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Strategic Management Mod-1

STRATEGIC MANAGEMENT
Strategic Management

Art & science of formulating, implementing, and evaluating, cross-


functional decisions that enable an organization to achieve its objectives.

Strategy Formulation

 Vision & Mission


 External Opportunities & Threats
 Internal Strengths & Weaknesses
 Long-Term Objectives
 Alternative Strategies
 Strategy Selection

Strategy Implementation

 Annual Objectives
 Policies
 Employee Motivation
 Resource Allocation

Strategy Evaluation

 Internal Review
 External Review

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 Performance Metrics
 Corrective Actions
Strategy is derived from the word Stratagem which means:

1. A cunning plan or scheme, esp. for deceiving an enemy.

2. Trickery

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

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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

Strategic management is defined as the set of decisions and actions that


results in the formulation and implementation of plans designed to achieve a
company’s objectives. It comprises of nine critical tasks:

• Formulate the company’s mission, including broad statements about its


purpose, philosophy and goals
• Conduct an analysis that reflects the company’s internal conditions and
capabilities
• Assess the company’s external environment, including both the
competitive and the general contextual factors
• Analyze the company’s options by matching its resources with the
external environment

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• Identify the most desirable options by evaluating each option in light of


the company’s mission
• Select a set of long-term objectives and grand strategies that will achieve
the most desirable options
• Develop annual objectives and short-term strategies that are compatible
with the selected set of long-term objectives and grand strategies
• Implement the strategic choices by means of budgeted resource
allocations in which the matching of tasks, people, structures,
technologies and reward system is emphasized
• Evaluate the success of the strategic process as an input for future
decision making.

Organizational Strategy

Organizational Strategy is the way in which an organization uses its


knowledge and other resources to achieve its economic purpose.
The Nature of Strategy

• Defined
• Planned
• Proactive
• With detail
• Vague
• Loose
• Reactive
• No detail

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The Purpose of Strategy

The essence of strategy is coping with competition. The corporate


strategist’s goal is to find a position in the market where his or her company
can best defend itself against the collective industry forces or can influence
them in its favor.

• It provides direction
• It provides coherence
• It allows day-to-day processes to be designed
Why Is Strategy Important?

 A compelling need exists for managers to proactively shape how a

firm’s business will be conducted

 A strategy-focused firm is more likely to be a strong bottom-line

performer than one that views strategy as secondary

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A Business Model

 A business model addresses “How do we make money in this

business?”

Is the strategy capable of delivering good bottom-line results?

 Do the revenue-cost-profit economics of the strategy make good

business sense?

 Look at revenue streams the strategy is expected to produce

 Look at associated cost structure and potential profit margins

 Do resulting earnings streams and ROI indicate the strategy makes

sense and the company has a viable business model for making
money?

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The context of Business Model

Corporate level Strategy Strategy Corporate Level


Planning Level

 Tend to be value oriented, conceptual and less concrete than


functional
Architectural & business level strategy.
Level Business Model Business Unit Level
 CLS are also characterized by greater risk, cost, and profit
potential as well as long time horizon
Implementation
Functional level
 Ex-choice of business, Business
Level dividend Process
policies, sources of LT financing
and priorities of growth.

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Business level Strategy

 BLS is less costly, risky, and potentially profitable than CLS.

 Common BLS plant location, market segmentation, geographic


coverage and distribution channels.

Functional level Strategy

 Principally involve action oriented operational issues.


 Relatively short range and involve less risk.
 Requires company wide cooperation.
 Relatively concrete & quantifiable
 They receive critical attention
 Brand name labeling, R&D,inventory level

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The purpose of business model:

Business model assures a conformable frame, which offers technological


characteristics and potentials as entrance, which is being transformed with
the help of partners and market into economical output with the emphasis on
urgent usage of information technology systems.

It is interface between a degree of information technology development and


a degree of creating economical value. Besides that, the purpose of business
model is to:

 help in understanding, capturing, visualizing and distributing business

strategy of organization,
 contribute to analysis of business strategy of organization,

 improve managing business strategy and organization logic,

 describe expectations of organization, because it actually presents

future way of organizational functioning, which can be simulated,


 Be patented; business model is by itself a product.

Relationship between Strategy and Business Model

Strategy - Deals with a company’s competitive initiatives and business


approaches
Business Model -Concerns whether revenues and costs flowing from the
strategy demonstrate the business can be amply profitable and viable

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Business model as tacit component of organization strategy

Strategy includes defining long-term organization positions on the market,


creating distinct labels on what kind of values organization offers to its client
and which it does not (Porter, 2001). Based on extensive presentation Oliver,
(2001) defines business strategy as "understanding economic structure and
dynamic, determining relative organization positions in economy and
executing actions to change economic structures or organizational positions
to improve organizational results".

To realize business strategy organizations develop business models.


Business model actually presents specified demands of business strategy,
what is presented in figure –

To comprehend figure the fact that strategy of organization is constantly


anchored in its own competitive environment needs to be accepted. If not
business model could be comprehended (in conceptual and not in operative
meaning) as an abstraction of organization strategy, which is hidden from
competitors.

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Business model is treated as conceptual and architectural implemented


business strategy or as base to execute differentiated organization business
that presents its tacit potential to reach competitive advantages. It is an
interface between a degree of development of information technology
systems and a degree of creating economic value through e-business.

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Characteristics of Strategic Management Decisions.


The characteristics of strategic management strategic management decisions
vary with the level of strategic activity considered.
These levels are:-
1. Corporate level

2. Business level

3. functional level

Corporate level: - These decisions are tend to be value oriented, conceptual,


and less concrete than those at the business or functional level of strategy
formulation and implementation. Corporate level decisions are also
characterized by greater risk, cost and profit potential as well as by longer
time horizons and greater needs for flexibility. These characteristics are
logical consequences of the more far-reaching futuristic, innovative, and
pervasive nature of corporate-level strategy activity. Examples of corporate
level decisions include the choice of business, dividend policies, sources of
long term financing, and priorities for growth.
Functional level: - These functional decisions principally involve action
oriented operational issues. These decisions are made periodically and lead
directly to implementation of some part of the overall strategy formulated at
the corporate and business levels. There fore functional-level decisions are
relatively short range and involve low risk and modest costs because they
are dependent on available resources. Functional-level decisions usually
determine actions requiring minimal company wide cooperation. These
activities supplement the functional area’s present activities and are
adaptable to ingoing activities so that minimal cooperation is needed for

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successful implementation. Because functional level decisions are relatively


concrete and quantifiable, they receive critical attention and analysis even
through their comparative profit potential is low.
Some of examples are high inventory versus low inventory levels, general
versus specific purpose production equipment.
Business level: - bridging corporate and functional level decisions are those
made at the business level. Business level Descriptions of strategic decisions
fall between those two other levels. Business level decisions are less costly,
risky and potentially profitable than corporate level decisions, but they are
more costly, risky and potentially profitable than functional level decision.
For example of business level decisions involve plant location, marketing
segmentation and geographic coverage and distribution channel.

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Level of strategy
Characteristics Corporate Business Functional
Type Conceptual Mixed Operational
Measurability Value judgments Semi quantifiable Usually
dominant quantifiable
Frequency Periodic or Periodic or Periodic
sporadic sporadic
Adaptability Low Medium High
Relation to Innovative Mixed Supplementary
present activities
Risk Wide range Moderate Low
Profit potential Large Medium Small
Cost Major Medium Modest
Time horizon Long-range Medium range Short range
Flexibility High Medium Low
Cooperation Considerable Moderate Little
required

Importance and relevance of strategic management

The set of decisions and actions resulting in formulation and implementation


of strategic designed to achieve the objective of an organization

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1. Determining the mission of the company, including its purpose,

philosophy, and goals.


2. Developing a company profile reflecting internal conditions and

capabilities.
3. Assessment of company’s external environment, in terms of both

competitive and general contextual factors.


4. Matching of the company profile with the external environment.

5. Identifying the company mission.

6. Long term objectives and grand strategies needed to achieve the

desired options.
7. Development of annual objectives and short term strategies.

8. Implementing strategic choice decisions based on budgeted resource

allocation and emphasizing the matching of tasks, people, structure,


technologies, and reward systems.
9. Review and evaluation of the success of the strategic process to serve

as a basis for control and as a basis for control and as an input for
future decision making.

Strategic management involves the planning, directing,


organizing, and controlling of the strategy- related decisions and actions of
the business.

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Dimensions of strategic decisions.

Strategic issues require top management decisions.


Strategic issues involve the allocation of large amounts of company
resources.
Strategic issues are likely to have a significant impact on the long term
prosperity of the firm.
Strategic issues are future oriented.
Strategic issues usually have major multifunctional or multibusiness
consequences.
Strategic issues necessitate considering factors in the firms external
environment.

Three level of strategy

At the top is the corporate level. Composed of board of directors and the
chief executive and the administrative officers. It determines the business in
which company should be involved. Corporate image and responsibilities.

Second round decision making hierarchy is the business level composed


principally of business and corporate managers. Managers translate the
general statements of direction and intent generated at corporate level into
concrete, functional objectives and strategic for individual business divisions
or SBUs.

The third rung is the functional level, composed principally of managers of


product, geographic, and functional areas. Their responsibility to develop

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annual objectives and short term strategies in such areas as production,


operations and research and development; finance and accounting,
marketing and human relations. Implementation or execution of a company
strategic plans.

Corporate and business level managers center their planning concerns on


“doing the rights things” managers at the functional level must stress “doing
things right”
Thus they directly address such issues as the efficiency and effectiveness of
production and marketing systems, the quality and extent of customer
service and the success of particular products and services in increasing their
market share

Corporate/
Business
Strategies

Financial/ Marketing Human


POM/R&D
Accounting Strategies relations
Strategies
Strategies Strategies.

Single business firms.

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Corporate
strategies

Business1 Business 2 Business 3

Financial/ Marketing Human


POM/R&D
Accounting Strategies relations
Strategies
Strategies Strategies.

Multiple business firms.

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The strategic management process

Step 1: Identifying the organization’s current mission, objectives, and


strategies

Mission: the firm’s reason for being


The scope of its products and services
Goals: the foundation for further planning
Measurable performance targets

Step 2: Conducting an external analysis

The environmental scanning of specific and general


environments
Focuses on identifying opportunities and threats

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Components of a mission statement

• Customers: Who are the organization’s customers?


• Products or services: What are the organization’s major products or
services?
• Markets: Where does the organization compete geographically?
• Technology: How technologically current is the organization?
• Concern for survival growth, and profitability: Is the organization
committed to growth and financial stability?
• Philosophy: What are the organization’s basic beliefs, values, aspirations,
and ethical priorities?
• Self-concept: What is the organization’s major competitive advantage and
core competencies?
• Concern for public image: How responsive is the organization to societal
and environmental concerns?
• Concern for employees: Does the organization consider employees a
valuable asset?
Source: Based on F. David, Strategic Management, 8th ed. (Upper Saddle
River, NJ: Prentice Hall, 2001), pp. 65–66.
Step 3: Conducting an internal analysis

Assessing organizational resources, capabilities, activities,


and culture:
Strengths (core competencies) create value for the customer
and strengthen the competitive position of the firm.
Weaknesses (things done poorly or not at all) can place the
firm at a competitive disadvantage.

Steps 2 and 3 combined are called a SWOT analysis. (Strengths,


Weaknesses, Opportunities, and Threats)

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Identifying the organization’s opportunities

Step 4: Formulating strategies

Develop and evaluate strategic alternatives


Select appropriate strategies for all levels in the organization that provide
relative advantage over competitors
Match organizational strengths to environmental opportunities
Correct weaknesses and guard against threats

Step 5: Implementing strategies

Implementation: effectively fitting organizational structure and activities


to the environment
The environment dictates the chosen strategy; effective strategy
implementation requires an organizational structure matched to its
requirements.

Step 6: Evaluating results

How effective have strategies been?


What adjustments, if any, are necessary?

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