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Strategic Management

Module 1 (Syllabus) Meaning and Nature of Strategic Management


1. Importance and relevance 2. Characteristics of Strategic Management 3. Str Mgt Process 4. Relationship between a Companys Strategy and its Business Model

Military Influences in Strategy

Strategos referred to General in Command of an Army By 450 BC Managerial Skill, existed By 350BC Skill of employing forces to overcome to create a system of global governance positions

Evolution of Strategic Management

Financial Budgeting -Capital Budgeting -Operating budgeting -1950

Corporate Planning -Economic Forecasting -Synergy -Creation of Depts -1960

Strategy as positioning -Industry analysis -Segmentation -Experience Curve -1970/1980

Str for New Competitive Economy Advantage -New Models -Resource Re-engineering -- Technology -Alliances -2000 1990

Str in New Millennium -Business Ethics -Competing for standardswinner take all --Global standards -2006

What is strategy?
Managements

Game Plan for growing the business

Stacking out a market position, Attracting and pleasing customers Competing successfully Conducting operations Achieving Targeted Objectives. Competitive moves & business approaches to attract & please
customers, Compete successfully, grow business, conduct operations, and achieve targeted objectives.

What is strategy?

Continued

How to attract and please customers?


How to respond to changing market conditions?

How to compete successfully?


How to grow the business?

Strategic Management

How to achieve performance targets?


How to manage each function?

How to develop needed capabilities?

What do we mean by strategy?


Action plan for running business and conducting operations Strategy is all HOWs:
how mgt intends to grow the business? how to build a loyal clientele and outcompete rivals how each function will be operated? ( R & D , SC. P, S. Mktg, D , F and HR) how performance will be boosted?

Strategy - Core Concept


Companys Strategy consists of : Competitive moves and business Approaches that a manager operates to
Grow business Attract and please customers Compete successfully Conduct operations Achieve targeted levels of Organizational performance

STRATEGIC MANAGEMENT Meaning and Nature

Definitions
Goal directed decisions and actions, in which capabilities and resources are matched with opportunities and in threats in the environment.
Strategy

is a commitment to undertake a set of actions rather than others. Sharon Oster


The process of developing superior strategies is partly planning

& partly trial and error, until you hit upon something that works. - Costas Markides
Without a strategy the Organization is like a ship with out a

rudder. - Michael Kami

Why Strategic Management is important?

Gives every one a role

o Makes difference in performance level


o Provides systematic approach to uncertainties
o

Coordinates and focuses employees

Importance and RelevanceBasic 3 Questions


1. What is the companys present situation?
2. Where does the company need to go from here? 3.How should it get it there? 1. Relies on Industry conditions, competitive pressures , companys
current performance, market standing, resource strengths and capabilities. 2. Mangers to make choices, about in moving direction, new customer group, market position etc, 3. Crafting and executing, capable of moving in desired direction. Growing its business, improving financial and market performance.

Thinking Strategically: The Three Big Strategic Questions


1. Whats the companys present situation? 2. Where does the company need to go from here?
Business(es) to be in and market positions to stake out

Buyer needs and groups to serve


Direction to head

3. How should it get there?


A companys answer to how will we get there? is its strategy

Core Concept
A company achieves a sustainable competitive advantage, when an attractive number of customers prefer its products or services over the competitors and when the basis for this performance is durable.

Corporate Strategy Vs Business Strategy


Michael Porter emphasized Strategy is not about , doing things better but doing differently. Strategy is making Choice: Basic Questions are Where to compete? How to compete? Answer is Corporate Strategy and Business Strategy Corporate Strategy: Decisions include investment in Diversification, Vertical Integration, acquisition and new Ventures allocation of resources & Divestment. Business Strategy: is concerned with how the firm competes with a particular industry or market. Firm to establish a competitive advantage over its rivals . This area is referred as competitive strategy.

Corporate Strategy Vs Business Strategy


Industry Attractiveness

Corporate Strategy

Rate of Return above the cost of Capital How do we make money?

Which Industry should we be in?

Competitive Advantage

Business Strategy

How should we compete?

Business and Strategy Model


Business model: 1. Gives the logic of how the a Strategy can deliver value to customers at a price and cost that yields Profitability 2. Relates to whether the Revenue-Cost Profit economics of its S demonstrates the viability of business as a whole 3. Revenue- Cost Profit flows from Strategy-, shows viability Strategy: 1. Competitive Initiatives/ approaches- irrespective of financial out come 2. Is capable of Profit making, Co becomes a viable Business Enterprise 3. Co with Lack of Strategy, fails to produce to meet even bottom line requirement

What Is a Business Model?


A business model addresses How do we make money in this business?
Is the strategy capable of delivering good bottom-line results?

Do the revenue-cost-profit economics of the strategy make good business sense?


Look at revenue streams the strategy is expected to produce Look at associated cost structure and potential profit margins Do resulting earnings streams and ROI indicate the strategy makes sense and the company has a viable business model for making money?

Storyline : How and Why companys Offering and

competitive approaches will generate revenue stream ?


Does the Cost structure, produces attractive earnings

and Return on Investment?


Business model forms an Economic logic for making

money in a particular business

Common Factors standout


Successful Ful Strategy Strategy

E 4. Effective Implementation

1. Simple, consistent Long term goals

2. Profound Understanding of the competitive environment

3. Objective appraisal of resources

Common Factors standout


1. Goals that are simple, consistent and long term 2. Profound understanding of environments 3. Objective appraisal of resources 4. Effective Implementation Combination of all the 4 above, leads to success. Those who are, 1. Goal focused 3.know environment 2. aware of themselves 4. they implement. We must learn how to be the CEO( master) of our own careersPeter Drucker

A Companys Strategy Is Partly Proactive and Partly Reactive

.2:

2.Strategy is - Partly Pro Active, Partly Reactive ( continued)

Prior Version
Latest Version External Factors
Industry and competitive Technological Conditions Buyer preferences Societal Political Regulatory Economical Environmental

Proactive strategy
New Initiative +On going Strategy from prior periods Adaptive reactions to Changing circumstances

Companys Strategy

Reactive Strategy

Internal Factors
Resource strengths Competitive capabilities

3. Strategy emerges as incremental and evolves over Time


S is driven partly by Mgt Analysis and choice and partly by Necessity of adapting and learning by doing. A Company achieves sustainable competitive advantage, when number of customers prefer its products over the competitors, and the preference is durable.

3. Identifying a Companys Strategy


Strategies are reflected in :
Business Approaches

Future Plans Competitiveness Performances

- Actions in market place - Senior Managers Statements

Other Documents:

Annual Report, Press Releases, Company News, News to Investors

( Websites), Presentations to Security Analysis

Describing a Firms strategy


Strategy exists in the minds of Top Management
Entrepreneurial-startup.Founder Start -up enterprises written down Business Plan Established Companiesin many ways Vision Asp rational View Mission Statement of purpose Business Model A statement, basing on which firm generates revenue and profit Strategic Plan Performance goals, Approaches, Resource commitments

Nokias Strategy
Vision Life goes Mobile Mission - Connecting People Strategy 3 Activities
Expand mobile Voice Drive Consumer Multimedia Bring extended mobility to enterprises - 1.6 Billion subscribers - Mobility transformed people , life style change - Imaging, Games , Entertainment, media, enterprises( new) - Bridging gap, people Information they need
( examples: Apple Computer, CoCo-Cola. )

Crafting Strategy is a work in Progress


Changing circumstances and On going Mgt Efforts to

improve the strategy, causes a good strategy to


emerge and evolve over time. The task of Crafting the Strategy is a Work in Progress - not an One time event.( continuous process)

What to Look for?


ACTIONS: 1.To gain Sales & market price via low price ( performance, design, quality, service etc) 2. Respond to changing market 3. To enter new geographic or product market OR exit existing market 4. To merge with Or acquire rival Co, 5. To form Strategic Alliance Or Collaborative Partnership 6. Pursue New market Opportunities

7. To determine how the Mgt functions to perform( R& D, Production,


Sales, Marketing, & Finance)

8. To strengthen competitive capabilities & take advantage of rivals weaknesses. To diversify Companys Revenues by new businesses

Four Best Strategic Approaches to Building Sustainable Competitive Advantage


1.Being the industrys low-cost provider (a cost-based competitive advantage) 2. Incorporate differentiating features (a superior product type of competitive advantage keyed to higher quality, better performance, wider selection, value-added services, or some other attribute) 3. Focusing on a narrow market niche (winning a competitive edge by doing a better job than rivals of serving the needs and preferences of buyers comprising the niche) 4. Developing expertise and resource strengths not easily imitated or matched by rivals (a capabilities-based competitive advantage)

Four Strategic approaches


1. Strive to be Industrys low cost provider ( Wal-mart, and
South east Airlines won low-cost advantages over their rivals) 2. Competing Rivals on differential features (quality, product selection, added performance, value added service, attractive style, technological superiority) 3. Focus on narrow market niche and winning a competitive edge (eBay Online auction, Jiffy lube International quick oil change, Starbucks Premium coffee and coffee drinks 4. Develop expertise and resource strength s, that cannot be easily imitated by rivals ( FedEx Next day delivery, Walt Disney Theme Park, Toyota defect free vehicles at low cost)

Competitive Advantage Examples


Strive to be the industrys low-cost provider
Wal-Mart Southwest Airlines

Outcompete rivals on a key differentiating feature


Johnson & Johnson Reliability in baby products Harley-Davidson King-of-the-road styling Rolex Top-of-the-line prestige Mercedes-Benz Engineering design and performance L.L. Bean Good value Amazon.com Wide selection and convenience

Competitive Advantage Examples (cont)


Focus on a narrow market niche
eBay Online auctions Jiffy Lube International Quick oil changes
McAfee Virus protection auctions Starbucks Premium coffees and coffee drinks

The Weather Channel Cable TV

Develop expertise, resource strengths, and capabilities not easily imitated by rivals
FedEx Next-day delivery of small packages

Walt Disney Theme park management and family entertainment Toyota Sophisticated production system
Ritz-Carlton Personalized customer service

The Strategic Management - Process


External Analysis

Situational Analysis

Strategy Formulation
Internal Analysis

Strategy Implementation

Strategy Evaluation

Perspectives

Functional

Corporate

Business

Strategic Management Process


1. Situational Analysis - Scanning and evaluating the context - Internal and External environment 2. Strategy Formulation - Functional - Competitive - Corporate 3. Strategy Implementation - Processing of Implementation - At 3 Levels: 1. Corporate 2.Functional 3. Operational 4. Strategy Evaluation - Was the Strategy Effective? - Close the loop

Start

External Env
Global and Domestic Remote Industry Operating

Company Mission, Social Res and Ethics Possible Desired ? Feedback Internal Analysis

Feedback

Strategic Analysis and Choice


Long Term Objectives Generic and Grand Strategies

Short Term ObjectivesReward Systems

Functional Tactics Organizational Structure

Policies

Strategic Control, Innovation and Entrepreneurship

Three Levels of Strategy


1. Corporate level: board of directors, CEO & administration [Highest] 2.Business level: business and corporate managers [Middle] 3. Functional level: Product, geographic, and functional area managers [Lowest]

Alternative Strategic Management Structures

Characteristics of Strategic Management Decisions: Corporate Often carry greater risk, cost, and profit potential Greater need for flexibility Longer time horizons Choice of businesses, dividend policies, sources of long-term financing, and priorities for growth

Characteristics of Strategic Management Decisions: Functional


Implement the overall strategy formulated at the corporate and business levels Involve action-oriented and operational issues Relatively short range and low risk Modest costs: depend upon available resources Relatively concrete and quantifiable

Characteristics of Strategic Management Decisions: Business


Help bridge decisions at the corporate and functional levels Less costly, risky, and potentially profitable than corporate-level decisions More costly, risky, and potentially profitable than functional-level decisions Include decisions on plant location, marketing segmentation, and distribution

Strategy Makers
Ideal strategic team includes decision makers from all three levels Top managers must give final approval Strategic decisions coincide with managers responsibilities

Strategy Makers: The CEO


A firms CEO plays a dominant role in strategic planning The CEOs principal duty is giving long-term direction to the firm The CEO bears ultimate responsibility for the firms success and strategic success CEOs are typically strong-willed, company-oriented individuals

Who does the Strategy?

Role of Board of Directors


- Elected representatives of Company stock holders - Legally obligated to represent and protect stock holders

o The role of Top Management


- Responsible for decision and action of every employee - Providing effective leadership

o Employees - Implement
- Evaluate

Review and Approve the Strategic goals and plans

Review and Approve Financial Statements

Monitor Organization Performances


Select , evaluate, and compensate, top level mnagers Develop Management succession plans Monitor relations with stock holders

Who is on Board?
Chairman

of the Board- CEO

President Other Chiefs - Chief Financial Officer - Chief Information Officer Inside Board Members Out side Board Members

Crafting needs Entrepreneurship


Studying the trends competitors action continuously Listening to customers and anticipating their needs Acquiring new technologies & introducing new products Willingness to try new experiments to increase market share Out Innovating the competitors by more imaginative/efficient Inseparable from being good business entrepreneurship

Relationship Between Strategy and Business Model


Strategy . . .
Deals with a companys competitive initiatives and business approaches

Business Model . . .
Concerns whether revenues and costs, flowing from the strategy , demonstrate amply profitable and viable

Good Strategy + Good Strategy Execution = Good Management


Crafting and executing strategy are core management functions Among all things managers do, nothing affects a companys ultimate success or failure more fundamentally than how well its management team

Charts a companys direction, Develops competitively effective strategic moves and business approaches, and Pursues what needs to be done internally to produce good dayin/day-out strategy execution

Excellent execution of excellent strategy , is the best test of managerial excellence most reliable recipe for winning in the marketplace!

Good Strategy + Good Execution = Good Management


Excellent execution of an excellent Strategy is the best test of Managerial excellence - and most reliable recipe for turning Companies into standout performers.

Components of Strategic Management Model


Company Mission External Analysis Long-Term Objectives Short-Term Objectives Policies Empowering Action Strategic Control & Continuous Improvement

Internal Analysis Strategic Analysis & Choice Generic & Grand Strategies Functional Tactics Restructuring, Reengineering & Refocusing

Strategy starts with Vision & Mission

Effective Strategy starts with Vision and Mission statements

Microsofts Vision:
- Empower people through great soft ware at any time, - Any where and on any device. OTIS Elevater s Mission: To provide any customer a means of moving up , down and side ways over short distances with high reliability than any
similar enterprises in the world.

Companies used Strategic Management Successfully


Visionary:
3M Boeing GE IBM Sony Wall mart Motorola Nordstrom P&G Peer Company: Norton Mc Donnell Westinghouse Burroughs Zenith Melville Colgate Kenwood Ames

Benefits of Strategic Management


Managers at all levels interact in planning and implementing strategy Similar to participative decision making Assessing strategy formulation requires looking at nonfinancial evaluations as well as financial ones Promoting positive behavioral consequences enables achievement of financial goals

Risks of Strategic Management


Managers time away from other responsibilities Unrealistic expectations promised by strategy formulators Possible disappointment of participating subordinates if goal is not reached

Key Points
Stack out a market position 2. Conduct its operations 3. Attract and please customers 4. Achieve successfully Organizational Objectives 5. Building long term competitive position and financial Performance 6. Gain competitive advantage over rivals 7. Ensure above average Profitability 8. Keeping managers proactive and purposeful 9. Reactions to unanticipated developments and fresh market conditions 10. Business Model is closely related concept- Storyline
1.

Essence

- Crafting and executing strategy are core management functions. -Winning Or Losing ?- is directly attributable to Companys Strategy and Proficiency, with which the strategy is executed.

Books Referred
1. Crafting and Executing Strategy- 16th Edn
- A J Strickland III - John E Gamble - Arthur A Thomson J - Arun K Jain 2, Strategic Management Theory- 2009 Edn - Charles W. L. - Gareth R Jones 3.. Strategic Management - John A Pierce II - Richard B. - Robinson, JR 4. Contemporary Strategic Management 16th Edn -Robert M. Grant