Meaning and Nature of Strategic Management

S.Ajay Prabhu Raj PG Department of Management Studies PESITM

What is Strategy
It is Unified, Comprehensive, and Integrated long term plan that relates to the strategic advantages of the firm to the challenges of the environment "

STRATEGIC MANAGEMENT
Strategic management consists of the analysis, decisions, and actions an organization undertakes in order to create and sustain competitive advantages. Key Attributes of Strategic Management: Directs the organization toward overall goals and objectives. Involves the inclusion of multiple stakeholders in decision making. Needs to incorporate short-term and long-term perspectives. Recognizes tradeoffs between efficiency and effectiveness.

COMPETITIVE ADVANTAGE
It is delivering superior value advantage to your target customers relative to your competitors. Or delivering equivalent customer value to your target customers relative to your competitors , but at a lower cost

What is strategy?
Strategy is a set of key decisions made to meet objectives. It refers to a complex web of thoughts, ideas, insights, experiences, goals, expertise, memories, perceptions, and expectations that provides general guidance for specific actions in pursuit of particular ends. An organization can not operate effectively without a strategy, either developed explicitly through a planning process or evolved implicitly. What business are we in? What products and services will we offer? To whom? At what prices? On what terms? Against which competitors? On what basis will we compete? If the organization asks these key questions and it has the answers, then there is a strategy in place.

Some Definitions
Chandler
Strategy is the determinator of the basic long term goals of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals

Mintzberg

Strategy is a mediating force between the organization and its environment: consistent patterns in streams of organizational decisions to deal with the environment

Strategy is the art of creating value

Normann

Characteristics of Strategy
Long term direction Achieve advantage Change scope of activities Commit major resources Build or stretch resources Major Impact outside the organization Entails significant risks Major effect on operational decisions Complex and cross-cutting interactions Changes values and expectations

Strategy is reflected in the pattern of goals, policies, and actions that collectively define the way an organization positions itself in its environment Strategy involves choice; a commitment to undertake one set of actions rather than another What a Strategy is Not
Formal planning documents (intended) Public statements (espoused) Financial or growth objectives (goals) ROE /Earning per Share Market share Popular slogans (abstractions) We focus on the customer We are committed to quality We strive to be a learning organization

Why does strategy matter?

Strategy is fundamentally concerned with the success and failure of firms/ organizations
Survival Profitability/Prosperity Performance

Strategy begins with a desire to outperform the market

What is Strategic Management?

Strategic Management and Strategy, although not synonymous, are often considered as such. In its broadest sense, Strategic Management is about taking "strategic decisions". It starts where strategic thinking ends. It applies strategic thinking to lead the organization to its vision. Strategic Management is a system with a focus on continuous change. The process is iterative and ongoing.

NATURE OF STRATEGIC MANAGEMENT

The nature of Strategic Management is different form other aspects of management as it demands attention to the "big picture" and a rational assessment of the future options. It provides: A strategic direction endorsed by the team and stakeholders A clear business strategy and vision for the future A mechanism for accountability A framework for governance at the various levels A coherent framework for managing risk for ensuring business continuity. The ability to exploit opportunities and respond to external change by taking ongoing strategic decisions

STRATEGIC MANAGEMENT
Strategic Management is a continuous activity of setting and maintaining the strategic direction of the organization and its business, and making decisions on a day-to-day basis to deal with changing circumstances and the challenges of the business environment.

Strategic Management is a dynamic process of aligning strategies, performance and business results; it is all about people, leadership, technology and processes.

Characteristics of Strategic Management

Strategic Management co-ordinates and integrates business activities: It addresses the needs of the consumer, and provides greater efficiency and value for money to the stake holders. Strategic Management strengthens the competitive position: It helps the firm to develop and maintain meaningful assets and skills such that the assets and skills form a sustainable competitive advantage. Strategic Management satisfies Customers: It sees how best the firm can satisfy the needs of the people that will use its services and products. Strategic Management works toward achieving Performance Targets: It evaluates the execution of activities related to strategic issues and goals. Strategic Management is adaptive: It keeps an organization relevant.

Need of Strategic Management:Due to change

To provide guide lines

Research and development Probability for business performance Systemized decision Improves Communication

Allocation of resource
Improves Coordination Helps the managers to have holistic approach

Importance of Strategic Management:To shape the Future of business Effective strategic idea Managers and employers are innovative and creative

It decentralizes the Management

It helps to increase the productivity To Make discipline To Make control To make forward thinking

Apples Mission Statement

Apple ignited the personal computer revolution in the 1970s with the Apple II and reinvented the personal computer in the 1980s with the Macintosh. Today, Apple continues to lead the industry in innovation with its award-winning computers, OS X operating system and iLife and professional applications. Apple is also spearheading the digital media revolution with its iPod portable music and video players and iTunes online store, and has entered the mobile phone market with its revolutionary iPhone.

Strategic Management does not guarantee outcomes. It helps to achieve something integral to any future success:
Strategic Management isn't Magic, Strategic Management Is Not A Substitute For Action, Strategic Management is Only as Good as the Information on Which it is Based, Strategic Management requires Right Tools for the Job, Strategic Management requires Time to do It Right, Strategic Management requires Place and Time, Strategic Management must be Adaptable, What Goes Around, Comes Around.

Organizations are made up of people and Strategic Management is successful when the people who are at the heart of the organization are fully involved in the exercise. Critical success factors for Strategic Management are: There must be continuous involvement of management from the outset and there must be a shared understanding of the benefits to be derived form the strategies There must be a willingness to think strategically, and receptiveness to new ideas Throughout strategy formulation there must be evaluation of the potential for new ways of working to enable change.

Strategic Management

Why? To ensure Growth with Profits in the long-run!

Creating & Sustaining Competitive Advantages, Globally

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What is a Strategic Plan?

A strategic plan specifies where a company is headed and HOW management intends to achieve the targeted levels of performance.
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Three Big Strategic Questions

Where Are We Now?
Where Do we Want to Go? How Will We Get There?
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The Strategic Planning Process

Developing a Vision and a Mission

Setting Objectives

Environmental Scanning

Strategy Formulation

Strategy Implementation

Evaluation & Control Implementation

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The Strategic Planning Process

Strategic management is the process of moving where you are, to where you want to be in future through sustainable competitive advantages Developing a Vision and a Mission Setting Objectives Environmental Scanning Strategy Formulation Strategy Implementation Evaluation & Control
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It is easier to understand the Strategic Management process if we consider its three main elements:

Its aim is to form a view on the key factors that will have an affect on the future well being of the firm.

Making choices and decisions is at the heart of strategic management process.

It is concerned with the translation of strategy into action.

Strategic Analysis

Strategic Choice

Strategy Implementation

The Strategic Management process can also be described by a number of tasks to be undertaken by the organization.

Evolve business goals, by formulating its future mission and vision in terms of the expectations of the stake holders;

Set objectives that are achievable in light of changing external factors that include regulation, competition, technology, and customers;
Evolve and develop a competitive strategy to achieve the mission; Create an effective organizational structure and arrange the resources to successfully carry out the strategy, and Evaluate the performance so that necessary corrective measures can be taken to keep it on track to achieve the vision.

A step by step description of the tasks of Strategic Management are given below.
Prepare Mission Statement: "Why does the organization exist?" The mission statement provides continued direction and focus to the firm. Prepare a Vision Statement: "What do we hope for our organization and customers? Prepare Value Statement: The value statement depicts the priorities in how the organization carries out activities with stakeholders. Conduct an External Analysis: Look at trends effecting the organization, e.g., economy, demography, competition, technology, political, and the stakeholders interests. Conduct an Internal Analysis: Strengths and weaknesses, and the trends effecting the organization, e.g., reputation of the organization, expertise of employees, facilities, strength of finances, patents and intellectual rights, goodwill, etc.

Identify Strategic Issues: Identify the major immediate and near-term issues that the organization must address. The key issues should come from the internal and external analyses. Consider each of the issues. Ask whether its important or urgent. Attend to the important issues. Establish Strategic Objectives: Design objectives that are specific, measurable, acceptable to the people. The objectives should be closely aligned to the mission, vision and values.

Establish Strategies to Reach Objectives: Define the general approaches needed to reach the objectives.

Develop Staffing Plan: Reference each of the strategies to reach the objectives and consider what kind of capabilities are needed to implement the strategies.

Create an Action Plan: Identify objectives that must be achieved while implementing the strategy, when and by whom.

Develop an Operating Budget for Each Year in the Plan: The entire time span the plan should be covered by the budgeting.

Strategic Objectives and Performance Objectives: Identify the performance objectives of the management staff. Decide which board committees will be addressing which strategic objectives. Implementation of Plan: To monitor and evaluate the status of implementation design reporting and control systems to identify current issues and any additional resources needed to implement the plan. Specify How Plan Will Be Communicated: The plan should be known to everyone in the organization. Decide how we can make this possible.

The Strategic Planning Process

Developing a Vision and a Mission

Setting Objectives

Environmental Scanning

Strategy Formulation

Strategy Implementation

Evaluation & Control Implementation

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An organizations Vision & Mission

Reflects managements vision of what the organization seeks to do and to become
Sets forth a meaningful direction for the organization

Indicates an intent to stake out a particular business position

Outline Who we are, What we do, and Where we are headed. The mission statement describes the company's business vision, including the unchanging values and purpose of the firm and forward-looking visionary goals that guide the pursuit of future opportunities. Guided by the business vision, the firm's leaders can define measurable financial and strategic objectives. Financial objectives involve measures such as sales targets and earnings growth. Strategic objectives are related to the firm's business position, and may include measures such as market share and reputation.

Our Mission 1. To refresh the world... 2. To inspire moments of optimism and happiness... 3. To create value and make a difference. We help communications service providers build more valuable customer relationships We constitute a large, global group based in India. We associate with world leaders in order to adopt technologies and processes that will enable a leadership position in a large spectrum of activities.

Our Vision Our vision serves as the framework for our Roadmap and guides every aspect of our business by describing what we need to accomplish in order to continue achieving sustainable, quality growth. The Individual communications experience Management will commit resources and create an environment in which each employee can contribute skills, talents and ideas to a never-ending process of improvement and innovation in all aspects of our business

Setting Objectives
The purpose is to convert the mission into Specific Performance Targets Serve as yardsticks for tacking company progress and performance. Should be set at levels that require stretch and disciplined effort.

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Two Types of Objectives are Needed

FINANCIAL OBJECTIVES STRATEGIC OBJECTIVES
Short-Run Long-Run
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Environmental Scanning
The environmental scan includes the following components: Internal analysis of the firm Analysis of the firm's industry (task environment) External microenvironment (PEST analysis) The internal analysis can identify the firm's strengths and weaknesses and the external analysis reveals opportunities and threats. A profile of the strengths, weaknesses, opportunities, and threats is generated by means of a SWOT analysis An industry analysis can be performed using a framework developed by Michael Porter known as Porter's five forces. This framework evaluates entry barriers, suppliers, customers, substitute products, and industry rivalry.
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Strategy Formulation
Given the information from the environmental scan, the firm should match its strengths to the opportunities that it has identified, while addressing its weaknesses and external threats. To attain superior profitability, the firm seeks to develop a competitive advantage over its rivals. A competitive advantage can be based on cost or differentiation. Michael Porter identified three industry-independent generic strategies from which the firm can choose.
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Crafting a Strategy
HOW to out compete rivals and win a competitive advantage. HOW to respond to changing industry and competitive conditions HOW to defend against threats to the companys well-being HOW to pursue attractive opportunities

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Crafting Strategy is an Exercise in Entrepreneurship

Risk-taking and venture someone's Innovation and business creativity A keen eye for spotting emerging market opportunities Choosing among alternatives
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Why Good Management of Strategy Matters

Powerful execution of a powerful strategy is a proven recipe for success Crafting and implementing a strategy are CORE management functions To qualify as WELL-MANAGED, a company should Have an attractive strategy A good strategy builds a position that is strong enough to overpower rivals and flexible enough to overcome unexpected obstacles

Why is a Companys Strategy Constantly Evolving?

Changing market conditions Moves of competitors New technologies and production capabilities Evolving buyer needs and preferences Political and regulatory factors New windows of opportunity Fresh ideas to improve the current strategy A crisis situation
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Strategy Implementation
The selected strategy is implemented by means of programs, budgets, and procedures. Implementation involves organization of the firm's resources and motivation of the staff to achieve objectives.
The way in which the strategy is implemented can have a significant impact on whether it will be successful. In a large company, those who implement the strategy likely will be different people from those who formulated it. For this reason, care must be taken to communicate the strategy and the reasoning behind it. Otherwise, the implementation might not succeed if the strategy is misunderstood or if lower- level managers resist its implementation because they do not understand why the particular strategy was selected.
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Evaluation & Control

The implementation of the strategy must be monitored and adjustments made as needed. Evaluation and control consists of the following steps: Define parameters to be measured Define target values for those parameters Perform measurements Compare measured results to the pre-defined standard Make necessary changes

Characteristic of the Strategic Management Process

An ongoing exercise Boundaries among the tasks are blurry rather than clear-cut Doing the 5 task is not isolated from other managerial responsibilities and activities. The time required to do the tasks of strategic management comes in lumps and spurts rather than being constant and regular. Involves pushing to get the best strategy supportive performance from each employee, perfecting the current strategy.

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Levels of Strategies
Corporate Level Strategy Business-Level Strategy. Functional-Level Strategy. Global Strategy

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Levels of Strategies
Corporate Strategy:
Corporate level strategy occupies the highest level of strategic decision-making and covers actions dealing with the objective of the firm, acquisition and allocation of resources and coordination of strategies of various SBUs for optimal performance. Top management of the organization makes such decisions. The nature of strategic decisions tends to be value-oriented, conceptual and less concrete than decisions at the business or functional level.

Features:
Value oriented or value judgment: Deciding what is right or wrong Concept oriented: Should have some concept , it should be value oriented Should be flexible Wide range of risk involved

Profit potential
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Levels of Strategies
Business Strategy: Business-level strategy is applicable in those organizations,
which have different businesses-and each business is treated as strategic business unit (SBU). The fundamental concept in SBU is to identify the discrete independent product/market segments served by an organization. Since each product/market segment has a distinct environment, a SBU is created for each such segment. For example, Reliance Industries Limited operates in textile fabrics, yarns, fibers, and a variety of petrochemical products. For each product group, the nature of market in terms of customers, competition, and marketing channel differs.

Features:
Diversification, Enhancement of market share in all sectors Profit Oriented
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Levels of Strategies
Functional Strategy:
Functional strategy, as is suggested by the title, relates to a single functional operation and the activities involved therein. Decisions at this level within the organization are often described as tactical. Such decisions are guided and constrained by some overall strategic considerations. Functional strategy deals with relatively restricted plan providing objectives for specific function, allocation of resources among different operations within that functional area and co-ordination between them for optimal contribution to the achievement of the SBU and corporate-level objectives.

Features: Action oriented Periodical decision( decision can be taken periodically) Adaptability Implementation of strategies formulated
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Levels of Strategies
Global Strategy: Global strategy as defined in business terms is an
organization's strategic guide to globalization. A sound global strategy should address these questions: what must be (versus what is) the extent of market presence in the world's major markets? How to build the necessary global presence? ... Expansion at international level Presence at all across the world Modes through Mergers and acquisition or joint venture

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Benefits of Strategic Management

Financial Benefits: 1.Improvement in sales. 2.Improvement in profitability. 3.Improvement in productivity.
Non-Financial Benefits: 1.improved understanding of competitors strategies. 2.Enhanced awareness of threats. 3.Reduced resistance to change. 4.Enhanced problem-prevention capabilities.

Limitations of Strategic Management

Time Consuming Ignorance of other Managerial Functions Non-satisfaction in employees Depression due to failure in target Demand for more reward and facilities Dependability Non-practical planning Changes in technical factors It gives only a guideline Changes in the attitudes of employees Political Pressure

 What is a Business Model?

Relationship between a Companys strategy and its Business Model

While the word model often stirs up images of mathematical formulas, a business model is in fact a story of how a business works. In general terms, a business model is the method of doing business by which a company can generate revenue. Both start-up ventures and established companies take new products and services to the market through a venture shaped by a specific business model.

Six basic elements of a business model:

Henry Chesbrough and Richard S. Rosenbloom outlined six components Articulate the value proposition the value created to users by using the product Identify the market segment to whom and for what purpose is the product useful; specify how revenue is generated by the firm. Define the value chain the sequence of activities and information required to allow a company to design, produce, market, deliver and support its product or service.

 Estimate the cost structure and profit potential using the value chain and value proposition identified.
Describe the position of the firm with the value network link suppliers, customers, complementors and competitors. Formulate the competitive strategy how will you gain and hold your competitive advantage over competitors or potential new entrants.

Business Model v/s Strategy

Creating value v/s Capturing value:

The business model focus on value creation. While the business model also addresses how that value will be captured by the firm. Strategy goes further by focusing on building a sustainable competitive advantage.

Business Value v/s Shareholders Value :

The business model is an architecture for converting innovation value for the business. However the business value does not focus on delivering that business value to the share holder. For example financing methods are not considered by business model but nonetheless impact on the shareholders

Assumed knowledge levels:

The business model assumes a limited environmental knowledge, where as strategy depends on more complex analysis that requires more certainty in the knowledge of the environment

10 COMMENDMENTS OF STRATEGIC BUSINESS

10 Commandments for Crafting Successful Business Strategies

1. Always put top priority on crafting and executing strategic moves that enhance a firms competitive position for the long-term and that serve to establish it as an industry leader. Be prompt in adapting and responding to changing market conditions, unmet customer needs and buyer wishes for something better, emerging technological alternatives, and new initiatives of rivals. Responding late or with too little often puts a firm in the precarious position of playing catch-up. Invest in creating a sustainable competitive advantage, for it is a most dependable contributor to above-average profitability. Avoid strategies capable of succeeding only in the best of circumstances.

2.

3.

4.

5.

Dont underestimate the reactions and the commitment of rival firms.

6.
7. 8.

Consider that attacking competitive weakness is usually more profitable than attacking competitive strength.
Be judicious in cutting prices without an established cost advantage Employ bold strategic moves in pursuing differentiation strategies so as to open up very meaningful gaps in quality or service or advertising or other product attributes.

9.

Endeavor not to get stuck back in the pack with no coherent long-term strategy or distinctive competitive position, and little prospect of climbing into the ranks of the industry leaders.

10. Be aware that aggressive strategic moves to wrest crucial market share away from rivals often provoke aggressive retaliation in the form of a marketing arms race and/or price wars