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³To compete for the Future´
Some fundamental questions«
Does the senior management have a clear understanding of how the industry may be different in the next 10 years? Is it regularly defining new ways of doing business, building new capabilities and setting new standards of customer satisfaction?
Some fundamental questions«
Is management aware of the threats posed by new rivals? Do senior executives have a sense of urgency about the need to reinvent the current business model? Is my company pursuing growth and new business development?
So what is Strategic Management?
As defined by Hofer and others, it is ³ The process which deals with the fundamental organizational renewal and growth with the development of strategies, structures, and systems necessary to achieve such renewal and growth, and with the organizational systems needed to effectively manage the strategy formulation and implementation processes´
It is the opposite of just waiting for things to happen. Strategy means putting things in place carefully. In a changing environment one of the most difficult things in business is to know when to stick to your strategy and when to change it. .Simply put by Edward de Bono. and with a great deal of thought.
.Vision A vision articulates the position that an organization would like to attain in the distant future. Vision therefore is future aspirations that lead to an inspiration to be the best in one¶s field of activity.
Good visions foster risk-taking and experimentation. . It creates a common identity and a shared sense of purpose.Why should organizations have a ³Vision´ Good visions are inspiring and exhilarating. unique and simple. They are competitive. They represent integrity.
Mission is what an organization is and why it exists. Mission is defined as ³Essential purpose of the organization, concerning philosophical question s like What is our business, the nature of business it is in, who are our customers it looks to satisfy´.
They should be feasible: Though mission should aim high, it should be realistic and achievable. It should be precise: It should not be very narrow nor should it be too broad. It should have clarity: It should be clear enough to lead to action. It should be motivating: It should motivate employees to achieve its mission.
It should be unique and distinctive: A unique because an organization should be seen by market and customers as ³different´. It should the major strategy components: It should indicate the strategy direction for the organization.
Levels at which Strategy operates
For many companies, a single strategy is not enough. There is a need for multiple strategies at different levels. Many companies are organized on the basis of operating divisions. These divisions are known as ³Strategic business units´ or profit centers.
Strategy at different levels Corporate office SBU A SBU B SBU C Finance Marketing Operations Personnel .
Corporate office : Corporate strategies. . S B U¶s : Business level strategies.Strategy at different levels. Functional : Functional level strategies.
It is a plan of action. covering the various functions performed by different SBU¶s.Corporate level strategies. . allocation of resources and coordination of the S B U¶s for optimal performance. The plan deals with the objectives of the company.
allocation of resources among functional areas.SBU Level strategy. SBU strategies is a comprehensive plan providing objectives for SBU¶s. and coordination between them for making an optimal contribution to the achievement of corporate level objectives. .
allocation of resources among different operations within that functional area. and coordination between them for optimal contribution to the achievement of SBU and corporate level objectives.Functional Strategies Functional level strategies deal with a relatively restricted plan providing objectives for a specific function. .
Based on the mission statement a societal strategy is a generalized view of how the corporation relates itself to society in terms of a particular need or a set of needs that it strives to fulfill.Other strategy levels Societal strategies: These strategies are at a level higher than the Corporate level. .
A functional strategy at the marketing level could be sub divided into sales.Other strategy levels.g. E. distribution. Some strategies are also needed to be set at lower levels. . product and advertising. one step below the functional level. pricing.
They are also strategists. So all managers are strategists in a limited sense.Strategists and their role in Strategic Management. Persons outside the organization are also involved in strategic management. Strategists are individuals or groups who are primarily involved in the formulation. . implementation and evaluation of strategy.
the members of the board are responsible for providing guidance and establishing the directives according to which the managers of the organization can operate. As directors.Various strategists Board of Directors: Is responsible for the governance of the organization. .
The Chief Executive Officer: Is the most important strategist who is responsible for all the aspects of strategic management.Various strategists. . right from formulation to the evaluation of strategy. He plays a very important role in strategic decision making.
responds to it and exploits it as an opportunity.Various strategists Entrepreneurs: are persons who always searches for change. They play a very important and a proactive role in strategic management. . They provide a sense of direction to the organization and set objectives and formulate strategies to achieve them.
implementation and evaluation of strategies. diversification and expansion. technology up gradation. Senior managers perform a variety of roles by assisting the board and the CEO in formulation. plan implementation and new product development. .Various strategists Senior Management: When assigned with specific responsibilities senior managers look after modernization.
. SBU level heads are also known as profit center heads are considered as ceo¶s of a defined business unit for the purpose of strategic management.Various strategists SBU level executives: The idea for organizing to SBU is to manage a diversified company as a portfolio of businesses.
.Various strategists Corporate planning staff: It plays a supporting role in strategic management. They not only assist in whole planning process but also are responsible for the communication of strategic plans. They also conduct special studies and research related to strategic management.
Mc Kinsey and company. AF Ferguson. S B Billimoria etc. Some Consulting co¶s are. . KPMG. Accenture. Boston consulting.Various strategists Consultants: The main advantage of hiring consultants is getting unbiased and objective opinion from a knowledgeable outsider and availability of specialist¶s skills.
infotech and systems.Area of specialization McKinsey and company: Fundamental change and strategic visioning. . Accenture: Business restructuring. Boston consulting: Building competitive advantage. KPMG: Strategic financial management and feasibility studies.
Based on the mission statement a societal strategy is a generalized view of how the corporation relates itself to society in terms of a particular need or a set of needs that it strives to fulfill. .Other strategy levels Societal strategies: These strategies are at a level higher than the Corporate level.
E. one step below the functional level. A functional strategy at the marketing level could be sub divided into sales. .Other strategy levels. product and advertising. pricing. Some strategies are also needed to be set at lower levels.g. distribution.
Cannot be analyzed and explained easily. Is a complex process. . These decisions are difficult to measure. For these reasons no theoretical model can adequately represent the different dimensions of the process of strategic decision making.Strategic Decision Making.
to work out their strategic implications. to test the ideas that emerge.Strategic decision making ³Successful business strategies result not from rigorous analysis but from a particular state of mind´. but they use it only to stimulate the creative process. or to ensure successful execution of high potential ³wild´ ides that might otherwise never be implemented´ From ³The Mind of The Strategist´«. Strategists do not reject analysis.Kenichi Ohmae .
( two different conclusions) .Issues related with Strategic decision making.( decision must be original and different) Variability in decision making. Rationality in decision making.( choosing best possible alternatives for achieving targets) Creativity in decision making. Criteria for decision making.
education.( age.Issues contd Person related factor in decision making.) Individual v/s group decision making. . intelligence. personal values. creativity etc. risk taking ability.
Designing a mission statement.Strategic Management Process 1)Establishing the hierarchy of strategic intent: Creating and communicating a vision. . Defining the business. Setting objectives.
Formulating strategies.Strategic management process 2) Formulation of strategies: Performing environmental appraisal. Doing organizational appraisal. . Strategic analysis. Preparing strategic plan. Considering corporate level strategies. Considering business level strategies.
Designing structures and systems. Managing functional implementation. 3) Implementation of strategies: Activating strategies. Managing behavioral implementation. . Operationalysing strategies.Strategic management process.
Reformulating strategies. .Strategic management process 4) Performing strategic evaluation and control: Performing strategic evaluation. Exercising strategic control.
Mission is the ³ purpose or the reason for the organization¶s existence´ .Mission Mission is a statement which defines the role that an organization plays in a society.
It should be distinctive. It should be motivating. It should be precise.Features of a Mission statement It should be feasible. It should be clear. .
1 Bajaj : Inspiring confidence.Some Mission statements« Ranbaxy laboratories: ³To become a research-based international pharma company. products. . profits. Marico Industries: The 3P¶s of Marico. HCL: To be a world class competitor. Hero Honda: Desh ki Dhadkan. Ford: Quality is job no. People.
events and influences that surround and affect it´ It is therefore crucial for any organization to understand the environmental influences on its business.Environmental Appraisal The environment of any organization is ³the sum of all conditions. .
Characteristics of Environment. It is dynamic. It has a far-reaching impact. It is multi-faceted. It is complex. .
. satisfaction. buying behavior. 1) Market environment: Client¶s needs. differentiation etc Competitor factors like different types of competitors. Product factors like demand. image. utility. promotion. preferences. features. price. life cycle. attitudes. design. values.Various environmental components. nature of competition. perceptions. distribution.
human beings. cost of technology. Effects of technology on environment.. 2) Technological Environment: Sources of technology. R&D. Technological development. .Components contd.
3) Supplier environment: Cost. parts. and continuity of supply of raw material. availability. Infrastructural support and ease of availability of the different factors of production.. components. .Components contd.
capitalistic. industrial..Components contd. balance of payments etc. 4) Economic environment: The economic stage at which the country exists at a given point of time. . Per capita income. socialistic or mixed. The economic structure adopted. Economic policies. fiscal.
Components contd. monopolies. Policies related to distribution and pricing. consumer protection etc. .. FDI. public sector. 5) Regulatory environment: Policies related licensing. backward areas. Policies related to sick industries.
Political stability. 6) Political environment: The political system and its features. Government¶s role in business. coalition compulsions.. ideological forces. Political funding of elections.Components contd. .
consumerism. . Socio-cultural concerns like environmental pollution. 7) Socio-cultural environment: Demographics like population. corruption etc. age composition. its density and distribution. inter state migration. Family structure changes.Components contd. income distribution etc..
Global markets and competitiveness. 8) International environment: Globalization process. . Global communication Global technology and quality systems. Global financial system. Global economic forces. Global trade and commerce..Components contd.
Organizational Appraisal It deals with the internal environment of the organization. strengths. synergy and competencies. all these put together determine the ³ Organizational capability´ . weaknesses. Internal environment constitutes of behavior.
capabilities. equipment. access to raw material etc. . plant. knowledge. Physical resources: Technology.Organizational appraisal Organizational Resources. organizational processes. Tangible and intangible resources: All assets. information. location.
intelligence. relationships etc. Human resources: Training. and structures.. Organizational resources: Formal systems. judgment. .Organizational appraisal contd. experience.
. It leads to the development of a special identity and character of an organization.Organizational behavior It is the manifestation of various forces and influences operating in the internal environment of an organization that create the ability for. or place constraints in the usage of resources.
Quality of leadership. Shared values. Management philosophy. Culture Quality of work environment. .Factors influencing Org.Beh. Organizational politics.
. Weakness: A weakness is an inherent limitation or constraint which creates a strategic disadvantage for an organization. Strength: It is an inherent capability which an organization can use to gain strategic advantage.Strengths & Weaknesses.
promotion. synergistic effect can be achieved when product. distribution. E.Synergistic effects Synergy is the idea that the whole is greater or lesser than the sum of its parts. advertising support each other.g. . In marketing dept.
.Competencies Competencies are special qualities possessed by an organization that make them withstand pressures of competition in the market place. When a specific ability is possessed by a particular organization exclusively or in a large measure it is called as distinctive competence.
Organizational capability It is the inherent capacity or potential of an organization to use its strengths and overcome its weaknesses in order to exploit opportunities and face threats in an external environment. .
Strategic advantage These are the outcome of organizational capabilities. They are the result of organizational activities leading to rewards in terms of financial parameters. .
Strengths supporting Financial capability. Good relationship with financial institutions.worthiness. . High level of share holder¶s confidence. High level of credit.Functional capabilities. Low cost of capital compared to rivals. Access to financial resources.
Effective distribution system. Better quality of products. Effective MIS. Effective sales promotion. Sharply-focused positioning. .Marketing capabilities Wide variety of products.
Operations capabilities High level of capacity utilization. Technical collaborations. Favorable plant location. High caliber R&D people. Good inventory control system. . Effective control of operational costs. Reliable sources of supply.
General management capability. Reward and incentives for top managers. Risk taking. Effective management of organizational change. Effective system for corporate planning. Favorable corporate image. .
W: Weaknesses. S: Strengths.SWOT Analysis. O: Opportunities. T: Threats .
.g.Strength It is an inherent capacity which an organization can use to gain strategic advantage. superior r&d skills which can be used for new product development. E.
Weakness It is an inherent limitation or constraint which creates strategic disadvantage. . which could be risky in crisis. E. over dependence on a single product line.g.
Opportunity It is a favorable condition in the organization¶s environment which helps it to consolidate and strengthen its position. E.g. growing demand for the products or services that a company provides. .
emergence of strong new competitors who are offering stiff competition. . E.g. the organization. or causes damage to.Threats It is unfavorable situation in the organization¶s environment which creates risk for.
Combination strategy. Expansion strategy. .Grand strategies Types of Grand strategies: Stability strategy. Retrenchment strategy.
. A copier machine company provides better after sales service to improve its image and product image too.g. E.Stability strategy Is adopted by on organization when it attempts at an incremental improvement of its functional performance by marginally changing one or more of its business.
. functions and technology.Expansion strategy This strategy is followed when a company aims at high growth by increasing the scope of one or more of its businesses in terms of their respective customer groups.
E.Retrenchment strategy This is followed when a company aims at contraction of its activities through substantial reduction or elimination of its business. .g. A pharmaceutical company may withdraw from its retail operations so that it can focus on institutional sales.
or at different times in the same business with the aim of improving its performance. .Combination strategy This is followed when a company adopts a mixture of all the strategies either at the same time in its different businesses.
loans. 1) Sources of funds( borrowings. Financial plans and policies: It means. budgeting) . reserves & surplus) 2) Usage of funds( capital investment. accounting. dividend decisions) 3) Management of funds (system of finance.Functional Strategies.
P: Product. P: Price P: Place P: Promotion .Marketing plans and policies. Strategic use of Marketing mix.
.Operation plans and policies These decisions are related to production system. and R&D. operational planning and control.
organizational and employee characteristics and industrial relations. E. .g.Personnel plans and strategies These policies are related with the personnel system. TISCO never had any industrial dispute for the past so many years.
2) Implementation control: It is aimed at whether the plans. and projects are actually guiding the company towards its objectives. and keep track of any change in them so as to assess the impact on strategy. . programs.Strategic evaluation and control The 4 basic type of strategic controls are. 1) Premise control: Necessary to identify the key assumptions.
.Strategic evaluation and control. 3) Strategic surveillance: It is designed to monitor a broad range of events inside and outside the company that are likely to threaten the course of a company¶s strategy.
.Strategic evaluation and control. 4) Special alert control: This is based on a trigger mechanism for rapid response and immediate reassessment of strategy in view of sudden and unexpected events.
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