Meaning It refers to those set of perspective management measures taken with a view to ensuring the survival and long term success of an enterprise in a competitive environment Origin of Strategic Management The term is derived from the ancient Anthenian position of strategos. Strategos was a compound of Stratos which meant army & agein to lead. Strategy as defined in the 1 st century as everything achieved by a commander, be it characterized by foresight, advantage, enterprise, or a resolution Continue. The academic origins of strategic management come from the field of economics and company theory. Economics provided a way to begin exploring the role of management decisions & the possibility of strategic choices. 1960s (each organization situation is different and the best way of managing depended on the solution) Continue.. 1970s & 1980s , a distinct academic field as researchers began to study companies, managers, & strategies. Two camps were evolved one for process (formed and implemented) & other on content of strategic mgmt(strategic choice & performance). 1980s strategic was used as a personal mission statement of CEOs, rationalized by board & bought into the chief shareholders.
Continue More line managers were becoming responsible for planning & strategies, decisions started affecting strategy. During this period the researchers & scholars gave a broader emphasis into change the name of the course from business policy to strategic mgmt. In Harvard business school, where it is a course, the first half of the course considers the formulation of effective strategies, & second half for implementation of the selected strategy Continue Terms such as Strategic mgmt, corporate strategy & corporate planning are used interchangeably. However, a distinction can be drawn between them.eg. CRL Japanese practices such as TQM by using best practice, competition based on operational effectiveness (no strategic development)
Definition Guleck defines strategy as a unified, comprehensive & integrated plan relating the strategic advantages of the firm to the challenges of the environment. It is designed to ensure that the basic objectives of the enterprise are achieved Strategic Management is defined as that set of decisions and actions which leads to the development of an effective strategy or strategies to help achieve corporate objectives.
Key parts of definition of strategic mgmt. are.. It helps a company to reach its goals It is comprehensive, it covers all major aspects of enterprise. In involves decisions & actions It is not a single, simple action but a series of related decisions & actions It should match the strength & weaknesses with the environment opportunities & threats. Some related concepts Strategic Planning & Tactical Planning: Strategic Planning is a process by which top mgmt determine organizational objectives, strategies needed to reach these objectives and short-range, top level actions necessary to implement the strategy properly Tactical Planning on the other hand refers to short-range planning that is oriented towards operations & short-term details.
Formal & Informal planning Formal in a organized and formalized way generally in large organization. Informal- commonly with small enterprises, and sometimes with one man dominated not so small enterprises, it is in casual way Enterprise strategy It is the organizations plan for establishing the desired relationship with other social institutions and stockholder group and maintaining the overall character of the organization Policy A policy is a broad, general guide to action which constrains or directs goal attainment. They provide the boundaries within which the objectives must be pursued. It serve to channel and guide for implementation of strategies Strategic Business Unit It is an operating divisions of a firm which serves a distinct product/market segment or a well defined set of customers or a geographic area. There are different factors which decides SBUs. Each product line or a group of related product lines may form an SBU. Core Competence They are the collective learning in an organization, especially how to coordinate diverse production schemes & integrated multiple streams of technologies. Eg. Assets, infrastructure, privilege access and protected market are not core competencies even though they may lead to higher than a average profits under some circumstances. Classes of Decision Operating Decisions: eg. Production, inventory, marketing policies etc. Strategic decisions: expansion strategy, marketing strategy, finance strategy etc. Administrative decisions: resource acquisition & development, financing facilities and equipment, personnel, raw materials etc. Need for Strategy Provide direction Helps in decision making Co-ordination among all strategic initiatives Optimal resource allocation Act as a pre-program/guide
Need for Strategic Management Different School Thoughts A. Formal vs. informal process Formal maintains disciplines, stricter review of performance, unambiguous responsibility etc. B. Differentiated vs. integrated tasks split between those who formulate the policy and those who implemented Benefits and Relevance of Strategic Management
1. Envision an organizations future 2. Articulation of the mission & objectives 3. Facilitates better delegation, coordination, monitoring etc. 4. Guide to take measures
Continue.. 1. SWOT analysis 2. Constant monitoring 3. To meet competition 4. Make Management dynamic, appropriate to the environment 5. It is more effective than others (who do not follow strategy)
Misgivings 1. Based on fixed premises 2. SWOT analysis 3. Reflects in Mission & Objectives 4. Over-ambitious 5. Opportunities are overlooked 6. Very rigid 7. Results depends on implementation Continue 8. Lack of Commitment 9. Resistance to Management of Change 10. Requires expertise 11. Expensive 12. May leads to failure of Firms 13. Misconception of the concepts Strategic Management Process Strategy Formulation A. Determination of Mission & Objectives B. SWOT analysis C. Strategic alternatives a. evaluation & choice b. suitability c. feasibility d. acceptability D. Implementation E. Evaluation & control
Unit II Strategic Intent Meaning of the term Mission: The term mission, objectives and goals are terms used many a time interchangeably. However, in corporate literature they are often used distinctively. Mission leads to objectives, objectives leads to goals and goal leads to targets(which are set to achieve the goals) Meaning of the term Mission A mission statement is an enduring statement of purpose that distinguishes one business from other similar firms. A mission statement identifies the scope of a firms operations in product and market terms . Mission is also know as vision, value statement & principles Mission & Vision are often used as synonymous, mission evolves from the vision Continue. Fred David observes, a mission statement reveals the long term vision of an organization in terms of what it wants to be and whom it wants to serve. It describe an organizations purpose, customers, products or services, markets, philosophy, and basic technology Continue According to McGinnis, a mission statement: 1. should define what the organization is and what the organization aspires to be 2. should distinguish a given organization from all other 3.Should serve as a framework for evaluating both current and prospective activities 4.Should be stated in such a manner that, it is understood throughout the organization. Elements of Mission statement 1. Clearly Articulated: easy to understand so that the values of the organizations are clear to everybody eg. O.P. Jindal group, to be a globally competitive player with a burning desire to become the no 1 in the steel industry 2. Relevant: should be appropriate to the organization in terms of its history, culture and shared values. Continue 3. Current: environmental factors and organizational factors may necessitate modification of the mission. 4. Written in a positive(inspiring) Tone: A statement should be capable on inspiring and encouraging commitment towards fulfilling the mission. 5. Unique: it should establish the individuality, if not uniqueness, of the company Continue 6. Enduring: it should continually guide and inspire & be challenged in the pursuit of its mission, never achieving its ultimate goal. 7. Adapted to the Target Audience: the target audience has a bearing on the length, tone & visibility of the statement. Formulation & communication of Mission Founders establish the mission In some cases CEO & BOD or a committee constituted for this purpose Joint consultation It is communicated to the employee through purposive meetings, notice boards, company news letters, conversations, other meetings, letters & badges. Mission & Strategy Sets direction for the strategy Focuses the organization on action It creates disciplined organization Mission statements are the operational, ethical and financial guiding lights of companies. Defines companies business
Suggestion by Drucker What is our business? What will our business be? What should our business be? Vision Johnson: vision is a clear mental picture of a future goal created jointly by a group for the benefit of other people, which is capable of inspiring & motivating those whose support is necessary for its achievement Shoemaker: vision is the shared understanding of what the firm should be & how it must change. Characteristic of Vision 1. Possibility 2. Desirability 3. Actionability 4. Articulation Effective Vision Statement Must be easily communicable It must be graphic It must be directional Must be focused Must be appealing to(long term interest of stakeholders) Must be flexible Some leading examples of Vision Statements A Coke within arms reach of everyone on the planet(Coca Cola) Become a Premier Company in the World(Motorola) Eliminate what annoys our bankers and Customers(Texas Commerce Bank) How Does Vision Compare Vision: Paints a picture of the future & is inspirational Mission: it Depicts what the organization is & does not where it is headed in future Philosophy: it articulates values & beliefs of an organization without prescribing what the future will look like Goals & strategy: it defines specific outcomes. Importance of Vision A basis for performance Reflects core values Way to communicate A desirable challenge Beacon Helps to prepare for future Advantages of Vision Long-term thinking Creates a common identity and a shared sense of purpose It is inspiring & exhilarating A good vision is competitive, original & unique It represent integrity
Vision Failure Too specific Too vague Too inadequate Too unrealistic Objectives, Goals & Targets Objectives may be defined as those ends which the organization seeks to achieve by its existence and operations Goal is defined as an intermediate result to be achieved by a certain time as part of the grand plan. A plan can, therefore, have many goals Targets : referred to as specific goals IMPORTANCE OF OBJECTIVES 1. Justify the Organization: indicated the purpose & aims for the existence of an organization 2. Provide Direction: it should be clear as it aims to direction for achievement of the common purpose. 3. Basis for MBO: clearly formulated objectives form the basis for MBO which is a way of mgmt for results. Continue 4. Help Strategic Planning/ Management: it is a means to achieve the objectives. 5. Help Co-ordination: objectives helps co- ordinate decisions and decision-makers by directing 6. Provide standard for assessment & Control: without objectives, the organization has no objectives basis for evaluating its success Continue.. 7. Help Decentralization: By making clear the organizational objectives to various elements in the organization. Guidelines for Ideal objectives a. Participation b. Clarity c. Realism d. Flexibility e. Consistency f. Ranking g. Verifiability h. Balance
Factors affecting objectives A. External Environment Government Policy Market Structure Competitors Legal restriction Political environment Social responsibilities Continue.. B. Internal environment Enterprises resources Internal Power Shareholders Management Employee
Promoters Vision & value Stockholders Expectation Environmental factors
Mission
Corporate Objectives
SBU objectives
Departmental Objectives
Divisional objectives
Individual Objectives
Hierarchy of Objectives Classification of Objectives Economic objectives 1. Survival 2. ROI 3. Growth 4. Innovation 5. Market share Social objectives Towards consumers Towards employee Towards society Towards Govt. Primary & secondary Objectives Primary objectives: 1. Development & Expansion 2. Returns to Shareholders & employees 3. Reduction on price for consume Secondary objectives 1. Bonus to workers 2. Promote education, R&D etc. 3. Assistance in developing the industry Short-run & long-run objectives Short-run objectives may be a means to achieve long-run objective Long-run objectives example R&D Meaning of Goals A goal is considered to be an open-ended statement of what one wants to accomplish with no quantification of what is to be achieved and no time criteria for its completion. Increased Profitablity Goals & Objectives General Qualitative Broad organization- Wide target Long term results Eg. Growth, efficiency, profitability, utilization of resources etc. Specific Quantitative, measurable Narrow targets set by operating division Immediate, short term results Eg. 20% growth, 10% efficiency, 100% utilization of resources etc. Meaning of Strategic Intent A company with an ambitious goal with its full resources and action on achieving the goal or becoming a dominant company in the industry, offering best customer service that no one can surpass etc. Such strategic indent required sustained efforts for a number of years to achieve them. Some leading examples Nikes strategic intent during 1960s was to overtake Adidas, which they ultimately achieved Wal-Marts strategic indent was to overtake Sears as the largest American retailer, which they achieved in 1991 Hondas strategic indent was to crush, squash & slaughter Yamaha.
Corporate Strategy Formulation Four Basic Approaches for Strategy Formulation 1. The Design approach 2. The Learning/ Experience Approach 3. The Power Approach 4. The Ideas Approach Design Approach This model was first explored by Ansoff (1965) In this approach, strategy is formulated by top Mgmt through careful analysis This was one of the best way to develop strategy, if followed, was believed almost to guarantee corporate success Assumption behind this approach is that human being always behave rationally, and external risk can be viewed & interpreted in purely objective terms. The learning/Experience approach It is dynamic in nature, flexible Once the organization has adopted particular strategy, it tends to develop from & within that strategy. A strategy in such organization is not pre- planned, rather it develops on the basis of a series of action. It is the outcome of individual & collective experience & cultural processes in & around organization Power Approach This approach perceives strategy formulation as a negotiating process, intra-organizational politics & power. Lindbloom(1959) was an early proponent of this approach he drew attention to the ways in which value judgments influence the planning process. On these observations, the power view argues that strategy-making is not a scientific, comprehensive or rational process, but a negotiated process, characterized by restricted analysis & bargaining between the players involved. Ideas approach This approach sees strategy as emerging from innovation that comes from the variety & diversity which exist in & around organizations. New ideas come, not from the top, but quite likely from lower down in the organization. More the experience more will be innovation. Summary of Strategic Approach Design Approach Learning Approach Power Approach Ideas approach It develops through a rational, analytical, structural approach
Change comes from implementatio n of planned strategy
It develops based on individual & collective experience
Change is incremental with resistance to major change It develops through the process of bargaining & negotiation among powerful interest groups
Incremental change is adaptive It develops through innovation arising out of variety & diversity in & around the organization
Change is incremental but occasionally sudden Conclusion Form the above discussion it may be noted that design approach which emphasizes analysis & control, is the orthodox approach. Other approaches are important as they pose significant challenges in thinking about & managing Strategy. Learning approach highlights how strategies are develop incrementally based on experience
Continue.. Power/political approach emphasizes how strategies are the outcome of processes of bargaining & negotiation among powerful internal & external group. Ideas approach helps an understanding of where innovative strategies come from & how organization cope with dynamic environment. Corporate Governance Defined as the relationship among various participants in determining the direction & performance of corporation Participants being : SH, Mgmt, BOD. It also encompasses the combination of law, regulation, voluntary corporate practices that enable the corporation to attract Capital, Perform Efficiently, achieve corporate objectives, meet obligations. Importance of Corporate Governance Promote efficient use of Resources Compliance with laws, regulation & expectation of society Reduce corruption in business dealings Need for Corporate Governance Attract investor Create competitive & efficient enterprises Enhance accountability Promote efficient & effective use of limited resources. 4 Pillars of Good Governance 1. Fairness 2. Transparency 3. Accountability 4. Responsibility Corporate Philosophy Corporate Philosophy (or creed) establishes the values, belief, and guidelines for the manner in which the organization is going to conduct its business. The most important factor in corporate success is faithful adherence of these beliefs. It establishes the relationship between the organization & its stakeholders.
Corporate Culture Meaning It is an organization comparable to personality in a person. Humans have fairly enduring & stable traits that help them protect their attitudes & behaviors. So do organizations. It refers to the collective assumptions & beliefs of an organizations employees that shape the behavior of individuals & groups in the organization Developing Corporate/ organizational Culture Origin of Organizational Cultures a) History b) Environment c) Staffing Process d) Socialization Process Continue.. 2. Identifying Organizational Culture: a. Industrial Autonomy: independence, opportunities b. Structure: Rules & Regulation c. Support: Assistance & Warmth d. Identification: employees identification towards co. e. Performance Record: Salary, promotion etc. f. Conflict Tolerance: degree of tolerance between peers & work group g. Risk Tolerance: encouragement to innovation. Continue 3. Changing corporate Culture: Difficult task Clear written statement of corporate philosophy Important to practice, not just preached Change the senior Management
Unit III Internal & Environmental Analysis The organization in which organization operates consists of two parts 1. External 2. Internal Characteristics of Business Environment Complex Dynamic Uncertain Turbulent (unpredictable) Environmental Analysis It is the process of monitoring the events & evaluating trends in external environment, to identify both present & future opportunities & threats that may influence the firms ability to reach its goal. It is from such an analysis that manager can make decisions on whether to react to, ignore, or try to influence or anticipate future opportunities & threats discovered Opportunities & Threats Opportunities: Attractive arena for companys action in which the particular company would enjoy competitive advantage Threats: Unfavorable situation in a firms environment that creates a risk or cause damage to the organization. Importance of ENVIRONMENTAL Analysis 1. Helps to perceive opportunities & threats 2. Provides information on the nature of competition 3. Avenues for productive cooperation 4. To assess their impact & influence 5. Adapt companys direction & strategy as needed 6. To set appropriate objectives Continue.. 7. To analysis & evaluate strategic alternative 8. To work out networks & cooperative ventures 9. To avoid strategic surprise & to ensure long term health. Environmental forecasting( inputs to forecasting)
Environment Scanning Environment monitoring Environment intelligence Forecast Continue.. Environment Scanning: involves surveillance of a firms external environment to predict changes to come. Environmental Monitoring: tracks the trends, sequence of events or stream of activities. Competitive intelligence: it provides critical information on competitors, & helps a company to avoid surprises by anticipating competitors moves.
Features of environmental analysis Holistic exercise Continuous Activity Exploratory Process Components of External Environment Mega or Macro environment 1. Legal 2. Political 3. Economic 4. Technological 5. Socio-cultural 6. Demographic 7. Ecological Operating or relevant environment 1. Suppliers 2. Markets intermediaries 3. Competition 4. E-commerce 5. Skill level of workforce 6. Financial institution 7. Regulatory provision
Industry and Competitive environment Structure and characteristic of the industry Competitive forces
Michael Porter Five Forces Models Porter five forces analysis is a framework for industry analysis and business strategy development . It draws upon industrial organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers to the overall industry profitability. An "unattractive" industry is one in which the combination of these five forces acts to drive down overall profitability. A very unattractive industry would be one approaching "pure competition", in which available profits for all firms are driven to normal profit
Porters Five Forces Model Bargaining Power Of Suppliers Threats of new entrant
Threats of Substitute Products or service
Potential Entrants Buyers Industry Competitors Rivalry among existing firms Suppliers Sustitutes Continue Three of Porter's five forces refer to competition from external sources. The remainder are internal threats. It consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information. The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Continue Porter's five forces include - three forces from 'horizontal' competition: the threat of substitute products or services, the threat of established rivals, and the threat of new entrants; and two forces from 'vertical' competition: the bargaining power of suppliers and the bargaining power of customers.
Advantages of Model It is a powerful tool that helps managers to think strategically it leads managers to think systematically about the way their strategic choices will be affected by the forces of competition & how their choices will affect the five forces & change conditions in the industry. Helps in improvement of firms competitive positions Continue Helps in taking long term decisions Helps in resource planning
Critical Assessment of Porters Model It is based on assumption of Industrial organization perspective on strategy as opposed to the resources based view (RBV) of the firm It does not take into the fact that some firms, most notably the large ones, can take step to modify the industry structure, there by increasing the prospects for profits. Continue.. It overlooks the many potential benefits of developing constructive win-win partnerships with suppliers & customers. A firm that competes internationally must be concerned with multiple industry structures. The nature of industry competition in the international area differs among nations, & may present challenges that are not present in a firms host country Internal Analysis It is referred to as internal appraisal, organizational audit, internal corporate assessment etc. Research has shown that the overall strength & weaknesses of a firms resources & capabilities are more important for a strategy than environmental factors. Importance of Internal Analysis To find where it stands in terms of its strengths & weakness To exploit the opportunities that are in line with its capabilities To correct important weaknesses To defend against threats To asses capabilities gaps & take steps to enhance its capabilities Strength & Weaknesses Meaning A. Strengths: these are the resources, skills or other advantages a firm enjoys relative to its competitors. It is also something a company is good at doing. These are 1. A skill or an important attribute 2. Valuable physical assets 3. Valuable intangible assets etc. Weaknesses B. It is limitation or deficiency in resources, skills & capabilities that seriously impede effective performance. It is a constraint or an obstacle that checks movement in certain direction, and may also inhibit organization in gaining a distinctive advantage. A weaknesses can be 1. Inferior skills or lack of expertise 2. Lack of intellectual capital. Continue 3. deficiencies in physical, organizational or intangible assets. 4. inferior capabilities in key functional areas
While a companys resource strengths represent competitive assets, its resource weaknesses represent competitive liabilities Internal Organizational Analysis 1. Financial position 2. Product position 3. Marketing capability 4. R&D capability 5. Organizational structure 6. Human resources 7. Conditions of facilities & equipments 8. Past objectives & strategies Strength
Brand image High quality products Latest technology High intellectual capital Cordial industrial relations Weaknesses
Weak distribution network Narrow product lines Rising costs Poor marketing plan Opportunities
New market Profitable new acquisitions R&D skills in new areas New businesses
Threats
Increase in competition Barriers to carry Change in consumer tastes New or substitutes products Threats of takeover
Critical assessment of SWOT analysis i. Basic technique for analyzing ii. Act as a raw material for analyzing iii. Aid to strategic analysis iv. Summarizes key issues v. Basis for judging future courses of action vi. Understand opportunities