Strategic Management

Topic 1 remaining and 2 The Strategic Management Process, Environmental

Analysis,Vision,Mission,Objectives,Goals,Corporate Philosophy, Corporate governance

Objectives

1. Understanding Vision,Mission,objectives and goals 2. Understand Strategic Management Process 3. Environmental analysis 4. Vision5. Mission6. Definition of Goals7. Corporate philosophy8. Corporate Governance

Vision and Mission

•“To become research based International Pharmaceutical company”

•“To provide total lifetime care to every pet, every parent, every time”

•“To provide world class cardiac care in India at reasonable cost”

Vision:“Samsung is dedicated to developing innovative technologies and efficient processes that create new markets, enrich people's lives, and continue to make Samsung a digital leader.”

Vision 2020"Inspire the World, Create the Future."

Samsung

Difference between Vision and Mission-1

• For MISSION —– think: managing with greatness and untamed strength, improving everything daily.

• For VISION —– think: leading with inspiration and courage, obsessed with future possibility, in a love affair with change.

Vision • Outlines what the organization wants to be, or

how it wants the world in which it operates to be (an "idealized" view of the world).

• It is a long-term view and concentrates on the future. It can be emotive and is a source of inspiration.

• "A World without Poverty.“• “Providing jobs for the homeless and

unemployed".

Vision

• VISION creates that momentum of growing anticipation about the future, where change is embraced.

Vision• UNDERSTANDING VISIONA vision is more dreamt of than it is articulated.

This is the reason why it is difficult to say what vision an organization has.

• DEFINING VISIONKotter defines it as a “description of something

(an organization, corporate culture, a business, a technology, an activity) in the future.

• A vision should be oAn organizational charter of core values

& principlesoThe ultimate source of our priorities,

plans and goals oA puller (not pusher) into the future oA determination and publication of what

makes us uniqueoA declaration of independence

What a vision should be & shouldn't be

• A vision should not be• A high concept statement, or an

advertising slogan• A strategy or our plan • A history of our proud past• A soft business issue• Passionless

THE BENEFITS OF HAVING A VISIONParikh and Neubauer says:-

• Good visions are inspiring and exhilarating• Visions represent a discontinuity, a step function and a jump ahead so that the

company knows what it is to be• Good visions help in the creation of a common identity and a shared sense of

purpose.• Good visions are competitive, original and unique. They make sense in the in

the marketplace as they are practical.• Good visions foster risk taking and experimentation• Good vision foster long term thinking • Good visions represent integrity , they are truly genuine and can be used for

the benefit of people

THE PROCESS OF ENVISIONING

• According to Collings and Porras, a well-conceived vision consists of two major components:

1.Core Ideology &2.Envisioned Future

Many organizations term word as corporate philosophy, corporate values that are used to convey what they stand for and what principles guide them in strategic and day to day decision making.

Mission• UNDERSTANDING MISSIONMission is a statement which defines the role that an

organization’s existence.

• DEFINING MISSIONThompson (1997) defines as “essential purpose of the

organisation, concerning particularly why it is in existence, the nature of the business(es) it is in, and the customers it seeks to serve and satisfy”.

HOW ARE MISSION STATEMENTS FORMULATED & COMMUNICATED?

• Mission statement could be formulated on the basis of the vision that an entrepreneur decides on in the initial stages of an organization's growth.

Characteristics of mission statementA Mission Statement define the basic reason for the existence of that organization (p39)Features1.It Should be FeasibleA mission should always aim at high but it should not be an impossible statement.2.It Should be preciseA mission Statement Should not be narrow as to restrict the organization's activities &

nor it be too broad to make itself meaning less.3. It should be clearA mission should be clear enough to lead action.4.It should be motivatingA mission statement should be motivating for members of the organization and of

society5. Distinctive 6.Indicate how objectives should be accomplished

Ranbaxy Daichi Sankyo

• Mission: • 2000-“To become 5 Billion U.S. Dollar pharma

company by 2012”

• 2012-'Enriching lives globally,with quality and affordable pharmaceuticals'.

Shared Vision --• Creates commonality of interests• Reduce daily monotony• Provides opportunity & challenge

Vision & Mission

Vision & Mission

Profit & vision are necessary to effectively motivate a workforce

Importance of Mission

MissionResource Allocation

Unanimity of Purpose

Organizational Climate

Focal point for work structure

Benefits from a strong mission

• 2x average return on shareholder’s equity• Positive relationship to company performance• 30% high return on certain financial measures

Vision & Mission

Research results are mixed, however, firms with formal mission statements --

Mission Elements

CustomersMarkets

Employees

PublicImage

Self-Concept Philosophy

SurvivalGrowthProfit

ProductsServices

Technology

Ben & Jerry’s MissionBen & Jerry’s mission is to make, distribute and sell the

finest quality all-natural ice cream and related products in a wide variety of innovative flavors made from Vermont dairy products. To operate the Company on a sound financial basis of profitable growth, increasing value for our shareholders, and creating career opportunities and financial rewards for our employees. To operate the Company in a way that actively recognizes the central role that business plays in the structure of society by initiating innovative ways to improve the quality of life of a broad community—local, national and international.

Goals and objectives

Goals Objectives What an organization hopes to achieve in a future period of time

How the goals shall be achieved

Qualitative Quantitative Long term aims Concrete Non measurable Measurable Reduce attrition Reduce attrition by 10%

Characteristics of Objectives

•Should be understandable

•Specific

•Time frame

•Measurable and controllable

•Challenging

•Correlate with each other

•Should be set within constraints

Issues in Objective setting •Specificity

•Multiplicity

•Periodicity

•Verifiability• •Reality

•Quality

Balance score card approach to objective setting

Critical success factors crucial for organizational success

•Generate success factors

•Refining CSFs in to an objective

•Basic strategy to compete in any industry

CSFs= Goals

KPI •MEASURES IN TERMS OF CRITICAL SUCCESS FACTORS ARE EVALUATED

KPIs=Objectives

Strategic Management Process•“It refers to the steps by which management converts a firm’s Vision,Mission,objectives,goals in to workable strategy.”

•In dynamic environment each firm needs to tailor it’s SMP in ways that best suits it’s own capabilities and situational requirements.

•Has 2 parts: a) Information process b) Decision process

• INFORMATION PROCESS: Collecting and analyzing information about the external and internal environments.

•It provides strategic long run direction and performance.•Covers four important process a) Development of alternatives b) Choice c) implementation d) assessment.

Stages of Strategic Management process

•“Dynamic in nature, the strategic management process is the full set of commitments, decisions and actions needed for a firm to achieve strategic competitiveness and earn above average returns.”

•Sustainable competitive advantage

•Achieve above average returns

•Strategic inputs from analyses of the internal and external environments are needed for effective strategy formulation, implementation and evaluation.

SMP-5 DIFFERENT COMPONENTS1. Selection of Corporate Vision ,Mission and major corporate

goals ,objectives2. Analysis of the organization’s external competitive

environment to identify the opportunities and threats 3. Analysis of organization’s internal operating environment to

identify the organization’s strengths and weaknesses4. The selection of strategies that build on the organization’s

strengths and weaknesses in order to take advantage of external opportunities and counter external threats.

5. Strategy implementation (Strategy into action) 5Ms

Strategy formulation-processes or steps

• Developing a Vision ,Mission and objectives•Identifying external opportunities and threats •Determining internal strengths and weaknesses•Establishing long term objectives •Generating alternative strategies •Choosing particular strategies to pursue.

Strategy formulation issues

•Deciding what new business to enter •What businesses to abandon•How to allocate resources •Whether to expand ??•Diversification?•Joint venture?•How to avoid hostile take over?

Commit an organization to specific products,markets,resources and technologies for an extended period of time

Steps/processes in under strategy formulation

1. Vision, mission and objectives2. External Analysis :Remote environment, industry environment,

operating environment3. Internal Analysis: Competitive Advantage 4. Levels of strategy 5. Corporate level strategies (Grand

strategies):Growth,stability,retrenchment and combination strategies6. Business level strategies 7. Functional level strategies

Strategy formulation

SWOT ANALYSIS –FACTS

•Proper Organizational Fit

•Matching Organizational factors with environment factors

•WOTS-UP Analysis ,SCOT,INTRNAL ANALYSIS ,EXTERNAL ANALYSIS,(ETOP),EFE,IFE

Strengths-Marketing Strengths Weakness Strong brand image (IKEA) ,ITC Fiama DJ Wills, SONY ,

Poor Brand Image (Home Depot) ,Cinthol,AKAI .

STRONG Distribution Network (HUL)

WEAK Distribution Network (J & J)

Deep product Mix (Big Bazaar) mega mall

Narrow product mix ( any niche shop like Bata Shoes)

Efficient and motivated sales force (Pharma-Ranbaxy FMCG-Cadbury )

Demotivated sales force ( Galpha Labs)

High quality Product (Mercedes)

Poor quality products (Tata Nano burned )

Strengths-Production Strengths Weakness Economies of scale (Ashok Leyland)

High cost due to small size

State of the art technology (Toyota-Prius)

Obsolete technology

Efficient input sourcing Inefficient input sourcing Efficient inventory management

Poor inventory management

Strong R&D support No R&D support

Strengths-Finance Strengths Weakness Comfortable Debt to equity ratio

Lop-sided capital structure

Large internal accruals Very high interest payments

High dividends and market capitalization

Poor reserves

High credit rating Low credit rating/poor receivables mgt

Assets more than liabilities Liabilities more than Assets

Strengths-HR Strengths Weakness Qualified and experienced Human Resource

Redundant Human resource

Motivated human resource

Excess Manpower

Good industrial relations

Poor IR

GOOD HRM WEAK HRM

STRENGTHS-MANAGEMENT Strengths Weaknesses EFFICIENT BOARD OF DIRECTORS

INEFFICIENT BOARD OF DIRECTORS

EFFICIENT AND MOTIVATED MANAGERS

Conflicts between BOD and Managers Inefficient demotivated managers

Opportunities and Threats-Regulatory

Opportunities Threats Delicensing Delicensing Dereservations Dereservations MRTP relaxations MRTP relaxations Import Liberalization Import Liberalization Price decontrol Price decontrol Liberalization of FDI AND Technology policy

Liberalization of FDI AND Technology policy

Capital Market reforms Political Instability

Economic Opportunities Threats BOOM Recession Steady and fast increase in income

Economic instability

Social/Demography Strengths Weaknesses Favorable change in consumer attitude

Unfavorable change in consumer attitude

Increasing population Stagnating/declining population

Change in population mix Change in population mix

Growth of consumerism Growth of consumerism Growth of environmentalism Growth of environmentalism

Techniques of environment analysis

•Verbal and written information

•Search and Scanning

•Spying

•Forecasting

Relating SW and OTS/W O/T Strategy

Large internal accruals and high credit ratings

Fast future growth Acquisition/Establish Greenfield units in industry

Gaps in product mix A competitor product can fill the gap

Acquisition

Obsolete technology Increasing competition Acquire modern thru JV

Accumulating losses and no prospect of improvement in one of the business

Increasing competition Drop the business

Have everything but no international marketing capability

Good demand for product in foreign markets

Strategic alliance with foreign firm

TOWS Strategic Alternatives Matrix

A•Administrative Reforms Commission

C•Central Vigilance Commission•Commission of Railway Safety•Competition Commission of IndiaD•Delimitation Commission of IndiaE•Election Commission of India•Central Electricity Regulatory Commission

F•Finance Commission of India•Forward Markets Commission (India)

I•Indian Geophysical Union•Indian National Commission for Co-Operation with UNESCO•Indian Pharmacopoeia Commission•Investment commission of IndiaK•Kalelkar Commission•Kapur Commission

M•Mandal CommissionN•Narendran Commission•National Commission for Backward Classes•National Commission for Denotified, Nomadic and Semi-Nomadic Tribes•National Commission for Minorities•National Commission for Minority Educational Institutions•National Commission for Protection of Child Rights•National Commission for Religious and Linguistic Minorities•National Commission for Safai Karamcharis•National Commission for Scheduled Castes•National Commission for Scheduled Tribes•National Commission for Women•National Commission on Agriculture•National Commission on Cattle•National Commission on Farmers•National Commission on Labour

N cont.•National Consumer Disputes Redressal Commission•National Human Rights Commission of India•National Knowledge Commission•National Statistical Commission•NCEUSP•Pay Commission•Planning Commission (India)S•Sarkaria Commission•Second Administrative Reform Commission•Sixth Central Pay Commission•Staff Selection Commission•States Reorganisation CommissionU•Union Public Service Commission•University Grants Commission (India)

Political and legal factors Two basic philosophies Political system: a) Legislature b) Executive or Government c) Judiciary Government responsibilities to Business:a) Establishment and enforcement of Lawsb) Maintenance of orderc) Money and credit d) Orderly growth e) Infrastructure f) Information g) Assistance to small industries h) Transfer of technology i) Government competition j) Inspections and licenses k) Tariffs and quotas

Business responsibilities to government

•Tax payment •Voluntary programs -CSR•Providing information –Manesar Plant •Government contracts •Government service-serve various advisory boards •Political activity –Birlas,Tatas

Industrial policy•Self-reliance •Encouragement to Indian entrepreneurs•Development of indigenous technology •Removing the regulatory system and other weakness•Increasing competitiveness to benefit common man•Incentives for backward areas•Enhanced support to small scale sector•Ensure PSUs running with profit •Abolish the monopoly of any sector in any field •Link Indian economy to the global market

Government initiatives

•Industrial licensing (DEVELOPMENT AND REGULATION ACT 1951)•Foreign investment •Foreign technology agreements •Public sector policy •MRTP Act

Comprehensive list for which industrial licensing is compulsory:Coal and lignitePetroleum (other than crude) and its distillation products.Distillation and brewing of alcoholic drinksSugarAnimal fats and oils, partly or wholly hydrogenatedCigars and cigarettes of tobacco and manufactured tobacco substitutesAsbestos and asbestos-based productsPlywood, decorative veneers, and other wood-based products such as particle board, medium density fiber board, and black-boardRaw hides and skins, leather chamois and patent leatherTanned or dressed furskinsMotor carsPaper and Newsprint except bagasse-based units (i.e. except units based on minimum 75% pulp from agricultural residues, bagasse and other non conventional raw materials)Electronic aerospace and defence equipment: all typesExplosives including detonating fuses, safety fuses, gunpowder, nitrocellulose and matchesHazardous chemicalsDrugs and Pharmaceuticals (according to Drug Policy)Entertainment electronics (VCR's, color TV's, CD players, tape recorders)White goods (domestic refrigerators, domestic dishwashing machines, programmable domestic washing machines, microwave ovens, air conditioners)

An industrial undertaking is defined as a small scale unit if the investment in fixed assets in plant and machinery does not exceed Rs 10 million. The Small Scale units can get registered with the Directorate of Industries/District Industries Centre in the State Government concerned.

ECONOMIC FACTORS

•MONETARY AND FISCAL POLICIES

•BALANCE OF PAYMENT

•DISTRIBUTION OF INCOME

•ECONOMIES OF SCALE

•COSUMER DISPOSABLE INCOME AFFECTED BY INTEREST RATE ,INFLATION

Economic factors •National income :GNP,GDP•PERSONAL DISPOSABLE INCOME •Personal Consumption •Savings •Personal savings•Corporate savings •Investment :FDI,Industry Investment•Prices,wages,productivity: inflation rate, Raw material Index changes , LABOR Productivity•Capital market: Equity Market, Bond market •Policy initiatives:Fiscal,Monetary policy,Labour policy and employment policy•International transactions: Exchange rates,exports,imports,BOP•Sector Growth: Agriculture,Infrastructure,Services

Income class Households Estimated

population Households Estimate

d population

Rich 1.2 7 5.2 30Consuming class

32.5 186 75.5 432

Climbers 54.1 312.2 81.7 472Aspirants 44 253.9 20.2 117Destitute 33 190.4 16.5 95

Social /cultural/socio-cultural factors•Culture creates people

•Culture and globalization

•Culture determines goods and services

•People’s attitudes to Business

•Attitude to work

•Collectivism and individualism

•Ambitions

•Education

•Family ,religion

•Customs

•Traditions

•Taboos

•Tastes

•Preferences

•Values, belief

•Language

Demographic environment •Market Size •Growth rate of Market Size •Age composition •Gender Composition •Population Mix•Family Size •Caste •Religion•Education •Language

Natural environment •Geographical

•Ecological

•Weather

•Topographical

•Location

•Port facilities

•Conservation of non-replenishable resources

•Pollution

•Depletion of Natural resources

Consumer environment segments-Newyork

•True Blue greens(30%)

•Greenback greens (10%)

•Sprouts (26%)

•Grousers (15%)

•Apathetics (18%)

Technological factors •Products

•Process

•Change in usage patterns

•Outsourcing

•Helping in decision making process and planning generally.•It's a tool to assess the Basis for change and evolution within the company.•To anticipate the opportunities.•To identify and predict the trends and coming opportunities in the international markets.•To reconsider the physical and financial resources.•To foresee and consider any Political, Economical, Regulatory changes and make the implementation successfully.• In forecasting the potential supply and demand from the market and supply chain.

Pestle factors from last week •India-Mauritius trade pact put on hold (POLITICAL/Government)

•Government also bound by Law of limitation (Legal)

• Pune’s Ambegaon on the Rise (Economic)

•Culture goes POP-UP (Socio -cultural )

•GOT BAD ONLINE REVIEWS? ( Technological )

Environmental variables

Strategy implementation •“It is the process of translation of strategies and policies into action through the development of programmes,budgets and procedures.”

•Typically conducted by Middle and lower level management

•Reviewed by top management

•Programmes and procedures are simply more detailed plans for the implementation of the strategy.

•Process control

Requirements of strategy implementation

•Organization structure •Staffing •Directing •Motivational techniques •Supportive culture• Budget: Planning and control

Strategy evaluation and control •Final stage of strategic management •Monitoring and evaluating the strategy management process •Obtain unbiased information from the employees •Ensures all steps of Strategy management process are appropriate, compatible and functioning properly

Strategic control process

1. Measuring the performances2. Comparing performance to goals and standards 3. Corrective action

Who are the strategists?•CEO•President •Owner •Chairman •Executive Director •General manager •SBU Heads •Consultants or professional planner

Strategic Decision MAKING •Deals with the long run future of the entire organization•Commits substantial resources and demands a great deal of commitment from people at all levels •Acts as directive

Modes of strategic decision making •Henry mintzberg has classified in to 3 different modes:

1. Entrepreneurial mode2. Adaptive mode3. Planning mode

Practical limitations of the strategic management

1. Holistic versus tactical

2. Analytical Vs Prescriptive

3. Non-political

Strategic management is a behavioral activity