Basic concepts of strategic management 1csp& sim


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Basic concepts of strategic management 1csp& sim

  1. 1. Reference Book:- Concepts in strategic management and business policy ByThomas L Wheelen, J David Hunger and Krish Rangarajan & strategic management and business policyBy C Appa Rao, BP Rao & Shivramkrishna
  2. 2. Basic Concepts of Strategic Management By RNK
  3. 3. WHY EFFECTIVENESS• White Star Liner, Once safest Ship in the World, did sink with 1513 People on Board• 850 Foot long, weighed 46,000 tons• Double hull, all watertight compartments• Mistake 1: Believing in Invincibility.• Mistake 2: Underrating the Threats in the Environment.• Mistake 3: Doing too Little too Late.• Mistake 4: Was carrying only 16 life crafts instead of 48.
  4. 4. THE CORPORATE TITANICS• Swiss Watchmakers held 65% of Market in 1968. Reduced to 10% by 1980.• Sears a retail giant in the sixties, Lost US$ 3.9billion in 1992.• In 1990 both, K-Mart Wal-Mart had overtaken and Wal-Mart made US$ 2 billion, K-Mart 1 billion.• GM’s Market value fell from Fourth in 1972 to Fortieth in 1992 and in 1992 it lost $23.5B (Biggest loss by any Company).
  5. 5. B-SCHOOLS IN INDIA• In 1991 there were only 130 B-Schools in India with 12,000 seats• Presently, there are 3,000 B-Schools with 1,50,000 seats• Half of them had been setup in last 5 years• Dowry index of IIM(A) students is Rs 50 to 100 Lacs
  6. 6. Word Meaning• Strategic = Planned = Tactical = Calculated = Deliberate = Premeditated = Intentional
  7. 7. Other Names for Strategic Management • Strategic Planning • Business Planning • Corporate strategy • Corporate planning
  8. 8. SM• Strategic management is a field of inquiry that focuses on the organisation as a whole and its interaction with the environment.• The corporate world is in the process of transformation driven by information technology and globalization.• Strategic management takes a panoramic view of this changing corporate terrain and attempts to show how large and small firms can be more effective and efficient not only in today’s world but in tomorrow’s as well.
  9. 9. Some Definitions• A strategy is a commitment to undertake one set of actions rather than another.• It is management’s game plan for growing the business, staking out market position, attracting and pleasing customers, competing successfully, conducting operations and achieving target objectives.• SM is tricks and techniques to keep your company ahead of your competitors.
  10. 10. Importance• Strategic management is extremely important in current scenario to make the Co. successful and stay successful.• Even MNCs having business around the world must constantly review itself else be out maneuvered by aggressive newcomers.• Realising potential impact of internet on businesses, Jack Welch, in march 1999 told to all managers that you must replace your product before others could do it. (otherwise U will become obsolete)• Welch also told these 600 managers to find their internal internet mentors.
  11. 11. What is Strategic Management?• Strategic management is that set of managerial decisions and actions that determine long run performance of corporation.• It includes following:- – Environmental scanning – Strategy formulation (strategic or long range planning) – Strategy implementation – Strategy evaluation and control• SM therefore emphasize on monitoring and evaluation of external opportunities and threats in light of corporations strengths and weaknesses.
  12. 12. • It was originally called as business policy.• Business policy has a general management orientation and looks inwards for properly integrating the CO’s many functional activities.• On the other hand SM , incorporates the integrative concern of business policies with heavier environmental and strategic emphasis.• Therefore management has replaced the business policy with strategic management.
  13. 13. Exercise• One of the students to read out, the chief elements of Southwest airline’s strategy. Other students to make a note of important strategic points. Any one from the class will be asked to summarise these Important points for better learning. Thereafter class to also discuss about Indian low cost airlines.
  14. 14. Phases of Strategic Management• Phase-1 Basic Financial planning:- – Managers initiate serious planning when they are requested to propose next year’s budget. – Proposals are made based on little analysis. – Sales people provide some environmental data. – It only pretends to be strategic, yet time consuming. – Normal company activities are suspended for weeks. – The time horizon is normally a year.
  15. 15. • Phase-2 Forecast Based Planning:- – Managers attempt to propose five year plan. – They now consider projects beyond one year. – In addition to internal data they also try to get some external on an ad hoc basis –and extrapolate current trends into five years. – This phase is also time consuming often involving full month of activities. – The process gets very political as managers compete for larger share of funds. – Endless meetings to evaluate proposals and justify assumptions. – The time horizon is two to five years.
  16. 16. • Phase-3 Externally Oriented Planning:- – It is also called strategic planning. – Top management takes control of planning by initiating strategic planning. – It improves its responsiveness to changes and competition by strategic thinking. – Planning is given to planning staff for developing strategic plan for the corporation. – Consultants provide sophisticated and innovative techniques that are used by planning staff. – Upper level managers meet once a year at a resort to evaluate and update the current strategic plan. – It is known as top down planning, implementation is left to lower level. – It develops five years plan with inputs from consultants and minimum from lower level.
  17. 17. • Phase-4 Strategic Management:- – Best strategic plans are worthless without inputs and commitment from lower level managers. – Top management forms planning group of managers and key employees at many levels. – They develop and integrate the series of strategic plans aimed at achieving Co’s primary objectives. – Strategic plans now deal with the implementation, evaluation and control issues. – The plans emphasize probable scenarios and contingency strategies. – It leads to strategic thinking at all levels. – Strategic information on intranet is available at all levels. – Planning is typically interactive at all levels and is no longer top down
  18. 18. How is budget planning donein your organisation? Letsshare planning process ofyour organisation for betterlearning by all.
  19. 19. Benefits of Strategic Planning• Organisations that engage in strategic planning generally outperform those do not.• The attainment of appropriate match between an organisation’s environment and its strategy, structure and process has positive effect on the performance.• A survey of 50 corporations of various countries found following benefits of SM:- – Clear sense of vision for the firm. – Sharper focus on what is strategically important. – Improved understanding of rapidly changing environment
  20. 20. • To be effective, SM need not always be formal process. It can begin with simple Qs:- – Where is the organisation now? – If no change are made, where will the organisation be in 1year, 2years, 5years and 10 years? – If the answers are not acceptable, what specific actions management should take? – What are the risks and pay offs involved?
  21. 21. Globalization and E-Commerce- Challenges to SM• Till late 90s sales were made by sale forces but it is not so now.• Globalisation has changed the way the modern corporations do business.• To achieve economies of scale for keeping cost to minimum, Co are using global market instead of national.• International assignment are considered key for any one wants to reach top positions.• SM is important tool to keep track of international development.
  22. 22. Impact of Globalisation• Nike and Reebok manufacture shoes in many countries of Asia to sale them in all other continents.• International assignments are considered Key to any one interested in reaching top management.
  23. 23. Impact of Electronic Commerce• Use of internet to conduct business transactions.• Internet is reshaping global market place.• It has a major impact on corporate strategy.• Many organisations including banks, air lines and railways have started using internet for their most businesses.• Major engineering and B- schools conduct entrance examinations using internet.• The internet is forcing Cos. to transform themselves.
  24. 24. • The concept of electronically networking customers, suppliers and partners is now new reality.• It is leading to closer relationship with end users, improving service and reducing cost.• The balance of power is shifting to consumer. Now having unlimited power to information on the internet, customers are much more demanding than their nonwired predecessors.• Cos. are exploring the net to become more innovative and efficient.• The pace of business is increasing drastically.• The internet is pushing corporations out of their traditional boundaries.• Knowledge is becoming key asset and source of competitive advantages.
  25. 25. I/O Model of Superior Returns • 06 stage model The external environment (General, Industry • 60s to 80s &Competitor environment) An attractive industry ( with above average ROI ) Strategy formulation ( linked with above average returns in a particular industryYour Strategy should beBased on ext. environment Asset and skills (Develop or acquire asset and skills needed to implement strategy Strategy implementation (use the firm’s strength to implement the strategy Superior return ( earning of above average return)
  26. 26. The resource based model of superior Returns • 06 stage Model Resources (identify the firm’s resources and study them for sts, wks and compare with comp) Capability (What do the capabilities allow the firm to do better than its comp ) Competitive advantages (ability of a firm to out perform its rivals )Strategy be based on int.resource An attractive Industry ( industry with opportunities that can be exploited with St & Wks Strategy formulation and Implementation (best strategy that allows to utilise resources and capabilities Superior returns
  27. 27. The Theories of Organisational Adaptation• The population ecology Theory:- Once an organisation is established in a particular environment it does not change, hence co. is replaced by other new organisations.• Institution theory:- It proposes that organisation can adapt to changing conditions by imitating other successful organisations. Does not explain how and why?
  28. 28. • The strategic choice perspective:- One step ahead of institution theory and believes that the organisation have the power to reshape their environment. It emphases on managers making rational decisions.• Organisational learning theory:- It expands the strategic choice perspectives to include people at all levels, becoming involved in providing inputs into strategic decision making.
  29. 29. Creating a learning Organisation• SM has evolved to the point that its primary value is in helping the organisation operate successfully in a dynamic, complex environment, (SAIL uses strategic planning for change).• To be competitive in dynamic environment, corporations are becoming less bureaucratic and more flexible. (Explain)• Corporations must generate strategic flexibility that is ability to shift from dominant strategy to another.
  30. 30. • Strategic flexibility demands that the Co. becomes learning organisation:- An organisation skilled at creating, acquiring and transferring knowledge and at modifying behaviour to reflect the new knowledge and insights.• Organisational learning is particularly important for innovation and new product development, HP uses extensive network of informal committees to transfer knowledge.
  31. 31. Skills of Learning Organisations• Solving problem systematically.• Experimenting with new approaches.• Learning from their own experience and past history as well as from experience of others.• Transferring knowledge quickly and efficiently through out the organisation.• Example:-Motorola developed an action learning format in which people from marketing, product development and manufacturing meet to argue and reach an agreement about the needs of the market, the best new product and schedule of each group producing it
  32. 32. Basic Model of SM• Environment scanning.• Strategy formulation.• Strategy implementation.• Evaluation and control. Environment Strategy Strategy Evaluation and scanning Formulation Implementation control
  33. 33. Strategic Management ModelEnvironmental Strategy Formulation Strategy Implementation Evaluation & ControlScanning Mission Objectives Strategie Policies Programs Budgets Procedures PerformanceExternal sSocietalEnvironmental: Reason for What result Plan to BroadGeneral Forces existence to achieve guidelines accomplish the for Activities Cost of SequenceTask Environment: by when mission & decision needed to the of Steps Actual objectives makingIndustry Analysis accomplish Programs needed to Results a plan do the jobInternalStructure: Chain ofCommandCulture: Beliefs,Expectations,ValuesResources: Assets,Skills,Competencies,Knowledge Feedback / Learning
  34. 34. Environmental Scanning• It is monitoring, evaluating and disseminating of information from the ext. and int. environment to key people within the organisation.• Purpose is to identify strategic factors that will determine the Future of corporations.• Simplest way is to conduct scanning is through SWOT analyses.• External environments consists of opportunities and threats.• Internal environment consists of strengths and weaknesses that are within the organisation( Structure, Culture and resource)
  35. 35. Strategy Formulation• This is development of long range plan for management of environmental opportunities and threats in light of corporation’s strengths and weaknesses.• It includes corporate mission, achievable objectives, budding strategy and setting guidelines.• Mission is the purpose or the reasons for organisation existence. It tells what company is providing to the society.
  36. 36. • A well conceived mission statement defines the fundamental, unique purpose that sets company apart from others.• Identifies the company’s scope of operations in terms of product offered and market served.• It may also specify how firm treat their employees.• It puts into words not only what the company is now, but also what it wants to become. ( management’s strategic vision and firm’s future ).• It tells who we are and what we do as well as what we would like to become.
  37. 37. Examples• ONGC Limited:- To be the world class oil gas company integrated in energy business with dominant Indian leadership and Global presence.• FMCG Nirma Limited:- Nirma is a customer focused company, committed to consistently offer better quality products and services that maximises value for the company.
  38. 38. Assignment-1• Each of you write mission statement of 10 companies and discuss in your group thereafter make a presentation.
  39. 39. Objectives• Objectives are end result of planned activities.• They state what is to be accomplished by when and should be quantified if possible.• The achievement of corporate objective should result in fulfillment of corporation’s mission.• The term goal is often used interchangeably with the term objective.• As per Thomas L. Wheelen, goal is an open statement of what one wants to achieve with no quantification of what is to be achieved and no time criteria for completion.• Example:-Goal—Increased profitability Objective– Increase profit 10% over last 10 years
  40. 40. Some of the areas in which corporations might establish their goals and objectives• Profitability (net Profit).• Efficiency (low cost ).• Growth ( increase in assets, sales etc ).• Shareholders wealth (Dividends +stock price appreciation).• Utilisation of Resources (return on investment).• Reputation (top firm)• Contribution to employees(security, wages etc)• Contribution to Society ( tax paid, participation in charities etc.)• Market leadership (market share).• Technological leadership.
  41. 41. Assignment-2• Select 10 companies of your choice and down load their corporate objectives. Make a group of five students discuss/ analyse each objectives and make a class presentation.
  42. 42. Strategies• A Strategy forms a comprehensive master plan stating how the corporation will achieve its mission and objectives.• It maximises competitive advantages and minimises competitive disadvantages.• Example: When Tata group realised that it could no longer realize its objectives by continuing its strategy of diversification into multiple line of business, it sold cos. like Tomco, lakme etc to HLL.
  43. 43. Types of strategy• Corporate Strategy:- – Describes the Co.’s overall direction. – It concentrates on stability, growth and retrenchment (Nicholas piramal followed a corporate growth strategy by acquiring other Cos)• Business strategy:- – At the level of business unit or product level. – Emphasis on improvement to face competition. – Business strategy fits within two overall categories of competitive and cooperative. – Apple computers followed competitive strategy where as Air India and Lufthansa followed cooperative strategy to provide global service.
  44. 44. • Functional strategy:- – Strategy adopted by functional area to achieve corporate and business level objectives and strategies by maximising resources productivity. – Example:- In terms of marketing functional strategy, P & G is a master of marketing pull ( the process of spending huge amounts on advertising in order to create customer demand, Strategy is differentiating its product from its competitors). – Firms use all types of strategy simultaneously. – Functional strategy must support business strategies which in tern supports corporate strategies.
  45. 45. Policies• A policy is a broad guide line for decision making that links the formulation of strategy with its implementation.• Policies are made in such a way that employees make decision and take actions which support the Co’s mission, objectives and strategies.• Example:-1 Satyam computers strategy was to grow by intelligence application of technology to compete on quality rather than cost. It also made policy in such a way that every associate was considered as leader.• 2. The researcher of 3M should spend 15% of their time working on something other than primary project, which support the strategy of product development.• Policies must provide clear guide lines to managers through out the organisation.
  46. 46. Strategy Implementation• The process by which strategies and policies are put into action through development of programmes, budgets and procedures.• The strategy implementation process might involve change within the over all culture, structure, management style etc. of entire organisation.• Implementation of strategies is normally done by middle and lower management with a review by the top management.• Strategy implementation often involves day to day decision in resources allocation.
  47. 47. Programmes• A programme is a set of activities or steps needed to achieve a single use plan.• It makes the strategy action oriented.• It may involve the restructuring the corporation, changing the Co’s internal culture, or beginning a new efforts.
  48. 48. Budgets• A budget is a statement of corporation programme in terms of Rs/$.• When used in planning and control, a budget lists cost of each programme.• Correct budget control will ensure that the new programmes will significantly add to the corporation’s profit, performance and build shareholders value.• Example: GM budgeted $4.3 billion during 2000- 04 to update and expand Cadillac line of automobile. With this the Co hoped to reverse its declining market share by appealing to younger market.
  49. 49. Assignment-3• Go through sites of Indian automobile Cos and find out how much budget allocation was done for which model and how it paid back to the Companies.
  50. 50. Procedures• Some times called SOPs, are systems of sequential steps and techniques that describe in detail how a particular task and job is to be done?• Details of activities that must be carried out in order to complete corporations programmes.
  51. 51. Evaluation and Control• It is a process in which corporate activities and performance are monitored to compare with desired performance.• Managers at all levels use the resulting information to take corrective actions and resolve problem.• It is final element of strategic management and pin points weakness in previously implemented strategic plans and thus stimulate the entire process to begin again.
  52. 52. Performance• It is the end result of activities.• It is the actual outcome of the SM process.• The practice of SM is justified in terms of its ability to improve the organisations performance.• Typically measured in terms of profit and ROI.• For evaluation to be effective managers must get correct input from people below them.• With the help of this information managers can compare, what is actual performance with planned.• The evaluation and control of performance, it completes the strategic management model.
  53. 53. Initiation of Strategy• Triggering Events:- – A triggering event is something that acts as stimulus of change of strategy. Some triggering events are:- • New CEO: New CEO cuts through the veil of complacency and forces people to question very reason for companies existence. • External intervention: The bank may refuse to approve the loan. A customer complain about a serious product defect. • Threat of change in ownership. • Performance gap
  54. 54. Assignment-4• Class to discuss triggering events at sun micro system given on page 16
  55. 55. Strategic Decision Making• The distinguished characteristic of SM is its emphasis on strategic decision making.• As organisations grow and become complex, hence decision making becomes more difficult.• What makes a decision strategic? – Strategic decision deals with long run future of the entire organisation and have three characteristics: • It must be rare • Consequential • Directive• BPL ltd moved away from manufacturing precision panel meters to major consumer electronic company.
  56. 56. Mintzberg’s Model of Strategic Decision making• Entrepreneurial mode:- Strategy is made by one powerful individual.• Adaptive mode:- sometimes referred to as muddling through (reactive solution to existing problem) rather than proactive approach to new opportunities.• Planning mode:- It involves systematic gathering of appropriate information for situation analysis, generation of number of alternatives and selecting most appropriate one.• Logical incrementalism:-Proposed by Quinn, top management has a clear idea of corporations mission and objectives. It chooses to use an interactive process for probing future, experiment and learn from incremental commitment..
  57. 57. Strategic Decision Making Process (An aid to better decisions)• Planning mode is best mode of decision, hence a company must follow following 08 steps:- – Evaluate current performance results. – Review corporate governance. – Scan and asses the external environment. – Scan and asses the internal corporate environment. – Analyse strategic factors (SWOT). – Generate, evaluate, and select the best alternative strategy. – Implement selected strategy. – Evaluate selected strategy.
  58. 58. Assignment-5• Browse the internet and down load mission statement of TCS, TISCO, Tata Motors, TIFR or any other company and discuss in your group and thereafter make a presentation in the class in front of all the students of your class
  59. 59. Questions and their answers• Strategic management is a field of inquiry that focuses on the organisation as a --------and its interaction with the environment.• In which year Jack Welch told his managers that u must replace your product before others do it?• What is the Time horizon for forecast planning?• Why are organisations are going for globalisation?• What is the purpose of environmental scanning?• What are the main components of strategy formulation?• Three types of strategies are 1)---------2)------------3)------------• Development of programmes is part of--------------------------• What is triggering event?• What are the three characteristics strategic decision?