strategic management

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Business Strategic Business Strategic ManagementManagement

Presented By Rahul InglePresented By Rahul Ingle

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The Evolution in SM thinking The Evolution in SM thinking

““Strategic management is an ongoing process Strategic management is an ongoing process that assesses the business and the industries that assesses the business and the industries in which the company is involved; assesses its in which the company is involved; assesses its competitors and sets goals and strategies to competitors and sets goals and strategies to meet all existing and potential competitors; meet all existing and potential competitors; and then reassesses each strategy annually or and then reassesses each strategy annually or quarterly [i.e. regularly] to determine how it quarterly [i.e. regularly] to determine how it has been implemented” has been implemented”

- Lamb 1984- Lamb 1984

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EVOLUTION OF STRATEGIC EVOLUTION OF STRATEGIC MANAGEMENTMANAGEMENT

DOMINANTTHEME

1950s 1960s-early 70s Mid-70s-mid-80s Late 80s –1990s 2000s

Budgetary Corporate Positioning Competitive Strategicplanning & planning advantage innovationcontrol Financial Planning Selecting Focusing on Reconcilingcontrol growth &- sectors/markets. sources of size with

diversification Positioning for competitive flexibility &leadership advantage agility

Capital Forecasting. Industry analysis Resources & Cooperativebudgeting. Corporate Segmentation capabilities. strategy.Financial planning. Experience curve Shareholder Complexity. planning Synergy Portfolio analysis value. Owning

E-commerce. standards. — Knowledge Management—

Coordination Corporate Diversification. Restructuring. Alliances && control by planning depts. Global strategies. Reengineering. networksBudgeting created. Rise of Matrix structures Refocusing. Self-Organizsystems corporate Outsourcing. ation & virtual

planning organization

MAINISSUES

KEY CONCEPTS&

TOOLS

MANAGEMENTIMPLIC-ATIONS

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Historical development of Historical development of Strategic ManagementStrategic Management

Birth of strategic managementBirth of strategic management

originated in the 1950s and 60s originated in the 1950s and 60s

Alfred D. Chandler, Jr., Alfred D. Chandler, Jr., Philip Selznick, Philip Selznick, Igor Ansoff, Igor Ansoff, Peter F. Drucker Peter F. Drucker

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What is strategic management?What is strategic management?

A continuous, iterative process aimed at A continuous, iterative process aimed at keeping an organization as a whole keeping an organization as a whole appropriately matched to its environment appropriately matched to its environment (Certo and Peter)(Certo and Peter)

Keeping the business in tune with Keeping the business in tune with management and marketing forces both management and marketing forces both outside and inside the firmoutside and inside the firm

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Benefits of strategic managementBenefits of strategic management

Establish the Establish the missionmission

Formulate Formulate philosophyphilosophy

Establish policiesEstablish policies Setting objectivesSetting objectives Developing strategyDeveloping strategy Plan the Plan the

organizational organizational structurestructure

Provide personnelProvide personnel

Establish Establish proceduresprocedures

Provide facilitiesProvide facilities Provide capitalProvide capital Set standardsSet standards Establish programs Establish programs

and plansand plans Control informationControl information Activate peopleActivate people

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Strategic Management ProcessStrategic Management Process

Define the business

and establishing a strategic mission.

Setting strategic

objectives and

performance targets

Formulating a strategy to achieve the

target objectives and performance

Implementing and executing the strategic

plan

Evaluating performance

and reformulating the strategic

plan.

Redefine as

needed

Revise as

needed

Reformulate as needed

Rework as

needed

Recycle to

phases 1, 2, 3

as needed

Phase 1 Phase 2 Phase 3 Phase 4 Phase 5

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Steps to strategic managementSteps to strategic management

Environmental analysisEnvironmental analysis Establish organizational directionEstablish organizational direction Strategy formulationStrategy formulation Strategy implementationStrategy implementation Strategic controlStrategic control

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Analysis of EnvironmentAnalysis of Environment

Five Force modelFive Force model PESTPEST SWOT AnalysisSWOT Analysis BCG matrixBCG matrix GE matrixGE matrix Ansoff MatrixAnsoff Matrix Value chain analysisValue chain analysis

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Environmental analysisEnvironmental analysis

Process of examining the organization’s Process of examining the organization’s environment to determine:environment to determine:– StrengthsStrengths– WeaknessesWeaknesses– OpportunitiesOpportunities– ThreatsThreats

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Environmental structureEnvironmental structure

General environmentGeneral environment– Social, economic, political, legal, Social, economic, political, legal,

technicaltechnical Operating environmentOperating environment

– International, supplier, labor, International, supplier, labor, competition, customercompetition, customer

Internal environmentInternal environment– Organizational, marketing, financial, Organizational, marketing, financial,

personnel, productionpersonnel, production

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Methods of environmental forecastingMethods of environmental forecasting

Expert opinionExpert opinion

Trend Trend extrapolationextrapolation

Trend correlationTrend correlation

Dynamic modelingDynamic modeling

Cross-impact Cross-impact analysisanalysis

Multiple scenariosMultiple scenarios

Demand/hazard Demand/hazard forecastingforecasting

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Establish organizational directionEstablish organizational direction

Establishing an organizational direction for Establishing an organizational direction for the company involves determining two the company involves determining two indicators:indicators:– Organizational mission – the reason why Organizational mission – the reason why

the organization existsthe organization exists– Objectives – measurable targets to track Objectives – measurable targets to track

the growth of the businessthe growth of the business

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Key objective areasKey objective areas

Market standingMarket standing InnovationInnovation ProductivityProductivity Resource levelsResource levels ProfitabilityProfitability Manager performance and developmentManager performance and development Worker performance and attitudeWorker performance and attitude Social responsibilitySocial responsibility

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Types of objectivesTypes of objectives

ProfitabilityProfitability GrowthGrowth Market shareMarket share Social Social

responsibilityresponsibility Employee welfareEmployee welfare Product QualityProduct Quality ServiceService

R&DR&D DiversificationDiversification EfficiencyEfficiency Financial stabilityFinancial stability Resource Resource

conservationconservation Mgt & labor Mgt & labor

developmentdevelopment

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Strategy formulationStrategy formulation

What are the purpose and objective What are the purpose and objective of the organization?of the organization?

Where is the organization presently Where is the organization presently going?going?

What critical environmental factors What critical environmental factors does the organization currently face?does the organization currently face?

What can be done to achieve What can be done to achieve organizational objectives more organizational objectives more effectively in the future?effectively in the future?

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Growth-share matrixGrowth-share matrix

2

4

6

8

10

12

14

18

20

22

Ma

rke

t G

row

th R

ate

(p

erc

en

t)

10.0 5.0 2.0 1.0 0.5 0.1

Relative Market Share

Stars

Cash Cows Dogs

Question Marks

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Formulating business strategiesFormulating business strategies

Structural analysis of competitive forcesStructural analysis of competitive forces– Threat of new entrantsThreat of new entrants– Bargaining power of suppliersBargaining power of suppliers– Bargaining power of buyersBargaining power of buyers– Threat of substitute productsThreat of substitute products– Rivalry among existing competitorsRivalry among existing competitors– Strategic alternativesStrategic alternatives

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Scenario AnalysisScenario Analysis

Confronting AssumptionsConfronting Assumptions Recognizing the degree of uncertaintyRecognizing the degree of uncertainty Mental MapsMental Maps Mapping the uncertaintyMapping the uncertainty Conflict and DilemmaConflict and Dilemma Phases: Research, Scenario building, Phases: Research, Scenario building,

Application and DisseminationApplication and Dissemination

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Formulating functional strategiesFormulating functional strategies

Operations strategyOperations strategy

Financial strategyFinancial strategy

Marketing strategyMarketing strategy

Human resource strategyHuman resource strategy

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Competitive StrategyCompetitive Strategy

Overall cost leadershipOverall cost leadership DifferentiationDifferentiation FocusFocus

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Strategy implementationStrategy implementation

Commander approachCommander approach

Organizational change approachOrganizational change approach

Collaborative approachCollaborative approach

Cultural approachCultural approach

Crescive approachCrescive approach

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Manager determines “best” strategyManager determines “best” strategy Manager uses power to see strategy Manager uses power to see strategy

implementedimplemented Three conditions must be metThree conditions must be met

– Manager must have powerManager must have power– Accurate and timely information is Accurate and timely information is

availableavailable– No personal biases should be presentNo personal biases should be present

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LimitationsLimitations– Can reduce employee motivation and Can reduce employee motivation and

innovationinnovation AdvantagesAdvantages

– Managers focus on strategy formulationManagers focus on strategy formulation– Works well for younger managersWorks well for younger managers– Focuses on objective rather than Focuses on objective rather than

subjectivesubjective

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Focuses on the organizationFocuses on the organization Behavioral tools are usedBehavioral tools are used Includes focusing on the organization’s Includes focusing on the organization’s

staffing and structurestaffing and structure Often more effective than CommanderOften more effective than Commander Used to implement difficult strategiesUsed to implement difficult strategies

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LimitationsLimitations– Managers don’t stay informed of Managers don’t stay informed of

changes occurring within the changes occurring within the environmentenvironment

– Doesn’t take politics and personal Doesn’t take politics and personal agendas into accountagendas into account

– Imposes strategies in a “top-down” Imposes strategies in a “top-down” formatformat

– Can backfire in rapidly changing Can backfire in rapidly changing industriesindustries

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Enlarges the Organizational Change Enlarges the Organizational Change ApproachApproach

Manager is a coordinatorManager is a coordinator Management team members provide inputManagement team members provide input Group wisdom is the goalGroup wisdom is the goal

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AdvantagesAdvantages– Increased quality and timeliness of informationIncreased quality and timeliness of information– Improved chances of effective implementationImproved chances of effective implementation

LimitationsLimitations– Contributing managers have different points of Contributing managers have different points of

view and goalsview and goals– Management retains control over the processManagement retains control over the process

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Includes lower levels of the companyIncludes lower levels of the company Breaks down barriers between Breaks down barriers between

management and workersmanagement and workers Everyone has input into the formulation Everyone has input into the formulation

and implementation of strategiesand implementation of strategies Works best in high resource firmsWorks best in high resource firms

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AdvantageAdvantage– More enthusiastic implementationMore enthusiastic implementation

LimitationsLimitations– Workers should be informed, intelligentWorkers should be informed, intelligent– Consumes large amounts of timeConsumes large amounts of time– Strong company identity becomes Strong company identity becomes

handicaphandicap– Can discourage change and innovationCan discourage change and innovation

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Addresses formulation and implementation Addresses formulation and implementation simultaneouslysimultaneously

Subordinates develop, champion, and Subordinates develop, champion, and implement strategies on their ownimplement strategies on their own

““Bottoms-up” approachBottoms-up” approach Ultimate strategy is sum of all “successful” Ultimate strategy is sum of all “successful”

approachesapproaches

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AdvantagesAdvantages– Encourages middle management to Encourages middle management to

participateparticipate– Strategies are more operationally soundStrategies are more operationally sound

LimitationsLimitations– Resources must be availableResources must be available– Tolerance must be extendedTolerance must be extended

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Strategic controlStrategic control

Typically consists of three stepsTypically consists of three steps

– Monitoring performanceMonitoring performance

– Comparing performance to standardsComparing performance to standards

– Taking corrective action where neededTaking corrective action where needed

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Balance Score Card & Strategy MapBalance Score Card & Strategy Map

Customer PerspectiveCustomer Perspective Financial PerspectiveFinancial Perspective Internal Business Process PerspectiveInternal Business Process Perspective Learning and Growth PerspectiveLearning and Growth Perspective

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Different School of thought on StrategyDifferent School of thought on Strategy

The Design SchoolThe Design School The Planning SchoolThe Planning School The Positioning SchoolThe Positioning School The Entrepreneurial SchoolThe Entrepreneurial School The Cognitive SchoolThe Cognitive School The Learning SchoolThe Learning School The Power SchoolThe Power School The Cultural SchoolThe Cultural School The Environmental SchoolThe Environmental School The Configuration School The Configuration School

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Target Setting

Gap Analysis

Strategic Appraisal

Strategic Formation

Strategic Implementation

Corporate Planning ProcessCorporate Planning Process

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Organizational implications of different Organizational implications of different

strategiesstrategies..

Using McKinsey 7S framework for looking Using McKinsey 7S framework for looking at strategies implication.at strategies implication.

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The Turbulent 21st CenturyThe Turbulent 21st Century

Collapse of New Economy

•Dot.com bubble bursts•TMT recession

Collapse of New Economy

•Dot.com bubble bursts•TMT recession

Corporate Scandals• Enron, WorldCom, Parmalat

• Jack Welch’s retirement package

Corporate Scandals• Enron, WorldCom, Parmalat

• Jack Welch’s retirement package

War• Invasion of Afghanistan

& Iraq•Civil wars in Congo,

Liberia, Sudan, Somalia

War• Invasion of Afghanistan

& Iraq•Civil wars in Congo,

Liberia, Sudan, Somalia

Age of Disbelief

Age of Disbelief

The Curse of Terrorism• Sept. 11, 2001

•Suicide bombings in Israel, Iraq, Saudi Arabia, Turkey,

Afghanistan

The Curse of Terrorism• Sept. 11, 2001

•Suicide bombings in Israel, Iraq, Saudi Arabia, Turkey,

Afghanistan Fear of Disease•SARS, Mad Cow, Bird

Flu

Fear of Disease•SARS, Mad Cow, Bird

FluUnstable

CurrenciesUS$ declines by >50% against

Euro 2002-04

Unstable Currencies

US$ declines by >50% against

Euro 2002-04

Decline of Multilateralism

•Collapse of Doha round• Trade wars between US, EU, China

•Weakening of UN

Internationalcompetition intensifies• China as Workshop of the World

• Outsourcing to LDCs

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Key Trends of the 1990s:•Quest for shareholder value

•Adjusting to increased turbulence & more intense competition

Influential Strategy Concepts:•Modern financial analysis —shareholder value, economic profit, option theory

•Core competences and intangible assets•Dynamically competitive markets —“hypercompetition”

•Competitive advantage through alliances, networks, and standards

Major Themes of Business Strategy:•Cost cutting—squeezing overhead, business process reengineering, increasing labor productivity

•Outsourcing/refocusing/ divestment

•Performance management and incentive alignment

Directions in Strategic Management

Practice—Trends of the 1990s Directions in Strategic Management

Practice—Trends of the 1990s

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Future Sources of ProfitLimits of downsizing/cost cutting

Where are future sources of profit?

TechnologyContinued advances in ICT

Forces Shaping Company Strategies Forces Shaping Company Strategies 2001……2001……

Concepts & Theories•Resources & capabilities as basis for competitive advantage•Knowledge-based theory of the firm•Option theory•Complexity theory

The Business Environment

•Uncertainty•Stalling of economic

liberalization•Intense competition

Demands of society•Social & environmental responsibility

•Ethics & fairness•Quest for meaning

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STRATEGY•Multiple competitive advantages/multiple capabilities•Innovation / New Product Development / New Business Development•Alliances & networks

MANAGEMENT SYSTEMS• Knowledge management (incl. best-practice transfer)• Redesigning incentive systems• Rethinking performance management• Capturing human creativity

Emerging DevelopmentsEmerging Developments

ORGANIZATION STRUCTURE• Reconciling flexibility & integration• Modular structures• Multidimensional structures• Informal organization & self-organization

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The Need to Redesign OrganizationsThe Need to Redesign OrganizationsThe Need to Redesign OrganizationsThe Need to Redesign Organizations

THE PAST THE FUTURE

Emphasis on control Emphasis on co-ordination

Decisions located centrally

Decisions located where relevant knowledge exists

Simple structures,unified line of command

Multidimensional structuresDiffused authority, but clear responsibilities

Single performance goal

Multiple performance goals

Organization by design Self organization

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Emerging Organizational FormsEmerging Organizational FormsEmerging Organizational FormsEmerging Organizational Forms

Process-based Organizing around business processesorganizations Organizing around corporate processes

- entrepreneurial process - competence building process - renewal process

From unitary to parallel Separate coordination structures forstructures different processes. E.g. 3M’s product

development structure; separate structures for TQM and change management

Project-based organization E.g. engineering cos., consulting firms, alsomanufacturing cos. e.g. Oticon

Network and virtual E.g. electronics in Silicon Valley, clothingorganization and packaging equipment in Italy

Organizing for capability Shifting emphasis of organizationdevelopment design from control to coordination

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Q&AQ&A

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Thank YouThank You

strategic management

Business

business strategic management

strategic objectives

strategic management

strategic mission

analysis of environment

organizational objectives

environmental analysis

s mid