Strategic Management Fundamentals: Concepts, Levels, and Corporate Governance

Posted on Sep 28, 2025 in Business Administration and Management (BAM)

Understanding Strategy and Strategic Management

Strategy is a high-level plan to achieve one or more goals under conditions of uncertainty. It describes how the ends (goals) will be achieved by the means (resources).

Organizational Strategy Defined

Organizational strategy is the direction and scope of an organization over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling expectations.

Tactical vs. Operational Planning

  • Tactical Planning: Short-range planning, emphasizing various parts of the organization as practical steps for implementing strategy.
  • Operational Planning: Regulates day-to-day output relative to schedules, specifications, and costs. It ensures product and service output is high-quality and delivered on time.

Implications of Strategy

The implications of a strategy often include complexity, uncertainty, and integration.

The Strategic Management Process

The strategic management process is based on three main stages:

  1. Strategic Analysis: Analyzing organizational goals and objectives, assessing the internal environment, and assessing a firm’s intellectual assets.
  2. Strategic Formulation: Developing strategies across different levels.
  3. Strategy Implementation and Control: Putting strategies into action and monitoring performance.

Strategic Formulation Levels

  • Corporate Level Strategy: Determines the business portfolio and asks how businesses can be managed to achieve synergy.
  • Business Level Strategy: Focuses on how to compete and outperform rivals, and how to achieve and sustain competitive advantages.
  • International Strategy: Covers entry strategy and attaining competitive advantages in international markets.

Strategy Implementation and Control Components

  • Strategic control and corporate governance (information control and behavioral control).
  • Creating effective organizational designs.
  • Creating a learning and ethical organization.
  • Fostering corporate entrepreneurship.

Strategic Levels within an Organization

  • Corporate Level

    Top management plans for the organization and all business units. Types include: growth, renewal, and stability.

  • Business Level

    Determines how organizations should compete at a strategic business unit level in their particular markets. Types include: cost leadership, differentiation, and specialization.

  • Functional or Operational Level

    Focused on improving the effectiveness of each department. Describes how corporate and business levels have to be developed in terms of resources, processes, and people.

Core Organizational Concepts: Mission, Vision, and Objectives

Mission Statement

A mission outlines the fundamental purpose and reason for the company’s existence. It focuses on the present and describes what the company does, who it serves, and how it operates. The mission statement provides a clear and concise summary of the company’s core activities, values, and goals. It helps guide day-to-day operations, decision-making, and strategic planning. It often answers questions like “What do we do?” and “Who do we serve?”

Example: “Our mission is to provide high-quality, affordable healthcare services to underserved communities worldwide.”

Vision Statement

A vision statement describes the desired future state or long-term aspirations of the company. It outlines the company’s goals, aspirations, and the impact it aims to create in the world. It provides a compelling image of what the company wants to achieve and the direction it wants to move toward, serving as a source of inspiration for employees and stakeholders.

Strategic Objectives

Strategic objectives are used to implement the mission statement, providing guidance on how to move toward the “higher goals.” They are more specific, cover a more defined time frame, and require measurement for fulfillment (often using the SMART criteria: Specific, Measurable, Achievable, Realistic, Time-based).

Corporate Governance and Responsibility

Corporate Governance

Corporate governance is defined as the relationship among various participants in determining the direction and performance of companies. Its primary purpose is to maximize the long-term return to the owners. It dictates how companies are managed and controlled at the highest level.

Key Participants:

  • Board of Directors
  • Management Committee

Duties and Responsibilities of the Board of Directors:

  • Control of the execution and achievement of the strategic objectives.
  • Creation of appropriate mechanisms to obtain quality and accurate information.
  • Establishment of the remuneration policy for senior management.

Corporate Social Responsibility (CSR)

CSR is the company’s attitude toward the social, economic, and environmental demands made by society as a whole as a result of its activities. This involves mandatory compliance with national and international social, labor, environmental, and human rights legislation, and also tries to improve the quality of life of its employees.

Environmental, Social, and Governance (ESG)

ESG involves using environmental, social, and governance factors to evaluate companies and countries on how far advanced they are with sustainability. Once sufficient data has been acquired, these factors can be integrated into the investment process.

Strategic Analysis Tools and Concepts

Porter’s Five Forces

These forces analyze the intensity of competition within an industry:

  1. Threat of new entrants.
  2. Bargaining power of buyers.
  3. Bargaining power of suppliers.
  4. Threat of substitute products and services.
  5. Intensity of rivalry among competitors in an industry.

Resources and Capabilities

  • Resource: An inventory of factors owned and controlled by a company.
  • Capability: A dynamic concept related to what a company does or knows how to do (e.g., processes, skills).

Strategic Profile Analysis

This is the comparison of different efficiency or value indicators/factors of the company with competitors. According to the strengths and weaknesses in these areas, each company defines a strategic profile when comparing itself with others.

Value Chain Analysis

The value chain considers the organization as a sequential process of value-creating activities. Its objective is to describe, assess, and detect sources of competitive advantage. It requires a broad vision and allows the company to be broken down into its component activities, focusing on the relationship between them.

  • Primary Activities: Contribute to the physical creation of products or services.
  • Support Activities: Add value indirectly (e.g., procurement, technology development).

Benchmarking

Benchmarking is a way of understanding how an organization’s strategic capability compares with those of other organizations. Types include:

  • Historical Benchmarking: Considers performance in relation to previous years to track change.
  • Industry Benchmarking: Comparison against industry peers.
  • Best-in-Class Benchmarking: Comparison against the highest performers, regardless of industry.

Types of Corporate Strategies

1. Growth Strategies

Growth strategies focus on expanding the company’s operations or market reach.

  • Market Penetration: Focuses on increasing sales of existing products or services within existing markets (e.g., offering discounts).
  • Vertical Integration: Involves acquiring or merging with companies operating at different stages of the supply chain. This provides greater control, reduces costs, and improves coordination (e.g., a clothing retailer acquires a textile manufacturing company).
  • Horizontal Integration: Acquiring or merging with competitors operating in the same industry or market. This strategy aims to consolidate market share, eliminate competition, and gain economies of scale (e.g., two competing software companies merge).
  • Diversification: Entering new markets with new products or services (e.g., a technology company launching a new line of unrelated consumer goods).

2. Stability Strategies

Stability strategies intend to maintain the firm’s current size and level of business operations. An organization implementing this may intend to defend its current market share and sell non-strategic activities while maintaining its core business.

3. Renewal Strategies

Renewal strategies are used to reverse organizational decline and locate the organization in a more appropriate place to achieve its strategic goals. Examples include liquidation or bankruptcy.

Diversification Strategies Explained

  • Related Diversification: Occurs when the company adds to or expands its existing line of production or markets. The company starts manufacturing a new product or penetrates a new market related to its business activity.
  • Unrelated Diversification: The business adds new or unrelated product lines and penetrates new markets.

Strategic Development Modalities

  • Internal Development: The organization starts new businesses by using its own resources.
  • External Development: Includes mergers (tend to be between similar organizations) and acquisitions (one organization is purchased by another).
  • Hybrid Development (Joint Venture): Two or more organizations agree to create a new corporation for strategic purposes.

Benefits of Hybrid Development:

  • Entering new markets.
  • Reducing manufacturing costs.