STRATEGIC MANAGEMENT

Reading Handouts – I

1. Business Policy and Strategic Management- P Subba Rao

2. Business Policy and Strategic Management- Azar Kazami

3. Strategic Management - VSP Rao & V Harikrishna

4. Crafting & Executing Strategy- Arthur Thompson, Strickland, Gamble & Jain

Books Recommended

• Sole Supplier of Gas Cylinder Regulators since 1970 • Growing Demand, Expanding Market, No Competition• Highly Profitable Business, • Post 1991, Indian Economy opened to competition • Big Players entered the scene. • Cut throat competition, low margin• No Product diversification, No Innovation• Market share reduced, Sales nosedived, Loss YOY• Golden Handshake of employees• High Employee Turnover, Cannot attract talent,• Hit on the Image, Poor Show everywhere.

Q : What has gone wrong ? What could have been done to avoid the situation ?

Topaz Engineers, Case for Discussion

• Strategic Planning is a Stream of decisions and Action Plans that lead to the deployment of an effective strategy to help achieve corporate objectives which determines survival, growth and progress of an organization.

• It consists of the analysis, decisions, and actions an organization undertakes in order to create and sustain competitive advantages

• It is concerned with the determination of the long-term goals and objectives of the organisation.

• It focuses on the organization as a whole and impacts every function of the organisation.

What is Strategic Planning

A Strategy Consists of

• Competitive moves & business

approaches to produce successful performance

• Management’s “game plan” for- Running the business- Strengthening firm’s competitive position- Satisfying customers- Achieving performance targets

Strategy – Evolution & Concept

• Where are we now ?

• Where do we want to go?• Business Position the Company wants to take• Financial outcomes to achieve• Strategic outcomes to achieve• Performance goals to achieve

• How will we get there ?

Big Strategic Questions

• The essence of strategy lies in striking a harmonious balance between firm’s distinctive skills and capabilities and the external environment in which it operates.

• When the firm is able to perform activities more effectively than its rivals, it stays ahead in the race and emerges as a leader.

• Strategic Management enables a firm to formulate and implement winning gameplans over a period of time.

Strategic Management Explained

Strategic Management

• Directs the organization toward overall goals and objectives to meet Stakeholders Expectations.

• Involves the inclusion of multiple stakeholders in decision making.

• Needs to incorporate short-term and long-term perspectives.

• Recognizes tradeoffs between efficiency and effectiveness.

Key Attributes of Strategic Management

Market-focused Strategy

• Study the External Industrial Environment

• Locate an Industry with its potential for above-average returns

• Identify the Strategy called for by the industry to earn above-average returns

• Develop or acquire assets and skills needed to implement the Strategy

Approaches to Strategy

Resource-based Strategy

• Identify and Study Firms Internal Resources, Strengths & Weaknesses

• Determine firm’s potential capabilities and resources

• Locate attractive Industry with opportunities that can be exploited with firm’s resources and capabilities

• Select Strategy that best allows the firm to utilize resources and capabilities

• Strategy is a consciously intended Plan of action which is made in advance.

• As plan, a strategy can be a ploy too, just a specific manoeuvre intended to outwit a rival or competitor.

• When encompassing the resulting behaviour, strategy can also be thought of as a pattern in a stream of actions - a consistency of behaviour, whether intended or not.

• Strategy as a position refers to locating a firm in the external environment – mediating force, match or link between organisation and external environment.

• Strategy as a perspective is not just a chosen position, but is an ingrained way of perceiving world. Personality to individual, is what the Strategy is to Organisation.

Henry Mintzberg’s 5 Ps of Strategy

STAKE-HOLDERS

Customers

Society

Community

Government

Suppliers

Employees

Shareholders

STAKEHOLDERS

• Globalization – the world is coming close

• Changing Character of Society – More awareness

• Customer is maturing – Need to supply Quality Product

• Need to have Thin, Trim & Compact Organisation

• Right Talent to steer the organisation

• Legal compliances – Governmental norms

• Retention of Employees

• Customer Loyalty and Retention

• Emphasis on quality of life –comfort, health, safety

• Pressure on Margins – Need to be cost effective

Why Strategic Management ?

• Need of the Organization to know where to navigate and how – A roadmap.

• Flexibility & Speed to keep current with Business needs

• Vagaries of Cut-throat Competition – need to stay above the Competition

• The Need for Survive, grow, progress and meet the Stakeholders’ expectations

• Need to utilize available resources effectively and objectively

• Survival of the fittest

Why Strategic Management ?

• Provides roadmap for the organization for achieving targets

• It helps the organisation to utilize available resources optimally.

• It reduces the Business Risks –

• It minimizes chances of mistakes and unpleasant surprises

• Creates framework for internal communication, teamwork and coordination in the employees

Benefits of Strategic Planning

Corporate level Strategic Planning – Encompasses whole organisation

Levels & Responsibility of Strategic Planning

Business Unit level Strategic Planning – decides Strategy of Business Unit

Functional-level Strategic Planning – restricted to specific functions, HR, Fin,

Formulated by HODs / Function Heads in each Business Unit for each Function

Formulated by GM / Business Heads of each Business Unit for each Business Line

Formulated by CEO / Heads of Enterprise /Top Management Team

• Business Policy is an implied guide for setting up boundaries or limits for managerial actions

• It focuses attention on strategic allocation of scares resources to achieve objectives of organisation.

• It deals with the decisions regarding future of an ongoing enterprise.

• It represents the best thinking of the Management as to how the objectives may be achieved in the prevailing social and economic conditions

• Examples - Lines of Business Policies, Code of Ethics, Product Lines, Marketing Policies, HR Policies, etc.

What is Business Policy

Strategy Making Process

Developing a Strategic

Vision

Input to Strategic

Planning and Implantation

Process Monitoring Developments,

Evaluating Performance,

Corrective actions

Implementing and Executing

the Strategy

Setting Objectives & Measurables

Crafting a Strategy to

Achieve Vision and

objectives

• To focus the product to target Middle Income-Group - Future Group

• To Position the Product in the lowest cost segment - Ghadi Detergent / Nirma

• To shift focus to rural market segments rather than Metros and big cities – ITC, Arvind Mills,

• To operate in Premium Segments only. High price but high quality tag. – Mercedes, BMW

• To position the product to children between the age group of 7 and 14. – Electronic Gadgets,

Examples of Strategy

• An effectively crafted Strategy depicts a picture of the organisation that the Management is trying to create

• It describes a forward-looking course that Management has charted in respect of product / market / customer / technology etc. that helps the Company prepare for the future.

• Strategy is focused enough to provide Managers and Executives guidance for implementation

• It is easy to understand and short to communicate / explain to employees

Salient Features of Strategy

Strategic Planning

• Long Range Plans

• Time Frame => 3 Yrs

• Top Management responsibility

• Concerned with broad objectives

• Focus is planning and forecasting

Strategic Planning & Operational Planning

Operational Planning

• Short Range Plans

• Time Frame <= 1 year

• Done usually at lower levels

• Covers day-to-day operations. Implements internal goals

• Primary Focus is on control

1. Strategy and Ethics• Strategic Actions must pass the taste of moral

scrutiny. • Companies with strictures of unethical concerns find

it difficult to get Customers & Suppliers

2. Communication of Strategy to Employees• Strategy needs to be communicated to all employees

to get their support• Involving employees/getting suggestions for crafting

strategic vision gives buy-in from them

Points to Remember