Strategic Management

Meaning

and Definition Characteristics of SM, A model of Strategic management Process Approaches to strategic decision making process Pitfalls in strategic Management Strategists and their role in strategic Management

Learning Outline
What is strategic management? Why is strategic management important? Who is involved with strategic management? Strategic management today

Meaning of Strategy

Goal-directed decisions and actions in which capabilities and resources are matched with the opportunities and threats in the environment.
The Plans, Ideas, Support required by a firm to Successfully compete with its rivals to create competitive advantage

Definition and Meaning of Strategy

The pattern and plan that integrates organizations major Goals, Policies, and action sequences into a cohesive whole James B Quinn
Strategy can be defined as the determination of basic long term goals and objectives of an enterprise and the adoption of courses of action and the allocation of resources for carrying out these goals - Chandler

What is Strategic Management? The set of decisions and actions that result in the formulation and implementation of plans designed to achieve a companys objectives.
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Critical Tasks of Strategic Management

1 2 3 4

Formulate the companys mission

Develop company profile, reflecting conditions Assess companys external environment

Analyze companys options Identify most desirable options

internal

5
6 7

Select long-term objectives and grand strategies Develop annual objectives and short-term strategies Implement the strategic choices
6 Evaluate success of the strategic process

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Why is strategic management important?

Gives everyone a role Makes a difference in performance levels Provides systematic approach to uncertainties Coordinates and focuses employees

Need for Strategic Management

Due to change in external Environment Provide guidelines Better Performance Improved allocation of Resources Competitive advantage Improved Integration of various activities Systematize business Decisions.

Characteristic of Strategic Management

Strategic Issues Warrant Top management decisions. Strategic issues involve the allocation of large amounts and resources. Strategic issues are future oriented Strategic Issues have consequences of multiBusiness. Strategic management stresses both efficiency and effectiveness.

Level of Strategies
A successful business model results from business-level strategies that create a competitive advantage over its rivals.

Corporate level

Business Level

Functional Level

Three Levels of Strategy

Corporate

level: board of directors, CEO & administration [Highest] level: business and corporate managers [Middle]
level: Product, geographic, and functional area managers [Lowest]

Business

Functional

A Simple Organization Chart (Single Product Business)

Business Level Strategy Business

Research and Manufacturing Development Functional Level Strategy

Marketing

Human Resources

Finance

A Simple Organization Chart (Dominant or Related Product Business)

Corporate Level
Multibusiness Corporation

Business Level

Business 1 (Related)
Functional Level Research and Manufacturing Development

Business 2 (Related)

Business 3 (Related)

Marketing

Human Resources

Finance

An example of an Unrelated Product Business (Note: By itself, an SBU can be considered a related product business)

SBU: a single business or collection of related businesses that is independent and formulates its own strategy

A (Multi-business) Corporation

Ex.: G.E. (General Electric Corp.)

Strategic Business Unit 1

S.B.U. 2

Company 1

Co. 2

Co. 3

Division 1

Div. 2

Div. 3

Strategic Planning
(Rational planning by top management)
Basic Strategic Planning Model

Defining the Mission and Setting Top-Level Goals

External Analysis of Opportunities and Threats

Internal Analysis of Strengths and Weaknesses Selection of Appropriate Strategies Implementation of Chosen Strategies 1-15

Strategic Management Process

Key Terms

Vision Statement What do we want to become?

Mission Statement What is our business?

Strategic Management Process

Step 1: Identifying the organization's current mission, objectives, and strategies Mission: the firms reason for being Who we are, What we do, and Where we are now Examples for Mission statement :"To achieve our objectives in an environment of fairness, honesty, and courtesy towards our clients, employees, vendors and society at large. Infosys Facebook: Face book's mission is to give people the power to share and make the world more open and connected. Dell: Dells mission is to be the most successful computer company in the world at delivering the best customer experience in markets we serve.

Goals: the foundation for further planning

Measurable performance targets

Mission and Goals

Mission

Sets out why the organization exists and what it should be doing. Specify what the organization hopes to fulfill in the medium to long term. Are objectives to be attained that lead to superior performance.

Major goals

Secondary goals

Strategic Management Process (contd)

Step 2: Conducting an external analysis

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

Step 3: Conducting 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

Internal Analysis

Identify strengths
Quality and quantity of resources available Distinctive competencies

Identify weaknesses
Inadequate resources Managerial and organizational deficiencies

Strategic Management Process (contd)

Step 4: Formulating strategies

Develop and evaluate strategic alternatives Select appropriate strategies for all levels in the organisation that provide relative advantage over competitors Match organisational strengths to environmental opportunities Correct weaknesses and guard against threats

Strategic Management Process (contd)

Step 5: Implementing strategies

Implementation: effectively fitting organisational structure and activities to the environment Effective strategy implementation requires an organisational structure matched to its requirements.

Step 6: Evaluating results

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

Strategic Managers

General managers

Responsible for the overall (strategic) performance and health of the total organization. Responsible for specific business functions or operations.

Operations managers

Strategic Managers for All Levels

Decision Making Process

Defining the problem Generating Alternatives Evaluating Alternatives

Decision Making Process Choosing Alternatives

Follow-up

Implementation

Strategic Decision Process

Data Collection

Real World
Take Action

Data Sources
Input of Data

Data Management

Users
Information for decision-making

Data Retrieval & Analysis

Analysis

Alternative Strategic Management Structures

Benefits of Strategic Management

Financial Benefits
Improvement in sales Improvement in profitability Productivity improvement

Benefits of Strategic Management

Non-Financial Benefits
Improved understanding of competitors strategies

Enhanced awareness of threats

Reduced resistance to change Enhanced problem-prevention capabilities

Pitfalls in Strategic Management

Not effective on real world situations Cognitive biases of the decision makers Misunderstanding due to vague and general strategic objectives Group think decisions are poor/ slow Not distinct quantitative attributes