Strategic Management


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Strategic Management

  1. 1. Paper-IIISTRATEGIC MANAGEMENT Section - A Mr. Rajesh Shende Faculty Datta Meghe Institute of Management Studies Atrey Layout, Nagpur Rajesh Shende- DMIMS 1
  2. 2. Rajesh Shende- DMIMS 2
  4. 4. Why Strategy? It’s about how businesses compete. How to earn above average returns. Selection of industries Selection of segments Choice of tactics How to IMPLEMENT! Rajesh Shende- DMIMS 4
  5. 5.  Strategic Management: The set of managerial decisions and actions that determines the long-run performance of an organisation. Strategic Planning: The process of determining a companys long-term goals and then identifying the best approach for achieving those goals Rajesh Shende- DMIMS 5
  6. 6.  Four aspects that set strategic management is important  Interdisciplinary ▪ Capstone of the Business degree  External focus ▪ Competition  Internal focus  Future direction Rajesh Shende- DMIMS 6
  7. 7. ExternalThe firm EnvironmentGoals & Values CompetitorsResources & Strategy CustomersCapabilities SuppliersStructures &Systems etc Rajesh Shende- DMIMS 7
  8. 8. STRATEGIC DECISION MAKING Strategic Decision Making is the basic thrust of Strategic Management. Strategy formulation rests on decision making. Rajesh Shende- DMIMS 8
  9. 9. Decision MakingStrategic Decision Making Rajesh Shende- DMIMS 9
  11. 11. Rajesh Shende- DMIMS 11
  12. 12.  Objective to be achieved are determined. Alternative ways of achieving obj. Each alternative is evaluated on ability. Best alternative is chosen. Rajesh Shende- DMIMS 12
  13. 13.  Establishing Hierarchy of strategic Intent 1. Creating & Communicating a Vision 2. Designing a Mission statement 3. Defining the Business 4. Adopting the Business Model 5. Setting Objectives Rajesh Shende- DMIMS 13
  14. 14.  Formulation of strategies 1. Performing external analysis 2. Performing internal analysis 3. Formulating Corporate & Business Level strategies 4. Preparing Strategic Plan Implementation of Strategies 1. Activating Strategies 2. Designing Structure, System & Process 3. Managing Functional & Behavioral Implementation 4. Operationalising Strategies Rajesh Shende- DMIMS 14
  15. 15.  Performing Strategic Evaluation & Control 1. Performing strategic Evaluation 2. Exercising strategic Control 3. Reformulating Strategies Rajesh Shende- DMIMS 15
  16. 16. Strategy is a plan, or method of approach developed by an individual, group, or organization, in an effort to successfully achieve an overall goal or objective.Policy refers to a definite course of action adopted by an individual, group, or organization in an effort to promote the best practice particular to desired results.Tactics involves the detail, the procedure, and the order of how to achieve the desired results particular to the strategy. Rajesh Shende- DMIMS 16
  17. 17. UNIT IISTRATEGIC INTENT Rajesh Shende- DMIMS 17
  18. 18. Strategic Intent Like individuals, organizations must define what they want to do and why they want to do this, this end result is referred to as strategic intent.Strategic intent is defined as “Strategic intent envisions a desired leadership position and establishes the criterion the organization will use to chart its progress.” Rajesh Shende- DMIMS 18
  19. 19.  Strategic Intent has a hierarchy – Vision, Mission, Goals & Objectives. Rajesh Shende- DMIMS 19
  20. 20. Sense of Direction : Strategic Intent implies a particular view about long-term market or competitive position that an organization hopes to build in future. It should be a view of the future – conveying a sense of direction.Sense of Discovery : Strategic intent is differential as each organization differs from others; it implies a competitively unique point of view about the future.Sense of Destiny : Strategic intent has an emotional edge to it. It is an end result that employees perceive as inherently worthwhile. Rajesh Shende- DMIMS 20
  21. 21. IOC is the largest Indian company engaged in the business of crude oil refining and offers a variety of products related to oil sector.Vision : IOC aims to achieve international standards of excellence in all aspects of energy and diversified business with focus on customer delight through quality products and services.Mission : Maintaining national leadership in oil refining, marketing, and pipeline transportation.Objectives : Focusing on cost, quality, customer care, value addition, and risk management. Rajesh Shende- DMIMS 21
  22. 22.  Realistic Credible Attractive Future Rajesh Shende- DMIMS 22
  23. 23.  A good vision is idealistic. A good vision inspires organizational members. A good vision reflects the uniqueness. A good vision is well articulated and easily understood. Rajesh Shende- DMIMS 23
  24. 24.  Mission Statement Mission statement is the description of organizational mission. The company mission is defined as the fundamental unique purpose that sets a business apart from other firms of its type and identifies its scope of its operations in product and market terms. Rajesh Shende- DMIMS 24
  25. 25. Following points should be considered while preparing the mission statement: Clear Achievable Feasible Distinctive Explanatory Rajesh Shende- DMIMS 25
  26. 26. Tata Tea: Achieve market and thought leadership for branded tea in India. Be recognized as the foremost innovator in tea and tea based beverage solutions. Drive long-term profitable growth. Co-create enhanced value for all stakeholders. Make Tata Tea a great place to work Rajesh Shende- DMIMS 26
  27. 27.  Direction Aspirations Integration Positive attitudes Rajesh Shende- DMIMS 27
  28. 28. Goals and objectives are the end results which an organization strives for.There may be different ways in expressing end results like market leadership, a certain percentage increase in sales in a particular year etc. Rajesh Shende- DMIMS 28
  29. 29. SMART DUMB S – Specific D – Doable M – Measurable U – Understandable A – Attainable M – Manageable R – Relevant B – Beneficial T – Time-bound Rajesh Shende- DMIMS 29
  30. 30.  Direction Clear Definition Motivating force Voluntary coordination Performance Standard Decentralization Integration Rajesh Shende- DMIMS 30
  31. 31.  Specificity Multiplicity Periodicity Reality Quality Rajesh Shende- DMIMS 31
  32. 32.  Growth Profit Marketing Employees Social Rajesh Shende- DMIMS 32
  33. 33.  VISION To seize future of tomorrow & create a future that will make economic value added co. To continue to improve quality of life of our employee & communities we serve. Venture into new businesses that will own a share of our future . MISSION & GOALS Move from commodities to Brand. Continue to lowest cost producer of steel. Value creating partnership. Enthused & happy employees. Sustainable Growth. STRATEGY Manage knowledge. Outsource strategically. Invest in attractive new businesses. Ensure safety & environmental sustainability Rajesh Shende- DMIMS 33
  35. 35.  Strategic Planning tool extremely useful for Decision making. Internal strength & Weakness of firm. External Opportunities & Threats facing that firm. Effective strategy Maximizes Strengths & Opportunities, Minimizes Weaknesses & Threats. SWOT analysis is used for business planning, strategic planning, competitor evaluation, marketing, business and product development and research reports. Rajesh Shende- DMIMS 35
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  37. 37.  Arises from Resources & Competencies Experience, knowledge, data? Marketing - reach, distribution, awareness? Innovative aspects? Location and geographical? Price, value, quality? Right products, quality and reliability. Superior product performance v’s competitors. Better product life and durability. Spare manufacturing capacity. Rajesh Shende- DMIMS 37
  38. 38.  Limitation or Deficiency Lack of competitive strength. Reputation, presence and reach. Rajesh Shende- DMIMS 38
  39. 39.  Major Favorable situation in firm’s environment. Improved buyer or supplier relations. New technologies Market developments Could develop new products. Local competitors have poor products. Profit margins will be good. End-users respond to new ideas. Could extend to overseas. New specialist applications. Rajesh Shende- DMIMS 39
  40. 40.  Major Unfavorable situation in firm’s environment. Entrance of new competitors, Slow Market Growth, New revised regulations, Increased bargaining power Rajesh Shende- DMIMS 40
  41. 41. Strengths (internal) Weaknesses (internal) strengths/opportunities weaknesses/opportunities obvious natural priorities potentially attractive optionsOpportunities greatest ROI Potentially more exciting and (external) Quickest and easiest to stimulating and rewarding due to implement. change, challenge, surprise tactics, Immediate action-planning. and benefits from addressing and achieving improvements. strengths/threats weaknesses/threats easy to defend and counter Only potentially high risk Threats basic awareness, planning, and Assessment of risk crucial. (external) implementation required to meet Where risk is low then we must these challenges. ignore these issues and not be Investment in these issues is distracted by them. generally safe and necessary. Defend/avert in very specific controlled ways. Rajesh Shende- DMIMS 41
  42. 42.  Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business. Two types of activities A)- PRIMARY ACTIVITIES B)- SUPPORT ACTIVITIES Rajesh Shende- DMIMS 42
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  44. 44.  Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Rajesh Shende- DMIMS 44
  45. 45.  Administration/ Infrastructure Human Resource Management Research, Technology & system Development. Procurement Rajesh Shende- DMIMS 45
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  47. 47.  Economies of Scale Product Differentiation Capital Requirements Cost Disadvantages Independent of Size Access to Distribution Channels Government Policy Rajesh Shende- DMIMS 47
  48. 48. A supplier group is powerful if: It is dominated by a few companies and is more concentrated than the industry it sells to Its product is unique or at least differentiated, or if it has built-up switching costs It is not obliged to contend with other products for sale to the industry It poses a credible threat of integrating forward into the industry’s business The industry is not an important customer of the supplier group Rajesh Shende- DMIMS 48
  49. 49. A buyer group is powerful if: It is concentrated or purchases in large volumes The products it purchases from the industry are standard The products it purchases from the industry form a component of its product and represent a significant fraction of its cost It earns low profits The industry’s product is unimportant to the quality of the buyers’ products or services The industry’s product does not save the buyer money The buyers pose a credible threat of integrating backward Rajesh Shende- DMIMS 49
  50. 50.  By placing a ceiling on the prices it can charge, substitute products or services limit the potential of an industry Substitutes not only limit profits in normal times but also reduce the bonanza an industry can reap in boom times Substitute products that deserve the most attention strategically are those that are  subject to trends improving their price- performance trade-off with the industry’s product or  produced by industries earning high profits Rajesh Shende- DMIMS 50
  51. 51. Intense rivalry occurs when: Tactics like price competition, advt., product diff. Industry growth is slow, precipitating fights for market share that involve expansion The product or service lacks differentiation or switching costs Fixed costs are high or the product is perishable, creating strong temptation to cut prices Capacity normally is augmented in large increments Exit barriers are high Rivals are diverse in strategy, origin, and personality Rajesh Shende- DMIMS 51
  53. 53.  Three tiers of environmental factors that affect firm’s performance. Five factors in the remote environment The five forces model of industry analysis The five factors in the operating environment Rajesh Shende- DMIMS 53
  54. 54. Comprised of following Components: Remote environment Industry environment Operating environment Rajesh Shende- DMIMS 54
  55. 55. Rajesh Shende- DMIMS 55
  56. 56.  Economic Factors Social Factors Political Factors Technological Factors Ecological Factors Rajesh Shende- DMIMS 56
  57. 57.  Prime interest rates Inflation rates Trends in the growth of the gross national product Unemployment rates Globalization of the economy Outsourcing Rajesh Shende- DMIMS 57
  58. 58. Present in the external environment:  Beliefs & Values  Attitudes & Opinions  LifestylesDeveloped from:  Cultural conditioning  Ecological conditioning  Demographic makeup  Religion  Education  Ethnic conditioning. Rajesh Shende- DMIMS 58
  59. 59. Political constraints on firms:  Fair-trade Decisions  Antitrust Laws  Tax Programs  Minimum Wage Legislation  Pollution and Pricing Policies  Administrative jawboning Rajesh Shende- DMIMS 59
  60. 60.  Technological forecasting helps protect and improve the profitability of firms in growing industries. It alerts strategic managers to impending challenges and promising opportunities. The key to beneficial forecasting of technological advancement lies in accurately predicting future technological capabilities and their probable impacts. Rajesh Shende- DMIMS 60
  61. 61.  Ecology refers to the relationships among human beings and other living things and the air, soil, and water that supports them. Threats to our life-supporting ecology caused principally by human activities in an industrial society are commonly referred to as pollution Loss of habitat and biodiversity Environmental legislation Eco-efficiency Rajesh Shende- DMIMS 61
  62. 62.  Harvard professor Michael E. Porter propelled the concept of industry environment into the foreground of strategic thought and business planning. The cornerstone of Porter’s work first appeared in the Harvard Business Review, in which he explains the five forces that shape competition in an industry. Porter’s well-defined analytic framework helps strategic managers to link remote factors to their effects on a firm’s operating environment. Rajesh Shende- DMIMS 62
  63. 63.  The essence of strategy formulation is coping with competition. Intense competition in an industry is neither coincidence nor bad luck. Competition in an industry is rooted in its underlying economics, and competitive forces exist that go well beyond the established combatants in a particular industry. The corporate strategists’ goal is to find a position in the industry where his or her company can best defend itself against these forces or can influence them in its favor. Rajesh Shende- DMIMS 63
  64. 64. Rajesh Shende- DMIMS 64
  65. 65.  An industry is a collection of firms that offer similar products or services. Structural attributes are the enduring characteristics that give an industry its distinctive character. Concentration refers to the extent to which industry sales are dominated by only a few firms. Barriers to entry are the obstacles that a firm must overcome to enter an industry. Rajesh Shende- DMIMS 65
  66. 66.  How do other firms define the scope of their market? How similar are the benefits the customers derive from the products and services that other firms offer? The more similar the benefits of products or services, the higher the level of substitutability between them. How committed are other firms to the industry? Rajesh Shende- DMIMS 66
  67. 67.  Also called competitive or task environment Includes competitor positions and customer profiling based on the following factors:  Geographic  Demographic  Psychographic  Buyer Behavior Also includes suppliers & creditors and HRM Rajesh Shende- DMIMS 67
  68. 68. Access to personnel is affected by 4 factors: Firm’s reputation as an employer Local employment rates Availability of people with the needed skills Its relationship with labor unions. Rajesh Shende- DMIMS 68
  69. 69.  Differing external elements affect different strategies at different times and with varying strengths Only certainty is that the effect of the remote and operating environments will be uncertain until a strategy is implemented Many managers, particularly in less powerful firms, minimize long-term planning Instead, they allow managers to adapt to new pressures from the environment Absence of strong resources and psychological commitment to a proactive strategy effectively bars a firm from assuming a leadership role in its environment Rajesh Shende- DMIMS 69
  70. 70. What is environmental scanning? Environmental scanning refers to possession and utilization of information about occasions, patterns, trends, and relationships within an organization’s internal and external environment. Rajesh Shende- DMIMS 70
  71. 71.  External Environmental Scanning Internal Environmental Scanning Rajesh Shende- DMIMS 71
  72. 72. Cross- Consensus IdentificationPreliminary functional of of strategicAssessment Discussion Discussion option Rajesh Shende- DMIMS 72
  73. 73.  Employee interaction with- Employees Management Management interaction with shareholders Access to natural resources, Brand awareness, Organizational structure, main staff, operational potential Rajesh Shende- DMIMS 73
  75. 75. Types of Strategies1. Expansion2. Stability3. Retrenchment4. Combination Rajesh Shende- DMIMS 75
  76. 76. Expansion strategies is distributed as-1. Concentration2. Integration3. Diversification Rajesh Shende- DMIMS 76
  77. 77. Ansoff Product-Market MatrixRajesh Shende- DMIMS 77
  78. 78.  Minimal organisational changes Specialise in one business Less problems to managers as known situation Decision making due to past experience makes valuable Rajesh Shende- DMIMS 78
  79. 79.  Heavily dependent on industry Product obsolescence Less challenging Cash flow problems Rajesh Shende- DMIMS 79
  80. 80.  Combining activities related to the present activity of firm. ▪ Horizontal Integration Strategies ▪ Vertical Integration Strategies Rajesh Shende- DMIMS 80
  81. 81. The process of acquiring or merging with industry competitors ▪ Acquisition and merger Rajesh Shende- DMIMS 81
  82. 82. Benefits of Horizontal Integration Reducing costs Increasing value  Product bundling  Cross selling Managing industry rivalry Increasing bargaining power  Market power (monopoly power) Rajesh Shende- DMIMS 82
  83. 83.  Expanding operations backward into an industry that produces inputs for the company or forward into an industry that distributes the company’s products Two types  Forward Integration  Backward Integration Rajesh Shende- DMIMS 83
  84. 84.  Building barriers to entry Facilitating investments in specialized assets Protecting product quality Improved scheduling Rajesh Shende- DMIMS 84
  85. 85.  Cost disadvantages  Company-owned suppliers that have higher costs than external suppliers Rapid technological change  Tying a company to an obsolescent technology Demand unpredictability  Difficulty of achieving close coordination among vertically integrated activities Bureaucratic costs Rajesh Shende- DMIMS 85
  86. 86. Rajesh Shende- DMIMS 86
  87. 87.  The process of adding new businesses to the company that are distinct from its established operationsTypes- Concentric Diversification Strategies Conglomerate Diversification Strategies Rajesh Shende- DMIMS 87
  88. 88.  When a company runs out of growth opportunities in the core business and not before! When diversification results in creation of value Rajesh Shende- DMIMS 88
  89. 89. Entry into a new business activity in a different industry that is related to a company’s existing business activity, or activities, by commonalities between one or more components of each activity’s value chainIt may be of three types-1. Marketing-Related Concentric Diversification2. Technology-Related Concentric Diversification3. Marketing & Technology-Related Concentric Diversification Rajesh Shende- DMIMS 89
  90. 90. Entry into industries that have no obvious connection to any of a company’s value chain activities in its present industry or industries Rajesh Shende- DMIMS 90
  91. 91.  C) COOPERATIVE STRATEGIES Merger & Acquisition Strategies Joint Venture Strategies Strategic Alliance Rajesh Shende- DMIMS 91
  92. 92. MERGER Combination of two or more organisation in which one acquire the Assets & Liabilities of the other in exchange for shares or cash or both the org. dissolved and assets & liabilities are combined and new stock is issued.Acquisition The attempt of one firm to acquire the ownership or control over the other firm. Rajesh Shende- DMIMS 92
  93. 93. 1. Horizontal Merger2. Vertical Merger3. Concentric Merger4. Conglomerate Merger Rajesh Shende- DMIMS 93
  94. 94. An entity resulting from a long term contractual agreement between two or more parties to undertake mutually beneficial economic activities.Types of JV:1. Within Industries2. Across Industries3. Across Countries Rajesh Shende- DMIMS 94
  95. 95.  Technology Geography Regulation Sharing of risk & control Intellectual exchange Rajesh Shende- DMIMS 95
  96. 96. When two or more firms unite to pursue a set of agreed upon goals, but remain independent subsequent to the formation of alliance.Cooperation between two or more independent firms involving shared control & continuing contributions by all partners for mutual benefit. Rajesh Shende- DMIMS 96
  97. 97.  Entering New market Reducing manufacturing cost Developing & Diffusing technology Rajesh Shende- DMIMS 97
  98. 98. Based on organisational Interaction & Conflict potential between alliance partners. Procompetitive alliances(LI /LC) Noncompetitive alliances(HI/LC) Competetive alliance(HI/HC) Precompetitive alliance(LI/HC) Rajesh Shende- DMIMS 98
  99. 99.  No-Change Strategy Profit Strategy Pause/Proceed Strategy Rajesh Shende- DMIMS 99
  100. 100.  Turnaround Strategies Divestment Strategies Liquidation Strategies Rajesh Shende- DMIMS 100
  101. 101. Turnaround strategy means backing out, withdrawing or retreating from a decision wrongly taken earlier in order to reverse the process of decline.  a) Persistent negative cash flow  b) Continuous losses  c) Declining market share  d) Deterioration in physical facilities  e) Over-manpower, high turnover of employees, and low morale  f) Uncompetitive products or services  g) Mismanagement Rajesh Shende- DMIMS 101
  102. 102. Divestment strategy involves the sale or liquidation of a portion of business, or a major division, profit centre or SBU. Divestment is usually a restructuring plan and is adopted when a turnaround has been attempted but has proved to be unsuccessful or it was ignored.  a) A business cannot be integrated within the company.  b) Persistent negative cash flows from a particular business create financial problems for the whole company.  c) Firm is unable to face competition  d) Technological up gradation is required if the business is to survive which company cannot afford.  e) A better alternative may be available for investment Rajesh Shende- DMIMS 102
  103. 103. Liquidation strategy means closing down the entire firm and selling its assets. It is considered the most extreme and the last resort because it leads to serious consequences such as loss of employment for employees, termination of opportunities where a firm could pursue any future activities, and the stigma of failure.Reasons for Liquidation include:  (i) Business becoming unprofitable  (ii) Obsolescence of product/process  (iii) High competition  (iv) Industry overcapacity  (v) Failure of strategy Rajesh Shende- DMIMS 103