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STRATEGICMANAGEMENT
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SONY' S FUTURE .???
Sony Corp. announced that it will eliminate 10,000 jobs after forecasting its
first loss in more than a decade. In addition to the jobs cut, constituting about6 percent of its global work force, the company said it plans to close 11 plants
and shrink or terminate 15 unprofitable operations. Sonys Chief ExecutiveOfficer, Howard Stringer, said at a press conference in Tokyo that he predicted
a 10 billion yen ($90 million) annual loss, thereby reversing a July profit
forecast.
Despite the turnaround plan announced by Mr. Stringer, the first foreigner to
head Sony, the prospects remain uncertain for the company which has lostmoney in its electronics sector for two straight fiscal years. The companys
financial difficulties follow its inability to establish a strong presence in thedigital home appliance market, particularly in the business of flat TVs. Sony
was late in adopting LCD TV technology and bringing out flat-panel models.Facing stiff competition from Sharp and Matsushita
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Electric Industrial Co. it has seen its market share steadily erode in thetelevision industry. Sony has also lost market share to Apple whose
iPod player has proven far more popular than Sonys Walkmanproducts, which to many appear old and tired.
The job cuts announced by Stringer's job-cut is half the size of hispredecessor Nobuyuki Idei's three-year plan announced in 2003. That
plan failed to prevent the company's electronics business fromenduring two years of losses. Still, some investors doubt that the latest
plan will lead to the desperately needed reversal of the companysfinancial woes. "Cost cuts are one thing, having good products is
another," said Masse, who helps manage $12 billion of Asian equities atAberdeen Management Asia Ltd. in Singapore. "If there are no killerproducts to come out of the pipeline, this won't make much of a
difference."
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Likewise, John Yang, analyst with Standard & Poor's in Tokyo, wasn'timpressed, noting that cost cuts are merely a continuation of a plan laidout by Stringer's predecessor. Also disturbing, according to John Yang,
was Sony's unchanged mentality of wanting to be an all-around king,instead of focusing on key areas. "If I had to give a grade to Howard
Stringer, I'd give him a C-plus," Yang said. "He talks a lot aboutrestructuring in cost reduction. He doesn't really talk about stirring
growth.
Under Stringers plan, Sony will cut costs by 200 billion yen ($1.8 billion)
by the end of March 2008. The company will reduce 4,000 workers inJapan and 6,000 outside the country, while the number of factories will
be cut from the current 65 to 54. Sony also intends to cut the number ofproducts it offers by 20 percent, and will consider selling, downsizing orforming alliances with other firms in 15 non-strategic business
categories.
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Under the new turnaround plan, the group also plans to list shares ofSony Financial in the year to March 2008, as well as shares of Sony
Communication, in the current fiscal year. The company intends toincur a total of 210 billion yen in restructuring charges through to March2008, and says it now believes it will incur a net loss of 10 billion yen
and operating loss of 20 billion yen in the current fiscal year to March2006.
In the meantime, in order to grow its business, Sony said it will bespending some 340 billion yen over the next two years, predominantlyon semiconductor chips and electronics devices. Sony also pledged to
turn around its limping television business, aiming to make it profitable
by the second half of fiscal year 2006.
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Strategic management starts with three keyquestions:
(1)Where is the organization now? (Not where do
we hope it is ! )
(2) If no changes are made, where will theorganization be in a one year? Two years? Five
years? Ten years?
(3) If the answers are not acceptable, whatspecific actions should managementundertake? What are the risks and payoffs
involved?
UNIT 1
STRATEGIC MANAGEMENT
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Strategic Management Tasks
Strategic Management is a set of organization-widemanagerial decisions and actions that determine
the long-run performance of a corporation
(Early beginning as a BUSINES POLICY course at Harvard Business
School Current concern on International Business Management
initiated by global changes)
Strategic Management includes:
1. Environmental Scanning
2. Strategy Formulation
3. Strategy implementation
4. Evaluation and Control
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Strategic Management is not:
- a Rule Book
-a Blueprint
-a set of Programmed Instructions
The content of strategic management
- concepts, frameworks and techniques that areimmensely useful in formulating and implementing
effective strategies that can help the organization
survive the test of competition and growth
BUT
Strategic Management assumes that there are:
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Research reveals that companies engaging in strategic management
tend to outperform those organizations which do not.
A firm cannot afford to follow intuitive strategies once it becomes
large, has layers of management, or its environment changessubstantially. As the world's environment becomes increasingly
complex and changing, strategic management is used by today's
corporations to make the environment more manageable
Strategic Management Why?
The strategic management model proceeds from environmentalscanning to strategy formulation (including establishing mission,
objectives, strategies, and policies) to strategy implantation
(including developing programs, budgets, and procedures) to
evaluation and control.
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Strategy formulation is typically not a regular, continuous process
but is often initiated by triggering events, such as a new CEO or a
performance gap.
Nature of Strategic Management
Strategic 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
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Evolution of Strategic Management(Gluck, Kaufman and Walleck)
Basic Financial Planning
Strategic Management
Externally-oriented Planning
(Strategic Planning)
Forecast-based Planning
Strategic management in a corporation evolves through four sequential phases.
Beginning with basic financial planning, it develops into forecast-based planning, andthen into externally-oriented planning, and finally into a full-blown strategic
management system. The evolution is most likely caused by increasing change and
complexity in the corporation's external environment. The phases are thus a change
from primarily an inward-looking orientation in the first phase to primarily an outward-
looking orientation in the third phase, and to a more integrative orientation in the final
strategic management phase with equal emphasis on both the external and internalenvironments.
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Strategic Management and the Learning Organization
Traditional top- down strategic planning assumes that top management has all theinformation and knowledge needed to properly understand the firms external and
internal environments and to formulate and implement strategic plans. This approach
may be appropriate when the organization is in a stable and fairly simple environment,
but not when the situation is complex and quickly changing.
Increasing environmental uncertainty means that corporations must develop strategicflexibilitythe ability to shift from one dominant strategy to another. It also demands
that the company become a learning organization: an organization skilled at creating,
acquiring, and transferring knowledge, and at modifying its behavior to reflect new
knowledge and insights. Learning organizations avoid stability through continuous
self-examination and experimentation.
In a learning organization, people at all levels, not just top management, are involved
in strategic management: scanning the environment for critical information, suggesting
changes to strategies and programs to take advantage of environmental shifts, and
working with others to continuously improve work methods, procedures, and evaluation
techniques.
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Hierarchical Levels of Strategic Decisions
The 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 levelobjectives, strategies, and policies form a key part of the environment of a
division or business unit.
The objectives, strategies, and policies of the business 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.
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The planning mode of strategic decision making
The planning mode is generally superior to the entrepreneurial and
adaptive modes when the organization is fairly large, when knowledge is
spread throughout the organization, and when the organization has at least
a moderate amount of time to engage in strategic planning.
The planning mode is more rationaland thus a better way of making moststrategic decisions than are the other modes. It may not, however, always
be possible.
The entrepreneurial mode can be very useful when time is short, one
person or group is able to grasp the essentials of the business and its
environment, and that person or group is able to influence the rest of the
organization to accept the strategic decision.
The adaptive mode is generally not considered to be very effective in most
situations, but seems to be the fallback mode when entrepreneurial or
planning modes can't operate effectively because of political infighting or
lethargy. It is a typical mode in not-for-profit organizations.
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Does 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. If they hope to be successful, however,
they must have at least some rudimentary (even though unstated)position they take in terms of getting and keeping customers or clients
through competitive and/or cooperative strategies.
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What information is needed for the proper formulation of strategy?
In order to properly formulate strategy, it is essential to have information onthe important variables in both the external and internal environments of
the corporation.
This includes general forces in the societal environment as well as the
more easy-to-identify groups such as customers and competitors in the task
(industry) environment. A corporation needs to have this information in
order to identify a need it can fulfill via its corporate mission.
It is also important to have information on the corporation's structure,
culture, and resources. A corporation needs to have this information in
order to assess its capabilities to satisfy a customer's need by making and/ordistributing a product or service.
Information on both the internal and external environments can also help a
corporation to assess its organizational strengths and weaknesses and to
predict likely opportunities and threats. Long-term strategies can be
designed with these in mind.
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The art of war, especially the planning oftroops and ships etc., into favorable
positions; plan of action or policy inbusiness or politics etc,
Oxford Pocket Dictionary
The determination of the long run goals and objectives of
an enterprise, and the adoption of courses of action and
the allocation of resources necessary for carrying out these
goals
Alfred D. Chandler Jr., Strategy and structure: Chapters in thehistory of industrial enterprise
UNIT 2MEANING OF STRATEGY
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Meaning of Strategy-contd.
The pattern or plan that integrates an organization'sgoals, policies, and action sequences into a cohesive
whole. based upon its relative internal competencesand shortcomings, anticipated changes in theenvironment, contingent moves by intelligent
opponents.
Pattern of objectives, purposes or goals and the major
policies and plans for achieving these goals, stated in such a
way as to define what business the company is in or is to be
in and the kind of company it is or is to be.
James Brian Quinn, Strategies for Change: Logical
Incrementalism
Kenneth Andrews, The Concept of Corporate Strategy
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The strategic management model proceeds from environmental scanning (external
and internal environment) to strategy formulation (including establishing mission,
objectives, strategies, and policies) to strategy implantation (including developing
programs, budgets, and procedures) to evaluation and control.
Strategic Management Process
Environmental
Scanning
Strategy
Formulation
Strategy
Implementation
Evaluation
&Control
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Corporate Performance Evaluation
Environmental Scanning
O
T
S
WVision
Mission
Goals
Objectives
STRATEGIES
BusinessFunctional
Corporate
Policies
Programs
Budgets
Procedures
Evaluation
STRATEGIC MANAGEMENT PROCESS
External
Environment
Internal
Environment
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Corporate Performance Evaluation
Environmental Scanning
O
T
S
WVision
Mission
Goals
Objectives
STRATEGIES
BusinessFunctional
Corporate
Policies
Programs
Budgets
Procedures
Evaluation
SONY - STRATEGIC AUDIT
External
Environment
Internal
Environment
Market Performance.?Financial Performance?
Market share toSharp/ Panasonic
Substitutes- LCD
TV, i-Pod
Technology changing
fast
Poor Market
Intelligence
Weakening R&D
Financial Loss
Worlds leading home
electronics company
To provide superior quality
Video and Audio
experience to Sony
customers
Develop technology to
provide products with
highest quality and
innovative features
Always keep finances strong
to be the provider of industry-best products
To grow
through
International
Expansion
Related
Diversification
Differentiate
products
through
Quality
Product
Features
Develop superior production
capabilities that deliver industrys
highest quality
Maintain advanced R& D system that
guarantees quality and innovation in
all the products
Attract and retain industry-best
talents in management and
technology
To be the QUALITY LEADER In all the markets whereSONY competes and in all the products the company
sells
No cost reduction in value chain
management at the cost of quality
Gather market/consumer intelli
and be updated on
market/consumer trends
Monitor financial ratios and take correctiveactions
Sony has many
strengths ?????
Market development programs in
different countries
Finance mobilization programs
for expansion/diversification
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Corporate Performance Evaluation
Environmental Scanning
O
T
S
WVision
Mission
Goals
Objectives
STRATEGIES
BusinessFunctional
Corporate
Policies
Programs
Budgets
Procedures
Evaluation
STRATEGIC MANAGEMENT PROCESS
External
Environment
Internal
Environment
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Corporate Performance Evaluation
Environmental Scanning
O
T
S
WVision
Mission
Goals
Objectives
STRATEGIES
BusinessFunctional
Corporate
Policies
Programs
Budgets
Procedures
Evaluation
STRATEGIC MANAGEMENT PROCESS
External
Environment
Internal
Environment
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ENVIRONMENT
strengths
Threats
Opportunities
SOCIETAL
-economic
-socio-
cultural
-techno.
-pol /legal
INDUSTRY
-new
entrants
-substitutes
-suppliers
-buyers
-rivals
Structure
Culture
Resources
Capabilities
Strengths
Threats Weaknesses
Strategy Formulation
EXTERNAL
ENVMNT
INTERNAL
ENVMNT
STRATEGIC MANAGEMENT PROCESS
Environmental Scanning
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Vision
Mission
Goals
Objectives
VISION, MISSION, GOALS , OBJECTIVES
Strat.vision of firmsfuture
What we want to beWhere we are heading
for
Unique purpose
Fundamental reason
for existenceWho we are
What we do
Long-term and timelessaspirations of the firm
No quantificationNo time-frame
End result of plannedactivities
Results in fulfillment ofmission & vision
Should be SMART
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Examples: Vision and MissionExamples: Vision and MissionStatementsStatements
Empower people through
great software anytime,
anyplace, and on anydevice.
Microsoft Corporation
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Examples: Vision and MissionExamples: Vision and MissionStatementsStatements
To be Americas best quick service restaurant chain. We willprovide each guest great tasting, healthful, reasonably priced fish,
seafood, and chicken in a fast, friendly manner on every visit.
The mission is to extend and enhance human life by providing thehighest quality health and personal care products. We intend to be
the preeminent global diversified health and personal carecompany.
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Goals
Objectives
Profitability (NetProfit)
Efficiency (low cost)
Growth (Increase intotal assets/sales
Utilization of resources(ROE/ROI)
Stakeholder wealth
( Dividend/stock priceappreciation)
Reputation (Being atop firm)
Market Leadership
(Market share)
Technical Leadership
(Innovation/Creativity)
Contribution to society(Taxes/Charity, etc.)
Strategic Goals and Objectives-some generic examples
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Setting ObjectivesSetting Objectives
Converts strategic vision and mission intoConverts strategic vision and mission into
specific performance targetsspecific performance targets
Creates yardsticks to track performanceCreates yardsticks to track performance Pushes firm to be inventive and focusedPushes firm to be inventive and focused
on resultson results
Helps prevent complacencyHelps prevent complacency
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Types of Objectives RequiredTypes of Objectives Required
Outcomes focused onOutcomes focused on
improvingimprovingfinancialfinancialperformanceperformance
Outcomes focused onOutcomes focused on
improvingimproving longlong--term,term,competitivecompetitive businessbusiness
positionposition
Financial Objectives Strategic Objectives
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Examples of Financial ObjectivesExamples of Financial Objectives
Grow earnings per shareGrow earnings per share 1515% annually% annually
Boost annual return on investment fromBoost annual return on investment from 1515% to% to2020% within three years% within three years
Increase annual dividends per shareIncrease annual dividends per shareto stockholders byto stockholders by 55% each year% each year
Strive for stock price appreciationStrive for stock price appreciationequal to or above the S&Pequal to or above the S&P 500500 averageaverage
Maintain a positive cash flow every yearMaintain a positive cash flow every year
Achieve and maintain a AA bond ratingAchieve and maintain a AA bond rating
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Examples of Strategic ObjectivesExamples of Strategic Objectives
Increase firms market shareIncrease firms market share
Overtake key rivals on quality or customer service orOvertake key rivals on quality or customer service or
product performanceproduct performance
Attain lower overall costs than rivalsAttain lower overall costs than rivals Boost firms reputation with customersBoost firms reputation with customers
Attain stronger foothold in international marketsAttain stronger foothold in international markets
Achieve technological superiorityAchieve technological superiority
Become leader in new product introductionsBecome leader in new product introductions
Capture attractive growth opportunitiesCapture attractive growth opportunities
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What type of objectives are the following?
To satisfy our customers by providing
Quality cars and trucks, Developing new products,
Reducing the time it takes to bring newvehicles to market,
Improving the efficiency of all our plants &processes, and
Building on our teamwork with employees,unions, dealers, and suppliers.
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Exam ple: Strategic Objectives
To satisfy our customers by providing
Quality cars and trucks, Developing new products,
Reducing the time it takes to bring newvehicles to market,
Improving the efficiency of all our plants &processes, and
Building on our teamwork with employees,unions, dealers, and suppliers.