Amity Business School

STRATEGIC MANAGEMENT
Module 1 Introduction
Evolution and Introduction of strategic management. Concept and Classification of Corporate and Business Strategy with Hierarchy definition; Purpose of Strategy Formulation: Concept of Vision, Mission and Business Definition. Importance of Stakeholders in Business

Ramesh Bagla

Amity Business School

Strategy
• Strategy is a plan of action, which is of vital, pervasive and continuing importance to an organisation as a whole. • A strategy is a unified, comprehensive and integrated plan that relates the strategic advantages of the firm to the challenges of environment. It is designed to ensure that the basic objectives of the enterprise are achieved through proper execution by the organisation. - Glueck & Jausch

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Strategy
Strategy is the direction and scope of an organisation over the long term which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfill stakeholder expectations.
- Johnson & Scholes

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Strategy
• The term ‘strategy’ has its origin in the Greek word Strategos which means ‘the art of war’ as a noun and ‘to command an army’ as a verb. • The ‘battleship concept of strategy’ refers to:
 Future oriented preparation & readiness  A ‘winning mindset’ motivated to seize every opportunity for expansion/growth  Deterrence capability that prevents loss to rivals  Developing special expertise in areas where rivals are weak  Looking beyond the specific set of objectives, deadlines, activities, functions, markets and organizational units, to develop an overall picture of time and space

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Summing up, Strategy is
 a plan or course of action or a set of decision rules forming a pattern or creating a common thread.  the pattern of common thread related to the organisation’s activities which are derived from its policies, objectives and goals.  related to pursuing those activities which move an organisation from its current position to a desired future state.  concerned with the resources necessary for implementing a plan or following a course of action.  connected to the strategic positioning of a firm making trade – offs between its different activities and creating fit among these activities
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A strategy is oriented towards:
• • • • • What is our business? What should it be? What are our products and markets? What can our firm do to accomplish objectives? How do we leverage the advantages offered by the environmental parameters? • How do we stay clear of the threats posed by the external environment?

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Purpose of Strategy
Strategies focus on:
• • • • • Organisational goals Core competencies Developing synergy Creating value for customers Competitive advantage

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Strategic Management
Strategic management is that set of managerial decisions and actions that determines the long run performance of a corporation. It includes environmental scanning(both internal & external),strategy formulation(strategic planning), strategy implementation and evaluation and control.

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Strategic Management

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Strategy vs. Strategic Management
• Strategy is a series of goal-directed decisions and actions matching an organization’s skills and resources with the opportunities and threats in its environment • Strategic management Analyzes current situation, Develops appropriate strategies, Puts strategies into action, Evaluates, modifies, or changes strategy

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Business Policy
• A policy is a broad guideline for decision making that links the formulation of strategy with its implementation • Companies use policies to make sure that employees throughout the organisation Take decisions that support the company’s mission, objectives and strategies.

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Strategic Planning
Strategic planning is a process where top-level management sets long-term organizational goals and determines where an organization is going over the next year or more -typically 3 to 5 years, although some extend their vision to 10 to 20 years. Middle managers interpret these goals and develop plans for their departments that can be accomplished within one year or less. Supervisors within departments implement operational plans that are short-term and deal with the day-to-day work of their team. Short-term goals are aligned with the long-term goals and can be achieved within a month, quarter or up to one year.

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Strategic Decision Making
Mintzberg’s modes of Strategic Decision Making: • Entrepreneurial Mode – Amazone.com • Adaptive Mode – reactive solutions to existing problems – Encycl. Britannica • Planning mode – rational selection of most appropriate strategy - IBM • Logical Incrementalism – synthesis of above modes

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EVOLUTION OF STRATEGIC MANAGEMENT
1950s
DOMINANT THEME

1960s-early 70s Corporate planning

Mid-70s-mid-80s Positioning

Late 80s –1990s Competitive advantage

2000s Strategic innovation

Budgetary planning & control Financial control

MAIN ISSUES

Planning growth &diversification

Selecting sectors/markets. Positioning for leadership Industry analysis Segmentation Experience curve Portfolio analysis

Focusing on sources of competitive advantage

Reconciling size with flexibility & agility

KEY CONCEPTS & TOOLS

Capital budgeting. Financial planning

Forecasting. Corporate planning. Synergy

Resources & Cooperative capabilities. strategy. Shareholder Complexity. value. Owning E-commerce. standards. — Knowledge Management— Alliances & networks Self-organiz ation & virtual organization

MANAGEMENT IMPLICATIONS

Coordination & control by Budgeting systems

Corporate planning depts. created. Rise of corporate planning

Diversification. Restructuring. Global strategies. Reengineering. Matrix structures Refocusing. Outsourcing.

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Levels of Strategy in Organizations
Corporate-Level Strategy: What business are we in?
Corporation

Business-Level Strategy: How do we compete?
Textiles Unit Chemicals Unit

Auto Parts Unit

Functional-Level Strategy: How do we support the business-level strategy?
Finance R&D Manufacturing Marketing
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Levels of Strategy and Management Hierarchy
• Corporate level: Board of directors, CEO & administration [Highest] • Business level: Business and corporate managers [Middle] • Functional level: Product, geographic, and functional area managers [Lowest]

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Corporate Level Strategy
• What businesses are we in? What businesses should we be in? • Four areas of focus
– Diversification management (acquisitions and divestitures) – Synergy between units – Investment priorities – Business level strategy approval (but not crafting)

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Corporate Level Strategy
• • • • • Domain Definition: Where to Compete? Defines Scope of Firm In Which Industries Will We Compete? Must Be Reflected in Mission Choice of businesses, entry (diversification) and exit (divestiture) decisions, resource allocation/ priorities for growth • Corporate Financial: Dividend Policies, Sources of Long-term Financing

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Business Level Strategy
• How do we support the corporate strategy? • How do we compete in a specific business arena? • Three types of business level strategies:
– Low cost producer – Differentiator – Focus

• Four areas of focus
– – – – Generate sustainable competitive advantages Develop and nurture (potentially) valuable capabilities Respond to environmental changes Approval of functional level strategies

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Business Level Strategy
• Domain Navigation: How to Compete? • Competitive Strategy • Help bridge decisions at the corporate and functional levels • Less costly, risky, and potentially profitable than corporate-level decisions • More costly, risky, and potentially profitable than functional-level decisions • Include decisions on plant location, marketing segmentation, and distribution

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Functional / Operational Level Strategy • Functional: How do we support the business level strategy? • Operational: How do we support the functional level strategy? • An example. • Business Level Stgy Become the low cost producer • Functional Level Stgy (Mfg.): Reduce manufacturing costs by 10% • Operational (Plant #1): Increase worker productivity by 15%

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Functional/Operational Level Strategy
• Implement the overall strategy formulated at the corporate and business levels • Involve specific action-oriented and operational issues • Relatively short range (typically within the coming year) and low risk • Modest costs: depend upon available resources • Relatively concrete and quantifiable

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Identifying the Strategic Issues
• How to stave off market challenges from new foreign competitors? • How to combat price discounting of rivals? • How to reduce a company’s high costs? • How to sustain a company’s present growth in light of slowing buyer demand? • Whether to expand a company’s product line? • Whether to acquire a rival firm? • Whether to expand into foreign markets rapidly or cautiously? • What to do about aging demographics of a company’s customer base?

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Vision
• Broad category of long-term intentions that the organisation wishes to pursue • It is broad all inclusive and futuristic • A dream – how the organisation sees itself in future • It clearly and crisply illuminates the direction in which the org is headed
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Vision Statements
• Vision of NTPC: - To be one of the world’s largest and best power utilities powering India’s growth. • Vision of NASA: - To improve life here; To extend life there; To find life beyond. • Vision of Apple: - To make a contribution to the world by making tools for the mind that advance humankind.
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Vision
• Good vision statements specify the intentions that are:  Broad, all inclusive, forward thinking  Aspirations for future - ends rather than the means Mental image of the future state A dream that is shared across the entire organisaion
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Vision
• An ideal vision statements should be:  Inspiring, motivating and challenging  “A Slogan” – it could be encapsulated in an actionable slogan  Easily communicated and shared among whole organisation and its stake holders

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Vision & Mission
• A vision statement describes the desired future position of the organisation. An organisation should keep in mind all the long term objectives while creating sense of vision. • A mission statement defines the company’s business , its objectives and its approach to achieve those objectives • Objectives are the goals that need to be achieved for growth and prosperity of a business.

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Mission and Business Definition
• Peter Drucker &Theodore Levitt were the first to
agitate this issue and emphasized need to clarify issues like – Ultimate purpose and what do we want to become? – What kind and what pace of growth? – Need to understand current business in its’ broadest connotation – Who is our customer? – Whom do we intend to serve? What human needs ? – What brings us to this business? – What is the nature of the business in future? – In what business would we like to be in future?

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Vision
• Broad category of long term intentions • All inclusive and futuristic • Aspirations that the organisation holds for future

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Vision
• A broader strategic intent might drive organisations and people to seek/deploy additional resources to achieve stated intent, which would have been otherwise dismissed as beyond the capabilities of the organisation • Strategic intent –top management is specific about the ends but leaves room for the employees with respect to the means. • Good vision statement is a dream that is shared across the entire organisation

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Mission
• Mission statement makes the vision statement more tangible and comprehensible • A mission statement clearly specifies:  Why the organisation exists or Purpose  What differentiates the org from others or the Identity The basic beliefs, values and philosophy of the organisation
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Mission
• At the top of goal hierarchy • The organization’s reason for existence and often reveals corporate philosophy and purpose • Mission describes organizational values, aspirations and is the basis for development for subsequent goals and plans • A formal mission statement is a broadly stated definition of basic business scope and operations that distinguishes the organization from similar others • Mission statement often focuses on customers, market and businesses

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Key elements of the mission statement
• Obligation the firm holds to its stakeholders • The scope of the business • Sources of competitive advantage • The organisation’s view of the future

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