INTRODUCTION TO

STRATEGIC MANAGEMENT
 MODULE 1
INTRODUCTION TO STRATEGIC MANAGEMENT

1. Meaning: Strategy
2. Levels of strategy
3. Meaning: Strategic Management
4. Benefits of Strategic Management
5. Limitations of Strategic Management
6. Strategic Model/process
 BACKGROUND
The background of Strategy can be traced back into the Greek history where the word
strategy is derived. Strategy comes from a Greek word Strategos meaning “a general”
with its root meaning “army” and “lead”(Bracker, 2001).

The management science practice is believed to have been in existence for as long as
the human being and can be traced back to 5000 BC but came to maturation with
Freiderick Winslow Taylor in 1911, Henri Fayol in 1916, and Max Weber in 1947
(Celic and Dogan 2011). The Taylor, Fayol and Weber work is commonly referred to
classical theories which is a viewpoint that emphasizes finding ways of managing work
and organization more efficiently (Bartol and Martin, 1991)
 BACKGROUND
In 1916 HenryFayol took the work of Taylor further by transposing the small enterprise concept into a large
enterprise. He discussed the concept of analyzing the whole organization to develop good organizational design
and management principles such as division of labor and specialization, authority and responsibility and
discipline (Celic and Dorgan 2011)the major shift between Taylor and Fayol’s work is that Fayol was more
keen on the human factor than Taylor.

Max Weber was thought to have a bureaucratic approach to his management thinking away from Taylor and
Fayol’s approach. The approach emphasizes on the need for organizations to operate in a rational manner rather
than relying on the management or the owner (Bartol and Martin, 1991, Celic and Dorgan, 2011). However, the
three are categorized as classical approaches because they were formed in the same environmental condition.

Thereafter other authors have developed concepts and definitions of strategic management from the time of
Neuman and Oskar Morgenstern 1947 (The game theory) to Schendel and Hofer in 1979 to present
 THE GAME THEORY
This article describes the Game Theory, developed by Oskar Morgenstern and John von Neumann in a
practical way. After reading you will understand the definition and basics of this
powerful strategy and decision making tool.

What is the Game Theory?

Game Theory is a probability calculation technique used to analyse situations with strategic interactions
between different decision makers and predict the outcome of their decisions. Game Theory is especially
useful for companies that, for example, want to enter a new market with a product or want to lower their
prices in comparison with their competitors in order to increase their market share. It is about which choices
a participant has and how those choices are influenced by the choices of other participants.
Game Theory is a branch of mathematics and it was described in the book Theory of Games and Economic
Behaviour by economist Oskar Morgenstern and mathematician John von Neumann in 1944. From the start,
Game Theory was born out of the analysis of decisions that are made when playing board games. This is
also where it derives its name from. Ultimately, Game Theory, through application from other disciplines,
has become a part of science. Models are created in order to better understand the participants’ choices and
to see how this impacts each other’s decisions. (Conditional response)
 THE GAME THEORY
An assumption in Game Theory is that all players in the game are considered ‘rational’ beings. Being
rational in this context means a number of things. First of all, it is important that players think carefully before
they act. Secondly, players are completely aware of their own objectives, preferences, limitations or
constraints on their actions. Finally, they are able to perform the calculations needed that will lead to the
outcome that best serves their interests. Being rational however does NOT mean that players are selfish, have
no emotions or that all players have the exact same values and moral standards. It is part of the strategy to
figure out what your opponent’s values are and what he or she finds important
Like chess tic tok etc.
Chess is seen as a great game for learning life skills and other life lessons, such as patience (one game could
go on for hours!) and self-control. For purposes of this discussion, however, let’s focus on how chess teaches
strategic thinking.

• Chess teaches emotional competence,

• Chess teaches you to set goals.
• Chess teaches you to make decisions after identifying the alternatives available
 EVOLUTION AS A SUBJECT
1911- Harvard Business School introduced an integrative course in management aimed at the creation of
general managerial capability using case studies.

1959- Two reports on higher education by Gordon and Howell was the main impetus of introducing
business policy in curriculum of business schools. It was sponsored by Ford foundation who was always
interested in the use of higher education in business. The report suggests that a capstone course( academic
with intellectual experience) will help the students to pull together what they have learned in separate
business fields to utilize it to analyze complex business problems findings resulted in a thick book
called The Education of American Businessmen, also published in 1959.

1969- The American Assembly of Collegiate Schools of Business a regulatory body of Business schools
made this course mandatory for the purpose of recognition.
 INDIAN SCENARIO
Late 50’s- Formal management education started in India

Early 60’s- IIM and Administrative Staff College of India was set up. Curriculum was borrowed from American
Business Schools. IIMs base their teaching methodology on the Harvard Model.

AICTE (All India Council of Technical Education) the regulatory agency for management education prescribed
business policy as an integrative element of management studies curriculum.

The importance of the subject is increasing as Indian companies are acutely aware of need for strategic
management.
Year Author Contribution
1918-2007 Alfred Chandler- Prof of Business History, Classic Book “Strategy and structure*
Harvard Business School He argued that all successful companies must have a structure
that matches their strategy rather than the other way round.
Between 1850-1920 extensive study was done where companies
were moving from single organisations to umbrella.

1919-2010 Philip Selznick- Prof of Law University of Initiated idea about interrelation of organisation’s internal
Calfornia , US factors with elements of external environment .Gave the ‘theory
of organisation.’ This inspired the concept of SWOT analysis.

1918-2002 Igor Ansoff- Applied Mathematician and Gap analysis

business manager

1909-2005 Peter Drucker- Prof at New York University Necessity of objectives and goals
in U.S. He published book “Practice of Management” which later
turned out to form theory of MBO

1939-present Mintzberg- Prof Management studies McGill He argued that the label strategic Planning should be dropped as
University Montreal,Canada planning is only thinking rather focus on strategy and
organisation management. It was supported by Sudesh Kumar,
Dr. Bimal Anjum and Dr. Suman Nayyar, 2012. They
concluded that planning often fails because it is not same as
strategic thinking.

1980 James Quinn-Prof Trinity Business School Logical incrementalism- states that strategies do not come into
existence based on one-time decision but small decision
evaluated periodically

1987 Michael Porter- economist From competitive advantage to corporate strategy

• Porter’s hypothesis- According to the Porter hypothesis,
strict environmental regulations can induce efficiency and
encourage innovations that help improve commercial
competitiveness
• Generic strategy
• Porter’s 5 force model
• Value chain
• Porters 4 corner model

1994 Gary Hamel and C.K. Prahalad-Professor Reshaping industries and copeting for future (Strategic intent)
LSE, University of Michigan
 WHAT IS STRATEGY?
Features of Strategy

1. Strategy is Significant because it is not possible to foresee the future. Without a perfect
foresight, the firms must be ready to deal with the uncertain events which constitute the
business environment.

2. Strategy deals with long term developments rather than routine operations, i.e. it deals
with probability of innovations or new products, new methods of productions, or new
markets to be developed in future.

3. Strategy is created to take into account the probable behavior of customers and
competitors. Strategies dealing with employees will predict the employee behavior.

Strategy, in short, bridges the gap between “where we are” and “where we want to be”
 WHAT IS STRATEGY?
Strategy of a corporation forms a comprehensive master plan that states how the corporation will achieve its
mission and
Objectives. It maximizes competitive advantage and minimizes competitive disadvantage.

A strategy could be
• The pattern or common thread related to the organization’s activities which are derived from policies, goals
and objectives;
• Related to pursuing those activities which move an organization from its current position to a desired future
state;
• Concerned with resources necessary for implementing a plan or following a course of action,
• Connected to strategic positioning of the firm making trade offs between its different activities and creating a
fit among these activities; and
• The planned or actual coordination of firm’s major goals and actions, in time and space that continuously co
align the firm with its environment.
 STRATEGY AS A PARADOX-
Bob De Wit and Ron Meyer in the book titled Strategy Synthesis has explained strategy as a highly
complex issue and two sides of the issue need to be thoroughly debated to bring the fore of synthesis that is
unique to each thinker. In such a manner strategy emerges as synthesis out of the process of intellectual
churning of the two opposite perspective

Paradox can be whether to achieve something through competing or cooperating with competitors or another
decision can be to remain within the national boundaries or go international.
LEVELS OF STRATEGY
LEVELS OF MANAGEMENT
 LEVELS OF MANAGEMENT
A single strategy is inadequate for large companies especially companies that while under the
same top management are working in different business lines with regard to either
products/services, markets or technology. Ex- Hindustan Levers, the venerable multinational
subsidiary organizes itself four business of home, personal care, food, new ventures and
exports.

These divisions are known as profit centers or SBU. A complementary concept of SBU valid
for external environment of a company, is Strategic Business Area (SBA).
 CHARACTERISTICS OF CORPORATE STRATEGY

•Corporate level strategies are formulated by the top management with inputs from middle level management and lower level
management in the formulation process and designing of sub strategies
•Decisions are complex and affects the entire organization
•It is concerned with the efficient allocation and utilization of scarce resources for the benefit of the organization
•Corporate level strategies are mapped out around the goal and objectives of an organization. They seek to translate these
goals and objectives to reality
•Typical examples of decisions made are decisions on products and markets
 TYPES OF STRATEGIES
1. Corporate Strategy-
It describes company’s overall direction in terms of general attitude towards growth and management of various business and
product lines. Corporate strategies typically fit within three main categories of stability, growth and retrenchment.

Growth
a. Nirma Ltd. started from a very small company and today it is a famous detergent powder.
b. Reliance Industry Ltd. started from textile products to petroleum industry, telecommunication, AD Labs, Reliance media
work and various other fields.
Failed strategy- Jetairways when acquired Sahara
Stability
Bata comes under stable strategy following company.
Retrenchment
a. The Industry Standard has announced that it will cut about 7 percent of its work force and The New York Times Company
sold almost its entire stake in TheStreet.com, the financial news and analysis site.
b. Vijay Mallya-promoted Kingfisher Airlines slashed salaries of its 50 trainee co-pilots as it charted ways to overcome the
ongoing financial turbulence in the aviation industry. Also Jet airways
 TYPES OF STRATEGIES
2. Business Strategy- It usually occurs at business unit or production level, and it emphasizes improvement
of competitive position of a corporation’s product or service in specific industry or market segment served by
that business unit. Business Strategies fit between two overall categories- Competitive and Cooperative
strategy
 COMPETITIVE STRATEGY-
The strategic advantage one business entity has over its rival entities within its competitive industry.
Achieving competitive advantage strengthens and positions a business better within the business environment. Three
types-
• Cost leadership-Wal-Mart has a broad scope and adopts a cost leadership strategy in the mass market. This strategy
hinged upon Wal-Mart's ability to obtain consumer goods at the cheapest possible price and pass these savings on to
consumers. Wal-Mart also developed its own distribution network for supplying its retail outlets with consumer goods.
This distribution network allowed Wal-Mart to cut out external supply chains and middlemen, further driving down
business costs. Owning its own distribution network also helped Wal-Mart avoid costly rate increases from traditional
shipping methods. D mart in India Inspired by Walmart.

• Differentiation- Mercedes-Benz automobile is an example of differentiation strategy. It differentiates other

automobiles the quality it provides. Maruti follows the differentiation strategy in terms of its service.

• Focus- Johnson and Johnson products mainly focuses on babies

 COOPERATIVE STRATEGIES
A strategy in which firms work together to achieve a shared objective. A strategic alliance is the primary
cooperative strategy and represents a partnership between companies whereby companies' resources,
capabilities, and core competencies are combined to pursue mutual interests to develop, manufacture, or
distribute goods or services.

Types-

Joint Venture- strategic alliance in which two or more firms create a legally independent company to share
resources and develop a competitive advantage
Equity Strategic Alliance:alliance in which two or more firms own different percentages of the company they
have formed by combining resources to create competitive advantage
Nonequity Strategic Alliance: an alliance in which two or more firms develop a contractual relationship to
share uniqueresources to create competitive advantage
 EXAMPLE COOPERATIVE STRATEGY
Hewlett-Packard and Disney

This strategic alliance has been around longer than most people would imagine – going all the way back to
when Mr. Hewlett, Mr. Packard and Mr. Disney were still involved in the main decisions of their respective
companies, dating back to Fantasia's creation. Disney understood that technology was imperative to the future
development of Disney's innovation. The Imagineering Team at Disney still uses HP platforms in ride creation,
animation breakthroughs and improved customer experiences.
It's difficult to think that two powerhouse companies from two entirely different industries could have such
synergy. This opens up ideas for local artists and IT companies to look for ways to build relationships and
innovate together in unique ways. For example, a tech company can team up with a local puppeteer to create a
massive holiday show using technology to sync music and lights to the movements of the puppets.
 SCHOOL OF THOUGHT ON STRATEGY FORMATION
THE PRESCRIPTIVE SCHOOL
1. The Design School (1950’s-60’s) It is a process of conception and the main architect is the CEO. Main contributors-
Selznick (1957)
2. The Planning school (1960’s)- It believes that strategy is a plan divided into sub-strategies and plans. It is a formal process.
3. The Positioning school (1970’s-1980’s)- Strategies are Co’s chosen generic position on the basis of the analysis of
competition and industry in which it operates.

THE DESCRIPTIVE SCHOOL

1. The Entrepreneurial school- 1950’s It believes that the lead role in strategy formulation is played by entrepreneur/leader
who is intuitive and visionary.
2. The Cognitive school- (1940’s-50’s) Strategy formulation is a mental process.
3. The Learning school- The strategy formation is an emergent process.
4. The Power school- Strategy formation is a negotiation process. It is seen as a political and co-operative process.
5. The Cultural school- Strategy formulation is a collective process.
6. The Environmental school- Strategy is a reactive process.

THE INTEGRATIVE SCHOOL

1. The Configuration school- Strategy formulation is a transformation process.
 STRATEGIC MANAGEMENT
The term ‘strategic management’ is a combination of strategy + management. This term refers to the
managerial process of forming a strategic vision, setting objectives, developing a strategy, implementing and
executing the strategy and then overtime initiating whatever adjustments are required.

Meaning-

• Business aims at delivering superior value to their customer and also learning how to adapt to continuously
changing business environment

• To cope with change, company needs to be far sighted and visionary and must develop long term strategies

• The present organizational operations are highly influenced by increasing rate of change in the environment

• It helps organization to develop a strategy to meet competition and ensure long term survival and growth.
 STRATEGIC MANAGEMENT
Definition-

It refers to managerial process of forming-

• Strategic vision

• Setting objectives

• Crafting a strategy

• Implementing and executing the strategy

• Initiating corrective adjustments.

 STRATEGIC MANAGEMENT
Objective-

1. To create competitive advantage, so that the company can outperform the competitors in order to have dominance
over the market.
Stage 1
Where are we
Beginning /
2. To guide company successfully through all changes in the environment. Mission
now?

Stage 2 Where do you

want to be ?
Vision

Stage 3 How might

we get there?
Means

Stage 4 Which way is

Evaluation the best?

How can we
Stage 5 ensure
Control arrival?
STRATEGIC MANAGEMENT
(Benefits)
Sets the strategic direction to the firm

Focus on critical factors of the organization

Understanding the changing environment-

Obtaining sustainable competitive advantage

Lead to better performance

Ensure the long term survival in the market place

Simplifies complex scenarios and develop suitable strategies

 STRATEGIC MANAGEMENT
(Limitations)
A Complex Process

Time Consuming

Difficult to implement

Requires skillful planning- example failed case of JET airways

 STRATEGIC MANAGEMENT MODEL
Dan Schendel and Charles Hofer developed a strategic management model, incorporating both planning and
control functions.
Their model consists of several basic steps:
(1) goal formulation,
(2) environmental analysis,
(3) strategy formulation,
(4) strategy evaluation,
(5) strategy implementation, and
(6) strategic control.
According to Schendel and Hofer, the formulation portion of strategic management consists of at least three
subprocesses:
- environmental analysis,
- resources analysis,
- and value analysis.
Resource and value analyses are not specifically shown, but are considered to be included under other items
(strategy formulation).
Wheelen and Hunger Model
 HAMBRICK FEDRICKSON MODEL
Strategy outlines the means by which a firm intends to create unique value for its customers and important stakeholders.
 STRATEGIC MANAGEMENT PROCESS
A: Establishing a hierarchy of strategic intent: C: Implementation of strategies:
1. Creating and communicating a vision 1. Activating strategies
2. Designing a mission statement 2. Designing systems, structure and process
3. Defining the business 3. Managing Behavioral implementation
4. Adopting the business model 4. Managing functional implementation
5. Setting objectives 5. Operationalizing strategies

B: Formulation of strategies D: Performing strategic evaluation and control

1. Performing environmental appraisal 1. Performing strategic evaluation
2. Doing organizational appraisal 2. Exercising strategic control
3. Formulating corporate level strategies 3. Reformulating strategy
4. Formulating business level strategies
5. Undertaking strategic analysis
6. Exercising strategic choice
7. Preparing strategic plan