Notes

CHAPTER #1
STRATEGIC MANAGEMENT:-
It is an art and science of formulating implementing evaluating the cross functional decision which helps
organizations to achieve its long term objectives. Which means it focuses on the integrating
management marketing finance accounting operation and information management to achieve
organizational success. The strategic management refers to Strategic Planning. Strategic management
often used in academics and strategic planning used in worldwide business.

Purpose
The purpose of strategic planning is to exploit and create new opportunities for tomorrow.

Importance
The strategic planning is an essence for company. Just like a football team requires a good planning to
gain success. A company must have strategic planning to compete successfully in the market. Profit
Margin of many firms’ n industries has been reduced by global economic recession that there is little
room for error in strategic planning. A strategic planning is formed after tough managerial choices
among many good alternatives, which signals the objectives of companies by making policies procedures
and operations.

Stages of Strategic Planning

It consists of 3 stages

Strategy Formulation Strategy Implementation Strategy Evaluations

Strategy Formulation
It includes developing vision and mission statements identifying opportunities and threats, checking
strengths and weaknesses developing long term objectives making alternative strategies. Strategy-
formulation issues include deciding what new businesses to enter, what businesses to abandon, how to
allocate resources, whether to expand operations or diversify, whether to enter international markets,
whether to merge or form a joint venture, and how to avoid a hostile takeover.
Strategy Implementation
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 if there is deficiency in it, preparing budgets, developing and
utilizing information systems, and linking employee compensation to organizational performance.
Strategy implementation often is called the “action stage” of strategic management. Implementing
strategy means mobilizing employees and managers to put formulated strategies into action. Often
considered to be the most difficult stage in strategic management, strategy implementation requires
personal discipline, commitment, and sacrifice.

Strategy Evaluation
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. All strategies are subject to future modification because external and internal factors
are constantly changing. Three fundamental strategy-evaluation activities are (1) reviewing external and
internal factors that are the bases for current strategies, (2) measuring performance, and (3) taking
corrective actions.

Key Terms of Strategic Management

Competitive Advantage
“Anything that a firm does especially well compared to rival firms. “When a firm can do something that
rival firms cannot do, or owns something that rival firm’s desire, that can represent a competitive
advantage. For example, in a global economic recession, simply having ample cash on the firm’s balance
sheet can provide a major competitive advantage. Some cash-rich firms are buying distressed rivals. For
example, BHP Billiton, the world’s largest miner, is seeking to buy rival firms in Australia and South
America. Freeport-McMoRan Copper & Gold Inc.

Strategists
Strategists are the individuals who are most responsible for the success or failure of an organization.
Strategists have various job titles, such as chief executive officer, president, owner,
chair of the board, executive director, chancellor, dean, or entrepreneur. Usually found in high levels of management
(CEO.

Strategists help an organization gather, analyze, and organize information. They track
Industry and competitive trends, develop forecasting models and scenario analyses, evaluate
Corporate and divisional performance, spot emerging market opportunities, identify business
Threats, and develop creative action plans. Strategic planners usually serve in a support or
staff role.

Strategists differ in their attitudes, values, ethics, and willingness to take risks, concern for
Social responsibility, concern for profitability, concern for short-run versus long-run aims,
and management style. The founder of Hershey Foods, Milton Hershey, built the company
to manage an orphanage. From corporate profits, Hershey Foods today cares for over a
thousand boys and girls in its School for Orphans.

Vision Statement
A vision statement that answers the question “What do
we want to become?” Developing a vision statement is often considered the first step in strategic planning,
oftentimes a single sentence “Our vision is to take care of your vision.”

Mission Statement
A mission statement identifies the scope of a firm’s operations in
product and market terms.” It addresses the basic question that faces all strategists:
“What is our business?” A clear mission statement describes the values and priorities of an
organization. Developing a mission statement compels strategists to think about the nature
and scope of present operations and to assess the potential attractiveness of future markets
and activities.

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.

opportunities and threats may include the passage of a law, the introduction of
a new product by a competitor, a national catastrophe, or the declining value of the dollar.
A competitor’s strength could be a threat, rising energy costs,
or the war against terrorism could represent an opportunity or a threat.

A basic tenet of strategic management is that firms need to formulate strategies to

take advantage of external opportunities and to avoid or reduce the impact of external
threats. For this reason, identifying, monitoring, and evaluating external opportunities and
threats are essential for success. This process of conducting research and gathering and
assimilating external information is sometimes called environmental scanning or industry
analysis. Lobbying is one activity that some organizations utilize to influence external
opportunities and threats.

Internal Strengths and Weaknesses

Internal strengths and internal weaknesses are an organization’s controllable activities that
are performed especially well or poorly. They arise in the management, marketing,
finance/accounting, production/operations, research and development, and management
information systems activities of a business. Identifying and evaluating organizational
strengths and weaknesses in the functional areas of a business is an essential strategic management
activity.

Internal factors can be determined in a number of ways, including computing ratios,

measuring performance, and comparing to past periods and industry averages. Various
types of surveys also can be developed and administered to examine internal factors such
as employee morale, production efficiency, advertising effectiveness, and customer loyalty.
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. Objectives are essential for organizational
success because they state direction; aid in evaluation; create synergy ( collaborate with other organizations); reveal
priorities;
focus coordination; and provide a basis for effective planning, organizing, motivating, and
controlling activities. Objectives should be challenging, measurable, consistent, reasonable,
and clear. In a multidimensional firm, objectives should be established for the overall
company and for each division.

Strategies
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 ( reducing business operation to cut costs), divestiture (partial or full disposal of
business as it is not a part of core competence), liquidation, and joint ventures.

strategies affect an organization’s long-term prosperity, typically for at least five years, and thus are future-oriented.
Strategies have multifunctional or multidivisional consequences and require consideration of both the external and
internal factors facing the firm

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.

Annual objectives should be stated in terms of management, marketing, finance/accounting, production/operations,

research and development, and management information systems (MIS) accomplishments.
Annual objectives are especially important in strategy implementation, whereas long-term objectives are
particularly important in strategy formulation. Annual objectives represent the basis for
allocating resources.

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 guides to decision making and address repetitive or recurring situations.

Policies are most often stated in terms of management, marketing, finance/accounting,

production/operations, research and development, and computer information systems
activities. Policies can be established at the corporate level and apply to an entire organization
at the divisional level and apply to a single division, or at the functional level and
apply to particular operational activities or departments. Policies, like annual objectives,
are especially important in strategy implementation because they outline an organization’s
expectations of its employees and managers.

Benefits of SM
Strategic management allows an organization to be more proactive than reactive in shaping
its own future; it allows an organization to initiate and influence (rather than just respond
to) activities—and thus to exert control over its own destiny.

The principal benefit of strategic management has been to help organizations

formulate better strategies through the use of a more systematic, logical, and
rational approach to strategic choice. This certainly continues to be a major benefit of
strategic management,

The more important contribution of strategic management.15

Communication is a key to successful strategic management. Through involvement in
the process, in other words, through dialogue and participation, managers and employees
become committed to supporting the organization. A major aim of the process is to achieve the understanding of and
commitment from all managers and employees. Understanding may be the most important benefit of strategic
management, followed by commitment.
Empowerment is the act of strengthening employees’ sense of effectiveness
by encouraging them to participate in decision making and to exercise initiative and
imagination, and rewarding them for doing so.

Financial Benefits
Organizations using strategic-management concepts are more profitable and successful than those that do not. 17
Businesses using strategic-management concepts show significant improvement in sales, profitability, and
productivity compared to firms without systematic planning activities. High-performing firms tend to do systematic
planning to prepare for future fluctuations in their external and internal environments.
High-performing firms seem to make more informed decisions with good anticipation
of both short- and long-term consequences. In contrast, firms that performs poorly often
engage in activities that are shortsighted and do not reflect good forecasting of future conditions.

Non-financial Benefits
Strategic management offers other tangible benefits, such as an enhanced awareness of external threats, an improved
understanding of competitors’ strategies, increased employee productivity, reduced resistance to change, and a
clearer understanding of performance–reward relationships. Strategic management enhances the problem-prevention
capabilities of organizations because it promotes interaction among managers at all divisional and functional levels.
Firms that have nurtured their
managers and employees, shared organizational objectives with them, empowered them to
help improve the product or service, and recognized their contributions can turn to them
for help in a pinch because of this interaction.

Why some firms do no strategic planning

Some firms do not engage in strategic planning, and some firms do strategic planning but
receive no support from managers and employees. Some reasons for poor or no strategic
planning are as follows:
• Lack of knowledge or experience in strategic planning—No training in strategic
planning.
• Poor reward structures—When an organization assumes success, it often fails to
reward success. When failure occurs, then the firm may punish.
• Firefighting—An organization can be so deeply embroiled in resolving crises and
firefighting that it reserves no time for planning.
• Waste of time—Some firms see planning as a waste of time because no marketable
product is produced. Time spent on planning is an investment.
• Too expensive—Some organizations see planning as too expensive in time and
money.
• Laziness—People may not want to put forth the effort needed to formulate a plan.

Content with success—Particularly if a firm is successful, individuals may feel there

is no need to plan because things are fine as they stand. But success today does not
guarantee success tomorrow.
• Fear of failure—By not taking action, there is little risk of failure unless a problem
is urgent and pressing. Whenever something worthwhile is attempted, there is some
risk of failure.
• Overconfidence—As managers amass experience, they may rely less on formalized
planning. Rarely, however, is this appropriate. Being overconfident or overestimating
experience can bring demise. Forethought is rarely wasted and is often the mark of
professionalism.
• Prior bad experience—People may have had a previous bad experience with planning,
that is, cases in which plans have been long, cumbersome, impractical, or inflexible.
Planning, like anything else, can be done badly.
• Self-interest—When someone has achieved status, privilege, or self-esteem through
effectively using an old system, he or she often sees a new plan as a threat.
• Fear of the unknown—People may be uncertain of their abilities to learn new skills,
of their aptitude with new systems, or of their ability to take on new roles.
• Honest difference of opinion—People may sincerely believe the plan is wrong.
They may view the situation from a different viewpoint, or they may have aspirations
for themselves or the organization that are different from the plan. Different people
in different jobs have different perceptions of a situation.
• Suspicion—Employees may not trust management.19

Pitfalls in SM
It does not provide a ready-to-use prescription for success;
instead, it takes the organization through a journey and offers a framework for addressing
questions and solving problems.

Some pitfalls to watch for and avoid in strategic planning are these:
• Using strategic planning to gain control over decisions and resources
• Doing strategic planning only to satisfy accreditation or regulatory requirements
• Too hastily moving from mission development to strategy formulation
• Failing to communicate the plan to employees, who continue working in the dark
• Top managers making many intuitive decisions that conflict with the formal plan
• Top managers not actively supporting the strategic-planning process
• Failing to use plans as a standard for measuring performance
• Delegating planning to a “planner” rather than involving all managers
• Failing to involve key employees in all phases of planning
• Failing to create a collaborative climate supportive of change
• Viewing planning as unnecessary or unimportant
• Becoming so engrossed in current problems that insufficient or no planning is done
• Being so formal in planning that flexibility and creativity are stifled 20

Remaining from slides.