TOPIC 1
INTRODUCTION TO STRATEGIC MANAGEMENT
UNIT STRUCTURE
1.1 EVOLUTION OF STRATEGIC MANAGEMENT
1.1.1 Business Policy Maturing Into Strategic Management
(a)Contents of Business Policy Undergoing drastic change
(b) Changing Management Planning Perspective
1.1.2 The Four Phases of Development in Strategic Management
Phase 1 Basic financial planning
Phase 2 Forecast-based planning
Phase 3 Externally oriented planning
Phase 4 Strategic Management
1.2 CHANGES IN THE BUSINESS ENVIRONMENT
1.3 BENEFITS OF STRATEGIC MANAGEMENT
LEARNING OBJECTIVES
Upon completion of this topic, you should be able to:

Describe the evolution and development of strategic management

Identify the major factors contributing to changes in the current business
scenario

Explain the benefits and pitfalls of strategic management
1.0 INTRODUCTION
The origin of Strategic Management then known
as 1Business Policy can be traced back to 1911
when the Harvard Business School introduced a
course in Management.
The objective of the
course was to increase the general management
capability of students.
However, the real
impetus for introducing Business Policy in the
curriculum dates back to 1959 when it became
popular as a guideline for thinking and action by
those who make decisions.
Figure1.1: Breaking out of traditional style of management
Later Business Policy became Strategic management. Harvard
Business School introduced this as a distinct subject in the 1980s.
Initially the focus of Strategic management was to help students
learn how to integrate the various functional areas of business
management (like accounting, human resource management,
finance, production, accounting and marketing) so as to understand
Figure1.2:
the interrelationship and linkages of each of the functions areas with Strategic
the operations and management of the entire organisation.
management
course
became
popular
Later on the many changes in the business environment compelled
organisations to make varied changes in the structure in order to cope with the rapid
dynamic business environment. As a result, the field of strategic management evolved
as it stands today.
Such attempt made by business houses has reaped big benefits to
organisations.
As a result, there has been a constant endeavour to add knowledge to
this subject. All courses on management have included it as a subject whereby students
learn how strategy relates the firm to its environment, and how it could be used for
managing the future or competing for future by creating a sustainable competitive
advantage for the organisation.
1.1 EVOLUTION OF STRATEGIC MANAGEMENT
Harvard Business School was the first to introduce a course known as Business
Policy for practicing managers for a culminating experience. The course was structured
to create opportunities for participants to integrate knowledge of what they had learned
in different business fields and use the knowledge in analysing business related
problems. 2The course focused on integrating the various functional areas of business
administration like accounting, management, marketing, human resources, finance and
production.
It was designed to develop the ability of the
learner to apply the knowledge learned in
previous courses to solve problems in business
organisations. Thus, the course concentrated on
providing formal training and experience in
handling issues affecting the business
Figure1.3: Harvard Business School introduced the course known as Business
Policy.
environment and systematic and analytical thinking in resolving problems affecting the
performance of organisations. However, the real impetus for introducing Business
Policy in the curriculum came with the publication of two reports in 1959. The Gordon
d Howell Report and Ford Foundation had recommended a Capstone Course of business
in order to provide an opportunity for students to gather what they have learned in
separate business fields and utilise this knowledge in the analysis of complex business
problems. From then on business policy course has been included in all business
administration programmes both at the graduate and post-graduate level.
1.1.1 Business Policy maturing into Strategic Management
The evolution of strategic management can be divided into two phases.
The first relates to the contents of what constitutes the subject of Business Policy and
the other relates to the development of strategic management with a more focused
approach to management planning
(a) Contents of Business Policy undergoing drastic change
Gradually over the years, the content of Business Policy has undergone
vast changes keeping in mind that the focus of business policy has shifted keeping in
mind the needs of the business. The major factors responsible for this shift in focus are:

Increasing responsibilities of managers in organisations

Powerful changes taking place in the business environment

Introduction of case studies as a learning methodology

Other environmental factors affecting the performance of the organisation at
large.
Initially when it was introduced as a subject in Harvard Business School,
the subject included only the opinions and view of top management. The participants
were encouraged to do role-plays by assuming top positions in an organisation. Their
actions and reactions to be various problems affecting the organisations were analysed.
This gave participants an opportunity to learn from the experiences of others in
resolving issues facing the organisation. Such analysis was extended to include the
influence of factors such as economics, social, political and technology, which was by
then gaining importance.
Another factor that changed the perspective of Business Policy was the
Industrial Recovery of the 1980s that brought about massive changes in every sphere of
business, especially in information technology. This brought about a big change in the
way organisations conduct their business.
In the meantime, new concepts such as social responsibility and ethical
behaviour of the organisation such as a concept for safety and health of employees,
pollution control were developed and these increased the expectations of the society
from the organisations.
Last but not the least, the micro-level management expectations of the
stakeholders from the organisation such as good corporate governance, transparency in
operations and social equity in organisational management also contributed to the
change in the business and non-business environment.
(b) Changing Management Planning Perspective
One of the major functions of the management is planning. Planning is important
as it helps an organisation manage itself more effectively and efficiently.
Planning initially stressed only on having clear goals and objectives and preparing
budgets for resource allocation. However, the changing dynamic environment of
business has compelled organisations to make suitable changes and adjustments in light
of such changes in the business environment.
This has ultimately resulted in organisations developing a strategic approach to
undertaking the management function.
Figure
1.4:
Strategic
approach
to
planning
1.1.2 The Four Phases of Development in Strategic Management
Constant efforts of 3 Frederick W. Glueck, Stephan P. Kaufman, and A.
Steven Walleck lead to the study of the evolution of strategic management in 120
companies.
4
Their study has led to conclude that strategic planning in most
organisations evolves in four sequential phases as detailed below:
 Phase 1 Basic financial planning
The Phase 1, which deals with basic Figure1.5:
financial
planning,
makes
organisations
involve Planning
themselves in preparing and meeting annual budgets.
Budgets lead to the deciding of financial targets. 5This
also ensures that revenues and costs are carefully
monitored. Though the emphasis is on short-term
financial planning, the primary focus is on the functional
aspects of the organisation. During this phase, it is
difficult to find organisations worrying about the long
term future aspects of the business.
Basic
Financial
Phase 2 Forecast-based planning.
The Phase 2, which relates to forecasting
based planning, covers a period longer than the one
covered by the budget period.
6
Organisations expect
their managers to make forecasts that are more refined
and to become aware of their external environment.
The managers are also expected to analyse the effects
of the environment of the organisations. This requires
organisations in phase 2 to make more judicious
resource allocation to help organisation compete for a
long-term competitive position.
Figure1.6: Forecast-based planning
Phase 3 Externally oriented planning.
7
seen
Organisations in Phase 3 are
attempting
marketplace
to
understand
phenomena.
basic
Organisations
begin by searching for new ways to define
and satisfy customer needs. This phase
differs from the other two phases in the
sense that it requires corporate planners to
identify a number of alternative courses of
action for top management. Evaluation of
strategic alternatives
Figure1.7: Externally oriented planning
is
made by top
management in a formalised manner to plan
their actions.
Phase 4 Strategic Management8
Organisations in Phase 4 actively
involve themselves in trying to make strategic
planning and management a single process. Such
integration is made possible with the help of three
elements: pervasive strategic thinking (managers
all levels think strategically),
comprehensive
planning process, and supportive value system.
`
Figure1.8: Strategic management
Thus, according to Gluck et al. (1982), strategic management evolved
through four phases of development.
Figure1.9: Gluck's four phases of development in strategic management
The evolvement in strategic management has prompted the business policy
course to evolve from phase 1 to phase 4, which is more complex and dynamic, and
gradually to the present day strategic management course.
To summarise, the business policy course was concerned with integrating
all the functional areas of business and providing experience in solving real-life
problems, which have a multifunctional impact on the organisation. Strategic
management, however, is concerned with all that was discussed in the business policy
course but also incorporates the external factors that have a major impact on the
organisation, and consequently determines the long-term direction of the organisation
by formulating plans, implementing the plans and making evaluation and control of the
plans that were set for the organisation. Furthermore, the strategic management area
involves strategic issues, which have a long-term impact on the organisation.
CHECK YOUR PROGRESS
1. Discuss the evolution of business policy into strategic management.
2. List any four new uses of Information Technology for a business.
1.2 CHANGES IN THE BUSINESS ENVIRONMENT
Every business is forced to operate in
two
environments
called
as
the
internal and external environments.
The external environment in which
firms operate lies outside them. It is
this external environment, which is
constantly changing. Some of these
changes are so drastic that every firm
takes notice of them.
Figure1.10: Changes in business environment
Such changes may require the immediate attention and action of the
firms. However, there could be changes, which take place slowly, and it may at times
take many years for the firms in the industry to realise the change and they may go
unnoticed for many more years.
The external environment thus poses a number of challenges for the firms.
Changes take place in the external environment may assume different shapes and
provide fresh challenges. For a whole industry change effects in the following ways:

Changes take place very often in customers' needs and requirements. Customers
always desire to have new, better and cheaper products.

As technologies develop, it acts as a source of encouragement for new companies
to enter the business with better quality of products and economical ways of
management.

As companies take advantage of new technologies,
the employees' need to be
trained to equip them with new skills associated with the new technologies.

The business house operates in an external environment which has new laws are
passed on a regular basis affecting working conditions, wages payable, etc..

Gradually reliability of traditional sources of supplies of raw materials and
components begins to decline.

Constantly new source of supply is identified.

As industry reaches saturation levels, banks and other investors lose interest in
financing the industry.

Industry’s activities invite the attention and interest of pressure groups

The industry no longer attracts talents with high calibre

The external business environment also includes for individual firms their
competition, who may bring in improved production methods, innovate new ways to
compete, expand their market geography, find new ways to recruit key human resource.
Firms and industries should be able to withstand the test, which relates to
how fast and effectively it analyses, recognises significant changes, and adapts to them.
CHECK YOUR PROGRESS
Discuss the changes that are taking place in the business environment as of today.
Explain the role of different levels of management in trying to cope with the changes in
the business environment.
1.3 BENEFITS OF STRATEGIC MANAGEMENT
9
Many studies carried out have proved that a firm paying attention to
strategic management will be able to outperform those that do not. Strategic planning
brings about a judicious allocation of resources and improves coordination between
various divisions of the organisation.
10
Authors give various reasons as to why organisations should employ
strategic management. Many research studies show both financial and nonfinancial
benefits which can be derived from a strategic management approach to decision
making.
 Financial Benefits11
Figure1.11:
Financial
The financial benefits of strategic management are benefits
obvious when we try to find an answer to the question why
should a firm adopt strategic management.
Many renowned authors like
Eastlack and
McDonald (1970), Thune and House (1970), Ansoff et. al.
(1971), Karger and Malik (1975), and Hofer and Schendel
(1978) have conducted research to prove the advantage of
adopting strategic management.
The results indicate that
formalised strategic management (strategic planning) does
result in superior performance by organisations.
12
Every study conducted was able to provide convincing evidence to show
an increase in profitability because of strategy formulation and implementation. The
formalised strategic management process helps improve profits, sales, and return on
assets. Organisations that adopt a strategic management approach can expect that the
new system will lead to improved financial performance.
 Nonfinancial Benefits13
Apart from an increase in the
profitability
of
the
management is
seen
firm,
to
strategic
have many
behavioural effects that in turn could
improve the welfare of the firm.
Figure1.12: Nonfinancial benefits
Yoo and Digman demonstrate that strategic management is crucial for decision
making to handle and manage uncertainty. They have given the advantages of strategic
management:
i.
It prepares to expect and plan for future difficulties and opportunities.
ii.
It gives employees defined objectives and directions for the growth of the
organisation.
iii.
It results in more effective and better performance compared to non-strategic
management organisations.
iv.
It raises the motivation and satisfaction of employees.
v.
It results in swifter and better decision-making
vi.
It results in cost savings.
 Moreover, Greenley has also asserted that strategic management offers
the following process and personal benefits:
i.
It allows for identification, prioritisation, and exploitation of opportunities.
ii.
It provides an objective view of management problems.
iii.
It represents a framework for improved coordination and control of activities.
iv.
It minimises the effects of adverse conditions and changes.
v.
It allows major decisions to support better-established objectives.
vi.
It allows more effective allocation of time and resources to identified
opportunities.
vii.
It allows fewer resources and less time to be devoted to correcting erroneous
decisions.
viii.
It creates a framework for internal communication among personnel.
ix.
It helps to integrate the behaviour of individuals into a total effort.
x.
It provides a basic for the clarification of individual responsibilities.
xi.
It gives encouragement to forward thinking.
xii.
It provides a cooperative, integrated, and enthusiastic approach to tackling
problems and opportunities.
xiii.
It encourages a favourable attitude towards change.
xiv.
It gives a degree of discipline and formality to the management of a business.
These and other research studies have concluded that strategic management
is an integral and important function of organisation life. However, successful
organisations are successful for many reasons: adequate resources, good products and
services, and so on. While not panaceas, the strategic management process is a powerful
tool. It values lies with executive and the ability to use this strategic management tool in
effectively managing the enterprise.
14
It makes managers think ahead and anticipate problems before they
occur. The main benefit of the strategic planning process is that it is continuous dialogue
about the organisation’s future between the hierarchical levels in the organisation.
 In short, strategic management offers the following benefits:
i.
It helps by providing clarity in the strategic vision for the organisation
ii.
It helps the firm to focus attention on what is strategically important to the
organisation
iii.
It helps by giving a better understanding of the rapidly changing business
environment.
CHECK YOUR PROGRESS
List the financial uses of strategic management.
List the non-financial uses of strategic management.
Take a company of your choice and discuss how its strategy has helped it to obtain a
sustainable competitive advantage in the market.
SUMMARY


The origin of Strategic Management then known as Business Policy can be
traced back to 1911 when the Harvard Business School introduced a course
in Management.
Later Business Policy became Strategic management. Harvard Business
School introduced this as a distinct subject in the 1980s initially the focus



of Strategic management was to help students learn how to integrate the
various functional areas of business management.
Later on the many changes in the business environment compelled
organisations to make varied changes in the structure in order to cope with
the rapid dynamic business environment. As a result, the field of strategic
management evolved as it stands today.
It was designed to develop the ability of the learner to apply the knowledge
learned in previous courses to solve problems in business organisations.
Thus, the course concentrated on providing formal training and experience
in handling issues affecting the business environment and systematic and
analytical thinking in resolving problems affecting the performance of
organisations.
The evolution of strategic management can be divided into two phases.
The first relates to the contents of what constitutes the subject of Business
Policy and the other relates to the development of strategic management
with a more focused approach to management planning.

Constant efforts of Frederick W. Glueck, Stephan P. Kaufman, and A. Steven
Walleck lead to the study of the evolution of strategic management in 120
companies. Their study has led to conclude that strategic planning in most
organisations evolves in four sequential phases

The evolvement in strategic management has prompted the business policy
course to evolve from phase 1 to phase 4, which is more complex and
dynamic, and gradually to the present day strategic management course.

Every business is forced to operate in two environments called as the
internal and external environments. The external environment in which
firms operate lies outside them. It is this external environment, which is
constantly changing. Some of these changes are so drastic that every firm
takes notice of them.

Many studies carried out have proved that a firm paying attention to
strategic management will be able to outperform those that do not.
Strategic planning brings about a judicious allocation of resources and
improves coordination between various divisions of the organisation.
KEY TERMS
Business Policy
Basic Financial Planning
Forecast-Based Planning
Externally Oriented Planning
Financial Benefits
Nonfinancial Benefits
Strategic Planning
Business Environment
EXERCISE
Short Answer Questions
1. Define business policy.
2. State the reason for the immense importance given to a business policy.
3. Discuss the four phases in the development of strategic management.
4. List the different types of benefits of strategic management.
Long Answer Questions
1. Explain the reasons behind including Strategic Management as a course in all
management programmes.
2. Are you convinced of the importance of strategic management? If yes, give
reasons.
3. Explain the evolution of strategic management in about 300 words.
4. Take two competing organisations and make a comparison on their strategy
initiatives.
REFERENCES
Pratik Tiwari. (2013, March 3). Strategic Management. Retrieved from
http://www.slideshare.net/tiwari_prat/20076ipcc-paper7-bvol1cp2
2
Fred r. david (2011) strategic management concepts. Retrieved from
http://www.slideshare.net/Chakodi/fred-r-david-2011-strategic-management-concepts
3
Ryszard Barnat. (n.d.). Strategic Management :: Developing The Strategic Management
Process. Retrieved from http://www.introduction-to-management.24xls.com/en232
4
Ryszard Barnat. (n.d.). Strategic Management :: Developing The Strategic Management
Process. Retrieved from http://www.introduction-to-management.24xls.com/en232
5
Ryszard Barnat. (n.d.). Strategic Management :: Developing The Strategic Management
Process. Retrieved from http://www.introduction-to-management.24xls.com/en232
6
Ryszard Barnat. (n.d.). Strategic Management :: Developing The Strategic Management
Process. Retrieved from http://www.introduction-to-management.24xls.com/en232
7
Ryszard Barnat. (n.d.). Strategic Management :: Developing The Strategic Management
Process. Retrieved from http://www.introduction-to-management.24xls.com/en232
8
Ryszard Barnat. (n.d.). Strategic Management :: Developing The Strategic Management
Process. Retrieved from http://www.introduction-to-management.24xls.com/en232
9
Anna University. (n.d.). Strategic management. Retrieved from
http://www.slideshare.net/harinh/strategic-management-11835093
10
Ryszard Barnat. (n.d.). Strategic Management :: The Importance And Value Of Strategic
Management. Retrieved from http://www.introduction-to-management.24xls.com/en241
11
Ryszard Barnat. (n.d.). Strategic Management :: The Importance And Value Of Strategic
Management. Retrieved from http://www.introduction-to-management.24xls.com/en241
12
Ryszard Barnat. (n.d.). Strategic Management :: The Importance And Value Of Strategic
Management. Retrieved from http://www.introduction-to-management.24xls.com/en241
13
Ryszard Barnat. (n.d.). Strategic Management :: The Importance And Value Of Strategic
Management. Retrieved from http://www.introduction-to-management.24xls.com/en241
14
Anna University. (n.d.). Strategic management. Retrieved from
http://www.slideshare.net/harinh/strategic-management-11835093
1