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A Management Project
The term strategy is derived from the Greek word strategos which means generalship- the actual direction of military force. It also means planning which are long term in terms of achieving predetermined business objectives.
Need for Strategies:
opportunities that are available or emerge in the environment.
Importance of strategy:
It is one of the most significant concept to emerge in the subject of management studies. Critical input to organizational success. It helps reduce ambiguity and provide a solid foundation as a theory to conduct business.
Different Level of Strategies:
Corporate Level (Corporate Office) Business Level (SBUs) Functional Level ( finance, marketing, operations, personnel, information etc)
Strategic Decision Making:
It means making a choice regarding the course of action to adopt. Fundamental strategic Decision relates to the choice of a mission of the organization.
Issues in Strategic Decision Making:
Criterion for decision making. Rationality in decision making. Creativity in decision making. Variability in decision making. Person related factors in decision making. Individual versus group decision making.
Phases in Strategic Management:
Establishing the hierarchy of Strategic Intent.
& Communication of
Vision. Designing a Mission statement. Defining the Business( CG, CF & AT). Setting Objectives.
Formulation of Strategies:
Performing environmental appraisals. Doing Organizational appraisals Considering corporate level strategies Considering business level strategies Undertaking strategic analysis Exercising strategic choice Formulating strategies. Preparing Strategic Plan.
Implementation of strategies:
Strategies Designing structures & systems Managing Behavior Implementation Managing Functional Implementation Operationalizing Strategies.
Performing Strategy Evaluation & Control:
Strategic Evaluation. Exercising Strategic Control Reformulating Strategies.
Comprehensive Model Of S.M:
Establishing strategic Intent Vision, Mission, Business Definition & Objectives. Formulation of Strategies Environmental appraisals/Organizational Appraisals SWOT Analysis Corporate Level Strategies Business Level Strategies Strategic choice Strategic Plan Strategic Implementation: Project, Procedural, Resource Allocation, Structural, Behavioral, Functional & Operational Strategic Evaluation.
S t r a t e g i c
C o n t r o l
Vision Mission Business Definition keeping in mind customer function, Customer Groups & Alternative Technologies.
Environment means the surroundings, external objects, influences or circumstances under which someone or something exists. Types of Environment:
Environment. External Environment.
Characteristics of Environment:
Environment is Complex Environment is Dynamic Environment is Multifaceted Environment has a far reaching impact. Environment is difficult to control.
Different Environmental Sectors:
Market Environment Technological Environment Supplier Environment Economic Environment Regulatory Environment Political Environment Socio-Cultural Environment International Environment
It helps in making decisions related to allocating resources among the different businesses of a firm, transferring resources from one set of Business to others and managing and nurturing a portfolio of Business in such a way that the overall corporate objectives are achieved.
4 types of Grand strategies:
is adopted when there is an attempt at an incremental improvement of its functional performance by marginally changing the one or more of its business in terms of their respective customer group, customer function and alternative technologies.
is followed when an organization aims at high growth by substantially broadening the scope of one or more of its businesses in terms of their customer groups, customer functions and alternative technology.
is followed when an organization aims at a contraction of its activities through substantial reduction or elimination of the scope of one or more of its businesses in terms of their respective customer group, customer function and alternative technologies.
is followed when an organization adopts a mixture of stability, expansion and retrenchment either at the same time in different businesses or at different times in the same businesses with the aim of improving its performance.
No Change Strategies. Profit Strategy. Pause/Proceed with caution Strategy
Expansion Through :
Concentration. Integration. Diversification. Cooperation. Internationalization.
It is followed when an organization substantially reduces the scope of its activities. They are:
Strategies Divestment Strategies Liquidation Strategies
Strategic Evaluation & Control:
Nature of Strategy Evaluation:
To evaluate the effectiveness of strategy in achieving organizational objectives.
S.E & C can be defined as a process of determining the effectiveness of a given strategy in achieving the organizational objectives and taking corrective actions whenever required. Through the process of S.E & C the strategists attempt to answer two sets of following questions:
S.E & C:
Are the premises made during strategy formulation proving to be correct? Is the strategy guiding the organization towards its intended objectives? Are the organization & Managers doing things which ought to be done? Is there a need to change and reformulate the strategy. How is the organization performing? Are the time schedules being adhered to? Are the resources being utilized properly? What needs to be done to ensure that resources are utilized properly and objectives met?
Importance of Strategic Evaluation:
It helps in segregation of key managerial tasks which leads to a situation where individual managers are required to perform a small portion each of the overall tasks required to implement a strategy. The importance of S.E lies in its capacity to coordinate the tasks performed by individual managers and also groups, divisions or SBUs through the control of Performance.
It provides feedback and thus also helps in appraisals of the employees at different levels. It also helps to keep a check on the validity of a strategic choice. It provides a considerable amount of information & experience to strategist that can be useful in new strategic planning.
Participants in S.E:
The Board of Directors. Chief Executives. SBU Heads. Financial Controllers. Audit & Executive Committees. Middle level Managers.
Barriers in Strategy Evaluation:
Limits in Control. Difficulties in Measurement. Resistance to evaluation. Short-termism. Relying on efficiency rather than effectiveness.
Requirements for effective control:
Control should involve only the minimum amount of information. It should control only managerial activities and results. It should be timely. Both long term and short term controls should be used. Controls should aim at pinpointing exceptions as nitpicking does not result in effective evaluation. Rewards for meeting or exceeding standards should be emphasized.
Every strategy is based on certain assumptions about the environmental and organizational factors. It is necessary to identify the key assumptions and keep track of any change in them so as to assess their impact on strategy and its implementation. It serves the purpose of continually testing the assumptions to find out whether they are still valid or not.
The responsibility for premise control can be assigned to the corporate planning staff who can identify key assumptions and keep a regular check on their validity.
It aims at evaluating whether the plans, programmes and projects are actually guiding the organization towards its predetermined objectives or not. Implementation control may lead to strategic Rethinking. It may be put into practice through the identification and monitoring of strategic thrust such as an assessment of the marketing success of a new product after pre-testing or checking the feasibility of a diversification programmes after making initial attempts at seeking technological collaborations.
It aims at more generalized and overarching control. It is designed to monitor a broad range of events inside and outside the company that are likely to threaten the course of a firms strategy. It can be done through a broad based, general monitoring on the basis of selected information sources to uncover events that are likely to affect the strategy of the organization.
Special Alert Control:
It is based on a trigger mechanism for rapid responses and immediate reassessment of strategy in the light of sudden and unexpected events. It can be exercised through the formulation of contingency strategies & assigning the responsibility of handling unforeseen events to crisis management terms. Examples of such events can be the sudden fall of a government at central or state level, instant change in competitors posture, an unfortunate industrial disaster or a natural catastrophe.
Techniques of S.E & C :
The two most common and best suited techniques used for S.E & C are:
Momentum Control. Leap Control.
Strategic Momentum Control:
Aims at ensuring that the assumptions on whose basis strategies were formulated are still valid and finding out what needs to be done in order to allow organization to maintain its existing strategic momentum. The three techniques which could be used to achieve these aims are:
Responsibility control centers The underlying success factors The generic strategies.
Responsibility control Centers form the core of management control system and are of four types – revenue, expense, profit and investment centers. Each of these centre is designed on the basis of the measurement of inputs and outputs.
The underlying success factors enables organization to focus on CSFs in order to examines the factors that contribute to the success of strategies. By managing on the basis of CSFs , the strategists can continually evaluate the strategies to assess whether or not these are helping the organization to achieve its objectives.
The generic strategies is based on the assumption that the strategies adopted by a firm similar to another firm are comparable. Based on such a comparison a firm can study why and how other firms are implementing strategies and assess whether or not its own strategy is following a similar path or not.
Strategic Leap Control:
Where the environment is relatively unstable, organizations are required to make strategic leaps in order to make significant changes. There are four techniques of evaluation used to exercise Strategic Leap control:
Strategic Issue Management. Strategic Field Analysis. Systems Modeling. Scenarios.
Strategic Issue Management:
It is aimed at identifying one or more strategic issues and assessing their impact on the organization. A strategic issue is a forthcoming development, either inside or outside of the organization which is likely to have an important impact on the ability of the enterprise to meet its objectives. By managing strategic issues one can overcome the environmental changes and design contingency plans to shift strategies whenever required.
Strategic Field analysis:
It is a way of examining the nature and extent of synergies that exists or are lacking between the components of an organization. Whenever synergies exists the strategists can assess the ability of the firm to take advantage of those.
It is a computer based model that simulate the essential features of the organization and its environment. By this organization may exercise pre-action control by assessing the impact of environment on organization because of the adoption of a particular strategy.
These are perceptions about the likely environment a firm would face in the future.
Different types of systems in Evaluation:
Information Systems. Control Systems. Appraisal Systems. Motivation Systems. Development Systems. Planning Sysytems.
Business Unit Strategies:
These are the course of action adopted by a firm for each of its business separately to serve identified customer groups and provide value to the customer by satisfaction of their needs. These are classified in 3 types: a) Cost Leadership. b) Differentiation. c) Focus.
When the competitive advantage of a firm lies in a lower cost of the products or services relative to what the competitors have to offer it is termed as cost leadership. Cost leadership offers a flexibility to the firm to lower the price if the competition becomes stiff & yet earn more or less the same level of profit.
How to achieve Cost leadership???
Accurate demand forecasting & high capacity utilization is essential to realize cost advantages. Attaining economies of scale leads to lower per unit cost of product/service. High level of standardization of products and offering uniform service packages using mass production techniques yields lower unit costs. Aiming at the average customer makes it possible to offer a generalized set of utilities in a product/service to cover greater number of customers. Investments in cost saving technologies can help a firm to squeeze every extra paisa out of the cost, making the product/service more competitive in the market.
Benefits of Cost Leadership:
It is best insurance against industry competition. Powerful suppliers possess a higher bargaining power to negotiate price increase for inputs. Powerful buyers possess a higher bargaining power to effective price reduction. The threat of cheaper substitutes can be offset to some extent by lowering prices. Cost advantage acts as an effective entry barrier for potential entrants who cannot offer the product/services at a lower price.
Risks in Cost Leadership:
It is ephemeral. It is not a market friendly approach. Sometimes less efficient producers may not choose to remain in the market owing to the competitive dominance of the cost leader. Technological shifts are a great threat to a cost leader as these may change the ground rules on which an industry operates.
Differentiation Business Strategies:
When the competitive advantage of a firm lies in special features incorporated into the product/service, which are demanded by the customers who are willing to pay for those, then the strategy adopted is the differentiation Business Strategies.
How to achieve Differentiation:
A firm can incorporate features that offer utility for the customer and match their tastes & preferences. A firm can incorporate features that lower the overall costs for the buyer in using the product/services. A firm can incorporate features that raise the performance of the product. A firm can incorporate features that increase the buyer satisfaction in tangible or non-tangible ways. A firm can incorporate features that can offer the promise of a high quality of product/service. A firm can incorporate features that enable the customers to claim distinctiveness from other customers and enhance their status and prestige among the buyer community. A firm can offer the full range of products or services that customer require for their need satisfaction.
Distinguishing factor. Powerful suppliers can negotiate price increase that the firm can absorb to some extent as it has brand loyal customers typically less sensitive to price increase. Powerful buyers do not usually negotiate price decrease as they have fewer options. It is an expensive proposition. In case of new entrants, substitute product/service suppliers too pose a negligible threat to established differentiator firms.
In growing market product tends to become commodities. In case of several differentiators adopting similar differentiation strategies the basis of differentiations is gradually lessened and ultimately lost. It fails to work if its basis is something that is not valued by the customer. Price premiums too have a limit. Failure on the part of the firm to communicate the benefit arising out of differentiation adequately.
Focus Business Strategy:
It rely on either cost leadership or differentiation but cater to a narrow segment of the total market. In terms of the market, therefore focus strategies are niche strategies. For the identified market segment a focused firm uses either the lower cost or differentiation strategy.
A focused firm is protected from competition to the extent that the other firms which have a broader target do not possess the competitive ability to cater to the niche markets. Focused firm buys in small quantities, so powerful suppliers may not evince much interest. Powerful buyers are less likely to shift loyalties as they might not find others willing to cater to the niche markets as the focused firms do. The specialization that focused firms are able to achieve in serving a niche market acts as a powerful barrier to substitute products/services that might be available in the market. The competence of the focused firms acts as an effective entry barrier to potential entrants into the niche market.
Being focused means commitment to a narrow market segment. A major risk for the focused firms lies in the cost configuration. Niches are often transient. Rivals in the market may sometimes out focus the focused firms by devising ways to serve the niche markets in a better manner.
Tactics for Business Strategies:
Tactic is a sub strategy. It is a specific operating plan detailing how a strategy is to be implemented in terms of when and where it is to be put into action. There are two tactics:
Tactics. Market location Tactics.
Interrelationship between formulation and implementation:
The formulation and implementation processes are intertwined. Two types of linkages exist between these two phases of SM. The forward linkages deal with the impact of the formulation on implementation. The backward linkages are concerned with the impact in the opposite direction.
Pyramid of Strategic Implementation:
Strategies -> Plans -> Programmes -> Projects <Budgets.
Conception Phase. Definition Phase. Planning & Organizing Phase. Implementation Phase. Clean Up Phase.
It deals with the procurement and commitment of financial, physical and human resource to strategic tasks for the achievement of organizational objectives. It is both a one time and continuous process. When a new project is implemented it requires resource allocation. An ongoing concern would also require a continual infusion of resources.
Factors affecting Resource Allocation:
Objectives of the organization. Preference of dominant strategists. Internal Politics. External influences.
Difficulties in Resource Allocation:
Scarcity of Resources. Restrictions on generating Resources. Overstatement of needs.
Structure: It is the way in which the tasks and subtasks required to implement a strategy are arranged. The diagrammatical representation of structure could be an organization chart but the chart shows only skeleton.
What is Structural Mechanism:
Defining the major task required to implement a strategy. Grouping tasks on the basis of common skill requirements. Subdivision of responsibility & delegation of authority to perform tasks. Coordination of divided responsibility. Design and administration of the information system. Design and administration of the appraisal system. Design and administration of the motivation system. Design and administration of the development systems. Design and administration of the planning system.
Structures for Strategies:
Entrepreneurial Structure. Functional Structure. Divisional Structure. Matrix Structure. Network Structure. Product based Structure. Customer based Structure. Geographic Structure. Intrapreneurial Structure.
Another way of looking at organizational structure is to view it as a means of subdividing the total authority and responsibility among different organizational units and positions. Since the organization has to perform a set of tasks designed to achieve its objectives, a need arises to evolve systems that would bind the different units and positions, so that the performance of activities takes place in a coordinated manner. these systems could be collectively referred to as organization systems.
Six organizational systems are:
Information System. Control System. Appraisal System. Motivation System. Development System. Planning System.
The five major issues involved in Behavior Implementation are:
Culture. Corporate policies & use of power. Personal Values & Ethics. Social Responsibility.
The role of appropriate leadership in strategic success is highly significant. Leadership plays a critical role in the success and failure of enterprise. It is considered as one of the most important elements affecting organizational performance.
Theory of leadership states: A leader must:
Develop new qualities to perform effectively. Be a visionary. Exemplify the values, goals and culture of the organization. Pay attention to strategic thinking and intellectual activities. Lead by empowering others. Create leadership at lower levels. Delegate authority and place emphasis on motivation.
Styles of Leadership:
Risk Taking: Willing to take risks. Technology: Use of planning, qualified personnel and techniques. Organicity: Extent of organizational structural flexibility. Participation: Involvement of managers. Coercion: Domination by Top Management.
The phenomenon that often distinguishes good organization from bad organization is termed as Corporate Culture. The well managed organizations apparently have distinct cultures that are in some way responsible for their ability to successfully implement strategies.
Composition of Corporate Culture:
It is the set of important assumptions- often unstated – that members of an organization share in common. There are two major assumptions in common:
Beliefs are assumptions about reality & are derived and reinforced by experience. Values are assumptions about ideals that are desirable and worth striving for. When beliefs and values are shared in an organization, they create a corporate culture.
Corporate politics and use of power:
All corporate cultures include a political component and therefore all organizations are political in nature. Organizational members bring with them their likes, dislikes, views, opinions, prejudices and inclinations when they enter organization.
Understanding Power & Politics:
Power is defined as the ability to influence others and corporate politics is the carrying out of the activities not prescribed by the policies for the purpose of influencing the distribution of advantages within the organization. Politics is related to the use of Power but it is not simillar.
Functional & Operational Implementation:
Functional strategies deal with a relatively restricted plan which provides the objectives for a specific function, for the allocation of resources among different operations within the functional area and for enabling a coordination between them for an optimal contribution to the achievement of the business and corporate level objectives. Functional strategies are derived from business and corporate strategies and are implemented through functional and operational implementation.
It leads us to define functional strategies in terms of their capability to contribute to the creation of a strategic advantage for the organization. Types of Functional Strategies:
Strategic marketing management. Strategic financial management. Strategic operations management. Strategic human resource management. Strategic information management.
It means that there has to be an integration of the operational activities undertaken to provide a product or service to a customer. These have to take place in the course of operational implementation.
The appraisal of the external environment of a firm helps it to think what it might choose to do. The appraisal of the internal environment enables a firm to decide about what it can do. Internally an organization has to deal with resource – related behavior, weaknesses and strengths, synergy, competency etc.
Organisational Capability Competencies
Strength and Weaknesses
Organisational Resources + Organisational Behaviour
Method and Technique in Organisational Appraisal
1. Internal Analysis 3. Comparative Analysis 5. Comprehensive Analysis
• Application of these methods results in highlighting strengths and weaknesses that exist in different functional areas. • The internal environment provides an organisation with capability to capitalise on opportunities and protect itself from the threats that are present in external environment.
The balancing factor of external and internal environment is key to success of business strategy. An organisation uses different types of resources and exhibits a certain type of behaviour:
WHAT ARE ORGANISATIONAL RESOURCES
The theory of strategy is developed by BARNEY (1991): ‘A firm is a bundle of resources’ 1.Tangible.
2. Intangible. This include all assets, capabilities, organisational processes, information and knowledge.
Resources: 1. Physical Resources: Technology, plant & equipment geographic location, access to raw materials etc. 2. Human Resources: Education, experience, skills, intelligence, judgment, relationship etc. 3. Organisational Resources: Structure, formal systems and procedures, informal relations among groups.
Possessing the resources but not utilising does not make any sense. The usage depends on organisational behaviour.
• Barney said ‘ These resources can lead to strategic advantage if following four characteristics are present:
1. Valuable 2. Rare 3. Costly to imitate 4. Non-Substitutable
• Most organisation have to acquire these resources in hard way. The cost and availability of resources are important factors on which success of an organisation depends.
Organisational Appraisal Organisational Behaviour: It is affected by internal forces and influences.
i. Quality of Leadership. ii. Management Policy. iii. Shared Values & Culture. iv. Work Environment. v. Organisational Climate. vi. Organisational Politics. vii. Use of Power. Strength & Weakness of an organisation depends upon tackling above factors. S&W do not exist in isolation but combine within functional area and also across different functional area to create synergistic effect.
Two strong points in a particular functional area add up to some thing more than two or more than double the strength. Likewise, two weaknesses in tandem result in more than double damage – Two + Two = Five Or one + one = Zero
Synergy is the idea that the whole is greater or lesser than the sum of its parts.
Competencies: Competencies are special qualities possessed by an organisation that make it with stand pressures of competition in market place. It is also known as corecapabilities, invisible assets or embedded knowledge.
When a specific ability is possessed by a particular organisation exclusively, or relatively large measures, it is called Distinctive Competence.
Many organisations achieve strategic success building Distinctive Competence around Core Strategic Functions.
Organisational Capability: • Organisational Capability means the capacity or potential of an organisation to utilise its resources to manage & use its strengths and over-come its weaknesses in order to exploit opportunities and face threats in its external environment. • As an attribute, it is sum total of resources and behaviour, strength and weakness, synergistic effects occurring in and the competence of an organisation. • Capability is out-come of an organization's knowledge base, i.e. the skills and knowledge of its employees. This develop the concept of “LEARNING ORGANISATION”.
ORGANISATIONAL STRATEGIC ADVANTAGE
1. It aims at improvement in organisational capability. That in turn improves functioning of the organisation and results into generation of higher revenue and profit. 3. It has to be positive in nature. The strategic advantage is measurable feature for realistic assessment. 5. OSA is applied in all the functional areas of the organisation for better results. 7. Financial, Marketing, Production, Procurement & Logistics, Personnel Management and General Management
ORGANISATIONAL STRATEGIC ADVANTAGE
Financial Capability: It is availability, usage and management of funds. Following factors are for consideration: 2. 3. 4. Factors related to source of funds. Factors related to usage of funds. Factors related to management of funds.
Marketing Capability: It rests on and relate to product, its promotion & distribution and pricing etc. 3. Product related factors. 4. Price related factors. 5. Place related factors. 6. Promotion related factors. 7. Integrative & System factors.
Method and Technique used for Organisational Appraisal
1. Internal Analysis i. Value Chain Analyses. ii. Quantitative Analysis a. Financial Analysis b. Non-Financial Analysis. iii. Qualitative Analysis. 2. Comparative Analysis i. Historical Analysis ii. Industry Norms iii. Benchmarking 3. Comprehensive Analysis i. Balance Scorecard ii. Key factor rating
ORGANISATIONAL STRATEGIC ADVANTAGE
VALUE CHAIN ANALYSIS: Porter (1985) is credited with the introduction of the frame work called VALUE CHAIN. A value chain is a set of interlinked value-creating activities performed by an organisation. Porter divided the value chain of a manufacturing organisation into PRIMARY and SUPPORT activities. Primary activities are directory related to the flow of the product to the customer.
Balance Scorecard: Robert S Kaplan and David P Norton
Balance scorecard identifies four key performance measures 1. Customer perspective – How do customer see us? 2. Internal Business Perspective – What must we excel at? 3. Innovation and Learning Perspective – Can we continue to improve and create value? 4. Financial Perspective – How do we look at share holders? Key Factor Rating: It is an analysis of organisational key area functions in association with financial analysis. It determines the capability of organisation in performing in some area with financial gain or loss.