basic concept of strategic management and its system (1)

7/29/2019 Basic Concept of Strategic Management and Its System (1)

http://slidepdf.com/reader/full/basic-concept-of-strategic-management-and-its-system-1 1/60

Basic concept of strategic

management and its system

An introduction to the Key concepts:

Strategic Audit

Kia Golesorkhi,[email protected]

Strategic Management

BABA-III,FBSE UP

mailto:[email protected]





AGENDA

Reflections on what we remember about strategy

And strategic auditThe STEEPLE, Stakeholder Bargaining Power, Core

Competencies (SWOT)

• Setting mutual expectations, psychological contract – Recurring concerns

– Important Dates

– Deliverables

• Basic Concepts in Strategic Management, TheStrategic Audit (reading chapters 1 and 14)



Strategy

• Strategy is a chain of decisions and movements

along their processes and patterns which help

us in always keeping or bettering our position in

the changing environment

• They are best built on our analysis of: Strengths

and Weaknesses (internal) and the Threats andOpportunities



Mintzberg’s 5Ps on strategy components

• Perspective: Strategy requires a nonlinear 3

dimensional view showing ‘where we are’ (SWOT)

and ‘where we want to be’ (VISION) in light of

change , on the same page

• Plan: The Short to Long term Roadmap

• Position: The art of observing and bettering the

current position towards the ideal roadmap,

eventually to the ‘Vision’



• Ploy: Skillful “maneuvers”, “moves”, “Operations” (tactics)

• Pattern: The set of alternative roads showing the idealtactical movements towards the ‘Vision’

‘Plan’ and ‘Ploy’ have a less dynamic natureIn comparison to the other three components

Mintzberg’s 5Ps on strategy components



Strategic Decision Making

• Decisions are strategic ones, if:

– They deal with long-run and future issues

– Are Rare – unusual, no precedent to follow

– Are Consequential – huge resources & great

commitment

– Are Directive – set precedents for future



Strategic Decision Making

• Education-Health

• Games

• Marriage –

children

• Socializing

• Faith, religion

• War, military



Strategic Management Model

Environmentalscanning

External

Internal

SocietalTask

StructureCulture

Resources

Strategyformulation

Mission

Objectives

Strategies

Policies

Programs

Budgets

Procedures

Perfor-mance

Strategyimplementation

Control

Vision



Where are we heading?

• Jack Welch: “Never be a victim of the job you’ve

taken”

http://www.youtube.com/watch?v=w0tPj1zymus

• Common mistakes about strategy , Michael

Porterhttp://www.youtube.com/watch?v=ibrxIP0H84M

&feature=related


http://www.youtube.com/watch?v=ibrxIP0H84M&feature=related







Important Times and Dates

• In-class exercise or quizzes are due the same day

(cannot be made-up for)

• Weekly papers are due Tuesday 16:00 hrs, sent to

[email protected] (cannot be made up for)

• Article Analyses and Case study papers and

presentations are to be uploaded to the coospace(first presentation date September 25th)

• Midterm : November 6th.





Ensure you understand…

• Strategy , Vision, Mission, Goals and thestrategic management system

• Strategic Audit

• STEEPLE

• Stakeholders’ bargaining power , Governanceand CSR

• Value Chain• Forecasting

• Performance measurement

• Operational



What influences our Vision?

• Paradigm: Basis for our interactions

–Up-brining ,Culture, Ethical –Moral Values

– Personality and (IQ-EQ) Learning Styles

– Philosophy

–

Perceptions of ‘Needs and Goals’ – Perception of ‘Roles’

– Perception of ‘the future’



The research component…

• Start creating the habit of communicating with

facts and measurable expressions

• Start writing research papers and analytical

papers with facts

• Practice codifying your facts and citing facts

coded by other people



Vision

• The way we view ourselves in a given current

or future state / phase

• Our life cycle stage is a good measure for

gaging our idealized picture about ourselves at

each given state/phase

• Seeing ourselves properly vs. realistic

expectations helps us see others properly



We must become the change we want to see!!



Mission Statements (1)

• Communicate the purpose,of our existence

(why is the world a better place with us

around?, what gaps are we filling in?)

Our stakeholder Value Proposition normally answer

the question of the purpose

– “To employ youth in a happy environment, and

to provide an affordable high quality heart

surgery service to our rural community. To helpdevelop ourselves, our community and our

investors in a sustainable manner “



Mission Statements (2)

• Can reveal the HOW of planning: “To be

responsive to our customers’ changing needsthrough open communication”. You may include

your uniqueness and core competence as well

• Can reveal the VALUES of an organization: “To

respect the dignity of our patients and their

families”

The statement can be motto /slogan like, bullet

point list or (2-3) paragraph long



Mission Statement (3)

• i.e. Slogan type: To give unlimited opportunity

to women (Mary Kay Cosmetics)

– Inspiring but too short. Rather good for a Vision

statement (condition, status , role…)

Keep numbers and figures out of the mission

unless you’re in politics, sports ,military and

Crisis (Quantified =Narrow statements)

• Missions statements are statement s of value

promised to the stakeholders (not quantified=

broad)

l b



Goals vs. Objectives

• Goals are the broken down versions of

stakeholder Value Propositions – To create a healthy working environment through

additional monthly support packages

– To guarantee minimum quality through quality

assurance certification and to exceed customer

expectations through continuous satisfaction

monitoring

• Objectives use Key Performance Indicators formonitoring Financial, Operational, HR,

Marketing performance for 360 degrees

efficiency, efficacy, productivity, effectiveness



Strategic Management Model

Environmentalscanning

External

Internal

SocietalTask

StructureCulture

Resources

Strategyformulation

Mission

Objectives

Strategies

Policies

Programs

Budgets

Procedures

Perfor-mance

Strategyimplementation

Control

Vision



The Strategic Posture (1)• Vision: How do the leaders or orgs. see themselves

in the dynamic environment?• Vision Statement: The ‘fit’ and the ‘reach’

• Mission: Stakeholder value proposition, Core

competencies, Desired Image, Policies

• Mission Statement: Narrowed Goals? Broad Goals?

• Goals: Specific, Measurable, Achievable, Relevant ,

Time Based (SMART)

• Objectives: (Financial, HR growth , logistics –

technology, manufacturing and market growth,

Efficiency, Productivity, Efficacy, stakeholder

satisfaction %) X (year 1-5)



Environmental Scanning (1)Strengths and Weaknesses:

Core Competencies:

1.Heritage (including past posture, Image and

Performance-CSF + KPIs),

2.Geography - Location-Position -Power ,

3.People (KSAOs +leadership styles),

4.Processes and System (including culture, strat.,

governance and structure, resources andlogistics)

5.Product and Service: Quality x Price x Segment

x portfolio



Distinction via VIDE Test

Value Uniqueness and Immediate-Long termImportance

Imitation: Hard to copy, enjoys patent or license,

exclusivity or geographically bounded , uniqueasset

Durable: Shelf Life

Extendible: With small investments reservesvalue (also easily transferable when needed)



Core Competencies, CSFs and KSFs

•They all end up becoming the same

• Core competence scans the internal assets

while CSF pays more attention to thedistinctive competencies of the competitors or

the industry average, KSF ranks CSFs and

analyzes how well the company is respondingto them

•

CSF should not be confused with KPI

f d



Performance Indicators, KPIs(Goals and Benchmarks)

•

Market Gap Analysis:i.e. (usage gap = market potential – existing

usage), acquired new customers , turnover

•

Supply Chaini.e. sales forecasts, inventory, procurement and

suppliers, warehousing, transportation, reverse

logistics• Manufacturing

i.e. Cycle Time and Utilization

• Financial Ratios



Environmental Scanning (2)

• STEEPLE trends and indicators for the Macro-

Societal Analysis.

-Forecasting not compulsory. Use secondary data

- Immediacy –Impact analysis

• Extended Porter’s Forces and the emerging

Stakeholder Bargaining Power

- Market Structure (monopoly), Integration

(M&As other networks)

- Power (advantage) x Interest,



Issues Priority Matrix

1. Identify likely trends in societal & taskenvironment. Strategic environmental issues – determine how changes will happen in

industry2. Assess probability of these trends actually

occurring (low-high)

3. Attempt to ascertain the likely impact (low-high) of each of these trends on thecorporation being examined.



Issues Priority Matrix

HighPriority

HighPriority

HighPriority

MediumPriority

MediumPriority

MediumPriority

LowPriority

LowPriority

LowPriority

High Medium LowHi gh

M e d i u

m

L ow

Probable impact on corporation

Pr o b a

b i l i t y of O

c c ur r en c

e



Using key success factors to create an

industry matrix

• Key success factors:

– Variables that can affect significantly the overall

competitive positions of all companies within an

industry – Vary from industry to industry

– Crucial to determine a co’s ability to succeed

within the industry – Usually determined by the economic &

technological characteristics of industry, & by the

competitive weapons used by firms in their

strategy




industry matrix

• Key success factors – deal with entire industry

•

Industry matrix: – Summarize key success factors

– Gives a weight for each factor based on how

important it is within the industry

– Specifies how well various competitors in the

industry are responding to each factor




industry matrix

Total 1.00 _____ _____

1 2 3 4 5 6

KeySuccessfactors

WeightCompanyA rating

CompanyB rating

CompanyAweightedscore

Comp. Bweightedscore



Generating the Industry matrix

1. Column 1. (key success factors)

List 8-10 factors that seems to determinecurrent & expected success in the industry

2. Column 2. (weight) Assign weight to each factor from 1.0 (most

important) to 0.0 (not important) based on thefactor’s probable impact on the overall

industry’s current & future success All weights must sum up 1.0




3. Column 3. (company A rating)

Examine a particular company in an industry

(company A)

Assign a rating to each factor from 5.0

(outstanding) to 1.0 (poor) with 3.0 as average

Rating should be based on the company’scurrent response to that particular factor –

judgment




4. Column 4. (co. A weighted score)

Multiply the weight in Column 2. for each factors

times its rating in Column 3. to obtain the

factor’s weighted score

Results will vary from 5.0 to 1.0

5. Column 5. (company B rating)

Same way as in company A’s rating

6. Column 6. (co. B weighted score)

Multiply Column 2. with Column 5.




• Finally

– Add weighted scores for all the factors in Columns

4 and 6 to determine the total weighted scores for

companies A & B – The total weighted score indicates how well each

company is responding to current & expected key

success factors in the industry’s environment

– The matrix can be expanded by adding extra

columns for companies



Synthesis of External Factors - EFAS

• After scanning the societal & task environment and

identifying likely external factors – may want to

refine the analysis of these factors

•EFAS table – External Factors Analysis Summary – Organize external factors into the generally accepted

categories of O & T

– Analyze how well a particular company’s management is

responding to these specific factors in the light of perceived importance



Building the EFAS matrix

• The same as IFAS, but:

– Column 1.: External strategic factors

• Most important O & T

– Column 2.: Weight

• Assign a weight to each factor from 1.0 –most important, to 0.0 –

not important

• Based on: the factor’s probable impact on the company’s current

strategic position

• All weights sum up 1.0, regardless the number of factors

– Column 3.: Rating

• How the management deals with the external factors



Building the EFAS matrix

• Column 4.: Weighted score

– Multiply Weight with the Rating

– Write the sum of the multiplications – Total Weighted Score

•

Column 5.: Comments – Why a particular factor was selected & how its weight & rating were

estimated

• Total Weighted Score shows:

– How well the company is responding to current & expected factors inits external environment

– Score can be used to compare the company with others in its industry(3.0 – average)



EFAS matrix

ExternalFactors

Weight Rating Weightedscore

Comments

Total

scores

1.00 _____

Opportunities

•………..

•………..

Threats

•…………

•…………



The process of environmental scanning

25/09/2013 Segments of the environment

Identify the opportunities ant threats

Assess the nature of the environment

Audit the environmental influences

Identify the key competitive forces

Identify the competitive position



Approaches to making sense of the

environment


Environmental conditions

E n v i r o n m e n t a l c o n

d i t i o n s

Simple ComplexStatic

Dynamic

•Historical analysis•Forecasting

•Decentralisation

•Experience andlearning

•Scenarioplanning



Dimension of dynamism


Changingdynamically

T

V

Static

Dynamic



Dimension of complexity


Structural changes•The increasing probability of appearance and disappearance of factors/connections

T

V

T

V

In static environment In dynamic environment

Complexity•Increasing number of influencingfactors•Increasing number of direct/indirectconnections•Difficulties in describing connections



The business environment


The enterprise

RegulationActions of thegovernment

Capitalmarkets

Labourmarkets

Competition

Economicconditions

Demographics

Socioculturalfactors

Technology Ecology Suppliers



Drivers of change


Forces increasing the globalisation

Convergence of the markets

-similar taste – global customer

-global supplier – transference of marketing

Cost advantages

-economies of scale –lowest cost supplier

-lower labour cost – high cost of product development

Government activities

-trade policies –technical standardisation

-host government

(



Competitive advantage of nations (Porter’s

diamond)


Some nations aremore competitivethan the others

Some industries(within nations) aremore competitivethan the others

Factor

conditions

Home

demand

conditions

Firm strategy

structure

rivalry

Related andsupporting

industries



Competitive environment:

Porter’s five forces


Competitors

rivalry

Enterprise

Potential entrants

Suppliers Buyers

Substitutes

Bargainingpower

Threat

Threat

Bargainingpower



The threat of entry - barriers

• Economies of scale

• The capital requirement

• Access to distribution channels

• Cost advantages independent of size

• Expected retaliation

•

Legislation or government action• Differentiation




The power of buyers

• There is a concentration of buyers

• Large number of small competitors in the supplying

industry

•

There are alternative sources of supply• The component cost is a high percentage of the total

• The cost of switching supplier is low

• There is the possibility of backward integration




The power of suppliers

• There is a concentration of suppliers

• The cost of switching supplier is high

• The supplier has powerful brand

• There is the possibility of forward integration

• The supplier’s customers are highly

fragmented




Competitive rivalry

• Competitors are in balance

• No differentiation

• Lower growth rate of the demand

• Global customers

• High fixed costs

• The acquisition leads to improve competitive

standing• High exit barriers




Industry life cycle


TEmerging Growing Matured Declining

D



Characteristics of an emerging industry

• Uncertain technology

• Uncertain strategy

• High distribution costs

• First buyers

• Constrained resources

• Subventions

T

D

basic concept of strategic management and its system (1)

Documents