STRATEGIC MANAGEMENT

BY CHINTAN PRAJAPATI
BY-
OVERVIEW
 Wh do
Why d some fi
firms succeed
d while
hil others
th fail?
f il?
 A central objective of strategic management is to
learn why
y this happens.
pp
 What is strategy?
 An action a company takes to attain superior
performance.
f I this
In hi context it
i means allocations
ll i off
resources. Resources may be same but if they are
combined in different ways some get superior
performance;
f some get ordinary
di performance.
f
Strategic Management studies the ways to make
superior performance.
 What is the strategic management process?
 for the enterprise to pursue its vision. The process by
which managers choose a set of strategies
THOUGHTS….
 What's the use of running if you are not on
the right road…
 If you do
d nott know
k where
h you come from,
f
you do not know where you stand, if you do
not know where you stand,
stand you do not know
where you go…
 To run in a right road to reach your
destination is strategy.
STRATEGY…
 Derived from a Greek word “strategos” which
means generalship.
 Strategy
St t i a sett off related
is l t d actions
ti th t managers
that
take to increase organization’s performance.
 Strategy is the overall plan for deploying
resources to establish a favorable position
 Do not repeat the tactics which have gained
you one victory, but let your methods be
regulated
g byy the infinite variety y of
circumstances.
WHAT YOU WILL LEARN?
 What is a strategy?
 How to create strategies that lead to superior
performance?
f ?
 How to implement?

 How
H you have
h to relate
l to the
h environment?
i ?
 Why strategy?
STRATEGIC MANAGEMENT
 The Art and Science of Formulating,
Implementing, and Evaluating Cross-Functional
Decisions That Enable an Organization to
Achieve It’s Objectives.
 The set of managerial decisions and actions that
determines the long-run performance of a
corporation. It includes:
 Environmental scanning (internal & external)
 Strategy formulation
 Strategy implementation
 Evaluation and control
BENEFITS OF STRATEGIC MANAGEMENT
 Improved Communication
 Increased Understanding

 Enhanced Commitment

 Greater Productivity

 More Effective Strategies

 Allow Firm to Influence, Initiate, and

Anticipate
 Be Proactive Rather Than Reactive
HAMBRICK AND FREDRICKSON MODEL OF
STRATEGIC MANAGEMENT

 IInternal
t l andd external
t l strategic
t t i analysis
l i
 Vision and mission
 Goals
G l and d objectives
bj ti
 Strategy:
 Arenas (where): Product,
Product services,
services distribution
channel, geographic market and technology
 Vehicles (how) : acquisitions, alliances or internal
d
development
l t
 Differentiators: features, price, quality, reliability of
products
 Staging: speed and sequence of moves
 Economic logic: how will be obtain our returns?
 I l
Implementation
t ti levers
l and
d strategic
t t i lleadership
d hi
HIERARCHY OF STRATEGY

Corporate Corporate
Headquarters Strategy

Strategic Strategic Strategic Business

(Division
Business Business Business
Unit Unit Unit Level)
St t
Strategy

Research Human Functional

Manufacturing Finance Marketing and R
Resources St t
Strategy
Development
MODEL OF SM PROCESS
 St t i iintent
Strategic t t
 Vision
 Mission
 Business definition
 Business model
 Objective
 Strategy formulation
 Environmental
E i t l appraisal
i l
 Organizational appraisal
 Formulatingg corporate
p level and business level
strategies
 SWOT analysis
 P
Preparing
i strategic
t t i planl
CONT…
 Strategy implementation
 Activating strategies
 Designing
D i i the th structure,
t t systems
t and
d processes
 Managing behavioural and functional
implementation
pe e a o
 Operationalising strategies

 Strategic
g evaluation and control
 Performing strategic evaluation
 Exercising strategic control
 Reformulating strategies
STAKEHOLDERS IN BUSINESS
 Capital Market Stakeholders
 Shareholders and lenders
 P d
Product M
Market
k Stakeholders
S k h ld
 Customers
 Suppliers
 Union officials

 Organizational Stakeholders
 Directors and managers
 Employees
p oyees
 Government
 Ten Key External
Forces
Competitive
Economic Technological
Social
Governmental
C l
Cultural
l
Political
Demographic Environmental
Legal
 Fourteen Key Internal
Forces
Management

Marketing Manufacturing

Research & Production/

eve op e t
Development
O
Operations
i

Purchasing Distribution
 Key Internal Forces (cont.)
Finance/Accounting

Packaging Promotion

Human Employee
p y
Resource /Manager
Management Relations

Computer
C t
Vendor Informatio
Relations n Systems
INDUSTRIAL ORGANIZATIONAL ((I/O)) MODEL
OF ABOVE-AVERAGE RETURNS (AAR)
 Underlying
U d l i gA Assumptions
ti
 External environment imposes pressures and
constraints that determine the strategies resulting
in AAR
 Most firms that compete within a particular
industry control similar resources and pursue
similar strategies
g
 Resources for implementing strategies are highly
mobile across firms
 Organizational
g decision makers are rational and
committed
i d to acting
i i the
in h firm's
fi ' best
b i
interests, as
shown by their profit-maximizing behaviors
 Limitations
 Only two strategies are suggested for competing in an
industry:
 Cost Leadership or Differentiation
 I
Internal
l resources & capabilities
bili i are not considered
id d
CONT…
THE RESOURCE-BASED MODEL OF AAR
 R
Resources
 Inputs into a firm's production process
 Includes capital equipment, employee skills, patents,
high-quality managers, financial condition, etc.
 Basis for competitive advantage: When resources are
valuable rare,
valuable, rare costly to imitate,
imitate and nonsubstitutable
 3 categories of internal/firm-specific resources
 Physical, Human, Organizational capital

 Capability
 Capacity for a set of resources to perform a
task or activity in an integrative manner
 A firm’s resources and capabilities that serve
as sources of competitive advantage over its
rival
CONT…
VISION AND MISSION
 Purpose
 Chart the company’s long-term direction (vision)
 Describe the company
compan ’ss purpose (mission)
 Give the firm a strong identity
 Create a roadmap p of the company’s
p y future
 Kind of company to become – direction we are headed
 Indicates the long-term course management has
charted for the company
 Together mission and vision provide foundation
for strategy formulation and implementation
CONT…
 Mission
 Also called business purpose or business
definition
 Addresses “who we are and what we do”
 Outlines the organization’s activities and
b i
business make-up
k
 More specific than the vision
 Focuses on present business and purpose
 Businesses and industries company is in now
 Customer needs currently being served

 Should pin down the company

company’ss real area of
business interest
 Serves as a boundary for what to do and not do
CHARACTERISTICS OF A MISSION
STATEMENT

 Feasible: NASA- to land on the moon

 Precise

 Clear: India today- making sense of India

 Motivating

 Distinctive

 Major components of strategy

 How objectives are to be accomplished

CONT…
 Vision
 Concerns future business path – “where we are
going”
i ”
 The kind of company we are trying to become
 Customer
C needs
d to be
b satisfied
i fi d in
i the
h future
f
 Charts a company’s future strategic course –
d fi
defines th business
the b i makeup
k i 5 to
in t 10 years
 Requires the exercise of strategic thinking and
management foresight
 The responsibility of a firm's top strategic
leader – the CEO
CONT…
 where you see your self at the end of the
horizon OR milestone
 single
i l statement
t t td
dream OR aspiration
i ti
 Symbol

 long-term
l statement andd typically
i ll generic i &
grand
CONT…
 Features of a good vision statement
 Easy to read and understand.
 C
Compact t andd Crisp
C i t leave
to l something
thi t people’s
to l ’
imagination.
 Gives
G ves thee destination
es a o a and not
o thee road-map.
oa ap.
 Is meaningful and not too open ended and far-
fetched.
 Excite people and make them get goose-bumps.
 Provides a motivating force, even in hard times.
 I perceived
Is i d as achievable
hi bl andd att the
th same time
ti i
is
challenging and compelling, stretching us beyond
what is comfortable.
STRATEGIC DECISION MAKING
 Decision making is the process of selecting a
course of action from among many alternatives.
 Process:
P
 Determination of objectives
 Identification of alternative ways of achieving the
objectives
 Evaluation of each alternative
 Choose the best alternative
ISSUES IN STRATEGIC DECISION MAKING
 Criteria for decision making
 Rationality in decision making

 Creativity in decision making

 Variability in decision making

 Person related factors in decision making

 Individual versus group decision making

PEST ANALYSIS
 Political Factors
 tax policy
 employment
l t laws
l
 environmental regulations
 trade restrictions and tariffs
 political stability
 Economic Factors
 economic growth
 interest rates
 exchange rates
 inflation rate
CONT…
 Social Factors
 health consciousness
 population
l ti growth th rate
t
 age distribution
 career attitudes
 emphasis on safety
 Technological Factors
 R&D activity
 automation
 technology incentives
 rate of technological change
PORTER’S FIVE-FORCE MODEL

 Threat of New Entrants

 Entry barriers
 Product differentiation
 Capital requirement

 Switching cost

 Govt. policy

 Expected retaliation
 Bargaining
B i i Power
P off Suppliers
S li
 Bargaining Power of Buyers

 Threat
Th off S
Substitute
b i P
Products
d
 Existing Competitors
BUSINESS MODEL
 Financial aspects
 Product innovation

 Customer relationship

 Infrastructure logistics
BALANCE SCORECARD APPROACH TO
OBJECTIVE-SETTING

 Financial perspective
 Customers’ perspective

 Internal business perspective

 Learning and growth perspective

KEY SUCCESS FACTORS OR CRITICAL
SUCCESS FACTORS

 Id tif i
Identifying Industry
I d t KeyK Success
S F t
Factors
 Pharmaceuticals: research and personal selling
 Beer: advertising and distribution
 Restaurant: quality food, service, location, notoriety
 Retailer: location and priced-for-quality
 Examples of Key Success Factors in Selected
Industries
 On what
O h t basis
b i do d customers
t choose
h b t
between
competing brands of sellers?
 What resources and competitive capabilities does a
seller need to have to be competitively successful?
f ?
 What does it take for sellers to achieve a sustainable
p
competitive advantage?
g
KEY PERFORMANCE INDICATORS
 Vision of an organisation
 Shoe manufacturing company
DRIVING FORCES
 Internet and e-commerce opportunities
 Increasing globalization of industry

 Changes in long-term industry growth rate

 Changes in who buys the product and how they

use it
i
 Product innovation

 Technological change/process innovation

 Marketing innovation
STRATEGIC GROUP MAPPING
 Companies do not compete against all companies
in an industry
 Companies
C i competet against
i t severall other
th
companies that follow similar strategies
 A strategic group consists of those rivals with
similar competitive approaches in an industry
 Examples ways of competing:
 Price
 Innovation

 Research

 Quality

 Range of products

 Customers served
CONT…
 Firms in same strategic group have two or more
competitive characteristics in common
 Sell in same price/quality range
 Cover same geographic areas

 Be vertically integrated to same degree

 Have comparable product line breadth

 Emphasize same types of distribution channels

 Offer buyers similar services

 Use identical technological approaches

VALUE CHAIN
SWOT ANALYSIS
 Strengths
 Name recognition
 Proprietary technology

 Cost advantages

 Skilled employees

 Loyal Customers

 Favorable location

 Excellent distribution network

 Weaknesses
 Poor market image
 Obsolete facilities

 Internal operating problems

 Poor marketing skills

 Uncertain cash flow

CONT…
 Opportunities
 Emerging customer needs
 Quality Improvements

 Expanding global markets

 Vertical Integration

 Threats
 New entry by competitors
 Regulatory requirements

 Uncertain competitors’ intentions

CHARACTERISTICS OF ENVIRONMENT
 Complex
 Factors, events, conditions and influences
 D
Dynamic
i
 Change in nature, shape and character
 M lti f t d
Multi-faceted
 Perception of the observer
 Far reaching impact
Far-reaching
 Growth and profitability
ENVIRONMENTAL SCANNING
 The process by which organizations monitor their
relevant environment to identify opportunities
and threats affecting their business for the
purpose of taking strategic decisions.
 Factors to be considered for environment
scanning
 Events
 Trends
 Issues
 Expectations
CONT…
 Approaches to environmental scanning
 Systematic approach
 Information collection systematically
 Ad hoc approach
 Special
p surveys
y and studies
 Process-form approach
 Secondary source of data
CONT…
 Sources of information for environmental
scanning
 Secondary
S d source or documentary
d t
 Mass media
 Internal source
 External agencies
 Formal studies
 Spying and surveillance
APPRAISING THE ENVIRONMENT
 Factors affecting:
 Strategist-related factors
 Age, education
Age education, experience
experience, motivation level,
level cognitive style,
style
ability to withstand time pressure
 Organization-related factors
 Nature, size and complexity, nature of its markets and the
product or service
 Environment-related
Environment related factors
 Complexity, volatility, hostility and diversity
ETOP
 Environment threat and opportunity profile
 Example: bicycle company
 Economic
 Market

 International

 Political

 Regulatory

 Social

 Supplier

 Techynology
DYNAMICS OF INTERNAL ENVIRONMENT

 Resources
 Tangible Resources
 Intangible
I t ibl RResources
 Capabilities
 To deploy resources
 Unique skills and knowledge

 Competences
 Activities that firm performs especially well compare
to competitors.
 Valuable, rare, costly to imitate and
nonsubstitutable.
ORGANISATIONAL CAPABILITY FACTORS
 The strategic strengths and weaknesses existing
in different functional areas within an
organisation which are of crucial importance to
organisation,
strategy formulation and implementation.

 Financial capability
 Source of funds
 Usage of funds
 Management of funds
CONT…
 Strengths:
 Access to financial resources
 Amicable relationship with financial
relations
 High level of credit-worthiness

 Efficient capital budgeting system

 Low cost of capital as compare to competitors

 High level of shareholder’s confidence

 Effective management control system

 Tax benefits due to various govt. policies

CONT…
 M k ti capability
Marketing bilit
 4 Ps
 Integrative
g and systemic
y factors
 Strengths:
 Wide variety of products
 Better
e e quality
q a y ofo p
product
o c
 Sharply-focussed positioning
 Low prices
 Price p
protection due to g
govt. p
policy
y
 High quality customer service
 Effective distribution system
 Effective sales promotion
p
 High-profile advertising
 Favourable company and product image
 Effective marketing g management
g information system
y
CONT…
 Operations capability
 Production system
 Operations
O ti andd control
t l system
t
 R & D system
 Strengths:
 High level of capacity utilization
 Favourable plant location

 High degree of vertical integration

 Reliable source of supply

 Effective control of operational costs

 Existence of good inventory control system

 Availability of high quality R & D personnel

 Technical
T h i l collaboration
ll b ti with
ith reputed
t d firms
fi abroad
b d
CONT…
 Personnel capability
 Personnel system
 Organisational
O i ti l and
d employee
l characteristics
h t i ti
 Industrial relations
 Strengths:
 HRM and development
 Efficient and effective personnel system

 Excellent training opportunities and facilities

 Working environment

 Highly satisfied and motivated workforce

 High level of organisational loyalty

 Low level of absenteeism

 Safe
S f and d salutary
l t working
ki conditions
diti
CONT…
 Information management capability
 Acquisition and retention of information
 P
Processing
i and d synthesis
th i off iinformation
f ti
 Retrieval and usage of information
 Transmission and dissemination
 Integrative, systemic and supportive
 Strengths:
g
 Ease and convenience of access to information source
 Widespread use of computerized information system

 Availability
A il bilit and d operability
bilit off high
hi h tech
t h equipment
i t
 Positive attitude to sharing information

 Wide coverage and networking of computer system

 Top management understanding of, and support to IT

CONT…
 General management capability
 General management system
 G
Generall managers
 External relationship
 Organizational climate
 Strengths:
 Effective system for corporate planning
 Control, reward and incentives for top managers

 Good rapport with the government

 Favourable corporate image

 Development oriented organizational culture

 Effective management of organizational change

CONSIDERATIONS IN ORGANISATIONAL
APPRAISAL

 F t
Factors affecting
ff ti organisational
i ti l appraisal
i l
 To strategist
 To organisation
 To the internal environment
 Approaches to organisational
g appraisal
 Highly systematic- proactive in nature
 Ad hoc- reactive in nature
 Sources off information
S i f ti for
f organisational
i ti l
appraisal
 Verbal as well as written
 Internal as well as external
 Employees’ opinion, company files and documents,
fi
financial
i l statements,
t t t th
the MIS.
MIS
ORGANISATIONAL CAPABILITY PROFILE
(OCP)
 Factors and sub-factors along a scale ranging
from values of -5 to +5.
 Financial
Fi i l capability
bilit factors
f t
 Marketing capability factors

 Operations
O i capability
bili factors
f
 Personnel capability factors

 Information management capability factors

 General management capability factors

STRATEGIC ADVANTAGE PROFILE (SAP)
 Same as ETOP
 Capability factors and their nature of impact
COMPETITIVE ADVANTAGE

 Competitive advantage is the ability of the firm

to outperform rivals on the primary performance
goal e.g.
goal, e g profitability.
profitability
 When a company is ahead of its competitors in
terms of innovation
innovation, quality or customer service
service,
it may achieve higher prices and therefore higher
performance.
SUSTAINABLE COMPETITIVE ADVANTAGE

 Continuing over time to effectively exploit

resources and develop core competencies that
enable an organization to keep its edge over its
industry competitors.
 Durable
 Valuable to the firm

 neutralizing threats

 Unique

 Difficult for competitors to imitate

 Not easily substitutable