stmp10-3 session 1

8/8/2019 STMP10-3 session 1

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Strategic Management

PMIR 2010-12, Course no: STMP10-3, Session 1

Introduction

What is strategic management

Vision, Mission and Objectives

Levels of Strategy and Cascading

Who Benefits from strategy?

Value Creation and appropriation


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What is Strategic management?

Strategy is an integrated and coordinated set of commitmentsand actions designed to exploit core competencies of firms andgain competitive advantages to fulfill their objectives.

Integrated combining lower level units, capstone course

Coordinated integration requires co-ordination

Commitments No comeback, burning the bridge, stake

Core competence and competitive advantage

ObjectiveIn the domain of topmanagement


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Vision Statement

Intended to capture heart and mind of employees and other

stakeholders Short and concise for ease of memorizing

Examples

To make automobile accessible to every American HenryFord

Building the nation Jamshetji Nusserwanji Tata

To seize the opportunities of tomorrow and create a future thatwill make us an EVA positive company Tata Steel, Vision2007


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MISSION

Mission is the business specific proposition which helps the

firms achieve the vision

Characteristics

More specific than visionBy leaders/top managers

Examples:

Beat Coke PEPSI

Become the dominant player in commercial aircraft and bring

the world into the jet age Boeing (1950)


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OBJECTIVE

Objective is the precise goal of what the firm wants to achieve

Characteristics

Concrete specified by numbers

Includes profit, growth, net worth, size, market share, shareprice, etc.


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Levels and Cascading of Strategy

Globe

Region/Trade Bloc

Nation

Local Regions

State

District

Village

Business group/Conglomerate

Multidivisional firm

Business Unit

Functional Departments

Groups

Individuals

Objective

Objective

Objective

Strategy

Strategy

Strategy

Goal/Mission

LEVELS OF

STRATEGY

CASCADING

OF STRATEGY

Domain of StrategicManagement


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STAKEHOLDERS

Types of StakeholdersInternal Employment contract, incomplete, hierarchical

External Arms length transactions

Distal legitimizing, usually no transaction

Contract with Stakeholders

Firm Stakeholder

InducementContribution

Innovation,Bargaining

Stakeholders and Firm Strategy


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FIRM STRATEGY

Firm

InducementContribution

Employee

Customer

Pressuregroup

Government

Money

,power

,status,kno

wledge

Servic

e,coop

eration

,loyalty,

knowle

dge

Goods, services, reputation, knowledge

Money, Loyalty, KnowledgeConformancetosocialwelfarenorms,CSR

Legitimacy

Tax,Conformanceto

rulesandregulation,CSR

Legitimacy,Infrastructural

&resourceSupport

Strategic Imperatives:All stakeholders need tocontributeMaximize value ofshareholders



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FIRM STRATEGY

Value creation = value appropriation by firm (for shareholders)*

+ value appropriation by other stakeholders

Benefactors of strategy potentially all stakeholder* Owners/shareholders have property right on the residualvalue after other stakeholders have appropriated their parts.They bear maximum risk and therefore has maximumincentive for good performance of firms.

Converting resources and exchangingthem with stakeholders

Bargaining power of firm vis--visstakeholders, long term policies



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Value Creation and Appropriation

VALUE CREATION IN EXCHANGE

Value of resource owned

A Resource B A Resource B

X X

Value of resource not owned

Y Y

VAX

VAY

VBXVAX

VAYVBY

VBX

VBY

Value creation by transferring X from A to B = VBX

- VAX

Value creation by transferring Y from B to A = VAY - VBYTo motivatean exchangeboth partiesmust gainvalue

Value creation by exchange = (VBX VBY) + (VAY - VAX)


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Value Creation and Appropriation

VALUE CREATION & APPROPRIATION IN BUSINESS

FIRM

Farmer CustomerEmployee

1 Kg Rice

(at farm)Rs. 30 1 Kg Rice

(at market)

Rs. 6Rs. 40

Logistics &

Administrative

serviceRs. 25 Rs. 50

Factor

Cost

Suppliers cost

of producing

Purchase Price

Total CostSales price

Customers

Utility

Rs.25

Rs.30

Rs.36

Rs.40

Rs.50

Factor Cost

Value

Addition

Firm Value

Supplier

Employee

Firm

Customer

VALUE APPROPRIATIONS

Value

Creation

by three

exchanges

Whichexchangecreatesfirmvalue?

stmp10-3 session 1

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