Topic 1: The Strategic Management Process

1. Topic 1
The Strategic
Management
Process

2. Topic 1 : The Strategic Management Process
An Introduction to Strategic Management
• Strategy is about achieving competitive advantage by delivering a value added
products or services to the customer, having a clear view of how to position yourself
uniquely in your industry.
• It is a systems approach in identifying and making the necessary changes and
measuring the organization performance in order to achieve its vision.
• Strategic management includes setting objectives for the company, analyzing the
actions of competitors, environmental scanning (both external and internal), strategy
formulation (strategic or long-range planning), strategy implementation, and
evaluation and control.
• Strategic management is the combination of strategic planning and strategic
thinking.
 Strategic planning is the identification of achievable goals.
 Strategic thinking is the ability to identify the needs of the organization to
achieve the goals through strategic planning.
• Strategic management emphasizes the monitoring and evaluating of external
opportunities, threats strengths and weaknesses.

3. An Introduction to Strategic Management
• Change in strategy happens due to triggering events, for example ;-
 Appointment of a new CEO
 External intervention for example a rejection or new demand
 Threat of a change in ownership for example another organization takeover
 A performance gap when performance does not meet expectations example
sales and profits down.
 When major change takes place due to the introduction of new technologies,
a different regulatory environment, a change in customers expectation.

4. An Introduction to Strategic Management
Benefits of strategic management :
 Clearer sense of strategic vision for the firm.
 Sharper focus on what is strategically important.
 Improved understanding of a rapidly changing environment.
To be successful in the long-run, companies must not only be able to execute current
activities to satisfy an existing market, but they must also adapt those activities to
satisfy new and changing markets.
Strategic Management begins with few simple questions below .
• 1. Where is the organization now?
• 2. If no changes are made, where will the organization be in one year? two years?
five years? 10 years? Are the answers acceptable?
• 3. If the answers are not acceptable, what specific actions should management
undertake? What are the risks and payoffs involved?

5. An Introduction to Strategic Management
Types of Strategy
• The typical business firm usually considers three types of strategy: corporate,
business, and functional.
TYPE OF STRATEGY
Describes a company’s overall
direction in terms of its general
attitude toward growth and the
management of its various
businesses and product lines.
Corporate strategies typically fit
within the three main categories
of stability, growth, and
retrenchment.
Occurs at the business unit or
product level, and it
emphasizes improvement of the
competitive position of a
corporation’s products or
services in the specific market
segment served by that
business unit.
Business strategies may fit
within the two overall
categories, competitive and
cooperative strategies
Is the approach taken by a
functional area to achieve
corporate and business unit
objectives and strategies by
maximizing resource
productivity.
It is concerned with developing
and nurturing a distinctive
competence to provide a
company or business unit with a
competitive advantage.
Corporate strategy Business strategy Functional strategy

6. Responsibilities of the Board of Directors
• Inside directors (sometimes called management directors) are typically officers or
executives employed by the corporation.
• Outside directors (sometimes called non-management directors) may be
executives of other firms but are not employees of the board’s corporation
• Five board of director responsibilities, listed in order of importance:
 Setting corporate strategy, overall direction, mission, or vision
 Hiring and firing the CEO and top management
 Controlling, monitoring, or supervising top management
 Reviewing and approving the use of resources
 Caring for shareholder interests

7. Responsibilities of the Board of Directors
• The role of the board of directors in strategic management is to carry out three
basic tasks:
 Monitor: Bringing to management’s attention developments mistakes or
performance gaps.
 Evaluate and influence: Examine management’s proposals or decisions,
agree or disagree with them, give advice and offer suggestions and outline
alternatives.
 Initiate and determine: Present corporation’s mission and specify strategic
options to its management.

8. Basic Strategic Management Model
• Strategic management consists of four basic elements:
 Environmental scanning
 Strategy formulation
 Strategy implementation
 Evaluation and control
• An organization must scan the external environment to identify possible
opportunities and threats and its internal environment for strengths and
weaknesses before starting to formulate.

9. Basic Strategic Management Model
• Environmental scanning is the monitoring, evaluation, and dissemination of
information from the external and internal environments to key people within the
corporation.
• The simplest way to conduct environmental scanning is through SWOT analysis.
SWOT is an acronym used to describe the particular Strengths, Weaknesses,
Opportunities, and Threats that are strategic factors for a specific company.
• Strategy formulation is the development of long-range plans for the effective
management of environmental opportunities and threats, in light of corporate
strengths and weaknesses (SWOT).
• It includes defining the corporate mission, specifying achievable objectives,
developing strategies, and setting policy guidelines.

10. Basic Strategic Management Model
• Strategy implementation is a process by which strategies and policies are put
into action through the development of programs, budgets, and procedures.
• Evaluation and control is a process in which corporate activities and
performance results are monitored so that actual performance can be compared
with desired performance. Managers at all levels use the resulting information to
take corrective action and resolve problems.

11. Strategic Planning
• Top management must initiate and manage the strategic planning process by
first asking business units and functional areas to propose strategic plans for
themselves.
• Bottom-up strategic planning may be most appropriate in multidivisional
corporations operating in stable organization, but that top-down strategic
planning may be most appropriate for firms operating in turbulent
environments.
• Other organizations engage in concurrent strategic planning in which all the
organization’s units draft plans for themselves after they have been provided
with the organization’s overall mission and objectives.
• Board of directors expects top management to manage the overall strategic
planning process so that the plans of all the units and functional areas fit
together into an overall corporate plan.
• Therefore, top management must evaluate unit plans and provide the
feedback.

12. Strategic Thinking
• Strategic Thinking is the ability to judge whether a specific situation or
information is right or wrong, based on its ability to help achieve a positive
business outcome, or solve a business issues.
• Strategic thinking is not only a new way of thinking about key elements of the
current business but also involves on environmental scanning, understanding
the key factors and trends around the business that could have an impact on
future results.
• Strategic thinking is a mindset that allows :
Anticipate future events and issues
Create alternative scenarios
Understand your options
Decide on your objectives
Determine the direction to achieve those objectives on a
winning basis

13. Social Responsibility and Ethics in Strategy Management
• The concept of social responsibility proposes that a private corporation has
responsibilities to society that extend beyond making a profit.
• Managers must be able to deal with these conflicting interests in an ethical
manner to formulate a viable strategic plan.
• Business organizations have four responsibilities: economic, legal, ethical, and
discretionary.
 Economic responsibilities of a business organization’s management are to
produce goods and services of value to society
 Legal responsibilities are defined by governments in laws that
management is expected to obey.
 Ethical responsibilities of an organization’s management are to follow the
generally held beliefs about behavior in a society.
 Discretionary responsibilities are the purely voluntary obligations a
corporation assumes. Examples are philanthropic contributions, training
the hard-core unemployed, and providing day-care centers.

14. Social Responsibility and Ethics in Strategy Management
• Unethical Behaviour happens for some reasons ;-
 There is no worldwide standard of conduct for business
 Cultural norms and values vary between countries and even between
different geographic regions and ethnic groups within a country
 Differences in values between business people and key stakeholders
• Ethics are defined as the consensually accepted standards of behavior for an
occupation, a trade, or a profession.
• A Codes of Ethics specifies how an organization expects its employees to
behave while on the job.
• The management should not only develop a comprehensive code of ethics but
also communicate the code in order to improve its employees’ ethical behavior

15. Porter’s Five forces Model
• Porter's Five Forces is a powerful tool for understanding the competitiveness of
business environment, and for identifying strategy's potential profitability.
• This model was created by Michael Porter in 1979 to explain how five key
competitive forces affecting an industry .
Rivalry
among existing
competitors
Bargaining
power of
supplier
Threat of
substitutes
Bargaining
power of buyers
Threats of
new entrants
Porter’s Five
forces

16. Porter’s Five forces Model
• New entrants to an industry typically bring to it new capacity, a desire to gain
market share, and substantial resources
• An entry barrier makes it difficult for a company to enter an industry example
product differentiation, switching cost, access to distribution channels, government
policy and etc.
• A competitive move by one firm can be expected to have a noticeable effect on its
competitors and thus may cause retaliation.

17. Porter’s Five forces Model
• Buyers affect an industry through their ability to force down prices, bargain for
higher quality or more services, and play competitors against each other.
 A buyer purchases a large proportion of the seller’s product or service
 Changing suppliers’ costs very little
 The purchased product is unimportant to the final quality or price of a
buyer’s products or services and thus can be easily substituted without
affecting the final product adversely
• Suppliers can affect an industry through their ability to raise prices or reduce the
quality of purchased goods and services.
 The supplier industry is dominated by a few companies, but it sells to many
 Its product or service is unique and/or it has built up switching costs
 Substitutes are not readily available
• A substitute product is a product that appears to be different but can satisfy the
same need as another product.

18. Quiz 1
1. What are the four basic elements in Strategic Management?
2. What are the Porter’s 5 forces that affect an industry in creating the organization
strategy?
3. List down the 3 types of strategies.