Strategic Management - A

7/31/2019 Strategic Management - A

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Paper-III

STRATEGIC MANAGEMENT

Section - A

Mr. Rajesh ShendeFaculty

Datta Meghe Institute of Management StudiesAtrey Layout, Nagpur

Rajesh Shende- DMIMS 1


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UNIT - I

STRATEGIC MANAGEMENT



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Why Strategy? Its about how businesses compete.

How to earn above average returns. Selection of industries Selection of segments Choice of tactics How to IMPLEMENT!



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Strategic Management: The set of managerialdecisions and actions that determines the

long-run performance of an organisation. Strategic Planning: The process of

determining a company's long-term goalsand then identifying the best approach forachieving those goals



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Four aspects that set strategic managementis important

Interdisciplinary Capstone of the Business degree

External focus

Competition

Internal focus

Future direction



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The firm

Goals & Values

Resources &

Capabilities

Structures &

Systems

External

Environment

Competitors

Customers

Suppliers

etc

Strategy



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Strategic Decision Making is the basic thrustof Strategic Management.

Strategy formulation rests on decisionmaking.

STRATEGIC DECISION MAKING



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Decision Making

Strategic Decision Making



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CRITERIA

RATIONALITY

CREATIVITY

VARIABILITY

PERSON RELATED FACTORS

INDIVIDUAL VERSUS GROUP



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Objective to be achieved are determined. Alternative ways of achieving obj.

Each alternative is evaluated on ability. Best alternative is chosen.



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Establishing Hierarchy of strategic Intent1. Creating & Communicating a Vision2. Designing a Mission statement3. Defining the Business4. Adopting the Business Model5. Setting Objectives



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Formulation of strategies1. Performing external analysis2. Performing internal analysis3. Formulating Corporate & Business Level strategies4. Preparing Strategic Plan

Implementation of Strategies1. Activating Strategies2. Designing Structure, System & Process3. Managing Functional & Behavioral Implementation4. Operationalising Strategies



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Performing Strategic Evaluation & Control1. Performing strategic Evaluation

2. Exercising strategic Control3. Reformulating Strategies



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

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

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



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UNIT II

STRATEGIC INTENT



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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 intentis defined as Strategic intent envisions adesired leadership position and establishes the criterion theorganization will use to chart its progress.



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Strategic Intent has a hierarchy Vision,

Mission,Goals & Objectives.



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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.



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IOC is the largest Indian company engaged in the business ofcrude oil refining and offers a variety of products related tooil 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.



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Realistic Credible

Attractive Future



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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.



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Mission Statement Mission statement is thedescription of organizational mission.

The company mission is defined as the fundamentalunique purpose that sets a business apart from

other firms of its type and identifies its scope of its

operations in product and market terms.



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Following points should be considered whilepreparing the mission statement:

ClearAchievable FeasibleDistinctiveExplanatory



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Tata Tea: Achieve market and thought leadership for branded

tea in India.

Be recognized as the foremost innovator in tea andtea based beverage solutions.

Drive long-term profitable growth.

Co-create enhanced value for all stakeholders.

Make Tata Tea a great place to work



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Direction Aspirations

Integration

Positive attitudes



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Goals and objectives are the end results which anorganization strives for.

There may be different ways in expressing end resultslike market leadership, a certain percentage

increase in sales in a particular year etc.



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SMART DUMB

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



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Direction Clear Definition

Motivating force Voluntary coordination Performance Standard Decentralization Integration



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Specificity Multiplicity

Periodicity Reality Quality



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Growth Profit

Marketing Employees Social



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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 sustainabilityRajesh Shende- DMIMS 33


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UNIT IIIINTERNAL & RESOURCE

ANALYSIS



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Strategic Planning tool extremely useful forDecision 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 developmentand research reports.



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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 vs competitors. Better product life and durability. Spare manufacturing capacity.



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Limitation or DeficiencyLack of competitive strength.

Reputation, presence and reach.



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Major Favorable situation in firms 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.



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Major Unfavorable situation in firmsenvironment.

Entrance of new competitors,Slow Market Growth,New revised regulations, Increased bargaining power



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Strengths (internal) Weaknesses (internal)

Opportunities(external)

strengths/opportunities

obvious natural prioritiesgreatest ROIQuickest and easiest to

implement.Immediate action-planning.

weaknesses/opportunities

potentially attractive optionsPotentially more exciting andstimulating and rewarding due to

change, challenge, surprise tactics,and benefits from addressing andachieving improvements.

Threats(external)

strengths/threats

easy to defend and counter Onlybasic awareness, planning, andimplementation required to meetthese challenges.Investment in these issues isgenerally safe and necessary.

weaknesses/threats

potentially high riskAssessment of risk crucial.Where risk is low then we mustignore these issues and not bedistracted by them.Defend/avert in very specific

controlled ways.Rajesh Shende- DMIMS 41


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Value Chain Analysis describes the activitiesthat take place in a business and relates them

to an analysis of the competitive strength ofthe business.Two types of activities

A)- PRIMARY ACTIVITIES

B)- SUPPORT ACTIVITIES



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Inbound LogisticsOperations

Outbound LogisticsMarketing & SalesService



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Administration/ InfrastructureHuman Resource Management

Research, Technology & system Development.Procurement



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Economies of Scale Product Differentiation

Capital Requirements Cost Disadvantages Independent of Size Access to Distribution Channels Government Policy



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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 industrys business The industry is not an important customer of

the supplier group



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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 industryform a component of its product and representa significant fraction of its cost

It earns low profits The industrys product is unimportant to the

quality of the buyers products or services The industrys product does not save the buyer

money The buyers pose a credible threat of integrating

backwardRajesh Shende- DMIMS 49


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By placing a ceiling on the prices it can charge,substitute products or services limit the potentialof an industry

Substitutes not only limit profits in normal timesbut also reduce the bonanza an industry can reapin boom times

Substitute products that deserve the mostattention strategically are those that are

subject to trends improving their price-performance trade-off with the industrysproduct or

produced by industries earning high profits



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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 orswitching 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



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UNIT IV

EXTERNAL ANALYSIS-

ENVIRONMENT ANALYSIS



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Three tiers of environmental factors that affectfirms performance.

Five factors in the remote environment

The five forces model of industry analysis The five factors in the operating environment



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Comprised of following Components: Remote environment

Industry environment Operating environment



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Economic Factors Social Factors

Political Factors Technological Factors Ecological Factors



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Prime interest rates Inflation rates Trends in the growth of the gross national

product Unemployment rates Globalization of the economy Outsourcing



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Present in the external environment: Beliefs & Values Attitudes & Opinions

LifestylesDeveloped from: Cultural conditioning Ecological conditioning

Demographic makeup Religion Education Ethnic conditioning.



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Political constraints on firms: Fair-trade Decisions

Antitrust Laws Tax Programs Minimum Wage Legislation Pollution and Pricing Policies Administrative jawboning



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Technological forecasting helps protect andimprove the profitability of firms in growingindustries.

It alerts strategic managers to impendingchallenges and promising opportunities.

The key to beneficial forecasting of

technological advancement lies in accuratelypredicting future technological capabilities andtheir probable impacts.



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Ecology refers to the relationships amonghuman beings and other living things and theair, soil, and water that supports them.

Threats to our life-supporting ecology causedprincipally by human activities in an industrialsociety are commonly referred to as pollution

Loss of habitat and biodiversity Environmental legislation Eco-efficiency



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Harvard professor Michael E. Porter propelledthe concept of industry environment into theforeground of strategic thought and businessplanning.

The cornerstone of Porters work first appearedin the Harvard Business Review, in which heexplains the five forces that shape competitionin an industry.

Porters well-defined analytic framework helpsstrategic managers to link remote factors totheir effects on a firms operating environment.



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The essence of strategy formulation is copingwith competition.

Intense competition in an industry is neithercoincidence nor bad luck.

Competition in an industry is rooted in itsunderlying economics, and competitive forcesexist that go well beyond the establishedcombatants in a particular industry.

The corporate strategists goal is to find aposition in the industry where his or hercompany can best defend itself against theseforces or can influence them in its favor.



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An industry is a collection of firms that offersimilar products or services.

Structural attributes are the enduring

characteristics that give an industry itsdistinctive character.

Concentration refers to the extent to which

industry sales are dominated by only a fewfirms.

Barriers to entry are the obstacles that a firmmust overcome to enter an industry.



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How do other firms define the scope of theirmarket?

How similar are the benefits the customersderive from the products and services thatother firms offer? The more similar thebenefits of products or services, the higher

the level of substitutability between them. How committed are other firms to the

industry?



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Also called competitive or taskenvironment Includes competitor positions and customer

profiling based on the following factors:

Geographic

Demographic

Psychographic

Buyer Behavior

Also includes suppliers & creditors and HRM



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



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Differing external elements affect differentstrategies at different times and with varyingstrengths

Only certainty is that the effect of the remote

and operating environments will be uncertainuntil 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 psychologicalcommitment to a proactive strategy effectivelybars a firm from assuming a leadership role inits environment



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What is environmental scanning?Environmental scanning refers to possessionand utilization of information aboutoccasions, patterns, trends, and relationshipswithin an organizations internal and externalenvironment.



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PreliminaryAssessment

Cross-functionalDiscussion

Consensusof

Discussion

Identificationof strategic

option



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Employee interaction with-EmployeesManagementManagement interaction with shareholders Access to natural resources,Brand awareness,

Organizational structure, main staff,operational potential



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UNIT V

STRATEGY FORMULATION



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Types of Strategies1. Expansion2. Stability3. Retrenchment4. Combination



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Expansion strategies is distributed as-1. Concentration2. Integration3. Diversification



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Ansoff Product-Market Matrix



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Minimal organisational changes Specialise in one business Less problems to managers as known

situation Decision making due to past experience

makes valuable



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Heavily dependent on industry Product obsolescence Less challenging Cash flow problems



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Combining activities related to the presentactivity of firm.

Horizontal Integration Strategies

Vertical Integration Strategies



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The process of acquiring or merging with industrycompetitors Acquisition and merger



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Benefits of Horizontal Integration Reducing costs Increasing value

Product bundling

Cross selling

Managing industry rivalry Increasing bargaining power Market power (monopoly power)



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Expanding operations backward into an industry thatproduces inputs for the company or forward into an industrythat distributes the companys products

Two types Forward Integration

Backward Integration



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



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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



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The process of adding new businesses to the company thatare distinct from its established operations

Types-

Concentric Diversification Strategies

Conglomerate Diversification Strategies



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When a company runs out of growthopportunities in the core business and notbefore!

When diversification results in creation ofvalue



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Entry into a new business activity in a different industry that isrelated to a companys existing business activity, oractivities, by commonalities between one or morecomponents of each activitys value chain

It may be of three types-

1. Marketing-Related Concentric Diversification

2. Technology-Related Concentric Diversification

3. Marketing & Technology-Related Concentric Diversification



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Entry into industries that have no obvious connectionto any of a companys value chain activities in its

present industry or industries



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C) COOPERATIVE STRATEGIES

Merger & Acquisition Strategies

Joint Venture Strategies

Strategic Alliance



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MERGERCombination 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 isissued.

Acquisition

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



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1. Horizontal Merger2. Vertical Merger3. Concentric Merger4. Conglomerate Merger



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An entity resulting from a long term contractualagreement between two or more parties to

undertake mutually beneficial economic activities.

Types of JV:1. Within Industries

2. Across Industries

3. Across Countries



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Technology Geography Regulation Sharing of risk & control Intellectual exchange



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

Cooperation between two or more independent firms involvingshared control & continuing contributions by all partners formutual benefit.



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Entering New market Reducing manufacturing cost Developing & Diffusing technology



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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)



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No-Change Strategy

Profit Strategy

Pause/Proceed Strategy



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Turnaround Strategies

Divestment Strategies

Liquidation Strategies



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Turnaround strategy means backing out, withdrawing orretreating from a decision wrongly taken earlier inorder 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 lowmorale

f) Uncompetitive products or services

g) Mismanagement



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Divestment strategy involves the sale or liquidation of a portionof business, or a major division, profit centre or SBU.Divestment is usually a restructuring plan and is adoptedwhen 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 createfinancial 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



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Liquidation strategy means closing down the entire firm and selling itsassets. It is considered the most extreme and the last resort becauseit leads to serious consequences such as loss of employment foremployees, 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

Strategic Management - A

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