Strategic Management

1. Lesson 2Lesson 2
STRATEGY FORMULATIONSTRATEGY FORMULATION
PROCESSPROCESS

2. The basic purpose of any strategy is to provide the firm withThe basic purpose of any strategy is to provide the firm with
a competitive advantage, an edge over competition.a competitive advantage, an edge over competition.
-any strategy without competitive advantage is like a car-any strategy without competitive advantage is like a car
without fuel.without fuel.
Competitive AdvantageCompetitive Advantage It is defined as the ability to doIt is defined as the ability to do
something so well that an organisation performs better thansomething so well that an organisation performs better than
its competitors.its competitors.
It is the ability to use resources in such a way that theIt is the ability to use resources in such a way that the
organization performs better than the competitors.organization performs better than the competitors.
Ex: Competitive advantage of Samsung: Product variety,Ex: Competitive advantage of Samsung: Product variety,
high technology like in Galaxy III, IV, fair price, etc.,high technology like in Galaxy III, IV, fair price, etc.,

4. Sources / AREAS of Competitive AdvantageSources / AREAS of Competitive Advantage
 Cost and QualityCost and Quality- emphasis on operating efficiency and- emphasis on operating efficiency and
product quality.product quality.
 (Mobiles are priced reasonable and(Mobiles are priced reasonable and
quality is high)quality is high)
 Knowledge and SpeedKnowledge and Speed –emphasis on innovation and speed–emphasis on innovation and speed
of delivery to market for new ideas. New features are broughtof delivery to market for new ideas. New features are brought
in and also fast)in and also fast)
 Barriers to EntryBarriers to Entry – emphasis on creating a strong market– emphasis on creating a strong market
that protects similar entry by others ( Red Bull entered Gulfthat protects similar entry by others ( Red Bull entered Gulf
and has strongly protected market thro Ads & publicity likeand has strongly protected market thro Ads & publicity like
stalls in colleges).stalls in colleges).
 Financial ResourcesFinancial Resources – emphasis on creating strong financial– emphasis on creating strong financial
base /investments or loss can be absorbed by the companybase /investments or loss can be absorbed by the company
that competitors can’t match.that competitors can’t match.

5. Steps in the StrategicSteps in the Strategic
Management processManagement process

6.  Stage I:Stage I: Mission and ObjectivesMission and Objectives ::
 The first stage in the formulation of strategy isThe first stage in the formulation of strategy is toto
establish the mission statement of an organisationestablish the mission statement of an organisation..
 MissionMission states the very purpose of the existence of anstates the very purpose of the existence of an
organisation.organisation. addresses the basic question: “What is
our business?”
 It enlists the business psychology and managementIt enlists the business psychology and management
intention in defining its core values pertaining to itsintention in defining its core values pertaining to its
customers and stakeholderscustomers and stakeholders
 Vision statement
– answers the question “What do we want to become?”
 ObjectivesObjectives are the end results that lead to achieveare the end results that lead to achieve
the missionthe mission
 ObjectivesObjectives are derived from the mission statement.are derived from the mission statement.
 Objectives are formulated at the corporate level,Objectives are formulated at the corporate level,
department level and operational level.department level and operational level.

7. ActivityActivity
 Write the mission statement if ICT andWrite the mission statement if ICT and
department objectives of Businessdepartment objectives of Business
StudiesStudies
 Who are the stakeholders for ICT?Who are the stakeholders for ICT?
 Stakeholders of an organisation areStakeholders of an organisation are
owners/ shareholders, employees,owners/ shareholders, employees,
suppliers, financiers, government,suppliers, financiers, government,
societysociety

8.  ICT Vision
 We will be a leading technological institution,
providing high quality teaching and learning to
prepare and empower the Omani professionals of
the future to contribute to national socio-economic
development.

ICT Mission
 To deliver high quality student-centred education
that produces competitive graduates who enter the
labor market with confidence, strong technological
and personal skills, prepared for a life of
contribution and success.

9. Stage II:Organisational analysis & Environmental Analysis
Since the environment is not stable
and keeps on changing, it keeps on
presenting with the new opportunities
and threats. An environmental scan is
done to identify available opportunities
and threats.
Industry analysis: The basic
purpose of industry analysis is to
assess the strengths and weaknesses
of an organization relative to other
players in the industry.
It can be done by SWOT analysis

10. SWOT ANALYSISSWOT ANALYSIS

11.  Strengths
 The strengths can be identified based on the
factors of ability and resources
 What does the company do well?
 Is the company strong in its market?
 Does the company have a strong sense of
purpose and the culture to support the purpose?
 Weaknesses
 What does the company do poorly?
 What problems could be avoided?
 Does the company have serious financial
liabilities?

13.  Opportunities
 Are industry trends moving upward?
 Do new markets exist for the company’s
products/ services?
 Are there new technologies that the
company can exploit?

 Threats
 What are competitors doing well?
 What obstacles does the company face?
 Are there troubling changes in the
company’s business environment

15. DISCUSSION
 The second-largest bookstore chain in the
United States, Borders Group, declared
bankruptcy in 2011 as the firm had not
adapted well to changes in book retailing
from traditional bookstore shopping to
customers buying online, preferring digital
books to hard copies
 Borders was on the brink of financial
collapse before being acquired in July 2011
by Direct Brands

16. ( Do SWOT for the case given)( Do SWOT for the case given)
In the mid-1990s, Dell Computer used a SWOT analysis to create a strong
business strategy that has helped it become a very strong competitor in its
industry value chain. Dell identified its strengths in selling directly to
customers and in designing its computers and other products to reduce
manufacturing costs. It acknowledged the weakness of having no
relationships with local computer dealers. Dell faced threats from
competitors such as Compaq and IBM, both of which had much stronger
brand names and reputations for quality at that time. Dell identified an
opportunity by noting that its customers were becoming more
knowledgeable about computers and could specify exactly what they
wanted without having Dell salespersons answer questions or develop
configurations for them. It also saw the internet as potential marketing tool.
The strategy that Dell followed after doing the analysis took all for of the
SWOT elements into consideration. Dell decided to offer customized
computers built to order and sold over the phone, and eventually, over the
internet. Dell’s strategy capitalized on its strengths and avoiding relying on a
dealer network. The brand and quality threats posed by Compaq and IBM
were lessoned by dell’s ability to deliver higher perceived quality because
each computer was custom made for each buyer.

17. Environmental analysisEnvironmental analysis
 Environmental analysis: The process byEnvironmental analysis: The process by
which organizations monitor their relevantwhich organizations monitor their relevant
environment to identify opportunities andenvironment to identify opportunities and
threats affecting their business is known asthreats affecting their business is known as
environmental scanning or environmentalenvironmental scanning or environmental
analysis.analysis.
 Firm’s macro environment refers to theFirm’s macro environment refers to the
PESTEL framework: This covers the totalPESTEL framework: This covers the total
analysis of the country of operationsanalysis of the country of operations; the; the
forces, which have a definite bearing on theforces, which have a definite bearing on the
firm's operations and planningfirm's operations and planning

18. Stage III & IV: Identification and
choice of Strategic Alternatives:
 Once the clear picture of the organisation
and its environment are available,
specific strategies can be developed.
Different organisations -different strategies
depending on their situation
Michael Porter has identified certain generic
strategies such as cost leadership,
differentiation and focus.
Once the environment is scanned - weigh
appropriate strategy to match its objectives.
done sWOT and resources.

19. Stage IV: Implementation of Strategy
 strategies are identified
 should allocate resources for implementing
the strategy.
 resources may be financial, human or new
technology.
 Necessary change mechanism is to be
incorporated at various levels in the
organisation to accept the new strategy.
 A manager has to prepare plans to cover all
the functional areas of business— finance,
technology, creation of facilities, products,
services, distribution, suppliers, etc., and
arrange for necessary resources.

20. Stage VI: Review and Control of
Strategy
Once implemented…
the results of the strategy needs to be measured and
evaluated
so that required changes can be made to
keep the plan on track.
Control systems should be developed so that implementation
can be monitored.

21. Examples: Mission and
Vision Statements
Our vision: Getting to a billion connected computers
worldwide, millions of servers, and trillions of dollars
of e-commerce. Intel’s core mission is being the
building block supplier to the Internet economy and
spurring efforts to make the Internet more useful.
Being connected is now at the center of people’s
computing experience. We are helping to expand the
capabilities of the PC platform and the Internet.
Intel

22. Examples: Mission and
Vision Statements
Otis Elevator
Our mission is to provide any customer a means
of moving people and things up, down, and
sideways over short distances with higher
reliability than any similar enterprise in the world.
Our business is renting cars. Our mission is total
customer satisfaction.
Avis Rent-a-Car

23. Examples of Strategic
Objectives
 Increase firm’s market share
 Overtake key rivals on quality or customer service
or product performance
 Attain lower overall costs than rivals
 Boost firm’s reputation with customers
 Attain stronger foothold in international markets
 Achieve technological superiority
 Become leader in new product introductions
 Capture attractive growth opportunities

24. Example: Strategic
Objectives
 To satisfy our customers by providing
 Quality cars and trucks,
 Developing new products,
 Reducing the time it takes to bring new
vehicles to market,
 Improving the efficiency of all our plants &
processes, and
 Building on our teamwork with employees,
unions, dealers, and suppliers.

25. Environmental analysisEnvironmental analysis

26.  P- Political - Political environment has a direct impact on the strategy of
organisations.
 The party in power ,
 Political stability,
 laws and regulations,
 import tariffs and export incentives,
 industrial climate and support.
E- Economical - Economic conditions,
economic policies and the economic system are the important external
factors of economic environment.
The economic condition of a country ---
nature of the economy,
the stage of development,
gross domestic product,
level of income, the distribution of income,
the size of population,
the distribution of population etc.
In developing or poor countries, the low level of incomes may be reason for
low demand of goods and services. In such cases, prices have to be
reduced or new products developed for such markets.

27. Type of environment Internal or external
Economic conditions
economic policies
effluent treatment.
family and pattern of life styles
gross domestic product
import tariffs and export incentives
industrial climate and support.
laws and regulations
Legal framework of the country
level of income
nature of the economy
Political stability
Regulations to protect the
consumer interests
social awareness and pollution
control mechanism
Technological developments
the distribution of income
the distribution of population
the size of population
urbanization

28. S- Social-cultural-
Socio-cultural factors,
family and pattern of life styles,
role of women,
urbanization,
life expectancy,
)age group of people)age distribution,
religion.
The socio cultural factors have to be understood by the organisations to be successful.
organisations have to understand the
values, customs, traditions (dress as per culture), tastes (can we sell spicy food in
Oman)and preferences of the society where they are doing business.
For a business to be successful, its strategy should be the one that is appropriate in the
socio cultural environment. For example,
Nestle today provides different types of instant coffees to satisfy to satisfy different national
tastes.
 Also, the tastes and prefrences of the customers keep changing from time to time. For
example people preferred big cars in U.S. But rising oil prices have forced people in most of
the oil importing countries to change to smaller cars. This has resulted most of the car
companies doing research and development on small car projects

29. T- Technological -. Technological developments may increase the
demand for some existing products.
For example, voltage stablisers help increase the sale of electrical
equipments in markets which have high voltage fluctuations in power
supply. However, introduction of TVs, refrigerators with in-built
voltage stabliser affects the demand for voltage stablisers.
 E- Ecological - Environmental issues, social awareness and
pollution control mechanism, legal framework and regulations,
effluent treatment.
 L- Legal factors prevailing within the country of operations - Legal
framework of the country, Regulations to protect the consumer
interests and purity of the environment and ecological balance have
assumed greater importance in recent years.
 In most countries, advertisements have subject to various types of
controls. For example in many countries using children in
commercial advertisements is prohibited. In many countries,
production of alcohol is prohibited. patents and business laws,
labour and industrial disputes, companies act.

30. RED BULL – PEST ANALYSIS
Political
 Bans from EU countries
 No regulation on labelling of such drinks
 Age limits should be set on purchasing
 Health risks affecting NHS and increased spending possibly leading to increase
taxes
Economic
 PDI and Consumer Expenditure
 Rising disposable incomes encourage premium purchases
 Major soft drink manufacturers have been attracted to the sports and energy
drink market partly by the premium prices that currently exist for these products.
Social
 Negative Health concerns
 Global warming
 Longer working hours, increased road traffic, more need for energy boost
 Increasing consumer concern around diet and personal health
Technological
 Improved manufacturing techniques and process could lead to lower prices
 Innovation within the market – new products – looking for ultimate hangover cure

31. Some Opportunities and
Threats
 Computer hacker problems are increasing.
 Intense price competition is plaguing most
firms.
 Unemployment and underemployment rates
remain high.
 Interest rates are rising.
 Product life cycles are becoming shorter.
 State and local governments are financially
weak.

32. Sample Strategies in Action in 2011