STRATEGIC MANAGEMENT

BY- CHINTAN PRAJAPATI

OVERVIEW
 Why do some firms succeed while others fail?
 A central objective of strategic management is to
learn why this happens.
 What is strategy?
 An action a company takes to attain superior
performance. In this context it means allocations of
resources. Resources may be same but if they are
combined in different ways some get superior
performance; some get ordinary performance.
Strategic Management studies the ways to make
superior performance.
 What is the strategic management process?
 for the enterprise to pursue its vision. The process by
which managers choose a set of strategies
THOUGHTS….
 What's the use of running if you are not on
the right road…
 If you do not know where you come from,
you do not know where you stand, if you do
not know where you stand, you do not know
where you go…
 To run in a right road to reach your
destination is strategy.
STRATEGY…
 Derived from a Greek word “strategos” which
means generalship.
 Strategy is a set of related actions that managers
take to increase organization’s performance.
 Strategy is the overall plan for deploying
resources to establish a favorable position
 Do not repeat the tactics which have gained
you one victory, but let your methods be
regulated by the infinite variety of
circumstances.
WHAT YOU WILL LEARN?
 What is a strategy?
 How to create strategies that lead to superior
performance?
 How to implement?

 How you have to relate to the environment?

 Why strategy?
STRATEGIC MANAGEMENT
 The Art and Science of Formulating,
Implementing, and Evaluating Cross-Functional
Decisions That Enable an Organization to
Achieve It’s Objectives.
 The set of managerial decisions and actions that
determines the long-run performance of a
corporation. It includes:
 Environmental scanning (internal & external)
 Strategy formulation
 Strategy implementation
 Evaluation and control
BENEFITS OF STRATEGIC MANAGEMENT
 Improved Communication
 Increased Understanding

 Enhanced Commitment

 Greater Productivity

 More Effective Strategies

 Allow Firm to Influence, Initiate, and

Anticipate
 Be Proactive Rather Than Reactive
HAMBRICK AND FREDRICKSON MODEL OF
STRATEGIC MANAGEMENT

 Internal and external strategic analysis

 Vision and mission
 Goals and objectives
 Strategy:
 Arenas (where): Product, services, distribution
channel, geographic market and technology
 Vehicles (how) : acquisitions, alliances or internal
development
 Differentiators: features, price, quality, reliability of
products
 Staging: speed and sequence of moves
 Economic logic: how will be obtain our returns?
 Implementation levers and strategic leadership
HIERARCHY OF STRATEGY

Corporate Corporate
Headquarters Strategy

Strategic Strategic Strategic Business

(Division
Business Business Business
Unit Unit Unit Level)
Strategy

Research Human Functional

Manufacturing Finance Marketing and Resources Strategy
Development
MODEL OF SM PROCESS
 Strategic intent
 Vision
 Mission
 Business definition
 Business model
 Objective
 Strategy formulation
 Environmental appraisal
 Organizational appraisal
 Formulating corporate level and business level
strategies
 SWOT analysis
 Preparing strategic plan
CONT…
 Strategy implementation
 Activating strategies
 Designing the structure, systems and processes
 Managing behavioural and functional
implementation
 Operationalising strategies

 Strategic evaluation and control

 Performing strategic evaluation
 Exercising strategic control
 Reformulating strategies
STAKEHOLDERS IN BUSINESS
 Capital Market Stakeholders
 Shareholders and lenders
 Product Market Stakeholders
 Customers
 Suppliers
 Union officials

 Organizational Stakeholders
 Directors and managers
 Employees

 Government
 Ten Key External
Forces
Competitive
Economic Technological
Social
Governmental
Cultural
Political
Demographic Environmental
Legal
 Fourteen Key Internal
Forces
Management

Marketing Manufacturing

Research & Production/

Development
Operations

Purchasing Distribution
 Key Internal Forces (cont.)
Finance/Accounting

Packaging Promotion

Human Employee
Resource /Manager
Management Relations

Computer
Vendor Informatio
Relations n Systems
INDUSTRIAL ORGANIZATIONAL (I/O) MODEL
OF ABOVE-AVERAGE RETURNS (AAR)
 Underlying Assumptions
 External environment imposes pressures and
constraints that determine the strategies resulting
in AAR
 Most firms that compete within a particular
industry control similar resources and pursue
similar strategies
 Resources for implementing strategies are highly
mobile across firms
 Organizational decision makers are rational and
committed to acting in the firm's best interests, as
shown by their profit-maximizing behaviors
 Limitations
 Only two strategies are suggested for competing in an
industry:
 Cost Leadership or Differentiation
 Internal resources & capabilities are not considered
CONT…
THE RESOURCE-BASED MODEL OF AAR
 Resources
 Inputs into a firm's production process
 Includes capital equipment, employee skills, patents,
high-quality managers, financial condition, etc.
 Basis for competitive advantage: When resources are
valuable, rare, costly to imitate, and nonsubstitutable
 3 categories of internal/firm-specific resources
 Physical, Human, Organizational capital

 Capability
 Capacity for a set of resources to perform a
task or activity in an integrative manner
 A firm’s resources and capabilities that serve
as sources of competitive advantage over its
rival
CONT…
VISION AND MISSION
 Purpose
 Chart the company’s long-term direction (vision)
 Describe the company’s purpose (mission)
 Give the firm a strong identity
 Create a roadmap of the company’s future
 Kind of company to become – direction we are headed
 Indicates the long-term course management has
charted for the company
 Together mission and vision provide foundation
for strategy formulation and implementation
CONT…
 Mission
 Also called business purpose or business
definition
 Addresses “who we are and what we do”
 Outlines the organization’s activities and
business make-up
 More specific than the vision
 Focuses on present business and purpose
 Businesses and industries company is in now
 Customer needs currently being served

 Should pin down the company’s real area of

business interest
 Serves as a boundary for what to do and not do
CHARACTERISTICS OF A MISSION
STATEMENT

 Feasible: NASA- to land on the moon

 Precise

 Clear: India today- making sense of India

 Motivating

 Distinctive

 Major components of strategy

 How objectives are to be accomplished

CONT…
 Vision
 Concerns future business path – “where we are
going”
 The kind of company we are trying to become
 Customer needs to be satisfied in the future
 Charts a company’s future strategic course –
defines the business makeup in 5 to 10 years
 Requires the exercise of strategic thinking and
management foresight
 The responsibility of a firm's top strategic
leader – the CEO
CONT…
 where you see your self at the end of the
horizon OR milestone
 single statement dream OR aspiration

 Symbol

 long-term statement and typically generic &

grand
CONT…
 Features of a good vision statement
 Easy to read and understand.
 Compact and Crisp to leave something to people’s
imagination.
 Gives the destination and not the road-map.
 Is meaningful and not too open ended and far-
fetched.
 Excite people and make them get goose-bumps.
 Provides a motivating force, even in hard times.
 Is perceived as achievable and at the same time is
challenging and compelling, stretching us beyond
what is comfortable.
STRATEGIC DECISION MAKING
 Decision making is the process of selecting a
course of action from among many alternatives.
 Process:
 Determination of objectives
 Identification of alternative ways of achieving the
objectives
 Evaluation of each alternative
 Choose the best alternative
ISSUES IN STRATEGIC DECISION MAKING
 Criteria for decision making
 Rationality in decision making

 Creativity in decision making

 Variability in decision making

 Person related factors in decision making

 Individual versus group decision making

PEST ANALYSIS
 Political Factors
 tax policy
 employment laws
 environmental regulations
 trade restrictions and tariffs
 political stability
 Economic Factors
 economic growth
 interest rates
 exchange rates
 inflation rate
CONT…
 Social Factors
 health consciousness
 population growth rate
 age distribution
 career attitudes
 emphasis on safety
 Technological Factors
 R&D activity
 automation
 technology incentives
 rate of technological change
PORTER’S FIVE-FORCE MODEL

 Threat of New Entrants

 Entry barriers
 Product differentiation
 Capital requirement

 Switching cost

 Govt. policy

 Expected retaliation
 Bargaining Power of Suppliers
 Bargaining Power of Buyers

 Threat of Substitute Products

 Existing Competitors
BUSINESS MODEL
 Financial aspects
 Product innovation

 Customer relationship

 Infrastructure logistics
BALANCE SCORECARD APPROACH TO
OBJECTIVE-SETTING

 Financial perspective
 Customers’ perspective

 Internal business perspective

 Learning and growth perspective

KEY SUCCESS FACTORS OR CRITICAL
SUCCESS FACTORS

 Identifying Industry Key Success Factors

 Pharmaceuticals: research and personal selling
 Beer: advertising and distribution
 Restaurant: quality food, service, location, notoriety
 Retailer: location and priced-for-quality
 Examples of Key Success Factors in Selected
Industries
 On what basis do customers choose between
competing brands of sellers?
 What resources and competitive capabilities does a
seller need to have to be competitively successful?
 What does it take for sellers to achieve a sustainable
competitive advantage?
KEY PERFORMANCE INDICATORS
 Vision of an organisation
 Shoe manufacturing company
DRIVING FORCES
 Internet and e-commerce opportunities
 Increasing globalization of industry

 Changes in long-term industry growth rate

 Changes in who buys the product and how they

use it
 Product innovation

 Technological change/process innovation

 Marketing innovation
STRATEGIC GROUP MAPPING
 Companies do not compete against all companies
in an industry
 Companies compete against several other
companies that follow similar strategies
 A strategic group consists of those rivals with
similar competitive approaches in an industry
 Examples ways of competing:
 Price
 Innovation

 Research

 Quality

 Range of products

 Customers served
CONT…
 Firms in same strategic group have two or more
competitive characteristics in common
 Sell in same price/quality range
 Cover same geographic areas

 Be vertically integrated to same degree

 Have comparable product line breadth

 Emphasize same types of distribution channels

 Offer buyers similar services

 Use identical technological approaches

VALUE CHAIN
SWOT ANALYSIS
 Strengths
 Name recognition
 Proprietary technology

 Cost advantages

 Skilled employees

 Loyal Customers

 Favorable location

 Excellent distribution network

 Weaknesses
 Poor market image
 Obsolete facilities

 Internal operating problems

 Poor marketing skills

 Uncertain cash flow

CONT…
 Opportunities
 Emerging customer needs
 Quality Improvements

 Expanding global markets

 Vertical Integration

 Threats
 New entry by competitors
 Regulatory requirements

 Uncertain competitors’ intentions

CHARACTERISTICS OF ENVIRONMENT
 Complex
 Factors, events, conditions and influences
 Dynamic
 Change in nature, shape and character
 Multi-faceted
 Perception of the observer
 Far-reaching impact
 Growth and profitability
ENVIRONMENTAL SCANNING
 The process by which organizations monitor their
relevant environment to identify opportunities
and threats affecting their business for the
purpose of taking strategic decisions.
 Factors to be considered for environment
scanning
 Events
 Trends
 Issues
 Expectations
CONT…
 Approaches to environmental scanning
 Systematic approach
 Information collection systematically
 Ad hoc approach
 Special surveys and studies
 Process-form approach
 Secondary source of data
CONT…
 Sources of information for environmental
scanning
 Secondary source or documentary
 Mass media
 Internal source
 External agencies
 Formal studies
 Spying and surveillance
APPRAISING THE ENVIRONMENT
 Factors affecting:
 Strategist-related factors
 Age, education, experience, motivation level, cognitive style,
ability to withstand time pressure
 Organization-related factors
 Nature, size and complexity, nature of its markets and the
product or service
 Environment-related factors
 Complexity, volatility, hostility and diversity
ETOP
 Environment threat and opportunity profile
 Example: bicycle company
 Economic
 Market

 International

 Political

 Regulatory

 Social

 Supplier

 Techynology
DYNAMICS OF INTERNAL ENVIRONMENT

 Resources
 Tangible Resources
 Intangible Resources

 Capabilities
 To deploy resources
 Unique skills and knowledge

 Competences
 Activities that firm performs especially well compare
to competitors.
 Valuable, rare, costly to imitate and
nonsubstitutable.
ORGANISATIONAL CAPABILITY FACTORS
 The strategic strengths and weaknesses existing
in different functional areas within an
organisation, which are of crucial importance to
strategy formulation and implementation.

 Financial capability
 Source of funds
 Usage of funds
 Management of funds
CONT…
 Strengths:
 Access to financial resources
 Amicable relationship with financial relations

 High level of credit-worthiness

 Efficient capital budgeting system

 Low cost of capital as compare to competitors

 High level of shareholder’s confidence

 Effective management control system

 Tax benefits due to various govt. policies

CONT…
 Marketing capability
 4 Ps
 Integrative and systemic factors
 Strengths:
 Wide variety of products
 Better quality of product
 Sharply-focussed positioning
 Low prices
 Price protection due to govt. policy
 High quality customer service
 Effective distribution system
 Effective sales promotion
 High-profile advertising
 Favourable company and product image
 Effective marketing management information system
CONT…
 Operations capability
 Production system
 Operations and control system
 R & D system
 Strengths:
 High level of capacity utilization
 Favourable plant location

 High degree of vertical integration

 Reliable source of supply

 Effective control of operational costs

 Existence of good inventory control system

 Availability of high quality R & D personnel

 Technical collaboration with reputed firms abroad

CONT…
 Personnel capability
 Personnel system
 Organisational and employee characteristics
 Industrial relations
 Strengths:
 HRM and development
 Efficient and effective personnel system

 Excellent training opportunities and facilities

 Working environment

 Highly satisfied and motivated workforce

 High level of organisational loyalty

 Low level of absenteeism

 Safe and salutary working conditions

CONT…
 Information management capability
 Acquisition and retention of information
 Processing and synthesis of information
 Retrieval and usage of information
 Transmission and dissemination
 Integrative, systemic and supportive
 Strengths:
 Ease and convenience of access to information source
 Widespread use of computerized information system

 Availability and operability of high tech equipment

 Positive attitude to sharing information

 Wide coverage and networking of computer system

 Top management understanding of, and support to IT

CONT…
 General management capability
 General management system
 General managers
 External relationship
 Organizational climate
 Strengths:
 Effective system for corporate planning
 Control, reward and incentives for top managers

 Good rapport with the government

 Favourable corporate image

 Development oriented organizational culture

 Effective management of organizational change

CONSIDERATIONS IN ORGANISATIONAL
APPRAISAL

 Factors affecting organisational appraisal

 To strategist
 To organisation
 To the internal environment
 Approaches to organisational appraisal
 Highly systematic- proactive in nature
 Ad hoc- reactive in nature
 Sources of information for organisational
appraisal
 Verbal as well as written
 Internal as well as external
 Employees’ opinion, company files and documents,
financial statements, the MIS.
ORGANISATIONAL CAPABILITY PROFILE
(OCP)
 Factors and sub-factors along a scale ranging
from values of -5 to +5.
 Financial capability factors

 Marketing capability factors

 Operations capability factors

 Personnel capability factors

 Information management capability factors

 General management capability factors

STRATEGIC ADVANTAGE PROFILE (SAP)
 Same as ETOP
 Capability factors and their nature of impact
COMPETITIVE ADVANTAGE

 Competitive advantage is the ability of the firm

to outperform rivals on the primary performance
goal, e.g. profitability.
 When a company is ahead of its competitors in
terms of innovation, quality or customer service,
it may achieve higher prices and therefore higher
performance.
SUSTAINABLE COMPETITIVE ADVANTAGE

 Continuing over time to effectively exploit

resources and develop core competencies that
enable an organization to keep its edge over its
industry competitors.
 Durable
 Valuable to the firm

 neutralizing threats

 Unique

 Difficult for competitors to imitate

 Not easily substitutable