Unit 1

 Strategic management can be defined as the art and science of formulating,

implementing, and evaluating cross-functional decisions that enable an organization to
achieve its objectives.
 The term strategic management is often used in academia while the term strategic
planning often used in the business world.
 The term strategic management is used to refer to environmental scanning, strategy
formulation/planning, implementation, and evaluation, with strategic planning
referring only to strategy formulation.
 The purpose of strategic management is to exploit and create new and different
opportunities for tomorrow; and to optimize for tomorrow the trends of today.
 In other words, strategic management is the set of managerial decisions and actions that
determines the long-term performance of a corporation.
It includes:
environmental scanning (internal & external)
strategy formulation
strategy implementation
evaluation and control

Features of Successful Strategic Management

 Has support of organization’s executive officers
 Is user friendly.
 Is participatory, not left to planners.
 Is flexible.
 Leads to resources decisions.
 Engages and motivates all staff.
 Is fresh and continuous, not static
Strategic planning is defined as the process by which managers of the firm analyze the internal and
external environments
Characteristics of Strategic Planning
 Plans must be tailored to organization.
 No one size ‘fits’ all.
 Process needs a shepherd.
 Visionaries needed at beginning and detail types thereafter.
Benefits of Strategic Management
 Clearer sense of strategic vision
 Sharper focus on what is strategically important
 Improved understanding of rapidly changing environment
 Exploit and create new and different opportunities for tomorrow
Three Key Strategic Questions
 Where is the organization now?
 If no changes are made, where will the organization be in one, two, five or ten years? Are the
answers acceptable?
 If the answers are not acceptable, what specific actions should management undertake? What are
the risks and payoffs involved?
Stages of Strategic Management Model
 Scanning/intent
 Where are we now?
 Strategy Formulation
 Where do we want to be?
 Strategy Implementation
 How do we get there?
 Measurement/Performance
 How do we measure our progress?

1st phase establishment of strategic intent

2nd phase formulation of strategies
3rd phase implementation of strategy
4th phase strategic evaluation
 Strategic Management Model
Scanning
Methods of environment scanning
Pestel
Strategic Management Model
Strategy Formulation
Strategy Implementation
Programs
Budgets
Procedures
Evaluation and Control
 The process of monitoring corporate activities and performance results so that actual performance
can be compared with desired performance.
Strategic Management Model
 Unit 2
ENVIRONMENTAL ANALYSIS
1.The Internal Environment
Strengths
 Strength is a resource, skill, or other advantage relative to competitors and the needs of the
markets a firm serves or expects to serve.
 Strengths may exist with regard to financial resources, image, market leadership, buyer/supplier
relations
Weaknesses
 Weakness is a limitation or deficiency in resource, and capabilities that seriously impedes a
firm’s effective performance.
 Lack of facilities, financial resources, management capabilities, marketing skills, and brand
image can be source of weaknesses.

Competitive Advantage
 Michael Porter identified two basic types of competitive advantage:
 cost advantage
 differentiation advantage
Resources
 Resources are the firm-specific assets useful for creating a cost or differentiation advantage
and that few competitors can acquire easily. The following are some examples of such
resources:
 Patents and trademarks
 Proprietary know-how
 Installed customer base
 Reputation of the firm
 Brand equity
Capabilities
 Capabilities refer to the firm's ability to utilize its resources effectively. An example of a
capability is the ability to bring a product to market faster than competitors.
Core Competencies
 The firm's resources and capabilities together form its core competencies. These
competencies enable innovation, efficiency, quality, and customer responsiveness, all of
 which can be leveraged to create a cost advantage or a differentiation advantage i.e. core
competencies serve as sources of competitive advantage.
Resources & Capabilities: four criteria
 Not all of a firm’s resources & capabilities have the potential to be the basis for competitive
advantage. This potential can be realized when resources & capabilities are:
 Valuable: Allow the firm to exploit opportunities or neutralize threats in its external
environment
 Rare: Possessed by few, if any, current & potential competitors
 Costly to imitate: When other firms cannot obtain them or must obtain them at a much
higher cost
 Non-substitutable: The firm is organized appropriately to obtain the full benefit of the
resources in order to realize a competitive advantage
The process of internal analysis of an organization involves four basic steps:
1. Developing a profile of financial, physical, organizational, human, & technological etc
resources
2. Determining the key success requirement of the product/market segments in which the
organization competes or might compete
3. Comparing the resource profile to the key success requirements to determine the
strengths & weaknesses
4. Comparing the strengths & weaknesses of the organization with those of its major
competitor’s
Value Creation
Categories of value:
 Value is low price
 Value is what is wanted
 Value is the quality received for the price paid
The Generic Building Blocks of Competitive Advantage
 Superior efficiency - the quantity of inputs that it takes to produce a given output
 Superior quality - customer-perceived value in the attributes of products/services, reliability etc.
 Superior innovation - anything new or novel, uniqueness
 Superior customer responsiveness - identifying & satisfying the needs of customers,
customization
2. Value Chain Analysis
  The value chain was described and popularized by Michael Porter in his 1985 in
Competitive Advantage: Creating and Sustaining Superior Performance.
 A value chain is a systematic way of viewing the series of activities a firm performs to
provide a product to its customers.
2.The External Environment
External Environmental Analysis
The Process of Performing an External Analysis
 Gather relevant information
 Identify the most important opportunities and threats
 Rank them from the most important to the least important
OPPORTUNITIES:
 An opportunity is a major favorable situation in a firm’s environment.
 Identification of
a previously overlooked market segment,
changes in competitive or regulatory circumstances,
technological changes, and
improved buyer or supplier relationships
could represent opportunities for the firm.
THREATS:
 A threat is a major unfavorable situation in a firm’s environment. Threats are key ingredients to
the firm’s current or desired opposition.
 Identification of

◦ the entrance of new competitors,

◦ slow market growth,

◦ increased bargaining power of key buyers or suppliers,

◦ technological changes, and new or revised regulations

could represent threats to a firm’s success.
The General Environment
(PESTE – Analysis)
 Analysis of the genera
 l environment is focused on its future impacts on firm’s performance.
  A scan of the external general environment in which the firm operates can be expressed in
terms of the following factors:
 Political; Economic; Social; Technological
Economic Factors:
 Economic assessment must address:
 The overall economic forecast and the likely funding stream that will be
available.
 The international and national forces that can affect the economic well being
of the organization should be analyzed.
Some key economic variables:
 Availability of credit
 Level of disposable income
 Interest rates
 Inflation rates
 Unemployment trends
 Consumption patterns
 Stock market trends
 Import/Export factors
 Demand shifts
 Price fluctuations
 Fiscal policies
 Tax rates
Political Factors:
 Political factors define the legal and regulatory parameters of organizations’ operation.
 Political action can bring about substantial impact on three governmental functions that influence
the external environment of firms:
1. Supplier function
2. Customer function
3. Competitive function
Some key Political (Gov’al & legal) variables
 Tax laws
 Environmental protection laws
  Level of government subsidies
 Antitrust legislation
 Terrorist activities
 Import/Export regulations
 Fiscal & monetary policies
 Size of Government budget
 Local, state & national elections
Social Factors:
 These factors include the beliefs, values, attitudes, opinions, and life style of persons depending
up on cultural, demographic, religious, and ethnic conditioning.
Some key socio-cultural variables:
 Changing work values
 Ethical standards
 Growth rate of population
 Life expectancies
 Rate of family formation
 Consumer activism
 Geographic shifts in population
 Attitudes towards business
 Average level of education
 Attitudes towards leisure time
Technological Factors:
Organizations must strive to understand the existing scientific or technological advances
Some key technological variables
 R&D activity
 automation
 technology incentives
 rate of technological change
The SWOT Matrix
 S-O strategies pursue opportunities that are a good fit to the company's strengths.
 W-O strategies overcome weaknesses to pursue opportunities.
 S-T strategies identify ways that the firm can use its strengths to reduce its vulnerability to
external threats.
 W-T strategies establish a defensive plan to prevent the firm's weaknesses from making it
highly susceptible to external threats.

Strengths Weaknesses

S-O strategies W-O strategies

Opportunities

Threats S-T W-T strategies

strategies

Unit 3
Strategic Planning – What is this?

 The “big picture” of what your agency is doing and where it is going.
 Helps determine where your organization is going over the next year or more.
Strategic Planning Models
 Goals-Based

 Most common.
 Works with the agency vision, mission, and the agency goals to work toward achieving the
mission.
Issues-Based

 Starts with examining issues that the organization is facing.

Organic

 Focus is primarily on vision and values.

 Scenario
Model of Rational Strategic Planning
Basic straregic planning model
1. Defining the mission and setting top level goals.
2. External analysis of opportunity and threats.
3. Internal analysis of strengths and weakness.
4. Selection of appropriate strategies.
5. Implementation of chosen strategies.
Components of a Strategic Plan

 Vision – Developing a clear understanding of what is your preferred future

 Mission – Developing a sound statement about why you exist
 Core Values and Beliefs – Describes behaviors and ideas that are important to your organization
 Strategic Issues – The issues that create a gap between the ideal and reality
 Operational Plans – How are you going to achieve your vision?
Vision Statements
 Developing a vision statement is often considered the first step in strategic planning, preceding
even development of a mission statement
 Many vision statements are a single sentence.

Vision
An organization’s vision describes what the organization hopes to become in the future. Well-constructed
visions clearly articulate an organization’s aspirations.
Effective leadership and vision
Effective leadership and vision are closely related:
 Thus, leaders must be forward looking and clarify the direction in which the
organization to move.
 Managers who do not develop into strong leaders do not develop a clear vision-instead,
they focus on routine tasks.
Visionary leaders:
 Have thoughts that others do not have
 Are extraordinary-no focus on routine activities
 Are forward looking and clarify the direction in which they want their organization move
 Are exemplary in order to employees embrace the vision
 Ensure the success of the vision based on organizational strengths
 Develop further the corporate vision considering internal & external changes etc.
Benefits of Vision
• It empowers people and focuses their efforts
• It focuses energy for greater effectiveness
• It raises the standard of excellence
• It establishes meaning for today
• It gives hope for the future
• It brings unity to community
• It provides a sense of continuity
• It raises commitment level
• It brings positive change
PITFALLS OF VISION
Though vision can fail:
 If it reflects merely the leaders internal needs
 If internal and external factors are not analyzed well
 Due to lack of acceptance by the market and by those who implement it
 Ignores stakeholders needs
  Miscalculates the resources needed and available to achieve it
VISION
Vision without Action is a Daydream
Action without Vision is a Nightmare
 Not Optional
 Stretch – 30+ Years
 8-10 Words in length
 Future State
 Brief and Memorable
 Inspiring and Challenging
 Descriptive of the Ideal
Mission Statements
 Mission statements are “enduring statements of purpose that distinguish one business from other
similar firms.
 A mission statement identifies the scope of a firm’s operations in product and market terms.
 It addresses the basic question that faces all strategists “What is our business?”
Mission
• Mission is the fundamental purpose of the organization and its scope of operation.
Formulating the Mission
Your organization’s mission statement is a concise introduction to its work. It describes an
organization in terms of its:
 Purpose: what the organization seeks to accomplish (WHY DO WE EXIST?)
 Target Audience: the target group or beneficiaries of the organization’s work (WHO DO WE
SERVE?)
 Business: the main method or activity through which the organization tries to fulfill this purpose
(WHAT SERVICES DO WE PROVIDE and HOW DO WE GO ABOUT PROVIDING THEM?)
Points of emphasis when articulating missions:
• Awareness of legal constraints and responsibilities of all persons of an organization
• Definition of stakeholders - any group of individuals who are affected by or can affect the future
of the organization.
• It should be recognized that the vision statement already defined is embedded in the mission and
mandate and also define the structure and the general role of the organization.
 Functions of Mission Statements
• Ensures unanimity of purpose
• Provides a basis for motivation
• Assists allocation of organization’s resources
• Establishes the necessary organizational climate
• Serves as a basis for those who can identify with the organization
• Facilitates the translation of objectives & goals
Characteristics of a Mission Statement
 A clear mission statement describes the values and priorities of an organization.
 Developing a mission statement compels strategists to think about the nature and scope of
present operations and to assess the potential attractiveness of future markets and activities.
 A mission statement broadly charts the future direction of an organization.
 A mission statement is a constant reminder to its employees of why the organization exists and
what the founders envisioned when they put their fame and fortune at risk to breathe life into their
dreams.
Vision VS Mission
About - Essence
• Mission: A Mission statement talks about HOW you will get to where you want to be. Defines
the purpose and primary objectives related to your customer needs and team values.
• Vision: A Vision statement outlines WHERE you want to be. Communicates both the purpose
and values of your business.
Time
 A mission statement talks about the present leading to its future.
 A vision statement talks about your future.
Function
• Mission: It lists the broad goals for which the organization is formed. Its prime function is
internal; to define the key measure or measures of the organization's success and its prime
audience is the leadership, team and stockholders.
• Vision: It lists where you see yourself some years from now. It inspires you to give your best. It
shapes your understanding of why you are working here.
Change
• Mission: Your mission statement may change, but it should still tie back to your core values,
customer needs and vision.
 • Vision: As your organization evolves, you might feel tempted to change your vision. However,
mission or vision statements explain your organization's foundation, so change should be kept to
a minimum.
Developing a statement
 Mission: What do we do today? For whom do we do it? What is the benefit? In other words,
Why we do what we do? What, For Whom and Why?
 Vision: Where do we want to be going forward? When do we want to reach that stage? How do
we want to do it?
Features of an effective statement
• Mission: Purpose and values of the organization: Who are the organization's primary "clients"
(stakeholders)? What are the responsibilities of the organization towards the clients?
• Vision: Clarity and lack of ambiguity: Describing a bright future (hope); Memorable and
engaging expression; realistic aspirations, achievable; alignment with organizational values and
culture.
Values
 Every organization should be guided by a set of values.
 Values are beliefs which your organization's members hold in common and endeavor to put into
practice.
 The values guide your organization's members in performing their work. Specifically, you should
ask, "What are the basic beliefs that we share as an organization?"
Goals and Objectives
 The strategic goal setting involves:
 Translating the mission statement into concrete terms
 Establishing the statement of desired outcomes
 Define the benefits to be gained
Goals
 Goals are perceived as broad statements of the end results
 A goal is an open ended statement of what one wants to accomplish, with no quantification of
what is to be achieved and no time criteria for completion.
Examples of goals are:
 HR: cut absenteeism
 Finance: reduce bad debts
 Marketing: increase sales levels
 Production: cut production costs, etc.
Objectives:
 Objectives amplify the set goals with quantitative terms-considered as specific and tangible ones
 Performance targets should be:
 Concrete
 Measurable
 Time framed
 Achievable
 Periodically reviewed
Goals Vs Objectives

Goals Objectives

Goals are broad Objectives are narrow

Goals are general intentions Objectives are precise

Goals are abstract Objectives are concrete.

Goals are generally difficult to measure Objectives are measurable

Long time frame Short term frame

 A useful way of making goals and objectives more powerful and measurable is to use the
SMART mnemonic. While there are plenty of variants, SMART usually stands for:
 S Specific
  M Measurable
 A Attainable
 R Relevant
 T Time-bound
Steps of a Strategic Plan
 Where is your agency in its development RIGHT now?
 Assess the Internal and External Environments
 SWOT Analysis
 Step 1 – In the here and now… List all strengths that exist now. Then in turn, list all
weaknesses that exist now. Be realistic but avoid modesty!
 Step 2 – What might be… List all opportunities that exist in the future. Opportunities are
potential future strengths. Then in turn, list all threats that exist in the future. Threats are
potential future weaknesses.
 Step 3 – Plan of action… Review your SWOT matrix with a view to creating an action
plan to address each of the four areas.
 Step 4 – Develop Operational Plans, Monitor Actions, Evaluate Progress, and Revise the
Plan!
Other Steps in Strategic Plan
 Create a Vision
 Define core beliefs and values of your agency
 Identify your agency’s mission
 Identify critical strategic issues
 Develop goals and detailed action plans for each strategic issue
 Monitor Action Plans your agency has developed in response to the critical issues
 Evaluate progress of achieving the outcomes
 Revise the plan as necessary

Unit 4
The Industry Environment
 Analysis of the industry environment is focused on the factors & conditions influencing
the firm’s profitability in the industry.
  Compared to the general environment, the industry environment has a more direct effect
on the firm’s strategic competitiveness & capability of earning above-average returns
It refers to the analysis of:
 Industry trends as a whole;
 Competition within the industry;
 Technologies employed;
 What it takes to succeed – the key success factors (KSF);
 Comparing the firm, its products, its systems, its technology etc., with other firms in the
industry.
Nature and Degree of Competition
The nature and degree of competition in an industry hinge on five forces:
1. The threat of new entrants
2. The bargaining power of suppliers
3. The bargaining power of buyers
4. The threat from substitute products
5. Rivalry (competition) among existing firms
There are six major sources of barriers to entry:
1. Economies of scale (saving the cost of production through mass production)
2. Product differentiation
3. Capital requirements
4. Cost disadvantages
5. Access to distribution channels
6. Government policy
Economies of scale:
 Deter entry by forcing the aspirant either to come in on large scale or accept a cost
disadvantage.
 Scale of economies in production, research, marketing, and service are probably the key
barriers to entry in the industry.
Product differentiation:
  Brand identification creates a barrier by forcing entrants to spend heavily to overcome
customer loyalty.
 Factors fostering brand identification are being first in the industry, advertising, customer
service, and product differences.
 Product differentiation is perhaps the most important barrier in soft drinks, cosmetics, and
investment banking.
Capital requirements:
 The need to invest large financial resources in order to compete creates a barrier to entry.
 Capital is necessary not only for fixed facilities but also for customer credit, inventories,
and absorbing start-up loses.
 The huge capital requirements in certain fields, such as computer manufacturing and
mineral extraction, limit other entrants.
Cost disadvantages independent of scale:
 Entrenched companies may have cost advantages not available to potential rivals, no
matter what their size and economies of scale.
 These advantages can stem from the effects of:
the learning curve, and proprietary technology,
access to the best raw material sources,
assets purchased at pre-inflation prices,
government subsidies, favorable location, and
official rights (patents)
Access to distribution channels:
 Affects new entrants since the new product must displace others via price breaks,
promotions, and intense selling efforts.
 When there are limited wholesale or retail channels and the existing competitors occupied
them, entry into the industry will be tougher.
Government policy:
 The government can limit or even foreclose entry to industries with such controls as
license requirements and limits on access to raw materials.
 The government also can play a major indirect role by effecting entry barriers through
controls such as air and water pollution standards and safety regulations.
Expected Retaliation
  Existing firms might respond in different ways when new comers enter into the market.
 Responses by existing competitors may depend on a firm’s present stake in the industry
and available business options
Powerful Suppliers
 Suppliers can exert bargaining power on participants in an industry by raising prices or
reducing the quality of purchased goods and services affecting the profitability of the
industry.
Powerful Buyers
 Customers can force down prices, demand higher quality or more service, and play
competitors off against each other – all at the expense of industry profits.
Threat of Substitute Products

 The threat of substitute products increases when:

◦ The substitute product’s price is lower
◦ Substitute product’s quality and performance are equal to or greater than the
existing product
Industry rivalry increases when:
 There are numerous or equally balanced competitors
 Industry growth slows or declines
 There are high fixed costs or high storage costs
 There is a lack of differentiation opportunities or
 When high exit barriers prevent competitors from leaving the industry
Competitor Analysis
 Competitor analysis focuses on each company against which a firm directly
competes.
 Analysis of competitors is focused on predicting the dynamics of competitors'
actions, responses & intentions
 Competitor intelligence is used to get data and information about competing firms.
 Competitor intelligence is the set of data and information the firm gathers to better
understand and better anticipate competitor’s objectives, strategies, assumptions
and capabilities.
 Information about these different dimensions helps the firm to prepare an
anticipated response profile for each competitor.
 Thus, the result of an effective competitor analysis helps a firm to understand,
interpret and predict its competitors’ actions and responses.
One common and useful technique is constructing a competitor array. The steps include:
1. Define your industry - scope and nature of the industry
2. Determine who your competitors are
3. Determine who your customers are and what benefits they expect
4. Determine what the key success factors are in your industry
5. Rank the key success factors by giving each one a weighting - The sum of all the
weightings must add up to one.
6. Rate each competitor on each of the key success factors
7. Multiply each cell in the matrix by the factor weighting.
8. Sum columns for a weighted assessment of the overall strength of each competitor
relative to each other