Strategic Management Unit - I
Basic Elements of Strategic Management Process 1) Environmental Scanning Monitoring, evaluating and disseminating of information from the external and internal environment. 2) SWOT Analysis 3) Mission - What purpose the organization is existence. 4) Objective - These are the end results of planned activity. Three types of strategy Corporate Strategy Stability, growth, and retrenchment of a corporate company¶s over all direction in terms of its general attitude toward growth of management of its various product lines. Business Strategy It occurs at the business unit or product level. Functional Strategy Developing and nurturing distinctive competence. Policies Broad guide line for decision making. Strategy Implementation Strategies and policies put into action through the development programs, budgets and procedures. Programs It is a statement of the activities or steps needed to accomplish a single use plan. Budgets Corporation programs in terms of dollars.
Procedures System of sequential steps or techniques that describe in detail how a particular task or job to be done. Evaluation and control Which corporate activities and performance results are monitored so that actual performance can be compared with desired performance. Strategic decision process Entrepreneurial mode Decision made by one powerful individual, will be large and bold decisions. Adaptive mode Decision making mode is characterized by reactive solutions to existing problems, rather than proactive search for new opportunities. Planning mode Systematic gathering for appropriate information for situation analysis. Eight steps 1) Evaluate current performance results. 2) Review corporate governance ± performance of the firm¶s board of directors and top management. 3) Scan and assess the external environment 4) Scan and assess the internal corporate environment to determine the strategic factors that are strengths and weaknesses. 5) Analyze strategic factors. 6) Generate evaluate and select the best alternative strategy. 7) Implement selected strategies. 8) Evaluate Implemented strategies. Corporate governance and Social Responsibility Corporate Governance The term CG refers to the relationship among these three groups in determining the direction and performance of the corporation. (Azar - 46)
. available from different sources both inside and outside organization. economic. suppliers. 4. 2. documents. television etc. Sources of Information for Environmental Scanning 1. changes in legislation and regulations Adhoc Approach Organization may conduct special surveys and studies to deal with specific environmental issues from time to time. 4. practices and implicit rules that determine a company¶s ability to take managerial decisions. ethical. 2. Mgt information systems. newspapers.
Unit ± II
Environment External environment 1. magazines. legal. 3. Economic Technological Political ± legal Social ± cultural
Approaches (Azar 119) Systematic Approach Environmental scanning is collected systematically from Govt. 3. Social Responsibility A private corporation has responsibilities to society that extend beyond making a profit. policies. Mass media such as radio. procedures. trade associations. Documentary or secondary sources of information like publications. discretionary. Internal sources such as company files. available form. it deals with laws. External agencies like customers. journals. Processed ± form Approach An organization uses information in a processed form.Consideration of the Indian Industry (CII).
Structure the Environmental appraisal By help of environmental threats and opportunities profile. motivation level. Prepare the report summarizing the major issues and their implications. 4. hostility. Formal studies from employees. Techniques for environment scanning by Nanus Quest Quick Environmental scanning technique. 3. The bargaining power of buyers. 2. and diversity. Threat of substitute products or services. Report and scenarios are reviewed by a group of strategists who identify feasible strategic options to deal with the evolving environment. 2. 3. experience. Environment related factors ± Its complexity. Observe major events and trends in industry. rival companies. Industry structure II) Positioning of a firm in the industry. market research agencies. nature of its market.
Four steps 1. 4. complexity. 5. share.
. Strategist related factors ± Strategist characteristic such as age.5. Organization related factors ± Nature of business of the organization in its age.
Threat of new entrants. volatility. Then they speculate on a wide range of important issues that might affect the future on their organization. 6. consultants and educational institutions. 2. Spying and surveillance ± Ex-employees of competitors. Porter¶s five model I) 1. The bargaining power of suppliers. education. 3. Factors Affecting Environmental Appraisal 1. The rivalry among the existing competitors in an industry. ability to withstand time pressures etc..
Globalisation Integration of country¶s economy with the global economy. In competitive advantage we again have two factors as follows.cross culture . y Lower cost and y Differentiation. It is performed in several ways like enhancing in ward flow of foreign funds. 1. Focus Business strategy It is called as niche strategies. Ex ± captain cook salt ± with iodine. gender. Differentiation 3. and internationalizing markets and corporations in general. and technology. or non financial parameters such as market share or reputation. which the competitors who are not able or willing to offer the special features. Focus(lower cost or differentiation/ narrow target) Cost leadership/Low cost strategy (Azar 230) When the competitive advantage of a firm lies in a lower cost of products or services related to what the competitors have to offer.
There are two variables ± Competitive advantage and competitive scope. opening up the system of trade and investments. Cost leadership (lower cost/broad target) 2. It is compared with historical performance with current performance..Rapidesc English learning books. cross borders. Ex. such as profit or shareholder value. It focus on age. ex. occupation etc. free low price. also called as narrow segmentation customers.
. it is termed as cost leadership. Meaning/ strategic advantage They are the result of organizational activities leading to rewards in terms of financial parameters. Differentiation business strategy/Differentiation strategy Firms offer special feature products.II)
Positioning of a firm. income..
Resource Allocation: It means the procurement and commitment of financial. Global economic forces. Top down Approach Resource are distributed through a process of segregation down to the operating levels. information systems. Approaches to Resource Allocation 1) Top Down Approach 2) Bottom up approach 3) Mix of the above/ strategic budgeting. content and direction. competitiveness. Board of directors the CEO or MD. executive committee could decide the requirements and distribute resources accordingly. Factor conditions ± such as natural resources. Bottom up approach: Resources are aloocated ater a process of aggregating form operating level. Industry structure Porter defines two namely industry structure and positioning of a firm. financial system. organization blocs. legal system.Impact of Globalization. and rivalry ± how firms are created. Demand conditions ± the nature and size of the buyer needs in the domestic market. It is a both one time and a continuous process. communication network. and the nature of domestic competitions. structure.
Porter¶s four national characteristics. labour. y y Globalization. its process. physical and human resource to strategic tasks for the achievement of organizational objectives. Related and supporting industries Firm strategy.
. raw materials. organized and managed. It is adopted in Entreprenenal mode.
Distinctive competence(Azor 134) It is any advantage a company has over its competitors because it can do something which they cannot or it can do something better they can .
Generic business startegy(Azor 227) Competitive scope could be broad target or a narrow target.
Core Competency: Gain greater currency and popularity.Factors affecting resource allocation: 1) 2) 3) 4) Objectives of the organization Preference of dominant strategies Internal politics External influences
Difficulties in Resource Allocation:
1) Scarcity of Resource :
Organizational Capability(136) It is the inherent capacity or potential of an organization to use its strength and overcome its weakness in order to explicit opportunites and face threats in the external environment. Organizational capability factors: Capabilities are most often developed specific functional areas such as marketing operations or in a part of functional area such as distribution or R&D. physical and human resources are hard to find
2) Restictions on generating resources for newer units.
. Factors influencing 1) 2) 3) 4) Product related factors Price related factors Place related factors Promotional related factors
Strengths: 1) 2) 3) 4) Wide variety of products Better quality of products Sharply focused positioning Price protection due to the government policy. promotion and distribution of products and services. operations. corporate factors and so on. personal. Factors influencing a financial capability 1) Factors related to source of funds 2) Factors related to usage of funds 3) Factors related to management of funds. High level of credit worthiness Efficient capital budgeting system
Marketing capability It relates to pricing. information and general management areas. Financial capability It relates to availability if usage and management of funds. strategic advantage factors. Capability factors in Internal Environment Finance.Organization capability factors are: Strategic factors. Strength to support financial capability 1) 2) 3) 4) access to financial resources amicable relationship with financial institutions.
Factors related to the operations and R&D system Strengths: 1. Factors related to the operations and control system 3. Factors related to production system 2. and allied aspects
Factors influencing: 1. High level of capacity utilization Favorable plant location High degree of vertical integration Reliable sources of supply
Personnel capability: It is related to the existence and use of human resources and skills. Factors related to the personnel system 2. 2. Factors related to industrial relations Strengths: 1. 2. 4. Genuine concern for human resource management Efficient and effective personnel systems Excellent training opportunities and facilities Congenial working environment
Information management capability: It relates to the design and management of the flow of information from outside into and within an organization for the purpose of decision-makin
. The use of material resources
Influence factors: 1. Factors related to the organizational and employees characteristics 3. 3.Operations capability: It relates to the production of products or services. 4. 3.
regulatory agencies. and financial institutions. public relations
4) Factors related to organizational climate Organizational culture. and implementation machinery. formulation. coordination. strategy evaluation system
2) Factors related to general mangers Values. Availability and operability of high-tech environment General management capability: If relates to the integration. use of power. 4.Strengths: 1. track record
3) Factors related to external relationships Rapport with the government. competence capacity for work. Wide spread use of computerized information system 3. 2. personal goals. Effective system for corporate planning Entrepreneurial orientation Good rapport with the government and bureaucracy Favorable corporate image
. 3. Ease and convenience of access to information sources 2. and direction of the functional capabilities towards common goals
1) Factors related to the general management system Strategy. management change
practically feasible at the functional level. It derived from business and corporate strategies Vertical fit: Congruence and coordination takes place different levels of strategies is vertical fit Horizontal fit: There has to be congruence and coordination among the different activities. DEVELOPMENT OF FUNCTIONAL PLANS & POLICIES The development of functional plans and policies is aimed at making the strategies formulated at the top management level.Strategic Management Unit III
Functional level strategies: It deals with a relatively restricted plan which provides the objectives for a specific function. Functional plans tell the functional mangers what has to be done. while functional policies state how the plans are to be implemented Need for functional plans and policies: 1) Strategic decisions are implemented by all parts of an organization 2) Controlling activities in the different functional areas at business 3) Coordination across the different functions takes place where necessary. Larger organizations and complex organizations have the formal plans and policies that means all published in company manuals and documents. Smaller firms with simple operations in informal.
. It ranges from formal to the informal. taking place at the same level is horizontal fit Functional plans and policies: Plans are formulated o select a course of action while policies are required to act as guidelines to these actions Functional mangers need guidance from the corporate and business strategies in order to make decisions.
EXPANSION STRATEGIES When an organization aims at high growth substantially broadening the scope of one or more of its business in terms of their respective customer groups. CORPORATE STRATERGY(AZAR 166) These are basically about the choice of direction that a firm adopts in order to achieve its objective.
STABILITY STRATEGIES It is adopted by an organization when it attempts at an incremental improvement of its functional performance by marginally changing one or more of its business terms of their respective customers groups. It involves total or partial withdrawal from either a customer group. customer functions and alternative technologies. separately to serve the identified customers groups and provide value to the by a satisfaction of their needs.BUSINESS LEVEL STRATERGY / COMPETATIVE STRATERGY Business strategies are courses of action adopted by a firm for each of its business. Eg: A copier machine company provides better sales services to its existing customers to improve its company and product image and increase the sale of accessories . Eg: A printing firm changes from the traditional utter press printing desktop publishing in order to increase its production and efficiency. functions and alternative technologies single or jointly.
. customer function or the use of an alternative strategy. RETRENCHMENT STRATEGIES When an organization aims at a contraction of activities through substantial reduction or the elimination of the scope of one or more of the business. GRAND STRATEGY According to Glueck there are four strategy alternatives y y y y Stability Expansion Retrenchment Combinations of these three strategies are termed as grand strategies.
Forward Backward means redirecting the source of raw materials and forward means the organization nearer to the ultimate customer. Combination Strategy: When an organization adopts a mixture of the above strategies. It could be two ways 1.Eg: A corporate hospital decides to focus only on specially treatment and realize higher revenues by reducing its commitment to general cases which are typical has practical to deal with. In other words any new activity undertaken with the purpose of either supplying inputs (such as raw materials) or serving as a customer for outputs (such as marketing firm¶s product) is called Vertical Integration.
. Ex: A Paint Company offering decorative paints to provide a wider variety to its customers (stability) and expands its product range to include industrial and automotive paints (expansion). Dimensions of Grand Strategies: 1. Horizontal Integration When an organization takes up the same type of products at the same level of production or marketing process. 2. Combination Strategies are the Complex Solutions that strategies have to offer when faced with the difficulties of the real ± life business. it decides to close down the division which undertakes large scale painting contracts (Retrenchment). Ex: When a suitcase manufacturing company take over other suitcase manufacturing company. 3. vertical integration takes place. Internal/External Dimension Related/Unrelated Dimension Horizontal/Vertical Dimension Active/Passive Dimension
Vertical Integration When an organization starts making new products that serve its own needs. Backward 2. 4. Simultaneously.
Diversification: These strategies involve all the dimensions of strategic alternatives. 2. related or unrelated. horizontal or vertical. and active or passive dimensions ± either single or collectively. Ex: Leasing firm offers hire purchasing services to institutional customers also start consumer financing 3. Different Types 1.. Marketing. Conglomerate diversification Concentric Diversification When an organization takes up an activity in such a manner that it is related to the existing business definition of one or more of a firm¶s businesses. It involve internal or external. It may be three types 1. Conglomerate Diversification When an organization adopts strategy which requires taking up those activities which are unrelated to the existing business. Concentric diversification 2. Technology. Ex: Raincoat manufacturer makes other rubber based items such as rubber gloves.. water proof shoes etc.related concentric diversification When a new type of product or service is provided with the help of related technology. Ex: ITC Cigarette Industry Hotel Industry
. Marketing.end Technology related When a similar type of product (or service) is provided with the help of related technology.related concentric diversification When a similar type of product or service is provided with the help of unrelated technology. Ex: Sewing Machine Company diversifies into kitchenware and house hold appliances.
It is the only way out if growth in existing businesses is blocked due to environmental and regulatory factors. Takeover Takeover is a common way for acquisition and may be defined ³As the attempt of one firm to acquire ownership or control over another firm against the wishes of the stock holder. Joint ventures have proved to be an invaluable strategy for companies. Minimize risk 2. Ex: TVS Whirlpool Ltd with Whirlpool India Ltd. In an era of globalization.Reason for Diversification Strategy 1. STRATEGIC ALLIANCES It becomes quite popular as strategic alternatives for firms looking for cooperation among national as well as International Partners.
. Mergers Takeover/acquisitions Joint ventures Strategic alliances
Mergers It takes place when the objective of the buyer firm and the seller firm are matched to a larger extent. 4. Capitalize original strength or minimize weaknesses 3. 2. Expansion through Cooperation Cooperative strategy types 1. 3.´
JOINT VENTURES When an independent firm is created by at least two other firms.
Ex: Making footwear combines with another footwear company. VERTICAL MERGER Combination of two or more organization not necessarily in the same business. These alliances may be Inter-Intra Industry.
.TYPES OF MERGER
HORIZONTAL MERGER Two or more organization in same business. COMPETITIVE ALLIANCE(High Interaction/High conflict) Partnership that bring two rival firms in a cooperative arrangement where intense Interaction is necessary. Ex: Footwear company combines with a chain of shoe retail stores.
TYPE OF STRATEGIC ALLIANCES
PROCOMPETITIVE ALLIANCES (Low Interaction/Low conflict) These are general Inter Industry. customer groups or the alternative technologies used.
NON COMPETITITIVE ALLIANCES(High Interaction/Low conflict) These are intra industry partnership between non competitive firms. Ex: Footwear Company combined with pharmaceuticals. CONGLOMERATE MERGER Combination of two or more organizations unrelated to each other. Ex: Footwear Company combined with hosiery firm. CONCENTRIC MERGER Combination of two or more organization related to each other in terms of customer functions. It have the same type of Industry. vertical value chain relationship between manufactures and their suppliers or distributors. suppliers and buyers entering upon long term contracts.
equity holdings and cross holding pattern.Ex: Several foreign companies operating independently in India and also entering into a cooperative management with local rival companies for specific purposes. Clearly define a strategy and assign responsibilities. Phase in the relationship between Partners. Entering new markets. PRECOMPETITIVE ALLIANCE(Low interaction/High conflict) These Partnership bring two firms from different. rationalization. such as new technology development. 2. often unrelated industries to work on well defined activities.
. Financial Restructuring: Changes in equity pattern. 3. 4. Developing and diffusing technology. debt servicing schedule etc. Provide for an exit strategy. 4. 2.
MANAGE STRATEGIC ALLIANCE It¶s difficult to manage strategic alliance Walters. Blend the cultures of the Partners. employees. Enhance their organizational capabilities. At micro level three connotations. Peters & Dess 1. Reducing manufacturing cost. 1. 3. 2. 3. REASONS FOR STRATEGIC ALLIANCES: 1. Corporate or Business level: In order to create more profitable enterprise. regrouping. CORPORATE RESTRUCTURING Restructuring means revamping. and redesignation. new product development. Organisation Restructuring: Changes in organization structure like reducing hierarchies.
2. Internal business Perspective ->What must we exceed at? 3) Innovation & learning perspective -> can we continue and improve and create value. Specialization Increases. 4) Financial Perspective -> How do we look at share holder?
UNIT IV ORGANISATIONAL STRUCTURE ENTREPRENURIAL STRUCTURE Suitable for managed by one person. Timely response to environment changes. Owner manager q Employees Merits: 1. Top management gets time for decision making. Merits: 1. It gives comprehensive view of the business to top level managers.
. It includes 4: 1. 3. Attention may divert. Quick decision making. FUNCTIONAL STRUCTURE Distribute the decision making powers. Customer Perspective ->how do customer see? 2. Demerits: 1. 2.BALANCE SCORE CARD Measure the Performance of an organization is that of the balance score card.
DIVISIONAL STRUCTURE In this work is divided on the basis of product lines. MATRIC STRUCTURE This type of structure is created by assigning functional specialists to work on a special project or a new product service for the donation of the project. Generates quick response to environmental changes. Creates difficulty in coordination. size and number of divisions. 2.Demerits: 1. the team members revert to their parent departments. STRATEGIC BUINESS UNIT (AZAR 324) In any part of business organization which is treated separately for strategic management purposes. They may also work in their respective parent departments. When an organization face difficulty in managing divisional operations due to an increasing diversity.
Merits 1. Demerits 1. Once the project is completed . Leads to functional and line staff conflicts. or geographic area covered and then separate divisions or groups created and placed under the divisional level management. Problems in allocation of resources and corporate over bench costs. 2. type of customer served.
. Enables the top management to focus on strategic matters. the specialists from different area form a group or team and report to a team leader simultaneously.
Loss of control and lack of coordination as several partners. Specialization gets importance. Provides good exposure to specialists in general management. Merits 1. The network structure is most suited to organizations that have a continually changing environment requiring quick response. Demerits 1. High level of flexibility. The network structure is composed of a series of project groups or collaborations linked by constantly changing non.hierarchical cob web like networks. 2. High costs as a duplication of resources could be there. 2.
Network structure It is also known as spider web structure.
PRODUCT BASED STRUCTUERS The grouping of the activities based on the product or product line is followed by organizations where there is a need to delegate to a divisions all functions related to that particulars product or product line. and strong innovation skills. Shared authority may create communication problems. high level of adaptability. 2. or the virtual organization. 2. Demerits 1. Permit concentration on core competencies of the firm. Requires a high level of vertical and horizontal combination.UNIT IV (Azar-325) Merits 1.
.) Structural changes 2.) Choice of structure that could accommodate the different group of activities. CONTEMPORARY ORGANISATION DESIGN Traditional organization design characteristics One large firm Vertical communication pattern Centralized top-down decision making Vertical integration Minimum training Emerging organization design characteristics Small business units having co0operative relations Horizontal communication Decentralized participative decision making Outsourcing and vertical organization Extensive training
ORGANISATIONAL CHANGE Organizational change takes place 2 broad dimensions.) The second type of changes is informal and relate to concomitant behavioral modifications that are essential to absorb the impact of organizational changes. 3.) Grouping of activities that are similar in nature and which need a common set of skills to be performed. 5.) Accompanying behavioral changes. 4. 1. 1. divisions. But there is no one absolutely correct way to organize.) Identification of key activities necessary to be performed for achievement of objectivities. and so on to which the groups of activities could be assigned.CUSTOMER BASED STRUCTUER: Geographical based. 2. ORGANISATION DESIGN AND CHANGE: The sequence of steps followed in organizational design could be described as below.) Establishing an interrelationship between different departments for the purpose of coordination and communication. 1. Organization mission and objectives will make the organizational design. 2.) The first type of change is formal and related to modification in structural relationship and may entail the creation or disbandment of departments or managerial postions.) Creation of departments.
) 3.) Information system Control system Appraisal system Motivation system Development system Planning system
INFORMATION SYSTEM To enables the managers to know what they need to group in order to perform their tasks and also to co-ordinate their activities with others. CONTROL SYSTEM It deals with measurement and correction of the performance of activities of subordinates in order to make sure that enterprise objective are plan devised to attain them are being accomplished. Procedural appraisal that means who can do the appraisal in the systematic way. And determining corrective action predestined plan.) 4.
. 1. Informal are qualitative adherence to ethical starndards.) 2.) 4.) 6. Appraisal System: It is the important component of control system.ORGANISTAIONAL SYSTEMS The organizational structure provides the mechanisms for the distribution of authority and responsibility within the organization.) 2. This performs critical role of evaluating managerial performance in the light of organizational objectives. Formal are quantitative.) 3. The appraisal system used with multiple criteria rather than single.
Controls may be classified as formal direct and informal indirect.) Establishing standards Measuring actual performance Evaluating actual performance against standards.) 5. SBC ORGAINSATIONAL SYSTEM 1. Integrating formal and informal control is essential.
Implementation Control: It evaluates whether the plans. Special alert control a. designed to monitor a broad range at events inside and outside the company that are likely to threaten the course of a firm strategy. c. Strategic Surveillance d.Strategic control: The four basic control strategies are a. Implementation control c.
. It serves the purpose of continuous testing of assumptions to find out whether they are still valid or not. b. Premise Control b. Premise control: It is necessary to identify the key assumptions and keep track of any change in them so as to assess their impact on strategy control and its implementation. Strategic Surveillance: It is more generalized and overarching control. d. Special Alert control: It is exercised through the formulation of contingency strategies and assigning the responsibility at handling unforeseen events to crisis management teams. programs and projects are actually guiding the organizations towards its predetermined objectives or not.