Nature and Scope Strategic Management

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1LEARNING OUTCOMES

By the end of this chapter you should be able to:

� compare and contrast approaches to strategy formulation;

� discuss concepts in established and emergent thinking in strategic management;

� explain the relationship between different levels of strategy;

� discuss the nature of competitive environments.

1.1 Introduction to the nature of strategic management

The strategic management process is essentially concerned with the decisions organisa-tions make about their future direction and the development and implementation of strat-egies which will enhance the competitiveness of organisations. There are many different approaches to strategic management but they all have the aim of establishing the purpose of the organisation and guiding managers on how to implement strategies to achieve organisational goals.

This chapter will start by defi ning the concept of strategy. It will explain the various activities involved in the strategic management process, based on the formal rational approach to strategy. The ways in which organisations can gain competitive advantage will also be explored. Some of the alternative approaches to strategic management will then be explained. The fi nal part of the chapter will discuss the concept of stakeholders and exam-ine how different stakeholders can infl uence the strategy process.

1.2 The concept of strategyStrategy has many different interpretations and dimensions. These characteristics distinguish strategic issues from operational issues in organisations. Listed below are just some defi nitions:

1. Strategy. ‘A course of action, including the specifi cation of resources required, to achieve a specifi c objective.’ CIMA: Management Accounting: Offi cial Terminology, 2005 edition p. 54.

The Nature of Strategic Management

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STUDY MATERIAL E24

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T 2. Strategic plan. ‘A statement of long-term goals along with a defi nition of the strate-gies and policies which will ensure achievement of these goals.’ CIMA: Management Accounting: Offi cial Terminology, 2005 edition p. 54.

3. Strategy is the direction and scope of an organisation over the long term. Which achieves advantage in a changing environment through its confi guration of resources and competences with the aim of fulfi lling stakeholder expectations.’ Johnson et al. (2008).

4. ‘The basic characteristic of the match an organisation achieves with its environment is called its strategy.’ Hofer and Schendel (1978, p. 4).

5. ‘Corporate strategy is the pattern of major objectives, purposes and goals and essen-tial policies or plans for achieving those goals, stated in such a way as to defi ne what business the company is in or is to be in and the kind of company it is or is to be.’ Andrews, cited in Lynch (2006).

6. ‘Corporate strategy is concerned with an organisation’s basic direction for the future: its purpose, its ambitions, its resources and how it interacts with the world in which it operates.’Lynch (2006).

1.2.1 Common themes in strategyFrom these different defi nitions strategy is concerned with:

● The purpose and long-term direction of the business.● The scope of an organisation’s activities and actions required to meet its objectives

(broad or narrow).● Meeting the challenges from the fi rm’s business external environment, such as competi-

tors and the changing needs of customers.● Using the organisation’s internal resources and competencies effectively and building on

its strengths to meet environmental challenges.● Delivering value to the people who depend on the fi rm, its stakeholders, such as custom-

ers and shareholders, to achieve competitive advantage.

Whatever interpretation is put on strategy, the strategic actions of an organisation will have widespread and long-term consequences for the position of the organisation in the market-place, its relationship with different stakeholders, and overall performance.

1.3 Levels of strategy

Strategy occurs at different levels in the organisation. Figure 1.1 provides a simplifi ed model of the hierarchy at which different strategies are made. At the

top of the hierarchy is where corporate strategy is made; this provides the framework for the development of business strategy, which in turn provides the framework for functional strategies. The different levels of strategy formulation are therefore inter-dependent in that one level should be consistent with the strategies at the next level.

Corporate strategyThe corporate centre is at the apex of the organisation. It is the head offi ce of the fi rm and will contain the corporate board.




5ENTERPRISE MANAGEMENT

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Corporate strategy is typically concerned with determining the overall purpose and scope of the organisation, in other words what type of business or businesses should the organi-sation be in. Common issues at this level include:

● decisions on acquisitions, mergers and sell-offs or closure of business units;● relations with key external stakeholders such as investors, the government and regulatory

bodies;● decisions to enter new markets or embrace new technologies (sometimes termed diversi-

fi cation strategies);● development of corporate policies on issues such as public image, employment practices

or information systems.

Decisions at this level tend to complex and non-routine in nature because they often involve a high degree of uncertainty based on what might happen in the future.

The formal planning approach to strategy assumes that all strategy is formulated at cor-porate level and then implemented in a ‘top-down’ manner by instructions to the business divisions. During the 1980s, high-profi le corporate planners like IBM, General Motors and Ford ran into diffi culties against newer and smaller ‘upstart’ competitors who seemed to be more fl exible and entrepreneurial. One consequence was the devolution of responsi-bility for competitive strategy to strategic business units (SBUs).

Business strategyThis level of strategy is concerned with how an operating or strategic business unit approaches a particular market.

Corporate centreof organisation

Strategic businessunit

Corporatestrategy

Businessstrategy

Functionalstrategies



Financial strategy Marketingstrategy

Human resourcesstrategy

etc.

Figure 1.1 Organisation chart showing corporate, strategic business unit and functional strategies. From GIDO/CLEMENTS. Successful Project Management with Microsoft Project CD, 1E.

© 1999 South-Western, a part of Cengage Learning, Inc. Reproduced by permission. www.cengage.com/permissions

A strategic business unit (SBU) is defi ned by CIMA as: A section, usually a division, within a larger organisation, that has a signifi cant degree of autonomy,

typically being responsible for developing and marketing its own products or services. CIMA: Management Accounting: Offi cial Terminology, 2005 edition, p. 27.



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Nature and Scope Strategic Management