Unit 1

1.1. Evolution of strategic Management

(This part will be updated soon)


1.2. Characteristics of Strategic Decision

Unlike many other decisions, strategic decisions deal with the long run future of the entire organization and have three basic features:
  • Rare: Strategic decisions are unusual and typically have no precedence to follow
  • Consequential: Strategic decisions commit substantial resources and demand a great deal of commitment from the people at levels
  • Directive: Strategic Decisions set precedents for lesser decisions and future actions throughout the organization
The above given characteristics can be further broken down into other numerous characteristics. These include:
  • Long term direction
  • Complex and uncertain
  • Affected by values and expectation of top stakeholders
  • Future oriented
  • Considers factors in the firm’s external environment
  • Requires allocation of large amount of resources
  • Defines the scope of firm
  • Affect operational decision

Importance of Strategic Decision
  • - To cope with market challenges and opportunities
  • - To fix mission, objectives and operational plans
  • - To develop competitive advantage
  • - To decide on the firm’s growth and prosperity


1.3. Mintzberg’s modes of strategic decision making

Some strategic decisions are made in a flash by one person (often and entrepreneur or a powerful CEO) who has a brilliant insight and is quickly able to convince others to adopt his or her idea. Other strategic decisions seem to develop out of a series of incremental choices that over time push the organization more in one direction than other. According to Henry Mintzberg, the three most typical approaches, or mode of strategic decision making are entrepreneurial, adaptive and planning.


i. Entrepreneurial mode
  • -Strategy is made by one powerful person
  • -Focus on opportunities and problems are secondary
  • -Strategy is guided by the founder’s own vision of direction and is exemplified by large, bold decisions
  • - Dominant goal is growth of organization
Example: Chaudhary Group, Bhat Bhateni.

ii. Adaptive mode
  • This decision making mode is characterized by reactive solution to existing problems, rather than proactive search for new opportunities
  •  Focuses on existing problems rather than searching for new opportunities
  • Strategy is fragmented and it is developed to move the organizational incrementally
Examples: colleges, hospitals, government agencies etc

iii. Planning mode:

  • This mode involves systematic gathering of information for situational analysis, the generation of feasible alternatives strategies and the rational selection of the most appropriate strategy
  • It includes both proactive search for new opportunities and the reactive solution to existing problems
Example: Hewlett Packard




1.4. Components of Strategic Management

Strategic Management (Definition)
  • The set of decisions and actions that result in the formulation and implementation of plans designed to achieve a company’s objective
  • Art and science of formulating, implementing and evaluating cross functional decisions that enable on organization to achieve its objective

Components of Strategic Management

1. Strategic Planning

In today's highly competitive business environment, budget-oriented planning or forecast-based planning methods are insufficient for a large corporation to survive and prosper. The firm must engage in strategic planning that clearly defines objectives and assesses both the internal and external situation to formulate strategy, implement the strategy, evaluate the progress, and make adjustments as necessary to stay on track.


2. Strategic Implementation
The selected strategy is implemented by means of programs, budgets, and procedures. Implementation involves organization of the firm's resources and motivation of the staff to achieve objectives.
The way in which the strategy is implemented can have a significant impact on whether it will be successful. In a large company, those who implement the strategy likely will be different people from those who formulated it. For this reason, care must be taken to communicate the strategy and the reasoning behind it. Otherwise, the implementation might not succeed if the strategy is misunderstood or if lower-level managers resist its implementation because they do not understand why the particular strategy was selected.

iii. Strategic Control

The implementation of the strategy must be monitored and adjustments made as needed. Evaluation and control consists of the following steps:
  • Define parameters to be measured
  • Define target values for those parameters
  • Perform measurements
  • Compare measured results to the pre-defined standard
  • Make necessary changes

1.5. Importance of strategic Management in Nepal

Background
Porter argues that “No company and no country can afford to ignore the need to compete. Every company, and every country, must try to understand and master competition.”


Companies in the industry require strategies to compete in the market, whether the demand of product or service of an organization is growing, same or declining, in all situations they need a strategy to compete. The importance of strategic management in Nepal is increasing at the firm level to work with plan, to understand the nature and dynamics of environment forces, to align business strategy and management practices, to identify and focus on core competencies and to enhance corporate responsibility.

Before discussing the importance of strategic management in Nepal, it is necessary to understand the competitiveness in Nepalese Business Environment

Competitiveness in Nepalese Business Environment

To understand the importance of strategic management in Nepal, it is essential to discuss the concept of national competitiveness and then come to industry level competitiveness. The importance of strategic management arises from the need to compete in the domestic and international markets. Can Nepal compete? This question should be properly answered to understand the importance of strategic management for Nepalese companies.


Porter describes that: “A nation’s competitiveness depends on the capacity of its industry to innovate and upgrade. Companies gain advantage against the world’s best competitors because of pressure and challenges. They benefit from having strong domestic rivals, aggressive home based suppliers and demanding local customers.”


Nepal remained a regulated economy during the Rana and Panchayat regimes. A turning point in the economy came in the 1990’s when it changed its economic development goal from the regulated system into market system. Since then a number of reforms have been undertaken in the public sector, in trade and exchange policy, in the banking system, and in the foreign investment rules and regulations. One of the aims of these reforms is to encourage the private sector and its role to compete in the market and to minimize the control and protection of government.


With the liberalization of the economy the government has encouraged participation of the private sector in the corporate sector’s productivity increment, cost reduction, quality improvement, employment generation and control on overstaffing. In this process the government has privatized almost 2 dozens of public enterprises. For some private firms, buying the government owned firms became the most strategic activity. The factors leading to competitiveness, such as restructuring, mergers, acquisition and other activities are very few.

Presented below are some of the features of competitiveness in Nepalese Business Environment.
  • Factor Condition
  • Demand Conditions
  • Supporting Industries
  • Companies’ strategies, structure and rivalry
Importance of Strategic Management In Nepal:

Nepal is a member of WTO and there is no doubt that Nepal should take advantage of its membership of such a global trade institution.
The importance of strategic management is increasing due to the following reasons:
  • To support the long-term plans
  • To understand the nature and dynamics of environmental forces
  • To align business strategy and management practices
  • To identify and focus on core competencies
  • To enhance corporate social responsibility

1.6. Strategic Plan: Mission, objective and Strategies

Mission

  • - An organization’s mission is the purpose or reason for the organization’s existence.
  • - Mission statement is the statement of the role by which an organization intends to serve it’s stakeholders.
  • - It describes why an organization is operating and thus provides a framework within which strategies are formulated. It describes what the organization does (i.e., present capabilities), who all it serves (i.e., stakeholders) and what makes an organization unique (i.e., reason for existence).
  • - A mission statement differentiates an organization from others by explaining its broad scope of activities, its products, and technologies it uses to achieve its goals and objectives. It talks about an organization’s present (i.e., “about where we are”).For instance, Microsoft’s mission is to help people and businesses throughout the world to realize their full potential. Wal-Mart’s mission is “To give ordinary folk the chance to buy the same thing as rich people.”
  • - Mission statements always exist at top level of an organization, but may also be made for various organizational levels. Chief executive plays a significant role in formulation of mission statement.
  • - Once the mission statement is formulated, it serves the organization in long run, but it may become ambiguous with organizational growth and innovations. In today’s dynamic and competitive environment, mission may need to be redefined. However, care must be taken that the redefined mission statement should have original fundamentals/components.
  • - Mission can be defined narrowly or broadly in scope.
  • Remember: The mission statement tells who we are and what we do as well as what we’d like to become.

Objective
Objectives are the end results of planned activity. They state what is to be accomplished by when and should be quantifiable as possible.
  • Objective converts strategic vision and mission into specific performance targets
  • The achievement of corporate objective should result in the fulfillment of corporation’s mission.
  • Objective creates yardsticks to track and measure performance
  •  It pushes firm to be inventive and focused on results
  • It helps prevent complacency and coasting
Some of the areas in which a corporation might establish its goals and objectives are as follows:
  • Profitability
  • Efficiency
  • Growth
  • Shareholder wealth
  • Utilization of resources
  • Reputation
  • Contribution to employees
  • Contribution to society
  • Market leadership
  • Technological leadership
  • Survival
  • Personal need of top management
Strategies
- A strategy of an organization forms a comprehensive master plan stating how the corporation will achieve its mission and objective. It maximizes competitive advantage and minimizes competitive disadvantage.
- A strategy is all about integrating organizational activities and utilizing and allocating the scarce resources within the organizational environment so as to meet the present objectives.
- For example, after the Tata Group of companies realized that it could no longer achieve its objective by continuing with its strategy of diversification into multiple lines of business, it sold its companies like Tomco, Lakeme etc to Hindustan Lever Limited. Tata instead chose to concentrate on basic industries like steel, automobiles etc, an area that management felt had greater opportunity for growth.

1.7. Levels of Objectives and Strategies

Levels of objective   (Dev Raj Adhikari, Strategic Management)
  1. Corporate level objective
  2. Business level objective
  3. Functional  level objective
  4. Operating level objective
  5. Behavioral level objective
  6. Confidence level objective
  7. Ethical level objective


Level of strategies



1. Corporate level strategy


2. Business level strategy




3. Functional level strategy







1.8. Role of Chief Executive Officer in strategic Management


a) CEO’s Role in formulating strategy
  • Define and provide long term direction to the firm
  • Work as a bridge in between the board of directors and business managers
  • Allow managers from all level participate in decision making
b) CEO’s role in implementing strategy
  • Provide guideline to the entire organization
  • Make managers and organizational members more responsive to environmental changes
  • Help to unify the organization
  • Create more proactive management posture
  • Promote development of business model to enhance bottom line success for the firm
  • Provide managers with a rational for evaluating competing budget requests

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