Strategic management

[email protected] Page 1

Strategic Management

• Strategic management is the study of why some firms outperform others.

• How to create a competitive advantage in the market place that is unique, valuable, and difficult to copy

• “Total organization” perspective, integrating across functional areas.

• Two perspectives of leadership: romantic view and external control perspective.

• Strategies put together an understanding of the external environment with an understanding of internal strengths and weaknesses.

• Analysis

• Strategic goals (vision, mission, strategic objectives)

• Internal and external environment of the firm

• Decisions

• What industries should we compete in?

• How should we compete in those industries?

• Actions

• Allocate necessary resources

• Design the organization to bring intended strategies to reality

Attributes of Strategic Management

• Directs the organization toward overall goals and objectives.

• Includes multiple stakeholders in decision making.

• Needs to incorporate short-term and long-term perspectives.

• Recognizes trade-offs between efficiency and effectiveness.

Strategy

Strategy is a unique, comprehensive and integrated plan of action having definite direction and competitive advantage.

Strategy means putting things in place carefully, and with a great deal of thought. It is the opposite of just waiting for things to happen.

Large-scale, future-oriented plan for interacting with the competitive environment to achieve objectives

Company’s “game plan”

Framework for managerial decisions




Mintzberg's 5 Ps for Strategy

• The word "strategy" has been used implicitly in different ways even if it has traditionally been defined in only one. Mintzberg provides

five definitions of strategy:

• Plan - consciously intended course of action

• Ploy - maneuver to outwit opponent

• Pattern - consistency in behavior

• Position - location in environment

• Perspective - way of perceiving the world

• Strategy is a plan - some sort of consciously intended course of action, a guideline (or set of guidelines) to deal with a situation. By this

definition strategies have two essential characteristics: they are made in advance of the actions to which they apply, and they are

developed consciously and purposefully.

• As plan, a strategy can be a ploy too, really just a specific manoeuvre intended to outwit an opponent or competitor. For example, a

grocery chain might threaten to expand a store, so that a competitor doesn't move into the same area; or a telecommunications

company might buy up patents that a competitor could potentially use to launch a rival product.

• If strategies can be intended (whether as general plans or specific ploys), they can also be realized. In other words, defining strategy as

plan is not sufficient; we also need a definition that encompasses the resulting behavior: Strategy is a pattern - specifically, a pattern in a

stream of actions. Strategy is consistency in behavior, whether or not intended. The definitions of strategy as plan and pattern can be

quite independent of one another: plans may go unrealized, while patterns may appear without preconception. For instance, imagine a


manager who makes decisions that further enhance an already highly responsive customer support process. Despite not deliberately

choosing to build a strategic advantage, his pattern of actions nevertheless creates one.

• Strategy is a position - specifically a mean of locating an organization in an "environment". By this definition strategy becomes the

mediating force, or "match", between organization and environment, that is, between the internal and the external context. For

example, your strategy might include developing a niche product to avoid competition, or choosing to position yourself amongst a

variety of competitors, while looking for ways to differentiate your services.

• Strategy is a perspective - its content consisting not just of a chosen position, but of an ingrained way of perceiving the world. Strategy in

this respect is to the organisation what personality is to the individual. What is of key importance is that strategy is a perspective shared

by members of an organisation, through their intentions and / or by their actions. For instance, an organization that encourages risk-

taking and innovation from employees might focus on coming up with innovative products as the main thrust behind its strategy. By

contrast, an organization that emphasizes the reliable processing of data may follow a strategy of offering these services to other

organizations under outsourcing arrangements.

Strategic Management Process

Step 1: Identifying the organisation’s current mission, objectives, and strategies

Mission: the firm’s reason for being

Who we are,

What we do, and

Where we are now

Goals: the foundation for further planning

Measurable performance targets

Step 2: Conducting an external analysis

The environmental scanning of specific and general environments

Focuses on identifying opportunities and threats

Step 3: Conducting an internal analysis

Assessing organisational resources, capabilities, activities and culture:

Strengths (core competencies) create value for the customer and strengthen the competitive position of the firm.

Weaknesses (things done poorly or not at all) can place the firm at a competitive disadvantage.

Steps 2 and 3 combined are called a SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats)


Step 4: Formulating strategies

Develop and evaluate strategic alternatives

Select appropriate strategies for all levels in the organisation that provide relative advantage over competitors

Match organisational strengths to environmental opportunities

Correct weaknesses and guard against threats

Performing environmental appraisal.

Doing organizational appraisal.

Considering corporate level strategies.

Considering business level strategies.

Strategic analysis.

Formulating strategies.

Preparing strategic plan.

Step 5: Implementing strategies

Implementation: effectively fitting organisational structure and activities to the environment

Effective strategy implementation requires an organisational structure matched to its requirements.

Activating strategies.

Designing structures and systems.

Managing behavioral implementation.

Managing functional implementation.

Operationalizing strategies.

Step 6: Evaluating results

How effective have strategies been?

What adjustments, if any, are necessary?

Corporate governance

Corporate governance refers to the system by which corporations are directed and controlled. The governance structure specifies the distribution

of rights and responsibilities among different participants in the corporation (such as the board of directors, managers, shareholders, creditors,

auditors, regulators, and other stakeholders) and specifies the rules and procedures for making decisions in corporate affairs. Governance provides

the structure through which corporations set and pursue their objectives, while reflecting the context of the social, regulatory and market

environment. Governance is a mechanism for monitoring the actions, policies and decisions of corporations. Governance involves the alignment of

interests among the stakeholders

Principles of corporate governance

Rights and equitable treatment of shareholders:[15][16][17] Organizations should respect the rights of shareholders and help shareholders

to exercise those rights. They can help shareholders exercise their rights by openly and effectively communicating information and by

encouraging shareholders to participate in general meetings.

http://en.wikipedia.org/wiki/Stakeholder_(corporate)

http://en.wikipedia.org/wiki/Corporate_governance#cite_note-15




Interests of other stakeholders:[18] Organizations should recognize that they have legal, contractual, social, and market driven obligations

to non-shareholder stakeholders, including employees, investors, creditors, suppliers, local communities, customers, and policy makers.

Role and responsibilities of the board:[19][20] The board needs sufficient relevant skills and understanding to review and challenge

management performance. It also needs adequate size and appropriate levels of independence and commitment.

Integrity and ethical behavior:[21][22] Integrity should be a fundamental requirement in choosing corporate officers and board members.

Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision

making.

Disclosure and transparency:[23][24] Organizations should clarify and make publicly known the roles and responsibilities of board and

management to provide stakeholders with a level of accountability. They should also implement procedures to independently verify and

safeguard the integrity of the company's financial reporting. Disclosure of material matters concerning the organization should be timely

and balanced to ensure that all investors have access to clear, factual information

IMPORTANCE OF CORPORATE GOVERNANCE

1. Changing Ownership Structure : In recent years, the ownership structure of companies has changed a lot. Public financial institutions,

mutual funds, etc. are the single largest shareholder in most of the large companies. So, they have effective control on

the management of the companies. They force the management to use corporate governance. That is, they put pressure on the

management to become more efficient, transparent, accountable, etc. The also ask the management to make consumer-friendly policies,

to protect all social groups and to protect the environment. So, the changing ownership structure has resulted in corporate governance.

2. Importance of Social Responsibility : Today, social responsibility is given a lot of importance. The Board of Directors have to protect the

rights of the customers, employees, shareholders, suppliers, local communities, etc. This is possible only if they use corporate

governance.

3. Growing Number of Scams : In recent years, many scams, frauds and corrupt practices have taken place. Misuse and misappropriation of

public money are happening everyday in India and worldwide. It is happening in the stock market, banks, financial institutions,

companies and government offices. In order to avoid these scams and financial irregularities, many companies have started corporate

governance.

4. Indifference on the part of Shareholders : In general, shareholders are inactive in the management of their companies. They only attend

the Annual general meeting. Postal ballot is still absent in India. Proxies are not allowed to speak in the meetings. Shareholders

associations are not strong. Therefore, directors misuse their power for their own benefits. So, there is a need for corporate governance

to protect all the stakeholders of the company.

5. Globalisation : Today most big companies are selling their goods in the global market. So, they have to attract foreign investor and

foreign customers. They also have to follow foreign rules and regulations. All this requires corporate governance. Without Corporate

governance, it is impossible to enter, survive and succeed the global market.

6. Takeovers and Mergers : Today, there are many takeovers and mergers in the business world. Corporate governance is required to

protect the interest of all the parties during takeovers and mergers.

7. SEBI : SEBI has made corporate governance compulsory for certain companies. This is done to protect the interest of the investors and

other stakeholders.

Vision, Mission, Goals and Objectives

• What is a vision?

A vision is a clear, comprehensive ‘photograph’ of an organization at some point in the future. It provides direction because it describes what the

organization needs to be like, to be successful within the future

7 Steps to produce a vision statement

1. Brainstorm key words or short statements covering vision, mission and values. Write each on a post it note.

2. Draw three columns on a flip chart. Label them Vision, Mission and Values. Review each post it note, discuss it and agree to place it in

one of the three columns.








http://kalyan-city.blogspot.com/2011/04/what-is-management-definitions-meaning.html

http://kalyan-city.blogspot.com/2011/03/what-is-business-meaning-definitions.html

http://kalyan-city.blogspot.com/2010/11/role-functions-of-sebi-in-monitoring.html


3. Once all the post it notes are in columns, consider the vision column first. Group similar words or expressions and re-title if necessary.

Add further ideas. Now combine the short list of main ideas into one statement. The final wording may take several iterations. It is often

helpful to start with a phrase such as ‘we aim to become…’ or ‘our vision is to ...’

4. Repeat the procedure with Post it notes in the mission column. Arrive at an agreed statement or list of bullet points.

5. Consider the values. Remove duplication. Group post it notes into themes, and summarise these themes as single words, or short

phrases. These values can be included a wider school values consultation.

6. Review vision and mission together and decide on format of presentation. This might be one statement, or three paragraphs, bullet

points etc.

7. Present to other stakeholders for comment, improvement and eventual consensus.

A company’s mission can be defined as:

– An operation intended to carry out specific program objectives

– A higher calling or meaning, a reason for being. Often this is the reason the company was first created – to fill a need in the

marketplace or society.

– A concise statement of business strategy developed from the customer’s perspective and it should be aligned with the

company’s vision.

– The mission should answer three key questions:

1. What is it that we do?

2. How do we do it?

3. For whom are we doing it?

– Vision and Mission are

different

– A mission statement concerns what an enterprise is all about.

– A vision statement is what the enterprise wants to become.

– Strategic planning is a systematic process whose purpose is to map out how the enterprise should get from where it is today to

the future it envisions.

What About Goals and Objectives?

• Goals are an expected or desired outcome of a planning process. Goals are usually broad, general expressions of the guiding principles

and aspirations of a community.

• Objectives are precise targets that are necessary to achieve goals. Objectives are detailed statements of quantitatively or qualitatively

measurable results the plan hopes to accomplish.

– What are goals and objectives?

• Goals and Objectives:

– Goals can be rather broad, but they should be focused as directly as possible on student learning outcomes in order to be

perceived as valid by decision-makers. (For example: All students will be able to access, use, and evaluate information in any

medium, and use that information to solve problems, communicate clearly, make informed decisions, and construct new

knowledge.) Generally, goals should be few in number, since each of them can generate more than one objective; and each

objective might generate more than one activity to accomplish it.

Example

http://danedocs.countyofdane.com/webdocs/PDF/PlanDev/ComprehensivePlan/updates/steer/2004/20040407_new_gl_obj_fct_sheet.pdf


On its website, pharmaceutical company Merck includes product, customer, employee and investor interests in its mission statement. It effectively

conveys intentions to deliver desired results to each entity. Its vision statement goes into more details about the company's values and includes

the phrase "make a difference in the lives of people." This phrase ultimately means that the company makes helping the world with medicine a

higher priority than profits in its organizational strategy. The company's vision also notes a desire to be the best health care company in the world.

ENVIRONMENTAL SCANNING AND ANALYSIS

There are several factors to assess in the external situation analysis:

Markets (customers)

Competition

Technology

Supplier markets

Labor markets

The economy

The regulatory environment








Evaluating a Company's Resources and Competitive Position

There are five key questions to consider in analyzing a company's own particular competitive circumstances and its competitive position vis-à-vis key rivals:

1. How well is the present strategy working? This involves evaluating the strategy from a qualitative standpoint (completeness, internal consistency, rationale, and suitability to the situation) and also from a quantitative standpoint (the strategic and financial results the strategy is producing). The stronger a company's current overall performance, the less likely the need for radical strategy changes. The weaker a company's performance and/or the faster the changes in its external situation (which can be gleaned from industry and competitive analysis), the more its current strategy must be questioned.

2. What are the company's resource strengths and weaknesses, and its external opportunities and threats? A SWOT analysis provides an overview of a firm's situation and is an essential component of crafting a strategy tightly matched to the company's situation. The two most important parts of SWOT analysis are (1) drawing conclusions about what story the compilation of strengths, weaknesses, opportunities, and threats tells about the company's overall situation, and (2) acting on those conclusions to better match the company's strategy, to its resource strengths and market opportunities, to correct the important weaknesses, and to defend against external threats. A company's resource strengths, competencies, and competitive capabilities are strategically relevant because they are the most logical and appealing building blocks for strategy; resource weaknesses are important because they may represent vulnerabilities that need correction. External opportunities and threats come into play because a good strategy necessarily aims at capturing a company's most attractive opportunities and at defending against threats to its well-being.


3. Are the company's prices and costs competitive? One telling sign of whether a company's situation is strong or precarious is whether its prices and costs are competitive with those of industry rivals. Value chain analysis and benchmarking are essential tools in determining whether the company is performing particular functions and activities cost-effectively, learning whether its costs are in line with competitors, and deciding which internal activities and business processes need to be scrutinized for improvement. Value chain analysis teaches that how competently a company manages its value chain activities relative to rivals is a key to building a competitive advantage based on either better competencies and competitive capabilities or lower costs than rivals.

4. Is the company competitively stronger or weaker than key rivals? The key appraisals here involve how the company matches up against key rivals on industry key success factors and other chief determinants of competitive success and whether and why the company has a competitive advantage or disadvantage. Quantitative competitive strength assessments, using the method presented in Table 4.4, indicate where a company is competitively strong and weak, and provide insight into the company's ability to defend or enhance its market position. As a rule a company's competitive strategy should be built around its competitive strengths and should aim at shoring up areas where it is competitively vulnerable. When a company has important competitive strengths in areas where one or more rivals are weak, it makes sense to consider offensive moves to exploit rivals' competitive weaknesses. When a company has important competitive weaknesses in areas where one or more rivals are strong, it makes sense to consider defensive moves to curtail its vulnerability.

5. What strategic issues and problems merit front-burner managerial attention? This analytical step zeros in on the strategic issues and problems that stand in the way of the company's success. It involves using the results of both industry and competitive analysis and company situation analysis to identify a "worry list" of issues to be resolved for the company to be financially and competitively successful in the years ahead. The worry list always centers on such concerns as "how to . . . ," "what to do about . . . ," and "whether to . . ."—the purpose of the worry list is to identify the specific issues/problems that management needs to address. Actual deciding on a strategy and what specific actions to take is what comes after the list of strategic issues and problems that merit front-burner management attention is developed.

Good company situation analysis, like good industry and competitive analysis, is a valuable precondition for good strategy making. A competently done evaluation of a company's resource capabilities and competitive strengths exposes strong and weak points in the present strategy and how attractive or unattractive the company's competitive position is and why. Managers need such understanding to craft a strategy that is well suited to the company's competitive circumstances.

UNIT-2

CONCEPT OF STRETCH, LEVERAGE & FIT

STRETCH : Misfit between Resources & Aspirations

LEVERAGE : Refers to concentrating, accumulating, conserving. contemplating and utilizing precious & scarce resources in such a manner that

these are stretched to meet the aspirations of a company.

FIT : Positioning the firm by matching its organizational resources to its environment.

To achieve Strategic Intent – you need to Stretch. As of today there is a misfit between resources and aspirations. So instead of looking at

resources, you will look at resourcefulness. To achieve you will stretch and make innovative use of your resources.

This leads to Leveraging your resources. Leverage refers to concentrating your resources to your strategic intent, accumulating learning,

experiences and competencies, in a manner that a scarce resource base can be stretched to meet the aspirations that an organizational resources

to its environment.

The strategic fit is the traditional way of looking at strategy. Using techniques such as SWOT analysis, which are used to assess organizational

capabilities and environmental opportunities, Strategy is taken as a compromise between what the environment has got to offer in terms of

opportunities and the counteroffer that the organization makes in the form of its capabilities.

Under fit, the strategic intent is conservative and seems to be more realistic, but you may not be aware of the potential; under stretch and

leverage it could be improbable, even idealistic, but then you look at something far beyond present possibilities and look at the potential

possibilities.


Porter's Generic Strategies

A firm positions itself by leveraging its strengths

Michael Porter has argued that a firm's strengths ultimately fall into one of two headings: cost advantage and differentiation.

By applying these strengths in either a broad or narrow scope, three generic strategies result: cost leadership, differentiation, and focus

Cost Leadership Strategy

This generic strategy calls for being the low cost producer in an industry for a given level of quality.

The firm sells its products either at average industry prices to earn a profit higher than that of rivals, or below the average industry prices

to gain market share.

In the event of a price war, the firm can maintain some profitability while the competition suffers losses

Even without a price war, as the industry matures and prices decline, the firms that can produce more cheaply will remain profitable for

a longer period of time

The cost leadership strategy always targets a broad market.

Firms that succeed in cost leadership often have the following internal strengths:

Access to the capital required to make a significant investment in production assets; this investment represents a barrier to entry that

many firms may not overcome.

Skill in designing products for efficient manufacturing.

High level of expertise in manufacturing process engineering.

Efficient distribution channels

Risks Involved

Other firms may be able to lower their costs as well.

As technology improves, the competition may be able to leapfrog the production capabilities, thus eliminating the competitive

advantage.

Several firms following a focus strategy and targeting various narrow markets may be able to achieve an even lower cost within their

segments and as a group gain significant market share.

A leading cost strategy for McDonalds is the ability to purchase the land and buildings of its restaurants

McDonalds also developed a strong division of labor for its production processes, tight management control and product development

strategy. Creating a strong top-down style of management is another leading cost strategy for McDonalds

Using fewer in-store managers allows the company to hire lower-wage workers to complete tasks.

After nearing complete bankruptcy in the 1980s, Apple clawed its way back into the personal electronic industry through smart business

practices and highly desirable consumer goods.

Apple uses low-cost direct materials to develop the cheapest consumer goods possible.

Creating long-standing business agreements with companies like AT&T for web hosting and other applications helps Apple stay focused

on developing products rather than Internet hosting or access

Differentiation Strategy

A differentiation strategy calls for the development of a product or service that offers unique attributes that are valued by customers and

that customers perceive to be better than or different from the products of the competition.

http://www.quickmba.com/marketing/market-share/


The value added by the uniqueness of the product may allow the firm to charge a premium price for it. The firm hopes that the higher

price will more than cover the extra costs incurred in offering the unique product.

Firms that succeed in a differentiation strategy often have the following internal strengths:

Access to leading scientific research.

Highly skilled and creative product development team.

Strong sales team with the ability to successfully communicate the perceived strengths of the product.

Corporate reputation for quality and innovation.

Risks Involved

Imitation by competitors and changes in customer tastes

Various firms pursuing focus strategies may be able to achieve even greater differentiation in their market segments.

Medimix herbal soap differentiated itself on the herbal plank two decades back when there were only synthetic soaps.

A new brand of herbal soap launched in today’s context has to probably define the herbal qualities through an enhanced mix of

ingredients to convey the differentiation because `herbal’ is the proposition of several brands both new and old.

The established Medimix brand is currently running a campaign, which conveys the brand benefits through appropriate imagery.

Focus Strategy

The focus strategy concentrates on a narrow segment and within that segment attempts to achieve either a cost advantage or

differentiation.

The premise is that the needs of the group can be better serviced by focusing entirely on it

A firm using a focus strategy often enjoys a high degree of customer loyalty, and this entrenched loyalty discourages other firms from

competing directly.

Because of their narrow market focus, firms pursuing a focus strategy have lower volumes and therefore less bargaining power with their

suppliers

However, firms pursuing a differentiation-focused strategy may be able to pass higher costs on to customers since close substitute

products do not exist.

Firms that succeed in a Focus Strategy often have the following internal strengths:

The firm is able to tailor a broad range of product development strengths to a relatively narrow market segment that they know very

well.

Risks Involved

Imitation and changes in the target segments

It may be fairly easy for a broad-market cost leader to adapt its product in order to compete directly

Other focusers may be able to carve out sub-segments that they can serve even better.

By successfully adopting the 'focus' strategy since 1997, PepsiCo has emerged as the second largest consumer packaged goods company

The company has significantly strengthened its competitive position in the beverages segment.

By acquiring leading beverages' company like Tropicana products (July 1998), South Beach Beverage Company (October 2000) and

Quaker Oats (December 2000)

Check other word file


Grand Strategies

Grand strategies are major, overarching strategies that shape the course of a business. Unlike tactics, they are focused on the long-term goals of

the business. Running your own business means pondering grand strategies involving everything from product development to liquidation.

Different strategies will, of course, fit different situations, so it is best to be familiar with a few different approaches.

Types of Grand strategies

Stability strategy.

Expansion strategy.

Retrenchment strategy.

Combination strategy.

Stability strategy

Is adopted by an organization when it attempts at an incremental improvement of its functional performance by marginally changing one

or more of its business.

E.g. A copier machine company provides better after sales service to improve its image and product image too.

STABILITY STRATEGIES

1. NO CHANGE STRATEGY: Conscious decision to do nothing new. Continue with present business

2 PROFIT STRATEGY: Reduce investments, cut costs , Increase productivity with external factors like: Economic recession, Govt’s attitude,

Industry downturn and competitive pressures for sustaining profitability by whatever means till situation improves.

3 PAUSE/ PROCEED WITH CAUTION : Consolidation before a firm goes for expansion.

Expansion strategy

This strategy is followed when a company aims at high growth by increasing the scope of one or more of its businesses in terms of their

respective customer groups, functions and technology.


Most popular corp. strategies as growth is the way of life. All progressive organizations plan for substantial growth due to increasing

economy, markets & customer needs. Followed when companies aim at high growth, broadening the scope of its business for improving

overall performance.

.

CONCENTRATION STRATEGIES

Simple 1st

level expansion strategy, aims at convergence of resources

Focus on Intensification / Specialization

Rely on where you are best at i.e. focusing on limited areas

Creating a separate niche/ identity in selective areas by investing

money, time, energy & effort in specific areas

TYPES OF CONCENTRATION STRATEGIES

Market Penetration

Market Development

Product Development

Advantages of Concentration strategies

Minimal organisational changes

Master in one or few businesses

Intense focusing create competitive advantage

Managers face less problems dealing with known situations

Developed systems and processes

High level of predictability

Disadvantages of Concentration strategies

Heavily dependent on one industry.

Factors such as product obsolescence, emergence of newer technologies are threats to concentrated firms.

Create an organisational inertia.

Cash flow problems that pose a dilemma before a firm.

Requires integration.

INTEGATION STRATEGIES’

Combining activities relating to present activities of firm

Widening scope of business

Types of Integration

Vertical Integration : Going up & down the value chain Going for forward or backward integration or both at a time.

Horizontal integration : Same type of products

Diversification Strategies


Involves a substantial change in business definition- singly or jointly in terms of customer groups or alternative technologies of one or

more of firm’s businesses.

Types of Diversification-

Concentric or Related Diversification

Conglomerate Diversification

Reasons for Concentric Diversification

Realising Financial synergies

Realising marketing synergies

Realising operational synergies

Realising personnel synergies

Realising informational synergies

Realising managerial synergies

Reasons for Conglomerate Diversification

Spreading business risks

Maximising returns

Leveraging competencies

Stabilising returns

Taking advantage of emerging oppurtunities

Migrating from businesses under threat.


DIFFERENT ENTRY MODES

Exporting

Licensing/ Franchising

Contract manufacturing

Management contracting

Turnkey contracts

Fully owned manufacturing facilities

Assembly operations

Third country location

Mergers and acquisitions

Counter trade

Retrenchment strategy

This is followed when a company aims at contraction of its activities through substantial reduction or elimination of its business.

E.g. A pharmaceutical company may withdraw from its retail operations so that it can focus on institutional sales.




Strategic Analysis & Choice

Strategic Choice

Decision to select from among the grand strategies considered, the strategy which will best meet the enterprise’s objectives.

Process of Strategic choice

Focusing on strategic alternatives

Analysing the strategic alternatives

Evaluating the strategic alternatives

Choosing from among the strategic alternatives.

Strategic Analysis

Strategic Analysis is the investigation of the objective and subjective factors being considered in the process of strategic choice.

Subjective factors

Consideration for governmental policies

Perception of Critical success factors & distinctive competencies

Commitment to past strategic actions

Strategist’s decision styles and attitude to risk


Internal political considerations

Timing and Competitor Considerations.

Tools and techiques

SWOT Analysis

Experience curve analysis

Life Cycle Analysis

Industry Analysis

Competitor Analysis

Corporate Portfolio Analysis

Strategies for Competing in Global Market




Competitive Advantage Cycle.

Step 1. Source of Competitive Advantage

Superior assets

Super Capabilities

Key Success Factor

Step 2. Barriers to Imitation

higher the barrier to entry to company

When the new business opportunity

coming from the Market which enters

first mover advantage

barriers to imitation

Step 3. Value proposal form of competitive advantage

Operational Excellence

Product Leadership

Customer Intimacy

Step 4.Eencroachment prevents of competitive advantage


New competitive advantage position construction effort encroachment prevents of competitive advantage

Reinvestment of profit

asset and capability accumulation

resource strengthen of competitive advantage

“Competitive strategy is about being different. It means deliberately choosing to perform activities differently or to perform different

activities than rivals to deliver a unique mix of value.”

-- Michael Porter

Competitive Strategies/advantages

Cost Leadership Strategy

The goal of Cost Leadership Strategy is to offer products or services at the lowest cost in the industry. The challenge of this strategy is to earn a

suitable profit for the company, rather than operating at a loss and draining profitability from all market players. Companies such as Walmart

succeed with this strategy by featuring low prices on key items on which customers are price-aware, while selling other merchandise at less

aggressive discounts. Products are to be created at the lowest cost in the industry. An example is to use space in stores for sales and not for storing

excess product.

Differentiation Strategy

The goal of Differentiation Strategy is to provide a variety of products, services, or features to consumers that competitors are not yet offering or

are unable to offer. This gives a direct advantage to the company which is able to provide a unique product or service that none of its competitors

is able to offer. An example is Dell which launched mass-customizations on computers to fit consumers' needs. This allows the company to make

its first product to be the star of its sales.

Innovation Strategy

The goal of Innovation Strategy is to leapfrog other market players by the introduction of completely new or notably better products or services.

This strategy is typical of technology start-up companies which often intend to "disrupt" the existing marketplace, obsoleting the current market

entries with a breakthrough product offering. It is harder for more established companies to pursue this strategy because their product offering

has achieved market acceptance. Apple has been a notable example of using this strategy with its introduction of iPod personal music players, and

iPad tablets. Many companies invest heavily in their research and development department to achieve such statuses with their innovations.

Operational Effectiveness Strategy

The goal of Operational Effectiveness as a strategy is to perform internal business activities better than competitors, making the company easier or

more pleasurable to do business with than other market choices. It improves the characteristics of the company while lowering the time it takes to

get the products on the market with a great start. State Farm Insurance pursues this strategy by promoting their agents as "good neighbors" who

actively help customers.

OLI Paradigm

Source of Global competitive advantage

Adapting to local market differences

Exploiting economies of global scale

Exploiting economies of global scope

Tapping the optimal

locations for activities and

resources

Maximizing knowledge

transfer across location


Ownership advantages[1] (trademark, production technique, entrepreneurial skills, returns to scale)[2] Ownership specific advantages refer to the

competitive advantages of the enterprises seeking to engage in Foreign direct investment (FDI). The greater the competitive advantages of the

investing firms, the more they are likely to engage in their foreign production.[4]

Location advantages [5](existence of raw materials, low wages, special taxes or tariffs)[2] Locational attractions refer to the alternative

countries or regions, for undertaking the value adding activities of MNEs.The more the immobile, natural or created resources, which

firms need to use jointly with their own competitive advantages, favor a presence in a foreign location, the more firms will choose to

augment or exploit their O specific advantages by engaging in FDI.[4]

Internalization advantages (advantages by own production rather than producing through a partnership arrangement such as licensing

or a joint venture)[2] Firms may organize the creation and exploitation of their core competencies. The greater the net benefits of

internalizing cross-border intermediate product markets, the more likely a firm will prefer to engage in foreign production itself rather

than license the right to do so

Unit-3

Internal growth

builds on the business’ own capabilities and resources. For most businesses, this is the only expansion method

used. Internal growth involves approaches such as:

- Designing and developing new product ranges

- Implementing marketing plans to launch existing products directly into new markets (e.g. exporting)

- Opening new business locations – either in the domestic market or overseas

- Investing in research and development to support new product development

- Investing in additional production capacity or new technology to allow increased output and sales volumes

- Training employees to help the best acquire new skills and address new technology

Whilst these approaches are not easy, they are generally considered to be lower risk than the alternative – acquisitions

or joint ventures. However, the major downside of focusing on internal development is that

the speed of change or growth in the business may be too slow.

What are the advantages and disadvantages of internal/organic growth? Here is a summary:

Advantages

Less risky than taking over other businesses

Can be financed through internal funds (e.g. retained profits)

Builds on a business’ strengths (e.g. brands, customers)

Allows the business to grow at a more sensible rate

Disadvantages

Growth achieved may be dependent on the growth of the overall market

Harder to build market share if business is already a leader

Slow growth – shareholders may prefer more rapid growth

Franchises (if used) can be hard to manage effectively

Vertical integration (VI)

http://en.wikipedia.org/wiki/Eclectic_paradigm#cite_note-hagen-1

http://en.wikipedia.org/wiki/Eclectic_paradigm#cite_note-twomey-2

http://en.wikipedia.org/wiki/Foreign_direct_investment

http://en.wikipedia.org/wiki/Eclectic_paradigm#cite_note-Dunning-4

http://en.wikipedia.org/wiki/Eclectic_paradigm#cite_note-5


http://en.wikipedia.org/wiki/Eclectic_paradigm#cite_note-Dunning-4



is a strategy that many companies use to gain control over their industry’s value chain. This strategy is one of the major

considerations when developing corporate level strategy. The important question in corporate strategy is, whether the

company should participate in one activity (one industry) or many activities (many industries) along the industry value

chain. For example, the company has to decide if it only manufactures its products or would engage in retailing and

after-sales services as well. Two issues have to be considered before integration:

Costs. An organization should vertically integrate when costs of making the product inside the company are

lower than the costs of buying that product in the market.

Scope of the firm. A firm should consider whether moving into new industries would not dilute its current

competencies. New activities in a company are also harder to manage and control. The answers to previous

questions determine if a company will pursue none, partial or full VI.

The example below illustrates a general industry value chain and none, partial or full VI of a corporate operating in that

industry.

Vertical integration examples

Smartphones Industry


Unit-4

The balanced scorecard (BSC) is a strategy performance management tool - a semi-standard structured report,

supported by design methods and automation tools, that can be used by managers to keep track of the execution of

activities by the staff within their control and to monitor the consequences arising from these actions

Why are Companies Adopting a Balanced Scorecard?

• Change

Formulate and communicate a new strategy for a more competitive environment

• Growth

Increase revenues, not just cut costs and enhance productivity

• Implement

From the 10 to the 10,000. Every employee implements the new growth strategy in their day-to-day operations

http://en.wikipedia.org/wiki/Performance_management

http://en.wikipedia.org/wiki/Reporting


Discuss the importance of evaluation and control in strategic management. Explain giving examples.

Ans: Strategic evaluation and control constitutes the final phase of strategic management. Strategic evaluation and

control could be defined as the process of determining the effectiveness of a given strategy in achieving the

organisational objectives and taking corrective action wherever required. The purpose of strategic evaluation is to

evaluate the effectiveness of strategy in achieving organisational objectives. Strategic Evaluation and Control Strategic

evaluation operates at two levels:

Strategic level - concerned more with the consistency of strategy with the environment.

Operational level – Concerned with assessing how well the organisation is pursuing a given strategy.

According to Arthur Sharplin, the purpose of strategic evaluation – “is to monitor and evaluate progress towards

organisation’s objectives and to guide or correct the process or change the strategic plan to better used with current

conditions and purposes.”

According to Hemel and Prahalad strategic control is “concerned with tracking the strategy as it is being implemented,

detecting problems or changes in underlying premises and making necessary adjustment. In contrast to post-action

control, strategic control is concerned with controlling and guiding efforts on behalf of the strategy as action is taking

place and while the end result is still several years into the future.”

Thus, it is clear that the purpose of strategic evaluation is to measure the success of the strategies employed to realise

the main objectives of the Company. Strategic evaluation and control may be defined as “the process of determining the


effectiveness of a given strategy in achieving the organisational objectives and taking corrective action whenever

required.” Management has to exercise effective control on all the departments and business units to keep them on the

right track and to guide them in the right direction. In a large business organisation, every manager of a department or a

unit has a different view point about a business problem or a strategy and inspite of well prepared plans, there will be

some deviation in some section, department or unit. Very often departmental managers and managers of business units

sometimes work at some degree of cross purposes. It is therefore the purpose of evaluation and control system to

evaluate, re-define and make more clear and explicit the strategic plans and purposes. Thus, it can be perceived that

strategic evaluation and control performs the most vital task of keeping the organisation in the proper direction.

Importance of Strategic Evaluation

Strategic evaluation and control is important for several reasons:

It is necessary for the top management to get adequate, correct and timely feedback from different

departmental managers on the present performance of individuals and sections so that their performance can

be properly evaluated in order that good performance may be rewarded and corrective actions taken wherever

required. Feedback is absolutely necessary to keep proper control on performance.

Strategic evaluation enables the management to check whether the strategic choice made earlier is valid now.

Evaluation provides feedback to the management to find out validity of the strategic choice and its

effectiveness.

Strategic evaluation is important from the point of motivation of the employees. Such an evaluation throws up

good, bad and indifferent performance of individual employees at different levels including the managers and

the management can formulate a policy of promotion and rewards for continuous good performance of

employees.

Managers at various levels of the organisation are required to take decisions while implementing the

organisation’s strategy. Strategic evaluation helps to find out whether such decisions taken by the managers at

various levels are in time with the strategic requirements of the Company.

During the course of strategy implementation managers are required to take scores of decisions. Strategic

evaluation can help to assess whether the decisions match the intended strategy requirements. In the absence

of such evaluation, managers would not know explicitly how to exercise such discretion.

Strategic evaluation, through its process of control, feedback, rewards, and review, helps in a successful

culmination of the strategic management process.

The process of strategic evaluation provides a considerable amount of information and experience to strategists

that can be useful in new strategic planning.

STRATEGIC CONTROL Strategic controls take into account the changing assumptions that determine a strategy,

continually evaluate the strategy as it is being implemented, and take the necessary steps to adjust the strategy to the

new requirements. In this manner, strategic controls are early warning systems and differ from post-action controls

which evaluate only after the implementation has been completed.

Types of Strategic Control

Premise control

Implementation control

Strategic surveillance


Special alert control

Premise Control: Premise control is necessary to identify the key assumptions, and keep track of any change in them so

as to assess their impact on strategy and its implementation. Premise control serves the purpose of continually testing

the assumptions to find out whether they are still valid or not. This enables the strategists to take corrective action at

the right time rather than continuing with a strategy which is based on erroneous assumptions. The responsibility for

premise control can be assigned to the corporate planning staff that can identify key assumptions and keep a regular

check on their validity.

Implementation Control: Implementation control may be put into practice through the identification and monitoring of

strategic thrusts such as an assessment of the marketing success of a new product after pre-testing, or checking the

feasibility of a diversification programme after making initial attempts at seeking technological collaboration.

Strategic Surveillance: Strategic surveillance can be done through a broad-based, general monitoring on the basis of

selected information sources to uncover events that are likely to affect the strategy of an organisation.

Special Alert Control: Special alert control is based on trigger mechanism for rapid response and immediate

reassessment of strategy in the light of sudden and unexpected events. Special Alert Control Crises are critical situations

that occur unexpectedly and threaten the course of a strategy. Organisations that hope for the best and prepare for the

worst are in an advantage position to handle any crisis. Crisis management follows certain steps: Signal detection

Preparation/prevention, Damage limitation, Recovery leading to organisational learning. The first step of signal

detection can be performed by the special alert control systems.

Q9 Write brief notes on the following:

(1) Leadership & Corporate Culture

Ans. Leadership is stated as the "process of social influence social influence in which one person can enlist the

aid and support of others in the accomplishment of a common task." It is basically a process by which a person

influences others to accomplish an objective and directs the organization in a way that makes it more cohesive and

coherent. Leaders carry out this process by applying their leadership knowledge and skills. This is called Process

Leadership

The Two Most Important Keys to Effective Leadership

Trust and confidence

Effective communication by leadership in three critical areas was the key to winning organizational trust and

confidence:

1. Helping employees understand the company's overall business strategy.

2. Helping employees understand how they contribute to achieving key business

objectives.

3. Sharing information with employees on both how the company is doing and how an

employee's own division is doing — relative to strategic business objectives.

Corporate Culture It is something that managers have to establish and run all the way through a business, with clear

values and beliefs, successful business principles and operations, and a suitable emphasis on human resources and

customer satisfaction. It is described as the personality of an organization, or simply as "how things are done around


here." It guides how employees think, act, and feel. Corporate culture is a broad term used to define the unique

personality or character of a particular company or organization, and includes such elements as core values and beliefs,

corporate ethics, and rules of behavior. Why is understanding the employer's corporate culture important? Because the

organization's culture will affect you in many, many ways, such as hours worked per day and per week, availability of

options such as flextime and telecommuting, how people interact with each other in the workplace, how people dress

for work, benefits offered to employees, office space, training and professional development opportunities, perks -- just

about everything related to your time at work.

Education

Strategic management