2. MODULE 1.
STRATEGIC MANAGEMENT ESSENTIALS
Defining Strategic Management
Strategic management is the art and science of formulating,
implementing, and evaluating cross-functional decisions that
enable an organization to achieve its objectives. Strategic
management focuses on integrating management, marketing,
finance and accounting, production and operations, research
and development (R&D), and information systems to achieve
organizational success.
3. LEVELS OF STRATEGY
Strategies exist at a number of levels in an organization. These
levels are corporate-level strategy, which is the top level, followed
by second level that is business level and strategic business unit.
I. Corporate-level strategy, concerned with the overall scope of
an organization and how value will be added to the different parts
(business units) of the organization. This could include issues of
geographical coverage, diversity of products/services or business
units, and how resources are to be allocated between the different
parts of the organization. In general, corporate-level strategy is
also likely to be concerned with the expectations of owners – the
shareholders and the stock market.
4. II. Business-level strategy, which is about how the various
businesses included in the corporate strategy, should compete in
their particular markets (for this reason, business-level strategy is
sometimes called ‘competitive strategy’).
III. The third level of strategy is at the operating end of an
organization. Operational strategies are concerned with how the
component parts of an organization deliver effectively the
corporate- and business-level strategies in terms of resources,
processes and people.
5. The characteristics of strategic decisions
.The words ‘strategy’ and ‘strategic decisions’ are typically
associated with issues like these:
i. The long-term direction of an organization.
ii. The scope of an organization’s activities. For example, should
the organization concentrate on one area of activity, or should it
have many?
iii. Advantage for the organization over competition.
6. iv. Strategic fit with the business environment. Organizations need
appropriate positioning in their environment, for example in terms
of the extent to which products or services meet clearly identified
market needs.
v. The organization’s resources and competences. Following ‘the
resource-based view’ of strategy, strategy is about exploiting the
strategic capability of an organization, in terms of its resources
and competences, to provide competitive advantage and/or yield
new opportunities.
7. vi. The values and expectations of powerful actors in and around
the organization. These actors – individuals, groups or even other
organizations – can drive fundamental issues such as whether an
organization is expansionist or more concerned with
consolidation, or where the boundaries are drawn for the
organization’s activities.
8. POINT TO NOTE
.Overall, the most basic definition of strategy might be ‘the long-
term direction of an organization’. However, the characteristics
described above according to Johnson, Scholes, & Whittington,
(2008) can provide the basis or a fuller definition:
.Strategy is the direction and scope of an organization over
the long term, which achieves advantage in a changing
environment through its configuration of resources and
competences with the aim of fulfilling stakeholder
expectations.
9. Stages of Strategic Management
The strategic-management process consists of three stages:
strategy formulation, strategy implementation, and strategy
evaluation.
I. Strategy formulation includes developing a vision and a mission,
identifying an organization’s external opportunities and threats,
determining internal strengths and weaknesses, establishing long-
term objectives, generating alternative strategies, and choosing
particular strategies to pursue. Strategy-formulation issues include
deciding what new businesses to enter, what businesses to abandon,
whether to expand operations or diversify, whether to enter
international markets, whether to merge or form a joint venture, and
how to avoid a hostile takeover.
10. II. Strategy implementation requires a firm to establish annual
objectives, devise policies, motivate employees, and allocate
resources so that formulated strategies can be executed. Strategy
implementation includes developing a strategy-supportive culture,
creating an effective organizational structure, redirecting marketing
efforts, preparing budgets, developing and using information
systems, and linking employee compensation to organizational
performance.
11. III. Strategy evaluation is the final stage in strategic management.
Managers desperately need to know when particular strategies are
not working well; strategy evaluation is the primary means for
obtaining this information. All strategies are subject to future
modification because external and internal factors constantly
change. Three fundamental strategy-evaluation activities are
(1) reviewing external and internal factors that are the bases for
current strategies.
(2) measuring performance.
(3) taking corrective actions. Strategy evaluation is needed because
success today is no guarantee of success tomorrow! Success always
creates new and different problems; complacent organizations
experience demise.
12. III. Strategy evaluation is the final stage in strategic management.
Managers desperately need to know when particular strategies are
not working well; strategy evaluation is the primary means for
obtaining this information. All strategies are subject to future
modification because external and internal factors constantly
change. Three fundamental strategy-evaluation activities are
(1) reviewing external and internal factors that are the bases for
current strategies.
(2) measuring performance.
(3) taking corrective actions. Strategy evaluation is needed because
success today is no guarantee of success tomorrow! Success always
creates new and different problems; complacent organizations
experience demise.
13. Key Terms in Strategic Management
In strategic management there variety of terms used in relation to
strategy. This section define nine key terms: competitive advantage,
strategists, vision and mission statements, external opportunities and
threats, internal strengths and weaknesses, long-term objectives,
strategies, annual objectives, and policies.
i. Competitive Advantage. Strategic management is all about
gaining and maintaining competitive advantage. This term can be
defined as any activity a firm does especially well compared to
activities done by rival firms, or any resource a firm possesses that
rival firms desire.
14. ii. Strategists. Strategists are the individuals most responsible for
the success or failure of an organization. They have various job
titles, such as chief executive officer, president, owner, chair of the
board, executive director, chancellor, dean, and entrepreneur.
iii. External Opportunities and Threats. External opportunities
and external threats refer to economic, social, cultural,
demographic, environmental, political, legal, governmental,
technological, and competitive trends and events that could
significantly benefit or harm an organization in the future.
Opportunities and threats are largely beyond the control of a
single organization—thus the word external
15. iv. Internal Strengths and Weaknesses. Internal strengths and
internal weaknesses are an organization’s controllable activities
that are performed especially well or poorly. They arise in the
management, marketing, finance/ accounting,
production/operations, research and development, and
management information systems (MIS) activities of a business.
Identifying and evaluating organizational strengths and
weaknesses in the functional areas of a business is an essential
strategic-management activity. Organizations strive to pursue
strategies that capitalize on internal strengths and eliminate
internal weaknesses.
16. v. Vision and Mission. Statements Many organizations today
develop a vision statement that answers the question “What do we
want to become?” Developing a vision statement is often
considered the first step in strategic planning, preceding even
development of a mission statement. Mission statements are
“enduring statements of purpose that distinguish one business
from other similar firms. A mission statement identifies the scope
of a firm’s operations in product and market terms.”11 It addresses
the basic question that faces all strategists:
“What is our business?” A clear mission statement describes the
values and priorities of an organization. Developing a mission
statement compels strategists to think about the nature and scope
of present operations and to assess the potential attractiveness of
future markets and activities. A mission statement not only broadly
charts the future direction of an organization but it also serves as a
constant reminder to its employees of why the organization exists.
17. vi. Long-Term Objectives. Objectives can be defined as specific
results that an organization seeks to achieve in pursuing its basic
mission. Long-term means more than one year. Objectives are
essential for organizational success because they provide direction;
aid in evaluation; create synergy; reveal priorities; focus
coordination; and provide a basis for effective planning,
organizing, motivating, and controlling activities. Objectives should
be challenging, measurable, consistent, reasonable, and clear. In a
multidimensional firm, objectives are needed both for the overall
company and each division.
18. vii. Strategies. Strategies are the means by which long-term
objectives will be achieved. Business strategies may include
geographic expansion, diversification, acquisition, product
development, market penetration, retrenchment, divestiture,
liquidation, and joint ventures. Strategies are potential actions that
require top management decisions and large amounts of the firm’s
resources. They affect an organization’s long-term prosperity,
typically for at least five years, and thus are future-oriented.
Strategies also have multifunctional and multidivisional
consequences and require consideration of both the external and
internal factors facing the firm.
19. viii. Annual Objectives. Annual objectives are short-term
milestones that organizations must achieve to reach long-term
objectives. Like long-term objectives, annual objectives should be
measurable, quantitative, challenging, realistic, consistent, and
prioritized. They must also be established at the corporate,
divisional, and functional levels in a large organization. Annual
objectives should be stated in terms of management, marketing,
finance/accounting, production/operations, R&D, and MIS
accomplishments. A set of annual objectives is needed for each
long-term objective. These objectives are especially important in
strategy implementation, whereas long-term objectives are
particularly important in strategy formulation. Annual objectives
provide the basis for allocating resources.
20. ix. Policies. Policies are the means by which annual objectives will
be achieved. Policies include guidelines, rules, and procedures
established to support efforts to achieve stated objectives. Policies
are guides to decision making and address repetitive or recurring
situations. Usually, policies are stated in terms of management,
marketing, finance/accounting, production/ operations, R&D, and
MIS activities.
They may be established at the corporate level and apply to an
entire organization, at the divisional level and apply to a single
division, or they may be established at the functional level and
apply to particular operational activities or departments. Like
annual objectives, policies are especially important in strategy
implementation because they outline an organization’s
expectations of its employees and managers. Policies allow
consistency and coordination within and between organizational
departments
21. Benefits of Engaging in Strategic Management
i. Strategic management allows an organization to be more
proactive than reactive in shaping its own future; it allows an
organization to initiate and influence (rather than just respond to)
activities—and thus to exert control over its own destiny.
ii. Strategic management help organizations formulate better
strategies through the use of a more systematic, logical, and
rational approach for decision making. In addition, the process,
rather than the decision or document, is also a major benefit of
engaging in strategic management
22. iii. Strategic management benefit organization when the process
has achieved understanding and commitment from all managers
and employees. Understanding may be the most important benefit
of strategic management, followed by commitment. When
managers and employees understand what the organization is
doing and why, they often feel a part of the firm and become
committed to assisting it. This is especially true when employees
also understand links between their own compensation and
organizational performance. Managers and employees become
surprisingly creative and innovative when they understand and
support the firm’s mission, objectives, and strategies.
iv. Strategic management process empowers individuals within an
organization. Empowerment is the act of strengthening employees’
sense of effectiveness by encouraging them to participate in
decision making and to exercise initiative and imagination, and
rewarding them for doing so.
23. iv. Strategic planning is learning, helping, educating, and
supporting process, not merely a paper-shuffling activity among
top executives. Strategic-management dialogue is more important
than a nicely bound strategic-management document. The worst
thing strategists can do is develop strategic plans themselves and
then present them to operating managers to execute. Through
involvement in the process, line managers become “owners” of the
strategy. Ownership of strategies by the people who have to
execute them is a key to success
24. v. Organizations that use strategic-management concepts are
generally more profitable and successful than those that does not.
Businesses using strategic-management concepts show significant
improvement in sales, profitability, and productivity compared to
firms without systematic planning activities.
vi. Besides helping firms avoid financial demise, strategic
management offers other tangible benefits, such as enhanced
awareness of external threats, improved understanding of
competitors’ strategies, increased employee productivity, reduced
resistance to change, and a clearer understanding of performance–
reward relationships.
25. Importance of vision and mission statements
(i) The vision and mission statements provide a reason of purpose
to organizations and instill the employees with a sense of
belonging. Vision and mission statements are personification of
organizational identity and carry the organizations dogma and
motto.
(ii) A vision and mission statements define in which the
organization operates. Since they define the reason for existence
of the organization, they are indicators of the direction in which
the organization must move to actualize the goals in the vision and
mission statements.
(iii) The vision and mission statements serve as central points for
individuals to identify themselves with the organization. It gives
them a sense of direction.
26. (iv) The vision and mission statements help to translate the
objectives of the organization into work structures and to assign
tasks to that who are responsible for actualizing.
(v) Finally, vision and mission statements provide a philosophy of
existence to the employees. They need meaning from the work to
do and the vision and mission statements provide the necessary.
27. Self-Examination Questions
Question 1
Assume you are a consultant specialized on strategic management
field. You have been invited by TAMECO Ltd which is a newly
established company expecting to deal with training on strategic
management issues. You have been asked to prepare a
presentation to the management about the issue of vision and
mission of the organization.
REQUIRED:
(i) Explain how you would define the terms “Vision and Mission” in
your presentation.
(ii) Assist TAMECO Ltd to formulate a vision statement of the
organization.
28. QUESTION 2
It is argued that one can run a business successful without having
vision and mission statements. But research has proved that vision
and mission are important tools for the business sustainability as
well as essential ingredients of a company’s strategy.
REQUIRED:
Discuss five main benefits of organizational vision and mission.
29. QUESTION 3
(a) Kirikiri is an accountant running a medium size shoe company
where he has customers from East African countries. His company
offers a good and competitive quality shoes in terms of durability
and outlook. Due to the tremendous increase of customers over
the past two years, Kirikiri has planned to register his firm into a
group of large business firms in the market offering the same
product. Kirikiri continued to improve his services as well as
making adhoc decisions on his own without understanding the
impact of the external environment on his business.
This resulted in the failure to earn higher profits inspite of
committing to higher investments. Later, Kirikiri realized that
strategy is a very important factor in any business.
REQUIRED:
Explain the importance of strategy to any business undertakings.
30. Thanks for Listening
Do you have any questions?
Email: drNelsen@uaut.ac.tz
Phone: +255753541330
Nelsen A. Rahul
