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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.
± It has transferred power from businesses to individuals . . ± Buyers can get best price and service by quickly scanning hundreds of vendor offerings.may lead to regulation on consumers in future. ± It promotes endless comparison shopping thus enabling consumers worldwide to band together to demand discounts.Evolution of Strategic Management Internet and PCs are changing our lifestyle the way we interact with our families. friends neighbors etc.
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. ± According to seventy four percent Americans in a survey. e-Trade. e-mail and e-toys have become integral part of everyday life worldwide. . ± Business to Business e-commerce is five time greater than consumer e-commerce. ± Slogans and company¶s like e-Bay.
Strategic Management Definition The art and science of formulating implementing and evaluating cross-functional decisions that enable an organization to achieve it¶s objectives. . The purpose of strategic management is to exploit and create new and different opportunities for tomorrow. finance/ accounting. production /operations. research and development. marketing. and computer information systems to achieve organizational objectives. It focuses on integrating management.
logical. .Strategic Management Process Strategic Management Process It is an objective. ± Strategy evaluation. establishing long term objectives. Strategy Formulation Developing a vision and mission. ± Strategy implementation. systematic approach for making major decisions in an organization. ± Strategy formulation. 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. determining internal strengths and weaknesses.
. The first choice is the best choice.Strategic Management Process Vision Statement What do we want to become? A vision statement of an eye clinic. and being the best is what Atlanta Web pledges to work hard at being ± every day. ³ To be the first choice in the printed communication business. ³ Our vision is to take care of your vision´ A vision statement of Atlanta Web Printers.
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´. . . A clear mission statement is essential for effectively establishing objectives and formulating strategies.
Strategic Management Process Importance of Vision and Mission Statements Ensure unanimity of purpose within the organization. or standard. Specify organization¶s purpose and then translate these into objectives in such a way that cost. Establish a general tone or organizational climate. Facilitate the translation of objectives in to work structure involving the assignment of tasks to responsible elements in organization. . for allocating organizational resources. time and performance parameters can be assessed and controlled. Provide a basis.
social. governmental. technological or competitive trends. cultural. demographic. Firms to formulate strategies to take advantage of external opportunities and to avoid/reduce the impact of external threats. political.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. legal. They are largely beyond the control of a single organization-thus the word external. . environmental.
They arise in the management. production/ operations. finance/accounting. .Strategic Management Process Internal Strengths and weaknesses An organization¶s controllable activities that are performed especially well or poorly. marketing. research and development and management information system activities of a business. Organizations strive to pursue strategies that capitalize on Internal strengths and eliminate internal weaknesses.
Strengths and weaknesses can be determined relative to a firm¶s own objectives. Survey method could be used to determine employee morale. Strengths and weaknesses can be determined by elements of being rather than performance.Strategic Management Process Strengths and weaknesses are determined relative to competitors. . advertising effectiveness and customer loyalty. measuring performance and comparing to past periods and industry averages. production efficiency. Internal factors can be determined by computing ratios.
organizing. Objectives state direction. consistent. aid in evaluation. Objectives should be challenging.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. reasonable and clear. create synergy. . focus coordination and provide a basis for effective planning. motivating and controlling activities. reveal priorities. measurable.
Business strategies may include geographic expansion. acquisition. . market penetration. liquidation and joint venture.oriented having multifunctional or multidivisional consequences for the organization.Strategic Management Process Strategy It is the means by which long-term objectives can be achieved. retrenchment. product development. Strategies are potential actions thus future. diversification.
Whether to merge or form a joint venture How to avoid a hostile takeover. Whether to expand operations or diversify.Strategic Management Process Strategy formulation issues Deciding what new business to enter What businesses to close. How to allocate resources. Whether to enter international market. .
Developing and utilizing information systems. Developing a strategy-supporting culture Creating an effective organizational structure. Redirecting marketing efforts. devise policies. Strategy Implementation includes. and Linking employee compensation to organizational performance . and allocate resources so that formulated strategies can be executed. It entails establishment of annual objectives. Preparing budget. motivate employees.Strategic Management Process Strategy Implementation It is also called ³the action stage of strategic management´.
Strategic Management Process Implementing Strategies Strategy implementation is different than strategy formulation.focuses on effectiveness Strategy implementation .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 . Strategy formulation ± positioning forces before the action Strategy implementation ± managing forces during the action Strategy formulation .requires special motivation and leadership skills .
for profit or nonprofit organizations Strategy implementation .varies substantially among different types and sizes of organizations .requires coordination among a few individuals Strategy implementation .requires coordination among many individuals Strategy formulation .Strategic Management Process Strategy formulation .concepts and tools similar for small. large.
All strategies are subject to future modifications because of persistent changes in the external and internal environment of an organization. ± 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. Three fundamental strategy evaluation activities are. ± Measuring performance. Strategy evaluation is necessary because success today is no guarantee of success tomorrow . ± Taking corrective actions.
± 4. Two common types of single-use plans are programs and projects. ± 1. Determine the logical sequence of steps.Strategic Planning Types of Plans Single use plan A plan designed to fit one-time situation. 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. Decide who will be responsible for each step. ± 2. . Establish and provide the sources necessary to complete each step. To develop a program. managers. Divide the course of action into steps. ± 3.
Bhasha Dam project in the national program of provision of electricity to the whole country. Prepare a schedule for implementation. Three commonly used types of standing plans are policies. . for example. Projects integrate fewer activities and resources than programs and are often developed as subunits of programs. procedures. and ± 6. and rules.Policy ± a standing plan that provides broad guidelines for directing managerial activities in pursuit of organizational goals .Strategic Planning -5. Standing plans A plan for guiding management decisions and activities in situations that recur repeatedly. Project A single-use plan that is narrower in scope than a program and aimed at achieving a specific one-time goal. Gauge the time needed to finish each step.
Strategic Planning ± Procedure ± a standing plan encompassing a series of detailed steps to be followed in particular recurring situation. . Contingency Plans Alternative courses of actions to be followed if unforeseen environmental shifts occur. ± Rule ± a standing plan specifying the circumstances in which certain activities can or cannot be performed.
Strategic Planning Levels of Planning Strategic Tactical Operational General Time Period Considered for Plans Strategic Plans .5 years Tactical Plans .1 year .3 years Operational Plans .
The Managerial Pyramid Mission Strategic Goals/ Plans (organization as a whole) Tactical Goals/ Plans (major divisions. functions) Operational Goals/ Plans (departments and units) .
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
Strategic Planning Benefits of Strategic Planning Financial Benefits Organizations using strategic management concepts are more profitable and successful than those who do not. profitability and productivity. Businesses show significant improvement in sales. These firms generally exhibit superior long-term financial performance relative to their industry. High performing firms do systematic planning to prepare for future fluctuations in their external and internal environment. .
Clear understanding of performance-reward relationships. 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.Strategic Planning Nonfinancial Benefits Strategic management offers. Enhanced awareness of external threats An improved understanding of competitors¶ strategies. Increased employee productivity. .
Allows more effective allocation of time and resources to identified opportunities. Creates a framework for internal communication among personnel. and provides a unifying framework. prioritization and exploitation of opportunities. avoiding piecemeal decision making. Helps integrate the behavior of individuals into a total effort. . Directs decision making to support established objectives. Encourages forward thinking. Presents a framework for improved coordination and control of activities. Provides a basis for clarifying individual responsibilities.Strategic Planning Benefits of Strategic Planning Allows for identification. Facilitates managerial control through setting of standards for monitoring and measuring performance.
Fire-fighting ± busy in crisis management and not finding time to plan. Too Expensive ± culturally opposed to spending resources. 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. ( time spent on planning is investment). . Laziness ± may not want to put effort needed for planning.
being overconfident or overestimating experience can bring failure Prior bad experience ± plans have been long. of aptitude with new system or of their ability to take on new roles. . However. Fear of Unknown ± uncertain of abilities to learn new skills. can also be done badly.Strategic Planning Fear of failure ± not doing anything. However whenever something worthwhile is attempted. like anything else. or privilege through effectively using old system. impractical. there is some risk of failure. Self-interest ± when some one has achieved status. Overconfidence ± as individuals amass experience. or inflexible. no risk of failure. he/she sees anew plan as threat. they may rely less on formal planning. Planning. Honest difference of opinion ± sincerely believe the plan is wrong as they are watching the situation from different viewpoing. cumbersome.
According to Hansen and Smith.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. Strategic planning involves ³choices that risk resources´ and ³tradeoffs that sacrifice opportunity´.
± Establishing websites to sell products directly to consumers.costs and opportunities are spread across many individuals.Types of Strategies Integration Strategies Forward integration Backwind integration Horizontal integration Forward Integration Gaining ownership or increased control over distributors or retailers by. ± Opening company¶s stores. ± Franchising .. retail outlets .
unreliable or incapable of meeting the firms distribution needs.Types of Strategies Situations when forward integration may be an effective strategy. organizations can increase the predictability of the demand through forward integration. When organization has both the capital and human resources. Availability of quality distributors is limited. firms having forward integration are availing competitive advantage. however. When the industry is growing and expected to continue growing. forward integration reduces organization¶s ability to diversify if it¶s basic industry falters. . Organizations present distributors are expensive. When profit margins for distributors or retailers are high. Advantages of stable productions are high.
Global competition is prompting firm¶s to reduce number of suppliers and to demand higher level of service and quality from selected ones. too costly or cannot meet firm¶s requirements Firms having global sources of supply opt for deintegration. . Firms increasingly use websites on backward integration opportunities.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.
When an organization competes in an industry that is growing rapidly. when the number of suppliers is small and the number of competitors is large. . or incapable of meeting the firms needs.Types of Strategies Situations when backward integration may be an effective strategy When present suppliers are expensive. unreliable. When an organization has both capital and human resources to manage the new business of supplying its own raw material.
Types of Strategies Situations when backward integration may be an effective strategy (contd) When the advantages of stable prices are particularly important. as organization can stabilize the cost of its raw materials and associated products through backward integration. When present supplies have high profit margin. When an organization needs to acquire a needed resource quickly. . tempting to invest into the venture.
Mergers between direct competitors create efficiencies because of potential for eliminating duplicate facilities. It is increasingly being used by the firms as growth strategy. acquisitions and takeovers among competitors allow for increased economies of scale and enhanced transfer of resources and competencies.Types of Strategies Horizontal Integration A strategy of seeking ownership of or increased control over a firm¶s competitors. . Mergers.
when competitors are faltering due to lack of managerial expertise or a need for particular resources that an organization possesses.( not if competitors are doing poorly. When increased economies of scale provide major competitive advantage. when a firm competes in a growing industry. When the firm has the necessary resources of capital and human talent to manage the expanded organization.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). and overall industry sales are declining. .
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. Market penetrations includes increasing number of salespersons. advertising expenditure. . publicity efforts or offering extensive sales promotion items.Types of Strategies Intensive Strategies Requires intensive effort from the firm to improve it¶s competitive position with existing products.
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 Situations when market penetration may be an effective strategy Current markets are not saturated with a particular product or service. The correlation between dollar sales and dollar marketing expenditure has been high. . The usage rate of present customers could be increased significantly.
Types of Strategies Market Development It involves introducing present products or services into new geographic areas. Organization has the necessary resources to expand operations. Organization¶s basic industry is becoming global. reliable. . Situations when market development may be an effective strategy New. New untapped or unsaturated markets exist. Organization is very successful at what it does. inexpensive and good quality channels of distribution are available. Organization has excess production capacity.
. 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.Types of Strategies Product Development A strategy that seeks increased sales by improving or modifying present products or services. It normally entails large R & D expenditure. Organization competes in an industry that is characterized by rapid technological development.
Organization competes in a high-growth industry. Horizontal and conglomerate. especially when the company is competing in an un attractive industry. Concentric. but related. Organization has strong research and development capabilities Diversification Strategies Diversification strategy is followed to avoid dependence on any single industry. There are three types of diversification strategies. Concentric Diversification Acquiring new. . products or services.Types of Strategies Major competitors offer better -quality products at comparable prices.
. When new related products have seasonal sales levels that counterbalance a company¶s existing peaks and lows. When an organization has strong management team. When the company¶s products are in the declining stage of the product¶s life cycle. When new related products could be offered at highly competitive prices.Types of Strategies Situations when Concentric diversification may be an effective strategy When an organization competes in a no-growth/ slowgrowth industry. When adding new but related products would significantly enhance the sales of current products.
The new product has countercyclical sales patterns compared to an organization¶s present products. Revenue of the organization would increase significantly. unrelated products or services for present customers.Types of Strategies Horizontal Diversification Adding new. Situation when Horizontal Diversifications may be an effective strategy. Organization competes in a highly competitive and / or a no growth industry yielding low returns and profit margins. . Organization¶s present marketing channels can be used to market new products to current customers.
Types of Strategies Conglomerate Diversification Adding new. There exists financial synergy between the acquired and acquiring firms. Organization¶s basic industry is experiencing decline in sales / profits. Organization has the opportunity to purchase unrelated business providing an attractive investment opportunity. . The existing markets for company¶s present products are saturated. unrelated products or services. Situations when conglomerate diversification may be an effective strategy. Organization has the capital and managerial talent to successfully compete in a new industry. Antitrust action could be charged against an organization that has concentrated on a single industry.
. is designed to fortify an organization¶s basic distinctive competence. Retrenchment An organization regroups through cost and asset reduction to reverse declining sales and profits. pruning product lines.Types of Strategies Defensive Strategies Retrenchment. Entails selling off land and buildings to raise needed cash. . allowing a firm to avoid major debt obligations and to void union contracts. closing marginal businesses. Also called a turnaround or reorganization strategy. reducing the number of employees and controlling expenses. Divestiture and Liquidation are defensive strategies. Bankruptcy can be an effective type of retrenchment strategy. closing obsolete factories. automating processes.
and pressure from stakeholders to improve performance. take advantage of internal strengths and overcome internal weaknesses overtime. The organization is plagued by inefficiency. The organization is a weaker competitor in the industry. Organization has grown so large so quickly that major internal reorganization is needed. . minimize external threats.Types of Strategies Situations when retrenchment may be an effective strategy. poor employee morale. could not capitalize on external opportunities. An organization has failed to meet it¶s objectives and goals repeatedly overtime. The organization¶s strategic managers have failed. low profitability.
or that do not fit well with the firm¶s other activities. 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. that require too much capital. .Types of Strategies Divestiture Selling a division or part of an organization.
The organization has pursued a retrenchment strategy but failed to accomplish needed improvements. A division is misfit with the rest of an organization. A division needs more resources to be competitive than the company can provide.Types of Strategies Situations when Divestiture may be an effective strategy. A division is responsible for an organization¶s overall poor performance. customers. may be due to different markets. values or needs. managers. Government antitrust action threatens an organization . employees. A large amount of cash is required quickly and cannot be obtained from other sources.
than liquidation is the only way to orderly get max cash from firm¶s assets. can be an emotionally difficult strategy. in parts. Organization has pursued both a retrenchment strategy and divestiture strategy and both have failed. When only alternative left is bankruptcy. Situations when liquidation may be an effective strategy to pursue. It is better to cease operating than to continue loosing large sums of money. for their tangible worth is called liquidation. Liquidities is a recognition of defeat and therefore. .Types of Strategies Liquidation Selling all of a company¶s assets. When stockholders of a firm can minimize their losses by selling the organization¶s assets.
Large firms with greater resources compete on a cost leadership and or differentiation basis while small firms often compete on focus basis. Strategies allow organizations to gain competitive advantage from three different bases. Differentiation and focus.Types of Strategies Michael Porter¶s Generic Strategies. control procedures and incentive systems. cost leadership. These strategies imply different organizational arrangements. . Cost leadership emphasis on producing standardized products at a very low per unit cost for price sensitive consumers. 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.
It is an effective strategy in situations where customers are price sensitive. Perform cost-benefit analysis to evaluate ³sharing opportunities´ of resources and knowledge among firm¶s existing and potential business units. there is few ways of achieving product differentiation. . buyer are not bothered about brands and there are large no.Types of Strategies Cost Leadership Strategy Reason for forward. backward and horizontal integration is to gain cost leadership. of buyers with significant bargaining power. Pursue cost leadership in conjunction with differentiation.
lower overheads.Types of Strategies Implies high efficiency. rewards linked with cost containment. limited perks. technology break through make strategy ineffective. . Competitors imitation of strategy may result in lowering overall Industry profits. buyer¶s interest switching to other differentiating features beside price. intolerance of waste.
Strategy requires strong coordination between R&D and marketing functions. product performance. gain customer loyalty. engineering design. Will allow a firm to charge high price. useful life. Follow a strategy after careful study of buyers needs and preferences to determine and incorporation of one or more differentiations features.Types of Strategies Differentiation Strategy. . Special features could be superior service. gas mileage or ease of use. spare parts availability.
± 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. Focus Strategies are most effective when.Types of Strategies Focus Strategies To concentrate on a particular group of customers. geographic market. Market Penetration and Market Development strategies offer substantial focusing advantages.
Risks of pursuing Focus Strategies. .Types of Strategies Medium to large firms can pursue focus strategies only in conjunction with differentiation or cost leadership-based strategies. The consumer preferences drifting towards the product attributes desired by the market as a whole. The possibility of many competitors recognizing the successful focus strategy and copying it.
Other types of cooperative arrangements could be. . ± Cross-distribution agreements. ± Cross-licensing 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. The sponsoring firms normally form a separate organization with shared ownership. ± Research and development partnerships.
and ± Joint-bidding consortia.Types of Strategies ± Cross-manufacturing agreements. 3.The venture may begin to compete more with one of the partners than the other. The venture may not be supported equally by both partners. 2. . Common Problems Leading To Failure Of Joint Ventures 1. if supported unequally. problems arise.Managers who must collaborate daily in operating the venture are not involved in forming or shaping the venture.
Types of Strategies Merger / Acquisition Merger ± When two organizations of about equal size unite to form one enterprise.If the acquisition is desired by both firms. . or vice versa.when a large organization purchases (acquires) a smaller firm. Friendly Merger . Acquisition. Takeover/Hostile Takeover .When a merger or acquisition is not desired by both parties.
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 make better use of the existing sales force. To reduce tax obligations. distributors.Types of Strategies Reasons for Mergers and Acquisitions To provide improved capacity utilization. To gain economies of scale To smooth out seasonal trends in sales. . To gain new technology. products and creditors. customers. To reduce managerial staff. To gain access to new suppliers.
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.
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 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.
THE ENVIRONMENT The macro-environment Industry Operating Envrnmt Internal Environment The organization Task Environment .
Thus. . Scan Internal environment to ascertain strengths and weaknesses Monitor.Strategic Management Process Environmental Scanning Scan external environment to identify possible opportunities and threats. evaluate and disseminate information from external and internal environment to the management. It is a tool used by corporations to avoid strategic surprise and to ensure long-term health .
Competitive advantage is determined largely by competitive positioning within and industry. finance etc.Strategic Management Process The Industrial Organization (IO) View According to IO approach. 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. . and gain a full understanding of key external factors relationships within that industry. avoid weak or faltering industries. 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.
structures. product differentiation. such as economies of scale. capabilities. barriers to market entry. and operations. However. .Strategic Management Process Firm performance is primarily based more on industry properties. whereas 36 percent of the profitability is attributed to the firm¶s internal factors. and level of competitiveness than on internal resources. Research findings suggest that approximately 20 percent of a firm¶s profitability can be explained by the industry.
Technological forces. demographic and environmental forces. Customers.Strategic Management Process Key External Forces: ± ± ± ± ± Economic forces. Labor Unions. Governments. cultural. Markets and Natural Environment. Employees. Products. Social. Distributors. governmental and legal forces. . Special interest groups. Stockholders. Suppliers. Political. Services. Competitive forces. Managers. Trade Associations. Organization¶s Operating Environment: Competitors. Communities. Creditors.
External forces directly effect both suppliers and distributors. 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. ± The nature of positioning and market segmentation strategies. . ± The choice of businesses to acquire or sell. External opportunities /threats enable organizations to develop clear missions and strategies to achieve their objectives.
± Hierarchical effecting overall company and functional/ divisional areas. Gather competitive intelligence about key external force¶s trends by using print/electronic media.Strategic Management Process Get the participation of max. human resources and internet. to identify key external factors which are. ± Important for achieving long-term and annual objectives. List of key external factors be communicated to all in the organization. ± Applicable to all competing firms. . number of managers and employees. Evaluate and assimilate the info. ± Measurable.
± ± ± ± ± ± ± General availability of credit. OPEC. 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. The firm must consider. Interest rates. . stock prices. etc. NAFTA. 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. The level of disposable income.Strategic Management Process Economic Forces The Nature and direction of economy in which firm operates.
. demographic and environmental factors have impact on virtually all products.Strategic Management Process Social. Changes in social. markets and customers and all sorts of organizations. Demographic and Environmental forces. cultural. and all industries are challenged by the opportunities and threats arising from these changes. services. Cultural.
local and foreign governments are major regulators. state. rules for laying off employees .Strategic Management Process Political. Governmental and Legal Forces Federal. Political. employers and customers of organizations. 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. subsidizers. (Golden hand shake) under Govt.
companies relying only on domestic market may find it difficult to survive. or markets for their products. Changes in tax rates. import duty on raw materials. subsidies.Strategic Management Process Political forecast is vital part of external audit for industries/ firms depending on Govt. . contracts. facilities. special tariffs can affect firms significantly. Political forecasts is critical for multinational firms that depend on foreign countries for natural resources. Mass communication and high technology is creating similar patterns of consumption in diverse cultures world wide.
increasing speed of distribution . It is changing the nature of opportunities and threats by altering the life cycle of products. New positions of CIO and CTO are being introduced in companies to effectively capitalize on e-commerce. erasing limitations of traditional geographical markets.Strategic Management Process Technological Forces Technological advances have brought revolution in business operations. . altering economies of scale and changing entry barriers. Internet is saving companies billions of dollars in distribution and transaction from direct sales.
suppliers. markets. ± Create shorter production runs. managers and customers. ± Change the relative cost position in an industry. . customers. ± Render existing products and services obsolete.Strategic Management Process Technological forces represent major opportunities and threats which should be taken care of while formulating strategies. services. ± Products. ± Change values and expectations of employees. marketing practices and competitive position. distributors. manufacturing processes. ± Create new more powerful competitive advantage. Technological breakthroughs can dramatically affect. operations. ± Create shortage in technical skills.
± People make a difference. ± Innovate or evaporate. ± Market share. ± Understanding and remembering precisely what is your business. Nothing quite recedes like success. ± Acquisition is essential to growth. Characteristics of a competitive firm. ± Bringing improvement. objectives and strategies. The most-successful purchases are in niches that add technology or a related market. . ± There is no substitute for quality and no greater threat than failing to be cost-effective on a global basis. weaknesses. tired of hearing it? Too bad. not just in product but the whole company. capabilities.Strategic Management Process Competitive Forces It is imperative in external audit to identify rival firms and determine their strengths. threats. opportunities.
. lower costs and better decision making. Benefits of corporate spying include increased revenues.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. implementation and evaluation decisions. Major competitor¶s weakness can represent external opportunity and major strength may represent key threat. Competitive intelligence is equally applicable for strategy formulation. Good competitive intelligence in business is one of the key to success.
online interviews with celebrities and government filings. managers. suppliers. Identify areas in which competitors are vulnerable and assess the impact strategic actions would have on competitors. and computer break-ins should not be used in CI. Identify competitors potential moves that might endanger a firm¶s position in the market. creditors. Sources of CI Internet.Strategic Management Process Objectives of Competitive Intelligence (CI) To provide general understanding of an industry and its competitors. . newspaper articles. Cooperation Among Competitors Unethical tactics like bribery. wiretapping. customers. trade journals. want ads. distributors. employees.
A widely used approach for developing strategies in many industries. . Bargaining Power of consumers. Potential development of substitute products. ± ± ± ± ± Rivalry among competing firms.Strategic Management Process Industry Environment Competitive Analysis: Porter¶s Five-Forces Model. Potential entry of new competitors. the nature of competitiveness in a given industry can be viewed as a composite of five forces. According to Model. Bargaining power of suppliers.
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 .
providing services. extending warranties or increasing advertising. enhancing quality. adding features. ± with the increase in number of competitors. ± By becoming more equal in size and capability. The intensity of rivalry increases. A successful strategy giving competitive advantage to a firm can be pursued by rival firms. Change in strategy by one firm may be met with retaliating countermoves like lowering of prices.Strategic Management Process Rivalry among Competing firms The most powerful of five Competitive forces. .
± Industry¶s profits decline. ± when product is perishable.Strategic Management Process -With decrease in demand of industry¶s products. ± Barriers to leaving the market are high. ± The industry becomes Inherently unattractive. . _ Consumers can switch brands easily. ± When fixed costs are high. ± When mergers and acquisitions are common in the industry. As rivalry among competing firms intensifies.
strong brand preference. Govt. counterattack by entrenched firms or potential saturation of the market: . Barriers to entry include. lack of access to raw materials. regulatory policies. increases the intensity of competitiveness among the firms. large capital requirement. sophisticated technology and know how. Economy of scale. undesirable locations. strong customer loyalty.Strategic Management Process Potential Entry of New Competitors Easy entry of a firm in an industry. possession of patents.
± lower prices. plan counter attack if required and capitalize on existing strengths and weaknesses. ± Substantial market resources.Strategic Management Process New firms enter the industry with. Strategist must identify new entrants. . their strategies. ± High quality products.
or aluminum can producer. Competitive strength of the substitute product could be measured by its market share. Or the firms plane for increased capacity and market penetration. . like plastic container producer competing with glass.Strategic Management Process Potential Development of Substitute Products Firms are in close competition with producers of substitute products. Presence of substitute put ceiling on the price of a product. paperboard. competitive pressure arise when price of the substitute product decreases or consumer¶s switching cost decreases.
± There are only few substitute raw materials. . This strategy is effective when suppliers are unreliable. ± There is large number of suppliers. too costly or not capable of meeting a firm¶s demand on consistant bases.Strategic Management Process Bargaining Power of Suppliers It affects the intensity of competition in industry when. ± When cost of switching raw materials is high. Firms may pursue a backward integration strategy to gain control or ownership of suppliers.
Rival firms offer extended warranties or special services to gain consumer loyalty. and accessory packages. ± Products being purchased are standard or undifferentiated. . ± Buy in volume.Strategic Management Process Bargaining Power of Consumers Intensity of competition in an industry increases by the bargaining power of consumers if. ± Consumers are concentrated or large. Consumers can negotiate selling price. warranty coverage.
social.Strategic Management Process The External Factor Evaluation (EFE) Matrix The matrix allows the strategists to summarize and evaluate economic. technological. The Matrix can be developed in five steps. political. legal. ± i) List external factors identified in external audit (about 10 to 20 factors) including both opportunities and threats. cultural. environmental. governmental. and competitive information. by writing opportunities first and than threats. demographic. .
± 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. 3 = the response is above average.0. and 1 = the response is poor. 2 = the response is average. The total of all weight assigned to the factors must be equal 1.0 (very important). . 4 = the response is superior.0 (not important) to 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. where.
± v) Sum the weighted score for each variable to determine the total weighted score for the organization.0.5. . or taking advantage of opportunities and minimizing effects of threats. The average total weighted score is 2. whereas the weights in step 2 are industry based. The highest possible total weighted score for an organization is 4.Strategic Management Process Ratings are based on effectiveness of the firm¶s strategies thus company-based.0 indicates that the organization is responding in an outstanding way to existing opportunities and threats in its industry.0 and the lowest 1. ± iv) Multiply each factor¶s weight by its rating to determine a weighted score. The score of 4.
15 .40 .10 .15 .15 .05 .20 .05 .15 .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 .05 4 4 3 4 3 3 4 3 3 .05 .05 .15 .Strategic Management Process A SAMPLE INTERNAL FACTOR EVALUATON MARTRIX Key Internal Factors Internal Strength Largest Casino in country Room Occupancy 95% in L.05 .05 .20 .15 .60 .
00 1 2 2 1 .10 2.10 .05 .05 .V Little diversification Family reputation.10 .05 . not high Recent loss of joint venture Total Weight Rating Weighted Score .Strategic Management Process Key Internal Factors Internal Weaknesses Most properties located in L.75 .05 .10 1.
± 4 = major strength ± 3 = minor strength ± 2 = minor weakness ± 1 = major weakness . Critical success factors in a CPM include both internal and external issues.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. therefore the ratings refer to strengths and weaknesses. The weights and total weighted scores in both a CPM and EFE have the same meaning. where. However.
. could be. technological advantages and e-commerce expertise. proprietary or patent advantages. Other than critical success factors. location of facilities. financial position customer loyalty. experience.Strategic Management Process For example critical success factors for firms may include advertising. breadth of product line. management. product quality. global expansion and market share. union relations. production capacity and efficiency. price competitiveness. effectiveness of sales distribution.
± Strategy to place realistic requirements on the firm¶s resources. provide the basis for establishing objectives and strategies. ± 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. Three critical ingredients of a successful strategy. 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.
Physical Resources Plant and equipment. The organizational performance will primarily be determined by internal resources. technology. raw materials and machines. Three Basic Resources Physical resources. and organizational resources. which can be grouped into three categories.Strategic Management Process The Resource-Based View (RBV) According to RBV approach. . location. internal resources are more important for a firm than external factors in achieving and sustaining competitive advantage. human resources.
planning processes. intelligence. databases. and abilities Organizational Resources Firm structure. RBV theory asserts that sources are actually what helps a firm exploit opportunities and neutralize threat. The firm must consider the mix. . trademarks. accumulated experience within organization and so on. copyrights. type. patents. experience. information systems. knowledge.Strategic Management Process Human Resources All employees. skills. amount. training. and nature of a firm¶s internal resources first in devising strategies that can lead to sustainable competitive advantage.
either with greater efficiency in the processes or greater quality in the output or both. Finely developed capabilities can be a source of sustained competitive advantage. people. abilities and ways of combining assets. 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. and processes that a company uses to transform inputs into outputs. nurtured and deployed throughout the firm.Strategic Management Process Organizational Abilities The skills. becomes the basis for lasting competitive advantage. .
± Commodities. ± Cash.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. Easy to imitate. competitors will match or better any resource sooner than later. .
± Reputation for fairness. ± Employee Satisfaction. ± Unique locations. ± capacity ± Economy of scale Difficult to Imitate ± Brand loyalty. . Cannot be Imitated.Strategic Management Process Can be imitated (but may not be). ± Patents. ± Unique assets (mineral rights).
Strategic Management Process Durability: How rapidly will the resource depreciate? Substitutability: Are other alternatives available? Using Resource. .Based View in Internal Analysis. Involves identifying and evaluating firm¶s resources that possess strategic value and can provide basis for future competitive advantage.
Utilize a functional perspective.Strategic Management Process Methods to identify resources with strategic value. Look at organizational processes and combinations of resources and not only at isolated assets or capabilities. activities and processes having potential competitive advantage. Disaggregate resources: Break them into more specific competencies rather than stay with broad categorizations. . Use value chain approach to identify capabilities. Separating tangible and intangible assets as well as organizational capabilities can uncover value-building resources and activities.
± External Signs/ welcome Offering a delightful ambiance ± Floor design. window decorations ± Table layout Table materials . ± Bar positioning. ± Features/décor. ± Door Positioning and style. Providing ease of access ± Parking (where appropriate).Strategic Management Process Disaggregating a Restaurant¶s Customer Service Resource. floor materials. color scheme. Theme.
. ± Visible queuing system. ± Entertainment for queuers. ± Marketing literature.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.
Daily Meetings. Menu training. coaching process Discipline system. Job experience Motivation awards. ± System of gaining waiter¶s attention .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. ± Size of Menu ± Material Menus made off ± Menu dishes ± Menu layout Providing speed of service appropriate to the occasion.Strategic Management Process Ensuring that Menu is fun to use and caters to the diners¶ needs. .
saga. and heroines. and that has worked well enough to be considered valid and to be taught to new members as the correct way to perceive. stories. legends. symbols. myths. Cultural products or dimensions include values. rituals. . and feel. metaphors. ceremonies. thing. This definition emphasizes the importance of matching external with internal factors in making strategic choices. rites.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. language. beliefs. heroes.
Every organization like an individual¶s personality have different cultures ± they could be warm. open. It must foster competence and enthusiasm among managers and employees . harsh. and evaluation activities. aggressive. innovative. An organization¶s culture must support the collective commitment of its people to a common purpose. liberal. The strategic management process takes place largely within a particular organization culture. friendly.Strategic Management Process These dimensions are levers that strategists can use to influence and direct strategy formulation. conservative. or likable. implementation.
and evaluation of strategies.Strategic Management Process Organizational culture significantly affects business decisions and thus must be evaluated during an internal strategic management audit. If the firm¶s culture is not supportive. However. If strategies can capitalize on cultural strengths. implementation. then management can implement changes swiftly. The challenge of strategic management is to bring about the changes in organizational culture and individual mindsets that are needed to support the formulation. strategic changes may be ineffective or even counterproductive. . like strong work ethic or highly ethical beliefs.
. Also. planned sets of activities that consolidate various forms of cultural expressions into one event. carried out through social interactions. technical consequences of practical importance. but seldom produce intended.Relatively elaborate. usually for the benefit of an audience. usually used to explain origins or transformation of something. Ritual ± A standardized. dramatic. Myth ± A dramatic narrative of imagined events.Strategic Management Process Cultural Products or Dimensions Rites . Ceremonial ± A system of several rites connected with a single occasion or event. an unquestioned belief about the practical benefits of certain techniques and behaviors that is not supported by facts. detail set of techniques and behaviors that manage anxieties.
usually by representing another thing. Story ± A narrative based on true events. Folktale ± A completely fictional narrative. Legend ± A handed down narrative of some wonderful event that is based on history but has been blown up with fictional details.Strategic Management Process Saga ± A historical narrative describing the unique accomplishments of a group and its leaders. Language ± A particular form or manner in which members of a group use sounds and written signs to convey meanings to each other. Symbol ± Any object. or relation that serves as a vehicle for conveying meaning. . event. act. sometimes a combination of truth and fiction. usually in heroic terms.
Belief ± An understanding of a particular phenomenon. Values . . 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. and controlling. Planning The only thing certain about the future of any organization is change. staffing. organizing. Planning is an up-front investment in success.Strategic Management Process Management The function of management are five basic activities. and planning is the essential bridge between the present and the future that increases the likelihood of achieving the desired results. Planning enables a firm to take into account relevant factors and focus on the critical ones. motivating. Planning enables a firm to gather the resources needed and carry out tasks in the most efficient way.
where. and how needed to achieve desired objectives. why. Planning helps ensure that the firm can be prepared for all reasonable eventualities and for all changes that will be needed. what. . Strategic management can be viewed as a formal planning process that allows an organization to pursue proactive rather than reactive strategies. when. Successful organizations strive to control their own futures rather than merely react to external forces and events as they occur.Strategic Management Process Planning enables a firm to identify precisely what is to be achieved and to detail precisely the who.
± Combining jobs to form departments ( departmentalization). Resources are allocated more effectively and used more efficiently in a well organized firm than in a disorganized firm. . and ± Delegation authority. Organizing means determining who does what and who reports to whom. The organization function consist of three sequential activities. ± 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.
business unit. The most common forms of departmentalization are functional. and matrix. . or merged.Strategic Management Process Breaking tasks down into jobs require development of job description and job specification. span of control. deleted. strategic. divisional. and chain of command. Changes in strategy often require changes in structure because positions may be created. Combining jobs to form departments results in an organizational structure. which lead to specialization and according to Adam Smith (Wealth of Nations published 1776) would lead to higher productivity.
. Employees of today are more educated and capable of participation in organizational decision making.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´. They expect to be delegated authority and responsibility. and to be held accountable for results Delegation of authority is embedded in strategic management process.
Growth in sales. realistic. ± ± ± ± ± ± ± Growth in assets. . and obtainable. measurable. understandable. challenging. Market share. Degree and nature of diversification. Earning per share and Social responsibilities. Profitability. Objectives should be quantitative. hierarchical.Strategic Management Process Strategic Objectives Strategic objectives or long-term objectives represent the results expected from pursuing certain strategies. Objectives are commonly stated in terms of.
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.
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± 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.
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Internal Environment Analysis Business Ethics and Social Responsibility Ethics A system of behaviors. but also to broader set of moral principles expected by all or by a segment of society. It conforms not only to the law. 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. .
ethical principles. .Code Of Ethics A formal statement of the organization¶s values. Ethical Standard A guidelines governing moral conduct of a particular group. and ethical rules.
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