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Strategic Management

strategy

• Strategy means putting things in place carefully, and with a great deal of thought. It is the opposite of just waiting for things to happen.

• In a changing environment one of the most difficult things in business is to know when to stick to your strategy and when to change it.

Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives.

Strategic Management – Defined

Another definition

• The process which deals with the fundamental organizational renewal and growth with the development of strategies, structures, and systems necessary to achieve such renewal and growth, and with the organizational systems needed to effectively manage the strategy formulation and implementation processes”

Vision & Mission

Strategy Formulation

External Opportunities & Threats

Internal Strengths & Weaknesses

Long-Term Objectives

Alternative Strategies

Strategy Selection

Strategy Implementation

Annual Objectives

Policies

Employee Motivation

Resource Allocation

Strategy Evaluation

Internal Review

External Review

Performance review

Corrective Actions

Benefits of Strategic Management

Financial Benefits

• Improvement in sales

• Improvement in profitability

• Productivity improvement

Benefits of Strategic Management

Non-Financial Benefits

• Improved understanding of competitors strategies

• Enhanced awareness of threats

• Reduced resistance to change

• Enhanced problem-prevention capabilities

Strategic Management Process

1)Establishing the hierarchy of strategic intent:

• Creating and communicating a vision.

• Designing a mission statement.

• Defining the business.

• Setting objectives.

Strategic management process

2) Formulation of strategies:• Performing environmental appraisal.• Doing organizational appraisal.• Considering corporate level strategies.• Strategic analysis.• Formulating strategies.• Preparing strategic plan.

Strategic management process.

3) Implementation of strategies:

• Activating strategies.

• Designing structures and systems.

• Managing behavioral implementation.

• Managing functional implementation.

• Operational analysing strategies.

Strategic management process

4) Performing strategic evaluation and control:

• Performing strategic evaluation.

• Exercising strategic control.

• Reformulating strategies.

Mission

• Mission is a statement which defines the role that an organization plays in a society.

• Mission is the “ purpose or the reason for the organization’s existence”

Features of a Mission statement

• It should be feasible and suitable

• It should be precise.

• It should be clear.

• It should be motivating.

• It should be distinctive.

Some Mission statements…

• Ranbaxy laboratories: “To become a research-based international pharma company.

• HCL: To be a world class competitor.• Ford: Quality is job no.1• Bajaj : Inspiring confidence.• Hero Honda: Desh ki Dhadkan.

Environmental Appraisal

• The environment of any organization is “the sum of all conditions, events and influences that surround and affect it”

• It is therefore crucial for any organization to understand the environmental influences on its business.

Characteristics of Environment.

• It is complex.

• It is dynamic.

• It is multi-faceted.

• It has a far-reaching impact.

Various environmental components.

1) Market environment: Client’s needs, preferences, perceptions, attitudes, values, buying behavior, satisfaction.

Product factors like demand, image, features, utility, design, life cycle, price, promotion, distribution,etc

Competitor factors like different types of competitors, nature of competition.

Components contd..

2) Technological Environment:

• Sources of technology.

• Technological development, R&D, cost of technology.

• Effects of technology on environment, human beings.

Components contd..

3) Supplier environment:

• Cost, availability, and continuity of supply of raw material, components, parts.

• Infrastructural support and availability of the different factors of production.

Components contd..

4) Economic environment:

• The economic stage at which the country exists at a given point of time.

• The economic structure adopted, capitalistic, socialistic or mixed.

• Economic policies

• Per capita income, balance of payments (export-import balance)etc.

Components contd..

6) Political environment:

• The political system and its features

• Political stability.

• Political funding of elections.

• Government’s role in business.

Components contd..

7) Socio-cultural environment:

• Demographics like population, its density and distribution, age composition, inter state migration, income distribution etc.

• Socio-cultural concerns like environmental pollution, consumerism, corruption etc.

• Family structure changes.

Components contd..

8) International environment:• Globalization process.• Global economic forces.• Global trade and commerce.• Global financial system.• Global markets and competitiveness.• Global communication• Global technology and quality systems.

Organizational Appraisal

• It deals with the internal environment of the organization.

• Internal environment constitutes of behavior, strengths, weaknesses, synergy and competencies, all these put together determine the “ Organizational capability”

Organizational appraisal

• Organizational Resources.

• Tangible and intangible resources: All assets, capabilities, organizational processes, information, knowledge.

• Physical resources: Technology, plant, equipment, location, access to raw material etc.

Organizational appraisal contd..

• Human resources: Training, experience, intelligence, judgment, relationships etc.

• Organizational resources: Formal systems, and structures.

Organizational behavior

• It is the process of various forces and influences operating in the internal environment of an organization that create the ability for usage of resources.

• It leads to the development of a special identity and character of an organization.

Factors influencing Org.Beh.

• Quality of leadership.

• Management philosophy.

• Shared values.

• Culture

• Quality of work environment.

• Organizational politics.

Strengths & Weaknesses.

• Strength: It is an inherent capability which an organization can use to gain strategic advantage.

• Weakness: A weakness is an inherent limitation or constraint which creates a strategic disadvantage for an organization.

Competencies

• Competencies are special qualities possessed by an organization that make them withstand pressures of competition in the market place.

• When a specific ability is possessed by a particular organization exclusively or in a large measure it is called as distinctive competence.

Organizational capability

• It is the inherent capacity or potential of an organization to use its strengths and overcome its weaknesses in order to exploit opportunities and face threats in an external environment.

Strategic advantage

• These are the outcome of organizational capabilities. They are the result of organizational activities leading to rewards in terms of financial parameters.

Functional capabilities.

• Strengths supporting Financial capability.

• Access to financial resources.

• Good relationship with financial institutions.

• High level of credit- worthiness.

• Low cost of capital compared to rivals.

• High level of share holder’s confidence.

Marketing capabilities

• Wide variety of products.

• Better quality of products.

• Sharply-focused positioning.

• Effective distribution system.

• Effective sales promotion.

• Effective MIS.

Operations capabilities

• High level of capacity utilization.

• Favorable plant location.

• Reliable sources of supply.

• Effective control of operational costs.

• Good inventory control system.

• High caliber R&D people.

• Technical collaborations.

General management capability.

• Effective system for corporate planning.

• Reward and incentives for top managers.

• Risk taking.

• Favorable corporate image.

• Effective management of organizational change.

SWOT Analysis.

• S: Strengths.

• W: Weaknesses.

• O: Opportunities.

• T: Threats

Strength

• It is an inherent capacity which an organization can use to gain strategic advantage.

• E.g. superior r&d skills which can be used for new product development.

Weakness

• It is an inherent limitation or constraint which creates strategic disadvantage.

• E.g. over dependence on a single product line, which could be risky in crisis.

Opportunity

• It is a favorable condition in the organization’s environment which helps it to consolidate and strengthen its position.

• E.g. growing demand for the products or services that a company provides.

Threats

• It is unfavorable situation in the organization’s environment which creates risk for, or causes damage to, the organization.

• E.g. emergence of strong new competitors who are offering stiff competition.

Grand strategies for implementation

• Types of Grand strategies:

• Stability strategy.

• Expansion strategy.

• Retrenchment strategy.

• Combination strategy.

Stability strategy

• Is adopted by on organization when it attempts at an improvement of its functional performance by marginally changing one or more of its business.

• E.g. A copier machine company provides better after sales service to improve its image and product image too.

Expansion strategy

• This strategy is followed when a company aims at high growth by increasing the scope of one or more of its businesses in terms of their respective customer groups, functions and technology.

Retrenchment strategy

• This is followed when a company aims at contraction of its activities through substantial reduction or elimination of its business.

• E.g. A pharmaceutical company may withdraw from its retail operations so that it can focus on institutional/bulk sales.

Combination strategy

• This is followed when a company adopts a mixture of all the strategies either at the same time in its different businesses, or at different times in the same business with the aim of improving its performance.

Functional Strategies.

• Financial plans and policies:

• It means,

1) Sources of funds( borrowings, reserves & surplus)

2) Usage of funds( capital investment, loans, dividend decisions)

3) Management of funds (system of finance, accounting, budgeting)

Marketing plans and policies.

• Strategic use of Marketing mix.

• P: Product.

• P: Price

• P: Place

• P: Promotion

Operation plans and policies

• These decisions are related to production system, operational planning and control, and R&D.

Personnel plans and strategies

• These policies are related with the personnel system, organizational and employee characteristics and industrial relations.

• E.g. TISCO never had any industrial dispute for the past so many years.

Strategic evaluation and control

• The 4 basic type of strategic controls are,1) Premise control: Necessary to identify

the key assumptions, and keep track of any change in them so as to assess the impact on strategy.

2) Implementation control: It is aimed at whether the plans, programs, and projects are actually guiding the company towards its objectives.

Strategic evaluation and control.

3) Strategy for monitoring behavoir: It is designed to monitor a broad range of events inside and outside the company that are likely to threaten the course of a company’s strategy.

Strategic evaluation and control.

4) Special alert control: This is based on a trigger mechanism for rapid response and immediate reassessment of strategy in view of sudden and unexpected events.