STRATEGIC MANAGEMENT

Evolution of concept of Strategy

Evolved from the Greek word Strategeia which means art or science of being a general. Strategy is the broad program for defining and achieving an organizations objectives; the organizations response to its environment over time.

The rise of strategic Management

Alfred Chandler Strategy is the determination of long term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals. Courses of action for attaining objectives Process of seeking key ideas How strategy is formulated, not just what that strategy turns out to be.

THE STRATEGIC MANAGEMENT APPROACH

In 1978, Dan Schendel and Charles Hofer created a composite definition of strategic management. The management process that involves an organizations engaging in strategic planning and then acting on those plans.

 Purpose of Strategy A strategy is the plan of action that prescribes resource allocation and other activities for dealing with the environment and helping the organization attain its goals. Through this strategy, managers try to develop within the organization a: Core competence -- a business activity that an organization does particularly well in comparison to competitors. Synergy -- the condition that exists when the organizations parts interact to produce a joint effect that is greater than the sum of the parts acting alone. Value creation -- the development of the combination of benefits received and costs paid by the customer.

Strategic Management Process

Goal Setting

Strategy Formulation

Administration

Strategic Control

Levels of Strategy
Corporate Level Strategy
Strategy formulated by the top mgt to oversee the interests and operations of multiline corporations

Business Unit Strategy

Strategy formulated to meet the goals of a particular business, also called line of business strategy

Functional Level Strategy

Strategy formulated by a specific functional area in an effort to carry out business unit strategy.

The Content of a Corporate Strategy

The idea about how people at an organization will interact with people at other organizations over time. The corporate Portfolio Approach
Top management evaluates each of the corporations various business units with respect to the marketplace and the corporations internal makeup. Guided primarily by market opportunities.

 Stars (high growth, high market share)

Stars are using large amounts of cash. Stars are leaders in the business. Therefore they should also generate large amounts of cash. Stars are frequently roughly in balance on net cash flow. However if needed any attempt should be made to hold your market share in Stars, because the rewards will be Cash Cows if market share is kept.

Cash Cows (low growth, high market share)

Profits and cash generation should be high. Because of the low growth, investments which are needed should be low. Cash Cows are often the stars of yesterday and they are the foundation of a company.

 Dogs (low growth, low market share)

Avoid and minimize the number of Dogs in a company. Watch out for expensive rescue plans. Dogs must deliver cash, otherwise they must be liquidated.

Question Marks (high growth, low market share)

Question Marks have the worst cash characteristics of all, because they have high cash demands and generate low returns, because of their low market share. If the market share remains unchanged, Question Marks will simply absorb great amounts of cash. Either invest heavily, or sell off, or invest nothing and generate any cash that you can. Increase market share or deliver cash

MICHEAL PORTERS FIVE FORCES COMPETITIVE ANALYSIS

 Porter explains that there are five forces that determine industry attractiveness and long-run industry profitability. These five "competitive forces" are Threat of New Entrants
New entrants to an industry can raise the level of competition, thereby reducing its attractiveness. The threat of new entrants largely depends on the barriers to entry. High entry barriers exist in some industries (e.g. shipbuilding) whereas other industries are very easy to enter (e.g. estate agency, restaurants). Key barriers to entry include
Economies of scale Capital / investment requirements Customer switching costs Access to industry distribution channels The likelihood of retaliation from existing industry players.

Easy to Enter if there is:

Difficult to Enter if there is:

Common technology
Little brand franchise Access to distribution channels Low scale threshold Easy to Exit if there are: Salable assets Low exit costs Independent businesses

Patented or proprietary know-how

Difficulty in brand switching Restricted distribution channels High scale threshold Difficult to Exit if there are: Specialized assets High exit costs Interrelated businesses

Threat of Substitutes The presence of substitute products can lower industry attractiveness and profitability because they limit price levels. The threat of substitute products depends on:
Buyers' willingness to substitute The relative price and performance of substitutes The costs of switching to substitutes

 Bargaining Power of Suppliers

Suppliers are the businesses that supply materials & other products into the industry. The cost of items bought from suppliers (e.g. raw materials, components) can have a significant impact on a company's profitability. If suppliers have high bargaining power over a company, then in theory the company's industry is less attractive. The bargaining power of suppliers will be high when:
There are many buyers and few dominant suppliers There are undifferentiated, highly valued products Suppliers threaten to integrate forward into the industry (e.g. brand manufacturers threatening to set up their own retail outlets) Buyers do not threaten to integrate backwards into supply The industry is not a key customer group to the suppliers

Bargaining Power of Buyers

Buyers are the people / organisations who create demand in an industry The bargaining power of buyers is greater when
There are few dominant buyers and many sellers in the industry Products are standardised Buyers threaten to integrate backward into the industry Suppliers do not threaten to integrate forward into the buyer's industry The industry is not a key supplying group for buyers

 Intensity of Rivalry
The intensity of rivalry between competitors in an industry will depend on: The structure of competition - for example, rivalry is more intense where there are many small or equally sized competitors; rivalry is less when an industry has a clear market leader The structure of industry costs - for example, industries with high fixed costs encourage competitors to fill unused capacity by price cutting Degree of differentiation - industries where products are commodities (e.g. steel, coal) have greater rivalry; industries where competitors can differentiate their products have less rivalry Switching costs - rivalry is reduced where buyers have high switching costs i.e. there is a significant cost associated with the decision to buy a product from an alternative supplier Strategic objectives - when competitors are pursuing aggressive growth strategies, rivalry is more intense. Where competitors are "milking" profits in a mature industry, the degree of rivalry is less Exit barriers - when barriers to leaving an industry are high (e.g. the cost of closing down factories) - then competitors tend to exhibit greater rivalry.

Corporate Enterprise Strategy

Stockholder E- Strategy Managerial Prerogative E- Strategy Restricted Stakeholder E- Strategy Unrestricted Stakeholder E- Strategy Social Harmony E- Strategy Rawlsian E- Strategy Personal Projects E- Strategy