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COURSE MATERIAL (CM) 1. Peter Fitzroy et al, Strategic Management the Challenge of Creating Value; Routledge, Francis and Taylor Group
EVALUATION SCHEME
EXAMINATION & QUIZZES (50 Marks): -- End term Examination ----- 30 marks -- Three Quizzes ----- 20 marks INTERNAL ASSESSMENT (50 MARKS): -- Attendance & Participation ----- 10 marks -- Class Presentations & Discussions 20 marks -- Projects-Presentations & Written ----- 20 marks Submissions
STRATEGY
WHAT IS STRATEGY? Derived from Greek 'Strategia', which connotes Generals art & science of planning & conducting war. Strategy is a unified, comprehensive & integrated plan of the enterprise to meet challenges of the environment; and designed for achievement of its objectives, through proper implementation process (& use of Strat. Advs.).
STRATEGY-DEFINITIONS
Strategy can be defined as a long-term blueprint and game plan of an organisation's desired direction & destination - of what it wants to be, what it wants to do & where it wants to go. Strategy is a higher level unified, comprehensive and integrated plan of courses of actions, which is of vital importance to the organisation as a whole. It may be aimed at maintaining or improving its position in the competitive
DEFINITIONS (contd.)
Johnson et. al. Strategy is the direction & scope of an organisation over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations. Thompson & Strickland - A company's strategy consists of the combination of competitive moves and business approaches that managers employ to please customers, compete successfully, and achieve
IMPORTANCE OF STRATEGY
Strategy means making clear-cut choices about how to compete Jack Welch (ex CEO GE) Strategy is a commitment to undertake one set of actions rather than another Sharon Oster (Prof., Yale Univ.) Without a strategy the organization is like a ship without a rudder- Joel Ross & M. Kami Important for attaining / maintaining competitive business or market advantage of the organisation, in a dynamic, uncertain & changing environment.
IMPORTANCE OF STRATEGY
Strategy means making clear-cut choices about how to compete Jack Welch (ex CEO GE) Strategy is a commitment to undertake one set of actions rather than another Sharon Oster (Prof., Yale Univ.) Without a strategy the organization is like a ship without a rudder- Joel Ross & M. Kami Important for attaining / maintaining competitive business or market advantage of the organisation, in a dynamic, uncertain & changing environment.
STRATEGIC MANAGEMENT
Strategic Management is first & foremost about creating organisations, that create value. In the world with complex interactions & uncertainty, value creation requires continuous innovation. Twofold demand of value creation excellent execution of current activities, and developing capabilities for tomorrow. Strategic Management involves leadership skills, intuitive judgement, intellect, analysis and planning. The organisations, their people asset, & competitive environment of organisation, matter.
STRATEGIC MANAGEMENT
The challenge of Strategic Management is to be able to understand complex issues facing organisations and develop the capability for long-term organisational success. Johnson et. al. Strategic Management is the managerial process of creating organisations that generate value in a turbulent world over an extended period of time. Peter Fitzroy et. al. Three components of Strategic Management Process; -- Strategy Formulation -- Strategic Decision -- Strategic Implementation
choices in terms of how the organisation may seek to compete both at the corporate and business unit levels, based on own competitive advantages; & study of markets, customers & strategic capabilities. 3. Turning strategy into action - implementation: a) Structuring the Organisation organisational structures, processes and relationships b) Enabling Success either through existing resources & competences; or through separate resource pool i.e. people, information, finance, technology c) Managing of Change strategic management often involves changes (of structures, roles, cultural, relationships etc) within organisation, which need to be managed
TYPES OF STRATEGY
INCREMENTAL STRATEGY; managing current activities for higher value continuous improvement through exploitation of current advantages REVOLUTIONARY / RADICAL STRATEGY; creating major changes for quantum jump in the market position through new innovative exploration Note; Strategic Drift takes place when the corporate strategy lags behind the changing environment more likely to happen in the former; but the gap may be made-up through the
Nature of Strategy
It is partly Proactive & partly Reactive. A company's Strategy evolves & emerges over time. Crafting Strategy is an on-going work, not one time event. Often influenced by vision, values & expectations of CEO and other influential stake holders. Its development involves both- analysis by senior management, and experimentation & adaptation from actual experiences.
CHARACTERISTICS OF STRATEGY
Provides overall game plan & direction of organisation. Long-term/futuristic direction of an organisation Unified, comprehensive & integrated plan Concerned with organisations scope, boundaries Seeks to use or create advantage over competition & environmental challenges Creation & deployment of resources, competences Decisions are complex, & usually involve changes in organisation e.g. on merger, acquisitions, joint ventures, partnership, consortiums, franchise Seeks strategic fit by correct positioning with business environment build & support identified market needs Affects operational decisions to be in line & reap strategic advantage
ASSOCIATED VOCABULARY
STRATEGIC CAPABILITY Unique Resources and Core Competences of organisation that impart it strategic advantage over competitors. BUSINESS MODEL Describes structure and flow of products, services, information, & role of each participant e.g. component supply & product manufacture to distributor and retail, costs, revenue & profit of the organisation. STRATEGIC CONTROL Monitoring outcome of organisations strategy and suggesting corrective actions / revision of objectives, if required. ENVIRONMENT Organisations context of complex political, economic, social, demographic, technological, environmental & legal world creating opportunities or threats. The organisations external environment.
STRATEGY AS DESIGN Logical process, through analytic & evaluative techniques, usually seen as topmanagements responsibility. Positioning of organisation through rational, analytic, structured & directive process. STRATEGY AS EXPERIENCE Future strategies are based on past adaptations & influenced by experiences of managers & others in the organisation. Factors of individual experiences & biases& collective experience & organisational culture influence strategy crafting. What is organisational culture? STRATEGY AS IDEA Based on emphasis on innovation, variety & diversity in organisation emerging from within, & not so much as supplanted by top management. High technology businesses require innovation & speed of change. In practice the above three may be complementary for
Levels of Environmental Scanning (three) The External environment faced by a firm/corporate/business is here analysed at three levels: Remote Environment political, economic, socio-cultural, technological, environmental and legal (PESTEL) in which the firm competes. It is global in nature & exerts powerful influence on strategy. These may effect a number of industries;. Political - Political multi-national agreements, taxation policy, competition policy, etc Economic Countrys economy & numerous variables e.g. GDP growth, disposable income, interest rates, inflation, savings rate etc, influence strategy of firms. Social-cultural Distinct customs, outlook and way of life of the people, culture, aesthetics, values, attitudes etc of society affect strategy. Technology Pace of technology change is fast & accelerating- microelectronics, digital technology, computation, bio-technology, robotics, nuclear, medical science, information technology, web-sites, internet. Environmental Numerous environmental variables at play in strategy making eg environmental legislations, carbon-emissions, role of NGOs, CSR and sustainability. Legal Countrys legal framework for M & A, capital movement, industry regulations, industrial & labour laws, consumer protection, trade practices,
Industry Structure The Five Forces Model, Porter (2008) a) Competitive Intensity Intense rivalry, price competition results in low profits. b) Barriers to Entry to Industry barriers of financial requirements, distribution channels, technology, economy of scale etc.; with low barriers high competition and low profits. c) Substitutes / Indirect Competitors different products meeting the same customer needs as own business e.g. cotton vs. synthetic fabric, camera vs. cell phone-cum- camera. d) Suppliers Firm & Supplier dynamics depend on their relative strengths and positions, volumes, importance of the firm for supplier and visa versa, economy of scales etc. e) Buyers / Customers with large immediate customers it is their relative bargaining power that dictates profits. Note: This model neglects the dynamics of Industry Value Chain the linked set of firms and the activities undertaken by them, affecting competitive advantages & superiority of Supply Chain of the main firm.
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The Business Unit Environment Analysis - Customer & Competitor Analyses This component of external environment analysis seeks to assess influence of likely changes on the business unit, in relation to own and competitors competitive advantages. Focus is on identifying opportunities & threats emerging from changes in the customers requirements, and in competition. In a purchase process, customer plays many roles gatekeeper, influencer, decision-maker, buyer & user. Customer Analysis; understanding changing customer needs, values, segments Customer Value needs & dissatisfactions of customers, as also the changes taking place e.g. low cost products being introduced in downturn time (P & G); high price with improved value/quality. -- Market Segmentation grouping of customers and potential customers having similar needs, the firm may focus on segments in which it enjoys competitive advantage. With changing customer needs, firm must continually identify new segments & opportunities. Increasing share in a turbulent market is easier than in a stable market. -- Features versus Benefits Attributes vs. benefits of product/service offered by the firm, are important consideration for customer benefit/value
A resource by itself, in isolation, does not accrue strategic capability to a firm the value is realised in its combination with other resources, and the combination is then recognised as the firms capability. Resources deployment and integration enables firm to excel in processes for delivering quality/value to customers. Firms capabilities are embedded in its processes be that development of new products, brand management, logistics or supply chain management etc., for each of which it needs to integrate a number of disparate functional groups/departments, towards common objectives. Further, a firm may benchmark itself in comparison to other competitors in the industry for new product development speed, resources consumed, product success etc.