STRATEGIC MANAGEMENT UNIT I

INTRODUCTION TO STRATEGY
The word strategy is not new, we all use it now & then in our regular conversations. We are very good at use of the word strategy, but very poor in knowing its exact meaning. We use this word in many ways such as .......... What strategy will Indian cricket team follow to win the match?

What strategy can secure good marks in the examination?

What strategy should government adopt in order to increase the employment opportunity? What strategy an advocate should use to win a legal battle? What strategy should companies implement to achieve desired objectives?

INTRODUCTION (cont)
Which strategy will give a company competitive advantage? What strategy should be followed to motivate the work force and increase the productivity? The above examples make clear that the word strategy is used in every aspect, whether it is game or profession, business or examination.

There is lot of confusion relating to this word, many authors have defined it differently and hence confusion prevails.
Some authors say strategy deals with long term aspects, some say it deals with tactics, some say it is long term planning & some say its the means through which objectives are achieved.

CONCEPT OF STRATEGY
The word strategy is derived from the ancient Greek word strategia, which means the art & science of directing military forces. Strategy is, thus, a well thought out systematic plan of action to defend oneself or to defeat rivals. It is rightly said by Joel Ross and Michael Kami, without a strategy the organization is like a ship without a Rudder. A companys strategy is the game plan management is using to stake out a market position, conduct its operations, attract and please customers, compete successfully, and achieve organizational objectives. In short, strategy specifies how an organization matches its own capabilities with the market place to accomplish its objectives.

The most successful organizations Reliance, Tata, Bajaj, Coca Cola, Cadbury, Nestle, Infosys, General Motors, General Electrics, Wipro, Godrej and many more all place a high priority on having clear & well thought out organization plans. We call the major plans of these organizations corporate strategies because they are designed to enable the management of whole organization.

A companys strategy consists of the combination of competitive moves and business approaches that managers employ to please customers, compete successfully and achieve organizational objectives.

DEFINITIONS OF STRATEGY
Strategy is an unified comprehensive and integrated plan designed to ensure that the basic objectives of the enterprise are achieved Glueck

Strategy is a determination of the basic long term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals - Alfred Chandler

STRATEGIC MANAGEMENT
Strategic management can be defined as the set of decisions & actions resulting in formation & implementation of strategies designed to achieve the objectives of an organization.
Strategic management is defined as the determination of the basic long-term goals & objectives of an enterprise & adoption of course of action & allocation of resources necessary to carryout these goals. Strategic management is a stream of decisions and actions, which lead to the development of an effective strategy or strategies to help achieve corporate objectives ................. Glueck

Strategic issues have six identifiable dimensions.

STRATEGIC DECISION DIMENSIONS/CHARACTERISTICS

Strategic issues require technology management Strategic issues involves the allocation of large amount of company resources Strategic issues are future oriented Strategic issues have impact on the long term prosperity of the firm

Strategic issues have multi-functional or multibusiness consequences

Strategic issues considers the firms external environment

LEVELS OF STRATEGY
The strategy has three levels; these are ............. The corporate level The business level

The functional level

Top level gives direction to the organization; they lead the organization in changing business environment. Business level managers give shape to the vision of the corporate managers; they will plan how to implement the strategy. Functional level managers make the strategy a reality by implementing it.

ALTERNATIVE STRATEGIC MANAGEMENT STRUCTURES

CHARACTERISTICS OF SM DECISIONS: CORPORATE

Often carry greater risk, cost, and profit potential Greater need for flexibility Longer time horizons Choice of businesses, dividend policies, sources of long-term financing, and priorities for growth

CHARACTERISTICS OF SM DECISIONS: BUSINESS

Help bridge decisions at the corporate and functional levels Less costly, risky, and potentially profitable than corporate-level decisions More costly, risky, and potentially profitable than functional-level decisions

Include decisions on plant location, marketing segmentation, and distribution

CHARACTERISTICS OF DECISIONS: FUNCTIONAL

Implement the overall strategy formulated at the corporate and business levels Involve action-oriented and operational issues Relatively short range and low risk Modest costs: depend upon available resources Relatively concrete and quantifiable

SM

FORMALITY IN STRATEGIC MANAGEMENT

Formality is the degree to which participation, responsibility, authority, and discretion in decision-making are specified in strategic management.

FORCES DETERMINING FORMALITY

Organizational Size Predominant Management Styles Complexity of Environment Production Process Problems in the Firm Purpose of the Planning System Stage of Firms Development

THREE MODES OF FORMALITY

Entrepreneurial Mode most small firms Adaptive Mode most medium size firms Planning Mode most large firms

ROLE OF SM
The role of strategic management is to provide an organization with the ability ...................... To determine its long term direction To assess its long term performance To ensure that plans are correctly & expertly formulated To monitor & implement plans effectively To carry out continuous evaluation of the business and its performance

BENEFITS OF SM
1. Strategy formulation activities enhance the firms ability to prevent problems. 2. Group-based strategic decisions are likely to be drawn from the best available alternatives. 3. The involvement of employees in strategy formulation improves their understanding of the productivity-reward relationship in every strategic plan and thus heightens their motivation. 4. Gaps and overlaps in activities among individuals and groups are reduced as participation in strategy formulation clarifies differences in roles. 5. Resistance to change is reduced.

CRITICAL TASKS IN SM
1. Formulate the companys vision and mission, including broad statements about its purpose, philosophy, and goals.

2. Conduct an internal analysis that reflects the companys internal conditions and capabilities.
3. Assess the companys external environment, including both the competitive and general contextual factors. 4. Analyze the companys options by matching its resources with the external environment. 5. Identify the most desirable options by evaluating each option in light of the companys mission.

CRITICAL TASKS IN SM (cont)

6. Select a set of long-term objectives and grand strategies that will achieve the most desirable options. 7. Develop annual objectives and short-term strategies that are compatible with the selected set of long-term objectives and grand strategies. 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 process as an input for future decision-making.

RISKS OF SM
Strategic risks are those that arise from the fundamental decisions that management takes concerning an organisations objectives. Strategic risks are subdivided into business and non business risks. Managers time away from other responsibilities Unrealistic expectations promised by strategy formulators
Possible disappointment of subordinates if goal is not reached participating

SM PROCESS
Strategic management process is a flow of information through interrelated stages of analysis toward the achievement of some goal.

SM PROCESS

ELEMENTS IN SM PROCESS
Defining the vision of the company Defining the mission of the company Determining the purposes or goals Defining the objectives Environment scanning Carrying out corporate appraisal Developing strategic alternatives Selecting a strategy Formulating detailed strategy Preparing a plan Implementing a strategy Evaluating a strategy

ETHICS
Ethics are norms or standards of behaviour that guide moral choices about our behaviour and our relationships with others. Business ethics include moral behavior of judging right and wrong of formulating, implementing and evaluating strategies.

Develop a Code of Business Ethics Ask All Managers and Employers to Sign the Code Offer Business Ethics Workshops Include Ethics Factors in Performance Appraisal Instruments Link Compensation to Ethical Behavior Encourage Whistle Blowing Encourage Good Business Ethics Behavior Publicize Good Business Ethics Behavior Reward Good Business Ethics Behavior Set a Good Example

THE PROCESS OF CREATING ETHICAL CULTURE

STRATEGY FORMULATION
Strategy formulation means designing/drafting a right strategy considering the resources, competitors strategies and environment. STEPS IN STRATEGY FORMULATION: Defining the company mission Assessing the external environment Industry analysis Evaluating the multinational environment Environmental forecasting Internal analysis of the firm Formulating long term objectives and grand strategies

DEFINITION OF VISION
Kotter (1990) defines it as a description of something (an organization, corporate culture, a business, a technology, an activity) in the future. Miller and Dess (1996) view it simply as the category of intentions that are broad, all inclusive, and forward thinking.

CHARACTERISTICS OF A GOOD VISION STATEMENT

Be inspirational Be ambitious Be realistic Be creative Be descriptive Be clear Be consistent

EXAMPLES OF VISION STATEMENT

Peace - United Nations There will be a personal computer on every desk running Microsoft software. [Short, simple, unequivocal, memorable and long term] - Microsoft GM's vision is to be the world leader in transportation products and related services. We will earn our customers enthusiasm through continuous improvement driven by the integrity, teamwork, and innovation of GM people. [It is not short, it is not simple, it is not memorable and contains too many words open to interpretation of meaning] General

Motors

IMPORTANCE/BENEFITS OF VISION
Good visions are inspiring and exhilarating Visions represent a step function and a jump ahead so that the company knows what it is to be Good visions help in the creation of a common identity and a shared sense of purpose Good visions are competitive, original and unique. They make sense in the market place, as they are practical Good visions foster risk taking and experimentation

Good visions foster long term thinking.

Good visions represent integrity; they are truly genuine and can be used for the benefit of people.

DEFINITION OF MISSION
Thompson (1997) defines mission as the essential purpose of the organization, concerning particularly why it is in existence, the nature of the businesses it is in, and the customers it seeks to serve and satisfy Hunger and Wheelen (1999) say that mission is the purpose or reason for the organizations existence.

CHARACTERISTICS OF A GOOD MISSION STATEMENT

Make it as succinct as possible Make it memorable Make it unique to you Make it realistic Make sure its current

EXAMPLES OF MISSION STATEMENT

To organize the worlds information and make it universally accessible and useful Google To give ordinary folk the chance to buy the same thing as rich people Wal-Mart To contribute to society through the pursuit of education, learning, and research at the highest international levels of excellence. - University of Cambridge

STRATEGIC MANAGEMENT UNIT II

COMPANYS MACRO ENVIRONMENT

Relates to the larger forces having an impact on society as a whole
A company has little influence on these forces and therefore can only adapt its decisions to account for the resulting opportunities and threats

BASIS FOR EXTERNAL ANALYSIS

By examining opportunities, you can discover untapped markets, and new products or technologies, or identify potential avenues for diversification. By examining threats, you can identify unfavorable market shifts or changes in technology, and create a defensive posture aimed at preserving your competitive position.

COMPONENTS OF ENVIRONMENT
Economic
Demographic Industry Environment Competitive Environment Political/ Legal Technological Global

Sociocultural

DEMOGRAPHIC ENVIRONMENT
Demographic trends: Changing age structure Changing family structure

Geographic shifts in population

Higher education level & more white collar job holders

Increasing globalization of cities

ECONOMIC ENVIRONMENT
Economic trends affecting consumers buying power and spending pattern Change in per capital real income Savings & debt Consumer expenditures

Change in interest rates and cost of living

NATURAL ENVIRONMENT
Natural trends include those natural resources used in production or those affected by activities of the organizations. Raw material shortages
Increase in energy cost Increase pollution levels Increase in Governmental intervention in natural resource management

TECHNOLOGICAL ENVIRONMENT
Consists of forces that affect new technology, new product development and market opportunities Faster pace of technological change Shorter PLC Higher R&D budgets

Concentration on minor improvements

Increased regulations

CULTURAL ENVIRONMENT
Affect society's basic values, perceptions, preferences and behaviors. Core cultural values and beliefs Secondary cultural values Sub cultures

LEGAL AND POLITICAL ENVIRONMENT

Trends in the legal and political environment include
Increased legislation regulating business Singapores Fair Trading Act

Changing government agency enforcement

Growth of public interest groups Regional groupings ASEAN Free Trade Zone etc

INDUSTRY ANALYSIS
Industry and competition are the main constituents of the task environment of a business firm.
Analysis of macro environment gives rise to common information where as industry analysis provides structural realities, specific and unique information, which are required for strategy formulation. Industry analysis brings to light the industrys attractiveness and the firms competitive position within the industry. The industry attractiveness is mainly determined by its growth potential and inherent profitability of the industry. Analysis of the firms competitive position helps not only strategy formulation but also helps in building competitive advantage.

OBJECTIVES OF INDUSTRY ANALYSIS

To understand how industry structure drives competition, which determines the level of industry profitability. To assess industry attractiveness To use evidence on changes in industry structure to forecast future profitability

To formulate strategies to change industry structure to improve industry profitability

To identify Key Success Factors

MICHAEL PORTERS FIVE FORCES MODEL

Michael Porters five forces describe the characteristics of an industry that influence how profitable firms in the industry will be. Porters Model of Industry Competition, commonly know as Porters Five Forces provides a framework for analyzing the influence of the forces on the industry to determine the industrys profitability and competitiveness

PURPOSE OF FIVE FORCE ANALYSIS

The five forces are environmental forces that impact on a companys ability to compete in a given market.
The purpose of five-forces analysis is to diagnose the principal competitive pressures in a market and assess how strong and important each one is.

PORTERS FIVE FORCE MODEL OF COMPETITION

Threat of New Entrants

Bargaining Power of Suppliers

Rivalry Among Competing Firms in Industry

Bargaining Power of Buyers

Threat of Substitute Products

PORTERS FIVE FORCE MODEL OF COMPETITION

Threat of New Entrants

THREAT OF NEW ENTRANTS

Barriers to Entry

Economies of Scale Product Differentiation

Capital Requirements
Switching Costs Access to Distribution Channels Government Policy

PORTERS FIVE FORCE MODEL OF COMPETITION

Threat of New Entrants

Bargaining Power of Suppliers

BARGAINING POWER OF SUPPLIERS

Suppliers are likely to be powerful if:
Suppliers exert power in the industry by: Threatening to raise prices or to reduce quality

Supplier industry is dominated by a few firms Suppliers products have few substitutes Buyer is not an important customer to supplier Suppliers product is an important input to buyers product

Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases

Suppliers products are differentiated

Suppliers products have high switching costs Supplier poses credible threat of forward integration

PORTERS FIVE FORCE MODEL OF COMPETITION

Threat of New Entrants

Bargaining Power of Suppliers

Bargaining Power of Buyers

BARGAINING POWER OF BUYERS

Buyer groups are likely to be powerful if:
Purchase accounts for a significant fraction of suppliers sales
Products are undifferentiated Buyers face few switching costs Buyers industry earns low profits Buyer presents a credible threat of backward integration Product unimportant to quality Buyer has full information
Buyers compete with the supplying industry by:
* Bargaining down prices * Forcing higher quality * Playing firms off of each other

PORTERS FIVE FORCE MODEL OF COMPETITION

Threat of New Entrants

Bargaining Power of Suppliers

Bargaining Power of Buyers

Threat of Substitute Products

THREAT OF SUBSTITUTE PRODUCTS

Keys to evaluate substitute products:
Products with similar function limit the prices firms can charge

Switching costs Buyer propensity to substitute Relative price performance of substitutes

Example:
Electronic security systems in place of security guards Fax machines in place of overnight mail delivery

PORTERS FIVE FORCE MODEL OF COMPETITION

Threat of New Entrants

Bargaining Power of Suppliers

Rivalry Among Competing Firms in Industry

Bargaining Power of Buyers

Threat of Substitute Products

RIVELRY AMONG EXISTING COMPETITORS

Intense rivalry often plays out in the following ways: Jockeying for strategic position Using price competition Staging advertising battles Making new product introductions Increasing consumer warranties or service

RIVELRY AMONG EXISTING COMPETITORS

Cutthroat competition is more likely to occur when:

Numerous or equally balanced competitors

Slow growth industry High fixed costs High storage costs Lack of differentiation or switching costs Capacity added in large increments Diverse competitors High exit barriers

LEVELS OF COMPETITION
Generic Competition Form Competition Industry Competition Brand Competition

LEVELS OF COMPETITION
Generic competitione.g. Honda against Silver Sea Cruise for the same consumer dollars

Form competitione.g. Toyota against manufacturers of other vehicles that provide the same service such as Yamaha (motorcycle) Industry competitione.g. Honda against Mercedes, Lexus etc who make the same products or class of products (different prices) Brand competitione.g. Honda against Toyota, Nissan etc. who offer similar products and service to the same customers at similar prices

COMPETITOR ANALYSIS
The follow-up to Industry Analysis is effective analysis of a firms Competitors

Industry Environment Competitive Environment

COMPETITOR ANALYSIS
Assumptions What assumptions do our competitors hold about the future of industry and themselves? Current Strategy Does our current strategy support changes in the competitive environment? Future Objectives How do our goals compare to our competitors goals?

Response
What will our competitors do in the future? Where do we have a competitive advantage?

How will this change our relationship with our competition?

Capabilities How do our capabilities compare to our competitors?

COMPETITOR ANALYSIS
Future Objectives
How do our goals compare to our competitors goals? Where will emphasis be placed in the future? What is the attitude toward risk?

What Drives the competitor?

COMPETITOR ANALYSIS
Future Objectives
How do our goals compare to our competitors goals?

What is the competitor doing? What can the competitor do?

Current Strategy Where will emphasis be placed in the future?

How are we currently What is the attitude toward risk? competing? Does this strategy support changes in the competitive structure?

COMPETITOR ANALYSIS
Future Objectives
How do our goals compare to our competitors goals?

What does the competitor believe about itself and the industry?

Current Strategy Where will emphasis be placed in the future? How are we currently What is thecompeting? attitude toward risk?

Assumptions

Does this strategy support the future Do we assume changes in will competition the be volatile? structure?

What assumptions do our competitors hold about the industry and themselves? Are we assuming stable competitive conditions?

COMPETITOR ANALYSIS
Future Objectives
How do our goals compare to our competitors goals?

What are the competitors capabilities?

Current Strategy Where will emphasis be placed in the future? How are we currently What is thecompeting? attitude toward risk?

Assumptions

Does this strategy support future will Do we assume the changes in the competition be volatile? structure? What assumptions do our competitors hold about the Capabilities industry and themselves? Are we operating under a status strengths and weaknesses? quo?

What are my competitors

How do our capabilities compare to our competitors?

COMPETITOR ANALYSIS
Future Objectives
How do our goals compare to our competitors goals?

Response
What will our competitors do in the future? Where do we have a competitive advantage? How will this change our relationship with our competition?

Current Strategy Where will emphasis be placed in the future? How are we currently What is thecompeting? attitude toward risk?

Assumptions

Does this strategy support future will Do we assume the changes in the competition be volatile? structure? What assumptions do our competitors hold about the Capabilities industry and themselves? What are my competitors Are we operating under a status strengths and weaknesses? quo? How do our capabilities compare to our competitors?

COMPANYS MICROENVIRONMENT
Relates to the internal forces or forces close to the company over which some control is possible.
Top management Other functions e.g. finance and accounting, R& D, manufacturing and purchasing Suppliers Marketing intermediaries (channel partners) Customers Public

THE INTERNAL ENVIRONEMENT

So strengths and weaknesses are based on how well value chain activities are performed Resources and capabilities determine the performance of value chain activities. Look at
Corporate culture and Leadership Marketing management issues Financial management issues R&D management issues

HR management issues
Operations management issues Information systems management issues

VALUE CHAIN ANALYSIS

Value chain analysis Examines contributions of individual activities to overall level of customer value and ultimately financial performance. Customer value: product differentiation, low cost, and/or responsiveness

ACTIVITIES IN VALUE CHAIN ANALYSIS

Primary Activities Inbound Logistics Operations Outbound Logistics Marketing and Sales Customer Service Secondary Activities Firm Infrastructure Human Resource Management Technology Development Procurement

RELATIONSHIP BETWEEN RESOURCES, CAPABILITIES AND COMPETITIVE ADVANTAGE

INDUSTRY KEY SUCCESS FACTORS

COMPETITIVE ADVANTAGE

STRATEGY

ORGANIZATIONAL CAPABILITIES RESOURCES Tangible Intangible Human

CATEGORIES OF FIRMS RESOURCES

Financial

Physical
Human Technological Reputational

SWOT ANALYSIS
SWOT Analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. SWOT analysis is a tool for auditing an organization and its environment.

WHY DO WE NEED SWOT?

To evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture
Helps in matching the firms resources and capabilities to competitive environment helps marketers to focus on key issues

Helps in strategy formulation, position and direction of a company

To know state of your business and your expectation for the future.

SWOT FRAMEWORK

STRENGTHS
A strength is a positive characteristic that gives a company an important capability. It is an important organisational resource which enhances a company, competitive position.

Some of the internal strengths of an organisation are:

Distinctive competence in key areas Manufacturing efficiency Skilled workforce, adequate financial resources and reputation Economies of scale Superior technological skills Superior image

No strong competitive pressures

Product or service differentiation Proprietary technology

WEAKNESSES
A weakness is a condition or a characteristic, which puts the company at disadvantage. Weaknesses make the organisation vulnerable to competitive pressures. Weaknesses require a close scrutiny because some of them can prove to be fatal.

Some of the weaknesses to be reviewed are: No clear strategic direction Outdated facilities Lack of innovation Poor research and developmental programs Lack of management vision, depth and skills Inability to raise capital Weaker distribution network Obsolete technology Low employee morale Poor track record in implementing strategy Too narrow product line Poor market image Higher overall unit costs relative to competition

OPPORTUNITIES
An opportunity is considered as a favourable circumstance, which can be utilized for beneficial purposes. It is offered by outside environment and the management can decide as to how to make the best use of it. Such an opportunity may be the result of a favourable change in any one or more of the elements that constitute the external environment. It may also be created by a proactive approach by the management in moulding the environment to its own benefit.

Some of the opportunities are: Strong economy Possible new markets Emerging new technologies

Complacency among competing organizations

Vertical or horizontal integration Expansion of product line to meet broader range of customer needs Falling trade barriers in attractive foreign markets

THREATS
A threat is a characteristic of the external environment, which is hostile to the organisation.

Management should anticipate such possible threats and prepare its strategies in such a manner that any such threat is neutralized.

Some of the elements that can pose a threat are: Entry of lower cost foreign competitors cheaper technology adopted by rivals Rising sales of substitute products

Shortages of resources
Changing buyer needs and preferences Recession in economy Adverse shifts in trade policies of foreign governments Adverse demographic changes

SWOT ANALYSIS OF WAL-MART

Strengths
Excellent reputation (powerful retail brand) Market Leader Loyal customers Value for money Strong brand names

Weaknesses

loop hole due to large span of control lack of flexibility in some areas The company is global, but has a presence in relatively few countries Worldwide.

Opportunities
form strategic alliances with global retailers chance in expanding consumer markets, such as China and India. New locations & store types offer to

Threats

target of competition exposed to political problems

exploit market development.

DEFINITIONS OF BENCHMARKING
It is a management technique to improve business performances.
It is used to compare performance between different organizations or different units within a single organizations undertaking similar processes on a continuous basis. Aim to document and measure a key process and then compare the resulting data with those relating to similar process in other organizations.

FEATURES OF BENCHMARKING
Benchmarking is based on the theme see what others do and try to improve upon that. Benchmarking can be applied to all facets of a business; it includes products, services, processes, and methods. Benchmarking is not aimed solely at direct product competitors but those organizations and businesses that are recognized as best or industry leaders. Benchmarking is a continuous process and not just one shot action.

TYPES OF BENCHMARKING
1. Competitor: Comparing with leading organizations with similar products or services and adapting their approach.

2. Generic: Comparisons of business process or functions that are very similar, regardless of industry.
3. Internal: A comparison of internal operations by different departments within the same organization. 4. Functional: Comparisons to similar functions within the same broad industry, or to industry leaders. 5. Customer: The aim of the improvement program is meeting and exceeding customer expectations.

BENCHMARKING PROCESS
Identify key process
Document / Map Sub Processes

Identify Critical Success Factors (CSFs)

Measure CSFs Analyze Results Identify Gaps in Performance Select Benchmarking Partners/Arranged Visits Identify Best Practice

STRATEGIC MANAGEMENT UNIT III

WHAT IS A BALANCED SCORECARD?

A Measurement System?

A Management System?

A Management Philosophy?

BALANCED SCORECARD
The Balanced Scorecard (BSC) is a strategic performance management tool - a semi-standard structured report, supported by proven design methods and automation tools, that can be used by managers to keep track of the execution of activities by the staff within their control and to monitor the consequences arising from these actions.

TRANSLATING VISION AND STRATEGY: FOUR PERSPECTIVES

FINANCIAL To succeed financially, how should we appear to our shareholders? Objectives Measures Targets Initiatives

CUSTOMER To achieve our vision, how should we appear to our customers? Objectives Measures Targets Initiatives To satisfy our shareholders and customers, what business processes must we excel at?

INTERNAL BUSINESS PROCESS Objectives Measures Targets Initiatives

Vision and Strategy

LEARNING AND GROWTH To achieve our vision, how will we sustain our ability to change and improve? Objectives Measures Targets Initiatives

FOCUS OF BALANCED SCORECARD

Traditional financial reports look backward Reflect only the past: spending incurred and revenues earned Do not measure creation or destruction of future economic value The Balanced Scorecard identifies the factors that create long-term economic value in an organization, for example: Customer Focus: satisfy, retain and acquire customers in targeted segments Business Processes: deliver the value proposition to targeted customers
innovative products and services high-quality, flexible, and responsive operating processes excellent post-sales support

Customers People

Organizational Learning & Growth:

develop skilled, motivated employees; Processes provide access to strategic information align individuals and teams to business unit objectives

APPLICATION OF 4 PERSPECTIVES
Profit Driven
What must we do to satisfy our shareholders? Financial Perspective

Mission Driven
What must we do to satisfy our financial contributors?

What do our customers expect from us?

Customer Perspective What do our customers expect from us?

What internal processes must we excel at to satisfy our shareholder and customer?

Internal Perspective

What internal processes must we excel at to satisfy our fiscal obligations, our customers and the requirements of our mission?
How must our people learn and develop skills to respond to these and future challenges?

How must our people learn and develop skills to respond to these and future challenges?

Learning & Growth Perspective

Answering these questions is the first step to develop a Balanced Scorecard

WHY ARE COMPANIES ADOPTING A BALANCED SCORECARD? REASONS

Change
The Revenue Growth Strategy Improve stability by broadeni ng the sources of rev enue fro m current custom ers The Productivity Strategy Improve operating efficiency by s hifting c ustomers to more costeffective channels of distribution Improve Returns Broaden Revenue Mix Improve Operating Efficiency Financial Perspective

Formulate and communicate a new strategy for a more competitive environment Growth Increase revenues, not just cut costs and enhance productivity Implement Every employee implements the new growth strategy in their day-to-day operations

Increase Customer Confidenc e in Our Financi al Advice

Increase Customer Satisfaction Through Superi or Execution

Customer Perspective

Internal Perspective Understand Customer Segments Develop New Products Cross-Sel l the Product Line Shift to Appropriate Channel Provide Rapid Response

Mini mize Problems

Increase Employee Productivity

Learning Perspective

Develop Strategic Skills

Access to Strategic Information

Align Personal Goals

WHY DO WE NEED A BALANCED SCORECARD? TO IMPLEMENT BUSINESS STRATEGY!

Business Strategy is now the single most important issue and will remain so for the next five years
Business Week

Less than 10% of strategies effectively formulated are effectively executed

Fortune

FOUR BARRIERS TO STRATEGIC IMPLEMENTATION

The Vision Barrier Only 5% of the work force understands the strategy The People Barrier Only 25% of managers have incentives linked to strategy The Management Barrier 85% of executive teams spend less than one hour per month discussing strategy

9 of 10 companies fail to execute strategy

60% of organizations dont link budgets to strategy The Resource Barrier

Todays Management Systems Were Designed to Meet The Needs of Stable Industrial Organizations That Were Changing Incrementally You Cant Manage Strategy With a System Designed for Tactics

AIM OF BSC: ALIGNMENT

Question:
How can complex organizations achieve results like this in such short periods of time?

Answer: Alignment!

The Balanced Scorecard process allows an organization to align and focus all its resources on its strategy

BUSINESS UNITS
STRATEGY

EXECUTIVE TEAM

HUMAN RESOURCES

INFORMATION TECHNOLOGY

BUDGETS AND CAPITAL INVESTMENTS

THE INGREDIENTS OF HIGHLY SUCCESSFUL BALANCED SCORECARD PROGRAMS

1. Leadership From the Top
Create the Climate for Change Create a Common Focus for Change Activities Rationalize and Align the Organization Formulate

4. Make Strategy a Continuous Process

Strategic Feedback That Encourages Learning Executive Teams Manage Strategic Themes Testing Hypotheses, Adapting, and Learning Navigate

Communicate

STRATEGY

2. Make Strategy Everyones Job

Comprehensive Communication to Create Awareness Align Goals and Incentives Integrate Budgeting with Strategic Planning Align Resources and Initiatives

Execute

3. Unlock and Focus Hidden Assets

Reengineer Work Processes Create Knowledge Sharing Networks

LONG-TERM OBJECTIVES
Strategic managers recognize that short-run profit maximization is rarely the best approach to achieving sustained corporate growth and profitability To achieve long-term prosperity, strategic planners commonly establish long-term objectives in seven areas: Profitability Productivity Competitive Position

Employee Development
Employee Relations Tech Leadership

Public Responsibility

QUALITIES OF LONG-TERM OBJECTIVES

These are the criterions that should be used in preparing long-term objectives: Flexible Measurable Motivating Achievable Realistic Time bound Suitable Understandable Challenging

TYPES OF OBJECTIVES: EXAMPLES

STRATEGIC OBJECTIVES
A bigger market share Quicker design-to-market than rivals Higher product quality Lower costs relative to competitors Broader or more attractive product line Superior customer service Wider geographic coverage

FINANCIAL OBJECTIVES
Growth in revenues Growth in earnings Wider profit margins Higher returns on invested capital Attractive economic value added (EVA) performance Bigger cash flows A rising stock price Earnings per Share Strong bond and credit ratings

GRAND STRATEGIES
Grand strategies, often called master or corporate strategies, provide basic direction for strategic actions Indicate the time period over which long-term objectives are to be achieved Any one of these strategies could serve as the basis for achieving the major long-term objectives of a single firm Firms involved with multiple industries, businesses, product lines, or customer groups usually combine several grand strategies

THE GRAND STRATEGY MATRIX

RAPID MARKET GROWTH
W E A K C O M P E T I T I V E Quadrant II
1. 2. 3. 4. 5. 6. Market development Market penetration Product development Horizontal integration Divestiture Liquidation

Quadrant I
1. 2. 3. 4. 5. 6. 7.
1. 2. 3. 4.

Market development Market penetration Product development Forward integration Backward integration Horizontal integration Concentric diversification
Concentric diversification Horizontal diversification Conglomerate diversification Joint ventures

Quadrant III
1. 2. 3. 4. 5. 6. Retrenchment Concentric diversification Horizontal diversification Conglomerate diversification Divestiture Liquidation

Quadrant IV

SLOW MARKET GROWTH

S T R O N G C O M P E T I T I V E

TYPES OF STRATEGIES
Integration
Forward Integration Backward Integration Horizontal Integration

Intensive

Market Penetration Market Development Product Development

Diversification

Concentric Diversification Horizontal Diversification Conglomerate Diversification

Defensive

Retrenchment Divestiture Liquidation

CONCENTRATED GROWTH/PENETRATION STRATEGY

Concentrated growth is the strategy of the firm that directs its resources to the profitable growth of a dominant product, in a dominant market, with a dominant technology
Concentrated growth strategies lead to enhanced performance

MARKET DEVELOPMENT
Market development commonly ranks second only to concentration as the least costly and least risky of the grand strategies It consists of marketing present products, often with only cosmetic modifications, to customers in related market areas by adding channels of distribution or by changing the content of advertising or promotion Frequently, changes in media selection, promotional appeals, and distribution are used to initiate this approach

PRODUCT DEVELOPMENT
Product development involves the substantial modification of existing products or the creation of new but related products that can be marketed to current customers through established channels

INNOVATION
These companies seek to reap the initially high profits associated with customer acceptance of a new or greatly improved product Then, rather than face stiffening competition as the basis of profitability shifts from innovation to production or marketing competence, they search for other original or novel ideas The underlying rationale of the grand strategy of innovation is to create a new product life cycle and thereby make similar existing products obsolete

CORPORATE STRATEGY
GROWTH STRATEGIES: These involve expansion of a firms activities. Types of growth strategies are . Concentration Diversification STABILITY STRATEGIES: These consist of no change in the companys current activities. Types of stability strategies are No change Pause and proceed Profit RETRENCHMENT/DEFENSIVE STRATEGIES: These strategies reduce the level of companys activities. Types of retrenchment strategies are .. Turnaround Divestment Liquidation

HORIZONTAL INTEGRATION
When a firms long-term strategy is based on growth through the acquisition of one or more similar firms operating at the same stage of the production-marketing chain, its grand strategy is called horizontal integration Such acquisitions eliminate competitors and provide the acquiring firm with access to new markets

VERTICAL INTEGRATION
When a firms grand strategy is to acquire firms that supply it with inputs (such as raw materials) or are customers for its outputs (such as warehouses for finished products), vertical integration is involved The vertical integration of two types:

Forward vertical integration

Backward vertical integration

VERTICAL INTEGRATION
Raw material

Upstream/ backward integration

Intermediate manufacturer

Assembly

Distribution

End user

Downstream/ forward integration

VERTICAL AND HORIZONTAL INTEGRATIONS

CONCENTRIC DIVERSIFICATION
Concentric diversification involves the acquisition of businesses that are related to the acquiring firm in terms of technology, markets, or products With this grand strategy, the selected new businesses possess a high degree of compatibility with the firms current businesses The ideal concentric diversification occurs when the combined company profits increase the strengths and opportunities and decrease the weaknesses and exposure to risk

CONGLOMERATE DIVERSIFICATION
Occasionally a firm, particularly a very large one, plans acquire a business because it represents the most promising investment opportunity available. This grand strategy is commonly known as conglomerate diversification. The principal concern of the acquiring firm is the profit pattern of the venture Unlike concentric diversification, conglomerate diversification gives little concern to creating product-market synergy with existing businesses

STABILITY STRATEGY
Stability strategy involves continuing the current activities without any significant change in direction. PAUSE/ PROCEED WITH CAUTION STRATEGY Companies adopt this strategy after a prolonged period of rapid growth in order to consolidate resources and results. NO CHANGE STRATEGY It is pursued by small businesses when the future is predicted to be the continuation of the present. PROFIT STRATEGY It assumes that the difficulties faced by the firm are temporary.

TURNAROUND
The firm finds itself with declining profits Among the reasons are economic recessions, production inefficiencies, and innovative breakthroughs by competitors

Strategic managers often believe the firm can survive and eventually recover if a concerted effort is made over a period of a few years to fortify its distinctive competences. This is turnaround.
Two forms of retrenchment: Cost reduction

Asset reduction

DIVESTITURE
A divestiture strategy involves the sale of a firm or a major component of a firm When retrenchment fails to accomplish the desired turnaround, or when a nonintegrated business activity achieves an unusually high market value, strategic managers often decide to sell the firm Reasons for divestiture vary

LIQUIDATION
When liquidation is the grand strategy, the firm typically is sold in parts, only occasionally as a wholebut for its tangible asset value and not as a going concern

Planned liquidation can be worthwhile

BANKRUPTCY
Liquidation bankruptcy agreeing to a complete distribution of firm assets to creditors, most of whom receive a small fraction of the amount they are owed Reorganization bankruptcy the managers believe the firm can remain viable through reorganization

JOINT VENTURES
Occasionally two or more capable firms lack a necessary component for success in a particular competitive environment The solution is a set of joint ventures, which are commercial companies (children) created and operated for the benefit of the co-owners (parents) The joint venture extends the supplier-consumer relationship and has strategic advantages for both partners

STRATEGIC ALLIANCES
Strategic alliances are distinguished from joint ventures because the companies involved do not take an equity position in one another In some instances, strategic alliances are synonymous with licensing agreements

FUNCTIONAL ALLIANCES
Production alliances: Two or more companies share the common manufacturing facilities in production function alliance. Marketing alliances: Two or more companies share marketing services expertise and facilities. Financial alliances: Companies join together in order to reduce financial risks associated with the projects. Research and development alliances

COMPETITIVE/ BUSINESS LEVEL STRATEGIES

Competitive strategy raises the following questions: Should we compete on the basis of low cost?

Should we differentiate our products?

Should we focus on niche markets? Michael Porter has developed generic strategies for business level.

PORTERS GENERIC STRATEGIES

Advantage Target Scope Low Cost

Product Uniqueness

Broad (Industry Wide)

Cost Leadership Strategy

Differentiation Strategy

Narrow (Market Segment)

Focus Strategy (low cost)

Focus Strategy (differentiation)

COST LEADERSHIP STRATEGY

Cost leadership strategy is a generic business level strategy in which a large business produces at the lowest cost possible, no frills products and services for a large market with a relatively elastic demand.
The cost leader can charge lower price than immediate competitors and achieve higher profits than competitors. When rivalry increases in the industry at a later stage with price competition, the cost leader can survive and withstand the competitive forces and make above average profits.

FACTORS LEADING TO COST ADVANTAGE

Efficient scale economies
Benefits of early entry A large market share Locational advantage Synergy between functions

Experience curve effects

Dropping unprofitable customers Minimum R & D expenses Just-in-time inventory

DIFFERENTIATION STRATEGY
This is a generic business level strategy wherein a larger business produces and markets to the entire industry products that can be readily distinguished from those of competitors. Companies which pursue differentiation strategy create products which are perceived as unique by customers, and they charge premium price, which is above industry average.

Sometimes differentiation may be based on age group or socio economic groups.

A differentiator often divides the market into segments and niches.

FACTORS LEADING TO DIFFERENTIATION

Brand image

Channel clout (power)

Unique process Advanced R&D set up and Product innovation

FOCUS STRATEGY
This strategy is pursued to serve the needs of a limited customer groups or segment. A focused company pays attention to serve a particular market niche, which may be defined geographically, by the type of customer, or by segment of product line. By focus strategy, the firm specializes in some way: A specialized differentiator or A cost leader

FUNCTIONAL STRATEGY
Functional strategy deals with developing and nurturing (make them grow) a distinctive competence in a functional area in order to maximize resource productivity. TYPES OF FUNCTIONAL STRATEGY Marketing strategy Product development strategy Advertising and promotion Distribution Pricing Financial strategy Operating strategy Human resource strategy Research and Development strategy Information System Strategy

STRATEGIC MANAGEMENT UNIT IV

BUSINESS PORTFOLIO
It is the collection of businesses and products that make up the company.

The best business portfolio is the one that best fits the companys strengths and weaknesses to opportunities and threats in the environment.

STRATEGIC BUSINESS UNIT (SBU):

It is a unit of the company that has a separate mission and objectives and that can be planned independently from other company businesses. An SBU can be a company division, a product line within a division, or sometimes a single product or brand.

BUSINESS PORTFOLIO ANALYSIS

PORTFOLIO ANALYSIS:
It is a tool by which management identifies and evaluates the various businesses that make up the company. The company must: Analyze its current business portfolio and decide which businesses should receive more, less or no investment and Develop growth strategies for adding new products or businesses to the portfolio.

 BCG Matrix i.e. Growth-Share Matrix, Boston Box, Boston Matrix, Boston Consulting Group analysis. Created by Bruce Henderson for the Boston Consulting Group in 1970 to help corporations to analyze their business units or product lines. It is a portfolio-planning method that evaluates a companys strategic business units in terms of their market growth rate and relative market share. SBUs are classified as Stars, Cash cows, Question marks and Dogs. This helps the company allocate resources and is used as an analytical tool in product management, strategic management, and portfolio analysis.

THE BCG MATRIX

MARKET SHARE
Market share is the percentage of the total market that is being serviced by your company, measured either in revenue terms or unit volume terms.
The higher your market share, the higher proportion of the market you control.

MARKET GROWTH RATE

Market growth is used as a measure of a markets attractiveness.

Markets experiencing high growth are ones where the total market share available is expanding, and theres plenty of opportunity for everyone to make money.

THE BCG MATRIX

STARS :- High growth business competing in market where they are relatively strong compared with the competition. They have a high point shares and are the ideal businesses. CASH :- Low-growth business with a relatively high point shares. These businesses were stars but now have lost their attractiveness. QUESTION MARK :- Businesses with low point share but which may have a high growth rate. This suggests that they have potential but may require huge ever, a competing force extraordinary effort in order to grow point share. DOGS :- Businesses that have low relative share and low expected growth rate. Dogs may generate enough points to sustain but they are rarely, if ever, a competing force.

THE BCG MATRIX

STARS
High growth, High market share
Stars are leaders in business.
They also require heavy investment, its large market share. to maintain

It leads to large amount of cash consumption and cash generation.

Attempts should be made to hold the market share otherwise the star will become a CASH COW.

CASH COWS Low growth , High market share

They are foundation of the company and often the stars of yesterday. They generate more cash than required.

They extract the profits by investing as little cash as possible

They are located in an industry that is mature, not growing or declining.

DOGS
Low growth, Low market share
Dogs are the cash traps. Dogs do not have potential to bring in much cash.

Number of dogs in the company should be minimized.

Business is situated at a declining stage.

QUESTION MARKS
High growth , Low market share
Most businesses start of as question marks. They will absorb great amounts of cash if the market share remains unchanged, (low). Why question marks? Question marks have potential to become star and eventually cash cow but can also become a dog. Investments should be high for question marks.

THE POSITION OF COCA COLA BRAND NAMES IN

BCG MATRIX

HOLD STRATEGY
To enjoy continued strong cash flows, Relatively high market share / low market growth rate Cash Cow opportunities should be able to maintain market share at or around existing levels.

BUILD STRATEGY
To grow the business. Relatively low relative market share / high market growth rate Question Mark opportunities need investment in order to grow.

HARVEST STRATEGY
To develop short term cash flow irrespective of the long term damaging effect to the product or business. This strategy is appropriate for any weak products where disposal in the form of a sale is unavailable or not preferred due to high exit barriers.

DIVEST STRATEGY
To change the capital of the business and allow resources to be used elsewhere.

MAIN STEPS OF BCG MATRIX

Identifying and dividing a company into SBU. Assessing and comparing the prospects of each SBU according to two criteria : SBUs relative market share Growth rate of SBUs industry Classifying the SBUs on the basis of BCG matrix. Developing strategic objectives for each SBU.

BENEFITS OF BCG
BCG MATRIX is simple and easy to understand. It helps you to quickly and simply screen the opportunities open to you, and helps you think about how you can make the most of them. It is used to identify how corporate cash resources can best be used to maximize a companys future growth and profitability.

LIMITATIONS OF BCG
Definition (qualitative and quantitative) of the market is sometimes difficult.
It assumes that market share and profitability are directly related. The use of high and low to form four categories is too simplistic. Growth rate is only one aspect of industry attractiveness and high growth markets are not always the most profitable. It considers the product or business in relation to the largest player only. It ignores the impact of small competitors whose market share is rising fast.

Market share is only one aspect of overall competitive position.

It ignores interdependence and synergy.

GE / MCKINSEY MATRIX
In consulting engagements with General Electric in the 1970's, McKinsey & Company developed a nine-cell portfolio matrix as a tool for screening GE's large portfolio of strategic business units (SBU). This business screen became known as the GE/McKinsey Matrix and is shown below.
The GE matrix has nine cells vs. four cells in the BCG matrix.

GE / MCKINSEY MATRIX

GENERAL ELECTRICS BUSINESS SCREEN

High Winners A Winners B C Question Marks D

Winners E
Medium

Average Businesses F Losers Losers G H

Low

Profit Producers

Losers

Strong Average Weak Business Strength/Competitive Position

GE / MCKINSEY MATRIX
The GE / McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBU's position in the industry. The GE matrix however, attempts to improve upon the BCG matrix in the following two ways: The GE matrix generalizes the axes as "Industry Attractiveness" and "Business Unit Strength" whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit.

INDUSTRY ATTRACTIVENESS
The vertical axis of the GE / McKinsey matrix is industry attractiveness, which is determined by factors such as the following: Market growth rate

Market size
Demand variability Industry profitability Industry rivalry Global opportunities

Macro-environmental factors (PEST)

BUSINESS UNIT STRENGTH

The horizontal axis of the GE / McKinsey matrix is the strength of the business unit. Some factors that can be used to determine business unit strength include:

Market share Growth in market share

Brand equity
Distribution channel access Production capacity Profit margins relative to competitors

Industry attractiveness and business unit strength are calculated by first identifying criteria for each, determining the value of each parameter in the criteria, and multiplying that value by a weighting factor. The result is a quantitative measure of industry attractiveness and the business unit's relative performance in that industry Industry attractiveness = (factor value1 x factor weighting1) + (factor value2 x factor weighting2 ) + Business unit strength = (factor value1 x factor weighting1) + (factor value2 x factor weighting2 ) +

WAY TO CALCULATE ATTRACTIVENESS & STRENGTH

STRATEGIC IMPLICATIONS
Resource allocation recommendations can be made to grow, hold, or harvest a strategic business unit based on its position on the matrix as follows: Grow strong business units in attractive industries, average business units in attractive industries, and strong business units in average industries. Hold average businesses in average industries, strong businesses in weak industries, and weak business in attractive industries. Harvest weak business units in unattractive industries, average business units in unattractive industries, and weak business units in average industries.

PROCESS OF GE MATRIX
One - Identify your products, brands, solutions, or SBU's. Two - Answer the question, What makes this market so attractive? Three - Decide on the factors that position the business on the GE matrix. Four - Determine the best ways to measure attractiveness and business position. Five - Finally rank each SBU as either low, medium or high for business strength, and low, medium and high in relation to market attractiveness.

PROBLEMS OR LIMITATIONS OF GE MATRIX

There is no research to prove that there is a relationship between market attractiveness and business position. The interrelationships between SBU's, products, brands, or solutions is not taken into account. This approach does require extensive data gathering. Scoring is personal and subjective. There is no hard and fast rule on how to weight elements. The GE matrix offers a broad strategy and does not indicate how best to implement it.

PRODUCT-MARKET EXPANSION GRID OR ANSOFFS PRODUCT/MARKET MATRIX

It is a portfolio-planning tool for identifying company growth opportunities through market penetration, market development, product development or diversification.

PRODUCT-MARKET EXPANSION GRID

EXISTING
PRODUCTS EXISTING MARKETS MARKET PENETRATION

NEW
PRODUCTS PRODUCT DEVELOPMENT

NEW

MARKET DEVELOPMENT

DIVERSIFICATION

MARKETS

MARKET PENETRATION: It is a strategy for company growth by increasing sales of current products to current market segments without changing the product. MARKET DEVELOPMENT: It is a strategy for company growth by identifying and developing new market segments for current company products. PRODUCT DEVELOPMENT: It is a strategy for company growth by offering modified or new products to current market segments. DIVERSIFICATION: It is a strategy for company growth by starting up or acquiring businesses outside the companys current products and markets.

BCGS STRATEGIC ENVIRONMENTS MATRIX

BCGS STRATEGIC ENVIRONMENTS MATRIX

Volume businesses are those that have few sources of advantage, but the size is large typically the result of scale economies Stalemate businesses have few sources of advantage, with most of those small Fragmented businesses have many sources of advantage, but they are all small Specialization businesses have many sources of advantage and find those advantages potentially sizable

It does not address how value is being created across business units Truly accurate measurement for matrix classification was not as easy as the matrices portrayed The underlying assumption about the relationship between market share and profitability varied across industries and market segments The limited strategic options came to be seen more as basic strategic missions It ignored capital raised in capital markets It typically failed to compare the competitive advantage a business received from being owned by a particular company with the costs of owning it

LIMITATIONS OF PORTFOLIO APPROACH

STRATEGIC MANAGEMENT UNIT V

STRATEGY IMPLIMENTATION
Steiner et al have defined strategy implementation as follows: The implementation of policies and strategies is concerned with the design and management of systems to achieve the best integration of people, structures, processes, and resources, in reaching organizational purposes. McCarthy et al have defined strategy implementation as follows: Strategy implementation may be said to consist of securing resources, organizing these resources and directing the use of these resources within and outside the organizations.

COMPARISON OF STRATEGY FORMULATION & IMPLEMENTATION

STRATEGY FORMULATION STRATEGY IMPLEMENTATION

It is positioning forces before the It is managing forces during the action. action.
It focuses on effectiveness. It is primarily an intellectual process. It requires good intuitive and analytical skills. It focuses on efficiency. It is primarily an operational process. It requires special motivation and leadership skills.

It requires coordination among a few individuals.

It requires coordination among many persons.

FACTORS CAUSING UNSUCCESSFUL IMPLEMENTATION STRATEGY

Unsatisfactory coupling of strategy and operational actions. Insufficient attention to the negotiation of outcomes in decision situations, and Defective strategy

FACTORS REQUIRED FOR SUCCESSFUL IMPLEMENTATION OF STRATEGY

Institutionalization of strategy, Formulation of derivative-plans and programs, Translation of general objectives into specific objectives, And Resource mobilization and allocation

POLICIES
Changes in a firm's strategic direction do not occur automatically. On a day-to-day basis, policies are needed to make a strategy work. Policies facilitate solving recurring problems and guide the implementation of strategy. Broadly defined, policy refers to specific guidelines, methods, procedures, rules, forms, and administrative practices established to support and encourage work toward stated goals. Policies are instruments for strategy implementation. Policies set boundaries, constraints, and limits on the kinds of administrative actions that can be taken to reward and sanction behavior; they clarify what can and cannot be done in pursuit of an organization's objectives.

RESOURCE ALLOCATION
After resource mobilization, resource allocation activity is undertaken.

This involves allocation of different resources financial and human-among various organizational units and subunits.
In order to understand the rationality of resource allocation, it is essential to understand commitment principle because resource allocation is a kind of commitment. Commitment Principle. Commitment involves adhering to a thing for which a person is committed. In the context of planning, commitment principle implies planning for the future impact of todays decisions.

RESOURCE CLASSIFICATION
RESOURCES TANGIBLE RESOURCES: Physical Human Resources Organisational Financial
INTANGIBLE RESOURCES: Technological Innovation Reputation

What a firm has to work with: Its assets, including its People and the value of its Brand name

Resources represent inputs Into a firm's production Process such as capital equipment Skills of employees, brand names, finances and talented Managers

BASIS FOR RESOURCE ALLOCATION

Resources should be allocated at a place where these have their maximum contributions, or Resources should be put according to the needs of various organizational units/subunits.

Both these alternatives may become complementary to each other if there is an objective evaluation of the resource requirement of various units.

PROBLEMS IN RESOURCE ALLOCATION

Resources are limited, There are competing organizational units with each trying to have major share of the cake, and Organizations past commitment

BUDGETS & TYPES OF BUDGETS

Budgeting is the means through which resources are allocated to various organizational units. From this point of view, following types of budgeting are more relevant:

Capital budgeting
Performance budgeting

Zero-base budgeting
Strategic budgeting

PROCESS OF STRATEGIC BUDGETING

CONFLICTS
Conflict is a state of opposition, disagreement or incompatibility between two or more people or groups of people, which is sometimes characterized by physical violence. One should not confuse the distinction between the presence and absence of conflict with the difference between competition and co-operation.

TYPES OF CONFLICTS
Intrapersonal conflict (though this usually just gets delegated out to psychology) Interpersonal conflict Group conflict Organizational conflict Community conflict Intra-state conflict (for example: civil wars, election campaigns) International conflict

CONTROL AS A MANAGEMENT FUNCTION

CONTROLLING:
Process of regulating organisational activities so that actual performance conforms to expected organisational standards and goals.
Set of mechanisms designed to increase probability of meeting organizational standards and goals. Controlling ensures resources are used for organizational objectives supporting organizing and leading functions.

ROLE OF CONTROLS
Coping with uncertainty (Watching environmental factors for change) Detecting irregularities (Such as quality, cost, staff turnover) Identifying opportunities (Alerting management to opportunities) Handling complex situations (Aiding coordination of complex situations) Decentralizing authority (Controls allow decision-making at lower levels)

LEVELS OF CONTROL
Strategic planning

Top management

Strategic control

Middle management
Tactical planning Tactical control

lower level management

Operational planning Operational control

THE CONTROL PROCESS

Determine areas to control Establish standards Measure performance Control process steps Compare performance Recognise positive performance

Take corrective action

Adjust standards

TYPES OF CONTROL
Control types by timing:
Input Transformation processes Outputs

Feed-forward control Anticipating problems

Concurrent control Attending to problems as they occur

Correcting problems after product/service is produced

Feedback control

TYPES OF CONTROL
Multiple controls Systems using two or more of the feedforward, concurrent and feedback control processes and involving several strategic control points. Cybernetic control Self-regulating control system which, once operating, can automatically monitor the situation and take corrective action when necessary. Non-cybernetic control Control system relying on human discretion as a basic part of its process.

CHARACTERISTICS OF EFFECTIVE CONTROL SYSTEM

Future-oriented Multidimensional

Cost-effective
Accurate Realistic Timely Monitorable

Acceptable to organisation members

Flexible

ESTABLISHING STRATEGIC CONTROLS

Strategic control is concerned with tracking a strategy as it is being implemented, detecting problems or changes in its underlying premises, and making necessary adjustments Characterized as a form of steering control

TYPES OF STRATEGIC CONTROL

Premise control Strategic surveillance Special alert control Implementation control

TYPES OF STRATEGIC CONTROL

PREMISE CONTROL
Premise control is designed to check systematically and continuously whether the premises on which the strategy is based are still valid Environmental factors Industry factors

STRATEGIC SURVEILLANCE
Strategic surveillance is designed to monitor a broad range of events inside and outside the firm that are likely to affect the course of its strategy Strategic surveillance must be kept as unfocused as possible Despite its looseness, strategic surveillance provides an ongoing, broad-based vigilance in all daily operations

SPECIAL ALERT CONTROL

A special alert control is the thorough, and often rapid, reconsideration of the firms strategy because of a sudden, unexpected event A drastic event should trigger an immediate and intense reassessment of the firms strategy and its current strategic situation Crisis teams Contingency plans

IMPLEMENTATION CONTROL
Strategy implementation takes place as series of steps, programs, investments, and moves that occur over an extended time Implementation control is designed to assess whether the overall strategy should be changed in light of the results associated with the incremental actions that implement the overall strategy Monitoring strategic thrusts Milestone reviews

STRUCTURAL IMPLEMENTATION
It is the way in which the tasks & sub tasks required to implement a strategy. STRUCTURES FOR STRATEGY: Entrepreneurial structure Divisional structure Functional structure

SBU structure
Matrix structure Network structure etc

ENTREPRENEURIAL STRUCTURE

Owner - manager employees

FUNCTIONAL STRUCTURE
Specialized skills &delegation of authority

CEO

R&D

FINANCE

MARKETING

HR

PUBLIC PURCHASING RELATIONS

DIVISIONAL STRUCTURE
Work divided on the basis of product lines, type of customers served, or geographic area covered.
CEO

DIVISION 1

DIVISION 2

PRODUCTION

R&D

PRODUCTION

R&D

FINANCE

HR

FINANCE

HR

SBU STRUCTURE
Any part of business org which is treated separately for strategic management purposes.

CEO

SBU 1

SBU 2

SBU 3

DIVISIONS A, B ,C

DIVISIONS D,E & F

DIVISIONS G&H

MATRIX STRUCTURE
In large org. there is a need to work on projects & products. This results in requirement of matrix org. Once a project is completed , the team members revert to their parent departments.
Project 1

Project 2

Project 3

Product Group 1 Product Group 2

NETWORK STRUCTURE
Spider web or virtual organization Non hierarchical, highly decentralized & organized around customer groups.
Project group M Region A Corporate head quarter Function X

Region B
Project group N

Function Y

OTHER TYPES OF STRUCTURES

Product based:Volume of sales is prevalent Customer based:Sales volume of individual customer groups justifies the separate divisions.
Geographic structure

STRUCTURAL MECHANISM/PROCESS IN DESIGNING ORGANIZATIONAL STRUCTURE

1. Defining the major tasks 2. Grouping tasks based on common skills required 3. Subdivision of responsibilities & delegation of authority to perform tasks 4. Coordination of divided responsibility 5. Design & administration of the information system 6. Design & administration of control system 7. Design & administration of appraisal system 8. Design & administration of motivation system 9. Design & administration of the development system 10. Design & administration of the planning system

STRATEGY-STRUCTURE RELATIONSHIP
There is close relationship between an organizations strategy and its structure. The understanding of this relationship is important so that in implementing the strategy, the organisation structure is designed according to the needs of the strategy. The close association of structure with strategy suggests that the organisation should relate its structure with its strategy. It should design the structure according to the needs of the strategy for- its effective implementation.

Without coordination between strategy and structure, the most likely outcomes are confusion misdirection, and splintered efforts within the organisation.

MECHANISM FOR RELATING STRATEGY TO STRUCTURE

To the extent duplication and expense can be avoided. It is better to delegate authority and decentralize strategic planning and operations for businesses, which are relatively, mature, predictable, and stable. Strategic planning for the unknown areas should be centralized, as this requires close supervision of top management. In centralization - decentralization continuum, there should be centralized measurements. Emphasis should be on result-centered rather than profit-centered decentralization.

STRATEGIC LEADERSHIP
It is the ability to anticipate, envision, maintain flexibility and empower others to create a change whenever necessary is called strategic leadership. Strategic leadership is multifunctional in nature and it deals with managing through others and managing the whole enterprise rather than only a single subunit and going with the changes.

ROLE OF LEADER/KEY ACTIONS OF STRATEGIC LEADERSHIP

1. Determining strategic direction 2. Effectively managing the firms resource portfolio 3. Exploiting and maintaining core competencies 4. Developing human and social capital 5. Sustaining an effective organizational culture 6. Entrepreneurial mind-set 7. Emphasis on ethical practices 8. Establishing balanced organizational controls

DIMENSIONS TO CHARACTERIZE AN ENTREPRENEURIAL MIND-SET

Autonomy

Innovatiness
Risk taking

Proactiveness
Competitive aggressiveness

STRATEGIC ENTREPRENEURSHIP
Entrepreneurship is the process by which individuals or groups identify and take up entrepreneurial opportunities without being immediately restricted by the resources they currently control.
Strategic entrepreneurship is to identify opportunities and exploit them through innovations, whereas the strategic part is to identify the best way to manage the innovative efforts of the firm.