Strategic Management

STRATEGIC MANAGEMENT

Prepared by:

Mr.A.P.Shareef MBA,M.Com,NET

AP Shareef’s lecture

On

Strategic management


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Strategic managementCHAPTER 1

ESSENTIALS OF BUSINESS POLICIES

Based on organization objectives

Simple and easily understandable

Written policies

Stable

Comprehensive

Ethical

Fair and responsible

Planned for development


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ELEMENTS OF BUSINESS POLICIES

Ascertaining the problem

Policy formation

Dissemination of the policy

Acceptance of the policy

Explanation of the policy

Policy implementation

Policy control


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TYPES OF POLICIES

Marketing policies

Production policies

Purchasing policies

Financial policies

HR policies


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MARKETING POLICIES

Product type, depth of product line, size and

quality of product or service

Place- channels of distribution, types of

outlets and transportation methods desired

Price- methods of pricing, trade and quantity

discounts, mark ups and mark downs

Promotion- advertising, personal sales effort


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PRODUCTION POLICIES

Determining factory layout

Maintaining minimum movement of materials

and work in progress

Machine utilization and inventory control

Product control and scheduling


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PURCHASING POLICIES

Deciding if established suppliers will be used

exclusively or if orders will be placed with

any available vendor

Fixing the amount that should be bought on

each order

Establishing the minimum inventory size of

each item in computing the reorder point

Utilizing purchase discounts


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FINANCIAL POLICIES

Determining the debt-equity proportion

Deciding dividend pay out ratio

Establishing fixed and variable expense relationships

Setting credit norms, credit period, and discount rate collections

Spelling out financial ratios and control techniques to be used for judging the effectiveness of fund utilization


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HR POLICIES

Developing job descriptions

Recruitment of employees

Use of testing programs in establishing

applicant capabilities

Establishing training programs

Deciding compensation and fringe benefits


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CHAPTER 2

UTILITY AND

APPLICATION OF

STRATEGIC

MANAGEMENT


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According to Azhar Kazmi “strategic

management is defined as the dynamic

process of formulation, implementation,

evaluation and control of strategies to

realize the organization’s strategic

intent”

Definition of strategic management


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1• Establishment of strategic intent

2 • Strategy formulation

3• Implimentation of strategis

4• Strategic evaluation

Four phases in Strategic

management process


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Strategic management1.E

sta

blish

men

t o

f s

trate

gic

in

ten

t Vision

Mission

Business definition

Business model

objectives


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Strategic management2

.Str

ate

gy

form

ula

tion

Environmenta

l appraisal

Organizationa

l appraisal

SWOT analysis

Corporate level

strategies

Business-level

strategies

Strategic analysis

and choice

Strategic plan


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Strategic management3. S

trate

gy

imp

lem

en

tati

on project

procedural

Resource allocation

Structural

Behavioral

Functional

operational


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Strategic evaluation4.

VISION: DEFINITION

According to El Namaki: vision is “mental perception of the

kind of environment an individual, or an organization, aspires

to create within a broad time horizon and the underlying

conditions for the actualization of this perception”


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MISSION: DEFINITION

According to Hunger and wheelen

(1999) mission is the “purpose or

reason for the organization’s

existence”


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BUSINESS DEFINITION

Find answer to the following:

1. What is our business?

2. What it will be

3. What it should be


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LEVELS AT WHICH BUSINESS COULD BE

DEFINEDCorporate level

SBU level

Execution level


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THE PRODUCT/ SERVICE CONCEPT

Bhadrachalam paperboards Ltd.

Recognized paper as a product and not as

a commodity. As a result of this, it was

able to consider the productivity of its

customers and make tailor-made products

for them . In the process, it came in direct

contact with its customers rather than with

the wholesale agents, thus defying the

traditional way in which the paper

business operates


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HCL Ltd. Perceived the computer not as a

sophisticated awe-inspiring machine but as

an everyday commodity. Such a product

concept prompted it to advertise the

computer as a consumer durable available

through an innovative hire purchase

scheme.


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GOALS AND OBJECTIVES

Goals denote what an organization hopes to

accomplish in a future period of time

Objectives are the ends that state specifically

how the goals shall be achieved.


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CHAPTER 3

ENVIRONMENTAL APPRAISAL


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THE CONCEPT OF ENVIRONMENT

Prof. Keith Davis defines “the aggregate of

all conditions events and influences that

surround and affect it”


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ENVIRONMENTAL ANALYSIS AND COMPETITIVE

ADVANTAGE

Purpose of

analysis1. To follow a course of

action different from its

rival firms

2. To develop a strategy

which will provide

different and better

outcomes than those of

its competitors ,and

3. To make it difficult for

other firms to duplicate

the strategy of enter the

area of opportunity if the

strategy works

Competitive

advantageIt is the ability of an organization to

out perform its competitors. It is a

function of

The company’s resources and capabilities


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MEASUREMENT OF STRATEGIC CAPABILITY

Resource audit

Value chain analysis

Finance and accounting

Production and operations

Human resource management

Research and development

General management

capability


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Strategic managementPhysical

resources

Human

resources

Financial

resources

Resourc

e

audit

Intangibles


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VALUE CHAIN ANALYSIS

This concept is introduced by Porter (1985)While the organization is performing various activities, each activity is to contribute towards the creation of value to the economic activity of the organization. Value chain is a set of interlinked value-creating activities performed by an organization. These activities may begin with the procurement of basic raw materials and go through processing in various stages right up to the end products marketed to the ultimate consumer. The value chain of a company may be linked to the value chain of upstream supplier and downstream buyers, forming a series of chains that Porter terms as the value system.


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ENVIRONMENTAL SCANNING

According to Azhar Kazmi “Environmental

scanning can be defined as the process by

which organizations monitor their relevant

environment to identify opportunities and

threats affecting their business for the purpose

of taking strategic decisions”.


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Strategic managementCRITICAL SUCCESS FACTORS(CSFS)/KEY

SUCCESS FACTORS(KSFS)

Structure of industry

Competitive strategy and geographic location

Environmental factors

Temporal factors

STRATEGY FORMULATION/STRATEGIC

PLANNING

Chapter 4


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STRATEGIC PLANNING

Strategic planning is an organization’s

process of defining its strategy, or

direction, and making decisions on

allocating its resources to pursue this

strategy, including its capital and people


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Strategic managementSTRATEGIC PLANNING PROCESS

1.Organizational vision and mission

2.Setting goals and objectives

3.SWOT Analysis

4.Formulation of strategic alternatives

5.Selecting the best strategy

6.Preparing an operational plan

7.Resource allocation

8.Coordinating internal factors

9.Integrating strategy and operational plan


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2. SETTING ORGANIZATIONAL GOALS AND

OBJECTIVES

It involves a complex process of research

and decision making.

These are guided by vision and mission

A goal is a long range aim for a specific

period of time.


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FACTORS THAT INFLUENCE THE SETTING OF

OBJECTIVES AREResources of the

organization

Past objectives

Environmental factors

Thinking and value system of the top management

Internal power system in the organization


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3. SWOT ANALYSIS

Analyzing the Strengths, Weaknesses, Opportunities and

Threats of various environments.


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4. FORMULATING STRATEGIC ALTERNATIVES

A.Functional strategy

B.Stability and contingency strategies

C.Major and minor strategies

D. Strategy in tune with policy

E. Turn around strategies


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5. SELECTING THE BEST STRATEGY

Strategy should be clearly identified and

be explicit in practice or words

Strategy should be capable of exploiting

environmental opportunities

It should sustain threats of environment

It should be consistent with corporate

competence and resources


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6. PREPARING AN OPERATIONAL PLAN

The plan which explains how

the strategic plan is implemented

is called operational plan.


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7. RESOURCE ALLOCATION

Allocation of both monetary and non-

monetary resources to implement designed

strategies is essential . The limited

resources are to be allocated according to

the priorities.


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8. COORDINATING INTERNAL FACTORS

Successful implementation of strategy

depends upon coordinating internal factors.

The flow of work should be smooth and

steady. Obstacles and disturbances should

be avoided.

Co ordination between various departments

is very important in this regard


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8. INTEGRATING STRATEGY AND OPERATIONAL

PLANOperational plans should be integrated with

strategies so as the attainment of

objectives is assured. Objectives

Strategies

Operational plans


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CORPORATE LEVEL STRATEGIES

1. Stability strategy

2. Expansion/growth strategy

3. Merger strategy

4. Retrenchment strategy

5. Restructure strategy/ combination strategy


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STABILITY STRATEGY

It is also called as neutral/ no growth

strategy

This strategy is adopted by the organization

to maintain its existing business if it has no

scope for further growth.


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EXPANSION STRATEGY

This strategy calls for further expansion in the business. It takes the following modes.

If the organization has no future in existing operations

If the organizations resources are not fully utilized

When a competitor enters the existing business

To imitate the competitors for not loosing the customers


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IMPORTANT GROWTH/ EXPANSION STRATEGIES

Intensive growth strategy

Integrative growth strategy

Diversification growth strategy


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INTENSIVE GROWTH STRATEGY

Market penetration

To make aggressive sales efforts to increase sales by

1.inducing customers to buy more

2.pulling customers from competitors

3.converting non-users into users

Market development

To broaden the existing market by entering new markets by

1.adding new channels

2.new market segments

Product development

Acceleration of growth by increasing the quality/ creating entirely a new product


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INTEGRATIVE GROWTH STRATEGY

Horizontal integration: Integration of two or

more firms in the same industry.

Vertical integration: This integration means

joining of firms performing different

processes of a product for a common

purpose.


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DIVERSIFICATION GROWTH STRATEGY

Adding new products to the existing line. It

needs new products, processes,

technology, markets and services.


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MERGER STRATEGY

Two or more organizations performing

same operation join together to avoid

competition.

A. Horizontal Mergers

B. Vertical mergers

a.Sugar cane cultivation farm

b.Sugar cane crushing plant

c.Sugar mill

d.confectionery

Unit X


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Concentric mergers

Leather industry

Footwear

manufact

uring

Bag

manu

factur

ing

Leather

coats

manufact

uring

Hosiery industry

Men’s

wear

manufact

uring

Kids wear

manufactu

ring

Socks

manufact

uring

Firm X

Merged unit


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Conglomerate mergers: This is the case where

corporates from unrelated industries are merged

together.

Footwear industry

Firm

1

Firm

2

Firm

3

Pharmaceutical

industry

Firm

1

Firm

2

Firm

3

Firm X

Merged

Unit


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RETRENCHMENT STRATEGY

Turn around strategy: The strategy which

is formulated to turn a sick company into

a healthier one.

change in the top management

quick cost reduction

Better internal control

Building Credibility

neutralizing external pressures


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Disinvestment Strategy: Sale of those units of

part of business that no longer contribute for

the development of the organization.

negative cash flow generated by a

particular unit causing bad financial implication

of the overall activities of the organization

if an acquired business is proved to be a

big mismatch

if technological up gradation is not

affordable or possible


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RESTRUCTURE STRATEGY/ COMBINATION

STRATEGYThe combination of several strategies to suit

the prevailing environment. Careful

combination of various strategies at the right

time, takes the organization to the new heights.


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BUSINESS LEVEL STRATEGY

These are formulated for strategic business

units.

Any part of a business organization which is

treated separately for strategic management

purpose.


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WAYS OF GAINING COMPETITIVE ADVANTAGE

Cost Leadership

Differentiation

Focus

STRATEGY IMPLEMENTATION

Chapter 5


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ASPECTS OF STRATEGY IMPLEMENTATION

Strategies

Policies

Procedures

Programs

Rules

Methods

Budgets


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Strategic managementSTEPS IN IMPLEMENTATION OF A STRATEGY

1.Resource allocation

2.Fixing key tasks and priorities

3.Assigning tasks

4.Authority delegation

5.Formulating methods for co ordination

6.State policies as designed for implementation

7.Clearly state the various goals for individual managers

8.Develop MIS and feed back systems for evaluation

9.Provide incentives and rewards to reinforce the behaviour of workers to new systems

10. Manager improvement programs to develop to develop the talent to implement the strategy

11. Implement the designed strategies

12. Watch the operations, evaluate results and provide feed back to management to correct the deviations.


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ISSUES IN STRATEGY IMPLEMENTATION

Project implementation

Procedure implementation

Resource allocation

Structural implementation

Functional implementation

Behavioral implementation


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Strategic managementPROJECT IMPLEMENTATION

It involves decision

regarding the project to

be undertaken in future

and to see that they are

properly executed.

1.Conceptual stage

2.Analyzing stage

3.Planning stage

4.Implementation stage

5.Launching stage

Phases in

project

implementa

tion


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PROCEDURE IMPLEMENTATION

Formulation of a company

Licensing procedure

SEBI requirements

Foreign collaboration

FEMA Requirements

MRTP Requirements

Business incentives

Import and export

requirements

Labour legislation

Patenting requirements

Environmental requirements

Consumer protection requirements

It means the regulatory framework within which the

management is supposed to implement its plans, plans,

projects and policies according to the government’s

approvals.


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RESOURCE ALLOCATION

Utilization of scarce resources for the

maximum benefit of the organization

Investment decision based on cost benefit

theory.

Men materials and money are the basic

resources.


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STRUCTURAL IMPLEMENTATION


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Mc Kinsey’s Value Based Management

VBM describes how one can holistically

and effectively organize a company.

Together these factors determine the way in

which a corporation operates.

These are categorized as Hard S’s and Soft

S’s.

The hard elements are feasible and easy to

identify.

The four soft S’s are hardly feasible.


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The Hard S’s

1. Strategy

Long term decision aimed at gaining

competitive advantage for the organization.

Strategy must give scope for modification

to suite environmental changes.


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2.Structure

Shows authority and responsibility

relationship between people working at

different levels. It is a chart that explains who

reports to whom. It clearly shows how the tasks

are sub-divided and integrated. Based on the

change in the strategy, structure must also be

altered.


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3. Systems

Many activities are there in the day to day

operations of a business. A proper system can

avoid confusion and duplication of work.

Effective accomplishment of objectives needs

a system for flow of activities.

a. HRIS

b. MIS

c. DSS

d. PCS


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4.Style

It refers to the leadership style followed by

the management. A manager can influence the

behavior of subordinates in different ways.

How do they act is more important than what

they say.


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Strategic management5. Staff

procurement and development of Human

resources is very important. They must be

motivated to contribute maximum. Adequate

quantity and quality has to be maintained for

proper utilization of Human resources.


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6. Skills

capabilities and competencies of an

organization to gain competitive advantage.

These should be always kept up.


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Strategic management7.Shared Values

Values, beliefs, mindset and assumptions

in an organization is as important as its

physical resources. Shaping the people’s

mindset to adjust to the changed environment

is very important.


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STRUCTURES FOR STRATEGIES

1. Entrepreneurial structure.


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2. Functional Structure


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3.Product Based structure


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4.SBU organizational structure

CEO

President SBU 1 President SBU 2 President SBU 3

divisions

AB

C

divisions

AB

C

divisions

AB

C


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Strategic management1. Abu Dhabi Onshore Oil Operations (ADCO).

2. Abu Dhabi Marine Operating Company (ADMA-OPCO).

3. Abu Dhabi Gas Industries (GASCO).

4. Abu Dhabi Gas Liquefaction Company (ADGAS)

5. Zakum Development Company (ZADCO).

6. Abu Dhabi Oil Refining Company (TAKREER).

7. National Drilling Company (NDC).

8. ESNAAD company.

9. Abu Dhabi Petroleum Ports Operating Company (IRSHAD).

10. Ruwais Fertiliser Industries (FERTIL).

11. Abu Dhabi Polymers Company (BOROUGE).

12. Abu Dhabi National Tanker Company (ADNATCO).

13. National Gas Shipping Company (NGSCO).

14. ADNOC - Distribution.

15. ADNOC Linde Industrial Gases Company (ELIXIER).

16. Abu Dhabi Gas Development Company.


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5. Geographical Organization Structure


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BCG MATRIX

High low

STRATEGY EVALUATION

Chapter 6


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STRATEGY EVALUATION AND CONTROL

The process of determining the effectiveness

of a given strategy in accomplishing

organizational objectives and to take corrective

action wherever necessary.


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EVALUATION AND CONTROL PROCESS


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Determine what to measure

An organization includes many complex

activities. Managers need to specify what

implementation and results will be monitored

and evaluated.

Establish standards

Standards are the yardsticks towards

which the actuals are compared. They may be

quantitative of qualitative.


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Measure performance

Periodic measurement of actuals with

established standards is necessary.

Compare actual performance with

standards

Recorded performance must be

compared with the desired results. It helps to

identify the deviations.


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Strategic management Take corrective action

corrective action is taken if the

performance is outside the acceptable

tolerance limit.

Following factors may affect the performance

adversely,

Wrong allocation of resources

Faulty organization structure

Inefficient leadership

Lack of motivation

Absence of proper information system

Improper and inefficient communication system


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OPERATIONAL CONTROL

Premise control

Implementation control

Strategic surveillance

Strategic alert control


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EVALUATION TECHNIQUES FOR OPERATIONAL CONTROL

Value chain analysis

Bench marking

Balanced score card

Quantitative performance measures

Key factor rating


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BALANCED SCORE CARD

A. Customer perspective

B. Internal business perspective

C. Innovation and learning perspective

D. Financial perspective

CORPORATE SOCIAL RESPONSIBILITY

Chapter 7


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AREAS OF SOCIAL RESPONSIBILITY

A. Towards owners of enterprise

B. Towards workers

C. Towards consumers

D. Towards government

E. Towards society

Strategic Management

Leadership & Management

Transcript of Strategic Management