STRATEGIC MANAGEMENT - I

STRATEGIC MANAGEMENT - IFaculty Neelam MehraClass PGDM IV

ObjectiveTo understand the basic issues and concepts related to Strategic Management and learn in detail the most relevant and up to date methodologies and tools to address these Issues.

SYLLABUSOverview to Strategic ManagementEvolution of Strategic Management, Definition & Meaning, Concept of Strategy, Levels of Strategy, Strategic Decision making, Strategic Management Process.

UNIT 1 OVERVIEWMeaning of Strategic Intent, Understanding Vision, Mission, Concepts of Stretch, Leverage & Fit, Objectives & Goals of Business, Business Definition, Balanced Scorecard Approach, Critical Success factors & Key Performance Indicators.

UNIT - 2 STRATEGIC INTENT

Concept of Environment, Internal & External environment, Macro & Micro environment, SWOT analysis, TOWS matrix, PESTLE framework, ETOP, environmental scanning, Porters five forces model, methods & techniques used for scanning.

UNIT - 3: ENVIRONMENTAL APPRAISAL

Dynamics of internal environment, organizational capability factors, organizational appraisal methods & techniques, OCP, SAP.UNIT 4ORGANIZATIONAL APPRAISAL

Expansion strategies, Stability Strategy, Retrenchment Strategy, Combination Strategy, Concentration, Integration (Horizontal & Vertical), Diversification (Concentric & Conglomerate), Internationalization, Cooperation (Joint venture, Mergers, Acquisition, Strategic Alliance), Corporate Restructuring.UNIT 5CORPORATE LEVEL STRATEGY

Porters Generic Strategy Model, Market Location tactic (Leader, challenger, follower, nicher), Market Timing tactic, Industry Cycle Strategy.

UNIT 6BUSINESS LEVEL STRATEGY

Marketing strategy, financial strategy, human resource strategy, production strategy, etc.UNIT 7FUNCTIONAL LEVEL STRATEGY

Author/Publication

1.Strategic Management and Business policyAzhar Kazmi, Mcgraw Hills

2.Strategic Management,Alpana Trehan, DreamtecREFERENCE BOOKSUNIT 1 : OVERVIEW OF STRATEGIC MANAGEMENT Why are some business organisations so successful and so many others fail in the same given environment ??

Because those successful manages its resources most effectively, exploits all the available opportunities at right time through right methods and prepares in advance against all anticipated threats and weaknesses.Refers to the senior management decisions oriented towards achieving the objectives.

Strategic Management is the process of formulating, implementing and evaluating strategies for an organisation.Business strategyStrategy is a greek word strategos, means generalship ie the art of generalship.. Giving direction in military forces.Strategy means - Managerial decisions of long term significanceto achieve long term objectives WHAT IS STRATEGYDay to day planning

Short term future planning

Long range future plannning

Strategic planningEVOLUTIONPhase I In around 1930, in US Cos. With singly product catering unique set of customer in limited geographical area started expanding. Thus the need of integerating the functional areas arose from earlier informal control and coordination.Evolution PhasesDue to business enviroment changes from 1930-1940 in US, Ad hoc policy formulation

Planned policy formulationPhase II Due to further increase in complexities and accelerating changes in environmentPlanned policy formulation & integration of functional areas could no longer served the challenging business needs

Thus in 1960 Strategy formulation concept ie was a demand for a critical look at the concept of business and its relationship with environment

Phase IIIIn 1980s strategic managements very intial focus on Intersection of two broad fields of enquiry 1. Strategic processes of business firms2. responsibilities of general managementPhase IVThus Approaches and Methods of Analysis of Strategic Management have still not completely merged into the theory of how to manage a business enterprise

But Definitely Represent a Powerful way of thinking to resolve Strategic Issues.Current ScenarioThus Management of Companies Strategically by senior management is termed as STRATEGIC MANAGEMENT.Hambrick & Fredrickson Model of Strategic Management Internal & External Strategic AnalysisStrategy :ArenasVehiclesDifferentiators StagingEconomic logicGoals & ObjectivesVission & MissionImpelmntation levers & Strategic Leadership1.Arenas: Where will we be Active ?ie the products, services, distribution channels, geographical markets and technology in which the firm participates.

2. Vehicles: How will we get there ?Means for entering new arenas such as throughAcquisitions, Alliances or Internal development.

3. Differentiators: How will we win the Market ?Features of the firms products/ services that helps to compete in market. Like Price, Quality or Reliability of products.Staging : What will be our speed, timing and sequence of moves ?There are resources and limitations that determine when a firm moves into the market and at what speed.

Economic logic: How will we obtain our Returns ?Explaining how PROFITS will be created. Thus when the 5 elements of strategy are alligned Reinforce each other Success is more In business Parlance, there is no definite meaning assigned to strategy. It is often loosely means a number of things.A strategy could be :A plan or course of action or set of decision rules to achieve cos objectives and goals.Related to persuing those activities which move an organisation from its current position to a desired future stateConnected to the strategic positioning of a firm, making trade offs between its different activities and creating a fit among these activities

Understanding StrategyConnected to the strategic positioning of a firm, making trade offs between its different activities and creating a fit among these activities.Decisions to continuously co-align the firm with its environment to achieve goals and objectives.

Thus in short Strategy is the means to achieve objectives.Corporate level

Business Level

Functional Level

Levels of Strategic Management

Corporate OfficeSBU AFinanceSBU CSBU B InformationHRMOperationsMarketingA major distinction between policy and strategy is Policy is a guide to the thinkingandactionofthosewhomakedecisions,Whilestrategyconcernsthe direction in which human and physical resources will be deployed and applied in ordertomaximisethechanceofachievingaselectedobjectiveinthefaceofdifficulties.The problems of policy in business have to do with the choice of puposes the moulding of organisational identity and characterMobilisation of resources to achieve the goal of enterprise

Thus the senior management, while determining the future course of action has a mental picture of the type of organisation they want their company to become.SM consists of the senior most officials of a company who are responsible for long term decisions and ultimate growth and success of the company.Senior Management carry designations such asChief executive officer (CEO)PresidentGeneral ManagerExecutive Director etcSMs are not concerned with day to day problems but are expected to devote their time and energy to thinking and deciding about the future course of action of the company.

Who is Senior Management (SM) ??Decision making is the most important function of any manager & Strategic decision making is the primary task of the senior mgt.Both are essentially same with the difference in the levels at which they operate.STATEGIC DECISION MAKINGDecision making process objectives determinationalternatives of achieving objectives are identified.each alternative evaluated in terms of its objective achieving abilitythe best alternative is chosen.

Such a process is deceptively simple. In practice, it is a highly complex n difficult phenomenon.

In strategic management process, the basis thrust of strategic decision making is to make the choice regarding the course of action to adopt.

Like the working of human mind, strategic decision makers are also unable to describe the exact manner in which strategic decisions are made.Its a complex mental process, not exposed to view.They are complicated n mysterious. More intuitive than intellectual.STRATEGIC DECISION MAKING (SDM)- A COMPLEX PROCESS Thus no theoretical model, however painstakingly formulated cam adequately explain the different dimensions of the process of strategic decision making.

Despite these limitations, we can still attempt to understand SDM by considering some important issues related to it.Criteria Rationality Creativity Variability Person related factors Individual versus group decision makingISSUES IN STRATEGIC DECISION MAKINGEstablishment of strategic intentFormulation of strategiesImplementation of strategiesStrategic evaluation Strategic control4 PHASES IN SMPSM is a dynamic process. Not a one time or static process but a continual and evolving process.

Thus SMP can not be rigid steps in a fixed sequence. steps are taken and repeated as the situation demands.

STRATEGIC MANAGEMENT PROCESS (SMP)ELEMENTS OF SMP A. Establishing strategic intent

Creating and communicating a visionDesigning a mission statementDefining the businessAdopting the business modelSetting objectivesB.Formulation of strategies

6. Performing environmental appraisal7. Doing organisational appraisal8. Formulating corporate level strategies9. Formulating business level strategies10. Undertaking strategic analysis11. Exercising strategic choice12. Preparing strategic planC.Implementation of strategies

13.Activating strategies14.Designing the structure, systems and processes15. Managing behavioral implementation16.Managing functional implementation17. Operational strategies D.Strategic evaluation and control

18.Performing strategic evaluation19.Exercising strategic control20. Reformulating strategiesUNIT IISTRATEGIC INTENTSI is target that an organisation set to achieve.

SI is the obsession of an organisation of having ambitions to win at all levels of the organisation in the quest for global leadership.

SI is the obsession of having ambitions that may even be out of proportion to their resources and capabilities. STRATEGIC INTENT (SI)SI is the hierarchy of the following intentions of an organisation -

STRATEGIC INTENT (SI)STRETCH - The misfit between resources and aspirations.Stretch belongs to the school of strategy where capabilities are no constraints to achieve and environment is not any given condition but something which can be created and moulded.

STRETCHLeverage refers to accumulating and conserving resources in a manner that limited resource base is stretched to meet the aspirations that an organisation dares to have.LEVERAGE

While Stretch & Leverage are the idealistic concepts, Fit is an realistic concept. Fit means positioning of the firm by matching the organisational resources to its environment.In Fit SWOT is used to assess organisational capabilities and environmental opportunities.

Environments haswhat are got to offerorganisations capabilities.FITSTRATEGYVision is the dream of any organisation.It can be hazy and vague, yet a strong motivator to action.

Vision is the mental perception of the kind of environment an individual/ organisation aspires to create in the future.VISIONEg. Henry Ford wished to democratise the automobile when he visualised that an affordable vehicle must be available for the masses.

Walt disney wanted to make people happy.

Jamshedji Tata dreamt of a self reliant India in steel making.

All these visionaries had a vision that gradually become clear as they took actions to materialise their dreams.

A vision should be

An organisation charter of core values and principles.The ultimate source of our priorties, plans and goals.A puller (not pusher) into the futureA determination and publication of what makes us unique.A declaration of independenceA Vision should not be

A high concept statement, motto or an advertising sloganA strategy or plan A soft business issuePassionless

VISION contd..Good vision are

Competitive, original, unique and practical. inspiring and exhilarating Help creating a common identity and a shared sense of purpose Foster risk taking and experimentation Foster long term thinkingBenefits of VisionMission is a statement which defines the role that an organisation plays in the society.

Mission represents the purpose of existence of an organisation.MISSIONEg. A book publisher & a magazine editor both satisfies the information needs of the society.

But they do it differently.

Publisher - Producing excellent reading material, Editor - Presenting news analysis in a balanced n unbiased manner.

Thus both have different objectives but an identical mission.

It should be Feasible realistic n achievable, not an impossible statement.It should be precise neither so narrow to resrict co.s activities nor too broad to make itself meaningless.Should be clearShould be motivating

CHARATERISTICS OF MISSION STATEMENTShould be distinctiveShould indicate major components of strategy.Should indicate how objectives are to be accomplished.

CHARATERISTICS OF MISSION STATEMENTVisionTo build a global enterprise for all our stakeholdersTo be the largest private sector power generation company in IndiaTo be the largest hydro power generation company in IndiaTo be the largest power company in IndiaTo be the largest coal mining company in India

VISION & MISSION OF RELIANCE POWERMissionTo attain global best practices and become a leading power generating company.

To achieve excellence in project execution, quality, reliability, safety and operational efficiency.

To relentlessly pursue new opportunities, capitalizing on synergies in the power generation sector.

To consistently enhance our competitiveness and deliver profitable growth.

To practice highest standards of corporate governance and be a financially sound company.

To be a responsible corporate citizen nurturing human values and concern for society.VISION & MISSION OF RELIANCE POWERVISION & MISSION OF RELIANCE POWERMissionTo improve the lives of local community in all our projects.To be a partner in nation building and contribute towards Indias economic growth.

To promote a work culture that fosters learning, individual growth, team spirit and creativity to overcome challenges and attain goals.

To encourage ideas, talent and value systems and become the employer of choice.

To earn the trust and confidence of all stakeholders, exceeding their expectations.

To uphold the guiding principles of trust, integrity and transparency in all aspects of interactions and dealings.

Our VisionTo help our clients meet their goals through our people, services and solutions

Our MissionInfosys International Inc. is dedicated to providing the people, services and solutions our clients need to meet their information technology challenges and business goals.

Work to understand the needs and requirements of our clients before proposing a solution

Develop responsive proposals that provide cost-effective solutions to our clients needs

Deploy the right mix of people and products to deliver value-added services and solutions to our clients

Follow-up on the quality of our services and solutions to our clients

Appreciate the trust that our clients put in us as we work with them to improve their business and information technology.

VISION & MISSION OF INFOSYS INTERNATIONAL Goals denote what an organisation hopes to accomplish in a future period of time.They represent the future state or outcome of effort put in now.

Objectives are the ends that state specifically how the goals shall be achieved.

Objectives are concrete and specific in contrast to Goals that are generalised.BUSINESS OBJECTIVES & GOALSIt defines the organisations relationship with its environment.Helps an organisation persue its vision and missionProvides the basis for strategic decision makingProvides the standards for performance appraisal.ROLE OF OBJECTIVESIt should be understandableShould be concrete and specificShould be related to a time frame Should be measurable and controllable.Should be challengingDifferent objectives should correlate with each otherShould be set within contraints.CHARACTERISTICS OF OBJECTIVESSpecificityMultiplicityPeriodicityVerifiabilityRealityQualityISSUES IN OBJECTIVE SETTINGFollowing are the 4 factors to be considered for objective setting The forces in the environmentRealities of the cos resources and internal power relationshipValue system of top executivesAwareness in management of the past objectives of the co.

HOW ARE OBJECTIVES FORMULATEDBasically Balance scorecard approach help an organisation to set objectives.

Balance scorecard approach has become very popular around the world, including India.

BALANCE SCORECARD MODELThe 4 perspective are important in the following in the following order

Financial perspective (most imp)Customers perspectiveInternal business perspectiveLearning and innovation perspectiveBALANCE SCORE CARD APPROACH TO OBJECTIVE SETTINGFinancial PerspectiveObjective TargetsVision & StrategyLearning/ Innovation PerspectiveObjectives TargetsInternal Process PerspectiveObjectives TargetsCustomer PerspectiveObjectives Targets69Critical Success Factors (CSFs) are the factors crucial for organisational success.

When strategist consciously consider these factors for strategic management, they are likely to be more successful while putting relatively less efforts.

CRITICAL SUCCESS FACTORSRockart has applied the CSFs approach through a three step procedure for determining CSF

TO GENERATE THE SUCCESS FACTORS - what does it take to be successful in business

REFINING CSFs INTO OBJECTIVES - what should organisations goals and objectives be with respect to CSFs.

IDENTIFYING MEASURES OF PERFORMANCE how will we know whether the organisation has been successful on this factor.CSFs are the basic business strategy for competing wisely in any industry.

CSFs are identified in an industry/ business and then resources are injected into a particular area where company sees an opportunity to gain significant advantages over its competitors.1.CSFs of a shoe manufacturing co. high manufacturing qualityCost efficiencySophisticated retailingA flexible product mixCreation of a product image

2.CSFs of a toothpaste manufacturing co. Form, Flavour, Foam, Freshness

3.SFs of a courier co. Speedy dispatch, Reliability, Price.KPIs are the measures in terms of which the CSFs are evaluated.

KPI is very important because of their relationship to CSF and ultimately to the Vision of the Co.

Eg. 1. A Co. has vision To be the most profitable company of the industryKPIs of the Co. Pre tax profit, shareholder equity

B Co. has vision To be a responsible corporate citizenKPI Profit % contributed to community causes.KEY PERFORMANCE INDICATORS (KPIs)Help oraganisation to define and measure progress towards its objective.

Gives a clear picture to everyone in organisation of what is important and what they need to do to accomplish objectives.

Tool to motivate employees towards objectives

Helps benchmarking the performance of organisation over time and to compare with rival companies.

BENEFITS OF KPIs

UNIT IIIS OVERUNIT III

CORPORATE LEVEL STRATEGIESAccording to Derek Abell, any business can be defined along the 3 dimensions -

Customer groupsCustomer functionsAlternative technologies

Ie. Who is being satisfiedWhat is being satisfied&How the need is being satisfiedBUSINESS DEFINITIONEg. Abells Three Dimensions model for defining the business of a watch company Customer Functions:Utility / OrnamentalAlternative technologies:Mechanical / quartz (digital/ analogue) technologyCustomer groups:Children, men or womenEg. Abells Three Dimensions model for defining the business of a Time keeping businessCustomer Functions:Finding time, recording time, using watches as fashionable accessory, a gift item or a piece or artAlternative technologies:Mechanical / quartz digital/ quartz analogue technologyCustomer groups:Individual customers or industrial usersSuch clarification of business helps in defining business clearly.

Thus helpful for strategic management and deciding the right strategy for the business.Corporate strategies are basically the choice of direction the organisation adopts.They are basically about decisions related to :

Allocating resources among different businesses of a firm

Transferring resources from one set of businesses to others and

Managing and nurturing a portfolio of businesses.

These decisions are taken to achieve the overall objectives of the company.CORPORATE LEVEL STRATEGIESThe business definition analysis of any organisation provides a set of strategic alternatives that it can consider.Strategic alternatives revolves around the questions of

whether to continue or change the business

or improve the existing efficiency and effectiveness in the existing sector.

According to Glueck, there are 4 strategic alternatives :

ExpansionStabilityRetrenchment Any combination of these 3CORPORATE LEVEL STRATEGIESCorporate strategy is followed when an organisation - aims at high growth - through any of the 3 dimensions of its business -singly or jointly - in order to improve its overall performance.

Expansion strategy are also termed as growth or intensification strategies.EXPANSION STRATEGYMajor reasons for adopting expansion strategy

It may become unavoidable when the environment demands increase in pace of activity.

Psychologically, strategists may feel more satisfied with the growth

Increasing size may lead to more control over the market vis--vis competitors

Advantages from the experience curve and scale of operations

EXPANSION STRATEGYEgs. Of expansion strategies along the 3 three business dimension

A chocolate manufacturer expands its customer groups to include middle aged and old persons to its existing customers comprising kids and youngsters

A stockbrokers firm offers personalised financial services to small investors apart from its normal functions of shares and debentures, in order to increase the scope of its business.

A printing firm changes from traditional letter press printing to desk top publishing to increase it production and efficiency.EXPANSION STRATEGYThus expansion strategies have a profound impact of the companys internal configurationcausing extensive changes in almost all aspects of internal functioning.EXPANSION STRATEGYThe corporate strategy of stability is adopted when the company tries improving its performance by marginally changing one or more of its business dimensions.

In this the company do not go beyond what they are doing presently and serves the same market with the same products using the existing technology only.

It just marginally improves the performance or remain the same in volatile environment.

STABILITY STRATEGIESThus Stability strategy is not doing anything extra but sustaining moderate growth in the line with the existing trends.

Eg.A packaged tea company provides special service to institutional buyers apart from its consumer sales through market intermediaries in order to encourage bulk buying and thus improve marketing efficiency.

A copier machine company provides better after sale service to existing customers.

A steel company modernizes its plant to improve efficiency and productivitySTABILITY STRATEGIES Reasons for adopting stability strategies are

It is less risky, involves less changes and people feel comfortable with the things as they are.The environment faced is relatively stableExpansion may be perceived as being threateningConsolidation is sought through stabilizing after a period of rapid expansion.STABILITY STRATEGIES