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.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. friends neighbors etc.

. the Internet will change society more than telephone and television combined. e-Trade. e-commerce. ± According to seventy four percent Americans in a survey. ± Slogans and company¶s like e-Bay. 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.Evolution of Strategic Management Internet has changed the economics of business in every single industry worldwide.

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. and computer information systems to achieve organizational objectives. research and development. marketing. production /operations. finance/ accounting. ‡ It focuses on integrating management.

. ± Strategy formulation. systematic approach for making major decisions in an organization. Three stages of Strategic Management Process. generating alternative strategies and choosing particular strategy to pursue.Strategic Management Process Strategic Management Process It is an objective. It attempts to organize qualitative and quantitative information in a way that allows effective decision making under uncertainty. Strategy Formulation Developing a vision and mission. identifying an organization¶s external opportunities and threats. logical. establishing long term objectives. ± Strategy implementation. ± Strategy evaluation. 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. ³ To be the first choice in the printed communication business. and being the best is what Atlanta Web pledges to work hard at being ± every day. ³ Our vision is to take care of your vision´ A vision statement of Atlanta Web Printers. .

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´. .

or standard. ‡ Specify organization¶s purpose and then translate these into objectives in such a way that cost. Facilitate the translation of objectives in to work structure involving the assignment of tasks to responsible elements in organization. for allocating organizational resources.Strategic Management Process Importance of Vision and Mission Statements ‡ ‡ ‡ ‡ Ensure unanimity of purpose within the organization. Establish a general tone or organizational climate. . time and performance parameters can be assessed and controlled. Provide a basis.

cultural. They are largely beyond the control of a single organization-thus the word external. . political. Firms to formulate strategies to take advantage of external opportunities and to avoid/reduce the impact of external threats. environmental. social. demographic. governmental. legal. technological or competitive trends.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.

finance/accounting. ‡ 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. research and development and management information system activities of a business. marketing. ‡ They arise in the management. production/ operations.

‡ Strengths and weaknesses can be determined by elements of being rather than performance. . measuring performance and comparing to past periods and industry averages. ‡ Survey method could be used to determine employee morale. advertising effectiveness and customer loyalty. ‡ Strengths and weaknesses can be determined relative to a firm¶s own objectives. ‡ Internal factors can be determined by computing ratios. production efficiency.Strategic Management Process ‡ Strengths and weaknesses are determined relative to competitors.

motivating and controlling activities. consistent. Objectives state direction. reveal priorities. Objectives should be challenging. focus coordination and provide a basis for effective planning. organizing. create synergy. reasonable and clear. measurable. . aid in evaluation.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.

liquidation and joint venture. . product development. retrenchment.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. market penetration. Strategies are potential actions thus future. diversification. Business strategies may include geographic expansion. acquisition.

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. How to allocate resources.Strategic Management Process Strategy formulation issues ‡ ‡ ‡ ‡ ‡ ‡ ‡ Deciding what new business to enter What businesses to close.

Strategy Implementation includes.Strategic Management Process Strategy Implementation It is also called ³the action stage of strategic management´. and Linking employee compensation to organizational performance . It entails establishment of annual objectives. devise policies. Developing and utilizing information systems. and allocate resources so that formulated strategies can be executed. Redirecting marketing efforts. Preparing budget. motivate employees. Developing a strategy-supporting culture Creating an effective organizational structure.

Strategy formulation ± positioning forces before the action Strategy implementation ± managing forces during the action Strategy formulation .requires good intuitive and analytical skills Strategy implementation .focuses on effectiveness Strategy implementation .requires special motivation and leadership skills .focuses on efficiency Strategy formulation ± primarily an intellectual process Strategy implementation ± primarily an operational process strategy formulation .Strategic Management Process Implementing Strategies Strategy implementation is different than strategy formulation.

concepts and tools similar for small.Strategic Management Process Strategy formulation .requires coordination among a few individuals Strategy implementation .varies substantially among different types and sizes of organizations . large.requires coordination among many individuals Strategy formulation . for profit or nonprofit organizations Strategy implementation .

± Measuring performance. All strategies are subject to future modifications because of persistent changes in the external and internal environment of an organization. ± Taking corrective actions. Three fundamental strategy evaluation activities are.Strategic Management Process Strategy Evaluation It is the means for management to determine whether the strategy is working or otherwise. ± Review external and internal environment factors which are bases for current strategies. Strategy evaluation is necessary because success today is no guarantee of success tomorrow .

± 2. Program A complex single-use plan consisting of a set of interrelated actions aimed at achieving a one-time major goal. Determine the logical sequence of steps. managers. ± 4. . Divide the course of action into steps. Decide who will be responsible for each step. ± 3. To develop a program. ± 1. Two common types of single-use plans are programs and projects.Strategic Planning Types of Plans Single use plan A plan designed to fit one-time situation. Establish and provide the sources necessary to complete each step. The plan becomes obsolete when its one-time goals have been achieved.

Standing plans A plan for guiding management decisions and activities in situations that recur repeatedly.Strategic Planning -5. Project A single-use plan that is narrower in scope than a program and aimed at achieving a specific one-time goal. Bhasha Dam project in the national program of provision of electricity to the whole country. and ± 6. and rules. Projects integrate fewer activities and resources than programs and are often developed as subunits of programs. Gauge the time needed to finish each step. Three commonly used types of standing plans are policies. Prepare a schedule for implementation. for example. procedures. .Policy ± a standing plan that provides broad guidelines for directing managerial activities in pursuit of organizational goals .

Contingency Plans Alternative courses of actions to be followed if unforeseen environmental shifts occur.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. .

Strategic Planning Levels of Planning Strategic Tactical Operational General Time Period Considered for Plans Strategic Plans .5 years Tactical Plans .3 years Operational Plans .1 year .

The Managerial Pyramid Mission Strategic Goals/ Plans (organization as a whole) Tactical Goals/ Plans (major divisions. functions) Operational Goals/ Plans (departments and units) .

Strategic Planning
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.

Strategic Planning
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

Strategic Planning
1.Resources 2.Methods 3.Tasks 4.Sequence 5.Individuals 6.Location 7.Deadlines 8.Stop points 9.Measurement

. profitability and productivity.Strategic Planning Benefits of Strategic Planning Financial Benefits Organizations using strategic management concepts are more profitable and successful than those who do not. Businesses show significant improvement in sales. High performing firms do systematic planning to prepare for future fluctuations in their external and internal environment. These firms generally exhibit superior long-term financial performance relative to their industry.

Strategic management enhances the problem-prevention capabilities of organizations because it promotes interaction among managers at all divisional and functional levels. Clear understanding of performance-reward relationships. Enhanced awareness of external threats An improved understanding of competitors¶ strategies. . Reduced resistance to change.Strategic Planning Nonfinancial Benefits Strategic management offers. Increased employee productivity.

avoiding piecemeal decision making. Allows more effective allocation of time and resources to identified opportunities. Provides a basis for clarifying individual responsibilities. Presents a framework for improved coordination and control of activities. Encourages forward thinking. prioritization and exploitation of opportunities. . Directs decision making to support established objectives. Helps integrate the behavior of individuals into a total effort. Facilitates managerial control through setting of standards for monitoring and measuring performance.Strategic Planning Benefits of Strategic Planning Allows for identification. and provides a unifying framework. Creates a framework for internal communication among personnel.

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. ( time spent on planning is investment). . Fire-fighting ± busy in crisis management and not finding time to plan. Content with success ± they think no need to plan because things are fine as they stand. Too Expensive ± culturally opposed to spending resources. Laziness ± may not want to put effort needed for planning.

they may rely less on formal planning. or privilege through effectively using old system. or inflexible. Self-interest ± when some one has achieved status. Honest difference of opinion ± sincerely believe the plan is wrong as they are watching the situation from different viewpoing. Planning. However whenever something worthwhile is attempted. being overconfident or overestimating experience can bring failure Prior bad experience ± plans have been long. he/she sees anew plan as threat. impractical. Overconfidence ± as individuals amass experience. like anything else. there is some risk of failure. . Fear of Unknown ± uncertain of abilities to learn new skills. can also be done badly.Strategic Planning Fear of failure ± not doing anything. However. cumbersome. no risk of failure. of aptitude with new system or of their ability to take on new roles.

Strategic planning involves ³choices that risk resources´ and ³tradeoffs that sacrifice opportunity´. . According to Hansen and Smith. you cant follow a combination strategy for too long.Types of Strategies Integration Strategies Intensive Strategies Diversification Strategies Defensive Strategies Michael Porter¶s Generic Strategies Strategy is choosing among the alternatives.

± Establishing websites to sell products directly to consumers.costs and opportunities are spread across many individuals. ± Franchising . retail outlets .. ± 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.

Types of Strategies Situations when forward integration may be an effective strategy. When organization has both the capital and human resources. forward integration reduces organization¶s ability to diversify if it¶s basic industry falters. When the industry is growing and expected to continue growing. Advantages of stable productions are high. Availability of quality distributors is limited. unreliable or incapable of meeting the firms distribution needs. however. . When profit margins for distributors or retailers are high. organizations can increase the predictability of the demand through forward integration. firms having forward integration are availing competitive advantage. Organizations present distributors are expensive.

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. 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. Global competition is prompting firm¶s to reduce number of suppliers and to demand higher level of service and quality from selected ones.

unreliable. When an organization has both capital and human resources to manage the new business of supplying its own raw material. or incapable of meeting the firms needs. 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.Types of Strategies Situations when backward integration may be an effective strategy When present suppliers are expensive. .

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. When present supplies have high profit margin. 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.

acquisitions and takeovers among competitors allow for increased economies of scale and enhanced transfer of resources and competencies. . Mergers. It is increasingly being used by the firms as growth strategy. Mergers between direct competitors create efficiencies because of potential for eliminating duplicate facilities.Types of Strategies Horizontal Integration A strategy of seeking ownership of or increased control over a firm¶s competitors.

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. 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. 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.

Market penetrations includes increasing number of salespersons. . advertising expenditure.Types of Strategies Intensive Strategies Requires intensive effort from the firm to improve it¶s competitive position with existing products. 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.

Increased economies of scale provide major competitive advantage. The usage rate of present customers could be increased significantly.Types of Strategies Situations when market penetration may be an effective strategy Current markets are not saturated with a particular product or service. . Market shares of major competitors have been declining while total industry sales have been increasing. The correlation between dollar sales and dollar marketing expenditure has been high.

Organization has excess production capacity. inexpensive and good quality channels of distribution are available. Organization¶s basic industry is becoming global.Types of Strategies Market Development It involves introducing present products or services into new geographic areas. . New untapped or unsaturated markets exist. reliable. Organization has the necessary resources to expand operations. Situations when market development may be an effective strategy New. Organization is very successful at what it does.

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 competes in an industry that is characterized by rapid technological development. . It normally entails large R & D expenditure.

products or services. Concentric. There are three types of diversification strategies.Types of Strategies Major competitors offer better -quality products at comparable prices. Organization has strong research and development capabilities Diversification Strategies Diversification strategy is followed to avoid dependence on any single industry. but related. Horizontal and conglomerate. Concentric Diversification Acquiring new. . Organization competes in a high-growth industry. especially when the company is competing in an un attractive industry.

When an organization has strong management team. .Types of Strategies Situations when Concentric diversification may be an effective strategy When an organization competes in a no-growth/ slowgrowth industry. When new related products have seasonal sales levels that counterbalance a company¶s existing peaks and lows. 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. When new related products could be offered at highly competitive prices.

Revenue of the organization would increase significantly. unrelated products or services for present customers. . Organization¶s present marketing channels can be used to market new products to current customers. The new product has countercyclical sales patterns compared to an organization¶s present products. Organization competes in a highly competitive and / or a no growth industry yielding low returns and profit margins. Situation when Horizontal Diversifications may be an effective strategy.Types of Strategies Horizontal Diversification Adding new.

Antitrust action could be charged against an organization that has concentrated on a single industry. There exists financial synergy between the acquired and acquiring firms. 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. Situations when conglomerate diversification may be an effective strategy. .Types of Strategies Conglomerate Diversification Adding new. unrelated products or services. The existing markets for company¶s present products are saturated. Organization¶s basic industry is experiencing decline in sales / profits.

Retrenchment An organization regroups through cost and asset reduction to reverse declining sales and profits. pruning product lines. closing obsolete factories. automating processes. Bankruptcy can be an effective type of retrenchment strategy. Divestiture and Liquidation are defensive strategies. is designed to fortify an organization¶s basic distinctive competence. Also called a turnaround or reorganization strategy. . allowing a firm to avoid major debt obligations and to void union contracts. closing marginal businesses. reducing the number of employees and controlling expenses.Types of Strategies Defensive Strategies Retrenchment.. Entails selling off land and buildings to raise needed cash.

The organization is plagued by inefficiency. take advantage of internal strengths and overcome internal weaknesses overtime. The organization¶s strategic managers have failed. Organization has grown so large so quickly that major internal reorganization is needed. and pressure from stakeholders to improve performance. The organization is a weaker competitor in the industry. . could not capitalize on external opportunities. poor employee morale. low profitability. An organization has failed to meet it¶s objectives and goals repeatedly overtime. minimize external threats.Types of Strategies Situations when retrenchment may be an effective strategy.

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.Types of Strategies Divestiture Selling a division or part of an organization. Divestiture can be apart of an overall retrenchment strategy to rid an organization of businesses that are unprofitable. that require too much capital.

A division needs more resources to be competitive than the company can provide. The organization has pursued a retrenchment strategy but failed to accomplish needed improvements. A large amount of cash is required quickly and cannot be obtained from other sources. A division is misfit with the rest of an organization. employees. may be due to different markets.Types of Strategies Situations when Divestiture may be an effective strategy. A division is responsible for an organization¶s overall poor performance. Government antitrust action threatens an organization . customers. managers. values or needs.

. Liquidities is a recognition of defeat and therefore. Situations when liquidation may be an effective strategy to pursue. Organization has pursued both a retrenchment strategy and divestiture strategy and both have failed. than liquidation is the only way to orderly get max cash from firm¶s assets. can be an emotionally difficult strategy. in parts. for their tangible worth is called liquidation. When only alternative left is bankruptcy. It is better to cease operating than to continue loosing large sums of money.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.

Cost leadership emphasis on producing standardized products at a very low per unit cost for price sensitive consumers. Large firms with greater resources compete on a cost leadership and or differentiation basis while small firms often compete on focus basis. These strategies imply different organizational arrangements.Types of Strategies Michael Porter¶s Generic Strategies. . Differentiation and focus. 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. control procedures and incentive systems. Strategies allow organizations to gain competitive advantage from three different bases. cost leadership.

Pursue cost leadership in conjunction with differentiation. It is an effective strategy in situations where customers are price sensitive. there is few ways of achieving product differentiation. backward and horizontal integration is to gain cost leadership. buyer are not bothered about brands and there are large no. . of buyers with significant bargaining power.Types of Strategies Cost Leadership Strategy Reason for forward. Perform cost-benefit analysis to evaluate ³sharing opportunities´ of resources and knowledge among firm¶s existing and potential business units.

Competitors imitation of strategy may result in lowering overall Industry profits. . limited perks. intolerance of waste. rewards linked with cost containment. technology break through make strategy ineffective. buyer¶s interest switching to other differentiating features beside price.Types of Strategies Implies high efficiency. lower overheads.

. Follow a strategy after careful study of buyers needs and preferences to determine and incorporation of one or more differentiations features. gas mileage or ease of use. Will allow a firm to charge high price. product performance. engineering design. Special features could be superior service. gain customer loyalty.Types of Strategies Differentiation Strategy. Strategy requires strong coordination between R&D and marketing functions. spare parts availability. useful life.

.Types of Strategies Focus Strategies To concentrate on a particular group of customers. Focus Strategies are most effective when. ± Rival firms are not attempting to specialize in the same target market. geographic market. Market Penetration and Market Development strategies offer substantial focusing advantages. 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. ± Consumers have distinctive preferences or requirements.

. The consumer preferences drifting towards the product attributes desired by the market as a whole.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 possibility of many competitors recognizing the successful focus strategy and copying it.

± Cross-distribution agreements. Other types of cooperative arrangements could be. .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. ± Cross-licensing agreements. ± Research and development partnerships.

problems arise. 2. and ± Joint-bidding consortia. Common Problems Leading To Failure Of Joint Ventures 1. The venture may not be supported equally by both partners.The venture may begin to compete more with one of the partners than the other.Managers who must collaborate daily in operating the venture are not involved in forming or shaping the venture. 3. if supported unequally.Types of Strategies ± Cross-manufacturing agreements. .

Takeover/Hostile Takeover . Acquisition. or vice versa. Friendly Merger .When a merger or acquisition is not desired by both parties.If the acquisition is desired by both firms.Types of Strategies Merger / Acquisition Merger ± When two organizations of about equal size unite to form one enterprise.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.

. products and creditors. To reduce managerial staff. To make better use of the existing sales force. customers. distributors. To gain access to new suppliers. To reduce tax obligations. To gain new technology. To gain economies of scale To smooth out seasonal trends in sales.Types of Strategies Reasons for Mergers and Acquisitions To provide improved capacity utilization.

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 .Strategic Management Process The Organizational Environment All forces with potential to influence the organization and its performance is known as organizational environment. The organizational environment consists of the internal environment and the external environment.

THE ENVIRONMENT The macro-environment Industry Operating Envrnmt Internal Environment The organization Task Environment .

Thus. It is a tool used by corporations to avoid strategic surprise and to ensure long-term health . Scan Internal environment to ascertain strengths and weaknesses Monitor. evaluate and disseminate information from external and internal environment to the management. .Strategic Management Process Environmental Scanning Scan external environment to identify possible opportunities and threats.

Strategic Management Process The Industrial Organization (IO) View According to IO approach. 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. IO perspective requires the firms to compete in attractive industries. Competitive advantage is determined largely by competitive positioning within and industry. avoid weak or faltering industries. finance etc. and gain a full understanding of key external factors relationships within that industry.

However. Research findings suggest that approximately 20 percent of a firm¶s profitability can be explained by the industry. whereas 36 percent of the profitability is attributed to the firm¶s internal factors. product differentiation.Strategic Management Process Firm performance is primarily based more on industry properties. and level of competitiveness than on internal resources. such as economies of scale. structures. capabilities. and operations. barriers to market entry. .

Special interest groups. Political.Strategic Management Process Key External Forces: ± ± ± ± ± Economic forces. Creditors. Technological forces. . cultural. Products. governmental and legal forces. demographic and environmental forces. Social. Services. Customers. Organization¶s Operating Environment: Competitors. Governments. Labor Unions. Stockholders. Suppliers. Trade Associations. Markets and Natural Environment. Managers. Distributors. Communities. Competitive forces. Employees.

± The nature of positioning and market segmentation strategies. ± The choice of businesses to acquire or sell. Changes in external forces is reflected into: ± Changes in consumer demand for both industrial and consumer products and services. External opportunities /threats enable organizations to develop clear missions and strategies to achieve their objectives. External forces directly effect both suppliers and distributors. .Strategic Management Process The effects/influences of external environment on organizations operating environments give rise to opportunities and threats for the organization.

number of managers and employees. to identify key external factors which are.Strategic Management Process Get the participation of max. ± Hierarchical effecting overall company and functional/ divisional areas. List of key external factors be communicated to all in the organization. Evaluate and assimilate the info. . ± Measurable. human resources and internet. ± Applicable to all competing firms. Gather competitive intelligence about key external force¶s trends by using print/electronic media. ± Important for achieving long-term and annual objectives.

Strategic Management Process Economic Forces The Nature and direction of economy in which firm operates. ± ± ± ± ± ± ± General availability of credit. NAFTA. OPEC. The level of disposable income. Interest rates. 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 firm must consider. etc. 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. stock prices. .

cultural. Changes in social. services. .Strategic Management Process Social. Demographic and Environmental forces. demographic and environmental factors have impact on virtually all products. and all industries are challenged by the opportunities and threats arising from these changes. markets and customers and all sorts of organizations. Cultural.

Governmental and Legal Forces Federal. Companies have to pay heavy penalty in shape of expensive severance packages. rules for laying off employees . (Golden hand shake) under Govt. state. Political. subsidizers. employers and customers of organizations. governmental and legal factors can represent key opportunities or threats for both small and large organizations. local and foreign governments are major regulators.Strategic Management Process Political.

facilities. Political forecasts is critical for multinational firms that depend on foreign countries for natural resources. special tariffs can affect firms significantly. Mass communication and high technology is creating similar patterns of consumption in diverse cultures world wide. import duty on raw materials. Changes in tax rates. . contracts. companies relying only on domestic market may find it difficult to survive. or markets for their products. subsidies.Strategic Management Process Political forecast is vital part of external audit for industries/ firms depending on Govt.

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. .Strategic Management Process Technological Forces Technological advances have brought revolution in business operations. erasing limitations of traditional geographical markets. altering economies of scale and changing entry barriers. increasing speed of distribution . Internet is saving companies billions of dollars in distribution and transaction from direct sales.

Strategic Management Process Technological forces represent major opportunities and threats which should be taken care of while formulating strategies. manufacturing processes. Technological breakthroughs can dramatically affect. ± Create shorter production runs. ± Create new more powerful competitive advantage. ± Render existing products and services obsolete. ± Products. markets. ± Change values and expectations of employees. operations. suppliers. managers and customers. marketing practices and competitive position. ± Change the relative cost position in an industry. customers. distributors. . services. ± Create shortage in technical skills.

objectives and strategies. ± Acquisition is essential to growth. not just in product but the whole company. weaknesses. ± Bringing improvement. ± Understanding and remembering precisely what is your business. ± People make a difference. ± There is no substitute for quality and no greater threat than failing to be cost-effective on a global basis. ± Market share. threats. The most-successful purchases are in niches that add technology or a related market. opportunities. Characteristics of a competitive firm. .Strategic Management Process Competitive Forces It is imperative in external audit to identify rival firms and determine their strengths. Nothing quite recedes like success. capabilities. tired of hearing it? Too bad. ± Innovate or evaporate.

Good competitive intelligence in business is one of the key to success. lower costs and better decision making. Major competitor¶s weakness can represent external opportunity and major strength may represent key threat.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. . Competitive intelligence is equally applicable for strategy formulation. Benefits of corporate spying include increased revenues.

wiretapping. newspaper articles. distributors. Cooperation Among Competitors Unethical tactics like bribery.Strategic Management Process Objectives of Competitive Intelligence (CI) To provide general understanding of an industry and its competitors. employees. suppliers. . managers. Identify areas in which competitors are vulnerable and assess the impact strategic actions would have on competitors. customers. online interviews with celebrities and government filings. want ads. and computer break-ins should not be used in CI. creditors. Identify competitors potential moves that might endanger a firm¶s position in the market. Sources of CI Internet. trade journals.

According to Model. the nature of competitiveness in a given industry can be viewed as a composite of five forces. ± ± ± ± ± Rivalry among competing firms. . Potential entry of new competitors.Strategic Management Process Industry Environment Competitive Analysis: Porter¶s Five-Forces Model. Potential development of substitute products. Bargaining Power of consumers. Bargaining power of suppliers. 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 .

Change in strategy by one firm may be met with retaliating countermoves like lowering of prices. A successful strategy giving competitive advantage to a firm can be pursued by rival firms. ± By becoming more equal in size and capability. providing services. ± with the increase in number of competitors. .Strategic Management Process Rivalry among Competing firms The most powerful of five Competitive forces. adding features. The intensity of rivalry increases. extending warranties or increasing advertising. enhancing quality.

As rivalry among competing firms intensifies.Strategic Management Process -With decrease in demand of industry¶s products. ± The industry becomes Inherently unattractive. ± Industry¶s profits decline. _ Consumers can switch brands easily. ± When mergers and acquisitions are common in the industry. ± Barriers to leaving the market are high. ± When fixed costs are high. ± when product is perishable. .

possession of patents. sophisticated technology and know how. Barriers to entry include.Strategic Management Process Potential Entry of New Competitors Easy entry of a firm in an industry. lack of access to raw materials. regulatory policies. large capital requirement. increases the intensity of competitiveness among the firms. Economy of scale. strong brand preference. counterattack by entrenched firms or potential saturation of the market: . undesirable locations. Govt. strong customer loyalty.

their strategies. ± Substantial market resources. . plan counter attack if required and capitalize on existing strengths and weaknesses. ± High quality products. ± lower prices.Strategic Management Process New firms enter the industry with. Strategist must identify new entrants.

paperboard. Presence of substitute put ceiling on the price of a product. like plastic container producer competing with glass. Competitive strength of the substitute product could be measured by its market share.Strategic Management Process Potential Development of Substitute Products Firms are in close competition with producers of substitute products. . or aluminum can producer. competitive pressure arise when price of the substitute product decreases or consumer¶s switching cost decreases. Or the firms plane for increased capacity and market penetration.

± There is large number of suppliers.Strategic Management Process Bargaining Power of Suppliers It affects the intensity of competition in industry when. . too costly or not capable of meeting a firm¶s demand on consistant bases. ± When cost of switching raw materials is high. ± There are only few substitute raw materials. This strategy is effective when suppliers are unreliable. Firms may pursue a backward integration strategy to gain control or ownership of suppliers.

warranty coverage. ± 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. ± Products being purchased are standard or undifferentiated. ± Consumers are concentrated or large. Consumers can negotiate selling price. . and accessory packages.

social. and competitive information. legal. ± i) List external factors identified in external audit (about 10 to 20 factors) including both opportunities and threats. . political. cultural. demographic. governmental. by writing opportunities first and than threats.Strategic Management Process The External Factor Evaluation (EFE) Matrix The matrix allows the strategists to summarize and evaluate economic. environmental. technological. The Matrix can be developed in five steps.

0 (not important) to 1.Strategic Management Process ± ii) Assign each factor a weight ranging from 0. ± 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. and 1 = the response is poor. The total of all weight assigned to the factors must be equal 1. ‡ ‡ ‡ ‡ 4 = the response is superior. Appropriate weight can be determined by comparing successful with unsuccessful competitors or by discussing the factor and reaching a group consensus.0. The weight indicates the relative importance of that factor in success of the firm¶s industry. 3 = the response is above average.0 (very important). where. 2 = the response is average. .

The score of 4.5.0 and the lowest 1. whereas the weights in step 2 are industry based.Strategic Management Process Ratings are based on effectiveness of the firm¶s strategies thus company-based.0.0 indicates that the organization is responding in an outstanding way to existing opportunities and threats in its industry. . ± iv) Multiply each factor¶s weight by its rating to determine a weighted score. The average total weighted score is 2. The highest possible total weighted score for an organization is 4. or taking advantage of opportunities and minimizing effects of threats. ± v) Sum the weighted score for each variable to determine the total weighted score for the organization.

20 .15 .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 .20 .40 .15 .05 .60 .05 .15 .15 .05 .10 .05 .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.15 .15 .

05 .10 .05 .10 .10 1. not high Recent loss of joint venture Total Weight Rating Weighted Score .75 .Strategic Management Process Key Internal Factors Internal Weaknesses Most properties located in L.10 2.00 1 2 2 1 .V Little diversification Family reputation.05 .05 .

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. ± 4 = major strength ± 3 = minor strength ± 2 = minor weakness ± 1 = major weakness . where. However. Critical success factors in a CPM include both internal and external issues.

global expansion and market share. effectiveness of sales distribution. location of facilities. technological advantages and e-commerce expertise. could be. breadth of product line.Strategic Management Process For example critical success factors for firms may include advertising. price competitiveness. production capacity and efficiency. financial position customer loyalty. . Other than critical success factors. union relations. management. proprietary or patent advantages. experience. product quality.

Three critical ingredients of a successful strategy. provide the basis for establishing objectives and strategies.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 be consistent with conditions in competitive environment. ± Strategy be carefully executed. ± Strategy to place realistic requirements on the firm¶s resources. Involvement of representatives of managers and employees from throughout the firm to determine firm¶s internal strengths and weaknesses .

The organizational performance will primarily be determined by internal resources. which can be grouped into three categories.Strategic Management Process The Resource-Based View (RBV) According to RBV approach. and organizational resources. Three Basic Resources Physical resources. internal resources are more important for a firm than external factors in achieving and sustaining competitive advantage. technology. raw materials and machines. human resources. . Physical Resources Plant and equipment. location.

knowledge. intelligence. experience. skills. planning processes. RBV theory asserts that sources are actually what helps a firm exploit opportunities and neutralize threat. information systems. databases. The firm must consider the mix. type. and abilities Organizational Resources Firm structure. patents. and nature of a firm¶s internal resources first in devising strategies that can lead to sustainable competitive advantage. training. amount. accumulated experience within organization and so on.Strategic Management Process Human Resources All employees. copyrights. . trademarks.

and processes that a company uses to transform inputs into outputs. 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. nurtured and deployed throughout the firm. abilities and ways of combining assets.Strategic Management Process Organizational Abilities The skills. . becomes the basis for lasting competitive advantage. people. Finely developed capabilities can be a source of sustained competitive advantage. either with greater efficiency in the processes or greater quality in the output or both.

. ± Commodities.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. ± Cash. Easy to imitate. competitors will match or better any resource sooner than later.

Cannot be Imitated. ± Employee Satisfaction. ± Patents. . ± Unique locations. ± Reputation for fairness.Strategic Management Process Can be imitated (but may not be). ± Unique assets (mineral rights). ± capacity ± Economy of scale Difficult to Imitate ± Brand loyalty.

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. .Based View in Internal Analysis.

Look at organizational processes and combinations of resources and not only at isolated assets or capabilities. Use value chain approach to identify capabilities. Separating tangible and intangible assets as well as organizational capabilities can uncover value-building resources and activities.Strategic Management Process Methods to identify resources with strategic value. Utilize a functional perspective. . activities and processes having potential competitive advantage. Disaggregate resources: Break them into more specific competencies rather than stay with broad categorizations.

‡ Theme. Providing ease of access ± Parking (where appropriate). window decorations ± Table layout ‡ Table materials . ± Door Positioning and style. ± External Signs/ welcome Offering a delightful ambiance ± Floor design. floor materials.Strategic Management Process Disaggregating a Restaurant¶s Customer Service Resource. ± Bar positioning. ± Features/décor. color scheme.

± 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. .

‡ Menu training. ‡ Job experience Motivation awards. coaching process ‡ Discipline system. ± System of gaining waiter¶s attention . ‡ Daily Meetings.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.

± 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. ± Kitchen queuing system ± Service standards Reducing the pain of paying the bill. .

metaphors. language.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. heroes. rites. symbols. legends. . and heroines. ceremonies. Cultural products or dimensions include values. beliefs. saga. stories. thing. and that has worked well enough to be considered valid and to be taught to new members as the correct way to perceive. rituals. and feel. myths. This definition emphasizes the importance of matching external with internal factors in making strategic choices.

friendly. or likable. harsh. It must foster competence and enthusiasm among managers and employees . Every organization like an individual¶s personality have different cultures ± they could be warm. implementation. conservative. open. aggressive. innovative. liberal.Strategic Management Process These dimensions are levers that strategists can use to influence and direct strategy formulation. The strategic management process takes place largely within a particular organization culture. and evaluation activities. An organization¶s culture must support the collective commitment of its people to a common purpose.

If strategies can capitalize on cultural strengths. The challenge of strategic management is to bring about the changes in organizational culture and individual mindsets that are needed to support the formulation. If the firm¶s culture is not supportive. implementation. like strong work ethic or highly ethical beliefs. However. . and evaluation of strategies. strategic changes may be ineffective or even counterproductive. then management can implement changes swiftly.Strategic Management Process Organizational culture significantly affects business decisions and thus must be evaluated during an internal strategic management audit.

but seldom produce intended. dramatic. technical consequences of practical importance.Strategic Management Process Cultural Products or Dimensions Rites . 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. Also. detail set of techniques and behaviors that manage anxieties. Ceremonial ± A system of several rites connected with a single occasion or event. Ritual ± A standardized.Relatively elaborate. carried out through social interactions. planned sets of activities that consolidate various forms of cultural expressions into one event. . Myth ± A dramatic narrative of imagined events. usually for the benefit of an audience.

usually in heroic terms. event.Strategic Management Process Saga ± A historical narrative describing the unique accomplishments of a group and its leaders. Legend ± A handed down narrative of some wonderful event that is based on history but has been blown up with fictional details. usually by representing another thing. Story ± A narrative based on true events. Language ± A particular form or manner in which members of a group use sounds and written signs to convey meanings to each other. act. or relation that serves as a vehicle for conveying meaning. sometimes a combination of truth and fiction. . Symbol ± Any object. Folktale ± A completely fictional narrative.

.Strategic Management Process Metaphors ± Shorthand words used to capture a vision or to reinforce old or new values. Heroes/Heroines ± Individuals whom the organization has legitimized to model behavior for others. Belief ± An understanding of a particular attitudes that serve as behavioral guidelines. Values .

Planning is an up-front investment in success. 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. Planning The only thing certain about the future of any organization is change. Planning enables a firm to gather the resources needed and carry out tasks in the most efficient way. motivating. staffing.Strategic Management Process Management The function of management are five basic activities. organizing. planning. and controlling.

why. Successful organizations strive to control their own futures rather than merely react to external forces and events as they occur. where. . and how needed to achieve desired objectives.Strategic Management Process Planning enables a firm to identify precisely what is to be achieved and to detail precisely the who. Planning helps ensure that the firm can be prepared for all reasonable eventualities and for all changes that will be needed. Strategic management can be viewed as a formal planning process that allows an organization to pursue proactive rather than reactive strategies. what. when.

Strategic Management Process Organizing The purpose of organizing is to achieve coordinated efforts by defining tasks and authority relationship. ± Combining jobs to form departments ( departmentalization). . ± Breaking tasks down into jobs ( work specialization ). and ± Delegation authority. Organizing means determining who does what and who reports to whom. Resources are allocated more effectively and used more efficiently in a well organized firm than in a disorganized firm. The organization function consist of three sequential activities.

deleted. divisional. Combining jobs to form departments results in an organizational structure. or merged.Strategic Management Process Breaking tasks down into jobs require development of job description and job specification. and matrix. strategic. which lead to specialization and according to Adam Smith (Wealth of Nations published 1776) would lead to higher productivity. and chain of command. Changes in strategy often require changes in structure because positions may be created. . The most common forms of departmentalization are functional. span of control. business unit.

and to be held accountable for results Delegation of authority is embedded in strategic management process. 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.

Motivating .

Profitability. Earning per share and Social responsibilities. Degree and nature of diversification. Objectives should be quantitative. ± ± ± ± ± ± ± Growth in assets. understandable. challenging. Objectives are commonly stated in terms of.Strategic Management Process Strategic Objectives Strategic objectives or long-term objectives represent the results expected from pursuing certain strategies. realistic. measurable. . Growth in sales. hierarchical. Market share. and obtainable.

Strategic Management Process Clearly stated objectives help stakeholders understand their role in an organization. an organization can minimize potential conflicts later during implementation . 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 .

It conforms not only to the law. 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 Behavior Conduct that is considered µright¶ or µgood¶ in the context of a governing moral code.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.

Code Of Ethics A formal statement of the organization¶s values. and ethical rules. ethical principles. Ethical Standard A guidelines governing moral conduct of a particular group. .

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