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Strategic management


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All you need to know about strategic management

Published in: Leadership & Management

Strategic management

  1. 1. Strategic Management
  2. 2. Strategies • Strategy: it is from Greek word which means “ art of troop leader”, office of general, command, generalship. • It is a high level plan to achieve one or more goals under conditions of uncertainty. • Strategy helps to find out a best way to achieve goals with in the limited resources • Strategy generally involves setting goals, determining actions to achieve the goals, and mobilizing resources to execute the actions. • A strategy describes how the ends (goals) will be achieved by the means (resources). • Generally strategies are determined by a senior leadership in the organization. • Strategy can be intended or can emerge as a pattern of activity as the organization adapts to its environment or competes.
  3. 3. Definitions • Strategy is method or plan chosen to bring about a desired future, such as achievement of a goal or solution to a problem. • The Strategy is the art and science of planning and marshalling resources for their most efficient and effective use. • A strategy is a means by which long-term objectives are achieved
  4. 4. Components Strategies • Diagnosis • Guiding policy • Action plan
  5. 5. Strategies process • Strategy typically involves two major processes: formulation and implementation. • Formulation involves analyzing the environment or situation, making the diagnosis, and developing the guiding policy. It includes such activities as Strategic planning and Strategic thinking. • Implementation refers to the action plans taken to achieve the goals established by the guiding policy
  6. 6. Factors include in strategies • Bruce Henderson wrote in 1981 that "Strategy depends upon the ability to foresee future consequences of present initiatives.“ • He wrote strategy development include, among other factors: 1) extensive knowledge about the environment, market and competitors; • 2) ability to examine this knowledge as an interactive dynamic system; and • 3) the imagination and logic to choose between specific alternatives. • Henderson wrote that strategy was valuable because of: "finite resources, uncertainty about an adversary's capability and intentions; the irreversible commitment of resources; necessity of coordinating action over time and distance; uncertainty about control of the initiative; and the nature of adversaries' mutual perceptions of each other."
  7. 7. Military Theory • In military theory, strategy is "the utilization during both peace and war, of all of the nation's forces, through large scale, long-range planning and development, to ensure security and victory" (Random House Dictionary). • military strategy as "the employment of battles to gain the end of war.” • strategy as "the art of distributing and applying military means to fulfill the ends of policy” • Eastern military philosophy dates back much further, with examples such as the The Art of War by Sun Tzu dated around 500 B.C
  8. 8. Management Theory • Modern business strategy emerged as a field of study and practice in the 1960s; prior to that time, the words "strategy" and "competition" rarely appeared in the most prominent management literature.[ • Alfred Chandler wrote in 1962 that: "Strategy is the determination of the basic long-term goals of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals. • Michael Porter defined strategy in 1980 as the "...broad formula for how a business is going to compete, what its goals should be, and what policies will be needed to carry out those goals” • Henry Mintzberg described five definitions of strategy in 1998: • Strategy as plan – • Strategy as pattern – • Strategy as position - • Strategy as ploy – • Strategy as perspective –
  9. 9. types of strategies • Geographic expansion • Diversification • Differentiation • Acquisition • Product development • Market penetration • Retrenchment • Liquidation • Joint venture
  10. 10. Strategic 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. • Strategic management focuses on integrating management, marketing, finance/accounting, production/operations, research and development, and computer information system to achieve organizational success. • The purpose of strategic management is to exploit and create new and different opportunities for tomorrow; long range planning, • Strategic management, is defined as the set of decisions and actions that result in the formulation and implementation of plans designed to achieve a company’s objectives.
  11. 11. Strategic Management • The systematic analysis of factors associated with customers and competitors ( the external environment)and the organization itself(internal environment) to provide the basis for maintaining optimum management practices. • Strategic management is the set of decisions and actions that results in the formulation and implementation of plans designed to achieve a company’s objectives. • Strategic management is the continuous process of creating, implementing and evaluating decisions that enable an organization to achieve its objectives.
  12. 12. Strategic Management Definitions • Strategic management is the process of managing the pursuit of organizational mission while managing the relationship of the organization to its environment (James M. Higgins). • Strategic management is defined as the set of decisions and actions resulting in the formulation and implementation of strategies designed to achieve the objectives of the organization (John A. Pearce II and Richard B. Robinson, Jr.). • Strategic management is the process of examining both present and future environments, formulating the organization's objectives, and making, implementing, and controlling decisions focused on achieving these objectives in the present and future environments(Garry D. Smith, Danny R. Arnold, Bobby G. Bizzell). • Strategic management is a continuous process that involves attempts to match or fit the organization with its changing environment in the most advantageous way possible (Lester A. Digman).
  13. 13. Strategic management tasks • Formulate the company’s mission, including board statements about its purpose, philosophy and goals • Conduct an analysis that reflects the company’s internal conditions and capabilities • Assess the company’s external environment, including both the competitive and general contextual factors • Analyze the company’s options with matching its resources with the external environment. • Identify the most desirable options by evaluating each option in light of company mission • Select a set of long-term objectives and grand strategies that will achieve the most desirable options.
  14. 14. Strategic management tasks • Develop annual objectives and short-term strategies that are compatible with the selected set of long-term objectives and grand strategies. • Implement the strategies choices by means of budgeted resource allocations in which the matching of task, people, structure, technologies and reward system is emphasized. • Evaluate the success of strategic process as an input for future decision making.
  15. 15. Importance of Strategic Management • Proactive in shaping firm’s future •Improved understanding of competitors strategies • Enhanced awareness of threats • Reduced resistance to change • Enhanced problem-prevention capabilities • Initiate and influence firm’s activities • Formulate better strategies •Systematic, logical, rational
  16. 16. Importance of Strategic Management • Identification of Opportunities • Objective view of management problems • Improved coordination & control • Minimizes adverse conditions & changes • Decisions that better support objectives
  17. 17. Copyright 2007 Prentice Hall Ch 1 -17 Importance of Strategic Management cont’d • Effective allocation of time & resources • Internal communication among personnel • Integration of individual behaviors • Clarify individual responsibilities  Encourage forward thinking  Encourage favorable attitude toward change  Provides discipline and formality to the management of the business.
  18. 18. Stages of Strategic management • The strategic management process represents a logical, systematic, and objective approach for determining an enterprise's future direction. • However, a clear separation is needed between the managerial process by which an organization formulates, evaluates, implements, and controls the relationships between its objectives, its strategies, and its environment. • Researchers usually distinguish three stages in the process of strategic management: strategy formulation, strategy implementation, and evaluation and control.
  19. 19. Strategy Formulation • Strategy formulation is the process of establishing the organization's mission, objectives, and choosing among alternative strategies. Sometimes strategy formulation is called "strategic planning."
  20. 20. Vision & Mission Strategy Formulation External Opportunities & Threats Internal Strengths & Weaknesses Long-Term Objectives Alternative Strategies Strategy Selection
  21. 21. Strategy Implementation • It means mobilizing employees and managers to put formulated strategy into actions. It is action stage • It includes developing a strategy supportive culture, redirecting marketing efforts, developing and utilizing information system, linking employee incentives to organizational performance • The basic strategy - implementation activities are establishing annual objectives, devising policies, and allocated resources. • Strategy implementation also includes the making of decisions with regard to matching strategy and organizational structure; developing budgets, and motivational systems
  22. 22. Strategy Implementation… • Often consider it is most difficult stage of SM • It requires personal discipline, commitment, and sacrifice. • For successful implementation employee needs lots of motivation from the managers which is more an art than a science. • Every department and division must decide to answers questions such as what most we do to implement strategy? How best can we get job done? • Challenge of implementation is to stimulate managers and employees throughout an organization to work with pride and enthusiasm to wards stated objectives.
  23. 23. Strategy Implementation Establish Annual Objectives Devise Policies Employee Motivation Resource Allocation
  24. 24. Strategy Evaluation • It is a final stage of strategic management • Managers need to know when particular strategies not working • All strategies are subject to further modification because external and internal factors are constantly changing. • Strategy evaluation is needed because success today is not guarantee of success tomorrow.
  25. 25. Strategy Evaluation Internal Review External Review Performance measuring Corrective Actions
  26. 26. Strategy planning evolutions • Strategic planning is an organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy. • Strategic planning is a process undertaken by an organization to develop a plan for achievement of its overall long-term organizational goals. • First strategy was used by army general Sun Tzu in 500 BC. • 1955 Peter Drucker
  27. 27. Evolution of Strategic Management • Igor Ansoff • Alfred Chandler wrote in 1962 that: "Strategy is the determination of the basic long-term goals of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals. • Michael Porter defined strategy in 1980 as the "...broad formula for how a business is going to compete, what its goals should be, and what policies will be needed to carry out those goals” • Henry Mintzberg described five definitions of strategy in 1998: • Strategy as plan – • Strategy as pattern – • Strategy as position - • Strategy as ploy – • Strategy as perspective –
  28. 28. Vision Statement • Strategic vision is a roadmap showing the route the company intends to take in developing and strengthening its business. • It paints a picture of company’s future destination and provides a rational for going there. • It gives a answers to what do we want to become?
  29. 29. Mission • Mission statement usually deals with a company’s present business scope and its purpose. • It gives answers to three questions, Who we are? What we do? Why we are here? • A company mission is defined by buyer needs, • it seek to satisfy to customer group and market segment it Endeavour to serve, • and resources and technology it is deploying in trying to please its customers.
  30. 30. Mission • The mission statement captures the essence of an organization by identifying its purpose, what it stands for and why it exists. • It makes a bold statement to the public and organizational members about the goals and underlying philosophies of the organization • The mission statement is a very personal and deliberate declaration that symbolizes their legitimacy to the world and what their desired public image is
  31. 31. Mission • The mission statement is one of the key components of strategic planning in organizations. • The importance of a mission statement is that it communicates to the consumers and investors the reason the company is selling their product. • The mission statement is based on an analysis of benefits sought by customers and a summary of the business environmental conditions. • It should summarize the entire reason a company is in business, and what the purpose of the product is in relationship to the consumer.
  32. 32. Long term objectives • Objectives can be defined as specific results that an organisation seeks to achieve in pursuing its basic mission. • Long-term means more than one year. • Objectives are essential for organizational success because they state directions; aid in evaluation; create synergy; reveal priorities; focus coordination; and provide a basis for effective planning, organizing, motivating, and controlling activities. • Objectives should be challenging, measurable, consistent, reasonable, and clear. • In a multidimensional firm, objectives should be established for the overall company and for each division.
  33. 33. Levels of Strategy 3 Levels can be identified - The decision-making hierarchy of a firm typically contains three levels. - At the top is the corporate level • Composed principally of a board of directors and the chief executive and administrative officers. - Here the emphasis is on stockholders interests and the society at large.
  34. 34. - They determine what business a firm should be involved. - They also set objectives and formulate that span the activities and functional areas of the business. - In the middle of the decision-making hierarchy is the business level. • Composed principally of business and corporate managers - These managers must translate the statements of direction and intent generated at the corporate level into concrete objectives and strategies for individual business divisions or SBUs. 34
  35. 35. - At the bottom of the decision-making hierarchy is the functional level • Composed principally of managers of product, geographic and functional areas - They develop annual objectives and short-term strategies in such areas as production, operations research and development, procurement, finance and accounting, marketing, and human resources. 35
  36. 36. Level of Strategy • Strategy can be formulated in three levels Corporate level Business Level Functional Level
  37. 37. Corporate Level Strategy • It is organization wide overall strategy .It provides long term direction and scope to the organization. It aim to create higher share holder value • Current and future business • Products to be offered and their scope • Customers and market to be served • Value to be added for competitive advantage • Resource allocation to business unit • Ways for environment adoptation
  38. 38. Corporate Level Strategy • According to Johnson and Scholes “ Corporate level strategy is concerned with the overall purpose and scope of an organization and how value will be added to the different part of the organization” • Corporate level strategy involves strategic decisions. It is based on long term objectives of the organization.
  39. 39. Business Level Strategy • According to Johnson and Scholes” Business unit strategy is about how to compete successfully in particular market” • Market development • Product development • Positioning • Resource allocation • Differentiation Criteria for classification of SBU Separate market segment, separate competitors, separate manager, separate plan.
  40. 40. Functional Level Strategy • It spells out specific strategies for each function. It involves tactical decisions. It aims to create higher customer value • According to Johnson scholes” Operational strategies are concerned with how the component parts of an organization deliver effectively the corporate and business level strategies in term of recourse, process and people” • Function level strategies deals with • Objectives, resource allocation and value addition
  41. 41. Types of Functional Level Strategy • Production strategies: focus on superior efficiency • Marketing strategies: focus on adding value for customers • Financial strategies: deals with mobilize, utilize and distribution of financial resources • Human resource management strategies: Focus on competency, productivity and retention of employees • Resource and development strategies: it deals with product innovation, modification and imitation strategies.