MODULE 1: INTRODUCTION TO STRATEGIC MANAGEMENT

INTENDED LEARNING OUTCOMES

After studying this module, you are expected to:

1. Discuss the historical origins of strategic management.

2. Identify the schools of thoughts on strategic
management.
3. Discuss the strategic management framework and its
objectives.
4. Define key terms pertaining to strategic management and
their significance.

Topic Outline

1.1. Historical Origins of Strategy and Strategic Management

1.2. Schools of thoughts on strategic management
1.3. Aims of Strategic management: Creating a competitive
advantage
1.4. Defining key terms on strategic management
This module introduces strategic management and provides an overview of the module on
Strategic management for Hospitality and Tourism. Strategy is presented from a historical
perspective from various lenses including schools of thought- through which strategy has been
conceptualized, researched, and developed over several decades. The section then discusses
key definitions of the terms used in strategic management literature, and various schools of
thoughts in the field described, and a case study of a scenario that necessitates the application of
strategic management in hospitality and tourism.

1.1. Historical Origins of Strategy and Strategic Management

In order to appreciate the historical origins of strategy and strategic tourism management, it
becomes essential to firstly, define strategic management. Strategic management is a field of
study that involves the process through which firms define their missions, visions, goals, and
objectives, as well as craft and execute strategies at various levels of the firms’ hierarchies to
create and sustain a competitive advantage (Okumus, Altinay, and chathoth, 2010). In other
words, strategic management assist organization in prioritizing what is of most importance to
them and provides a holistic view of the organization. Strategic management consists of two
distinct phases that deals with formation and implementation of strategy within an organizational
setting (Okumus, Altinay, and chathoth, 2010).

The origins of strategic management have been linked to the military. The term strategy
emanated from the word strategos, which translate to “general.” Literally, it means “leader of the
army.” Military strategy often deals with planning and execution in a war setting, while taking into
account the strategy and tactics required to implement the plan. Defeating the enemy in a
“chess-like” play situation entails critically thought-out plan with emphasis on the plan’s
execution.
Strategic management can be linked to the works of Sun Tzu that dates back to 400 B.C. and
to Carl von Clausewitz in the eighteenth century. Sun Tzu’s reference to space, quantities, and
other factors related is similar to the characteristics of the positioning schools (Mintzberg,
Ahlstrand, and Lampel, 1998). According to Sun Tzu, calculations underlie victorious situations
in war
Carl von Clausewitz’s considered strategy “a variation of themes” in war situation (Mintzberg et
al., 1998). Clausewitz notes that strategy was “open-ended and creative” in a situation of chaos
and disorganization (Mintzberg et al., 1998). This provides avenue for a more systematic and
organized approach, which is why planning became part of the process. Strategy formation takes
into consideration the various maneuvers and the scenarios and calculations pertaining to them.
Being flexible while being proactive and deliberative, however, is essential. Literature since the
twentieth century used these works to describe strategy in the corporate arena.
Strategic management as a field of study has evolved in over the past fifty years (Okumus,
Altinay, and Chathoth, 2010). In the 1950s and 1960s, strategic management was viewed from
general management perspective, emphasizing the role of the leader. Hence, the focus was on
leadership, interpersonal relationships, and the systems, processes, and structures in an
organization. Firms used the top-down approach, with the top management at the core of the
decision-making process. However, the strategic management process was not formalized and
explicit during this phase; instead, it was more implicit and informal. In the 1960s, 1970s, and
the early 1980s, firms adopted the strategic planning approach with an emphasis on analysis
and formalized planning, with special teams assigned to develop plans. The typologies and
concepts related to business and corporate strategies, with strategy formulation at the core of
such conceptualizations, led to the evolution of the domain during this period.
Strategy implementation as a process was however the emphasis of scholars during the 1980s
period. There was a shift in emphasis from the leader to the development of organizational
culture and its role in defining and implementing strategies. In the same vein, globalization began
to capture the imagination of firms’ executives, researchers provided more insights into the
underlying concepts of globalization, including systems, processes, and structures that enabled
firms to grow into multidivisional corporation. Some scholars however focused on firms’
competencies to explain strategy, which led to the emergence of resource-based view of firms.
In the hospitality and tourism field, strategic management emerged as a field of study in the mid-
to late 1980s that aimed at applying the works of scholars in the strategic management domain
to the hospitality organizations. These efforts are aimed at confirming theories related to the
contingency, strategic planning, and competitive strategies.
In the 1990s, globalization led to the emergence of network strategies, and strategic alliances
became the focal point around which researchers developed the literature. More efforts from a
resource-based perspective led to the conceptualization of characteristics related to firm’s
internal competencies that enabled them to sustain competitive advantage. The shift towards
internal competencies also saw a shift in perspective towards knowledge-based view and
learning at the core of strategic competitive advantage in the late 1990s. Progress continues
using the knowledge perspective from the 2000s, with increased emphasis on corporate social
responsibility.
In the hospitality and tourism domain, Olsen, West, and Tse (2006) conceptually developed the
coalignment concept, which has been used as a theoretical framework in other studies in the
field. Efforts by Harrigton (2001), Okumus (2004), and Jogaratnam and Law (2006) in the 2000s
focused on environmental scanning in the hospitality industry context, whearas Harrington and
Kendall (2006), Okums and Roper 1999, and Okumus (2002), as well as others, have made
attempts to develop the strategy implementation framework for hospitality and tourism firms
during this period. More recent efforts in the field have moved toward a knowledge-based view
and corporate social responsibility.

1.2. Schools of thoughts on strategic management

Many schools of thought have emerged in the strategic management domain. Mintzberg and
colleagues (1998) described the domain as consisting of ten schools/perspectives that pertain
to design, planning, positioning, entrepreneurial, cognitive, learning, power, cultural,
environmental, and configuration. Mintzberg and his colleagues notes that the first three
school are more prescriptive, with an emphasis on strategy formulation that developed from
1960s to 1980s. The next six schools are less prescriptive, while emphasizing how strategies
are developed. The tenth school conceptually combines and captures the other nine schools
of thought into an integrative whole. Brief description of each schools is given in this section.
The design school emphasis a fit between an organization’s internal capabilities and external
opportunities. This school emphasizes the importance of a firm’s position within the context in
which it operates. The environment is used as a reference while weighing the firm’s strategies
and the emphasis is on how it develops its structure in order to support the strategy.
The second school, planning, which was developed in 1970s, conceptualized strategy to
include a structured, step-by-step approach. Mission and vision statement were set, and goals
were clearly spelled out while detailing the objectives that would lead to the accomplishment
of those goals.
The third school is positioning, which was developed in 1980s. Although not very different
from planning and design school, it views strategy formation as consisting of a few strategy
types. This school emerged from the work of Porter (1980), with an emphasis on strategy
typologies. Strategy was still conceptualized as a formal and controlled process, but the focus
here was on competitive strategies and industry structure.
The fourth school of thought is the entrepreneurial school, which pertain to decision making
and the process of strategy formation. Here the central role of strategy formation lies with the
leader, whose “intuition, judgment, wisdom, experience and insight” are at the heart of
decision making. Sources: Mintzberg, H.,Ahlstrand, B., Lampel, J. (1998;p. 124). The leader’s
vision and his or her leadership style influence the organization’s strategic posture.
The cognitive school is the fifth school, and it emphasizes strategy formation from the
perspective that the decision maker’s cognition and mind drive strategy making. The cognitive
skills of managers influence their perspectives on the environment. These perspectives in turn
influence the strategy formation process. According to Mintzberg and his colleagues, they
include 2concepts, maps, schemas, frames.”
The sixth school is learning, which supports the notion that strategy making is based on the
foundation of learning. The strategy maker is constantly learning about process of strategy
formation and its various elements in complex environment .As a matter of fact, the firm is
learning constantly as a whole, which is incremental and continuous in a complex business
environment. The knowledge perspective is part of the learning school, and the focus here is
on the on the system as a whole rather than only a few managers at the helm of decision
making.
The seventh school view strategy formation from a power perspective, with negotiation at the
crux of the process. Power and politics drive this school of thought, with organizations vying
for position in the markets and transactions. Strategy formation is more emergent as firms
engage in power plays, ploys, and tactics to maneuver in various contexts.
The eighth school is the cultural school, where, again, the emphasis is on the organization as
a collective whole and strategy formation as comprising social interaction. Strategy is
deliberate in that the members are engaged in the process that involves collective action.
Resources and capabilities are the sources of competitive advantage, as firms are able to
create a culture that brings forth unique decision making with a resistance toward
organizational change.
The ninth school pertains to environment while describing strategy formation as a reactive.
The firm’s external environment influences the strategy formulation and implementation
process, and firms are viewed as being part of an environment that is simple or complex,
stable or dynamic. The decision maker’s role is one of a boundary spanner in being able to
 scan the environment while identifying the macro and micro level forces that impact the firm’s
position within a business domain.
The tenth school is the configuration school, which views strategy as transformational.
Configuration refers to the structure that a firm adopts in a given environmental context, and
transformation refers to a change in configuration based on a change in context. The life cycle
of organization is essentially a pattern that emerges from the various configurations and
transformation that occur over the various periods of change that organizations go through.
The essence of strategy formation is to ensure that firms are able to recognize the need to
change its configuration while transforming from one state to the other during its productive
life.

1.3. Aims of Strategic management: Creating a competitive advantage

A firm is in business to create value for its stakeholders. Since value is created if firms have
competitive edge over their market rivals, it is imperative that a definitive and formalized
approach that falls within the realm of strategic management is at the core of the process.
Creating a competitive advantage, and subsequently sustaining it over a period of time
requires a formal approach in terms of strategy formation and implementation. Constant
evaluation of an organizations market position, including benchmarking, becomes inevitable
in maintaining a competitive edge. Hilton Hotels and McDonalds are typical examples of firms
that have been through ups and downs during the course of their organizational histories in
terms of sustaining competitive advantage in their respective market domains.
Strategic management process can be administered at three major levels including corporate,
business, and functional levels.
1. At the corporate level, strategy entails asking questions about what business the firm is in or
would like to engage in, the firm’s potential to create value by being in the business or
expanding into a new line of business, and the recourses and capabilities the firm already has
or needs to get to sustain/create competitive advantage in its business or businesses.

2. At the business level, firms need to ask themselves the following questions: How can we
create competitive advantage in our product-domain in each strategic business unit (SBU)?
How can we continue to be an overall cost leader or broad differentiator, or, have a cost focus
or be a focused differentiator in our market domain? Note that SBU is defined as a unit within
a given corporate identity that is distinctly different from other units within the corporation in
terms of products and services, as well as the markets it serves with a distinct profit-making
capability of its own.

3. At the functional level, the firm’s objective is to sustain its advantage by focusing on
efficiencies related to production, operations, administration, marketing, and other support
functions. It also engages in constant innovation to ensure new product/service development
rollout, while ensuring that the service and product qualities, as well as the customer
satisfaction related to them are at the highest level.

The linkage among the three levels of strategy leads to the creation of sustainable competitive
advantage.

1.4. Defining key terms on strategic management

Strategy entails futuristic thinking and developing a course of action to meet goals and
objectives. The strategic management framework (Figure 1.1) captures the process
sequentially and definitively. It should be noted that although different element of the strategic
management framework is presented separately or in linear step-by-step process, in fact they
overlap and go hand in hand. The framework includes mission and vision statements, goals,
and objectives that are linked to the mission and vision, as well as strategies and tactics to
achieve the goals and objectives. Strategic analysis provides the firm with a clear picture of
its situation, which includes internal and external analysis. Internal analysis pertains to
strengths and weakness analysis, whereas external analysis pertains to opportunities and
threats analysis, which is also referred to as SWOT analysis. The analysis enables a firm to
engage in strategic decision making. Strategic decisions pertain to choosing an alternative
among a set of alternatives that leads to strategy-related success. These decisions have an
effect on the firm’s long-term orientation and direction.

Strategic management includes two distinct phases: the strategy formation phase and the
strategy implementation phase. Strategy formation is the process of defining the direction of
the firm’s futuristic course of action, which would enable the firm to allocate resources in order
to achieve the set goals and objectives. An internal and external environment analysis is part
of the assessment before strategy is formulated at the corporate, business, and functional
levels. On the other hand, strategy implementation is the process of putting strategy into
action, which includes designing the organizational structure and related systems. These
process leads to effective resource allocation processes, including programs and activities
such as setting budgets, developing support systems, recruiting, hiring, and training, as well
as designing performance evaluation and rewards systems that lead to the attainment of set
goals and objectives.

The organization must first define its mission, goals, and objectives. The mission is a brief
description of the very purpose of creating the organization. This mission statement includes
a clear purpose and states why the organization is in existence.

To differentiate missions, goals, objectives, strategies, and tactics, let’s consider this case:
Jeflum Hotel is in the business with a mission to create value for its stakeholders. To
accomplish the mission, the firm has set goals for the current year of increasing the business
segment productivity. The objectives that linked the goals include increasing the business
segment revenues by 10 percent and increasing repeat clientele for this business segment
by 15 percent. The strategies include marketing and operations- related plans and tactics,
including increasing sales calls in the business districts of the city, increasing promotional
campaigns for the international and domestic business markets, and creating an amenities
package for business travelers that includes free airport transfers, a free welcome drink on
arrival, free internet access in the room, and free use of business centre secretarial services
for three hours a day. Note that the goals are linked to the mission, the objectives are linked
to the goals, strategies are linked to the objectives, and the tactics are linked to the strategies.

CASE STUDY 01

The Magnificent Northern Hotel, a privately owned, independent, four star chalet hotel located
in Abuja, Wuse Commercial District, is confronted with a turbulence external environment as
a result of the global financial crisis. Since its inception 8years ago, the hotel has been one of
the top performers in the upscale and luxury market segments, preceding the current
economic crises. The hotels main target market is the business traveler (80 per cent of room
bookings) who has no problem with paying 12,000 naira per night for a room.
 During the past 12 months, however, the hotel has been a victim of several economic
turbulence, which resulted in a significant reduction in rooms bookings from the business
travel segment. This has reduced profits drastically to the extent that the hotel is no longer
able to cover fixed costs. The owner, Adebisi Samuels has called an executive committee
meeting to discuss the future direction the organization should take in the immediate term and
in the long term to sustain its competitive advantage.

1. What issues should Adebisi and the executive committee address? Why? (Hint: Make
assumption where necessary, including mission and vision statements, as well as goals,
strategies and objectives.)

2. Given the preceding information, what are Adebisis’s options? How should they be evaluated?
Make assumptions where necessary.

3. What should the hotel do in the short and long term? Make assumptions where necessary to
arrive at your decisions.

4. Why is it difficult to answer the preceding questions? Do we have clear answers for issues
and challenges in real life?

5. Do Managers and executives in hospitality and tourism organizations always have sufficient
and reliable information to make decisions?

SELF-ASSESSMENT EXERCISE 01
Choose a Hospitality and Tourism organization and research this company’s vision, mission,
goals, and objectives. Critically evaluate and compare them with those of other H&T
companies. What are the similarities and differences? Which aspects do you like in these
statements and why?
STUDY QUESTIONS
1. Explain the origins of strategy and strategic management
2. List the main schools of thought and explain their premises on strategic management.
3. Why are there different schools of thought on strategic management?
4. Define strategic management, vision, mission, goals, objectives, and tactics.
5. Do you think it is important for Hospitality and Tourism companies to have such statements
as in number four question above?