Introduction to strategic management

Why do some organization succeed while others fail?

Dell Computers, performing better when it compares with other players in personal computer industry

South West Airline Manages to get profits in good and bad times

In Retail Industry Kmart is out performed by Wal-Mart

In Software market, Microsoft still maintains strong market position

These organizations have taken ”Actions” to achieve superior Performance relative to rivals Prof. Vijay K S, MBA Programme`-BIET, Davangere

Actions / Decisions ?

Low-cost Production Increasing quality Increase their distribution Wider product line Enhance performance of their product / service Through value added services Styling their product / service to increase their attraction Offers value for money Focusing on narrow market niche …….Many more

Prof. Vijay K S, MBA Programme`-BIET, Davangere

What do we call these Actions as?

Strategy ….


Strategy….

Preserve the Core

Stimulate Progress


Think Strategically means

There are three Big Strategic Questions

Where are we now? Where do we want to go? How will we get there?

A Company’s answer to “How will we get there?” - Is its strategy


The strategy is how to ….

How to please customer?

How to respond to changing market conditions

How to out compete rivals

How to grow the business

How to manage each functional piece of the business and develop needed organizational capabilities

How to achieve strategic and financial objectives


Strategy?

………the Action that managers take

To attain one or more of the organizational goals

To achieve superior performance relative to rivals

By having superior performance, said to have Competitive

position

It is Unified, Comprehensive, and Integrated long term plan that

relates to the strategic advantages of the firm to the challenges of the

environment.In essence, the strategic plan is a company’s game planProf. Vijay K S, MBA Programme`-BIET, Davangere

Strategic Management?

“…is about identifying and describing the strategies that

managers can pursue to attain superior performance and a

competitive advantage for their organizations”

Art & science of formulating, implementing,

and evaluating, cross-functional decisions that

enable an organization to achieve its objectives


“…is about identifying and describing the strategies that managers can pursue to attain superior performance and a competitive advantage for their organizations”

- Profitability - return that it

makes on the capital invested. The more efficient a company is, higher are

its profitability.

- profitability is

greater than the average profitability of all firms in its

industry.

– When the firm maintains above-average profitability for a

number of years.

Superior Performance

Competitive Advantage

Sustained Competitive Advantage

Strategic Management?


Competitiveness

Competitive Advantage – The Focal Point of Strategy

Differentiation

Cost Leadership

Quick Response

Competitive

Advantage

Economic

Value Added

Market

Value Adde

d

Value Created for Customers

Financial Performance

Value Captured for Investors


At the basic level….

Strategy is concerned with understanding the relationship

between Prices, Customer demand and Cost structure and

manipulating these variables in a way that lead to higher

profitability

Cost Structur

e

Customer

Demand


Meaning of Strategic Management

Strategic Management is a set of managerial decisions and actions that determines the long-run performance of a corporation. It includes environmental scanning (both external and internal), strategy formulation (Strategic and long-range planning), strategy implementation and evaluation and control.

It emphasizes the monitoring and evaluating of external opportunities and threats in light of a corporation’s strengths and weaknesses


Nature of Strategic Management

Strategic management is Strategic management is both an of

SM allows to take that facilitate an organization to accomplish its objectives.

it demands awareness to the

"big picture" and a rational assessment of the future options.

well-organized approachArt and Science

formulating, implementing, and evaluating

cross-functional decisions


Nature of Strategic Management

SM offers

a strategic direction endorsed by the team and stakeholders

a clear business strategy and vision for the future a structure for governance at the different levels a logical framework to handle risk in order to guarantee business continuity

the capability to exploit opportunities react to external change by taking ongoing strategic decisions. Prof. Vijay K S, MBA Programme`-BIET, Davangere

Importance of Strategic Management

Identification, prioritization, and exploitation of opportunities.

Objective view of management problems. It represents a framework for improved coordination and control of activities.

It minimizes the effects of adverse conditions and changes.

It allows major decisions to better support established objectives.

It allows more effective allocation of time and resources to identified opportunities.

It allows fewer resources and less time to be devoted to correcting erroneous or ad hoc decisions.


Importance of Strategic Management

It creates a framework for internal communication among personnel.

It helps to integrate the behavior of individuals into a total effort.

It provides a basic for the clarification of individual responsibilities.

It gives encouragement to forward thinking. It provides a cooperative, integrated, and enthusiastic approach to tackling problems and opportunities.

It encourages a favourable attitude towards change.

It gives a degree of discipline and formality to the management of a business. Prof. Vijay K S, MBA Programme`-BIET, Davangere

Characteristics of Strategic Management

Has support of organization’s executive officer. Long Term Process Is fresh and continuous, not static and stale. Is participatory, not left to planners. Is flexible. Leads to resources decisions. Resource Mobilization and

Application Integrated System Hierarchical Strategy Proactive and not a quick fix Management by Process Analytical tools are used every time

BCG, Five Force ModelProf. Vijay K S, MBA Programme`-BIET, Davangere

Relevance of Strategic Management

Companies are operating in age of discontinuing change - an age of creative & constructive destruction.

Business, technology and product life is shrinking.

Demographic shift in terms of consumer preference and requirements.

A direct promotion from Agricultural economy to service or Hi-tech economy in the new growth economy.

Shift from controlled economy to market driven economy.

Rich countries adopt deindustrialization.

Emergence of new Global Socio – economic system and world orders.

Knowledge is replacing Infrastructure

Self-leadership is in, command and control out

Networks are replacing hierarchies

Wanted - employees with Emotional Intelligence.


Strategic Management Process?

“…is the process by which managers choose a set of strategies

for a company that will allow it to achieve Superior

performance and to have Competitive Advantage”


Feedback and Control

Strategic Management Process / Model

Environmental ScanningOr Analysis Strategy Formulations Implementation of Strategy Evaluate & Control

External Opportunities and Threats

Natural Environment Resources and Climate

Social Environment General force

Task Environment Industry Analysis

Internal Strengths & Weaknesses

Structure:Chain of Command

Culture:Belief, expectations,

valuesResources:Assets, Skills,

Competencies, knowledge

Mission

Objectives

Strategies

Policies

Programs

Performance

ProceduresBudgets

Reason for existence

What results to accomplish

by when Plan to achieve mission and

Objectives Broad guidelines

for decision

making

Activities Needed to accomplis

h a planCost of the

programs Sequence of steps

needed to do the job

Actual Results


Relationship between Companies Strategy and Its Business Model

Business Model is usually composed of five elements

Who it serves?

What it provides?

How it makes money?

How it differentiates and sustains competitive advantage?

How it provides its product/service?



Business Model in context of Stretegy

A Company’s business model is management’s story line for how the

strategy will be a Money Maker

Is strategy is capable of earning profit?

How will business generates revenue?

Is revenue enough to cover cost?

Value to customer @ Profitable price?

The Business Model is more narrowly focused than the concept of Strategy

Companies Strategy is relates broadly to its competitive initiatives and action plans

The bottom Line result of Strategy is “Business Model” i.e. Making Profit Prof. Vijay K S, MBA Programme`-BIET, Davangere


Business Model is a outcome or result of your strategy, but

not itself, a strategy.

Strategy is a firm’s contingent plan as to the business model

it will use




Feedback and Control

Strategic Management Process / ModelEnvironmental

ScanningOr Analysis

Strategy Formulations Implementation of Strategy

Evaluate & Control

External Opportunities and Threats

Natural Environment Resources and Climate

Social Environment General force

Task Environment Industry Analysis

Internal Strengths & Weaknesses

Structure:Chain of Command

Culture:Belief, expectations,

valuesResources:Assets, Skills,

Competencies, knowledge

Mission

Objectives

Strategies

Policies

Programs

Performance

ProceduresBudgets

Reason for existence

What results to accomplish

by when Plan to achieve mission and

Objectives Broad guidelines

for decision

making

Activities Needed to accomplis

h a planCost of the

programs Sequence of steps

needed to do the job

Actual Results


Strategic Management Model / Process

Scanning Where are we now?

Strategy Formulation Where do we want to be?

Strategy Implementation How do we get there?

Evaluation / Control How do we measure our progress?
