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Strategic Management and Business Policy
SM is set of managerial decisions and actions that determines the long run performance of a corporation. It includes : – Environmental Scanning – Strategy Formulation – Strategy Implementation – Evaluation and Control
A field of inquiry that focuses on the organisation as a whole and its interaction with its environment. A continuous process aimed at keeping an organization as a whole appropriately matched to its environment (Certo and Peter) Keeping the business in tune with management and marketing forces both outside and inside the firm All that is necessary to position the firm a way that will assure its long-term survival in a competitive environment is strategic management.
Strategic Management aims at
Long Range Planning • Evaluation of external opportunities and threats • Action Plans : Strategies Match making of the activities of the organization with the environment Building on or stretching an organisation’s resources/ competences
Building actions on the strength of company and elimination of weaknesses. Forward looking approach
Has a general management orientation. Inward looking approach that aims at to properly integrate the corporation’s various functional activities. Presents a basic framework for understanding strategic decision making
(GE must be number one or two wherever it competes)
Purpose of Business Policy
To integrate the knowledge gained in various functional areas of management To adopt a generalist approach to problem solving To understand the complex linkages operating within an organisation through the use of system approach to decision making
Evolution of Strategic Mgt.
Originated in 1950’s & 60’s Early pioneers:
Drucker: Developed MBO (Management by Objectives) & predicted importance of intellectual capital & knowledge workers – Alfred Chandler:- demonstrated a long coordinated strategy necessary to give a company structure, direction & focus – Igor Ansoff:- developed “gap analysis” and the strategic matrix.
Evolution of Strategic Management
Phase:1. Financial planning
Planning for next year budget only Very little analysis, with most information coming from with in the firm Time horizon –one year
Phase:2. Forecast-based planning
Trend projection (started projects that may take more than one year) Use of easily available environmental data with internal information Time horizon – 3-5 years
Phase:3. Strategic Planning / Externally Oriented
Seeks to increase its responsiveness to changing markets & competition Planning is taken out from the hands of lower level managers and concentrated in the hands of planning staff Use of consultants to get innovative techniques to gather information an forecast future trends. Minimal input from lower level. Top down approach emphasises on strategy formulation and leaves the implementation issue to the lower level
Phase:4. Strategic management
Involvement of all level of employees Contingency strategies Seeks Competitive Advantage and Consider Implementation & Control issues with equal focus
GE, led the transition from strategic planning to 8 strategic management during 1980s first
EVOLUTION OF STRATEGIC MANAGEMENT
1960s-early 70s Corporate planning
Late 80s –1990s Competitive advantage
2000s Strategic innovation
Budgetary planning & control Financial control
Planning growth &diversification
Selecting sectors/markets. Positioning for leadership Industry analysis Segmentation Experience curve Portfolio analysis
Focusing on sources of competitive advantage
Reconciling size with flexibility & agility
KEY CONCEPTS & TOOLS
Capital budgeting. Financial planning
Forecasting. Corporate planning. Synergy
Resources & Cooperative capabilities. strategy. Shareholder Complexity. value. Owning E-commerce. standards. — Knowledge Management— Alliances & networks Self-organiz ation & virtual organization 9
Coordination & control by Budgeting systems
Corporate planning depts. created. Rise of corporate planning
Diversification. Restructuring. Global strategies. Reengineering. Matrix structures Refocusing. Outsourcing.
Benefits of Strategic Management
Clearer sense of strategic vision for the firm Sharper focus on what is strategically important rather than what is immediate profitable Improved understanding of the fast changing environment Minimised risk Above average return Competitive advantage Long term orientation and fit between environment, strategy, structure and processes may lead to competitive 10 advantage
A Few Points to ponder
India is rated as the second preferred destination for FDIs in the coming years. Excess Capacity especially in the wake of WTO is becoming a strategic issue of top priority (Steel, Textile, Polyester etc.) Greenfield Investments is the preferred form for investment in developing countries. The No. of Parent Cos of TNCs operating in economy is around 82k (India-815) The R & D expenditure by Indian Business firms is around 0.32% of Sales The downslide of Traditional business houses (Great Indian Churn) Growing interdependence of global economies Growing Economic Turbulence across the world Crash of TNCs like Standard Oil, Union Carbide, Enron, Lehman ……… FDI in multi-brand retailing in India
Time magazine dubs Manmohan Singh as 'underachiever' The writer has posted comments on this articlePTI | Jul 8, 2012, 01.18PM IST
Few Questions that lead to Strategic Management
Where is the organisation now? If no changes are made, where will the organisation be in 1 year ? 2 years? 5 years? and 10 years? Are the answers acceptable? If the answers are not acceptable, what specific actions should management undertake? What are the risk and payoffs involved?
Strategy and the quest for Competitive advantage
Desired Strategic Outcomes
Achieved when a firm successfully formulates and implements a value-creating strategy.
Sustained Competitive Advantage
Occurs when a firm develops a strategy that competitors are not simultaneously implementing. Provides benefits which current and potential competitors are unable to duplicate.
Returns in excess of what an investor expects to earn from other investments with similar risk.
An investor’s uncertainty about the economic gains or losses resulting from a particular investment.
Returns equal to what an investor expects from other investments with similar amount of risk.
Strategic management process
The full set of commitments, decisions and actions required for a firm to achieve strategic competitiveness and earn above average returns.
What is Strategy?
An integrated and coordinated set of commitments & actions designed to exploit core competencies and gain a competitive advantage.
What is Strategy?
“A unified, comprehensive, and integrated plan designed to ensure that the basic objectives of the enterprise are achieved.” (Glueck, 1980)
“The pattern or plan that integrates an organization’s major goals, policies, and action sequences into a cohesive whole.” (Quinn, 1980) “A pattern of resource allocation that enables firms to maintain or improve their performance. “A good strategy… neutralizes threats and exploits opportunities while capitalizing on strengths and avoiding or fixing weaknesses.” (Barney, 1997)
Strategy Means making clear cut choices about how to compete. Jack Welch, Former CEO, GE One must have strategies to execute dreams. Azim Premji
Definition of Strategy
Strategy is the direction and scope of an organisation over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations.
Levels of Strategy
Processes of Strategy Development
– Deliberate management intent
– Develop out of social and political processes in
and around organisations
Most strategies are a combination of intended and emergent processes Strategy is blend of Proactive & adaptive actions.
Impact of prescriptive and emergent approaches on three core areas
Impact of prescriptive / deliberate and emergent approaches on three core areas (continued)
Intended, Emergent & Realized Strategies
Thus, strategy can emerge from “a Pattern in the stream of decisions or actions”
are the basis for a firm’s:
Strategic competitiveness Ability to earn above-average returns
Core Core Competencies
Relationship between company’s strategy and Business Model
Value Maximisation TV and radio broadcosters News papers Gillette HP Epson
CEO’s ranking of business importance
1. A strong & well thought out strategy
2. Maximizing customer satisfaction & loyalty
3. Business leadership, quality products & services 4. Concern for consistent profits
5. Strong & consistent profits
21st Century Values
Speed to market
Handling challenges arising out of constantly changing conditions Hypercompetition
The Strategic Management Process
Involves the full set of:
which are required for firms to achieve:
Sustained Competitive Advantage Above-Average Returns
India’s Most Admired Companies
The Top Ten PVT Sector The Top Ten PSUs 1.Reliance Industries 2.Tata Consultancy 3. Infosys 4. Bharti Airtel 5. Wipro 6. ITC 7. HLL 8. ICICI Bank 9. Reliance Commun 10. L&T ONGC NTPC IOC BHEL SBI NMDC SAIL GAIL Nalco MTNL
Top 10 Pvt Sector 1. RIL Top 10 PSUs
2. NTPC 3. MMTC 4. NMDC
2. Bharti Airtel
3. Infosys 4. TCS 5. L&T
6. BHEL 7. IOC 8. SAIL
7. ICICI Bank 8. HDFC 9. Wipro
9. POWER GRID
10. HDFC Bank
Based on BT ranking of most Valuable Companies 2006 & 2009
Challenge of Strategic Management
Competitive success is transient...unless care is taken to preserve competitive position
Challenge of Strategic Management
Only 16 of the largest 100 U.S. companies at the start of the 20th century are still identifiable today! In a recent year, 44,367 businesses filed for bankruptcy and many more U.S. businesses failed
Competitive success is transient...unless care is taken to preserve competitive position 34
21st Century Competitive Landscape
Fundamental nature of competition is changing
• Rapid technological changes • Rapid technology diffusions • Dramatic changes in information and communication technologies • Increasing importance of knowledge
The pace of change is relentless.... and increasing Traditional industry boundaries are blurring, such as...
• Computers • Telecommunications
21st Century Competitive Landscape
The global economy is changing
• People, goods, services and ideas move freely across geographic boundaries
Traditional sources of competitive advantage (5Ms) no longer guarantee success New keys to success include:
• • • • Flexibility Innovation Speed Integration
• New opportunities emerge in multiple global markets
• Markets and industries become more internationalized
Challenges of Strategic Management
Dynamic Competitive landscape ( HMT, Titan)
Implies that traditional sources of competitive advantage— economies of scale and large advertising budgets—may not as important in the future as they were in the past.
Hypercompetition (Insurance, automobile)
A condition that results from the dynamics of strategic moves and countermoves among innovative, global firms
Economy & Globalisation Technological Changes It took telephone 35 years to get into 25% of all homes in Increasing rate of Diffusion US. It took TV 26 years, radio 22 years, PCs 16 years
and Internet 7 years
The Information age
Companies are being wired to link to customers, employees, vendors and suppliers around the globe (ebusiness). The number of PCs is expected to grow to 300 million by 2012-13. The Internet provides an information-carrying infrastructure available to individuals and firms worldwide.
Shareholder value is increasingly influenced by the value of a firm’s intangible assets, such as knowledge
Increasing Knowledge Intensity
There will be a maximum demand of 4 computers in USA. IBM Chief, 1956 There will be a maximum demand of 1000 cars in Europe. After all there is a limit to the number of people who will want to learn how to drive.
GLOBAL COMPETITIVE LANDSCAPE First movers monopoly 1888-1906 --------- 33 Yrs. 1967-1986 --------- 3.4 Yrs. 2012……………..
Action Rate & Response Rate
A. Rate R. Rate 1988 15 90 days 1992 26 54 2000 32 35 2012…………………….
Intellectual Property Rights (IPRs)
Biggest export from USA Global fake industry US$650 b.( approx. 9% of the world trade) India: trade loss: INR 30,000 Cr. Tax Loss: INR 15000 Cr Fake- with in EU 10% Personal Care 10-12% Sports wear 11% Footwear
15-20% Medicine 40 % Music Industry 10 % Soft Drink 10-30% Cosmetics and Food products Fake company name: 400 Reliance 130 TATA 60 NIKE
Impact of Electronic Commerce/ Internet
Use of internet to conduct business transactions
Internet: Networking of customers, suppliers and partners Breaking down of traditional physical distribution channel (Branding power) Shifting power ( from producer to consumer) (Harley Davidson online customised option, Bharat Matrimonial ) Competition is changing: Internet has emerged as a tool to be more efficient & innovative Increasing pace of business: compressed time Knowledge is becoming a key asset and a source of competitive advantage Internet –as the ready infrastructure to carry information resource. (1980: physical asset accounted for 62.8% of the total market value 42 decrease to 38% in 1991)
Britannica, once a famous encyclopedia, lost its market to Microsoft’s Encarta (information in CD) and later the internet, when it failed to recognize the changing preference of consumers for a faster, more selective mode for search. Times of India read the importance of the internet in determining the choices of the people and reinvented itself digitally.
Theories of Organisational Adaptation
of Population Ecology theory
Once an orgn is successfully established in a particular niche, it is unable to adapt to changing environment. Too much inertia prevents the organisation from changing.
Organisation can do adapt to the changing environment by imitating other successful organisation.
Choice Perspective Learning Theory
Not only adapt to the changing environment but also have opportunity and power to reshape their environment.
Organisation adjust defensively to changing environment and use knowledge offensively to improve fit between the organisation and its environment.
Basic Model of Strategic Management
Four Basic Elements
1. Environmental Scanning
2. Strategy Formulation
2. Strategy Formulation
Selecting Strategy – Corporate strategy (Stability, Growth, Retrenchment) – Business strategy (Competitive, Cooperative) – Functional strategy (Technological Leadership, Technological Followership) Defining Policies
– Guidelines for decision making that links
formulation to implementation
Performing a situation analysis, self-evaluation and competitor analysis: both internal and external; both microenvironmental and macro-environmental. Concurrent with this assessment, objectives are set. These objectives should be parallel to a timeline; some are in the short-term and others on the long-term. This involves crafting vision statements (long term view of a possible future), mission statements (the role that the organization gives itself in society), overall corporate objectives (both financial and strategic), strategic business unit objectives (both financial and strategic), and tactical objectives. These objectives should, in the light of the situation analysis, suggest a strategic plan. The plan provides the details of how to achieve these objectives.
3. Strategy Implementation
Programs Strategy Implementation
Allocation and management of sufficient resources (financial, personnel, time, technology support) Establishing a chain of command (such as cross functional teams) Assigning responsibility of specific tasks or processes to specific individuals or groups Managing the process This includes monitoring results, comparing to benchmarks and best practices, evaluating the efficacy and efficiency of the process, controlling for variances, and making adjustments to the process as necessary. Acquiring the requisite resources, developing the process, training, process testing, documentation, and integration with (and/or conversion from) legacy processes.
4. Evaluation & Control - Continuous process
In corporate strategy, Johnson and Scholes present a model in which strategic options are evaluated against three key success criteria: Suitability (would it work?) Feasibility (can it be made to work?) Acceptability (will they work it?)
Strategic Decision Making Model
Strategic Decision Making Model
Strategic Decision Making