Unit 1: Introduction — MGT 240 Strategic Management Study Notes

Difficulty: ★★★ | High-yield focus: Master definitions of strategic management, vision vs mission statement, and strategic levels in Part 1. Key exam mastery: Diagram the four-phase strategic management process cycle, contrast corporate vs business vs functional strategy in Part 3, and solve the strategic hierarchy alignment ladder in Part 4.

Part 1: Core Concepts (2 Marks)

★ Strategic Management: The managerial process of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its long-term objectives within a dynamic competitive environment.
★ Vision vs. Mission Statement: A vision statement articulates what the organization aspires to become in the distant future (aspirational destination); a mission statement defines the firm’s present business purpose, customer scope, and core values (reason for existence).
★ Three Levels of Strategy: The hierarchical architecture comprising Corporate Strategy (overall multi-business scope), Business Strategy (competitive positioning within a single industry), and Functional Strategy (operational execution in marketing, finance, and operations).

Part 2: Structural Frameworks (10 Marks)

The Comprehensive Strategic Management Process

Strategic management operates as an ongoing, iterative managerial cycle aligning internal competencies with external opportunities and threats.

                      [ Environmental Scanning ]
             (External PESTLE & Industry / Internal VRIO)
                                   |
                                   v
                       [ Strategy Formulation ]
             (Mission, Objectives, Corporate & Business Strategies)
                                   |
                                   v
                     [ Strategy Implementation ]
             (Programs, Budgets, Procedures, McKinsey 7S Alignment)
                                   |
                                   v
                    [ Evaluation & Control (Audit) ]
             (Performance Measurement, Corrective Actions)

Strategic Intent Formulation: Translating the overarching corporate vision into specific, measurable, achievable, relevant, and time-bound (SMART) financial and strategic objectives.
The Role of Strategic Information Systems: Real-time business intelligence, customer sentiment tracking, and competitive intelligence systems (CIS) feed data into executive decision models, preventing strategic drift in volatile macroeconomic environments.

Part 3: Distinction Tables

Corporate-Level Strategy vs. Business-Level Strategy

Strategy Dimension	Corporate-Level Strategy	Business-Level (Competitive) Strategy
Core Question	“Which businesses and industries should we compete in?”	“How should we compete and win in this specific market?”
Decision Scope	Entire diversified multi-business enterprise portfolio.	Single Strategic Business Unit (SBU) or product line.
Typical Strategic Choices	Diversification, mergers, acquisitions, joint ventures.	Overall Cost Leadership, Differentiation, Focus.
Executive Responsibility	Chief Executive Officer (CEO) and Corporate Board.	SBU General Manager and divisional leadership.
Time Horizon	Long-term multi-year portfolio capital reallocation (5-10 yrs).	Medium-term competitive repositioning (1-3 yrs).

Part 4: Worked Problems & Exam Traps

Worked Numerical: SBU Return on Capital Employed (ROCE) and Value Creation

A diversified Nepalese conglomerate evaluates capital allocation across three autonomous Strategic Business Units (SBUs):

Corporate Weighted Average Cost of Capital (WACC): 10.0%
SBU 1 (Telecommunications): Capital Employed = NPR 500,000,000; Operating Profit (EBIT) = NPR 75,000,000
SBU 2 (Hospitality & Resorts): Capital Employed = NPR 300,000,000; Operating Profit (EBIT) = NPR 24,000,000
SBU 3 (FMCG Manufacturing): Capital Employed = NPR 200,000,000; Operating Profit (EBIT) = NPR 28,000,000

Step 1: Compute Return on Capital Employed (ROCE) for each SBU

\text{ROCE} = \frac{\text{Operating Profit (EBIT)}}{\text{Capital Employed}}

SBU 1 (Telecom): $75,000,000 / 500,000,000 = 15.00\%$
SBU 2 (Hospitality): $24,000,000 / 300,000,000 = 8.00\%$
SBU 3 (FMCG): $28,000,000 / 200,000,000 = 14.00\%$

Step 2: Calculate Economic Value Added (EVA) for each SBU

EVA = \text{EBIT} - (\text{Capital Employed} \times WACC)

SBU 1: $75,000,000 - (500M \times 0.10) = 75,000,000 - 50,000,000 = +\text{NPR } 25,000,000$ (Value Creator)
SBU 2: $24,000,000 - (300M \times 0.10) = 24,000,000 - 30,000,000 = -\text{NPR } 6,000,000$ (Value Destroyer)
SBU 3: $28,000,000 - (200M \times 0.10) = 28,000,000 - 20,000,000 = +\text{NPR } 8,000,000$ (Value Creator)

Step 3: Strategic Portfolio Reallocation Recommendation Hospitality destroys NPR 6 Million of economic value because its ROCE (8%) falls below WACC (10%). Corporate management should retrench or restructure SBU 2 and reallocate capital into Telecom (15% ROCE) and FMCG (14% ROCE).

TU Exam Trap: Students treat an SBU reporting positive accounting profit (NPR 24M in Hospitality) as successful, failing to compare its rate of return against the corporate cost of capital. Students lose marks here because an enterprise unit that yields less than its cost of capital destroys shareholder wealth despite showing positive accounting earnings.

Strategic Management

Chapter notes

Unit 1: Introduction· 9 LHs· ~11 marks