Strategic Management in Business
Strategic Management
MSMSR/BBA/601 (Core)
Dr. Akshita Sharma
Asst. Prof. (MSMSR)
MATS University, Pandri, Raipur (C.G.)
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Text Books
•
C.N. Sonttakke, Strategic Management, Kalyani Publication
•
Subbarao, Business Policy and Strategic Management, HPH.
•
Dr. Aswathappa, Business Environment for Strategic Management, Tata McGraw
Hill.
•
Charles W.L Hill and Gareth R. Jones, Strategic Management an Integrated
Approach, Cengage
•
Learning
•
Azhar Kazmi, Business Policy and Strategic Management, Tata McGraw Hill
•
C. AppaRao; Strategic Management and Business Policy, Excel Books.
•
Ghosh P.K., Business Policy and Strategic Planning and Management, Tata
McGraw Hill.
•
Pillai, Strategic Management,
•
Lawerence, Business Policy and Strategic Management, Tata McGraw Hill.
•
Sathyashekar : Business Policy and Strategic Management, I.K International
Publishing House Pvt. Ltd.
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MODULE I
•
Introduction to Strategic Management-
Introduction, Meaning and Definition, Need,
Process of Strategic Management, Strategic
Decision Making, Strategic Management
Approaches
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Module Content
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Introduction, Meaning and
Definition of Strategic Management
The concept of strategy
The concept of strategy in business has been borrowed from military
science and sports where it implies out- maneuvering the opponent.
The term strategy began to be used in business with increase in
competition and complexity of business operations.
A strategy is an administrative course of action designed to achieve
success in the face of difficulties. It is a plan for meeting challenges
posed by the activities of competitors and environmental forces.
Strategy is the complex plan for bringing the organization from a
given state to a desired position in a future period of time. For
example, if management anticipates price-cut by competitors, it may
decide upon a strategy of launching an advertising campaign to
educate the customers and to convince them of the superiority of its
products.
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Nature of strategy
Strategy is a contingent plan as it is designed to meet the
demands of a difficult situation.
Strategy provides direction in which human and physical
resources will be deployed for achieving organizational
goals in the face of environmental pressure and constraints.
Strategy relates an organization to its external environment.
Strategic decisions are primarily concerned with expected
trends in the market, changes in government policy,
technological developments etc.
Strategy is an interpretative plan formulated to give
meaning to other plans in the light of specific situations.
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Introduction, Meaning and
Definition of Strategic Management
Strategy determines the direction in which the organization is going in
relation to its environment. It is the process of defining intentions and
allocating or matching resources to opportunities and needs, thus
achieving a strategic fit between them. Business strategy is concerned
with achieving
competitive advantage.
The effective development and implementation of strategy depends on
the strategic capability of the organization, which will include the
ability not only to formulate strategic goals but also to develop and
implement strategic plans through the process of strategic
management.
A strategy gives direction to diverse activities, even though the
conditions under which the activities are carried out are rapidly
changing.
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Introduction, Meaning and
Definition of Strategic Management
The strategy describes the way that the organization will
pursue its goals, given the changing environment and the
resource capabilities of the organization.
It provides an understanding of how the organization plans
to compete.
It is the determination and evaluation of alternatives
available to an organization in achieving its objectives and
mission and the selection of appropriate alternatives to be
pursued.
It is the fundamental pattern of present and planned
objectives, resource deployments, and interactions of a firm
with markets, competitors and other environmental factors.
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A good strategy should specify;
What is to be accomplished
Where, i.e., which product/markets it will
focus on
How i.e., which resources and activities will
be allocated to each product/market to meet
environmental opportunities and threats and to
gain a competitive advantage
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Introduction, Meaning and
Definition of Strategic Management
Definition; Strategic management is the process
by which top management determines the
long-term direction of the organization by
ensuring that careful formulation,
implementation and continuous evaluation of
strategy take place.
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Components of strategy
1. Scope; refers to the breadth of a firm’s strategic
domain i.e., the number and types of industries,
product lines, and markets it competes in or plans to
enter.
2. Goals and objectives; these specify desires such as
volume growth, profit contribution or return on
investment over a specified period.
3. Resource deployment; strategy should specify how
resources are to be obtained and allocated across
businesses, product/markets, financial departments,
and activities..
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Components of strategy
4. Identification of a sustainable competitive advantage; it
refers to examining the market opportunities in each
business and product-market and the firm’s distinctive
competencies or strengths relative to competitors.
5. Synergy; this exists when the firm’s businesses,
products, markets, resource deployments and
competencies complement one another i.e., the whole
becomes greater than the sum of its parts( 2+2=5)
Strategies can be classified into corporate, business-unit
and functional strategies.
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Strategic Management
Strategic management is the process by which top
management determines the long-term direction
of the organization by ensuring that careful
formulation, implementation and continuous
evaluation of strategy take place.
The strategic management process
The process can be broken down into three phases;
Strategy formulation
Strategy implementation
Strategy control
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The strategic management process
Strategy formulation involves;
Defining the organization’s guiding philosophy &
purpose or mission.
Establishing long-term objectives in order to
achieve the mission.
Selecting the strategy to achieve the objectives.
Strategy implementation involves;
Establishing short-range objectives, budgets and
functional strategies to achieve the strategy.
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The strategic management process
Strategy control involves the following;
Establishing standards of performance.
Monitoring progress in executing the strategy.
Initiating corrective actions to ensure
commitment to the implementation of the
strategy.
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Needs of strategic management
It provides the organization with consistency of
action i.e. helps ensure that all organizational
units are working toward the same objectives
(direction).
The process forces managers to be more proactive
and conscious of their environments i.e. to be
future oriented.
It provides opportunity to involve different levels
of management, encourage the commitment of
participating managers and reducing resistance to
proposed change.
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Process of Strategic Management
Strategic management is a continuous process that appraises the
business and industries in which the organization is involved;
appraises it’s competitors; and fixes goals to meet all the
present and future competitor’s and then reassesses each
strategy.
Strategic management process has following four steps:
Environmental Scanning
-
Environmental scanning refers to a
process of collecting, scrutinizing and providing information
for strategic purposes. It helps in analyzing the internal and
external factors influencing an organization. After executing
the environmental analysis process, management should
evaluate it on a continuous basis and strive to improve it.
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Process of Strategic Management
Strategy Formulation
-
Strategy formulation is the
process of deciding best course of action for
accomplishing organizational objectives and hence
achieving organizational purpose. After conducting
environment scanning, managers formulate corporate,
business and functional strategies.
Strategy Implementation
-
Strategy implementation
implies making the strategy work as intended or putting
the organization’s chosen strategy into action. Strategy
implementation includes designing the organization’s
structure, distributing resources, developing decision
making process, and managing human resources.
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Process of Strategic Management
Strategy Evaluation
-
Strategy evaluation is the
final step of strategy management process. The
key strategy evaluation activities are:
appraising internal and external factors that are
the root of present strategies, measuring
performance, and taking remedial/corrective
actions. Evaluation makes sure that the
organizational strategy as well as it’s
implementation meets the organizational
objectives.
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Strategic decision-making
It is a process of understanding the interaction of
decisions and their impact upon the organization to gain
an advantage. Wrong decisions taken at the wrong time,
may result in catastrophic consequences. In other
words, the power of strategic thinking lies in combining
the power of the right decision with the right time.
To remain competitive and survive, organizations must
make decisions that will maximize short-term results
and minimize long-term risks. Strategic decision-
making uncovers the future possibilities for a company
and those options that can be implemented to achieve
success.
Strategic and data-driven strategies are gaining
trends
in the business world.
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Strategic decision-making
The process of strategic decision-making combines the five basic
steps of the decision-making process with the concepts of
opportunity, threat, countervailing factors, and risk. The
process of strategic decision-making is the lifeblood of your
organization. As a business owner, it’s your responsibility to
make decisions that will help your company survive, grow and
thrive.
Strategic Decision Making: Reasons and Its Importance
The organization must perform better in the future whether the
present is better or worse. It is necessary to make strategic
decisions to overcome the obstacles that come in the way of
the organization’s progress.
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Why Strategic decision-making is the
most essential thing for an organization?
An important step in all organizations. This process facilitates
organizational learning to take place, improve performance
and organizational outcomes and reduce the probability of
strategic failure or competition. It provides business
intelligence reports for organizations to study and predict
the future trends
A skill and it’s important to learn it and practice. Strategic
decision-making is an essential skill for today’s leaders. It’s
not a skill that should be picked up and used once or twice
and then forgotten. Strategic decision-making can provide
your organization with a competitive advantage, and it’s
important to maintain your strategic decision-making skills
and continue to develop them over time.
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Why Strategic decision-making is the
most essential thing for an organization?
One of the most important activities any organization can
carry out. Strategic decisions are decisions that require
a high degree of responsibility and focus on long-term
objectives. They need a lot of knowledge about many
things including the processes, systems, and policies. In
addition to that, decisions need to be planned before
they are carried out. Power BI visuals is one such tools
which is secured and loaded with options for making
better and smarter decisions.
Also involves the process of implementation. Strategic
decision-making is all about making the right decisions
at the right time.
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Why Strategic decision-making is the
most essential thing for an organization?
This is the process of making a decision and then
implementing that decision. Decision-making is not
about making a decision, and then not acting on it.
Implementation is the process of actually doing the
work.
A key tool to drive business growth. It is the way to find
out what is the best way of achieving a business
objective and what the risks are. This is why
organizations should have a decision-making process
that includes a well-defined set of policies and rules
which are adhered to by all. You can also use
different data analytics tools and data discovery
tools for helping you taking better decisions.
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Assignment
Q.1.Write Short Note on:-
a.
Strategic Management
b.
Components of strategy.
Q.2. Define process of strategy management.
Q.3. Explain Strategic Decision making.
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MODULE II
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Environmental Appraisal-
The concept of
Environment, The Company and its
Environment, Porter’s Five Forces Model,
Scanning the Environment, Technological,
Social, Cultural, Demographic, Political, Legal
and Other Environments Forces, Internal
Analysis, Competitive Advantage, Value Chain
Analysis, SWOT Analysis.
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Environmental Appraisal
There are numerous factors that affect the organisation and its
operations. These factors can influence the organisation in
both positive as well as negative ways. Identifying the issues
and challenges existing in the external environment is
extremely important for an organisation. In order to identify
the factors in external environment, an appraisal process of the
industry's environment is necessary. Environmental appraisal
facilitates the managers with the ability to study the
competitive structure and competitive position of the
organisation along with the position of its competitors.
By analyzing and appraising the external environment, the
existing opportunities and threats can be identified. It is the
responsibility of the managers to avoid the threats and to reap
the benefits from the opportunities in the market.
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Environmental Appraisal
Environmental appraisal also helps the managers in
analyzing the effects of globalization on the level of
competition within a particular industry.
It is well-known that business environment never remains
stable rather keeps on changing rapidly. As the businesses
grows and expands, the changes in external environment
compels the organisations to make efficient strategies to
deal with the contingency situations. Environmental
appraisal also allows an organisation to study the steps
taken by competitors in the market. By appraising the
external environment the companies can improve their
internal capabilities and strengths for adapting to the
changes in the external. environment.
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Definition of Environmental
Appraisal
According to Abell :
"Environmental appraisal is the identification,
measurement, and assessment of
environmental impacts".
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Levels/Components of Environmental
Appraisal
By analyzing the external environment of a business the
marketers are able to identify and highlight the opportunities
from the threats and strengths from the weaknesses. The
factors which are not dependent on organisation and their
existence is not based on the activities of the organisation are
called as external factors. While strengths and weaknesses are
internal. Opportunities and threats are external and are not in
control of the organisation. Opportunities are those situations
that the organisations can use to their advantage. While threats
are those negative situations that if not tackled promptly can
harm the well-being of the organisation.
Analyzing the
external environment requires analyzing following areas :
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Levels/Components of Environmental
Appraisal
1) Environmental Scanning :
In environmental
scanning the broad environmental factors are
analysed and studied. These factors are not a part
of the organization's internal environment and
hence are uncontrollable in nature. These factors
influence the businesses in a significant manner.
These factors are a part of the macro environment
or the general environment. The common macro
environmental factors are economic, political,
legal, technological, social, etc.
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Levels/Components of Environmental
Appraisal
2) Industry Analysis :
Industry analysis is a tool which
is used to assess the degree of competition and
complexity within a particular industry. With the help
of industry analysis, the marketers study and scrutinize
the macro environmental factors that influence a
particular industry. Industrial analysis helps the
strategic leaders formulate various strategies to
neutralize the threats and reap the benefits from the
opportunities. Various environmental forces to be
studied in the industry analysis are the bargaining
power of buyers and suppliers, position of business and
competitors and threats of new entrants as well as the
substitutes within the industry.
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Levels/Components of Environmental
Appraisal
3) Competitive Analysis :
While appraising the external
environment, it is very important to analyse the
strengths and weaknesses of the existing and probable
competitors. It helps the organisation to formulate the
strategies required to survive and succeed in the highly
competitive environment. It also outlines the strategies
adopted by the competitors. The influence of
competition is directly proportional to the degree of
concentration in the industry, i.e., if the concentration
of the industry is high, the influence of competition
is high, and vice versa. Competitive analysis helps the
organisations in identifying threats and opportunities by
providing defensive and offensive strategic moves.
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Process of Environmental Appraisal
The process of environmental appraisal includes the following
steps :
1) Understand Nature of Environment :-
Before starting the
environmental appraisal, the strategists must understand the
nature, i.e., the volatility of external environment. The
volatility here implies to the changes in the environment. To
understand the nature of environment, the strategic leaders
need to answer following questions :
•
Is the environment stable or dynamic?
•
In which ways does the environment change?
•
Are the changes identifiable?
•
Answering these questions would help in deciding the future
course of actions.
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Process of Environmental Appraisal
2) Analyze the Past Influences of Environmental Factors : -
Once, the nature of external environment is identified, the next
step is to identify the factors that have influenced the
performance of organisation in the past. Analyzing these
factors will help in planning and formulating strategies to
handle future scenarios.
3) Identify Critical Competitive Forces :
The next step is to
identify the key competitive forces existing within the industry
with the help of structural analysis. This step helps to analyze
the organization's current position, the bargaining power of
buyers and suppliers, the new entrants in the industry, and the
existing competitors of the organisation.
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Process of Environmental Appraisal
4) Analyze the Strategic Position :
In this step, the managers analyse the
strategic position of the organisation in relation to its competitors in terms
of resources, customers, etc. To identify and analyse the strategic position
of an organisation, following ways should be adopted:
•
Growth/Share analysis
•
Attractiveness analysis
•
Strategic group analysis
•
Study of market segments and market power
•
Competitor analysis
5) Identify the Opportunities and Threats : -
Identify the opportunities and
threats prevailing in the environment. Formulate efficient strategies to reap
the benefits from the opportunities so that the threats can be neutralized.
The selection of strategy and effective utilization of selected resources in an
effective manner is crucial for this stage.
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The concept of Environment
The environment is a major source of change. Some firms become
victims of this change while others use it to their advantage. The
purpose of environmental analysis is to enable the firm to turn
change to its advantage by being proactive.
•
Characteristics of the environment are;
•
It is unique to every organization.
•
It is constantly changing.
•
One level is controllable while the other (remote-PESTEL) is
uncontrollable.
•
It is a source of Opportunities, Threats, Strengths & Weaknesses.
Environmental analysis can be divided into two major steps;
a. Defining; determining the relevant environmental forces.
b. Scanning & forecasting; collecting information concerning the
defined environment.
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The Company and its Environment
Understanding the environment that surrounds an organization is important to
the executives in charge of the organizations. There are several reasons for
this. First, the environment provides resources that an organization needs in
order to create goods and services. In the 17th century, British poet John
Donne famously noted that “no man is an island.” Similarly, it is accurate
to say that no organization is self-sufficient. As the human body must
consume oxygen, food, and water, an organization needs to take in
resources such as labor, money, and raw materials from outside its
boundaries. Subway, for example, simply would cease to exist without the
contributions of the franchisees that operate its stores, the suppliers that
provide food and other necessary inputs, and the customers who provide
Subway with money through purchasing its products. An organization
cannot survive without the support of its environment.
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The Company and its Environment
Second, the environment is a source of opportunities and threats for an
organization.
Opportunities
are events and trends that create
chances to improve an organization’s performance level. In the late
1990s, for example, Jared Fogle’s growing fame created an
opportunity for Subway to position itself as a healthy alternative to
traditional fast-food restaurants.
Threats
are events and trends that
may undermine an organization’s performance. Subway faces a
threat from some upstart restaurant chains. Saladworks, for example,
offers a variety of salads that contain fewer than 500 calories.
Noodles and Company offers a variety of sandwiches, pasta dishes,
and salads that contain fewer than 400 calories. These two firms are
much smaller than Subway, but they could grow to become
substantial threats to Subway’s positioning as a healthy eatery.
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The Company and its Environment
Executives must also realize that virtually any environmental
trend or event is likely to create opportunities for some
organizations and threats for others. This is true even in
extreme cases. In addition to horrible human death and
suffering, the March 2011 earthquake and tsunami in Japan
devastated many organizations, ranging from small businesses
that were simply wiped out to corporate giants such as Toyota
whose manufacturing capabilities were undermined. As odd as
it may seem, however, these tragic events also opened up
significant opportunities for other organizations. The
rebuilding of infrastructure and dwellings requires concrete,
steel, and other materials. Japanese concrete manufacturers,
steelmakers, and construction companies are likely to be very
busy in the years ahead.
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The Company and its Environment
Third, the environment shapes the various strategic
decisions that executives make as they attempt to lead
their organizations to success. The environment often
places important constraints on an organization’s goals,
for example. A firm that sets a goal of increasing annual
sales by 50 percent might struggle to achieve this goal
during an economic recession or if several new
competitors enter its business. Environmental
conditions also need to be taken into account when
examining whether to start doing business in a new
country, whether to acquire another company, and
whether to launch an innovative product, to name just a
few.
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Porter's Five Forces model
Porter's Five Forces is a model that identifies and analyzes
five competitive forces that shape every industry and
helps determine an industry's weaknesses and strengths.
Five Forces analysis is frequently used to identify an
industry's structure to determine corporate strategy.
Porter's model can be applied to any segment of the
economy to understand the level of competition within
the industry and enhance a company's long-term
profitability. The Five Forces model is named after
Harvard Business School professor, Michael E. Porter.
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Porter's Five Forces model
Porter's 5 forces are:
•
Competition in the industry
•
Potential of new entrants into the industry
•
Power of suppliers
•
Power of customers
•
Threat of substitute products
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1. Competition in the Industry
The first of the Five Forces refers to the number of competitors and
their ability to undercut a company. The larger the number of
competitors, along with the number of equivalent products and
services they offer, the lesser the power of a company.
Suppliers and buyers seek out a company's competition if they are able
to offer a better deal or lower prices. Conversely, when competitive
rivalry is low, a company has greater power to charge higher prices
and set the terms of deals to achieve higher sales and profits.
•
Competitors are many
•
They are roughly equal in size
•
Industry growth is slow, leading to fights for market share
•
The product lacks differentiation or switching costs
•
Fixed costs are high and the product is perishable
•
Exit barriers are high.
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2. Potential of New Entrants Into an
Industry
A company's power is also affected by the force of
new entrants into its market. The less time and
money it costs for a competitor to enter a
company's market and be an effective competitor,
the more an established company's position could
be significantly weakened.
An industry with strong barriers to entry is ideal for
existing companies within that industry since the
company would be able to charge higher prices
and negotiate better terms.
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3. Power of Suppliers
The next factor in the Porter model addresses how easily
suppliers
can drive
up the cost of inputs. It is affected by the number of suppliers of key inputs
of a good or service, how unique these inputs are, and how much it would
cost a company to switch to another supplier. The fewer suppliers to an
industry, the more a company would depend on a supplier.
As a result, the supplier has more power and can drive up input costs and push
for other advantages in trade. On the other hand, when there are many
suppliers or low switching costs between rival suppliers, a company can
keep its input costs lower and enhance its profits.
•
It is made up of a few firms
•
There are few or no substitute products
•
The product is unique or differentiated
•
There exists supplier switching costs
•
It can integrate forward to produce the industry’s product.
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4. Power of Customers
The ability that customers have to drive prices lower or their level of
power is one of the Five Forces. It is affected by how many buyers
or customers a company has, how significant each customer is, and
how much it would cost a company to find new customers or
markets for its output.
A smaller and more powerful client base means that each customer has
more power to negotiate for lower prices and better deals. A
company that has many, smaller, independent customers will have
an easier time charging higher prices to increase profitability.
•
The buyers are few and they buy in large volumes
•
The product is not differentiated, is substitutable and there are
other alternative suppliers.
•
The buyer has little switching costs
•
The buyer can integrate backward to make the industry’s product.
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5. Threat of Substitutes
The last of the Five Forces focuses on substitutes.
Substitute goods or services that can be used in place of
a company's products or services pose a threat.
Companies that produce goods or services for which
there are no close substitutes will have more power to
increase prices and lock in favorable terms. When close
substitutes are available, customers will have the option
to forgo buying a company's product, and a company's
power can be weakened.
Understanding Porter's Five Forces and how they apply to
an industry, can enable a company to adjust its business
strategy to better use its resources to generate higher
earnings for its investors.
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What Are Some Drawbacks of
Porter's Five Forces?
The Five Forces model has some drawbacks, including that it is backward-
looking, making its findings mostly relevant only in the short term; that
limitation is compounded by the impact of globalization. Another big
drawback is the tendency to try to use the five forces to analyze an
individual company, versus a broad industry, which is how the framework
was intended. Also problematic is that the framework is structured so that
each company is placed in one industry group when some companies
straddle several. Another issue includes the need to assess all five forces
equally when some industries aren't as heavily impacted by all five.
What's the Difference Between Porter's Five Forces and SWOT Analysis?
Porter's 5 Forces and SWOT (strengths, weaknesses, opportunities, & threats)
analysis are both tools used to analyze and make strategic decisions.
Companies, analysts, and investors use Porter's 5 Forces to analyze the
competitive environment within an industry, while they tend to use
a SWOT analysis to look more deeply within an organization to analyze its
internal potential.
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Scanning the Environment
Environmental scanning is a process of gathering information about the events
and their relationship with the internal and external environment of the
organization. The primary aim of environmental scanning is to find out the
future prospects of business organization.
As a significant resource to the management, the Environmental Scanning
Committee enables the management to make decisions from fundamental
analysis of historical events to estimate future events. The committee also
helps in creating action plans to address these upcoming events, analyzing
action plans and arranging appropriate resources for those plans, and
putting management in contact with fellow employees with the knowledge
set to provide quality data for decision making.
Environmental Scanning Definition -
The process of collecting, evaluating,
and delivering information for a strategic purpose is defined as
environmental scanning. The process of environmental scanning requires
both accurate and personalized data on the business environment in which
the organization is operating or considering entering.
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What are the Characteristics of
Environmental Scanning?
The characteristics of environmental scanning are as follows:
•
Continuous Process-
The analysis of the environment is a continuous
process rather than being sporadic. The rapidly changing environment
has to be captured continuously to be on track.
•
Exploratory Process-
Scanning is an exploratory process that keeps
monitoring the environment to bring out the possibilities and unknown
dimensions of the future. It stresses the fact that “What could happen”
and not ”What will happen”.
•
Dynamic Process-
Environmental scanning is not static. It is a
dynamic process and depends on changing situations.
•
Holistic View-
Environmental Scanning focuses on the complete view
of the environment rather than viewing it partially.
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Components of Environmental
Scanning
•
Internal Environmental Components-
The components that lie within the
organization are internal components and changes in these affect the
general performance of the organization. Human resources, capital
resources and technological resources are some of the internal
environmental components.
•
External Environmental Components:
The components that fall outside
the business organization are called external environmental components.
Although the components lie outside the organization, they still affect the
organizational activities. The external components can be divided into
micro environmental components, and macro environmental
components. Micro environmental components include competitors,
consumers, markets, suppliers, organizations, etc. Macro environmental
components include political, legal, economical, cultural, demographic, and
technological factors.
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Techniques of Environmental
Scanning
•
SWOT Analysis-
SWOT analysis is an acronym for Strengths,
Weaknesses, opportunities and threats analysis of the environment.
Strengths and weaknesses are considered as internal factors whereas
opportunities and threats are external factors. These factors
determine the course of action to ensure the growth of the business.
•
PEST Analysis-
PEST stands for Political, economic, social, and
technological analysis of the environment. It deals with the external
macro-environment.
•
ETOP-
ETOP stands for the Environmental Threat Opportunity
Profile. It helps an organization to analyze the impact of the
environment based on threats and opportunities.
•
QUEST-
QUEST stands for the Quick Environmental Scanning
Technique. This technique is designed to analyze the environment
quickly and inexpensively so that businesses can focus on critical
issues that have to be addressed in a short span.
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Process of Environmental Analysis
•
Scanning-
The process of analyzing the environment to spot the
factors that may impact the business is known as Environmental
Scanning. It alerts the enterprise to take suitable strategic decisions
before it reaches a critical situation.
•
Monitoring-
The data is gathered from various sources and is utilized
to monitor and find out the trends and patterns in the environment.
The main sources of collecting data are spying, publication talks with
customers, suppliers, dealers and employees.
•
Forecasting-
The process of estimating future events based on
previously analyzed data is known as environmental forecasting.
•
Assessment-
T In this stage, the environmental factors are assessed to
identify whether they provide an opportunity for the business or pose
a threat.
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Importance of Environmental Scanning
•
Goal Accomplishment:
The objectives of an organization cannot be fulfilled unless
it adapts itself to environmental changes. One has to adjust the strategies to fit in
the changing demands of the environment.
•
Threats and Weakness Identification:
For an organization to grow, it must
minimize its threats and identify its weaknesses. This is made possible with the help
of environmental scanning with which better strategies can be developed.tz
•
Future Forecast:
Environmental changes are often unpredictable. An organization
cannot anticipate all the future events but based on the analysis, it can make better
strategic decisions in the future. Hence, environmental analysis helps to forecast the
prospects of the business.
•
Market Knowledge:
Every organization must be aware of the ongoing changes in
the market. If it fails to incorporate strategic changes due to changing demands, it
will not be able to achieve its objectives.
•
Focus on the Customer:
Environmental scanning and analysis make an
organization sensitive to the changing needs and expectations of the customer.
•
Opportunities Identification:
With the analysis of the current environment, an
organization will be able to identify the possible opportunities and take necessary
steps.
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Limitations of Environmental
Scanning
•
Overloading of information may sometimes result in
indecision. Hence it is not completely reliable.
•
It does not forecast the future or eliminate uncertainties.
Organizations may face unexpected events. However
environmental scanning should aim at minimizing such
threats to the business.
•
It often makes an organization cautious and thereby delays
decision making. It is better to have a strategic approach to
analyze the environment and take decisions or actions on
time.
•
When the organizations rely completely on the analyzed
information without data verification and accuracy, it may
lead to deviation in the desired outcomes.
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Technological, Social, Cultural,
Demographic, Political, Legal
"PEST" or "
Political, Economic, Social and Technological
"
analysis is one of the techniques of environment appraisal which
provides a deep insight about the macro-environmental factors
that affect the operations of a business. The level of importance
given to these factors varies as per the industry in which a
company works and the goods/services it deals in.
Some strategists have increased the scope of this technique by
adding two more factors into it, i.e., environmental and legal
factors. Hence, the extended version of this technique is known
as "PESTEL.
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Technological, Social, Cultural,
Demographic, Political, Legal
". This technique has another variant known as
"
LONGPESTEL
" or "
Local, National,
Global, Political, Economic, Social and
Technological
" analysis. This technique is
used when the organisations are categorized as
per the geographical basis. When these macro
environmental factors are integrated with the
external micro-environmental factors, then the
analysis carried-out is SWOT analysis
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Factors Analysed in PEST Analysis
Various factors that are analysed in PEST analysis are as follows :
1) Political Factors :
Political factors are the laws, orders, and interventions made by
the government in order to regulate the businesses. These regulations influence the
operations of business in a significant way.
2) Economic Factors :
Economic factors are the current and past patterns that exist in
the country. These factors encompass the rate of economic growth, inflation,
exchange rates, average income, etc., which heavily influence the money
circulation and hence regulate the business activities.
3) Social Factors :
Social factors include all those factors that are related to the general
public. These factors are closely knitted with the consumption by public, which
influences the gross demand of products and services. These factors, involve the
rate of population growth. literacy rate, employment, public safety, etc.
4) Technological Factors :
Technological factors are one of the prime factors that affect the business operations in
the dynamic business environment. These factors involve arrival of new technology
in market, automation of business processes, research and development projects,
etc.
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Competitive Advantage
•
Competitive advantage is what makes an entity's
products or services more desirable to customers than
that of any other rival.
•
Competitive advantages can be broken down into
comparative advantages and differential advantages.
•
Comparative advantage is a company's ability to
produce something more efficiently than a rival, which
leads to greater profit margins.
•
A differential advantage is when a company's products
are seen as both unique and of higher quality, relative to
those of a competitor.
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Value Chain Analysis
•
Value chain analysis is a means of evaluating each of the activities
in a company’s value chain to understand where opportunities for
improvement lie.
•
Conducting a value chain analysis prompts you to consider how
each step adds or subtracts value from your final product or service.
This, in turn, can help you realize some form of competitive
advantage, such as:
•
Cost reduction, by making each activity in the value chain more
efficient and, therefore, less expensive.
•
Product differentiation, by investing more time and resources into
activities like research and development, design, or marketing that
can help your product stand out. Typically, increasing the
performance of one of the four secondary activities can benefit at
least one of the primary activities.
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HOW TO CONDUCT A VALUE
CHAIN ANALYSIS
1. Identify Value Chain Activities- The first step in conducting a value chain
analysis is to understand all of the primary and secondary activities that go
into your product or service’s creation. If your company sells multiple
products or services, it’s important to perform this process for each one.
2. Determine the Cost and Value of Activities- Once the primary and
secondary activities have been identified, the next step is to determine the
value that each activity adds to the process, along with the costs involved.
When thinking about the value created by activities, ask yourself: How does
each increase the end user’s satisfaction or enjoyment? How does it create
value for my firm? For example, does constructing the product out of
certain materials make it more durable or luxurious for the user? Does
including a certain feature make it more likely your firm will benefit
from network effects and increased business?
Similarly, it’s important to understand the costs associated with each step in the
process. Depending on your situation, you may find that lowering expenses
is an easy way to improve the value each transaction provides.
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HOW TO CONDUCT A VALUE
CHAIN ANALYSIS
3. Identify Opportunities for Competitive Advantage- Once you’ve compiled
your value chain and understand the cost and value associated with each
step, you can analyze it through the lens of whatever competitive advantage
you’re trying to achieve.
For example, if your primary goal is to reduce your firm’s costs, you should
evaluate each piece of your value chain through the lens of reducing
expenses. Which steps could be more efficient? Are there any that don’t
create significant value and could be outsourced or eliminated to
substantially reduce costs?
Similarly, if your primary goal is to achieve product differentiation, which
parts of your value chain offer the best opportunity to realize that goal?
Would the value created justify the investment of additional resources?
Using value chain analysis, you can uncover several opportunities for your
firm, which can prove difficult to prioritize. It’s typically best to begin with
improvements that take the least effort but offer the greatest return on
investment.
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SWOT Analysis
Another well-known technique for analyzing the internal and external environment of
business is "
SWOT
" or "
Strengths, Weaknesses, Opportunities and Threat
"
analysis. It is a simple tool that is helpful in studying the internal strength and
weaknesses, and the external threats and opportunities of a company. SWOT
analysis involves identifying the business objectives and defining the significant
internal and external factors for achieving the identified objectives.
The main aim of conducting a SWOT analysis is to help the business in protecting itself
against the threats and to exploit the potential business opportunities. This analysis
is essential for formulating strategies as is provides a base for strategy formulation.
SWOT analysis helps in studying the overall soundness of the business.
Components of SWOT Analysis
1) Internal Factors :
The first two letters in the acronym S (strength) and W
(weaknesses) refers to internal factors that are the resources available in the
organisation. These factors may impart strengths which can be utilized to exploit
the opportunities or become a cause of weaknesses of a strategic nature for the
organisation.
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SWOT Analysis
i) Strengths :
These are the factors that provide competitive advantage to the
organisation. These factors collectively may allow an
organisation to bring change in an organisation. These factors
can be different for different organisations. These can be
resources, skills, etc.
For example,
•
Presence in global market & collaboration with reputed
international firms,
•
Tie-ups with internationally reputed manufacturers and
exporters,
•
Experience in tooling selectivity and metal cutting,
•
Manufacturers certified with ISO 9001 certification.
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SWOT Analysis
ii) Weaknesses :
Weaknesses are the factors: that limit the
growth of company or restrict the company from moving in
a desired direction. These factors also hinder the
organisation from achieving success through the internal
capabilities. These factors vary as per the organisation. A
weakness can be anything such as lack of resource, lack of
market understanding, lack of fund, etc.
For example,
•
Inconsistencies in cash flow system,
•
Lack of research facilities and use of out dated research
data,
•
Lack of latest technologies and no web presence,
•
New firm and hence lack of goodwill.
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SWOT Analysis
2) External Factors :
External factors reside outside the organisation.
These are of two types :
i) Opportunities :
An opportunity is a major favorably situation in the
firm's environment. The industry should build its production
capacity to meet the upward moving demand, both for domestic and
international markets. Opportunities are those factors which act as
the favorable situations for the organisation. These situations
encourage the organisation to grow more and earn more profits.
For
example,
•
Loyal customers in market,
•
High demand of certain products in a particular season,
•
Poor substitutes available in the market,
•
Obsolete technologies of the competitors.
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SWOT Analysis
ii) Threat :
•
Threats are the external unfavorable conditions.
They act as barrier for the organisation in
achieving its desired market position. These
factors also differ as per the organisation and the
areas in which it operates.
For example,
•
Too many competitors of the similar product,
•
Introduction of taxes or increase in tax rates,
•
Recession in economy,
•
Latest technology used by competitors
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Assignment
Q.1. Make a SWOT analysis of any one
company in the following sectors:-
a.
FMCG company,
b.
Steel & iron Company,
c.
Watch Industry,
Q.2. Write short note on:-
a.
Value chain analysis,
b.
Competitive advantages.
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MODULE III
•
Strategic Planning-
Strategic Planning
Process, Levels of Strategy, Corporate Level
Strategy, Business Level Strategy and
Functional Level Strategy, Strategic
Alternatives, Stability Strategy, Expansion
Strategy, Merger Strategy, Retrenchment
Strategy, Restructure Strategy, Competitive
Analysis.
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Strategic Planning
•
Strategic planning is a process in which an organization's leaders define
their vision for the future and identify their organization's goals and
objectives. The process includes establishing the sequence in which those
goals should be realized so that the organization can reach its stated vision.
•
Strategic planning typically represents mid- to long-term goals with a life
span of three to five years, though it can go longer. This is different than
business planning, which typically focuses on short-term, tactical goals,
such as how a budget is divided up. The time covered by a business
plan can range from several months to several years.
•
The product of strategic planning is a strategic plan. It is often reflected in a
plan document or other media. These plans can be easily shared,
understood and followed by various people including employees,
customers, business partners and investors.
•
Organizations conduct strategic planning periodically to consider the effect
of changing business, industry, legal and regulatory conditions. A strategic
plan may be updated and revised at that time to reflect any strategic
changes.
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Why is strategic planning
important?
Businesses need direction and organizational goals to work
toward. Strategic planning offers that type of guidance.
Essentially, a strategic plan is a roadmap to get to business
goals. Without such guidance, there is no way to tell
whether a business is on track to reach its goals.
The following four aspects of strategy development are worth
attention:
•
The mission.
Strategic planning starts with a mission that
offers a company a sense of purpose and direction. The
organization's mission statement describes who it is, what it
does and where it wants to go. Missions are typically broad
but actionable. For example, a business in the education
industry might seek to be a leader in online virtual
educational tools and services.
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Why is strategic planning
important?
The goals.
Strategic planning involves selecting goals. Most planning uses SMART
goals -- specific, measurable, achievable, realistic and time-bound -- or other
objectively measurable goals. Measurable goals are important because they enable
business leaders to determine how well the business is performing against goals and
the overall mission. Goal setting for the fictitious educational business might
include releasing the first version of a virtual classroom platform within two years
or increasing sales of an existing tool by 30% in the next year.
Alignment with short-term goals.
Strategic planning relates directly to short-term,
tactical business planning and can help business leaders with everyday decision-
making that better aligns with business strategy. For the fictitious educational
business, leaders might choose to make strategic investments in communication and
collaboration technologies, such as virtual classroom software and services but
decline opportunities to establish physical classroom facilities.
Evaluation and revision.
Strategic planning helps business leaders periodically
evaluate progress against the plan and make changes or adjustments in response to
changing conditions. For example, a business may seek a global presence, but legal
and regulatory restrictions could emerge that affect its ability to operate in certain
geographic regions. As result, business leaders might have to revise the strategic
plan to redefine objectives or change progress metrics.
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What are the steps in the strategic
planning process?
•
There are myriad different ways to approach strategic planning depending
on the type of business and the granularity required. Most strategic
planning cycles can be summarized in these five steps:
•
Identify.
A strategic planning cycle starts with the determination of a
business's current strategic position. This is where stakeholders use the
existing strategic plan -- including the mission statement and long-term
strategic goals -- to perform assessments of the business and its
environment. These assessments can include a
needs assessment
or a
SWOT (strengths, weaknesses, opportunities and threats) analysis to
understand the state of the business and the path ahead.
•
Prioritize.
Next, strategic planners set objectives and initiatives that line up
with the company mission and goals and will move the business toward
achieving its goals. There may be many potential goals, so planning
prioritizes the most important, relevant and urgent ones. Goals may include
a consideration of resource requirements -- such as budgets and equipment
-- and they often involve a timeline and
business metrics
or
KPIs
for
measuring progress.
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What are the steps in the strategic
planning process?
•
Develop.
This is the main thrust of strategic planning in which stakeholders
collaborate to formulate the steps or tactics necessary to attain a stated strategic
objective. This may involve creating numerous short-term tactical business plans
that fit into the overarching strategy. Stakeholders involved in plan development
use
various tools
such as a strategy map to help visualize and tweak the plan.
Developing the plan may involve cost and opportunity tradeoffs that reflect
business priorities. Developers may reject some initiatives if they don't support the
long-term strategy.
•
Implement.
Once the strategic plan is developed, it's time to put it in motion. This
requires clear communication across the organization to set responsibilities, make
investments, adjust policies and processes, and establish measurement and
reporting. Implementation typically includes
strategic management
with regular
strategic reviews to ensure that plans stay on track.
•
Update.
A strategic plan is periodically reviewed and revised to adjust priorities
and reevaluate goals as business conditions change and new opportunities emerge.
Quick reviews of metrics can happen quarterly, and adjustments to the strategic
plan can occur annually. Stakeholders may use
balanced scorecards
and other tools
to assess performance against goals.
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How often should strategic planning
be done?
There are no uniform requirements to dictate the frequency of a
strategic planning cycle. However, there are common approaches.
•
Quarterly reviews.
Once a quarter is usually a convenient time
frame to revisit assumptions made in the planning process and gauge
progress by checking metrics against the plan.
•
Annual reviews.
A yearly review lets business leaders assess
metrics for the previous four quarters and make informed
adjustments to the plan.
Timetables are always subject to change. Timing should be flexible and
tailored to the needs of a company. For example, a
startup
in a
dynamic industry might revisit its strategic plan monthly. A mature
business in a well-established industry might opt to revisit the plan
less frequently.
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Types of strategic plans
•
Strategic planning activities typically focus on
three areas: business, corporate or functional.
They break out as follows:
•
Business.
A business-centric strategic plan
focuses on the competitive aspects of the
organization creating competitive advantages and
opportunities for growth. These plans adopt a
mission evaluating the external business
environment, setting goals, and allocating
financial, human and technological resources to
meet those goals.
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Types of strategic plans
Corporate.
A corporate-centric plan defines how the company works.
It focuses on organizing and aligning the structure of the business,
its policies and processes and its senior leadership to meet desired
goals. For example, the management of a research and
development
skunk works
might be structured to function
dynamically and on an ad hoc basis. It would look different from the
management team in finance or HR.
Functional.
Function-centric strategic plans fit within corporate-level
strategies and provide a granular examination of specific
departments or segments such as marketing, HR, finance and
development. Functional plans focus on policy and process -- such
as
security and compliance
-- while setting budgets and resource
allocations.
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Strategic Alternative
There are four main types of strategic alternatives that can be
identified.
•
Corporate level strategy
•
Business level strategy
•
Functional level strategy
•
Operational level strategy
Corporate Level Strategy-
Corporate level strategy can be
defined as the long term goals and objectives of the
organization that can create an impact on all the business units
operating under one umbrella organization. If the company is a
large group of companies with several sub-organizations under
the mother company, the corporate level strategies is made for
the long-term benefit of all the sub-organization.
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Corporate Level Strategy
Corporate strategy defines the businesses and the market
segments that the company will operate and customers they are
targeting to acquire. The corporate-level strategies are planned
by the top-level management in the group of companies. They
created corporate-level strategies that are then passed down to
the organizations under the main umbrella for the purpose of
generating their own strategies aligned with the parent
company.
The corporate-level strategy provides a set of strategic
alternatives from which the management of the organization
chooses to continue and achieve in long run through the
operations of the companies in several market sectors and
possibly in several industries.
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Business-level strategy
The business-level strategies include all the actions and the way of
approaching to face the competition of a company and the ways that the
management of the organization addresses the strategic issues facing by
the organization. Basically, it will describe the foundation on which the
organization competes in the market. The business-level strategy is a unit
level strategy created by the senior management of the business unit. This
focuses on increasing the strength of the competitive position of the
product or the service offered by the company while lining the strategies
with the corporate-level strategies. Under the business strategy, the
management of the organization is mainly focusing on developing the
products, integration, innovation management, and diversifying the
production in order to achieve a competitive advantage in the market. This
can be achieved by focusing on different differentiation strategies such as
cost reduction and niche market strategies.
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Functional level strategy
Functional level strategies are the objectives created by the
different functions or divisions of an organization.
Functional level strategies should be created in line with
business-level strategies. Functional strategies can vary
from department to department such a production strategy,
marketing strategy, sales strategy, human resources strategy,
and financial strategy. Some functional strategies are also
named as departmental strategies as the functions are
usually connected with each department of the organization.
Functional level strategies are focused on developing the
competence of the organization while providing necessary
support to the business-level strategy to achieve success in
the competition.
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Operational level strategy
Operational level strategies are formulated in the
small sections within a department. Since these
are operating at the small operating units in an
organization such as factories, or small territories.
Operating managers/ field-level managers are
responsible for developing operating strategies
while being in line with the functional strategies.
These identified strategic alternatives helps a
business to align their activities with the
organizational vision and mission.
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Expansion Strategy
An expansion strategy is synonymous with a growth strategy. A firm seeks to achieve
faster growth, compete, achieve higher profits, grow a brand, capitalize on
economies of scale, have greater impact, or occupy a larger market share. This may
entail acquiring more market share through traditional competitive strategies,
entering new markets, targeting new market segments, offering new produce or
services, expanding or improving current operations.
•
Below are common expansion strategies:
Expansion through Concentration
- This involves focusing resource allocation and
operational efficiency on one or a select group of business units or core business
functions. Concentration might include: penetrating an existing market with an
existing value proposition; developing a new market by attracting new customers to
an existing value proposition; developing a new value proposition to introduce in
the existing market. The benefits of expansion through concentration is that it
allows the firm to focus on areas where it already has operations and a level of
competency. It is comfortable to avoid major changes in operations while
employing existing knowledge. This type of strategy can be risky from the stand
point of putting too many eggs in one basket. Changes in the market (price
fluctuations, customer sentiment, new value propositions, etc.) may cause the
strategy to be unsuccessful.
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Expansion Strategy
Expansion through Diversification
- This strategy involves diversifying the value offering of the
company in one of two methods: 1) Concentric Diversification entails developing a new value
proposition that are related to existing value propositions; or 2) Conglomerate Diversification
entail entering into new markets (either with an existing value proposition or by combining
with another industry competitor). This strategy generally reduces specific industry risks, such
as an economic downturn. The profits of one value offering might offset losses in another
business unit during difficult times.
Expansion through Integration
- Integration involves the consolidation of operational units
anywhere along the value chain to create greater efficiency and produce economies of scale.
Unlike other strategies, it does not involve making changes to existing markets or targeting
new customer groups. There are two primary types of integration: 1) Vertical integration
involves consolidation up or down the value chain. Forward vertical integration involves
consolidating closer to the point at which value is delivered to the consumer. Backward
vertical integration involves consolidating closer to the genesis of value (such as the point of
manufacturing). Horizontal integration involves consolidating operations at the same point in
the value chain. This consolidation may be between business units or by acquiring or
combining with a competitors.
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Expansion Strategy
Expansion through Cooperation
- This strategy entails working closely with a competitor (while
potentially still competing against them in the market). Working with the competitor provides
both companies an advantage that trumps any advantage (or disadvantage caused to the
competitor) from not working together. Working together will generally provide operational
efficiency to one or both competitors or expand the market potential for one or both
competitors. Working together may take the form of consolidation of business units (mergers
or acquisitions), strategic alliance (affinity group or association), or joint venture (loose
partnership-like alliance generally used to undertake a project or enter into foreign markets).
Expansion through Internationalization
- This method involves creating new markets for a
value offering by looking outside of the immediate nation. Generally, this option is preferable
when there is little room for expansion in domestic markets. Internationalization can be
carried out through the following strategic approaches: 1) International Strategy - focusing on
offering a value proposition in a foreign country without modification of differentiation; 2)
Multi-domestic Strategy - involves modifying or differentiating a product to make it attractive
or suitable to foreign markets; 3) Global Strategy - focuses on delivering the standardized
value proposition in countries where there is a low cost structure for delivery; 4)
Transnational Strategy - employs both a global and multi-domestic strategy by modifying or
differentiating a product in foreign markets where there is a low cost structure that results in
profits from delivering the value proposition.
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Merger Strategy
Merger refers to
a strategic process whereby
two or more companies mutually form a
new single legal venture
. For example, in
2015, ketchup maker H.J. Heinz Co and Kraft
Foods Group Inc merged their business to
become Kraft Heinz Company, a leading
global food and beverage firm.
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Retrenchment Strategy
A redemption strategy seeks to restructure, sell or otherwise divest a business unit. The purpose is
to reduce costs, streamline operations, or stabilize cash flow. The three primary types of
retrenchment strategy are:
Turnaround Strategy
- This is a restructuring strategy. It calls for realigning operations to be
more cost efficient or profitable. It often comes in response to an ineffective strategy causing
harm to the company.
Divestment Strategy
- This means reducing operations or completing divesting (getting rid of) a
business unit. Generally, the operational unit will be losing money or not fit with the
companies core operational objectives. Some the drivers of this strategy are negative cash
flows, sustained losses, poor business integration, better alternative use of assets, the value
proposition is becoming obsolete, rising costs, or small (non-growing) market share. The firm
may now allocate resources to a more profitable or appropriately aligned business unit.
Generally, a divestment comes after a turnaround strategy has proved ineffective.
Liquidation Strategy
- A liquidation strategy is similar to a divestment. It focuses on selling
specific assets or shutting down business units. Unlike divestment, which seeks to streamline
operations and focus resource allocation, liquidation sees a business unit as a loss or failure.
Scenarios leading to a liquidation strategy include: extensive losses, lack of profitability,
failure of a current strategy, obsolete assets, or technology, ineffective processes, obsolete
value proposition, poor management, or lack of integration of the business unit.
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Restructure Strategy
An organizational restructuring strategy
involves
redesigning operations and
management reporting structures to address
and correct the operational issues that led to a
company's distressed position
.
What are the three types of restructuring strategies?
The three types of restructuring
strategies:
downsizing, downscoping, and
leveraged buyouts.
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Competitive Analysis
Competitive analysis is a strategy that involves researching major competitors
to gain insight into their products, sales, and marketing tactics.
Implementing stronger business strategies, warding off competitors, and
capturing market share are just a few benefits of conducting a competitive
market analysis.
A competitive analysis can help you learn the ins and outs of how your
competition works, and identify potential opportunities where you can out-
perform them. It also enables you to stay atop of industry trends and ensure
your product is consistently meeting and exceeding industry standards.
Let's dive into a few more benefits of conducting competitive analyses:
•
Helps you identify your product's unique
value proposition
and what
makes your product different from the competitors', which can inform
future marketing efforts.
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Competitive Analysis
•
Enables you to identify what your competitor is doing right.
This information is critical for staying relevant and ensuring
both your product and your marketing campaigns are
outperforming industry standards.
•
Tells you where your competitors are falling short — which
helps you identify areas of opportunities in the marketplace,
and test out new, unique marketing strategies they haven't
taken advantage of.
•
Learn through customer reviews what's missing in a
competitor's product, and consider how you might add
features to your own product to meet those needs.
•
Provides you with a benchmark against which you can
measure your growth.
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Assignment
Q.1. Write short note on:-
a.
Expansion
b.
Merge strategy.
Q.2. What is corporate level strategy?
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MODULE IV
Implementation of Strategy -
Aspects of
Strategy Implementation, Project and
Procedural Implementation, Structural
Implementation, Structural Considerations,
Organizational Design and Change,
Organizational Systems. Behavioral
Implementation, Leadership Implementation,
Corporate Culture
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Strategy Implementation
Definition
: Strategy Implementation refers to the
execution of the
plans and strategies
, so as to accomplish the long-term goals of the
organization. It converts the opted strategy into the moves and
actions of the organisation to achieve the objectives.
Simply put, strategy implementation is the technique through which the
firm develops, utilizes and integrates its structure, culture, resources,
people and control system to follow the strategies to have the edge
over other competitors in the market.
Strategy Implementation is the
fourth stage of the
Strategic
Management
process
, the other three being a determination of
strategic mission, vision and objectives, environmental and
organizational analysis, and formulating the strategy. It is followed
by Strategic Evaluation and Control.
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Process of Strategy Implementation
•
Building an organization, that possess the capability to put
the strategies into action successfully.
•
Supplying resources, in sufficient quantity, to strategy-
essential activities.
•
Developing policies which encourage strategy.
•
Such policies and programs are employed which helps in
continuous improvement.
•
Combining the reward structure, for achieving the results.
•
Using strategic leadership.
•
The process of strategy implementation has an important
role to play in the company’s success. The process takes
places after environmental scanning, SWOT analyses and
ascertaining the strategic issues.
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Prerequisites of Strategy
Implementation
•
Institutionalization of Strategy
: First of all the strategy is to be
institutionalized, in the sense that the one who framed it should promote or
defend it in front of the members, because it may be undermined.
•
Developing proper organizational climate
: Organizational climate
implies the components of the internal environment, that includes the
cooperation, development of personnel, the degree of commitment and
determination, efficiency, etc., which converts the purpose into results.
•
Formulation of operating plans
: Operating plans refers to the action
plans, decisions and the programs, that take place regularly, in different
parts of the company. If they are framed to indicate the proposed strategic
results, they assist in attaining the objectives of the organization by
concentrating on the factors which are significant.
•
Developing proper organizational structure
: Organization structure
implies the way in which different parts of the organisation are linked
together. It highlights the relationships between various designations,
positions and roles. To implement a strategy, the structure is to be designed
as per the requirements of the strategy.
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Periodic Review of Strategy
:
•
Review of the strategy is to be taken at regular intervals
so as to identify whether the strategy so implemented is
relevant to the purpose of the organisation. As the
organization operates in a dynamic environment, which
may change anytime, so it is essential to take a review,
to know if it can fulfill the needs of the organization.
•
Even the best-formulated strategies fail if they are not
implemented in an appropriate manner. Further, it
should be kept in mind that, if there is an alignment
between strategy and other elements like resource
allocation, organizational structure, work climate,
culture, process and reward structure, then only the
effective implementation is possible.
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Aspects of Strategy Implementation
•
Creating budgets which provide sufficient resources to those
activities which are relevant to the strategic success of the business.
•
Supplying the organization with skilled and experienced staff.
•
Conforming that the policies and procedures of the organisation
assist in the successful execution of the strategies.
•
Leading practices are to be employed for carrying out key business
functions.
•
Setting up an information and communication system, that facilitate
the workforce of the organisation, to perform their roles effectively.
•
Developing a favorable work climate and culture, for proper
implementation of the strategy.
•
Strategy implementation is the time-taking part of the overall
process, as it puts the formulated plans into actions and desired
results.
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Project implementation
Project implementation
: “A one shot, time limited, goal oriented,
major undertaking, requiring the commitment of varied skills and
resources”.
Procedural implementation:
Strategy implementation also requires
executing the strategy, based on the rules, regulations and
procedures formulated by the government.
Resources allocation:
Resource allocation is the process of allocation organizational
resources to various divisions, department, and strategic business
units(SBUs) Methods for resource allocation are:
1. B.C.G. matrix
2. budgeting systems
Organizational structures and strategies: Companies build structures
for their organizations based on their strategies. Functional policies:
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Project implementation
Coordination across functional units takes place, once the
strategy of the company is decided; modification
functional policies may become necessary to meet the
demands of the new business.
Behavioral implementation
: Behavioral implementation
deals with those aspects of strategy implementation that
have impact on behavior of people in the organizations.
RESOURCE ALLOCATION
Procurement resources:
Finance is generally considered to be the primary
source: it is used for the creation and maintenance of
other resources.
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Project implementation
FACTORS AFFECTING RESOURCING
ALLOCATION:
1.
Objectives of the organization
2.
Preference of dominant strategists
3.
Internal politics
4.
External influences
DIFFICULTES IN RESOURCE ALLOCATION
1.
Scarcity of resources
2.
Import restrictions
3.
Human resources
4.
Departmental power politics
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Structural Implementation
Structural implementation is in fact an ongoing process of matching the structure of an
organization with its strategy. Whenever there is a mismatch between the two, changes in
structure have to be made. Otherwise strategy implementation becomes difficult and
performance suffers.
ANALYSING STRATEGIC CHANGE
The strategist should ascertain how much transformation the organisation will need to undergo
before the implementation of the strategy may be successful .Different methods call for
varying changes to the nature, size, and business process. For instance, a stability plan
has the least impact on the current business and organisation. Similar to this, a new
pricing strategy solely impacts the marketing team and makes a small number of
adjustments to regular business operations. In reality, the joint venture strategy
causes significantorganisational changes, including the replacement of the current
organizational structure with a more adaptable, cross-functional organizational
structure based on teamwork, new production methods, technology, new markets, and market
practices, the omission of existing products, and the addition of new products and/or services
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Structural Implementation
From no change in strategy to a total and radical overhaul of the project process,
organizational mission, objectives, and organizational structure, there can be a
continuum of strategic change. Paul Peter and Samuel C. Certocategorise
strategy change into five distinct phases. They are organizational redirection,
routine strategy change, small-scale strategy change, radical strategy change,
and stable strategy. Stable Approach A stable strategy is one that maintains
stability across the board for the company. As a result, the approach from the
preceding planning period must mostly be continued. It calls for managing the
company and carrying out the same duties with the same abilities. Monitoring the
actions is necessary for the stability strategy's successful implementation in order to
make sure the goals are met.
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Structural Implementation
The effective completion of the objectives will be aided by the learning
from prior experiences (experiences curve effects).Routine Strategy Modification
company aims to attract customers during a routine strategy change by
making predictable, routine changes to the techniques. A few examples of the
modifications in strategy are: updating packaging, changing pricing strategies,
switching distributors, altering distribution channels and methodologies, etc. To
properly implement the strategies, managers must integrate and coordinate the
actions with numerous agencies and intermediaries. The strategists should
coordinate all internal firm efforts in a same manner. For instance, lowering the price
will increase the demand for the goods. In order to enhance production, the
capacities of distribution channels, and distributors, the strategist should coordinate
the actions of the marketing department and the production department.
For this plan to be implemented successfully, large modifications and efforts are not
necessary.
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Structural Implementation
Offering new items to new markets within the same general product
class is part of the limited strategy change. Despite being brand-new,
products fall within the same broad category. As a result, the managers
must carry out a variety of new tasks. These operations involve
creating the new products, buying novel inputs and machinery,
manufacturing the new products, setting up novel market
intermediaries (if required), novel market channels, and similar
things. Radical Strategy Change: This strategy calls for a significant
change for the company. When a company employs strategies
like mergers and acquisitions in the same core industry, a dramatic
strategy change is required. The integration of the two companies into
one firm is complicated by these.
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Structural Considerations
Structural Considerations An organization structure is the way in which
the tasks and sub-tasks required to implement a strategy are
arranged. The implementation of strategies would require the
performance of tasks. Some of these tasks are related to the
formulation and implementation of programmes and projects. Any
organization, as it grows in size and diversity, moves from a simple
to a complex organizational form. Organizational too follow a life
cycle consisting of the introduction, growth, maturity, and decline
phases. The life cycle of organizations could be divided into four
stages that are not distinct and may overlap.
Stage I organizations are small-scale enterprises usually managed by a
single person who is the entrepreneur-owner-manager. These
organizations are characterized by the simplicity of objectives,
operations, and management. The form of the organization is also
simple and could be termed as entrepreneurial. The strategies
adopted are generally of the expansion type.
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Structural Considerations
Stage II organizations are bigger than Stage I organizations in terms of size and have a wider
scope of operations. They are characterized by functional specialization or process
orientation. The organizational form is simple functional (typically divided into the finance,
marketing, operations, and personnel departments) or process-oriented (divided into process-
based departments arranged in a particular sequence according to the technology employed).
The strategies adopted may range from stability to expansion.
Stage III organizations are large and widely scattered organizations generally having units or
plants at different places. Each division is semi-autonomous and linked to the headquarters
but functionally independent. The divisions may have a simple functional form depending on
their particular needs. The strategies adopted may be either stability or expansion. Stage IV
organizations are the most complex. They are generally large multi-plant, multi-product
organizations that result from the adoption of related and unrelated diversification strategies.
The organizational form is divisional. The corporate headquarters assume the responsibility of
providing strategic direction and policy guidelines through the formulation of corporate-level
strategies. The divisions (which may be companies, profit centre's or SBUs) formulate their
business-level strategies and may adopt Stage I , II or III type of structures
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Organizational Design and Change
The organizational design practice is focused on diagnosing and
redesigning the structure of an organization, including related
processes, people, information and skills in such a way that it
facilitates the workflow that establishes its mission, as well as its
strategic and operational plan.Thus, this practice includes the
evaluation of organizational effectiveness as one that allows to
diagnose whether the organizational model produces the results for
which it has been created.However, it is equally vital to have a
change management process that acts effectively. A well structured
process of change can achieve the support and commitments
necessary to travel the road, identifying obstacles and preparing
scenarios for variations thereof.From the initial communication
process to completion, TMC has accompanied various organizations
to walk the path of organizational change in scenarios of varying
difficulty
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Here are seven basic types of organizational
structure:
(1) functional,
(2) divisional by geographic area,
(3) divisional by product,
(4) divisional by customer,
(5) divisional by process,
(6) strategic business unit (SBU), and
(7) matrix.
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Organizational Systems
Behavioral Implementation
Successful strategy preparation does not assure the effective implementation
of the same. To implement strategy effectively the organisation needs
discipline, motivation and hard work from all the employees in the
organisation. There needs to be goal congruence in the efforts of the
employees. Managers have to play a very critical role in the
implementation of strategy. They need to see if the resources of the
organisation are aligned properly and the critical aspects of organisation
like leadership, power and culture are managed properly so that the
employees work in a united manner in the realization of the company's
objectives. Behavioural Implementation in Strategic Management
Organisations which exist in relatively stable and predictable industries
have a tendency of building up tall structures. Such structures are
characterized by many hierarchy levels and narrow spans of control. On
the other hand companies which exist in dynamic and volatile industries
tend to adopt a very flat structure and managers have very wide span of
control. a functional structure organisations are aligned on functional lines
such as finance, manufacturing, personnel, R&D etc. Employees in
functional organisations perform set tasks.
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Behavioral Implementation
As these organisations grow, they adopt a 'product divisional
structure. This allows the organisation flexibility in terms on
product focus, co-ordination, development of general managers,
bottom line responsibilities etc.When organisations are multi-
product and multi plant, they adopt a "geographic divisional
structure". This helps them in meeting the needs of customers
belonging to different geographical areas. With the addition of new
product lines, the multi-divisional structure is favored by companies
as it gives more independence and flexibility to divisional managers
.Sometimes growth is responsible for accepting the SBU structure
by an organisation, particularly when the organisation is big and
diversified, where different divisions with related products,
technologies, market, or mission statement, can be shared to form
a strategic business unit. Behavioural implementation is concerned
with those features of strategy implementation that is concerned
with the behaviour of individuals in organisations.
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Leadership Implementation
Strategic leadership is the ability to anticipate, envision, maintain
flexibility, and empower others to create strategic change as
necessary. Multifunctional in nature, strategic leadership involves
managing through others, managing an entire organization rather
than a functional subunit, and coping with change that continues to
increase in the global economy. Strategic leaders must learn how to
effectively influence human behavior, often in uncertain
environments. By word or by personal example, and through their
ability to envision the future, effective strategic leaders
meaningfully influence the behaviors, thoughts, and feelings of
those with whom they work. The work of strategic leaders is
demanding, challenging, and requires balancing short-term
performance outcomes with long-term performance goals.
Regardless of how long (or short) they remain in their positions,
strategic leaders (and most prominently CEOs) affect a firm’s
performance.
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Corporate Culture
Corporate culture refers to the values, beliefs, and
behaviors that determine how a company's employees
and management interact, perform, and handle business
transactions. Often, corporate culture is implied, not
expressly defined, and develops organically over time
from the cumulative traits of the people that the
company hires.
A company's culture will be reflected in its dress code,
business hours, office setup, employee benefits,
turnover, hiring decisions, treatment of employees and
clients, client satisfaction, and every other aspect
of operations.
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Corporate Culture
There are a variety of terms that relate to companies affected by
multiple cultures, especially in the wake of globalization and the
increased international interaction of today's business environment.
These include:
Cross-culture refers to people from different backgrounds interacting in
the business environment.
Culture shock refers to the confusion or anxiety people experience
when conducting business in a society other than their own.
Reverse culture shock is often experienced by people who spend
lengthy time abroad for business and have difficulty readjusting
upon their return.
Companies often devote substantial resources and effort to create
positive cross-culture experiences and to facilitate a more cohesive
and productive corporate culture.
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Importance of Corporate Culture
•
A carefully considered, even innovative, corporate culture can elevate
companies above their competitors and support long-lasting success. Such a
culture can:
•
Provide for a positive workplace environment
•
Create an engaged, enthusiastic, and motivated workforce
•
Attract high-value employees
•
Reduce turnover
•
Drive and improve performance quality and productivity
•
Result in favorable business results
•
Underpin a company's longevity
•
Strengthen return on investment (ROI)
•
Provide an implacable competitive advantage
•
Clarify for employees the goals of their positions, departments, and a
company overall
•
Contribute to the diversification of the workforce
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Types of Corporate Culture
•
Clan Culture- Clan cultures are about teamwork and collaboration. In such a
culture, those in management function as enthusiastic mentors who provide
guidance to subordinates. Good relationships, encouragement, trust, and
participation are key aspects. The contribution potential of every employee is
a component of a clan culture. Also, clan culture can easily adapt to change
and implement needed action quickly.
•
Adhocracy Culture- Adhocracy culture creates an entrepreneurial workplace
in which executives and employees function as innovators and risk-takers. In
this flexible environment, agile thinking is nurtured. Employees are
encouraged to pursue their aspirational ideas and take action to achieve
results that can advance company goals. New and unconventional products
and services are the main outcome of the adhocracy culture.
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Types of Corporate Culture
•
Market Culture- Market culture is focused on meeting specific targets and
bottom line goals. This culture creates a working environment that's
competitive and demanding. Management is most interested in business
results. Employees are encouraged to work hard and "get the job done" to
enhance a company's market presence, profits, and stock price. While
employees may feel stressed in such a workplace, they can also feel
enthusiastic and excited about their work.
•
Hierarchy Culture- A hierarchy culture is a traditional corporate culture that
functions according to a company's executive, management, and staff
organizational structure. That is, it follows the chain of command from top
down, where executives oversee employees and their work efforts to meet
specific goals. The hierarchy culture prizes stability and conventional
methods of operation The work environment can be seen as more rigid than
some other cultures but employees can clearly understand their roles and
objectives. They may also feel a sense of security because of the more
conservative approach to running a company.
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ASSIGNMENT
Q.1.Write a short note on Implementation of
Strategy.
Q.2. Explain Organizational Systems.
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MODULE V
•
Strategy Evaluation -
Strategy Evaluation and
Control, Operational Control, Overview of
Management, Focus on Key Result Areas.
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Strategic Management MSMSR/BBA/601 (Core)
Strategy Evaluation and Control
Strategic evaluation and control is the process of determining the effectiveness
of a given strategy in achieving the organizational objectives and taking
corrective actions whenever required. Control can be exercised through
formulation of contingency strategies and a crisis management team. There
can be the following types of control:
• Operational control: It is aimed at allocation and use of organization
resources through evaluation of performance of organizational units,
divisions, SBU;’s to assess their contribution in achieving organizational
objectives.
• Strategic control: It takes into account the changing assumptions that
determine a strategy, continually evaluate the strategy as it is being
implemented and take the necessary steps to adjust the strategy to the new
requirements.
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The four basic type of strategic control are:
• Premise control: It identifies the key assumption and keeps track of any
change in them to assess its impact on strategy and implementation. The
goal is to find if the assumptions are still valid or not. It is generally
handled by the corporate planning staff considering the environmental and
organizational factors
• Implementation control: It includes evaluating plans, programs, projects to
see if they guide the organization to achieve predetermined organizational
objectives or not. It consists of identification and monitoring of strategic
thrusts.
• Strategic surveillance: It aims at generalized control. It is designed to monitor
a broad range of events inside and outside the organization that are likely to
threaten the course of the firm. Organizational learning and knowledge
management system capture the information for strategic surveillance.
• Special alert control: It is a rapid response or immediate reassessment of
strategy in the light of sudden and unexpected events. It can be contingency
strategies and a crisis management team
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Strategy Evaluation and Control
Setting standards of performance Measurement of performance Analyzing variances
Taking corrective actions
STEP 1.Setting standards of performance: It must focus on question like:
• What standards should be set?
• How should the standards be set?
• In what terms should these standards be expressed?
The firm must identify the areas of operational efficiency in terms of people, process,
productivity and pace. Standards set must be related to key management tasks. The
special requirement for performance of these tasks must be studied. It can be
expresses in terms of performance indicators. The criteria for setting standards may
be qualitative or quantitative. Therefore standards can be set keeping in mind past
achievement compare performance with industry average or major competitors.
Factors such as capabilities of a firm core competencies risk bearing ability strategic
clarity and flexibility and workability must also be considered.
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STRATEGIC EVALUATION
PROCESS:
STEP 2.Measurement of performance: Standards of performance act as a benchmark in
evaluating the actual performance. Operationally it is done through accounting,
reporting and communication system. The key areas which must be kept in mind
are difficulty in measurement, timing of measurement (critical points) and
periodicity in measurement (task schedule).
STEP 3.Analyzing variances: The two main tasks are noting deviations and finding the
cause of deviations.
• When actual performance is equal to budgeted performance tolerance limit must be
set.
• When actual performance is greater than budgeted performance one must check the
validity of standard and efficiency of management.
• When actual performance is less than budgeted performance we must pinpoint the
areas where performance is low and take corrective action. The cause of deviations
may be:• External or internal• Random or expected
• Temporary or permanent The two main questions to focus upon are:• Are the
strategies still valid?
• Does the organization have the capacity to responds to the changes needed?
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Strategy Evaluation and Control
STEP 4.Taking corrective actions: It consists of the following:•
Checking of performance: It includes in depth analysis and
diagnosis of the factors that might b responsible for bad
performance.• Checking of standards: It results in lowering
or elevation of standards according to the conditions.•
Reformulate strategies, plans, objectives: Giving a fresh
start to the strategic management process.
IMPORTANCE OF STRATRGIC EVALUATION AND
CONTROL:
• There is a need for feedback, appraisal and reward
• To check on the validity of strategic choice
• Congruence between decisions and intended strategy
• Creating inputs for new strategic planning
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Strategy Evaluation and Control
In contrast to the large amount of data and extended time frame required for
strategic controls to take effect, operational controls monitor and evaluate
day-to- day functions to correct any problems as soon as possible.
Operational controls may be either manual or automated, and can involve
people, processes, and technology. When successful, they flag potential
risks, identify misalignments between plans and actions, and effectively
implement changes to stay on course with your strategy. For example, if
there are technical malfunctions or performance is below expectations,
operational control processes can initiate a course correction quickly. This
could include updating an IT system or retraining particular employees,
respectively. Or, imagine a factory that produces widgets. If the number of
widgets drops below expectations or the error rate rises above expectations,
a process control alert should be triggered to make the proper operational
change. Strategic control, on the other hand, might then evaluate whether
your hiring criteria and employee on boarding processes need adjustment in
order to achieve your strategy.
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THE DIFFERENCE BETWEEN OPERATIONAL
AND STRATEGIC CONTROL PROCESSES
STRATEGIC CONTROL
TECHNIQUES:
There are four primary types of strategic control:
1. Premise Control: Every organization creates a strategy based on certain
assumptions, or premises. As such, premise control is designed to continually and
systematically verify whether those assumptions, which are foundational to your
strategy, are still true. These are typically environmental (e.g. economic or political
shifts) or industry- specific (e.g. new competitors) variables. The sooner you
discover a false premise, the sooner you can adjust the aspects of your strategy that
it affects. In reality, you can’t review every single strategic premise, so focus on
those most likely to change or have a major impact on your strategy.
2. Implementation Control: This type of control is a step-by-step assessment of
implementation activities. It focuses on the incremental actions and phases of
strategic implementation, and monitors events and results as they unfold. Is each
action or project happening as planned? Are the proper resources and funds being
allocated for each step? This process continually questions the basic direction of
your strategy to ensure it’s the right one. There are two subcategories of
implementation control:
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STRATEGIC CONTROL
TECHNIQUES:
• Reviewing Milestones: During strategic planning, you likely identified
important points in the implementation process. When these milestones are
reached, your organization will reassess the strategy and its relevance.
Milestones could be based on timeframes, such as the end of a quarter, or
on significant actions, such as large budget or resource allocations.
Implementation control can also take place via operational control systems,
like budgets, schedules, and key performance indicators.
3. Special Alert Control: When something unexpected happens, a special alert
control is mobilized. This is a reactive process, designed to execute a fast
and thorough strategy assessment in the wake of an extreme event that
impacts an organization. The event could be anything from a natural
disaster or product recall to a competitor acquisition. In some cases, a
special alert control calls for the formation of a crisis team—usually
comprising members of the strategic planning and leadership teams—and
in others, it merely means activating a predetermined contingency plan.
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STRATEGIC CONTROL
TECHNIQUES:
4. Strategic Surveillance Control: Strategic surveillance
is a broader information scan. Its purpose is to
identify overlooked factors both inside and outside
the company that might impact your strategy. This
process ideally covers any “ground” that might be
missed by the more focused tactics of premise and
implementation control. Your surveillance could
encompass industry publications, online or social
mentions, industry trends, conference activities, etc
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Operational Control
Operational control involves control over
intermediate-term operations and processes but
not business strategies. Operational control
systems ensure that activities are consistent
with established plans. Mid-level management
uses operational controls for intermediate-term
decisions, typically over one to two years.
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Overview of Management
Overview Strategy evaluation is the process by
which the management assesses how well a
chosen strategy has been implemented and
how successful or otherwise the strategy is. To
simply put, strategy evaluation entails
reviewing and appraising the strategy
implementation process and measuring
organizational performance
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Focus on Key Result Areas
Key Result Areas or KRAs are the strategic internal or external sectors
where the business strives to realize strong positive outcomes to
achieve its development goals and move towards fulfilling its vision.
Each piece of work comprises three to five critical tasks. These
essential jobs on which employees, departments and, organisations
need to focus are the key result areas. For instance, a management
consultant is responsible for several activities. They –Coordinate
with clients to arrange meetings Understand their clients’ problems
and decide how to cater to their needs Collect and analyze clients
and their industries Devise an adequate plan of action for the clients’
business Communicate and coordinate with their teammates and
other departments Draft emails and proposals for internal and
external communication Present solutions and the final plan to the
client Contribute to the white papers produced by their company
Contribute to the business development activities of their company
Strategic Management MSMSR/BBA/601 (Core)
131
ASSIGNMENT
Q.1. Explain Strategy Evaluation.
Q.2. Discuss Strategy Control.
Strategic Management MSMSR/BBA/601 (Core)
132
Thank YOU
Strategic Management MSMSR/BBA/601 (Core)
133
Strategic management in business involves designing administrative courses of action to achieve success amidst competition and environmental challenges. It encompasses the concept of strategy derived from military science and sports, emphasizing the importance of direction, resource deployment, and adaptation to external factors. The nature of strategy involves contingency planning to address evolving market trends, government policies, and technological advancements.
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Strategic Management MSMSR/BBA/601 (Core) Dr. Akshita Sharma Asst. Prof. (MSMSR) MATS University, Pandri, Raipur (C.G.) Strategic Management MSMSR/BBA/601 (Core) 1
Text Books C.N. Sonttakke, Strategic Management, Kalyani Publication Subbarao, Business Policy and Strategic Management, HPH. Dr. Aswathappa, Business Environment for Strategic Management, Tata McGraw Hill. Charles W.L Hill and Gareth R. Jones, Strategic Management an Integrated Approach, Cengage Learning Azhar Kazmi, Business Policy and Strategic Management, Tata McGraw Hill C. AppaRao; Strategic Management and Business Policy, Excel Books. Ghosh P.K., Business Policy and Strategic Planning and Management, Tata McGraw Hill. Pillai, Strategic Management, Lawerence, Business Policy and Strategic Management, Tata McGraw Hill. Sathyashekar : Business Policy and Strategic Management, I.K International Publishing House Pvt. Ltd. Strategic Management MSMSR/BBA/601 (Core) 2
MODULE I Introduction to Strategic Management- Introduction, Meaning and Definition, Need, Process of Strategic Management, Strategic Decision Making, Strategic Management Approaches Strategic Management MSMSR/BBA/601 (Core) 3
Module Content S. no 1 Topics Page no. Introduction, Meaning and Definition of Strategic Management 2 3 4 5 Need of Strategic Management Process of Strategic Management Strategic Decision Making Strategic Management Approaches Strategic Management MSMSR/BBA/601 (Core) 4
Introduction, Meaning and Definition of Strategic Management The concept of strategy The concept of strategy in business has been borrowed from military science and sports where it implies out- maneuvering the opponent. The term strategy began to be used in business with increase in competition and complexity of business operations. A strategy is an administrative course of action designed to achieve success in the face of difficulties. It is a plan for meeting challenges posed by the activities of competitors and environmental forces. Strategy is the complex plan for bringing the organization from a given state to a desired position in a future period of time. For example, if management anticipates price-cut by competitors, it may decide upon a strategy of launching an advertising campaign to educate the customers and to convince them of the superiority of its products. Strategic Management MSMSR/BBA/601 (Core) 5
Nature of strategy Strategy is a contingent plan as it is designed to meet the demands of a difficult situation. Strategy provides direction in which human and physical resources will be deployed for achieving organizational goals in the face of environmental pressure and constraints. Strategy relates an organization to its external environment. Strategic decisions are primarily concerned with expected trends in the market, changes in government policy, technological developments etc. Strategy is an interpretative plan formulated to give meaning to other plans in the light of specific situations. Strategic Management MSMSR/BBA/601 (Core) 6
Introduction, Meaning and Definition of Strategic Management Strategy determines the direction in which the organization is going in relation to its environment. It is the process of defining intentions and allocating or matching resources to opportunities and needs, thus achieving a strategic fit between them. Business strategy is concerned with achieving competitive advantage. The effective development and implementation of strategy depends on the strategic capability of the organization, which will include the ability not only to formulate strategic goals but also to develop and implement strategic plans through the process of strategic management. A strategy gives direction to diverse activities, even though the conditions under which the activities are carried out are rapidly changing. Strategic Management MSMSR/BBA/601 (Core) 7
Introduction, Meaning and Definition of Strategic Management The strategy describes the way that the organization will pursue its goals, given the changing environment and the resource capabilities of the organization. It provides an understanding of how the organization plans to compete. It is the determination and evaluation of alternatives available to an organization in achieving its objectives and mission and the selection of appropriate alternatives to be pursued. It is the fundamental pattern of present and planned objectives, resource deployments, and interactions of a firm with markets, competitors and other environmental factors. Strategic Management MSMSR/BBA/601 (Core) 8
A good strategy should specify; What is to be accomplished Where, i.e., which product/markets it will focus on How i.e., which resources and activities will be allocated to each product/market to meet environmental opportunities and threats and to gain a competitive advantage Strategic Management MSMSR/BBA/601 (Core) 9
Introduction, Meaning and Definition of Strategic Management Definition; Strategic management is the process by which top management determines the long-term direction of the organization by ensuring that careful formulation, implementation and continuous evaluation of strategy take place. Strategic Management MSMSR/BBA/601 (Core) 10
Components of strategy 1. Scope; refers to the breadth of a firm s strategic domain i.e., the number and types of industries, product lines, and markets it competes in or plans to enter. 2. Goals and objectives; these specify desires such as volume growth, profit contribution or return on investment over a specified period. 3. Resource deployment; strategy should specify how resources are to be obtained and allocated across businesses, product/markets, financial departments, and activities.. Strategic Management MSMSR/BBA/601 (Core) 11
Components of strategy 4. Identification of a sustainable competitive advantage; it refers to examining the market opportunities in each business and product-market and the firm s distinctive competencies or strengths relative to competitors. 5. Synergy; this exists when the firm s businesses, products, markets, resource deployments and competencies complement one another i.e., the whole becomes greater than the sum of its parts( 2+2=5) Strategies can be classified into corporate, business-unit and functional strategies. Strategic Management MSMSR/BBA/601 (Core) 12
Strategic Management Strategic management is the process by which top management determines the long-term direction of the organization by ensuring that careful formulation, implementation and continuous evaluation of strategy take place. The strategic management process The process can be broken down into three phases; Strategy formulation Strategy implementation Strategy control Strategic Management MSMSR/BBA/601 (Core) 13
The strategic management process Strategy formulation involves; Defining the organization s guiding philosophy & purpose or mission. Establishing long-term objectives in order to achieve the mission. Selecting the strategy to achieve the objectives. Strategy implementation involves; Establishing short-range objectives, budgets and functional strategies to achieve the strategy. Strategic Management MSMSR/BBA/601 (Core) 14
The strategic management process Strategy control involves the following; Establishing standards of performance. Monitoring progress in executing the strategy. Initiating corrective actions to ensure commitment to the implementation of the strategy. Strategic Management MSMSR/BBA/601 (Core) 15
Needs of strategic management It provides the organization with consistency of action i.e. helps ensure that all organizational units are working toward the same objectives (direction). The process forces managers to be more proactive and conscious of their environments i.e. to be future oriented. It provides opportunity to involve different levels of management, encourage the commitment of participating managers and reducing resistance to proposed change. Strategic Management MSMSR/BBA/601 (Core) 16
Process of Strategic Management Strategic management is a continuous process that appraises the business and industries in which the organization is involved; appraises it s competitors; and fixes goals to meet all the present and future competitor s and then reassesses each strategy. Strategic management process has following four steps: Environmental Scanning- Environmental scanning refers to a process of collecting, scrutinizing and providing information for strategic purposes. It helps in analyzing the internal and external factors influencing an organization. After executing the environmental analysis process, management should evaluate it on a continuous basis and strive to improve it. Strategic Management MSMSR/BBA/601 (Core) 17
Process of Strategic Management Strategy Formulation- Strategy formulation is the process of deciding best course of action for accomplishing organizational objectives and hence achieving organizational purpose. After conducting environment scanning, managers formulate corporate, business and functional strategies. Strategy Implementation- Strategy implementation implies making the strategy work as intended or putting the organization s chosen strategy into action. Strategy implementation includes designing the organization s structure, distributing resources, developing decision making process, and managing human resources. Strategic Management MSMSR/BBA/601 (Core) 18
Process of Strategic Management Strategy Evaluation- Strategy evaluation is the final step of strategy management process. The key strategy evaluation activities are: appraising internal and external factors that are the root of present strategies, measuring performance, and taking remedial/corrective actions. Evaluation makes sure that the organizational strategy as well as it s implementation meets the organizational objectives. Strategic Management MSMSR/BBA/601 (Core) 19
Strategic decision-making It is a process of understanding the interaction of decisions and their impact upon the organization to gain an advantage. Wrong decisions taken at the wrong time, may result in catastrophic consequences. In other words, the power of strategic thinking lies in combining the power of the right decision with the right time. To remain competitive and survive, organizations must make decisions that will maximize short-term results and minimize long-term risks. Strategic decision- making uncovers the future possibilities for a company and those options that can be implemented to achieve success. Strategic and data-driven strategies are gaining trends in the business world. Strategic Management MSMSR/BBA/601 (Core) 20
Strategic decision-making The process of strategic decision-making combines the five basic steps of the decision-making process with the concepts of opportunity, threat, countervailing factors, and risk. The process of strategic decision-making is the lifeblood of your organization. As a business owner, it s your responsibility to make decisions that will help your company survive, grow and thrive. Strategic Decision Making: Reasons and Its Importance The organization must perform better in the future whether the present is better or worse. It is necessary to make strategic decisions to overcome the obstacles that come in the way of the organization s progress. Strategic Management MSMSR/BBA/601 (Core) 21
Why Strategic decision-making is the most essential thing for an organization? An important step in all organizations. This process facilitates organizational learning to take place, improve performance and organizational outcomes and reduce the probability of strategic failure or competition. It provides business intelligence reports for organizations to study and predict the future trends A skill and it s important to learn it and practice. Strategic decision-making is an essential skill for today s leaders. It s not a skill that should be picked up and used once or twice and then forgotten. Strategic decision-making can provide your organization with a competitive advantage, and it s important to maintain your strategic decision-making skills and continue to develop them over time. Strategic Management MSMSR/BBA/601 (Core) 22
Why Strategic decision-making is the most essential thing for an organization? One of the most important activities any organization can carry out. Strategic decisions are decisions that require a high degree of responsibility and focus on long-term objectives. They need a lot of knowledge about many things including the processes, systems, and policies. In addition to that, decisions need to be planned before they are carried out. Power BI visuals is one such tools which is secured and loaded with options for making better and smarter decisions. Also involves the process of implementation. Strategic decision-making is all about making the right decisions at the right time. Strategic Management MSMSR/BBA/601 (Core) 23
Why Strategic decision-making is the most essential thing for an organization? This is the process of making a decision and then implementing that decision. Decision-making is not about making a decision, and then not acting on it. Implementation is the process of actually doing the work. A key tool to drive business growth. It is the way to find out what is the best way of achieving a business objective and what the risks are. This is why organizations should have a decision-making process that includes a well-defined set of policies and rules which are adhered to by all. You can also use different data analytics tools and data discovery tools for helping you taking better decisions. Strategic Management MSMSR/BBA/601 (Core) 24
Assignment Q.1.Write Short Note on:- a. Strategic Management b. Components of strategy. Q.2. Define process of strategy management. Q.3. Explain Strategic Decision making. 25
MODULE II Environmental Appraisal- The concept of Environment, The Company and its Environment, Porter s Five Forces Model, Scanning the Environment, Technological, Social, Cultural, Demographic, Political, Legal and Other Environments Forces, Internal Analysis, Competitive Advantage, Value Chain Analysis, SWOT Analysis. Strategic Management MSMSR/BBA/601 (Core) 26
Environmental Appraisal There are numerous factors that affect the organisation and its operations. These factors can influence the organisation in both positive as well as negative ways. Identifying the issues and challenges existing in the external environment is extremely important for an organisation. In order to identify the factors in external environment, an appraisal process of the industry's environment is necessary. Environmental appraisal facilitates the managers with the ability to study the competitive structure and competitive position of the organisation along with the position of its competitors. By analyzing and appraising the external environment, the existing opportunities and threats can be identified. It is the responsibility of the managers to avoid the threats and to reap the benefits from the opportunities in the market. Strategic Management MSMSR/BBA/601 (Core) 27
Environmental Appraisal Environmental appraisal also helps the managers in analyzing the effects of globalization on the level of competition within a particular industry. It is well-known that business environment never remains stable rather keeps on changing rapidly. As the businesses grows and expands, the changes in external environment compels the organisations to make efficient strategies to deal with the contingency situations. Environmental appraisal also allows an organisation to study the steps taken by competitors in the market. By appraising the external environment the companies can improve their internal capabilities and strengths for adapting to the changes in the external. environment. Strategic Management MSMSR/BBA/601 (Core) 28
Definition of Environmental Appraisal According to Abell : "Environmental appraisal is the identification, measurement, and assessment of environmental impacts". Strategic Management MSMSR/BBA/601 (Core) 29
Levels/Components of Environmental Appraisal By analyzing the external environment of a business the marketers are able to identify and highlight the opportunities from the threats and strengths from the weaknesses. The factors which are not dependent on organisation and their existence is not based on the activities of the organisation are called as external factors. While strengths and weaknesses are internal. Opportunities and threats are external and are not in control of the organisation. Opportunities are those situations that the organisations can use to their advantage. While threats are those negative situations that if not tackled promptly can harm the well-being of the organisation. Analyzing the external environment requires analyzing following areas : Strategic Management MSMSR/BBA/601 (Core) 30
Levels/Components of Environmental Appraisal 1) Environmental Scanning : In environmental scanning the broad environmental factors are analysed and studied. These factors are not a part of the organization's internal environment and hence are uncontrollable in nature. These factors influence the businesses in a significant manner. These factors are a part of the macro environment or the general environment. The common macro environmental factors are economic, political, legal, technological, social, etc. 31 Strategic Management MSMSR/BBA/601 (Core)
Levels/Components of Environmental Appraisal 2) Industry Analysis : Industry analysis is a tool which is used to assess the degree of competition and complexity within a particular industry. With the help of industry analysis, the marketers study and scrutinize the macro environmental factors that influence a particular industry. Industrial analysis helps the strategic leaders formulate various strategies to neutralize the threats and reap the benefits from the opportunities. Various environmental forces to be studied in the industry analysis are the bargaining power of buyers and suppliers, position of business and competitors and threats of new entrants as well as the substitutes within the industry. 32 Strategic Management MSMSR/BBA/601 (Core)
Levels/Components of Environmental Appraisal 3) Competitive Analysis : While appraising the external environment, it is very important to analyse the strengths and weaknesses of the existing and probable competitors. It helps the organisation to formulate the strategies required to survive and succeed in the highly competitive environment. It also outlines the strategies adopted by the competitors. The influence of competition is directly proportional to the degree of concentration in the industry, i.e., if the concentration of the industry is high, the influence of competition is high, and vice versa. Competitive analysis helps the organisations in identifying threats and opportunities by providing defensive and offensive strategic moves. Strategic Management MSMSR/BBA/601 (Core) 33
Process of Environmental Appraisal The process of environmental appraisal includes the following steps : 1) Understand Nature of Environment :- Before starting the environmental appraisal, the strategists must understand the nature, i.e., the volatility of external environment. The volatility here implies to the changes in the environment. To understand the nature of environment, the strategic leaders need to answer following questions : Is the environment stable or dynamic? In which ways does the environment change? Are the changes identifiable? Answering these questions would help in deciding the future course of actions. Strategic Management MSMSR/BBA/601 (Core) 34
Process of Environmental Appraisal 2) Analyze the Past Influences of Environmental Factors : - Once, the nature of external environment is identified, the next step is to identify the factors that have influenced the performance of organisation in the past. Analyzing these factors will help in planning and formulating strategies to handle future scenarios. 3) Identify Critical Competitive Forces : The next step is to identify the key competitive forces existing within the industry with the help of structural analysis. This step helps to analyze the organization's current position, the bargaining power of buyers and suppliers, the new entrants in the industry, and the existing competitors of the organisation. Strategic Management MSMSR/BBA/601 (Core) 35
Process of Environmental Appraisal 4) Analyze the Strategic Position : In this step, the managers analyse the strategic position of the organisation in relation to its competitors in terms of resources, customers, etc. To identify and analyse the strategic position of an organisation, following ways should be adopted: Growth/Share analysis Attractiveness analysis Strategic group analysis Study of market segments and market power Competitor analysis 5) Identify the Opportunities and Threats : - Identify the opportunities and threats prevailing in the environment. Formulate efficient strategies to reap the benefits from the opportunities so that the threats can be neutralized. The selection of strategy and effective utilization of selected resources in an effective manner is crucial for this stage. 36 Strategic Management MSMSR/BBA/601 (Core)
The concept of Environment The environment is a major source of change. Some firms become victims of this change while others use it to their advantage. The purpose of environmental analysis is to enable the firm to turn change to its advantage by being proactive. Characteristics of the environment are; It is unique to every organization. It is constantly changing. One level is controllable while the other (remote-PESTEL) is uncontrollable. It is a source of Opportunities, Threats, Strengths & Weaknesses. Environmental analysis can be divided into two major steps; a. Defining; determining the relevant environmental forces. b. Scanning & forecasting; collecting information concerning the defined environment. Strategic Management MSMSR/BBA/601 (Core) 37
The Company and its Environment Understanding the environment that surrounds an organization is important to the executives in charge of the organizations. There are several reasons for this. First, the environment provides resources that an organization needs in order to create goods and services. In the 17th century, British poet John Donne famously noted that no man is an island. Similarly, it is accurate to say that no organization is self-sufficient. As the human body must consume oxygen, food, and water, an organization needs to take in resources such as labor, money, and raw materials from outside its boundaries. Subway, for example, simply would cease to exist without the contributions of the franchisees that operate its stores, the suppliers that provide food and other necessary inputs, and the customers who provide Subway with money through purchasing its products. An organization cannot survive without the support of its environment. Strategic Management MSMSR/BBA/601 (Core) 38
The Company and its Environment Second, the environment is a source of opportunities and threats for an organization. Opportunities are events and trends that create chances to improve an organization s performance level. In the late 1990s, for example, Jared Fogle s growing fame created an opportunity for Subway to position itself as a healthy alternative to traditional fast-food restaurants. Threats are events and trends that may undermine an organization s performance. Subway faces a threat from some upstart restaurant chains. Saladworks, for example, offers a variety of salads that contain fewer than 500 calories. Noodles and Company offers a variety of sandwiches, pasta dishes, and salads that contain fewer than 400 calories. These two firms are much smaller than Subway, but they could grow to become substantial threats to Subway s positioning as a healthy eatery. Strategic Management MSMSR/BBA/601 (Core) 39
The Company and its Environment Executives must also realize that virtually any environmental trend or event is likely to create opportunities for some organizations and threats for others. This is true even in extreme cases. In addition to horrible human death and suffering, the March 2011 earthquake and tsunami in Japan devastated many organizations, ranging from small businesses that were simply wiped out to corporate giants such as Toyota whose manufacturing capabilities were undermined. As odd as it may seem, however, these tragic events also opened up significant opportunities for other organizations. The rebuilding of infrastructure and dwellings requires concrete, steel, and other materials. Japanese concrete manufacturers, steelmakers, and construction companies are likely to be very busy in the years ahead. 40 Strategic Management MSMSR/BBA/601 (Core)
The Company and its Environment Third, the environment shapes the various strategic decisions that executives make as they attempt to lead their organizations to success. The environment often places important constraints on an organization s goals, for example. A firm that sets a goal of increasing annual sales by 50 percent might struggle to achieve this goal during an economic recession or if several new competitors enter its business. Environmental conditions also need to be taken into account when examining whether to start doing business in a new country, whether to acquire another company, and whether to launch an innovative product, to name just a few. Strategic Management MSMSR/BBA/601 (Core) 41
Porter's Five Forces model Porter's Five Forces is a model that identifies and analyzes five competitive forces that shape every industry and helps determine an industry's weaknesses and strengths. Five Forces analysis is frequently used to identify an industry's structure to determine corporate strategy. Porter's model can be applied to any segment of the economy to understand the level of competition within the industry and enhance a company's long-term profitability. The Five Forces model is named after Harvard Business School professor, Michael E. Porter. Strategic Management MSMSR/BBA/601 (Core) 42
Porter's Five Forces model Porter's 5 forces are: Competition in the industry Potential of new entrants into the industry Power of suppliers Power of customers Threat of substitute products Strategic Management MSMSR/BBA/601 (Core) 43
1. Competition in the Industry The first of the Five Forces refers to the number of competitors and their ability to undercut a company. The larger the number of competitors, along with the number of equivalent products and services they offer, the lesser the power of a company. Suppliers and buyers seek out a company's competition if they are able to offer a better deal or lower prices. Conversely, when competitive rivalry is low, a company has greater power to charge higher prices and set the terms of deals to achieve higher sales and profits. Competitors are many They are roughly equal in size Industry growth is slow, leading to fights for market share The product lacks differentiation or switching costs Fixed costs are high and the product is perishable Exit barriers are high. Strategic Management MSMSR/BBA/601 (Core) 44
2. Potential of New Entrants Into an Industry A company's power is also affected by the force of new entrants into its market. The less time and money it costs for a competitor to enter a company's market and be an effective competitor, the more an established company's position could be significantly weakened. An industry with strong barriers to entry is ideal for existing companies within that industry since the company would be able to charge higher prices and negotiate better terms. Strategic Management MSMSR/BBA/601 (Core) 45
3. Power of Suppliers The next factor in the Porter model addresses how easily suppliers can drive up the cost of inputs. It is affected by the number of suppliers of key inputs of a good or service, how unique these inputs are, and how much it would cost a company to switch to another supplier. The fewer suppliers to an industry, the more a company would depend on a supplier. As a result, the supplier has more power and can drive up input costs and push for other advantages in trade. On the other hand, when there are many suppliers or low switching costs between rival suppliers, a company can keep its input costs lower and enhance its profits. It is made up of a few firms There are few or no substitute products The product is unique or differentiated There exists supplier switching costs It can integrate forward to produce the industry s product. Strategic Management MSMSR/BBA/601 (Core) 46
4. Power of Customers The ability that customers have to drive prices lower or their level of power is one of the Five Forces. It is affected by how many buyers or customers a company has, how significant each customer is, and how much it would cost a company to find new customers or markets for its output. A smaller and more powerful client base means that each customer has more power to negotiate for lower prices and better deals. A company that has many, smaller, independent customers will have an easier time charging higher prices to increase profitability. The buyers are few and they buy in large volumes The product is not differentiated, is substitutable and there are other alternative suppliers. The buyer has little switching costs The buyer can integrate backward to make the industry s product. Strategic Management MSMSR/BBA/601 (Core) 47
5. Threat of Substitutes The last of the Five Forces focuses on substitutes. Substitute goods or services that can be used in place of a company's products or services pose a threat. Companies that produce goods or services for which there are no close substitutes will have more power to increase prices and lock in favorable terms. When close substitutes are available, customers will have the option to forgo buying a company's product, and a company's power can be weakened. Understanding Porter's Five Forces and how they apply to an industry, can enable a company to adjust its business strategy to better use its resources to generate higher earnings for its investors. Strategic Management MSMSR/BBA/601 (Core) 48
What Are Some Drawbacks of Porter's Five Forces? The Five Forces model has some drawbacks, including that it is backward- looking, making its findings mostly relevant only in the short term; that limitation is compounded by the impact of globalization. Another big drawback is the tendency to try to use the five forces to analyze an individual company, versus a broad industry, which is how the framework was intended. Also problematic is that the framework is structured so that each company is placed in one industry group when some companies straddle several. Another issue includes the need to assess all five forces equally when some industries aren't as heavily impacted by all five. What's the Difference Between Porter's Five Forces and SWOT Analysis? Porter's 5 Forces and SWOT (strengths, weaknesses, opportunities, & threats) analysis are both tools used to analyze and make strategic decisions. Companies, analysts, and investors use Porter's 5 Forces to analyze the competitive environment within an industry, while they tend to use a SWOT analysis to look more deeply within an organization to analyze its internal potential. Strategic Management MSMSR/BBA/601 (Core) 49
Scanning the Environment Environmental scanning is a process of gathering information about the events and their relationship with the internal and external environment of the organization. The primary aim of environmental scanning is to find out the future prospects of business organization. As a significant resource to the management, the Environmental Scanning Committee enables the management to make decisions from fundamental analysis of historical events to estimate future events. The committee also helps in creating action plans to address these upcoming events, analyzing action plans and arranging appropriate resources for those plans, and putting management in contact with fellow employees with the knowledge set to provide quality data for decision making. Environmental Scanning Definition - The process of collecting, evaluating, and delivering information for a strategic purpose is defined as environmental scanning. The process of environmental scanning requires both accurate and personalized data on the business environment in which the organization is operating or considering entering. Strategic Management MSMSR/BBA/601 (Core) 50
