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Strategic

Management

Definition of strategic Management


Strategic Management is a set of managerial decisions

and actions that determines the long run performance


of a corporation. It includes environmental scanning
(both external and internal ),strategy formulation
(strategic or long range planning),strategy
implementation ,and evaluation and control
Strategic management emphasizes the monitoring and
evaluation of external opportunities and threats in
light of a corporation strengths and weakness
It was originally called business policy
It incorporates such topics as strategic planning,
environmental scanning and industry analysis.

Strategic Management
Strategic management is a process that

requires the ability to manage change.


SM can be defined as consisting of analysis,
decisions and actions an organization
undertakes in order to create and sustain
competitive advantages
It continuously involves analyses on decisions
and actions on the continual basis. It means
analyzing the strategic Vision, Mission and
goals of the organization ,and analyzing the
internal as well as external environment of the
organization

What is strategic management?


It is a process which is oriented towards the
long term and deals with:
different time horizons
future options
new projects
existing operations

The essence of strategic management is the

study of reasons as to why some companies


outperform others.
According to Michael Porter, sustainable
competitive advantage cannot be achieved
through operational effectiveness like
restoring to techniques like JIT, Quality
Management, outsourcing, supply chain
Management etc. Infact it can be achieved
only by out performing different activities as
compared to its rivals Wal-Mart and IKEA, Max
and Fortis hospitality chain in India.

Why are strategic decisions different


from other types of decisions
Strategic decisions deal with the long-run future of the
entire organization and have three characteristics
which differentiate them from other types of
decisions:
(1) They are rare. Strategic decisions are unusual and
typically have no precedent to follow;
(2) They are consequential. Strategic decisions
commit substantial resources and demand a great
deal of commitment;
(3) They are directive. Strategic decisions set
precedents for lesser decisions and future actions
throughout the organization.

What is meant by a hierarchy of strategy?


A hierarchy of strategy is a term used to describe the

interrelationships among the three levels of strategy


(corporate, business, and functional) typically found in large
business corporations. Beginning with the corporate level,
each level of strategy forms the strategic environment of the
next level in the corporation.
This means that corporate level objectives, strategies, and
policies form a key part of the environment of a division or
business unit.
The objectives, strategies, and policies of the division or unit
must therefore be formulated so as to help achieve the plans
of the corporate level. The same is true of functional
departments which must operate within the objectives,
strategies, and policies of a division or unit.

Types of Strategies
A Large
Company

Corp
Level

Division Level

Functional Level

Operational Level

Does every business firm have business


strategies?

Every business firm should have a business

strategy for every industry or market segment it


serves. A business strategy aims at improving
the competitive position of a business firm's
products or services in a specific industry or
market segment.
Firms must therefore have business strategies
even if they are not organized on the basis of
operating divisions. Nevertheless, it is still
possible that some business firms do not have
clearly stated business strategies.

Phases of strategic Management


There are four phases of strategic management
1. Basic Financial Planning : includes budget, forecasting.
The time horizon is usually one year.
2. Forecast based planning: Managers usually do five
year planning rather than just confining to just one
year planning .
3. Externally oriented (strategic ) planning:
emphasizes top down planning ,formal strategy
formulation ,implementation of policies
4. Implementation at all levels of the organization
GE is one of the pioneer company which led the transition
from strategy planning to strategic management.

Benefits of strategic management


Emphasizes long term performance
Leads to attainment of an appropriate match,fit ,

between an organization s environment and its


strategy ,structure and process has positive effects on
the organizations performance.
Recent survey by Mc Kinsey & company found that
formal strategic planning processes improve overall
satisfaction with strategic development.
SP is effective at identifying new opportunities for
growth and ensuring that all mangers have same goals
Helps in laying down the mission and vision statements
of the organization.

Comprehensive Strategic Management Model


E
x
t
e
r
n
a
l
A
u
d
i
t

Develop
Develop
vision
vision and
and
mission
mission
statement
statement I
s
s
n
t
e
r
n
a
l
A
u
d
i
t

Establish
Establish
long
long term
term
objectives
objectives

Generate
Generate ,,
Evaluate
Evaluate
and
and select
select
strategies
strategies

Implement
Implement
StrategiesStrategiesManagem
Managem
ent
ent issues
issues

Implement
Implement
StrategiesStrategiesMarketing
Marketing
,Finance
,Finance
,Accountin
,Accountin
g
g ,R&D
,R&D

Measure
Measure
and
and
Evaluate
Evaluate

Strategic Management
Model
Scanning
Where are we now?

Strategy Formulation
Where do we want to be?

Strategy Implementation
How do we get there?

Measurement/Performance
How do we measure our progress?

Basic Concepts of Strategic Management

Basic Elements of the Strategic


Management Process

1-14

Basic Concepts of Strategic Management

Environment
al Variables

1-15

Basic Concepts of Strategic Management

Strategic
DecisionMaking Process

1-16

Strategic Management
Model
Strategy Formulation
Where do we want to be?
Vision
Mission
Values
Goals
Objectives

Relationship between the key external forces and an


organization
Economic Forces
Social, Cultural ,demographic and
environment natural forces
Political ,Legal, and government forces
Technological forces
Competitive forces
Competitors ,Suppliers ,Distribution
,Creditors, Customers ,Employees
,Communities, Managers, Stockholders,
Labor unions ,Government, products,
Services ,Market natural environment

An Organization's opportunities and threats

External Assessment
External strategic management audit is sometimes referred to the

environmental scanning or industry analysis. An external audit focusses


on identifying and evaluating trends and events beyond the control of a
single fir such as increased foreign competition, population shifts ,stock
market vitality
The purpose of an external audit is to develop a finite list of opportunities
that could benefit a firm and threats that should be avoided.
Key external forces:
External forces can be divided into five broad categories:
1. Economic forces
2. Social ,cultural ,demographic, and natural environment forces
3. Political ,government and legal forces
4. Technological forces
5. Competitive forces

The Industrial Organization


(I/O)view
The industrial organization (I/O) approach to competitive advantage

advocates that the external (industry ) factors are the most


important than the internal factors in a firm achieving the
competitive advantage.
I/O theorists state that the external factors has stronger influence on
the firms performance
Proponents of the I/O view such as the Michael Porter maintain that
the analyzing the external forces and the industry variables are the
basis for getting and keeping the competitive advantage of the firm.
It is stated that the competitive advantage is determined by the
competitive positioning within an industry.
Managing the strategically from the I/O perspective entails the firm
striving to compete in attractive industries and understanding the
key external factors relationship within that attractive industry.

Change in the external forces translate into changes in

consumer demand for both industrial and consumer


products and services. External forces affect the types
of products developed ,the nature of positioning
and market segmentation strategies, type of
services offered and the choice of businesses to
acquire or sell.
External forces directly effect both the suppliers and
distributors
Identifying and evaluating external opportunities and
threats enables organizations to develop a clear mission ,
to design strategies to achieve long term objectives , and
to develop policies to achieve annual objectives

Process of external audit evolves gathering the competitive

intelligence and information about economic, social, cultural


,demographic ,environment ,political ,government ,legal and
technological trends
Suppliers, distributors, salesperson, customers and
competitors represent other sources of vita information
Once the relevant information is gathered, it should be
assimilated and evaluated.
Various external factors like firms market share, breath of
competitive products, world economies, foreign affinities', price
competitiveness, technological advancement, population
shifts, interest rates and pollution abatement are taken into
consideration while assessing the external environment of the
company.

External Environment(I/O)

Economic Forces
Social ,cultural ,demographic and natural

environment forces
Technological forces
Competitive forces
Competitive Analysis: Porter Five forces Model

Economic Forces
Economic factors have direct impact on the potential
attractiveness of various strategies. They include factors like:
Inflation rates,
Interest rates,
Availability of credit ,
Government policies including the monetary and fiscal
policies
GDP of the economy
Propensity of people to spend
Budgets
Consumption patterns
stock market trends

Social ,Cultural ,Demographic And Natural


Environment Forces

These factors include prevailing attitudes,

traditions, values ,social trends ,ethics and


society expectation from the business
These subset includes factors like presence of
ethnic groups, different religions ,Age, racial
equality, location of retailing, manufacturing an
services business ,waste management,
population, social responsibility, energy
conversation, general attitude, purchasing
patterns and power, per capital income, social
security programs

Political ,Government and legal


forces
This subset refers to the federal, state , local

an foreign government are major regulators,


deregulators , subsidizers, employers and
customers of the organization.
Includes laws like patents laws, special
tariffs ,political relations among other
countries , Import and export policies,
government subsides, government
expenditure.

Global Forces
Have huge impact on the existence and growth
trajectory for the organization
Eg
OPEC
EU
PACIFIC RIM
NAFTA
Emerging Economies China-India -Brazil

Technological forces
Technological forces represent the major

opportunities and threats that must be


considered in formulating strategies.
Technological advancements can dramatically
affect the organizations products, services,
suppliers, distributors, competitors,
consumers ,manufacturing processes,
marketing policies, and competitive position

Vision Statement
Any statement which answers the question what

is our business?
It is an enduring statement of purpose that
distinguishes one organization from the other
similar enterprise while the mission statement is
the declaration of an organization reasons of being
The main purpose of the vision statement is to
outline the :dream state of the business.
Sometimes it is called a creed statement ,a
statement of purpose, beliefs business principles
or a statement defining the business

VISION OF THE CORPORATE


Vision articulates the position that a firm would like to attain in the distant future
According to Kotter(1990),defines it as a description of something an
organization , a corporate culture, a business , a technology, an activity in the
future
El-Namaki(1992) defines it as a mental perception of the kind of environment an
individual ,or an organization , aspires to create within a broad time horizon
and the underlying conditions for the actualization of this perception
A vision should be:
An organization charter of core values and principle
The ultimate source of our priorities, plans and goals
Reflect core competences
It should be flexible
It should be forward looking
Determination and publication of what makes us unique

Vision statement
examples:
A car in every garage(Ford)
To be happiest place on earth(Disneyland)
To be worlds best quick service restaurant(Mc

Donald)
We save people money so they can live
better (Walmart)
Apple Stay foolish ,stay hungry
Marriott Hotel "To be the #1 hospitality
company in the world

Benefits of a Vision:
It creates a common identity and shared sence of
purpose.
They symbolize competitiveness, originality and
uniqueness.
They foster risk taking and experimentation and
long term thinking .
It clarifies and crystallizes the senior views about
the company long term decisions
Helps the organization to prepare for the future
It represents organization integrity and unity.

Process of vision
statement

Well
conceived
vision

Core
Ideology
Envisioned
Future

Core
values/purpo
se
Long term
audacious
goal

Mission Statement
A Mission Statement describes how your business is going to

accomplish its vision. The Mission Statement describes the


what of your business. It states why your organization is in
business and what you are hoping to achieve.
Described as the reason for being.
A typical mission statement contains three components:1.

The overall purpose of your business


What are you trying to achieve.
What your business does - products and services it
provides.
What's important to your business - the values your
business lives by.

Components of Mission Statement


A mission statement is most visible and public part of the
strategic management process, it is important that it includes
the nine characteristics as well as the following nine
components:
Customers
Product or services
Markets
Technology
Concern for survival, growth and profitability
Philosophy
Self concept
Concern for public image
Concern for employees

Mission statement differs from the vision

statement as the mission statement is focused


on what is our businesses while the vision
statement deals with where we are headed or
what do we want to become nature of the vision.
A good mission statement should be
comprehensive enough to include the
organization s purpose , the nature of its product
and services, the type of markets and customers
it serves, its basic philosophy and value system
and the technology and techniques it uses:

Characteristics of Mission statement:


Declaration of Attitudes
Customer Orientation
Declaration of social policy

Components of Mission Statement


i. Product or service
ii. Customers
iii. Technology Survival ,growth and profitability
iv. Company philosophy
v. Public image

Examples
Microsoft : Mission
At Microsoft, our mission is to enable people and
businesses throughout the world to realize their full
potential.
Nike:The mission statement of Nike is: To bring
inspiration and innovation to every athlete* in the world.
*If you have a body, you are an athlete.
KFC :To sell food in a fast, friendly environment that
appeals to price conscious, health-minded consumers.
Walt Disney Walt Disney's vision, or mission
statement, is "to be one of the world's leading producers
and providers of entertainment and information

8.Mc Donalds:
To provide the fast food customer food prepared in
the same high-quality manner world-wide that is
tasty, reasonably-priced & delivered consistently
in a low-key dcor and friendly atmosphere.
9.Pfizer Pharmaceuticals mission statement:
"We dedicate ourselves to humanity's quest for
longer, healthier, happier lives through innovation
in pharmaceutical, consumer and animal health
products".

Mintzberg s 5Ps of
Strategy
Management expert, Henry Mintzberg, argued that it is difficult to get
strategy right. To help us think about it in more depth, he developed
his 5 Ps of Strategy five different definitions of (or approaches to)
developing strategy. Each of the 5 Ps is a different approach to
strategy. They are:
Plan.
Ploy.
Pattern.
Position.
Perspective.
By understanding each P, we can develop a robust business
strategy that takes full advantage of your organization's strengths and
capabilities.
Both Mintzberg &Whittington s Ps are excellent tools for analysing and
evaluating strategies.

Mintzbergs 5Ps of Strategy


Strategy is a plan - some sort of consciously

intended course of action, a guidelines to


deal with a situation. By this definition
strategies have two essential characteristics:
they are made in advance of the actions
to which they apply, and they are developed
consciously and purposefully.
Planning is an essential part of the strategy
formulation process.

Strategy as Ploy
Mintzberg says that getting the better of competitors,

by plotting to disrupt, dissuade, discourage, or


otherwise influence them, can be part of a strategy.
This is where strategy can be a ploy, as well as a plan.
The next most common, and probably the way most
non-strategists see strategy.As plan, a strategy can be
a ploy too, in order to outwit an opponent or competitor.
For example, a grocery chain might threaten to expand
a store, so that a competitor doesn't move into the
same area; or a telecommunications company might
buy up patents that a competitor could potentially use
to launch a rival product.

Strategy as Pattern
Strategic plans and ploys are both deliberate exercises. Sometimes,

strategy emerges from past organizational behaviour. Rather


than being an intentional choice, a consistent and successful way of
doing business can develop into a strategy.
Pattern is the post hoc realisation. These can be identified when
trying to do things like build a resource based view of an organisation.
Strategy is a pattern - specifically, a pattern in a stream of actions.
Strategy is consistency in behaviour, whether or not intended. The
definitions of strategy as plan and pattern can be quite independent of
one another: plans may go unrealised, while patterns may appear
without preconception.
Plans are intended strategy, whereas patterns are realised
strategy; from this we can distinguish deliberate strategies, where
intentions that existed previously were realised, and emergent
strategies where patterns developed in the absence of intentions, or
despite them.

Strategy as Position
"Position" is another way to define strategy that is, how you

decide to position yourself in the marketplace. In this way,


strategy helps you explore the fit between your organization and
your environment, and it helps you develop a sustainable
Competitive advantage . For example, your strategy might
include developing a niche product to avoid competition, or
choosing to position yourself amongst a variety of competitors,
while looking for ways to differentiate your services.
Strategy as position, it helps to understand organization's
"bigger picture" in relation to external factors. To do this, we
use PEST Analysis ,Porters Diamond and Porters Five
Forces ,SWOT Analysis,Core Competency Analysis to
analyze the environment these tools will show where
company have a strong position, and where it may have issues.

Strategy as Perspective
The Strategy is a perspective - its content consisting not just of a chosen position, but of

an ingrained way of perceiving the world. Strategy in this respect is to the organisation
what personality is to the individual. What is of key importance is that strategy is a
perspective shared by members of an organisation, through their intentions and / or by
their actions. In effect, when we talk of strategy in this context, we are entering the realm
of the collective mind - individuals united by common thinking and / or behaviour.
This is the view that often a strategy can be a way that an organisation views the
world.
Choices an organization makes about its strategy rely heavily on its culture just as
patterns of behavior can emerge as strategy, patterns of thinking will shape an
organization's perspective, and the things that it is able to do well.
For instance, an organization that encourages risk-taking and innovation from employees
might focus on coming up with innovative products as the main thrust behind its strategy.
By contrast, an organization that emphasizes the reliable processing of data may follow a
strategy of offering these services to other organizations under outsourcing arrangements.
To get an insight into organization's perspective, use cultural analysis tools like
theCultural Web , Deal and kennedy Cultural Web and the Congruence model

Porter's Five Forces of


Competitive Position Analysis
Porter's Five Forces of Competitive Position Analysis were developed in

1979 by Michael E Porter of Harvard Business School as a simple


framework for assessing and evaluating the competitive strength
and position of a business organization.
This theory is based on the concept that there are five forces that

determine the competitive intensity and attractiveness of a


market. Porters five forces help to identify where power lies in a
business situation. This is useful both in understanding the strength of an
organization's current competitive position, and the strength of a position
that an organization may look to move into.
Strategic analysts often use Porters five forces to understand whether

new products or services are potentially profitable. By understanding


where power lies, the theory can also be used to identify areas of
strength, to improve weaknesses and to avoid mistakes.

Michael Porter's famous Five


Forces of Competitive Position
model
Michael Porter's famous Five Forces of Competitive Position

model provides a simple perspective for assessing and


analyzing the competitive strength and position of a
corporation or business organization.
Porter's Five Forces model can be used to good analytical
effect alongside other models such as the SWOT and PEST
analysis tools.
Porter's Five Forces model provides suggested points under

each main heading, by which you can develop a broad


and sophisticated analysis of competitive position,
as might be used when creating strategy, plans, or making
investment decisions about a business or organization.

Porters Five Forces model is a generic


framework that deconstructs industry
structure into five underlying competitive
forces or variables
These five underlying forces are
1. Competitive rivalry among existing firms,
2. Bargaining power of suppliers
3. Bargaining power of customers
4. The threat of new entrants into the industry
5. The threat of substitute products and
services.

The five forces are:


1.Supplier power. An assessment of how easy it is for suppliers to drive up
prices. This is driven by the: number of suppliers of each essential input;
uniqueness of their product or service; relative size and strength of the
supplier; and cost of switching from one supplier to another.
2.Buyer power. An assessment of how easy it is for buyers to drive prices
down. This is driven by the: number of buyers in the market; importance of
each individual buyer to the organization; and cost to the buyer of switching
from one supplier to another. If a business has just a few powerful buyers, they
are often able to dictate terms.
3.Competitive rivalry. The main driver is the number and capability of
competitors in the market. Many competitors, offering undifferentiated
products and services, will reduce market attractiveness.
4.Threat of substitution. Where close substitute products exist in a market,
it increases the likelihood of customers switching to alternatives in response to
price increases. This reduces both the power of suppliers and the
attractiveness of the market.
5.Threat of new entry. Profitable markets attract new entrants, which
erodes profitability. Unless incumbents have strong and durable barriers to
entry, for example, patents, economies of scale, capital requirements or
government policies, then profitability will decline to a competitive rate.
Arguably, regulation, taxation and trade policies make government a sixth
force for many industries.

What benefits does Porters


Five Forces analysis provide?
Five forces analysis helps organizations to
understand the factors affecting profitability in
a specific industry, and can help to inform
decisions relating to:
Whether to enter a specific industry
Whether to increase capacity in a specific
industry
Developing competitive strategies

Actions to take /
Dos
Use this model
where there are at
least three
competitors in the
market
Consider the
impact that
government has or
may have on the
industry
Consider the
industry lifecycle
stage earlier
stages will be more
turbulent
Consider the
dynamic/changing
characteristics of
the industry

Actions to Avoid /
Don'ts

Avoid using the


model for an
individual firm; it is
designed for use on
an industry basis

In practice:
Porter's Five Forces of Competitive Position
Analysis

Analysis of the Indian business environment


Download full case study
In the June 2010 issue of Financial Management
magazine, the Five Forces model was applied to the
emerging Indian business environment in
comparison with more developed markets. The
analysis found that factors such as state
protectionism and a lack of infrastructure are
greater barriers to entry in India than they are in
more developed nations, where market forces are
more powerful.
The analysis highlighted many issues affecting
competition in emerging economies and compared
them to those that are more prevalent in more
developed markets.

One factor that could play a crucial role in India is


public opinion, which exerts a considerable influence
on the government. A good example of this is a
campaign by local retailers against Walmart, who
feel that the arrival of the US retail giant could put
them out of business. Walmart has made huge
investments in India, but is having to find ways
around stringent regulations that prevent it from
doing things as basic as putting its brand name on
stores.

Porter is recognized for his competitive 'diamond' model, used for


assessing relative competitive strength of nations, and by implication
their industries:
Factor Conditions: production factors required for a given industry,
eg., skilled labour, logistics and infrastructure.
Demand Conditions: extent and nature of demand within the nation
concerned for the product or service.
Related Industries: the existence, extent and international
competitive strength of other industries in the nation concerned that
support or assist the industry in question.
Corporate Strategy, Structure and Rivalry: the conditions in the
home market that affect how corporations are created, managed and
grown; the idea being that firms that have to fight hard in their home
market are more likely to be able to succeed in international markets.

Good reference material


http://www.quickmba.com/strategy/porter.shtml
http://research-methodology.net/ikea-porters-five
-forces-analysis
/
http://
mba-lectures.com/marketing/principles-of-market
ing/1119/porters-five-forces-model-of-coca-cola
.html
http://

Case study porters model in Indian


Scenario
http://
www.cimaglobal.com/Documents/Student%20docs
/Studyresources/TechIndiaJun.pdf
http://valuationacademy.com/porters-five-forces
-in-action-sample-analysis-of-coca-cola
/

Enron case details

http://
www.slideshare.net/paragchaubey/enron-scanda
l
Apple case and analysis:
http://
strategicplanning13.weebly.com/mission-and-obj
ectives.html