strategic management

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Principle of Management

Course:

Course instructor:MAM SADIA

MBA 1st Semester

Class:

2

Presentation:-:Strategic Management (Chapter # 09)

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Presented By:-

1. Mirza Sajid Mahmood

2. Waheed Iqbal

3. Rao Salman

•Define Strategic Management / Importance•Strategic Management Process

•Corporate Level Strategy

•Business Level Strategy

•Functional Level Strategy

•Current Strategic Mgt Issues

•E-Business Strategies•Customer Service Strategies•Innovation Strategies

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Strategy

• The ongoing process of formultaing,implementing and controlling broad plans to guide the organization in achieving its strategic goals, given its internal & external environment

• A comprehensive Plan aimed at helping the organization achieve its goals

Strategic Management

• What managers do to develop the organization’s strategies

OR

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Strategic Management Process

FormulateStrategies

ImplementStrategies

EvaluateResultsSWOT Analysis

Identify theorganization's

current mission,goals and strategies

Internal Analysis• strengths• weaknesses

External Analysis• opportunities• threats

Conduct a situation Analysis

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Strategic Management Process

• Step 1: Identify the Organization’s Current Mission, Objectives, and Strategies– Mission: the firm’s reason for being

• The scope of its products and services

i.e. (Nokia)

– Goals: the foundation for further planning• Measurable performance targets

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Strategic Management Process • Step 2: Conduct an External Analysis

– The environmental scanning of specific and general environments• Focuses on identifying opportunities and threats

Opportunities: Positive trends in external Environment Threats : Negative trends in external environment • Step 3: Conduct an Internal Analysis

– Assessing organizational resources, capabilities, activities, and culture:• Strengths (core competencies) create value for the customer and

strengthen the competitive position of the firm• Weaknesses (things done poorly or not at all) can place the firm at

a competitive disadvantage.

• Steps 2 and 3 combined are called a SWOT analysis. (Strengths, Weaknesses, Opportunities, and Threats)

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PESTEL Analysis

Political Factor

· Stability of government· Social policies: (e.g. social welfare etc.)· Trade regulations: (e.g. the EU & NAFTA)· Tax policies

The PESTEL framework is designed to provide managers with an analytical tool to identify different macro-environmental factors that may affect business strategies, and to assess how different environmental factors may influence business performance now and in the future.

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Social Factors

PESTEL Analysis

· Population demographics: (e.g. aging population)· Distribution of Wealth (e.g. CFA and Labor)· Changes in lifestyles and trends (e.g. Cloths) · Educational levels (e.g. Baluchistan)

Economic Factor· Disposable income of buyers (e.g. Mobile Sell) · Credit accessibility (e.g. Bank,Shares,Friends)· Unemployment rates (e.g. Minimize Unemployment)· Interest rates (e.g. State bank)· Inflation (e.g. Price change Petrol)

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PESTEL Analysis

Environmental Factors

· Environmental protection laws (e.g. dehydrate smoke, tree)· Waste disposal laws (e.g. Radio activity element wastage)· Energy consumption regulation (e.g. sui gas Generator)

· Employment regulations ( e.g. wages)· Competitive regulations

Legal Factors

Technological Factors· New innovations and discoveries· New technology Replace old one (e.g. Vacuum tube ,Monitor, Telephone)

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Strategic Management Process • Step 4: Formulate Strategies

– Develop and evaluate strategic alternatives– Select appropriate strategies for all levels in the organization that provide

relative advantage over competitors– Match organizational strengths to environmental opportunities– Correct weaknesses and guard against threats

• Step 5: Implement Strategies– Implementation: Once Strategies formulated, they must be

implemented– Performance will suffer if the strategies aren’t implemented

properly• Step 6: Evaluate Results

– How effective have strategies been?– What adjustments, if any, are necessary?

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Why Strategic Management Is Important

• higher organizational performance

• requires that managers examine and adapt to business environment changes

• coordinates different organizational units to focus on organizational goals

• Key to the managerial decision-making process

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Types of Organizational Strategies

There are three basic types of organizational strategies

1. Corporate Level Strategy2. Business Level or Competitive Strategy3. Functional Level Strategy

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Corporate StrategyCorporate Strategy

Grand Strategy

Grand Strategy

Portfolio Strategy

Portfolio Strategy

Growth Strategy

Growth Strategy

Stability Strategy

Stability Strategy

Retrenchment Strategy

Retrenchment Strategy

- Concentration

- Vertical Integration

- Horizontal Integration

- Diversification

- Turnaround

- Harvest

- Others ( Merger & Joint Venture)

- Divestiture

- Bankruptcy

- Liquidation

- BCG Growth-share Matrix

Levels of Organizational Strategy

Stars

Heavily invest

QuestionMarks

Sell off orturn into stars

CashCows

Milk for cash

Dogs

Sell off orliquidate

High Low

Market Share

Hig

hL

ow

An

tic

ipat

ed

G

row

th R

ate

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Corporate Level Strategy

1. Grand StrategyGrand strategy is a comprehensive general strategy designed to guide the major actions that will accomplish the organization’s long-term goals

• Improve the organization’s performance ,maximize opportunities and internal strength• Minimize external threats and internal weakness

There are two types of corporate level strategies

1. Grand Strategy2. Portfolio Strategy

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There are three types of Grand strategy


A. Growth StrategyB. Stability StrategyC. Retrenchment Strategy

A. Growth Strategy Seeking to increase the organization’s business by expansion into new products and markets

Possible growth strategies are

1.Concentration2.Vertical Integration3.Horizontal integration4.Diversification 5. others (Merger & Joint Venture

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Corporate Level Strategy1. Concentration:A strategy for company growth by increasing sales of current products to current market i.e. (LUX or PEPSI)

2. Vertical Integration:A growth strategy that involves the acquisition of one or more organization that are suppliers, distributers or customers of the firm’s products

Backward Integration: Acquiring or establishing a supplier

Forward Integration: Acquiring or establishing a customer or a distribution channel to customer

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3. Horizontal Integration:

A growth strategy that involves the acquisition of one or more competitors i.e. (Spinning mills to Spinning mills)

Ginning Spinning Weaving Dying Garments

Forward IntegrationBackward Integration

4. Diversification:

A strategy for company growth through starting up or acquiring businesses outside the company’s current products and markets i.e. (National Ronaq brand)

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A joint venture is when two or more companies make an agreement to do business in one specific area

Joint venture:

It’s a short term collaborationi.e. (Nokia Siemens Network, Sony Ericson

Merger:

A merger is when two companies come together to form a single company

i.e. Al Baraka banking group and Emirates Global Islamic Bank ( Al Baraka Islamic Bank Pakistan)

Corporate Level Strategy5. Others

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Corporate Level StrategyB. Stability Strategy

A Grand Strategy in which organization continues to do what it is currently doing

C. Retrenchment StrategyA Grand Strategy that involves reducing organizational operation also called defensive Strategy

Types of Retrenchment StrategiesThere are five types of retrenchment Strategies

i. Turnaroundii. Harvestiii. Divestitureiv. Bankruptcyv. Liquidation

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Corporate Level Strategyi. Turnaround

A retrenchment strategy intended to reverse a negative trend and regain profitability Reducing Salaries and bonuses employees and downsizing to get profit Increase Customer satisfaction and adjust pricing for better profitability

ii. HarvestA retrenchment strategy that involves minimizing investment and maximizing short-term profit Increase prices to get maximum profits Reduce or eliminate advertising or marketing effort to save cost

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iii. Divestiture


A retrenchment strategy that involves selling all or part of an organization Poor working organization unit does nothing to achieve organization long term goals selling is one solution

iv. BankruptcyA retrenchment strategy in which an organization unable to meet its obligations seeks court protection to gain time and opportunity to attempt a turnaround Managers choose bankruptcy only after they have failed to reverse a long period of declineOrganization responsible to give all parties payment honestly

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v. Liquidation


A retrenchment strategy that involves dissolving or selling an entire organization when small business owners choose liquidation when they believe that their organization’s future is bleak

e.g. (Partners Death, Illegal work)

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• Corporate Portfolio Analysis

– BCG Matrix

• Developed by the Boston Consulting Group

• Considers market share and industry growth rate

• Classifies firms as:

– Cash cows: low growth rate, high market share

– Stars: high growth rate, high market share

– Question marks: high growth rate, low market share

– Dogs: low growth rate, low market share


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BCG Growth Rate Matrix

Stars

Heavily invest

QuestionMarks

Sell off orturn into stars

CashCows

Milk for cash

Dogs

Sell off orliquidate

High Low

Market ShareH

igh

Lo

w

An

tic

ipa

ted

G

row

th R

ate

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Business StrategyBusiness Strategy

Miles & Snow adaptation Model

Miles & Snow adaptation Model

Porter’s Generic Competitive Strategies

Porter’s Generic Competitive Strategies

Product Life CycleProduct Life Cycle

- Defender Strategy

- Prospector Strategy

- Analyzer Strategy

- Reactor Strategy

- Cost Leadership Strategy

- Differentiation Strategy

- Focus Strategy

Research andDevelopment

Manufacturing Marketing HumanResources

Finance

Functional StrategyFunctional Strategy

Levels of Organizational Strategy

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Business-Level Strategy

• Business-Level Strategy– A strategy that seeks to determine how an

organization should compete in each of its business (es)

There are three tools of business level strategy

1. Miles and snow adaptation Model

2. Porter’s Generic Competitive Strategy

3. Product Life Cycle Model

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• Miles and Snow Adaptation ModelAfter studying the practices, of organization in four industries, Raymond E . Miles and Charles C. snow developed the adaptation model

Adaptation ModelA strategy analysis tool based on the relationship of business level strategy to internal and external environments.For business level strategy that use to adapt Miles and Snow identified four level of strategy

1. Defender Strategy2. Prospector Strategy3. Analyzer Strategy4. Reactor Strategy

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Business-Level Strategy1. Defender Strategy

The defender strategy involves defining a narrow market that the organization can thoroughly penetrate with a limited number of goods or services

Effective in stable environment

Focus on internal efficiencies rather than worrying about external environment

It may leave organization weak in the case of major environmental shift

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2. Prospector Strategy


The prospector strategy is opposite of the defender strategy, being concerned with identifying and developing new product and market opportunities

Effective in dynamic environment

It can be costly strategy to follow (pursue)

Remaining flexible and responsive (scan) to environmental

changes

i.e. importer exporter

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Business-Level Strategy3. Analyzer Strategy

The analyzer strategy combines elements of the defender and prospector strategies

Organization maintain traditional products & customers Watching competitors activity Searching for new products and market, that appear to be possible Flexibility to respond to environmental changes Stability to profit from a stable environment Keep flexibility and stability in balance, if not balance then result can be inefficient (Daewoo express)

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Business-Level Strategy4. Reactor Strategy

In any type of environment reactor acts without a consistent

strategy

Reactor responds in appropriately and ad hoc fashion

Reactor risks poor performance because of inability to react

appropriately or consistently to any environmental situation

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• Porter’s Generic Competitive StrategiesAn organization becomes stuck in middle when its costs are too high to compete with the low cost leader or when its products are not differentiator's products or compete the differentiator

1. Cost Leadership Strategy2. Differentiation Strategy3. Focus Strategy

1. Cost Leadership Strategy

A low cost leader is highly efficient overhead is kept to minimum and the firm does everything it can to cut costs (e.g. Wal-Mart)

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Business-Level Strategy2. Differentiation Strategy

Products might come from exceptionally high quality, extraordinary service, innovative design or an unusually positive brand image

3. Focus Strategy

The generic competitive strategy in which an organization concentrates on a limited part of the market, a limited product line, or a confined geographic area

Cost focus Involve a cost advantage

Differentiation FocusNarrow segment or niche

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• Product Life CycleThe passage of goods and services through a progression of market acceptance stages

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Five Competitive Forces1. Threat of New Entrants

– The ease or difficulty with which new competitors can enter an industry

2. Threat of Substitutes– The extent to which switching costs and brand loyalty affect

the likelihood of customers adopting substitute products and services

3. Bargaining Power of Buyers– The degree to which buyers have the market strength to hold

sway over and influence competitors in an industry4. Bargaining Power of Suppliers

– The relative number of buyers to suppliers and threats from substitutes and new entrants affect the buyer-supplier relationship

5. Current Rivalry– Intensity among rivals increases when industry growth rates

slow, demand falls, and product prices descend

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Functional-Level Strategy

The strategies used by an organization’s various functional departments to support the competitive strategy

1. Research and development2. Manufacturing3. Marketing4. Human Resource5. Finance

1. Research and Development Research and Development comprise creative work

undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture and society, and the use of this stock of knowledge to devise new applications

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Functional-Level Strategy

To make or process a raw material into a finished product

2. Manufacturing

3. Marketing

The act or process of buying and selling in a market

4. Human Resource

Human resources is the set of individuals who make up the workforce of an organization and business sector

5. Finance

Finance refers to the management, creation and study of money, banking, credit, investments, assets, and liabilities

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Current Strategic Management Issues

1. The need for Strategic Leadership2. The need for Strategic Flexibility

1. The need for Strategic Leadership

The ability to anticipate, envision, maintain flexibility, think strategically and work with others in the organization to initiate changes that will create a viable (possible) and valuable future for the organization

2. The need for Strategic Flexibility

The ability to recognize major external changes to quickly commit resources, and to recognize when a strategic decision was a mistake

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Important Organizational Strategies for today’s Environment

1. e. Business Strategy (Online)2. Customer service strategy3. Innovation strategy

1. e. Business Strategy (Online) Specific chat room Niche web sites for selling products Selling calls (credit card company)

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2. Customer service strategy

An efficient customer communication system is an important customer service strategy

An organizational culture is important to providing excellent customers services

Employees should be trained to provide exceptional customer service

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3. Innovation Strategy

• Strategic Decisions about Innovation– Basic research

– Product development

– Process innovation

• First Mover– An organization that brings a product innovation to market or

uses a new process innovation

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Thanks

strategic management

Business

competitive strategy

strategies mission

organizations strategies

goals strategic management

appropriate strategies

strategies implementation

strategies arent

strategic goals