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Strategic Managment Notes.pdf
2. Table of Contents
What is management?........................................................................................................................................................................3
Functions of Management..................................................................................................................................................................3
1. Planning: .................................................................................................................................................................................3
2. Organizing/Staffing:................................................................................................................................................................3
3. Leading:...................................................................................................................................................................................3
4. Controlling: .............................................................................................................................................................................4
Strategy...............................................................................................................................................................................................4
Strategic Management .......................................................................................................................................................................4
3 stages of the strategic management process..................................................................................................................................5
Strategy formulation...........................................................................................................................................................................5
Strength and Weaknesses...............................................................................................................................................................6
Opportunity and Threats ................................................................................................................................................................6
Strategy implementation....................................................................................................................................................................6
Strategy evaluation.............................................................................................................................................................................7
Defining Vision....................................................................................................................................................................................7
Defining mission statement................................................................................................................................................................7
Mission Statement Components ....................................................................................................................................................7
Environment .......................................................................................................................................................................................8
SWOT analysis.................................................................................................................................................................................8
External Audit .....................................................................................................................................................................................8
The Process of Performing an External Audit.................................................................................................................................9
The Industrial Organization (I/O) View...............................................................................................................................................9
Key External Forces:........................................................................................................................................................................9
Porter’s Five-Forces Model:..........................................................................................................................................................10
Barriers to Entry............................................................................................................................................................................10
Conditions where consumers gain bargaining power ..................................................................................................................11
The Process of Performing an Internal Audit................................................................................................................................11
Resource Based View (RBV)..............................................................................................................................................................11
Levels of Strategic Management ......................................................................................................................................................12
What Is Corporate Strategy? ........................................................................................................................................................12
What is Competitive Strategy/ Strategic Business Strategies.......................................................................................................13
What is Functional Level Strategy.................................................................................................................................................13
Competitive Advantage ....................................................................................................................................................................14
PESTLE Analysis....................................................................................................................................Error! Bookmark not defined.
3. Management is the art of getting things done through and with people in formally organized groups.
OR
Management is the process of planning, organizing, leading, and controlling an organization’s human, financial, physical, and
information resources to achieve organizational goals in an efficient and effective manner.
There are four function of Management:
1. Planning: Planning means determining what the organization’s position and situation should be at some time
in the future and deciding how best to bring about that situation. It helps maintain managerial effectiveness by guiding
future activities.
(Anticipation of Future)
2. Organizing/Staffing: Organizing may be referred to as the process of arranging and distributing the
planned work, authority and resources among an organization’s members, so they can achieve the organization’s goals.
In this function we develop organizational structure:
3. Leading: Leading entails directing, influencing, and
motivating employees to perform essential tasks. It also
involves the social and informal sources of influence to
inspire others. Effective managers lead subordinates through
motivation to progressively attain organizational objectives.
Vision Mission Goal/Objective Strategy
4. 4. Controlling: Controlling involves measuring performance against goals and plans, and helping correct
deviations from standards. As a matter of fact, controlling facilitates the accomplishment of plans by ensuring that
performance does not deviate from standards.
It is a set of action designed to achieve a long-term or overall aim. It is also known as master plan.
OR
A company’s strategy is the coordinated set of actions that its managers take in order to outperform the company’s
competitors and achieve superior profitability.
The strategy making includes
How to position the company in the marketplace?
How to attract customers.
How to compete against rivals.
How to achieve the company’s performance targets?
How to capitalize on opportunities to grow the business.
How to respond to changing economic and market conditions.
OR
The plans for how the organization will do what it’s in business to do, how it will compete successfully, and how it will attract
and satisfy its customers in order to achieve its goals.
Strategic management is the set of managerial decision and actions that determines the long-run performance of a
corporation.
Planning Defining Organization Vision & Mission
Setting Goals & Objectives
Strategizing
Plan of Action to Achieve Goals
Organizing Formulate Organizational Structure
Resource Allocation
Job Design
Leading Leadership & Direction
Motivation
Coordination & Communication
Controlling Process & Standards
Review & Evaluation
Corrective Action
Measure
Compare
Correct
5. It includes environmental scanning (both external and internal), strategy formulation (strategic or long range planning),
strategy implementation, and evaluation and control.
The study of strategic management therefore emphasizes the monitoring and evaluating of external opportunities and threats
in lights of a corporation’s strength and weaknesses
Strategic management includes understanding the strategic position of an organization, making strategic choices for the future
and turning strategy into action.
The strategic management process (see figure) is a six-step process that encompasses strategy planning, implementation, and
evaluation. Although the first four steps describe the planning that must take place, implementation and evaluation are just as
important!
1. Strategy formulation
2. Strategy implementation
3. Strategy evaluation
Strategy formulation is the process of determining appropriate courses of action for achieving organizational objectives and
thereby accomplishing organizational purpose.
Strategy formulation includes:
developing a vision and mission,
identifying an organization’s external opportunities and threats,
determining internal strengths and weaknesses,
establishing long-term objectives,
generating alternative strategies,
and choosing particular strategies to pursue.
Strategy-formulation issues include deciding what new businesses to enter, what businesses to abandon, how to allocate
resources, whether to expand operations or diversify, whether to enter international markets, whether to merge or form a joint
venture, and how to avoid a hostile takeover
Strategies determine long-term competitive advantages. For better or worse, strategic decisions have major multifunctional
consequences and enduring effects on an organization
SWOT Analysis
6. Strength and Weaknesses
Internal Environment
Within
Controllable
E.g. Structure, culture, Management, Rules
Opportunity and Threats
External Environment
Outside
Uncontrollable
E.g. Competitor, Supplier
The following three aspects or levels of strategy formulation, each with
a different focus, need to be dealt with in the formulation phase of
strategic management.
The three sets of recommendations must be internally consistent and fit
together in a mutually supportive manner that forms an integrated
hierarchy of strategy, in the order given.
1. Corporate Level Strategy
2. Competitive Strategy/Business Level Strategy/Business
Strategy
3. Functional Strategy
Strategy implementation often is called the “action stage” of strategic management. Implementing strategy means mobilizing
employees and managers to put formulated strategies into action.
Strategy implementation requires a firm:
to establish annual objectives,
devise policies,
motivate employees, and
allocate resources so that formulated strategies can be executed.
Strategy implementation includes developing a strategy-supportive culture, creating an effective organizational structure,
redirecting marketing efforts, preparing budgets, developing and utilizing information systems, and linking employee
compensation to organizational performance Strategy implementation requires a firm to establish annual objectives, devise
policies, motivate employees, and allocate resources so that formulated strategies can be executed.
Interpersonal skills are especially critical for successful strategy implementation. This require to answer the following question:
Annaul
Objectives
Policies
Employee
Motivation
Resource
allocation
Strategy
Implementation
Strategy
Formulation
Vission & Mission
External Opportunities
&threats
Internal Strength &
weaknesses
Long term Objectives
Alternative Strategies
Strategy Selection
7. “What must we do to implement our part of the organization’s strategy?” and
“How best can we get the job done?
Strategy evaluation is needed because success today is no guarantee of success tomorrow! Success always creates new and
different problems; complacent organizations experience demise.
Managers desperately need to know when particular strategies are not working well; strategy evaluation is the primary means
for obtaining this information.
re subject to future modification because external and internal factors are
constantly changing. Three fundamental strategy-evaluation activities are
1. Reviewing external and internal factors that are the bases for
current strategies,
2. Measuring performance, and
3. Taking corrective actions
Many organizations today develop a vision statement that answers the question “What do we want to become?
Vision statement tells us about the future goal of organization.
Vision statement includes:
Creates commonality of interest
Reduce monotony
Provides opportunity and threats
Some important characteristics of an effective vision statement are:
1. It must be easily communicable: Everybody should be able to understand it clearly.
2. It must be graphic: It must paint a picture of the kind of company the management is trying to create.
3. It must be directional: It must say something about the company’s journey or destination.
4. It must be feasible: It must be something which the company can reasonably expect to achieve in due course of time.
5. It must be focused: It must be specific enough to provide managers with guidance in making decisions.
6. It must be appealing to the long term interests of the stakeholders.
7. It must be flexible: It must allow company’s future path to change as events unfold and circumstances change.
Mission statement tells about the purpose of an organization.
This can include:
Enduring statement of purpose
Distinguishes one firm from another
Declare the organization’s reason of existence
Mission Statement Components
Whenever you want to develop organization’s mission statement you need to include the following components:
Strategy
Evaluation
•Internal Review
•External Review
•Performance
measurement
•Corrective action
8. 1. Customers—Who are the firm’s customers?
2. Products or services—What are the firm’s major products or services?
3. Markets—Geographically, where does the firm compete?
4. Technology—Is the firm technologically current?
5. Concern for survival, growth, and profitability—Is the firm committed to growth and financial soundness?
6. Philosophy—What are the basic beliefs, values, aspirations, and ethical priorities of the firm?
7. Self-concept—What is the firm’s distinctive competence or major competitive advantage?
8. Concern for public image—Is the firm responsive to social, community, and environmental concerns?
9. Concern for employees—Are employees a valuable asset of the firm?
Example: (1)
Dell’s mission is to be the most successful computer company (2) in the world (3) at delivering the best customer experience in
markets we serve (1). In doing so, Dell will meet customer expectations of highest quality; leading technology (4); competitive
pricing; individual and company accountability (6); best-in-class service and support (7); flexible customization capability (7);
superior corporate citizenship (8); financial stability (5).
(Author comment: Statement lacks only one component: Concern for Employees)
All the actors and forces that can have an impact on organization. It is divided into two parts:
1. Internal Environment
2. External Environment
Internal Environment:
Within Org.
Controllable
o Rules
o Regulation
o Policies
o Procedure
o Culture
o Management
External Environment:
Outside Organization
Uncontrollable
o Micro/Task/Specific
o Macro
SWOT analysis
SW=Internal Environment= Strength, Weaknesses
OT=External Environment= Opportunity, Threats
It focuses on identifying and evaluating trends and events beyond the control of a single firm.
9. It reveals key opportunities and threats confronting an organization so that managers can formulate strategies to take
advantage of the opportunities and avoid or reduce the impact of threats.
The external audit is aimed at identifying key variables that offer actionable responses.
The Process of Performing an External Audit
A company first must gather competitive intelligence and information about economic, social, cultural, demographic,
environmental, political, governmental, legal, and technological trends.
Once information is gathered, it should be assimilated and evaluated. A meeting or series of meetings of managers is
needed to collectively identify the most important opportunities and threats facing the firm.
These key external factors should be listed on flip charts or a chalkboard. A prioritized list of these factors could be
obtained by requesting that all managers rank the factors identified, from 1 for the most important opportunity/threat
to 20 for the least important opportunity/threat.
Freund emphasized that these key external factors should be:
1. Important to achieving long-term and annual objectives,
2. Measurable,
3. Applicable to all competing firms, and
4. Hierarchical in the sense that some will pertain to the overall company and others will be more narrowly
focused on functional or divisional areas.
The Industrial Organization (I/O) approach to competitive advantage advocates that external (industry) factors are more
important than internal factors in a firm achieving competitive advantage.
Firms performance is based more on industry properties
Those properties are:
1. Economies of scale
2. Barriers to market entry
3. Product differentiation
4. The economy
5. Level of competitiveness
Key External Forces:
External forces can be divided into five broad categories:
(1) Economic forces;
(2) Social, cultural, demographic, and natural
environment forces;
(3) Political, governmental, and legal forces;
(4) Technological forces; and
(5) Competitive forces
1) Political environment:
The government is the care taker of all of us. So it also takes care of business too. Govt. policies changes as per its ideology.
Government changes after every five years. So whenever new govt. comes into power its changes its policy which affects
business positively or negatively.
10. For example, liberalization has opened up same opportunities to same business at the sometime it has given set back to same
business. In our country the govt. is not a static.
2) Economic Environment:
Economic conditions, economic policies and the economic system are the important external factors which are framing
economic environment for a business. The economic conditions of a country mean the nature of the economy. These factors
are important while determining the business strategies, for example in a developing country the low income may be the cause
for very low demand for a product, here business can’t increase the purchasing power of the people to generate higher
demand for its product.
3) Social - Cultural environment:
For a successful business, the buying and consumption habits of the people, their languages, beliefs and values, customs and
traditions, taste and preferences and education level should have to be considered and then it has to decide its strategy so that
it will be fit in social - cultural environment.
4) Technological environment:
The business need to introduce and use latest technology in their production. But technological developments sometimes pose
problems to business as business are not able to cope up with developed technology and hence its existence came into danger.
The technological development may increase demand for a production too. For example, in India as we are having frequent
power flections, if the business introduces voltage stabilizers then definitely there will be growing demand for electrical
appliances.
5) Environmental Factor:
If consists of geographical and ecological factors such as natural resources endowments, weather and climatic conditions,
location aspects in the global context, port facilities, etc. which are relevant to business. The geographical and ecological factors
influence the location of certain industries. Climate or weather conditions matter a lot in certain industries like cotton textile
industry. The ecological factors have great importance. Say govt. policies aimed at the preservation of environmental purity.
Porter’s Five-Forces Model:
In any industry, five competitive forces dictate the rules of competition. Together, these five forces determine industry
attractiveness and profitability, which managers assess using these five factors:
a. Current rivalry: How intense is the rivalry among current industry competitors?
b. Threat of new entrants: How likely is it that new competitors will come into the industry?
c. Threat of substitutes: How likely is it that other industries’ products can be substituted for our industry’s
products?
d. Bargaining power of suppliers: How much bargaining power do suppliers have?
e. Bargaining power of buyers: How much bargaining power do buyers (customers) have?
1. Rivalry among competing firms
a. Most powerful of the five forces
b. Focus on competitive advantage of strategies over the firms.
2. Potential entry of new competitors
a. Barrier to entry are important
b. Quality, pricing, and marketing can overcome barriers
Barriers to Entry
1. Need to again economies of scale quickly 2. Need to gain technology and specialized know-how
11. 3. Lack of experience
4. Strong customer loyalty
5. Strong brand preferences
6. Large capital requirements
7. lack of adequate distribution
3. Potential development of substitute products
a. Pressure increases when
i. Price of substitute increase
ii. Consumers’ switching costs decreases
4. Bargaining power of suppliers
a. Is increased when there are:
i. Large number of suppliers
ii. Few substitutes
iii. Costs of switching raw material is high
b. Backward integration is gaining control or ownership of supplier
5. Bargaining power of consumers
a. Customers being concentrated or buying in volume affect intensity of competition
b. Consumer power is higher where products are standards or undifferentiated.
Conditions where consumers gain bargaining power
1. If buyers can inexpensively switch
2. If buyers are particularly important
3. If sellers are struggling in the face of falling consumer demand
4. If buyers are informed about Sellers’s products, prices, and costs
5. If buyers have discretion in whether and when they purchase the product
The Process of Performing an Internal Audit
See the internal strength and weaknesses of organization
This information would be given from
Management
Marketing
Finance /Accounting
Production/Operations
Research and development
Management information System
Internal resources are more important than external factors.
Approach to competitive advantage.
Three encompassing Categories
1. Physical resource (Plant, Machinery, Equipment, Technology)
2. Human resources (All human aspect)
3. Organizational resources (Structure, patent, Trademark,
12. Organizations use three types of strategies: corporate, competitive, and
functional.
Top-level managers typically are responsible for corporate
strategies,
Middle-level managers for competitive strategies, and
Lower-level managers for the functional strategies.
What Is Corporate Strategy?
An organizational strategy that determines what businesses a company is in or what it wants to be in, and what it wants to do
with those businesses.
Corporate strategy is when top managers decide what to do with those businesses: grow them, keep them the same, or renew
them.
Corporate Strategy is based on the mission and goal.
Three main types of corporate strategies are:
1. Growth
2. Stability, and
3. Renewal
1. Growth Strategy
A corporate strategy that’s used when an organization wants to expand the number of markets served or products offered,
either through its current businesses or through new businesses.
Organizations grow by using Concentration, Vertical Integration, Horizontal integration, or Diversification.
Concentration focuses on its primary line of business and increases the number of products offered or markets served in this
primary business.
Example: Bose Corporation of Framingham, Massachusetts, which focuses on developing innovative audio products. It has
become one of the world’s leading manufacturers of speakers for home entertainment, automotive, and professional audio
markets with annual sales of more than $3 billion.
Vertical integration is further divided into two strategies either Backward Strategy, Forward Strategy.
In backward vertical integration, the organization becomes its own supplier so it can control its inputs.
For instance, Walmart plans to build a dairy-processing plant in Indiana to supply private-label milk to hundreds of its stores at
a lower cost than purchasing milk from an outside supplier.
Forward vertical integration, the organization becomes its own distributor and is able to control its outputs. For example,
Apple has more than 400 retail stores worldwide to distribute its products.
Horizontal integration, a company grows by combining with competitors.
For instance, NMC Healthcare, which is based in the United Arab Emirates, recently acquired Al Zahra Hospital in Sharjah.
13. Related Diversification happens when a company combines with other companies in different, but related, industries. For
example, Google has acquired a number of businesses (some 150 total), including YouTube, DoubleClick, Nest, and Motorola
Mobility
Unrelated Diversification is when a company combines with firms in different and unrelated industries.
For instance, the Tata Group of India has businesses in chemicals, communications and IT, consumer products, energy,
engineering, materials, and services.
2. STABILITY
A stability strategy is a corporate strategy in which an organization continues to do what it is currently doing. Examples of this
strategy include continuing to serve the same clients by offering the same product or service, maintaining market share, and
sustaining the organization’s current business operations.
3. Renewal Strategy
A corporate strategy designed to address declining performance.
. The two main types of renewal strategies are retrenchment and turnaround strategies
A retrenchment strategy
is a short-run renewal strategy used for minor performance problems. This strategy helps an organization stabilize operations,
revitalize organizational resources and capabilities, and prepare to compete once again.
For instance, Biogen reduced its workforce by 11 percent to cut costs.24 With those savings, the company has increased
spending for research and development and for marketing.
When an organization’s problems are more serious, more drastic action—the turnaround strategy—is needed. Managers do
two things for both renewal strategies: cut costs and restructure organizational operations. However, in a turnaround strategy,
these measures are more extensive than in a retrenchment strategy. For example, the CIT Group’s declining profits prompted
management to cut costs by $125 million and sell the company’s aircraft financing business unit to more effectively focus on
commercial lending and leasing.
What is Competitive Strategy/ Strategic Business Strategies
A competitive strategy is a strategy for how an organization will compete in its businesses. For a small organization in only one
line of business or a large organization that has not diversified into different products or markets, its competitive strategy
describes how it will compete in its primary or main market.
When an organization is in several different businesses, those single businesses that are independent and that have their own
competitive strategies are referred to as strategic business units (SBUs).
What is Functional Level Strategy
Functional strategies, which are the strategies used by an organization’s various functional departments to support the
competitive strategy.
For example, when R. R. Donnelley & Sons Company, a Chicago-based printer, wanted to become more competitive and
invested in high-tech digital printing methods, its marketing department had to develop new sales plans and promotional
pieces, the production department had to incorporate the digital equipment in the printing plants, and the human resources
department had to update its employee selection and training programs.
14. Anything that a firm does especially well compared to rivals. It is drive from internal environment
We conduct the PESTLE analysis, when we are making strategic planning.
PESTLE analysis makes us aware about those relevant and irrelevant factors.
PESTLE analysis gives a bird’s eye view of the whole environment from many different angles that one wants to check and keep
a track of while contemplating a certain idea or plan.
It is short form of:
1. Political environment:
The government is the care taker of all of us. So it also takes care of business too. Govt. policies changes as per its ideology.
Government changes after every five years. So whenever new govt. comes into power its changes its policy which affects
business positively or negatively.
For example, liberalization has opened up same opportunities to same business at the sometime it has given set back to same
business. In our country the govt. is not a static.
2. Economic Environment:
Economic conditions, economic policies and the economic system are the important external factors which are framing
economic environment for a business. The economic conditions of a country mean the nature of the economy. These factors
are important while determining the business strategies, for example in a developing country the low income may be the cause
for very low demand for a product, here business can’t increase the purchasing power of the people to generate higher
demand for its product.
3. Social - Cultural environment:
For a successful business, the buying and consumption habits of the people, their languages, beliefs and values, customs and
traditions, taste and preferences and education level should have to be considered and then it has to decide its strategy so that
it will be fit in social - cultural environment.
4. Technological environment:
The business need to introduce and use latest technology in their production. But technological developments sometimes pose
problems to business as business are not able to cope up with developed technology and hence its existence came into danger.
P Political
E Economical
S Social
T Technological
L Legal
E Environmental
15. The technological development may increase demand for a production too. For example, in India as we are having frequent
power flections, if the business introduces voltage stabilizers then definitely there will be growing demand for electrical
appliances.
5. Environmental Factor:
If consists of geographical and ecological factors such as natural resources endowments, weather and climatic conditions,
location aspects in the global context, port facilities, etc. which are relevant to business. The geographical and ecological factors
influence the location of certain industries.
climate or weather conditions matter a lot in certain industries like cotton textile industry. The ecological factors have great
importance. Say govt. policies aimed at the preservation of environmental purity.
Definition: A strategy tool that guides resource allocation decisions on the basis of market share and growth rate of SBUs.
The BCG Matrix graphically portrays differences among divisions in terms of relative market share position and industry growth
rate.
BCG matrix is based on the premise that majority of the companies carry out multiple business activities in a number of
different product-market segments. Together, these different businesses form the business portfolio of the company, which
need to be balanced for overall profitability of the company.
The BCG matrix helps to determine priorities in a product portfolio. Its basic purpose is to invest where there is growth from
which the firm can benefit, and divest those businesses that have low market share and low growth prospects.
Each of the products or business units is plotted on a two-dimensional matrix consisting of
1. Relative market share
2. Market growth rate.
16. Relative market share: Relative market share position is defined as the ratio of a division’s own market share (or
revenues) in a particular industry to the market share (or revenues) held by the largest rival firm in that industry.
The horizontal axis represents market share (low or high).
Market Growth Rate: It is the percentage of market growth, that is, the percentage by which sales of a particular
product or business unit have increased.
The vertical axis indicates anticipated market growth (low or high).
A business unit is evaluated using a SWOT analysis and placed in one of the four categories, which are as follows:
Question Marks: Low market share/High anticipated growth rate.
Stars: High market share/High anticipated growth rate.
Cash Cows: High market share/Low anticipated growth rate.
Dogs: Low market share/Low anticipated growth rate.
Question Marks—Divisions in Quadrant I have a low relative market share position, yet they compete in a high-growth
industry. Generally, these firms’ cash needs are high and their cash generation is low. These businesses are called
Question Marks because the organization must decide whether to strengthen them by pursuing an intensive strategy
(market penetration, market development, or product development) or to sell them.
Stars—Quadrant II businesses (Stars) represent the organization’s best long-run opportunities for growth and
profitability. Divisions with a high relative market share and a high industry growth rate should receive substantial
investment to maintain or strengthen their dominant positions. Forward, backward, and horizontal integration; market
penetration; market development; and product development are appropriate strategies for these divisions to consider,
as indicated in a figure
Cash Cows—Divisions positioned in Quadrant III have a high relative market share position but compete in a low-
growth industry. Called Cash Cows because they generate cash in excess of their needs, they are often milked. Many of
17. today’s Cash Cows were yesterday’s Stars. Cash Cow divisions should be managed to maintain their strong position for
as long as possible. Product development or diversification may be attractive strategies for strong Cash Cows. However,
as a Cash Cow division becomes weak, retrenchment or divestiture can become more appropriate.
Dogs—Quadrant IV divisions of the organization have a low relative market share position and compete in a slow- or
no-market-growth industry; they are Dogs in the firm’s portfolio. Because of their weak internal and external position,
these businesses are often liquidated, divested, or trimmed down through retrenchment. When a division first
becomes a Dog, retrenchment can be the best strategy to pursue because many Dogs have bounced back, after
strenuous asset and cost reduction, to become viable, profitable divisions.