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Strategic management

  2. Syllabus (Units) 1. Strategic Management an Overview 2. Strategic Management Environment 3. Levels of Strategies and Analysis 4. Activating Strategy and Implementation 5. Strategic Evaluation and Control
  3. Unit 1- Strategic Management an Overview What is a Strategy?  Strategy is a well defined roadmap of an organization  It defines the overall mission, vision and direction of an organization.  Strategy is a broad long term plan designed to achieve the overall objectives of the firm.  In short, strategy bridges the gap between "where we are" and "where we want to be"
  4. Definition of SM Meaning  Strategic management is the process of identifying and executing the organizations strategic plan, by matching company’s capabilities with the demands of its environment. Definition  “Strategic management is a stream of decisions and actions, which lead to the development of an effective strategy or strategies to help achieve the corporate objectives.”  By Jauch and Glueck
  5. Features of SM 1. Systematic process 2. Continuous in nature 3. Universal application 4. Relates to internal and external environment 5. Long term implication 6. Prime responsibility of Top level management 7. Gain competitive advantage
  6. Advantages of SM 1. Improves employee’s efficiency 2. SWOT analysis 3. Aids in planning 4. Organizing resources 5. Helps in evaluation 6. Facilitates communication and co-ordination 7. Helps to face competition
  7. Limitations of SM 1. Limitations of assumption 2. Problem in analyzing environment 3. Unrealistic ,mission and objectives 4. Problem of setting target 5. Problem of implementation 6. Lack of commitment of lower level 7. Problem of resistance 8. Problem of internal politics 9. problem of traditional management
  8. STRATEGIC DECISION MAKING  Strategic decision making process is similar to the usual decision making process.  Eg. TATA Motors entering small car business  Takeover of Tetley Tea by TATA Tea.
  9. Continued… Entrepreneurial opportunistic Approach Formal-Structured Approach Adaptive Approach Meaning Adopted by family managed organizations and it tries to push an organization ahead of environmental odds. Involves strategic decision making in anticipation of the future state that an organization wants to be in. It is reactive and tries to assimilate the environmental change in decision making. Suitable Suitable to those organizations where key strategists have very high stake in outcome of strategy. Generates enough information union helps decision makers to make decision in complex situation. Suitable for organization that tries to play role of followers. Limitations If the strategists lack vision and intuitions then strategies are likely to fail. Due to high formal structures the decision making becomes slow. When the environmental factors change fast it does not work.
  10. Levels of SM  Decision making takes place in 3 levels and strategies are formulated at all these levels because single strategy may not be adequate.  The 3 levels represent the hierarchy of strategies within a large organization.  All 3 levels interact with each other and must co-ordinate well for the smooth functioning of the organisation.
  11. Continued…. Corporate Strategy Business you should be in. Business Strategy Tactics to beat the competition Functional Strategy Operational methods to implement the tactics. WHY WHAT HOW
  12. Continued….. 1. Corporate level strategy: Includes BODs and CEO. They basically take major strategic decisions and deal with allocating resources from one set of business to other plus decide on the investment portfolio of the organization. 2. Business level strategy: Includes business managers and corporate managers. The strategies decided at the Corporate level are translated into concrete objectives and strategies along with the course of action for each of its business. 3. Functional/Operating level strategy: Includes functional areas like production, finance, marketing, personnel, R&D etc. These strategies are result oriented and hence focus on achieving functional objectives.
  13. Process of SM  Strategic management is the process of identifying and executing the organizations strategic plan, by matching company’s capabilities with the demands of its environment.  Strategic management involves strategic planning as well as implementation.
  14. Continued…. 1. Environmental scanning: It’s a process of collecting, investigating and providing information for strategic purpose by analyzing internal and external environment. 2. Strategy formulation: It’s a process of deciding best course of action for accomplishing objectives. 3. Strategy implementation: Here organization’s chosen strategy is put into action. 4. Strategy evaluation: It’s the final step of the process where performances are measured and corrective actions are taken if needed.
  15. Principles of Good Strategy 1. Strategy deals with Long term development (not routine operations) 2. Unified and comprehensive: It units all the departments & major areas of the organization. 3. Universal application 4. Applicable to all functional areas: Strategies are framed in all functional areas to achieve the overall objectives. 5. Affected by the environment: Strategy is the right combination of internal factors(Strength & Weakness) and external factors(Opportunity & Threat). 6. Levels of strategy: 3 Levels of Strategy 7. Allocation o resources: various resources like physical (machines, tools, equipments etc.), Capital (Fixed & working) and Human resources need to be effectively allocated for smooth functioning. 8. Periodic review: Depending on changes in environment and situations strategies need to be reviewed periodically. 9. Future oriented: Managers need to foresee future and frame suitable strategies.
  16. Elements of strategic management SAME AS PROCESS OF SM
  17. Models of SM 1) The McKinsey 7-S Framework:  by Tom Peters and Waterman in their famous book called “In search of Excellence: lesson from America’s best run companies” pointed out 7 supporting variables.  This framework acts a tool that analyses firm’s organizational design by looking at 7 key internal elements in order to identify if they are effectively aligned and allow organization to achieve its objectives.  The key point of the model is that all the seven areas are interconnected and change in any one area requires change in the rest of a firm to function effectively.  The 7 variables are divided into Soft S’s and Hard S’s.
  18. Cont..
  19. Continued… 1. Strategy: it’s a plan of action prepared by an organization in anticipation of changes in eternal environment. 2. Structure: It’s the organizational arrangements, formal relationships and hierarchy. 3. Systems: it includes all the rules, regulations, procedures, daily activities & procedures that staff members engage in to get the job done. 4. Shared values (Common goal): All members of the firm share some common fundamental ideas or guiding concepts around which business is built. 5. Style: All organizations have their own culture and management style i.e. the dominant values, belief and norms. 6. Staff: it’s the people who make the real difference to the success of the organization. 7. Skills: It refers to the capabilities of the staff i.e. employees skills and competencies within the organization.
  20. Cont… Conclusion: 1. The hard components are the strategy, structure and systems which are normally feasible and easy to identify as these are well documented and are tangible and seen in the from of reports, charts, statements and other documents. 2. Style, staff and skills are soft components and are difficult to comprehend. 3. Shared values are in the middle of the model as they are central to the development of all the other critical components. Uses of this framework:  To facilitate organizational change.  To help implement new strategy  To facilitate mergers of organization.  To improve the performance of a company.
  21. Michael Porters 5 fortes model  Michael Porter (Harvard Business School Management Researcher) designed various vital frameworks for developing an organization's strategy.  One of the most renowned among managers making strategic decisions is the five competitive forces model that determines industry structure.  According to Porter, the nature of competition in any industry is personified by the five forces mentioned in the model.  These forces jointly determine the profitability of industry because they shape the prices which can be charged, the costs which can be borne, and the investment required to compete in the industry.  Before making strategic decisions, the managers should use the five forces framework to determine the competitive structure of industry.
  22. Cont….. 1) Risk of entry by potential competitors: Potential competitors refer to the firms which are not currently competing in the industry but have the potential to do so if given a choice. (2) Rivalry among current competitors: Rivalry refers to the competitive struggle for market share between firms in an industry. Extreme rivalry among established firms poses strong threat to profitability. 3) Bargaining Power of Buyers: Bargaining power of buyers refer to the potential of buyers to bargain down the prices charged by the firms in the industry or to increase the firms cost in the industry by demanding better quality and service of product. 4) Bargaining Power of Suppliers: Suppliers refer to the firms that provide inputs to the industry. Bargaining power of the suppliers refer to the potential of the suppliers to increase the prices of inputs (labour, raw materials, services etc.)
  23. Cont…. (5) Threat of Substitute products: Substitute products refer to the products having ability of satisfying customers' needs effectively. Lesser the number of close substitutes a product has, greater is the opportunity for the firms in industry to raise their product prices and earn greater profits (other things being equal) Conclusion:  The power of Porter's five forces varies from industry to industry. This five forces model also help in making strategic decision as it is used by managers to determine industry’s competitive structure.  However, Porter ignored, a sixth significant factor complementarities. Strong complementors might have a strong positive effect on the industry. Also, the five forces model overlooks the role of innovation as well as the significance of individual firm differences.
  24. The GE Planning Grid  General Electronic (GE) of USA developed a more complicated matrix with the assistance of the McKinsey and Company Consulting firm. The GE matrix analyses market attractiveness and competitive strength to assess the strength of a strategic business unit (SBU) of a corporation.  The GE matrix is plotted in a 3X 3 grid i.e. it includes nine cells based on (1) long term industry attractiveness and (2) business strength and competitive position.  The Y-axis measures market attractiveness based on a high, medium, or low score. The X-axis measures business unit competitive strength on a high, medium, or low score.
  25. Cont….. Business unit competitive strength
  26. 1) Market Attractiveness: Market attractiveness deals with different external factors. These factors can include things as market size, market growth rate, and market profitability. External factors that can affect market attractiveness also include pricing trends, competitive intensity, overall risk, and entry barriers. 2) Competitive Strength: Competitive strength focuses on internal factors. Different internal factors that need to be considered include assets and competencies, brand strength market share, customer loyalty, relative cost position, profit margins, innovation, quality, financial resources, and management strength. Conclusion: This grid is used to determine whether an organization should enter a market or whether it should reposition a product line or brand within a market. In contrast to BCG Growth share matrix, it includes much more data in its two key factors than jus business growth rate and comparable market share. Therefore does not lead to simple conclusion as in the case of BCG Matrix. The GE Matrix can get complicated as the numeric estimates could be subjective judgments and can vary among people. Also this portfolio matrix cannot effectively depict the positions of new products or business units in developing industries.
  27. The Boston Consulting Group Matrix  The BCG-Matrix is also called as the Growth-Share Matrix, Boston matrix, Boston Consulting Group Analysis, Portfolio Diagram.  It is a chart that was created by Bruce D. Henderson for the Boston Consulting Group in 1970 to help corporations to analyse their business units, i.e. their product lines.  It helps the company allocate resources and is used as an analytical tool in brand marketing, product management, strategic management, and portfolio analysis.  It is a simple tool to assess a company’s position in terms of its product range. It helps a company think about its products and services and make decisions about which it should keep, which it should let go and which it should invest in further.  The vertical axis measures the annual growth rate of the market and the horizontal axis shows the relative market share of the firm. Each of these dimensions is divided into two categories of high and low, making up a matrix of four cells.
  28. Cont….
  29. Cont…. 1) High Growth - Low market share (Question Marks): Question marks are products that grow rapidly, consume large amounts of cash, but don't generate much cash. It has the potential to gain market share and become a star, and eventually a cash cow when the market growth slows. 2) High Growth High Market Share (Stars): Product in this cell are called stars, they are promising as they generate large sums of cash because of their strong relative market share. However, stars consume large amounts of cash because of their high growth rate. Stars are usually profitable and would be future cash cows. 3) Low Growth High Market Share (Cash Cows): As the market matures or when the market growth rate becomes low the stars would rather become cash cows. Cash cows are high market share businesses in slow growth industries that do not normally require significant reinvestment but generates lot of cash which may be used to finance the development of stars and question marks. . 4) Low Growth Low Market Share (Dogs): Dogs have a low market share and a low growth rate and neither generates nor consumes a large amount of cash. Dogs may be considered for divestment. Product in this cell may produce low profit or loss.
  30. Cont… Conclusion:  As a particular industry matures and its growth slows, all business units become either cash cows or dogs.  The natural cycle for most business units is that they start as question marks, and then turn into stars. Eventually the market stops growing thus the business unit becomes a cash cow. At the end of the cycle the cash cow turns into a dog.  Thus, the growth share matrix becomes planning framework for the strategic planners as it offers the organization's product (or service) strengths and weaknesses, at least in terms of current profitability, as well as the likely cash flows.