Strategic Management

Paper-III
STRATEGIC MANAGEMENT
Section - A
Mr. Rajesh Shende
Faculty
Datta Meghe Institute of Management Studies
Atrey Layout, Nagpur

Rajesh Shende- DMIMS 1

UNIT - I
STRATEGIC MANAGEMENT


Why Strategy?
 It’s about how businesses compete.
 How to earn above average returns.
 Selection of industries
 Selection of segments
 Choice of tactics
 How to IMPLEMENT!


 Strategic Management: The set of managerial
decisions and actions that determines the
long-run performance of an organisation.

 Strategic Planning: The process of
determining a company's long-term goals
and then identifying the best approach for
achieving those goals


 Four aspects that set strategic management
is important
 Interdisciplinary
▪ Capstone of the Business degree
 External focus
▪ Competition
 Internal focus
 Future direction


External
The firm Environment
Goals & Values Competitors
Resources & Strategy
Customers
Capabilities
Suppliers
Structures &
Systems etc


STRATEGIC DECISION MAKING

 Strategic Decision Making is the basic thrust
of Strategic Management.

 Strategy formulation rests on decision
making.


Decision Making

Strategic Decision Making


 CRITERIA
 RATIONALITY
 CREATIVITY
 VARIABILITY
 PERSON RELATED FACTORS
 INDIVIDUAL VERSUS GROUP


 Objective to be achieved are determined.
 Alternative ways of achieving obj.
 Each alternative is evaluated on ability.
 Best alternative is chosen.


 Establishing Hierarchy of strategic Intent
1. Creating & Communicating a Vision
2. Designing a Mission statement
3. Defining the Business
4. Adopting the Business Model
5. Setting Objectives


 Formulation of strategies
1. Performing external analysis
2. Performing internal analysis
3. Formulating Corporate & Business Level strategies
4. Preparing Strategic Plan

 Implementation of Strategies
1. Activating Strategies
2. Designing Structure, System & Process
3. Managing Functional & Behavioral Implementation
4. Operationalising Strategies

 Performing Strategic Evaluation & Control
1. Performing strategic Evaluation
2. Exercising strategic Control
3. Reformulating Strategies


Strategy is a plan, or method of approach developed by an
individual, group, or organization, in an effort to successfully
achieve an overall goal or objective.

Policy refers to a definite course of action adopted by an
individual, group, or organization in an effort to promote the
best practice particular to desired results.

Tactics involves the detail, the procedure, and the order of how
to achieve the desired results particular to the strategy.


UNIT II
STRATEGIC INTENT


Strategic Intent Like individuals, organizations must define what
they want to do and why they want to do this, this end result is
referred to as strategic intent.

Strategic intent is defined as “Strategic intent envisions a
desired leadership position and establishes the criterion the
organization will use to chart its progress.”


 Strategic Intent has a hierarchy
– Vision,
Mission,
Goals & Objectives.


Sense of Direction : Strategic Intent implies a particular view about
long-term market or competitive position that an organization
hopes to build in future. It should be a view of the future –
conveying a sense of direction.

Sense of Discovery : Strategic intent is differential as each
organization differs from others; it implies a competitively unique
point of view about the future.

Sense of Destiny : Strategic intent has an emotional edge to it. It is an
end result that employees perceive as inherently worthwhile.


IOC is the largest Indian company engaged in the business of
crude oil refining and offers a variety of products related to
oil sector.

Vision : IOC aims to achieve international standards of excellence in
all aspects of energy and diversified business with focus on
customer delight through quality products and services.

Mission : Maintaining national leadership in oil
refining, marketing, and pipeline transportation.

Objectives : Focusing on cost, quality, customer care, value
addition, and risk management.

 Realistic
 Credible
 Attractive
 Future


 A good vision is idealistic.
 A good vision inspires organizational
members.
 A good vision reflects the uniqueness.
 A good vision is well articulated and easily
understood.


 Mission Statement Mission statement is the
description of organizational mission.

 The company mission is defined as the fundamental
unique purpose that sets a business apart from
other firms of its type and identifies its scope of its
operations in product and market terms.


Following points should be considered while
preparing the mission statement:
 Clear
 Achievable
 Feasible
 Distinctive
 Explanatory


Tata Tea:
 Achieve market and thought leadership for branded
tea in India.
 Be recognized as the foremost innovator in tea and
tea based beverage solutions.
 Drive long-term profitable growth.
 Co-create enhanced value for all stakeholders.
 Make Tata Tea a great place to work


 Direction
 Aspirations
 Integration
 Positive attitudes


Goals and objectives are the end results which an
organization strives for.

There may be different ways in expressing end results
like market leadership, a certain percentage
increase in sales in a particular year etc.


SMART DUMB
 S – Specific D – Doable
 M – Measurable U – Understandable
 A – Attainable M – Manageable
 R – Relevant B – Beneficial
 T – Time-bound


 Direction
 Clear Definition
 Motivating force
 Voluntary coordination
 Performance Standard
 Decentralization
 Integration


 Specificity
 Multiplicity
 Periodicity
 Reality
 Quality


 Growth
 Profit
 Marketing
 Employees
 Social


 VISION
 To seize future of tomorrow & create a future that will make economic value
added co.
 To continue to improve quality of life of our employee & communities we serve.

 Venture into new businesses that will own a share of our future .
 MISSION & GOALS
 Move from commodities to Brand.
 Continue to lowest cost producer of steel.
 Value creating partnership.
 Enthused & happy employees.
 Sustainable Growth.
 STRATEGY
 Manage knowledge.
 Outsource strategically.
 Invest in attractive new businesses.
 Ensure safety & environmental sustainability

UNIT III
INTERNAL & RESOURCE
ANALYSIS


 Strategic Planning tool extremely useful for
Decision making.
 Internal strength & Weakness of firm.
 External Opportunities & Threats facing that firm.
 Effective strategy Maximizes Strengths &
Opportunities, Minimizes Weaknesses & Threats.
 SWOT analysis is used for business
planning, strategic planning, competitor
evaluation, marketing, business and product
development and research reports.


 Arises from Resources & Competencies
 Experience, knowledge, data?
 Marketing - reach, distribution, awareness?
 Innovative aspects?
 Location and geographical?
 Price, value, quality?
 Right products, quality and reliability.
 Superior product performance v’s competitors.
 Better product life and durability.
 Spare manufacturing capacity.


 Limitation or Deficiency
 Lack of competitive strength.
 Reputation, presence and reach.


 Major Favorable situation in firm’s environment.
 Improved buyer or supplier relations.
 New technologies
 Market developments
 Could develop new products.
 Local competitors have poor products.
 Profit margins will be good.
 End-users respond to new ideas.
 Could extend to overseas.
 New specialist applications.


 Major Unfavorable situation in firm’s
environment.
 Entrance of new competitors,
 Slow Market Growth,
 New revised regulations,
 Increased bargaining power


Strengths (internal) Weaknesses (internal)
strengths/opportunities weaknesses/opportunities

obvious natural priorities potentially attractive options
Opportunities greatest ROI Potentially more exciting and
(external) Quickest and easiest to stimulating and rewarding due to
implement. change, challenge, surprise tactics,
Immediate action-planning. and benefits from addressing and
achieving improvements.
strengths/threats weaknesses/threats

easy to defend and counter Only potentially high risk
Threats basic awareness, planning, and Assessment of risk crucial.
(external) implementation required to meet Where risk is low then we must
these challenges. ignore these issues and not be
Investment in these issues is distracted by them.
generally safe and necessary. Defend/avert in very specific
controlled ways.

 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.
 Two types of activities
A)- PRIMARY ACTIVITIES
B)- SUPPORT ACTIVITIES


 Inbound Logistics
 Operations
 Outbound Logistics
 Marketing & Sales
 Service


 Administration/ Infrastructure
 Human Resource Management
 Research, Technology & system Development.
 Procurement


 Economies of Scale
 Product Differentiation
 Capital Requirements
 Cost Disadvantages Independent of Size
 Access to Distribution Channels
 Government Policy


A supplier group is powerful if:
 It is dominated by a few companies and is more
concentrated than the industry it sells to
 Its product is unique or at least
differentiated, or if it has built-up switching
costs
 It is not obliged to contend with other products
for sale to the industry
 It poses a credible threat of integrating forward
into the industry’s business
 The industry is not an important customer of
the supplier group

A buyer group is powerful if:
 It is concentrated or purchases in large volumes
 The products it purchases from the industry are
standard
 The products it purchases from the industry
form a component of its product and represent
a significant fraction of its cost
 It earns low profits
 The industry’s product is unimportant to the
quality of the buyers’ products or services
 The industry’s product does not save the buyer
money
 The buyers pose a credible threat of integrating
backward

 By placing a ceiling on the prices it can
charge, substitute products or services limit the
potential of an industry
 Substitutes not only limit profits in normal times
but also reduce the bonanza an industry can reap
in boom times
 Substitute products that deserve the most
attention strategically are those that are
 subject to trends improving their price-
performance trade-off with the industry’s
product or
 produced by industries earning high profits


Intense rivalry occurs when:
 Tactics like price competition, advt., product diff.
 Industry growth is slow, precipitating fights for
market share that involve expansion
 The product or service lacks differentiation or
switching costs
 Fixed costs are high or the product is
perishable, creating strong temptation to cut prices
 Capacity normally is augmented in large increments
 Exit barriers are high
 Rivals are diverse in strategy, origin, and personality


UNIT IV
EXTERNAL ANALYSIS-
ENVIRONMENT ANALYSIS


 Three tiers of environmental factors that affect
firm’s performance.
 Five factors in the remote environment
 The five forces model of industry analysis
 The five factors in the operating environment


Comprised of following Components:
 Remote environment
 Industry environment
 Operating environment


 Economic Factors
 Social Factors
 Political Factors
 Technological Factors
 Ecological Factors


 Prime interest rates
 Inflation rates
 Trends in the growth of the gross national
product
 Unemployment rates
 Globalization of the economy
 Outsourcing


Present in the external environment:
 Beliefs & Values
 Attitudes & Opinions
 Lifestyles
Developed from:
 Cultural conditioning
 Ecological conditioning
 Demographic makeup
 Religion
 Education
 Ethnic conditioning.

Political constraints on firms:
 Fair-trade Decisions
 Antitrust Laws
 Tax Programs
 Minimum Wage Legislation
 Pollution and Pricing Policies
 Administrative jawboning


 Technological forecasting helps protect and
improve the profitability of firms in growing
industries.
 It alerts strategic managers to impending
challenges and promising opportunities.
 The key to beneficial forecasting of
technological advancement lies in accurately
predicting future technological capabilities and
their probable impacts.


 Ecology refers to the relationships among
human beings and other living things and the
air, soil, and water that supports them.
 Threats to our life-supporting ecology caused
principally by human activities in an industrial
society are commonly referred to as pollution
 Loss of habitat and biodiversity
 Environmental legislation
 Eco-efficiency


 Harvard professor Michael E. Porter propelled
the concept of industry environment into the
foreground of strategic thought and business
planning.
 The cornerstone of Porter’s work first appeared
in the Harvard Business Review, in which he
explains the five forces that shape competition
in an industry.
 Porter’s well-defined analytic framework helps
strategic managers to link remote factors to
their effects on a firm’s operating environment.


 The essence of strategy formulation is coping
with competition.
 Intense competition in an industry is neither
coincidence nor bad luck.
 Competition in an industry is rooted in its
underlying economics, and competitive forces
exist that go well beyond the established
combatants in a particular industry.
 The corporate strategists’ goal is to find a
position in the industry where his or her
company can best defend itself against these
forces or can influence them in its favor.

 An industry is a collection of firms that offer
similar products or services.
 Structural attributes are the enduring
characteristics that give an industry its
distinctive character.
 Concentration refers to the extent to which
industry sales are dominated by only a few
firms.
 Barriers to entry are the obstacles that a firm
must overcome to enter an industry.

 How do other firms define the scope of their
market?
 How similar are the benefits the customers
derive from the products and services that
other firms offer? The more similar the
benefits of products or services, the higher
the level of substitutability between them.
 How committed are other firms to the
industry?

 Also called competitive or task environment
 Includes competitor positions and customer
profiling based on the following factors:
 Geographic
 Demographic
 Psychographic
 Buyer Behavior
 Also includes suppliers & creditors and HRM


Access to personnel is affected by 4 factors:
 Firm’s reputation as an employer
 Local employment rates
 Availability of people with the needed skills
 Its relationship with labor unions.


 Differing external elements affect different
strategies at different times and with varying
strengths
 Only certainty is that the effect of the remote
and operating environments will be uncertain
until a strategy is implemented
 Many managers, particularly in less powerful
firms, minimize long-term planning
 Instead, they allow managers to adapt to new
pressures from the environment
 Absence of strong resources and psychological
commitment to a proactive strategy effectively
bars a firm from assuming a leadership role in
its environment

What is environmental scanning?
Environmental scanning refers to possession
and utilization of information about
occasions, patterns, trends, and relationships
within an organization’s internal and external
environment.


 External Environmental Scanning

 Internal Environmental Scanning


Cross- Consensus Identification
Preliminary
functional of of strategic
Assessment
Discussion Discussion option


 Employee interaction with-
 Employees
 Management
 Management interaction with shareholders
 Access to natural resources,
 Brand awareness,
 Organizational structure, main
staff, operational potential


UNIT V
STRATEGY FORMULATION


Types of Strategies
1. Expansion
2. Stability
3. Retrenchment
4. Combination


Expansion strategies is distributed as-
1. Concentration
2. Integration
3. Diversification


Ansoff Product-Market Matrix

 Minimal organisational changes
 Specialise in one business
 Less problems to managers as known
situation
 Decision making due to past experience
makes valuable


 Heavily dependent on industry
 Product obsolescence
 Less challenging
 Cash flow problems


 Combining activities related to the present
activity of firm.

▪ Horizontal Integration Strategies

▪ Vertical Integration Strategies


The process of acquiring or merging with industry
competitors
▪ Acquisition and merger


Benefits of Horizontal Integration
 Reducing costs
 Increasing value
 Product bundling
 Cross selling
 Managing industry rivalry
 Increasing bargaining power
 Market power (monopoly power)


 Expanding operations backward into an industry that
produces inputs for the company or forward into an industry
that distributes the company’s products

 Two types
 Forward Integration
 Backward Integration


 Building barriers to entry
 Facilitating investments in specialized assets
 Protecting product quality
 Improved scheduling


 Cost disadvantages
 Company-owned suppliers that have higher costs
than external suppliers
 Rapid technological change
 Tying a company to an obsolescent technology
 Demand unpredictability
 Difficulty of achieving close coordination among
vertically integrated activities
 Bureaucratic costs


 The process of adding new businesses to the company that
are distinct from its established operations

Types-
 Concentric Diversification Strategies

 Conglomerate Diversification Strategies


 When a company runs out of growth
opportunities in the core business and not
before!
 When diversification results in creation of
value


Entry into a new business activity in a different industry that is
related to a company’s existing business activity, or
activities, by commonalities between one or more
components of each activity’s value chain

It may be of three types-
1. Marketing-Related Concentric Diversification
2. Technology-Related Concentric Diversification
3. Marketing & Technology-Related Concentric Diversification


Entry into industries that have no obvious connection
to any of a company’s value chain activities in its
present industry or industries


 C) COOPERATIVE STRATEGIES

 Merger & Acquisition Strategies

 Joint Venture Strategies

 Strategic Alliance


MERGER
Combination of two or more organisation in which one acquire the
Assets & Liabilities of the other in exchange for shares or cash or both
the org. dissolved and assets & liabilities are combined and new stock is
issued.

Acquisition
The attempt of one firm to acquire the ownership or control over the
other firm.


1. Horizontal Merger
2. Vertical Merger
3. Concentric Merger
4. Conglomerate Merger


An entity resulting from a long term contractual
agreement between two or more parties to
undertake mutually beneficial economic activities.

Types of JV:
1. Within Industries
2. Across Industries
3. Across Countries


 Technology
 Geography
 Regulation
 Sharing of risk & control
 Intellectual exchange


When two or more firms unite to pursue a set of agreed upon
goals, but remain independent subsequent to the formation of
alliance.

Cooperation between two or more independent firms involving
shared control & continuing contributions by all partners for
mutual benefit.


 Entering New market
 Reducing manufacturing cost
 Developing & Diffusing technology


Based on organisational Interaction & Conflict potential between alliance partners.
 Procompetitive alliances(LI /LC)
 Noncompetitive alliances(HI/LC)
 Competetive alliance(HI/HC)
 Precompetitive alliance(LI/HC)


 No-Change Strategy

 Profit Strategy

 Pause/Proceed Strategy


 Turnaround Strategies

 Divestment Strategies

 Liquidation Strategies


Turnaround strategy means backing out, withdrawing or
retreating from a decision wrongly taken earlier in
order to reverse the process of decline.
 a) Persistent negative cash flow
 b) Continuous losses
 c) Declining market share
 d) Deterioration in physical facilities
 e) Over-manpower, high turnover of employees, and low
morale
 f) Uncompetitive products or services
 g) Mismanagement


Divestment strategy involves the sale or liquidation of a portion
of business, or a major division, profit centre or SBU.
Divestment is usually a restructuring plan and is adopted
when a turnaround has been attempted but has proved to be
unsuccessful or it was ignored.
 a) A business cannot be integrated within the company.
 b) Persistent negative cash flows from a particular business create
financial problems for the whole company.
 c) Firm is unable to face competition
 d) Technological up gradation is required if the business is to survive
which company cannot afford.
 e) A better alternative may be available for investment


Liquidation strategy means closing down the entire firm and selling its
assets. It is considered the most extreme and the last resort because
it leads to serious consequences such as loss of employment for
employees, termination of opportunities where a firm could pursue
any future activities, and the stigma of failure.

Reasons for Liquidation include:
 (i) Business becoming unprofitable
 (ii) Obsolescence of product/process
 (iii) High competition
 (iv) Industry overcapacity
 (v) Failure of strategy


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