strategic management ppt (complete u-1)

8/2/2019 Strategic Management Ppt (Complete U-1)

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Strategic Management

Introduction


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Introduction

Strategic Management is considered asthe process of formulating, implementingand evaluating strategies for an

organization.

Business Policyis a predetermined courseof action that is established to guide the

performance of work towards theorganizations objectives.


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Hierarchy of Strategic Intent

It refers to the purpose of the organizationand the ends it wishes to pursue.

Vision

Mission

Goals

ObjectivesPlans


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Cont..

Vision: It is a forward looking view of what an organization wishes to becomein the year ahead. It is an image of how the organization sees itself.

Mission:It is what an organization is and why it exists? (reason for existence) Goals: They denote what an organization hopes to accomplish in a future

period of time. They represent the future state or outcome of effort put in now.Goals are generalized and may be qualitative.

Objectives: They are the ends that state specifically how the goals shall be

achieved. They are concrete and specific. It tends to be mainly qualitative inspecifications.

Plans: These are the statements of how objectives are to be accomplished.They indicate the specific actions that will be taken by the organization in orderto achieve the objectives.

Policies:These are the guidelines to decision making. Policies tell people whatthey may or may not do.

Tactics:These are the specific short term action plans designed to implementpolicy decisions. Core values: They signify commonly held beliefs, mindsets and assumptions

that shape how work is done in an organization.


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Cont

Strategy: Strategy is the overall plan of a firmdeploying its resources to establish a favorableposition and compete successfully against itsrivals. It chalks out a possible future, structuresvarious internal and external processes and putsthe firm on the right path in a dynamic world. Astrategy does not indicate what is to be done indetail; it only provides a general programme of

action, outlining the deployment of resourceswith a view to improve the chances of achievingselected objectives.


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Cont..

Thus for gaining customers attention and businesseach firm tries to chalk out its own internalstrengths and weaknesses in terms of ,

Which product or service to pursue

Which investments to make Which human resource policy to implement Which organizational structure to adopt.The essence of strategy lies in striking a

harmonious balance between a firms distinctiveskills and capabilities and the externalenvironment in which it operates.


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Strategic Decision Making

Decision making is the process ofselecting a course of action among manyalternatives. Strategic decisions are the

essence of strategic management.Strategic decisions by their nature arecharacterized by considerable risk and

uncertainty. It involves more than one areaof an organization.


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Cont..

The features of strategic decisions vary with thelevel of strategic activity considered, likecorporate level decisions are characterized by

greater risk, cost, profit potential, greater needfor flexibility and longer time horizon. Functionallevel decisions involve action orientedoperational issues and are relatively short range

and low risk. Business level decisions helpbridge decisions at the corporate and functionallevel.


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Dimensions of strategic decisions

Top management involvement

Allocation of large doses of resources

Effect of long term prosperity of the firm Future oriented

Multi- functional or Multi business

consequences Focus on external gaps.


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Levels of strategy

There are three levels of strategy:

1. Corporate level

2. Business level (SBUs)3. Functional level


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Three Levels of Strategy inOrganizations

Corporate-Level Strategy:

What business are we in?Corporation

Business-Level Strategy:

How do we compete?

Textiles Unit Chemicals Unit Auto Parts Unit

Functional-Level Strategy:

How do we support the business-levelstrategy?

Finance R&D Manufacturing Marketing


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Corporate level

It is the process of defining the overallcharacter and purpose of the organization,the business it will enter and leave and

how resources will be distributed amongthose businesses. Strategy is developedby top management.


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Business level

It is the planning process concerned primarily with howto manage the interests and operations of a particularunit with in the organization, commonly known as astrategic business unit ( SBU). A strategic business unit

is a distinct business with its own set of competitors, thatcan be managed reasonably independently of otherbusiness with in the organization. Strategies at this levelare aimed at deciding the competitive advantage tobuild, determining responses to changing market

situations, allocating resources with in the business unitand coordinating functional level strategies developed byfunctional managers.


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Functional level strategy

It is the process of determining policiesand procedures for different functions ofan enterprise like marketing, finance,

personnel etc.


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Role of strategies

Core competencies

Developing synergy

Creating value for customers.


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Disscussion

Difference between strategy and

plan?


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Strategic Management Process

ImplementStrategy viaChanges in:Leadershipculture,Structure, HR,Information &controlsystems

SWOT

FormulateStrategy Corporate,Business,

Functional

Identify StrategicFactors Strengths,Weaknesses

Identify StrategicFactors

Opportunities,Threats

Scan InternalEnvironment CoreCompetence,Synergy, ValueCreation

EvaluateCurrent Mission,Goals,Strategies

Scan ExternalEnvironment

National,Global


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Environmental scanning

Organizational environment consists of both external and internalfactors.

Environment must be scanned so as to determine development andforecasts of factors that will influence organizational success.Environmental scanning refers to possession and utilization ofinformation about occasions, patterns, trends, and

relationships within an organizations internal and externalenvironment.

It helps the managers to decide the future path of the organization.Scanning must identify the threats and opportunities existing in theenvironment.

While strategy formulation, an organization must take advantage of

the opportunities and minimize the threats. A threat for oneorganization may be an opportunity for another.


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Cont..

There are two main forces that determinethe performance of a firm.

1. The industry environment, the firmoperates in.( external)

2. The kind of resources/ skills andstrategies the firm possess/ pursues.(internal)


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Internal analysis

Internal analysis of the environment is the first step ofenvironment scanning. Organizations should observe theinternal organizational environment. This includesemployee interaction with other employees, employee

interaction with management, manager interaction withother managers, and management interaction withshareholders, access to natural resources, brandawareness, organizational structure, main staff,operational potential, etc. Analysis of internal

environment helps in identifying strengths andweaknesses of an organization.


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External Analysis

The essential purpose of the external analysisis to identify strategic opportunities and threatsin the organizations operating environment that

will effect how it pursues its mission. Threeinterrelated environments should be examined:

1. The industry environment

2. The business

3. The macro environment factors.


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Industry Environment

An industry can be defined as a group ofcompanies offering products or services that areclose substitute of each other i.e. products orservices that satisfy the same basic customerneeds.

One of the most important factors thatdetermines firm performance is the structure ofthe industry the firm operates in.

There are some industries that are inherentlyattractive, whereas others are relatively difficult.


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Cont..

There are two theories of economics thatrepresent the two extremes of industrystructure.

1. Theory of monopoly

2. Theory of perfect competition

In reality industries, fall somewhere inbetween these two extremes.


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Cont..

Along with this the industry structure isdetermined by a set of factors. MichaelE. Porters five forces Model is a tool for

analyzing industry structure.1. Threat of new entrants

2. Bargaining power of buyers

3. Bargaining power of suppliers4. Threat of substitutes

5. Intensity of rivarly among firms

i


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Threat of

Substitute

Products

Threat ofNew

Entrants

Threat of

New

Entrants

Rivalry Among

Competing Firms

in Industry

Bargaining

Power of

Buyers

Bargaining

Power of

Suppliers

Porters Five Forces

Model of Competition


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Threat of new entrants

New entrants are not currently competing in anindustry but have the capability to do so if theychoose.

Established companies already operating in anindustry often attempt to discourage potentialcompetitors from entering the industry becausethe more companies that enter, the more difficult

it becomes for established companies to protecttheir share of market and generate profits.


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Cont..

The risk of entry by potential competitorsis a function of the height of barriers toentry, that is, factors that make it costly for

companies to enter an industry.

High entry barriers may keep potentialcompetitors out of an industry even when

industry profits are high.


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Threat of New Entrants

Barriers to

Entry

Government Policy

Economies of Scale

Product Differentiation

Capital Requirements

Customer Switching Costs

Access to Distribution Channels

Learning curve


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Bargaining Power of Suppliers

Suppliers exert power

in the industry by:

* Threatening to raise

prices or to reduce quality

Powerful suppliers

can squeeze industry

profitability if firms

are unable to recover

cost increases

Suppliers are likely to be powerful if:

Supplier industry is dominated by afew firms

Suppliers products have few substitutes

Buyer is not an important customer tosupplier

Suppliers product is an importantinput to buyers product

Suppliers products are differentiatedSuppliers products have highswitching costs

Supplier poses credible threat of

forward integration


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Bargaining Power of Buyers

Buyers compete

with the supplying

industry by:

*Bargaining down prices

* Forcing higher quality

Buyer groups are likely to be powerful if:

Buyers are concentrated or purchases

are large relative to sellers sales

Products are undifferentiated

Buyers face few switching costs

Buyer presents a credible threat ofbackward integration

Product unimportant to quality

Buyer has full information


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Threat of substitutes

Products with similar function limit theprices firms can charge. Substituteproducts competitive strength high when

the relative price of substitute productsdeclines. Consumer switching costsdecline.


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Rivalry among competitors

Intensity increases as the number ofcompetitors increases or they becomeequal in size.

Demand for the industrys products

declines or industry growth slows.

Fixed costs or barriers to leaving the

industry are high.


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Rivalry Among Existing Competitors

Intense rivalry often plays out in the following ways:

Jockeying for strategic position

Using price competition

Staging advertising battles

Making new product introductions

Increasing consumer warranties or service

Occurs when a firm is pressured or sees an opportunity

Price competition often leaves the entire industry worse off

Advertising battles may increase total industry demand, but

may be costly to smaller competitors


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Usefulness of Industry Analysis

The basic purpose of industry is to assess the relativestrengths and weaknesses of an organization relative toother players in the industry.

Industry analysis helps firms in the following ways:

1. Industry attractiveness: it helps to find out the growthpotential of the industry, the profitability of the industry,the relative abilities of players in that industry

2. Competitive position: where does the firm stand incomparison to others in a particular industry. By doingthis the firm can have a realistic picture of its ownstrengths and weaknesses.


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Macro Environmental Analysis

Political and legal forces: are theoutcomes of changes in laws andregulations. Three major trends have a

defining impact on the firms-

1. Deregulation

2. Globalization

3. Concern of natural environment


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Economic environment

Economic growth leads to an expansionin customer expenditures, tends toproduce a general competitive pressures

within an industry.

1. Growth rate of economy

2. Rate of interest

3. Inflation

4. Currency exchange rate


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Social and demographicenvironment

Demographic forces are the outcomes ofchanges in the characteristics of apopulation such as age, gender, origin,

race, social class etc. Social forces refer tothe way in which changing social modesand values affect the industry. Social

changes create opportunities and threats.(like greater health consciousness)


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Technological environment

Technology changes have beenresponsible for the development of newindustries, influencing consumer behaviour

as well as defining the way firms dobusiness and relate to their customers,vendors and business partners.


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Differential firm performance

It refers to the observation that firms whichpossess similar resources and operatewith in the same industry experience

different levels of profitability.

Why?

Key Questions for Managers


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How do we assemble bundles of Resources,Capabilities and Core Competencies to create

VALUE for customers?

Will environmental changes make our corecompetencies obsolete?

And...

Are substitutes available for our corecompetencies?

Are our core competencies easily imitated?

Key Questions for Managers

in Internal Analysis


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The Internal environmentValue creating activities

Value chain analysis, which was devised byPorter, is a technique which helps us assess anorganizations resources and in doing sodetermine its strength and weaknesses.

Value chain analysis looks at the activities thatgo to make up a product or service with a viewto ascertaining how much value each activityadds.

Value and margin is the difference between thetotal value received by the firm from theconsumer for its product and the total cost ofcreating the product.


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Cont..

If the company desires to increase value it addsfor the consumers products, be they the endconsumer or an intermediate such as adistributor, it needs to know where and how

much value each activity adds and importantlyhow it might enhance this value added further byconfiguring parts or all of the value addedprocess.

However, it is recognized that organizations can

also add value through cooperation withsuppliers, customers, and distributors. Thisprocess is referred to as the value chain system.

Value Chain Analysis


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Support

Activities

Primary Activities

Technological Development

Human Resource Management

Firm Infrastructure

Procurement

Inbou

nd

Logistics

Operat

ions

Outbound

Logistics

Marketing

&Sales

Service

Value Chain AnalysisIdentifying Resources and Capabilities That Can Add Value


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Cont..

Inbound logistics: these are the value chain activities thatcover receiving, storing, and distributing inputs to theproduct. It includes material handling, warehousing,inventory control, vehicle scheduling and returns tosupplier.

Operations: these activities deal with transforming anorganizations inputs into final products such asmachining, packaging, assembly, testing, printing andfacility operations.

Outbound logistics: these activities are associated withcollecting, storing and distributing the product or serviceto buyers. It includes warehousing, material handling,delivery, order processing and scheduling.


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Cont..

Marketing and sales: this includesactivities that make a product available forbuyers to purchase and induces them to

buy. It includes advertising, promotions,sales force, channel relations and pricing.

Service: these activities enhance or

maintain the value of products, such asinstallation, repair etc.

Competitive

Discovering Core


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Resources

* Tangible

* Intangible

Capabilities

Teams of

Resources

Sources of

CoreCompetencies

CompetitiveAdvantage

Strategic

Competitiveness

Above-AverageReturns

Advantage

Gained throughCore Competencies

DiscoveringCore

Competencies

Discovering Core

Competencies

Criteria of

Sustainable

Advantages

Value

Chain

Analysis

Valuable

Rare

Costly to ImitateNonsubstitutable

*

*

**

*


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Tangible Resources

Financial*

Physical*

Human Resources*

Organizational*

What a firmHas...

What a firm has to work with:

its assets, including its peopleand the value of its brand name

Resources represent inputs into a

firms production process...such as capital equipment, skills

of employees, brand names,

finances and talented managersIntangible Resources

Technological*

Innovation*

Reputation*

Resources


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What a firmDoes...

Capabilities represent:

the firms capacity or ability to integrate individualfirm resources to achieve a desired objective.

Capabilities develop over time as a result of complex

interactions that take advantage of the interrelationships

between a firms tangible and intangible resources that arebased on the development, transmission and exchange or

sharing of information and knowledge as carried out by the

firm's employees.

Capabilities become important when they are combinedin unique combinations which create core competencies

which have strategic value and can lead to competitive

advantage.

Capabilities

What a firm DoesCore Competencies


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What a firmDoes...

that is Strategically

Valuable

are the essence of what makes an organization

unique in its ability to provide value to customers.

McKinsey & Co. recommends identifying three to four

competencies to use in framing strategic actions.

Core Competencies

What a firm Does...Core Competencies


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Core Competencies must be:

NonsubstitutableCapabilities that do not have strategic equivalents, such as firm-

specific knowledge or trust-based relationships

What a firmDoes...that is Strategically

Valuable

Core Competencies

Valuable

Rare

Costly to Imitate

Capabilities that other firms cannot develop easily, usually due tounique historical conditions, causal ambiguity or social complexity

Capabilities that are possessed by few, if any, current or potentialcompetitors

Capabilities that either help a firm to exploit opportunities to createvalue for customers or to neutralize threats in the environment

Outsourcing


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Support

Activities

Primary Activities



Firm Infrastructure

Procurement

Inbou

nd

Logistics

Operations

Outbo

und

Logistics

Marketing

&Sa

les

Service

Inbound

Logistics

Operations

OutboundLogistics

Service

Marketing

& Sales



Procurement

Firms often purchase a portion

of their value-creating activities

from specialty external suppliers

who can perform these functions

more efficiently

OutsourcingStrategic Choice to Purchase Some Activities From Outside Suppliers


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Discussion

Are the following functional, business, orcorporate strategic decisions for a large firm?

1. Entering a new market in Greece

2. Moving to an expensive office building close towhere major customers are located

3. Launching a major advertising campaign for aproduct

4. Changing the supplier of an importantcomponent that has a major impact on thequality of the finished product

strategic management ppt (complete u-1)

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