• Understanding strategy
• Purpose of strategic management
• Distinguishing strategic problem from tactical problem
• Formulation of a strategic plan
A) Understanding strategy:
In understanding strategy two broad views are used, viz., strategic fit concept and strategic
stretch concept. Both are discussed in the following paragraphs. But before discussing those two concepts,
we need to discuss two factors on which these two concepts lean heavily i.e concept of external and internal
External environment lets one know the industry in which the firm is operating. It takes into
account the product and factor markets. Profitability of the firm essentially depends on these two markets.
Equilibrium conditions in these two markets determines the profitability. Strategic management monitors the
factors which influence the equilibrium.
Internal environment deals with the status of the resource base of the firm on the basis of
which the firm competes in the market. This concept is encapsulated in the concept of SWOT analysis. SW-
refers to internal environment whereas OT-Refers to the external environment. The essence is that strength
and weaknesses is matched with opportunities and threat to develop strategy. Now which environment is
more important? It is in this regard that the two broad views or schools of thought differ. Strategic fit
concepts or the classical school lays the importance on the external environment whereas the strategic
stretch concept emphasizes on the internal environment of the firm. Let’s discuss both of them one by one---
1. Strategic Fit concept:
Michael Porter and other eminent classical strategy Gurus have the dominant figure in
shaping this framework of business strategy. According to them, the central thrust of the strategy is to gain a
sustainable competitive advantage over the competitors which results in the superior profitability of the firm.
In their opinion, the difference in profitability among the firms operatin