Chapter 1 Introduction

to Strategic
Management
By:
C.M. Dhakal
 Course Content
Unit 1 : Introduction
Unit 2 : Company direction
Unit 3 : External environment analysis
Unit 4 : Internal analysis
Unit 5 : Strategic options and choice
techniques
Unit 6 : Strategic implementation
Unit 7 : Strategic evaluation and control
 1. Meaning of Strategy.
Modern organizations are facing significant challenges
from:
 Environmental changes
 Globalization
 Advance information technology
 Political and economic grouping
 Socio-cultural shift
Organization needs long-term horizon and strategic
orientation to cope with emerging challenges and to
achieve objectives effectively.
So, strategy represents:
 Broad action or game plan.
 Means for achieving long term objectives
 Long term scope of organization
 Road map for future
 Cont..
According to Alfred D. Chandler “Strategy
is the determination of basic long term
goals and objectives of an enterprise and
the adaption of the course of action and
the allocation of the resources necessary
for carrying out these goals”.
According to Johnson and Scholes “
strategy is the direction and scope of an
organization over the long term, which
achieves advantages for the organization”.
 1.1 Levels of Strategy
 Strategy is means of achieving long-term goals. It is
potential actions of top level management for addressing the
business challenges.
 The three level of strategy are:
1. Corporate level strategy
 Stability strategy
 Expansion/Growth strategy
 Retrenchment strategy
 Combination/Mixed strategy
2. Business level strategy
 Cost leadership
 Differentiation
 Focus
3. Functional level strategy
 Marketing
 Production/Operation
 Finance
 Human resource
 Research and development
 1.2 Need for Strategy
Strategy is potential plan of action. There
are various needs for strategy, which are:
 To understand the competitive environment
and compete successfully
 To adopt a suitable business model
 To acquire and utilized resources optimally
 To retain the customers by building long-
term relationship.
 To expand the business.
 To fulfill the stakeholders expectations
 To ensure sustainability of the business
 1.3 Red Ocean vs. Blue Ocean Strategy
The term red and blue ocean strategy was first
coined by Chan Kim and Renee Mauborgne in 2005.
Red ocean are all the industry existing today where
industry boundaries are defined and companies
compete for a greater share of the existing market.
On the other hand, blue oceans indicate all the
industries not in existing today where the markets
are unexplored and untainted by competition.
In blue oceans, competition is irrelevant.
The blue ocean companies follow a different
strategic logic called value innovation.
 Cont..
The differences between red and blue ocean
strategy are as:
Bases of Red ocean strategy Blue ocean strategy
differences
Competition Compete in existing Create uncontested
market space. market space.
Aim Beat the competition Make the competition
irrelevant
Demand Exploit existing Create and capture new
demand demand
Trade-off Make the value-cost- break the value-cost-
trade off trade off

Alignment of Align the whole system Align the whole system

organizational with its strategic choice in pursuit of strategic
 2. Meaning of Strategic Management.
 Strategic management is a process that involves strategy
formulation and implementation efforts that result in positive
outcomes.
 On the other hand, strategic management refers to strategic
decisions and actions concerned with implementation of
strategy to achieve long term objectives.
 According to Johnson and Scholes “strategic management
includes understanding the strategic position of an
organization, strategic choice for the future and turning
strategies into action”.
 So, strategic management includes:
 Art of formulating long-term decision.
 Making strategic choice.
 Putting strategies into action.
 2.1 Factors Affecting Strategic
Management.
Strategic management is mainly concerned
with development of long term horizon of an
organization for sustainable competitive
advantage.
There are several factors affecting strategic
management, which are:
a. Globalization
b. Increased competition
c. Technological change
d. Knowledge intensity
e. Corporate social responsibility
f. Deregulation and privatizaton
2.2 Importance of Strategic Management.
 Strategic management is formulation, implementation
and control of strategies for sustainable competitive
advantage.
 There are various importance of strategic management,
which are:
a. Builds synergy
b. Delivers value
c. Exploits core competency
d. Deals with opportunity and threats
e. Strategic fit
f. Competitive capability
g. Resource management
h. Organizational effectiveness
i. Manages change
 2.3 Characteristics of Strategic
Management.
 Strategic management is preparing strategic
decision and actions to implement long term
planning to take strategic advantages over
competitors.
 There are various characteristics of strategic
management, which are:
1. Uncertain
2. Complex
3. Organization-wide
4. Fundamental
5. Long-term implication
6. Implementation
 3. Strategic Management Model
 Strategic management is a broader term that includes not only
the various steps but also determining the mission and
objectives of an organization with in the context of its external
environment.
 Strategic management model includes the following elements:
 Company mission
 Internal analysis
 External environment
 Strategic analysis and choice.
 Long term objectives.
 Generic and grand strategy.
 Action plan and short term objectives.
 Functional tactics
 Policies that empower action
 Restructuring, reengineering and refocusing the organization.
 Strategic control and continuous improvements.
 Cont..
It can be shown in following figure:
 4. Formality in Strategic Management.
 Formality refers to the degree to which participants, responsibilities,
authority and discretion in decision making are specified.
 The formality of strategic management system varies widely among
companies.
 The various forces determining formality are:
 Size of the organization.
 Pre-dominant management styles.
 Complexity of environment.
 Production process.
 Problems
 Purpose of its planning system.
 Methods of evaluating success with the size of firm are:
 Small size – Entrepreneurial mode
 Medium size – Adaptive mode
 Large size – Planning mode
 4. Strategic Decision.
Decision making is the process of selecting the best
alternative among the available alternatives.
Strategic decision is the process of selecting best
strategy among alternative strategies.
It is a process of evaluating strategic alternatives and
making choice of them to achieve organizational goals.
It is guided by policies, available resources and the
insights of the strategists.
According to Jauch and Glueck “strategic decisions
are means to achieve ends. These decisions
encompass the definition of the business, products
and market to be served, functions to be performed
and major policies needed for the organization to
execute these decision to achieve objectives”
4.1 Characteristics of Strategic Decisions.
Strategic decision is the process of selecting the best
strategy for competitive advantage.
The various characteristics of strategic decision are:
a. Directive
b. Rare
c. Consequential
d. Competitive advantages
e. Strategic fit
f. Define scope
g. Top management oriented
h. Involve resources
i. Dynamic
j. Irreversible
4.2 Importance of Strategic Decision.
Strategic decision draw a long-term road
map of the organization.
The various importance of strategic decision
are:
a. Organizational effectiveness
b. Improvement in operational capability
c. Competitive advantage
d. Resource management
e. Stakeholders interest
f. Strategic control.
 4.3 Differences Between Strategic and
Operational Decisions.
Strategic decisions are fundamental and
directional and operational decisions are
short-term and relating to day to day
activities
There are various differences between
strategic and operational decision, which are:
a. Magnitude
b. Time-scale
c. Reversibility
 5. Strategic Plan.
Strategic plan are long run plan of an organization
and determine where an organization is going over
the future time, how it is going to there.
It focuses on entire organization.
It normally covers period of more than five years.
It aims at environmental adaption and
achievement of sustainable competitive
advantages.
It also addresses the resource planning allocation..
It involves the development of vision, mission,
objectives and strategy.
 5.1 Features of Strategic Plan.
Strategic plan is a long term action that
determines the scope and direction of an
organization.
The various features of strategic plan are:
a. Long-term
b. Based on environmental analysis
c. Strategic fit
d. Involvement of top management
e. Set of priority
f. A mean only.
 5.2 Steps in Strategic Plan.
Strategic plan is a long term action that
provides road-map to organization.
The various steps of strategic plan are:
a. Define vision and mission
 Vision
 Mission

b. Environmental analysis
 Internal environment
 External environment

c. Determination of long term goal

d. Strategy formulation
6. Approaches to Strategy Formulation.
Mintzberg and Water (1985) suggest three
approaches to strategy formulation.
These three approaches are:

a. Intended strategy

b. Realized strategy

c. Emergent strategy