SM 1 -Overview
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Transcript of SM 1 -Overview
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INTRODUCTION
TO
STRATEGIC MANAGEMENT
Dr.P.Prasadarao Ph.D.,
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2
The Nature of Strategic Management
If a man takes no thought about what is
distant, he w i l l f ind so rrow near at hand . He
who w i ll not wo rry about what is far of f wi l l
soon f ind som eth ing worse than worry .
Confuc ius
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Why do some companies fail while others
succeed?
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Why Dell computers has been able to do so well against Compaq,
Gateway and Apple ?
What distinguishes the success of Wal-mart against Sears and K-mart?
In Database market how Oracle managed to build and retain strong market
position vis--vis Informix and Sybase
How Southwest Airlines maintain competitiveness against Delta and US
Airways
How did Sony come to dominate the market for Video games against
Sega ?
Success of Reliance
Strategies that organizat ions pu rsue have a major impacton its performance relative to i ts peers
Super ior performances give them competi t ive advantage
Much of Strategic m anagement is abou t
ident i fy ing and descr ib ing strategies to attainsuper ior performance and compet i tive advantage
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Thinking Strategically
Where are we Now?
Where do we
want to go?
How will we get there?
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What is Strategic Management?
Strategic management focuses on integrating
management
marketing
finance/accounting
production/operations
research and development (R & D)
computer information systems.
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Strategic Management Defined
Strategic management consists of managerial
decisions and actions that help to ensure that
the organization formulates and maintains abeneficial fitwith its environment.
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According to Peter Drucker, the primetask of strategic management is thinkingthrough the overall mission of a business:
. . . That is, of asking the question, What isour Business?This leads to the setting ofobjectives, the development of strategies, andthe making of todays decisions for tomorrows
results.
Futurity in present Decisions
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The Five Tasks of Strategic Management
1. Deciding what business the company will be in and
forming a strategic vision
a) Fit a SWOT
2. Converting the strategic vision and mission intomeasurable objectives
3. Crafting a strategy
4. Implementing and executing
5. Evaluating performance
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Strategic Management Process
The strategic m anagementprocess
consists of three stages:
Strategy Form ulat ion(create)
Strategy Implementat ion
(do)
Strategy Evaluat ion
(monitor)
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Strategic Control
Strategic Control Process and Performance
The Internal Environment
The Firms Resources, Organizational Mission, and Goals
External Environmental Opportunities and Threats
Macroenvironment Industry Environment
Strategy Formulation
Strategy Implementation
Organizational StructureLeadership, Power, and Organizational Culture
Corporate Strategy
FormulationBusiness Unit
Strategy Formulation
Functional Strategy
Formulation
StrategicManagement
PROCESS
Feedback
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Mission
Goals
SWOT
Alternatives
Fit
ChoiceSocial
Issues
Management
Values
Strategy
Formulation
Components
Scope
ResourcesTime
OrganizationBuilding
Legitimacy
Ethics
Culture
Learning
Institutionalization
Implementation
and Control
Structure
Standardization
Formalization
Centralization
DiscretionAuthority levels
Admin. component
Specialization
Communication
Environment Resources
Environment
Complexity
Munificence
Dynamism
Size
Complexity
Technology
Scope
Role
Adaptation
Determinism
Voluntarism
Organic vs.Mechanistic
The Strategic Management Paradigm
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Dimensions of Strategic
Management Requires top management decisions
Large amounts of firm resources
Affect long-term prosperity
Future oriented
Multifunctional or multi-business consequences
Considers the impact of the external
environment
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Definition of Strategy
....a general statement of act ionsanorganization intends to take or is taking that is
based on the f i tof the organization with its
external environment. strategy is the creation of a unique and
valuable position, involving a different set of
activities (Porter)
strategy is best conceived as a combination of
planned actions and on-the-spot adaptive
reactions to fresh developing industry and
competitive events.
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The Hows That Define a Firm's Strategy
Howto grow the business
Howto please customers
Howto out compete rivals
Howto respond to changing market conditions
Howto manage each functional piece of the business and
develop needed organizational capabilities
Howto achieve strategic and financial objectives
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The Levels of Strategy
Corporate
Business
Functional
Synergies are sought at each level
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Corporate- and Business Unit-
Level Strategic Questions
Question at the corporate level: In what
businesses should we be operating?
Question at the business unit level: How
should we compete in the chosen businesses?
? ? ?
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Strategy Is Both Planned and Reactiveto Changing Circumstances
Actual
Strategy
Planned (or
Intended)
Strategy
Adaptive
Reactions
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Why Do Strategies Evolve?
There is alwaysan ongoing need to react to Shifting market conditions
Fresh moves of competitors
New technologies
Evolving customer preferences
Political and regulatory changes
New windows of opportunity
The crisis of the moment
Th P f St t i t C t
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The Purpose of Strategy is to Create
a Sustainable Competitive
Advantage Build around core competencies Create distinctive competencies
Competitive strategy is about being different
Make the distinctive competencies valuable sothat they can become competitive advantages
Build defenses around your position to make itsustainable
Organization effectiveness is different fromstrategy If it can be imitated, it is not a sustainable advantage
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Stages of Strategic Management
Strategy fo rmulat ion includes:
Developing a v is ionand mission.
Identifying an organizations external
opportuni t iesand threats.Determining internal strengthsand
weaknesses.
Establishing long-term ob ject ives.
Generating alternative s trategies.
Choosing part icular strategiesto pursue.
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Stages of Strategic Management
Strategy form ulat ionincludes deciding:
What new businesses to enter.
What businesses to abandon.
How to allocate resources.
Whether to expand operations or diversify.
Whether to enter international markets.
Whether to merge or form a joint venture.
How to avoid a hostile takeover.
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Stages of Strategic Management
Strategy implementationincludes:
Establishing annual ob ject ives.
Devising pol ic ies.
Motivat ing employ eesthrough leadership.
Al locat ing resources.
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Stages of Strategic Management
Strategy implementationis often considered tobe the most di f f icu l t stage of strategicmanagement,because it requires personaldiscipline, commitment, and sacrifice.
Strategy implementation often is called theact ion stageof strategic management.
Note: Strategies formulated but not
implemented serve no useful purpose.
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Stages of Strategic Management
Strategy evaluat ionincludes:
Reviewing external and internal factors that
are the bases for current strategies.
Measuring performance.
Taking corrective action, if needed.
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The Prime Task of Strategic Management
Strategy evaluation is needed because:
All strategies are subject to futuremodification.
Success today is no guarantee of successtomorrow.
Success can lead to complacency.
Success leads to new and different problems.
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Adapting to Change
The strategic-management process isbased on the belief that organizationsshould continually monitor internal and
external events and trends so that timelychanges can be made as needed.
To survive, all organizations must becapable of astutely identifying andadapting to change.
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Key Terms in Strategic Management
Compet i tive advantageis anything that
a firm does especially well compared to
rival firms.
Getting and sustaining competitive advantage
is essential for long-term success in an
organization.
Pursuit of competitive advantage leads toorganizational success or failure.
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Key Terms in Strategic Management
A firm must strive to achieve susta ined
competi t ive advantageby
1. continually adapting to changes in
external trends and events
internal capabilities
competencies
resources.
2. effectively formulating, implementing, and
evaluating strategies that capitalize upon those
factors.
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Key Terms in Strategic Management
Strategists are the individuals who are
most responsible for the success or failure
of an organization.
Strategists may have various job titles.
Strategists help an organization gather,
analyze, and organize information.
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Key Terms in Strategic Management
Vision s tatement:answers the question,
What do we want to become?
Developing a vision statement is often
considered the first step in strategic
planning.
Many vision statements are a single
sentence.
BHELs vision statement: A world-class innovative
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Key Terms in Strategic Management
Mission statements
are enduring statements of purpose that distinguish one
business from other similar firms.
identify the scope of a firms operations in product and market
terms. answer the question: What is our business?
broadly chart the future direction of an organization.
describe the values and priorities of an organization.
BHEL :To achieve and maintain a leading position as suppliers of
quality equipments, systems and service to serve the national and
international markets in the field of energy. The areas of interest would
be conversion, transmission,, utilisation and conservation of energy for
power, industrial and transportation fields, to strive for technological
excellence and market leadership in these areas.
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Key Terms in Strategic Management
External oppo rtun it ies and th reatsrefer to thefollowing trends and events that could significantlybenefit or harm an organization in the future: Economic
Social
Cultural Demographic
Environmental
Political
Legal
Governmental Technological
Competitive.
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Key Terms in Strategic Management
Opportunities and threats are largely beyond thecontrol of a single organization.
A basic tenet of strategic management is thatfirms need to
formulate strategies to take advantage of externalopportunities
avoid or reduce the impact of external threats.
The process of conducting research and
gathering and assimilating external informationis called environmental scanning.
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Key Terms in Strategic Management
Internal strength sand internal weaknessesare anorganizations contro l lable act iv i t iesthat areperformed especially well (strengths) or poorly(weaknesses).
Internal strengths and weaknesses arise in thefunctional areas within an organization:management, marketing, finance/accounting,production/operations, research and development(R&D), and management information systems.
Strengths and weaknesses are determined relativeto com peti tors .
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Key Terms in Strategic Management
Long -term ob ject ivesare speci f ic resu l tsthatan organization seeks to achieve in pursuing itsbasic mission.
Long-term means more than one year.
Long-term objectives should be challenging
measurable
consistent
reasonable clear.
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Key Terms in Strategic Management
Strategies are
potential actions that require top management
decisions and large amounts of the firms resources.
the means by which long-term objectives will beachieved.
the combination of competitive moves and business
approaches that managers employ to please
customers, compete successfully, and achieve
organizational objectives.
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Key Terms in Strategic Management
For example, strategiesmay include Geographic expansions
Diversification
Acquisition
Product development Market penetration
Retrenchment
Divestiture
Liquidation Joint ventures.
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Key Terms in Strategic Management
Annual object ives
Short-term (less than one year) milestones that
organizations must achieve to reach long-term
objectives.
Should be stated in terms of management, marketing,
finance/accounting, production/operations, research
and development, and management information
systems accomplishments.
A set of annual object ives should be developed
for each long-term ob ject ive.
Are especially important in strategy implementation.
Represent the basis for allocating resources.
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Key Terms in Strategic Management
Pol icies are the means by which annual objectives will be achieved.
are most often stated in terms of management, marketing,finance/accounting, production/operations, research anddevelopment, and management information systems
accomplishments. include guidelines, rules, and procedures established to support
efforts to achieve stated objectives.
are especially important in strategy implementation because theyoutline an organizations expectations of its employees andmanagers.
allow consistency and coordination within and betweenorganizational departments.
are guides to decision making and address repetitive or recurringsituations.
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Benefits of Strategic Management
Strategic management
Allows an organization to be more proactive than
reactive in shaping its own future.
Allows an organization to initiate and influence(rather than just respond to) activities.
Allows an organization to exert control over its
own destiny.
Helps an organization formulate better strategiesthrough the use of a more systematic, logical, and
rational approach to strategic choice.
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Benefits of Strategic Management
Communication is a key to successful
strategic management.
Dialogue and participation are essential
ingredients.
A major aim of the process is to achieve
the understandingof and commi tment
from all managers and employees.