sm 1 -overview

7/27/2019 SM 1 -Overview

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INTRODUCTION

TO

STRATEGIC MANAGEMENT

Dr.P.Prasadarao Ph.D.,


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2

The Nature of Strategic Management

If a man takes no thought about what is

distant, he w i l l f ind so rrow near at hand . He

who w i ll not wo rry about what is far of f wi l l

soon f ind som eth ing worse than worry .

Confuc ius


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Why do some companies fail while others

succeed?


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Why Dell computers has been able to do so well against Compaq,

Gateway and Apple ?

What distinguishes the success of Wal-mart against Sears and K-mart?

In Database market how Oracle managed to build and retain strong market

position vis--vis Informix and Sybase

How Southwest Airlines maintain competitiveness against Delta and US

Airways

How did Sony come to dominate the market for Video games against

Sega ?

Success of Reliance

Strategies that organizat ions pu rsue have a major impacton its performance relative to i ts peers

Super ior performances give them competi t ive advantage

Much of Strategic m anagement is abou t

ident i fy ing and descr ib ing strategies to attainsuper ior performance and compet i tive advantage


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Thinking Strategically

Where are we Now?

Where do we

want to go?

How will we get there?


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What is Strategic Management?

Strategic management focuses on integrating

management

marketing

finance/accounting

production/operations

research and development (R & D)

computer information systems.


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Strategic Management Defined

Strategic management consists of managerial

decisions and actions that help to ensure that

the organization formulates and maintains abeneficial fitwith its environment.


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According to Peter Drucker, the primetask of strategic management is thinkingthrough the overall mission of a business:

. . . That is, of asking the question, What isour Business?This leads to the setting ofobjectives, the development of strategies, andthe making of todays decisions for tomorrows

results.

Futurity in present Decisions


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The Five Tasks of Strategic Management

1. Deciding what business the company will be in and

forming a strategic vision

a) Fit a SWOT

2. Converting the strategic vision and mission intomeasurable objectives

3. Crafting a strategy

4. Implementing and executing

5. Evaluating performance


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Strategic Management Process

The strategic m anagementprocess

consists of three stages:

Strategy Form ulat ion(create)

Strategy Implementat ion

(do)

Strategy Evaluat ion

(monitor)


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Strategic Control

Strategic Control Process and Performance

The Internal Environment

The Firms Resources, Organizational Mission, and Goals

External Environmental Opportunities and Threats

Macroenvironment Industry Environment

Strategy Formulation

Strategy Implementation

Organizational StructureLeadership, Power, and Organizational Culture

Corporate Strategy

FormulationBusiness Unit

Strategy Formulation

Functional Strategy

Formulation

StrategicManagement

PROCESS

Feedback


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Mission

Goals

SWOT

Alternatives

Fit

ChoiceSocial

Issues

Management

Values

Strategy

Formulation

Components

Scope

ResourcesTime

OrganizationBuilding

Legitimacy

Ethics

Culture

Learning

Institutionalization

Implementation

and Control

Structure

Standardization

Formalization

Centralization

DiscretionAuthority levels

Admin. component

Specialization

Communication

Environment Resources

Environment

Complexity

Munificence

Dynamism

Size

Complexity

Technology

Scope

Role

Adaptation

Determinism

Voluntarism

Organic vs.Mechanistic

The Strategic Management Paradigm


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Dimensions of Strategic

Management Requires top management decisions

Large amounts of firm resources

Affect long-term prosperity

Future oriented

Multifunctional or multi-business consequences

Considers the impact of the external

environment


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Definition of Strategy

....a general statement of act ionsanorganization intends to take or is taking that is

based on the f i tof the organization with its

external environment. strategy is the creation of a unique and

valuable position, involving a different set of

activities (Porter)

strategy is best conceived as a combination of

planned actions and on-the-spot adaptive

reactions to fresh developing industry and

competitive events.


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The Hows That Define a Firm's Strategy

Howto grow the business

Howto please customers

Howto out compete rivals

Howto respond to changing market conditions

Howto manage each functional piece of the business and

develop needed organizational capabilities

Howto achieve strategic and financial objectives


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The Levels of Strategy

Corporate

Business

Functional

Synergies are sought at each level


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Corporate- and Business Unit-

Level Strategic Questions

Question at the corporate level: In what

businesses should we be operating?

Question at the business unit level: How

should we compete in the chosen businesses?

? ? ?


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Strategy Is Both Planned and Reactiveto Changing Circumstances

Actual

Strategy

Planned (or

Intended)

Strategy

Adaptive

Reactions


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Why Do Strategies Evolve?

There is alwaysan ongoing need to react to Shifting market conditions

Fresh moves of competitors

New technologies

Evolving customer preferences

Political and regulatory changes

New windows of opportunity

The crisis of the moment

Th P f St t i t C t


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The Purpose of Strategy is to Create

a Sustainable Competitive

Advantage Build around core competencies Create distinctive competencies

Competitive strategy is about being different

Make the distinctive competencies valuable sothat they can become competitive advantages

Build defenses around your position to make itsustainable

Organization effectiveness is different fromstrategy If it can be imitated, it is not a sustainable advantage


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Stages of Strategic Management

Strategy fo rmulat ion includes:

Developing a v is ionand mission.

Identifying an organizations external

opportuni t iesand threats.Determining internal strengthsand

weaknesses.

Establishing long-term ob ject ives.

Generating alternative s trategies.

Choosing part icular strategiesto pursue.


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Strategy form ulat ionincludes deciding:

What new businesses to enter.

What businesses to abandon.

How to allocate resources.

Whether to expand operations or diversify.

Whether to enter international markets.

Whether to merge or form a joint venture.

How to avoid a hostile takeover.


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Strategy implementationincludes:

Establishing annual ob ject ives.

Devising pol ic ies.

Motivat ing employ eesthrough leadership.

Al locat ing resources.


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Strategy implementationis often considered tobe the most di f f icu l t stage of strategicmanagement,because it requires personaldiscipline, commitment, and sacrifice.

Strategy implementation often is called theact ion stageof strategic management.

Note: Strategies formulated but not

implemented serve no useful purpose.


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Strategy evaluat ionincludes:

Reviewing external and internal factors that

are the bases for current strategies.

Measuring performance.

Taking corrective action, if needed.


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The Prime Task of Strategic Management

Strategy evaluation is needed because:

All strategies are subject to futuremodification.

Success today is no guarantee of successtomorrow.

Success can lead to complacency.

Success leads to new and different problems.


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Adapting to Change

The strategic-management process isbased on the belief that organizationsshould continually monitor internal and

external events and trends so that timelychanges can be made as needed.

To survive, all organizations must becapable of astutely identifying andadapting to change.


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Key Terms in Strategic Management

Compet i tive advantageis anything that

a firm does especially well compared to

rival firms.

Getting and sustaining competitive advantage

is essential for long-term success in an

organization.

Pursuit of competitive advantage leads toorganizational success or failure.


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A firm must strive to achieve susta ined

competi t ive advantageby

1. continually adapting to changes in

external trends and events

internal capabilities

competencies

resources.

2. effectively formulating, implementing, and

evaluating strategies that capitalize upon those

factors.


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Strategists are the individuals who are

most responsible for the success or failure

of an organization.

Strategists may have various job titles.

Strategists help an organization gather,

analyze, and organize information.


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Vision s tatement:answers the question,

What do we want to become?

Developing a vision statement is often

considered the first step in strategic

planning.

Many vision statements are a single

sentence.

BHELs vision statement: A world-class innovative


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Mission statements

are enduring statements of purpose that distinguish one

business from other similar firms.

identify the scope of a firms operations in product and market

terms. answer the question: What is our business?

broadly chart the future direction of an organization.

describe the values and priorities of an organization.

BHEL :To achieve and maintain a leading position as suppliers of

quality equipments, systems and service to serve the national and

international markets in the field of energy. The areas of interest would

be conversion, transmission,, utilisation and conservation of energy for

power, industrial and transportation fields, to strive for technological

excellence and market leadership in these areas.


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External oppo rtun it ies and th reatsrefer to thefollowing trends and events that could significantlybenefit or harm an organization in the future: Economic

Social

Cultural Demographic

Environmental

Political

Legal

Governmental Technological

Competitive.


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Opportunities and threats are largely beyond thecontrol of a single organization.

A basic tenet of strategic management is thatfirms need to

formulate strategies to take advantage of externalopportunities

avoid or reduce the impact of external threats.

The process of conducting research and

gathering and assimilating external informationis called environmental scanning.


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Internal strength sand internal weaknessesare anorganizations contro l lable act iv i t iesthat areperformed especially well (strengths) or poorly(weaknesses).

Internal strengths and weaknesses arise in thefunctional areas within an organization:management, marketing, finance/accounting,production/operations, research and development(R&D), and management information systems.

Strengths and weaknesses are determined relativeto com peti tors .


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Long -term ob ject ivesare speci f ic resu l tsthatan organization seeks to achieve in pursuing itsbasic mission.

Long-term means more than one year.

Long-term objectives should be challenging

measurable

consistent

reasonable clear.


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Strategies are

potential actions that require top management

decisions and large amounts of the firms resources.

the means by which long-term objectives will beachieved.

the combination of competitive moves and business

approaches that managers employ to please

customers, compete successfully, and achieve

organizational objectives.


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For example, strategiesmay include Geographic expansions

Diversification

Acquisition

Product development Market penetration

Retrenchment

Divestiture

Liquidation Joint ventures.


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Annual object ives

Short-term (less than one year) milestones that

organizations must achieve to reach long-term

objectives.

Should be stated in terms of management, marketing,

finance/accounting, production/operations, research

and development, and management information

systems accomplishments.

A set of annual object ives should be developed

for each long-term ob ject ive.

Are especially important in strategy implementation.

Represent the basis for allocating resources.


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Pol icies are the means by which annual objectives will be achieved.

are most often stated in terms of management, marketing,finance/accounting, production/operations, research anddevelopment, and management information systems

accomplishments. include guidelines, rules, and procedures established to support

efforts to achieve stated objectives.

are especially important in strategy implementation because theyoutline an organizations expectations of its employees andmanagers.

allow consistency and coordination within and betweenorganizational departments.

are guides to decision making and address repetitive or recurringsituations.


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Benefits of Strategic Management

Strategic management

Allows an organization to be more proactive than

reactive in shaping its own future.

Allows an organization to initiate and influence(rather than just respond to) activities.

Allows an organization to exert control over its

own destiny.

Helps an organization formulate better strategiesthrough the use of a more systematic, logical, and

rational approach to strategic choice.


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Benefits of Strategic Management

Communication is a key to successful

strategic management.

Dialogue and participation are essential

ingredients.

A major aim of the process is to achieve

the understandingof and commi tment

from all managers and employees.

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