Strategic Management

IBS, Bangalore
Course coordinator: Dr. L.R.S.Mani
Strategic Management

“Without a strategy the

organization is like a ship
without a rudder.”
Joel Ross and Michael Kami
 Introduction to Strategic Management
• Crafting and executing strategy are core management
functions
• Among all things managers do, nothing affects a company’s
ultimate success or failure more fundamentally than how
well its management team
– Charts the company’s direction,
– Develops competitively effective strategic moves and
business approaches, and
– Pursues what needs to be done internally to produce good
day-in/day-out strategy execution

Excellent execution of an excellent strategy is the best

test of managerial excellence -- and the most reliable
recipe for winning in the marketplace!
 Strategic Management
• Systematic analysis of the environment – both internal
and external – with a view to evaluate the current
strategies of the firm and to initiate new strategic
moves.
• It is also about a way of handling uncertainty and
achieving chosen positions in a competitive
environment.
• Word strategy has come from the Defense sector.
• The word Strategy is derived from the Greek word
‘strategos’ which means “military commander”.
 Thinking Strategically:
The Three Big Strategic Questions
1. Where are we now?
2. Where do we want to go?
– Business(es) to be in and market positions to stake out
– Buyer needs and groups to serve
– Outcomes to achieve

3. How will we get there?

– A company’s answer to “how
will we get there?” is its strategy
 What Is Strategy?
• Consists of the combination of competitive moves
and business approaches used by managers to run
the company
• Management’s “game plan” to
– Attract and please customers
– Stake out a market position
– Compete successfully
– Grow the business
– Achieve targeted objectives
 The Hows That
Define a Firm's Strategy
• How to please customers
• How to respond to changing
Strategy
market conditions is HOW
• How to outcompete rivals to . . .

• How to grow the business

• How to manage each functional piece of the business
and develop needed organizational capabilities
• How to achieve strategic and financial objectives
 An Excellent Example
Southwest Airlines’ Strategy
• Grow the business by gradually adding more flights on existing
routes and initiating service to new airports
• Make friendly service a company trademark
• Maintain an aircraft fleet of only Boeing 737s
• Encourage customers to make reservations and purchase tickets at
the company’s Web site
• Avoid flying into congested airports
• Employ a point-to-point route system
• Economize on
– Amount of time it takes terminal personnel to check
passengers in and on-load passengers
– Costs
 More Examples: Strategies Based
on Distinctive Capabilities
• Sophisticated distribution systems – Wal-Mart
• Product innovation capabilities – 3M Corporation
• Complex technological process – Michelin
• Defect-free manufacturing – Toyota and Honda
• Specialized marketing and merchandising know-how – Coca-
Cola
• Global sales and distribution capability – Black & Decker
• Superior e-commerce capabilities – Dell Computer
• Personalized customer service – Ritz Carlton hotels
 Mintzberg 5 Ps of Strategy
1. Plan – how do I get there?
2. Pattern – consistent actions over time.
3. Position – decision to offer particular
products / services in particular markets.
4. Ploy – manoeuvre intended to outwit a
competitor
5. Perspective – vision and direction of what the
organization is going to become
 Characteristics / Dimensions of Strategy

The three typical characteristics are:

1. Time horizon is long term
2. Not always easily reversible
3. Involves substantial capital costs
4. Strategic issues require top management decisions
5. Strategies issues require large amount of the firm’s
resources
Strategic issues often affect the firms long term prosperity.
7. Strategic issues have multifunctional and / or multi
-business consequences
Benefits of Strategic Management
1. Strategy formulation enhances the firm’s ability to prevent
problems.
2. Strategic decisions are often group decisions and group
interactions generates a greater variety of strategies.
3. The involvement of employees in strategy formulation
improves their understanding of the productivity – reward
relationship and heightens their motivations.
4. Gaps and overlaps in activities among individuals and
groups are reduced.
5. Resistance to change from the employees is also reduced.
 Relevance of Strategic Management for an
Organization
1. With increasing globalization and removal of
trade barriers, organizations under constant
pressure to cope with large markets and
competitive moves from unexpected quarters.
2. A formal strategic management process allows a
firm to anticipate, initiate and influence actions
ahead of the market. In short, they can be
proactive instead of being reactive.
 Relevance of Strategic Management for an
Organization
3. A formal approach to strategy brings
enhanced commitment as the system takes
care of setting objectives, initiatives, targets,
action plans and review. When this process is
open and transparent, it ensures commitment
from all stakeholders.
4. A formal approach ensures greater
productivity and better quality across all
functions and all levels in an organization.
 Challenges to Strategic Management
1. Organizations allow their activities to fall into a rut,
performing the business functions according to a set
routine in order to fulfill a commitment rather than as
purposeful drivers of strategy.
2. Ability to understand and address contemporary issues.
3. Advancement of web-based technology and e-commerce
models
4. Ability to forecast technology development and make it
relevant to achieving a competitive advantage.
5. Ability to address the changing purpose of organizations.
Evolution of Strategic Management

• The word Strategy is derived from the Greek

word ‘Strategos’. It means a military
commander.
• In the early days wars were waged by proper
planning in the first place and deploying
critical resources to achieve victory.
• Warfare and history of strategy making have
had a long allied relationship.
Evolution of Strategic Management
• Contemporary defense system have contributed
greatly to Management and more specifically to
Strategic Management.
• Some parallels can be drawn from wars and modern
Business Strategies.
• Target Strength Strategy – attacking the enemy in its
stronghold. Example Japanese attack on Pearl
Harbor. Toyota entering U.S. Luxury car market
challenging GM’s Cadillac and Ford’s Lincoln. P
&G launching Ariel and taking HUL head-on.
 Evolution of Strategic Management – More
Examples of Strategies
• Attack Weakness Strategy – US offensive against
Germany via Morocco during the Second World War.
Wal-Mart opening retail stores in small towns ignored by
the then giant retailer Sears. Another example in India is
that of launching Nirma washing powder in Gujarat.
• Forging a Strategic Alliance – US , UK and USSR
overcoming Nazi Germany in the Second World War.
Renault and Nissan sharing the same facilities in
Chennai. Tata and Fiat distributing both manufacturer
cars through the same channels.
 Evolution of Strategic Management – More
Examples of Strategies
• Combat Ready Strategy – Netscape was an
early entrant in the internet arena. Microsoft
took only 6 months to develop a competitive
product that pushed back Netscape. American
defense forces always ready to face attack. In
India, this can be observed in the intensely
competitive two wheeler segment and the
cement segment.
 Evolution of Strategic Management – More
Examples of Strategies
• Containment Strategy – the Cold War between US
and USSR an example. In business, when two
equally strong organizations compete aggressively,
both may end up with eroded profit margins. In such
cases containment is a better option. An Indian
example is that of aerated drinks market where
there is intense competition between major brands,
who all stay afloat by deploying containment
initiatives.
 Evolution of Strategic Management –
Different Schools of Thought
• Peter Drucker first talked about the concept of MBO
(Management by Objectives). He stressed the
importance of setting objectives and structuring all
further work around those objectives. He also said
that this procedure should pervade the entire
organization from top level to bottom level. Drucker
also came up with the concepet of ‘knowledge
worker’ and said that work should be carried out in
teams with the person most knowledgeable in that
particular task being the temporary leader.
 Evolution of Strategic Management –
Different Schools of Thought
• Alfred Chandler in his major work ‘Strategy
and Structure’ , showed that a long term
coordinated strategy was necessary to give a
company its structure , direction and focus. In
simple words, he said that Structure follows
Strategy. It means that Strategy should be
crafted first and then the framework of
organizational hierarchy, policies and
execution of the strategy must follow.
 Evolution of Strategic Management –
Different Schools of Thought
• Philip Selznick introduced the idea of matching
the organization’s internal factors with its
external environmental situation. This idea was
later developed as SWOT analysis.
• Igor Ansoff created a strategy grid that
compared market penetration strategies ,
product development strategies, market
development strategies and diversification
strategies.
 Evolution of Strategic Management –
Different Schools of Thought
• Harry Markowitz and other financial theory
exponents developed Portfolio Theory.
According to this theory, a broad portfolio of
financial assets could reduce risk.
• BCG (Boston Consulting Group) and GE further
worked on the above subject to focus on
managing investments and operations , so that
portfolio returns were maximized and risk
reduced.
 Evolution of Strategic Management –
Different Schools of Thought
• Kenichi Ohmae claimed that strategy in America was too
analytical. According to him, ‘Strategy should be a
creative art. It is a frame of mind that requires intuition
and intellectual flexibility.’
• Gary Hamel and C.K.Prahalad said that developing a
core competency was critical to a company’s growth and
focus on strategic initiatives. Prahalad also propounded
the ‘Bottom of Pyramid’ theory in which he said that an
organization should target at large volumes, low value,
mass production base as the engine of growth.
 Evolution of Strategic Management –
Different Schools of Thought
• Gary Hamel and C.K.Prahalad talked about the Stretch
concept. They opined that the conventional framework of
strategy using the ‘fit’ concept is incomplete. The
importance of competitive strategy is not about how the
organization fits its strategy to match its resources, but
about how the organization marshals its resources. The
long term competitive success depends on the
management willingness to challenge the existing frames
of reference and leveraging the resources. This concept of
leveraging resources so as to extend the capabilities of the
organization and its competitiveness is called Stretch.
Nine Critical Tasks in Strategic Management

1. Formulate the Mission, Purpose, Philosophy and

Goal.
2. Analyze internal conditions and capabilities.
3. Assess the external environment including the
competitive and contextual factors.
4. Match the internal resources with the external
environment and development alternatives
5. Identify the best alternative by evaluating each in
the light of the company’s mission.
Nine Critical Tasks in Strategic Management

6. Select a set of long-term objectives and grand

strategies that will achieve the most desirable option.
7. Develop annual objectives and short term strategies in
line with the chosen long term objectives.
8. Implement the strategic choices by means of budgeted
resource allocations in which the matching of tasks,
people, structures, technologies and reward systems is
emphasized.
9. Evaluate the success of the strategic management
process as an input for future decision making.
Levels of Strategic Management

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 Corporate Strategy
• Corporate Strategy has gained importance
subsequent to the globalization of markets,
liberalization of International trade and advent
of information technology revolution.
• Corporate Strategy has to encounter both
internal and external exigencies. Various steps
has to be taken for formulating a strategy, to
define both the levels and types of corporate
strategy.
 Tasks of Corporate Strategy
• Moves to achieve diversification

• Actions to boost performance of individual businesses

• Capturing valuable cross-business synergies to provide

1 + 1 = 3 effects!

• Establishing investment
priorities and steering
corporate resources into the
most attractive businesses
 Tasks of Business Strategy
• Initiating approaches to produce successful
performance in a specific business
• Crafting competitive moves to build
sustainable competitive advantage
• Developing competitively valuable
competencies and capabilities
• Uniting strategic activities of functional areas
• Gaining approval of business strategies by
corporate-level officers and directors
 Tasks of Functional Strategies
• Game plan for a strategically-relevant
function, activity, or business process

• Detail how key activities

will be managed

• Provide support for

business strategy

• Specify how functional objectives

are to be achieved
 Strategic vs Operational Management
• The planning to pursue the organization’s vision is known as Strategic
Planning. The planning to achieve the tactical objectives of the organization
is known as Operational Planning.
• Strategic Management is long term as compared to Operational
Management which is short term.
• Operational Management is done to support Strategic Management.
• Strategic Management takes into account the internal as well as the
external environment of business whereas Operational Management is
concerned with the internal environment of business.
• Strategic Management is done by top level management, whereas the
Operational Management is a function of middle-level management.
• Strategic Management covers the whole organization, but Operational
Management is done in a particular unit or department of the organization.
 The Strategic Management Process

External
analysis

Develop vision Reaffirm Strategic Execute Performance

& mission long term options and the plan management
statement objectives choice

Internal
analysis

Feedback – monitoring and control

 The Strategic Planning Process
1. Select the corporate mission and major corporate goals
2. Analyze the external competitive environment to
identify opportunities and threats
3. Analyze the organization’s internal environment to
identify its strengths and weaknesses
4. Select strategies that build on the organization’s
strengths and correct its weaknesses in order to take
advantage of external opportunities and counter
external threats
5. Implement the strategy

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Main Components
of the Strategic
Planning Process

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Strategic Management Model
Mission, social
responsibility and
ethics

External environment Internal environment

Global and domestic analysis

Strategic analysis and choice

Long term Generic and grand

objective strategies
Short term
Functional tactics Policies
objectives
Org. Structure ,
leadership and culture

Strategic control,
innovation
 Company Mission
• The unique purpose that sets a company apart
from others of its type and identifies the scope
of its operations.
• The mission describes the company’s product ,
market and technological areas of emphasis in
a way that reflects the values and priorities of
the strategic decision makers.
•
 Internal Analysis
• The company analyses both in quantitative and
qualitative terms their financial, human and physical
resources.
• It also assesses the strengths and weaknesses of the
company’s management and organizational
structure.
• It also includes comparing the company’s past
successes and traditional concerns with the
company’s current capabilities in an attempt to
identify the future capabilities required.
 External Analysis
• A firm’s external environment consists of all
the conditions and forces that affect its
strategic options and define its competitive
situation.
• The strategic management model shows the
external environment as three interactive
segments / the remote , industry and
operating environments.
 Strategic Analysis and Choice
• Simultaneous assessment of the external environment
and the company profile enables a firm to identify a
range of attractive opportunities. The opportunities
are screened in the light of the company mission to
generate a set of possible and desired opportunities.
• Strategic analysis and choice in single or dominant
product / service businesses center around identifying
strategies that are most effective at building
sustainable competitive advantage based on the core
competencies of the firm.
 Long term objectives
• What the organization seeks to achieve over a
longer period of time. Such objectives typically
involve some or all of the following areas:
Profitability, Return on Investment,
Competitive Position , Technological
Leadership, Productivity, Employee Relations,
Employee Development and Public
Responsibility.
 Short term objectives
• Short term objectives are the desired results
that a company seeks over the immediate
period of one year or less.
• Company’s have many short term objectives
to provide guidance for their functional and
operational activities.
 Generic and Grand Strategies
• Many firms adopt one or more generic strategies characterizing
their competitive orientation in the marketplace.
• Low cost , differentiation , focus strategies define the three
fundamental options.
• Although every grand strategy is a unique package of long term
strategies, 15 basic approaches can be identifies :
Concentration , Market Development, Product Development ,
Innovation , Horizontal Integration , Vertical Integration , Joint
Venture, Strategic Alliance, Consortia , Concentric
Diversification, Conglomerate Diversification, Turnaround ,
Divestiture , Bankruptcy and Liquidation.
 Functional Tactics
• Within the general framework created by the
business’s generic and grand strategies , each
business function needs to undertake activities that
help build a sustainable competitive advantage.
These short term , limited scope plans are called
tactics.
• Functional tactics are detailed statements of the
‘means’ or activities that will be used to achieve
short term objectives and establish competitive
advantage.
 Policies to Empower Action
• Policies are broad , precedent setting decisions
that guide are substitute for repetitive or time
sensitive managerial decision making.
• Policies often increase managerial
effectiveness by standardizing routine
decisions and empowering or expanding the
discretion of managers and subordinates in
implementing business strategies.