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Strategic Management

Strategic Management

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Published by: noorkalif on Nov 14, 2009
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STRATEGIC MANAGEMENTSTRATEGY FORMULATION/ALTERNATIVES
Strategic management process comprises four phases: environmental scanning, strategyformulation, strategy implementation and strategy evaluation and control. Strategicmanagement is an ongoing process to develop and revise future-oriented strategies thatallow an organization to achieve its objectives, considering its capabilities, constraints,and the environment in which it operates.Once the environmental scanning is done the next step is strategy formulation.Formulation produces a clear set of recommendations, with supporting justification, thatrevise as necessary the mission and objectives of the organization, and supply thestrategies for accomplishing them. In formulation, we are trying to modify the currentobjectives and strategies in ways to make the organization more successful. Thisincludes trying to create "sustainable" competitive advantages -- although mostcompetitive advantages are eroded steadily by the efforts of competitors.THREE LEVELS OF STRATEGY FORMULATIONThe following three aspects or levels of strategy formulation, each with a different focus,need to be dealt with in the formulation phase of strategic management. The three sets of recommendations must be internally consistent and fit together in a mutually supportivemanner that forms an integrated hierarchy of strategy, in the order given.
Corporate Level Strategy:
 
In this aspect of strategy, we are concerned with broaddecisions about the total organization's scope and direction. Basically, we consider whatchanges should be made in our growth objective and strategy for achieving it, the lines of  business we are in, and how these lines of business fit together. It is useful to think of three components of corporate level strategy: (a) growth or directional strategy (whatshould be our growth objective, ranging from retrenchment through stability to varyingdegrees of growth - and how do we accomplish this), (b) portfolio strategy (what should be our portfolio of lines of business, which implicitly requires reconsidering how muchconcentration or diversification we should have), and (c) parenting strategy (how weallocate resources and manage capabilities and activities across the portfolio -- where dowe put special emphasis, and how much do we integrate our various lines of business).
Business Level Strategy (often called Competitive Strategy
 ):
This involves decidinghow the company will compete within each line of business (LOB) or strategic businessunit (SBU).
Functional Strategy:
These more localized and shorter-horizon strategies deal with howeach functional area and unit will carry out its functional activities to be effective andmaximize resource productivity.1
 
CORPORATE LEVEL STRATEGIES
Corporate level strategies are basically about the choice of direction that a firm adopts inorder to achieve its objectives. They are basically about decisions related to allocatingresources among the different businesses of a firm, transferring resources from one set of  businesses to others, and managing and nurturing a portfolio of businesses in such a waythat the overall corporate objectives are achieved.Major types of grand strategies:
Expansion (Growth) Strategies
Stability Strategies
Retrenchment Strategies
Combination Strategies
GROWTH STRATEGIES
Growth is a way of life. Almost all organizations plan to expand. This strategy isfollowed when an organization aims at higher growth by broadening its one or more of its business in terms of their respective customer groups, customers functions, andalternative technologies singly or jointly – in order to improve its overall performance.
E.g.:
A chocolate manufacturer expands its customer groups to include middle aged andold persons among its existing customers comprising of children and adolescents.There are five types of expansion (Growth) strategies
Expansion through concentration
Expansion through integration
Expansion through diversification
Expansion through cooperation
Expansion through concentration
It involves converging resources in one or more of firms businesses in terms of their respective customer needs, customer functions, or alternative technologies either singlyor jointly, in such a manner that it results in expansions. A firm that is familiar with anindustry would naturally like to invest more in known business rather than unknown business. Concentration can be done through
Market Penetration
: It involves selling more products to the same market by focusingintensely on existing markets with its present products, increasing usage by existingcustomers and increasing market share and restructures a mature market by driving outcompetitors
E.g.:
Low pricing strategies
Market Development
: It involves selling the same products to new markets by attractingnew users to its existing products. Market development can be geographic wise and2
 
demographic wise.
E.g.:
XEROX Company educated small business entrepreneurs tocreate new markets.
Product Development
: It involves selling new products to the same markets byintroducing newer products in existing markets
. E.g.:
the tourism industry in India hasnot been able to attract new customers in significant numbers. New products such asselling India as a golfing or ayuerveda-based medical treatment destination are some of the product development efforts in the tourism industry to attract more tourists.ANSOFF”S PRODUCT-MARKET MATRIX.PresentNewPresentMarketPenetrationProductDevelopment NewMarketDevelopmentDiversificationAdvantages of concentration strategies
Involves minimal organizational changes and is less threatening
Enables the firm to specialize by gaining the in-depth knowledge of the businesses.
Enables the firm to develop competitive advantage
Decision-making can be made easily as there is a high level of productivity
Systems and processes within the firm become familiar to the people in theorganization.Disadvantages of concentration strategies
It is dependent on one industry if there is any worse condition in the industry thefirm will be affected.
Factors such as product obsolescence, fickleness of market, emergence of newer technologies are threat to concentrated firm
Mangers may not be able to sustain interest and find the work less challenging
It may lead to cash flow problems3

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