Strategic Management

Dr. I.G. ChowdhuryDate: 23-02-2010

Planning

• Planning is future thinking.

• Planning is integrated decision making.

• Format of plans of our time:- Annual Budget

- 5 Year Plan

- Perspective Plan

STRATEGIC PlanNING

• Strategic Plan is the new plan format:

- PRSP

- MDG

- Vision 2021

Q.What is the difference ?

Q. What is strategy ?

Strategy

• Strategy is a direction, an aspired position to be attained at the end of the plan period.

• Strategic Plan is a long-term plan.

• Strategic Plan is a shared plan.

• Strategic Plan is a leader-driven plan.

Strategic management

• The whole activity is divided into a group of inter-related tasks called strategic directions or themes.

• Each task within a theme is a measurable outcome with dates of completion.

• The total process of developing a strategic plan and implementing it successfully in known as Strategic Management

Strategic planExample

• We have just completed the first PRSP. It was a three year plan covering the period 2005-2007.

• The overall direction of the plan was Unlocking the Potential

i.e. the human capability.

PRSPStrategic Direction

• Employment• Nutrition• Quality Education• Local Governance• Maternal Health• Sanitation & Safe Water• Criminal Justice

ExamplePRSP-II

• Planning is a continuous process though for ease of implementation it is divided into chunks of activities.

• We are now in the midst of the second PRSP covering plan period 2009-11. The theme of the plan is Moving Ahead.

• Intermediate plans such as national budgets are prepared with reference to goals and objectives of the long-term plans.

Management by results

• Strategic Management is also known as management by results ie how far the gap between the present and the future position has been bridged.

• Attaining the desired results require successful implementation of activities under each strategic theme or direction.

• Effective implementation requires SMART (specific, measurable, attainable, realistic, timed) objectives.

• Unless something is measurable it is not attainable.

IMPLEMENTATIONPRSP

• Implementation of a strategic Direction entails satisfying several measures of performance. We shall look at one such direction though not directly related to the PRSP.

• HDI is a widely used measure of poverty developed through the initiatives of the United nations.

• HDI is a composite index based on three basic factors of development:

- a long and healthy life- access to knowledge- decent standard of living

HDI Human Development Index

• According to this measure Bangladesh ranks 146 among 182 nations.

• Bangladesh is considered a medium level country (0.5 – 0.8) in terms of human development.

• Bangladesh score is 0.543 in 2009. It has consistently improved from a very low 0.347 in 1975

MBO

• This process of implementation with set dates is also known as MBO (Management by Objective) in management parlance.

• MBO was a very popular management tool of the sixties.

• Like any other management practice it has merits and demerits,

- Merit in being very focused - Demerit in being regimented (command and control

style).

Strategic Management5 Tasks

PLAN

• Vision : Long-term destination

• Objective : Targets to attain

• Strategy : Activities related to vision

MANAGEMENT

• Implementation : Doing

• Evaluation : Being there

Framework

• Vision Future Position

• Objectives Metrics of measurement SMART

• Strategy Decision making re Vision Choosing between

alternatives

• Tools of Analysis SWOT, PEST + more

Framework

• Tools of Implementation: Leadership

Culture

Ethics

• Measures of Evaluation: Financial

Strategic

Vision

• Big Hairy Audacious Goal (BHAG)

• Examples: - Vision 2020 Malaysia

- Vision 2021Bangladesh

- Digital Bangladesh

• If you don't know where you are going, any road will take you there...Alice in Wonderland

Bangladesh 2015Out of the LDC

• Out of LDC is the Position that the country seeks to attain.

• This requires achieving set of economic targets to work together (synergy).

• The GDP of a country is the sum total of values created by all sectors of economy – agriculture, industry and service.

Q. Who does what ?

Factor advantagescontradictions

• Cheap labour ? Germany has one of the highest wages

• Bountiful natural resources? Less than 20% land in Japan is useable

• Government intervention? Aircraft and software in Japan failed to take-off

•  Management practices? Germany and Sweden allow labour representation in management

• Germany has negative balance of payment, high wages and strong currency. Yet it enjoys enviable position in automobile and machinery.

Towards competitive advantage

Q.What factors led to the development of some nations into the home base for very successful industries?

- Switzerland for pharmaceutical and dairy products

- Sweden for heavy trucks

- America for personal computers

- Italy for ceramic tiles

- Japan for consumer electronics

Factor inadequacy

• The failure to draw a definite conclusion may be due to the inadequacy of the earlier economic theories of absolute and comparative advantages.

• Factors that may have led to the inadequacy include;

- technology changes can affect scale of production advantage

Competitive Advantage

- capital and skilled labour can easily move between nations

- firms compete globally where sources are procured from one place, processed in another and sold everywhere

- transportation and labour cost has diminished dramatically to make some factors almost redundant 

Competitive advantage

• The world today is very competitive. Just look back how many banks, hospitals or insurance companies were there in the nineties. In addition we have newer areas of businesses opening up all the time from internet to wirelss.

• Competition constantly changes the landscape in which new products, new ways of marketing, new production processes and whole new market segments emerge.

Creative destruction

• There is no equilibrium in competition.

• Static efficiency at a point of time is rapidly overcome by a faster rate of progress.

• Firms continuously improve the design or quality of their own products/services that can destroy their own successful brands. This is Creative Destruction.

In search of Competitive advantage

• How can a nation create the environment in which its firms are able to improve and innovate faster than foreign rivals in a particular industry?

Towards Competitive AdvantagePorter

Competitive AdvantagePorter’s Diamond

• Factor Conditions:

- Basic factors such as land, labour, capital, raw material

- Advanced factors such as technological know-how, managerial sophistication

- Physical infrastructure such as roads, railways and ports

• Demand Conditions

- Home demand leading to demanding and sophisticated consumers

Diamond

• Related and Supporting Industries

- Cluster of supporting industries such as semiconductor industries feeding into personal computers as has happened in the USA during the 1980s.

• Firm Strategy, Structure and Rivalry

- Managerial ideologies such as Japan emphasizing on engineering aspects of production while the USA stressing on Finance led to different patterns of growth in the related industries.

GCIGlobal Competitive Index

• The index has been developed and monitored at the WEF (World Economic Forum) held every year at Davos.

• The report "assesses the ability of countries to provide high levels of prosperity to their citizens.

• The global competitive index purports to measure how productively a country uses available resources.

GCIGlobal Competitive Index

• "The countries are evaluated as per score in 12 factors divided into 3 broad categories;

- Basic requirements

- Efficiency enhancers

- Innovation factors

- In the 2009-10 GCI Rankings Bangladesh occupies 106th position amongst 133 nations

with In- #49, Sl- #79, P- #101, N- #125.

A. Basic Requirements

- Institution

- Infrastructure

- Macro-economy

- Health & education

• B- #108, N- #119, P- #114, S- #89 (Overall)• B- #105, N- #106, P- #113, S- #38 (Health & Education)

B. Efficiency Enhancers

- Higher education and training

- Goods market efficiency

- Labor market efficiency

- Financial market sophistication

- Technological readiness

- Market size

• B- # 97, N- #125, Pak- # 92, S- #74 (Overall)• B- #129, N- #124, Pak- #118, S- #64 (Higher Ed & T)

C. Innovation & Sophistication Enhancers

- Business sophistication

- Innovation. • B- #114, N- 129, P- #84, S- #44

• Income thresholds for stages of development GDP per capita (US$)

- Stage 1: Factor driven < 2,000

Transition from Stage 1 to Stage 2 : 2,000–3,000

- Stage 2 : Efficiency driven 3,000–9,000

Transition from Stage 2 to Stage 3 : 9,000–17,000

- Stage 3 : Innovation driven > 17,000

ConvergencePublic & private sector

• The gap between public and private sector is much shorter than the earlier days.

• Then, the public sector had almost total control on our life, from school to hospital to university to job.

• Now the public and private sector compete among themselves. Yet managing a public sector is somewhat different from private sector.

managementpublic & private sector

• Differences :- a wide range of stakeholders with

conflicting interests are able to exert significant impact on the agency’s performance.

- the resource flow to the agency is often less direct than cash payment as part of a commercial transaction.

Stakeholders

management

• Differences:– Limited flexibility and autonomy– Goals are often vague

– The leader's authority is limited– Political interference and scrutiny by outsiders

– Broad accountability is required– Performance expectations shift continually

management

• Similarity: - Customer Satisfaction is as important

- Resources must be used as efficiently

- Must be innovative to be in the race- Must create value

Value creation links customers /stakeholders need with

organization’s actual or potential capabilities.

Competition

• Organizations, whether in the public or the private sector, must compete.

• At the national level, a nation competes with another such as Bangladesh seeking a larger share in the Indian market.

• Japan Inc. is a well-known term in business vocabulary as the country fiercely promotes company interests internationally.

Competition

• Competition for a public sector organization comes not just from other government instrumentalities but also from private sector firms

willing and able to take over some or all of its activities

from being a full function supplier to specific activities e.g. outsourcing

CompetitionExamples

• Public Sector competing Private Sector- BTTB and Grameen Phone- BTV and ATN

• Public Sector competing Public Sector - Bangladesh Railway & BRTC

- LGRD & Roads and Highways

Strategic management

• How these competitions are fought are the subject matter of strategic management.

• Strategy is not built on vacuum – it needs analysis of resources and capabilities.

• SWOT, PEST are some of the frequently used tools in strategic management.

• We shall look at some of these tools.

ANALYSIS Know your enemy (Sun Tzu, 500 BC)

High Know Yourself Low L Know your enemy H

Equal chance of losing Win

LoseEqual chance

of losing

Equal chance of

losingWin

LoseEqual

chance of losing

ANALYSIS GAP Value for money HR upgrade

GAP

IT packaging

100% 100%

Innovation sales support distribution

100%

50%

ANALYSIS BOSTON MATRIX

High

Market Growth

Low

H Market Share L

StarProblem

child

Cash cow Dog

ANALYSISINTENSITY OF COMPETITION

Five Forces Low Medium High

Rivalry X

New entrants Threat X

Buyer bargaining X

Supplier bargaining X

Substitute threat X

OVERALL X

ANALYSISVALUE CHAIN

Group Exercise

#1. Future gazing –

list 3 possible future scenarios that profoundly may impact the

country …

a larger SAARC in thenEC style

#2. Vision statement – about 5 lines

…. out of the LDC into MIC

Group Exercise

#3. SWOT - list 3 in each category

#4. Strategy – list 3 courses of action

#5. Major impediments to overcome - list 3

#6. Indicators to monitor - list 3

Mission

• Materializing the vision comes through successfully implementing the task list.

• It begins with the mission.

Mission relates to what you do, how you do.

Strategy

• Strategy is a road map of the journey to the vision.

• Having all the ingredients in place does not guarantee success.

• Good Strategy + Bad Implementation = Chaos

objectives

• Objectives are metrics of measurement along the road to implementation.

• The should be SMART

- Specific

- Measurable

- Attainable

- Realistic

- Timed

ImplementationLeadership

• Effective strategy is a function of the style of leadership, leading or being led.

• The context of leadership has changed over time. Leader today is considered a coach than a task master.

• More emphasis is given on softer elements of management e.g. delegation and motivation.

ImplementationCommunication

• The vision needs sharing with members of the team, else there is no team. This requires communication.

• Lateral communication can be more difficult than vertical communication. The vision requires different styles of communication with different stakeholders.

• Health for All, Freedom from Hunger are better understood by all.

ImplementationCulture

• Culture is the way people think, behave and interact.

• Organizational Culture evolves as it learns to cope with its problem of external adaptation and internal integration, that has worked well enough to be considered valid and to be taught to new members as the correct way to perceive, think & feel.

EvaluationDoing the right things

• Evaluation is not an easy task, more so in the public sector that have more qualitative than quantitative metrics of measurement.

• Qualitative indicators such as motivation, emotional bonding, are as important as the quantitative indicators such as ROI.

EvaluationBalancing the outcome

• The organization growth needs balancing between the elements of growth.

• A skewed growth is problematic.

• A healthy national GDP growth but Gini is problem.

• A good company growth at the cost R&D can affect sustainability.

EvaluationBalanced Scorecard

• Managed through a composite scorecard having both qualitative and quantitative outcomes.

• Profit +Employee Motivation +Customer Satisfaction = ?

• These factors are kept side-by-side on a dashboard, not added up.

• If a pilot flying an can fly an aircraft with such meters why can’t an organization be managed?.

Change Management

• Strategy is not cast in stone. While being implemented, the business environment is continuously scanned for possible changes.

• A strategy may need adjusting to adapt to such changes.

• Changes may range from fine tuning to total rejection. Why continue building a bridge if the river bed has shifted meanwhile?

Change Management

• ‘”when the facts change, I change my mind” …Keynes

• This is change management, the precursor to strategic management.

• Yet it was in the 1890s the head of the US Patent Office applied for closure of the office as everything that could be invented had been invented.

• Sam Watson, founder of IBM, once commented that the world ‘has a market for may be five computers.