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Strategic Management- I

U1- introduction of SM

What is strategy?• Strategy is the direction and scope of an

organization over the long term, which achievesadvantage in a changing environment through

its conguration of resources and competenceswith the aim of fullling stakeholdere!ectations"

• #ccording to $avid %&''() *Strategy are themeans +y which long-term o+ectives will +eachieved"

• #ccording to !ettinger %1../) *0he strategy of

an organization is the denition and

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#ccording to ohnson and Scholes

• *Strategy is the direction and sco!e of anorganization over the long term whichachieves advantage for theorganization2""

3haracteristics of 4usiness strategy

1" 5ong-term horizon

&" #ction oriented

6" 7alue-addition8" Strategic decisions

(" 9nvironmental ada!tion

/" Sta:eholder e!ectations

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What is strategic management?

#ccording to ;earce and <o+inson

*Strategic management is the set of decisions and

actions that result in the formulation andim!lementation of !lans designed to achieve a

com!any=s o+ectives"

#ccording to wheelen and hunger %&''&)*strategic management is a set of managerialdecision and actions that determine the long term!erformance of a cor!oration"

#ccording to ohnson and Scholes %&''8)*strategic management includes understanding thestrategic !osition of an organization, strategicchoices for the future and turning strategy in to

action"

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SM com!rises nine critical tas:s

1" >ormulate the com!any=s vision and mission,including +road statements a+out its !ur!ose,

!hiloso!hy, and goals"&" 3onduct an analysis that reects the

com!any=s internal conditions and ca!a+ilities"

6" #ssess the com!any=s eternal environment,including +oth the com!etitive and thegeneral contetual factors"

8" #nalyze the com!any=s o!tions +y matching

its resources with the eternal environment"(" Identify the most desira+le o!tions +y

evaluating each o!tion in light of the

com!any=s vision an d mission"

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/" Select a set of long-term o+ectives andgrand strategies that will achieve themost desira+le o!tions"

@" $evelo! annual o+ectives and short-term strategies that are com!ati+le withthe selected set of long-term o+ectives

and grand strategies"

A" Im!lement the strategic choices +ymeans of +udgeted resource allocations

in which the matching of tas:s, !eo!le,structure, technologies and rewardsystem in em!hasized"

." 9valuate the success of the strategic

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Levels of Strategy

1. Corporate

2. Business3. Functional/ Operational

1. Corporate Level Strategy

“Corporate level strategy sis concerned with theoverall purpose and scope of an organization and how

value will be added to the different parts of the

organization”By johnson and Scholes

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• It gives the answer of the question of ….

• What businesses are we in? Whatbusinesses should we be in?

• Four areas of focus – Diversication management (acquisitions and

divestitures)

 – $ivestitures involve a sale, s!inoB or liCuidation of a+usiness unit, line or su+sidiary" 5iCuidation involvesshutting down a +usiness and selling oB or distri+uting its

assets"

 – !nerg! between units

 – Investment "riorities craft

 – #usiness level strateg! a""roval

•  0o! level manager will involved in

formulation of cor!orate strategy"

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#usiness $evel trateg! %ccoding to &ohnson and scholes'

#usiness unit strateg! is about how to com"ete successfull! in"articular maret.* Dow do we su!!ort the cor!orate strategy?

Dow do we com!ete in a s!ecic +usiness arena?

 0hree ty!es of +usiness level strategiesE 5ow cost !roducer

$iBerentiator

>ocus

>our areas of focusFenerate sustaina+le com!etitive advantages

$evelo! and nurture %!otentially) valua+le

ca!a+ilities

<es!ond to environmental changes

#!!roval of functional level strategies

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>unctionalG o!erational level strategy

• >unctional +usiness strategy is an area ofo!erational management +ased on a s!ecic

de!artment or disci!line within an organization,such as human resources, nance or mar:eting"

 – Functional' +ow do we su""ort the business levelstrateg!?

• Operational strategies are concerned withhow the com!onent !arts of an organizationdeliver eBectively the cor!orate and +usiness-level strategies in terms of resources, !rocessesand !eo!le – ,"erational' +ow do we su""ort the functional level

strateg!?

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-!"es of functional strategies

• roduction strategies

• /areting strategies• Financial strategies

• +0/

• 0esearch and develo"ment.%n e1am"le.

 – #usiness $..' #ecome the low cost "roducer

of "roduct23 – Functional $.. (/fg.)' 0educe

manufacturing costs b! 456

 – ,"erational (lant 74)' Increase worer

"roductivit! b! 486

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Levels of strategy

Multibusiness

Corporation

CorporateLevel

Business 1

(Related)

Business 2

(Related)

Business 3

(Related)

Business

Level

Research and

Development  Manufacturing Mareting

  !uman

Resources  "inance

"unctional

Level

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Characteristics of Strategic decisions

• There are 5 keyelements/characteristics of strategicdecision that are related to theorganization’s ability to add valueand compete in the market place

!"sustainable decisions

#" develop process to deliver thestrategy

$" o%er competitive advantage

&" '(ploit linkages bet)een theor anization and its environment

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1) Sustaina+le decisions

•) 0hat can +e maintain over time

•)>or the long-term survival of theorganization, it is im!ortant that thestrategy is sustaina+le

•)Microsoft com!any s!ent millions ofdollars to develo! H+o games, whichta:es some years to recover"

&) $evelo! !rocess to deliver the strategy"

•)Strategy is at least !artly a+out how todevelo! organizations or allow them toevolve towards their chosen !ur!ose"

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• 9"g" Microsoft +egan +y launching H+ointo the US mar:et in autumn &''1,followed +y a!an in early s!ring &''&

and 9uro!e a+out one month later" 4utthe whole strategic decision of Microsoftto com!ete in this mar:et had +een ta:en

years earlier and then maor investmentswere underta:en to achieve this !ur!ose"

6) Ber com!etitive advantage

• # sustaina+le strategy is more li:ely if thestrategy delivers sustaina+le com!etitiveadvantage over its actual or !otential

com!etitors" 3or!orate strategy usually

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• Microsoft was much later in entering theglo+al com!uter games mar:et than itsmain rivals Sony and Jintendo"

• Microsoft therefore needed some s!ecialcom!etitive advantages in its newmachine to !ersuade customers of rival!roducts to change" It was oBering what

it claimed to +e the +est video gra!hicsand the a+ility to !lay its games on-line"

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8) 9!loit lin:ages +etween the organizationand its environment "

• 5in:s that cannot easily +e du!licated and will

contri+ute to su!erior !erformance"• the strategy has to e!loit the many lin:ages

that eist +etween the organization and its

environmentE- su!!lier, customers,com!etitors and often the government itself"Such lin:ages may +e contractual and formal,or they may +e vague and informal"

• In the case of video game machines,Microsoft was a+le to oBer com!ati+ility andconnections with its other dominant com!uter

software !roductsE 9!lorer and Windows H;"

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(" 7ision

•  0he a+ility to move the organization forward in asignicant way +eyond the current environment"

 0his is li:ely to involve innovative strategies"• In the highly com!etitive video games mar:et, it

is vital to have a vision of the future" 0his mayinvolve the environment +ut is mainly for the

organization itselfE a !icture of how video gamesmight loo: in ve to ten year=s time willchallenge and direct strategic decisions over theintervening !eriod" >or Microsoft, its vision of theH+o would move it from its current involvement!rimarily with oKce activities li:e re!ort writingto new, home entertainment a!!lications-thus

!roviding a com!letely new source of revenue"

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<ole of 39 in strategic management

F9J9<#5 >UJ30IJE

•  0he 39 has overall res!onsi+ility for theleadershi!, strategic and managementdirection and

• +usiness results of the 3om!any" Wor:ingclosely with the 4oard and themanagement team, he

• ensures that the 3om!any esta+lishesa!!ro!riate goals, and manages itsresources to meet these

• oals"

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Maor <es!onsi+ilitiesE

1" >iduciary %legal) duties

&" 5eadershi!6" Strategy >ormulation

8" Strategic im!lementation

(" >inancial !erformance/" <is:s and o!!ortunities analysis

@" 9ternal relation

A" Succession." 4oard relations

1'"Safety and environment

id i %l l) i

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1" >iduciary%legal) $uties

•  0he 39 shall act as a $irector andoKcer of the 3om!any in the +estinterests of the 3om!any with honestyand good faith towards its shareholders,em!loyees and customers, su!!liers, and

of the communities within which the3om!any o!erates"

• De shall use such !ersonal and

!rofessional s:ills in the role of 3hief9ecutive, together with such contacts,e!erience and udgment as he may

!ossess with integrity %honesty) and-

& 5 d hi

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&" 5eadershi!

•  0he 39 eercises an a!!ro!riate level of

leadershi! for the organization, manages the

culture and +uilds a team atmos!here"•  0he 39 eBectively communicates a vision,

management !hiloso!hy, and +usiness strategy tothe 3om!anyLs em!loyees"

• De actively see:s to motivate and ins!ireem!loyees to ado!t the 3om!anyLs values and torealize the 3om!anyLs vision"

•  0he 39 is an eBective role model for the

organization"

• De ensures that there is clarity of o+ectives andfocus for all em!loyees and that there are clearand a!!ro!riate standards and measures of!erformance"

6 S > l i

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6" Strategy >ormulation

•  0he 39 is res!onsi+le to develo! a long-term, sound strategy for the 3om!anythat is intended to increase the value aswell as meeting the needs of customers,em!loyees, and other cor!orate

sta:eholders"•  0he 39 !uts in !lace !rocesses that

encourage eBective strategic !lanning"

•  0he 4oard of directors shall annuallya!!rove the 3om!any=s strategic !lan"

8 St t i I l t ti

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8" Strategic Im!lementation

•  0he 39 ensures that 3om!anystrategies are eBectively im!lementedwith timely !rogress

• towards strategic o+ectives" 0he 39o+tains and allocates resources

consistent with strategic

• o+ectives and ma:es timely adustmentsin strategies when mar:et conditions and

other forces• demand a change"

( >i i l ; f

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(" >inancial ;erformance

•  0he 39 is res!onsi+le to carry out acom!rehensive %full) +udgeting !rocessand monitor the 3om!any=s !erformanceagainst the +udget"

•  0he 39 !ro!oses a!!ro!riate annual

and long- term nancial o+ectives for the3om!any and monitors the attainment ofthese nancial goals as well as

maintaining s!ending in accordance witha!!roved ca!ital e!enditure and otherinvestment +udgets"

/ <i : d t iti

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/" <is:s and !!ortunities

•  0he 39 identies and communicates ris:s ando!!ortunities to the 4oard of $irectors and

deals with them a!!ro!riately"•  0he 39 ensures that the 3om!any has

a!!ro!riate auditing and nancial control!rocesses in !lace to !rotect assets, maintaineBective control of o!erations and !rovideaccurate and com!lete !u+lic disclosure ofresults"

• De fosters a culture of ethical +ehaviour for therm, !romotes com!liance with the 3om!any=s3ode of 4usiness 3onduct and !roactivelyensures that the 3om!any com!lies with all of

its legal o+ligations"

@ 9 t l < l ti

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@" 9ternal <elations

•  0he 39 as chief s!o:es!erson for the3om!any eBectively communicates itsnancial !erformance and outloo: to theinvestment community and shareholders"

• De is visi+le and !roactive in re!resentingthe 3om!any to customers, investors,government and other sta:eholders"

A S i l

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A" Succession !lan

•  0he 39 is res!onsi+le to develo! anevolving succession !lan for all seniorlevels in the 3om!any"

• De ensures that there is an eBective !lanfor attracting, retaining, motivating and

develo!ing candidates for seniormanagement !ositions for the long-termsuccess of the organization"

• >urthermore, the 3om!any has aneBective !erformance evaluation!rogram and a leadershi! training

!rogram to develo! and train new

. 4oard <elations

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." 4oard <elations

•  0he 39 :ee!s the 4oard fully informed of allim!ortant issues and as!ects of the 3om!any

!erformance, o!!ortunities and mar:etdevelo!ments, whether !ositive or negative"

• SuKcient and a!!ro!riate information isdistri+uted monthly and Cuarterly to 4oardmem+ers throughout the year to eBectivelyassess 3om!any issues, strategies, theirim!lementation, and other !erformance

outcomes"• 4oard mem+ers are a+le to initiate contact with

the 39 whenever necessary and the 39encourages candid de+ate and challenges in

+oardroom discussions"

1' Safet and 9n ironment

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1'" Safety and 9nvironment

•  0he 39 is res!onsi+le for theim!lementation and communication ofhealth, safety and environmental !olicies"

• >urthermore, the 39 ensures the

esta+lishment and achievement of safetyo+ectives and that the 3om!anycom!lies fully with all a!!lica+le federal

and stateG!rovincial environmentalregulations"

*ene+ts ,value" of Strategic -anagement

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*ene+ts ,value" of Strategic -anagement

1" Strategy formulation activities enhance therm=s a+ility to !revent !ro+lems"

 &" Frou!-+ased strategic decisions are li:ely to+e drawn from the +est availa+le alternatives"

6" 0he involvement of em!loyees in strategyformulation im!roves their understanding of the!roductivity-reward relationshi! in every strategic!lan and thus heightens their motivation"

 8" Fa!s and overla!s in activities among

individuals and grou!s are reduced as!artici!ation in strategy formulation clariesdiBerences in roles"

(" <esistance to change is reduced"

$imensions of Strategic $ecisions

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$imensions of Strategic $ecisions

1" Strategic issues reCuire to!-management decisions Strategic decisions is overarch %very

im!ortant) several areas of a rm=s

o!erations Usually only to! management has the

!ers!ective needed to understand their

+road im!lications Usually only to! managers have the !ower

to authorize necessary resource allocations

& Strategic issues reCuire large amounts of

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&" Strategic issues reCuire large amounts ofthe rm=s resources

 0hey involve su+stantial allocations of

!eo!le, !hysical assets, and moneyStrategic decisions commit the rm to actions

over an etended !eriod

In highly com!etitive rms, achieving andmaintaining customer satisfaction freCuently involves commitment from every surface ofthe rm

6 Strategic issues often aBect the frm’s

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6" Strategic issues often aBect the frm slong-term successStrategic decisions commit the rm for a long

time, ty!ically ( yearsN however the im!actlasts much longernce a rm has committed itself to a

strategy, its image and com!etitive

advantages are usually tied to that strategy>irms +ecome :nown for what they do and

where they com!ete" Shifting away from thatcan !ut at ris: their !revious gains"

8 Strategic issues are uture oriented

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8" Strategic issues are uture-oriented 0hey are +ased on what managers forecast, rather

than what they :now

9m!hasis is on the develo!ment of solid !roectionsthat will ena+le a rm to see: the most !romisingstrategic o!tions

# rm will succeed only if it ta:es a !roactive

%antici!atory) stance toward change(" Strategic issues usually have multifunctional  or

multi-business consequences.Strategic decisions have com!le im!lications for most

areas of the rm$ecisions a+out customer mi, com!etitive em!hasis,

or organizational structure involve a num+er of therm=s S4Us, divisions, or !rogram units

/ Strategic issues reCuire considering the

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/" Strategic issues reCuire considering therm=s external environment 

•#ll +usinesses eist in an o!en system" 0hey

aBect and are aBected +y eternal conditionsthat are largely +eyond their control

•Successful !ositioning reCuires that strategic

managers loo: +eyond o!erations andconsider what relevant others are li:ely to do

>ormality in Strategic Management

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>ormality in Strategic Management• >ormality is the degree to which !artici!ation, res!onsi+ility,

authority, and udgment in decision-ma:ing are s!ecied instrategic management

>orces $etermining >ormality

• rganizational Size

• ;redominant Management Styles

• 3om!leity of 9nvironment

• ;roduction ;rocess

• ;ro+lems in the >irm

• ;ur!ose of the ;lanning System

• Stage of >irm=s $evelo!ment

0hree Modes of >ormality

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0hree Modes of >ormality• 9ntre!reneurial Mode O most small rms

 – 0he informal, natural, and limited a!!roach to

strategic management associated with o)ner.managers of smaller +rms"

• ;lanning Mode O most large rms – 0he strategic formality associated with large +rms

that o!erate under a com!rehensive, formal !lanningsystem"

• #da!tive Mode O most medium size rms – 0he strategic formality associated with medium.

sized +rms that em!hasize the incrementalmodication of eisting com!etitive a!!roaches"

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