Strategic Management. Module 1_MBA_Bangalore University

8/2/2019 Strategic Management. Module 1_MBA_Bangalore University

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Concept of strategy

Sheela Rosalyn


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DEFINING STRATEGY

S H E E L A R O S A L Y N


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Derived from the Greek word stratgos;stratus (meaning army) and ago(meaning leading/moving).

Bundle of Decisions that affect firms performance. Refers to ideas , plans and support that firms employto compete successfully against their rivals. Primarily to give you a competitive edge.



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Steps in a Strategic Management Process.Analysis: External environment opportunities, threats

Internal environment - strengths, weakness.

Formulation: Mission customers to be servedCapabilities to be developed.Policies Goals, guidelines for major activities.

Implementation: - Organizational structure, culture

Adjustment or evaluation: back to earlier steps.



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BASIC MODEL OF

STRATEGIC MANAGEMENT

Four Basic Elements



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1. ENVIRONMENTAL SCANNING



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2. STRATEGY FORMULATION

Mission Statement Setting Objectives & Goals A statement of purpose (strategic intent)

committing the organization to ambitiousoverarching (stretch) objectives.

Provides a sense of direction and purpose.

Drives strategic decision making and

resource allocations. Forces the seeking of significant performance

improvements to attain objectives

Customer Orientation and Business Definition

Abells Framework for Defining the business

Consumer-oriented

versusProduct-oriented business definition



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2. STRATEGY FORMULATION

Selecting Strategy Corporate strategy (Stability, Growth, Retrenchment)

Business strategy (Competitive, Cooperative)

Functional strategy (Technological Leadership, Technological Followership)

Defining PoliciesGuidelines for decision making that links

formulation to implementation



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3. STRATEGY IMPLEMENTATION

Strategy

Implementation

Programs

Budgets

Procedures

4. Evaluation & Control

-Continuous processS H E E L A R O S A L Y N


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STRATEGIC DECISION MAKING MODEL



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STRATEGIC DECISION MAKING



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Strategic Planning

is the managerial process ofdeveloping and maintaining a

strategic fit between theorganization's objectives andresources and its changing market

opportunities.Org Objectives Resources

Changing Environment

Strategic Fit

Sheela Rosalyn


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LEVELS OF STRATEGY

Corporate level

Determine overall scope of the organisation

Add value to the different business units

Meet expectations of stakeholders

Business level (SBU)

How to compete successfully in particular markets

Operational

How different parts of organisation deliver strategy

Sheela Rosalyn


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Three levels of the strategy

1. level: The corporate levelAt this level the fundamental task is to developa balanced portfolio of businesses which willachieve the goals of the corporation and satisfyits stakeholders.

2. level: The strategic business unit level (SBU)At this level the business, or set of activities isgiven and the major task for strategic plannerat this level is for business to succeed againstcompetitors and also satisfy corporate successcriteria.

3. level: The functional level:At this level the major task is to provide anappropriate functional strategies ( finance andaccounting, marketing, R+D, production,personnel) for SBU or corporate level strategy.Sheela Rosalyn


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Corporate Mission

Broad purposes of the organizationGeneral criteria for assessing the

long-term organizationaleffectiveness

Driven by heritage & environment

Mission statements are increasinglybeing developed at the SBU level aswell

Sheela Rosalyn


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Corporate Objectives & Goals

An objective is a long-range purpose Not quantified and not limited to a time period

E.g. increasing the return on shareholders equityA goal is a measurable objective of the

businessAttainable at some specific future date through

planned actions

E.g. 10% growth in the next two years

Sheela Rosalyn


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Strategic Business Unit (SBU)

A strategic business unit (SBU) is apart of an organisation for which thereis a distinct external market for goodsor services that is different fromanother SBU

Sheela Rosalyn


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What is a Strategic

Business Unit? (SBU)

A set of products or product linesWith clear independence from other

products or product lines

for which a business or marketingstrategy should be designed

Sheela Rosalyn


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Definition of strategic business units

The SBUs are the natural grouping of part of acorporation.

The SBU has a range of related products/serviceswhich has similar technologies and production

processes. The products/services are sold in similar or related

market segments. The production/services are sold against a well-

defined set of competitors.

An SBU is managed by an SBU manager, largely asan independent unit. The SBU has its own set of goals and strategies. Each SBU in a particular organization should be

able to operate independently of any other SBU.Sheela Rosalyn


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Characteristics of a viable SBU

Unique business mission Definable set of competitors

Integrative planning done independently Responsible for resource management in all

areas

Large enough but not so large as to becomebureaucratic

(Source: Subhash Jain, Marketing Planning & Strategy, 6th

Ed.)Sheela Rosalyn


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SBU LevelStrategic Marketing

(as an example)

Strategic Marketing requiresDetailed understanding of market

needs, and

Proactive use of competitiveintelligence at the corporate as well asSBUs levels

Strategic MarketingFocuses on what the firm do best atthe SBU level

To secure and maintain a sustainablecompetitive advantageSheela Rosalyn


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What is Competitive Advantage?

Competitive advantage is acompanys ability to perform in one

or more ways that competitorscannot or will not match.

Philip Kotler

If you dont have a competitiveadvantage, dont compete.

Jack Welch,

GE

Sheela Rosalyn


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Other Characteristics of Competitive

Advantage

Substantiality Is it substantial enough to make a

difference?

Sustainability Can it be neutralized by competitors

quickly?

Ability to be leveraged into visiblebusiness attributes that will influencecustomers

(Source: Strategic Marketing Management, Aakers)Sheela Rosalyn


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What is the portfolio stratregy?

From viewpoint of strategic management thecorporations are collections of different product-market-consumer-resource packages. These arethe SBUs. We can describe the sum of SBUs, asportfolio.

The portfolio analysis: Combines the assessment of business position with market

attractiveness evaluation, which emerges from externalanalysis in general and market analysis, in particular.

Includes multiple SBUs in the same analysis and addressesthe SBU investment decision - which organizational units

should receive resources, which should have resourcewithheld , and which should be resource generators.

Offers baseline recommendations concerning theinvestment strategies for each SBU based on anassessment of business position and market attractiveness.

Sheela Rosalyn


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Indicators of SBU Strengthand Market Attractiveness

Sheela Rosalyn

B f t t i h i


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OwnershipMission and strategic intent

Scope and diversityThe global dimension

Corporate purpose and aspirations

Bases of SBU strategy

Enhancing SBU strategy: corporate parentingPortfolio managementFinancial strategyThe role of the corporate parentThe parenting matrix

Achieving competitive advantagePrice-based strategiesDifferentiation strategiesFocus strategies

Bases of strategic choice

Sheela Rosalyn


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Levels of Planning at GE

CEO

Corporate Office

GE

Aircraft

GE

Fin. Ser.

GE

Lighting

GE

Motors

GE

Plastics

Manufacturing Marketing Accounting RD

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LEVELS OF PLANNING AT GENERAL

ELECTRIC


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Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000

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The Five Forces Model

SubstituteProducts

RivalryAmong

Organizations

Potential

for Entry

Power ofSupplier

Power of

Buyer


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Competitive Forces

Level of Rivalry Increased competition results in lowerprofits.

Potential for Entry Easy entry leads to lower prices and profits.

Power of Suppliers If there are only a few suppliers of importantitems, supply costs rise.

Power of Customers If there are only a few large buyers, they canbargain down prices.

Substitutes More available substitutes tend to drivedown prices and profits.

The FIVE forces that determines your success


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Planning & Strategy Formulation

Corporate-level strategydevelop a plan of action

maximizing long-run value

Business-level strategy

a plan of action to take

advantage of opportunities

and minimize threats

Functional-level strategy

a plan of action improving

departments ability to

create value

SWOT analysis

identifies strengths &weaknesses inside the

firm and opportunities

& threats in the

environment.

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Corporate-Level Strategies

Concentrate in single business:McDonaldsfocuses in the fast food business. Can become very strong, but can be risky.

Diversification:Organization moves into new

businesses and services.Related diversification: firm diversifies in similar areas to

build upon existing divisions.

Synergy: two divisions work together to obtain more than

the sum of each separately.

Unrelated diversification:buy business in new areas.

Build aportfolio of unrelated firms to reduce risk or

trouble in one industry. Very hard to manage.

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International Strategy

To what extent do we customize productsand marketing for different nationalconditions? Global strategy:a single, standard product and

marketing approach is used in all countries. Standardization provides for lower cost.

Ignore national differences that others can address.

Mulitdomestic strategy:products and marketing are

customized for each country of operation.Customization provides for higher costs.

Embraces national differences and depends on themfor success.

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Vertical Integration

When the firm is doing well, managers canadd more value by producing its own inputsor distributing its products.Backward vertical integration:the firm produces its own

inputs.

McDonalds grows its own potatoes.

Can lower the cost of supplies.

Backward vertical integration:the firm distributes itsoutputs or products.

McDonalds owns the final restaurant.

Firm can lower costs and ensure final quality.


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End of Module - I

Strategic Management. Module 1_MBA_Bangalore University

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