Basic concepts in Strategic Management


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Basic concepts in Strategic Management

  1. 1. Module IBasic concepts of strategic management
  2. 2. Definition “….the art and science of formulating, implementing and evaluating cross-functional decisions that enable an organisation to achieve its objectives” Deals with developing a well thought-out systematic plan of action to attain the company’s mission & objectives The means by which the management establishes the purpose & pursues the purpose through alignment of organizational resources with environment, opportunities & constraints msnimt/S4/SM_m1/krp 2
  3. 3. Anticipate future developments in business,attempt to mould it and balance the company’sshort & long term goals accordinglyFormulated considering the possible positions,defensive & offensive moves of competition &their relative strengths & weaknesses withrespect to the company 1. Where are we now? 2. Where do we want to go? 3. How are we going to get there?In essence, thestrategic plan is acompany’s game plan msnimt/S4/SM_m1/krp 3
  4. 4. Key Terms in Strategic Management 1. Competitive Advantage 2. Strategists 3. Vision & Mission Statements 4. External Opportunities & threats 5. Internal Strengths & Weaknesses 6. Long-term Objectives 7. Strategies 8. Annual objectives 9. Policies Refer: David, F R (2011). Strategic Management, 13th edn, pp. 9 – 13 msnimt/S4/SM_m1/krp 4
  5. 5. Strategic management process Three sequential steps:1. Strategy formulation o A stage of committing the resources o Developing a vision and mission (strategic intent) o Environmental analysis (TOWS) o Long-term objectives o Generating alternative strategies o Strategy selection o Have a perspective on the ramification of strategy decisionPossible major issues in strategy formulation New business opportunities Businesses to abandon Allocation of resources Expansion or diversification International markets Mergers or joint ventures Avoidance of hostile takeover msnimt/S4/SM_m1/krp 5
  6. 6. 2. Strategy implementation o The action stage o Annul objectives o Policies o Employee motivation o Resource allocation o Developing & utilising information system o Developing a strategy-supporting culture o Create effective organisational structureIssues in implementation stage Most difficult stage Mobilization of employees & managers Interpersonal skills critical Consensus on goal pursuit msnimt/S4/SM_m1/krp 6
  7. 7. 3. Strategy Evaluation o Attempt to decipher whether the strategies are working well or not o Internal review o External review o Performance metrics o Corrective action o All strategies are subject to future modification, due to constant change in external and internal factors o Complacent firms experience sad demiseIssues in Strategy evaluation Subject to future modification Today’s success no guarantee of future success New & different problems Complacency leads to demise msnimt/S4/SM_m1/krp 7
  8. 8. Comprehensive strategic management model Perform External Audit ImplementDevelop Generate, Establish Implement Strategies: Measure & Vision Evaluate, Long-Term Strategies: Marketing, Evaluate & Select Objectives Mgmt Issues Fin/Acct, PerformanceMission Strategies R&D, MIS Perform Internal Audit Strategy Strategy Strategy Formulation Evaluation ImplementationRefer: David, F R (2011). Strategic Management, 13th edn, pp. 6 – 7 & 15Copyright 2007 Prentice Hall Ch 1 -8
  9. 9. Model of SM model by Wheelen, Hunger & Rangarajan, P. 49 msnimt/S4/SM_m1/krp 9
  10. 10. Hierarchy of Strategy: 3 Types of Strategy SM process occurs at three heirarchical levels in a large organisation 1. Corporate strategy (SM atcorporate level 2. Business strategy (SM at business level 3. Functional strategy (SM at functional level msnimt/S4/SM_m1/krp 10
  11. 11. Corporate Strategy – Narrates over all direction in terms of general attitude towards growth and management – Typically fit in to Stability, Growth & Retrenchment Business Strategy – improvement of competitive position – fit within Competitive strategies (uniqueness of Apple) & Co- operative strategies (Air India with Luftansa for global operations) Functional Strategy – combine corporate & business strategies to maximise resource productivity –Technological leadership –Technological followershipRefer: Wheelen , Hunger & Rangarajan (2004): Strategic Management and Business Policy ,9 edn, pp.12 -13 msnimt/S4/SM_m1/krp 11
  12. 12. Attributes of strategy in Business decisions 1. Results in major financial & resource commitment. 2. Cause long term impacts in the organisation & often difficult to reverse such decisions. 3. May result in sweeping changes in business activities. 4. Focus on matching organisational activities to the environment 5. Entails significant risks to the business. 6. Partly proactive (planned for) and partly reactive (to market & competitor moves). 7. Emerges incrementally & then evolves over time. 8. Should be within the bounds of what is legal, ethical & moral. msnimt/S4/SM_m1/krp 12
  13. 13. 9. An element of secrecy in the planning stage, but unambiguous in the implementation10. Strategic issues are future oriented. It is based on what managers forecast rather than what they know.11. Have cross-functional or multi-business impacts.12. The company’s game plan to meet competition & achieve its organisational objectives.13. Require commitment of large amount of firm’s resources & are therefore top management decisions. msnimt/S4/SM_m1/krp 13
  14. 14. Role and Responsibilities of corporate board in SM determining the direction and performance of the corporation A corporation is a mechanism established to allow different parties to contribute capital, expertise and labour for their mutual benefit The relationship among the board of directors, top management, and shareholders Shareholders: participates in the profits of the corporation without taking any responsibility of operation Management: runs the company without being responsible for personally providing funds Board of directors: elected from shareholders have both authority and responsibility to establish basic company policies and to ensure that they are followed msnimt/S4/SM_m1/krp 14
  15. 15. • Corporation is fundamentally governed by Board of Directors over seeing top mgt * Role of Board Monitor Evaluate and influence Initiate and determine Responsibilities of Board Setting corporate strategy, over all direction, vision, mission Hiring and firing the CEO and Top management Controlling, monitoring and supervision of top management Reviewing and approving the use of resources Caring for shareholder interests msnimt/S4/SM_m1/krp 15
  16. 16. A Continuum of Board of Directors msnimt/S4/SM_m1/krp 16
  17. 17. Inside directors • Management directors • Officers or executives employed by the firmOutside directors • Non-management directors 1.Affiliated Directors 2.Retired Directors 3.Family Directors Codetermination: inclusion of a corporation’s employees on its board of directors Interlocking directorate: nominate CEOs from other organisations Direct interlocking: mutual arrangements Indirect interlocking: board of directors of two firms serve on the board of the third firmRefer: Wheelen , Hunger & Rangarajan (2004): Strategic Management and Business Policy , msnimt/S4/SM_m1/krp 179 edn, pp. 24 -30
  18. 18. Role and functions of top management in SM Comprises of CEO, COO, President, Executive VP, VPs of divisions and functional areas Role is multi-dimensional and oriented towards the total welfare of the organisation Task divisionsHandles tow primary responsibilities1. Provide executive leadership and strategic vision * o EL is the directing of activities towards the accomplishment of corporate objectives o SV is a description of what the company is capable of becoming2. Manage the strategic planning processRefer: Wheelen , Hunger & Rangarajan (2004): Strategic Management and Business Policy , msnimt/S4/SM_m1/krp 189 edn, pp. 33 -34