Basic Concepts of Strategic
"Effective managers live in the present – but concentrate on the future."
James L. Hayes
What is Strategy?
• A combination of the words
stratos, which meant “army”, and
agein meaning “to lead”.
Greek Language (6th century BC)
What is Strategy?
• A strategy is a comprehensive
action plan that identifies long-term
direction and guides resource
utilization to accomplish
with sustainable competitive
Process of formulating,
implementing, and evaluating,
strategies to accomplish long-term
goals and sustain competitive
21st Century Challenges in
• Process is more an “art” than
• Should strategies be visible or hidden
• Should process be more top-down or
Phases of Strategic Management
Basic financial Forecast-based Strategic Strategic
planning: planning: planning: management:
-little analysis; -more thorough -more thorough -analysis of external
analysis; -analysis; and internal
-info coming from -internal info + -internal info +
within the firm; environmental data; environmental data + -implementation,
forecast future trends; evaluation and control;
-only managers are -only managers are -made by planning -made by lower level
involved; involved; staff (top managers) managers+
+ consultants; top managers+
-takes 2-3 weeks; -takes one month; consultants;
-meet once a year; -throughout the year;
- one year plan -three to five years
-plan - five-year plans - five-year plans
Benefits of Strategic Management
• Clear sense of strategic vision of
• Sharper focus on what is
• Improved understanding of a
rapidly changing environment
• Where is organization now?
• If no changes are made, where will
the organization be in 1,2,5 years?
• If the answers are not acceptable,
what specific actions should
• What are risks and payoffs
Basic Model of Strategic
External: Social Environment
External: Task Environment
Opportunities & Threats (External)
Analysis of Trends:
• Political, Legal, Governmental
Strengths & Weaknesses (Internal)
Typically located in functional areas of the firm
• Research & Development
• Computer Information Systems
Vision & Mission
Vision Statement –
What do we want to become?
Mission Statement –
What is our business?
Key Strategic Questions
by Peter Drucker
• What is our business mission?
• Who are our customers?
• What do our customers
• What have been our results?
• What is our plan?
To be the happiest place on earth.
To be the world’s best quick service restaurant.
Mission Statement Example
We should build good ships here
– at a profit if we can
– at a loss if we must
– but always good ships
-- Newport News Shipbuilding
(since foundation in 1886)
Mission Statement Example
The Bellevue Hospital, with respect,
compassion, integrity, and courage, honors the
individuality and confidentiality of our patients,
employees, and community, and is progressive
in anticipating and providing future health care
-- The Bellevue Hospital
WellPont health Network’s
Vision and Mission
WellPoint redefine our industry: through a new
generation of consumer-friendly products that
put individuals back in control of their future.
The WellPoint companies provide health
security by offering a choice of quality branded
health and related financial services designed
to meet the changing expectations of
individuals, families, and their sponsors
throughout a lifelong relationship.
Importance of Mission
Benefits from a strong mission
Unanimity of Purpose
Focal point for work
The end results of planned activity:
• what is to be accomplished
• by when
• it should be quantified if possible
“…increase profits 10% over last year”
Types of Strategies
A Large Company
• Corporate strategy directs the organization
as a whole toward sustainable competitive
• Business strategy sets the strategic
direction for a single business unit or product
• Functional strategy guides the use of
resources to implement business strategy.
Being Better versus Being Different
Playing the Game Better Playing the Game Differently
Focus on your existing Try to identify:
strategic position and try to • new or unexploited customer
improve it and make it better. segments to focus on (a new
Practices such as “WHO”)
restructuring, refocusing, • new customer needs that no
process reengineering, quality competitor is currently satisfying
programs, empowering (a new “WHAT”)
employees, and the like, all • new ways of producing,
aim to achieve this delivering, selling or distributing
your products or services (a new
…to be successful, a company must be able to do BOTH!
A policy is a broad guideline for decision making that
links the formulation of strategy with its implementation.
• Maytag Company: Maytag will not approve any cost reduction
proposal if it reduces product quality in any way.
• 3M: Researches should spend 15% of their time working on
something other than their primary project.
• GE: GE must be number one or two wherever it competes.
• Intel: Intel cannibalizes its own product line with better products
before a competitor does so.
• A program is a statement of the activities or
steps needed to accomplish a single-use
• A budget is a statement of a corporation’s
program in terms of dollars.
• Procedures are a system of steps or
techniques that describe in detail how a
particular task or job is to be done.
Strategy Evaluation & Control
Revision of Decisions
Strategic Decisions Characteristics:
• Rare: strategic decisions are unusual and
typically have no precedent to follow
• Consequential: strategic decisions commit
substantial resources and demand a great
deal of commitment from people on all
• Directive: strategic decisions set precedents
for lesser decisions and future actions
throughout an organization.