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STRATEGIC

MANAGEMENT
6 September 2015
Riverbank Academy Sdn Bhd

CONTENTS
INTRODUCTION
STRATEGIC
MANAGEMENT MODEL
ROLES OF TOP
MANAGEMENT
FORMULATION
ANALYSIS
ENVIRONMENT
INDUSTRY
INTERNAL

COMPETITIVE &
PORTFOLIO
ANALYSIS
ALTERNATIVES
IMPLEMENTATION
EVALUATION
CONTROL

Learning Outcomes
Concepts, elements, components and processes in
strategic management
Organisational vision, mission, goals and objectives
of organisations
Behaviour of organisations in a specific environment
Analyse strategic alternatives of an organisation.
How strategic alternatives are selected,
implemented and evaluated to achieve
organisational goals
Evaluate strategic alternatives and formulate future
strategies.

Assignment
Strategic Management
The role of leadership in strategic
management.

Not exceeding 4,000 words.


Format
Diagrams and charts
Can pick organization(s) to demonstrate your
work

STRATEGY

Where is the business trying to get to in the long-term (direction)


Which markets should a business compete in and what kind of
activities is involved
in such markets? (markets; scope)
How can the business perform better than the competition in
those markets?
(Advantage)?
What resources (skills, assets, finance, relationships, technical
competence, and
facilities) are required in order to be able to compete?
(Resources)?
What external, environmental factors affect the businesses ability
to compete?
(Environment)?
What are the values and expectations of those who have power in
and around the
business? (stakeholders)

Introduction to Strategic
Management
Business Policy integrate functional
areas of business management.
Changes in the business environment.
Business Policy to Strategic
Management.
Changing emphasis
Changing management planning

Strategic Management
Definition
A set of decisions and actions that leads to the formulation of
an effective strategy to achieve the objectives of the
organisation Gluck and Jaunch (1984).
A set of decisions and actions that leads to the formulation
and implementation of strategy so as to achieve the
objectives of the organisation. - Pearce and Robinsion (1985).
A set of managerial decisions and actions which determines
the long run performance of an organisation. It also includes
environmental scanning, strategy formulation, strategy
implementation and evaluation control Hunger and Wheelan
(1996).
Art and science of formulating, implementing and evaluating
cross-functional decisions that enable an organisation to
achieve its objectives David (2003).

Strategic Management
Definition
The means by which organisations try to
achieve their long-term objectives (David, 2003)
Refers to actions that managers have to take or
do in order to ensure what has been set in the
objective can be achieved.

Example:
Yahoos strategy is to obtain 80% revenue from
advertising
Obtain 30% revenue from fee-based revenue

Strategic Management
Strategy is an action that managers take to attain one or more
of the organizations goals.
Strategy can also be defined as A general direction set for the
company and its various components to achieve a desired state
in the future. Strategy results from the detailed strategic planning
process.
A strategy is all about integrating organizational activities and
utilizing and allocating the scarce resources within the
organizational environment so as to meet the present objectives.
While planning a strategy it is essential to consider that decisions
are not taken in a vaccum and that any act taken by a firm is
likely to be met by a reaction from those affected, competitors,
customers, employees or suppliers.
Features

Glucks Four Phases of Development in Strategic Management


Orchestration of
all resources to
create
competitive
advantage

Effectiveness of Formal Business Planning

More effective
planning for growth
Environmental
analysis

Increasing response
to markets and
competition
Thorough situation
analysis and
competitive
assessment
Evaluation of
strategic alternatives

Predict the future

Creative flexible
planning processes

Supportive value
system and climate

Dynamic allocation
of resources.

Operational control
Annual budget
Multi-year forecasts
Phase
1
Phase
2 allocations of Phase 3
Functional
focus
Static
Basic financial planningForecast-based
planningExternally-oriented
resources
planning
Meet Budget

Strategically chosen
planning framework.

Think stragically

Phase 4
Strategic Management

Create the future

Benefits of Strategic
Management

Improve financial performance


Broader view of problems & issues
Strategic decisions made more effectively and efficiently
Analyse problems systematically and objectively
Sensitive to changes in business environment
Coordinate and orchestrate multifunctional activities
Greater role and participation of all levels of management in
setting organisational direction, goals and objectives
Reduce resistance to organisational changes
Conducive organisational climate for better teamwork and
organisation building
Improves communication among employees
Improves corporate governance and ethics

Pitfalls of Strategic
Management
Cannot guarantee superior performance
Difficult to get all strategic managers to agree on critical
strategic decisions due to fear, self-interest, suspicion, bad
experience or incorrect information
Inability to obtain full cooperation among all employees
Probability of making strategic decisions in haste due to limited /
unavailable information and based on intuition or experience
Inability to respond effectively on unexpected changes in
environment
Difficulty getting top management commitment & support
Financial and time constraints to conduct strategic management
Difficulty to conceptualise strategic management framework
and processes.

STRATEGIC MANAGEMENT
MODEL

Strategic Management Model


Strategic management model begins with
the development of the organisational
vision and mission.
Organisational vision and mission is then
translated into organisational goals.
Analysis of the internal, external and
industry will provide inside into the
organisations strengths (S), weaknesses
(W), opportunities (O) and threats (T).

Strategic Management
Model
Strategy
Formulation
Strategy
Implementatio
n
Strategy
Evaluation and
Control

Strategic Management
Model
Vision
Mission
Goals
Internal
Analysis

Industry
Analysis

External
Analysis

Strategic
Alternatives
Programmes

Objectives
Strategy
Implementation

Policies

Strategic Management
Process

Strategic Management
Model
Strategy
Implementation

Organisation
Structure

People &
Leadership

Systems &
Procedures

Strategy
Evaluation and
Control

Evaluation

Control
Strategy
Performance

ROLES OF TOP
MANAGEMENT IN
STRATEGIC MANAGEMENT

Strategist
People in the organisation who are responsible for
the success or failure of the organisation (David,
2003).
Who?
Chief Executive Officer (CEO)
President
Executive Director
Managing Director
Chairman of the Board
Dean
Business Owner
Entrepreneur

Roles of Top Management


Corporate Planner
Corporate Planner is anyone who has extensive
experience in organisational planning or those with
varied experiences in many types of organisational
management.
Major Roles:
Develop framework for strategic planning
Identify and evaluate new products/services and market
opportunities
Monitor, review and revise strategic plans
Forecast new trends and situations
Develop contingency plans and alternative scenarios
Predict the uncertain future

Roles of Board of Directors


Board of Directors is one of the key
stakeholders in the organisational
governance which exercises formal legal
authority over the organisations policy.
Major Roles:
Control and oversight over management
Adherence to legal prescription
Consideration of stakeholders interests
Advancement of shareholders rights.

Roles of Board of Directors In


Relation to Strategic Management
Monitor the development of both internal
and external issues affecting the company
which management might have overlooked.
Evaluate proposals and influence the
members
of
the
board
and
top
management on proposals, decisions or
actions that need to be taken.
Initiate and determine the strategic mission
and
options
of
the
company
to
management.

Policy
Guidelines, rules and procedures
established to support efforts to
achieve organisational objectives.
Provide broad guidelines for
managers to operate their business
activities.

Roles of CEOs
Interpersonal
Roles

Informational
Roles

Decisional
Roles

Roles of CEOs
Interperson
al Roles
Figurehead

Leader

Liaison

Disseminator

Spokesperso
n

Information
alRoles
Monitor

Decisional
Roles
Entrepreneur

Disturbance
handler

Resource
allocator

Negotiator

Roles of CEOs

Role of CEOs
Harvey & Wheelan (1996) successful
corporations had leaders with three basic
characteristics:
Articulates a transcend goal for the
organisation, avoiding petty complaints and
grievances
Presents a role for others to identify with and
follow
Communicates high performance standards but
also shows confidence in the followers abilities
to meet these standards.

Middle Management
People between CEO and lower level employees,
mainly divisional head or functional managers.
Critical in the strategy implementation activities.
High performing companies have the best people
possible for each job,
They nurture creativity and proactive behaviour.
They provide training and development. These
organisations use communication as an engine of
commitment and recognise and reward
achievements (Goldsmith and Clutterbuck
(1998).

Strategy Formulation

Strategy Formulation
Vision
In order for an organisation to thrive in the
future, managers and executives must
know the basic vision of the organisation
what it strives to become (David, 2003).
Vision will define where the organisation
wishes to go, which is vital for identifying
successful strategies for the organisation.
Vision will show who we are, what we do,
and where we are heading.

Benefits of Vision & Mission


Vision and mission statements spell out the context in which the organization
operates and provides the employees with a tone that is to be followed in the
organizational climate. Since they define the reason for existence of the
organization, they are indicators of the direction in which the organization must
move to actualize the goals in the vision and mission statements.
The vision and mission statements serve as focal points for individuals to identify
themselves with the organizational processes and to give them a sense of direction
while at the same time deterring those who do not wish to follow them from
participating in the organizations activities.
The vision and mission statements help to translate the objectives of the
organization into work structures and to assign tasks to the elements in the
organization that are responsible for actualizing them in practice.
To specify the core structure on which the organizational edifice stands and to help
in the translation of objectives into actionable cost, performance, and time related
measures.
Finally, vision and mission statements provide a philosophy of existence to the
employees, which is very crucial because as humans, we need meaning from the
work to do and the vision and mission statements provide the necessary meaning
for working in a particular organization.

Strategy Formulation
Vision
University Malaysia To be the leader
and innovator in open learning.
Tenaga Nasional Berhad To be the
leading corporation in energy and
related businesses globally.
MIA The exclusive accountancy body
representing the voice of all
accountants in Malaysia and a leading
partner in national building.

Strategy Formulation
Mission
Mission statement of an organisation
translates the vision of the
organisation closer to reality.
Defines the basic reason for the
purpose of setting up the business and
legitimises its existence in society.
What is being satisfied, Who is being
satisfied, How customer needs are
satisfied.

Strategy Formulation
Organisational Goals
Organisational goals and objectives
show the results which an
organisation seeks to achieve.
Goals are desired future states which
the organisation seeks to achieve.
Goals indicate the aspects of
survival, efficiency, effectiveness and
profitability.

Strategy Formulation
Organisational Objectives
Objectives are specific statements of
what to achieve with precise
characteristics like timeliness,
measurable and quantifiable.
Characteristics:

Strategy Formulation
Organisational Objectives
Characteristics

Specific
Precise

Consistent

Measurable

Objective
s

Achievable

Attainable

Flexible
Realistic

External Environment
Analysis

Environmental Scanning
Organizational environment consists of both external and internal
factors.
Environment must be scanned so as to determine development
and forecasts of factors that will influence organizational success.
Environmental
scanning
refers
to
possession
and
utilization of information about occasions, patterns,
trends, and relationships within an organizations internal
and external environment.
It helps the managers to decide the future path of the
organization.
Scanning must identify the threats and opportunities existing in
the environment. While strategy formulation, an organization must
take advantage of the opportunities and minimize the threats. A
threat for one organization may be an opportunity for another.

Environment Analysis
External environment
Identifying and evaluating trends and
events beyond the control of the
organisation.
Indirect and/or direct impact
Affects performance
Unexpected / Unforeseen

Environment Analysis
External environment
Forces outside the control of an
organisation.
External
Forces

Economic

Social

Political

Technologica
l

Environment Analysis
Environmental Scanning
Economic factors that relate to the flow of
money, goods and services, information and
energy.
Social forces that show the way people live and
their values and preferences.
Political forces that relate to allocation of power
among people, including foreign and national
policies.
Technological forces that relate to the
development of new technology, innovation and
know-how.

Environment Analysis
Opportunities
Factors or forces that provide a
favourable response or impact to the
organisation.
Factors that appear to be in sync
with current business activities, fits
well with the vision and mission of
the org.
Provide specific market niches.

Environment Analysis
Threats
Factors or forces that can provide an
unfavourable response or negative
impact to the org.
Could impair the performance or
hinder the org from achieving its
goals & objectives.
These factors do not fit with the orgs
activities.

pportunities and Threats


Factor

Opportunities

Threats

Economic

High economic growth


Low inflation rate
High consumer
spending

High personal tax


Low productivity

Social

Changing lifestyles
High level of education
Positive social values

Negative attitude towards


ethics
Air & water pollution
Intercultural variations

Political

Government policy on
subsidies
High import duties
Local government
support

Unfavourable fiscal and


monetary policy

Technological

New technologically
advanced products and
services
General widespread of
internet

High rate of innovation


High cost of R & D

Industry
Analysis

Industry Analysis
Introduction
What is an industry?
An industry analysis can provide a
comprehensive understanding on the
nature of industry, structure &
competitive forces affecting
competition in the industry (Michael
Porter (1980)).

Industry Analysis
Nature & Structure
Theory of Monopoly
Single firm
New firms unable to enter
No competition
Exploitation of customers

Theory of perfect competition


Many firms
Identical products
No entry restrictions

Industry Analysis
Spectrum of Industry Structures
Characteristic
s of Industry
Structure
Monopoly

Numb
er of
Firms
One

Barriers to
Entry

Duopoly

Two

Oligopoly

Few

Moderate/Hig Moderate/Hig Airline


h
h
Moderate/Hig High
Petroleum,
h
oil & gas

Perfect
Competition

Many

Very high
entry barrier

None

Product
Differentiat
ion
Varies

None

Examples
in
Malaysia
Railway
transport

Banking,
Insurance

Industry Analysis
5 Forces Model
Rivalry among
existing
competitors

Threats of new
entrants

5 Forces
Model
Bargaining
power of buyers

ichael Porter, M., (1980)

Bargaining
power of
suppliers

Threats of
substitute products
& services

Industry Analysis
Threats of New Entrants
Economies of
Scale
Product
Differentiation

Government
Policy

Cost
Disadvantages
Independent of
Size

Barri
ers
Access to
Distribution
Channels

Capital
Requirements
High
Switching
Costs

Industry Analysis
Threats of Substitute Products &
Services

Products are considered a substitute


when they can satisfy the same
consumer needs as another product.
Product substitutes can reduce the
profit potential in an industry.

Industry Analysis
Bargaining Power of Suppliers
Can affect the intensity of competition in
an industry.
Prices are raised or quality reduced.
Bargaining power of suppliers is powerful
when the industry is dominated by a few
suppliers. Eg petroleum industry.
Substitutes are not easily available, eg
electricity
Suppliers product important component of
buyers business, eg tyres

Industry Analysis
Bargaining Power of Buyers
Buyer buys a large proportion of sellers
products/services.
Buyer has the potential to integrate backward by
producing the product itself.
Many alternate suppliers product is not
undifferentiated.
Changing supplier costs are low.
Product represent a high % of buyers cost, incentive
to shop around.
Buyers earns low profits, sensitive to cost & services.
Product not essential to final quality, thus can be
easily substituted.

Industry Analysis
Rivalry Among Existing Firms
Number of competitors high intensity of
competition also high.
Rate of industry growth is slow.
Product is undifferentiated and switching cost is low,
customer will jump from one supplier to another.
Fixed costs are high or product is perishable, prices
may be cut to reduce potential losses in fixed costs.
Production capacity has to be increased to obtain
economies of scale.
Exit barriers are high
Rivals are diverse different strategies and cultures.

Internal Analysis
Introduction
To evaluate the organisational
strengths and weaknesses.
Review includes functional areas in
the business:
Management
Marketing
Finance & Accounting
Production & Operations
Research & Development

Internal Analysis of
Environment
Internal analysis of the environment is the first step of
environment scanning.
Organizations should observe the internal organizational
environment.
Includes employee interaction with other employees,
employee interaction with management, manager interaction
with other managers, and management interaction with
shareholders, access to natural resources, brand awareness,
organizational structure, main staff, operational potential, etc.
Discussions, interviews, and surveys can be used to assess
the internal environment.
Analysis of internal environment helps in identifying strengths
and weaknesses of an organization.

Internal Analysis
Management
Planning:
Setting goals, objectives, devising strategies and policies,
setting priorities for resource allocations and budgets

Organising:
Org structure, job specialisation, job description, span of
control, co-ordination, job design

Leading:
Motivation, staffing, leadership, org. climate, culture, work
group behaviours, communication and HR management.

Controlling:
Activities aimed at ensuring actual results are consistent
with the planned results.

Internal Analysis
Marketing
A social and managerial process by
which individuals and groups obtain
what they need and want through
creating, offering and exchanging
products of value with others, Kotler
(1994).
To provide WHAT is needed and WANTED
in terms of products or services at a
value and cost that can satisfy customer.

Internal Analysis
Marketing
Marketing Mix:
Combination of key variables like products, price,
promotion and place which can affect the demand of
the product or services.

Promotion:
Informing and persuading the target consumers of the
value of the product or service.
Communicating what you have to offer to the target
audience (consumers)
Advertising, personal selling, publicity, sales promotion.
Communication media
Distribution strategies

Internal Analysis
Finance & Accounting
Important indicator of performance
Profitability, liquidity, leverage, etc

Funds required to sustain the org.


sources of funds, cash flow, etc
Financial ratios:

Liquidity ratios
Leverage ratios
Activity ratios
Profitability ratios
Growth ratios

Internal Analysis
Production & Operations
Activities that transform raw materials or
inputs into products or services.
According to Schroeder (1981), production
and operations functions involves 5 areas:
Process
Capacity
Inventory
Workforce
quality

Internal Analysis
Research & Development
Strong R & D crucial for survival in
the hypercompetitive world.
R & D to enhance:

Cost effectiveness
Resource allocation
Personnel and facilities
Innovation rate
Competence level of personnel
Advancement in technology

Internal Analysis
Strengths & Weaknesses
Strength
Factors available within the org. such as
skills, competence, capability
Positive factors that has given the org. an
edge or advantage in the business.

Weaknesses
Factors that are lacking in the org. those
that need to be improved and addressed in
order to enhance competitiveness.

Competitive & Portfolio


Analysis
Organizations must operate within a competitive industry
environment.
They do not exist in vacuum.
Analyzing organizations competitors helps an organization to
discover its weaknesses, to identify opportunities for and
threats to the organization from the industrial environment.
While formulating an organizations strategy, managers must
consider the strategies of organizations competitors.
Competitor analysis is a driver of an organizations strategy
and effects on how firms act or react in their sectors.
The organization does a competitor analysis to measure /
assess its standing amongst the competitors.

Competitive & Portfolio


Analysis
Competitor analysis begins with identifying
present as well as potential competitors.
It portrays an essential appendage to conduct an
industry analysis.
An industry analysis gives information regarding probable
sources of competition (including all the possible
strategic actions and reactions and effects on profitability
for all the organizations competing in the industry).
A
well-thought
competitor
analysis
permits
an
organization to concentrate on those organizations with
which it will be in direct competition, and it is especially
important when an organization faces a few potential
competitors.

Competitive & Portfolio


Analysis
Michael Porter in Porters Five Forces Model has
assumed that the competitive environment within an
industry depends on five forces

Threat of new potential entrants,


Threat of substitute product/services,
bargaining power of suppliers,
bargaining power of buyers,
Rivalry among current competitors.

These five forces should be used as a conceptual


background
for
identifying
an
organizations
competitive strengths and weaknesses and threats to
and opportunities for the organization from its
competitive environment.

Competitive & Portfolio


Analysis
The main objectives of doing competitor analysis
can be summarized as follows:
To study the market;
To predict and forecast organisations demand and supply;
To formulate strategy;
To increase market share;
To study the market trend and pattern;
To develop strategy for organisational growth;
When the organisation is planning for diversification and/or expansion;
To study forthcoming trends in the industry;
Understanding the strengths and weakness of rivals may suggest opportunities and
threats that may merit response;
Insight into competitor strategies may help predict upcoming threats and
opportunities.

Competitors should be analyzed along various dimensions such as their size,


growth and profitability, reputation, objectives, culture, cost structure,
strengths and weaknesses, business strategies, exit barriers, etc.

Competitive & Portfolio


Analysis
Gaining competitive advantage
Reasons for costs reduction
Business portfolio matrices

Group Discussion
a. Describe Glucks phases of
development in strategic
management
b. Outline the role of a corporate
planner in strategic planning
c. Describe some of the benefits and
pitfalls of strategic management

Strategic Alternatives
Corporate Strategies
Potential plans of action that can specify
the organisations orientation or ability
to handle businesses in various
environments with a common set of
strategic capabilities.
Covers the broad and overall
organisational plan of action that can
assist an organisation to achieve the
goals and objectives that have been set.

Strategic Alternatives
Corporate Strategies
Integration Strategies
Activities that are involved in forward, horizontal or backward
control of operations of the competing organisation, also
known as vertical integration strategies.

Forward Integration
The organisation is gaining control or ownership of the
distributors or retailers. Eg Protons control over EON.

Backward Integration
The organisation is gaining control or ownership of the
suppliers. Eg Protons stake in Goodyear Tyres.

Horizontal Integration
Seek ownership or control over the competing organisations
in the industry. Eg Cartrade taking over dealership from Auto
Bavaria Malaysia.

Strategic Alternatives
Corporate Strategies
Intensive Strategies
Market Penetration
Increase market share of product/service
offered in the market through greater
marketing efforts.

Market Development
Introducing current product/service to a new
market.

Product Development
Introduce new products/services to the market

Strategic Alternatives
Corporate Strategies
Diversification Strategies
Organisation gets involved in business related and
unrelated to its core business.
Concentric Diversification
Diversification in new but related product or service areas.
Eg. Hotel offering time sharing but still in the lodging industry.

Horizontal Diversification
Getting involved in new and unrelated products or services.
Eg Commercial bank getting involved in insurance services.

Conglomerate Diversification
Diversification in new but unrelated products or services. Eg
Petronas starts KFC in its petrol kiosks, AmBank Group gets
involved in construction industry.

Strategic Alternatives
Corporate Strategies
Defensive Strategies
Activities aimed at defending its declining
position.
Retrenchment
Cutting costs of operations and/or assets owned, staff
reduction.

Divestiture
Sell of part of the business or organisation to raise
capital for other potential business.

Liquidation
Close down its business entirely, as good as
bankruptcy.

Strategic Alternatives
Business Strategies
Also known as competitive strategy, emphasises
improving the competitive position of its
products/services within an industry.
Cost Leadership Strategy
Business targets to be the lowest cost producer in the market,
thus lower the price of the goods/services. Eg. Air Asia, Giant.

Differentiation Strategy
Differentiate from competitors. Brand, product design,
technology features, network dealership.

Focus Strategy
Focus on certain segments of the market in selling its products
and services. Eg BMW focus on younger group with high
income as opposed to MB which attracts older age group.

Discussion
Buyers can affect the profit potential in an
industry by forcing the product or service
prices down. As such their bargaining power
would be high and they can demand for
higher
quality
products.
Describe
the
conditions that should be present to provide
buyers with the bargaining power. What are
the reasons behind the reduction in the total
manufacturing costs?

Strategy Implementation
Introduction
Refers to the phase in which the
organisation plans to transform the
formulation of the strategic plan into
action.
How to get the organisation from
where it is today to where it should
be tomorrow.

Strategy Implementation
Introduction
10 problems associated with implementation of
strategic changes:
Implementation slower than originally planned
Unanticipated major problems
Inneffective coordination of activities
Competing activities and crises that distracted
implementation
Insufficient capabilities of the involved personnel
Inadequate training and instruction to lower level employees
Uncontrollable external environmental factors
Inadequate leadership & direction by departmental managers.
Poor definition of key implementation tasks and activities; and
Inadequate monitoring of activities by the information system.

Strategy Implementation
Introduction
Issues to be addressed in the
implementation of organisational
strategy:
What are the activities that need to be
done?
Who should be doing these activities?
How should the activities be done?

Strategy Implementation
Organisational Structure
The organisational structure defines the
division of tasks for efficiency and clarity of
purpose and coordination between
interdependent parts of the organisation to
ensure organisational effectiveness.
Major types of organisational structure:
Simple
Functional
Divisional
Strategic Business Unit
Matrix

Strategy Implementation
Organisational Systems &
Functional Process

Resource Allocation Systems


Information Systems
Human Resource System
Monitoring System

Strategy Evaluation and Control


Strategic management process is not
complete unless the performance of the
organisation is assessed and reviewed.
Elements of strategic evaluation:
Is the existing strategy good for the
organisation?
Will the strategy be good for the
organisation in the future?
Is there a need to change the strategy?

Strategy Evaluation and Control


Strategic Control
Strategic control is concerned with tracking
the implementation of the strategic plans
that had been selected.
Concerned with the extent to which the
organisation is able to achieve the result it
had intended.
Strategic control focusses on how to improve
the organisational performance based on the
feedback received on the actual performance
of the organisation at one point in time.

Discussion
Lately the Blue Ocean and Red ocean strategies
became a hot management topic and were discussed
seriously by top CEO management team. In the
capacity of a training manager in Jets Asia Sdn. Bhd.
an airline company, you were asked by your Director
to explain the red and blue ocean strategy together
with some related example.
You also responsible to share and advice the various
decisions on how to enter or expansion into foreign
market by using the four modes of entry (Exporting,
licensing, joint venture and direct investment)? Also
explain the condition favoring the mode, the
advantage and disadvantage.

Strategic Management
Explanatory Notes

Introduction
Integrate functional areas such as:

Accounting;
HR
Finance;
Production;
Marketing

To understand the interrelationship and linkages


of each functional areas with operations and
management of the entire organization.
Provide the knowledge to solve problems in
organisations

Introduction
Changes in the business environment forced
organisations to make necessary incremental and
structural changes to cope with the rapid
dynamics of business.
Technology
Computerisation
Internet
Proliferation of information

Environmentalism
Pollution, landslides, water catchment

Ethics
Social Responsibility
Occupational Safety
Contribution to the community

Development Business Policy to


Strategic Management
Changing emphasis in Business
Policy
Changing managerial roles;
Rapid changes in business and nonbusiness environment;
Emphasis on case study method;
Other concerns affecting organisational
performance.
Proactive action needed.

Development Business Policy to


Strategic Management
Changing Management Planning
Perspective
Planning
Traditional planning
Strategic approach

Predict The Future Phase


Increasing demand for goods and
services
Forecast to plan ahead

Growth
Opportunities in the environment

Thinking Strategically
Ability to respond immediately to
market changes and competition.
Analysis of environment and
competition.
Ability to make fast changes in
financial, human and other resources
to cope with business needs.
Strategic planning era

Strategic Management Era


More rapid environmental changes
Greater turbulence and uncertainties
Remaining competitive and
sustaining competitive edge
Best use of all available resources
Flexible processes and systems
Creativity
Supportive cultures and values

Changing Business
Environment
ICT
rapid Research and Development (R&D)
in the computer industry,
wide demand and application of the
computer software and information
systems.

Changing Business
Environment
E-Business / E-Commerce
Business to business (B2B)
Business to Consumer (B2C)
Business to Government (B2G)

Changing Business
Environment
Internet
Direct business dealings
Direct and multi-level marketing
Telecommunication
Education
Proliferation of information

Environmentalism
Business decisions impact on society
Palm oil sludge and air pollution
Landslides
Consumerism, piracy, price of essential
items,

Social Responsibility

Affirmative action plan


Occupational Safety and Health
Competition Act
Welfare

Ethics

Concerns for right & wrong


Fuzzy definition
Creative ways to conduct business
Code of Ethics
Training & education

Components and Elements in


Strategic Management
Component

Strategy
Formulation

Elements

Vision
Mission
Goals
Objectives
External Analysis
Internal Analysis
Industry Analysis
Competitive Analysis

Components and Elements in


Strategic Management
Component

Strategy
Implementation

Elements

Organisational
Structure
People and
leadership
Organisational
systems and
processes

Components and Elements in


Strategic Management
Component

Strategy
Evaluation and
Control

Elements

Evaluation model
and processes
Evaluation criteria
Control methods

Vision
A vision statement focuses on the potential inherent
in the companys future or what they intend to be.
Defines where the organisation wishes to go, which
is vital for identifying successful strategies for the
organisation.
It is also the big picture that will show who we are,
what we do and where we are heading.
An act of translating imagination into terms that
describes possible future courses of action for the
organisation.
Examples

Vision Statements
Online Retailer
We intend to provide our customers with the best online shopping
experience from beginning to end, with a smart, searchable website, easyto-follow instructions, clear and secure payment methods, and fast, quality
delivery.

PepsiCo
"PepsiCo's responsibility is to continually improve all aspects
of the world in which we operate - environment, social,
economic - creating a better tomorrow than today.Our vision
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." (Quoted from Pepsi Co.com.)
More examples

Vision Statements
Short Vision Statements
To help people be healthy,
To have our product in every
home,
To help people enjoy life, or offer
an affordable solution to health
care.
Writing vision
statements

Writing Vision Statements


A typical corporate or company vision statement will be brief
and succinct; it will say a lot in just a few words, so those
words must be very carefully chosen.
The key to a good vision statement is to think of things in a
long-term, broad sense, without sounding generic.
If you're too specific, you will limit your vision and it won't be
applicable ten years down the road: for example, if your
current goal for your business is to move into a larger
building, that's a vision for the future but it's not the vision for
the future of your entire business. It's too narrow in focus.
On the other hand, if you say that you want to achieve
success well, any business in the world could say that. It's
too generic. The best statement will be clear about who you
are as a company as well as who you wish to become.

Mission
Defines the business of an
organisation.
Translates the vision of the
organisation closer to reality
Describes the firms products, market
and technology

Mission Statement
Mission statements can tell the types of services,
products and help which can be expected from the
group.
Mission statements can be quite lengthy, or they can
be a simple sentence or two.
Mission statements then can be for the largest of
organizations and for the smallest.
Groups such as non-profits and education providers
can form mission statements to make their purposes
clear.
Individuals can write mission statements for college
admissions essays or for job applications.

Mission Statements
Personal
"I plan to contribute to the graduate program by focusing my research on
Oscar Wilde's literature and working closely with a professional in that field."
"I plan to contribute to the volunteer organization by spending four hours each
Saturday donating my time and by proposing new ideas to the organization's
leaders."
"I pledge to offer the highest quality of leadership, the greatest level of
expertise, and tireless dedication to the cause if I am chosen for this position."
"My goal is to lose 20 pounds over the next three months. I will take every
effort necessary to ensure that I meet and, if possible, exceed my goal by
making lifestyle changes like eating a healthy diet and exercising daily."
"I will coach this team with integrity and honor. I will expect of my players no
more and no less than I would expect from myself. I will dedicate myself to
giving us the best possible chance of being winners whether we're on the field
or off."
"I will contribute positively to this community by cleaning up trash at the park,
and by teaching others the importance of environmental care."

Mission Statements
Corporations
"Apple designs Macs, the best personal computers in the world, along with OS X, iLife,
iWork and professional software. Apple leads the digital music revolution with its iPods and
iTunes online store. Apple has reinvented the mobile phone with its revolutionary iPhone
and App Store, and is defining the future of mobile media and computing devices with iPad"
from Apple
"Our vision is to be earth's most customer centric company; to build a place where people
can come to find and discover anything they might want to buy online." from Amazon
"To bring inspiration and innovation to every athlete in the world." from Nike
"Our mission at McMath Woods P.A. is to provide each of our clients with the most effective
ethical representation possible, and to preserve and promote the civil justice system" from a
law firm, McMath Woods P.A.
"Our Roadmap starts with our mission, which is enduring. It declares our purpose as a
company and serves as the standard against which we weigh our actions and decisions.
To refresh the world...
To inspire moments of optimism and happiness...
To create value and make a difference." From the Coca-Cola corporation
"Our mission: to inspire and nurture the human spirit one person, one cup and one
neighborhood at a time." From Starbucks

Goals
Desired future states which the
organisation seeks to achieve.
Broad guidelines and more specific.
Indicate aspects of survival,
efficiency, effectiveness and
profitability

Role of Board of Directors


Control and Oversight over
management:
Responsible for hiring and firing the CEO
Assessing management performance
Setting management salary levels &
compensation
Assuring corporate integrity
Continuous audit
Reviewing and revising management
policy decisions

Adherence to Legal
Prescription
Board to ensure the company is
aware of new laws affecting the
business;
Appointment of directors;
Approval of capital budgets;
Authorisation of borrowings;
New issues and other related
matters.

Stakeholders Interest
Monitor product quality;
Facilitate better quality of work life for
employees,
Review employment policies;
Improve customer relations;
Foster better relations with community and
society,
Assume roles in non-governmental
organisations;
Maintain good public image.

Shareholders Rights
Preserve shareholders equity;
Stimulate growth for the company;
Assure equitable shareholder
representation;
Declare dividends;
Inform shareholders of companys
performance.

Roles of CEO
Interpersonal
Ceremonial roles
Social events
Signing contracts
Hosting events

Motivates, develops and guide


Role model and vision
Maintain network & information
sources
Interpersonal contact

Roles of CEO
Informational
Monitor, obtain and disseminate
information about the company to
other managers
Transmit information to people
outside the organisation through
press conference
Talks to public
Participate in social and community
affairs

Roles of CEOs
Decision

Makes decisions
Seek new businesses, ventures
New products and services
Opportunities
Troubles, crisis, employee grievences
Allocation of resources
Prioritise allocation of resources
Negotiate important agreements

Key Economic Forces


Monetary policy
Minimum lending
rates
Price controls
Disposable income
GDP growth rates
Government budgets
Public investment
patterns
Investment incentives

Tax rates
Price fluctuations
Fiscal policies
Foreign exchange
Consumption patterns
Per capita income
Private investment
growth
WTO, AFTA, EU
policies

Environment Analysis
Social Forces
Cultural, demographic and environment

Multi-racial
Language
New generation consumers
Social values & preferences
Education levels & social exposure
Environmental pollution
Consumerism and work safety

Environment Analysis
Key Social Forces

Life expectancy
Life styles
Attitudes towards work
Sex roles
Education & training
Environmental concerns
Attitudes towards ethics
Attitudes towards social
responsibility
Buying habits
Social tolerance

Population growth rates


Social vales & culture
Migration and work mobility
Value towards leisure
Awareness towards religious
values
Consumerism
Rate of family formation
Consumer tastes and
preferences
Consumption vs savings
Health conscious concerns

Environment Analysis
Technological Forces
Rapid changes
Internet
Stupendous growth in mobile technology
Research & development

Biotechnology
Bio-medical
Medical engineering
Automated to electronic

Environment Analysis
Key Technological Forces
Research & Development
expenses
New products
development
New services
development
Productivity
improvements via
electronic systems
Patent productions
Multimedia development

e-Commerce & Internet


Cyber space
technology
Biodiversity
Innovation
Information systems &
management
Computer technology
and engineering

Political Forces

Federal, state or local government


Political stability
Environmental protection laws
Tax laws
Investment incentive policies
Foreign labour
Government regulations & deregulation
policies
Special tariffs

Organisation Structure
Simple
Direct and personal relationship
between manager and employees.
Decision making easier and faster
CEO

Employee

Employee

Employee

Employee

Employee

Functional Structure
Tasks and activities grouped into functional areas.
Specialisation
Rivalry/conflicts/disagreement amongst functional
areas.
CEO

Engineeri
ng

Human
Resource

Marketing
Productio
n

Finance

Divisional Structure
Diversification in business products, markets or
customer.
Greater authority to managers
Resource allocation, dysfunctional competition,
CEO
conflict
General
Manager
Division A

Production
Sales
HR
Finance

General
Manager
Division B

General
Manager
Division C

Production
Sales
HR
Finance

Strategic Business Units


(SBU)
Pooling of several divisions under specific SBU
Complex & confusing

CEO

General
Manager
SBU A

HR
Manager
Finance
Manager
Mktg
Manager
Production
Manager

General
Manager
SBU B

General
Manager
SBU C

HR
Manager

HR
Manager

Finance
Manager
Mktg
Manager
Production
Manager

Finance
Manager
Mktg
Manager
Production
Manager

Matrix Structure
CEO
VP
Engineeri
ng

VP
Productio
n

VP
Purchasi
ng

VP
Admin

Project A

Engineeri
ng Staff

Engineeri
ng Staff

Engineeri
ng Staff

Engineeri
ng Staff

Project B

Engineeri
ng Staff

Engineeri
ng Staff

Engineeri
ng Staff

Engineeri
ng Staff

Project C

Engineeri
ng Staff

Engineeri
ng Staff

Engineeri
ng Staff

Engineeri
ng Staff

Threat of New Entrants


Economies of Scale
Firms cannot enter the industry due to
high economies of scale, ie high
production costs per unit enterprices.

Product Differentiation
Brand identification creates a barrier
to entry, forcing new entrants to
compete with established brands. Eg.
Local brands versus international
brands of tea products

Capital Requirements
Need high capital or set up costs can
deter firms from entering the
industry, eg airline

High Switching Cost


Cost for changing from one supplier
to another.
This can be difficult for some firms in
the industry as it may involve high
costs.

Distribution Channels
Limited access to channels of
distribution can prevent firms from
entering the market.

Cost Disadvantage
Some firms may have cost
advantage regardless of size.
Cost advantage can be due to tax
incentive or allowances given by the
government for locating the premises
in certain areas.
The same incentive may not be
available to other firms located in
different locations.

Government Policy
Government policy can deter entry of
new firms as the government wants
to control the number of players in
the market.

Features of Strategy
Strategy is significant because it is not possible to
foresee the future. Without a perfect foresight, the
firms must be ready to deal with the uncertain events
which constitute the business environment.
Strategy deals with long term developments rather
than routine operations, i.e. it deals with probability of
innovations or new products, new methods of
productions, or new markets to be developed in future.
Strategy is created to take into account the probable
behavior of customers and competitors.
Strategies dealing with employees will predict the
employee behavior.

Strategy
Strategy is a well defined roadmap of
an organization.
It defines the overall mission, vision and
direction of an organization.
The objective of a strategy is to maximize
an
organizations
strengths
and
to
minimize the strengths of the competitors.
Strategy, in short, bridges the gap between
where we are and where we want to
be.

External Environment
Analysis

As business becomes more competitive, and there are rapid


changes in the external environment, information from
external environment adds crucial elements to the
effectiveness of long-term plans.
As environment is dynamic, it becomes essential to identify
competitors moves and actions.
Organizations have also to update the core competencies
and internal environment as per external environment.
Environmental factors are infinite, organization should be
agile and vigile to accept and adjust to the environmental
changes.
In external analysis, three correlated environment should
be studied and analyzed
immediate / industry environment
national environment
broader socio-economic environment / macro-environment

Experience Curve
Major strength is the ability to deliver
products at cost lower than other
competitors.
Efficient management of direct and
indirect benefits.
Productivity, the main culprit.

Reasons for Cost Reduction

Learning experience
Specialisation & division of labour
Product & process improvement
Economies of scale
Know how

BCG Matrix
To have a better perspective of the different businesses of an
organisation, one should know the contribution of each
business to the total business of the organisation.
The BCG growth Share Matrix is a portfolio planning model
developed by the BCG Group in the early 1970s.
It is based on a observation that a companys business can be
classified into 4 categories based on combination of market
growth and markey share relative to the largest competitor
hence growth share.
Market growth serves as a proxy for industry attractiveness.
Relative market share serves as a proxy for competitive
advantage.
The growth-share matrix maps the business units positions
within these two important determinants of profitability

BCG Matrix

Market Growth Rate

STAR
High

QUESTION MARK
C

Cash Cow

Dog

Low

High

Low
Market Share

BCG Matrix
Dog cell business is generally weak
and unattractive.
Cash traps
Negative cash flow
Declining or ageing stage

Question Mark
Low market share, high market
growth rate
New products
Resources to put in more investment
to let business grow or if prospect is
limited, to divest.

Star
High relative market share, high
market growth rate.
May generate lot of cash inflows
High expenditure to maintain market
position
Low net cash flow
High profit potential but high
investment
Growth stage

Cash Cow
High relative market share, low
market growth rate.
Large cash inflow
Maturity stage

Assignment Format

Assignment Format

Purpose
Objective
Methodology
Format
Introduction
What is Strategic
Management?
What is Strategic
Leadership?

Key Practices of
Strategic Leadership
Strategic Intelligence
Emerging areas of
Strategic Leadership
Strategic
Management case
from leadershiop roles
Conclusion
References