Temple University
BA 951
Policy Formulation and Administration
Ram Mudambi
Temple University (USA)
and
University of Reading (UK)
© Ram Mudambi, Temple University, 2006
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BA 950
Policy Formulation and Administration
Lecture 1
What is Strategic Management?
© Ram Mudambi, Temple University, 2006
Overview
What is strategy?
 An plan of action a company takes to attain superior
performance.
Why do some firms succeed while others fail?
 A central objective of strategic management is to
learn why this happens.
What is the strategic management process?
 The process by which managers choose a set of
strategies for the enterprise to pursue its vision.
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Superior Performance
Superior performance
 One company’s profitability relative to that of other companies
in the same or similar business or industry
 Maximizing shareholder value is the ultimate goal of profit
making companies
ROIC (Profitability) = Return On Invested Capital
= Net profit / capital invested
= Net income after tax / (equity + debt to creditors)
Competitive advantage
Profitability
 When a company’s profitability is greater than the average of all
other companies in the same industry & competing for the
same customers
Growth
Sustained competitive advantage
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Performance in Nonprofit Enterprises
Nonprofit entities such as government agencies,
universities, and charities:
 Are not in business to make a profit
 Should use their resources efficiently and effectively
 Set performance goals unique to the organization
 Set strategies to achieve goals and compete with other
nonprofits for scarce resources
A successful strategy gives potential
donors a compelling message as to
why they should contribute.
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Strategy as a plan


Strategy is concerned with ‘draft(ing) the plan of
war...shap(ing) the individual campaigns, and
within these, decid(ing) on the individual
engagements.’ (Von Clausewitz, On War, 1976)
Strategy is ‘a complete plan: a plan which specifies
what choices (the player) will make in every
possible situation.’ (Von Neumann and Morgenstern, Games
and Economic Behavior, 1944)

‘Strategy is a unified, comprehensive and
integrated plan...designed to ensure that the basic
objectives of the enterprise are achieved.’ (Glueck,
Business Policy and Strategic Management, 1980)
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Two factors underlying all outcomes
Strategy
Strategy
Outcome
Chance
Outcome
Chance
Good strategy
Bad strategy
Planned
Planned
Unplanned
Unplanned
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Strategic Planning
Rational planning by top management?
Basic Strategic Planning Model
Defining the Mission and Setting Top-Level Goals
External Analysis of Opportunities and Threats
Internal Analysis of Strengths and Weaknesses
Selection of Appropriate Strategies
Implementation of Chosen Strategies
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The Main
Components of
the Strategic
Planning Process
SYLLABUS
TOPIC 1
External
Analysis
Competitive
Advantage
TOPIC 2
TOPIC 5
TOPIC 6
Governance &
Ethics
TOPIC 7
© Ram Mudambi, Temple University, 2006
The
Strategic
planning
process
TOPIC 4
Internal
Analysis
TOPIC 3
Contextual
Analysis of
Strategy
Corporate
Strategy
Strategy
Implementation
TOPIC 8
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The Main
Components of
the Strategic
Planning Process
TEXT
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Mission and Goals
Mission
 Sets out why the organization
exists and what it should be doing.
Major goals - vision
 Specify what the organization hopes
to fulfill in the medium to long term.
Secondary goals
 Are objectives to be attained that lead to superior
performance.
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Vision vs. Mission
A statement of purpose (strategic intent)
committing the organization to ambitious
overarching (stretch) goals.
 Provides a sense of direction and purpose.
 Drives strategic decision making
and resource allocations.
 Forces the seeking of
significant performance
improvements to
attain goals.
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Customer Orientation and Business Definition
Abell’s Framework
for Defining the
Business
 Consumer-oriented
versus
Product-oriented
business definition
Source: Derek F. Abell, Defining the Business: The Starting Point of
Strategic Planning (Englewood Cliffs, N.J.: Prentice-Hall, 1980), p. 17.
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Values
Johnson & Johnson’s credo
sets its responsibilities to:
1. J&J product users.
2. J&J employees.
3. Communities in which J&J
employees live and work.
4. J&J stockholders.
© Ram Mudambi, Temple University, 2006
Source: Courtesy of Johnson & Johnson. 1-14
External Analysis
Identify strategic opportunities and threats in
the operating environment.
Immediate (Industry)
Macroenvironment
© Ram Mudambi, Temple University, 2006
National
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Internal Analysis
Identify strengths
 Quality and quantity of resources available
 Distinctive competencies
Identify weaknesses
 Inadequate resources
 Managerial and
organizational deficiencies
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SWOT and Strategic Choice
Strengths and Weaknesses
Opportunities and Threats
(SWOT Analysis)
Strategic Choice
Functional
Business
Global
Corporate
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Company’s Business Model
Management’s model of how strategy will allow
the company to gain competitive advantage
and achieve superior profitability
A business model encompasses how the company will:
• Select its customers
• Deliver those goods and
services to the market
• Define and differentiate
its product offerings
• Organize activities within
the company
• Create value for its
customers
• Configure its resources
• Acquire and keep
• Achieve and sustain a
customers
high level of profitability
• Produce goods or
• Grow the business over
services
time
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Levels of Strategic Management
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Functional-Level Strategies
Focus is on improving the effectiveness of
operations within a company.
 Production
 Operations
 Marketing
 Research and development
 Human resources
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Business-Level Strategies
Cost leadership
 Attaining, then using the lowest total cost basis as a
competitive advantage.
Differentiation
 Using product features or services to distinguish the
firm’s offerings from its competitors.
Market niche focus
 Concentrating competitively on
a specific market segment.
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Corporate-Level Strategies
Vertical integration
Outsourcing
Diversification
Strategic alliances
Acquisitions
New ventures
Business portfolio
restructuring
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Strategy Implementation
Designing organizational structure
Designing control systems
Structure
 Market and output controls
 Bureaucratic controls
 Control through organizational culture
 Rewards and incentives
Controls
Fit - Matching strategy, structure,
and controls
 Congruence among strategy,
structure, and controls
© Ram Mudambi, Temple University, 2006
Strategy
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Strategic Leadership
Good leaders of the strategy-making process
have a number of key attributes:
Vision, eloquence, and consistency
Commitment
Being well informed
Willingness to delegate and empower
The astute use of power
Emotional intelligence

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Self-awareness
Self-regulation
Motivation
Empathy
Social skills
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Strategy as an Emergent Process
• Strategy making in an unpredictable world
 Creates the necessity for flexible strategic approaches.
• Strategy making by lower-level managers
 Strategy evolves through autonomous action.
• Serendipity and strategy
 Accidental discoveries and happenstances can have dramatic
effects on strategic direction.
• Intended and emergent strategies
 Realized strategies are combinations of intended and
emergent strategies.
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Intended and Emergent Strategies
Source: Reprinted from “Strategy Formation in an Adhocracy,”
by Henry Mintzberg and Alexandra McGugh, published in
Administrative Science Quarterly, Vol. 30, No. 2, June 1985, by
permission of Administrative Science Quarterly.
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The Strategic Management Process
for Intended and Emergent Strategies
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Strategic Planning in Practice
Planning under uncertainty
 Scenario planning for dynamic environmental change
Ivory tower planning
 Lack of contact with operational realities
 The importance of involving operating managers
 Procedural justice in the decision-making process
 Engagement, explanation, and expectations
Planning for the present: Strategic Intent
 Recognition of the static nature of the strategic fit model
 Strategic intent in focusing the organization on winning by
achieving stretch goals
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Problems in Strategic Decision Making
1. Cognitive biases systematically influence
the rationality of decision makers.
Mintzberg’s example of the Vietnam war
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Problems in Strategic Decision Making
2. Pitfalls of groupthink
 Failing to question underlying assumptions.
 Coalescing around a single person or policy.
 Filtering out conflicting information.
 Developing after-the-fact rationalizations.
 Having an emotional (non-objective)
commitment to an action.
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Techniques for Improving Decision Making
Two decisionmaking processes
that counteract
cognitive biases
and groupthink.
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Summary
• What is strategy and strategic management?
• Overview of the course
• Strategic management in the firm
• Intended and emergent strategies
• Problems – sources and management
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