MGT603 - Strategic Management - Lecture Handout 01

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NATURE OF STRATEGIC MANAGEMENT

Objectives:

This Lecture provides an overview of strategic management. It introduces a practical, integrative model of the strategic-management process and defines basic activities and terms in strategic management and discusses the importance of business ethics. After reading this lecture you will be able to know that:
What Is Strategic Management?
Discuss the nature of strategy formulation, implementation, and evaluation activities.

What is strategic management?

Strategic Management can be defined as “the art and science of formulating, implementing and evaluating cross-functional decisions that enable an organization to achieve its objective.”

Definition:

“The on-going process of formulating, implementing and controlling broad plans guide the organizational in achieving the strategic goods given its internal and external environment”.

Interpretation:

  1. On-going process:
    Strategic management is a on-going process which is in existence through out the life of organization.
  2. Shaping broad plans:
    First, it is an on-going process in which broad plans are firstly formulated than implementing and finally controlled.
  3. Strategic goals:
    Strategic goals are those which are set by top management. The broad plans are made in achieving the goals.
  4. Internal and external environment:
    Internal and external environment generally set the goals. Simply external environment forced internal environment to set the goals and guide them that how to achieve the goals?
    How the strategic management show:

strategic management

strategic management showImportance of strategic Management
Why do we need to lay so much stress on strategic management?
Strategic management becomes important due to the following reasons:

  • Globalization: The survival for business
    First, global considerations impact virtually all strategic decisions! The boundaries of countries no longer can define the limits of our imaginations. To see and appreciate the world from the perspective of others has become a matter of survival for businesses. The underpinnings of strategic management hinge upon managers' gaining an understanding of competitors, markets, prices, suppliers, distributors, governments, creditors, shareholders, and customers worldwide. The price and quality of a firm's products and services must be competitive on a worldwide basis, not just a local basis.
    The distance between the business sectors are becoming less due to the provisions of certain facilities. Although political boundaries are there but in order to become successful in business it is essential to laid stress on globalization.
  • E-Commerce: A business tool
    A second theme is that electric commerce (e-commerce) has become a vital strategic-management tool. An increasing number of companies are gaining competitive advantage by using the Internet for direct selling and for communication with suppliers, customers, creditors, partners, shareholders, clients, and competitors who may be dispersed globally. E-commerce allows firms to sell products, advertise, purchase supplies, bypass intermediaries, track inventory, eliminate paperwork, and share information. In total, electronic commerce is minimizing the expense and cumbersomeness of time, distance and space in doing business, which yields better customer service, greater efficiency, improved products and higher profitability.
    The Internet and personal computers are changing the way we organize our lives; inhabit our homes; and relate to and interact with family, friends, neighbors, and even ourselves. The Internet promotes endless comparison shopping which enables consumers worldwide to band together to demand discounts. The Internet has transferred power from businesses to individuals so swiftly that in another decade there may be"regulations" imposed on groups of consumers. Politicians may one day debate the need for "regulation on consumers" rather than "regulation on big business" because of the Internet's empowerment of individuals. Buyers used to face big obstacles to getting the best price and service, such as limited time and data to compare, but now consumers can quickly scan hundreds of vendors’ offerings. Or they can go to Web sites such as CompareNet.com that offers detailed information on more than 100,000 consumer products. The Internet has changed the very nature and core of buying and selling in nearly all industries. It has fundamentally changed the economics of business in every single industry worldwide
  • Earth environment has become a major strategic issue
    A third theme is that the natural environment has become an important strategic issue. With the demise of communism and the end of the Cold War, perhaps there is now no greater threat to business and society than the continuous exploitation and decimation of our natural environment.
    The resources are scarce but the wants are unlimited. In order to meet the wants of the world, the resources should be efficiently utilized. For example, the use of oil resources or energy resources will make the people to use these resources for a long time.

Strategic management – A route to success:

The study of strategic management integrates different topics. Different courses are integrated due to the study of this course so that businesses become successful in every sector. It integrates the following:

  • Marketing
  • Management
  • Finance
  • Research and development

The management and marketing are essential part of a business sectors. They should be integrated. Just like other sections of the business are integrated under this study. This term is mostly used by academia but this is also used in media.

History of strategic management:

This course develops in 1950’s. Due to the detailed planning of the business circumstances, the importance of this increased rapidly.
In 1960; s and 70 it was consider to be panacea for problems. But in 1980; s two important revolutions occur in business world.

  1. Computers
  2. Mobiles

The invention of these things has decreased the importance of strategic management. But at the end of 1980, the business involves in computers and mobiles business realized that they still need to adopt the policies for strategic management.

  1. In early time the management takes institution decisions. But now the management has to take decision by a specific process.
  2. Organizational layers become more complex now a days and management divided into layers.
  3. Environment change also evaluates the strategic management.
  4. Stages of Strategic management:
    The strategic management process consists of three stages:
    • Strategy Formulation (strategy planning)
    • Strategy Implementations
    • Strategy Evaluation

Stages of Strategic management

Strategic Formulation:

Strategic formulation means a strategy formulate to execute the business activities. Strategy formulation includes developing:-

  • Vision and Mission (The target of the business)
  • Strength and weakness (Strong points of business and also weaknesses)
  • Opportunities and threats (These are related with external environment for the business)

Strategy formulation is also concerned with setting long term goals and objectives, generating alternative strategies to achieve that long term goals and choosing particular strategy to pursue.
The considerations for the best strategy formulation should be as follows:

  • Allocation of resources
  • Business to enter or retain
  • Business to divest or liquidate
  • Joint ventures or mergers
  • Whether to expand or not
  • Moving into foreign markets
  • Trying to avoid take over

Strategy Implementation

Strategy implementation requires a firm to establish annual objectives, devise policies, motivating employees and allocate resources so that formulated strategies can be executed. Strategy implementation includes developing strategy supportive culture, creating an effective organizational structure, redirecting marketing efforts, preparing budgets, developing and utilizing information system and linking employee compensation to organizational performance.
Strategy implementation is often called the action stage of strategic management. Implementing means mobilizing employees and managers in order to put formulated strategies into action. It is often considered to be most difficult stage of strategic management. It requires personal discipline, commitment and sacrifice. Strategy formulated but not implemented serve no useful purpose.

Strategy evaluation:

Strategy evaluation is the final stage in the strategic management process. Management desperately needs 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 forces are constantly changing.

Nature of Strategic Management

The strategic-management process does not end when the firm decides what strategy or strategies to pursue. There must be a translation of strategic thought into strategic action. This translation is much easier if managers and employees of the firm understand the business, feel a part of the company, and through involvement in strategy-formulation activities have become committed to helping the organization succeed. Without understanding and commitment, strategy-implementation efforts face major problems. Implementing strategy affects an organization from top to bottom; it impacts all the functional and divisional areas of a business. It is beyond the purpose and scope of this text to examine all the business administration concepts and tools important in strategy implementation.
Even the most technically perfect strategic plan will serve little purpose if it is not implemented. Many organizations tend to spend an inordinate amount of time, money, and effort on developing the strategic plan, treating the means and circumstances under which it will be implemented as afterthoughts! Change comes through implementation and evaluation, not through the plan. A technically imperfect plan that is implemented well will achieve more than the perfect plan that never gets off the paper on which it is typed.

Prime task:

Peter Drucker says:

“The prime task is to think through the overall mission of a business”.
Intuition and analysis

Strategic management tries to bring together qualitative and qualitative information.
Intuition rests on:

  • Past experiences
  • Judgment
  • Feelings

Intuitions help in decision making where:

  • Uncertainty prevails
  • Little or no precedence exists
  • Highly interrelated variables exist
  • A choice from various possible alternatives is needed
  • Intuition and analytical judgment requires inputs from all managerial levels
  • Analytical thinking and intuitive thinking complement one another

“Imagination is more important than knowledge, because knowledge is limited, whereas imagination embraces the entire world.”
. . . . Albert Einstein.

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