The document discusses the strategic management process. It describes the process as having five components: 1) selecting a mission and goals, 2) analyzing external opportunities and threats, 3) analyzing internal strengths and weaknesses, 4) choosing strategies to leverage strengths and opportunities, and 5) implementing strategies. It also discusses defining intended vs emergent strategies, and how companies can succeed through strategic intent rather than just fitting current capabilities to the environment.

1. THE STRATEGIC MANAGEMENT PROCESS
A central objective of strategic
management is to find out why some
organizations succeed while others fail.
There are three broad factors that
determine a company's success: the
industry where it is based, the country
(or countries) where it is located, and its
own resources, capabilities, and
strategies.

3. The national context of a country also
influences the competitiveness of
companies based within that nation.
National context is important because in
many industries the marketplace has
become a global one, where companies
from many countries are competing
head-to-head around the world.

4. In such global markets, some companies
find it easier to succeed because they are
located in countries that have a
competitive advantage in certain
industries.
For example,
1. many of the world's most successful
automobile and consumer electronics
companies are based in Japan,

5. 2. many of the most successful
pharmaceutical companies are based in
the United States and Switzerland, and
3. many of the most successful financial
services companies are based in the
United States and Britain.
The third factor—a company's resources,
capabilities, and strategies—is by far the
strongest determinant of success or
failure.

6. Thus some companies manage to thrive
even in very hostile industries, where the
average level of profitability is low.
WHAT IS STRATEGY?
Reflecting the military roots of strategy,
The American Heritage Dictionary defines
strategy as "the science and art of military
command as applied to the overall
planning and conduct of large-scale
combat operations."

7. Harvard's Alfred Chandler defined strategy
as "the determination of the basic long-
term goals and objectives of an
enterprise, and the adoption of courses of
action and the allocation of resources
necessary for carrying out these goals.“
James B. Quinn of Dartmouth College has
defined strategy as "the pattern or plan
that integrates an organization's major
goals, policies, and action sequences into
a cohesive whole."

8. William F. Glueck defined strategy as "a
unified, comprehensive, and integrated
plan designed to ensure that the basic
objectives of the enterprise are achieved”.
According to Thompson and Strickland,
“Strategy consists of moves and
approaches devised by the management
to produce successful organization
performance.”

9. Strategic Management can be defined as
“a comprehensive and ongoing
management process aimed at
formulating and implementing effective
strategies that promote a superior
alignment between the organization and
its environment and the achievement of
strategic goals.”

10. Planning-based definitions of strategy have
evoked criticism.
As Henry Mintzberg of McGill University
has pointed out, the planning approach
incorrectly assumes that an
organization's strategy is always the
outcome of rational planning.

11. According to him, definitions of strategy
that stress the role of planning ignore the
fact that strategies can emerge from
within an organization without any
formal plan.
That is to say, even in the absence of
intent, strategies can emerge from the
grassroots of an organization.
Indeed, strategies are often the emergent
response to unforeseen circumstances.

12. Mintzberg's argument is that emergent
strategies are often successful and may
be more appropriate than intended
strategies.
The above statement will be clear from
the following example:

13. A number of Honda executives arrived in
Los Angeles from Japan in 1959 to
establish an American subsidiary, their
original aim (intended strategy) was to
focus on selling 250 cc and 350 cc
machines to confirmed motorcycle
enthusiasts rather than 50 cc Honda
Cubs, which were a big hit in Japan.

14. Their instinct told them that the Honda 50s
were not suitable for the U.S. market,
where everything was bigger and more
luxurious than in Japan.
However, sales of the 250 cc and 350 cc
bikes were sluggish, and the bikes
themselves were plagued by mechanical
failure. It looked as if Honda's strategy
was going to fail.

15. At the same time the Japanese executives
were using the Honda 50s to run errands
around Los Angeles, attracting a lot of
attention. One day they got a call from a
Sears, Roebuck buyer who wanted to sell
the 50 cc bikes to a broad market of
Americans who were not necessarily
already motorcycle enthusiasts.

16. The Honda executives were hesitant to sell
the small bikes for fear of alienating
serious bikers who might then associate
Honda with “wimp” machines. In the end
they were pushed into doing so by the
failure of the 250 cc and 350 cc models.
The rest is history. Honda had stumbled
onto a previously untouched market
segment that was to prove huge: the
average American who had never owned
a motorbike.

17. Honda had also found an untried channel
of distribution: general retailers rather
than specialty motorbike stores.
By 1964 nearly one out of every two
motorcycles sold in the United States was
a Honda.

18. The fact was that Honda's intended strategy
was a near disaster. The strategy that
emerged did so not through planning but
through unplanned action taken in response
to unforeseen circumstances.
The fact was that Honda's intended strategy
was a near disaster.
The strategy that emerged did so not through
planning but through unplanned action taken
in response to unforeseen circumstances.

19. In practice, the strategies of most
organizations are probably a
combination of the intended and the
emergent.

20. A MODEL OF THE STRATEGIC
MANAGEMENT PROCESS
The strategic management process can be
broken down into five different
components:
(1) selection of the corporate mission and
major corporate goals;
(2) analysis of the organization's external
competitive environment to identify
opportunities and threats;

21. (3) analysis of the organization's internal
operating environment to identify the
organization's strengths and weaknesses;
(4) the selection of strategies that build on
the organization's strengths and correct
its weaknesses in order to take
advantage of external opportunities and
counter external threats; and
(5) strategy implementation.

25. The task of analyzing the organization's
external and internal environment and
then selecting an appropriate strategy is
normally referred to as strategy
formulation.
In contrast, strategy implementation
typically involves designing appropriate
organizational structures and control
systems to put the organization's chosen
strategy into action.

26. Mission and Major Goals
The first component of the strategic
management process is defining the
mission and major goals of the
organization.
The mission and major goals of an
organization provide the context within
which intended strategies are formulated
and the criteria against which emergent
strategies are evaluated.

27. The mission sets out why the organization
exists and what it should be doing.
For example, the mission of a national
airline might be defined as satisfying the
needs of individual and business
travelers for high-speed transportation at
a reasonable price to all the major
population centers of North America.

28. Major goals specify what the organization
hopes to fulfill in the medium to long
term.
Most profit-seeking organizations operate
with a hierarchy of goals, in which
maximizing stockholder wealth is placed
at or near the top.
Secondary goals are objectives judged
necessary by the company if it is to
maximize stockholder wealth.

29. For example, General Electric operates
with a secondary goal of being first or
second in every major market in which it
competes.
This secondary goal reflects the belief at
General Electric that building market
share is the best way to achieve the
primary goal of maximizing stockholder
wealth.

30. External Analysis
The objective of external analysis is to
identify strategic opportunities and
threats in the organization's operating
environment.
Three interrelated environments should be
examined at this stage: the immediate,
or industry, environment in which the
organization operates, the national
environment, and the wider macro-
environment.

31. Analyzing the industry environment
involves the assessment of :
-the competitive structure of the
organization's industry,
- the competitive position of the focal
organization and its major rivals,
- the stage of industry development,

32. Analyzing the industry environment also
means assessing the impact of
globalization upon competition within an
industry.
Analyzing the national environment
requires an assessment of whether the
national context within which a company
operates facilitates the attainment of a
competitive advantage in the global
marketplace.

33. Analyzing the macro-environment consists
of examining macroeconomic, social,
government, legal, international, and
technological factors that may affect the
organization.

34. Internal Analysis
Internal analysis, the third component of
the strategic management process,
serves to pinpoint the strengths and
weaknesses of the organization. Such
analysis involves identifying the quantity
and quality of resources available to the
organization.

35. Building and maintaining a competitive
advantage requires a company to achieve
superior efficiency, quality, innovation,
and customer responsiveness.
Company strengths lead to superiority in
these areas, whereas company-
weaknesses translate into inferior
performance.

36. Strategic Choice
The next component involves generating a
series of strategic alternatives, given the
company's internal strengths and
weaknesses and its external
opportunities and threats.
The comparison of strengths, weaknesses,
opportunities, and threats is normally
referred to as a SWOT analysis.

37. The purpose of the strategic alternatives is
to build on company strengths in order to
exploit opportunities and counter threats
and to correct company weaknesses.
To choose among the alternatives
generated by a SWOT analysis, the
organization has to evaluate them
against each other with respect to their
ability to achieve major goals.

38. The strategic alternatives generated may
encompass
-functional-level,
-business-level,
-corporate- level, and
-global - level strategies.

39. The process of strategic choice requires the
organization to identify the set of
functional-level, business-level,
corporate-level, and global level
strategies.
Such choice would best enable it to
survive and prosper in the fast-changing
and globally competitive environment.

40. Functional-Level Strategy Competitive
advantage stems from a company's
ability to attain superior efficiency,
quality, innovation, and customer
responsiveness.
Functional-level strategies are directed at
improving the effectiveness of functional
operations within a company, such as
manufacturing, marketing, materials
management, research and
development, and human resources.

41. Business-Level Strategy
The business-level strategy of a company
encompasses the overall competitive
theme that a company chooses to stress,
the way it positions itself in the
marketplace to gain a competitive
advantage, and the different positioning
strategies that can be used in different
industry settings.

42. There are three generic business-level
strategies: a strategy of cost leadership,
a strategy of differentiation, and
a strategy of focusing on a particular
market niche.

43. Global Strategies
Achieving a competitive advantage and
maximizing company performance
increasingly require a company to
expand its operations outside its home
country.
A company can pursue various global
strategies such as —multi-domestic,
international, a global, and
transnational.

44. Corporate-Level Strategy
An organization's corporate-level strategy
must answer this question: What
businesses should we be in to maximize
the long-run profitability of the
organization?
For many organizations, competing
successfully often involves vertical
integration

45. Vertical integration means either
backward into the production of inputs
for the company's main operation or
forward into the disposal of outputs from
the operation.
Such strategy also includes strategic
alliances as alternatives to diversification
and vertical integration.

46. We can break down the topic of strategy
implementation into four main
components;
(1) designing appropriate organizational
structures,
(2) designing control systems,
(3) matching strategy, structure, and
controls, and
(4) managing conflict, politics, and
change.

47. Designing Organizational Structure
To make a strategy work, regardless of
whether it is intended or emergent, the
organization needs to adopt the correct
structure. Designing a structure entails
allocating task responsibility and
decision-making authority within an
organization.

48. Designing Control Systems
An organization must decide how best to
assess the performance and control the
actions of subunits.
The options range from market and output
controls to bureaucratic and control
through organizational culture.
An organization also needs to decide what
kind of reward and incentive systems to
set up for employees.

49. Matching Strategy, Structure, and Controls
If it wants to succeed, a company must
achieve a fit among its strategy,
structure, and controls.
Since different strategies and environments
place different demands on an
organization, they call for different
structural responses and control systems.

50. For example, a strategy of cost leadership
demands that an organization be kept
simple (so as to reduce costs) and that
controls stress productive efficiency.
On the other hand, a strategy of
differentiating a company's product
generates a need for integrating the
company's activities around its
technological core and for establishing
control systems that reward technical
creativity.

51. Managing Conflict, Politics, and Change
Although theoretically the strategic
management process is characterized by
rational decision making, in practice
organizational politics plays a key role.
Politics is endemic to organizations.
Different subgroups (departments or
divisions) within in organization have
their own agendas, and typically, these
conflict.

52. Thus departments may compete with each
other for a bigger share of an
organization's finite resources.
Similarly, individual managers often engage
in contests with each other over what
the correct policy decisions are.
Power struggles and coalition building are
major consequences of such conflicts
and clearly early play a part in strategic
management.

53. Strategic change tends to bring such power
struggles to the fore, since by definition
change entails altering the established
distribution of power within an
organization.

54. Loop
The feedback loop indicates that strategic
management is an ongoing process.
Once a strategy is implemented, its
execution must be monitored to
determine the extent to which strategic
objectives are actually being achieved.
This information passes back to the
corporate level through feedback loops.

55. At the corporate level, it is fed into the next
round of strategy formulation and
implementation. It serves either to
reaffirm existing corporate goals and
strategies or to suggest changes.

56. The model of the strategic management process we
have already learnt is called the fit model of
strategy formulation and implementation.
Because its central purpose is to match a company’s
resources and capabilities to the demand of the
external environment.
But this fit model approach to strategy formulation
and implementation could not produce better
result because of following reasons.
Planning Equilibrium : The Planning technique
can be a source of competitive advantage if some
companies can have the technique while others
do not.

57. Planning under uncertainty : The Executive
while planning for the future forgot that the
future is inherently unpredictable and
constant is the change. Even best laid plans
can fall apart if unforeseen circumstances
occur. Recognizing this Royal Dutch/Shell
pioneered scenario approach to planning.
Under this approach they attempted to model
the companies environment and then used
that model to predict a range of scenarios and
asked the managers to devise strategies.

58. Ivory Tower planning : The serious mistake
made by many managers has been to treat
planning function as an exclusively top
management function. This ivory tower
approach can results in the strategic plans
formulated in a vacuum by planning
executives who have little understanding of
the operational realities.
Strategic intent Vs Strategic fit: This model
has been criticized as too limiting and too
static by many scholars.

59.  There argument was that adopting a fit model
to strategy formulation can lead to a mindset in
which management focuses too much on the
degree of fit between existing resources of a
company and current environmental
opportunities.
 Such fit model approach does not focus on
building new resources and capabilities to
create and exploit future opportunities.
 Strategies formulated via fit model tend to be
concerned more with today’s problems rather
than tomorrow’s opportunities.

60. US companies using fit model became surprised
by the ascent of foreign competitors who
initially seemed to lack the resources and
capabilities needed to appear as the real
threat.
 This happened to Xerox, which ignored the
rise of Canon and Ricoh in the photocopier
market until they had become serious global
competitors.
This also happened to General Motors, which
ignored the threats posed by Toyota and
Honda.

61. This even also happened to Caterpillar, which
ignored the threat posed by Komatsu to its
heavy earth moving business until it was too
late to respond.
Reasons for their success:
The secret of the success of theses companies
according the scholars is that they had they all
had bold ambitions, which outstripped their
existing resources and capabilities. All wanted
to achieve global leadership, and they set out
to build the resources and capabilities that
would enable them to attain this goal.

62. The top management of these companies
created an obsession with winning at all levels
of the organization and then sustained that
obsession over a ten to twenty years quest for
global leadership.
It is this obsession that Prahalad and Hamel
refer to as strategic intent.

63. They argue that strategic intent also encompasses
an active management process, which includes:
• Focusing the organization's attention on the
essence of winning;
• Motivating people by communicating the value
of the target;
• Leaving room for individual and team
contributions;
• Sustaining enthusiasm by providing new
operational definitions as circumstances change;
and
• Using intent consistently to guide resource
allocations.

64. Strategic intent is the notion that strategy
formulation should involve setting ambitious
goals, which stretch a company, and then
finding ways to build the resources and
capabilities necessary to attain those goals.
Cognitive Biases and Groupthink:
There is in fact a good deal of evidence that
many managers are poor strategic decision
makers. The reasons have to do with two
related psychological phenomena: cognitive
biases and groupthink.

65. Cognitive biases give rise to systematic errors in the
way that human decision makers process
information and reach decisions. Because of
cognitive biases, many managers end up making
poor strategic decisions.
Types of Cognitive Biases:
The prior hypothesis bias The prior hypothesis bias
refers to the fact that decision makers who have
strong prior beliefs about the relationship
between two variables tend to make decisions on
the basis of these beliefs, even when presented
with evidence that their beliefs are wrong.

66. • Escalating commitment Escalating
commitment occurs when decision makers,
having already committed significant
resources to a project, commit even more
resources if they receive feedback that the
project is failing.
• Reasoning by analogy The bias of reasoning
by analogy involves the use of simple
analogies to make sense out of complex
problems.

67. Representativeness Representativeness is a bias
rooted in the tendency to generalize from a small
sample, or even a single vivid anecdote.
Generalizing from small samples, however,
violates the statistical law of large numbers,
which says that it is inappropriate to generalize
from a small sample.
Illusion of control It is the tendency to
overestimate one's ability to control events. Top-
level executives seem to be particularly prone to
this bias. Having risen to the top of an
organization, they tend to be overconfident about
their ability to succeed.

68. Groupthink
• The psychologist Irvin Janis has argued that many
groups are characterized by a process known as
groupthink and that as a result groups do make
poor strategic decisions. Groupthink occurs when
a group of decision makers embarks on a course
of action without questioning underlying
assumptions.
• Thus the group context within which decisions
are made is clearly an important variable in
determining whether cognitive biases will
operate to adversely affect the strategic derision-
making processes.

69. The existence of cognitive biases and groupthink
raises the issue of how to bring critical
information to bear on the decision
mechanism so that strategic decisions made
by the company are realistic and based on
thorough evaluation.
Two techniques known to counteract groupthink
and cognitive biases are devil's advocacy and
dialectic inquiry.

71. Devil's advocacy involves the generation of
both a plan and a critical analysis of the plan.
One member of the decision-making group
acts as the devil's advocate, bringing out all
the reasons that might make the proposal
unacceptable. In this way, decision makers can
become aware of the possible perils of
recommended courses of action.

72. Dialectic inquiry involves the generation of a plan (a
thesis) and a counter-plan (an antithesis). The plan
and the counter-plan should reflect plausible but
conflicting courses of action. Corporate decision
makers consider a debate between advocates of the
plan and counter-plan.
The purpose of the debate is to reveal problems
with definitions, recommended courses of action,
and assumptions.
As a result, corporate decision makers and planners
are able to form a new and more encompassing
conceptualization of the problem, which becomes
the final plan (a synthesis).