KENYATTA UNIVERSITY INSTITUTE OF OPEN LEARNING CBA 504: STRATEGIC MANAGEMENT G. GONGERA Institute of Business Administration TABLE CONTENTS

LESSON 1.............................................................................................................................1 STRATEGIC MANAGEMENT: AN INTRODUCTION................................................1 1.0Objectives.....................................................................................................................1 1.1Introduction..................................................................................................................1 1.2Meaning of strategy .....................................................................................................3 1.3The characteristics of strategic decisions.....................................................................3 1.4Strategic management ..................................................................................................4 1.5Importance of strategic management ...........................................................................7 1.6Strategic management responsibilities of managers. ...................................................7 1.7Committees and the responsibilities ............................................................................9 1.8Influences on strategic management ..........................................................................10 1.9Emerging Issues of Strategic Management................................................................12 1.10Formulating Strategies for Small Business................................................................14 1.11Strategy and International Operations........................................................................15 1.12Strategies of Going Abroad........................................................................................16 1.13Revision questions .....................................................................................................21 1.14Summary ....................................................................................................................21 1.15 Definition of Key Concepts .......................................................................................22 1.15 Definition of Key Concepts .......................................................................................23 1.16Further Reading..........................................................................................................23 LESSON TWO...................................................................................................................24 THE STRATEGIC MANAGEMENT PROCESS..........................................................24 2.0Objectives..................................................................................................................24 2.1Introduction................................................................................................................24 2.2Environmental analysis ..............................................................................................25 2.3Step 2. Establishing organizational direction.............................................................26 2.4Strategy formulation ..................................................................................................26 2.5Step 4. Implementation of organizational strategy ....................................................27 2.6Step 5 Strategic control ..............................................................................................28 2.7Revision questions .....................................................................................................28 2.8Summary ....................................................................................................................29 2.9 Further reading...............................................................................................................29 LESSON 3...........................................................................................................................30 ENVIRONMENTAL ANALYSIS....................................................................................30 3.0Objectives...................................................................................................................30 3.1Purpose of environmental analysis ............................................................................30 3.2Roles of environmental analysis ................................................................................31 3.3Environmental structure.............................................................................................31 3.4General environment..................................................................................................33 3.5The operating environment ........................................................................................33 3.6Internal environment ..................................................................................................34 3.7Environmental forecasting .........................................................................................35 3.8Revision questions .....................................................................................................36 3.9Summary ....................................................................................................................36 3.10Definition of key concepts .........................................................................................37 - ii - LESSON FOUR..................................................................................................................38 ORGANIZATIONAL DIRECTION: MISSION AND OBJECTIVE ..........................38 4.0Objectives...................................................................................................................38 4.1Organizational Mission: Definition............................................................................39 4.2Importance of organizational mission. .......................................................................39 4.3Contents of mission statements. The topics include; .................................................40 4.4Organizational objectives...........................................................................................40 4.5Strategic goals and objectives ....................................................................................41 4.6Areas in which organizational objectives are established..........................................43 4.7The process of establishing organizational direction. ................................................44 4.8 Revision questions .....................................................................................................45 4.9Summary ....................................................................................................................45 4.10Definition of key concepts .........................................................................................46 4.11Further reading...........................................................................................................46 LESSON 5...........................................................................................................................47 STRATEGY FORMULATION........................................................................................47 5.0Objectives...................................................................................................................47 5.1Strategy formulation inputs from environmental analysis ......................................47 5.2Formulation of Business Strategy..............................................................................48 5.3Formulating organizational strategies........................................................................51 5.4Formulating functional strategies...............................................................................53 5.5Strategy formulation constraints and selection criteria..............................................54 5.6Strategy selection criteria...........................................................................................55 5.7 Revision questions .....................................................................................................55 5.8Summary ....................................................................................................................55 5.9Definition of key concepts .........................................................................................56 5.10Further reading...........................................................................................................56 LESSON 6...........................................................................................................................56 STRATEGY IMPLEMENTATION ................................................................................56 6.0Objectives...................................................................................................................56 6.1Analyzing strategic change ........................................................................................59 6.1Analyzing strategic change ........................................................................................60 6.2Analyzing organizational structure ............................................................................61 6.3Advantages and disadvantages of five organizational structures...............................66 6.4The managers role in leading the implementation process.......................................68 6.5Building a capable organization.................................................................................69 6.6Matching organization structure to strategy...............................................................69 6.7Analyzing organizational culture ...............................................................................70 6.8Selecting an implementation approach ......................................................................71 6.9Implementing the strategy and evaluating the results................................................75 6.10 Revision questions .....................................................................................................76 6.11Summary ....................................................................................................................76 6.12Definition of key concepts .........................................................................................76 6.13Further reading...........................................................................................................77 - iii - LESSON 7...........................................................................................................................78 STRATEGIC CONTROL.................................................................................................78 7.0Objectives...................................................................................................................78 7.1The purpose and contributions of strategic controls ..................................................78 7.2The components of strategic control ..........................................................................79 7.3Process of strategic control ........................................................................................80 7.4 Designing effective strategic control systems............................................................81 7.5Consequences of poor controls ..................................................................................83 7.6Why do control systems fail?.....................................................................................83 7.7The importance of information in strategic control ...................................................84 7.8Key players in strategic control process: ...................................................................84 7.9Revision questions .....................................................................................................86 7.10Summary ....................................................................................................................87 7.11Further reading...........................................................................................................87 LESSON 8...........................................................................................................................88 STRATEGIC HUMAN RESOURCE MANAGEMENT...............................................88 8.0Objectives...................................................................................................................88 8.2Strategic Human Resource.........................................................................................88 8.3HRM In The Strategic Management Process.............................................................89 8.4Aims of Strategic Human Resource Management .....................................................90 8.4Aims of Strategic Human Resource Management .....................................................91 8.5Origins of The Concept Of Strategic HRM...............................................................91 8.6Meaning of Strategic HRM........................................................................................91 8.7Strategic Integration: Integrating Business And HR Strategies.................................91 8.8Limitations .................................................................................................................92 8.9The Concept Strategic Fit.......................................................................................94 8.10The Concept of Coherence.........................................................................................95 8.11Formulation of HR Strategy General Considerations. ............................................96 8.12Requirements for Strategic HRM...............................................................................97 8.13Developing HR Strategies..........................................................................................97 8.14Revision questions ...................................................................................................101 8.15Summary ...................................................................................................................101 8.16Further reading.........................................................................................................101 LESSON 9.........................................................................................................................102 STRATEGIC MANAGEMENT: CASE ANALYSIS...................................................102 9.0Objectives.................................................................................................................102 9.1Introduction..............................................................................................................102 9.2Preparing for Case Discussion .................................................................................103 9.3Suggestions for Effective Preparations ....................................................................103 9.4Participation in Class ...............................................................................................105 9.5Oral Presentations ....................................................................................................107 9.6Working as a Team Member....................................................................................108 9.7Summary ..................................................................................................................132 9.8Further Reading........................................................................................................133 - iv - LESSON 1 STRATEGIC MANAGEMENT: AN INTRODUCTION 1.0Objectives By the end of this lesson, you should be able to: 1. Define what is meant by strategy and strategic management 2. Describe strategic management paradigm 3. Explain Importance of strategic management 4. Explain the various influences on strategic management 5. The components of strategic management 6. Characteristics of strategic decisions 7. Strategic responsibilities of managers and committees. 1.1Introduction Managers face no greater challenge than that of strategic management. Guiding a complex organizationthroughadynamic,rapidlychangingenvironmentrequiresthebestof judgement. Strategic management are invariably ambiguous and unstructured, and the way inwhichmanagementrespondstothemdetermineswhetheranorganizationwillsucceed orfail(ArthurA.Thompson,1987).Therehasbeenadebateofwhysomemanagement organizations fail while others succeed in a complex environment. Research has been done onthemanagementpracticesofsuccessfulandunsuccessfulorganizationsinaneffortto learnthereallyimportantmanagerialdosanddontsthatseparatethewinnersfromthe losers. The differences consists of the following: 1.Inhighperformingcompanies,managersarecommittedtohavingafirstrate strategicactionplan-oneaimedatachievingsuperiorfinancialperformanceanda strong, defendable competitive position. They see competitive advantage (if possible, competitivedominance)asthekeytosuperiorprofitabilityandlong-term performance.Weakperformingorganizationsarealwaysontheshortendofthe strategy stick. Their managers, pre-occupied with internal brush fires and paper work deadlines,doacomparativepoorjobofmaneuveringtheirorganizationsinto favourable competitive positions; they dont develop effective ways to compete more successfully. 2.High-performingorganizationsarestronglyresult-orientedandperformance conscious.Doingagoodjobofmanagingmeansachievingthetargetedresultson time.Outstandingindividualperformanceisvaluedandwellrewarded.The - 1 - managers of poorly performing organizations excuse weak performances on the basis ofsuchuncontrollablefactorssuchasadepressedeconomy,slackdemand,strong competitive pressures, using casts, and unforeseen problems. 3.In high performing organizations, there is a clear sense of direction. Senior managers have a strong vision of where the company needs to be headed and why. They are not afraidtoblazenewtrailsorinitiatemajorchangesintheorganizationsbusiness makeup.Bycontrast,themanagersoflow-performingorganizationsare characteristically so absorbed in the latest crisis and tendering to administrative detail that they neglect the task of thinking deeply about where the organization will be in fiveyearsifitstickstodoingjustwhatitisalreadydoing.Bigdirection-setting decisionsstayonthebackburner.Theyaremorecomfortablebeinglate-movers insteadoffirst-movers.Majorstrategicissuesareoftenstudiedbutlessoftenacted on decisively. 4.High-performingcompanies,thereisenoughskilledworkforce,withunmatched knowledgeaboutcustomerneedsandbehaviour,markettrends,andemerging opportunities.Managersdoggedlypursuewaystodothingsbetterordifferently, oftengettingtheirbestideasfromlisteningtocustomers.Theinnovativeapproach theypracticeispersistencetry,fail,learn,tryagain,keepatit,andeventually succeed. They aggressively search out new opportunities and move boldly to pursue thosetheyfindmostattractive.Poorrunorganizationsareneithercustomer-driven nor opportunity-driven. Their managers are normally less perceptive about customer needs and attitudes, their instinct is to react to market trends rather than initiate them. They are reluctant to try out new ideas for fear of making mistakes. 5.In the best performing companies, managers are deeply involved in implementing the chosenstrategyandmakingitworkaspanel.Theyunderstandtheinternal requirementsforsuccessfulstrategyimplementationandtheyinsistthatcareful attentionbepaidtothetinydetailsrequiredforfirst-rateexecutionofthechosen strategy. In unsuccessful organizations managers fail to appreciate the importance of chartingaclearorganizationalcourseandbeinggoodentrepreneurs.Theylackan instinctforstrategicthinkingandignorethelessonimplicitinthefamiliar expression. If you dont know where you are going, any road will take you there. The challenge of strategic management is to be able to think through complex issues facing organizationsabouttheirlong-termdirection,formulateclearviewsastowhatdirection shouldbefollowedintherealitiesofhoworganizationsfunction.Thisunitaddresses various issues and challenges affecting many organizations here in Kenya and lessons to be learned. - 2 - 1.2Meaning of strategy Strategyreferstotopmanagementsplanstoattainoutcomesconsistentwith organizations mission and goals. One can look at strategy from three vantage points: 1.Strategy formulation (developing the strategy) 2.Strategy implementation (putting strategy into action), and 3.Strategycontrol(modifyingeitherthestrategyoritsimplementationtoensurethat desired outcomes are attained. Chandlers(1962:13)definitionisperhapsthefundamentalcontributiontocorporate strategy. The determination of the basic long-term goals and the objectives of an enterprise, and the adoptionofcoursesofactionandtheallocationofresourcesnecessaryforcarryingout thesegoals.However,Andrews(1971:28),expoundedonthisawellcompleteand accepted definition: Corporatestrategyisthepatternofmajorobjectives,purposesorgoalsandessential policies of plans for achieving those goals, stated in such a way as to define what business the company is in or is to be in and the kind of company it is to be. Andrews and Chandlers definitions define strategy in terms of intentions. Mintzberg and Waters (1983:466) are of the view that organizations may sometimes pursue strategies they never intended. Hence they propose that the usual definition of strategy be called intended strategyandstrategyingeneralandrealisedstrategybedefinedasapatternina stream of decisions (actions). According to Gerry Johnson and Kevan Scholes, strategy is the direction and scope of an organization over the long-term: which achieves advantages for the organizations through its configuration of resources within a changing environment, to meet the needs of markets and to fulfil stakeholder expectations. 1.3The characteristics of strategic decisions They are: 1.Strategicdecisionsareconcernedwithoraffectthelong-termdirectionofan organization. 2.Strategicdecisionsarenormallyabouttryingtoachievesomeadvantageforthe organization, for example over competition. 3.Strategic decisions are concerned with the scope of an organizations activities: does (andshould)theorganizationconcentrateononeareaofactivity,orshouldithave many? The issue of scope of activity is fundamental to strategic decisions because it - 3 - concerns the way in which those responsible for managing the organization conceive the organizations boundaries. 4.Strategycanbeseenasthematchingoftheactivitiesofanorganizationtothe environment in which it operates. This is sometimes known as the search for strategic fit identifying opportunities, which exist in the environments. 5.Strategycanalsobeseenasbuildingonorstretchinganorganizationsresources andcompetenciestocreateopportunitiesortocapitalizeonthem;(identifying existingresourcesandcompetencies,whichmightbeabasisforcreatingnew opportunities in the market place). 6.Strategicdecisionsarelikelytoaffectoperationaldecisions.Achangeindoing business(internationalization)requiresawholeseriesofdecisionsatoperational level. Management and control structures to deal with the geographical spread of the firmhavetochange.Thewayinwhichsupplieswerecontrolledandthemethodof developinganddistributingstockrequiresrevisiontodealwiththeextended distribution logistics. 7.Thestrategyofanorganizationisaffectednotonlybyenvironmentalforcesand resource availability, but also the values and expectations of those who have power in andaroundtheorganization.Insomerespects,strategycanbethoughtofasa reflectionoftheattitudesandbeliefsofthosewhohavemostinfluenceonthe organization,whetheracompanyisexpansionistormoreconcernedwith consolidation,andwheretheboundariesaredrawnforacompanysactivities,may saymuchaboutthevaluesandattitudesofthosewhoinfluencestrategythe stakeholders of the organization. 1.4Strategic management Strategicmanagementisabroader term that encompassesallactivitiesthatdeterminethe missionsandgoalsofanorganizationwithinthecontextofitsexternalenvironment. Hence, strategic management can be viewed as a series of steps in which top management should accomplish the following tasks: 1.Analyse the opportunities and threats or constraints in the external environment 2.Establish the organizations mission and develop its goals 3.Analyse the organizations internal strengths and weaknesses 4.Formulatestrategies(atcorporatelevel,thebusinessunitlevel,andthefunctional level) that will match the organizations strengths and weaknesses with environments opportunities and threats. 5.Implements the strategies - 4 - 6.Engageinstrategiccontrolactivitiestoensurethattheorganizationsgoalsare attained. Strategicmanagementistheprocesswherebymanagersestablishanorganizationslong-termdirection,setspecificperformanceobjectives,developstrategictoachievethese objectives in the light of all the relevant internal and external circumstances, and undertake to execute the chosen plans. (Arthur A. Thompson Jr. and A.J. Strickland III, 1987). StrategicmanagementwillbeinterpretedinrelationtoSchendelandHofers(1979) paradigm(seefigure1).Thisparadigmconceivesofthemanagementofstrategyas consistingofthefollowingstepsandtasks:goalformulation,strategyevaluationand strategycontrol.Whileotherparadigmshavebeensuggested(Bower1982,GreenWood andThomas1981)itiscontendedthatSchendelandHofersparadigmisapracticaland usefulframeworkconceptualizationofstrategicmanagementasinstitutionalized entrepreneurship. Thenatureofstrategicmanagementisdifferentfromotheraspectsofmanagement. Individualmanagersisoftenrequiredtodealwithproblemsofoperationcontrol,suchas the efficient production of goods and services, management of a sales force, the monitoring offinancialperformanceorthedesigningofsomenewsystemthatwillimprovethe efficiencyoftheoperation.Therefore,differencesbetweenstrategicmanagementand operational management is as follows: Strategic management Operational management 1.Ambiguous1.Routinised 2.Complex 2.- 3.Organization wide3.Operationally specific 4.Fundamental4.- 5.Long-term implications 5.Short-term implications Thescopeofstrategicmanagementisgreaterthanthatofanyareaofoperational management.Strategicmanagementisconcernedwithcomplexitiesarisingoutof ambiguous and non-routine situations with major challenges for managers who are used to managing on a day-to-day basis the resources they control. It can be a particular problem because of the background of managers who may typically have been trained, perhaps over many years to undertake operational tasks and operational responsibilities. - 5 - Figure 1 Goal formulation Goal structure Strategy evaluationEnvironmental industry analysisStrategy formulation Proposed strategy set Choice of strategy Strategy implementationStrategy control Performance evaluation Strategic planning Figure 1. Strategic management paradigm (Adapted from Schendel and Hofer, 1979) - 6 - ArthurA.ThompsonJr.andA.J.StricklandIII,(1987),areoftheviewthatstrategic management consist of five critical components: 1.Defining the organizations business and developing a strategic mission as a basis for establishing what the organization does and doesnt do and where it is headed. 2.Establishing strategic objectives and performance targets. 3.Formulating a strategy to achieve the strategic objectives and targeted results. 4.Implementing and executing the strategic plan. 5.Evaluatingstrategicperformanceandmakingcorrectiveadjustmentsinstrategy and/orhowitisbeingimplementedinlightofactualexperience,changing conditions, and new ideas and opportunities. It is often important for the management tomonitor both how well the chosen strategy is workingandhowwellimplementationisproceeding,makingcorrectiveandadjustments wherever better ways of doing things can be supported. Therefore, the function of strategic management is ongoing, not something to be done once and then neglected. 1.5Importance of strategic management Strategic management has gained prominence in the world of business. Most of the current eventscoveredinsuchbusinesspublicationsastheEconomist,BusinessWeek,andthe WallStreetJournalencompassesstrategicmanagementconcepts.Itisimportantthatone has to understand the basics of strategic management process, as domestication and foreign competition intensifies, government influences on business operations expands. Employees, supervisors, and middle managers ought to familiarize themselves on issues of strategicmanagement.Anappreciationoftheirorganizationsstrategyhelpsthemrelate theirworkassignmentsmorecloselytothedirectionoftheorganizations,thereby enhancingthemjobperformanceandopportunityforpromotionandmakingtheir organization more effective. 1.6Strategic management responsibilities of managers. They are: 1.Establishingthemissiondecidingonbusinessorbusinessesthatthecompanyor divisionshouldengageinotherfundamentalsthatwillguideandcharacterizethe business, such as continuous growth. A mission is usually enduring and timeless. 2.Formulatingacompanyphilosophyestablishingthebeliefs,values,attitude,and unwritten guidelines that add up to the way we do things around here. - 7 - 3.Establishingpoliciesdecidingonplansofactiontoguidetheperformanceofall major activities in carrying out strategy in accordance with company philosophy. 4.Settingobjectivesdecidingonachievementtargetswithinadefinedtimerange. Objectives are narrower in scope than the mission, and are designed to aid in making operational plans for carrying out strategy. 5.Developing strategy developing concepts, ideas and plans for achieving objectives successfullyandmeetingandbeatingthecompetition.Strategicplanningispartof the total planning process that includes management and operation planning. 6.Planningtheorganizationstructuredevelopingtheplanoforganizationandthe activitiesthathelppeopleworktogethertoperformactivitiesinaccordancewith strategy, philosophy, and policies. 7.Providingpersonnelrecruiting,selecting,anddevelopingpeopletofillthe positions in the organization plan. 8.Establishing procedures determining and prescribing how all important and current activities will be carried out. 9.Providingfacilitiesprovidingtheplant,equipment,andotherphysicalfacilities required to carry on the business. 10.Providing capital making sure the business has the money and the credit needed for working capital and physical facilities. 11.Settingstandardsestablishingmeasuresofperformancethatwillenablethe business to best achieve its long-term objectives successfully. 12.Establishingmanagementprogramsandoperationplansdevelopingprogramsand plansgoverningactivitiesandtheuseofresourcesthat,whencarriedoutin accordance with established strategy, policies, procedures and standards, will enable peopletoachieveparticularobjectives.Therearephasesofthetotalplanning process, which include strategic planning. 13.Providing control information supplying facts and figures to help people follow the strategy,policies,procedures,programs:tokeepalerttoforcesatworkinsideand outsidethebusiness;tomeasureoverallcompanyperformanceagainstestablished plans and standards. 14.Activatingpeoplecommandingandmotivatingpeopletoactinaccordancewith philosophy, procedures, and standards in carrying out plans of the company. - 8 - Thepurposeofstrategicmanagementistoensurethatanorganizationasawholeis appropriatelymatchedtoitsenvironmentthatis,toitsoperationalsurroundings. Organizationalenvironmentsareconstantly,changing,andorganizationmustbechanged accordinglytoensurethatorganizationalgoalscanbeattained.Legislationaffectingthe organization,changesinthelaboursupplyavailabletoit,andactionstakenbyits competitionareexamplesofchangeswithintheorganizationsenvironmentthatare normally addressed by management. AccordingtoGeorgeGrune,ChairmanoftheboardandCEOofReadersDigest Association, allowing others to participate in the strategic management process, even to the extentofinvolvinglower-levellimemanagers,generallyresultsinmorerealisticgoals, objectives,andstrategies.Inthissituationotherssuggesttotopmanagementhowtheir areasshouldbeintegratedwithinstrategicmanagementoftheorganizationasawhole. Grunemaintainsthatsuchparticipationandinvolvementbuildsorganizational commitment to achieve established goals and to implement those strategies that have been selected. 1.7Committees and the responsibilities Thebusiness,whichexistsincorporateform,hasaboardofdirectorselectedby stockholdersandgivenauthorityandresponsibility.Theboardguidestheaffairsofthe corporation and protects stockholders interest. Theboardofdirectorsshouldbeseenasascarceresourcetobeusedtoperformthose activitiesthatitcanuniquelyandbestcontributetoorganizationalgoalattainment.Most authoritiesoncorporategovernancearguethatgreaterboardinvolvementinstrategic management process should be used as a means to improve the quality of strategic decision making,enablingthemtobetterdischargetheirresponsibilities.Someoftheir responsibilities are: (a)Executive committee 1.To act within specified bounds for the board of director between board meetings. 2.To serve as a sounding board for ideas of the (EO before they are presented to the full board. 3.To monitor extended negotiation. 4.To oversee activities not specifically delegated to other committees. (b)Audit committee 1.ToensurethatcompanypoliciesandPracticesarewithintheboundsofaccepted conduct 2.To select (or recommend) auditors and determine the scope of audits. - 9 - 3.To review financial reports to gain full insight into the companys current and future financial condition. 4.To review internal accounting procedures 5.To assure the integrity of the companys operations. (c)Compensation committee 1.To assure that compensation (including stock options, benefits, bonuses and salaries) will attract, hold, and motivate key personnel. 2.Toseethatcompensationandbenefitplansthroughouttheorganizationare competitive, equitable and well executed. 3.To oversee the development and implementation of human resource plans. (d)Financial committee 1.Toreviewandadvicetheboardonthefinancialstructureandneedsofthe organization. 2.Torecommendtomanagementandtheboardthetimingandtypesoffinancing needed (both long-term and short-terms). 3.Toassisttopmanagementinestablishinggoodworkingrelationshipwiththe financial community. 4.To provide advice about various investment, expenditure, and funding alternatives. (e)Nominating committee 1.To recommend candidates for membership on the board 2.To recommend candidates for managerial or officer positions in the company 3.To advise management on human resources planning 1.8Influences on strategic management Strategicmanagementiseclectic,drawingupon avarietyoftheoreticalframeworks.This part will focus on the diverse roots that have influenced strategic managements growth. 1.Industrial organization theory Industrial organization, a branch of microeconomics, emphasizes the influence of industry environmentuponthefirm.Implicitinindustrialorganizationtheoryisthepremisesof evolutionarychange.Afirmmustadapttoitsparticularindustrysforcestosurviveand prosper, and its financial performance is determined by the competition of other industries. Industrieswithfavourablestructures,offerstheopportunityforhighreturns,whilethe opposite is true for firms operating in industries with less favourable forces. - 10 - Industrialorganizationtheoryisdeterministicbecauseitassumesthatanorganizations survival depends upon its ability to adapt to industry forces. A firms strategies, resources, and competencies are reflections of the industry environment. 2.Chamberlins economic theories Edward Chamberlin, presented his ideas within the context of evolutionary environmental change.Heproposedthatasingleformcouldclearlydistinguishitselffromits competitors. (a)Generalclassofproductisdifferentiatedifanysignificantbasisexistfor distinguishing the goods (or services) of one seller from those of another. Where such differentiation exists, even though it might be slight, buyers will be paired with sellers, not by chancebut according to their preferences. Differentiation can exist for quite some time because of legal protection as trade marks or patent or because a firms unique strategies, competencies and resources can not be easily duplicatedbyitscompetitors.Thepremisethatbuyerswillbepairedwithsellers,notby chancebutaccordingtotheirpreferences,emphasizestheneedforthefirmtostructurea compatible fit between its competitive status. 3.Contingency theory Contingencytheoryalsoexistswithinthecontextofevolutionaryenvironmentalchange. The basic principle of this theory is that higher returns are associated with those firms that develop a beneficial fit with their environment. The advantage of this theory is that it can beusedtoviewenvironmentorganizationinteractionatanylevelofanalysisindustry, strategicgrouporindividualfirm.Firmcanbecomeproactivebychoosingtooperatein environmentsinwhichtheopportunitiesandthreatsmatchthefirmsstrengthand weaknesses. Should the environment change in a way that is unfavourable to the firm, the firm could perhaps leave that industry and relocate its resources and competencies to other, more favourable industries. 4.Resource based theory Resource-basedtheorygivesmoreweighttothefirmsproactivechoices.Although environmentalopportunitiesandthreatsareimportantconsiderations,afirmsunique resourcecomprisesthekeyvariablesthatallowittodevelopandsustainacompetitive strategicadvantage.Resourceencompassesalloffirmstangibleandintangibleassets (suchascapital,equipment,employees,knowledgeandinformation.Resource-based - 11 - theoryemphasizesprimarilyonindividualfirmsratherthanonthecompetitive environment. 1.9Emerging Issues of Strategic Management (i)Social responsibility (ii)International business (iii)SMES and problems of strategy formulation Social Responsibility Social responsibility seriously considers the impact of the companys action on society. It istheresponsibilityofthebusinesstoimprovetheoverallwelfareofthesocietyby refrainingfromharmfulpracticesorbymakingapositiveeffecttohelpsociety.Itis definedastheimplied,enforcedorfailedobligationofmanagersactingintheirofficial capacity to serve or protect the interest of groups other than themselves. Benefits of Social Responsibility 1.Itisinthebestinterestofthebusinesstopromoteandimprovethecommunities whereitdoesbusiness.Thecreationofabettersocialenvironmentbenefitsboth the society and the business. Society benefit from employment opportunities, while businessbenefitfromabettercommunity,whichisasourceofitsworkforceand the consumer of its products and services. 2.Social actions can be profitable. 3.It is the ethical thing to do. 4.It improves the public image of the firm. 5.Social involvement may be in the interest of the shareholders as it may improve the value of their shares quoted in stock market. 6.It is necessary to avoid government regulation and intervention. This creates greater freedom and flexibility in decision making for the business. 7.Since the society gives the business the charter to exist, then the firm must live up to the societys expectation. 8.Business has a great deal of power which is reasoned should be accompanied by an equal amount of societal responsibility. 9.Businesses should attempt to solve problems which other institutions have not been able to solve after all they have been known to come up with new ideas. - 12 - 10.Businesseshavefirstresources,whichtheyshouldspecificallyusetosolve societies problems. 11.Itisbettertopreventeventsthantocurethem.Organizationsshouldassistinthe problem of street children instead of dealing with hardcore criminals in the future. Arguments Against 1.It might be illegal to use shareholders resources in social activities. 2.Social actions cannot be measured 3.It violates profit Maximization. 4.It would increase prices too much. 5.Business and managers lack social skills to solve societies problems 6.It would dilute the primary purpose of a business. 7.Businessalreadyhastoomuchpowerandsuchinvolvementwillgivemembers power. 8.Businesseslackaccountabilitytothepublicorsocietytheyareaccountableto shareholders. 9.It may lack broad public nor societal support. Main Social Responsibility Areas 1.Improvingthesafetyofitsproductsandservices.Themanagersshouldseek solution to the following questions. (a)A product safe and well design? (b)Are they priced fairly? (c)Are the advertisements clear and not deceptive? (d)Are customers treated fairly by the companys sales force? (e)Are credit terms clear and is adequate product information available? 2.Improvingthesafetyoftheemployeesandworkenvironment.Themanagers should seek solutions to the following questions (a)Are employees paid a fair wage? (b)Are they provided with a safe work environment? (c)Areworkershired,promotedandtreatedfairlywithoutregardtosex,race or colour? (d)Are they given good training and educational opportunities? (e)Arehandicappedpeoplegivenemploymentopportunitiesandisthe company assisting disadvantaged members of the societies? (f)Doesthebusinesshelptorehabilitateemployeeswithmentalandphysical disabilities? 3.Protect and improve the physical environment The business should do more than is provided by the law to eliminate water, air and solidwasteandnoisepollution.Theyshouldbeconcernedwithdeforestationand pouringofwastechemicalsintotheriverandoilspills.Theyshouldaskthe following questions? - 13 - (a)Is the environment adequately protected among clean water, excessive noise and other types of pollutions? (b)Are products degradable or can they be recycled? (c)Areanyby-productthatposeasafetyhazardtothesocietycarefully handled and properly treated and disposed of? 4.Concern for society in general. The questions requiring solutions include: (a)Aredonationsmadetohelpdevelopandsupporteducationandother community programs? (b)Does the firm support the community enterprises by purchasing from them? (c)Isthesocialimpactofplantlocationsandrelocationsconsideredbythe managers who make such decisions? (d)Is appropriate information concerning business operations made public? 5.Toobeythespiritandtheletter of the laws of the land. There are many laws that companiesthisdaysdonotobeye.g.importexportrequirements,remissionof employeereturnsandstatutorydeductionstocentralgovernment,pollutionofthe environment etc. 6.Contributing towards supporting the informal sector 7.Developing equipments to meet employees and societies needs for socializing. 8.Providing customers education about their products and services. 1.10Formulating Strategies for Small Business Ten suggestions have been made for survival and success of small businesses. 1.BeobjectiveAnhonestassessmentofthestrengthsandweaknessesofthe business and management skills must be done. 2.KeepitsimpleandfocusedInsmallbusinessessimpleiseffective,effortsand resources should be concentrated where the impact and profits are greatest. 3.Focusonprofitablemarketssmallbusinessessurvivebyprovidingdistinctive goods and services, that meets the wants and needs of selected group of consumers. 4.Develop sound marketing plans As a small business you must determine how to reach and sell to customers. 5.ManageemployeeswellSmallbusinessessucceedbybuilding,managingand motivating winning teams. 6.KeepclearaccountingrecordsSmallbusinessesneedtokeeptrackofassets, liabilities,sales,costsandotheraccountinginformationinordertosurviveand prosper. - 14 - 7.Never run out of cash Cash is KING in small businesses world 8.Avoid recurring pitfalls or rapid growth small business must carefully manage its growth 9.UnderstandallphasesofthebusinessControlofasmallbusinessand improvementofsmallbusinessprofitsdependonacompleteunderstandingofall business functions. 10.PlanaheadsmallBusinessesmustdevelopplansandconverttheminto productive activities. 1.11Strategy and International Operations Beforeamanagerisabletopracticestrategicmanagementsuccessfullyin internationalcontextitisimportantforhim/hertounderstandthebasicprinciples of international management. To engage in international management is to perform managementactivitiesacrossnationalboundaries.Insuchcasesthefirm accomplishesitsmissionatleastpartiallybyconductingbusinessactivitiesina foreigncountry.Suchactivitiescanbeassimpleassellingaproductinaforeign countryorenteringintoanagreementwithaforeignpartnertosellproducts throughouttheworld.Advancesintransportationtechnologyandcommunication have made it possible for managers to do business elsewhere. Advantages of international business 1.The firm will be able to lower its operating costs relative to those of competitors by purchasing raw materials from foreign concerns. 2.Itcanincreaseitssalesandprofitsbybecominginvolvedinlesscompetitive situations. 3.It can ensure continuous growth in relation to competitors. 4.The company might need a large consumer base in order to achieve the economies of sale. 5.Thecompanymightwanttoreducedependencyononemarketinordertoreduce risks. 6.Thecompanycustomersmaybegoingabroadandmayrequireinternational servicing. 7.Itcanofferbetterunderstandingofproblemsandneedstocustomersinoverseas market. 8.It can overcome the effects of tariffs and non-tariffs barriers to imports. 9.For firms producing bulky products it can reduce storage and transportation costs. Disadvantages of international business 1.Thecompanyisconfrontedbymanydifferentpolitical,economicandcultural environment that change at different rates. - 15 - 2.The company becomes involved in situations it is much more difficult to keep track ofcompetitorsduetodifferencesinlanguage,distancesbetweencountriesand varying national attitudes as well as different communication media. 3.Thecompanymustdealwithtwoormoremonitorysystems,whichcomplicates accounting systems. 4.Theorganizationsignificantlyincreasespoliticalriskofdoingbusiness.Thisis defined as the potential loss of control over ownership or benefits of an enterprise due to actions of a foreign country. 5.Huge foreign debts by some countries completes international business. 6.Foreigngovernmententryrequirements,tariffsandbureaucracycomplicates international business. 7.Corruption by officials in foreign countries affects bidding and tendering. 8.Technologicalpiracywhereforeignmanagerslearnhowtomakeacompany product and running away to complete openly can result. 9.High cost of product and communication adaptability can arise. 1.12Strategies of Going Abroad There are four strategies of going abroad (i)Importing/exporting (ii)License agreements or licensing (iii)Joint ventures (iv)Direct investment Importing/Exporting Importingisbuyinggoodsandservicesforusebyaforeigncompanywhileexportingis sellinggoodsandservicestocustomersinaforeigncountry.Companiesofallsizesare involved to exporting and importing today. Exporting in particular has enabled local firms to cause competition by foreign companies. Exporting Therearetwotypesofexporting.Indirectand directexporting.Companiesinmostcases start with direct exporting through the use of independent middlemen. There are four such middlemen commonly used. This includes: (i)Domestic based export merchants (ii)Domestic based export agents (iii)Co-operative organizations (iv)Domestic based export company Advantages of exporting (i)It involves less investment to the company (ii)It is the quickest way of going abroad (iii)It involves less risks because middlemen bring a lot of knowledge and experience (iv)Organizationgainsthebenefitofexporthouseswithmarketknowledgeand contacts - 16 - (v)Organizationdoesnothavetobeartheoverheadcostsofanexportmarketing department. Disadvantages of exporting (i)The organization is always at the mercy of exporter who makes decisions to market a product. (ii)Whenyouuseintermediariesorthemerchantsyoudonotgainexclusiveloyalty because it deals with many producers. (iii)Anygoodwillthatiscreatedinthemarketnormallybenefitthemiddlemenatthe expense of the company. (iv)It can also be expensive due to taxes or tariffs one has to pay before shipping in or out of goods and services e.g. import duty. Licensing Licensing represents in a way management can become involved in international business. A license agreement is a right that is granted from one company to another to use its brand name,productspecificationionthesaleofgoodsandservices.Thelicensermayprovide any of the following: (a)The right to produce patented product or use a patented production process Salesperformancewillimprovebecausethecommitmentandmotivationofa producers own staff should be more effective than those of an agent The producer retains complete marketing control The producer should be able to acquire more accurate and timely market information Customerservicesshouldimprovebecauseintermediariesarenotoriousofpoor performance in this respect Branch office (limitations) Higher investments, overhead and a running costs are entailed There can be a political risk particularly expropriation of assets The firm will be subject to local employee legislation which may not be welcoming Licensing agreement Alicensingagreementisacommercialcontractwherebythelicensorgivessomethingof value to a licensee in exchange for certain performance and payments Itisarightthatisgivenorgranted to another company by one company to use its brand nameandproductspecificationsinthesaleofgoodsandservices.Thelicensormay provide any of the following: (a)The right to produce patented product or use a patented production process (b)Manufacturing know-how (c)Technicaladviceandassistancereducingthesupplyofessential;materials components and plants. (d)Rights to use a trademark or a branch name (e)Marketing advice and assistance - 17 - The licensor benefits through a payment. The licensor benefits through a fee for use of the name.Thelicenseebenefitthroughappropriateproductortechnicaladvicereceived. Licensing is growing in extent and scope throughout the world nit is used by small medium and large and has the following advantages. Advantages of licensing (i)Requiresnoinvestmentexceptforthecontinuingcostsofmonitoringthe agreement (ii)It enables entry into markets that would otherwise be closed by tariffs, government attitudes and policies (iii)The licensor gains access to knowledge of local conditions (iv)Newproductscanbeintroducedtomanycountriesquicklybecauseoflow investment requirement (v)As a method of entry, it is relatively simple and quick (vi)It provides all the usual advantages and benefits of overseas production i.e. cheaper transport and lower import barriers (vii)It can be a source of competitive advantage because it spreads the firms proprietary technology giving wider exposure than that of rivals Limitations of licensing (i)Revenues from licenses are generally very low (ii)Thereisadangerofestablishingafuturecompetitor.Alicenseemayeventually becomethelicensorscompetitor.Duringthelicenseperiod,itmaygainenough know how from the licensor to be able to operate independently (iii)Althoughthecontractmayspecifyaminimumsalesvolume,thereisapossibility that the licensee may not fully exploit the market. (iv)Productqualitymightdeteriorateifthelicenseehasamoreluxattitudetoquality control than the licensor. (v)Productqualitymayenforcerestrictionsorconditionsonthepaymentofroyalties to the licensor or supplier of essential component. (vi)Itisoftendifficulttocontrolthelicenseeeffectively.Thelicenseesobjectives oftenconflictwiththoseofthelicensoranddisagreementarecommon.Theless controloverthelicenseesoperationcouldalsoresultindamagetothelicensors reputation Requirements of controlling the license 1.Be careful in the choice of the licensee. Identify an important criteria for choosing them 2.Design contracts that protects both parties 3.Control the licensees by having an equitys interest in the licensees business or by retaining control over key input components. Coco cola uses these strategies when theylicensebottlingfirmsthroughouttheworld.Theyhavecontrolofthecola product and normally offers technical advise to the licensee. - 18 - 4.Takeactiontomotivatethelicensee.Franchisingisatypeoflicensing.The franchised agreement specifies in more detail than a license agreement exactly what isrequiredofafranchisee.Inafranchiseagreement,thefranchisersuppliesa standardpackageofgoods,alongwithmanagementandmarketingservicesor adverts.Thefranchiseesuppliescapital,personalinvolvementandlocalmarket knowledge. Advantages and disadvantages of franchising are more less the same as those of licensing. Thereishoweveranextrabenefitinthatitprovidessomeleverageforcontrollingthe franchiseesactivitiesbecausethefranchisersuppliesingredientsforcompanies.A particulardisadvantageoffranchisingisthatthesearchforcomponentcandidatesisboth costly and time consuming particularly where the franchiser requires many outlets. Joint Venture Thisisanagreementwheretwoormoreoftencompetingfirmsjoinforcesfor manufacturingfinancialandmarketingpurposes.Eachofthemhasashareinboththe equityandmanagementofthebusinessformingajointventurewithatechnologically advancedforeigncompaniescanleadtonewproductdevelopmentatalowercost. Licensing, franchising and contract manufacturing are loose forms of joint venture. If one companycannotundertakeabusinessventurealone,itcancreateajointventure.Itis usually an alternative to seeking to buy or build a wholly owned manufacturing operations can offer substantial advantage. An aircraft firm. The characteristics of joint venture include: (i)Direct control of distribution challenge Advantages of joint venture 1.Withjointventures,capitaloutlaysissharedsuchthatjointventuresbecome attractive to smaller firms. 2.Coverageoflargermarkets.Whenfirmsarelimited,jointventuresallow companiestocoverlargenumberofcountrieswhichtheywouldbeunabledueto lack of capital or less investment power. 3.Reduced government intervention. When a local firm in a country is involved, the governmentriskofinterventionisreduced.Inthisway,restrictionsthatwillbe brought about in form of taxes and tariffs is reduced. 4.Control. Joint venture can provide a company with firm control over marketing and otheroperations.Thiswillenableitnottohaveitsrightsinfringedandagood business policy can easily be created. 5.Knowledge.Jointventureswithindigenousfirmsprovidelocalknowledgeofthe market companies will not have to invest a lot on market research because they are first hand information. - 19 - 6.Technology Where firms are researching on new expensive technology, the joint efforts, shared expenses tend to diversify risks and go a long way to influence joint ventures. 7.Benefitinvolved.Injointventures,theparticipatingenterprisesnormallybenefit from all sources of profits. Limitations of joint venture 1.Can lead to major conflicts of interest between different parties. Disagreements are likelytoariseoverhowtoshareprofits,theamountstobeinvested,marketing strategy and management of joint ventures 2.Some protectionist government discourage or even prohibit foreign firms setting up independentoperationsorjointventureswithindigenousfirms.Thisisbecause suchgovernmentsregarduncontrolledinvestmentsfromoverseasasatypeof colonialexploitationandtheyareaversetosendingforeignexchangeoutsidethe country. In addition to this, joint ventures generally involve a transfer of know how and technology that tend to benefit the local economy. Advantages of Direct investment (i)The firm does not have to share profits with partners of any kind (ii)Thefirmdoesnothavetoshareordelegatedecision-makingandsothereareno losses in efficiency arising from interfirm conflicts. (iii)Therearenoneofthecommunicationsproblemsthatariseinjointventuresor license agreements (iv)Thefirmisabletooperateacompletelyintegratedandsynergisticinternational system. (v)The firm gains more experience from overseas market in all assets of the marketing mix. Disadvantages (i)Thesubstantialinvestmentfundingrequiredpreventsomefirmsfromestablishing operations overseas. (ii)Suitablemanagerswhetherrecruitedinoverseasmarketsorpostedabroadfrom home may be difficult to obtain (iii)Someoverseasgovernmentsdiscourage100%ownershipofanenterprisebya foreign company (iv)Thismethodofentryisnotonlyriskyintermsofpossibleexpropriationbutalso forgoes the benefits of an overseas partners market knowledge system distribution and other local expertise.

- 20 - 1.13Revision questions (a)Explain what you understand by the terms of strategy and strategic management. (b)Discuss the relevance of strategic management in strategic decision making in theorganization of your choice. (c)Explainthedifferencebetweenanintendedstrategyandarealisedstrategydiffered from its original strategy. (d)How can an understanding of strategic management be beneficial to your career. 1.14Summary Strategicmanagementreferstotheprocessthatbeginswithdeterminingthemissionand goalsofanorganizationwithinthecontextofitsexternalenvironment.Appropriate strategiesareformulated,implemented,andstrategiccontrolisexertedtoensurethatthe organizations strategies are attained successfully. Strategic management, as a field of study, has been influenced by such diverse disciplines biology(intheoriesofevolutionandrevolution)andeconomicsperspectiveofindustrial theory). The contingency theory (that high financial returns are associated with those firms thatmostcloselydevelopabeneficialfitwiththeirenvironment)andresourcebased theory(thatafirmsuniqueresourcearethekeyvariablesthatallowittodevelopand sustain a competitive strategy advantages) have provided a useful framework for analyzing strategic management. Determiningorganizationalstrategyistheresponsibilityofthechiefexecutiveofficer (CEO), but he or she relies on a host of other individuals, including the board of directors, vice presidents, and various line and staff managers. It therefore imperative that, a strategic decision is molded from the streams of inputs, decision and actions of many people. Strategicmanagementisacontinuousprocess.Onceastrategyisimplemented,oftenit requireschangesasenvironmentalororganizationalconditionchange.Becausethese changes are normally difficult to predict, a strategy may, over time, be changed to have a slightresemblancetotheorganizationsintendedstrategy.Thisrealizedstrategyisthe resultofunforeseenexternalorinternaleventsthatrequirechangesintheorganizations intended strategy. Thus, strategies need to be examined continuously in the ever-changing situations as summarized in this model. - 21 - Figure 2:Summary model of the elements of strategic management Expectations and purposes Strategy analysis Bases of strategic choice Strategic choice Strategic options Strategy evaluation and selectionResource allocation and controlManaging strategic change Organizatio-nal structure and design Strategy implement-ation The environment Resources competencies and capability - 22 - 1.15 Definition of Key Concepts

1.Intendedstrategy.Theoriginalstrategythatmanagementplansandintendstoimplement. 2.Realisedstrategy.Theactualandeventualstrategythatmanagementimplements.Therealisedstrategyoftendiffersfromtheintendedstrategybecauseunforeseenenvironmentalororganizationaleventsoccurthatnecessitates changes in the intended strategy. 3.Strategic management. The continuous process of determining the mission andgoalsofanorganizationwithinthecontextofitsexternalenvironment,formulatingappropriatestrategies,implementingthosestrategies,andexertingstrategiccontroltoensurethattheorganizationsstrategiesaresuccessfulinattaining its goals. 4.Strategy.Topmanagementsplanstoattainoutcomesconsistentwithorganizations mission and goals. 5.Strategicfit.Seesmanagerstryingtodevelopstrategybyidentifyingopportunities arising from an understanding of the environmental forces actingupon the organization, and adapting resources so as to take advantage of those. 6.Strategicdevelopmentbystretchistheidentificationandleverageoftheresourcesandcompetenciesoftheorganization,whichyieldsnewopportunities, or provides competitive advantage. 1.16Further Reading

1. Adrews,KennethK.TheConceptofCorporateStrategy.HomeWoodII,Richard D. Irwin, 1987. 2.Fahey,LiamandV.K.MaryannMacroenvironmentalAnalysisforStrategicManagement. St. Paul, Minn: West Publishing, 1986. 3.Hills,CharlesW.C.andGarethR.JonesStrategicManagement:AnIntegrated Approach. Boston. Houghton Mifflin Company, 1989. 4.Losch,JayW.TheInvisibleBarriertoStrategicChange.CaliforniaManagement Review, Winter 1986. P. 95. 5.M.EPorter,TheContributionsofIndustrialOrganizationtoStrategicManagement, Academy of Management Review 6 (1981): 609-620. - 23 - LESSON TWO THE STRATEGIC MANAGEMENT PROCESS 2.0 Objectives 2.1Introduction Bytheendofthislesson,youshouldbeabletounderstandtheseries of: 1. Performing an environmental analysis 2.Establishing organizational direction 3. Implementation of organizational strategy, and 4. Exerting strategic control. Strategic management is a process or series of steps. They Include: 1.Performing an environmental analysis 2.Establishing organizational direction 3.Formulating organizational strategy 4.Implementing organizational strategy, and 5.Exerting strategic control The basic steps of the strategic management process are as below: Step 1: - 24 - Environmental Analysis Internal External Step 2: Establishing Organizational Direction Mission Objectives Step 3: Strategy Formulation Step 4: Strategy Implementation Step 5: Strategic Control Feedback Fig: 1Major steps of strategic management process Lets take a look at each of these steps and its relationship to strategic management system. 2.2Environmental analysis Strategicmanagementprocessbeginswithenvironmentalanalysis,theprocessof monitoringtheorganizationsenvironmenttoidentifybothpresentandfuturethreatsand opportunities. The organization exists in the context of a complex commercial, economic, political, technological, cultural,and social world. This environment changes and is more complexforsomeorganizationsthanfortheothers.Examplesofenvironmentalvariable commonly monitored are as follows: 1.Organizational characteristics Market share Quality of products Discretionary cash flow/gross capital investment 2.Market and consumer behavior - 25 - Market segmentation Market size New market development Buyer loyalty 3.Supplies Major changes in availability of raw materials 4.Industrial structure Rate of technological change in products or process Degree of product differentiation Industrial/cost structure Economies of scale 5.Social, economic and political GNP trend Interest rates Energy availability Government-established and legally enforceable regulations Managerstherefore,mustgraspthepurposeofenvironmentalanalysis,recognizethe variouslevelsoforganizationalenvironmentthatexist,andrecommendguidelinesfor performing an environmental analysis. 2.3Step 2. Establishing organizational direction Therearetwomainindicatorsofthedirectioninwhichanorganizationmoves: organizational mission and organizational objectives: organizational mission is the purpose for which, or reason why an organization exists. Objections are the targets the organization has chosen. Afterthemanagementhasdonean environmental analysis by understanding the strength, weaknesses, opportunities and threats, its better to change its organizational direction. The effectiveness on this depend on the following: 1.Management must know what comprises an organizational mission 2.Understand the nature of organizational objectives, and 3.Adopt an effective and efficient process for establishing organizational direction 2.4Strategy formulation - 26 - Strategyformulationistheprocessofdesigningandselectingstrategiesthatleadtothe attainment of organizational objectives. The aim of organizational strategy is to deal with competitionofrivalsbetter.Oncetheenvironmenthasbeenanalyzedandorganizational direction stipulated, management is able to give alternative courses of action scientifically to ensure organizational success. It is therefore important that managers are in a position to understand various approaches tostrategicformulationascriticquestionanalysis,strength/opportunities/threat(SWOT) analysis. 2.5Step 4. Implementation of organizational strategy Thisstepinvolvesputtingintoactionthelogicallydevelopedstrategythatemergedfrom previousstepsofthestrategicmanagementprocess.Theorganizationisboundtofailin achieving its objectives if proper and effective strategies are not implemented. Inordertoimplementorganizationalstrategiessuccessfully,managersmustbethorough on the following: 1.Howmuchchangeisnecessarywithinanorganizationwhenifimplementsanew strategy 2.Howitisbesttodealwithorganizationcultureinordertoensurethatastrategy will indeed be implemented smoothly. 3.How strategy implementation and various types of organization structure are related. 4.What different implementation approaches a manager can follow, and 5.Whatskillsarenecessaryinmanagerswhohopetoimplementorganizational strategy successfully? LarryD.Alexander,investigatedthetypesofstrategicdecisionscommonlymadeinthe organizations and the difficulties associated in implementing these decisions. They are: Table 1.Strategic decisions commonly made and related implementation problems. Strategicdecisionscommonly made in organizations Related implementation problems commonly faced. 1.Introducinganewproductor service.Openingandstarting new plant or facility. 2.Expandingoperationstoenter new market. 3.Discountingaproductor withdrawingfromamarket that was not effective enough. Implementationtookmoretimethanoriginally allocated. Major problems suffered during implementation that had not been identified before hand. Co-ordinating activities for implementation was not effective. Competingactivitiesandcrisesdistracted attentionforimplementationfrom - 27 - 4.Acquiringormergingwith other firms. 5.Changingthestrategyin functional departments. implementing this decision. Capabilitiesofemployeesinvolvedwerenot sufficient. Trainingandinstructiongivenlower-level employers were not adequate. Uncontrollablefactorsintheexternal environmenthadanadverseimpactin implementation.Leadershipanddirectionprovidedby departmental managers were not adequate. Keyimplementationtasksandactivitieswere not defined in enough detail. Informationsystemsusedtomonitor implementation were not adequate. 2.6Step 5 Strategic control Strategiccontrolisatypeoforganizationalcontrolthatfocusesonmonitoringand evaluatingthestrategicmanagementprocessinordertoimproveitandensurethatitis functioning properly. This process requires that managers: 1.Understandtheprocessofstrategiccontrolandtherolethatstrategicaudits (assessments of the organizational environment) normally play in it; and 1.Managers must understand the intricacies of management information systems and how such systems can complement the strategic control process. For the purpose of analysis, I have presented the strategic management process as a series of discrete steps. The process is presented in this fashion to facilitate learning about what the process entails and to describe how the steps commonly relate one another. All these steps are discussed in detail on separate chapters in this module. 1.7 Revision questions - 28 - 1.Strategic management process takes a central place in attainingorganizations objectives. Discuss. 2.Define the following terms: (a)Environmental analysis (b)Organizational direction (c)Strategy implementation (d)Strategic control. 2.8Summary

Strategic management is a continuous, interactive process aimed at keeping an organization as awholeappropriatelymatchedtoitsenvironment.Normally,theprocessinvolvestopmanagement,boardofdirectors,andplanningstaff.Themainstepsoftheprocessare:performinganenvironmental;analysis,establishingorganizationaldirection,formulatingorganizational strategy, implementing that strategy, and exerting strategic control. 2.9 Further reading - 29 - 1.Meyers,GetaldC,withJohnHolusha.WhenitHitstheFun:ManagingtheNine Crises of Business, Boston: Houghston Mifflin Company, 1986. 2 Mid Mi h l T J d Willi B W h J P d i Th Mi i Li k LESSON 3 ENVIRONMENTAL ANALYSIS 3.0Objectives By the end of this lesson, you should be able to: 1. Describe what environmental analysis is, and why it is important 2.Explainenvironmentalstructurebydefiningthegeneral,operatingandinternalenvironments in which firms operate. Environmental analysis: Definition Environmentalanalysisistheprocessofmonitoringtheorganizationalenvironmentto identifybothpresentandfuturethreatsandopportunitiesthatmayinfluencethefirms abilitytoreachitsgoals.Here,theorganizationalenvironmentisthesetofallfactors bothoutsideandinsidetheorganizationthatcanaffectitsprogresstowardsattaining those goals. Awarenessoftheorganizationalenvironment is important to the organizations success. Accordingly, management should constantly gather and consider the implications of data relatedtoimportantfactors(MichaelE.Naylor,thecorporatestrategicplannerfor general motors). According to Certo and Peter, the future will probably retard an ever-increasingrate of change in all aspects of organizational environment. Because future organizations will be morecomplexandmoredependentontheirenvironments,performingenvironment analysis will be even more important to managers of future than to managers today. On the other hand, since modern organizations are open, rather than closed system based ongeneralsystemtheory,managersshouldperformanenvironmentalanalysis.Modern organizationsareinfluencedbyandconstantlyintegratingwiththeirenvironments. Becauseorganizationsareopensystems,environmentalfactorsdoinfluencethemand thereforemanagersshouldchannelthispositiveinfluenceandcontributeto organizational success. 3.1Purpose of environmental analysis - 30 - Modern organizational managers do experience more complex situations than ever before anditisimperativethatperforminganenvironmentalanalysisisimportant.Someof environmental analysis is important. Some of environmental analysis aims are: 1.Toassesstheorganizationalenvironmentsothatmanagementcanreacttoit appropriately and thereby enhance organizational success. 2.Small business to compete with big organizations 3.Provide management with the ability to respond to critical issues in the environment 4.Explorefutureconditionsoftheorganizationalenvironmentandtoincorporate what it lean runs into organizational decision making 5.Identify current emerging issues that are important to the company, assign priorities to these issues, and develop a plan for handling each of them. 3.2Roles of environmental analysis They are: 1.The policy-oriented role is to improve organizational performance by helping top managementawareaboutmajortrendsemergingintheenvironment.Thisrole emphasizesearlydetectionandappropriatetop-managementreactiontobroad strategicissuessuchasattitudes,normsandlawsthatarelikelytoaffectthe organization as a whole. 2.Thestrategicplanningroleistoimproveorganizationalperformancebymaking topmanagersanddivisionalmanagersawareofissuesthatariseinthefirms environment, by having a direct impact on planning and by linking corporate and divisional planning. The task involved focuses preparing environmental forecasts in order to generate basic assumptions about relevant parts of the environment as specific organizational plans begin to materialize. 3.Thefunction-orientedroleistoimproveorganizationalperformanceby providingenvironmentalinformingconcerningtheeffectiveperformanceof specificorganizationalfunctions.Thistypeofenvironmentalanalysisis undertakentoenhancetheperformanceofaparticularfunctionormajor organizationalactivityateitherthecorporateorthedivisionallevel.Tasks involved(improvingorganizationalrecruitmentpractices,orveryspecific (complyingwithagovernmentregulation).Themanagementshouldtherefore focusonspecificenvironmentalsegmentsrelatedtotheorganizationalfunction being addressed. 3.3Environmental structure - 31 - Itisimportantthatmanagersunderstandthoroughlyhoworganizationalenvironmentis structured.Thomasdividestheenvironmentofanorganization,theoperating environment, and the internal environment as shown in figure 1. TheOrganization Political Component Social Component General Environment Economic Environment TechnologicComponent Legal Component LabourComponent International Component OperatingEnvironment Supplier Component CompetitionComponent Customer Component Internal environment Figure 1:The organization, the level of its environment. The managers should be thorough on these three environmental levels, know what factors theyinclude,understandhoweachfactorandtherelationshipsamongthefactorsaffect - 32 - organizationalperformanceandmanagerorganizationaloperationsinlightofthis understanding. 3.4General environment The general environment is that level of an organizations external environment made up ofcomponentsthatarebroadinscopeandhavelittleapplicationformanagingan organization. The components consist of the following: 1.Thepoliticalcomponentcomprisesthoseelementsthatarerelatedtogovernment affairs.Examplesincludethetypeofgovernmentinpower,governmentalattitude towards various industries, lobbying efforts by interest groups, progress towards the passage of laws, platforms of political parts. 2.Thesocialcomponentdescribescharacteristicsofthesocietyinwhichthe organizationexistliteraryrates,educationallevels,customs,beliefs,values, lifestyles,age,geographicdistributionandmobilityofpopulation.Itisimportant managers realize that changes in the attributes of a society may come either slowly or quickly, changes will inevitably come. 3.Theeconomiccomponentindicateshowtoallocateresourcesandusedwithinthe environment. Examples are: gross national product, corporate profits, inflation rate, productivity,employmentrates,balanceofpayments,interestrates,taxratesand consumer income, debt and spending. 4.Thelegalcomponentconsistsoflegislationthathasbeenpassed.Thiscomponent prescribes rules or laws that all members of society must follow. 5.Technologicalcomponentincludesnewapproachestoproducinggoodsand services, new procedures as well as new equipment. Example, using robots with an aim of improving productivity. 3.5The operating environment Itisthatleveloftheorganizationsexternalenvironmentmadeupofcomponentsthat have relatively specific and more immediate implications for managing the organization. The major components of the operating environment are customers, competition, labour, suppliers and international issues. 1.Thecustomer,componentreflectsthecharacteristicsandbehaviourofthosewho buythefirmsprovidedbytheorganization.Developingsuchprofileshelpthe - 33 - managementgenerateideasonhowtoimprovecustomeracceptanceof organizational goods and services. 2.CompetitiveComponent-consistsofthosewithwhomanorganizationmustdo battleinordertoobtainresources. The purpose of competitive analysis is to help managementappreciatethestrengths,weaknesses,andcapabilitiesofexistingand potential competitors and predict what strategies they are likely to adopt. 3.Thelabourcomponentismadeoffactorsthatinfluencethesupplyofworkers availabletoperformneededorganizationaltasks.Theareafocusare:skilllevels, trainability,desiredwageratesandaverageageofpotentialworkersareimportant to the operation of the organization. 4.Thesuppliercomponentincludesallvariablerelatedtothosewhoprovide resourcesfortheorganization.Themainfocusare:howmanyvendorsoffer specificresourcesforsale,the relative quality of materials offered by vendors, the reliabilityofvendordeliveries,andthecredittermsofferedbyvendorsare important in managing an organization effectively and efficiently. 5.Theinternationalcomponentcomprisesallfactorsrelatedtotheinternational implicationsoforganizationaloperations.Aspectsoftheinternationalcomponent include the laws, political practices, culture and economic environment that prevail in the foreign countries. 3.6Internal environment Theinternalenvironmentisthatlevelofanorganizationsenvironment,whichexist insidetheorganizationandhasimmediateandimplicationsformanagingthe organization. The important components of internal environment include: 1.Organizationaspectcommunicationnetwork,organizationstructure,recordof success,hierarchyofobjectives,policies,procedures,rulesandabilityof management teams. 2.Personnelaspectslabourrelations,recruitmentpractices,trainingprograms, performance appraisal system, incentives systems, and turnover and absenteeism. 3.Marketingaspectsmarketingsegmentation,productstrategy,pricingstrategy, promotion strategy and distribution strategy. - 34 - 4.Productionaspectsplantfacilitylayout,researchanddevelopment,useof technology,purchasingofrawmaterials,inventorycontrolanduseofsub contracting. 5.Financial aspects liquidity, profitability, activity and investment opportunity. 3.7Environmental forecasting Environmental forecasting is the process of determining what conditions will exist within anorganizationsenvironmentatsomefuturetime.Theimportantaspectof environmentalanalysisisgaugingthepresentstatusoftheorganizationsenvironment, and certain companies, determining the present condition of the environment may suffice foreffectivestrategydevelopment.However,itisimportantthatfutureenvironmental conditions are determined to ensure organizational success. Managersshouldbethoroughinpredictingthefuturestatusofcriticalenvironmental componentatallenvironmentallevels.Forecastsmadefororganizationsinclude economicforecast,socialforecast,politicalforecastandtechnologicalforecast.The methods of environmental forecasting are as important as deciding the course and future trend of development of the organization. The commonly used methods of environmental forecasting are: 1.Expert opinion knowledgeable people are selected and asked to assign importance andprobabilityratingstovariouspossiblefuturedevelopments.Themostrefined version, the delphi method, puts experts through several rounds of event assessment where they keep refining their assumptions and judgments. 2.Trendextrapolationresearchersfitbest-fittingcurves(linear,quadraticors-shaped growth curves) through past-time series to serve as a basis for extrapolation. Thismethodcanbeunreliablewhenneweventscompletelyaltertheexpected direction of movement. 3.Trend correlation research correlate various time series in the hope of identifying leading and logging relationship that can be used for forecasting. 4.Dynamicmodelingresearchers built sets of equation that attempt to describe the underlyingsystem.Thecoefficientsintheequationsarefittedthroughstatistical means. 5.Cross-impactanalysisresearchidentifyasetofkeytrends(thosehighin importance and/or probability). - 35 - 6.Multiple scenarios researchers build pictures of alternative futures, each internally consistentandwithacertainprobabilityofhappening.Themajorpurposeofthe scenarios is to stimulate contingency planning. 7.Desmond/hazardforecastingresearchidentifymajoreventsthatwouldgreatly affectthefirm.Eacheventisratedforitsconvergencewithseveralmajortrends taking place in society and for its app4st to each major public group in the society. 3.8Revision questions 1.Discusstheimportanceofenvironmentalanalysisinanyorganizationofyourchoice. 2.Define and discuss various methods of environmental forecasting. 3.What are the strengths and weaknesses of environmental analysis as a system ofstrategic management 4.Assumethatyouhavebeenaskedtodevelopanenvironmentalforecastforthebookstoreatyouruniversity,usingthejudgmentalforecastingtechnique.Attempt how to forecast the environment of the bookstore. 3.9Summary - 36 - Environmentanalysisistheprocessofmonitoringenvironmenttoidentifybothpresentand future threats and opportunities that may influence the firm' ability to reach its goals.Theenvironmentanalysisisdividedintothreesegments:theinternalenvironment(consisting of organizational, marketing, financial, personnel and production aspects), theoperatingenvironment(consistingofthesupplier,competition,customer,labourandinternationalcomponents),andthegeneralenvironment(consistingoftheeconomic,technological, legal, political and social components. Therearevarioustechniquestohelpmanagementdevelopaworthwhileenvironmentanalysisonceimplemented.Themanagementshouldthereforecontinuetoevaluatetheprocess through a link in planning operations, responsive to the information needs of topmanagement,supportedbykeymanagersandperformedbypeoplewhounderstandthedifference between being an analyst and being a strategist. 3.10Definition of key concepts

1.Delphitechnique.Aforecastingprocedureinwhichexpertsintheappropriatefieldofstudy are independent questioned about the probability of some events occurrence. 2.Judgmentalforecasting.Aforecastingprocedureinwhichemployees,customers,suppliersand/ortradeassociationsserveassourcesofqualitativeinformationregardingfuture trends. 3.Macro environment. The general environment that affects all business firms. Its principalcomponents are political, legal, economic, technological and social systems and trends. Further reading - 37 - 1.AnnaldDannyR.Louis:StrategicRetailManagementReading,Mass,AddisonWesley Publishing, 1983. 2.Certo, Sammuel C. and J. Paul Peter. Strategic Management A Focus on Process. NewYork: McGraw-Hill, 1989. 3 Gl k Willi Fi d L R J h S i M d B i P li LESSON FOUR ORGANIZATIONAL DIRECTION: MISSION AND OBJECTIVE 4.0Objectives - 38 - By the end of this lesson, you should be able to understand: 1. What is organizational mission 2. Why organizational mission is important 4.1Organizational Mission: Definition Organizational mission is the purpose for which, or why, an organization exists. A firms missioncontainsinformationastowhattypesofproductsorservicestheorganization produces,whoitscustomerstendtobe,andwhatimportantvaluesitholds.Todevelop anappropriateorganizationalmission,managementshouldthoroughlyanalyseand consider information generated during the environmental process. 4.2Importance of organizational mission. They are: 1.It helps focus human effort in a common direction. The mission makes explicit the major targets the organization is trying to reach. Through these targets, management canensurethatallorganizationmembersworktogetherinaconcertedeffortto reach them. 2.Serves as a general rationale for allocating organizational resources. Organizations usevariousresourcestoproducegoodsandservicesandavailthemtocustomers. Theseresourcesincludemonetaryresources,humanresources,rawmaterialsand equipment. 3.Ensure that the organization will not pursue conflicting purposes. Purposes that are inconsistentwithoneanotherimplythattheorganizationismovingindifferent, incompatibledirections.Soundmissionstatementsensurethattheorganizationis built on a foundation of clear, compatible purposes and avoids waste and conflict. 4.Establishes broad areas of job responsibilities within the organization. People work specificjobswithinorganizationsinordertoproducegoodsandservices.Broad guidanceconcerningthetypesofjobsthatshouldexistwithinanorganizationare found in a statement of organization mission. - 39 - 5.Actsasabasisforthedevelopmentoforganizationalobjects.Organizational objectivesshouldreflectorganizationalmissionsbecauseamissionstatement outlinesthegeneralpurposeoftheorganizationandmoresoserveasthepointof departure for the more specific organizational objectives. 4.3Contents of mission statements. The topics include; 1.Companyproductorservice.Identifiesthegoodsandservicesproducedbythe organization and made available to customers. 2.Market. Describes the customers of the organization. Who are these customers, and where are they located. 3.Technology. Includes such topics as the tools, machines, materials, techniques and processesusedtoproduceorganizationalgoodsandservices.Theadventof technologicalinnovationsasthebusinesscomputerandrobots,technologyhas cometotbeemphasizedwithinthestrategicplanningprocessofvirtuallyevery organization. 4.Companyobjectives.Missionstatementsmakegeneralreferencetocompany objectives.Theseincludetheintentiontosurvivethroughcontinuinggrowthand profitability. 5.Companyphilosophy.Statementphilosophy(alsocalledcompanycreed) commonly appears as part of the mission statement or in the supplemental material that accompanies it. Company philosophy is a statement reflecting the basic beliefs andvaluesthatshouldguideorganizationalmembersinconductingorganizational business. 6.Companyself-concept.Containinformationontheself-conceptofthecompanys ownvieworimpressionofitself.Inessence,thecompanyarrivesatthisself-concept by assessing its strengths, weaknesses, competition and ability to survive in the market place. 7.Public image. Contain reference, either direct or indirect, to the type of impression the company is attempting to leave with the organizations public. 4.4Organizational objectives Organizationalobjectivesareatargettowardwhichtheorganizationdirectsitsefforts. Theimportanceofestablishingappropriateobjectivescannotbeoveremphasized. Objectivesprovidethefoundationforplanning,organizing,motivatingandcontrolling. Withoutobjectivesandtheireffectivecommunication,behaviourinorganizationscan - 40 - stray in almost any direction. Managers should use objectives to guide their organizations in the following ways: 1.Shoulduseorganizationalobjectivesasguideindecisionmaking.Managerswho knowwhatobjectiveshavebeenestablishedfortheorganizationfindsiteasyto make decisions that will ensure that organizational objectives are reached. 2.Shoulduseorganizationalobjectivesasaguideforincreasingorganizational efficiency.Todevelopandmaintainanefficientorganization,managersshould have organizational objectives clearly in mind. 3.Managers should use organizational objectives for performance appraisal. Managers shouldevaluateandrewardworkperformanceintermsofhowinstrumentalthe performance is in helping the organization attain its objectives. AccordingtoCertoandPeter,managersshoulddevelophigh-qualityorganizational objectives including: i.Managers should develop organizational objectives that are specific ii.Managers should set organizational objectives that require a desirable level of effort iii.Managers should establish organizational objectives that are reachable iv.Managers should establish organizational objectives that are flexible v.Managers should establish organizational that are measurable vi.Managersshoulddeveloporganizationalobjectivesthatareconsistentinthelong runandtheshortrun.Managersshouldestablishorganizationalobjectivesthat reflect a desirable mix of time frames and are supportive of one another. Long-term objectivesmustbeconsistentwithorganizationalmissionandshouldrepresent targetstobehitwithinthreetofive-yearperiod.Shortrunobjectivesmustbe consistentwithlong-runobjectivesandshouldrepresenttargetstobereached within about one or two years. 4.5Strategic goals and objectives Strategicgoalsandobjectivesaredevelopedandformalizedinordertogivergeneral direction to management for the overall corporate planning tasks as well as more specific departmental planning activities. The goals and objectives should not limit the ingenuity andimaginationofcompanymanagementbutrathershouldprovideanoverallagreed-- 41 - upon course of action. It is recognized that the management of the company must remain flexibleandinnovativeinsolvingtheday-to-dayoperatingproblems.Thegoalsand objectives of the company should focus on: 1.Customer service Provide a quality of service to customers at least equal to the highest standards in the industry Maintain reliability of service to customers at a level above 99 per cent Retain all existing customers and seek new customers through system expansion where feasible and consistent with good economics. 2.Community service Promoteeconomicgrowthandincreaseddevelopmentofthecompanystotal service area Protect, enhance and develop the communitys natural resources with particular attention to air, water and land resources Provide job opportunities and an investment in the service are which promoters a higher standard of living for all citizens Provide to the service are both economic and social support consistent with the level of responsibility expected of the number one corporate citizen. Promoteahighdegreeofpositiveinvolvementintheserviceareabyall employees Corporate with and serve the educational institutions located in the service area in a manner consistent with other leaders in the industry Maintainleadershippositionswithinandprovideappropriateassistanceto communityserviceorganizations.Continuetosupporttheunitedwayina leadership manner. 3.Shareholders relations Assurethatallexpendituresaremadeinasuchwayastoprotectandenhance the shareholders investment Providearateofreturntotheshareholders,whichiscompetitivewithother possible investments Continuetostudythefeasibilityofnewprogrammeandprojectswhichmight be undertaken as measures to maintain and improve the financial integrity of the company Base all company involvement in new programs 4.Employee management obligations Monitor and strive to improve the quality of management and supervision Promote a high degree of professionalism throughout the entire company - 42 -