The Nature of Strategic Management

The Nature of Strategic Management
Defining Strategic Management
- Strategic management
The art and science of formulating, implementing, and evaluating cross-functional decisions that enable
an organization to achieve its objectives
Used synonymously with the term strategic planning
Sometimes the term strategic management is used to refer to strategy formulation, implementation, and
evaluation, with strategic planning referring only to strategy formulation
A strategic plan is a company’s game plan
A strategic plan results from tough managerial choices among numerous good alternatives, and it signals
commitment to specific markets, policies, procedures, and operations.
Stages of Strategic Management
- 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
Deciding what new business 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, how to avoid a hostile takeover
- Strategy Implementation
Requires a firm to establish annual objectives, devise policies, motivate employees, and allocate resources
so that formulated strategies can be executed
Often called the action stage
- Strategy Evaluation
Reviewing external and internal factors that are the bases for current strategies, measuring performance,
and taking corrective actions
- Strategy formulation, implementation, and evaluation activities occur at three hierarchical levels in a large
organization: corporate, divisional or strategic business unit, and functional
- Strategic management helps a firm function as a competitive team
Integrating Intuition and Analysis
- Most organizations can benefit from strategic management, which is based upon integrating intuition and analysis
in decision making
- Intuition is particularly useful for making decisions in situations of great uncertainty or little precedent
Key Terms in Strategic Management
- Competitive Advantage
Anything that a firm does especially well compared to rival firms
- Strategists
The individuals who are most responsible for the success or failure of an organization
- Vision Statement
Answers the question “What do we want to become?”
Often considered the first step in strategic planning
- Mission Statements
Enduring statements of purpose that distinguish one business from other similar firms
Identifies the scope of a firm’s operations in product and market terms
Addresses the basic question that faces all strategist: “What is our business?”
- Strategies
The means by which long-term objectives will be achieved
May include geographic expansion, diversification, acquisition, product development, market
penetration, retrenchment, divestiture, liquidation, and joint ventures
- 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
Some Opportunities and Threats
i. Computer hacker problems are increasing
ii. Intense price competition is plaguing most firms
iii. Unemployment and underemployment rates remain high
iv. Interest rates are rising
v. Product life cycles are becoming shorter
vi. State and local governments are financially weak
- Internal Strengths and Internal Weaknesses
An organization’s controllable activities that are performed especially well or poorly
Determined relative to competitors
- Objectives
Specific results that an organization seeks to achieve in pursuing its basic mission
Long-term means more than one year
Should be challenging, measurable, consistent, reasonable, and clear
- Annual Objectives
Short-term milestones that organizations must achieve to reach long-term objectives
Should be measurable, quantitative, challenging, realistic, consistent, and prioritized
Should be established at the corporate, divisional, and functional levels in a large organization
- Policies
The means by which annual objectives will be achieved
Include guidelines, rules, and procedures established to support efforts to achieve stated objectives
Guides to decision making and address repetitive or recurring situations
The Strategic-Management Model
- Where are we now?

- Where do we want to go?
- How are we going to get there?
Benefits of Strategic Management
- Historically, 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
- Communication is a key to successful strategic management
- Through dialogue and participation, managers and employees become committed to supporting the organization
Benefits to a Firm That Do Strategic Planning
1. Enhanced Communication
a. Dialogue
b. Participation
2. Deeper/Improved Understanding
a. Of others’ views
b. Of what the firm is doing/planning and why
3. Greater Commitment
a. To achieve objectives
b. To implement strategies
c. To work hard
4. THE RESULT
a. All Managers and Employees on a Mission to Help the Firm Succeed
Financial Benefits
- Businesses using strategic-management concepts show significant improvement in sales, profitability, and
productivity compared to firms without systematic planning activities
- High-performing firms seem to make more informed decision with good anticipation of both short- and long-term
consequences
Nonfinancial Benefits
- It allows for identification, prioritization, and exploitation of opportunities

- It provides an objective view of management problems
- It represents a framework for improved coordination and control of activities
- It minimizes the effects of adverse conditions and changes
- It allows major decisions to better support established objectives
- It allows more effect allocation of time and resources to identified opportunities
- It allows fewer resources and less time to be devoted to correcting erroneous or ad hoc decisions
- It creates a framework for internal communication among personnel
Why Some Firms Do No Strategic Planning
- Lack of knowledge 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 form 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, the 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
Pitfalls in Strategic Planning
- 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
Guidelines for Effective Strategic Management
- It should be a people process more than a proper process

- It should be a learning process for all managers and employees
- It should be words supported by number rather than numbers supported by words
- It should be simple and nonroutine
- It should vary assignments, team memberships, meeting formats, and even the planning calendar
- It should challenge the assumptions underlying the current corporate strategy
- It should welcome bad news
- It should welcome open-mindness and a spirit of inquiry and learning
- It should not be a bureaucratic mechanism
- It should not become ritualistic, stilted, or orchestrated
- It should not be too formal, predictable, or rigid
- It should not contain jargon or arcane planning language
- It should not be formal system for control
- It should not disregard qualitative information
- It should not be controlled by technicians
- Do not pursue too many strategies at once
- Continually strengthen the “good ethics is good business” policy

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The Nature of Strategic Management

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The Nature of Strategic Management

Defining Strategic Management

Stages of Strategic Management

Integrating Intuition and Analysis

Key Terms in Strategic Management

The Strategic-Management Model

- Where are we now?

Benefits of Strategic Management

Benefits to a Firm That Do Strategic Planning

- It allows for identification, prioritization, and exploitation of opportunities

Why Some Firms Do No Strategic Planning

- Lack of knowledge in strategic planning – no training in strategic planning

Pitfalls in Strategic Planning

- Using strategic planning to gain control over decisions and resources

Guidelines for Effective Strategic Management

- It should be a people process more than a proper process

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