Unit 5 Introduction to Sm

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Management - IIManagement - II

Introduction to Introduction to StrategicStrategicManagementManagement

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Course ContentsCourse Contents

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1. Management by Objective (MBO)

2. How Strategic and Operational plans differ

3. The evaluation of concept of Strategy

4. Levels of Strategy: Some key distinctions

5. The Contents of a corporate Strategy

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Strategy Strategy – The broad program for defining and – The broad program for defining and achieving an organization’s objective; the achieving an organization’s objective; the organization’s response to its environment over time.organization’s response to its environment over time.

Strategy is the direction and scope of an organization Strategy is the direction and scope of an organization over the long term, which achieves advantage in a over the long term, which achieves advantage in a changing environment through its configuration of changing environment through its configuration of resources and competencies for fulfilling stakeholders’ resources and competencies for fulfilling stakeholders’ expectations.expectations.

Strategy is about:Strategy is about:

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Where is the business trying to get to in the long-term Where is the business trying to get to in the long-term (direction) (direction)

Which markets should a business compete in and what Which markets should a business compete in and what kind of activities are involved in such markets? kind of activities are involved in such markets? (markets; scope)(markets; scope)

How can the business perform better than the How can the business perform better than the competition in those markets? competition in those markets? (advantage)? (advantage)?

What resources (skills, assets, finance, technical What resources (skills, assets, finance, technical competence, facilities) are required in order to be able to competence, facilities) are required in order to be able to competecompete? (resources)?? (resources)?

What external, environmental factors affect the What external, environmental factors affect the businesses' ability to compete? businesses' ability to compete? (environment)? (environment)?

What are the expectations of those who have power in What are the expectations of those who have power in and around the business? and around the business? (stakeholders)(stakeholders)

Management by Objectives (MBO) Management by Objectives (MBO)

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A formal set of procedures that establishes and A formal set of procedures that establishes and reviews progress towards common goals for reviews progress towards common goals for managers and subordinates.managers and subordinates.

The term "management by objectives" was first The term "management by objectives" was first popularized by popularized by Peter DruckerPeter Drucker in his in his 19541954 book book 'The 'The Practice of Management’Practice of Management’

Drucker insisted that managers and staff members set Drucker insisted that managers and staff members set their own objectives or at least be actively involved in the their own objectives or at least be actively involved in the objective-setting process, otherwise people might refuse objective-setting process, otherwise people might refuse to cooperate or make only half-hearted efforts to to cooperate or make only half-hearted efforts to implement “someone else’s” objectives implement “someone else’s” objectives

Elements of the MBO SystemElements of the MBO System

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MBO System can vary widely, some are designed for MBO System can vary widely, some are designed for subunit, some in the organization as a whole, some subunit, some in the organization as a whole, some emphasis corporate planning, some stress individual emphasis corporate planning, some stress individual motivation, But the mainly shared the following six motivation, But the mainly shared the following six elements. elements.

1.1.Commitment to ProgramCommitment to ProgramAt every organizational level it involves managers’ At every organizational level it involves managers’ commitment to achieve personal and organizational commitment to achieve personal and organizational objectivesobjectives

2. Top level goal setting 2. Top level goal setting This gives a clear idea to both managers and staff This gives a clear idea to both managers and staff members of what top managements hope to accomplish members of what top managements hope to accomplish and show them how their own work directly relates to and show them how their own work directly relates to achieving the organization's goalachieving the organization's goal

Elements of the MBO SystemElements of the MBO System

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3. Individual GoalsEach manager and staff members should have Each manager and staff members should have

clearly defined job responsibilities and objective in order to clearly defined job responsibilities and objective in order to know the what they are expected to accomplish.know the what they are expected to accomplish.

4. ParticipationThe participation of both managers and employees The participation of both managers and employees

in the setting goal, goals is more likely to be achieved in the setting goal, goals is more likely to be achieved

5. Autonomy in implementation of PlansAn individual should have liberty to choose the An individual should have liberty to choose the

means for achieving the objectivesmeans for achieving the objectives

6. Performance ReviewManagers and Employees periodically meet to Managers and Employees periodically meet to

review progress toward the objectivesreview progress toward the objectives

Advantages of Management by ObjectiveAdvantages of Management by Objective

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MBO ensures MBO ensures Goal Clarity.Goal Clarity.

MBO MBO integrates the efforts integrates the efforts of everybody.of everybody.

MBO Involves MBO Involves continuous communication continuous communication resulting in to resulting in to co - ordinated efforts and cohesive environment.co - ordinated efforts and cohesive environment.

The participative approach in goal The participative approach in goal setting motivates the setting motivates the employeesemployees

Enhance Enhance the the commitmentcommitment towards activities. towards activities.

MBO practice MBO practice eliminates the overlaps eliminates the overlaps in the efforts and in the efforts and plugs the gaps plugs the gaps in the assignment.in the assignment.

Disadvantages of Management by ObjectiveDisadvantages of Management by Objective

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MBO MBO underminesundermines the importance of the importance of external external environmentenvironment on the outcomes. on the outcomes.

MBO MBO ignoresignores the overall the overall organization culture. organization culture.

It compares the actual outcome with the ideal It compares the actual outcome with the ideal objections. Corporate team tends to chart out higher objections. Corporate team tends to chart out higher goals which the average performance tend to be lower. goals which the average performance tend to be lower. Such situation results in to Such situation results in to frustration and dissatisfaction frustration and dissatisfaction among employees.among employees.

High targets through whatever means necessary High targets through whatever means necessary including theincluding the scarifies of quality. scarifies of quality.

Disadvantages of Management by ObjectiveDisadvantages of Management by Objective

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despite the participative goal setting, the despite the participative goal setting, the actual actual performanceperformance tends to be closure to tends to be closure to mediocre level.mediocre level.

It considers goals as a basis for outcomes but It considers goals as a basis for outcomes but there is there is no limit to outcomes no limit to outcomes of the excellent personnel.of the excellent personnel.

How Strategic and Operational Plans DifferHow Strategic and Operational Plans Differ

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Basis Strategic Plan Operation PlanDefinition Strategic Plan is a

document approved by higher management about

programmes that the organization will undertake

along with allocation of resources over 7 to 8 years.

Operation plan is an annual budget

formulated by the operating managers

in line with the expectations outlined in the strategic plan.

Time Horizon

Are long term plan and prepared for several years like 8 to 10 years or even

ahead of decades

Are short term and usually prepared on

yearly basis

Scope Are broad and which become the basis of all the activities of the organization

Developed on the basis of Strategic

Plan.


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Basis Strategic Plan Operation PlanDegree of

detailsStrategic Plan are

general and generic. They do not involve more

details.

Operation plan are more detailed

Analytical frame work

Are general tendencies of the expectations of the

higher level management

Are more clear in terms of output numbers, cost

standards, close monitoring etc.

Management functions

relationship

Focuses on Planning, Organizing & Directing

More emphasis on Controlling function

of management.


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Basis Strategic Plan Operation PlanStatement of

PlansAre stated in terms of long term Mission and

Objectives

Are Stated in terms of short term budget

targets

Formulation Are formulated by the corporate Managers

Are prepared by the operating managers

The Evolution of the Concept of StrategyThe Evolution of the Concept of Strategy

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The term Strategy has been derived from the Greek work The term Strategy has been derived from the Greek work ““StrategiaStrategia” , which means generalship or art and science ” , which means generalship or art and science of directing military forces. of directing military forces.

The Greeks knew that the strategy was not about only The Greeks knew that the strategy was not about only fighting battles its beyond that (directing, controlling, fighting battles its beyond that (directing, controlling, motivating, managing etc. ) motivating, managing etc. )

Without strategy the organization is ship without rudder, Without strategy the organization is ship without rudder, going around in circlesgoing around in circles

A firm without strategy is like a Columbus, when he went A firm without strategy is like a Columbus, when he went to discover America to discover America

Strategic ManagementStrategic Management

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The management process that involves an The management process that involves an organization’s engaging in strategic planning organization’s engaging in strategic planning and then acting on those planning and then acting on those planning

The Strategic management process mainly The Strategic management process mainly focuses upon two thingsfocuses upon two things

1.1.Strategic planningStrategic planning2.2.Strategy implementationStrategy implementation

Strategic Management ProcessStrategic Management Process

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Goal Setting

Strategy Formulation

Administration

Strategic Planning

Administration

Strategic Implementation

Levels of StrategiesLevels of Strategies

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Corporate level StrategyCorporate level Strategy

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Strategy formulated by top management to Strategy formulated by top management to oversee the interest and operation of the oversee the interest and operation of the multiple corporationmultiple corporation

What kind of business should the company What kind of business should the company be engaged in ?be engaged in ?

What are the goals and expectations for What are the goals and expectations for each businesses ?each businesses ?

How should resources be allocated to How should resources be allocated to reach these goals ?reach these goals ?

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Corporate strategies would guide to the Corporate strategies would guide to the organization about in what kind of business organization about in what kind of business should it enter or not enter (boundary maker).should it enter or not enter (boundary maker).

E.g.E.g.Reliance Group, Tata Group, BGKVReliance Group, Tata Group, BGKV

Corporate level StrategyCorporate level Strategy

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Strategy formulated to meet the goals of Strategy formulated to meet the goals of particular business; also called line of particular business; also called line of business strategy.business strategy.

How would business compete within its How would business compete within its market ?market ?

What product/services should it offer ?What product/services should it offer ?Which customer does it seek to serve ?Which customer does it seek to serve ?How will resources be distributed within How will resources be distributed within

the business ?the business ?

Business unit level StrategyBusiness unit level Strategy

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Types of Business unit level StrategyTypes of Business unit level Strategy

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Strategy formulated by a specific functional Strategy formulated by a specific functional area in an effort to carry out business unit area in an effort to carry out business unit strategy.strategy.

What should be the marketing plans ?What should be the marketing plans ?How many persons should be hired ?How many persons should be hired ?How much should we spend upon R&DHow much should we spend upon R&DHow much production should we do in the How much production should we do in the

next quarter ?next quarter ?

Functional level StrategyFunctional level Strategy

The Content of a Corporate StrategyThe Content of a Corporate Strategy

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Corporate strategy decides organization’s place Corporate strategy decides organization’s place in the future.in the future.

It is also an It is also an ideaidea about how people at an about how people at an organization will interact with people at other organization will interact with people at other organization over time, so it guides people in organization over time, so it guides people in their day-to-day work over an extended period of their day-to-day work over an extended period of time. time.

Product Life CycleProduct Life Cycle

Time

ProductDevelop-

ment

Introduction

Profits

Sales

Growth Maturity Decline

Losses/Investments ($)

Sales andProfits ($)

Introduction Stage of the PLCIntroduction Stage of the PLC

SalesCostsProfits

Marketing Objectives

ProductPrice

Low sales

High cost per customer

Negative

Create product awareness and trial

Offer a basic product

Use cost-plus

Distribution Build selective distribution

Advertising Build product awareness among early adopters and dealers

Growth Stage of the PLC

SalesCostsProfits


ProductPrice

Rapidly rising sales

Average cost per customer

Rising profits

Maximize market share

Offer product extensions, service, warranty

Price to penetrate market

Distribution Build intensive distribution

Advertising Build awareness and interest in the mass market

Maturity Stage of the PLC

SalesCostsProfits


ProductPrice

Peak sales

Low cost per customer

High profits

Maximize profit while defending market share

Diversify brand and models

Price to match or best competitors

Distribution Build more intensive distribution

Advertising Stress brand differences and benefits

Decline Stage of the PLC

SalesCostsProfits


ProductPrice

Declining sales

Low cost per customer

Declining profits

Reduce expenditure and milk the brand

Phase out weak items

Cut price

Distribution Go selective: phase out unprofitable outlets

Advertising Reduce to level needed to retain hard-core loyal customers

The Corporate Portfolio ApproachThe Corporate Portfolio Approach

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Evaluation of the each business unit of an Evaluation of the each business unit of an organization organization

Appropriate strategic role is developed for each Appropriate strategic role is developed for each unit with the goal of improving the overall unit with the goal of improving the overall performance of the organizationperformance of the organization

One of the best known example of corporate One of the best known example of corporate portfolio is the portfolio is the Portfolio framework Portfolio framework advocated by advocated by Boston Consulting Group (BCG) Boston Consulting Group (BCG) its also know as its also know as BCG matrixBCG matrix

BCG matrix mainly focuses upon 2 thingBCG matrix mainly focuses upon 2 thingMarket Share Market Share andandMarket Growth Market Growth

The BCG MatrixThe BCG Matrix

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Question MarksQuestion MarksIt is a Business unit with a It is a Business unit with a small market share but in small market share but in rapidly growing market.rapidly growing market.Could be uncertain and Could be uncertain and expensive ventureexpensive ventureRequire more cash in-flow Require more cash in-flow to grab the market shareto grab the market share E.g. E.g. Honda BrioHonda Brio


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StarStarIt’s a business unit with high It’s a business unit with high growth & high market sharegrowth & high market share

Need to go on investing in Need to go on investing in order to keep up with market’s order to keep up with market’s rapid growthrapid growth

E.g. Chevrolet Beat, E.g. Chevrolet Beat, Maruti Suzuki Swift Maruti Suzuki Swift


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Cash Cows

It’s a business unit with low It’s a business unit with low growth but with high market growth but with high market shareshare

It's profitable and doesn't It's profitable and doesn't require much cash inflowrequire much cash inflow

E.gE.g. Maruti Suzuki WagonR. Maruti Suzuki WagonR


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DogDog

Here the business unit is Here the business unit is having low growth and low having low growth and low market sharemarket share

It’s slowly growing or It’s slowly growing or stagnant market.stagnant market.

E.g. Maruti Suzuki 800E.g. Maruti Suzuki 800

““Five Forces” Corporate StrategyFive Forces” Corporate Strategy

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It’s a well known approach to corporate strategy It’s a well known approach to corporate strategy is Michael Porter’s “five forces” model.is Michael Porter’s “five forces” model.

According to Porter an organization’s ability to According to Porter an organization’s ability to compete in a given market is determined by that compete in a given market is determined by that organization’s technical and economic resources, organization’s technical and economic resources, as well as by five environmental “forces”, each of as well as by five environmental “forces”, each of which threaten organization’s venture in new which threaten organization’s venture in new market. market.

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Threats of New EntrantsThreats of New Entrants

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Barriers to entry measure how easy or difficult it Barriers to entry measure how easy or difficult it is for new entrants to enter into the industry. This is for new entrants to enter into the industry. This can involve for example:can involve for example:

Cost advantages (economies of scale, Cost advantages (economies of scale, economies of scope)economies of scope)Access to production inputs and financing,Access to production inputs and financing,

Government policies and taxationGovernment policies and taxationProduction cycle and learning curveProduction cycle and learning curveCapital requirementsCapital requirementsAccess to distribution channelsAccess to distribution channelsPatents, branding, and image also fall into this Patents, branding, and image also fall into this

category.category.

Threat Of SubstitutesThreat Of Substitutes

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Every top decision maker has to ask: How easy Every top decision maker has to ask: How easy can our product or service be substituted? The can our product or service be substituted? The following needs to be analyzed:following needs to be analyzed:

How much does it cost the customer to switch to How much does it cost the customer to switch to competing products or services?competing products or services?

How likely are customers to switch?How likely are customers to switch?What is the price-performance trade-off of What is the price-performance trade-off of

substitutes?substitutes?If a product can be easily substituted, then it is a If a product can be easily substituted, then it is a

threat to the company because it can compete threat to the company because it can compete with price only.with price only.

Bargaining Power Of BuyersBargaining Power Of Buyers

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Now the question is how strong the position of Now the question is how strong the position of buyers is. For example, can customers work together buyers is. For example, can customers work together to order large volumes to squeeze your profit to order large volumes to squeeze your profit margins? The following is a list of other examples:margins? The following is a list of other examples:

Buyer volume and concentrationBuyer volume and concentrationWhat information buyers haveWhat information buyers haveCompetitive priceCompetitive priceHow loyal are customers to your brandHow loyal are customers to your brandPrice sensitivityPrice sensitivityThreat of backward integrationThreat of backward integrationHow well differentiated your product isHow well differentiated your product isAvailability of substitutesAvailability of substitutes

Bargaining Power Of SuppliersBargaining Power Of Suppliers

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• This relates to what your suppliers can do in This relates to what your suppliers can do in relationship with you.relationship with you.

• How strong is the position of sellers?How strong is the position of sellers?• Are there many or only few potential suppliers?Are there many or only few potential suppliers?• Is there a monopoly?Is there a monopoly?• Do you take inputs from a single supplier or from a Do you take inputs from a single supplier or from a

group? (concentration)group? (concentration)• How much do you take from each of your suppliers?How much do you take from each of your suppliers?• Can you easily switch from one supplier to another Can you easily switch from one supplier to another

one? (switching costs)one? (switching costs)• If you switch to another supplier, will it affect the cost If you switch to another supplier, will it affect the cost

and differentiation of your product?and differentiation of your product?

Competitive RivalryCompetitive Rivalry

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In this, we have to analyze the level of In this, we have to analyze the level of competition between existing players in the competition between existing players in the industry.industry.

Is one player very dominant or all equal in Is one player very dominant or all equal in strength/size?strength/size?

How fast does the industry grow?How fast does the industry grow?How is the industry concentrated?How is the industry concentrated?How do customers identify themselves with your How do customers identify themselves with your

brand?brand?Is the product differentiated?Is the product differentiated?How well are rivals diversified?How well are rivals diversified?

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Thank YouThank You

Documents

Unit 5 Introduction to Sm