BASIC CONCEPTS OF

STRATEGIC MANAGEMENT
(PART 1)
CHRISTIAN D. TONGKO,MBA
Definition of Strategic Management
The phrase “Strategic Management” is sometimes used as a synonym for
“Strategy,” but the two terms are not the same.

A strategy refers to a unique plan designed to achieve a competitive

position in the market. It is also an interpretative plan that guides the
organization to reach its goals and objectives. Whereas Strategic
Management consists of analyses, decisions, and actions, an
organization undertakes to create, implement, and sustain competitive
advantages.
In short, Strategic management is the process that defines the
organization’s strategy.
This definition of Strategic Management entails three (3)
ongoing processes:
1. Analyses – Strategic Management is concerned with the analysis
of strategic goals (mission, vision, and strategic objectives) along
with the internal and external environments of the organization.
2. Decisions – Strategic decisions address two (2) basic questions:
What industries should we compete in? And how should we
compete in those industries?
3. Actions – Strategic actions require leaders to allocate necessary
resources and to bring the intended strategies to reality.
Key Attributes of Strategic Management
The four (4) key attributes of Strategic Management:

1. Directs the organization toward overall

goals and objectives. This perspective
refers to how efforts must be directed at
what is best for the total organization, not
just a single functional area. That is, what
might look “rational” or ideal for one
functional area, such as operations, may
not be in the best interest of the overall
firm.

Example: Operations may decide to

schedule long production runs of similar
products to lower unit costs. However, the
standardized output may counter what the
marketing department needs to appeal to
a demanding target market.
2. Includes multiple stakeholders in
decision-making. Stakeholders are those
individuals, groups, and organizations
interested in the organization's success,
including owners, employees, customers,
suppliers, the community at large, and so on.
Example: If the overwhelming emphasis is on
generating profits for the owners, employees
may become isolated, customer service may
suffer, and the suppliers may resent
demands for pricing concessions.

3. Needs to incorporate short-term and

long-term perspectives. Managers must
maintain both a vision for the future of the
organization and a focus on its present
operating needs.

Example: If a company has a three-to-five-

year plan, this long-term plan should have
sequences of short-term plans. Once the
long-term goal is defined, management must
define the short- term steps necessary to
achieve it.
4. Recognizes trade-offs between efficiency and effectiveness. It is the
difference between doing the right thing (effectiveness) and doing things right
(efficiency).

Example: Managers must make many trade-offs. In doing so, managers must
allocate and use resources wisely (efficiency) but still direct their efforts toward
attaining overall organizational objectives (effectiveness).

The Study of Strategic Management Process

The study of Strategic Management leads to the development of a strategic

position that helps determine the organization's future sustainability and
profitability, simultaneous with the integration of managerial capabilities,
responsibilities, motivation, and reward system.

Originally called business policy, strategic management has advanced

substantially with the concentrated efforts of researchers and practitioners.
Today, we recognize both a science and art in applying strategic management
techniques.
The following phases describe the evolution of strategic
management:
• Phase 1: Basic financial planning. During this phase,
organizations emphasize preparing and meeting annual budgets.
Financial targets are established, revenues are measured, and
costs are carefully monitored. Also, the organization's primary
focus is short-term (1 year) and mostly on the functional aspects.
• Phase 2: Forecast-based planning. During this phase,
organizations usually extend time frames covered by the budgeting
process (3-5 years). Organizations tend to seek more accurate
forecasts by considering past and present records and the short-term
and long-term effects of its external environment. Therefore, this
phase has more effective resource allocation and timely decisions
relating to organization’s long-term competitive position in the market.
• Phase 3: Externally oriented planning. During this phase,
organizations attempt to understand basic marketplace phenomena.
Organizations begin to search for new ways to define, meet, and
satisfy customer’s needs and wants. The managers are tasked with
generating several alternative strategies for top management. Lastly,
the top management begins to evaluate the proposed alternative
strategies in a formalized manner for planning and actions.
• Phase 4: Strategic management.
During this phase, the top management
organizes planning groups of managers
and key employees from various
departments and workgroups. They
develop and integrate plans emphasizing
the company’s true competitive
advantages. Strategic plans at this point
detail the implementation, evaluation, and
control issues. Rather than attempting to
forecast the future perfectly, the plans
emphasize probable scenarios and
contingency strategies. Planning is
typically interactive across levels and is
no longer strictly top-down. People at all
levels are now involved in overall
strategic thinking, comprehensive
planning process, and supportive value
system.
Types of Strategies
Strategic alternatives are developed to set direction in
which human and material resources of business will
be applied for a greater chance of achieving selected
goals. It is also involved with the identification of the
ways that an organization can undertake to achieve
targets, weaken the competitors, gain competitive
advantage, and ensure sustainability,

The following are the different types of strategies:

• Corporate-level strategy. This strategy defines the
markets and business in which a company will
operate. It also entails a clearly defined, long-term
vision that organizations set to create corporate
value and motivate the workforce to implement
proper actions to achieve customer satisfaction. It is
a continuous process that requires constant effort to
engage investors in trusting the company with their
money, thereby increasing its equity.
• Business level strategy. This strategy
emphasizes strengthening the company’s
competitive position of products or services.
Business strategies are composed of competitive
and cooperative strategies. It covers all the
activities and tactics for competing in contrast to
the competitors and the management behaviors
requiring strategic alignment and coordination.
Business strategies focus on product development,
innovation, integration, market development, and
diversification, among others.
• Functional level strategy. This strategy is
formulated to achieve some objectives of a
business unit by maximizing resource productivity.
Functional strategy is concerned with developing a
distinctive competence to provide a business unit
with a competitive advantage. Each business unit
or company has its own set of departments, and
every department has its functional strategy.
Functional strategies are adapted to support the
competitive strategy.
• Operating level strategy. This strategy is
usually created at the field level to achieve
immediate objectives. An operating strategy is
formulated in the operational units of an
organization. In some companies, managers
develop an operating strategy for each set of
annual objectives in the departments or
divisions.
Part of strategizing is planning on how to
navigate unchartered territories. Take for
example, the global health crisis brought by
Covid-19. Nobody predicted Covid-19 and how
bad it will get. Companies must consider how the
world is changing and move towards strategic
thinking. It is about making quality decisions,
learning from history, and using foresight on what
will be needed by the company to gain a
competitive advantage.
Competitive Advantage
Competitive advantage means superior
performance relative to competitors in the
same industry or superior performance
relative to the industry average. It can also be
defined as the factor that makes a business's
goods or services superior to the available
options in the market.

The following are the determinants of

competitive advantage:
• Benefit. It pertains to the value offered by
a product or service to the market. Aside
from the product features, companies must
also identify the unspoken benefits of their
product or service. This means constantly
being aware of new trends that affect a
product's or service's value.
Example: Newspapers slowly adapt to the
current technological trends because most
news and information are already available
via the Internet. Other newspaper companies
may perceive that some people are still
willing to pay for news delivered daily on a
piece of paper.

• Target market. It pertains to a selected

group of customers within a business'
available market at which a business aims
its marketing efforts and resources.
Companies must be aware of their target
market to innovate their products and
services based on the particular needs of
their customers.

Example: Newspapers' target market is

drifted towards older people who are not
comfortable or capable of getting their
news online.
• Competition. It pertains to the rivalry between
companies that sell similar goods and
services. Aside from the companies that sell
similar products, a business must also identify
its indirect competitors in the market.

Example: Newspaper companies thought their

competition was with other newspaper
companies until they realized it was the
advent of modernization because of the
Internet.
• Cost advantage. This pertains to the strategy
of a company that involves producing a product
or providing a service at a lower cost than its
competitors. Companies with this advantage
produce products in higher quantities and
provide customer benefits. This is mainly
influenced by multiple factors such as access to
low-cost raw materials, efficient processes and
technologies, low distribution and sales costs,
and efficiently managed operations.
Example: A global company that employs
cost advantage is Unilever, which is
influenced by its large operation and
massive presence in the market.
• Differentiation strategy. This pertains to
a company's strategy that involves
marketing the qualities of a product that
sets it apart from other similar products
and uses that difference to drive consumer
choice. Product differentiation makes
consumers' attention focused on one or
more key benefits of a brand that make it
better than others.
Example: A global company that employs
a differentiation strategy is Apple, which
creates its operating system (IOS) that
distinguishes its product as superior apart
from its competitors.