Introduction to Strategic Management

Chapter 1

Introduction to Strategic Management

Learning objectives
To understand Meaning and definition of strategic management Evolution of strategic management Different levels of strategy Relationship between business model and strategy Functions and benefits of strategic management

Introduction to Strategic Management

Evolution of Strategic Management

The word "strategy" has evolved from the Greek word "strategos" first used around 400 B.C., connoting a military commander-in-chief. The word strategy literally means the art of the general.

Introduction to Strategic Management

Evolution of Strategic Management Indian perspective

Formal management education started in India in the late fifties Gained impetus with the setting up of the IIMs The All India Management Association (AIMA), New Delhi, which is a national body for the promotion of scientific management in India and offers a popular distance education

course in management

Introduction to Strategic Management

Thinking Strategically: The Three Big Strategic Questions

1. Whats the companys present situation? 2. Where does the company need to go from here?
Business(es) to be in and market positions to stake out

Buyer needs and groups to serve

Direction to head

3. How should it get there?

A companys answer to how will we get there? is its strategy
Introduction to Strategic Management 5

Strategy.
Strategy has been defined as an integrated set of actions leading to a sustainable competitive advantage. Thus, Strategy is.
1. 2. 3. Plan or a course of action A common thread between an organizations policies, objectives & goals Concerned with resources necessary for implementing a plan & following a course of action

Introduction to Strategic Management

So What Do We Mean By Strategy?

Managements action plan to
Grow the business Attract and please customers

Compete successfully
Conduct operations Achieve target levels of organizational performance

Introduction to Strategic Management

HUL in Action
HULs Businesses--1. Food Brands [Brooke Bond, Kwality walls, Bru, Kissan, Knor, Lipton, Modern} 2. Home Care[Wheel, Cif, Domex, Surf, Rin, Vim] 3. Personal Care [Axe, Lux, Lifebuoy, Liril, Hamam, dove, Close-Up, Fair & Lovely, Pears, Vaseline, Sunsilk} 4. Water- {Pureit}

Introduction to Strategic Management

A Powerful Strategy Leads to Sustainable Competitive Advantage

A company achieves sustainable competitive advantage when

an attractive number of buyers prefer its products/services over those of rivals &
when the basis for this preference can be maintained over time

Introduction to Strategic Management

Four Best Strategic Approaches to Building Sustainable Competitive Advantage

Being the industrys low-cost provider (a cost-based competitive advantage) Incorporate differentiating features (a superior product type of competitive advantage keyed to higher quality, better performance, wider selection, value-added services, or some other attribute) Focusing on a narrow market niche (winning a competitive edge by doing a better job than rivals of serving the needs and preferences of buyers comprising the niche) Developing expertise and resource (strengths not easily imitated or matched by rivals)
Introduction to Strategic Management 10

Competitive Advantage Examples

Strive to be the industrys low-cost provider
Wal-Mart Low cost AirwaysSouth-West Airline, Spicejet, Big-bazaar, Reliance Mart

Outcompete rivals on a key differentiating feature

Johnson & Johnson Reliability in baby products Harley-Davidson King-of-the-road styling Rolex Top-of-the-line prestige Mercedes-Benz Engineering design and performance Kingfisher Airlines Service differentiation
Introduction to Strategic Management 11

Competitive Advantage Examples (cont)

Focus on a narrow market niche
eBay Online auctions
Starbucks Premium coffees and coffee drinks POGO Entertainment for children Local Pizza Houses focus on narrow market segments

Develop expertise, resource strengths, and capabilities not easily imitated by rivals
FedEx Next-day delivery of small packages

Dominos Pizza 30 minutes or free.

B2B Equipments expertise in manufacturing

Introduction to Strategic Management

12

Different levels of Strategy

Introduction to Strategic Management

13

Two more
1. Higher than corporate level Called societal strategies Company relates itself to society to fulfill the societies needs 2. Lower than functional level Called operational strategies Deal with a highly specific & narrowly defined area Eg: Functional strategies @ Marketing level subdivided into ________________________
Introduction to Strategic Management 14

What Is a Business Model?

A business model addresses How do we make money in this business?
Is the strategy capable of delivering good bottom-line results?

Do the revenue-cost-profit economics of the strategy make good business sense?

Look at revenue streams the strategy is expected to produce Look at associated cost structure and potential profit margins
Introduction to Strategic Management 15

Relationship Between Business Model and Strategy

Business Model . . .
Concerns whether strategy can be amply profitable and viable

Strategy . . .
Deals with a companys competitive initiatives and business approaches

Introduction to Strategic Management

16

Relationship Between Business Model and Strategy Business Model in a retail sense, one model could be brick and mortar storefronts, another could be selling merchandise over the Internet i.e. e-tailing. Cost & revenue implication, & finally THE NET PROFIT Strategy would define
what products or services you propose to sell (or do sell?), Who your customers are, how you intend to reach those customers? How you will finance the business? How each major function within your company will operate?

Introduction to Strategic Management

17

Strategic Management
A stream of decisions or actions which leads to the development of an effective strategy or strategies to help achieve corporate objectives___[Gulcek 1984]

Introduction to Strategic Management

18

Functions of Strategic Management

It allows for identification of opportunities. Determination of long term goals & objectives of the organization

Adoption of courses of action to achieve organizations

goals

Adopting course of action necessary for allocation of resources

Introduction to Strategic Management 19

Benefits of Strategic Management

It presents a framework for improved co-ordination and

control of activities. It allows more effective allocation of time and resources to

identify opportunities.
It creates a framework for internal communication among personnel. It gives encouragement for forward thinking.
Introduction to Strategic Management 20

Benefits of Strategic Management

It provides a co-operative, integrated and enthusiastic approach to tackling problems and opportunities.

It encourages a favorable attitude to change.

It gives a degree of discipline and formality to management

of business.

Helps to integrate performance of individuals into a total effort

Introduction to Strategic Management

21

The Strategy-Making, Strategy-Executing Process

Introduction to Strategic Management

22

Phase 1 & 2
Vision Mission Objective

Introduction to Strategic Management

23

Phase 3.(Creating a Strategy)

Environmental Appraisal Organizational Appraisal SWOT Analysis Corporate Level Strategies Business Level Strategies

Introduction to Strategic Management

24

Phase 4.(Implementation)
Project Resource Allocation Behavioral Operational Functional

Introduction to Strategic Management

25

Why Some Firms Do NO to Strategic Planning

1. Waste of Time 2. Too Expensive 3. Laziness

5. Fear of Failure 6. Overconfidence 8. Prior Bad Experience

4. Content with Success

9. Self Interest
10. Fear of the Unknown

Introduction to Strategic Management

26

Learning outcomes
Meaning and definition of strategic management Evolution of strategic management Different levels of strategy Relationship between business model and strategy Functions and benefits of strategic management
Introduction to Strategic Management 27