PRINCIPLES OF MANAGEMENT II

UNIT II

STRATEGIC MANAGEMENT

BABY THOMAS OCMT

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Learning Objectives

1. Introduction to strategy, strategic management, strategic competitiveness

2. Strategic management process

3. SWOT analysis

4. Levels of strategy, Types of strategies

5. Growth and diversification strategies, Restructuring and divestiture strategies

6. Cooperative and e-business strategies, strategic leadership

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Introduction to Strategy

Origin: The term strategy has been derived from the Greek word ‘strategos’ that means general. The meaning of strategy is, thus, portrayed as ‘the art of general’.

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Stakeholders in business: The most important stakeholders in business are owners, customers, suppliers, employees, and society at large.

Why some firms outperform others in the marketplace?

Examples of strategy: Examples of strategy are geographic expansion,

diversification, acquisition, product development, market pénétration,

retrenchment, divestiture, liquidation, and joint ventures

Competitive advantage: Competitive advantage is anything that a firm does

especially well compared to rival firms

What is a strategy? Strategy is a plan, derived from the objectives of an organization, that means ‘what to do’ for achieving those objectives.

Strategic competitiveness: Strategic competitiveness is one that is difficult for competitors to imitate.

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What is strategic management?

• Strategic management is the art and science of formulating, implementing and evaluating strategies that enable an organization to achieve its objectives.

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Strategic management process

Strategy formulation

Strategy implementation

Strategy evaluation

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Strategy Formulation

Strategy formulation includes developing a vision and mission,

identifying an organization’s external opportunities and threats,

determining internal strengths and weaknesses, establishing long-

term objectives, generating alternative strategies, and choosing particular strategies to pursue

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Vision is the guiding philosophy that clearly defines the firm’s “reason” for being in business. Where the organization wants to be or how it wants to be viewed at some point in the future.

Mission is a statement that clearly defines the firm’s “reason” for being in business. Mission is an organization’s basic purpose and scope of operations.

Distinction between a strategic vision and a mission: A strategic vision portrays a company’s future business scope (“where we are going”) whereas a company’s mission typically describes its present business and purpose (“who we are, what we do, and why we are here”).

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Strategy implementation

– Strategy implementation requires a firm to

establish annual objectives, devise policies,

motivate employees, and allocate resources so

that formulated strategies can be executed

– often called the action stage

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Strategy evaluation

Strategy evaluation reviews external and internal factors

that are the bases for current strategies, measuring

performance, and taking corrective actions.

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Strategy formulation, implementation, and evaluation activities

occur at three hierarchical levels in a large organization:

corporate, divisional or strategic business unit, and functional

Strategic management helps a firm function as a competitive

team.

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Levels of Strategy

1. Corporate level strategies

2. Business level strategies

3. Functional level strategies

4. Operational level strategies

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1. Corporate Level Strategy

• What businesses are we in? What businesses should we be in?

• Four areas of focus– Diversification management (acquisitions and divestitures

– Divestiture is the partial or full disposal of an investment or asset through sale, exchange, closure or bankruptcy.)

– Synergy between units– Investment priorities

– Business level strategy approval (but not crafting)

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2. Business Level Strategy

• How do we support the corporate strategy?

• How do we compete in a specific business arena?

• Three types of business level strategies:

– Low cost producer

– Differentiator

• Three areas of focus

– Generate sustainable competitive advantages

– Respond to environmental changes

– Approval of functional level strategies

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Functional / Operational Level Strategy

• Functional: How do we support the business level strategy?

• Operational: How do we support the functional level strategy?

• An example.

• Business L.S.: Become the low cost producer of widgets

• Functional L.S. (Mfg.): Reduce manufacturing costs by 10%

• Operational (Plant #1): Increase worker productivity by 15%

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Types of strategies

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Forward Integration Strategy

Backward Integration Strategy

Market Penetration Strategy

Market Development Strategy

Product Development Strategy

Concentric Diversification Strategy

Conglomerate Diversification Strategy

VERTICAL INTEGRATION STRATEGIES

INTENSIVE STRATEGIES

DIVERSIFICATION STRATEGIES

Horizontal Diversification Strategy

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Forward Integration Strategy

• Forward integration strategy is the strategy that controls the direct distribution of products.

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Backward Integration Strategy

• Backward integration strategy is the strategy that controls the suppliers.

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Market Penetration Strategy

• Market penetration strategy deals with enhancing the share of market by effective and innovative strategies in order to make the present product more effective and attractive.

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Market Development Strategy

• Market development strategy is the strategy that deals with adding products in different geographic areas.

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Product Development Strategy

• Product development strategy is the strategy that deals with increasing the sales as well as revenues by enhancing the quality of existing products. The quality of existing products can be easily enhanced by adding different flavors in it .

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Concentric Diversification Strategy

• A company acquires or develops new products (closely related to its core business or technology) to enter one or more new markets.

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Conglomerate Diversification Strategy

Conglomerate diversification strategy is the strategy that continues to grow after a core business has matured or started to decline.

• To reduce cyclical fluctuations in sales revenues and cash flows.

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Conglomerate diversification is a marketing strategy used by companies to diversify their product and customer base. This diversification is sometimes carried out by buying other companies which have products that the bigger company does not have, therefore increasing the bigger company's product and customer base. An example of conglomerate diversification is if an electronics company buys out an appliance company. Another example would be if a television company were to buy out a telephone company.

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Horizontal Diversification Strategy

• Horizontal diversification strategy is the strategy that adds related or similar product lines to existing core business, either through acquisition of competitors or through internal development of new products.

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One example of horizontal diversification can be seen with a local retailer who has anestablished reputation for selling quality pieces of jewelry. As a means of increasingbusiness, the retailer may decide to carry a line of scents in the shop. This approachcreates opportunities to sell perfumes, cologne, and aftershave lotion to the patronswho already frequent the shop in search of quality jewelry for personal use or as gifts.When the strategy works, a customer who comes in to select a necklace as a birthdaypresent may also notice the line of scents and choose to purchase a bottle of perfumealong with the necklace, allowing the shop owner to earn a return from both productlines9/13/2015

Horizontal Diversification Strategy

• Horizontal diversification is when an investor or company picks similar investments to try to appeal to new or current customers. Horizontal diversification is used to sell new products through an existing distribution. Often times well known companies will sell products based off similar interests or needs to current consumers. An example of horizontal diversification would be when a company that is well known for making winter clothing decides to start investing money into manufacturing summer clothing.

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Retrenchment Defensive Strategy

• Retrenchment defensive strategy is a corporate-level strategy that seeks to reduce the size or diversity of operations of an organization, reduction of expenditures in order to become financially stable or pulls back or a withdraws from offering some current products or serving some markets.

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Divestiture Defensive Strategy

• Divestiture defensive strategy is the strategy that sells a division or a part of an organization, raises capital for further strategic acquisitions or investments or lessens the level of diversifications when firms try to focus on their core strengths.

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Liquidation Defensive Strategy

• Liquidation defensive strategy is the strategy that sells all assets of a company, in parts, for their tangible worth recognizing defeat and ceases to operate than to continue losing large sums of money.

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PRINCIPLES OF MANAGEMENT II

UNIT II

STRATEGIC MANAGEMENT

BABY THOMAS OCMT

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