ISSUES OF STRATEGIC

MANAGEMENT

STRATEGIC MANAGEMENT: HISTORY & BACKGROUND

Strategic management as a discipline originated in the 1950s and 60s.

Alfred Chandler - recognized the importance of coordinating the various aspects of management under one all-encompassing strategy.

Stressed the importance of taking a long term perspective when looking to the future.

Long-term coordinated strategy was necessary to give a company structure,

direction, and focus. Concisely, structure follows strategy.

In 1957, Philip Selznick introduced the idea of matching the organization's internal factors with external environmental circumstances.

This core idea was developed into what we now call SWOT analysis Strengths and weaknesses of the firm are assessed in light of the opportunities and threats from the business environment.

STRATEGIC MANAGEMENT: HISTORY &

BACKGROUND
In 1985, Ellen-Earle Chaffee

Involves adapting the organization to its business environment.

Fluid and complex. Change creates novel combinations of circumstances requiring unstructured non-repetitive responses.

Affects the entire organization by providing direction. Involves both strategy formation (content) and also strategy implementation (process).

Partially planned and partially unplanned. Done at several levels: overall corporate strategy, and individual business strategies. Both conceptual and analytical thought processes.

STRATEGIC MANAGEMENT: CONCEPT

Ongoing

process

evaluates

and

controls the business and the industries in which the company is involved.

Assesses its competitors and sets goals and strategies to meet all existing and potential competitors.

Reassesses each strategy regularly.

STRATEGY: MISSION AND OBJECTIVES

Describes the company's business vision: unchanging

values and purpose of the firm, forward-looking visionary goals that guide the pursuit of future opportunities.

Define measurable financial and strategic objectives:

Financial objectives involve measures such as sales targets and earnings growth.

Strategic objectives are related to the firm's business position, and may include measures such as market share and reputation.

STRATEGIC MANAGEMENT PROCESS: ENVIRONMENTAL SCAN

The environmental scan includes the following components:

Internal analysis of the firm

SWOT Analysis

Analysis of the firm's industry

Porter's five forces

External macro-environment

PEST Analysis

STRATEGIC MANAGEMENT: MODEL

Scan External Environment National Global Identify Strategic Factors Opportunities Threats Implementing Strategy via Changes in: Structure Human resources

Evaluate Current: Mission

Goals
Grand Strategy

SWOT

Define New: Mission Goals Grand Strategy

Identify Strategic:

Corporate
Business Functional

Information & control systems

Scan Internal Environment Core Competence Synergy Value Creation

Identify Strategic Factors Strengths Weaknesses

STRATEGIC MANAGEMENT: SWOT ANALYSIS

A scan of the internal and external environment is an

important part of the strategic planning process.

Environmental factors internal to the firm usually can be classified as strengths (S) or weaknesses (W), and those external to the firm can be classified as opportunities (O) or threats (T).

The SWOT analysis provides information that is helpful in matching the firm's resources and capabilities to the competitive environment in which it operates

STRATEGIC MANAGEMENT: SWOT ANALYSIS

Strengths

Weaknesses

Patents

Lack of patent protection

Strong brand names

Good reputation among customers Cost advantages from proprietary knowhow

A weak brand name

Poor reputation among customers High cost structure Lack of access to the best natural resources Lack of access to key distribution channels

Exclusive access to high grade natural resources

Favorable access to distribution networks

In some cases, a weakness may be the flip side of a strength.

STRATEGIC MANAGEMENT: SWOT ANALYSIS

Opportunities

Threats

An unfulfilled customer need Arrival of new technologies Loosening of regulations Removal of international trade barriers

Shifts in consumer tastes away from the firm's products

Emergence of substitute products New regulations Increased trade barriers

STRATEGIC MANAGEMENT: SWOT MATRIX

To develop strategies that take into account the SWOT profile, a matrix of these factors can be constructed.

S-O strategies pursue opportunities that are a good fit to the company's strengths.

W-O strategies overcome weaknesses to pursue

opportunities.

S-T strategies identify ways that the firm can use its strengths to reduce its vulnerability to external threats.

W-T strategies establish a defensive plan to prevent the firm's weaknesses from making it highly susceptible to external threats.

STRATEGIC MANAGEMENT: PORTERS FIVE FORCES

Threat of substitute products Potential new entrants Rivalry among competitors Bargaining power of buyers

Bargaining power of suppliers

STRATEGIC MANAGEMENT: PEST ANALYSIS

A scan of the external macro-environment in

which the firm operates can be expressed

in terms of the following factors:

Political Economic Social Technological

STRATEGIC MANAGEMENT: PEST ANALYSIS

Political Factors

Economic Factors

Tax policy Employment laws

Economic growth Interest rates Exchange rates Inflation rate

Environmental regulations
Trade restrictions and tariffs Political stability

Social Factors

Technological Factors

Health consciousness Population growth rate

R&D activity Automation Technology incentives Rate of technological change

Age distribution
Career attitudes Emphasis on safety

STRATEGY FORMULATION

Strategy formulation is vital to the wellbeing of a company or organization.

A leadership skill A process that leaders use to focus for positioning the firm

Iterative Assess, decide, act, and review

Leaders determine how much to stretch

How to create the benefits for customers

STRATEGY FORMULATION: HIERARCHICAL LEVELS

Strategy can be formulated on three different levels:

Corporate level: Company's overall direction in terms of its general attitude towards growth and management of its various business and product lines.

Directional strategy Portfolio analysis Parenting strategy

Business unit level: It usually occurs at the business unit or product level and it

emphasizes improvement of the competitive position of a corporation's products or

services in the specific industry or marketing segment served by that business unit.

CONTINUED..

Functional or departmental level

It is the approach taken by a functional

area to achieve corporate and

business unit objectives and strategies by maximizing resource productivity.

STRATEGY IMPLEMENTATION: SIX SUPPORTING FACTORS

1. 2. 3. 4. 5.

Action Planning Organization Structure

Human Resources
The Annual Business Plan Monitoring and Control

6.

Linkage.

STRATEGY EVALUATION
The implementation of the strategy must be monitored and

adjustments made as needed.

Evaluation and control consists of the following steps:

Define parameters to be measured Define target values for those parameters

Perform measurements
Compare measured results to the pre-defined standard Make necessary changes

Evaluation Criteria:

Suitability Feasibility Acceptability

STRATEGY EVALUATION: SUITABILITY

Suitability deals with the overall rationale of the strategy. The key point to consider is whether the strategy would address the key strategic issues underlined by the organization's strategic position.

Does it make economic sense?

Would the organization obtain economies of scale, economies of scope or experience

economy?

Would it be suitable in terms of environment and capabilities?

Tools that can be used to evaluate suitability include:

Ranking strategic options Decision trees What-if analysis

STRATEGY EVALUATION: FEASIBILITY

Feasibility is concerned with the resources required to implement the strategy are available, can be developed or obtained.

Resources include funding, people, time and information.

Tools that can be used to evaluate feasibility include:

Break-even analysis Resource deployment analysis Cash flow analysis and forecasting

STRATEGY EVALUATION: ACCEPTABILITY

Acceptability is concerned with the expectations of the identified stakeholders (mainly shareholders, employees and customers) with the expected performance outcomes.

Return deals with the benefits expected by the stakeholders (financial and non-financial).

Risk deals with the probability and consequences of failure of a strategy (financial and nonfinancial).

Stakeholder reactions deals with anticipating the likely reaction of stakeholders.

Tools that can be used to evaluate acceptability include: what-if analysis stakeholder mapping

STRATEGIC MANAGEMENT: GENERAL APPROACHES

In general terms, there are two main approaches, which are opposite but complement each other in some ways, to strategic management:

The Industrial Organizational Approach

Based on economic theory deals with issues like competitive rivalry, resource allocation, economies of scale Assumptions rationality, self disciplined behavior, profit maximization

The sociological approach

Deals primarily with human interactions Assumptions bounded rationality, satisfying behavior, profit sub-optimality. An example

of a company that currently operates this way is Google

Strategic management techniques can be viewed as bottom-up, top-down, or collaborative processes.

STRATEGIC MANAGEMENT: LIMITATIONS

Stifle creativity, especially if it is rigidly enforced.

When a strategy becomes internalized into a corporate culture, it can lead to group think.

Can cause an organization to define itself too narrowly.

In 2000, Gary Hamel coined the term strategic convergence

Explain the limited scope of the strategies being used by rivals in greatly differing circumstances.

Strategies converge more than they should, because the more successful ones are imitated by firms that do not understand that the strategic process involves designing a custom strategy for the specifics of each situation.

STRATEGIC MANAGEMENT PROCESS: AN EXAMPLE

Life Insurance Corporation of India

LIFE INSURANCE CORPORATION OF INDIA

Problem of LIC:

The changes sweeping the Indian insurance industry after

the entry of private players. Companys market share is decreasing fast. It needs a proper strategy for its further growth.

Steps taken by LIC to combat the competition.

SWOT ANALYSIS

Strengths :
1) Brand Image 2)Govt. Guarantee 3)Claims settlement

Weakness :
1) Lethargic Staff 2) Mediocre Top Bosses 3) Large scale Corruption in

4)Large product portfolio

Main Office
4) Ultra-Slow decision making process

5) Internal problems between

Top Management and lower cadre Employees

CONTD

Opportunities : 1) Pension Market 2) Health Insurance 3) Large Real Estate portfolio

Threats : 1) Internal discord

2) New players
3) Red- tapism

PEST ANALYSIS
1)Political Factors

Increased service tax on premium

discount on corporate premium Hike in FDI limit

Pricing control in general insurance

Favorable regulation for rural insurance

2)Economic Factors

Increase in Gross Domestic Savings

CONTD
3)Social Factors

Low insurance coverage

Rise in elderly population Changing Indian perception

Increase in lifestyle diseases

4)Technological Factors

Automation of processes

Increase in CRM solutions

Internet driven information era Business Process Monitoring (BPM)

GROWTH STRATEGY
1)Improvement in Product and Service Offerings 2)Use of information technology

servicing large numbers of customers efficiently cutting down overheads To complement or supplement distribution channels costeffectively

Improve customer service levels considerably

Understanding Customer needs

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