities
opportunities

Businesses
Businessesto
toabandon
abandon

Allocation
Allocationof
ofresources
resources

Expansion
Expansionor
ordiversification
diversification

International
Internationalmarkets
markets

Mergers
Mergersor
orjoint
jointventures
ventures

Avoidance
Avoidanceof
ofhostile
hostile
takeover
takeover

Strategy Implementation

Annual Objectives
Policies
Employee Motivation
Resource Allocation

Strategy
Implementation
Action
ActionStage
Stageof
ofStrategic
Strategic
Management
Management

Most
Mostdifficult
difficultstage
stage

Mobilization
Mobilizationof
of
employees
employees&&managers
managers

Interpersonal
Interpersonalskills
skills
critical
critical

Consensus
Consensuson
ongoal
goal
pursuit
pursuit

Strategy Evaluation

Internal Review
External Review
Performance Metrics
Corrective Actions

Strategy
Evaluation
Final
FinalStage
Stageof
ofStrategic
Strategic
Management
Management

Subject
Subjectto
tofuture
future
modification
modification

Todays
Todayssuccess
successno
no
guarantee
guaranteeof
offuture
futuresuccess
success

New
New&&different
differentproblems
problems

Complacency
Complacencyleads
leadsto
to
demise
demise

Prime Task of
Strategic Management

Peter Drucker: -- Think through

the overall mission of a
business. Ask the key question:
What is our Business?

Integrating Intuition and

Analysis

The strategic management

process attempts to organize
quantitative and qualitative
information under conditions of
uncertainty

Integrating Intuition and

Analysis
Intuition is based on:

Past experiences
Judgment
Feelings

Intuition is useful for decision making in:

Conditions of great uncertainty
Conditions with little precedent

Integrating Intuition & Analysis

Intuition & Judgment

Involve Management at all levels

Influence all Analyses

Integrating Intuition &

Analysis
Analytical Thinking

Intuitive Thinking

Adapting to Change

Organizations must monitor

events
On-going

process
Internal and external events
Timely changes

Strategic Management is Gaining and

Maintaining Competitive Advantage

Anything that a firm does

especially well compared to
rival firms

Achieving Sustained
Competitive Advantage
1. Adapting to change in external trends,
internal capabilities and resources

2. Effectively formulating, implementing &

evaluating strategies

Adapting to Change
Rate & magnitude of change
increasing dramatically
E-commerce
Demographics
Technology

Adapting to Change
Effective Adaptation

Requires long-term focus

Adapting to Change Key Strategic

Management Questions

What kind of business should

we become?
Are we in the right fields
Are there new competitors?
What strategies should we
pursue?
How are our customers
changing?

Key Terms

Key Terms
Strategists Firms success/failure
Various Job Titles:
Chief Executive Officer (CEO)
Chief Strategy Officer (CSO)
President
Owner
Board Chair
Executive Director

Key Terms

Vision Statement
What do we want to become?
Mission Statement
What is our business?

Key Terms

Opportunities and Threats (External)

Largely beyond the control of a single

organization

Key Terms
Opportunities & Threats (External)
Analysis of Trends:

Economic

Social

Cultural

Demographic/Environmental

Political, Legal, Governmental

Technological

Competitors

Key Terms
Opportunities & Threats
Environmental Scanning (Industry Analysis)

Process of conducting research and

gathering and assimilating external
information

Example: Post Office

Key Terms
Opportunities & Threats
Basic Tenet of Strategic
Management
Take
Takeadvantage
advantageof
of
External
ExternalOpportunities
Opportunities
Strategy Formulation

Avoid/minimize
Avoid/minimizeimpact
impactof
of
External
ExternalThreats
Threats

Key Terms
Strengths & Weaknesses (Internal)

Controllable activities performed

especially well or poorly

Key Terms
Strengths & Weaknesses (Internal)
Typically located in functional areas of the firm

Management

Marketing

Finance/Accounting

Production/Operations

Research & Development

Computer Information Systems

Key Terms
Strengths & Weaknesses
Assessing the Internal
Environment
Financial Ratios

Performance Metrics

Internal Factors
Industry Averages

Survey Data

Key Terms

Long-term Objectives

Mission-driven pursuit of specified

results more than one year out

Key Terms
Long-term Objectives
Essential for ensuring the firms success

Provide direction

Aid in evaluation

Create synergy

Focus coordination

Basis for planning, motivating, and

controlling

Key Terms

Strategies

Means by which long-term objectives are achieved

Strategies
Key Terms
Some Examples

Geographic expansion

Diversification

Acquisition

Market penetration

Retrenchment

Liquidation

Joint venture

Key Terms

Annual Objectives

Short-term milestones that firms must

achieve to attain long-term objectives

Key Terms

Policies

Means by which annual objectives will

be achieved

Strategic Management
Models

Comprehensive strategic management model

External
Audit

Vision
&
Mission

Long-Term
Objectives

Internal
Audit

Generate,
Evaluate,
Select
Strategies

Implement
Strategies:
Mgmt Issues

Implement
Strategies:
Marketing,
Fin/Acct,
R&D

Measure &
Evaluate
Performance

Strategic Management Model

Strategic Management Process

Dynamic & Continuous

More formal in larger organizations

Strategic Management Model

1. Identify Existing -

Vision

Mission

Objectives

Strategies

Strategic Management Model

2.
3.
4.
5.
6.
7.

Audit external environment

Audit internal environment
Establish long-term objectives
Generate, evaluate & select
strategies
Implement selected strategies
Measure & evaluate performance

The reason for the

existence of the
organization &
establishes the values,
beliefs & guidelines for
the conduct of business

STRATEGIC ACTION PLANNING

MISSION

The long range objectives

that will drive the
development process and
stretch the organization to
achieve them.

VISION

SWOT Analysis

Internal Environment
Strengths
Weaknesses
- Value systems
- Culture
- Staffing
- Support systems, operating environment

External Environment
Opportunities
Threats
- The changing environment
- The demand for new products
- The economic environment
- Availability of resources

STRATEGIC AREAS FOR DEVELOPMENT

STRATEGIC OBJECTIVES

Strategic
Action 1

Strategic
Action 2

Strategic
Action 3

EVALUATION/FEEDBACK

Strategic
Action 4

7-Best Practices - Richard Lester

(1989)

Simultaneous continuous improvement in cost,

quality, service, and product innovation
Breaking down organizational barriers between
departments
Eliminating layers of management creating
flatter organizational hierarchies
Closer relationships with customers and
suppliers
Intelligent use of new technology
Global focus
Improving human resource skills

Benefits of Strategic
Management

The nicest thing about not

planning is that failure comes
as a complete surprise, and is
not preceded by a period of
worry and depression.
-- John Perton

Benefits of Strategic
Management
Proactive in shaping firms future

Initiate and influence firms activities

Formulate better strategies
Systematic, logical, rational

Benefits of Strategic
Management
Financial Benefits
Improvement in sales
Improvement in profitability
Productivity improvement

Benefits of Strategic
Management
Non-Financial Benefits
Improved understanding of competitors strategies
Enhanced awareness of threats
Reduced resistance to change
Enhanced problem-prevention capabilities

Benefits of Strategic
Management (Greenley)
1. Identification of Opportunities
2. Objective view of management problems
3. Improved coordination & control
4. Minimizes adverse conditions & changes
5. Decisions that better support objectives

Benefits of Strategic
Management (Greenley contd)
6. Effective allocation of time & resources
7. Internal communication among personnel
8. Integration of individual behaviors
9. Clarify individual responsibilities
10. Encourage forward thinking

Benefits of Strategic
Management (Greenley contd)

11. Encourages

favorable attitude toward

change
12. Provides

discipline and formality to the

management of the business

Why do companies say no to

strategic management?

Why Some Firms Do No

Strategic Planning
Poor reward structures
Fire-fighting
Waste of time
Too expensive
Laziness
Content with success

Why Some Firms Do No

Strategic Planning
Fear of failure
Overconfidence
Prior bad experience
Self-interest
Fear of the unknown
Suspicion

SOME ADDITIONAL
PERSPECTIVES ON
HISTORY OF
STRATEGIC

Old times

While the roots of the field can perhaps

be traced back as early as 320 BC to the
work of Sun Tsu, the evolution of the
field in the last few decades has been
dramatic (Hitt, Boyd, & Li, 2004).

Recent work traced the intellectual

structure of the field over the period
19802000 (Ramos- Rodriguez & RuizNavarro, 2004).

1960s

Corporate strategy-product diversification

(Chandler, 1962)
Behavioral theory of the firm (Cyert & March,
1963).
Peter Drucker(1969) coined the phraseAge of
Discontinuity

to describe the way change forces disruptions into the

continuity of our lives.
we are now in an age of discontinuity and extrapolating
from the past is hopelessly ineffective. We cannot
assume that trends that exist today will continue into
the future.
He identifies four sources of discontinuity:
newtechnologies,globalization,cultural pluralism,
andknowledge capital.

1970

Rumelt (1974) advanced the work on Chandler,

1962) relating to Corporate strategy-product
diversification
Transaction cost economics (Williamson, 1975)
Resource dependence (Pfeffer & Salancik, 1978)
In 1970,Alvin TofflerinFuture Shockdescribed a
trend towards accelerating rates of change.

He illustrated how social and technological norms had

shorter lifespans with each generation, and he
questioned society's ability to cope with the resulting
turmoil and anxiety. In past generations periods of
change were always punctuated with times of
stability.

In 1978,Dereck Abell(Abell, D. 1978)

describedstrategic windowsand
stressed the importance of the timing
(both entrance and exit) of any given
strategy. This has led some strategic
planners to buildplanned
obsolescenceinto their strategies.

This allowed society to assimilate the change and

deal with it before the next change arrived. But
these periods of stability are getting shorter and by
the late 20th century had all but disappeared. In
1980 inThe Third Wave, Toffler characterized this
shift to relentless change as the defining feature of
the third phase of civilization (the first two phases
being the agricultural and industrial waves).
He claimed that the dawn of this new phase will
cause great anxiety for those that grew up in the
previous phases, and will cause much conflict and
opportunity in the business world.
Hundreds of authors, particularly since the early
1990s, have attempted to explain what this means
for business strategy.

1980s

Much of the work in the decade of the 1980s used the

structure-conduct-performance approach ushered in
by Porter (1980, 1985)
Industrial organization economics (Porter, 1980, 1985),
Evolutionary economics (Nelson & Winter, 1982)
In 1989,Charles Handyidentified two types of change.
Strategic driftis a gradual change that occurs so
subtly that it is not noticed until it is too late. By
contrast,transformational changeis sudden and
radical.

It is typically caused by discontinuities

(orexogenousshocks) in the business environment. The
point where a new trend is initiated is called astrategic
inflection pointbyAndy Grove. Inflection points can be
subtle or radical.

1990s

Research in the 1990s has been dominated by the

RBV (Barney, 1991).
During the 1990s rich streams of research emerged
in such areas as competitive strategy (DAveni,
1994)
strategic leadership (Finkelstein & Hambrick, 1996)
network strategies (Dyer & Singh, 1998)
international strategy (Hitt, Hoskisson, & Kim,
1997),
strategic alliances (Kogut & Zander, 1992), and
mergers and acquisitions (Barkema & Vermeulen,
1998).

2000s

Emerging areas of strategic management research

include

dynamic capabilities (Helfat & Peteraf, 2003)

strategic entrepreneurship (Amit & Zott, 2001; Hitt,
Ireland, Camp, & Sexton, 2001; Hitt, Ireland, Camp, &
Sexton, 2002), strategy process (Chakravarthy, MuellerStewens, Lorange, & Lechner, 2003; Floyd, Roos, Jacobs, &
Kellermanns, 2004)

In 2000,Gary Hameldiscussedstrategic decay, the

notion that the value of all strategies, no matter how
brilliant, decays over time.
In 2000,Malcolm Gladwelldiscussed the importance
of thetipping point, that point where a trend or fad
acquires critical mass and takes off.[

While agency theory and transaction cost

economics have played prominent roles in building
our understanding of executive and firm behavior,
industrial organization economics and the resourcebased view of the firm (RBV) have dominated much
of the research and thinking in the field over the
past 25 years (Ramos-Rodriguez & Ruiz- Navarro,
2004; Wright, Filatotchev, Hoskisson, & Teng, 2005).
In 2000s streams of research emerged in such
areas as corporate governance (Daily, Dalton, &
Rajagopalan, 2003; Hoskisson, Hitt, Johnson, &
Grossman, 2002), international strategy (Lu &
Beamish, 2004; Penner- Hahn & Shaver, 2005;
Tallman, 2001),

Course Outline

Part 1: Fundamentals
Lecture

LECTURE

Introduction to Strategic Management/The Concept and Nature

of Strategy

Conceptual issues: Organizational Goals Vision, Mission, and

Objectives

The External Environmental Analysis

Industry Analysis: Porters Five Forces Model

The Internal Environmental Analysis: The Value Chain Analysis

Competitive Dynamics and Business Level Strategy

Part 2: Strategic Management

Cycle
7
8
9

Strategy Formulation
Strategy Implementation
Strategy Evaluation and Control

Part 3: Application
12

Corporate Governance, Leadership and CSR

10

Industry Evolution and Strategic Change

11

Strategic Issues in Managing Technology and Issues

13

Strategic Issues in Non-Profit Organizations

14

Current Trends in Strategic Management

15

Project Presentations

Thanks