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1 introduction to strategy


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Strategy Basics

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1 introduction to strategy

  1. 1. Introduction to StrategyIntroduction to Strategy Chapter 1Chapter 1
  2. 2. StrategyStrategy All organizations formulate strategies including small and large firms, non profit institutions, and government organizations. Simply put strategy is ‘the long-term direction of an organization’. ‘Strategy is the direction and scope of an organization over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations (JS & W)
  3. 3. Strategic ManagementStrategic Management ►Strategic Management can be defined as the art and science of formulating, implementing and evaluating cross- functional decisions that enable an organization to achieve its objectives.
  4. 4. Strategic Decisions are aboutStrategic Decisions are about ►The long-term direction of an organization ►The scope of an organization’s activities ►Gaining advantage over competitors ►Addressing changes in the business environment ►Building on resources and competencies ►Values and expectations of stakeholders
  5. 5. Therefore are likely toTherefore are likely to ►Be complex in nature ►Be made in situations of uncertainty ►Affect operational decisions ►Require an integrated approach ►Involve considerable change
  6. 6. Strategic PlanningStrategic Planning ►Rational ModelRational Model ►Strategic PlanStrategic Plan ►Planning CyclePlanning Cycle To be drawn in note booksTo be drawn in note books Chapter reference from the textChapter reference from the text
  7. 7. Rational modelRational model Mission Corporate Appraisal Strategic Options Choices Implemen tation Position Audit Strategic Control Environm ent Analysis Position Choice Action
  8. 8. Elements of Strategic ManagementElements of Strategic Management ►Strategic AnalysisStrategic Analysis ►Strategic ChoiceStrategic Choice ►Strategic ActionStrategic Action
  9. 9. Competitive AdvantageCompetitive Advantage ►Strategic management is all about gaining and maintaining competitive advantage. This term can be defined as “anything that a firm does especially well compared to rival firms”. When a firm can do something that rival firms cannot do, or owns something that rival firms desire, that can represent a competitive advantage.
  10. 10. Objectives of Strategic PlanningObjectives of Strategic Planning ► (i) Identification of opportunities & risks. ► (ii) Involvement in proactive thinking of the business objectives and taking coordinated actions. ► (iii) Participation of management and staff. ► (iv) Alignment of the company’s short-term, medium-term and long-term targets for achievement of the company’s objectives. ► (v) Optimum coordination of the corporate, business and functional strategies for achievement of the Company’s objectives.
  11. 11. Benefits of StrategicBenefits of Strategic ManagementManagement ► It allows an organization to be more proactive than reactive. ► 2. It helps organizations formulate better strategies through the use of a more systematic, logical, and rational approach to strategic choice. ► 3. It helps in developing understanding among managers and employees. ► 4. It empowers individuals. ► 5. It improves an organization’s profitability.
  12. 12. Pitfalls of Strategic PlanningPitfalls of Strategic Planning ► Using strategic planning to gain control over decisions and resources ► Doing strategic planning only to satisfy accreditation or regulatory requirements ► Too hastily moving from mission development to strategy formulation ► Failing to communicate the plan to employees, who continue working in the dark ► Top managers making many intuitive decisions that conflict with the formal planning ► Top managers not actively supporting the strategic planning process ► Failing to use plans as a standard for measuring performance
  13. 13. Pitfalls of Strategic PlanningPitfalls of Strategic Planning ► Delegating planning to a planner rather than involving all managers ► Failing to involve key employees in all phases of planning ► Failing to create a collaborative climate supportive of change ► Viewing planning as unnecessary or unimportant ► Becoming so engrossed in current problems that insufficient or no planning is done ► Being so formal in planning that flexibility and creativity are stifled
  14. 14. Why some firms do not engage inWhy some firms do not engage in strategic planningstrategic planning ► Lack of experience or knowledge. ► Poor reward structures. ► Firefighting. ► Waste of time. ► Too expensive. ► Laziness. ► Content with success. ► Fear of failure. ► Overconfidence. ► Prior bad experience. ► Self-interest. ► Fear of the unknown. ► Honest difference of opinion. ► Suspicion.
  15. 15. Why Strategic Plans do not succeedWhy Strategic Plans do not succeed ► (i) Inadequate understanding. ► (ii) Poor allocation of resources, organizational as well as human. ► (iii) Weak organizational culture. ► (iv) Consideration of the strategic planning as a ritual. ► (v) Poor Communication and lack of coordination. ► (vi) Pre-occupation of the operational level managers with the achievement of their short-term targets and lack of awareness of the contribution of their own efforts towards achievement of the overall objectives. ► (vii) Inability to integrate and coordinate the various functions. ► (viii) Absence of a proper system to measure actual performanc.
  16. 16. Guidelines for Strategic Plan toGuidelines for Strategic Plan to be effectivebe effective ► It should be a people process more than a paper process. ► It should be a learning process for all managers and employees. ► It should be words supported by numbers rather than numbers supported by words. ► It should be simple and nonroutine. ► It should welcome open-mindedness and a spirit of inquiry and learning. ► It should not be a bureaucratic mechanism.
  17. 17. Guidelines for Strategic Plan toGuidelines for Strategic Plan to be effectivebe effective ► It should not become ritualistic, stilted, or orchestrated. ► It should not contain jargon or arcane planning language. ► It should not be a formal system for control. ► It should not disregard qualitative information. ► It should not be controlled by “technicians” ► Do not pursue too many strategies at once. ► Continually strengthen the “good ethics is good business"
  18. 18. Hierarchy of ObjectivesHierarchy of Objectives
  19. 19. Vision Statement: What do weVision Statement: What do we want to become?want to become? ► General Motors’ vision is to be the world leader in transportation products and related services. ► To become the world's leading Consumer Company for automotive products and services (Ford) ► To be the number one athletic company in the world (Nike) ► Making the best possible ice cream, in the nicest possible way (Ben & Jerry’s) ► To provide access to the world’s information in one click (Google)
  20. 20. Mission: What is our business?Mission: What is our business? a formal summary of the aims and values of a company, organization, or individual. ► Google’s mission is to organize the world‘s information and make it universally accessible and useful ► We deliver low prices every day and give ordinary folks the chance to buy the same things as rich people (Wal-Mart) ► We sell the lifestyle and self-expression; success and status; memories; hopes, and dreams (Revlon) ► To provide a global trading platform where practically anyone can trade practically anything – you can get it on e-Bay ► A global technology company delivering innovative solutions to life's everyday needs (3 M) ► The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit.
  21. 21. Components of Mission StatementComponents of Mission Statement ►PurposePurpose ►StrategyStrategy ►Values & BeliefsValues & Beliefs ►Norms of BehaviorNorms of Behavior
  22. 22. Benefits of Mission StatementBenefits of Mission Statement ► Achieve clarity of purpose. ► Provide a basis for all other strategic planning activities. ► Provide direction. ► Provide a focal point for all stakeholders of the firm. ► Resolve divergent views among managers. ► Promote a sense of shared expectations among all managers and employees. ► Project a sense of worth and intent to all stakeholders. ► Project an organized, motivated organizational worthy of support. ► Achieve higher organizational performance. ► Achieve synergy among all managers and employees.
  23. 23. Criticism of Mission StatementCriticism of Mission Statement ► Not always supported by action of the business. ► Often too vague and general. ► Often merely statement of the obvious ► Often seen as a PR exercise ► Sometimes regarded cynically by staff ► Sometimes not a true reflection of reality ► To mean anything they must be supported whole heartedly by the management
  24. 24. Values, Beliefs & NormsValues, Beliefs & Norms ► Values are things that employees deem important and can include concepts like  equality, honesty, education, effort, perseverance, loyalty, faithfulness…etc. ► The beliefs on the other hand are assumptions that people make about the world. They grow from what people see, hear, experience, read and think about ► Norms are agreement among the members of the community about how they will treat one another. Examples include: employees will treat one another with respect, employees will solve problems fairly, employees will help each other etc.
  25. 25. Objectives: Specific TargetsObjectives: Specific Targets ►SS ►MM ►AA ►RR ►TT ►FunctionsFunctions ►PRIMEPRIME
  26. 26. Examples of CorporateExamples of Corporate ObjectivesObjectives ► Sales revenue  ► Profit  ► Return on investment ► Growth (sales volume, revenue, profit, earnings per share) ► Market share  ► Cash flow  ► Shareholder value ► Corporate image & reputation 
  27. 27. Reasons of Setting Financial TargetsReasons of Setting Financial Targets ► Acts as a focus for decision making and effort ► Provides a yardstick against which success or failure can be measured ► Improves coordination ► Improves efficiency ► Allows shareholders to assess whether the business is going to provide a worthwhile investment ► Enables outside organizations (suppliers and customers), to confirm the financial viability of a business
  28. 28. Levels of StrategyLevels of Strategy
  29. 29. Strategic LensesStrategic Lenses ►Strategy as design ►This is the view that strategy formulation is a rational, logical process where information is carefully considered and predictions made. Strategic choices are made and implementation takes place. Essentially this is the same as the rational planning model discussed earlier.
  30. 30. Strategy as ExperienceStrategy as Experience ►This is the view that future strategies are based on experiences gained from past strategies. There is strong influence from the received wisdom and culture within an organization about how things should be done. This reflects the emergent approach.
  31. 31. Strategy as IdeasStrategy as Ideas ►This is the view that innovation and new ideas are frequently not thought up by senior managers at the corporate planning level. Rather, new ideas will often be created throughout a diverse organization as people try to carry out their everyday jobs and to cope with changing circumstances.  
  32. 32. Distinguishing characteristics of organizationsDistinguishing characteristics of organizations which pursue innovative strategieswhich pursue innovative strategies ►(a) their products are superior and different. ►(b)they stay ahead of competition. ►(c)they preempt their environment. ►(d)they create greater customer value. ►(e)they are forward looking visionaries. ►(f)they value management cohesiveness.
  33. 33. Decision Making ProcessDecision Making Process ► (a) Identification of the objectives. ► (b) Collection of information and ideas. ► (c) Analyses of information and ideas. ► (d) Making of the Decision. ► (e) Communication of the Decision. ► (f) Evaluation of the results of the decision.
  34. 34. Strategic, Tactical & Operational DecisionsStrategic, Tactical & Operational Decisions ► Strategic Level Decisions ► decisions are concerned with long-term goals and future direction of business. ► decisions are more conceptual and have elements of uncertainty. ► decisions have far-reaching consequences and are therefore of considerable importance. ► decisions are taken at the highest management and board levels.
  35. 35. ► Tactical Level Decisions ► decisions are concerned with short to medium term objectives. ► decisions are often related with implementation and success of strategic decisions. ► decisions are concerned with overseeing and handling of budgets, personnel, schedules and resources. ► risks of failure of decisions are moderate.
  36. 36. ►Operational Level Decisions ►decisions are concerned with day-to-day systems and procedures. ►decisions are more structured and are of a routine nature. ►outcomes of decisions are immediate and of short term nature. ►decisions involve fewer risks.
  37. 37. Strategy ImplementationStrategy Implementation ►Organizational StructureOrganizational Structure ►Human ResourcesHuman Resources ►TechnologyTechnology ►Decision processDecision process ►Monitoring and control systemMonitoring and control system ►Reward systemReward system
  38. 38. Success CriteriaSuccess Criteria ►Suitability – strategic fitSuitability – strategic fit ►Feasibility – in terms of resources andFeasibility – in terms of resources and competenciescompetencies ►Acceptability – to stake holdersAcceptability – to stake holders By KMI
  39. 39. Suitability requirementsSuitability requirements ► Exploit strengthsExploit strengths ► Rectify weaknessesRectify weaknesses ► Deflect threatsDeflect threats ► Seize opportunitiesSeize opportunities ► Goal achievementGoal achievement ► Competitive advantageCompetitive advantage ► Minimizing riskMinimizing risk ► FeelFeel ► Life Cycle analysisLife Cycle analysis ► Business portfolio analysisBusiness portfolio analysis ► TOWSTOWS By KMI
  40. 40. ►Feasibility:Feasibility: ►MsMs ►Acceptability:Acceptability: ►Achievement of financial goals: ROI, Profits,Achievement of financial goals: ROI, Profits, Growth, EPS, Cash flow, Price/earnings,Growth, EPS, Cash flow, Price/earnings, market capitalization, CB analysismarket capitalization, CB analysis By KMI
  41. 41. Financial Criteria to evaluateFinancial Criteria to evaluate strategystrategy ►Return on investment (ROI) ►Return on equity (ROE) ►Profit margin ►Market share ►Debt to equity ►Earnings per share ►Sales growth ►Asset growth
  42. 42. Corrective ActionCorrective Action ► Alter the firm’s structure ► Replace one or more key individuals ► Divest a division ► Alter the firm’s vision and/or mission ► Revise objectives ► Alter strategies ► Devise new policies ► Install new performance incentives ► Raise capital with stock or debt ► Add or terminate salesperson, employees, or managers ► Allocate resources differently ► Outsource (or rein in) business functions