Strategic Management

Strategic ManagementDefinition of strategic Management

Strategic Management is a set of managerial decisions and actions that determines the long run performance of a corporation. It includes environmental scanning (both external and internal ),strategy formulation (strategic or long range planning),strategy implementation ,and evaluation and controlStrategic management emphasizes the monitoring and evaluation of external opportunities and threats in light of a corporation strengths and weaknessIt was originally called business policyIt incorporates such topics as strategic planning, environmental scanning and industry analysis.

Strategic Management Strategic management is a process that requires the ability to manage change. SM can be defined as consisting of analysis, decisions and actions an organization undertakes in order to create and sustain competitive advantagesIt continuously involves analyses on decisions and actions on the continual basis. It means analyzing the strategic Vision, Mission and goals of the organization ,and analyzing the internal as well as external environment of the organization4What is strategic management?It is a process which is oriented towards the long term and deals with: different time horizonsfuture optionsnew projectsexisting operations

4Strategic planning is a living, ongoing process, not a once a year event. The strategic plan is a by product of the process not an aim in itself. The choices which are made at this time require management to understand its own internal environment and the effects of competitors and the external environment. The strategies which are chosen should be unique to the organisation.Strategic management is a long term ongoing process which is concerned with where the organisation is now and where it aims to be in the future. Definitions of 'the long-term' will be dependent on the specific industry concerned. In terms of primary industry areas, eg mining, the long term could span anything from 20 to a 100 years whereas in the more volatile computer industry long-term may be a twelve month period.Strategic thinking spans these three broad time spansfuture optionsnew projectsexisting operationsThe essence of strategic management is the study of reasons as to why some companies outperform others.According to Michael Porter, sustainable competitive advantage cannot be achieved through operational effectiveness like restoring to techniques like JIT, Quality Management, outsourcing, supply chain Management etc. Infact it can be achieved only by out performing different activities as compared to its rivals Wal-Mart and IKEA, Max and Fortis hospitality chain in India.Why are strategic decisions different from other types of decisionsStrategic decisions deal with the long-run future of the entire organization and have three characteristics which differentiate them from other types of decisions: (1) They are rare. Strategic decisions are unusual and typically have no precedent to follow; (2) They are consequential. Strategic decisions commit substantial resources and demand a great deal of commitment; (3) They are directive. Strategic decisions set precedents for lesser decisions and future actions throughout the organization. What is meant by a hierarchy of strategy?

A hierarchy of strategy is a term used to describe the interrelationships among the three levels of strategy (corporate, business, and functional) typically found in large business corporations. Beginning with the corporate level, each level of strategy forms the strategic environment of the next level in the corporation. This means that corporate level objectives, strategies, and policies form a key part of the environment of a division or business unit. The objectives, strategies, and policies of the division or unit must therefore be formulated so as to help achieve the plans of the corporate level. The same is true of functional departments which must operate within the objectives, strategies, and policies of a division or unit.

Types of StrategiesOperational LevelFunctional LevelDivision LevelCorp LevelA Large Company8Does every business firm have business strategies?

Every business firm should have a business strategy for every industry or market segment it serves. A business strategy aims at improving the competitive position of a business firm's products or services in a specific industry or market segment. Firms must therefore have business strategies even if they are not organized on the basis of operating divisions. Nevertheless, it is still possible that some business firms do not have clearly stated business strategies.

Phases of strategic ManagementThere are four phases of strategic managementBasic Financial Planning : includes budget, forecasting. The time horizon is usually one year.Forecast based planning: Managers usually do five year planning rather than just confining to just one year planning .Externally oriented (strategic ) planning: emphasizes top down planning ,formal strategy formulation ,implementation of policies Implementation at all levels of the organizationGE is one of the pioneer company which led the transition from strategy planning to strategic management.

Benefits of strategic managementEmphasizes long term performanceLeads to attainment of an appropriate match,fit , between an organization s environment and its strategy ,structure and process has positive effects on the organizations performance.Recent survey by Mc Kinsey & company found that formal strategic planning processes improve overall satisfaction with strategic development.SP is effective at identifying new opportunities for growth and ensuring that all mangers have same goalsHelps in laying down the mission and vision statements of the organization.

Comprehensive Strategic Management Model.External AuditInternal Audit Strategic Management ModelScanningWhere are we now?Strategy FormulationWhere do we want to be?Strategy ImplementationHow do we get there?Measurement/PerformanceHow do we measure our progress?

1-14Basic Concepts of Strategic ManagementBasic Elements of the Strategic Management ProcessPrentice Hall 20061-15Basic Concepts of Strategic ManagementEnvironmental Variables

Prentice Hall 20061-16Basic Concepts of Strategic ManagementStrategic Decision-Making Process

Strategic Management ModelStrategy FormulationWhere do we want to be?VisionMissionValuesGoalsObjectives

Relationship between the key external forces and an organizationExternal Assessment External strategic management audit is sometimes referred to the environmental scanning or industry analysis. An external audit focusses on identifying and evaluating trends and events beyond the control of a single fir such as increased foreign competition, population shifts ,stock market vitalityThe purpose of an external audit is to develop a finite list of opportunities that could benefit a firm and threats that should be avoided.Key external forces:External forces can be divided into five broad categories:Economic forcesSocial ,cultural ,demographic, and natural environment forcesPolitical ,government and legal forcesTechnological forces

Competitive forces

The Industrial Organization (I/O)viewThe industrial organization (I/O) approach to competitive advantage advocates that the external (industry ) factors are the most important than the internal factors in a firm achieving the competitive advantage.I/O theorists state that the external factors has stronger influence on the firms performanceProponents of the I/O view such as the Michael Porter maintain that the analyzing the external forces and the industry variables are the basis for getting and keeping the competitive advantage of the firm.It is stated that the competitive advantage is determined by the competitive positioning within an industry.Managing the strategically from the I/O perspective entails the firm striving to compete in attractive industries and understanding the key external factors relationship within that attractive industry.Change in the external forces translate into changes in consumer demand for both industrial and consumer products and services. External forces affect the types of products developed ,the nature of positioning and market segmentation strategies, type of services offered and the choice of businesses to acquire or sell.External forces directly effect both the suppliers and distributors Identifying and evaluating external opportunities and threats enables organizations to develop a clear mission , to design strategies to achieve long term objectives , and to develop policies to achieve annual objectivesProcess of external audit evolves gathering the competitive intelligence and information about economic, social, cultural ,demographic ,environment ,political ,government ,legal and technological trendsSuppliers, distributors, salesperson, customers and competitors represent other sources of vita informationOnce the relevant information is gathered, it should be assimilated and evaluated.Various external factors like firms market share, breath of competitive products, world economies, foreign affinities', price competitiveness, technological advancement, population shifts, interest rates and pollution abatement are taken into consideration while assessing the external environment of the company. External Environment(I/O)

Economic ForcesSocial ,cultural ,demographic and natural environment forcesTechnological forcesCompetitive forcesCompetitive Analysis: Porter Five forces Model

Economic Forces

Economic factors have direct impact on the potential attractiveness of various strategies. They include factors like: Inflation rates, Interest rates, Availability of credit ,Government policies including the monetary and fiscal policiesGDP of the economyPropensity of people to spend Budgets Consumption patternsstock market trendsSocial ,Cultural ,Demographic And Natural Environment Forces

These factors include prevailing attitudes, traditions, values ,social trends ,ethics and society expectation from the business These subset includes factors like presence of ethnic groups, different religions ,Age, racial equality, location of retailing, manufacturing an services business ,waste management, population, social responsibility, energy conversation, general attitude, purchasing patterns and power, per capital income, social security programsPolitical ,Government and legal forcesThis subset refers to the federal, state , local an foreign government are major regulators, deregulators , subsidizers, employers and customers of the organization. Includes laws like patents laws, special tariffs ,political relations among other countries , Import and export policies, government subsides, government expenditure.Global ForcesHave huge impact on the existence and growth trajectory for the organization Eg OPECEUPACIFIC RIMNAFTAEmerging Economies China-India -BrazilTechnological forcesTechnological forces represent the major opportunities and threats that must be considered in formulating strategies. Technological advancements can dramatically affect the organizations products, services, suppliers, distributors, competitors, consumers ,manufacturing processes, marketing policies, and competitive positionVision StatementAny statement which answers the question what is our business?It is an enduring statement of purpose that distinguishes one organization from the other similar enterprise while the mission statement is the declaration of an organization reasons of beingThe main purpose of the vision statement is to outline the :dream state of the business. Sometimes it is called a creed statement ,a statement of purpose, beliefs business principles or a statement defining the business

VISION OF THE CORPORATEVision articulates the position that a firm would like to attain in the distant futureAccording to Kotter(1990),defines it as a description of something an organization , a corporate culture, a business , a technology, an activity in the futureEl-Namaki(1992) defines it as a mental perception of the kind of environment an individual ,or an organization , aspires to create within a broad time horizon and the underlying conditions for the actualization of this perception

A vision should be:An organization charter of core values and principleThe ultimate source of our priorities, plans and goalsReflect core competencesIt should be flexibleIt should be forward looking

Determination and publication of what makes us unique

Vision statement examples:A car in every garage(Ford)To be happiest place on earth(Disneyland)To be worlds best quick service restaurant(Mc Donald) We save people money so they can live better (Walmart)Apple Stay foolish ,stay hungryMarriott Hotel "To be the #1 hospitality company in the world

Benefits of a Vision:It creates a common identity and shared sence of purpose. They symbolize competitiveness, originality and uniqueness. They foster risk taking and experimentation and long term thinking .It clarifies and crystallizes the senior views about the company long term decisionsHelps the organization to prepare for the futureIt represents organization integrity and unity.Process of vision statementMission StatementA Mission Statement describes how your business is going to accomplish its vision. The Mission Statement describes the what of your business. It states why your organization is in business and what you are hoping to achieve.Described as the reason for being.

A typical mission statement contains three components:1. The overall purpose of your business What are you trying to achieve. What your business does - products and services it provides.What's important to your business - the values your business lives by.Components of Mission StatementA mission statement is most visible and public part of the strategic management process, it is important that it includes the nine characteristics as well as the following nine components:CustomersProduct or servicesMarketsTechnology Concern for survival, growth and profitabilityPhilosophySelf conceptConcern for public imageConcern for employeesMission statement differs from the vision statement as the mission statement is focused on what is our businesses while the vision statement deals with where we are headed or what do we want to become nature of the vision.A good mission statement should be comprehensive enough to include the organization s purpose , the nature of its product and services, the type of markets and customers it serves, its basic philosophy and value system and the technology and techniques it uses:

Characteristics of Mission statement:

Declaration of AttitudesCustomer OrientationDeclaration of social policy

Components of Mission StatementProduct or serviceCustomersTechnology Survival ,growth and profitabilityCompany philosophyPublic imageExamplesMicrosoft : MissionAt Microsoft, our mission is to enable people and businesses throughout the world to realize their full potential. Nike:The mission statement of Nike is: To bring inspiration and innovation to every athlete* in the world. *If you have a body, you are an athlete. KFC :To sell food in a fast, friendly environment that appeals to price conscious, health-minded consumers.Walt Disney Walt Disney's vision, or mission statement, is "to be one of the world's leading producers and providers of entertainment and information

8.Mc Donalds:To provide the fast food customer food prepared in the same high-quality manner world-wide that is tasty, reasonably-priced & delivered consistently in a low-key dcor and friendly atmosphere.9.Pfizer Pharmaceuticals mission statement: "We dedicate ourselves to humanity's quest for longer, healthier, happier lives through innovation in pharmaceutical, consumer and animal health products".Mintzberg s 5Ps of StrategyManagement expert, Henry Mintzberg, argued that it is difficult to get strategy right. To help us think about it in more depth, he developed his 5 Ps of Strategy five different definitions of (or approaches to) developing strategy. Each of the 5 Ps is a different approach to strategy. They are:Plan.Ploy.Pattern.Position.Perspective.By understanding each P, we can develop a robust business strategy that takes full advantage of your organization's strengths and capabilities.Both Mintzberg &Whittington s Ps are excellent tools for analysing and evaluating strategies.

Mintzbergs 5Ps of Strategy

Strategy is a plan - some sort of consciously intended course of action, a guidelines to deal with a situation. By this definition strategies have two essential characteristics: they are made in advance of the actions to which they apply, and they are developed consciously and purposefully.Planning is an essential part of the strategy formulation process.

Strategy as Ploy

Mintzberg says that getting the better of competitors, by plotting to disrupt, dissuade, discourage, or otherwise influence them, can be part of a strategy. This is where strategy can be a ploy, as well as a plan.The next most common, and probably the way most non-strategists see strategy.As plan, a strategy can be a ploy too, in order to outwit an opponent or competitor. For example, a grocery chain might threaten to expand a store, so that a competitor doesn't move into the same area; or a telecommunications company might buy up patents that a competitor could potentially use to launch a rival product.

Strategy as Pattern

Strategic plans and ploys are both deliberate exercises. Sometimes, strategy emerges from past organizational behaviour. Rather than being an intentional choice, a consistent and successful way of doing business can develop into a strategy.Pattern is the post hoc realisation. These can be identified when trying to do things like build a resource based view of an organisation. Strategy is a pattern - specifically, a pattern in a stream of actions. Strategy is consistency in behaviour, whether or not intended. The definitions of strategy as plan and pattern can be quite independent of one another: plans may go unrealised, while patterns may appear without preconception.Plans are intended strategy, whereas patterns are realised strategy; from this we can distinguish deliberate strategies, where intentions that existed previously were realised, and emergent strategies where patterns developed in the absence of intentions, or despite them.

Strategy as Position

"Position" is another way to define strategy that is, how you decide to position yourself in the marketplace. In this way, strategy helps you explore the fit between your organization and your environment, and it helps you develop a sustainable Competitive advantage . For example, your strategy might include developing a niche product to avoid competition, or choosing to position yourself amongst a variety of competitors, while looking for ways to differentiate your services.Strategy as position, it helps to understand organization's "bigger picture" in relation to external factors. To do this, we use PEST Analysis ,Porters Diamond and Porters Five Forces ,SWOT Analysis,Core Competency Analysis to analyze the environment these tools will show where company have a strong position, and where it may have issues.

Strategy as Perspective

The Strategy is a perspective - its content consisting not just of a chosen position, but of an ingrained way of perceiving the world. Strategy in this respect is to the organisation what personality is to the individual. What is of key importance is that strategy is a perspective shared by members of an organisation, through their intentions and / or by their actions. In effect, when we talk of strategy in this context, we are entering the realm of the collective mind - individuals united by common thinking and / or behaviour.This is the view that often a strategy can be a way that an organisation views the world.Choices an organization makes about its strategy rely heavily on its culture just as patterns of behavior can emerge as strategy, patterns of thinking will shape an organization's perspective, and the things that it is able to do well.For instance, an organization that encourages risk-taking and innovation from employees might focus on coming up with innovative products as the main thrust behind its strategy. By contrast, an organization that emphasizes the reliable processing of data may follow a strategy of offering these services to other organizations under outsourcing arrangements.To get an insight into organization's perspective, use cultural analysis tools like theCultural Web , Deal and kennedy Cultural Web and the Congruence model Porter's Five Forces of Competitive Position AnalysisPorter's Five Forces of Competitive Position Analysis were developed in 1979 by Michael E Porter of Harvard Business School as a simple framework for assessing and evaluating the competitive strength and position of a business organization.

This theory is based on the concept that there are five forces that determine the competitive intensity and attractiveness of a market. Porters five forces help to identify where power lies in a business situation. This is useful both in understanding the strength of an organization's current competitive position, and the strength of a position that an organization may look to move into.

Strategic analysts often use Porters five forces to understand whether new products or services are potentially profitable. By understanding where power lies, the theory can also be used to identify areas of strength, to improve weaknesses and to avoid mistakes.Michael Porter's famous Five Forces of Competitive Position modelMichael Porter's famous Five Forces of Competitive Position model provides a simple perspective for assessing and analyzing the competitive strength and position of a corporation or business organization.Porter's Five Forces model can be used to good analytical effect alongside other models such as the SWOT and PEST analysis tools.

Porter's Five Forces model provides suggested points under each main heading, by which you can develop a broad and sophisticated analysis of competitive position, as might be used when creating strategy, plans, or making investment decisions about a business or organization.Porters Five Forces model is a generic framework that deconstructs industry structure into five underlying competitive forces or variables These five underlying forces are Competitive rivalry among existing firms, Bargaining power of suppliersBargaining power of customersThe threat of new entrants into the industry The threat of substitute products and services.

The five forces are:1.Supplier power. An assessment of how easy it is for suppliers to drive up prices. This is driven by the: number of suppliers of each essential input; uniqueness of their product or service; relative size and strength of the supplier; and cost of switching from one supplier to another.2.Buyer power. An assessment of how easy it is for buyers to drive prices down. This is driven by the: number of buyers in the market; importance of each individual buyer to the organization; and cost to the buyer of switching from one supplier to another. If a business has just a few powerful buyers, they are often able to dictate terms.3.Competitive rivalry. The main driver is the number and capability of competitors in the market. Many competitors, offering undifferentiated products and services, will reduce market attractiveness.4.Threat of substitution. Where close substitute products exist in a market, it increases the likelihood of customers switching to alternatives in response to price increases. This reduces both the power of suppliers and the attractiveness of the market.5.Threat of new entry. Profitable markets attract new entrants, which erodes profitability. Unless incumbents have strong and durable barriers to entry, for example, patents, economies of scale, capital requirements or government policies, then profitability will decline to a competitive rate.

Arguably, regulation, taxation and trade policies make government a sixth force for many industries.What benefits does Porters Five Forces analysis provide?Five forces analysis helps organizations to understand the factors affecting profitability in a specific industry, and can help to inform decisions relating to: Whether to enter a specific industryWhether to increase capacity in a specific industryDeveloping competitive strategies

Actions to take / DosActions to Avoid / Don'tsUse this model where there are at least three competitors in the marketConsider the impact that government has or may have on the industryConsider the industry lifecycle stage earlier stages will be more turbulentConsider the dynamic/changing characteristics of the industryAvoid using the model for an individual firm; it is designed for use on an industry basisIn practice:Porter's Five Forces of Competitive Position AnalysisAnalysis of the Indian business environmentDownload full case studyIn the June 2010 issue of Financial Management magazine, the Five Forces model was applied to the emerging Indian business environment in comparison with more developed markets. The analysis found that factors such as state protectionism and a lack of infrastructure are greater barriers to entry in India than they are in more developed nations, where market forces are more powerful.The analysis highlighted many issues affecting competition in emerging economies and compared them to those that are more prevalent in more developed markets.One factor that could play a crucial role in India is public opinion, which exerts a considerable influence on the government. A good example of this is a campaign by local retailers against Walmart, who feel that the arrival of the US retail giant could put them out of business. Walmart has made huge investments in India, but is having to find ways around stringent regulations that prevent it from doing things as basic as putting its brand name on stores. Porter is recognized for his competitive 'diamond' model, used for assessing relative competitive strength of nations, and by implication their industries:Factor Conditions: production factors required for a given industry, eg., skilled labour, logistics and infrastructure.Demand Conditions: extent and nature of demand within the nation concerned for the product or service.Related Industries: the existence, extent and international competitive strength of other industries in the nation concerned that support or assist the industry in question.Corporate Strategy, Structure and Rivalry: the conditions in the home market that affect how corporations are created, managed and grown; the idea being that firms that have to fight hard in their home market are more likely to be able to succeed in international markets.Good reference materialhttp://www.quickmba.com/strategy/porter.shtml

http://research-methodology.net/ikea-porters-five-forces-analysis/

http://mba-lectures.com/marketing/principles-of-marketing/1119/porters-five-forces-model-of-coca-cola.html

http://businesstoday.intoday.in/story/how-ikea-adapted-its-strategies-to-expand-in-china/1/196322.html

Case study porters model in Indian Scenariohttp://www.cimaglobal.com/Documents/Student%20docs/Studyresources/TechIndiaJun.pdf

http://valuationacademy.com/porters-five-forces-in-action-sample-analysis-of-coca-cola/

Enron case details http://www.slideshare.net/paragchaubey/enron-scandalApple case and analysis:http://strategicplanning13.weebly.com/mission-and-objectives.html