UNIT I INTRODUCTION TO STRATEGIC MANAGEMENT

Unit–I: Introduction – Concepts in Strategic Management, Strategic Management as a process – Developing a strategic vision, Mission, objectives, Policies – Factors that shape a company’s strategy – Concepts of core competence, crafting a strategy.

Evolution of Business Policy and Strategic Management

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A course on Business Policy and Strategic Management, will give students an opportunity to pull together what they have learned in the separate business fields like (human resources, marketing, production/operations, finance, organizational behavior and operations research) and utilize the knowledge in the analysis of complex business problems. The course on business policy considers the total organization and its environment as a single system. New techniques such as industry analysis prompted the leaders in the field of study to change the title of the course from Business Policy to Strategic Management.

Definition of Strategy

A strategy is a combined, complete, and integrated plan that relates the strategic advantages of the firm to the challenges of the environment. It is designed to ensure that the basic objectives of the enterprise are achieved through proper execution by the organization. Alfred D. Chandler defines strategy as, “ the determination of the basic long term goals and objectives of an enterprise and the adoption of the courses of action and the allocation of resources necessary for carrying out these goals.” Strategy is defined by Arthur Sharplin as, “a plan or course of action which is of vital pervasive, or continuing importance to the organization as a whole.”

James Brain Quinn defines the term strategy as, “the pattern of plan that integrates an organization’s major goals, policies and action sequences into a cohesive whole.”

Need for Strategy
i. Scanning the environment: To have rule to guide the search for new opportunities both inside and outside the firm. Quality decisions: To take high quality project decisions. Generate alternatives: To develop measures to judge whether a particular opportunity is a rare one or whether much better ones are likely to develop in the future. Resource allocation: To have an assurance that the firm’s overall resource allocation pattern is efficient. Manage change: To have and develop internal ability to anticipate change. Save time: To save time, money and executive talent. Identify the opportunities: To identify, develop and exploit potential opportunities.

ii. iii.
iv. v. vi. vii.

Definitions of Strategic Management Strategic management is a stream of decisions and actions which leads to the development of an effective strategy or strategies to help achieve corporate objectives. The strategic management process is the way in which strategists determine objectives and make strategic decisions. Strategic decisions are means to achieve ends. These decisions covers the definition of the business, products and markets to be served, functions to be performed, and major policies needed for the organization to execute these decisions to achieve objectives.

Definitions of Strategic Management

A strategic business unit (SBU) is an operating division of a firm which serve a distinct product-market segment of a well-define set of customers or a geographic area. The SBU is given the authority to meet its own strategic decisions within corporate guidelines as long as it meets corporate objectives.

Benefits of Strategic Management i. ii. iii. iv. Helps an organization to be proactive rather than reactive. Helps organizations to respond to its relevant environment. Helps organizations to make effective strategies. Helps the organizations to achieve understanding and commitment from all managers and employers. v. Encourages the organizations to decentralize the management process involving lower level managers and employees. vi. Strategic management can boost profits. vii. Long run planning resulted in high performance of the businesses. viii. Strengthens the employee commitment to and participation in formulating long-term goals. ix. Reduce the chance of being affected by the changes in the environment. x. Helps for increased employee productivity. xi. Enhances problem-prevention capabilities. xii. Often brings order and discipline to a firm. xiii. Allows for identification and exploitation of opportunities.

Benefits of Strategic Management xiv. xv. xvi. xvii. xviii. xix. xx. xxi. xxii. Provides an objective view of management problems. Represents a framework for improved control of activities. Minimizes the effects of adverse conditions and changes. Allows major decisions and supports established objectives. Allows fewer resources and less time to be devoted. Helps to integrate the behavior. Encouragement to forward thinking. Encourages favorable attitude towards change. Gives a degree of discipline and formality to the management of business.

Marketing Market:
Geographic scope and target segments Unserved potential

Production / Operations Scope of Operations:
Extent of Verticle Integration Owned / contracted

Finance Sources of Funds:
Use of debt

Human Resources
Man power planning Recruiting Employment Development Retaining Compensation Job security Culture quality of work life

Functions performed: Product:
Physical or Tangible Sourcing, number, size, location of plants. Logistical spread value added product line

Deployment payment of Funds:
Dividend payment percentage Additions to fixed assets and working capital Liquidity position Capital structure Earning per share pattern

Product:
Supplementary Service/benefits Technological level Extent of Product Line Focus of Development

Types of Operations:
Process type flexibility Capital / labour intensity

Development:
Process / product Technology Risk level Engineering content

Price:
Relative Price Level and Range Use of Price Changes

Operations Control: Promotion:
Use and Role of Sales force Use of tapped culture Choice and use of Media Plant focus stability of Line Size and Role of Inventory control Scheduling Quality Cost Reduction Practices labour

Place:
Number of Channels Channel Role Services Rendered Margins allowed Product Development

Five tasks of Strategic Management i. ii. iii. iv. v. vi. Articulate a vision of the Organization’s future Translating that vision into a mission that defines the organization’s purpose. Converting the mission into performance objectives. Objectives are converted into plans and policies. Detailing each objective into specific goals. Formulating strategies and tactics to achieve the goals.

Five tasks of Strategic Management
a

Vision Mission Objectives Plans Policies

stake holders / Founder

Top management

Unit together with top management
Unit together with approval of superior Each organization level, in conformity with other unit policies Individuals managers, in conformity, with unit policies

Goals
Strategies & Tactics

Individuals managers, in conformity, with unit goals

Vision Statement EXAMPLES:  Our purpose is to be the global leader in educate the people.  Our mission is to create distinctive value.  Our approach is to be trustworthy, creative and enterprising.  Our performance measures are engaged employees, satisfied customers, enriched communities and profitable growth.

Characteristics of Vision Statement  Should be specific  Should be communicated effectively  What insiders of the organization create or perceive  Streamline and correlate the personal goals of employees with organizational goals

Mission Statements

The fundamental and enduring purpose of an organization that set it apart from other organizations of a similar nature A mission statement  Describes the product  Describes the market  Describes the technological areas of emphasis for the business

Characteristics of Mission Statement:  Differentiate the company from its competitors  Defines the business  Should Inspire  Relevant to all the stakeholders  Clarify the purpose of existence of the organization

Missions vs. Strategic Vision

A mission statement focuses on current business activities -- “who we are and what we do”

A strategic vision concerns a firm’s future business path -- “where we are going”
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Current product and service offerings Customer needs being served Technological and business capabilities

Markets to be pursued Future technology-product-customer focus Kind of company that management is trying to create

VISION AND MISSION OF WAL-MART

Vision: World wide leader in retail.
Mission: "To give ordinary folk the chance to buy the same thing as rich people."World wide leader in retail.

VISION AND MISSION OF PEPSI

Our VISION is to be the world's premier consumer Products Company focused on convenient foods and beverages. We seek to produce financial rewards to investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate. And in everything we do, we strive for honesty, fairness and integrity. Our MISSION is put into action through programs and a focus on environmental stewardship, activities to benefit society, and a commitment to build shareholder value by making PepsiCo a truly sustainable company.

VISION AND MISSION OF DELL
Vision Statement: Its the way we do business. It's the way we interact with the community. It's the way we interpret the world around us-- our customers needs, the future of technology, and the global business climate. Whatever changes the future may bring our vision -- Dell Vision -- will be our guiding force. So Dell needs full customer satisfaction. In order to become the most successful computer company, they need the newest technology and loyal customers. Mission Statement: Dell's mission is to be the most successful Computer Company in the world at delivering the best customer experience in markets we serve. In doing so, Dell will meet customer expectations of: H • ighest quality •Leading technology C • ompetitive pricing •Individual and company accountability •Best-in-class service and support •Flexible customization capability

BUSINESS DEFINITION
BUSINESS DEFINTION

Technologies used and functions performed

Customer Needs

Customer Groups

OBJECTIVES

•Accomplishment of mission of an organization requires the formulation of a number of objectives. •Achievement of the organizational objectives, in turn, requires the formulation and fulfillment of departmental and unit goals.

Objectives

Overall organizational objectives

Departmental Objectives

Unit-Level Objectives

OBJECTIVES VS. GOALS

Objective can be to improve profitability Objectives are open ended attributes.

Goal is to increase earning per share by 20% Close-ended attributes which are precise and expressed in specific terms.

AREAS OF OBJECTIVES
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Profitability Markets Productivity Innovation Product Financial Resources Physical Facilities Organization Structure and Activities Manager Performance and Development Employee Performance and Attitude Customer Service Social Responsibility

STRATEGIC MANAGEMENT

To determine mission, goals, and values of the firm and key decision makers

Enterprise strategists

Mission and objectives

The General Environment The Industry and internal environment
Analysis and diagnosis

To search the environment and diagnose the impact of threats and opportunities To examine and diagnose the firm’s strengths and weaknesses To consider various alternatives and assure that the appropriate strategy is chosen To match plans, policies, resources, structure and administrative style with the strategy To ensure strategy and implementation will meet objectives (feedback)

Internal factors
Generic strategy alternatives Strategy variations Strategy choice Resources and structure Policies, Plans and administration Evaluation and control
(feed forward) Choice

The strategic management process

Implementation

Environmental scanning External

Strategy formulation

Strategy implementation

Evaluation and control

Mission
Objectives

Societal environment
Task environment

Strategies Policies

Internal
Structure Culture Resources

Programs Budgets Procedures Performance

feedback

Strategic management framework

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