Module IBasic concepts of strategic

management

Definition

“….the art and science of formulating, implementing andevaluating cross-functional decisions that enable anorganisation to achieve its objectives”

Deals with developing a well thought-out systematic plan ofaction to attain the company’s mission & objectives

The means by which the management establishes the purpose &pursues the purpose through alignment of organizationalresources with environment, opportunities & constraints

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Anticipate future developments in business,attempt to mould it and balance the company’sshort & long term goals accordingly

Formulated considering the possible positions,defensive & offensive moves of competition &their relative strengths & weaknesses withrespect to the company

1. Where are we now?2. Where do we want to go?3. How are we going to get there?

In essence, thestrategic plan is acompany’s game plan

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Key Terms in Strategic Management

1. Competitive Advantage

2. Strategists

3. Vision & Mission Statements

4. External Opportunities & threats

5. Internal Strengths & Weaknesses

6. Long-term Objectives

7. Strategies

8. Annual objectives

9. Policies

Refer: David, F R (2011). Strategic Management, 13th edn, pp. 9 – 13

Strategic management processThree sequential steps:

1. Strategy formulationo A stage of committing the resourceso Developing a vision and mission (strategic intent)o Environmental analysis (TOWS)o Long-term objectiveso Generating alternative strategieso Strategy selectiono Have a perspective on the ramification of strategy decision

Possible major issues in strategy formulationNew business opportunitiesBusinesses to abandonAllocation of resourcesExpansion or diversificationInternational marketsMergers or joint venturesAvoidance of hostile takeover 5msnimt/S4/SM_m1/krp

2. Strategy implementationo The action stageo Annul objectiveso Policieso Employee motivationo Resource allocationo Developing & utilising information systemo Developing a strategy-supporting cultureo Create effective organisational structure

Issues in implementation stageMost difficult stageMobilization of employees & managersInterpersonal skills criticalConsensus on goal pursuit

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3. Strategy Evaluationo Attempt to decipher whether the strategies are working well or noto Internal reviewo External reviewo Performance metricso Corrective actiono All strategies are subject to future modification, due to constant

change in external and internal factorso Complacent firms experience sad demise

Issues in Strategy evaluationSubject to future modificationToday’s success no guarantee of future successNew & different problemsComplacency leads to demise

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Copyright 2007 Prentice Hall Ch 1 -8

PerformExternal

Audit

PerformInternal

Audit

EstablishLong-TermObjectives

Generate,Evaluate,

SelectStrategies

ImplementStrategies:

Mgmt Issues

ImplementStrategies:Marketing,Fin/Acct,R&D, MIS

Measure &Evaluate

Performance

DevelopVision

&Mission

Comprehensive strategic management model

Refer: David, F R (2011). Strategic Management, 13th edn, pp. 6 – 7 & 15

Strategy FormulationStrategy

Implementation

StrategyEvaluation

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Model of SM model by Wheelen, Hunger & Rangarajan, P. 49

Hierarchy of Strategy: 3 Types of StrategySM process occurs at three heirarchical levels in a largeorganisation1. Corporate strategy (SM atcorporate level

2. Business strategy (SM at business level

3. Functional strategy (SM at functional level

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Corporate Strategy– Narrates over all direction in terms of general attitude

towards growth and management– Typically fit in to Stability, Growth & Retrenchment

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Business Strategy– improvement of competitive position– fit within Competitive strategies (uniqueness of Apple) & Co-operative strategies (Air India with Luftansa for global operations)

Functional Strategy– combine corporate & business strategies to maximise resourceproductivity–Technological leadership–Technological followership

Refer: Wheelen , Hunger & Rangarajan (2004): Strategic Management and Business Policy ,9 edn, pp.12 -13

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Attributes of strategy in Business decisions

1. Results in major financial & resource commitment.

2. Cause long term impacts in the organisation & often difficult toreverse such decisions.

3. May result in sweeping changes in business activities.

4. Focus on matching organisational activities to the environment

5. Entails significant risks to the business.

6. Partly proactive (planned for) and partly reactive (to market &competitor moves).

7. Emerges incrementally & then evolves over time.

8. Should be within the bounds of what is legal, ethical & moral.

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9. An element of secrecy in the planning stage, butunambiguous in the implementation

10. Strategic issues are future oriented. It is based onwhat managers forecast rather than what they know.

11. Have cross-functional or multi-business impacts.12. The company’s game plan to meet competition &

achieve its organisational objectives.13. Require commitment of large amount of firm’s

resources & are therefore top management decisions.

Role and Responsibilities of corporate board in SMdetermining the direction and performance of the corporation

A corporation is a mechanism established to allow differentparties to contribute capital, expertise and labour for theirmutual benefit

The relationship among the board of directors, top management,and shareholders

Shareholders: participates in the profits of the corporationwithout taking any responsibility of operation

Management: runs the company without beingresponsible for personally providing funds

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Board of directors: elected fromshareholders have both authority andresponsibility to establish basic companypolicies and to ensure that they are followed

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• Corporation is fundamentally governed by Board of Directorsover seeing top mgt *

Role of BoardMonitor

Evaluate and influence

Initiate and determine

Responsibilities of Board

Setting corporate strategy, over all direction, vision, mission

Hiring and firing the CEO and Top management

Controlling, monitoring and supervision of top management

Reviewing and approving the use of resources

Caring for shareholder interests

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A Continuum of Board of Directors

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Inside directors• Management directors• Officers or executives employed by the firm

Outside directors• Non-management directors

1.Affiliated Directors2.Retired Directors3.Family Directors

Codetermination: inclusion of a corporation’s employees on itsboard of directorsInterlocking directorate: nominate CEOs from other organisations

Direct interlocking: mutual arrangementsIndirect interlocking: board of directors of two firms serve on

the board of the third firm

Refer: Wheelen , Hunger & Rangarajan (2004): Strategic Management and Business Policy ,9 edn, pp. 24 -30

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Role and functions of top management in SMComprises of CEO, COO, President, Executive VP, VPs ofdivisions and functional areasRole is multi-dimensional and oriented towards the totalwelfare of the organisationTask divisions

Handles tow primary responsibilities1. Provide executive leadership and strategic vision *oEL is the directing of activities towards the accomplishment

of corporate objectivesoSV is a description of what the company is capable of

becoming2. Manage the strategic planning process

Refer: Wheelen , Hunger & Rangarajan (2004): Strategic Management and Business Policy ,9 edn, pp. 33 -34