WHAT IS STRATEGIC MANAGEMENT?
•Strategy –greek word ‘strategos’–generalship
•Activities concerned with formulation and implementation of strategies to achieve
ESSENCE OF STRATEGIC MANAGEMENT
•Assess where are we now ?
•Identify where do we want to be?
•Generate options on how we might get there?
•Evaluate the options to identify which way is best?
•Ensure we reach the desired position.
SWOT analysis is the assessment of comparative strengths and weaknesses of a firm in
relation to its competitors; and environmental opportunities and threats, which a company
may have to face in the future. It should be based on logic and rational thinking such that
a proper strategy improves an organization’s business strength and opportunities and at
the same time reduces the weaknesses and threats.
Strength and weakness are internal forces and factors that are to be assessed from
continously since more and more competitive organizations with state of the art
technology and services are entering into the market and competition is getting
intensified day by day.
Opportunities and threats are the external factors and forces in the business
environment which are also changing day by day with the change of government policy,
industrial policy, monetary policy, political situation at national and international levels,
formation of various trade blocks and trade barriers including the changes in legal and
social environment in the business world.
Strength is the power and excellence with the resources, skills and advantages in relation
to the competitors. A strength is a distinct technical superiority with best technical know-
how, financial resources and skill of the people in the organization, goodwill and image
in the market for the product and services, company’s access to best distribution network,
the discipline, morale, attitude and mannerisms of the employees at all levels with a sense
Weakness is the incapability, limitation and deficiency in resources such as technical,
financial, manpower, skills, brand image and distribution pattern. It refers to constraints
or obstacles, which check movement in a certain direction and may also inhibit an
organization in gaining a distinct competitive advantage.
Environmental opportunity is an alternative area for company’s action in which the
particular company would enjoy a competitive advantage. An opportunity is a major
favorable advantage to a company. Proper analysis of the environment and identification
of new market, new and improved customer group with better product substitutes or
supplier’s relationship could represent opportunities for the company.
Environmental threat is the challenge posed by the unavoidable trend or development that
would lead, in the absence of purposeful action to the erosion of the company’s position.
Slow market growth, entry of resourceful multinational companies, increase bargaining
power of the buyers or sellers because of a large number of options, quick rate of
obsolescence due to major technological change and adverse situation because of change
of government policy rules and regulation is disadvantageous to any company and may
pose a serious threat to business operation.
The analysis of the current marketing situation provides the basis of data for a SWOT (Strengths,
Weaknesses, Opportunities and Threats) analysis.
Resource analysis (analysis of strengths and weaknesses)
Strengths and weaknesses are internal factors which the manager should identify. Strengths may be
capitalised on, while weaknesses point to areas which the plan should correct. The resource audit below
allows one to do this.
Company Resource Analysis
Assess each of the following aspects of the organization’s resources. Do you believe it represents a
strength to the company (i.e.. the company is in a better position than its competitors) or a weakness
(i.e.. the company is in a worse position than its competitors)
RESOURCE High Medium Low Neutral Low Medium High
What is this?
The resource audit form shown above is a very useful tool for a group of planners to use in assessing
and organization’s strengths and weaknesses. Obviously the one shown in the example would not be
suitable for all organizations, and would need to be modified for use in a -particular enterprise,
depending on the specific resources critical to success in that business. It merely serves as an example.
HOW IS IT USED?
It has been suggested (and has been found by experience to work exceedingly well in practice) that a
planning team (with other knowledgeable individuals co-opted if required) of between five and twelve
managers be required to complete a resource audit form. Each resource (and its critical dimensions) are
rated according to whether the individual considers it to be a strength (low, medium or high), or a
weakness (low, medium or high), or a neutral point (neither a strength or a weakness. When the group
has completed their individual ratings, an aggregation can be done and the results made available to
the planning team during a discussion session. What generally happens is that their is a wide
dispersion of views, and different members of the planning team can then give then give and gain
insight into the various organizational resources. Following a nominal group-type approach, individuals
are again required to complete an audit form, and the process is repeated. The insights gained during
the discussions, and re-evaluation of the resource profile eventually (normally after three rounds, but
often after only two) leads to conformity and congruence as individuals begin to see an overall picture
form each other’s point of view and the resulting resouce profile can be drawn as a plot along the means
on the resource audit form, providing a snap-shot of the resource situation in the organization.
Opportunity/Threat analysis (environmental analysis)
Opportunities and threats refer to outside factors that can affect the future of business, and over which
it has no control. Opportunities are observed trends/possible trends in the environment, which are
attractive to the firm. Threats are observed/possible trends in the environment that could be
detrimental to the firm. Failure to identify opportunities and threats could lead to a position of
I suggest that the planning team charges individuals with the task of preparing a twenty- to thirty
minute presentation on one of the environmental variables - e.g., George gets Politics and Legislation,
Mary gets the Economy, Linda gets the Socio-Cultural Environment and John gets Technology. Even
though they may not be “experts” on this, the assignment forces them to do a bit of reading and
research, and they present their views on their particular topic, and how it will affect the firm, to the
rest of the group. This forms the basis for discussion on the business environment and also for the
identification of strengths and weaknesses.
While most organizations do not find the identification of opportunities in the environment an
impossible task, the reaction, once having done this, is so often one of, “So what?” The Threat Matrix
offers a simple but powerful way of classifying and managing threats. To use it, the planning team
simply needs to consider each of the threats identified, and place them on the grid in the appropriate
cell, evaluating each threat in terms of its severity and probability of occurrence. A serious threat is
one, that if it materialised, could seriously hurt the company, and if it had a higher likelihood of
occurrence would be placed in the upper left quadrant. It would have to be constantly managed and
contingency plans would probably be developed. A threat with low likelihood, and not very serious,
placed in the bottom right cell, could even be acknowledged and ignored. Threats in the other two
quadrant could be monitored in terms of their movement along the axes.
Just as a planning team needs to consider the threats facing it, so too it must develop some facility or
identifying, classifying and managing opportunities. Once again, an opportunity matrix, essentially
similar to the threat matrix, except that it uses the dimension of attractiveness rather than severity,
can be used, in very much the same way. Attractive, probable opportunities should be managed and
exploited; less attractive, less likely ones ignored; and opportunities in on the bottom-left to top-right
diagonal monitored for shifts in position. An opportunity matrix is illustrated below:
Analysis of the Competitive Situation
Any appraisal of the strategic and marketing situation must include an analysis of the competitive
situation. Too often, unfortunately, managers and academics alike misuse the term "competitive
advantage". The cliché has become used, and abused, to the extent that its true meaning has become
unclear. An excellent, simple model for understanding exactly what competitive advantage is, and
where it comes from is illustrated in the figure12.4 below.
Figure 12.4 The Competitive Advantage Process Model
* Superior Skills
* Superior Resources
* Lowest Cost
* Product Differentiation
* Customer Satisfaction
* Customer Loyalty
* Market Share
Investment in Resources
Sources Positional Advantages Strategic Outcomes
Briefly, what the process model tells us is as follows:
Organizations only have two sources of competitive advantage (in fact if they had neither of
these they would not exist for any length of time): They either have superior skills (knowledge; ability;
know-how), or, they have superior resources (more money, more and better people, better plant, better
facilities, better location, better information technology. Really fortunate organizations have both.
These sources of competitive advantage are used to gain a position of advantage. This
positional advantage, can be either the ability to be the lowest cost producer, or the ability to offer
superior customer value.
The ability to be the lowest cost producer means that the organization can command a pricing
advantage (sell at a lower price than competitors, and make similar or higher margins).
Or, the company can sell at the same price as competitors, and command higher margins. If
the organization cannot command a position of lower cost, it must compete on the basis of offering
superior customer value. It must differentiate its offering to the market in such a way that customers
demand that offering and not others, and probably be prepared to pay more for it. This differentiation
may take the form of better quality, more features, better service, longer warranty, great range, added
convenience - whatever it is, it is something that makes the company's offering different from the
offerings of its competitors.
If the organization does command a positional advantage, a number of things will result, all of
which should be important to management. The company will have satisfied customers - so satisfied in
fact, that they will support the company loyally, and not drift off to its competitors. And, the company
will be profitable, and maintain, and even increase its share of the market. Theoretically, the financial
results of competitive advantage are then plowed back into what created it in the first place: superior
skills, and/or superior resources.
It is worthwhile considering that most organizations give much attention to outcomes such as
market share and profitability, and less to satisfaction and loyalty. The reason is somewhat flawed
when one considers that profitability and market share are transitory measures, taken at a point in
time. Financial statements, for examples, are really a company's history, and say little of its strategic
future. Measures of satisfaction and loyalty are undoubtedly more effective indicators of strategic
Profit Margin example
Looking at the earnings of a company often doesn't tell the entire story. Increased earnings are good, but an
increase does not mean that the profit margin of a company is improving. For instance, if a company has
costs that have increased at a greater rate than sales, it leads to a lower profit margin. This is an indication
that costs need to be under better control.
Imagine a company has a net income of $10 million from sales of $100 million, giving it a profit margin of
10% ($10 million/$100 million). If in the next year net income rose to $15 million on sales of $200 million,
its profit margin would fall to 7.5%. So while the company increased its net income, it has done so with
diminishing profit margins.
Decision Support Systems
� An information system
� Purpose to provide information for making informed decisions
Interactive (needed for experimenting and prospecting)
Definitions of DSS
� Gorry and Scott-Morton (1971): Management Decision Systems --
Interactive computer-based systems, which help decision makers utilize
data and models to solve unstructured problems.
� Keen and Scott-Morton (1978): Decision support systems couple the
intellectual resources of individuals with the capabilities of the computer to
improve the quality of decisions. It is a computer-based support system for
management decision makers who deal with semi-structured problems.
Basic themes of DSS
� Information systems.
� Used by managers.
� Used in making decisions.
� Used to support, not to replace people.
� Used when the decision is "semistructured" or "unstructured."
� Incorporate a database of some sort.
� Incorporate models.
� Improving Personal Efficiency
� Expediting Problem Solving
� Fascilitating Interpersonal Communications
� Promoting Learning or Training
� Increasing Organizational Control
INFORMATION CHARACTERISTICS FOR DIFFERENT TYPES OF
The DSS Hierarchy
� Suggestion systems
� Optimization systems
� Representational models
� Accounting models
� Analysis information systems
� Data analysis systems
� File drawer systems
File drawer systems
� They are the simplest type of DSS
� Can provide access to data items
� Data is used to make a decision
� ATM Machine
� Use the balance to make transfer of funds decisions
Data Analysis Systems
� Provide access to data
� Allows data manipulation capabilities
� Airline Reservation system
� No more seats available
� Provide alternative flights you can use
� Use the info to make flight plans
Analysis Information Systems
� Provide access to multiple data sources
� Combines data from different sources
� Allows data analysis capabilities
� Compare growth in revenues to industry average- requires access to many
� The characteristic of the recent “data warehouse” is similar
� Use internal accounting data
� Provide accounting modeling capabilities
� Can not handle uncertainty
� Uses Bill of Material
� Calculate production cost
� Make pricing decisions
� Can incorporate uncertainty
� Uses models to solve decision problem using forecasts
� Can be used to augment the capabilities of accounting models
� Use the demand data to forecast next years demand
� Use the results to make inventory decisions.
� Used to estimate the effects of different decision alternative
� Based on optimization models
� Can incorporate uncertainty
� Assign sales force to territory
� Provide the best assignment schedule
� A descriptive model used to suggest to the decision maker the best action
� A prescriptive model used to suggest to the decision maker the best action
� May incorporate an Expert System
� Applicant applies for personal loan
� Use the system to recommend a decision
� Support based DSS (Alter 1980)
� Data-based DSS
� Model-based DSS
Provide information about
the performance of the
Provide information and
techniques to analyze
demand, and push reports
Interactive inquiries and
Prespecified, fixed format Ad hoc, flexible, and
Information produced by
manipulation of business
by analytical modeling
of business data