Strategic management involves analyzing external and internal factors, formulating strategies, implementing strategies, and evaluating performance. It occurs at three levels - corporate, business unit, and functional. The strategic management process consists of five steps: establishing strategic intent, analyzing the situation, formulating strategies, implementing strategies, and evaluating performance. Key terms include vision and mission statements, identifying external opportunities and threats as well as internal strengths and weaknesses, and strategists who are responsible for the organization's success.

1. 1
CHAPTER ONE
BASIC CONCEPTS OF STRATEGY MANAGEMENT
1.1. What is strategic management?
Strategic management is a set of managerial decisions and actions that determines the long run
performance of a corporation. It includes environmental scanning (both external and internal),
strategy formulation (strategic or long-range planning), strategy implementation, and evaluation
and control. The study of strategic management, therefore, emphasizes the monitoring and
evaluating of external opportunities and threats in light of a corporation’s strengths and
weaknesses.
1.2. Stages of Strategic Management
The strategic-management process consists of three stages:
• Strategy formulation includes developing a vision and mission, identifying an organization’s
external opportunities and threats, determining internal strengths and weaknesses, establishing
long term objectives, generating alternative strategies, and choosing particular strategies to
pursue.
• Strategy implementation requires a firm to establish annual objectives, devise policies,
motivate employees, and allocate resources so that formulated strategies can be executed;
strategy implementation includes developing a strategy-supportive culture, creating an
effective organizational structure, redirecting marketing efforts, preparing budgets,
developing and utilizing information systems, and linking employee compensation to
organizational performance, and
• Strategy evaluation is the final stage in strategic management. Managers desperately need to
know when particular strategies are not working well; strategy evaluation is the primary means
for obtaining this information. Three fundamental strategy evaluation activities are provided
below:

2. 2
• Reviewing external and internal factors that are the bases for current strategies,
• Measuring performance,
• Taking corrective action.
1.3. Levels at Which Strategy Operates/Types of strategies/:
Businesses, especially conglomerates, are arranged in a hierarchical way. The business as a whole
may be made up of a collection of smaller businesses. These may be grouped into divisions. These
divisions may also be known as profit centers or strategic business units (SBUs). Each one of the
SBUs has its own functional departments.
This ordering of business activity suggests a hierarchical ordering of strategy as illustrated in figure
below:
Figure 1.1: Levels at which strategy operates
Corporate Strategy: is regarded as encompassing the aims and objectives of the organization
together with the means of how these are to be achieved. It is, by definition, holistic, i.e., it
embraces all of the company’s different businesses and functions. Andrews defined corporate
strategy as: ‘the pattern of major objectives, purposes or goals and essential policies or plans for
MNC
SBU 1 SBU 3 SBU 4 SBU 5SBU 2
Finance Marketing
& Sales
R & D HRM
Corporate
Business Unit
Functional

3. 3
achieving those goals, stated in such a way as to define what business the company is in or is to be
in and the kind of company it is or is to be’. Chandler believed that it should also be concerned
with ‘the allocation of resources necessary for carrying out these goals’.
In defining its corporate strategy, the firm has to satisfy the sometimes-contradictory expectations
of several differing constituencies including, obviously, customers as well as suppliers,
shareholders, and employees.
It is widely believed that corporate strategy should address the essentials of the organization,
namely, the “what”, “why”, “how”, and “when”, of the organization. It is concerned with “what
businesses is the company in or would like to be in?” Secondly, it embraces “why the company is
in business?” i.e., the specific sales, profit, rate of return, and growth targets it has or should have.
Thirdly, the company needs to define “how” it aims to achieve those targets, such as the
technologies it will use, the markets it is or should be operating in, and the products it markets or
should market in order to achieve those objectives. Finally, the company needs to decide “when”
it aims to achieve those goals and the period over which it defines its strategy.
Business strategy or competitive strategy: is empowered to make key decisions about current
and future strategy within the framework of the overall corporate strategy. It seeks to determine
how an organization should compete in each of its businesses. For a small organization in only one
line of business or the large organization that has not diversified into different products or markets,
the business-level strategy typically overlaps with the organizations corporate strategy.
For organizations in multiple businesses, however, each division (SBUs) will have its own strategy
that defines the products or services it will offer, the customers it wants to reach, and the like. For
example, Pepsi Co. has different business-level strategies for its various business units – Soft
drinks (Pepsi, Slice, Mountain Dew), Snacks (Frito-lay and Rold Gold pretzels), Other Beverages
(Tropicana juices, Aquafina bottled water, All Sport sports drinks, and Lipton tea), and Quaker
Oats. Each division has developed its own unique approach for competing.
The essence of business strategy is achieving sustainable competitive advantage. It has three
aspects: (1) deciding what product/service attributes (lower costs and prices, a better product, a
wider product line, superior customer service, emphasis on a particular market niche) offer the
best chance to win a competitive edge; (2) developing skills, expertise, and competitive capabilities

4. 4
that set the company apart from rivals; and (3) trying to insulate the business as much as possible
from the effects of competition.
On a broader internal front, business strategy must also aim at uniting strategic initiatives in the
various functional areas of business (Finance, HR, Marketing, R&D, Customer service etc.).
Strategic actions are needed in each functional areas to support the company’s competitive
approach and overall business strategy. Strategic unity and coordination across the various
functional areas add power to the business strategy.
Functional Strategy: seeks to determine how to support the business-level strategy. A firm needs
a functional strategy for every competitively relevant business activity and organizational unit –
for R&D, Production, Marketing, Customer service, Distribution, Finance, HR, IT, and so on.
Functional strategies, while narrower in scope than business strategies, add relevant detail to the
overall business game plan by setting forth the actions, approaches, and practices to be employed
in managing a particular functional department or business process or key activity. They aim at
establishing or strengthening specific competencies and competitive capabilities calculated to
enhance the company’s market position and standing with its customers.
1.4. The Strategic Management Process
The strategic management process, as illustrated in figure below, is a five-step process that
encompasses Strategic Planning, Implementation, and Control.
Strategic Intent
Strategy Formulation
Strategic Analysis
Strategic Planning

5. 5
Figure 1.2: Strategic Management Process
STRATEGIC INTENT
• Vision--What a firm aspires to become
• Mission--A firm’s reason for being
• Goals--Qualitative goals for various performance areas
• Objectives--Quantitative operational targets to achieve
STRATEGIC (situational) ANALYSIS
• External analysis--A firm’s economic, political, cultural, technological, and international
environment
• Internal analysis--A firm’s capacities to compete: technology, human resources, capital,
corporate culture
STRATEGY FORMULATION
• Corporate level strategy--selecting businesses to be in
• Business Level strategy--developing competitive advantages (Generic strategies)
• Functional (or operational) strategy--functional value chains
Strategic Control & Evaluation
Strategy Implementation
Structural

6. 6
STRATEGY IMPLEMENTATION
• Activating strategies – Communicating and Institutionalizing strategies
• Structural Implementation - Building and adjusting organizational structures
• Operational/Functional Implementation - Developing operational systems
• Behavioral implementation - Developing human resources and Nurturing corporate culture
• Achieving strategic fits
STRATEGIC EVALUATION
• Develop performance goals
• Assess actual performance
• Compare actual with performance goals
• Reinforce or Take corrective actions
STRATEGIC CONTROLS
• Administrative controls
• Operational controls
• Strategic controls
• Financial controls
• Cultural controls
1.5. Key Terms in Strategic Management
• Strategists: are individuals who are most responsible for the success or failure of an
organization. Strategists hold various job titles, such as chief executive officers, president, and
owner, chair of the board, executive director, chancellor, dean, or entrepreneur.
• Vision and Mission Statements: Vision statements answer the question: “What do we want to
become?” Mission statements are “enduring statements of purpose that distinguishes one
business from other similar firms. A mission statement identifies the scope of a firm’s
operations in product and market terms.” It addresses the basic question that faces all

7. 7
strategists: “What is our business?” It should include the values and priorities of an
organization.
• External Opportunities and Threats: External opportunities and external threats refer to
economic, social, cultural, demographic, environmental, political, legal, governmental,
technological, and competitive trends and events that could significantly benefit or harm an
organization in the future. Opportunities and threats are largely beyond the control of a single
organization, thus the term external.
• Internal Strengths and Weaknesses: Internal strengths and internal weaknesses are an
organization’s controllable activities that are performed especially well or poorly. Identifying
and evaluating organizational strengths and weaknesses in the functional areas of a business is
an essential strategic management activity. Strengths and weaknesses are determined relative
to competitors and may be determined by both performance and elements of being.
• Long-Term Objectives: Objectives can be defined as specific results that an organization seeks
to achieve in pursuing its basic mission. Long term means more than one year.
• 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 venture. Strategies currently being
pursued by Barnes & Noble, SunTrust Banks, and Yahoo! are described in Table 1-1 in the
textbook.
• Annual Objectives: Annual objectives are short-term milestones that organizations must
achieve to reach long-term objectives. Like long-term objectives, annual objectives should be
measurable, quantitative, challenging, realistic, consistent, and prioritized.
• Policies: Policies are the means by which annual objectives will be achieved. Policies include
guidelines, rules, and procedures established to support efforts to achieve stated objectives.
- Policies are most often stated in terms of management, marketing, finance/accounting,
production/operations, research and development, and computer information systems
activities.
1.6. Benefits of Strategic Management
Communication is the key to success. The major aim of the communication process is to achieve
understanding and commitment throughout the organization. It results in the great benefit of
empowerment.

8. 8
• Financial Benefits
- Research indicates that organizations using strategic-management concepts are more profitable
and successful than those that do not.
- High-performing firms tend to do systematic planning to prepare for future fluctuations in the
external and internal environments. Firms with planning systems more closely resembling
strategic management theory generally exhibit superior long-term financial performance
relative to their industry.
• Nonfinancial Benefits
- Besides helping firms avoid financial demise, strategic management offers other tangible
benefits, such as an enhanced awareness of external threats, an improved understanding of
competitors’ strengths, increased employee productivity, reduced resistance to change, and a
clearer understanding of performance reward relationships.
- In addition to empowering managers and employees, strategic management often brings order
and discipline to an otherwise floundering firm.
Why Some Firms Do No Strategic Planning
Some reasons for poor or no strategic planning are as follows:
Poor reward structures
Waste of time
Too expensive
Laziness
Content with success
Fear of failure
Overconfidence
Prior bad experience
Self-interest
Fear of the unknown
Honest difference of opinion
Suspicion

9. 9
1.7.Globalization and Environmental Sustainability: Challenges to Strategic Management
Not too long ago, a business corporation could be successful by focusing only on making and
selling goods and services within its national boundaries. International considerations were
minimal. Profits earned from exporting products to foreign lands were considered frosting on the
cake, but not really essential to corporate success. During the 1960s, for example, most U.S.
companies organized themselves around a number of product divisions that made and sold goods
only in the United States. All manufacturing and sales outside the United States were typically
managed through one international division. An international assignment was usually considered
a message that the person was no longer promotable and should be looking for another job.
Similarly, until the later part of the 20th century, a business firm could be very successful without
being environmentally sensitive. Companies dumped their waste products in nearby streams or
lakes and freely polluted the air with smoke containing noxious gases. Responding to complaints,
governments eventually passed laws restricting the freedom to pollute the environment. Lawsuits
forced companies to stop old practices. Nevertheless, until the dawn of the 21st century, most
executives considered pollution abatement measures to be a cost of business that should be either
minimized or avoided. Rather than clean up a polluting manufacturing site, they often closed the
plant and moved manufacturing offshore to a developing nation with fewer environmental
restrictions. Sustainability, as a term, was used to describe competitive advantage, not the
environment.
Impact of Globalization
Today, everything has changed. Globalization, the integrated internationalization of markets and
corporations, has changed the way modern corporations do business. As Thomas Friedman points
out in The World Is Flat, jobs, knowledge, and capital are now able to move across borders with
far greater speed and far less friction than was possible only a few years ago. For example, the
inter-connected nature of the global financial community meant that the mortgage lending
problems of U.S. banks led to a global financial crisis in 2008. The worldwide availability of the
Internet and supply-chain logistical improvements, such as containerized shipping, mean that
companies can now locate anywhere and work with multiple partners to serve any market. To
reach the economies of scale necessary to achieve the low costs, and thus the low prices, needed

10. 10
to be competitive, companies are now thinking of a global market instead of national markets.
Nike and Reebok, for example, manufacture their athletic shoes in various countries throughout
Asia for sale on every continent. Many other companies in North America and Western Europe
are outsourcing their manufacturing, software development, or customer service to companies in
China, Eastern Europe, or India. Large pools of talented software programmers, English language
proficiency, and lower wages in India enables IBM to employ 75,000 people in its global delivery
centers in Bangalore, Delhi, or Kolkata to serve the needs of clients in Atlanta, Munich, or
Melbourne. Instead of using one international division to manage everything outside the home
country, large corporations are now using matrix structures in which product units are interwoven
with country or regional units. International assignments are now considered key for anyone
interested in reaching top management. As more industries become global, strategic management
is becoming an increasingly important way to keep track of international developments and
position a company for long-term competitive advantage. For example, General Electric moved a
major research and development lab for its medical systems division from Japan to China in order
to learn more about developing new products for developing economies. Microsoft’s largest
research center outside. The formation of regional trade associations and agreements, such as the
European Union, NAFTA, Mercosur, Andean Community, CAFTA, and ASEAN, is changing
how international business is being conducted. See the Global Issue feature to learn how regional
trade associations are forcing corporations to establish a manufacturing presence wherever they
wish to market goods or else face significant tariffs. These associations have led to the increasing
harmonization of standards so that products can more easily be sold and moved across national
boundaries. International considerations have led to the strategic alliance between British Airways
and American Airlines and to the acquisition of the Miller Brewing Company by South African
Breweries (SAB), among others.
Impact of environmental sustainability
Environmental sustainability refers to the use of business practices to reduce a company’s impact
upon the natural, physical environment. Climate change is playing a growing role in business
decisions. More than half of the global executives surveyed by McKinsey & Company in 2007
selected “environmental issues, including climate change,” as the most important issue facing them
over the next five years.