str mgt mod 1 aug 2010

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Strategic Management

Module – 1 (Syllabus)

Meaning and Nature of Strategic Management

1. Importance and relevance2. Characteristics of Strategic Management

3. Str Mgt – Process

4. Relationship between a Company’s Strategy and its

Business Model

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Military Influences in Strategy

‘Strategos’ referred to ‘General in Command’ of an Army

By 450 BC – Managerial Skill, existed

By 350BC – Skill of employing forces to

overcome to create a system of global

governance positions

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-

-Capital

Budgeting

-Operating

budgeting

-1950

Corporate

Planning

-Economic

Forecasting

-Synergy

-Creation of

Depts

-1960

Strategy as

positioning-Industry

analysis

-Segmentation

-Experience

Curve

-1970/1980

Competitive

Advantage-Resource

Re-engineering

-Alliances

-

1990

Str for New

Economy-New Models

-- Technology

-2000

Str in New

Millennium

-BusinessEthics

-Competing fo

standards-

winner take al

--Global

standards-2006

Financial

Budgeting

Evolution of Strategic Management

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What is strategy?

Management‟s „Game Plan‟ for growing the business

Stacking out a market position, Attracting and pleasing

customers

Competing successfully

Conducting operations

Achieving Targeted Objectives.

“ Competitive moves & business approaches to attract & please

customers, Compete successfully, grow business, conduct operations,

and achieve targeted objectives.”

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How to attract and please customers?

How to respond to changing market conditions?

How to compete successfully?

How to grow the business?

How to achieve performance targets?

How to manage each function?

How to develop needed capabilities?

Strategic

Management

What is strategy? ……Continued

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What do we mean by strategy?

• Action plan for running business and conducting

operations

• Strategy is all ‘HOW’s:

how mgt intends to grow the business?

how to build a loyal clientele and outcompete rivals

how each function will be operated? ( R & D , SC. P,

S. Mktg, D , F and HR)

how performance will be boosted?

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Strategy - Core Concept

• Company’s Strategy consists of :

Competitive moves and business Approaches that a manager operates to

–Grow business

– Attract and please customers

– Compete successfully

– Conduct operations

– Achieve targeted levels of Organizationalperformance

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STRATEGIC MANAGEMENTMeaning and Nature

Definitions

Goal directed decisions and actions, in which

capabilities and resources are matched with

opportunities and in threats in the environment.

Strategy is a commitment to undertake a set of actions

rather than others.

Sharon Oster The process of developing superior strategies is „partly planning

& partly trial and error‟, until you hit upon something that works. - Costas Markides

Without a strategy the Organization is like a ship with out a

rudder.

- Michael Kami

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Why Strategic Management is important?

o Gives every one a role

o Makes difference in performance level

o Provides systematic approach to uncertainties

o Coordinates and focuses employees

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Importance and Relevance-

Basic 3 Questions

1. What is the company’s present situation?

2. Where does the company need to go from here?

3.How should it get it there?

1. Relies on Industry conditions, competitive pressures , company’s

current performance, market standing, resource strengths andcapabilities.

2. Mangers to make choices, about in moving direction, new

customer group, market position etc,

3. Crafting and executing, capable of moving in desired direction.Growing its business, improving financial and market performance.

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Thinking Strategically:

The Three Big Strategic Questions

1. What’s the company’s present situation?

2. Where does the company need to go from here?

–

Business(es) to be in and market positions to stake out – Buyer needs and groups to serve

– Direction to head

3. How should it get there?

– A company’s answer to “howwill we get there?” is its strategy

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Core Concept

• A company achieves a sustainable competitive

advantage, when an attractive number of

customers prefer its products or services over

the competitors and when the basis for this

performance is durable.

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Corporate Strategy Vs Business Strategy

Michael Porter emphasized “Strategy is not about , doingthings better but doing differently.

Strategy is making Choice: Basic Questions are- Where to compete?

How to compete?Answer is Corporate Strategy and Business Strategy

Corporate Strategy: Decisions include investment in ‘Diversification, Vertical Integration, acquisition and newVentures allocation of resources & Divestment.

Business Strategy: is concerned with how the firm competeswith a particular industry or market. Firm to establish ‘ acompetitive advantage’ over its rivals . This area is referred ascompetitive strategy.

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IndustryAttractiveness

Rate of

Return

above thecost of

Capital

Competitive

Advantage

How do we

make money?

Which Industry

should we be in?

How should

we compete?

CorporateStrategy

Business

Strategy

Corporate Strategy Vs Business Strategy

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Business and Strategy Model

Business model : 1. Gives the logic of how the a „Strategy‟ can deliver value to

customers at a „price and cost‟ that yields „ Profitability‟

2. Relates to whether the „Revenue-Cost – Profit‟

economics of its „S‟ demonstrates the viability of business as a whole

3. Revenue- Cost – Profit‟ flows from „Strategy‟-, shows viability

Strategy:

1. „Competitive Initiatives/ approaches‟- irrespective of financial

out come 2. Is capable of Profit making, Co becomes a viable „Business

Enterprise‟

3. Co with Lack of Strategy, fails to produce to meet even

“bottom line requirement”

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What Is a Business Model?

• A business model addresses “How do we make

money in this business?” – Is the strategy capable of delivering

good bottom-line results?

• Do the revenue-cost-profit economics

of the strategy make good business sense? – Look at revenue streams the strategy is expected to produce

–

Look at associated cost structure and potential profit margins – Do resulting earnings streams and ROI indicate the strategy makes

sense and the company has a viable business model for making

money?

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Storyline : How and Why company‟s „Offering‟ and

competitive approaches will generate revenue stream ?

Does the Cost structure, produces attractive earnings

and „ Return on Investment‟?

Business model forms an „Economic logic‟ for making

money in a particular business

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Ful Strategy

1. Simple,

consistent

Long term goals

2. Profound

Understanding

of the competitive

environment

3. Objective

appraisal of

resources

SuccessfulStrategy

E4. Effective Implementation

Common Factors standout

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Common Factors standout

1. Goals that are simple, consistent and long term

2. Profound understanding of environments

3. Objective appraisal of resources

4. Effective Implementation

Combination of all the 4 above, leads to success.

Those who are, 1. Goal focused 3.know environment

2. aware of themselves 4. they implement.

“We must learn how to be the CEO( master) of our owncareers”- Peter Drucker

2 A C ’ St t I

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.2: A Company’s Strategy Is

Partly Proactive and Partly Reactive

2 S i P l P A i

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2.Strategy is - Partly Pro Active,

Partly Reactive ( continued)

Prior Version

External FactorsIndustry and competitive

Technological

Conditions

Buyer preferences

Societal

PoliticalRegulatory

Economical

Environmental

Internal FactorsResource strengths

Competitive capabilities

Company‟sStrategy

Proactive strategyNew Initiative +On going

Strategy from prior periods

Adaptive reactions to

Changing circumstancesReactive Strategy

Latest Version

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A Company achieves sustainable competitive

advantage, when number of customers „prefer‟ its

products over the competitors, and the

preference is „durable‟.

S‟ is driven partly by „Mgt Analysis and

choice‟ and partly by „Necessity of adapting

and learning by doing‟.

3. Strategy emerges as „incremental‟ and

evolves over „Time‟

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3. Identifying a Company’s Strategy

Strategies are reflected in :

Business Approaches

Future Plans - Actions in market place

Competitiveness - Senior Manager’s Statements

Performances

Other Documents: Annual Report, Press Releases, Company News, News to Investors

( Websites), Presentations to Security Analysis

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Describing a Firm’s strategy

• Strategy exists in the minds of ‘Top Management’

Entrepreneurial-startup….Founder

Start -up enterprises… written down Business Plan

Established Companies…in many ways Vision – Asp rational View

Mission – Statement of purpose

Business Model – A statement, basing on which firm

generates ‘revenue and profit’ Strategic Plan –Performance goals, Approaches,

Resource commitments

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Nokia’s Strategy

Vision – “ Life goes Mobile“

Mission - “Connecting People”

Strategy – 3 Activities “ Expand mobile Voice

Drive Consumer Multimedia

Bring extended mobility to enterprises

- 1.6 Billion subscribers

- Mobility transformed people , life style change

- Imaging, Games , Entertainment, media, enterprises( new)- Bridging gap, people Information they need

( examples: Apple Computer, CoCo-Cola…. )

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Changing circumstances and On going Mgt Efforts to

improve the strategy, causes ‘a good strategy’ to

emerge and evolve over ‘time.’

The task of Crafting the Strategy is a “ Work in Progress”

- not an ‘One time’ event.( continuous process)

Crafting Strategy –is a work in Progress

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What to Look for? ACTIONS:

1.To gain Sales & market price via low price ( performance, design, quality,

service etc)

2. Respond to changing market

3. To enter new geographic or product market OR exit existing market

4. To merge with Or acquire rival Co,

5. To form Strategic Alliance Or Collaborative Partnership

6. Pursue New market Opportunities

7. To determine how the Mgt functions to perform( R& D, Production,

Sales, Marketing, & Finance)

8. To strengthen competitive capabilities & take advantage of

rival‟s weaknesses.

To diversify Company‟s Revenues by new businesses

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Four “Best” Strategic Approaches to

Building Sustainable Competitive Advantage

• 1.Being the industry’s low-cost provider (a cost-basedcompetitive advantage)

• 2. Incorporate differentiating features (a “superior product”type of competitive advantage keyed to higher quality, betterperformance, wider selection, value-added services, or someother attribute)

• 3. Focusing on a narrow market niche (winning a competitiveedge by doing a better job than rivalsof serving the needs and preferences of buyers comprising the niche)

• 4. Developing expertise and resourcestrengths not easily imitated or matched by rivals(a capabilities-based competitive advantage)

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Four Strategic approaches

1. Strive to be Industry’s low cost provider ( Wal-mart, and

South east Airlines won low-cost advantages over their rivals)

2. Competing Rivals on ‘ differential features’ (quality,product selection, added performance, value added service,

attractive style, technological superiority) 3. Focus on narrow market niche and winning a competitive

edge (eBay – Online auction, Jiffy lube International –quick oilchange, Starbucks – Premium coffee and coffee drinks

4. Develop expertise and resource strength s, that cannot beeasily imitated by rivals ( FedEx – Next day delivery, WaltDisney – Theme Park, Toyota – defect free vehicles at lowcost)

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Competitive Advantage Examples

• Strive to be the industry’s low-cost provider

– Wal-Mart

– Southwest Airlines

•

Outcompete rivals on a key differentiating feature – Johnson & Johnson – Reliability in baby products

– Harley-Davidson – King-of-the-road styling

– Rolex – Top-of-the-line prestige

–Mercedes-Benz – Engineering design and performance

– L.L. Bean – Good value

– Amazon.com – Wide selection and convenience

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Competitive Advantage Examples

(cont)• Focus on a narrow market niche

– eBay – Online auctions

– Jiffy Lube International – Quick oil changes

– McAfee – Virus protection auctions

– Starbucks – Premium coffees and coffee drinks – The Weather Channel – Cable TV

• Develop expertise, resource strengths, andcapabilities not easily imitated by rivals

– FedEx – Next-day delivery of small packages

– Walt Disney – Theme park management and family entertainment

– Toyota – Sophisticated production system

– Ritz-Carlton – Personalized customer service

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The Strategic Management - Process

Situational

Analysis

Strategy

Implementation

Business

Internal

Analysis

Strategy

Formulation

Strategy

Evaluation

ExternalAnalysis

Functional CorporatePerspectives

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Strategic Management Process

1. Situational Analysis- Scanning and evaluating the context

- Internal and External environment

2. Strategy Formulation

- Functional- Competitive

- Corporate

3. Strategy Implementation

- Processing of Implementation

- At 3 Levels: 1. Corporate 2.Functional 3. Operational

4. Strategy Evaluation

- Was the Strategy Effective?

- Close the loop

Start

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Alternative Strategic Management

Structures

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Characteristics of Strategic

Management Decisions: Corporate

• Often carry greater risk, cost, andprofit potential

•

Greater need for flexibility• Longer time horizons

• Choice of businesses, dividend

policies, sources of long-termfinancing, and priorities for growth

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Management Decisions: Functional

• Implement the overall strategy formulatedat the corporate and business levels

• Involve action-oriented and operational

issues• Relatively short range and low risk

• Modest costs: depend upon available

resources• Relatively concrete and quantifiable

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Management Decisions: Business

• Help bridge decisions at the corporate andfunctional levels

• Less costly, risky, and potentially profitable

than corporate-level decisions• More costly, risky, and potentially

profitable than functional-level decisions

• Include decisions on plant location,marketing segmentation, and distribution

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Strategy Makers

• Ideal strategic team includes decisionmakers from all three levels

•

Top managers must give final approval• Strategic decisions coincide with

managers’ responsibilities

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Strategy Makers: The CEO

• A firm’s CEO plays a dominant role instrategic planning

• The CEO’s principal duty is giving

long-term direction to the firm

• The CEO bears ultimate responsibility

for the firm’s success and strategic

success

• CEOs are typically strong-willed,

company-oriented individuals

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Who does the Strategy?

o Role of Board of Directors- Elected representatives of Company stock holders

- Legally obligated to represent and protect stock holders

o The role of Top Management- Responsible for decision and action of every employee

- Providing effective leadership

o Employees- Implement

- Evaluate

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Review and Approve the Strategic goals and plans

Review and Approve Financial Statements

Monitor Organization Performances

Select , evaluate, and compensate, top level mnagers

Develop Management succession plans

Monitor relations with stock holders

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Who is on Board?

Chairman of the Board- CEO

President

Other Chiefs

- Chief Financial Officer

- Chief Information Officer

Inside Board Members

Out side Board Members

C fti d E t hi

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Crafting needs Entrepreneurship

Studying the trends competitors action continuously

Listening to customers and anticipating their needs

Acquiring new technologies & introducing new products

Willingness to try new experiments to increase market share

Out Innovating the competitors by more imaginative/efficient

Inseparable from being good business entrepreneurship

l h

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Relationship Between

Strategy and Business Model

Strategy . . .

Deals with a company’s

competitive initiatives and

business approaches

Business Model . . . Concerns whether revenues

and costs, flowing from the

strategy , demonstrate amply

profitable and viable

G d St t + G d St t E ti

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Good Strategy + Good Strategy Execution

= Good Management•

Crafting and executing strategy are core managementfunctions

• Among all things managers do, nothing affects a

company’s ultimate success or failure more

fundamentally than how well its management team – Charts a company’s direction,

– Develops competitively effective strategic moves and business

approaches, and

–

Pursues what needs to be done internally to produce good day-in/day-out strategy execution

Excellent execution of excellent strategy , is thebest test of managerial excellence

most reliable recipe for winning in the marketplace!

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Good Strategy + Good Execution

= Good Management

Excellent execution of an excellent Strategy is the best

test of Managerial excellence - and most reliable recipe

for turning Companies into standout performers.

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Components of Strategic

Management Model

• Company Mission

• External Analysis

• Long-Term Objectives

• Short-Term Objectives• Policies Empowering

Action

•

Strategic Control &ContinuousImprovement

• Internal Analysis

• Strategic Analysis &Choice

• Generic & GrandStrategies

• Functional Tactics

• Restructuring,Reengineering &Refocusing

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Strategy starts with ‘ Vision & Mission’

Effective Strategy starts with Vision and Mission statements

Microsoft’s Vision:

- Empower people through great soft ware at any time,

- Any where and on any device.

OTIS Elevater’ s Mission:

To provide any customer a means of moving up , down and

side ways over short distances with high reliability than any

similar enterprises in the world.

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Visionary:

• 3M

• Boeing

• GE

• IBM

• Sony

• Wall mart

• Motorola

• Nordstrom

• P & G

Peer Company:

• Norton

• Mc Donnell

•Westinghouse

• Burroughs

• Zenith

• Melville

• Colgate

• Kenwood

• Ames

Companies used Strategic

Management Successfully

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Benefits of Strategic Management

• Managers at all levels interact in planning

and implementing strategy

• Similar to participative decision making

• Assessing strategy formulation requires

looking at nonfinancial evaluations as well as

financial ones

• Promoting positive behavioral consequences

enables achievement of financial goals

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Risks of Strategic Management

•Managers’ time away from otherresponsibilities

• Unrealistic expectations promised by strategy

formulators

• Possible disappointment of participating

subordinates if goal is not reached

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Key Points

1. Stack out a market position

2. Conduct its operations

3. Attract and please customers

4. Achieve successfully Organizational Objectives

5. Building long term competitive position and financialPerformance

6. Gain competitive advantage over rivals

7. Ensure above average Profitability

8. Keeping managers proactive and purposeful

9. Reactions to unanticipated developments and

fresh market conditions

10. ‘Business Model’ is closely related concept- Storyline

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- Crafting and executing strategy are core management functions.

-„Winning Or Losing ?‟- is directly attributable to Company‟s

Strategy and Proficiency, with which the strategy is executed.

Essence

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Books Referred

1. ‘Crafting and Executing Strategy’- 16th Edn- A J Strickland III

- John E Gamble

- Arthur A Thomson J

- Arun K Jain2, Strategic Management Theory- 2009 Edn

- Charles W. L.

- Gareth R Jones

3.. Strategic Management

- John A Pierce II

- Richard B.

- Robinson, JR

4. Contemporary Strategic Management – 16th Edn

-Robert M. Grant

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