INTEGRATED MANAGEMENT

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.

± Buyers can get best price and service by quickly scanning hundreds of vendor offerings. ± It has transferred power from businesses to individuals . friends neighbors etc.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.

± 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. the Internet will change society more than telephone and television combined. e-Trade. e-commerce. e-mail and e-toys have become integral part of everyday life worldwide. ± According to seventy four percent Americans in a survey. ± 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. production /operations. ‡ It focuses on integrating management. finance/ accounting. research and development. and computer information systems to achieve organizational objectives. . marketing. ‡ The purpose of strategic management is to exploit and create new and different opportunities for tomorrow.

± Strategy implementation. generating alternative strategies and choosing particular strategy to pursue. . logical. ± Strategy evaluation. identifying an organization¶s external opportunities and threats. Three stages of Strategic Management Process. Strategy Formulation Developing a vision and mission. establishing long term objectives. determining internal strengths and weaknesses. systematic approach for making major decisions in an organization.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.

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. The first choice is the best choice. ³ To be the first choice in the printed communication business.Strategic Management Process Vision Statement What do we want to become? A vision statement of an eye clinic.

A clear mission statement is essential for effectively establishing objectives and formulating strategies.it is a declaration of an organization¶s ³ reason for being ³answering the pivotal question ³ what is our business´.Strategic Management Process Mission Statement An enduring statement of purpose that distinguishes one organization from other similar enterprise. . .

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

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

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. ‡ They arise in the management. production/ operations.Strategic Management Process Internal Strengths and weaknesses An organization¶s controllable activities that are performed especially well or poorly. finance/accounting. . marketing.

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

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

acquisition. product development. diversification.Strategic Management Process Strategy It is the means by which long-term objectives can be achieved. Strategies are potential actions thus future. Business strategies may include geographic expansion. .oriented having multifunctional or multidivisional consequences for the organization. market penetration. liquidation and joint venture. retrenchment.

. How to allocate resources. 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. Whether to enter international market.

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

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 .focuses on effectiveness Strategy implementation .requires special motivation and leadership skills .Strategic Management Process Implementing Strategies Strategy implementation is different than strategy formulation.

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

± Measuring performance. ± Taking corrective actions. Strategy evaluation is necessary because success today is no guarantee of success tomorrow . ± Review external and internal environment factors which are bases for current strategies. 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. All strategies are subject to future modifications because of persistent changes in the external and internal environment of an organization.

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

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

.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.

5 years Tactical Plans .Strategic Planning Levels of Planning Strategic Tactical Operational General Time Period Considered for Plans Strategic 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) .

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
WELL CONCEIVED PLANS MUST HAVE
1.Resources 2.Methods 3.Tasks 4.Sequence 5.Individuals 6.Location 7.Deadlines 8.Stop points 9.Measurement

High performing firms do systematic planning to prepare for future fluctuations in their external and internal environment. Businesses show significant improvement in sales. These firms generally exhibit superior long-term financial performance relative to their industry. 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. .

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

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

Waste of time ± see planning as waste of time since no marketable product is produced. Content with success ± they think no need to plan because things are fine as they stand.Strategic Planning Reasons For No Strategic Planning By Firms Poor reward structure ± often fail to reward success but ready to punish for failure. Laziness ± may not want to put effort needed for planning. Too Expensive ± culturally opposed to spending resources. . ( time spent on planning is investment). Fire-fighting ± busy in crisis management and not finding time to plan.

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

Strategic planning involves ³choices that risk resources´ and ³tradeoffs that sacrifice opportunity´. 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.

± Opening company¶s stores.. ± Establishing websites to sell products directly to consumers.Types of Strategies Integration Strategies Forward integration Backwind integration Horizontal integration Forward Integration Gaining ownership or increased control over distributors or retailers by. retail outlets . ± Franchising .costs and opportunities are spread across many individuals.

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

too costly or cannot meet firm¶s requirements Firms having global sources of supply opt for deintegration. .Types of Strategies Backward Integration A strategy of seeking ownership or increased control of a firm¶s suppliers particularly in situations when firm¶s suppliers are unreliable. 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.

. When an organization competes in an industry that is growing rapidly. When an organization has both capital and human resources to manage the new business of supplying its own raw material. unreliable. 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.

When an organization needs to acquire a needed resource quickly. . as organization can stabilize the cost of its raw materials and associated products through backward integration. tempting to invest into the venture.Types of Strategies Situations when backward integration may be an effective strategy (contd) When the advantages of stable prices are particularly important. When present supplies have high profit margin.

Mergers.Types of Strategies Horizontal Integration A strategy of seeking ownership of or increased control over a firm¶s competitors. acquisitions and takeovers among competitors allow for increased economies of scale and enhanced transfer of resources and competencies. 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 Situations when horizontal integration may be an effective strategy When an organization can gain a monopolistic characteristics without being challenged by the law (SECP). When the firm has the necessary resources of capital and human talent to manage the expanded organization. and overall industry sales are declining. . When increased economies of scale provide major competitive advantage. 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.

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

. The correlation between dollar sales and dollar marketing expenditure has been high. The usage rate of present customers could be increased significantly. Increased economies of scale provide major competitive advantage.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.

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

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.

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

When an organization has strong management team. . When new related products could be offered at highly competitive prices. When adding new but related products would significantly enhance the sales of current products.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 the company¶s products are in the declining stage of the product¶s life cycle.

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.Types of Strategies Horizontal Diversification Adding new. . 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.

The existing markets for company¶s present products are saturated. . 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. unrelated products or services. There exists financial synergy between the acquired and acquiring firms. Situations when conglomerate diversification may be an effective strategy.Types of Strategies Conglomerate Diversification Adding new. Organization has the opportunity to purchase unrelated business providing an attractive investment opportunity. Organization¶s basic industry is experiencing decline in sales / profits.

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

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

or that do not fit well with the firm¶s other activities. .Types of Strategies Divestiture Selling a division or part of an organization. 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.

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

can be an emotionally difficult strategy. It is better to cease operating than to continue loosing large sums of money. When only alternative left is bankruptcy. Liquidities is a recognition of defeat and therefore. When stockholders of a firm can minimize their losses by selling the organization¶s assets. 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. in parts. .Types of Strategies Liquidation Selling all of a company¶s assets. for their tangible worth is called liquidation. Situations when liquidation may be an effective strategy to pursue.

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

Pursue cost leadership in conjunction with differentiation. Perform cost-benefit analysis to evaluate ³sharing opportunities´ of resources and knowledge among firm¶s existing and potential business units. of buyers with significant bargaining power. backward and horizontal integration is to gain cost leadership. . 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. It is an effective strategy in situations where customers are price sensitive.

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

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

Market Penetration and Market Development strategies offer substantial focusing advantages. geographic market. Focus Strategies are most effective when. ± Rival firms are not attempting to specialize in the same target market. .Types of Strategies Focus Strategies To concentrate on a particular group of customers. 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 possibility of many competitors recognizing the successful focus strategy and copying it.Types of Strategies Medium to large firms can pursue focus strategies only in conjunction with differentiation or cost leadership-based strategies. . The consumer preferences drifting towards the product attributes desired by the market as a whole. Risks of pursuing Focus Strategies.

.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. ± Research and development partnerships. ± Cross-distribution agreements. The sponsoring firms normally form a separate organization with shared ownership. ± Cross-licensing agreements. Other types of cooperative arrangements could be.

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

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.When a merger or acquisition is not desired by both parties. Friendly Merger .when a large organization purchases (acquires) a smaller firm. Takeover/Hostile Takeover . or vice versa. Acquisition.

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. . distributors. To reduce tax obligations. To reduce managerial staff. customers. products and creditors. To gain economies of scale To smooth out seasonal trends in sales. To gain new technology.Types of Strategies Reasons for Mergers and Acquisitions To provide improved capacity utilization. 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.

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. Within the external environment are the forces of the general environment or macro environment and the forces of the task environment or industry environment .

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

Thus. 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. . 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.

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

and level of competitiveness than on internal resources. product differentiation. capabilities.Strategic Management Process Firm performance is primarily based more on industry properties. barriers to market entry. . 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. such as economies of scale. structures. and operations. However.

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

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

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

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

Cultural. Demographic and Environmental forces. cultural. 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. .Strategic Management Process Social. services. Changes in social.

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

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

altering economies of scale and changing entry barriers. It is changing the nature of opportunities and threats by altering the life cycle of products. .Strategic Management Process Technological Forces Technological advances have brought revolution in business operations. increasing speed of distribution . Internet is saving companies billions of dollars in distribution and transaction from direct sales. New positions of CIO and CTO are being introduced in companies to effectively capitalize on e-commerce. erasing limitations of traditional geographical markets.

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

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

.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. lower costs and better decision making. implementation and evaluation decisions. Benefits of corporate spying include increased revenues. 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.

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

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

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 .

adding features. ± with the increase in number of competitors.Strategic Management Process Rivalry among Competing firms The most powerful of five Competitive forces. 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. . The intensity of rivalry increases. enhancing quality. providing services. extending warranties or increasing advertising. ± By becoming more equal in size and capability.

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

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

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

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

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

warranty coverage.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. ± Buy in volume. Rival firms offer extended warranties or special services to gain consumer loyalty. ± Products being purchased are standard or undifferentiated. and accessory packages.

environmental. . governmental. The Matrix can be developed in five steps. legal. political. social. demographic. ± i) List external factors identified in external audit (about 10 to 20 factors) including both opportunities and threats. 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. technological. and competitive information. cultural.

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

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.Strategic Management Process Ratings are based on effectiveness of the firm¶s strategies thus company-based. ± v) Sum the weighted score for each variable to determine the total weighted score for the organization.0. or taking advantage of opportunities and minimizing effects of threats. . The score of 4. The average total weighted score is 2.0 and the lowest 1.5. The highest possible total weighted score for an organization is 4. whereas the weights in step 2 are industry based.

15 .15 .05 .20 .05 .10 .05 .Strategic Management Process A SAMPLE INTERNAL FACTOR EVALUATON MARTRIX Key Internal Factors Internal Strength Largest Casino in country Room Occupancy 95% in L.40 .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 .15 .20 .05 .05 4 4 3 4 3 3 4 3 3 .05 .60 .15 .15 .05 .

10 .75 .05 .10 2.10 1.Strategic Management Process Key Internal Factors Internal Weaknesses Most properties located in L.05 .10 .00 1 2 2 1 .V Little diversification Family reputation.05 .05 . not high Recent loss of joint venture Total Weight Rating Weighted Score .

± 4 = major strength ± 3 = minor strength ± 2 = minor weakness ± 1 = major weakness .Strategic Management Process The Competitive Profile Matrix (CPM) The CPM identifies a firm¶s major competitors and its particular strengths and weaknesses in relation to a competitor firm¶s strategic position. Critical success factors in a CPM include both internal and external issues. where. However. The weights and total weighted scores in both a CPM and EFE have the same meaning. therefore the ratings refer to strengths and weaknesses.

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

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

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

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

. 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. abilities and ways of combining assets.Strategic Management Process Organizational Abilities The skills. Core Competence A capability or skill running through a firm¶s businesses and that once identified. and processes that a company uses to transform inputs into outputs. becomes the basis for lasting competitive advantage. nurtured and deployed throughout the firm. They enable the firm to take the same input factors as rivals and convert them into products and services.

Easy to imitate. competitors will match or better any resource sooner than later.Strategic Management Process What Makes a Resource valuable? Competitive Superiority : Does the resource help fulfill a customer¶s needs better than those of the firm¶s competitors? Resource scarcity: Is the resource in short supply? Inimitability: Is the resource easily copied or acquired? Inimitability doesn¶t last for ever. . ± Commodities. ± Cash.

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

Strategic Management Process Durability: How rapidly will the resource depreciate? Substitutability: Are other alternatives available? Using Resource. . Involves identifying and evaluating firm¶s resources that possess strategic value and can provide basis for future competitive advantage.Based View in Internal Analysis.

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

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

. ± Marketing literature. ± Visible queuing system. ± Entertainment for queuers.Strategic Management Process Providing a Special welcome ± Host greeting ± Welcome drinks/ eats ± Menu introduction ± Table decoration Ensuing waiting time at the table is´ as expected´ and as enjoyable as possible.

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

± Kitchen queuing system ± Service standards Reducing the pain of paying the bill.Strategic Management Process Ensuring that Menu is fun to use and caters to the diners¶ needs. . ± Size of Menu ± Material Menus made off ± Menu dishes ± Menu layout Providing speed of service appropriate to the occasion.

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

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

like strong work ethic or highly ethical beliefs. implementation. 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. 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. If strategies can capitalize on cultural strengths.

but seldom produce intended. Also. . Ritual ± A standardized. technical consequences of practical importance. Ceremonial ± A system of several rites connected with a single occasion or event. usually for the benefit of an audience. carried out through social interactions. Myth ± A dramatic narrative of imagined events. detail set of techniques and behaviors that manage anxieties. dramatic.Relatively elaborate.Strategic Management Process Cultural Products or Dimensions Rites . planned sets of activities that consolidate various forms of cultural expressions into one event. an unquestioned belief about the practical benefits of certain techniques and behaviors that is not supported by facts. usually used to explain origins or transformation of something.

usually in heroic terms. 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. act. Language ± A particular form or manner in which members of a group use sounds and written signs to convey meanings to each other. sometimes a combination of truth and fiction. Symbol ± Any object. Folktale ± A completely fictional narrative.Strategic Management Process Saga ± A historical narrative describing the unique accomplishments of a group and its leaders. or relation that serves as a vehicle for conveying meaning. event. Story ± A narrative based on true events.

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

Planning is an up-front investment in success. staffing. and planning is the essential bridge between the present and the future that increases the likelihood of achieving the desired results. organizing.Strategic Management Process Management The function of management are five basic activities. planning. . motivating. 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. and controlling. Planning enables a firm to gather the resources needed and carry out tasks in the most efficient way.

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

± Breaking tasks down into jobs ( work specialization ). . and ± Delegation authority. Organizing means determining who does what and who reports to whom. ± 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.Strategic Management Process Organizing The purpose of organizing is to achieve coordinated efforts by defining tasks and authority relationship. The organization function consist of three sequential activities.

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

and to be held accountable for results Delegation of authority is embedded in strategic management process. They expect to be delegated authority and responsibility.Strategic Management Process Delegation authority is an important activity as evidenced in old saying ³ you can tell how good a manager is by observing how his/her department functions when he or she is not there´. Employees of today are more educated and capable of participation in organizational decision making. .

Motivating .

realistic. 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. and obtainable. measurable. Market share. Growth in sales. . challenging. understandable. Profitability. hierarchical. Earning per share and Social responsibilities. ± ± ± ± ± ± ± Growth in assets. Degree and nature of diversification. Objectives should be quantitative.

By making objectives through consensus. They provide basis for consistent decision making by managers whose values and attitudes differ.Strategic Management Process Clearly stated objectives help stakeholders understand their role in an organization. an organization can minimize potential conflicts later during implementation .

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 .

Unethical Behavior Conduct that is considered µwrong¶ or µbad¶ in the context of a moral code. expectations and morals comprising standards of conduct for a population or profession.Internal Environment Analysis Business Ethics and Social Responsibility Ethics A system of behaviors. Ethical Behavior Conduct that is considered µright¶ or µgood¶ in the context of a governing moral code. 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 Standard A guidelines governing moral conduct of a particular group.Code Of Ethics A formal statement of the organization¶s values. . ethical principles. and ethical rules.

Sign up to vote on this title
UsefulNot useful