Strategic Management

Strategic management is the process of building capabilities that allow a firm to create value for
customers, shareholders, and society while operating in competitive markets.

Stakeholder in business

 A corporate stakeholder is an individual or group who can affect or be affected by

the actions of a business. The stakeholder concept was first used in a 1963

internal memorandum at the Stanford Research Institute. It defined stakeholders

as "those groups without whose support the organization would cease to exist. "

 In the last decades of the 20 th century, the word "stakeholder" has become more

commonly used to refer to a person or group that has a legitimate interest in a

project or entity. In discussing the decision-making process for institutions—

including large business corporations, government agencies, and non-

profit organizations -- the concept has been broadened to include everyone with

an interest (or "stake") in what the entity does.

Internal stakeholders are entities within a business (e.g., employees, managers, the

board of directors, investors). Employees want to earn money and stay employed.

Owners are interested in maximizing the profit the business makes. Investors are

concerned about earning income from their investment.

External stakeholders are entities not within a business itself but who care
about or are affected by its performance (e.g., consumers, regulators,
investors, suppliers). The government wants the business to pay taxes, employ
more people, follow laws, and truthfully report its financial conditions.
Customers want the business to provide high-quality goods or services at low
cost. Suppliers want the business to continue to purchase from
them. Creditors want to be repaid on time and in full. The community wants
the business to contribute positively to its local environment and population.
The I/O Model

The I/O or Industrial Company model adopts an external perspective. It starts with an assumption that
forces external to the company represent the dominant influences on a company's strategic actions.
constraints on companies and determines strategies that will result in superior returns.

In other words, the external environment pressures the company to adopt strategies to meet that pressure
while simultaneously constraining or limiting the scope of strategies that might be appropriate and
eventually successful.

Most companies competing in an industry or in an industry segment control similar sets of strategically
relevant resources and thus pursue similar strategies.

This assumption presumes that, given a similar availability of resources, the majority of companies
competing in a specific industry-or in a segment of the industry-have similar capabilities and thus follow
strategies that are similar. In other words, there are few significant differences among companies in an
industry.

Resources used to implement strategies are highly mobile across firms.

Based on its underlying assumptions, the I/O model prescribes a five-step process for companies to
achieve above-average returns as shown in the figure above:

1. Study the external environment-general, industry and competitive-to determine the

characteristics of the external environment that will both determine and constrain the
company's strategic alternatives.

2. Select an industry (or industries) with a high potential for returns based on the structural
characteristics of the industry.

3. Based on the characteristics of the industry, in which the company chooses to compete,
strategies that are linked with above-average returns should be selected. A model or
framework that can be used to assess the requirements and risks of these strategies,
the Generic Strategies (cost leadership and differentiation), will be discussed in detail later.

4. Acquire or develop the critical resources-skills and assets-needed to successfully implement

the strategy that has been selected.

5. The I/O model indicates that above-average returns will accrue to companies that
successfully implement relevant strategic actions that enable the company to leverage its
strengths (skills and resources) to meet the demands or pressures and constraints of the
industry in which they have elected to compete

Resources Based Model of Above Average return

The resource-based model assumes that each organization is a collection of unique resources and
capabilities that provides the basis for its strategy and that is the primary source of its returns. This
model suggests that capabilities evolve and must be mnaged dynamically in pursuit of above-average
returns.
Resources are inputs into a firm’s production process, such as capital equipment, the skills of individual
employees, patents, finances, and talented managers. In general, a firm’s resources can be classified
into three categories: physical, human, and organizational capital.

A capability is the capacity for a set of resources to perform a task or an activity in an integrative
manner. Through the firm’s continued use, capabilities become stronger and more difficult for
competitors to understand and imitate. As a source of competitive advantage, a capability “should be
neither so simple that it is highly imitable, nor so complex that it defies internal steering and control.

Not all of a firm’s resources and capabilities have the potential to be the basis for competitive
advantage. This potential is realized when resources and capabilities are valuable, rare, costly to imitate,
and nonsubstitutable.81 Resources are valuable when they allow a firm to take advantage of
opportunities or neutralize threats in its external environment. They are rare when possessed by few, if
any, current and potential competitors. Resources are costly to imitate when other firms either cannot
obtain them or are at a cost disadvantage in obtaining them compared with the firm that already
possesses them. And, they are nonsubstitutable when they have no structural equivalents. Many
resources can either be imitated or substituted over time. Therefore, it is difficult to achieve and sustain
a competitive advantage based on resources

Core competencies are resources and capabilities that serve as a source of competitive advantage for a
firm over its rivals.
Strategic Intent
Definition: Strategic Intent can be understood as the philosophical base of the strategic management
process. It implies the purpose, which an organization endeavor of achieving. It is a statement, that
provides a perspective of the means, which will lead the organization, reach the vision in the long run.

HuStrategic intent gives an idea of what the organization desires to attain in future. It
answers the question what the organization strives or stands for? It indicates the long-
term market position, which the organization desires to create or occupy and the
opportunity for exploring new possibilities.

Strategic Intent Hierarchy

Vision implies the blueprint of the company’s future position. It describes where the organization wants
to land. It is the dream of the business and inspiration, base for the planning process. It depicts the
company’s aspirations for the business and provides a peep of what the organization would like to
become in future. Every single component of the organization is required to follow its vision.

Mission delineates the firm’s business, its goals and ways to reach the goals. It explains the reason for
the existence of the business. It is designed to help potential shareholders and investors understand the
purpose of the company. A mission statement helps to identify, ‘what business the company
undertakes.’ It defines the present capabilities, activities, customer focus and business makeup.

Business Definition: It seeks to explain the business undertaken by the firm, with
respect to customer needs, target audience, and alternative technologies. With the help
of business definition, one can ascertain the strategic business choices. The corporate
restructuring also depends upon the business definition.
Business model, as the name implies is a strategy for the effective operation of the
business, ascertaining sources of income, desired customer base, and financing details.
Rival firms, operating in the same industry relies on the different business model due to
their strategic choice.
Goal and objectives: These are the base of measurement. Goals are the end results,
that the organization attempts to achieve. On the other hand, objectives are time-based
measurable actions, which help in the accomplishment of goals. These are the end
results which are to be attained with the help of an overall plan, over the particular
period.

Vision, mission, business definition, and business model explains the philosophy
of business but the goals and objectives are established with the purpose of
achieving them.
Strategic Intent is extremely important for the future growth and success of the
enterprise, irrespective of its size and nature.

Emergent strategy
An emergent strategy is a pattern of action that develops over time in an
organization in the absence of a specific mission and goals, or despite a mission
and goals.
Emergent strategy is sometimes called realized strategy. An emergent strategy or
realized strategy differs from an intended strategy.

Business Model and Strategy

There are five major components to any business model:

1. The Mission
2. Targets
3. Customer Value Proposition
4. Go-to-Market
5. The Organization

The way a business model works is, "The organization efficiently & effectively develops
and delivers the customer value proposition and go-to-market to fulfill the needs of
the target customers better than competitors, all for the purpose of achieving the
mission."

The horizontal graphic below translates the flow of elements in a business model.
The mission, which ultimately gives purpose and provides the "why" the
company exists.
The target, these include the markets and geographies ("where") the
company competes in, for the business of the target customers ("who").
Value proposition, which is the “what” and the core of any business model,
composed of the products, services, and pricing of the business.
Go-to-market, comprised of the distribution, sales, and marketing of the
business. The purpose of go-to-market is to amplify the value proposition to drive
customer acquisition and loyalty.
the organization, organized into functions (e.g., sales, ops, finance).
Everything the organization does is a process (whether defined as one or
not) executed by team members, partners, and infrastructure.
Environmental Analysis

PEST
PEST Analysis is a strategic framework used to evaluate the external environment
for a business by breaking down opportunities and threats into Political,
Economic, Social, and Technological factors. PEST analysis can be an effective
framework to use in Corporate Strategy Planning, useful in identifying the pros
and cons of a Business Strategy.

Political Factors
When looking at political factors, you are looking at how government policy
and actions may affect the economy, as well as the specific industry the
business operates in. These include the following:

Tax Policy

Labor Law

Environmental Law

Trade Restrictions

Tariffs

Economic Factors

Economic Factors take into account the various aspects of the economy, and
how the outlook on each area could impact your business. These economic
indicators are usually measured and reported by Central Banks and other
Government Agencies.

Economic Growth rates

Interest Rates

Exchange Rates

Inflation

Social Factors

PEST analysis also takes into consideration social factors, which are related to the
cultural and demographic trends of society. Social norms and pressures are key to
determining a society’s consumerist behavior. Factors to be considered include the
following:

 Cultural Aspects
 Health Consciousness
 Population Growth Rates
 Age Distribution
 Career Attitudes
Technological Factors

Technological Factors are linked to innovation in the industry, as well as innovation

within the overall economy. Not being up to date on the latest trends of a particular
industry can be extremely harmful to operations. Technological Factors include the
following:

 R&D Activity
 Automation
 Technological Incentives
 The rate of change in technology

Porter's Five Forces

Porter’s five forces model is an analysis tool that uses five industry forces to determine the intensity of
competition in an industry and its profitability level.
Threat of new entrants.
This force determines how easy (or not) it is to enter a particular industry. If an industry is
profitable and there are few barriers to enter, rivalry soon intensifies. When more organizations
compete for the same market share, profits start to fall.
It is essential for existing organizations to create high barriers to enter to deter new entrants.

Bargaining power of suppliers

. Strong bargaining power allows suppliers to sell higher priced or low quality raw materials to their
buyers. This directly affects the buying firms’ profits because it has to pay more for materials.

Suppliers have strong bargaining power when:

 There are few suppliers but many buyers;

Bargaining power of buyers.

Buyers have the power to demand lower price or higher product quality from industry producers when
their bargaining power is strong. Lower price means lower revenues for the producer, while higher quality
products usually raise production costs.
Threat of substitutes.
This force is especially threatening when buyers can easily find substitute products with attractive prices
or better quality and when buyers can switch from one product or service to another with little cost.

Rivalry among existing competitors.

This force is the major determinant on how competitive and profitable an industry is. In competitive
industry, firms have to compete aggressively for a market share, which results in low profits. Rivalry
among competitors is intense when:

There are many competitors;

Exit barriers are high;

Key success factors

Key success factors (also known as competitive emphasis or strategic posture) state the important
elements required for a company to compete in its target markets. In effect, it articulates what the
company must do, and do well, to achieve the goals outlined in its strategic plan.

The decisions the management team makes about key success factors:

 Directly addresses competitive forces (factors in the marketplace that can reduce profits)
 Set direction for the behavioral expectations of the employees
 Inform the knowledge, skill and behavioural requirements for a company to succeed
 Provide the decision-making boundaries for execution plans, including organizational
structure, sourcing,manufacturing, marketing and sales, tools, technologies, etc.

Strategic group
Strategic groups can be defined as a group of companies within
a particular industry that follows a similar strategy or similar
business model. The companies that are part of the same
strategic group have more competition with the members of
the strategic groups than the competitors outside the strategic
group.
Because of this, all the companies that provide services in a
particular segment of the industry are referred to as members
of one strategic group. For example, in the restaurant industry,
there are different strategic groups formed based on different
variables such as presentation, preparation time, and pricing of
the food, etc. The various strategic groups in the restaurant
industry are fast food, fine dining, etc.