This action might not be possible to undo. Are you sure you want to continue?
Evolution of Strategic Management
Global considerations impact virtually all strategic decisions.
± Geographical boundaries no longer define the limits of our imaginations. ± The survival of businesses hinges on the perception of others about your business. ± The success of St. Mgt depends upon the manager¶s degree of understanding of competitors, markets, prices, suppliers, distributors, governments, creditors, shareholders, and consumers on worldwide basis.
Evolution of Strategic Management
Technological Changes Electronic Commerce (e-commerce) has become a vital St. Mgt tool.
± Companies getting competitive advantage by using internet for direct selling and comm. with suppliers, customers, creditors, partners/shareholders, clients and competitors dispersed globally. ± E- Commerce allows firms to sell products, advertise, purchase supplies bypassing intermediaries, track inventory, eliminate paperwork and share information. ± E-commerce is reducing expense, time, distance and space in doing business thus giving better customer service, greater efficiency improved product and higher profitability.
Evolution of Strategic Management Internet and PCs are changing our lifestyle the way we interact with our families. ± It promotes endless comparison shopping thus enabling consumers worldwide to band together to demand discounts.may lead to regulation on consumers in future. ± It has transferred power from businesses to individuals . . friends neighbors etc. ± Buyers can get best price and service by quickly scanning hundreds of vendor offerings.
± According to seventy four percent Americans in a survey. ± Slogans and company¶s like e-Bay. e-Trade. ± Business to Business e-commerce is five time greater than consumer e-commerce. . the Internet will change society more than telephone and television combined. e-commerce.Evolution of Strategic Management Internet has changed the economics of business in every single industry worldwide. e-mail and e-toys have become integral part of everyday life worldwide.
. The purpose of strategic management is to exploit and create new and different opportunities for tomorrow. and computer information systems to achieve organizational objectives. production /operations. marketing.Strategic Management Definition The art and science of formulating implementing and evaluating cross-functional decisions that enable an organization to achieve it¶s objectives. It focuses on integrating management. finance/ accounting. research and development.
± Strategy implementation. logical. establishing long term objectives. systematic approach for making major decisions in an organization. Strategy Formulation Developing a vision and mission. determining internal strengths and weaknesses. . generating alternative strategies and choosing particular strategy to pursue. identifying an organization¶s external opportunities and threats. Three stages of Strategic Management Process. It attempts to organize qualitative and quantitative information in a way that allows effective decision making under uncertainty.Strategic Management Process Strategic Management Process It is an objective. ± Strategy formulation. ± Strategy evaluation.
³ Our vision is to take care of your vision´ A vision statement of Atlanta Web Printers. . and being the best is what Atlanta Web pledges to work hard at being ± every day. The first choice is the best choice. ³ To be the first choice in the printed communication business.Strategic Management Process Vision Statement What do we want to become? A vision statement of an eye clinic.
A clear mission statement is essential for effectively establishing objectives and formulating strategies.Strategic Management Process Mission Statement An enduring statement of purpose that distinguishes one organization from other similar enterprise. .it is a declaration of an organization¶s ³ reason for being ³answering the pivotal question ³ what is our business´. .
Facilitate the translation of objectives in to work structure involving the assignment of tasks to responsible elements in organization. Provide a basis. or standard. time and performance parameters can be assessed and controlled. .Strategic Management Process Importance of Vision and Mission Statements Ensure unanimity of purpose within the organization. Establish a general tone or organizational climate. Specify organization¶s purpose and then translate these into objectives in such a way that cost. for allocating organizational resources.
political. They are largely beyond the control of a single organization-thus the word external.Strategic Management Process External Opportunities and Threats The trends and events that could significantly benefit or harm an organization in the future are referred to external opportunities and threats like economic. governmental. social. environmental. . demographic. Firms to formulate strategies to take advantage of external opportunities and to avoid/reduce the impact of external threats. cultural. technological or competitive trends. legal.
. Organizations strive to pursue strategies that capitalize on Internal strengths and eliminate internal weaknesses.Strategic Management Process Internal Strengths and weaknesses An organization¶s controllable activities that are performed especially well or poorly. production/ operations. research and development and management information system activities of a business. marketing. They arise in the management. finance/accounting.
Strengths and weaknesses can be determined by elements of being rather than performance. Strengths and weaknesses can be determined relative to a firm¶s own objectives. production efficiency. Internal factors can be determined by computing ratios.Strategic Management Process Strengths and weaknesses are determined relative to competitors. measuring performance and comparing to past periods and industry averages. Survey method could be used to determine employee morale. advertising effectiveness and customer loyalty. .
Objectives should be challenging. focus coordination and provide a basis for effective planning. consistent. Objectives state direction. organizing. motivating and controlling activities. reasonable and clear. aid in evaluation. reveal priorities. . measurable. create synergy.Strategic Management Process Long Term Objectives Specific results that an organization seeks to achieve in pursuing its basic mission during a period of more than one year.
retrenchment. . Business strategies may include geographic expansion. acquisition.Strategic Management Process Strategy It is the means by which long-term objectives can be achieved. liquidation and joint venture.oriented having multifunctional or multidivisional consequences for the organization. diversification. product development. Strategies are potential actions thus future. market penetration.
How to allocate resources. Whether to merge or form a joint venture How to avoid a hostile takeover. . Whether to enter international market. Whether to expand operations or diversify.Strategic Management Process Strategy formulation issues Deciding what new business to enter What businesses to close.
Strategic Management Process Strategy Implementation It is also called ³the action stage of strategic management´. and allocate resources so that formulated strategies can be executed. Strategy Implementation includes. Redirecting marketing efforts. motivate employees. Preparing budget. Developing a strategy-supporting culture Creating an effective organizational structure. and Linking employee compensation to organizational performance . Developing and utilizing information systems. devise policies. It entails establishment of annual objectives.
Strategic Management Process Implementing Strategies Strategy implementation is different than strategy formulation.requires special motivation and leadership skills .focuses on efficiency Strategy formulation ± primarily an intellectual process Strategy implementation ± primarily an operational process strategy formulation .requires good intuitive and analytical skills Strategy implementation .focuses on effectiveness Strategy implementation . Strategy formulation ± positioning forces before the action Strategy implementation ± managing forces during the action Strategy formulation .
Strategic Management Process Strategy formulation .requires coordination among a few individuals Strategy implementation .concepts and tools similar for small.requires coordination among many individuals Strategy formulation .varies substantially among different types and sizes of organizations . large. for profit or nonprofit organizations Strategy implementation .
± Review external and internal environment factors which are bases for current strategies.Strategic Management Process Strategy Evaluation It is the means for management to determine whether the strategy is working or otherwise. ± Measuring performance. All strategies are subject to future modifications because of persistent changes in the external and internal environment of an organization. Three fundamental strategy evaluation activities are. Strategy evaluation is necessary because success today is no guarantee of success tomorrow . ± Taking corrective actions.
Decide who will be responsible for each step. ± 4. To develop a program.Strategic Planning Types of Plans Single use plan A plan designed to fit one-time situation. ± 2. Two common types of single-use plans are programs and projects. Determine the logical sequence of steps. . managers. Program A complex single-use plan consisting of a set of interrelated actions aimed at achieving a one-time major goal. The plan becomes obsolete when its one-time goals have been achieved. ± 1. ± 3. Establish and provide the sources necessary to complete each step. Divide the course of action into steps.
Strategic Planning -5. Gauge the time needed to finish each step. Prepare a schedule for implementation. and rules. . for example. and ± 6. Projects integrate fewer activities and resources than programs and are often developed as subunits of programs. Bhasha Dam project in the national program of provision of electricity to the whole country.Policy ± a standing plan that provides broad guidelines for directing managerial activities in pursuit of organizational goals . Standing plans A plan for guiding management decisions and activities in situations that recur repeatedly. procedures. Three commonly used types of standing plans are policies. Project A single-use plan that is narrower in scope than a program and aimed at achieving a specific one-time goal.
Strategic Planning ± Procedure ± a standing plan encompassing a series of detailed steps to be followed in particular recurring situation. . ± Rule ± a standing plan specifying the circumstances in which certain activities can or cannot be performed. Contingency Plans Alternative courses of actions to be followed if unforeseen environmental shifts occur.
5 years Tactical Plans .3 years Operational Plans .Strategic Planning Levels of Planning Strategic Tactical Operational General Time Period Considered for Plans Strategic Plans .1 year .
functions) Operational Goals/ Plans (departments and units) .The Managerial Pyramid Mission Strategic Goals/ Plans (organization as a whole) Tactical Goals/ Plans (major divisions.
Who Does the Planning?
Small businesses: ± Entrepreneurs do most of the planning. Large firms: ± Traditional: A central corporate planning group works with top management and each division to solicit, challenge, and refine the company¶s plan. ± Current: Planning is decentralized and includes the firms¶ product and divisional managers, aided by small headquarters advisory groups.
How to Develop a Plan
1. 2. 3. 4. 5. 6. Set an objective. Evaluate the situation. Determine the procedures. Set a timetable. Assign responsibility. Check the plan for feasibility and cost
WELL CONCEIVED PLANS MUST HAVE
1.Resources 2.Methods 3.Tasks 4.Sequence 5.Individuals 6.Location 7.Deadlines 8.Stop points 9.Measurement
. Businesses show significant improvement in sales. High performing firms do systematic planning to prepare for future fluctuations in their external and internal environment.Strategic Planning Benefits of Strategic Planning Financial Benefits Organizations using strategic management concepts are more profitable and successful than those who do not. These firms generally exhibit superior long-term financial performance relative to their industry. profitability and productivity.
Strategic Planning Nonfinancial Benefits Strategic management offers. Strategic management enhances the problem-prevention capabilities of organizations because it promotes interaction among managers at all divisional and functional levels. Reduced resistance to change. Increased employee productivity. Clear understanding of performance-reward relationships. . Enhanced awareness of external threats An improved understanding of competitors¶ strategies.
Strategic Planning Benefits of Strategic Planning Allows for identification. Allows more effective allocation of time and resources to identified opportunities. Directs decision making to support established objectives. and provides a unifying framework. prioritization and exploitation of opportunities. Helps integrate the behavior of individuals into a total effort. Encourages forward thinking. . avoiding piecemeal decision making. Provides a basis for clarifying individual responsibilities. Facilitates managerial control through setting of standards for monitoring and measuring performance. Creates a framework for internal communication among personnel. Presents a framework for improved coordination and control of activities.
. Waste of time ± see planning as waste of time since no marketable product is produced.Strategic Planning Reasons For No Strategic Planning By Firms Poor reward structure ± often fail to reward success but ready to punish for failure. Content with success ± they think no need to plan because things are fine as they stand. Too Expensive ± culturally opposed to spending resources. Fire-fighting ± busy in crisis management and not finding time to plan. ( time spent on planning is investment). Laziness ± may not want to put effort needed for planning.
can also be done badly. Honest difference of opinion ± sincerely believe the plan is wrong as they are watching the situation from different viewpoing. of aptitude with new system or of their ability to take on new roles. he/she sees anew plan as threat.Strategic Planning Fear of failure ± not doing anything. Planning. they may rely less on formal planning. being overconfident or overestimating experience can bring failure Prior bad experience ± plans have been long. impractical. However. . Self-interest ± when some one has achieved status. Overconfidence ± as individuals amass experience. no risk of failure. cumbersome. Fear of Unknown ± uncertain of abilities to learn new skills. However whenever something worthwhile is attempted. or inflexible. like anything else. there is some risk of failure. or privilege through effectively using old system.
Strategic planning involves ³choices that risk resources´ and ³tradeoffs that sacrifice opportunity´.Types of Strategies Integration Strategies Intensive Strategies Diversification Strategies Defensive Strategies Michael Porter¶s Generic Strategies Strategy is choosing among the alternatives. you cant follow a combination strategy for too long. . According to Hansen and Smith.
± Franchising . retail outlets ..costs and opportunities are spread across many individuals. ± Establishing websites to sell products directly to consumers. ± Opening company¶s stores.Types of Strategies Integration Strategies Forward integration Backwind integration Horizontal integration Forward Integration Gaining ownership or increased control over distributors or retailers by.
Availability of quality distributors is limited. however. When profit margins for distributors or retailers are high. . unreliable or incapable of meeting the firms distribution needs. forward integration reduces organization¶s ability to diversify if it¶s basic industry falters. Organizations present distributors are expensive.Types of Strategies Situations when forward integration may be an effective strategy. firms having forward integration are availing competitive advantage. Advantages of stable productions are high. organizations can increase the predictability of the demand through forward integration. When the industry is growing and expected to continue growing. When organization has both the capital and human resources.
Firms increasingly use websites on backward integration opportunities. too costly or cannot meet firm¶s requirements Firms having global sources of supply opt for deintegration. .Types of Strategies Backward Integration A strategy of seeking ownership or increased control of a firm¶s suppliers particularly in situations when firm¶s suppliers are unreliable. Global competition is prompting firm¶s to reduce number of suppliers and to demand higher level of service and quality from selected ones.
Types of Strategies Situations when backward integration may be an effective strategy When present suppliers are expensive. when the number of suppliers is small and the number of competitors is large. or incapable of meeting the firms needs. When an organization has both capital and human resources to manage the new business of supplying its own raw material. When an organization competes in an industry that is growing rapidly. . unreliable.
When an organization needs to acquire a needed resource quickly. . as organization can stabilize the cost of its raw materials and associated products through backward integration. tempting to invest into the venture.Types of Strategies Situations when backward integration may be an effective strategy (contd) When the advantages of stable prices are particularly important. When present supplies have high profit margin.
. acquisitions and takeovers among competitors allow for increased economies of scale and enhanced transfer of resources and competencies. Mergers.Types of Strategies Horizontal Integration A strategy of seeking ownership of or increased control over a firm¶s competitors. It is increasingly being used by the firms as growth strategy. Mergers between direct competitors create efficiencies because of potential for eliminating duplicate facilities.
. When increased economies of scale provide major competitive advantage. and overall industry sales are declining.( not if competitors are doing poorly. when competitors are faltering due to lack of managerial expertise or a need for particular resources that an organization possesses. When the firm has the necessary resources of capital and human talent to manage the expanded organization. when a firm competes in a growing industry.Types of Strategies Situations when horizontal integration may be an effective strategy When an organization can gain a monopolistic characteristics without being challenged by the law (SECP).
Types of Strategies Intensive Strategies Requires intensive effort from the firm to improve it¶s competitive position with existing products. Market penetrations includes increasing number of salespersons. publicity efforts or offering extensive sales promotion items. Market Penetration Market Development Product Development Market Penetration This strategy seeks to increase market share for present product or services in present markets through greater marketing efforts. . advertising expenditure.
. The usage rate of present customers could be increased significantly. The correlation between dollar sales and dollar marketing expenditure has been high.Types of Strategies Situations when market penetration may be an effective strategy Current markets are not saturated with a particular product or service. Increased economies of scale provide major competitive advantage. Market shares of major competitors have been declining while total industry sales have been increasing.
.Types of Strategies Market Development It involves introducing present products or services into new geographic areas. Organization is very successful at what it does. Situations when market development may be an effective strategy New. New untapped or unsaturated markets exist. Organization has excess production capacity. inexpensive and good quality channels of distribution are available. Organization¶s basic industry is becoming global. reliable. Organization has the necessary resources to expand operations.
Organization competes in an industry that is characterized by rapid technological development. It normally entails large R & D expenditure. .Types of Strategies Product Development A strategy that seeks increased sales by improving or modifying present products or services. Situations when Product development may be an effective strategy Organization¶s successful product has reached the maturity stage and organization wants its customers to try it¶s new or improved product.
Organization has strong research and development capabilities Diversification Strategies Diversification strategy is followed to avoid dependence on any single industry. Horizontal and conglomerate. Organization competes in a high-growth industry. There are three types of diversification strategies.Types of Strategies Major competitors offer better -quality products at comparable prices. especially when the company is competing in an un attractive industry. . Concentric. Concentric Diversification Acquiring new. products or services. but related.
. When new related products could be offered at highly competitive prices. When adding new but related products would significantly enhance the sales of current products. When the company¶s products are in the declining stage of the product¶s life cycle.Types of Strategies Situations when Concentric diversification may be an effective strategy When an organization competes in a no-growth/ slowgrowth industry. When an organization has strong management team. When new related products have seasonal sales levels that counterbalance a company¶s existing peaks and lows.
Situation when Horizontal Diversifications may be an effective strategy.Types of Strategies Horizontal Diversification Adding new. . Organization¶s present marketing channels can be used to market new products to current customers. Revenue of the organization would increase significantly. The new product has countercyclical sales patterns compared to an organization¶s present products. unrelated products or services for present customers. Organization competes in a highly competitive and / or a no growth industry yielding low returns and profit margins.
unrelated products or services. There exists financial synergy between the acquired and acquiring firms.Types of Strategies Conglomerate Diversification Adding new. Organization¶s basic industry is experiencing decline in sales / profits. . Situations when conglomerate diversification may be an effective strategy. The existing markets for company¶s present products are saturated. Antitrust action could be charged against an organization that has concentrated on a single industry. Organization has the opportunity to purchase unrelated business providing an attractive investment opportunity. Organization has the capital and managerial talent to successfully compete in a new industry.
Types of Strategies Defensive Strategies Retrenchment. reducing the number of employees and controlling expenses.. Entails selling off land and buildings to raise needed cash. allowing a firm to avoid major debt obligations and to void union contracts. . Also called a turnaround or reorganization strategy. pruning product lines. is designed to fortify an organization¶s basic distinctive competence. closing marginal businesses. closing obsolete factories. Divestiture and Liquidation are defensive strategies. Retrenchment An organization regroups through cost and asset reduction to reverse declining sales and profits. automating processes. Bankruptcy can be an effective type of retrenchment strategy.
poor employee morale. and pressure from stakeholders to improve performance. . could not capitalize on external opportunities. The organization¶s strategic managers have failed. minimize external threats.Types of Strategies Situations when retrenchment may be an effective strategy. low profitability. The organization is plagued by inefficiency. The organization is a weaker competitor in the industry. An organization has failed to meet it¶s objectives and goals repeatedly overtime. Organization has grown so large so quickly that major internal reorganization is needed. take advantage of internal strengths and overcome internal weaknesses overtime.
The strategy is used to raise capital for further strategic acquisition or investments. Divestiture can be apart of an overall retrenchment strategy to rid an organization of businesses that are unprofitable.Types of Strategies Divestiture Selling a division or part of an organization. or that do not fit well with the firm¶s other activities. . that require too much capital.
Types of Strategies Situations when Divestiture may be an effective strategy. A division is misfit with the rest of an organization. Government antitrust action threatens an organization . managers. The organization has pursued a retrenchment strategy but failed to accomplish needed improvements. may be due to different markets. customers. employees. A division is responsible for an organization¶s overall poor performance. A large amount of cash is required quickly and cannot be obtained from other sources. values or needs. A division needs more resources to be competitive than the company can provide.
in parts. When only alternative left is bankruptcy. Situations when liquidation may be an effective strategy to pursue.Types of Strategies Liquidation Selling all of a company¶s assets. can be an emotionally difficult strategy. for their tangible worth is called liquidation. It is better to cease operating than to continue loosing large sums of money. Organization has pursued both a retrenchment strategy and divestiture strategy and both have failed. Liquidities is a recognition of defeat and therefore. than liquidation is the only way to orderly get max cash from firm¶s assets. When stockholders of a firm can minimize their losses by selling the organization¶s assets. .
These strategies imply different organizational arrangements.Types of Strategies Michael Porter¶s Generic Strategies. Strategies allow organizations to gain competitive advantage from three different bases. Differentiation strategy aims at producing unique products for relatively price sensitive consumers and focus means producing products & services to fulfill the needs of small groups of consumers. Large firms with greater resources compete on a cost leadership and or differentiation basis while small firms often compete on focus basis. Differentiation and focus. control procedures and incentive systems. cost leadership. Cost leadership emphasis on producing standardized products at a very low per unit cost for price sensitive consumers. .
.Types of Strategies Cost Leadership Strategy Reason for forward. buyer are not bothered about brands and there are large no. backward and horizontal integration is to gain cost leadership. It is an effective strategy in situations where customers are price sensitive. there is few ways of achieving product differentiation. Perform cost-benefit analysis to evaluate ³sharing opportunities´ of resources and knowledge among firm¶s existing and potential business units. of buyers with significant bargaining power. Pursue cost leadership in conjunction with differentiation.
. lower overheads. buyer¶s interest switching to other differentiating features beside price. rewards linked with cost containment. limited perks.Types of Strategies Implies high efficiency. technology break through make strategy ineffective. intolerance of waste. Competitors imitation of strategy may result in lowering overall Industry profits.
spare parts availability. useful life. Will allow a firm to charge high price.Types of Strategies Differentiation Strategy. gain customer loyalty. engineering design. . Special features could be superior service. gas mileage or ease of use. Strategy requires strong coordination between R&D and marketing functions. Follow a strategy after careful study of buyers needs and preferences to determine and incorporation of one or more differentiations features. product performance.
Focus Strategies are most effective when. geographic market. Market Penetration and Market Development strategies offer substantial focusing advantages. ± Consumers have distinctive preferences or requirements. or on a particular product-line segments in order to serve a well defined but narrow market better than competitors who serve a broader market. ± Rival firms are not attempting to specialize in the same target market. .Types of Strategies Focus Strategies To concentrate on a particular group of customers.
The possibility of many competitors recognizing the successful focus strategy and copying it. .Types of Strategies Medium to large firms can pursue focus strategies only in conjunction with differentiation or cost leadership-based strategies. Risks of pursuing Focus Strategies. The consumer preferences drifting towards the product attributes desired by the market as a whole.
The sponsoring firms normally form a separate organization with shared ownership. ± Research and development partnerships. ± Cross-licensing agreements. Other types of cooperative arrangements could be. ± Cross-distribution agreements.Types of Strategies Means For Achieving Strategies Joint Venture / Partnership It is a popular strategy when two or more companies form a temporary partnership or consortium for the purpose of capitalizing on some opportunity. .
problems arise.Managers who must collaborate daily in operating the venture are not involved in forming or shaping the venture. Common Problems Leading To Failure Of Joint Ventures 1. .Types of Strategies ± Cross-manufacturing agreements.The venture may begin to compete more with one of the partners than the other. 3. if supported unequally. The venture may not be supported equally by both partners. 2. and ± Joint-bidding consortia.
. or vice versa.Types of Strategies Merger / Acquisition Merger ± When two organizations of about equal size unite to form one enterprise. Friendly Merger . Acquisition.If the acquisition is desired by both firms. Takeover/Hostile Takeover .When a merger or acquisition is not desired by both parties.when a large organization purchases (acquires) a smaller firm.
Not all mergers are effective and successful ± about half produced negative returns to shareholders (Wall Street Journal studies) .Types of Strategies Forces driving Mergers/ Acquisitions Technological Change Excess capacity Inability to boost profits through price increases A depressed stock market Need to gain economies of scale Bargains galore as companies struggle and while stock prices are low.
To gain economies of scale To smooth out seasonal trends in sales. To reduce managerial staff. To reduce tax obligations. customers. To make better use of the existing sales force. To gain access to new suppliers. distributors. products and creditors.Types of Strategies Reasons for Mergers and Acquisitions To provide improved capacity utilization. To gain new technology. .
Types of Strategies
First Mover Advantages The benefits a firm may achieve by entering a new market or developing a new product or service prior to rival firm is known as first mover advantages. It may include;
± Securing access to rare resources. ± Gaining new knowledge of key factors of issues, and ± Carving out market share and a position that is easy to defend and costly for rival firms to overtake.
Risk associated being first mover ± unexpected and unanticipated problems and costs may occur being the first firm doing business in the new market.
Types of Strategies
According to research, first mover advantages tend to be greatest when competitors are roughly the same size and possess similar resources. Otherwise, larger competitors can wait while others make initial investments and mistakes, and then respond with greater effectiveness and resources Out Sourcing Business Process Outsourcing (BPO) involves companies taking over the functional operations, such as human resource, information systems, payroll, accounting, customer service, and even marketing of other firms.
Types of Strategies
Companies choose to outsource because; It is less expensive, It allows the firms to focus on its core business, and It enables the firm to provide better service. BPO is the means for achieving strategies that are similar to partnering and joint venture.
The organizational environment consists of the internal environment and the external environment.Strategic Management Process The Organizational Environment All forces with potential to influence the organization and its performance is known as organizational environment. Within the external environment are the forces of the general environment or macro environment and the forces of the task environment or industry environment .
THE ENVIRONMENT The macro-environment Industry Operating Envrnmt Internal Environment The organization Task Environment .
It is a tool used by corporations to avoid strategic surprise and to ensure long-term health . Thus. evaluate and disseminate information from external and internal environment to the management. Scan Internal environment to ascertain strengths and weaknesses Monitor. .Strategic Management Process Environmental Scanning Scan external environment to identify possible opportunities and threats.
IO perspective requires the firms to compete in attractive industries. the external (industry) factors are more important than internal factors in a firm achieving competitive advantage. The IO theorist argue that the industry in which a firm competes has stronger influence on the firm¶s performance than the internal functional decisions managers make in marketing. avoid weak or faltering industries. . and gain a full understanding of key external factors relationships within that industry.Strategic Management Process The Industrial Organization (IO) View According to IO approach. finance etc. Competitive advantage is determined largely by competitive positioning within and industry.
and operations. whereas 36 percent of the profitability is attributed to the firm¶s internal factors. structures. barriers to market entry. capabilities. such as economies of scale. However.Strategic Management Process Firm performance is primarily based more on industry properties. . product differentiation. Research findings suggest that approximately 20 percent of a firm¶s profitability can be explained by the industry. and level of competitiveness than on internal resources.
Customers. Employees. Services. cultural. Distributors. Creditors. Managers. Suppliers. Governments. . Technological forces. Political. Communities. demographic and environmental forces. Markets and Natural Environment. Competitive forces.Strategic Management Process Key External Forces: ± ± ± ± ± Economic forces. Products. Organization¶s Operating Environment: Competitors. Social. Labor Unions. Special interest groups. Trade Associations. governmental and legal forces. Stockholders.
± The choice of businesses to acquire or sell. External opportunities /threats enable organizations to develop clear missions and strategies to achieve their objectives. . Changes in external forces is reflected into: ± Changes in consumer demand for both industrial and consumer products and services.Strategic Management Process The effects/influences of external environment on organizations operating environments give rise to opportunities and threats for the organization. External forces directly effect both suppliers and distributors. ± The nature of positioning and market segmentation strategies.
± Measurable. to identify key external factors which are. List of key external factors be communicated to all in the organization. number of managers and employees. . ± Hierarchical effecting overall company and functional/ divisional areas.Strategic Management Process Get the participation of max. ± Applicable to all competing firms. ± Important for achieving long-term and annual objectives. Evaluate and assimilate the info. human resources and internet. Gather competitive intelligence about key external force¶s trends by using print/electronic media.
Consumption patterns are effected by the relative affluence of various market segments-the firm to consider economic trends in the segments that affect its industry. Low/ high value of dollar Gross domestic product trend Right sizing/ downsizing or derecruiting Deregulation of Industries to restrain inflation Emergence of economic blocs/ organizations like EEC.Strategic Management Process Economic Forces The Nature and direction of economy in which firm operates. OPEC. The level of disposable income. The firm must consider. ± ± ± ± ± ± ± General availability of credit. . NAFTA. Interest rates. stock prices. etc.
services. markets and customers and all sorts of organizations. cultural. .Strategic Management Process Social. Cultural. demographic and environmental factors have impact on virtually all products. Changes in social. Demographic and Environmental forces. and all industries are challenged by the opportunities and threats arising from these changes.
(Golden hand shake) under Govt. Companies have to pay heavy penalty in shape of expensive severance packages. governmental and legal factors can represent key opportunities or threats for both small and large organizations. Political. subsidizers.Strategic Management Process Political. rules for laying off employees . employers and customers of organizations. local and foreign governments are major regulators. state. Governmental and Legal Forces Federal.
Changes in tax rates. . facilities. Mass communication and high technology is creating similar patterns of consumption in diverse cultures world wide. special tariffs can affect firms significantly.Strategic Management Process Political forecast is vital part of external audit for industries/ firms depending on Govt. import duty on raw materials. subsidies. contracts. Political forecasts is critical for multinational firms that depend on foreign countries for natural resources. or markets for their products. companies relying only on domestic market may find it difficult to survive.
increasing speed of distribution . Internet is saving companies billions of dollars in distribution and transaction from direct sales. erasing limitations of traditional geographical markets. It is changing the nature of opportunities and threats by altering the life cycle of products.Strategic Management Process Technological Forces Technological advances have brought revolution in business operations. altering economies of scale and changing entry barriers. New positions of CIO and CTO are being introduced in companies to effectively capitalize on e-commerce. .
± Create shorter production runs. ± Create shortage in technical skills. customers. distributors. manufacturing processes. markets. ± Change the relative cost position in an industry.Strategic Management Process Technological forces represent major opportunities and threats which should be taken care of while formulating strategies. managers and customers. operations. ± Change values and expectations of employees. Technological breakthroughs can dramatically affect. services. ± Create new more powerful competitive advantage. ± Render existing products and services obsolete. . marketing practices and competitive position. ± Products. suppliers.
not just in product but the whole company. ± People make a difference. The most-successful purchases are in niches that add technology or a related market. capabilities. ± There is no substitute for quality and no greater threat than failing to be cost-effective on a global basis. objectives and strategies. Nothing quite recedes like success. ± Acquisition is essential to growth. ± Innovate or evaporate. threats. . Characteristics of a competitive firm. ± Bringing improvement. ± Market share.Strategic Management Process Competitive Forces It is imperative in external audit to identify rival firms and determine their strengths. ± Understanding and remembering precisely what is your business. opportunities. tired of hearing it? Too bad. weaknesses.
Good competitive intelligence in business is one of the key to success. Major competitor¶s weakness can represent external opportunity and major strength may represent key threat. implementation and evaluation decisions. Benefits of corporate spying include increased revenues. . lower costs and better decision making. Competitive intelligence is equally applicable for strategy formulation.Strategic Management Process Competitive Intelligence (CI) A systematic and ethical process for gathering and analyzing info about competitors activities and general business trends to further a business¶ own goals.
want ads. suppliers. Cooperation Among Competitors Unethical tactics like bribery. creditors. trade journals. Identify competitors potential moves that might endanger a firm¶s position in the market. . online interviews with celebrities and government filings. Identify areas in which competitors are vulnerable and assess the impact strategic actions would have on competitors. Sources of CI Internet. customers. and computer break-ins should not be used in CI. employees. distributors. managers. newspaper articles.Strategic Management Process Objectives of Competitive Intelligence (CI) To provide general understanding of an industry and its competitors. wiretapping.
Bargaining Power of consumers. the nature of competitiveness in a given industry can be viewed as a composite of five forces. According to Model.Strategic Management Process Industry Environment Competitive Analysis: Porter¶s Five-Forces Model. ± ± ± ± ± Rivalry among competing firms. Bargaining power of suppliers. Potential development of substitute products. . Potential entry of new competitors. A widely used approach for developing strategies in many industries.
Michael Porter¶s Model POTENTIAL ENTRANTS Threat of new entrants INDUSTRY COMPETITORS Bargaining power of suppliers SUPPLIERS Bargaining power of customers CUSTOMS Rivalry Among Existing Firms Threat of substitute products or services SUBSTITUTES .
extending warranties or increasing advertising. The intensity of rivalry increases. ± with the increase in number of competitors. ± By becoming more equal in size and capability. enhancing quality. .Strategic Management Process Rivalry among Competing firms The most powerful of five Competitive forces. A successful strategy giving competitive advantage to a firm can be pursued by rival firms. adding features. Change in strategy by one firm may be met with retaliating countermoves like lowering of prices. providing services.
_ Consumers can switch brands easily. ± When fixed costs are high. As rivalry among competing firms intensifies. ± When mergers and acquisitions are common in the industry. . ± The industry becomes Inherently unattractive.Strategic Management Process -With decrease in demand of industry¶s products. ± when product is perishable. ± Barriers to leaving the market are high. ± Industry¶s profits decline.
undesirable locations. Economy of scale. Barriers to entry include. counterattack by entrenched firms or potential saturation of the market: . increases the intensity of competitiveness among the firms. sophisticated technology and know how. possession of patents. lack of access to raw materials.Strategic Management Process Potential Entry of New Competitors Easy entry of a firm in an industry. regulatory policies. Govt. strong customer loyalty. large capital requirement. strong brand preference.
. ± Substantial market resources.Strategic Management Process New firms enter the industry with. ± High quality products. ± lower prices. plan counter attack if required and capitalize on existing strengths and weaknesses. Strategist must identify new entrants. their strategies.
paperboard. Presence of substitute put ceiling on the price of a product.Strategic Management Process Potential Development of Substitute Products Firms are in close competition with producers of substitute products. . competitive pressure arise when price of the substitute product decreases or consumer¶s switching cost decreases. or aluminum can producer. like plastic container producer competing with glass. Or the firms plane for increased capacity and market penetration. Competitive strength of the substitute product could be measured by its market share.
Firms may pursue a backward integration strategy to gain control or ownership of suppliers.Strategic Management Process Bargaining Power of Suppliers It affects the intensity of competition in industry when. . ± There is large number of suppliers. too costly or not capable of meeting a firm¶s demand on consistant bases. ± There are only few substitute raw materials. ± When cost of switching raw materials is high. This strategy is effective when suppliers are unreliable.
. ± Buy in volume. Rival firms offer extended warranties or special services to gain consumer loyalty.Strategic Management Process Bargaining Power of Consumers Intensity of competition in an industry increases by the bargaining power of consumers if. and accessory packages. Consumers can negotiate selling price. warranty coverage. ± Consumers are concentrated or large. ± Products being purchased are standard or undifferentiated.
and competitive information. technological. ± i) List external factors identified in external audit (about 10 to 20 factors) including both opportunities and threats. social. by writing opportunities first and than threats. . environmental. cultural. governmental. demographic. The Matrix can be developed in five steps. political. legal.Strategic Management Process The External Factor Evaluation (EFE) Matrix The matrix allows the strategists to summarize and evaluate economic.
where. 3 = the response is above average. ± iii) Assign a rating of 1 to 4 to each key external factor to indicate how effectively the firm¶s current strategies respond to the factor.0. 2 = the response is average.0 (very important).0 (not important) to 1. . The total of all weight assigned to the factors must be equal 1. The weight indicates the relative importance of that factor in success of the firm¶s industry. Appropriate weight can be determined by comparing successful with unsuccessful competitors or by discussing the factor and reaching a group consensus.Strategic Management Process ± ii) Assign each factor a weight ranging from 0. 4 = the response is superior. and 1 = the response is poor.
The average total weighted score is 2.Strategic Management Process Ratings are based on effectiveness of the firm¶s strategies thus company-based. whereas the weights in step 2 are industry based.5. ± v) Sum the weighted score for each variable to determine the total weighted score for the organization.0. The score of 4.0 indicates that the organization is responding in an outstanding way to existing opportunities and threats in its industry. or taking advantage of opportunities and minimizing effects of threats. The highest possible total weighted score for an organization is 4.0 and the lowest 1. . ± iv) Multiply each factor¶s weight by its rating to determine a weighted score.
05 .05 .15 .10 .15 .20 .60 .05 4 4 3 4 3 3 4 3 3 .V Increasing free cash flow Owns one mile on beach Strong management team Buffet at most facilities Long-range planning Reputation as family friendly Financial ratios Weight Rating Weighted Score .15 .40 .15 .05 .05 .Strategic Management Process A SAMPLE INTERNAL FACTOR EVALUATON MARTRIX Key Internal Factors Internal Strength Largest Casino in country Room Occupancy 95% in L.05 .20 .15 .05 .15 .
00 1 2 2 1 .05 .05 .10 2.10 . not high Recent loss of joint venture Total Weight Rating Weighted Score .10 1.05 .75 .V Little diversification Family reputation.Strategic Management Process Key Internal Factors Internal Weaknesses Most properties located in L.10 .05 .
The weights and total weighted scores in both a CPM and EFE have the same meaning. therefore the ratings refer to strengths and weaknesses. However. where. Critical success factors in a CPM include both internal and external issues. ± 4 = major strength ± 3 = minor strength ± 2 = minor weakness ± 1 = major weakness .Strategic Management Process The Competitive Profile Matrix (CPM) The CPM identifies a firm¶s major competitors and its particular strengths and weaknesses in relation to a competitor firm¶s strategic position.
price competitiveness. global expansion and market share. production capacity and efficiency. could be. experience. . technological advantages and e-commerce expertise.Strategic Management Process For example critical success factors for firms may include advertising. breadth of product line. product quality. Other than critical success factors. management. financial position customer loyalty. location of facilities. effectiveness of sales distribution. proprietary or patent advantages. union relations.
Three critical ingredients of a successful strategy. ± Strategy be carefully executed.Strategic Management Process Internal Environment Analysis The Importance of Internal Analysis Internal strengths/ weaknesses coupled with external opportunities/threats and a clear statement of mission. ± Strategy to place realistic requirements on the firm¶s resources. provide the basis for establishing objectives and strategies. Involvement of representatives of managers and employees from throughout the firm to determine firm¶s internal strengths and weaknesses . ± Strategy be consistent with conditions in competitive environment.
and organizational resources. location. which can be grouped into three categories. human resources. internal resources are more important for a firm than external factors in achieving and sustaining competitive advantage. The organizational performance will primarily be determined by internal resources. raw materials and machines. . Physical Resources Plant and equipment. technology.Strategic Management Process The Resource-Based View (RBV) According to RBV approach. Three Basic Resources Physical resources.
skills. . intelligence. planning processes. experience. and nature of a firm¶s internal resources first in devising strategies that can lead to sustainable competitive advantage. type. information systems. and abilities Organizational Resources Firm structure. patents. RBV theory asserts that sources are actually what helps a firm exploit opportunities and neutralize threat.Strategic Management Process Human Resources All employees. databases. copyrights. trademarks. The firm must consider the mix. knowledge. amount. training. accumulated experience within organization and so on.
either with greater efficiency in the processes or greater quality in the output or both. nurtured and deployed throughout the firm.Strategic Management Process Organizational Abilities The skills. Core Competence A capability or skill running through a firm¶s businesses and that once identified. They enable the firm to take the same input factors as rivals and convert them into products and services. becomes the basis for lasting competitive advantage. abilities and ways of combining assets. . and processes that a company uses to transform inputs into outputs. people. Finely developed capabilities can be a source of sustained competitive advantage.
± Cash. Easy to imitate. .Strategic Management Process What Makes a Resource valuable? Competitive Superiority : Does the resource help fulfill a customer¶s needs better than those of the firm¶s competitors? Resource scarcity: Is the resource in short supply? Inimitability: Is the resource easily copied or acquired? Inimitability doesn¶t last for ever. ± Commodities. competitors will match or better any resource sooner than later.
Cannot be Imitated. ± Employee Satisfaction. ± capacity ± Economy of scale Difficult to Imitate ± Brand loyalty. ± Unique assets (mineral rights). .Strategic Management Process Can be imitated (but may not be). ± Unique locations. ± Patents. ± Reputation for fairness.
Based View in Internal Analysis. Involves identifying and evaluating firm¶s resources that possess strategic value and can provide basis for future competitive advantage. .Strategic Management Process Durability: How rapidly will the resource depreciate? Substitutability: Are other alternatives available? Using Resource.
Look at organizational processes and combinations of resources and not only at isolated assets or capabilities. Disaggregate resources: Break them into more specific competencies rather than stay with broad categorizations. Separating tangible and intangible assets as well as organizational capabilities can uncover value-building resources and activities. activities and processes having potential competitive advantage. Utilize a functional perspective. Use value chain approach to identify capabilities. .Strategic Management Process Methods to identify resources with strategic value.
± Features/décor. ± Bar positioning. ± Door Positioning and style. window decorations ± Table layout Table materials . color scheme. Theme. floor materials. Providing ease of access ± Parking (where appropriate). ± External Signs/ welcome Offering a delightful ambiance ± Floor design.Strategic Management Process Disaggregating a Restaurant¶s Customer Service Resource.
± Visible queuing system. ± Entertainment for queuers.Strategic Management Process Providing a Special welcome ± Host greeting ± Welcome drinks/ eats ± Menu introduction ± Table decoration Ensuing waiting time at the table is´ as expected´ and as enjoyable as possible. ± Marketing literature. .
Job experience Motivation awards. ± System of gaining waiter¶s attention . Daily Meetings. Menu training. coaching process Discipline system.Strategic Management Process Providing a customer with delightful service Developing a special relationship between waiter/ waitress and table ± Waiter selection ± waiter training/ development Personality training Assessing customers Handling disasters Coping with pressures.
± Kitchen queuing system ± Service standards Reducing the pain of paying the bill.Strategic Management Process Ensuring that Menu is fun to use and caters to the diners¶ needs. . ± Size of Menu ± Material Menus made off ± Menu dishes ± Menu layout Providing speed of service appropriate to the occasion.
ceremonies. stories. legends. myths. rites. thing. metaphors. and feel. rituals. saga. heroes. symbols. and that has worked well enough to be considered valid and to be taught to new members as the correct way to perceive. . Cultural products or dimensions include values.Strategic Management Process Organizational Culture A pattern of behavior (that has been) developed by an organization as it learns to cope with its problem of external adaptation and internal integration. beliefs. This definition emphasizes the importance of matching external with internal factors in making strategic choices. language. and heroines.
open. harsh. It must foster competence and enthusiasm among managers and employees . liberal. and evaluation activities. implementation. conservative. or likable. aggressive. An organization¶s culture must support the collective commitment of its people to a common purpose. The strategic management process takes place largely within a particular organization culture. friendly. innovative. Every organization like an individual¶s personality have different cultures ± they could be warm.Strategic Management Process These dimensions are levers that strategists can use to influence and direct strategy formulation.
Strategic Management Process Organizational culture significantly affects business decisions and thus must be evaluated during an internal strategic management audit. . and evaluation of strategies. strategic changes may be ineffective or even counterproductive. The challenge of strategic management is to bring about the changes in organizational culture and individual mindsets that are needed to support the formulation. like strong work ethic or highly ethical beliefs. However. If the firm¶s culture is not supportive. implementation. then management can implement changes swiftly. If strategies can capitalize on cultural strengths.
. usually for the benefit of an audience.Relatively elaborate. Ritual ± A standardized. carried out through social interactions. but seldom produce intended. technical consequences of practical importance. detail set of techniques and behaviors that manage anxieties. planned sets of activities that consolidate various forms of cultural expressions into one event. usually used to explain origins or transformation of something. an unquestioned belief about the practical benefits of certain techniques and behaviors that is not supported by facts.Strategic Management Process Cultural Products or Dimensions Rites . Ceremonial ± A system of several rites connected with a single occasion or event. Myth ± A dramatic narrative of imagined events. Also. dramatic.
Strategic Management Process Saga ± A historical narrative describing the unique accomplishments of a group and its leaders. usually by representing another thing. or relation that serves as a vehicle for conveying meaning. sometimes a combination of truth and fiction. event. act. Legend ± A handed down narrative of some wonderful event that is based on history but has been blown up with fictional details. Symbol ± Any object. . Language ± A particular form or manner in which members of a group use sounds and written signs to convey meanings to each other. Folktale ± A completely fictional narrative. usually in heroic terms. Story ± A narrative based on true events.
. Values . Belief ± An understanding of a particular phenomenon. Heroes/Heroines ± Individuals whom the organization has legitimized to model behavior for others.Strategic Management Process Metaphors ± Shorthand words used to capture a vision or to reinforce old or new values.life-directing attitudes that serve as behavioral guidelines.
Planning enables a firm to gather the resources needed and carry out tasks in the most efficient way. planning.Strategic Management Process Management The function of management are five basic activities. staffing. and planning is the essential bridge between the present and the future that increases the likelihood of achieving the desired results. and controlling. Planning is an up-front investment in success. organizing. Planning The only thing certain about the future of any organization is change. motivating. Planning enables a firm to take into account relevant factors and focus on the critical ones. .
. what. when. why.Strategic Management Process Planning enables a firm to identify precisely what is to be achieved and to detail precisely the who. Successful organizations strive to control their own futures rather than merely react to external forces and events as they occur. and how needed to achieve desired objectives. Strategic management can be viewed as a formal planning process that allows an organization to pursue proactive rather than reactive strategies. Planning helps ensure that the firm can be prepared for all reasonable eventualities and for all changes that will be needed. where.
Resources are allocated more effectively and used more efficiently in a well organized firm than in a disorganized firm. ± Breaking tasks down into jobs ( work specialization ).Strategic Management Process Organizing The purpose of organizing is to achieve coordinated efforts by defining tasks and authority relationship. Organizing means determining who does what and who reports to whom. ± Combining jobs to form departments ( departmentalization). The organization function consist of three sequential activities. and ± Delegation authority. .
The most common forms of departmentalization are functional. . Changes in strategy often require changes in structure because positions may be created. business unit. which lead to specialization and according to Adam Smith (Wealth of Nations published 1776) would lead to higher productivity. divisional. Combining jobs to form departments results in an organizational structure. or merged. span of control. strategic. and matrix.Strategic Management Process Breaking tasks down into jobs require development of job description and job specification. deleted. and chain of command.
Employees of today are more educated and capable of participation in organizational decision making. and to be held accountable for results Delegation of authority is embedded in strategic management process. . They expect to be delegated authority and responsibility.Strategic Management Process Delegation authority is an important activity as evidenced in old saying ³ you can tell how good a manager is by observing how his/her department functions when he or she is not there´.
Earning per share and Social responsibilities. challenging. Market share. measurable. and obtainable. Profitability. realistic. Objectives should be quantitative. understandable. ± ± ± ± ± ± ± Growth in assets. Objectives are commonly stated in terms of. . hierarchical.Strategic Management Process Strategic Objectives Strategic objectives or long-term objectives represent the results expected from pursuing certain strategies. Degree and nature of diversification. Growth in sales.
an organization can minimize potential conflicts later during implementation .Strategic Management Process Clearly stated objectives help stakeholders understand their role in an organization. By making objectives through consensus. They provide basis for consistent decision making by managers whose values and attitudes differ.
Strategic Management Process
Strategy Analysis And Choice
Identifying and evaluating alternative strategies should involve maximum number of managers and employees. All the participant should have the firm¶s external and internal audit information by their sides. The firm¶s external/internal audit, coupled with mission statement, will help participants to crystallize the particular strategy that could benefit the firm most. All the feasible alternate strategies be discussed and ranked in the order of attractiveness, like; ± 1. Should not be implemented.
Strategic Management Process
± 2. Possibly should be implemented. ± 3. Probably should be implemented. ± 4. Definitely should be implemented. The process will result in prioritized list of best strategies reflecting the collective wisdom of the group.
Strategic Management Process
Strategic Management Process .
Strategic Management Process .
Internal Environment Analysis Business Ethics and Social Responsibility Ethics A system of behaviors. It conforms not only to the law. but also to broader set of moral principles expected by all or by a segment of society. Ethical Behavior Conduct that is considered µright¶ or µgood¶ in the context of a governing moral code. expectations and morals comprising standards of conduct for a population or profession. Unethical Behavior Conduct that is considered µwrong¶ or µbad¶ in the context of a moral code. .
. and ethical rules. ethical principles. Ethical Standard A guidelines governing moral conduct of a particular group.Code Of Ethics A formal statement of the organization¶s values.
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue listening from where you left off, or restart the preview.