Introduction to strategic management

1. LECTURE 1 : Introduction to Strategic Management Dr.K.Prabhakar 8/10/2011 Strategic Management 1-1 STRATEGIC MANAGEMENT

2. This presentation is dedicated to all my students the only capital I have 8/10/2011 Strategic Management 1-2

3. <ul><li>Why do some firms succeed while others fail?

4. A central objective of strategic management is to learn why this happens.

5. What is strategy?

6. An action a company takes to attain superior performance. In this context it means allocations of resources. Resources may be same but if they are combined in different ways some get superior performance; some get ordinary performance. Strategic Management studies the ways to make superior performance.

7. What is the strategic management process?

8. The process by which managers choose a set of strategies for the enterprise to pursue its vision.</li></ul>8/10/2011 Strategic Management 1-3 Overview

9. What's the use of running if you are not on the right road- German proverb If you do not know where you come from, you do not know where you stand, if you do not know where you stand, you do not know where you go- Chinese Proverb To run in a right road to reach your destination is strategy. 8/10/2011 Strategic Management 1-4 Philosophy

10. However beautiful the strategy, you should occasionally look at the results -Sir Winston Churchill 1874-1965, English statesman Do not repeat the tactics which have gained you one victory, but let your methods be regulated by the infinite variety of circumstances -Sun Tzu c. 490 BC, Chinese military strategist 8/10/2011 Strategic Management 1-5 Prespective Quote

11. 8/10/2011 Strategic Management 1-6 What is difference between Walmart ,Subhiksha and Future Group?

12. <ul><li>Sam Walton started it in the year 1962.

13. For the fiscal year ending January 31, 2011, Wal-Mart reported a net income of $15.4 billion on $422 billion of revenue with a 24.7% gross profit margin)Net profit margin3.78%

14. Operating margin6.05%

15. EBITD margin-7.87%

16. Return on average assets-9.09%R

17. Return on average Equity22.09%

18. Employees2,100,000</li></ul>8/10/2011 Strategic Management 1-7 What are the results of Wal-Mart?

19. <ul><li>Location

20. Information systems

21. Logistics

22. Human Resources Practices; Empolyee stock options at a discounted price to that of market price

23. Bar code technology and checkout scanners

24. Shifting unsold stock

25. EDLP

26. Low Prices from Suppliers- Information to Suppliers </li></ul>8/10/2011 Strategic Management 1-8 What Wal-Mart is known for?

27. 8/10/2011 Strategic Management 1-9 Analyse its financial results

28. 8/10/2011 Strategic Management 1-10

29. You can see here the movie that projects the negative image about Wal Mart. 8/10/2011 Strategic Management 1-11 http://www.youtube.com/watch?v=dp0O9jxLS64

30. Rated as the 50 fastest growing business to be observed in the world Started by IIT IIM graduate and Professionally managed. Ajim Premji Invested in the organization rama bijapurkar was in the board Ultimately left with lost of court cases and operations are closed across India. 8/10/2011 Strategic Management 1-12 Subhikha

31. Do you know the from where the CEO of Big Bazar got his idea? It is from Saravan Stores in Chennai; Saravana Stores operates on EDLP Mode and everyone goes there for low prices with high quality. It has on thousand shops across India in 70 cities. Its formats are Its formats include; 1.Pantaloons 2.Big Bazaar-Indian hypermarket chain 3. Food Bazaar- which is a supermarket chain 4.Central, which is a chain of destination malls. 5.Brand Factory 6. Blue Sky 7. aLL 8.Star 9.Sitara. Read his book ” It happened in India”. 8/10/2011 Strategic Management 1-13 Future Group

32. 8/10/2011 Strategic Management 1-14 Future Group Vs others

35. Dr.Devdutt Patnaik is an Atheist turned mythologist. He is the Chief Belief Officer at Future Group. He uses mythology to bring to life different aspects of corporate life. Future group looks for Duryodhana’s in organization Definition of Duryodhana- “Duryodhanas are employees who play by the rules but whose intentions and integrity are questionable. 8/10/2011 Strategic Management 1-17 Future Group’s Management with Mythology

36. You need to be familiar with Geetha. Its focus is Do you work or Dharma and do not expect results! It is something quiet opposite to the market economics. How does it work in India with Globalization? It works! It worked wonders for Future group. The Concept of Dharma does have its roots in caste system; for time being we should suspend its painful impact on Indian society. However, the concept of Dharma has many good aspects and it has been accepted in Future group. 8/10/2011 Strategic Management 1-18 Observe the slide given in the next slide

38. Some of them are internalized in the Indian psyche. Athidi Devobhava- Guest is the God. Anna data sukibhava – The person who gives food should always be great. (Comments are by me) Think on these lines and give your ideas. 8/10/2011 Strategic Management 1-20 How to enshrine the customers as Gods?

39. “Retail is our religion. Customers are our gods. The stores are our temples. In every temple, there are rituals, there are customs. We have to enshrine customers as our gods in our minds. Devdutt will dip into Indian mythology and help us create these rituals, symbols and vocabulary,” says Biyani, who, in his own words, is a “borderline atheist” who has neither prayed since his early teens nor visited a temple. But that does not stop him from understanding or harvesting the power of mythology in a country where there is an auspicious time, method and place for doing everything—waking up, bathing, marrying and even dying. 8/10/2011 Strategic Management 1-21 Philosophy of Kishore Biyani and role of Devdutt

40. Take the Kartha ceremony the group has put in place. Kartha in Sanskrit means creator or the head of a family. Every time somebody is hired to head a Future Group store, he or she is anointed as a Kartha. That does not just translate to a fancy designation on a rectangular visiting card. It’s much more. “We seat the Kartha on a chair and all the employees stand around him. His family members—wife, siblings and parents—are invited to the ceremony. His boss reads him out his duties as a Kartha, which is to ensure the welfare and happiness of employees and customers,” - Sanjoy Jog, Chief People Officer, Future Group. It just aligns the mind of the person who has all these aspects ingrained in him. Question: Do we have neurological basis for this? Read the book “Habit: the 95% of Behavior Marketers Ignore” 8/10/2011 Strategic Management 1-22 Manager is known as Kartha

41. They demacdonandized the retailing in India. Example: No women in north India likes a person to put saree on her shoulder to see herself in the mirror. However, it will be a cutomer delight in Tamilnadu for a women to see the saree being put on her shoulder. Same country two strategies to meet customer needs. Can you imagine single largest retails stores in the world to have highest trunover? It is Nalli Silks. ( We will study Nalli case study soon) 8/10/2011 Strategic Management 1-23 What Future Group did?

42. “Biyani has great intuition about the intuitive sense of India. What I have is a vocabulary. We clicked because our understanding of Indian-ness matched,” says Pattanaik, who believes that Indian businesses are aping the west by putting too much emphasis on “processes” over intuition and culture. “You cannot standardise a smile. We cannot and should not have standard operating proceedures for something which should be natural. 8/10/2011 Strategic Management 1-24 The success of Future group is substituing processes with intution and Culture

43. Subhisha had the same access towards resources as future group. However, Future Group used it differently. It brings out the difference between resources and resourcefulness. Coke formula was sold by Pemberton for 2300$ and died as a papuer in Atlanta; Presently its brand value is 150 billions! ( Please read http://www.slideshare.net/kprabhakar975/difference-between-2300116billion-entrepreneurship) 8/10/2011 Strategic Management 1-25 Subhiskha and Future Group

44. 655 VS552 VS 347 Air Craft South West Airline Model (Low cost Model) Revenue Management Model ( British Airways later poineered by American Airlines ) Indian Airlines 8/10/2011 Strategic Management 1-26 American Airlines South West Airline Vs US Airways

45. Strategy is a set of related actions that managers take to increase organization’s performance. If it results in superior performance to that of its rivals it is said to have competitive advantage. Example: Wal Mart, American Airlines, Airtel 8/10/2011 Strategic Management 1-27 Strategy (Operationalization)

46. What is a strategy? How to create strategies that lead to superior performance? How to implement? How you have to relate to the environment? Why strategy? 8/10/2011 Strategic Management 1-28 What you will learn?

47. How to most effectively manage a organizational strategy making process to create competitive advantage. 8/10/2011 Strategic Management 1-29 Strategic Leadership

48. Unless a variety of opinions are laid before us, we have no opportunity of selection, but are bound of necessity to adopt the particular view which may have been brought forward Herodotus, 5th century BC, Greek historian 8/10/2011 Strategic Management 1-30 Prespective Quote

49. <ul><li>SMP is the process by which managers select and then implement a set of strategies that aim to achieve a cometitive advantage.

50. Strategy formulation is selection of strategies

51. Strategy implementation is the task of putting strategies in to action; it includes designing; delivering; and supporting products; improving efficienty and effectiveness of organiztions; desinging organizational structure; Control systems and culture. </li></ul>8/10/2011 Strategic Management 1-31 Strategy Making Process

52. Strategy formulation is is 10% implementation is 90%. 8/10/2011 Strategic Management 1-32 Prespective Quote

53. Rational planning by top management? 8/10/2011 Strategic Management 1-33 Strategic Planning Basic Strategic Planning Model Defining the Mission and Setting Top-Level Goals External Analysis of Opportunities and Threats Internal Analysis of Strengths and Weaknesses Selection of Appropriate Strategies Implementation of Chosen Strategies

54. 8/10/2011 Strategic Management 1-34 What are elements of Strategic Thinking?

56. <ul><li>Mission

57. Sets out why the organization exists and what it should be doing from point of view of customer.

58. Major goals

59. Specify what the organization hopesto fulfill in the medium to long term.

60. Objectives

61. Are objectives to be attained that lead to superior performance.</li></ul>8/10/2011 Strategic Management 1-36 Mission and Goals

62. Perception is strong and sight is weak. In strategy it is important to see distant things as if they were close and to take a distanced view of close things.Miyamoto Musashi 1584-1645, legendary Japanese swordsman 8/10/2011 Strategic Management 1-37 Prespective Quote on Vision

63. Identify strategic opportunities and threats in the operating environment. 8/10/2011 Strategic Management 1-38 External Analysis

64. Identify strengths Quality and quantity of resources available Distinctive competencies Identify weaknesses Inadequate resources Managerial and organizational deficiencies 8/10/2011 Strategic Management 1-39 Internal Analysis

65. <ul><li>Cost leadership

66. Attaining, then using the lowest total cost basis as a competitive advantage; Example of Intel

67. Differentiation

68. Using product features or services to distinguish the firm’s offerings from its competitors;Apple Computers

69. Market niche focus

70. Concentrating competitively on a specific market segment; Nala Appakadai </li></ul>8/10/2011 Strategic Management 1-40 Business-Level Strategies

71. Focus is on improving the effectiveness of operations within a company. Manufacturing Marketing Materials management Research and development Human resources 8/10/2011 Strategic Management 1-41 Functional-Level Strategies

72. Multidomestic International Global Transnational 8/10/2011 Strategic Management 1-42 Global-Level Strategies

73. Vertical integration Diversification Strategic alliances Acquisitions New ventures Business portfolio restructuring 8/10/2011 Strategic Management 1-43 Corporate-Level Strategies

74. In real life, strategy is actually very straightforward. You pick a general direction and implement like hell-Jack Welch in Winning, 2005 8/10/2011 Strategic Management 1-44 Prespective Quote

75. <ul><li>Designing organizational structure

76. Designing control systems

77. Market and output controls

78. Bureaucratic controls

79. Control through organizational culture

80. Rewards and incentives

81. Matching strategy, structure, and controls

82. Congruence (fit) among strategy, structure, and controls</li></ul>8/10/2011 Strategic Management 1-45 Strategy Implementation

83. The only constant is change. Success requires adapting strategy and structure to a changing world. 8/10/2011 Strategic Management 1-46 Managing Strategic Change

84. General managers Responsible for the overall (strategic) performance and health of the total organization. Operations managers Responsible for specific businessfunctions or operations. 8/10/2011 Strategic Management 1-47 Strategic Managers

85. 8/10/2011 Strategic Management 1-48 Strategic Managers for All Levels

86. Vision, eloquence, and consistency Commitment to the vision Being well informed Willingness to delegate and empower Astute use of power Emotional intelligence 8/10/2011 Strategic Management 1-49 Strategic Leadership

87. <ul><li>Strategy making in an unpredictable world

88. Creates the necessity for flexible strategic approaches.

89. Strategy making by lower-level managers

90. Strategy evolves through autonomous action.

91. Serendipity and strategy

92. Accidental discoveries and happenstances can have dramatic effects on strategic direction.

93. Intended and emergent strategies

94. Realized strategies are combinations of intended and emergent strategies. </li></ul>8/10/2011 Strategic Management 1-50 Strategy as an Emergent Process

95. 8/10/2011 Strategic Management 1-51 Intended and Emergent Strategies FIGUR 1.3

96. Mintzberg’s Intended Strategy and Emergent Strategy Five P’s of Strategy Plan Ploy Pattern Position Prespective 8/10/2011 Strategic Management 1-52

97. 8/10/2011 Strategic Management 1-53 The Strategic Management Process for Intended and Emergent Strategies FIGURE 1.4

98. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1857795 Please read case study by me on 3M 8/10/2011 Strategic Management 1-54

99. <ul><li>Planning under uncertainty

100. Scenario planning for dynamic environmental change

101. Ivory tower planning

102. Lack of contact with operational realities

103. The importance of involving operating managers

104. Procedural justice in the decision-making process

105. Engagement, explanation, and expectations

106. Planning for the present: Strategic Intent

107. Recognition of the static nature of the strategic fit model

108. Strategic intent in focusing the organization on winning by achieving stretch goals</li></ul>8/10/2011 Strategic Management 1-55 Strategic Planning in Practice

109. <ul><li>Cognitive biases systematically influence the rationality of decision makers;Psychologists have articulted more than fifty cognitive biases. </li></ul>8/10/2011 Strategic Management 1-56 Improving Strategic Decision Making FIGURE 1.5 ( Adopted from Strategic Mangement by Hill and Jones, 2009 e )

110. I claim not to have controlled events, but confess plainly that events have controlled me- Abraham Lincoln 1809-1865, sixteenth American president 8/10/2011 Strategic Management 1-57 Illusion of Control

111. Pitfalls of groupthink Failing to question underlying assumptions. Coalescing around a single person or policy. Filtering out conflicting information. Developing after-the-fact rationalizations. Having an emotional (nonobjective) commitment to an action. 8/10/2011 Strategic Management 1-58 Groupthink and Strategic Decisions

112. <ul><li>Two decision-making processesthat counteractcognitive biases and groupthink.</li></ul>8/10/2011 Strategic Management 1-59 Techniques for Improving Decision Making FIGURE 1.6

113. How to create strategic alternatives How to select alternative that is most suitable for organization Implement the strategies that will help the stakeholders to maximise their wealth. 8/10/2011 Strategic Management 1-60 At the end of the course You will uderstand