Strategic Management

INTRODUCTION
• Why do some companies succeed while others fail?
• What explains the consistent growth & profitability of some
companies while others strive for the same
INTRODUCTION
• The answer lies in the STRATEGY/STRATEGIES they adopt
STRATEGY
• Is an action that managers take to attain one or more org. goals.
• Is a set of related actions that managers take to increase their
company’s performance.
• The ultimate challenge for a company is to achieve SUPERIOR
PERORMANCE relative to its rivals and the actions taken in this regard
is what we refer as ‘’STRATEGY’’.
STRATEGY
• Basic level strategy is concerned with understanding the relationship
with PRICE – Customer demand and cost structure
• Strategy involves manipulating these variables in a manner so as to
increase profitability and achieve SUPERIOR PERFORMANCE and thus
gain a COMPETITIVE ADVANTAGE
• Price - Optimising Prices
• Customer Demand – Increasing Customer Demand Business
• Cost Structure – Lowering costs Model
Superior Performance
• Superior Performance is a relative term and is a measure of the
profitability relative to that of the other company in the same business
• Profitability can be measured by ROIC
• ROIC is the net profit i.e net income after tax
• Profit growth is another important dimension for achieving superior
performance
• Profit growth of a company can be measured by the increase in net
profit over time.(diversification, increased market share, growing
markets etc)
Superior Performance
• The ultimate aim of strategy making is to make a company more
efficient.
• More efficient a company is , more is its profitability and more is its
profit growth and more value it creates for its shareholders.
Profitability (ROIC)

Effectiveness of Shareholder
strategies Value

Profit Growth
Competitive Advantage
• A company is said to have a competitive advantage over its
rivals when its profitability is greater than the average
profitability prevalent in the industry
• The greater the extent to which a company’s profitability
exceeds the average profitability for its industry the greater
is its competitive advantage
• A company is said to have a SUSTAINED COMPETITIVE
ADVANTAGE when it is able to maintain above average
profitability for a number of years.
Business Model
• Business Models are usually based on the
financial projections of the price, customer
demand and Cost Structure
• Business model is the economic mechanism by
which a business hopes to sell its goods or
services and generate a profit
Business Model
A business model encompasses the totality of how a company will
• Select its customers.
• Define and differentiate its product offerings.
• Create value for its customers.
• Acquire and keep customers.
• Produce goods or services.
• Lower costs.
• Deliver those goods and services to the market.
• Organize activities within the company.
• Configure its resources.
• Achieve and sustain a high level of profitability.
• Grow the business over time.
Business Model, Superior Performance &
Competitive Advantage
• Business model of a company is management’s model
of how the strategies they pursue will allow the
company to gain a competitive advantage & achieve
superior performance
• While formulating strategies it is imperative for
managers to take into consideration the strategies
adopted by the competitors & the response of the
competitors towards the proposed strategies
Business Model, Superior Performance &
Competitive Advantage
• Frequent flyer programme by competitive airlines
became a necessity rather than an advantage
• The challenge is that the competitive advantage
should not become a competitive parity
• Competitive advantage is possible only by performing
different activities from rivals or performing similar
activities differently.
Strategic Management
• Strategic Management differs from strategy in the sense that it
considers what must be done before a strategy is formulated
• SM is a capstone course in Business Administration as it integrates
materials from all business courses
• SM is all about formulating, implementing & evaluating cross
functional decisions that enable an org. to achieve its objectives. i.e
SM focusses on integrating Management, Marketing,
Finance/Accounting, Production/Operation, Research & Development
and CIS to achieve organizational success.
Strategic Management Components
1. Select the Mission & Organizational Goals
2. Analysing the Organization’s External Competitive
Environment to Identify Opportunities & Threats
3. Analyse the organization’s internal operating environment
to identify the organizations strengths & Weaknesses.
4. Select strategies that build on the organization’s strength &
correct its weakness in order to take advantage of external
opportunities and counter external threats
5. Implement the strategy
6. Strategic Control
Mission
• A company’s mission describes what the company does
• Statement of the role the organization wishes to play in the society
• Can help an organization to link its activities to the needs of the
society and legitimise its existence
• A description or declaration of why a company is in operation which
provides a framework or context within which strategies are
formulated
The purpose of a mission statement is to provide a platform to the
organization to think strategically.
Mission
• A mission statement has essentially three components
1. Raisn D’ Etre of a company, i.e reason for existence
2. A statement of the key values or guiding standards that will draw
and shape the actions and behaviour of the employees.
3. Statement of Major Goals and Objectives
Formulating The Mission
• To come up with the definition of the organization’s business. The
definition must answer three questions
1. What is our business
2. What will it be
3. What should it be.
Business Definition
• Customer Oriented Definition
• Product Oriented Definition
Three Dimensions for defining the business
• Who is being satisfied --------- Customer Groups
• What is being satisfied ------------- Customer Needs
• How are customer needs being satisfied ------skills, knowledge
Distinctive
competencies

(Darek Abell)
Product Oriented Definition
• Smith Carona one of the leading companies in 1950,
got bankrupt in 1996. They defined their business as
manufacturing and selling typewriters, rather than the
fact they were in the business of satisfying customer
information processing needs.
• As a result they failed to change and survive with IT
revolution
Customer Oriented Definition
• IBM in contrast defined their business correctly as “Providing a means
of information processing and storage rather than just supplying
typewriters .
• The subsequent moves of the IBM towards IT is a testimony to the
fact.
Values
• how managers and employees should conduct themselves
• how they should do business, and
• what kind of organization they should build
Values
• Are an important aspect of Organizational culture and an important
source of competitive advantage.
• E. G Texas Instruments values like Innovation, Integrity and
Commitment have proved to be an important source of success and
have helped in building a strong organizational culture
Values
• Research shows that
• Deep respect for stakeholders interests
• Innovation
• Support for change
Resulted in Superior performance
(HP, Pepsi Co, Wallmart)
Values
• In Contrast
• Arrogance
• Lack of Respect
• Resistance to Change

Resulted in poor performance

(General Motars)
Goals & Objectives
• Precise and Measurable
• Address Crucial Issues
• Challenging But Realistic
• Time Bound

Companies should focus on long term goals and there should be no shot
cuts
No emphasis on current profitability
Investments may be there on projects where there are no immediate
returns but they will help in the long run