STRATEGIC MANAGEMENT Unit I Introduction of Strategic Management Strategy is the determination of the basic long-term purpose and

objectives of an enterprise and the adoption of courses of action and allocation of resources necessary for carrying out these goals. Elements of Strategy 1) Goals 2) Scope 3) Competitive Advantage Levels of Strategy 1) 2) 3) 4) Corporate Level Strategy Business Level Strategy Functional Level Strategy Operating Level Strategy

Strategic Management It is concerned with making decisions about organisations future direction and implementing those decisions. Features Of Strategic Management 1) Strategic Management decisions must be made by top management as these are the pillars of the organisation. 2) Strategic management is future oriented 3) Strategic management mainly stresses both on efficiency and effectiveness 4) It is a Process 5) Strategic decisions are coordinative and participative. Ceo alone cannot take all the decisions. Strategic management process 1) Environmental Scanning: It means Monitoring, Evaluating the information from internal and external environment (SWOT). a) External Environment: It includes variables like (Opportunities and Threats) which are outside the organization b) Internal Environment: It includes Variables like (Strengths and Weakness) That are within the Organisation itself. 2) Strategy Formulation: It is the development of long-range plans for the effective management of environmental opportunities and Threats in light of corporate strengths and weaknesses. a) Vision of the company: It is a theme which gives a focused view of a company. It is a unifying statement which consists of ethics and values which are to be followed by the employees of organisation. b) Business Mission: It is a statement expressed in term of products, markets, geographical scope along with a statement of uniqueness. c) Objectives: They are the results one expects to get out of business one does, and the way one does his business is called business process which must be long term. d) Strategies: It is a master plan stating how the corporation will achieve its mission and objectives. e) Policies: A policy is a guideline for decision-making that links the formulation of strategy with its implementation.

Business can expand when favourable changes takes place in the environment It helps organization to develop its broad strategies and long-term policies.3) Strategy Implementation: It is a process by which strategies and policies are put into action through the development of programs. By this knowledge business becomes alert and dynamic The success of a business depends on its awareness about its surrounding environment. a) Micro Environment I) Suppliers II) Customers III) Competitors IV) Marketing Intermediaries b) Macro Environment: I) Political and Government II) Socio-Cultural . Thus business environment refers to the external environment and includes all factors outside the firm. a) Programs b) Budgets c) Procedures 4) Evaluation and Control: A continual proces of evaluation of strategies is necessary. Environment: Environment includes factors outside the firm which can lead to opportunities for or threats to the firm. the most important of the sectors are socio-economic. Components of Business Environment Business: Business may be defined as human activity directed towards producing or acquiring wealth through buying and selling goods. a) Mission and Objectives b) Management structure c) Human Resources d) Company image and brand equity 2) External Factors: They are large and Beyond the control of the company. Acc to Keith Davis: Business Environment is the aggregate of all conditions. structure and management systems of entire organisation. competitors and government. supplier. which affect or influence its operations and determine its effectiveness. events and influence that surrounds and effects it. Evaluation process must be an integral part of strategy implementation because it keeps the entire program on the tracks. technological. The process might invovle the changes within the overall culture. which lead to opportunities and threats of a firm. budgets and procedures. Factors effecting Business Environment: 1) Internal Factors: They are controllable actors because company has control over these factors. 5) Feed Back: Unit II Business Environment It refers to those aspects of the surroundings of business enterprise. Need for the study of Business Environment 1) 2) 3) 4) 5) To know about the changes in the external environment and to adjust ourself accordingly. Although there are many factors.

. 2) Mass Media such as Radio. It involves the scanning of a) Internal Environment b) External Environment Influencers of the Environmental Scanning 1) 2) 3) 4) Opportunities Threats Strengths Weaknesses Approaches to Environmental Scanning 1) Systematic Approach 2) Process Information Approach 3) Ad Hoc Approach Sources of Information for Environmental scanning 1) Documentary and Secondary sources like news papers. supplier etc to determine the opportunities for and the threats to their enterprise. Techniques of Environmental Search 1) Verbal information 2) Company Records 3) Spying Techniques of Environmental Scanning 1) 2) 3) 4) ETOP: Technique of Diagnosis Industry Analysis Competitive Analysis SWOT ETOP Techinque of Diagnosis Environmental Threat and Opportunities Profile (ETOP) is an important technique which is widely neede in environmental diagnosis Techniques of Preparing ETOP ETOP is the presentation of environmental analysis in a structured way. suppliers etc. governmental. Television and Internet 3) Internal Sources like company files and documents. govt publications etc. 4) External Agencies like customers.III) IV) Demographic Natural Environment Environmental Scanning Analysis The process by which organisations monitor their relevant environment to identify opportunitiesand threats affecting their business is known as µEnvironmental Scanning¶ It is the process by which corporate planners monitor the economic. Data Base and employees so on. marketing intermediaries. MIS. 5) Spying and surveiliance through ex-employees of competitors or by planting moles in rival companies.

2. 3) Assessing Impact Factor: It deals with the relativle impact of the selected factors of environment for present and future. competition etc. Declined and global Industries 3) Industry Structure: it includes fundamental economic and technical forces of an industry. growth. Medium or Low. Framework For Industry Analysis Economic Environment The Industry Environment Legal Environment Suppliers Socio-Cultural Environment Competitors Technological Environment Political Environment Buyers Natural Environment Competitive Analysis It focuses on each company with which a firm competes directly. Profitability and Technology Development.1) Identification of different components of relevant environment 2) Assessing the importance of environmental factors: Here we will give ratings as 3. It deals with the actions and reactions of individual firms within an industry or strategic group. Matured. 4) Industry Attractivenes: It Includes Industry potential. sales.1 or High. New. suppliers and competitors form the substance of a firm¶s industry environment Usefulness of Industry Analysis The basic Purpose of IA is to Assess the relative strengths and Weaknesses of an organisation in relation to other players in the industry. 1) Increases industry Atractiveness 2) Competitive Position 3) Only with industry analysis environmental survey becomes complete Factors to be analysed in Industry Analysis 1) Basic condition of Industry 2) Industry environment: It means position of Industry. Components of Competitor Analysis 1) (Future Objective) What drives the competitor? . Profitability etc. Like market size. 5) Industry Performance: It includes Production. 4) Combining importance and impact factor Industry Analysis Number of environmental factors influence the industry relates to the industry analysis Thus buyers. Emerging.

Opportunities: It is a major favourable situation in the firms environment. Land and resources Valuable Human Assets Valuable Organisational Assets: Propreitory technology. Opportunities and Threats) Strengths: It is something a company is good at doing or a charecteristic that gives it enhanced competitiveness. identification of new market segments etc are examples. regulatory.2) (Current Strategy) What the competitor is doing and can do? 3) (Assumptions) What a competitor believes about itself and the industry? 4) (Capabilities) What the competitors capabilities are? Sources of Information 1) Recorded data 2) Observable Data 3) Opportunistic Data SWOT Analysis (Strengths. goodwill etc 6) Alliances or co-operative ventures: partnerships with suppliers marketing alliances etc. Technology changes. Threats: . mineral rights etc 5) Valuable Intangible Assets: Brand Name. 1) 2) 3) 4) Skill or Important Expertise Valuable Physical Assets: Plant and Machinery. patents. 1) Opposite to strengths 2) Lack of strategic plan 3) Lack of appropriate skills in using resources. A database of loyal customers. 1) Emergence of new customer segments in the market opening up for new markets for the company. social and cultural or economic environments of the industry. 2) Changes in the customer habits and preferences and their buying behavior 3) Changes in technology. Weaknesses. skills and capabilities that seriously effects company performance. Weakness: It is a limitation or deficiency in resources. reputation.

quality of Mgmt.Unit Viii Strategic evaluation and control Process of Strategic Control Step 1: Key areas to be monitored a) Macro environment b) Industry c) Internal operations Step 2: Establising Standards: Previous achievemments. Competitor records. quantity of product. includes quality. long term investment value volume of sales or market share Step 3: Measuring Performance: 2methods Strategic Audit Strategic audit measurement Qualitative nd Quantitative Step 4: compare performance with standards profitability Market position Productivity Product leadership Human resource Employee attitude Social responsibility Step 5: Take no action if performance is in harmony with standards Step 6: Take correctuive actions if necessary Strategic Information system ERP nd MIS Problems in measuring performance 1) Short term orientation 2) Goal displacement Behaavior subnstitution and sub-optimisation (Work for Rewards) (Dept goals gives more importance) . fresh standards established by MGmt. innovativeness nd creativity.

In the case of a friendly transaction. conglomerate or congeneric. can increase revenue and can reduce the cost of capital. Acquisition An acquisition. corporate finance and management dealing with the buying. Whether a purchase is perceived as a friendly or hostile depends on how it is communicated to and received by the target company's board of directors. employees and shareholders. which can take the form of a hostile takeover. also known as a takeover or a buyout. depending or the nature of the merging companies. the takeover target is unwilling to be bought or the target's board has no prior knowledge of the offer. turn friendly at the end. in the case of a hostile deal. An acquisition may be friendly or hostile. Benefits of Mergers and Acquisitions are the main reasons for which thecompanies enter into these deals. finance. vertical. The principal benefits from mergers and acquisitions can be listed as increased value generation. the companies cooperate in negotiations. or help a growing company in a given industry grow rapidly without having to create another business entity. Mergers and Acquisitions may generate tax gains. Mergers occur when the merging companies have their mutual consent as different from acquisitions. depending on whether the acquiree or merging company is or isn't listed in public markets. The main benefits of Mergers and Acquisitions are the following: Greater Value Generation Mergers and acquisitions often lead to an increased value generation for the company. Merger Merger is a financial tool that is used for enhancing long-term profitability by expanding their operations. An acquisition may be private or public. . It is expected that the shareholder value of a firm after mergers or acquisitions would be greater than the sum of the shareholder values of the parent companies. Mergers may be horizontal. however. Pros and Cons Mergers and Acquisitions can generate cost efficiency through economies of scale. selling and combining of different companies that can aid. a smaller firm will acquire management control of a larger or longer established company and keep its name for the combined entity. Hostile acquisitions can. is the buying of one company (the µtarget¶) by another.Mergers and Acquisitions The phrase mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy. and often do. Sometimes. it is observed that very few mergers have actually added to the share value of the acquiring company. If we trace back to history. can enhance the revenue through gain in market share and can even generate tax gains. Mergers and acquisitionsgenerally succeed in generating cost efficiency through the implementation of economies of scale. increase in cost efficiency and increase in market share. as the acquiror secures the endorsement of the transaction from the board of the acquiree company. taxes etc. This is known as a reverse takeover. Corporate mergers may promote monopolistic practices by reducing costs. Acquisition usually refers to a purchase of a smaller firm by a larger one.

Merger & Acquisition also leads to tax gains and can even lead to a revenue enhancement through market share gain. A merger or acquisition is able to create economies of scale which in turn generates cost efficiency. when a business firm wishes to make its presence felt in a new market. Here. Companies go for Mergers and Acquisition from the idea that. there are strong chances that the cost of production per unit of output gets reduced. when a business firm is in the process of introduction of new products. Mergers and Acquisitions can prove to be really beneficial to the companies when they are weathering through the tough times. When a company buys out another. the target company benefits as it gets out of the difficult situation and after being acquired by the large firm. the joint company will be able to generate more value than the separate firms. Gaining Cost Efficiency When two companies come together by merger or acquisition. If the company which is suffering from various problems in the market and is not able to overcome the difficulties. If a company. As the two firms form a new and bigger company. it can go for an acquisition deal. the joint company accumulates larger market share. buys out the weak firm. As output production rises there are chances that the cost per unit of production will come down. it expects that the newly generated shareholder value will be higher than the value of the sum of the shares of the two separate companies. New products are developed by the R&D wing of a company. then a more competitive and cost efficient company can be generated. An increase in cost efficiency is affected through the procedure of mergers and acquisitions. Mergers and Acquisitions are also beneficial y y y y y y y y y When a firm wants to enter a new market When a firm wants to introduce new products through research and development When a forms wants achieve administrative benefits To increased market share To lower cost of operation and/or production To gain higher competitiveness For industry know how and positioning For Financial leveraging To improve profitability and EPS. which has a strong market presence. the production is done on a much larger scale and when the output production increases. when a business organization wants to avail some administrative benefits. This is because mergers and acquisitions lead to economies of scale. As the parent firms amalgamate to form a bigger new firm the scale of operations of the new firm increases. This in turn promotes cost efficiency. Thirdly. It can be noted that mergers and acquisitions prove to be useful in the following situations: Firstly. . Secondly. This is because of these benefits that the small and less powerful firms agree to be acquired by the large firms. the joint company benefits in terms ofcost efficiency.

Colgate-Palmolive India. Advantages of Diversification There are several methods by which diversification strategy can be implemented. Radico Khaitan Limited. It is not able to grow any more through market penetration. there are various companies with high degree of diversification. Diversification strategy is thus defined as a strategy in which the growth objective is ought to be achieved by adding new products or services to the existing product or service line. Nesle India.Mergers Centurion Bank of Punjab. Disadvantages of Diversification . Then it must consider adding new products or markets to its existing business line. Diversification strategy can help the company in spreading their customer base. P&G Hygiene and Health Care. Example: HUL. Bank of Punjab and Centurion Bank Smithkline Beecham. Why Firms Diversify 1) 2) 3) 4) 5) 6) Better use of Resources To achieve Greater Growth To Minimise Fluctuations Diversification due to financial factor Tax Factor Access to latest Technology. ITC ltd. Britannia. This approach toward growth is known as diversification. Diversification can help the companies to achieve their potential in a developing economy. In case of concentric diversification a strong brand name can help in leveraging the new products belong to that brand. Given below are pros and cons of diversification which need to be taken into consideration when opting for the same. In present era. the most common among which are acquisitions and joint ventures. Reddy Labs ± Beta Pharm Joint Venture Maruti Suzuki Herohonda Hindusthan Unilever ITC ± Imperial Tobacco Bajaj Allianz Max Bupa Aviva Life Insurance Bharati Airteli Vodafone Essar Bharati and Singtel DIVERSIFICATION? At some point of time in the process of intensive growth. Dabur. It also helps in enhancing the product portfolio of the company by introducing complimenting products in the market. Diversification Strategy: Pros and Cons Every concept has its own pros and cons. Nirma. it is no longer possible for a firm to expand in the basic product market.Glaxo wellcome plc Mci Communications with Worldcomm GTE (General Telephone and Electronics) with Bell Atlantic Can Kraft & Cadbury Indian Airlines and Air India (NACIL) Citigroup inc (Citi corp & Travelers Group) Acquisitions Reliance has acquired Infotel Recently Tata and Corus Group Vodafone _ Huchisson essar Hindalco-Novelis Ranbaxy-Daiichi Sankyo ONGC-Imperial Energy HDFC Bank-Centurion Bank of Punjab Tata Motors-Jaguar Land Rover Suzlon-RePower Dr.

just for the sake of profit is also not advisable. the current customer base of the company is taken into consideration when coming up with these new products. [edit]Horizontal diversification The company adds new products or services that are technologically or commercially unrelated (but not always) to current products. licensing of new technologies. If you are not armed with people who can handle these things. a company that manufactures industrial adhesives might decide to diversify into adhesives to be sold via retailers. Lateral Diversification: As in the case of horizontal diversification. One needs to take into consideration the efforts required to run the business. and if the efforts required are more than the profit you get. Technical knowledge turns out to be an advantage when it comes of concentric diversification strategy. the new products are marketed to the same economic environment as the . The technology would be the same but the marketing effort would need to change. Concentric Diversification: In case of concentric diversification strategy. Basically. In a competitive environment. alliance with a complementary company. starting from the grass root can turn out to be tedious task. Addition of tomato ketchup and sauce to the existing "Maggi" brand processed items of Food Specialities Ltd. wherein the company has a loyal customer base. the technology used in the industry remains the same. even lateral diversification strategy stresses on products which are not related to the existing line of products. ranging from development of a new product to licensing of new technologies. is an example of technological-related concentric diversification. there are three different types of diversification strategies. Types of Diversification Strategies Diversification strategy of a company may include several plans. which means that the firm is able to leverage its technical know-how to gain some advantage. which again limits your options.222 There are three types of diversification: concentric. it is better off to stay away from the venture. is that the company targets a new segment of customers. It also seems to increase its market share to launch a new product which helps the particular company to earn profit. For example. However.In case of diversification through acquisition. The strategies of diversification can include internal development of new products or markets. Horizontal Diversification: In case of horizontal diversification strategy. Though the existing products are not related to the new venture. horizontal and conglomerate: [edit]Concentric diversification This means that there is a technological similarity between the industries. or a combination of one or more of these plans. This combination is determined in function of available opportunities and consistency with the objectives and the resources of the company. and distributing or importing a products line manufactured by another firm. there's one more example. Going against the core values of the company. acquisition of a firm. Moreover. the final strategy involves a combination of these options. the technology used is not at all related to the existing business of the company. however. Lack of knowledge about the current position of the market can really backfire on you from all sides. this form of diversification is desirable if the present customers are loyal to the current products and if the new products have a good quality and are well promoted and priced. This strategy requires technological similarities between the two business ventures. The only exception in this case. Generally. instead of catering to its existing loyal customers. while the marketing plan changes to a significant extent. one needs to ensure that the people at the managerial level are well-versed with the process that needs to be followed for the company to be acquired. This strategy proves to be advantageous in a competitive market scenario. but which may appeal to current customers.

Yet the Japanese also expanded this profitable segment as a whole. Nissan." In 1996. Philip Morris believed that the core competence it had developed in marketing cigarettes could apply to other. It's an integrated game. [edit]Another interpretation Horizontal integration occurs when a firm enters a new business (either related or unrelated) at the same stage of production as its current operations. plastic products) and through retail stores (e. and Honda moved into adjacent market segments. Case in Point Philip Morris When it considered diversification targets. Even if this strategy is very risky. this strategy tends to increase the firm's dependence on certain market segments.2 Case in Point Toyota. In his 1996 annual report. and Honda In late 1980s. the main reasons of adopting such a strategy are first to improve the profitability and the flexibility of the company. it could also. Toyota . similar markets.g. Tiffany's). clothing. GE services agreements increased to $87 billion. The core competence must translate into a meaningfulcompetitive advantage. The Japanese cars were priced about one-third lower and had a superior service network. The value proposition was solid enough to win over potential and current BMW and Mercedes customers. Capitalizing on Core Competencies Your company's core competencies ± things that you can do better than your competitors ± can often be extended to products or markets beyond those in which they were originally developed. and Acura respectively to compete with BMW and Mercedes. if successful. provide increased growth and profitability. Infinity. up 15% from 2004.3 Case in Point GE Jack Welch transformed GE from a purely manufacturing company into a more diversified company with an increasingly important service component.. Nissan. In other words. The new business unit must have enough similarity to existing businesses to benefit from your corporation's core competencies. Any core competence that meets the following three requirements provides a viable basis for your corporation to create or strengthen a new strategic business unit (SBU)2: 1. They launched luxury cars Lexus. [edit]Conglomerate diversification (or lateral diversification) The company markets new products or services that have no technological or commercial synergies with current products. In particular. and second to get a better reception in capital markets as the company gets bigger. 2.'" When asked if GE was going to become a more product-oriented or service-oriented company. "It's got to be a big combination. An alternative form of that Avon has also undertaken is selling its products by mail order (e. The bundle of competencies should be difficult for competition to imitate. For example company was making note books earlier now they are also entering into pen market through its new product. Such extensions represent excellent opportunities for diversification. Therefore.. but which may appeal to new groups of customers. the company purchased Miller Brewing and then used the Philip Morris marketing skills to move the Miller brand from seventh place to second in its market. Avon is still at the retail stage of the production process. GE Capital Services earned US$4 billion. In both cases.existing products..g. Avon's move to market jewelry through its door-to-door sales force involved marketing new products through existing channels of distribution.3 billion. Welch wrote: "Services is so great an opportunity for the Company that our vision for the next century is GE that is 'a global service company that also sells high-quality products. Welch replied.. despite the power of their brands. For example. 3. Based on this belief. financial services revenues increased 12% to $59. In 2005. which may lead to rigidity and instability. . The conglomerate diversification has very little relationship with the firm's current business.

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