Mekelle University

STRATEGIC
MANAGEMENT
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CHAPTER ONE:
INTRODUCTION:
NATURE OF STRATEGIC
MANAGEMENT
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Introduction
Strategy was originally a term applied to
warfare; it was defined as ‘the art of
planning and directing larger military
movements and the operations of war.’

The term ‘strategy’ is derived from the

Greek word strategos, which means
generalship – the actual direction of military
force
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The term was first used around 360 BC, when the
Chinese military strategist Sun Tzu wrote ‘The Art
of War’, a work which is said to have influenced
the thinking of many modern Japanese businesses,
and has led to a number of thoughts about how the
‘art’ can be applied to modern business.

How the concept can be applied in modern

businesses? Fundamentally, it is about the purpose
of the business, why it exists and what it exists to
do.
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Basic Concept
A strategy define how resources will be used to
compete against other businesses that are trying to
attract customers’ valuable money.
A strategy gives a firm competitive advantage. A
competitive advantage is the basis for a
relationship with customers, which is beneficial to
both customers and supplying company.
A good strategy will make this relationship
resistant to competitive attack. It will make it
sustainable.
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Definition of Strategy
Though there is no one, single universally
agreed definition of strategy, let us consider
one of it:

 William F. Glueck (in Business Policy and

Strategic Management) defines strategy as: ‘a
unified, comprehensive, integrated plan
designed to ensure that the basic objectives
of the enterprise are achieved.
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Looking at these definitions we can say that

strategy is about:
A game plan or course of action to be employed
in running a business,
A strategy is the means used to achieve the ends
(objectives),
Strategy is both proactive (intended) and reactive
(adaptive),
Strategies are partly visible and partly hidden to
outside view.
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Definition of Strategic Management

We observe that different authors have defined
strategic management differently.

Strategic management - is a systematic approach to

a major and increasingly important responsibility
of general management to position and relate the
firm to its environment in a way which will assure
its continued success and make it secure from
surprises (Ansoff).
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Strategic Management Process

Below, is a five-step process that encompasses
Strategic Planning, Implementation, and Control .

 Strategic Intent--Deciding a firm’s goals,

 Strategic Analysis--Knowing one’s surroundings ,
 Strategy Formulation--Crafting strategies,
 Strategy Implementation--putting plans into action,
 Strategic Control & Evaluation--monitoring
progress.
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A. STRATEGIC INTENT
Vision, Mission, Goals and Objectives……..
B. STRATEGIC ANALYSIS
External analysis and Internal analysis……..
C. STRATEGY FORMULATION
Corporate level strategy, Business Level strategy and
Functional (or operational) strategy……….
D. STRATEGY IMPLEMENTATION
Activating strategies , Structural Implementation,
Operational/Functional Implementation, Behavioral
implementation and Achieving strategic fits………….
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E. STRATEGIC EVALUATION AND

 Develop performance goals,
 Assess actual performance,
 Compare actual with performance goals,
 Reinforce or Take corrective actions.
F. STRATEGIC CONTROLS
 Administrative controls,
 Operational controls,
 Strategic controls,
 Financial controls,
 Cultural controls.
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Overview of Types of Strategy

A. Corporate Strategy
Corporate Strategy is regarded as encompassing the aims and
objectives of the organization together with the means of how these
are to be achieved.
B. Business Strategy
Business strategy or competitive strategy is empowered to make key
decisions about current and future strategy within the framework of
the overall corporate strategy. It seeks to determine how an
organization should compete in each of its businesses.
C. Functional Strategy
Functional Strategy seeks to determine how to support the business-
level strategy. A firm needs a functional strategy for every
competitively relevant business activity and organizational unit.
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Strategic Management Approaches

A) Industrial Organization (I/O) Model
The industrial organization (I/O) model explains the external
environment is a dominant influence on a firm’s strategic actions.
The model specifies that the industry in which a company chooses to
compete has a stronger influence on performance than do the
choices managers make inside their organizations.

B) The Resource-Based Model

The resource-based model assumes that each organization is a
collection of unique resources and capabilities. The uniqueness of its
resources and capabilities is the basis for a firm’s strategy and its
ability to earn above-average returns.
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CHAPTER TWO:
THE BUSINESS VISION, MISSION
& VALUES
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Stakeholders Analysis
Stakeholders are those individuals, groups and organizations
who will be impacted by or who are likely to be interested in
the organization's strategic plan and the planning process.
Stakeholders can be divided into two:
 Direct stakeholders (i.e. those engaged directly in
transactions with the organizations goods and
services). Customers, suppliers, employees,
shareholders, creditors
 Indirect stakeholders (i.e. those not necessarily
engaged in direct transactions but significantly affected
by the organizations activities). Local community,
competitors, government, general public
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Vision Statement
Vision is aspirations, expressed as strategic intent to be
achieved and that should lead to an end. It is what the
firm or a person would ultimately likely to become.
 Vision- is a big picture of what a firm wants to be

and ultimately wants to achieve.

 A vision statement stretches and challenges people

and evokes emotions and dreams.

 A vision statement tends to be enduring, relatively

short and concise, making it easily remembered.

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Benefits of Having Vision

 It is inspiring,
 It represent a discontinuity,
 It creates common identity and a shared
sense of purpose thus, represents integrity,
 It is competitive, original and unique,
 Foster long-term thinking, risk-taking and
experimentation
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The Process of Envisioning

The Process of envisioning can occur in one or more of the
following ways
 Can occur through solitary introspection by a leader;
 It can occur through the interaction of a group that shares
leadership;
 It can occur through interaction between a leader and a group
 It can emerge suddenly and holistically;
 It can emerge slowly and incrementally through interactions
 It can be inductive or deductive;
 It can be fixed or shift over-time
 it always is future focused;
 Is relatively stable over-time and
 It concentrates on the end goal
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The Reasons for Envisioning

The following are quotations related to reasons for
envisioning
 "Vision with action change the world"
 Vision is a perceived need for a common sense of
teamwork;
 An opportunity to exploit a new opportunity or deal with a
new threat
 Where there is no vision the people perish
 A person becomes what he thinks about most of the time
 Belief creates the actual fact
 Your imagination is your preview of life
 Whatever you want, wants you
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Mission Statement
Drucker says asking the question, “What is our business?” is
synonymous with asking the question, “What is our mission?” An
enduring statement of purpose that distinguishes one organization
from other similar enterprises, the mission statement is a declaration
of an organization’s “reason for being.”
 The vision is the foundation for the firm’s mission.

 It is an enduring statement of purpose that distinguishes an

organization,
 It is a declaration of an organization’s “reason for being.” &

answers the pivotal question, “What is our business”?

 A clear mission statement is essential for effectively establishing

objectives and formulating strategies.

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Importance of having Clear Mission Statement

 Ensures agreement of purpose within an
organization,
 Provides a basis, or standard, for allocating
organizational resources,
 Establishes a general tone or organizational climate,
 Serves as a focal point for individuals to identify
with the organization’s purpose,
 Facilitates translation of objectives into a work
structure,
 Specifies organizational purposes and translation of
these purposes into objectives …………….etc
Mission Formulation
The following are basic questions to be answered
in mission formulation:
What?

Why?

How? Who?
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The Nature of Business Mission

1. A Declaration of Attitude: A mission statement is a
declaration of attitude and outlook more than a statement
of specific details. It is usually broad in scope for at
least two major reasons.
 First, a good mission statement allows for the
generation and consideration of a range of feasible
alternative objectives and strategies.
 Second, a mission statement needs to be broad to
effectively reconcile differences among and appeal
to an organization’s diverse stakeholders, the
individuals and groups of persons who have a
special claim on the company.
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The Nature of Business Mission

2. A resolution of Divergent Views: What are the reasons some
strategists are reluctant to develop a statement of their business
mission? First, the question, “What is our business?” can create
controversy.

Half-understood disagreements on the definition of a business

mission causes many of the personality problems, communication
problems, and irritations that tend to divide a top-management
group.

Establishing a mission should never be made on plausibility

alone, should never be made fast, and should never be made
painlessly.
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The Nature of Business Mission

3. A Customer Orientation: A good mission statement reflects the
anticipations of customers. Rather than developing a product and
then trying to find a market, the operating philosophy of
organizations should be to identify customers’ needs and then
provide a product or service to fulfill those needs.
4. A Declaration of Social Policy: The words social policy embrace
managerial philosophy and thinking at the highest levels of an
organization. For this reason, social policy affects the development
of a business mission statement.
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Components of Effective Mission Statement are:

1. Customers: 6. Philosophy:

2. Products or services: 7. Self-concept:

3. Market: 8. Concern for

public image:
4. Technology: 9. Concern for
employees:
5. Concern for survival,
growth, and profitability:
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The difference between vision and mission statement:

 MISSION —– think: Managing with greatness and

untamed strength, improving everything daily.

 VISION —– think: Leading with inspiration and

courage, obsessed with future possibility, in a love affair
with change
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Business Value
Values are Beliefs that are shared among the stakeholders
of an organization & drive an organization's culture and
priorities. Values determine health and well-being of an
organization.

Business value expands concept of value of the firm

beyond economic value to include other forms of value
such as employee value, customer value, supplier value,
managerial value, societal value and so on.
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Goals and Objectives

Goals denote what an organization hopes to accomplish in
a future period of time. They represent a future state or an
outcome of the effort put in now.

Objectives are the ends that state specifically how the

goals shall be achieved. They are concrete and specific in
contrast to goals which are generalized. In this manner,
objectives make the goals operational.

While goals may be qualitative, objectives tend to be

mainly quantitative in specification. In this way they are
measurable and comparable.
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Role of Objectives
 Objectives define the organization’s relationship with
its environment:
 Objectives help an organization to pursue its vision
and mission:
 Objectives provide the basis for strategic decision-
making:
 Objectives provide the standards for performance
appraisal:
The importance of the role that objectives play in strategic
management could be aptly summed up in the saying: if
one does not know where one has to go, any path will take
one there.
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Characteristics of Objectives
 Objectives should be understandable:
 Objectives should be concrete and specific:
 Objectives should be related to a time frame:
 Objectives should be measurable and
controllable:
 Objectives should be challenging:
 Different objectives should correlate with each
other:
 Objectives should be set within constraints:
In sum, objective-setting is a complex process
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Issues in Objective-setting
1. Specificity. Objectives may be stated at different levels
of specificity. At one extreme, they might be very broadly
stated as goals while at the other they might be specifically
stated as targets.

2. Multiplicity. Since objectives deal with a number of

performance areas, a variety of them have to be formulated
to cover all aspects of the functioning of an organization.

3. Periodicity. Objectives are formulated for different time

periods. It is possible to set long-term, medium-term and
short-term objectives.
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Issues in Objective-setting
4. Verifiability. Each objective has to be tested on the basis of its
verifiability. In other words, it should be possible for a manager to
state the basis on which to decide whether an objective has been met
or not.

5. Reality. It is a common observation that organizations tend to

have two sets of objectives official and operative. Official
objectives are those which organizations profess to attain while
operative objectives are those which they seek to attain in reality.

6. Quality. Objectives may be both good and bad. The quality of an

objective can be judged on the basis of its capability to provide a
specific direction and a tangible basis for evaluating performance.
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How are Objectives Formulated?

Glueck identified four factors that should be considered
for objective-setting:
1. The forces in the environment:
2. Realities of enterprise’s resources and internal
power relationships.
3. The value system of the top executive.
4. Awareness by Management.
Keeping in view the four factors described above, we
observe that objective-setting is a complex task.
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CHAPTER THREE:
ENVIRONMENTAL ANALYSIS:
EXTERNAL ENVIRONMENTAL ANALYSIS
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Why Environmental analyses?

Strategic managers need to analyze the environment, since
environmental factors are primary influencers of strategy.
Environmental analysis gives the strategic manager time to anticipate
opportunities and to plan alternative responses to those opportunities.
It also helps them to develop an early warning system either to prevent
threats or develop strategies which may turn a threat to the
organization’s advantage.
Depending up on the behavior, responses from the organization could
be:
 Reactive, i.e., to respond after something has happened.
 Inactive, i.e., no response at all
 Proactive, i.e., to predict and prepare
 Proactive, i.e., to influence the decision and plan accordingly.
The primary responsibility for environmental analysis rests with the top
management.
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What Is an Environment?
Environment is -“an aggregate of all conditions, events and
influences that surround and affects an organization”.
Some of the characteristics of an environment are:
1. Environment is complex: an environment consists of a number
of factors, events, conditions, and influences arising from different
sources.
2. Environment is dynamic: environment is constantly changing in
nature.
3. Environment is multifaceted: What shape and character an
environment will assume depends on the perception of the observer.
4. Environment has a far-reaching impact: The growth and
profitability of an organization depends critically on the
environment in which it exists.
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Environmental Scanning
The external environment in which an organization exists consists of variety of
factors. These factors (may also be termed as influences), explained below:
 Events are important and specific occurrences taking place in different
environmental sectors.
 Trends are the general tendencies or the courses of action along which
events take place.
 Issues are the current concerns that arise in response to events and trends
 Expectations are the demands made by interested groups in the light of
their concern for issues
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Why Does an Environment Matter?

1. Environment provides resources that an organization
needs in order to create goods and services.

2. Environment is a source of opportunities and threats

for an organization.

3. Environment shapes various strategic decisions to lead

organizations to success.
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Analytical Tools for Environmental Analysis

Scanning
- Identifying early signals of environmental changes and
trends
- firms often deal with ambiguous, incomplete, or
unconnected data & information
- Scanning techniques are used for volatile environment
Monitoring
- Detecting meaning through ongoing observations of
environmental changes & trends among those spotted by
scanning
- Scanning & monitoring are important when a firm
competes in an industry with high technological uncertainty
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Analytical Tools for Environmental Analysis

Forecasting
- Developing projections of anticipated outcomes based on
monitored changes & trends
- Feasible projections of what might happen & how
quickly, as a result of the changes & trends detected
through scanning & monitoring
Assessing
- Determining the timing & importance of environmental
changes & trends for firms’ strategies & their management
- The intent of assessment is to specify implications for the
organization
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Types External Environment Analysis

The external environmental analysis consists of:
• The General Environment
• The Industry Environment
• The Competitor Environment
1. General Environmental Analysis
Purpose of Analyzing General Environmental Analysis is:
 Organizations are affected by conditions in the environment

 Managers need to be aware of these conditions in order to:

 Take advantage of opportunities that can lead to higher

profits, and
 Reduce the impact of threats that can harm the
organization’s future.
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Evaluating General External Environment

1. Political: centers on the role of governments in shaping a business.
Examples include: tax policies, changes in trade restrictions and tariffs, and the
stability of governments…...

2. Economic: centers on the economic conditions within which organizations

operate.
Examples include: interest rates, inflation rates, GDP, unemployment rates, levels
of disposable income, and the general growth or decline of the economy…...

3. Social: Social factors include trends in demographics.

Examples include: population size, age, and ethnic mix, as well as cultural trends
such as attitudes toward obesity and consumer activism.
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Evaluating General External Environment

4. Technological: centers on improvements in products and
services that are provided by science.
Examples include: changes in the rate of new product
development, increases in automation, and advancements in
service industry delivery, telecommunication, internet…..

5. Natural Environmental: involves physical conditions within

which organizations operate.
Examples include: natural disasters, pollution levels, and weather
patterns……….

6. Legal: centers on how the courts influence business activity.

Examples include: employment laws, health and safety
regulations, discrimination laws, and antitrust laws………
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2. Micro-Environment/Industry analysis
Analysis of the industry environment is focused on the factors & conditions
influencing the firm’s profitability in the industry.
The industry environment has a more direct effect on the firm’s strategic
competitiveness and returns.

The state of competition in an industry is a composite of five competitive forces

according to Porter
I. The rivalry among competing sellers in the industry
II. The potential entry of new competitors
III. The competitive pressure of substitute products.
IV. The competitive pressures Suppliers
V. The competitive pressures of Buyers
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Evaluating an Industry
The Purpose of Five Forces Analysis
 The purpose of five forces analysis is to identify how
much profit potential exists in an industry.

 Once executives/managers determine how much

profit potential exists in an industry, they can then
decide what strategic moves to make to be successful.
1. Rivalry among Competitors in an Industry
The following conditions are fulfilled:
1. No of competitors increase,
2. Competitors are equal in size and capability,
Rivalry will 3. Demand for a product is growing slowly,
be 4. Competitors use price cuts as a weapon to
intensified increase sales,
5. High fixed costs,
WHEN???? 6. High exit barrier,
7. Customer costs to switching brands are low,
8. Similar products (standardized products),
9. Competitors are dissatisfied with their
current position,…………….etc
2. Threat of Potential New Entrants to an Industry
The following conditions are fulfilled:
1. Economies of scale,
2. Learning and experience curve,
Potential 3. Differentiated product,
entry is low 4. High customer loyality,
5. High switching cost,
WHEN???? 6. Limited access to distribution channels,
7. High capital requirement,
8. Cost advantage independent of size,
9. High tariffs and international trade
restriction,
10. Expected retaliation from existing
competitors is high……..etc.
 3. The Competitive Pressure of Substitute products

The following conditions are fulfilled:

1. Attractively priced substitutes are available,
Strong 2. Substitutes have comparable/better-
competitive performance features/,
pressure 3. Buyers have low-switching costs,
from 4. Buyers view substitutes as being,
substitutes satisfactory in terms of quality
performance………etc
WHEN????
4. The Competitive Pressure of Suppliers
The following conditions are fulfilled:
1. It is dominated by few but large suppliers,
Bargaining 2. High switching cost,
power of 3. Suppliers product are differentiated,
suppliers is 4. Inputs are in short-supply,
high 5. Supplier’s goods are critical to buyer’s
market,
WHEN???? 6. Suppliers can be engaged in “for-ward-
vertical-integration”……etc
 5. The Competitive Pressure of Buyers

The following conditions are fulfilled:

Bargaining 1. There are few buyers,
power of 2. Standardized product/undifferentiated/,
buyers is 3. Low switching costs of customers,
high 4. Buyers purchase large portion /significant
annual revenue comes from them/,
WHEN???? 5. Buyers can be engage in “back-ward-
vertical-integration”….etc
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3. Competitors Analysis
 Future objective-What drives competitors?
 Assumptions-What a competitor is doing and can
do?
 Current strategy-What the competitor believes about
its own firm and industry?
 Capacity-competitor firm’s capabilities/strengths
and weaknesses……..
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CHAPTER FOUR:
ENVIRONMENTAL ANALYSIS:
INTERNAL ENVIRONMENTAL ANALYSIS
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Introduction
Examining the external environment firm’s will be able to identify
What They Might Do by carefully analyzing opportunities and
threats. Meanwhile, examining the internal environment assist firm’s
to determine What They Can Do by exploring their resources,
capabilities and competencies.

Analysis of the firm’s internal environment finds evaluators thinking

of their firm as a bundle of heterogeneous resources and capabilities
that can be used to create an exclusive market position.

Understanding how to leverage the firm’s unique bundle of

resources and capabilities is a key outcome decision makers seek
when analyzing the internal environment.
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Creating Value
By exploiting their core competencies or competitive
advantages to at least meet if not exceed the demanding
standards of global competition, firms create value for
customers. Value is measured by a product’s performance,
characteristics and by its attributes for which customers
are willing to pay.

Evidence suggests that increasingly, customers perceive

higher value in global rather than domestic brands. Firms
create value by innovatively bundling and leveraging their
resources and capabilities.
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Components of Internal Environment

The internal environment provides an organization with the
capability to capitalize on the opportunities or protect itself
from the threats that are present in the external environment.
Ultimately it is the fit that takes place between the external
and the internal environment that enable an organization to
formulate its strategy.

Resources, capabilities, and core competencies are the

characteristics that make up the foundation of competitive
advantage. Resources are the source of a firm’s capabilities.
Capabilities in turn are the source of a firm’s core
competencies, which are the basis of competitive
advantages.
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1. Organizational Resources
The dynamics of the internal environment of an
organization can be best understood in the context of the
resource-based view of strategy.

According to Barney (1991), who is credited with

developing this view of strategy as a theory, a firm is
bundles of resources-tangible and intangible-that include
all assets, capabilities, organizational processes,
information, knowledge, and so on.
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Type of Resources Description

Financial The firm’s borrowing capacity

Resource The firm’s ability to generate
internal funds

Organization The firm’s formal reporting

al Resource structure and its formal planning,
TANGIBLE controlling, and coordinating
system
Physical Sophistication and location of
Resource firm’s plant and equipment
Access to Raw material

Technologica Stock of technology, such as

l Resources patents, trade- marks, copyrights,
and trade secrets
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Type of Resources Description

Human Knowledge, Trust, Managerial

Resources capabilities, Organizational routines

Ideas Scientific capabilities and

Innovation capacity to innovate
Resources
INTANGIBLE
Reputation with customers
Brand name
Perceptions of product quality,
Reputational durability, and reliability
Reputation with suppliers For
Resources
efficient, effective, supportive, and
mutually beneficial interactions and
relationships.
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2. Organizational Capability
Organizational capability is the inherent capacity or
potential of an organization to use its strengths and
overcome its weaknesses in order to exploit opportunities
and face threats in its external environment.

Capabilities are the firm’s capacity to deploy resources

that have been purposely integrated to achieve a desired
end state.

Capabilities are the glue binding an organization together

emerged over time through complex interactions among
tangible and intangible resources.
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Organizational Capability
Capability factors are majorly divided in to six functional areas;
1. Financial Capability
Financial capability factors relate to the availability, usage, and management
of funds.
2. Marketing Capability
Marketing capability factors relate to the pricing, promotion, and distribution
of products or services.
3. Operations Capability
Operations capability factors related to the production of products or services,
the use of material resources.
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Organizational Capability
4. Personnel or human Resource Capability
Personnel capability factors related to the existence and use of human
resources and skills.
5. Information Management Capability
Information management capability factors relate to the design and
management of the flow of information from outside into, and within, an
organization for the purpose of decision-making.
6. General Management Capability
General management capability relates to the integration, coordination, and
direction of the functional capabilities towards common goals.
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3. Organizational Core Competencies

Core competencies are resources and capabilities that

serve as a source of a firm’s competitive advantage over
rivals.
Core competencies distinguish a company competitively
and reflect its personality.
Core competencies emerge over time through an
organizational process of accumulating and learning how
to deploy different resources and capabilities.
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Organizational Core Competencies

Not all of a firm’s resources & capabilities have the potential to be
the basis for competitive advantage. This potential is realized when
resources & capabilities are: Valuable, Rare, Costly to imitate and
Non-substitutable.
A.Valuable: - When allows the firm’s to exploit opportunities
or neutralize threats in its external environment.
B.Rare: - Possessed by no one, few, if any, current & potential
competitors.
C.Costly to imitate:- When other firms cannot obtain them or
must obtain them at a much higher cost
D.Non-substitutable:- The firm is organized appropriately to
obtain the full benefit of the resources in order to realize a
competitive advantage.
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Methods Used for Organizational Appraisal

There are a lots of methods however, we will focus on two commonly used
techniques of appraisal Value chain analysis and Benchmarking
1. Value Chain Analysis
This is a method for assessing the strengths and weaknesses of an organization on
the basis of an understanding of the series of activities it performs.
Porter divided the value chain of a manufacturing organization into primary and
support activities.
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Value Chain Analysis

Primary activities are directly related to the flow of the product to the
customer and include five sub-activities:
i. Inbound logistics (receiving, storing, etc.),
ii. Operations (or transformation of raw materials to finished
products),
iii. Outbound logistics (order processing, physical distribution, etc.),
iv. Marketing & sales and
v. Service.
Support activities are provided to sustain the primary activities. Consists:
vi. Infrastructure (including finance accounting, general
management, etc.),
vii. Human resource management,
viii. Technology development, and
ix. Procurement.
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2. Benchmarking
A benchmark is a reference point for the purpose of measuring. The
process of benchmarking is aimed at finding the best practices within and
outside the industry to which an organization belongs.

When one is interested in finding out what is to be compared? then

 Performance benchmarking is to compare one's own performance
with that of some other organization for the purpose of determining
how good one's own organization.

 Process benchmarking is to compare the methods and practices for

performing processes.

 Strategic benchmarking is to compare the long-term, significant

decisions and actions undertaken by other organizations to achieve
their objectives.
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Benchmarking
When one is interested in finding out against whom to compare,
then
 Internal benchmarking is a comparison between units or
departments of the same organization.

 Competitive benchmarking is a direct comparison of one's

own performance against the best competitors.

 Functional benchmarking is a comparison of processes of

functions against non-competitive organizations within the
same sector or technological area.

 Generic benchmarking is a comparison of one's own

processes against the best practices anywhere in any type of
organization.
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CHAPTER FIVE:
STRATEGY LEVELS:
STRATEGY ANALYSIS AND CHOICE
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STRATEGY LEVELS
1. Corporate Level Strategy
A corporate-level strategy is an action taken to gain a competitive
advantage through the selection & management of a mix of
businesses competing in several industries or product markets.
A corporate-level strategy is concerned with two key questions:
 What business should the firm be in?
 How should the corporate office manage its group of
businesses?
Corporate strategies are often called grand/master strategies. Grand
strategy is an overall framework for action developed at the corporate
level. It is most commonly used when corporation competes in a
single market or in a few highly related markets.

There are three basic grand strategies that companies choose to

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1. Corporate Growth Strategy

Organizations pursuing a growth strategy described by;
 They do not necessarily grow faster than the economy as a whole but do
grow faster than the markets.
 They tend to have larger-than-average profit margins.
 They attempt to postpone or eliminate the danger of price competition.
 They regularly develop new products, new markets, new processes, and
new uses for old products.
 Instead of adapting to changes in the outside world, they tend to adapt the
outside world to themselves.
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Corporate Growth Strategy

The most frequently encountered and clearly identifiable of the
growth strategies are;
I. Concentration Strategy
A concentration strategy focuses on a single product/service or on a
small number of closely related products/services and involves
increasing sales, profits or market share.
factors influencing an organization to pursue a concentration
strategy;
 Lack of a full product line ( product line gap)
 Inadequate distribution system (distribution gap)
 Less than full usage in the market (usage gap)
 Competitors sales( competitors gap)
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Concentration Strategy
Basically, there are three general approaches to pursuing a
concentration strategy:
A. Market Development: is selling present products in new
markets.

B. Product Development: is developing new products for present

markets.
C. Horizontal integration: It occurs when an organization adds one
or more businesses that produce similar products or services and
that are operating at the same stage in the product marketing chain.
Almost all Horizontal integration is accomplished by buying another
organization in the same business.
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II. Vertical Integration

Vertical integration is a growth strategy that involves extending
an organization’s present business in two possible directions.
 Forward integration moves the organization into distributing
its own product and services.

 Backward integration moves an organization into supplying

some or all of the products or services used in producing its
present products or services.
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III. Diversification
Diversification occurs when an organization moves into areas that
are clearly differentiated from its current businesses.
Why Diversification Strategy?
 To spread the risk so the organization

 Management may believe the move represent an unusually

attractive opportunities,

 The new area may be especially interesting or challenging

 To balance out seasonal and cyclical fluctuations in product

demand.
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Diversification
Most diversification strategies can be classified as either concentric
diversification or conglomerate diversification:
A. Concentric Diversification: Concentric diversification
involves adding products or services that lies within the
organizations know-how and experience in terms of
technology employed, distribution system, or customer base.

B. Conglomerate Diversification: Conglomerate

diversification is involves adding new products or services
that are significantly different from the organizations present
products or services.
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2. Corporate Stability Strategy

It is also called neutral strategy, occurs when an organization is
satisfied with its current situation & wants to maintain the status
quo.
Reasons for using stability strategy:
 The company is doing well “if it works, don’t fix it”
 The management wants to avoid additional hassles
associated with growth
 Resources has been exhausted because of earlier growth
 The organization continues to serve its customers with
basically the same product/services.
 Management may not wish to take the risk of greatly
modifying its present strategy.
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Corporate Stability Strategy

Some of the more popular of these strategies are:
I. Pause/Proceed with Caution Strategy: A pause/proceed with
caution strategy is, in effect, a timeout – an opportunity to rest
before continuing a growth or retrenchment strategy. It is typically
conceived as a temporary strategy to be used until the environment
becomes more hospitable.

II. No Change Strategy : A no change strategy is a decision to do

nothing new – a choice to continue current operations and policies
for the foreseeable future.

III. Profit Strategy : A profit strategy is a decision to do nothing

new in a worsening situation but instead to act as though the
company’s problems are only temporary. The profit strategy is an
attempt to artificially support profits when a company’s sales are
declining.
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3. Corporate Retrenchment/ Defensive Strategy

A company may pursue retrenchment strategies when it has a weak
competitive position in some or all of its product lines resulting in
poor performance-sales are down and profits are becoming losses.

Reasons for retrenchment strategy: When;

 The company faced financial problems – certain parts of the
organization are doing poorly.
 The company forecasts hard times ahead related to:
• Challenges from new competitors & products
• Changes in government regulations
 Owners are tired of the business or have to have an
opportunity to profit substantially by selling
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Corporate Retrenchment/ Defensive Strategy

Classified in to two broad category:
I. Decline Strategy
Decline strategy includes:
A. Retrenchment: strategy will be used when the company
wants to reduce its operations – primarily, by reducing product
lines and cutting production costs.

B. Harvesting: occurs when future growth appears doubtful or

not cost effective – the main reason could be because of new
competition or changes in consumer preferences.
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Decline Strategy
C. Turn Around: strategy is designed to reverse a negative trend
& get the organization back on the track or profitability – a
temporary measure until things improve. Major actions that should
be taken are:
- Reducing the size of operations
- Cutting back employee compensation or benefits
- Replacing higher-paid employees with lower-paid employees
- Leasing rather than buying equipment
- Cutting back marketing expenses
D. Divestiture: strategy occurs when an organization sells or
divests itself of a business or part of a business.
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Corporate Retrenchment/ Defensive Strategy

II. Closure Strategy
Closure strategy includes
A. Liquidation: occurs when an entire company is either sold
or dissolved either by choice or force.
 When by choice, it can be because the owners are tired
of the business or near retirement
 When by force, the decision often occurs because of a
deteriorated financial condition
B. Filing for bankruptcy: it allows a company to protect
itself from creditors and from enforcement.
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Corporate Portfolio Analysis

The corporate or business portfolio is the collection of businesses
and products that make up the company. The best business
portfolio is one that fits the company's strengths and helps exploit
the most attractive opportunities.

Methods of Portfolio Planning

1. The Boston Consulting Group Matrix (BCG Matrix)
Using the BCG Box, a company classifies all its Strategic
Business Units (SBU's) based to two dimensions:
 On the horizontal axis: relative market share this serves
as a measure of SBU strength in the market.

 On the vertical axis: market growth rate this provides a

measure of market attractiveness
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The Boston Consulting Group Box ("BCG Box")

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The Boston Consulting Group Matrix (BCG Matrix)

Stars: Stars are high growth businesses or products competing
in markets where they are relatively strong compared with the
competition.

Cash Cows: Cash cows are low-growth businesses or

products with a relatively high market share.

Question marks: Question marks are businesses or products

with low market share but which operate in higher growth
markets.

Dogs: Unsurprisingly, the term "dogs" refers to businesses or

products that have low relative share in unattractive, low-
growth markets.
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The Boston Consulting Group Matrix (BCG Matrix)

Using the BCG Box to determine strategy
Conventional strategic thinking suggests there are four possible
strategies for each SBU:
 Build Share: here the company can invest to increase market
share (for example turning a "question mark" into a star)
 Hold: here the company invests just enough to keep the SBU
in its present position
 Harvest: here the company reduces the amount of investment
in order to maximize the short-term cash flows and profits
from the SBU. This may have the effect of turning Stars into
Cash Cows.
 Divest: the company can divest the SBU by phasing it out or
selling it - in order to use the resources elsewhere (e.g.
investing in the more promising "question marks").
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2. Business Level Strategy

Business-level strategy is a strategy designed to gain competitive
advantage by exploiting core competencies in specific product
market for the purpose of providing value to customers.

Business-level strategy is designed to answer the question, "How

do we compete in our business or industry?"

Typically, business-level strategy is concerned with a single

product line or strategic business unit.

Business-level strategy arises from the analysis of:

- The competitive environment of the industry,
- The needs of customers, and
- The resources and core competences of the business.
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Business Level Strategy

Thus, the essence of a firm’s business-level strategy is choosing to
perform activities differently than rivals – to achieve lowest cost
or Perform different (valuable) activities – being able to
differentiate.

The two basic types of competitive advantage a firm can possess

are low cost or differentiation. They are important to cope with
the five forces based on an industry structure.

The two basic types of competitive advantage combined with the

competitive scope leads to three generic strategies for achieving
above-average performance. The three generic strategies are Cost
leadership, Differentiation and Focus.
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Business-level strategy
Five Business-level Strategies

Competitive Advantage

Cost Uniqueness

Broad Target Cost L/Ship Differentiation

Competitive Scope Integrated Cost L/ship

/ Differentiation

Narrow Target Focused Cost Focused

L/ship Differentiation

Competitive Scope: refers to either broad target or narrow target

 Broad target –a wide array of customers, all potential customers
 Narrow target – a specific market segment, i.e., particular customers
Competitive Advantage: refers to either cost or uniqueness
 Cost – refers to lowest cost with standardized products & services
 Uniqueness – refers to high quality (differentiated) products &
services
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Business Level Strategy

I. Cost Leadership Strategy
A cost leadership strategy is an integrated set of actions designed to produce or
deliver goods or services at the lowest cost relative to competitors, with features
that are acceptable to customers and relatively standardised products.

Cost saving actions required by this strategy:

- Tightly controlling production & overhead costs
- Simplifying production processes & building efficient
manufacturing facilities
- Minimising costs of sales, R&D & service
- Monitoring costs of activities provided by outsiders
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Competitive risks of the cost-leadership strategy

 Processes used to produce & distribute goods or
services may become obsolete due to competitors’
innovations.

 Focus on cost reductions may occur at expense of

customers’ perceptions of differentiation
encouraging them to purchase competitors’ products
& services.

 Competitors, using their own core competencies,

may learn to successfully imitate the cost leader’s
strategy
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II. Differentiation Strategy

A differentiation strategy is an integrated set of actions designed to produce goods
or services that customers perceive as being different in ways that are important to
them.

The firm produces non-standardized products for customers who value

differentiated features more than they value low cost.

The ability to sell goods or services at a price that substantially exceeds the cost of
creating its differentiated features allows the firm to outperform rivals & earn
above-average returns.
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Competitive risks of the differentiation strategy

 The price differential between the differentiator’s product
and the cost leader’s product becomes too large.

 Differentiation ceases to provide value for which customers

are willing to pay.

 Experience narrows customers’ perceptions of the value of

a product’s differentiated features.

 Counterfeit goods replicate differentiated features of the

firm’s products at significantly reduced prices.
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III. Focus Strategy

A focus strategy is an integrated set of actions designed to produce or
deliver goods or services that serve the needs of a particular
competitive segment.

Examples of specific market segments that can be targeted by a focus

strategy:
 Particular buyer group (e.g. youths or senior citizens)
 Different segment of a product line (e.g. professional craftsmen
versus do-it-yourselves)
 Different geographic markets
Focused strategies can be:
 Focused Cost Leadership Strategy
 Focused Differentiation Strategy
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Competitive risks of focus strategies

 The focuser firm may be ‘out focused’ by its
competitors.

 A firm competing on an industry-wide basis decides

to pursue the niche market of the focuser firm.

 Customer preferences in the niche market may

change to more closely resemble those of the broader
market.
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VI. Integrated Cost Leadership / Differentiation Strategy

The integrated strategy is an appropriate choice for firms
possessing the core competencies to produce somewhat
differentiated products at relatively low prices.

A firm that successfully uses the integrated cost leadership /

differentiation strategy should be in a better position to:
- Adapt quickly to environmental changes
- Learn new skills and technologies more quickly
- Effectively leverage its core competencies while competing
against its rivals

A commitment to strategic flexibility is necessary for successful

use of this strategy.
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Competitive risks of the integrated Strategy

 Often involves compromises - Becoming neither the
lowest cost nor most differentiated firm.

 Becoming ‘stuck in the middle - Lacking the strong

commitment and expertise that accompanies firms
following either a cost leadership or a differentiation
strategy, Earning below-average returns and
Competing at a disadvantage
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Generic Strategies and Industry Forces

Industry
Force Cost Leadership Differentiation Focus

Ability to cut price in Customer loyalty can Focusing develops core

Entry
retaliation deters discourage potential competencies that can act as an
Barriers entrants.
potential entrants. entry barrier.
Ability to offer lower Large buyers have less Large buyers have less power
Buyer
price to powerful power to negotiate because to negotiate because of few
Power of few close alternatives.
buyers. alternatives.

Suppliers have power because

Better able to pass on of low volumes, but a
Supplier Better protected from supplier price increases to
differentiation-focused firm is
Power powerful suppliers. customers. better able to pass on supplier
price increases.

Can use low price to Customer's become Specialized products & core
Threat of attached to differentiating
defend against attributes, reducing threat competency protect against
Substitutes
substitutes. of substitutes. substitutes.

Rivals cannot meet

Better able to Brand loyalty to keep
Rivalry customers from rivals. differentiation-focused
compete on price.
customer needs.
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3. Functional Level Strategy

Functional strategy is the approach a functional area takes to achieve corporate
and business unit objectives and strategies by maximizing resource and
productivity.

It is concerned with developing and nurturing a distinctive competence to provide

a company or business unit with a competitive advantage.

Just as a multidivisional corporation has several business units, each with its own
business strategy, each business unit has its own set of departments, each with its
own functional strategy.
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Types Functional Level Strategy

Marketing Strategy: Marketing strategy deals with pricing,
selling, and distributing a product.

Financial Strategy: Financial strategy examines the financial

implications of corporate and business-level strategic options and
identifies the best financial course of action.

Research And Development (R&D) Strategy: R&D strategy

deals with product and process innovation and improvement.

Operations Strategy: Operations strategy determines how and

where a product or service is to be manufactured, the level of
vertical integration in the production process, the deployment of
physical resources, and relationships with suppliers.
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Types Functional Level Strategy

Purchasing Strategy: Purchasing strategy deals with obtaining
the raw materials, parts, and supplies needed to perform the
operations function.

Logistics Strategy: Logistics strategy deals with the flow of

products into and out of the manufacturing process.

Human Resource Management (HRM) Strategy: HRM

strategy, among other things, addresses the issue of whether a
company or business unit should hire a large number of low-
skilled employees or hire skilled employees.

Information Technology Strategy: Corporations are

increasingly using information technology strategy to provide
business units with competitive advantage.
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CHAPTER SIX:
STRATEGY IMPLEMENTATION
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Introduction
Strategy implementation has been defined in many ways.
Traditionally the focus has been on organizational structure and
systems. Others have stressed the communicational and cultural
aspects in strategy implementation.
However, scholars and managers alike agree on some central ideas:
 First, successful strategy implementation depends in part on
the organization’s structure.
 Second, strategy must be institutionalized, or incorporated
into a system of values, norms, and roles that shape employee
behavior.
 Third, strategy must be operationalized, or translated into
specific policies, procedures, and rules that will guide
planning and decision-making.
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Factors Causing Unsuccessful Implementation of Strategy

Unsatisfactory coupling of strategy and operational actions
Unsatisfactory coupling of the strategy to the actions necessary
to implement it, both within the organization and in the external
decision situations with which it is concerned may cause
unsuccessful implementation of the strategy.

Insufficient Attention
Another major factor causing unsuccessful implementation of the
strategy is insufficient attention to the negotiation of outcomes in
the external decision situations.

Defective Strategy
Sometimes, there may be strategy, which cannot be implemented
within the context of present and future organizational resources .
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Activating Strategy
Activation is the process of stimulating an activity -so that it is
undertaken effectively. Activation of strategy is required because
only a very small group of people is involved in strategy formulation
while its implementation involves a large number of people in the
organization.
Activation of a strategy or set of strategies requires the performance
of following activities:
1. Institutionalization of Strategy
The successful implementation of strategy requires that the leader
act as its promoter and defender.
Institutionalization of strategy involves two elements:
Communication of strategy to organizational members and getting
acceptance of strategy by these members.
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2. Formulation of Derivative Plans and Programs

The organization may now proceed to formulate action plans and programs. Since
these plans and programs are derived from a strategic choice (strategic plan),
these are known as derivative plans and programs.
Action Plans - Action plans target at the most effective utilization of
resources in an organization so that objectives are achieved.

Programs - is a single-use plan that covers relatively a large set of activities

and specifies major steps, their order and timing, and responsibility for each
step.
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3. Translating General Objectives into Specific Objectives

In order to make these objectives operational managers determine
specific objectives within the framework of general objectives.
Translation of general objectives into specific and operative
objectives must fulfill two criteria.
 Translation should be tangible and meaningful.
 Specific objectives should contribute to the achievement of
general objectives.
4. Resource mobilization and allocation
For implementing a strategy, an organization must allocate
resources and these resources should be committed and allocated
to various units and functions where there is optimum use. The
success of the organization depends on the quality of its resources
and their utilization.
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Implementation of Strategy
Implementation is taking the actions necessary to accomplish the goals, strategies,
and objectives. It requires
 action planning,
 senior leadership involvement,
 commitment to the plan,
 resourcing (people, time, and money), and
 involvement from the entire organization.

To implement the strategic plan successfully, it is necessary for the organization to

have a formal implementation plan with actions assigned to either teams or
individuals who are responsible for their accomplishment.
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1. Structural Implementation
Structural implementation of involves designing of organization
structure and interlinking various units and subunits of the
organization created as a result of the organization structure.

Organization structure is the pattern in which the various parts of

the organization are interrelated or interconnected.

Thus, it involves such issues as:

 how the work of the organization divided and assigned
among various positions, groups, departments, divisions,
etc.
 the coordination, necessary to accomplish organizational
objectives.
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Structural Implementation
Organizational structure facilitates the implementation of the strategy. Although
there are many types of structures, three basic types identified:
A. Simple Structure: an organizational form in which the owner-
manager makes all decisions directly & monitors all activities –
employees serve as an extension of the manager’s supervisory
authority.
B. Functional Structure: is an organizational form where
dominant organizational areas such as human resource,
production, accounting & finance, marketing, R&D, &
engineering are separately organized.
C. Multi-divisional Structure: This is composed of operating
divisions, each representing a separate business or profit center.
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2. Functional Implementation
Functional implementation deals with the development of policies and plans in
different areas of functions, which an organization undertakes.
Every business organization is built around two basic functions: production
and marketing; services and sell these to the customers.
The resources that are used to perform and pay for these two basic functions
constitute two other significant functions-finance and personne1.
Thus, an organization has to formulate policies and plans in these functions to
implement its strategy successfully.
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3. Behavioural Implementation
Behavioural Implementation deals with:
I. Strategic Leadership: Strategic leadership is the process of
transforming an organization with the help of its people so -as to put
it in a unique position.

II. Organizational Culture: Organizational culture is another

element which affects strategy implementation as it provides a
framework within which the behaviour of the members takes place.
Organizational culture is defined as a set of assumptions the
members of an organization share in common.

III. Values: Values of individuals, particularly those of key

strategists, have major impact on strategy of the, organization.
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The Seven-S Model: valuable tool to initiate change processes and to give
direction for strategy implementation.

Description

The Hard
S’s
Strategy Actions a company plans in response to or anticipation of
changes in its external environment.

Structure Basis for specialization and co-ordination influenced

primarily by strategy and by organization size and
diversity.

System Formal and informal procedures that support the strategy

and structure. (Systems are more powerful than they are
given credit)
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The Seven-S Model:

The Soft S’s Description
The culture of the organization, consisting of two
Style/Culture
components:
Organizational Culture: the dominant values and beliefs,
and norms, which develop over time.
Management Style: more a matter of what managers do
than what they say;
The people/human resource management – processes used
Staff
to develop managers, socialization processes, ways of
shaping basic values of management, ways of introducing
young recruits to the company, ways of helping to manage
the careers of employees. c
The distinctive competences – what the company does
Skill
best,
ways of expanding or shifting competences.
Guiding concepts, fundamental ideas around which a
Shared Values
business is built – must be simple, usually stated at abstract
level, have great meaning inside the organization even
though outsiders may not see or understand them.
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CHAPTER SEVEN:
STRATEGY EVALUATION AND CONTROL
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Strategy Evaluation
In general, evaluation refers to measuring and controlling
the organization’s progress with respect to its strategy and
when discrepancies exist, taking corrective action.

Corrective action may require adjusting performance

objectives because of:
 Changes in circumstances
 Shifting contingency plan
 Fine-tuning strategies
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The major issues which make Evaluation difficult

 Each business strategy is unique - neither strategy
is "wrong" nor "right" in any absolute sense

 Strategy is centrally concerned with the selection of

goals and objectives rather than trying to achieve
goals and evaluate them.

 Formal systems of strategic review, while appealing

in principal, can create explosive conflict situations.
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Principles of Strategy Evaluation

 Consistency: The strategy must not present mutually inconsistent goals
and policies.

 Consonance: The strategy must represent an adaptive response to the

external environment and to the critical changes occurring within it.

 Advantage: The strategy. must provide for the creation and/or

maintenance of a competitive advantage in the selected area of activity.

 Feasibility: The strategy must neither overtax available resources nor

create unsolvable sub problems.
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Types of Evaluation
1. Process Evaluation
Emphasizes on uncovering the deficiencies in an ongoing program and monitoring
the progress of an organization against the strategic plan while it is under
implementation.

Process evaluation enables to know whether the organizations are moving toward
the strategic goals.

Four phases of process evaluation

 Problem identification
 Solution development
 Implementation of the solution
 Feedback evaluation
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2. Outcome evaluation
It is undertaken at the end of the entire strategic management
process with the aim of determining what has been accomplished.

The outcome from such an evaluation:

 How much of the stated goal was accomplished?
 What other effects, that were not otherwise anticipated,
resulted from this program?
 What databases are available on which to start the
strategic management process again?

The outcome evaluation closes the loop of the strategic

management process & returns managers to the first phase of
formulating a vision & mission for a new process.
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Strategy Control
The purpose of control could be to determine whether:
 Selected strategies implemented successfully
 The resources are used widely
 Set objectives are achieved, etc.

Steps in Controlling and Evaluation process:

 Setting standards for performance
 Measure actual performance
 Compare actual performance with the standard
 Analyze the reasons for significant deviations, if any
 Take corrective action when performance does not fall within acceptable
range
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Types of Control System

1. Strategic Control: Entails corporate-level managers to evaluate the
performance of division managers & their units using long-term & strategically
relevant criteria.

The effective use of strategic control:

 Requires understanding of business unit’s operations and markets
 Demands rich exchanges of information
 Demands high levels of cognitive diversity by corporate managers
 Requires detecting of any problem or potential problem areas
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Control System
2. Financial Control: Entails objective criteria (e.g. return on
investment) that corporate-level managers use to evaluate both
individual business units & the managers responsible for their
performance.
Financial data are the most commonly used warning signals:
profit, sales, ROI, ROE, cost figures, etc.
Substantial discrepancies in any of the figures indicate something
unanticipated is happening.

There are also non-financial controls that are used as early

warning signals to potential problems
 Productivity measures
 Quality measures
 Personnel related measures
 Feedback from customers
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Barriers in Strategic Evaluation and Control

1. Motivational Problems
A) Psychological Barriers : Top management hardly appreciates any mistake
it may commit at the level of strategy formulation.
B) Lack of Direct Relationship between Performance and Rewards
2. Operational Problems: Problems in the areas of determination of;
 Evaluative Criteria,
 Performance Measurement,
 Measurement Of Organizational Progress,
 Feedback for Future Actions,
 Linking Performance and Rewards.
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END OF MODULE:
THANK YOU ALL!