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Strategic management & business policy

  1. 1. SATYA SM & B Page 1 4.01 STRATEGIC MANAGEMENT & BUSINESS POLICY MODULE 1 MEANING AND NATURE OF STRATEGIC MANAGEMENT Meaning Strategic Management – Defined ―Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives’ Strategic management activities are related to the total system. These activities may be a change in organizational goals or managerial strategies that have implications throughout the organization or business unit Nature, Characteristics, and features of Strategic Management, The Nature, Characteristics, and features of Strategic Management as following:- a) It involves a long time perspective:- the directional decisions in strategic management can be expected to have effects on the organization for three to five years . b) It is an intellectual process:- in strategic management, key individuals perceive, analyze, and choose between alternatives, interrelating such elements as definitions of businesses, objectives, and functional/program strategies. c) It involves wide ramifications:- Strategic Management activities are related to the total system. These activities may be change in organizational goals, or managerial strategies that have implications throughout the organization or business unit. d) It is a continuing dynamic social process:- Strategic Management is not just a course to be undertaken a few times each year when top management meets to decide critical issues e) It use critical resources towards perceived opportunities or threats in a changing environment:- the most important human, financial, and other resources are brought to bear in certain situations, which provide the organization with an opportunity to manage the elusive environment. Its importance and relevance, of Strategic Management, There are many benefits of strategic management and they include identification, prioritization, and exploration of opportunities. Financial Benefits It has been shown in many studies that firms that engage in strategic management are more profitable and successful than those that do not have the benefit of strategic planning and strategic management. When firms engage in forward looking planning and careful evaluation of their priorities, they have control over the future, which is necessary in the fast changing business landscape of the 21st century. It has been estimated that more than 100,000 businesses fail in the US every year and most of these failures are to do with a lack of strategic focus and strategic direction. Further, high performing firms tend to make more informed decisions because they have considered both the short term and long-term consequences and hence, have
  2. 2. SATYA SM & B Page 2 oriented their strategies accordingly. In contrast, firms that do not engage themselves in meaningful strategic planning are often bogged down by internal problems and lack of focus that leads to failure. Non-Financial Benefits The section above discussed some of the tangible benefits of strategic management. Apart from these benefits, firms that engage in strategic management are more aware of the external threats, an improved understanding of competitor strengths and weaknesses and increased employee productivity. They also have lesser resistance to change and a clear understanding of the link between performance and rewards. The key aspect of strategic management is that the problem solving and problem preventing capabilities of the firms are enhanced through strategic management. Strategic management is essential as it helps firms to rationalize change and actualize change and communicate the need to change better to its employees. Finally, strategic management helps in bringing order and discipline to the activities of the firm in its both internal processes and external activities. Closing Thoughts In recent years, virtually all firms have realized the importance of strategic management. However, the key difference between those who succeed and those who fail is that the way in which strategic management is done and strategic planning is carried out makes the difference between success and failure. Of course, there are still firms that do not engage in strategic planning or where the planners do not receive the support from management. These firms ought to realize the benefits of strategic management and ensure their longer-term viability and success in the marketplace. The Strategic Management Process – The strategic management process means defining the organization’s strategy. It is also defined as the process by which managers make a choice of a set of strategies for the organization that will enable it to achieve better performance. Strategic management is a continuous process that appraises the business and industries in which the organization is involved; appraises it’s competitors; and fixes goals to meet all the present and future competitor’s and then reassesses each strategy. Strategic management process has following four 1.Environmental Scanning- Environmental scanning refers to a process of collecting, scrutinizing and providing information for strategic purposes. It helps in analyzing the internal and external factors influencing an organization. After executing the environmental analysis process, management should evaluate it on a continuous basis and strive to improve it. 2.Strategy Formulation- Strategy formulation is the process of deciding best course of action for accomplishing organizational objectives and hence achieving organizational purpose. After
  3. 3. SATYA SM & B Page 3 conducting environment scanning, managers formulate corporate, business and functional strategies. 3.Strategy Implementation- Strategy implementation implies making the strategy work as intended or putting the organization’s chosen strategy into action. Strategy implementation includes designing the organization’s structure, distributing resources, developing decision making process, and managing human resources. 4.Strategy Evaluation- Strategy evaluation is the final step of strategy management process. The key strategy evaluation activities are: appraising internal and external factors that are the root of present strategies, measuring performance, and taking remedial / corrective actions. Evaluation makes sure that the organizational strategy as well as it’s implementation meets the organizational objectives. These components are steps that are carried, in chronological order, when creating a new strategic management plan. Present businesses that have already created a strategic management plan will revert to these steps as per the situation’s requirement, so as to make essential changes. Components of Strategic Management Process Strategic management is an ongoing process. Therefore, it must be realized that each component interacts with the other components and that this interaction often happens in chorus. Relationship between a Company’s Strategy and its Business Model. Company Strategy The term "business strategy" describes the methods a business uses achieve its mission and objectives. The company's strategy might involve buying products from local food producers, encouraging customers to bring their own grocery bags, advertising in local newspapers and buying recycled product packaging materials. A business’ strategy includes how it deals with the opportunities and threats it faces. Business Model A company's business model describes the basic means by which it creates value, delivers value to consumers and collects revenue from customers to make a profit. Business models can vary greatly from one company to another. A local grocery store's business model might involve
  4. 4. SATYA SM & B Page 4 buying food at wholesale prices and selling it to end consumers at a higher price to make profit. A website might have a business model based on providing video content to customers and generating revenue through advertisements placed on the site. How They Are Related A company's business model is a part of its business' overall strategy: It is the nuts and bolts behind how the company plans to achieve its goals, such as making a profit. A company can change its business model over time as a part of its profit-making strategy. For example, if website does not make enough revenue from advertisements to make profit, managers might decide implement a new business model, such as selling T-shirts and other goods though an online store, as a strategy to boost profit. MODULE 2 CORPORATE BUSINESS POLICY Vs STRATEGY Policy is the spheres or scope within which decisions are taken by the subordinates in a company or organization. Strategy is an action that managers and directors take to achieve one or more of the company's goals. International Business Policy; Labour Policy Staffing Policy A firm’s staffing policy is concerned with the selection of employees who have the skills required to perform a particular job A staffing policy can be a tool for developing an promoting the firm’s corporate culture (the organization’s norms and value system) A strong corporate culture can help the firm implement its strategy Types Of Staffing Policy There are three main approaches to staffing policy within international businesses: 1. the ethnocentric approach:- The ethnocentric approach to staffing policy fills key management positions with parent- country nationals It makes sense for firms with an international strategy Firms that pursue an ethnocentric policy believe that: there is a lack of qualified individuals in the host country to fill senior management positions it is the best way to maintain a unified corporate culture value can be created by transferring core competencies to a foreign operation via parent country nationals 2. The polycentric approach:- The polycentric staffing policy recruits host country nationals to manage subsidiaries in their own country, and parent country nationals for positions at headquarters It makes sense for firms pursuing a localization strategy The polycentric approach: can minimize cultural myopia may be less expensive to implement than an ethnocentric policy 3. the geocentric approach:- The geocentric staffing policy seeks the best people, regardless of nationality for key jobs this approach is consistent with building a strong unifying culture and informal
  5. 5. SATYA SM & B Page 5 management network It makes sense for firms pursuing either a global or transnational strategy Immigration policies of national governments may limit the ability of a firm to pursue this policy HR Policy; Human resource policies are systems of codified decisions, established by an organization, to support administrative personnel functions, performance management, employee relations and resource planning. Each company has a different set of circumstances, and so develops an individual set of human resource policies. These activities include:  Determining the firm's human resource strategy  staffing  performance evaluation  management development  compensation  labor relations The Strategic Role Of International HRM Firms need to ensure there is a fit between their human resources practices and strategy In order to carry out a strategy effectively, employees need the right training, an appropriate compensation package, and a good performance appraisal system Small Business Policy; Marketing Policy; A marketing policy aimed at distribution centers to encourage their promotion of a product or services to their customers. For example, a pushing policy might be used by an industrial
  6. 6. SATYA SM & B Page 6 business to market to a distribution channel of wholesalers and retailers to obtain their assistance in getting their customers to buy its product. Financial Policy MODULE 3 STRATEGY FORMULATION Performing a situation analysis, self-evaluation and competitor analysis: both internal and external; both micro-environmental and macro-environmental. Concurrent with this assessment, objectives are set. These objectives should be parallel to a timeline; some are in the short-term and others on the long-term. This involves crafting vision statements (long term view of a possible future), mission statements (the role that the organization gives itself in society), overall corporate objectives (both financial and strategic), strategic business unit objectives (both financial and strategic), and tactical objectives. These objectives should, in the light of the situation analysis, suggest a strategic plan. The plan provides the details of how to achieve these objectives. The following aspects or levels of strategy formulation, each with a different focus, need to be dealt with in the formulation phase of strategic management. Corporate Level Strategy: In this aspect of strategy, we are concerned with broad decisions about the total organization's scope and direction. Basically, we consider what changes should be made in our growth objective and strategy for achieving it, the lines of business we are in, and how these lines of business fit together. It is useful to think of three components of corporate level strategy: (a) growth or directional strategy (what should be our growth objective, ranging from retrenchment through stability to varying degrees of growth - and how do we accomplish this), (b) portfolio strategy (what should be our portfolio of lines of business, which implicitly requires reconsidering how much concentration or diversification we should have), and (c) parenting strategy (how we allocate resources and manage capabilities and activities across the portfolio -- where do we put special emphasis, and how much do we integrate our various lines of business). Competitive Strategy (often called Business Level Strategy): This involves deciding how the company will compete within each line of business (LOB) or strategic business unit (SBU). Functional Strategy: These more localized and shorter-horizon strategies deal with how each functional area and unit will carry out its functional activities to be effective and maximize resource productivity. Developing Strategic vision and Mission for a company
  7. 7. SATYA SM & B Page 7 What is a vision? Vision statement provides direction and inspiration for organizational goal setting. Vision is where you see yourself at the end of the horizon OR milestone therein. It is a single statement dream OR aspiration. Typically a vision has the flavors of 'Being Most admired', 'Among the top league', 'being known for innovation', 'being largest and greatest' and so on.  Involves thinking strategically about  Future direction of company  Changes in company’s product-market-customer-technology to improve  Current market position  Future prospects A strategic vision is a road map showing the route a company intends to take in developing and strengthening its business. It paints a picture of a company’s destination and provides a rationale for going there. What is a mission? Mission of an organization is the purpose for which the organization is. Mission is again a single statement, and carries the statement in verb. Mission in one way is the road to achieve the vision. For example, for a luxury products company, the vision could be 'To be among most admired luxury brands in the world' and mission could be 'To add style to the lives' A good mission statement will be: Clear and Crisp: While there are different views, We strongly recommend that mission should only provide what, and not 'how and when'. We would prefer the mission of 'Making People meet their career' to 'making people meet their career through effective career counseling and education'. A mission statement without 'how & when' element leaves a creative space with the organization to enable them take-up wider strategic choices. Have to have a very visible linkage to the business goals and strategy: For example you cannot have a mission (for a home furnishing company) of 'Bringing Style to People’s lives' while your strategy asks for mass product and selling. Its better that either you start selling high-end products to high value customers, OR change your mission statement to 'Help people build homes'.
  8. 8. SATYA SM & B Page 8 Should not be same as the mission of a competing organization. It should touch upon how its purpose it unique. Mission follows the Vision: The Entire process starting from Vision down to the business objectives is highly iterative. The question is from where should be start. I strongly recommend that mission should follow the vision. This is because the purpose of the organization could change to achieve their vision. Setting Objectives –  Purpose of setting objectives  Converts vision into specific performance targets  Creates yardsticks to track performance  Pushes firm to be inventive, intentional, and focused in its actions  Setting challenging, achievable objectives guards against  Complacency  Internal confusion  Status quo performance  Short-term objectives  Targets to be achieved soon  Milestones or stair steps for reaching long-range performance  Long-term objectives  Targets to be achieved within 3 to 5 years  Prompt actions now that will permit reaching targeted long-range performance later Strategic Objectives and Financial Objectives – STRATEGIC OBJECTIVES: Any objective that is market based is strategic objective. Any objective that can be derived from financial statements is financial objective. Strategic objectives are objectives that set out what the business are trying to achieve. They can set at two levels: Corporate level: These objectives are ones that include the business as a whole. For example, ‘Our Company’s top line goal is to increase our annual income by 15% for every year.' Functional level: These objectives are set out to improve on an area of assigned responsibilities of the chosen division of the business. Additionally the objectives are usually set after the corporate objectives have been set. FINANCIAL OBJECTIVES:
  9. 9. SATYA SM & B Page 9 Financial objectives focus on achieving acceptable profitability in a company’s pursuit of its mission/vision, long-term health, and ultimate survival. Financial objectives signal commitment to such outcomes as good cash flow, creditworthiness, earnings growth, an acceptable return on investment, dividend growth, and stock price appreciation. The following are examples of financial objectives: Growth in revenues Growth in earnings Wider profit margins Bigger cash flows Higher returns on invested capital Attractive economic value added (EVA) performance Attractive and sustainable increases in market value added (MVA) A more diversified revenue base BALANCE SCORE CARD The score card allows managers to evaluate a firm from different complementary perspectives. The arguments run this (i) A firm can offer superior returns to stakeholders if it has a competitive advantage in its product or service offerings when compared to its rivals. (ii) In order to sustain a competitive advantage, a firm must offer superior value to customers (iii) this, in turn, requires development of operations with necessary capabilities. (iv) In order to develop the needed operational capabilities, a firm requires the service of employees having requisite skills, creativity, diversity and motivations. Four perspectives of the Balanced Scorecard: The Customer’s perspective: Does the firm provide the customer with superior value in terms of product differentiation, low cost and quick response. The operation perspective: How effectively and efficiently do the core processes that produce customer value perform? Which are the most important sources of customer value, which need improving to offer greater customer value? The Organizational perspective: Can this firm adapt to changes in its environment? Is its workforce committed to shared goals? Does the organization learn from past mistakes? When confronted with a problem, does it go to work on root causes or does it only scratch the surface! The Financial Perspective: Does the firm offer returns in excess of the total cost of capital, as suggested by the economic value added ―To succeed financially, how should we appear to our shareholders? Is the question to be answered here? COMPANY GOALS:
  10. 10. SATYA SM & B Page 10 Goals and targets are more precise and expressed in specific terms. They are stated in precise terms as quantatively as possible. The emphasis in goals is on measurement of progress toward the attainment of objectives. Goals have the following features, they: i) Are derived from objectives ii) Offer a standard for measuring performance iii) Are expressed in concrete terms iv) Are time-bound and work-oriented Any company needs solid goals in order to grow the business and reach full potential. If you are looking to set a few company goals to inspire your employees and make your business more successful, then you are going to need the full cooperation of all the employees involved. With the help of everyone at your company, you can set and subsequently reach goals that are made to make your business more successful and your employees more satisfied and productive. Here's how. COMPANY PHILOSOPHY: The literature on company philosophy is neither very extensive nor very satisfactory. But one dictionary definition of philosophy does apply: "general laws that furnish the rational explanation of anything." In this sense, a company philosophy evolves as a set of laws or guidelines that gradually become established, through trial and error or through leadership, as expected patterns of behavior. Some typical examples of basic beliefs that serve as guidelines to action will clarify the concept. Although such basic beliefs inevitably vary from company to company, here are five that recurring frequently in the most successful corporations: 1. Maintenance of high ethical standards in external and internal relationships is essential to maximum success. 2. Decisions should be based on facts, objectively considered -- what I call the fact-founded, thought-through approach to decision making. 3. The business should be kept in adjustment with the forces at work in its environment. 4. People should be judged on the basis of their performance, not on personality, education, or personal traits and skills. 5. The business should be administered with a sense of competitive urgency. The hierarchy of Strategic Intent – Strategic intent refers to the purposes the organization strives for. These may be expressed in terms of a hierarchy of strategic intent. The framework within which firms operate, adopt a predetermined direction and attempt to achieve their goal is provided by a strategic intent. The hierarchy of strategic intent covers the vision, mission, business definition, business model and the goals and objectives.
  11. 11. SATYA SM & B Page 11 Decision criteria Merging the Strategic Vision Objectives and Strategy into a Strategic Plan A company’s strategic plan lays out its future direction, performance targets, and strategy. Developing a strategic vision, setting objectives and crafting a strategy are basic-direction setting tasks. They map out the company’s direction, its short range and long range performance targets, and the competitive moves and internal action approaches to be used in achieving the targeted business results. Together, they constitute a strategic plan for coping with industry and competitive conditions, the expected action of the industry’s key players, and the challenges and issues that stand as obstacles to the company’s success. In companies committed to regular strategy reviews and the development of explicit strategic plans. The strategic plan may take the form of a written document that is circulated to managers (and perhaps to select employees). In small privately owned companies, strategic plan exist mostly in the form of oral understandings and commitments among managers and key employees about where to head, what to accomplish and how to proceed. Short-term performance targets are the part of the strategic plan most often spelled out explicitly and communicated to managers and employees. A number of companies summarize key elements of their strategic plans in the company’s annual report to shareholders, in postings on their websites, in press releases, or in statements provide to the business media. Other companies, perhaps for reasons of competitive sensitivity, make only vague, general statements about their strategic plans that could apply to most any company. Strategic decisions differ from other functions of management as strategic decisions deal with growth of an organization (long range focus). Whereas, operational decisions are routine ones pertaining to day to day activities and administrative decisions are by and large patterned after existing practices in the corporation. In short, strategic planning provides the company with an easily discernible, clear cut, objective-strategy design which in turn takes the company in the required direction.
  12. 12. SATYA SM & B Page 12 Strategic planning is however not a single task, it is an integrated package of several tasks that are distinct, yet inter-related Clarifying vision / mission Defining the business Surveying the environment Internal appraisal of the firm Setting the corporate objectives Formulating the corporate / business strategy Monitoring the strategy MODULE 4 GENERIC COMPETITIVE STRATEGIES Analyzing a company’s resources and competitive position – There are five key questions to consider in analyzing a company's own particular competitive circumstances and its competitive position vis-à-vis key rivals: How well is the present strategy working? This involves evaluating the strategy from a qualitative standpoint (completeness, internal consistency, rationale, and suitability to the situation) and also from a quantitative standpoint (the strategic and financial results the strategy is producing). The stronger a company's current overall performance, the less likely the need for radical strategy changes. The weaker a company's performance and/or the faster the changes in its external situation (which can be gleaned from industry and competitive analysis), the more its current strategy must be questioned. What are the company's resource strengths and weaknesses, and its external opportunities and threats? A SWOT analysis provides an overview of a firm's situation and is an essential component of crafting a strategy tightly matched to the company's situation. The two most important parts of SWOT analysis are (1) drawing conclusions about what story the compilation of strengths, weaknesses, opportunities, and threats tells about the company's overall situation, and (2) acting on those conclusions to better match the company's strategy, to its resource strengths and market opportunities, to correct the important weaknesses, and to defend against external threats. A company's resource strengths, competencies, and competitive capabilities are strategically relevant because they are the most logical and appealing building blocks for strategy; resource weaknesses are important because they may represent vulnerabilities that need correction. External opportunities and threats come into play because a good strategy necessarily aims at capturing a company's most attractive opportunities and at defending against threats to its well-being. Are the company's prices and costs competitive? One telling sign of whether a company's situation is strong or precarious is whether its prices and costs are competitive with those of
  13. 13. SATYA SM & B Page 13 industry rivals. Value chain analysis and benchmarking are essential tools in determining whether the company is performing particular functions and activities cost-effectively, learning whether its costs are in line with competitors, and deciding which internal activities and business processes need to be scrutinized for improvement. Value chain analysis teaches that how competently a company manages its value chain activities relative to rivals is a key to building a competitive advantage based on either better competencies and competitive capabilities or lower costs than rivals. Is the company competitively stronger or weaker than key rivals? The key appraisals here involve how the company matches up against key rivals on industry key success factors and other chief determinants of competitive success and whether and why the company has a competitive advantage or disadvantage. Quantitative competitive strength assessments, using the method presented in Table 4.4, indicate where a company is competitively strong and weak, and provide insight into the company's ability to defend or enhance its market position. As a rule a company's competitive strategy should be built around its competitive strengths and should aim at shoring up areas where it is competitively vulnerable. When a company has important competitive strengths in areas where one or more rivals are weak, it makes sense to consider offensive moves to exploit rivals' competitive weaknesses. When a company has important competitive weaknesses in areas where one or more rivals are strong, it makes sense to consider defensive moves to curtail its vulnerability. What strategic issues and problems merit front-burner managerial attention? This analytical step zeros in on the strategic issues and problems that stand in the way of the company's success. It involves using the results of both industry and competitive analysis and company situation analysis to identify a "worry list" of issues to be resolved for the company to be financially and competitively successful in the years ahead. The worry list always centers on such concerns as "how to . . . ," "what to do about . . . ," and "whether to . . ."—the purpose of the worry list is to identify the specific issues/problems that management needs to address. Actual deciding on a strategy and what specific actions to take is what comes after the list of strategic issues and problems that merit front-burner management attention is developed. Value chain Analysis – Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business. Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings: (1) Primary Activities - those that are directly concerned with creating and delivering a product (e.g. component assembly); and (2) Support Activities, which whilst they are not directly involved in production, may increase effectiveness or efficiency (e.g. human resource management). It is rare for a business to undertake all primary and support activities.
  14. 14. SATYA SM & B Page 14 Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others ("out sourced"). Linking Value Chain Analysis to Competitive Advantage What activities a business undertakes is directly linked to achieving competitive advantage. For example, a business which wishes to outperform its competitors through differentiating itself through higher quality will have to perform its value chain activities better than the opposition. By contrast, a strategy based on seeking cost leadership will require a reduction in the costs associated with the value chain activities, or a reduction in the total amount of resources used. Bench marking; Strategic benchmarking looks at what other companies are doing in terms of top management capabilities, strategic initiatives, competitive product development and other long-term qualities and processes that have proved successful. Determining what a company is doing strategically is sometimes easier than trying to learn how they manage individual procedures. Top management capabilities are often evident in the operations of the company. Leaders that are savvy in terms of technology tend to implement technology-rich processes. Strategic direction can be found in annual reports, if the company is public. Selecting a company to study that is not a direct competitor makes it easier to approach management and ask for advice and information on how the company built its success Generic Competitive Strategies:- Low cost, • An integrated set of actions taken to produce goods or services with features that are acceptable to customers at the lowest cost, relative to that of competitors with features that are acceptable to customers – Relatively standardized products – Features acceptable to many customers – Lowest competitive price • Cost saving actions required by this strategy: – Building efficient scale facilities – Tightly controlling production costs and overhead – Minimizing costs of sales, R&D and service – Building efficient manufacturing facilities – Monitoring costs of activities provided by outsiders – Simplifying production processes
  15. 15. SATYA SM & B Page 15 Differentiation Approach under which a firm aims to develop and market unique products for different customer segments. Usually employed where a firm has clear competitive advantages, and can sustain an expensive advertising campaign. It is one of three generic marketing strategies (see focus strategy and low cost strategy for the other two) that can be adopted by any firm. See also segmentation strategies Best cost, This strategy tells that the organization can gain competitive advantages (advantages over and above our competitors) by offering a product with higher attributes/ facilities/ additional features (NOT a Basic product) at a lower price compared to its competitors. Higher Attributes + Low Price = Best Cost Provider Strategy Ex – One of the best examples would be Toyota Lexus. Toyota had been doing various researches and experiments on producing a Luxury vehicle which can outperform Benz, BMW, Cadillac and Volvo. (A vehicle with higher attributes/ features than Benz, BMW) So the ultimate result was the introduction of Lexus. But the main important thing was that they could sell this Luxury Vehicle at a lower price compared to its main competitors Benz and BMW. This is mainly due to their Lean Management (Keeping wastage at the minimum level and increase the efficiency)Toyota has been recognized as the best company for practicing Lean Management at the best possible level. According to Toyota Performance of Lexus = Performance of BMW 5 series car but the price of Lexus = BMW 3 series car price. In this example the strategy was to offer a product with high attributes at a lower price (Lexus) - Low Cost Provider Strategy Ultimate result was the advantage achieved by Toyota over and above its competitors -BMW, Benz Focused Strategies A marketing strategy in which a company concentrates its resources on entering or expanding in a narrow market or industry segment A focus strategy is usually employed where the company knows its segment and has products to competitively satisfy its needs. Focus strategy is one of three generic marketing strategies. See differentiation strategy and low cost strategy for the other two.
  16. 16. SATYA SM & B Page 16 Strategic alliances, An arrangement between two companies that have decided to share resources to undertake a specific, mutually beneficial project A strategic alliance is less involved and less permanent than a joint venture, in which two companies typically pool resources to create a separate business entity. In a strategic alliance, each company maintains its autonomy while gaining a new opportunity. A strategic alliance could help a company develop a more effective process, expand into a new market or develop an advantage over a competitor, among other possibilities. Collaborative partnerships, Collaboration is working with each other to do a task.[1] It is a recursive[2] process where two or more people or organizations work together to realize shared goals, (this is more than the intersection of common goals seen in co-operative ventures, but a deep, collective, determination to reach an identical objective Collaborative partnerships (people and organizations from multiple sectors working together in common purpose) are a prominent strategy for community health improvement. This review examines evidence about the effects of collaborative partnerships on (a) community and systems change (environmental changes), (b) community-wide behavior change, and (c) more distant population-level health outcomes. We also consider the conditions and factors that may determine whether collaborative partnerships are effective. A partnership between two or more people that gives structure and organization for planning, thinking, and working together to accomplish a common goal. The only question that remains is, 'what partnership isn't considered collaborative'? Mergers and acquisition, Mergers and acquisitions (abbreviated M&A) is an aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or new location, without creating a subsidiary, other child entity or using a joint venture. The distinction between a "merger" and an "acquisition" has become increasingly blurred in various respects (particularly in terms of the ultimate economic outcome), although it has not completely disappeared in all situations. Joint Ventures Strategies A business agreement between two different companies to work together to achieve specific goals Unlike a merger or acquisition, a strategic joint venture does not have to be permanent, and it offers companies the benefits of maintaining their independence and identities as individual companies while offsetting one or more weaknesses with another company's strengths.
  17. 17. SATYA SM & B Page 17 Outsourcing Strategies- Strategic outsourcing is the process of engaging the services of a provider to manage essential tasks that would otherwise be managed by in-house personnel. This is often done to allow a business to arrange the use of its assets to best advantage, and allow the company to move closer to the achievement of its goals. An outsourcing strategy of this type may be employed by businesses and other organizations of any size, and normally helps to reduce the cost of operations as well as allow available resources to be allocated to the other necessary functions that are still managed within the organization proper. International Business level strategies • An integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets
  18. 18. SATYA SM & B Page 18 MODULE 5 FORMULATING LONG-TERM AND GRAND STRATEGIES Tailoring Strategy to fit specific Industry and company situation – long term objectives for Grand Strategies The company mission encompasses the broad aims of the firm. The most specific statement of aims presented in the mission appeared as the goals of the firm. However, those goals, which commonly dealt with profitability, growth, and survival, were stated without specific targets or time frames. They were always to be pursued but could never be fully attained. They gave a general sense of direction but were not intended to provide specific benchmarks for evaluating the firm’s progress in achieving its aims. Providing such benchmarks is the function of objectives. Tailoring Strategy to fit specific Industry and company situation – long term objectives for Grand Strategies- Innovation, Integration and diversification – Conglomerate Diversification, Retrenchment, Restructuring and turnaround – Long-term objectives Strategic managers recognize that short-run profit maximization is rarely the best approach to achieving sustained corporate growth and profitability. To achieve long-term prosperity, strategic planners commonly establish long-term objectives in seven areas:  Profitability The ability of any firm to operate in the long run depends on attaining an acceptable level of profits. Strategically managed firms characteristically have a profit objective, usually expressed in earnings per share or return on equity.  Productivity Strategic managers constantly try to improve the productivity of their systems Firms that can improve the input-output relationship normally increase profitability. Thus, firms almost always state an objective for productivity. Commonly used productivity objectives are the number of items produced or the number of services rendered per unit of input. However, productivity objectives are sometimes stated in terms desired cost decreases. For example, objectives may be set for reducing defective items, customer complaints leading to litigation, or overtime. Achieving such objectives increases profitability if unit output is maintained.  Competitive Position One measure of corporate success is relative dominance in the marketplace Larger firms often establish an objective in terms of competitive position,
  19. 19. SATYA SM & B Page 19 often using total sales or market share as measures of their competitive position. An objective with regard to competitive position may indicate a firm’s long-term priorities. For example, Gulf Oil set a five-year objective of moving from third to second place as a producer of high-density polypropylene. Total sales were the measure.  Employee Development Employees value growth and career opportunities. Providing such opportunities, often increases productivity and decreases turnover. Therefore, strategic decision makers frequently include an employee development objective in their long- range plans. For example. A company can declare an objective of developing a highly skilled and flexible employees and thus providing steady employment for a reduced number of workers.  Employee Relations Whether or not they are bound by union contracts, firms actively seek good employee relations. In fact, proactive steps in anticipation of employee needs and expectations are a characteristic concern of strategic managers. Strategic managers believe that productivity is linked to employee loyalty and perceived management interest in workers’ welfare. They therefore set objectives to improve employee relations. Among the outgrowths of such objectives are safety programes, worker representation on management committees, and employee stock option plans.  Technological Leadership Firms must decide whether to lead or follow in the marketplace. Approach can be successful, but each requires a different strategic posture Therefore, many firms state an objective with regard to technological leadership. For example, Caterpillar Tractor Company established its early reputation and dominant position in its industry by being in the forefront of technological innovation in the manufacture of large earthmovers.  Public Responsibility Firms recognize their responsibilities to their customers and to society at large. In fact, many firms seek to exceed the demands made by government. They work not only to develop reputations for fairly priced products and services but also to establish themselves as responsible corporate citizens. For example, they may establish objectives for charitable and educational contributions, minority training, public or political activity, community welfare, or urban renewal. Qualities of Long-Term Objectives What distinguishes a good objective from a bad one? What qualities of an objective improve its chances of being attained? Perhaps these questions are best answered in relation to seven criteria that should be used in preparing long-term objectives: 1. Acceptable, 2. Flexible, 3. Measurable over time, 4. Motivating, 5. Suitable,
  20. 20. SATYA SM & B Page 20 6. Understandable, 7. Achievable. FORMULATION OF GRAND STRATEGIES These provide a comprehensive general approach guiding major actions designed to accomplish the firm’s long-term objectives. GENERIC STRAGEGIES Many planning experts believe that the general philosophy of doing business declared by the firm in the mission statement must be translated into a holistic statement of the firm’s strategic orientation before it can be further defined in terms of a specific long-term strategy. In other words, a long-term or grand strategy must be based on a core idea about how the firm can best compete in the marketplace. The popular term for this core idea is generic strategy. From a scheme developed by Michael Porter, many planners believe that any long-term strategy should derive from a firm’s attempt to seek a competitive advantage based on one of three generic strategies: 1. Striving for overall low-cost leadership in the industry. 2. Striving to create and market unique products for varied customer groups through differentiation. 3. Striving to have special appeal to one or more groups of consumer or industrial buyers, focusing on their cost or differentiation concerns. GRAND STRATEGIES While the need for firms to develop generic strategies remains an unresolved debate, designers of planning systems agree about the critical role of grand strategies. Grand strategies, often called master or business strategies provide basic direction for strategic actions. They are the basis of coordinated and sustained efforts directed toward achieving long-term business objectives .Grand strategies indicate how long-range objectives will be achieved. Thus, a grand strategy can be defined as a comprehensive general approach that guides a firm’s major actions. Any one of these strategies could serve as the basis for achieving the major long-term objectives of a single firm Innovation
  21. 21. SATYA SM & B Page 21 An innovation strategy involves new processes, business ideas, and more basic R&D than is usually associated with a product development strategy. Innovation is usually paired with other strategies as a supporting or complementary strategy Integration These are two types Horizontal Integration This strategy focuses on mergers or acquisitions in the same industry. This strategy will usually increase a firm's market share and it helps the firm gain relevant knowledge and expertise. Horizontal integration strategy can support a concentrated growth or market development strategy. Vertical Integration Vertical integration is a grand strategy that involves acquiring either suppliers or customers. The transaction may involve stock purchase, buying assets, or stock swap. Backward vertical integration involves acquiring a firm at an earlier stage of the value chain. Forward integration involves acquiring a firm at a later stage in the value chain. This strategy can result in control of more value chain activities. For example, backward vertical integration may insure control of sources of supply. Forward integration enables an organization to obtain increased control over its distributors or retailers. It can be implemented when the distribution of an organization is costly, distributors are unreliable. When an organization is not able to avail the advantage of competition due to lack of quality distribution Centric Diversification A diversification strategic thrust involves acquiring related or unrelated businesses, and in some cases major new product line development programs. Concentric diversification focuses on creating a portfolio of related business. The portfolio is usually developed by acquisition rather than by internal new business creation. Product-market synergies are a major issue in creating the portfolios of SBUs. This strategy focuses on expansion in the same industry or area of technical know how Conglomerate Diversification This strategy focuses on expansion through new products and new markets. Conglomerate diversification involves acquiring a portfolio of businesses based on financial performance criteria. Product-market synergies are not an issue. It can be implemented:
  22. 22. SATYA SM & B Page 22  When basic industry of an organization is facing a downfall in annual sales and profit.  When an organization has the opportunity to purchase an unrelated business that looks like an attractive investment.  When there is a financial synergy between acquired and acquiring organization.  When existing markets are saturated Retrenchment, Retrenchment is a corporate level strategy that aims to reduce the size or diversity of an organization. Retrenchment is also reduction in expenditure to become financially stable. Retrenchment strategy is a strategy used by corporates in order to reduce the diversity or to cut the overall size of the operations of the company. This strategy is often used to cut down expenses with the goal of becoming more financially stable business. Typically the strategy involves withdrawing from certain markets or the discontinuation of selling certain products or services in order to make a beneficial turn around. Retirement is one of the retrenchment strategy. It is a point where a person stops employment completely. A person may also semi retire by reducing work hours. Many people choose to retire when they are eligible for private or public pension benefits, although some are forced to retire when physical conditions do not allow them to work anymore. Turnaround Turnaround management is a process dedicated to corporate renewal. It uses analysis and planning to save troubled companies and returns them to solvency. Turnaround management involves management review, activity based costing, root failure causes analysis, and SWOT analysis to determine why the company is failing. Once analysis is completed, a long term strategic plan and restructuring plan are created. These plans may or may not involve a bankruptcy filing. Once approved, turnaround professionals begin to implement the plan, continually reviewing its progress and make changes to the plan as needed to ensure the company returns to solvency. GE nine cell planning grid and BCG Matrix General Electric with the assistance of McKinsey and Company developed this matrix. • This matrix includes 9 cells based on long-term industry attractiveness (on Y-axis) and business strength/competitive position (on X-axis). • The industry attractiveness includes Market size, Market growth rate, Market profitability, Pricing trends, Competitive intensity / rivalry, Overall risk of returns in the industry, Entry barriers, Opportunity to differentiate products and services, Demand variability, Segmentation, Distribution structure, Technology development
  23. 23. SATYA SM & B Page 23 • Business strength and competitive position includes Strength of assets and competencies, Relative brand strength (marketing),Market share, Market share growth, Customer loyalty, Relative cost position (cost structure compared with competitors), Relative profit margins (compared to competitors), Distribution strength and production capacity, Record of technological or other innovation, Quality, Access to financial and other investment resources, Management strength

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