Chapter Outline…..• Concept of Strategy• Levels of Strategy• Strategic Management Process• Vision, Mission, Objectives, Goals, Target, Approaches to Strategic decisions• Mintzberg’s Model
Concept of Strategy• 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.• Consists of competitive moves and business approaches to produce successful performance.• Large-scale, future-oriented plan for interacting with the competitive environment to achieve objectives.
Strategic management :• The process of – specifying an organizations objectives, – developing policies and plans to achieve these objectives, and – allocating resources so as to implement the plans.• Benefits of Strategic Management: – Enhances the firm’s ability to prevent problems – Emphasizes group-based strategic decisions likely to be based on best available alternatives – Improves employees’ understanding of the productivity-reward relationship – Reduces gaps/overlaps in activities among employees as their participation clarifies differences in roles – Resistance to change is reduced
Levels of Strategy:• Corporate level: board of directors, CEO & administration [Highest]• Business level: business and corporate managers [Middle] (SBU – Strategic business Unit)• Functional level: Product, geographic, and functional area managers [Lowest]
Characteristics of Strategic Management Decisions: (Corporate)• Often carry greater risk, cost, and profit potential• Greater need for flexibility• Longer time horizons• Choice of businesses, dividend policies, sources of long-term financing, and priorities for growth 1-7
Characteristics of Strategic Management Decisions: (Business)• Help bridge decisions at the corporate and functional levels.• Less costly, risky, and potentially profitable than corporate-level decisions.• More costly, risky, and potentially profitable than functional-level decisions.• Include decisions on plant location, marketing segmentation, and distribution 1-8
Characteristics of Strategic Management Decisions: (Functional )• Implement the overall strategy formulated at the corporate and business levels.• Involve action-oriented and operational issues.• Relatively short range and low risk.• Modest costs: depend upon available resources.• Relatively concrete and quantifiable 1-9
The Strategic Management Process:• The process by which managers choose a set of strategies that will allow a company to achieve superior performance.• The elements in Strategic Management Process should be : a. Strategic Intent b. Environmental and Organizational Analysis c. Identification of Strategic Alternatives d. Choice of Strategy e. Implementation of Strategy f. Evaluation and Control
a. Strategic Intent• The strategic intent makes clear why an organization stands for.• It is reflected through vision, mission, business definition and objectives. – Vision is a statement of what an organization wishes to be like in long run/future. – Mission is the reason for existence of an organization. – The process of assigning a part of a mission to a particular department and then further sub dividing the assignment among sections and individuals creates a hierarchy of objectives. – Goals are the intentions behind actions/decisions- the state of mind that derive individuals to do what they do.
b. Environmental and Organizational Analysis• It includes monitoring, evaluating and disseminating of information from external and internal environments to key people within the corporation.• The factors which comprise firms environment are of two types: • factors which influence environment directly including suppliers, customers and competitors, and • factors which influence the firm indirectly including social, technological, political, legal, economic factors etc.• There are two aspects involved in environmental analysis: • Monitoring the environment i.e. environmental search and • Identifying opportunities and threats based on environmental monitoring i.e. environmental diagnosis.
c. Identification of Strategic Alternatives• Strategic alternatives revolve around the question whether to continue or change the business, the enterprise is currently improving the efficiency or effectiveness with which the firm achieves its corporate objectives in its chosen business sector.• According to Glueck, there are basically four grand strategic alternatives: – Stability – Expansion – Retrenchment – Combination
d. Choice of Strategy• The next logical step after evaluation of strategic alternatives is choice of the most suitable alternative.• While making a choice, two types of factors have to be considered: – Objective factors – Subjective factors Objective factors are the ones which can be quantified while subjective factors are the ones which cannot be quantified and are based on experience and opinion of people.• The strategic choice is a decision making process which looks into the following steps: – Focusing on strategic alternatives – Evaluating strategic alternatives – Considering decision factors – objective factors and subjective factors. – Finally, making the strategic choice.
e. Implementation of Strategy• After the evaluation of the alternatives, the choice of strategy is made. This choice now needs to be implemented i.e. strategy is now put into action.• Implementation of Strategy includes the activation of the strategic alternatives chosen.• Strategy making and strategy implementation are two different things. Strategy making requires person with vision while strategy implementation requires a person with administrative ability.
f. Evaluation and Control:• This is the last step of the strategy making process. This is an ongoing process, evaluation and control have to be done for future course of action as well.• Evaluation of strategy is done by the top managers to determine whether their strategic choice is implemented in a manner that it is meeting the organization’s objectives.• Evaluation emphasizes measurement of results of a strategic action. On the other hand, control emphasizes on taking necessary action in the light of gap that exists between intended results and actual results in the strategic action.
Vision, Mission, Objectives, Goals, Target, Approaches to Strategic decisions
Vision:• A vision is an image of the future we aspire to create. A Vision statement outlines: - what the organization wants to be, or - how it wants the world in which it operates to be. - It concentrates on the future. - It is a source of inspiration. - It provides clear decision-making criteria.Examples of Vision Statements…. To be reputed global Company in the Metals and Energy Sectors. NALCO. A world class integrated power major, powering India’s growth, with increasingglobal presence.“ NTPC
• Features of an effective vision statement include: • Clarity and lack of ambiguity • Vivid and clear picture • Description of a bright future • Memorable and engaging wording • Realistic aspirations • Alignment with organizational values and culture
Process for developing a strategic vision for an organization:• Step 1 -- Silent Generation of Ideas/ thoughts:• Step 2 -- Share individual ideas/ thoughts:• Step 3 – Identify points of common ground and divergence:• Step 4 – Develop 1st draft vision statements:
• Mission – Defines the fundamental purpose of an organization or an enterprise, succinctly describing why it exists and what it does to achieve its Vision. – The mission could be either for the long term or the short term. – Provides the framework or context within which strategies are formulated.• Components of a Mission Statement : – Customer-market – Product-Service – Geographic Domain – Technology – Self-concept – Philosophy Examples…. NALCO : – To achieve sustainable growth in business through diversification, innovation and global competitive edge. – To continuously develop human resources.
• Characteristics of Mission Statement: – It should be feasible- – It should be precise- – It should be clear- – It should be motivating- – It should be distinctive- – It should indicate major components of strategy- – It should indicate how objectives are to be accomplished-
Mission Statement Components Mission Examples of Vision/1. Customer-market Company Product- Market-oriented2. Product-service oriented Vision/ Mission3. Geographic Domain Vision/4. Technology Mission5. Concern for Survival REVLON We Make We sell Lifestyles6. Philosophy Cosmetics and self expressions7. Self-concept8. Concern for Public Image DISNEY We run Theme We provide fantasies Parks and entertainmentsA Mission statement tells you the fundamental purpose of theorganization.It defines the customer and the critical processes.It informs you of the desired level of performance.
Goals• The setting of goals for the organization based on its vision and mission statement.• A goal is a long-range aim for a specific period. – It must be specific and realistic. – Long-range goals set through strategic planning are translated into activities that will ensure reaching the goal through operational planning.• The types of Goals are like: • Survival – A firm that is unable to survive will be incapable of satisfying the aims of any of its stakeholders. • Profitability – A firm’s profitability is the mainstay goal of a business. • Growth – A firm’s growth is tied inextricably to its survival and profitability. Growth in this sense must be broadly defined.
• Objectives:• Purpose of setting objectives – Converts vision into specific performance targets – Creates yardsticks to track performance• Spell-out how much of what kind of performance by when• Short-Term vs. Long-Term Objectives: Short-term objectives – Targets to be achieved soon – Building Blocks for reaching long-range performance Long-term objectives – Targets to be achieved within 3 to 5 years – Prompt actions now permit long-range performance later
Approaches to Strategic ManagementAs per Minzberg, the approach to strategic management needs to be studied in two broad ways, those are: Predictive or Prescriptive approach and Emergent approach.Both the approaches are based on• Strategic Analysis (SWOT analysis and determination of mission and objectives).• Strategy Development (evaluation of strategic alternatives and choice of strategy).• Strategy Implementation.
• Leads to Determination of long term objectives.• Plans for Organizational development.• Generalized process.• Advance indicator of demands on the resources.
• Fit for short term objectivity.• Development and implementation are intertwined.• Achieved through constant monitoring and control.• Highly flexible and situation friendly.
Derived Approaches to Strategic Management– Classical: Influenced, policy driven, focused on economics, military notions of command, authoritarian view of the world and the issues at hand, Long term goals and objectives, Top down driven, Confidence in the readiness and capacity of managers to adopt profit maximizing strategies through rational long range planning.– Evolutionary: Mentality: Whatever methods managers adopt they are OK because over the long run only the best performers survive. Organizations maximize their chances in the short term by achieving perfect fit against their current environment and the unpredictable and uncontrollable market forces. Investing in long term strategies can be counter- productive. View: Business survival depends on strategies of differentiation --- but do organizations have the capacity to achieve differentiation and adaptation in a deliberate and sustainable way?
– Process: • Strategy can be a dangerous delusion. • Companies tend to overestimate the power of strategy. • If deliberate strategizing is ineffective, then what matters is an abundance of diverse new initiatives from which the organization can select the best --- the mistakes and relatively ill-adapted are ruthlessly deselected.– Systemic: • Strategies are not chosen; they are programmed • Strategies, then are a way in which managers try to simplify and order a world which is too complex and chaotic for them to comprehend --- the regular procedures and precise quantifications of strategic plans are comforting managerial security blankets • Strategies only emerge from small successive steps, which eventually merge into a pattern • Strategic plans may be wrong, but it does not matter as long as they give managers the confidence and sense of purpose to act
• Henri Mintzbergs (1980: Designing an Effective Organizations )• According to Mintzberg organizations are formed of five main parts:
• Operating core Those who perform the basic work related directly to the production of products and services• Strategic apex Charged with ensuring that the organization serve its mission in an effective way, and also that it serve the needs of those people who control or otherwise have power over the organization• Middle-line managers Form a chain joining the strategic apex to the operating core by the use of delegated formal authority• Techno-structure or Techno storm The analysts who serve the organisation by affecting the work of others. They may design it, plan it, change it, or train the people who do it, but they do not do it themselves• Support staff Composed of specialized units that exist to provide support to the organisation outside the operating work flow