Strategic Management

Process

Sandeep M
Strategic Management Process
A five-step process that encompasses strategic planning,
implementation and evaluation

1. Identification of organization’s current mission, goals and

objectives
2. SWOT Analysis
 External Analysis: Opportunities and Threats
 Internal Analysis: Strengths and Weaknesses
3. Formulate Strategies
 Corporate Level strategies
 Business Level Strategies
 Functional Level Strategies
4. Implement Strategies
5. Evaluate Strategies
Vision
“An enduring picture of what the firm wants to be
and, in broad terms, what it wants to ultimately
achieve.”
 Stretches and challenges people and evokes
emotions and dreams.
 Effective vision statements are:
 Developed by a host of people from across the
organization.
 Clearly tied to external and internal
environmental conditions.
 Consistent with strategic leaders’ decisions and
actions.
Examples
 Disneyland: to be the happiest place on earth
 Infosys: to be globally respected corporation that
provides best breed of business solutions,
leveraging technology, vendors and society at
large
 McDonald’s: to be world’s best quick service
restaurant
 P&G: be and be recognized as, the best consumer
products and services company in the world
 Toyota: to become the most successful and
respected car company in each market around the
world
Mission
A statement of purpose of an organisation
 Specifies the business or businesses in which the
firm intends to compete and the customers it
intends to serve.

 Is more concrete than the firm’s vision.

 Is more effective when it fosters strong ethical

standards.
 Above-average returns are the fruits of the firm’s
efforts to achieve its vision and mission.
 Infosys: To achieve our objectiveness in an
environment of fairness, honesty and courtesy
towards our clients, employees, vendors, and society
at large

 Ford Motor: To improve continually our products and

services to meet our customer needs, allowing us to
proper as a business and to provide a reasonable
return for our stockholders, the owners of our
business

 Toyota: To contribute to people’s lifestyle, society,

and the economy through automotive manufacturing
Goals/Objectives (Desired
outcomes/targets)
 Growth: Sales, Percent change in sales

 Competitive strength: market share, brand

awareness, brand preference

 Innovativeness: sales from new products, % of

sales from product-market entries introduced within
past five years

 Profitability: Profits, Profit as % of sales,

Contribution margin, ROI, ROA, ROE

 Utilization of resources: % capacity utilization,

fixed assets as % of sales
 Contribution to owners: Earning per share,
Price/earning ratio

 Contribution to customers: Price relative to

competitors, Product quality, customer satisfaction,
Customer retention, Customer loyalty, Customer
lifetime value

 Contribution to employees: Wage rates, benefits,

personnel development, promotions, Employment
stability, turnover

 Contribution to society: Contribution to

charities/community institutions, Growth of
employment
Business Model
A business model is how a company is going to make
money

The business model focuses on two factors

1. Whether customers will value what the company is
providing

2. Whether the company can make any money doing that

Illustration:
Dell pioneered a new business model for
selling computers to consumer directly from the
internet instead of selling through computer retailers,
like all the other manufacturers.
Stakeholders
“Individuals and groups who can affect, and are affected by,
the strategic outcomes achieved and who have
enforceable claims on a firm’s performance”

 Stakeholder Claims on the firm’s performance are

enforced by the stakeholder’s ability to withhold
participation essential to the firm’s survival.

 The more critical and valued a stakeholder’s

participation, the greater a firm’s dependency on it.

 Managers must find ways to either accommodate or

insulate the organization from the demands of
stakeholders controlling critical resources.
SWOT Analysis
An analysis of organization’s strengths, weaknesses,
opportunities and threats
 Strengths are any activities the organization does
well or unique resources that it has.
 Weaknesses are activities the organization doesn’t do
well or resources it needs but doesn’t have

 Resources: an organization’s assets that are used to

develop, manufacture, and deliver products to its
customers
 Capabilities: An organization’s skills and abilities in
doing the work activities needed in its business
 Core competencies: The organization’s major value-
creating capabilities that determine its competitive
advantage
 External Environment: factors and forces outside
an organization that affect the organization’s
performance
 General environment: broad external
conditions that may affect an organization
 Specific environment: external forces that
have a direct impact on manager’s decisions
and actions and are directly relevant to the
achievement of an organization’s goals
 Opportunities are positive trends in the external
environment
 Threats are negative trends in the external
environment
Formulation of strategies:
Corporate Strategies
1. Growth strategies: Ideally, a firm should
select a growth strategy that results in an
increase in sales/market share only if that
growth is expected to result in an increase
in firm value.
 Internal growth: It is achieved through
increasing a firm’s sales, production capacity,
and work force.
 Horizontal integration: Some firms expand by
acquiring other companies in the same line of
business called horizontal integration.
 Horizontal related diversification: When
a corporation acquires a business that is in a
n industry outside of its present scope of
operations but is related to the corporation’s
core competencies, the corporation has
engaged in horizontal related diversification.
Core competencies are major resource
strengths of organizations. Core
competencies may be similar(marketing) or
complementary( R&D and distribution
channels)
 Horizontal unrelated diversification:
When a corporate acquires a business in
an unrelated industry, it has taken a
horizontal unrelated diversification or
conglomerate diversification.
 Vertical integration of related
businesses: Acquiring a company with
similar or complementary core
competencies in vertical distribution
channel may be referred to as vertical
integration of related business.
 Vertical integration of unrelated
businesses: It is undertaken with limited
possibilities for transferring or sharing core
competencies
 Mergers: a merger occurs when two or
more firms, usually of roughly similar sizes,
combine into one through an exchange of
stock.
 Strategic alliances: strategic alliances are
partnerships in which two or more firms
carry out a specific project or cooperate in a
selected area of business.
Alternative Corporate Growth
Strategies
 Market penetration strategies: Increase market
share, Increase product usage ( increase frequency
of use, increase quantity used, New application)

 Market development strategies: Expand

markets for existing products (Geographic
expansion)

 Product development strategies: Product

improvement, Product-line extensions, New
products for same market
 Diversification strategies: Vertical
integration( Forward integration, backward
integration), Diversification into related
businesses (concentric diversification),
Diversification into unrelated businesses
(conglomerate diversification)
2. Stability strategy
 The stability strategy for a firm is the
maintenance of the current array of
business.

 It enables the corporation to focus

managerial efforts on the existing
businesses with the goal of enhancing their
competitive postures.

 Senior managers may perceive that the

cost of adding new businesses may be
more than the potential benefits.
Retrenchment strategy
 When the performance of a firm’s business units is
disappointing or, at the extreme, when its survival is
at stake then retrenchment strategies may be
appropriate.

 Turnaround: The intent of turnaround is to transform

is to transform the corporate into a leaner and more
effective firm. Turnaround includes such actions as
eliminating unprofitable outputs, pruning assets,
reducing the size of the workforce, cutting costs of
distribution, and rethinking the firm’s product lines
and customer groups.
 Divestment: When a corporation sells or “spins off”
one of its business, it is engaging in divestment.
Divestment usually occurs when the business unit is
performing poorly or when it no longer fits the
corporation’s strategic profile. The business unit may
be sold to another company, to its managers and
employees, or to an individual or group of investors.

 Liquidation: A strategy of last resort is liquidation.

When neither a turnaround nor a divestment seems
feasible, liquidation occurs through termination of the
business unit’s existence by sale of its assets.
The Boston Consulting Group’s
(BCG) Growth Share Matrix
 Market Growth Rate: a proxy measure
for the maturity and attractiveness of an
industry.
Businesses in rapidly growing industries are
more attractive investment opportunities
for future growth and profitability
 Relative Market Share: a proxy measure
for competitive strength of business within
its industry.
 Question Marks (Build)

 Stars (Hold)

 Cash Cows (Harvest)

 Dogs (Divest)
Limitations of the Growth-Share
Matrix
1. Market growth rate is an inadequate descriptor of
overall industry attractiveness
2. Relative market Share is inadequate as a description
of overall competitive strength
3. The outcomes of a growth-share analysis are highly
sensitive to variations in how growth and share are
measured
4. While the matrix specifies appropriate investment
strategies for each business, it provides little
guidance on how best to implement those strategies
5. The model implicitly assumes that all business units
are independent of one another except for the flow
of cash
Thanks

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