STRATEGIC MANAGEMENT : An Overview

Team:SoumajitNeeraj

VirendraShikharRewa

G. L. Bajaj Institute of Management and ResearchGreater Noida, U.P. - INDIA

Evolution of Strategic Management Harvard Business School introduced Business Policy as a subject

in 1911 as an integrative subject with case studies as its pedagogy

Carnegie Foundation and Ford Foundation had instituted Pierson Committee, and Gordon and Howell Committee to make the recommendations about Curriculum for Management Programme

It has been recommended as Capstone (Concluding) Course requiring students to integrate their learning from various functional management courses

Introduced by US Universities and then by other Countries

Concept of Strategy • Determination of long term goals and objectives of an enterprise.• Generating ideas for linkage of purpose and actions.• A direction that is set for a company and various components to achieve a

desired state of future outcome.• Strategy formulation is done for getting sustainable outcome for a certain

level of time.

Why do we need Strategy? A strategy in a organization may be the result of a triggering event.

Such as…

A new CEO Outside intervention – Competition, Inadequacy of Funds Falling performance level Impending (near future or close-to-come) ownership change

Types / Levels of Strategies

Business

Functional

Corporate

Corporate – Overall direction of the organization in terms of its general attitude towards growth and management of business

Business – It is followed at business unit or product level

Functional – It refers to the approach in a functional area to achieve business objectives

Strategic Management Process1 • Establish the strategic intent- vision, mission,

objectives and goals of the firm

2 • Environmental appraisal – SWOT Analysis

3 • Evaluate and select a proper corporate, business and functional level strategy

4 • Allocation of resources like funds, manpower, technology etc..

5 • Executing the strategy

6 • Comparing the results with desired outcomes

7 • Identify the reasons for gaps and deviations

8 • Taking corrective actions

9 • Do it all over again

Components in Strategic Management Process

Environmental Scanning - collecting, scrutinizing and providing information, analyzing internal and external factors

Formulation – Developing a vision and mission statement, identifying external opportunities and threats, deterring internal strengths and weakness (SWOT Analysis) and choosing particular strategy to pursue

Implementation – Establish annual objectives, devise policies, motivate employees and allocate resources

Evaluation – Reviewing external and internal factors, measuring performance and taking corrective actions

Benefits of Strategic Management Facilitates identification, prioritization and exploitation of opportunities

Minimizes the impact of adverse situations

Better allocation of resources

Integrates behavior of individuals into total effort

Encourages positive attitude towards change

Provides futuristic thinking

Provides a framework of improved communication, coordination and

activitiesThe most highly rated benefits of Strategic management are:

Clarity of Strategic Vision for the organization.Focus on what is strategically important to the organization.Better understanding of the rapidly changing business environment

Vision Statement A vision statement is a company's road map, indicating both what

the company wants to become and guiding transformational initiatives by setting a defined direction for the company's growth

An aspirational description of what an organization would like to achieve or accomplish in the mid-term or long-term future

It is intended to serves as a clear guide for choosing current and future courses of action

A written declaration of an organization’s core purpose and focus that normally remains unchanged over time

Something that you imagine or a picture that you see in your mind

Mission Statement A mission statement defines the basic reason for the existence of that organization

A mission statement is a statement which is used as a way of communicating the purpose of the organization

It is a formal summary of the aims and values of a company, organization, or individual

Mission statements are normally short and simple statements which outline what the organization's purpose is and are related to the specific sector an organization operates in

A mission statement guides the actions of the organization, spells out its overall goal, provides a path, and guides decision-making

It is the framework or context within which the company's strategies are formulated

Traits of Vision and Mission StatementTraits for Vision Statement: Concise: able to be easily remembered and repeated Clear: defines a prime goal Future-oriented: describes where the company is going rather than the current state Stable: offers a long-term perspective and is unlikely to be impacted by market or technology

changes Challenging: not something that can be easily met and discarded Abstract: general enough to encompass all of the organization's interests and strategic direction Inspiring: motivates employees and is something that employees view as desirable

Traits for Mission Statement: Feasible - should not be an impossible statement Precise - should not be so narrow as to restrict the organization’s activities nor should it be too

broad Clear - clear enough to lead to action Motivating - should be motivating for members of the organization and of society Distinctive - likely to have an impact

Vision vs MissionMission Statement 1.) It should be short and easy to memorize.2.) It must be specific enough that people understand what we do and how it may differ from our

competitors.Ex:• Public Broadcasting System (PBS): To create content that educates, informs and inspires.• Google: To organize the world’s information and make it universally accessible and useful.

Vision Statement1.) Vision statement is more prominent as it drives decision and goals in our company.2.) Vision statement also provides strategic direction and describes what the owner/founder wants the

company to achieve in future.3.) It also describes “What business are we in?” and “What is our business for?”4.) Plans are done based on long term objectives and not on short term objectives from which something

could be accomplished.Ex:• Ford: To become the world’s leading consumer company for automotive products and services.• Avon: To be the company that best understands and satisfies the product, service and self-fulfillment

needs of women-globally.

Objective and GoalObjective: An objective is something you plan to achieve The state of affairs that a plan is intended to achieve and that (when achieved)

terminates behavior intended to achieve it Something that one's efforts or actions are intended to attain or accomplish A specific result that a person or system aims to achieve within a time frame and

with available resources Objectives are basic tools that underlie all planning and strategic activities They serve as the basis for creating policy and evaluating performance For instance:- Minimizing expenses, maximizing profits, reducing cost etc…

Goal:Something that you are trying to do or achieve An observable and measurable end result having one or more objectives to be achieved within a more or less fixed timeframeA goal is a desired result that a person or a system envisions, plans and commits to achieve Goal suggests something attained only by prolonged effort and hardship

Traits of Objective and Goals

Traits of Objective Not influenced by personal feelings, interpretations, partiality Based on facts Unbiased intent upon or dealing with things external to the mind rather than with

thoughts or feelings Implies something tangible and immediately attainable Believed to be attainable

Traits of Goal Usually long-term One goal may have more than one objectives A change in a goal could eliminate one or more objectives, or add new ones Goals tend to control objectives

Objective vs Goal

Objectives are more specific and easier to measure than a goal

Goals are relatively long in duration as compare to objectives

We can think of goals as being the big picture whereas Objectives are about a specific plan of actions

Objectives help us to reach our goals

Concept and Characteristics of Environment

Concept of Environment : Environment means surroundings, external objects, influences or

circumstances under which someone or something exists The environment of an organization is an aggregate of all the conditions,

events and influences that surrounds and affect it

Characteristics of Environment : Environment is complex It consists of number of factors, events, conditions and influences arising from

different sources All these do not exist in isolation but interact with each other to create an

entirely new set of influences It is dynamic Environment is consistently changing in nature Environment is multifaceted – depends on perception of different observers It has far reaching impact on organizations – growth and profitability depends

on environment

Environmental Appraisal and Scanning

Environmental appraisal is a process of analyzing organization’s strengths and weaknesses to formulate, implement and evaluate different strategies in order to compete in dynamic marketplace

Environmental scanning is a process by which organizations monitor their relevant environment to identify opportunities and threats affecting their businesses for purpose of taking strategic decisions

Approaches to Environmental Scanning

Systematic Approach – Information related to markets, customers, legislations could be collected continuously and systematically for monitoring purpose

Ad hoc Approach – Information collection is for any particular situation or purpose

Processed form Approach – information collection In processed form through different sources (inside and outside the organizations)

SWOT Analysis

Continued… Strength - It is an inherent capacity which a organization can use to

gain strategic advantagesEg. Goodwill, resources, assets etc…

Weakness – it is an inherent limitation or constraints which creates strategic disadvantages.

Eg. Financial deadlines, low morale of employees, etc… Opportunity – It is a favorable condition in organization’s

environment which enables it to consolidate and strengthen its position Eg. Arrival of new technologies, economic booms etc…

Threat – It is an unfavorable condition in organization’s environment which creates a risk for or cause damage to the organization Eg. Outdated technologies, economic downturn etc…

Benefits of SWOT AnalysisSWOT Analysis helps in strategic planning in following manner :

• Simple to use• Low cost • Helps to develop alternative goals• Useful for strategic analysis• Flexible and easy to adapt in varying situations• It is a source of information for strategic planning.• Builds organization’s strengths.• Reverse its weaknesses.• Maximize its response to opportunities.• Overcome organization’s threats.• It helps in identifying core competencies of the firm.• It helps in setting of objectives for strategic planning.• It helps in knowing past, present and future so that by using past and current data, future

plans can be chalked out.

Limitations of SWOT AnalysisThere are certain limitations of SWOT Analysis which are not in

control of management. These include:• Price increase• Inputs/raw materials• Government legislation• Economic environment• Searching a new market for the product which is not having overseas

market due to import restrictions; etc.Internal limitations may include:• Insufficient research and development facilities• Faulty products due to poor quality control• Poor industrial relations• Lack of skilled and efficient labour etc

Corporate Level Strategies Corporate level strategies are basically about decisions related to:

Allocating resources among different business of the firm Transferring resources from one set of business to others Managing and nurturing a portfolio of businesses

These decisions are taken so that overall corporate objectives are achieved Corporate strategies help to exercise the choice of direction that an

organization adopts. Corporate strategies are the basic directions of the firm as a whole for

both a small business firm or a large/complex group of business firms. In case of small business firms, it could mean the adoption of courses of

actions that yield better profitability for the firm. In case of multi business firms, it would also be about managing the

various businesses for maximizing their contribution to the overall corporate objectives and transferring resources from one set of businesses to others.

Types of Corporate Strategies

Stability strategies

Growth / Expansion strategy

Retrenchment strategies

Combination strategies / portfolio restructuring

Strategic Alternatives

Strategic alternatives revolve around the question of whether to continue or change the business, the enterprise is currently in or improve the efficiency and effectiveness with which the firm achieves its corporate objectives in its chosen business sector.

According to Glueck there are four strategic alternatives: ExpansionStabilityRetrenchmentCombination of these three

Stability Strategies The corporate strategy of stability is adopted by an organization

when it attempts at incremental improvements of its performance by marginally changing one or more of its businesses in terms of their respective customer groups, customer functions and alternative technologies – either singly or collectively.

For eg. Adding institutional buyers rather than individual consumers Better after sales services Modernization of machinery and plant

Stability strategy is adopted because:

It is less risky Involves less changesPeople feel comfortable with things as they areEnvironment is relatively stableExtension may be perceived as being threatening

Growth / Expansion Strategy The corporate strategy of expansion is followed when an organization aims at high

growth by substantially broadening the scope of one or more of its businesses in terms of their respective customer groups, customer functions and alternate technologies – singly or jointly – in order to improve its overall performance.

For eg. Adding new customer group or segment Personalized services to same and new customer group Changing technologies for speed, productivity and efficiency

Growth strategy is adopted because:

It may become imperative when environment demands increase in pace of activity

Psychologically, strategies may feel more satisfied with the prospects of growth from expansion

Increasing size may lead to more control over markets and competitors

Retrenchment Strategies The corporate strategy of retrenchment is followed when an organization

aims at contraction of its activities through a substantial reduction or elimination of the scope of one or more of its businesses in terms of their respective customer groups, customer functions and alternate technologies – singly or jointly – in order to improve its overall performance.

For eg.

Withdrawing product from consumer market and focusing only on business market Focusing on specialized services rather than general offerings Adopting means of online service delivery rather that physical delivery

Retrenchment strategy is adopted because:

Management is no longer wishes to remain in business partly or fully due to continuous losses

Environment faced is threatening Stability can be ensured by reallocation of resources from unprofitable to profitable business

Combination Strategies / Portfolio Restructuring

The combination strategy is followed when an organization adopts a mixture of stability, expansion, and retrenchment strategies, either at the same time in different businesses or at different times in one of its businesses, with the aim of improving its performance

For eg. Offering wider variety to its customers (stability), expanding product

range (expansion) and closing contractual job services (retrenchment)

Combination strategy is adopted because: The organization is large and faces complex environment The organization is composed of different businesses, each of which

lies in a different industry, requiring a different response