Strategic Management

Strategic management is the set of decisions and actions used to formulate and implement strategies that will provide a competitively superior fit between the organization and its environment so as to achieve organizational

goals.

GE Nine Cell Matrix

Different factors can be used to define Industry Attractiveness. Like:- Market Size, Market Growth Rate, Demand variability, Industry

Profitability, Competitive Rivalry, Global Opportunities, Entry and exit barriers, Capital requirement, Macro environmental Factors (PEST)

Different factors can also be used to define SBU Strength. Like:- Market Share, Distribution Channel Access, Financial Resources, R&D

Capability, Brand equity, Production Capacity, Knowledge of customer and market, Caliber of management. Relative cost position

The factors and their relative weightings are selected. The rating values for each factor are entered for each SBU and Industry.

GE Nine Cell Matrix

Industry Attractiveness

Business Unit Strength

Strong Average Weak

High Grow Grow Hold

Medium Grow Hold Harvest

Low Hold Harvest Harvest

GE Nine Cell Matrix

Grow - Business units that fall under grow attract high investment. Firms may go for product differentiation or Cost leadership. Huge cash is generated in this phase. Market leaders exist in this phase.

Hold - Business units that fall under hold phase attract moderate investment. Market segmentation, Market penetration, imitation strategies are adopted in this phase. Followers exist in this phase.

Harvest - Business units that fall under this phase are unattractive. Low priority is given in these business units. Strategies like divestment, Diversification, mergers are adopted in this phase.

Market Attractiveness

Annual market growth rate Overall market size Historical profit margin Current size of market Market structure Market rivalry Demand variability Global opportunities

Current market share Brand image Production capacity Corporate image Profit margins relative to

competitors R & D performance Promotional effectiveness

Business Strength

GE Nine Cell Matrix

Strength a) It allows intermediate ratings between high and low and between

strong and week.

b) It helps in channeling the corporate resources to business and achieving competitive advantage and superior performance.

c) It helps in better strategic decision making and better understanding of business scope.

Weaknessa)It tends to obscure business that are become to winners because their

industries are entering at exit stage.

b)Assessment of business in terms of two factors is not fair.

EXAMPLE OF GE NINE CELL MATRIX

The Grand Strategy

Plan of major action to achieve long term goals.

The Grand Strategy

Growth Stability Retrenchment

Growth

New products Developed products Strategic alliance Starbucks HP Disney Avon ebay

stability

Maintain current business and product portfolios

maintains the existing level of effort satisfied with incremental growth.

It decides to serve the same markets with the same products

It continues to pursue the same objectives with a strategic thrust on incremental improvement of functional performances

Dell, Videocon

Retrenchment

Retrenchment is a short-run renewal strategy designed to overcome organizational weaknesses that are contributing to deteriorating performance.

TATA group continued concentrating on its various business including steel, automobile manufacturing, etc while Tomco, which did not share a synergistic relationship with its current portfolio of businesses.

Globalization - Mc D, Ford 2000 Multidomestic - Caterpillar, P&G Transnational - local yet unique

Hierarchy of Strategy

Functional Strategy

Business (Division Level)

Strategy

Corporate Strategy

Manufacturing Finance MarketingResearch

and Development

Human Resources

Strategic Business

Unit

Strategic Business

Unit

Strategic Business

Unit

Corporate Headquarters

Strategic Management Defined

The set of managerial decisions and actions that determines the long-run performance of a corporation. It includes:environmental scanning (internal & external)strategy formulationstrategy implementationevaluation and control

It focuses on integrating management, marketing, finance/accounting, production/operations, research and development, and computer information systems to achieve organizational success.

Benefits of Strategic Management

Clearer sense of strategic vision Sharper focus on what is strategically

important Improved understanding of rapidly

changing environment

Three Key Strategic Questions

Where is the organization now? If no changes are made, where will the

organization be in one, two, five or ten years? Are the answers acceptable?

If the answers are not acceptable, what specific actions should management undertake? What are the risks and payoffs involved?

Strategic Management Model

Strategy Formulation

Strategy Implementation

Evaluation and Control

Mission

Objectives

Strategies

Policies

Feedback/Learning

Environmental Scanning

Societal Environment

General Forces

Task Environment

Industry Analysis

Structure Chain of Command

Resources Assets, Skills

Competencies, Knowledge

Culture Beliefs, Expectations,

Values

Reason for existence

What results to accomplish by when Plan to

achieve the mission & objectives Broad

guidelines for decision making

Programs

Activities needed to accomplish a plan

Budgets

Cost of the programs Procedures

Sequence of steps needed to do the job

Process to monitor performanceand take corrective action

Performance

External

Internal

Environmental Scanning

Monitoring, evaluating and disseminating information from the environment to key people within the corporation.

Scan via SWOT analysis:Look for opportunities/threats in the external environment

Look for strengths/weaknesses in the internal environment

Strategy Formulation

The process of developing long-range plans to deal effectively with environmental opportunities and threats in light of corporate strengths and weaknesses.

Composed of:

Mission Objectives Strategies Policies

Mission

The purpose or reason for the corporation’s existence. It tells who the company is, what they do as well as what they’d like to become.

Objectives

The end results of planned activity. They state WHAT is to be accomplished by WHEN. They should be quantified, if possible.

Should be specific, measurable and obtainable.

Strategies

A strategy is a comprehensive master plan stating HOW the corporation will achieve its mission and objectives. There are three types:

Corporate - a corporation’s overall direction and the management of its businesses.

Business - emphasizes improving the competitive position of a corporation’s products or services in a specific industry or market segment.

Functional - concerned with developing a distinctive competence to provide a company or business unit with a competitive advantage.

Hierarchy of Strategy

Functional Strategy

Business (Division Level)

Strategy

Corporate Strategy

Manufacturing Finance MarketingResearch

and Development

Human Resources

Strategic Business

Unit

Strategic Business

Unit

Strategic Business

Unit

Corporate Headquarters

Policies

Broad guidelines for making decisions.

E.g. - 3M’s policy requiring researchers to spend 15% of their time working on something other than their primary project.

Strategy Implementation

The process of putting strategies and policies into action through the development of:

Programs - statements of activities or steps needed to accomplish a single-use plan.

Budgets - statements of a corporation’s programs in dollar terms.

Procedures - systems of sequential steps or techniques that describe in detail how to perform particular tasks or jobs.

Evaluation and Control

The process of monitoring corporate activities and performance results so that actual performance can be compared with desired performance.

Strategic Decision-Making Process

Review and Revise as Necessary: Mission Objectives

Generate and Evaluate Strategic Alterna- tives

Select and Recommend Best Alternative

Implement Strategies: Programs Budgets Procedures

StrategyImplementation

Step 7

5(b) 6(a) 6(b) 7 8

Analyze External Factors: Opportun- ities Threats

Scan and Assess Internal Environment: Structure Culture Resources

Analyze Internal Factors: Strengths Weak- nesses

Select Strategic Factors (SWOT) in Light of Current Situation

Scan and Assess External Environment: Societal Task

Evaluate Current Performance Results

Examine and Evaluate the Current: Mission Objectives Strategies Policies

Review Corporate Governance: Board of Directors Top Man- agement

Strategy

Formulation:

Steps 1 – 6

3(a)

1(a) 1(b) 2 5(a)

4(a)

3(b)

4(b)

Evaluationand

Control:Step 8