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5 TASKS OF STRATEGIC MANAGEMENT:

Developing strategic vision and mission


Setting objectives
Developing a strategy
Implementing and executing the strategy
Evaluating performance and initiating
adjustments

Functions of Management

corrective

STRATEGIC MANAGERS
Mintzbergs Organizational Design:

Multidivisional Company

Competitive Advantage
General Managers - responsible for the overall performance of the
company
Functional Managers responsible for supervising particular
function/task in the company
As a manager remember youre the authority and responsibility
Business is not a game like Monopoly
Die or survive: Survival of the fittest!
You have the a responsibility to your staff, organization and
the society

Who does it better?


Distinguishes one company to another
Superior performance compared to competitors
Competitive advantage over other companies can be described
when profitability is greater than their average profit growth
M. Porters two basic types of competitive advantage:
Cost Advantage similar product at lower cost; process
innovation
Differentiation Advantage premium price from unique
product or service; premium price strategy

How is it sustained?
When strategies enable the company to maintain above
profitability and market share for a long period
When a company consistently outperforms its rivals in the
industry
When a company serves its market better than anybody
else
Strategic Planning Process
1. Select Corporate mission and vision
2. Analyse external competitive environment
3. Analyse the organizations internal operating environment
4. Select strategies that build on the organizations strengths
and correct its weaknesses
5. Implement strategies

Internal Analysis
Strengths
Weaknesses
External Analysis
Opportunities
Threats
An Art of War
Know the enemy and know yourself; in hundred battles you will
win and never be peril. When you are ignorant of the enemy but
know yourself, your chances of winning or losing equal. Know
neither your enemy nor yourself, you are certain in every battle to
be in peril.
- Sun Tzu
A Chinese military treatise written during 6th century BC
Chapters of the book are:

Application:

SWOT Analysis

War is a matter of vital importance to the state; a matter of life and


death, the road either is to survive or be in peril. Hence it is
imperative that it be thoroughly studied.
-Sun Tzu
How to do SWOT:
1. Self Analysis
1.1 Decide who to involve
1.2 Brainstorm the issues
1.3 Evaluate issues that have been identified
1.4 Create a simple, clear action plan
1.5 Review prior to decision making
2. Strengths
2.1 Sound Finances
2.2 Marketing
2.3 Management and Personnel Skills
2.4 Strengths in Production

3. Weaknesses
3.1 Poor Financial Management
3.2 Lack of Marketing Focus
3.3 Management and Personnel Weaknesses
3.4 Inefficient Production
4. Opportunities
4.1 Broader Business Environment
4.2 Political Trends
4.3 Economic Trends
4.4 Social Developments
4.5 New Technology
5. Threats
5.1 Broader Business Environment
4.2 Political Trends
4.3 Economic Trends
4.4 Social Developments
4.5 New Technology
6. Action
ANALYZING THE EXTERNAL ENVIRONMENT
The Parts of External Environment Analysis:
1. Scanning - Identifies early signals of environmental changes
2. Monitoring - Detecting meaning through ongoing
observations of environmental changes and trends
3. Forecasting - Developing projections of anticipated
outcomes based on monitored changes and trends
4. Assessing - Determining the timing and importance of
environmental changes and trends for fims strategies

An opportunity is a condition in the general environment that if


exploited effectively, helps a company reach strategic
competitiveness
The General, Industry, and Competitor Environments

Workforce Diversity
Attitudes about work and life
Career Preferences
Shifts in products and services
Population Size
Age Structure
Geographic Distribution
Ethnic Mix
Income Distribution

Technological Factors
Product Innovations
New Communication Strategies

PESTEL Analysis
Political Factors
Political Instability
Economic Conditions
Inflation Rates
Interest Rates
Trade Deficits or Surplus
Personal Savings rate
Business savings rate
GDP
Money Supply
Sociocultural Forces

Environmental Factors
Energy Consumption
Availability of Natural Resources
Production of environment friendly products

5 FORCES OF COMPETITION

Legal/regulatory conditions
Antitrust Laws
Taxation Laws
Deregulation Laws
Environment protection Laws
Trade Regulations

Threat of New Entrant

The purposes of competition are: survival, increase market share;


and increase profitability
Scanning the External Environment

Industry is a group of firms producing products that are close


substitutes

Barriers to Entry:
Economies of Scale incremental efficiency improvements
through experience as a firm grows larger. Cost of
producing each unit declines as the quantity of product
produced increases
Product Differentiation Product uniqueness
Capital Requirements competing in a new environment
requires a firm to have resources
to invest.
Switching Costs onetime costs customers incur when they
buy from a different supplier
Access to distribution channels effective
distribution
of products takes some time. New
entrants have to
persuade distributors to carry their products.
Cost Disadvantages Independent of Scale
Established
competitors have cost advantages
that new entrants
cannot duplicate
Government Policy the government can
control the
entry to an industry. They restrict
entry to some
industries because of the need to
provide
quality
service or the desire to protect jobs.
Expected Retaliation - Companies seeking to enter an
industry should expect reactions from rival firms
Predatory Pricing occurs when a firm sells services/product at a
lowest price to eliminate competition

Bargaining Power of Supplier


A supplier group is powerful when:
It is dominated by a few large companies and is more
concentrated than the industry to which it sells
Satisfactory substitute products are not available to
industry firms
Industry firms are not significant customer for the supplier
group
Suppliers goods are critical to buyers marketplace success
The effectiveness of suppliers products has created high
switching costs for industry firms
It poses a credible threat to integrate forward into the
buyers industry.

High Strategic Stakes


High Exit Barriers

M. Porters 5 Forces of competition model

Bargaining Power of Buyers


Buyer Groups are powerful when:
They purchase a large portion of an industrys total output
They could switch to another product at a little, if any cost
The industrys products are undifferentiated or
standardized
Threat to Substitute Products
Goods and services from outside a given industry that perform
similar or the same functions as a product that the industry
produces
Intensity of Rivalry among Competitor
Numerous or Equally Balanced Competitors
Slow Industry Growth
High Fixed Cost or High Storage Cost
Lack of Differentiation or Low Switching Cost

Competitor Analysis
Future Objectives:
How do our goals compare with our competitors goals?
Where will emphasis be placed in the future
What is the attitude towards risk
Current Strategy
How are we currently competing?
Does their strategy support changes in the competitive
structure?

Assumptions
Do we assume the future will be volatile?
Are we operating under a status quo?
What assumptions do our competitors hold about the
industry and themselves?
Capabilities
What are our strengths and weaknesses
How do we rate compared to our competitors?
Response
What will our competitors do in the future?
Where do we hold our advantage over our competitors?
How will this change our relationship with our competitors?
The knowledge about these four dimensions helps the
firm prepare an anticipated response profile for each
competitor.
Help a firm understand, interpret, and predict
competitors actions
Understanding competitors actions contributes to the
firms to compete successfully
External Factor Analysis Summary (EFAS)

Notes: 1. List opportunities and threats (510 each) in column 1.


2. Weight each factor from 1.0 (Most Important) to 0.0 (Not
Important) in Column 2 based on that factors probable impact on
the companys strategic position. The total weights must sum to
1.00. 3. Rate each factor from 5 (Outstanding) to 1 (Poor) in
Column 3 based on the companys response to that factor.
4.
Multiply each factors weight times its rating to obtain each factors
weighted score in Column 4. 5. Use Column 5 (comments) for
rationale used for each factor.
6. Add the weighted scores to
obtain the total weighted score for the company in Column 4. This
tells how well the company is responding to the strategic factors in
its external environment.
Interpreting Industry Analysis:
The purpose of Industry Analysis is to understand an
industrys competitive realities
Determine the industrys attractiveness in terms of
potential to make profit
Achieve strategic competitiveness and earn above average
returns
I have been impressed by the urgency of doing. Knowing is not
enough; we must apply. Being willing is not enough; we must do.
- Leonardo da Vinci

ANALYZING THE INTERNAL ENVIRONMENT

Individual firms must possess resources and capabilities that


other companies do not
Resources are source of capabilities that lead to core
competencies (that leads to competitive advantage)

Resource, Capabilities, and Core Competencies


Foundations of competitive advantage
Resource are bundles to create organizational capabilities
Capabilities are the source of a firms core competencies
which are basis for competitive advantages
Resources
Tangible:
Financial Resources
- The Firms Capacity to borrow
- The Firms ability to generate funds through internal
operations

Physical Resources
- Sophistication of a firms plant and equipment and the
attractiveness of its location
- Distribution facilities
- Product Inventory
Technological Resources
- Availability of technology-related resources such as
copyright, patents, trademarks and trade secrets
Intangible:
Human Resources
- Knowledge, trust, skills, abilities to collaborate
Innovation Resources
- Ideas, scientific capabilities, capacity to operate
Reputational Resources
- Brand name, product quality, durability and reliability
Capabilities
Distribution
- Effective use of logistics management techniques
Human Resource
- Motivating, empowering, and retaining employees
MIS
- Effective and efficient control of inventories through point
of purchase, data collection, methods
Marketing
- Effective promotion of brand-name products
- Effective Customer Service
- Innovate Merchandising
Management
- Ability to envision the future of the industry/business

Manufacturing
- Design and production skills and quality
R&D
- Innovative technology
- Rapid transformation of technology into a new products
and processes

Value Chain Analysis

Core Competencies
Criteria of Sustainable Competitive Advantage
Valuable Capabilities Help a firm neutralise threats or
exploit opportunities
Rare Capabilities Not possessed by many others
Costly to imitate Capabilities a valuable brand name
Non-Substitutable capabilities No strategic Equivalent

M. Porters Value Chain Analysis

Scheduling

Easily
understandabl
e
Timely job start

Generated Values:
Confidence
Loyalty
Peace of mind
Security
The BCG Matrix
A three step analysis
Activity
Analysis
Order taking

Value Analysis

Specification

Fast answer to
phones
Knowledge of
Customers
Understand
needs
accurately
Manage
expectations
Accurate
comprehensive
description of
changes

E&P

3 ring rule
Team updates on
clients
Conduct training
on client industry
Provide client
briefing at every
call
Training in
technical writing
Conduct team
huddle once a

Strategies:
Build market share
Hold strategy
Harvest
Divest

week

Contingency time
in schedule

WHY COMPANIES FAIL


Inertia
Objects will remain at rest or in a uniform motion in a straight line
unless acted upon by an external unbalanced force
Companies find it difficult to change its strategies and structure
when adapting to change
Prior Strategic Commitments
It does not just limits a company to imitate its rivals but may also
create competitive advantage
The Icarus Paradox
Becoming so specialized and inner directed firms and lose sight of
market realities
STEPS TO AVOID FAILURES
Focus on Building Blocks of Competitive Advantage
Focus on efficiency, quality, innovation and responsiveness to
customers
Institute Continuous learning and improvement
Learn from prior mistakes and seek out ways to improve processes
overtime
Track best industrial practice and use Benchmarking
Build and maintain the capabilities that underpin excellence
Overcome Inertia
Overcome internal forces which are barriers to change within an
organization

The role of luck


In the face of uncertainty, some businesses just happen to pick up
the correct strategy
Attaining Superior Reliability
1. Improved quality - Costs decrease because of less work,
fewer mistakes, fewer delays and better use of time and
materials
2. Better quality - Higher market share and allows a company
to raise prices
3. Increase in profitability - Allows a firm to stay in business
4. Creates employment
Steps for Quality Improvement Program
Mistakes, defects and poor quality materials are not
acceptable
Provide employees appropriate training/skills for the job
Fear not in reporting or recommending improvements
Standards should not be defined by quotas but by quality
production
Commitment
STRATEGIES AT THE BUSINESS LEVEL
Market Segmentation
The way a company decides to group customers, based on
important differences in their needs or preferences

INDUSTRY ENVIRONMENT AND BUSINESS-LEVEL STRATEGY


Strategies for Consolidating Fragmented Industries
Chaining
Franchising
Horizontal Merger
IT and the Internet
Navigating Through Life Cycle to Maturity
Embryonic Strategies
Investment needs are great because a company has to establish a
competitive advantage
Growth Strategies
The goal is to maintain a relative competitive position in a rapidly
expanding market grow with the expanding market
Shakeout Strategies
Companies attempt to maintain and increase market share despite
fierce competition
Strategies to deter entry: Strategies for consolidating a
fragmented industry
Product Proliferation - Filling the niches or catering to the
needs of customers in all market segments
Price Cutting- Sends signal to new entrants that they will
meet price cuts. Keeps out an entrant
Maintain Excess Capacity - Maintain physical capability to
produce more product than customers currently demand

Strategies for Managing Rivalry


Price Signaling - First means by which a companies attempt
to control rivalry among competitors so as to allow the
industry to choose the most favorable pricing option
Price Leadership - One company assumes the responsibility
for setting the price option that maximizes industry
profitability
Nonprice Competition - Product differentiation strategy
Capacity Control - Prevents accumulation of excess capacity;
Overcapacity maybe caused by competitive factors within
an industry
Strategies in Declining Industries
Intensity of Competition
Speed of decline
Height of exit barriers
Level of fixed costs
Commodity nature of product

Performance and Governance


Corporate governance essentially involves balancing the interests of
the many stakeholders in a company
Stakeholders and Corporate Performance

The Agency Problem


Information asymmetry arises due to the delegated decision
making authority
The interests of principals and agencies are not always the
same

Stakeholder and the Enterprise

CORPORATE GOVERNANCE

Stakeholder Impact Analysis


1. Identify the stakeholders
2. Identify Stakeholders interests and concerns
3. Identify what claims stakeholders are likely to make on the
organization
4. Identify the stakeholders who are most important from the
organizations perspective
5. Identify the resulting strategic challenges
Agency Theory
Looks at the problem that can arise in a business
relationship when one person delegated decision making
authority in another
Formulated to capture the relationship between managers
and stockholders

Good Corporate Governance


Rules and practices that govern the relationship between
managers and shareholders and stakeholders
Ensures transparency fairness and accountability
Prerequisite for the integrity and credibility of market
institutions
Allows corporation to have access to external finance and
make reliable commitments to creditors
Central principle of transparency and accountability which
are crucial to the integrity and legal credibility of our market
system
We need to develop governance tools and incentive structures that
are more robust in the face of rapid financial innovation, and
procedures that leave no doubt as to the stakes involved.
Accounting standards need to become principle-based, rather than
based on rules that invite evasion.
Governance Mechanisms
Aligns incentives between principals and agents and
monitor control agents
Ensure that agents act in a manner that is consistent with
the best interests of principals

Main types of Governance Mechanisms

Board of Directors
- Directly elected by stockholders and under corporate law
they represent the stockholders interests
- Reduce information asymmetry

Stock-Based Compensation
- The right to buy companys shares
- To motivate managers to adopt strategies that increase the
share price of the company
Financial Statements and Auditors
- To give consistent, detailed and accurate information about
how efficiently and effectively managers are running the
company

Establish standards and targets against which performance


is measured
Create systems for measuring and monitoring performance
on a regular basis
Compare actual performance against the established
Evaluate results and take corrective actions if necessary

Balanced Scorecard
A strategic performance management framework that has been
designed to help an organization monitor its performance and
manage the execution of its strategy.

Financial information is important but not enough by itself


Evaluates the four building blocks of competitive advantage

The Takeover Constraint


- The risk of being acquired by other company
- Limits the extent to which managers can pursue strategies
and take actions that put their own interests above the
stockholders
- If they ignore the stockholder interests and the company is
acquired, managers lose their independence and probably
their job
Governance Mechanisms inside a Company
Strategic Control System
Primary governance mechanisms established within a company to
reduce the scope of the agency problem.

Efficiency measured by the level of production cost productivity of


labor, productivity of capital and the cost of raw material
Quality number of rejects, number of defective products and
returned product level of productivity

Innovation number of new products introduced, the percentage of


revenues generated from new products, productivity of research
and development
Responsiveness to customers number of repeat customers, level of
on-time delivery, level of customer service
Balanced Scorecard Perspectives:
The Financial Perspective
Covers financial objectives of an organization and allows managers
to track financial success and shareholder value
The Learning and Growth Perspective
Covers the customer objectives such as customer satisfaction,
market share goals as well as product and service attributes
The Customer Perspective
Covers internal operational goals and outline the key processes
necessary to deliver the customer objectives
The Internal Process Perspective
Covers the intangible drivers of future success such as human
capital, organisational capital and information capital
Balanced Scorecard Benefits:
Better Strategic Planning
Provides a powerful framework for building and communicating
strategy. The process of creating a Strategy Map ensures that
consensus is reached over a set of interrelated strategic objectives.

Improved Strategy Communication & Execution


The fact that the strategy with all its interrelated objectives is
mapped on one piece of paper allows companies to easily
communicate strategy internally and externally.
Better Management Information
Forces organisations to design key performance indicators for their
various strategic objectives. This ensures that companies are
measuring what actually matters.
Improved Performance Reporting
Increasing needs and requirements for transparency can be met if
companies create meaningful management reports and dashboards
to communicate performance
Better Strategic Alignment
In order to execute a plan well, organisations need to ensure that all
business and support units are working towards the same goals.
Cascading the Balanced Scorecard into those units will help to
achieve that and link strategy to operations.
Better Organisational Alignment
Well implemented Balanced Scorecards also help to align
organisational processes such as budgeting, risk management and
analytics with the strategic priorities.

Coordination
Coordination is the integration of several parts into an
orderly hole to achieve the purpose of understanding.
Charles Worth
Coordination is orderly arrangement of group efforts to
provide unity of action in the pursuit of common goals.
Mooney & Reelay
A manager can be compared to an orchestra conductor since both
of them have to create rhythm and unity in the activities of group
members.
Coordination is an integral element or ingredient of all the
managerial functions.
a. Co-ordination through Planning - Planning facilitates coordination by integrating the various plans through mutual
discussion, exchange of ideas. e.g. - co-ordination between
finance budget and purchases budget.
b. Co-ordination through Organizing - Mooney considers coordination as the very essence of organizing. In fact when a
manager groups and assigns various activities to
subordinates, and when he creates departments coordination uppermost in his mind.
c. Co-ordination through Staffing - A manager should bear in
mind that the right no. of personnel in various positions
with right type of education and skills are taken which will
ensure right men on the right job.
d. Co-ordination through Directing - The purpose of giving
orders, instructions & guidance to the subordinates is

served only when there is a harmony between superiors &


subordinates.
e. Co-ordination through Controlling - Manager ensures that
there should be co-ordination between actual performance
& standard performance to achieve organizational goals.
Strategic Management
Managements job is not to see the company as it is.. but
as it can become.
John W. Teets
A strategy is a commitment to undertake one set of actions
rather than another.
Sharon M. Oster
Without strategy the organization is like a ship without a
rudder, going around circles.
Joel Ross and Michael Kami
Business Model
A plan for the structure and actions by which your
organization will operate in its marketplace
Enables the firm to generate growth opportunities
Capture the opportunities quickly and profitably
How firm makes money and acquires market share

Business Model vs Strategy


Business Model concerns whether the revenues and costs from
the strategy; demonstrate that the business can be profitable and
viable
Strategy deals with a companys competitive initiatives and
business approaches
Why is strategy needed?
To proactively shape how a companys business will be
conducted
To mold the independent actions and decisions managers
and employees into a coordinated, companywide game plan
3 Elements of Strategic Vision
Use the mission statement as a starting point
Develop a strategic vision that spells out a course to pursue
Communicate the vision in a clear an exciting manner
The Mission Statement
Defines current business activities
Conveys
o Who are we
o What we do
o Where we are
A companys mission is not to make a profit. The real mission is
always what will we do to make a profit.
Managerial Value of a Well-Conceived Strategic Vision and Mission
Crystallizes long-term direction
Reduces risk of rudderless decision making
Conveys organizational purpose and identity

Keeps direction related actions of lower level managers on


common path
Helps organization prepare for the future

Setting Objectives: Second Task of Strategic Management


Converts strategic vision and mission into specific
performance targets
Creates yardsticks to track performance
Pushes firm to be inventive and focused on results
Helps prevent complacency
Provides a set of benchmarks for judging organizational
performance
Provides a results-oriented decision making
Objectives are needed at all levels.
The Hows That Define a Firm's Strategy
How to please customers
How to respond to changing market conditions
How to outcompete rivals
How to grow the business
How to manage each functional piece of the business and
develop needed organizational capabilities
How to achieve strategic and financial objectives
Do strategies evolve? Why?
There is always an ongoing need to react to
Shifting market conditions
Fresh moves of competitors
New technologies
Evolving customer preferences
Political and regulatory changes

New windows of opportunity


Crisis situations

Implementing and Executing Strategy: The Fourth Task of Strategic


Management
Taking actions to put a freshly chosen strategy into place
Supervising the ongoing pursuit of strategy
Improving the competencies and efficiency with which the
strategy is being executed
Showing measurable progress in achieving the targeted
results and objectives
Monitor, Evaluate and Take Corrective Action: Fifth Task of
Strategic Management
How well is the firm doing in its financial budgets
How well is it meeting consumer needs
How well competitive is it
How well the firm is responding to competitive pressures
How well has the firm responded in the operating
environment