ch-1 the nature of startegic managemnt “without

8/14/2019 Ch-1 the Nature of Startegic Managemnt without

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Ch-1 THE NATURE OF STARTEGIC MANAGEMNT

Without a strategy an organization is like a ship without a rudder, going round in

circles. Its like a tramp; it has no place to go

He who will not worry about what is far off will soon find something worse thanworry

THE PURPOSE

This chapter provides an over view of

Strategic Management

Model of Strategic Management Process

Definition of Basic Activities & Terms

Some Important Themes

What is strategic management?

All firms have strategy even if it is informal, unstructured & sporadic all organizations donot know where they are heading.

A Strategic Plan is a game plan that can lead to sustainable competitive advantage

to any type of business. By adapting to change in external trends, internalcapabilities & resources. Effectively formulating, implementing & evaluating

strategies

Represents a systematic, logical, & objective approach for determining the futuredirection & competitive position of an enterprise for a long time.

Focuses on multiple functions simultaneously. Integrating management,

marketing, finance / accounting, production / operations, R &D, MIS to achieveorganizational success. Hence top managers are in best position to decide &

understand the ramifications, besides having the authority to commit resources.

Tough managerial choices among numerous good alternatives. It signals

commitment to specific products, markets, resources, technologies, policies,procedures & operations over an extended period of time.

A firm needs to formulate strategy to take advantage of external opportunities &

reduce impact of external threats for e.g. via lobbying

Organizations try to pursue strategies that capitalize on their internal strengths &

eliminate internal weaknesses

The prime task of SM according to Peter Ducker is thinking through overallmission of a business

o Asking the question, what is our business? This leads to setting of

objectives, development of strategies, making of todays decisions for

tomorrow results. This must be clearly done by a part of the organizationthat can see the entire business; that can balance the objectives & needs of

today against the needs of tomorrow, &that can allocate the resources of

men & money to key results


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The art & science of formulating, implementing, & evaluating, cross-functional

decisions that enable an organization to achieve its objective

Strategic Management Process

The SM process can be described as Integrating Intuition & Analysis. As intuition alone is grossly inadequate when

decisions are strategic in nature & have major irreversible consequences.

An objective, logical, systematic approach for making major decisions organizing

qualitative & quantitative information to take decisions under conditions of

uncertainty.

Three Stages of Strategic Management Process

1. Strategy formulation

2. Strategy implementation

3. Strategy evaluation

Note communication is key to successful strategic management to achieve the

understanding & commitment from all managers & employees which leads to

ownership.

Strategy formulation includes

Developing a vision & mission

Identifying external opportunities & threats

Determining internal strengths & weaknesses

Establishing long-term objectives

Generating alternative strategies

Choosing particular strategy

Strategy formulation issues include deciding about

What new business to enter, what business to abandon

Whether to expand operations or diversify, whether to enter

international markets

Whether to merge or form a joint venture or Partnering or to buy a

business or how to avoid a hostile take over

How to allocate resources

Business ethics


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Global Vs. domestic operations

Vision/Mission

Matrix analysis

Partnering

Competitive analysis

Governance & guidelines for conducting an internal/ external strategy

assessment

Strategy Implementation (action stage, the most difficult one) requires a Firm to

Establish annual objectives

Devise policies

Motivate employees

Allocate resources

Strategy implementation issues includes

Developing a strategy supportive culture

Creating an effective organizational structure

Redirecting Marketing efforts or introducing new marketing

concepts

Outsourcing

Preparing budgets & doing financial analysis, developing newcontrols

Developing & utilizing information systems Linking employee compensation to organizational performance

Business ethics

Strategy Evaluation

Why:-

To know whether particular strategies are working or not

Strategies need modification because internal & external factors are constantly

changing

Three fundamental strategy evaluation activities

Reviewing Internal & External factors

Measuring performance

Taking Corrective actions

The Hierarchical Levels Involved

Corporate level


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Divisional or Strategic Business Unit level

Functional

*Need for communication, integration & to work as a team

Adapting to Change__ Key Strategic management Questions The businesses need to continually monitor internal / external events & trends so

to make timely changes. (E.g. e commerce, environment, Enron scandal, war on

terrorism, economic recession, merger mania aging population)

Continuously adopting their bureaucracies, strategies, systems, products &

cultures

What kind of business should we become

Are we in the right fields

Are there new competitors

What strategies should we pursue

How are our customers changing

Definition of Key terms & Activities

Competitive Advantage

Anything that a firm does well compared to rival firms, essential for long term success.

For maintaining it see refer to what is SM

Strategists

Individuals with ultimate responsibility for success & failure of a firm( CEO,

President, Owner, Chairman of Board, Executive Director, Chancellor, Dean,Entrepreneur)

Or Any manager who has a responsibility for a unit or division , responsibility forprofit & loss or direct authority over a major piece of business is a strategist

They help gather, analyze & organize information. Track industry & competitive

rends, develop forecasting models & scenario analysis, evaluate corporate &divisional performance, spot emerging market opportunities, identify business

threats & develop creative action plans.

Vision Statement

What do we want to become? The first step in strategic planning

Mission Statement

What is our business? Hence the scope of operations in product & market terms

Opportunities & Threats (external)


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Analysis of trends (environmental scanning or industry analysis) which can

significantly benefit or harm the organization, (largely beyond the control) like

Economic

Social

Cultural

Demographic Environmental

Political, legal, governmental

Technological

Customers

Competitors

E.g. wireless /mobile revolution, biotechnology, population shifts,

changing work values & attitudes, space exploration, recyclable packages

increased foreign competition, online sales, rising oil prices, war onterrorism, natural catastrophe,, declining value of rupee, new product by

competitor. Each of these could be a threat or an opportunity

These changes create different type of consumer & consequently need fordifferent type of product, services & strategies.

Strength & Weaknesses (internal)

Typically related to functional areas of the firm (determined relative to competitors in

number of ways like, accounting ratios, comparing performance with past periods &

industry averages)

Management

Marketing

Finance / Accounting Production / Operations

Research & development

Information systems

Long Term Objectives

Objectives: - specific results that an organization seeks to achieve in pursuing its basicmission. Established for the Co. & for each division should be challenging, measurable,

consistent,, reasonable & clear

Long-Term:- more than one year

Why objectives:- Give a direction

Helps in evaluation

Reveal priorities & create synergies & coordination

Basis for planning, organizing, motivating & controlling activities

Strategies


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Means by which long term objectives are achieved. Important for strategy

formulation

Strategies are future oriented & have multifunctional & multi divisionalconsequences

Business Strategies include

Geographic expansion (market development) Diversification

Acquisition

Product development

Market penetration

Retrenchment

Divestiture

Liquidation

Joint ventures & partnership

Annual Objectives Short term milestones to reach long term objectives important for strategy

implementation, become basis for resource allocation

Established at corporate, divisional &functional levels.

Set for Management, marketing, finance / accounting, production / operations,

R&D, MIS

Policies

Means by which annual objectives are achieved, important for strategyimplementation

Outline an organizations expectation of its employees & managers Stated in terms of various functional activities

May be developed at corporate, divisional or functional level(operational

activities or departments) to help achieve consistency & coordination

Include

Guidelines, rules & procedures to support efforts to achieve the

objectives. Particularly includes guides to decision making &

address recurring situations

Strategic Management Model

Logical starting point is to identify existing, vision, mission, objectives &

strategies, as current circumstances may put certain limitations. Where an

organization would be is largely determined by where it has been

It is dynamic & continuous \effected by internal & external changes

Strategic meetings (Many firms hold formally in a CO at off premises called

retreats to encourage creativity & candor) to update firms vision / mission,


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opportunities / threats, strengths/ weaknesses, strategies, objectives, policies &

performance

Formality refers to the extent that the participants, responsibilities, authority,

duties & approach are specified, positively associated with cost,

comprehensiveness, accuracy & success of planning across all types & sizes of

organizations

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Vision& Mission

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Benefits of Strategic Management

Financial Benefits

Improvement in sales

Improvement in profitability

External Audit

CH-3

Long Term

Objectives

CH-5

Internal Audit

CH-4

Generate,

Evaluate &

select

strategies

CH-6

Implement

strategies

Managemen

t Issues

CH-7

Implement

strategies:

Marketing,

fin / Acc,R&D, MIS

CH-8

Measure &

Evaluate

performanc

e

CH- 9


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Improvement in productivity

Non Financial Benefits: More proactive than reactive

Improved understanding of competitors strategy

Enhanced awareness of threats

Reduced resistance to change Enhanced problem prevention capabilities

Enhances interaction among managers at divisional & functional level

Results in better strategies for being more systematic, rationale, & logical

Leads to ownership & empowerment (strengthening employees sense of

effectiveness by encouraging them to participate in decision making & to exercise

initiative & imagination). Decentralized line manager planning is replacingcentralized staff planning.

Business Ethics & Strategic Management

Code of Business Ethics

Provides Basis on which policies can be devised to guide daily behavior &decisions in the workplace

Advantages of International Operations

Absorb excess capacity

Reduce unit costs

Spread risk over world markets

Low cost production facilities

Disadvantages of International Operations

Difficult communications

Underestimate foreign competition

Cultural barriers to effective management

Complications arising from currency differences

Guidelines for Effective Strategic Management

1. Ensure implementation as it achieves more than a perfect plan that never gets off

the paper

2. Its a people process not a paper process. Keep it as simple & non routine,

eliminate jargon3. Attend to psychological, social, political, information, administrative dimensions

4. Stimulate thinking that challenges assumptions underlying current corporate

strategy5. Open mindedness to accept new information, ideas, etc.

6. Subjective factors such as attitudes towards risk, concern for social responsibility

& organizational culture ill always affect strategy.


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Avoid Pitfalls

1. Pursuing too many strategies spread the firm resources that all strategies are

jeopardized2. using SM to gain control over decision & resources

3. doing SM for sake of regulatory requirements

4. hastiness in formulation5. failure to communicate the employees

6. intuitive decision making despite having a strategic plan

7. Lack of top management support8. failure to measure performance

9. not involving all the managers or key employees rather doing it by a planner

10. failure to create a supportive climate for change

11. being over formal in planning that flexibility & creativity are stifled

Why Some Firms Do Not Do Strategy Planning

Poor reward structure

Fire fighting

Waste of time

Too expensive

Laziness

Content with success

Fear of failure

Overconfidence

Prior bad experience

Self esteem

Fear of the unknown

Honest difference of opinion

suspicion

Themes

1. Global Considerations Impact Virtually All Strategic Decisions

Doing global business has now become a necessity rather than luxury in

most of industries

A borderless world with global citizens, competitors, customers, suppliers,

distributors

The underpinning of strategic management hinge upon managers gaining

an understanding of competitors, markets, prices, suppliers, distributors,

governments, creditors, shareholders & customers on a worldwide basis.

The dynamics of political, economic & cultural differences across countries

directly affect strategic management decisions


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2. Electronic commerce Has Become A Vital Strategic Management

Tool

Companies are gaining a competitive advantage by using the internet for

direct selling and for communication with suppliers, customers, creditors,

shareholders, partners, clients & competitors who may be dispersed globally.

Internet is being used to gather, analyze, send & receive information.

E commerce allows the firm to purchase supplies, sell products, advertise,

by pass intermediaries, track inventory, eliminate paper work & share

information. B2B e-commerce is 5 to 10 times greater than consumer e-

commerce

In short e-commerce is minimizing the expense & cumbersome of time,

distance & space in doing business yielding higher efficiency & customer

convenience

Internet promotes endless comparison shopping transferred the powers from

the businesses to the individuals

3. Natural Environment Has Become An Important Strategic Issue

Environment refers to the natural environment & is defined as

surroundings in which an organization operates, including air, water, land,natural resources, flora, fauna, humans & their interrelation. Some burning

issues are global warming, bio-terrorism, increased pollution etc

This theme includes social responsibility & business ethics issues

To promote & encourage firms to conduct operations in an environmentally

sound manner.

ch-1 the nature of startegic managemnt “without

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