Strachan, whose contract expires after their final qualification match away to Gibraltar on Sunday, refused to discuss his future after Poland's stoppage-time equaliser in a 2-2 draw in Glasgow on Thursday cost the Scots any chance of making the finals.
But Dalglish, who made 102 appearances from 1971-86 and is joint record scorer with 30 goals, said nothing would be gained by replacing him.
"I think you're off your head if you think you're going to get anybody better," he told BBC Scotland.
"It's always the manager that gets it, but why change the manager if you can't get a better one?
"From where we've been, it's a huge improvement to where we were.
"It was a difficult group to get out of, so the disappointment should be overruled by common sense.
"The game we lost in Georgia has turned out to be important, but one bad game out of nine isn't bad."
Scotland cannot now finish higher than fourth in Group D behind Germany, Poland and Ireland.
(Reporting by Steve Tongue; editing by Toby Davis)
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