Strategic Management for upcoming Corporate Managers of EPIPL
What is all aboutLet us start from young you, Say you decide to date with a girl of your dream You groom well, Dress attractively, Go in a nice bike You pump your purse full of money Impress her, Take her outing Convince her and finally steal her heart or get beaten !!?? When you do so many actions well planned to date with your girl DID YOU EVER THOUGHT how carefully and precisely have to plan your business / professional activities where several million rupees are invested trusting that you will handle and execute it properly to reach the organisation’s goals ?? This is where strategic planning comes into action. However like a coin strategic planning cannot succeed and cannot be properly executed without equal participation of top + senior management and YOU mid level managers along with your downstream workforce.
What is Strategic ManagementArt and science of formulating, implementing, andevaluating cross-functional decisions that enable anorganization to achieve its objectives.
Strategic Management Vs Strategic PlanningStrategic management •Strategy Formulation •Execution •Evaluation ( evaluation of execution )Strategic Planning •Strategy Formulation
Prelude to Strategic PlanningWhy startegeic Planning is required Forms the blueprint of an organisations character Provides cohesive platform for all stake holders to understand organisations goals Shows the organisation the proper direction to grow o Sets Goals o Highlight what we do now o Predicts Future Scenarios o Determines best responses to future threats o Prioritises resources
Basics of Strategic Planning• Strive to understand the future• Builds a shared vision among all key stake holders• Participatory process• Sensitive to external environment• Based on data• Openness to questioning the status quo• Key part of effective management system
Planning Vs Strategic Planning• Planning – an Analytical process which involves an assessment of the future, the determination of desired objectives in the context of that future, the development of alternative courses of action to achieve such objectives, and the selection of a course(s).• Strategic Planning - Strategic planning differs from other forms of planning in that it deliberately attempts to concentrate the organisation’s resources in those areas that can make a substantial difference in future performance and capability
Strategy Formulation• Define Vision & Mission• Impart right work culture among work force• Assess Opportunities and Threats – Tools : SWOT, PEST, RBV• Assess Strength and Weakness of existing or future Product(s) / Service(s) – Tools : BCG Matrix, COPE/POSE Analysis• Define Long term Objectives• Analyse Alternative Strategies• Select the Right Strategy
Strategy ExecutionIt is the discipline of getting things done as per the formulated corporate Vision Mission & GoalsExecution must be an core element of an organisations culture – should be injected to genes of workforce of entire organisation.The Right execution system has two characters – Long term static character in line with Visison and Goals and short term Dynamic character in line with MissionExecution is discussed in detail in a separate presentation
Confused with Static and Dynamic Execution Character ??Let me explain in a easy way in the lighter sideYou plan to date a girl – achieving this target is the long term Goal and Vision and this is the static character of your planWhile you try to date you manipulate so many facts points and figures to achieve your vision without toppling the goal, this the dynamic character of your plan (or tactical planning )
Static and Dynamic Characters in Real SituationMost managements plan precisely their strategic requirements but end up in confusing with Static and Dynamic goalsManagements should understand that their dynamic decisions does not alters the course in reaching the set out Vision otherwise it sends wrong signals to mid level managers who get confused and end up achieving nothingShould management feels there is a paradigm shift in vision due to various external factors, all downstream stake holders should be called for a brainstorming session to explain the situation and to find a solution to re-chart the vision and goals, without this there will be driftManagement should also allow a decent time frame to test / re-call a strategy. A decent time frame would be 6 to 12 months depending on the nature of industry
Strategy EvaluationSimilar to PDCA cycle a separate monitoring group shall watch whether the corporate / business / functional / operating strategies are being executed in the designated course and advise top management for corrective actions to achieve the set out goals
Principles of Strategic ManagementContents 1. Five Tasks of Strategic Planning 2. Factors Shaping the Choice of Strategy 3. Three Tests of Best Strategy 4. Analyzing Industry Environment and Crafting competitive Strategy 5. Strategy Implementation and Execution
Five Tasks of Strategic Planning Crafting aForming a strategy to Settingstrategic vision achieve the objectives desired outcomes Evaluating Implementing performance, and executing monitoring new developments, and the chosen initiating corrective strategy adjustments
Forming a Strategic Vision • Very early in the strategy-making process, company managers need to pose a set ofForming a questions:strategic vision • "What is our vision for the company — where should the company be headed, what should its future technology- product-customer focus be, what kind of enterprise do we want to become, what industry standing do we want to achieve in five years?"
Setting Objectives • The purpose of setting objectives is to convert managerial statements of strategic vision and Setting business mission into specific performance objectives targets — results and outcomes the organization wants to achieve. • Setting objectives and then measuring whether they are achieved or not help managers track an organizations progress.
Strategic Objectives in Four Perspectives Enhance Long-term ShareholderFinancial Value Improve Cost Efficiency Increase Revenue GrowthCustomer Build High Performance Expand Enhance Products Market Share Brand ImageInternal Process Manage Dramatic & Achieve Operational Drive Demand Sustained Growth Implement Good Excellence through best CRM policies through Innovation Environmental PolicyLearning & Growth Develop Strategic Build Learning Expand Capabilities with Competencies Culture Technology
Crafting StrategyCrafting a • A companys strategy represents managementsstrategy to answers to such fundamental business questionsachieve the as :desired • whether to concentrate on a single business or build aoutcomes diversified group of businesses • whether to cater to a broad range of customers or focus on a particular market niche • whether to develop a wide or narrow product line • how to respond to changing buyer preferences • how big a geographic market to try to cover • how to react to newly emerging market and competitive conditions • how to grow the enterprise over the long term.
What Does a Companys Strategy Consist ofCrafting a • Company strategies concern how:strategy to • how to grow the businessachieve the • how to satisfy customersdesired • how to outcompete rivalsoutcomes • how to respond to changing market conditions • how to manage each functional piece of the business and develop needed organizational capabilities • how to achieve strategic and financial objectives
Strategy Implementation and Execution • Strategy implementation concerns theImplementing managerial exercise of putting a freshly chosenand executing strategy into placethe chosen • Strategy execution deals with the managerialstrategy exercise of supervising the ongoing pursuit of strategy, making it work, and showing measurable progress in achieving the targeted results.
Strategy Evaluation and Monitoring • It is managements duty to stay on top of theEvaluating companys situation, deciding whether things are goingperformance, well internally, and monitoring outside developmentsmonitoring new closely.developments, andinitiating corrective • Marginal performance or too little progress, as well asadjustments important new external circumstances, will require corrective actions and adjustments.
Factors Shaping the Choice of Strategy a simple view based on RBV tool Capability : Financial, Human resource, technical.... Competitive Advantage : Innovative products, superior technology, best cost benefit....
Factors Shaping the Choice of Strategy an extensive view External Factors Economic, societal, Competitive conditions and Company political, and industry opportunity and government attractiveness threat regulations The mix of considerations that determines a company’s strategic situation Company strengths and Personal ambitions and Shared values and weaknesses, business philosophies company culture competencies and of key executives capabilities Internal Factors
Factors Shaping the Choice of Strategy • What an enterprise can and cannot do Economic, societal, strategy wise is always constrained by what political, and is legal, by what complies with government government regulations policies and regulatory requirements, by what is considered ethical, and by what is in accord with societal expectations and the standards of good social and community citizenship.
Factors Shaping the Choice of Strategy • An industrys competitive conditions and Competitive overall attractiveness are big strategy- conditions and determining factors. industry attractiveness • A companys strategy has to be tailored to the nature and mix of competitive factors in play—price, product quality, performance features, service, warranties, and so on.
Factors Shaping the Choice of Strategy • A companys strategy needs to be deliberately aimed at capturing its best Company opportunity growth opportunities, especially the ones and threat that hold the most promise for building sustainable competitive advantage and enhancing profitability. • Strategy should also provide a defense against external threats to the companys well-being and future performance.
Factors Shaping the Choice of Strategy • One of the most pivotal strategy-shaping Company strengths internal considerations is whether a company and weaknesses, has or can acquire the resources, competencies and capabilities competencies, and capabilities needed to execute a strategy proficiently. • The best path to competitive advantage is found where a firm has competitively valuable resources and competencies, where rivals cant develop comparable capabilities except at high cost or over an extended period of time.
Factors Shaping the Choice of Strategy • Managers do not dispassionately assess what Personal ambitions strategic course to steer. and business • Their choices are typically influenced by their philosophies of key executives own vision of how to compete and how to position the enterprise and by what image and standing they want the company to have.
Factors Shaping the Choice of Strategy • An organizations policies, practices, traditions, philosophical beliefs, and ways of doing things Shared values and combine to create a distinctive culture. company culture • The stronger a companys culture, the more that culture is likely to shape the companys strategic actions, sometimes even dominating the choice of strategic moves.
Strategic Analysis and Strategic Choices Analyzingstrategically about industry and competitive conditions What strategic options does the What is the best company strategy? Analyzing realistically have?strategically about a company’s own situation
Strategic Analysis and Strategic Choices The Key Questions • What are the industry’s dominant economic features? • What is causing the industry’s competitive structure Analyzing and business environment to change?strategically about • Which companies are in the strongest/weakest industry and positions? competitive • What strategic moves are rivals likely to make next? conditions • What are the key factors for competitive success? • Is the industry attractive and what are the prospects for above-average profitability?
Strategic Analysis and Strategic Choices The Key Questions • How well is the company’s present strategy working? Analyzing • What are the company’s strengths,strategically about weaknesses, opportunities, and threats? a company’s own • Are the company’s prices and costs situation competitive? • How strong is the company’s competitive position? • What strategic issues does the company face?
Three Tests of Best Strategy The Goodness of Fit Test The Best The Competitive Strategy Advantage Test The Performance Test
Three Tests of Best Strategy The Goodness of• A good strategy has to be well matched to Fit Test industry and competitive conditions, market opportunities and threats, and other aspects of the enterprises external environment.• At the same time, it has to be tailored to the companys resource strengths and weaknesses, competencies, and competitive capabilities.
Three Tests of Best Strategy The Competitive• A good strategy leads to sustainable Advantage Test competitive advantage.• The bigger the competitive edge that a strategy helps build, the more powerful and effective it is.
Three Tests of Best Strategy The Performance• A good strategy boosts company performance. Test• Two kinds of performance improvements are the most telling of a strategys caliber: gains in profitability and gains in the companys competitive strength and long-term market position.
Analyzing Industry Environmentand Designing Competitive Strategy
Porter’s Five Forces Barriers to Buyer Entry Power Rivalry Threats of Supplier Substitutes Power
The Intensity of Rivalry 1. A larger number of firms 2. Slow market growthThe intensity of rivalry is 3. High fixed costinfluenced by thefollowing industry 4. High storages costs or highlycharacteristics: perishable products 5. Low switching cost 6. Low level of product differentiation 7. Strategic stakes are high 8. High exit barriers 9. A diversity of rivals 10. Industry shakeout
Barriers to Entry 1. Absolute cost advantages 2. Proprietary learning curve 3. Access to inputs Entry barriers are 4. Government policy influenced by the 5. Economies of scale following factors : 6. Capital requirements 7. Brand identity 8. Switching costs 9. Access to distribution 10. Expected retaliation 11. Proprietary products
Threats of Substitutes 1. Switching costsThreats of 2. Buyer inclination to substitutesubstitutes 3. Price-performance trade-off ofare influenced by substitutesthe followingfactors :
Buyer Power 1. Bargaining leverage 2. Buyer volumeBuyer power 3. Buyer informationis influenced by the 4. Brand identityfollowing factors : 5. Price sensitivity 6. Threat of backward integration 7. Product differentiation 8. Buyer concentration vs. industry 9. Substitutes available 10. Buyers incentives
Supplier Power 1. Supplier concentration 2. Importance of volume to supplier 3. Differentiation of inputsSupplier poweris influenced by the 4. Impact of inputs on cost orfollowing factors : differentiation 5. Switching costs of firms in the industry 6. Presence of substitute inputs 7. Threat of forward integration 8. Cost relative to total purchases in industry
Sample Format for an Industry Competitive Analysis SummaryDominant Economic Characteristics of the Industry Environment (market size and growth rate,geographic scope, number and sizes of buyers and sellers, pace of technological change andinnovation, scale economies, experience curve effects, capital requirements, and so on)Competitive Analysis• Rivalry among competing sellers• Threat of potential entry• Competition from substitutes• Power of suppliers• Power of consumersCompetitive Position of Major Companies/ Strategic Groups.• Those that are favorably positioned and why• Those that are unfavorably positioned and whyCompetitor Analysis• Strategic approaches/predicated moves of key competitors• Whom to watch, and whyIndustry Key Success FactorsIndustry Prospects and Overall Attractiveness• Factors making the industry attractive• Factors making the industry unattractive• Special industry issues/problems• Profit outlook (favorable/unfavorable)
Five Generic Competitive Strategies Overall Low Cost Appealing to a broad spectrum of customers Leadership Strategy based on being the overall low-cost provider of product and serviceBroad Differentiation A differentiation strategy calls for the Strategy 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
Five Generic Competitive Strategies • Giving customers more value for the money Best Cost Strategy by incorporating good-to-excellent product attributes at a lower cost than rivals • The target is to have the lowest (best) costs and prices compared to rivals offering products with comparable upscale attributes
Generic Strategies and Industry ForcesIndustry Generic Strategies Force Cost Leadership Differentiation Focus Ability to cut price in Focusing develops core Entry Customer loyalty can Barriers retaliation deters potential competencies that can act as discourage potential entrants. entrants. an entry barrier. Large buyers have less power Large buyers have less power Buyer Ability to offer lower price to Power to negotiate because of few to negotiate because of few powerful buyers. close alternatives. alternatives. Suppliers have power because of low volumes, but a Supplier Better insulated from Better able to pass on supplier Power differentiation-focused firm is powerful suppliers. price increases to customers. better able to pass on supplier price increases. Customers become attached Specialized products & core Threat of Can use low price to defendSubstitutes to differentiating attributes, competency protect against against substitutes. reducing threat of substitutes. substitutes. Rivals cannot meet Better able to compete on Brand loyalty to keep Rivalry differentiation-focused price. customers from rivals. customer needs.
BCG Matrix / COPE / POSE / VOCI Analysis....• In the evolution of management tools numerous methods have evolved to measure the performance Vs market conditions. The primary and oldest being SWOT• Later Porter’s Five forces analysis, apostle model created a new wave succeeding SWOT• However most of the analysis are abstract in assuming market conditions and environment and other performance variables and left to mercy of the analyser, BCG matrix is an exception where a few numerical calculations were performed.• Latest budding development in management tools series is the evolution of COPE (Condition X Performance), POSE (Position X Strength) and VOCI (adVOcates X CrItics). While First two measures about product’s condition and performance in market and positioning strength, the later analyses the brand loyalty and customer satisfaction. All the three tools use extensive numerical methods and proves to reflect reality.
Best Strategy Best strategy shall be the outcome of the organisation head’s comprehensive understanding of the nature of business backed with a rich experience of handling difficult situations combined with the forces of right management tools + inputs of brainstorming sessions with the mid level managers + feedback of downstream work force and at last hearing to the realistic Selecting the Best market competitive analysis. Strategy The new management paradigm – TOC or Theory of Constraints based on the common idiom “A Chain is no stronger than its weakest Link” insists that no strategy can be well planned without identifying the underlying constraints and finding solutions to overcome them. Be realistic while selecting the strategy never be over confident based on abstract assumptions.
Strategy ImplementationBuilding a capable organization Linking budget to strategyDesigning strategy-supportive Establishing strategy-supportivereward system policies and procedures EffectiveCreating a strategy-supportive Strategy Instituting best practices andcorporate culture Execution commitment to continuous improvementExerting strategic leadership Installing information system to support strategy execution HR & Organization System Factor Development Factor
Building a Capable Organization Staffing the organization • Putting together a strong management team • Recruiting and retaining talented employees Building Core Competencies and Capabilities Building a • Developing competence/capability portfolio suited capable to current strategyorganization • Updating and reshaping the portfolio as external conditions and strategy change Structuring the Organization and Work Effort • Organizing business function and processes, value chain activities, and decision making
Strategy - Supportive Reward System Designing • Strategy - supportive motivational practices and reward systems are powerful strategy - management tools for gaining employee buy- supportive in and commitment. reward system • The key to creating a reward system that promotes good strategy execution is to make strategically relevant measures of performance the dominating basis for designing incentives, evaluating individual and group efforts, and handing out rewards.
Strategy - Supportive Corporate Culture • Building a strategy - supportive culture is Creating a important to successful strategy execution strategy- because it produces a work climate and supportive organizational esprit de corps that thrive on corporate meeting performance targets and being part culture of a winning effort.
Strategic Leadership • Strategic leaders encourage people to be Exerting innovative in order to keep the organization strategic responsive to changing conditions, alert to leadership new opportunities, and anxious to pursue fresh initiatives. • Strategic leaders also actively push corrective actions to improve strategy execution and overall strategic performance.
Linking Budget to Strategy • Reworking the budget to make it more Linking budget strategy-supportive is a crucial part of the to strategy implementation process because every organization unit needs to have the people, equipment, facilities, and other resources to carry out its part of the strategic plan.
Strategy - Supportive Policy – Changes in QMS • Prescribing new or freshly revised policies and Establishing operating procedures in QMS aids the task of strategy - implementation (1) by promoting consistency supportive in how particular strategy-critical activities are policies and performed in geographically scattered procedures operating units and (2) by helping to create a strategy-supportive work climate and corporate culture.
Continuous Improvement • Competent strategy execution entails visible, Instituting unyielding managerial commitment to best best practices practices and continuous improvement. and • Benchmarking, the discovery and adoption ofcommitment to best practices, and six sigma initiatives all aim continuous at improved efficiency, better product, and improvement greater customer satisfaction.
Information Support System • Company strategies can’t be implemented Installing well without a number of support system to information carry on business operations. system to • Well-conceived, state-of-the-art supportsupport strategy system not only facilitate better strategy execution execution but can also strengthen organizational capabilities enough to provide a competitive edge over rivals.
References used in this presentationStrategic Management : Concepts & Cases, Fred R David – Prentice HallStrategic Management : In the Innovation Economy, T.H.Davenport, M.Liebold, S.VoelpelBlue Ocean Strategy : Kim & Rene, Havard Business School PressWorks of my in-flight friend Mr Rudd de Keijzer, the Netrherlands Any Questions ?? Shoot a mail to me Raghavan VP email@example.com
End of Presentation Thank you all for watching this presentationIf I have created a spark in your mind then I have succeeded and wish to see that you all contribute for betterment of EPIPL