Strategic Management - A

Paper-III STRATEGIC MANAGEMENT Section - A
Mr. Rajesh Shende

Faculty
Datta Meghe Institute of Management Studies Atrey Layout, Nagpur
Rajesh Shende- DMIMS
UNIT - I STRATEGIC MANAGEMENT
Why Strategy? Its about how businesses compete. How to earn above average returns. Selection of industries Selection of segments Choice of tactics How to IMPLEMENT!
Strategic Management: The set of managerial decisions and actions that determines the long-run performance of an organisation.
Strategic Planning: The process of determining a company's long-term goals and then identifying the best approach for achieving those goals
Rajesh Shende- DMIMS 5
Four aspects that set strategic management is important

Interdisciplinary Capstone of the Business degree External focus Competition
Internal focus
Future direction
The firm Goals & Values Resources & Capabilities Structures & Systems
External Environment
Strategy
Competitors Customers
Suppliers
etc
STRATEGIC DECISION MAKING
Strategic Decision Making is the basic thrust of Strategic Management. Strategy formulation rests on decision making.
Decision Making
Strategic Decision Making
CRITERIA RATIONALITY CREATIVITY VARIABILITY PERSON RELATED FACTORS INDIVIDUAL VERSUS GROUP
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Objective to be achieved are determined. Alternative ways of achieving obj. Each alternative is evaluated on ability. Best alternative is chosen.
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Establishing Hierarchy of strategic Intent 1. Creating & Communicating a Vision

2. Designing a Mission statement 3. Defining the Business 4. Adopting the Business Model 5. Setting Objectives
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Formulation of strategies 1. Performing external analysis

2. Performing internal analysis 3. Formulating Corporate & Business Level strategies 4. Preparing Strategic Plan
Implementation of Strategies
1. Activating Strategies 2. Designing Structure, System & Process 3. Managing Functional & Behavioral Implementation 4. Operationalising Strategies
Performing Strategic Evaluation & Control 1. Performing strategic Evaluation

2. Exercising strategic Control 3. Reformulating Strategies
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Strategy is a plan, or method of approach developed by an individual, group, or organization, in an effort to successfully achieve an overall goal or objective. Policy refers to a definite course of action adopted by an individual, group, or organization in an effort to promote the best practice particular to desired results.
Tactics involves the detail, the procedure, and the order of how to achieve the desired results particular to the strategy.
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UNIT II STRATEGIC INTENT
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Strategic Intent Like individuals, organizations must define what they want to do and why they want to do this, this end result is referred to as strategic intent.
Strategic intent is defined as Strategic intent envisions a desired leadership position and establishes the criterion the organization will use to chart its progress.
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Strategic Intent has a hierarchy Vision, Mission, Goals & Objectives.
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Sense of Direction : Strategic Intent implies a particular view about long-term market or competitive position that an organization hopes to build in future. It should be a view of the future conveying a sense of direction.
Sense of Discovery : Strategic intent is differential as each organization differs from others; it implies a competitively unique point of view about the future. Sense of Destiny : Strategic intent has an emotional edge to it. It is an end result that employees perceive as inherently worthwhile.
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IOC is the largest Indian company engaged in the business of crude oil refining and offers a variety of products related to oil sector.
Vision : IOC aims to achieve international standards of excellence in all aspects of energy and diversified business with focus on customer delight through quality products and services. Mission : Maintaining national leadership in oil refining, marketing, and pipeline transportation.
Objectives : Focusing on cost, quality, customer care, value addition, and risk management.
Realistic Credible Attractive Future
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A good vision is idealistic. A good vision inspires organizational members. A good vision reflects the uniqueness. A good vision is well articulated and easily understood.
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Mission Statement Mission statement is the description of organizational mission. The company mission is defined as the fundamental unique purpose that sets a business apart from other firms of its type and identifies its scope of its operations in product and market terms.
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Following points should be considered while preparing the mission statement: Clear Achievable Feasible Distinctive Explanatory
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Tata Tea: Achieve market and thought leadership for branded tea in India. Be recognized as the foremost innovator in tea and tea based beverage solutions. Drive long-term profitable growth. Co-create enhanced value for all stakeholders. Make Tata Tea a great place to work
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Direction Aspirations Integration Positive attitudes
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Goals and objectives are the end results which an organization strives for. There may be different ways in expressing end results like market leadership, a certain percentage increase in sales in a particular year etc.
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SMART S Specific M Measurable A Attainable R Relevant T Time-bound
DUMB D Doable U Understandable M Manageable B Beneficial
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Direction Clear Definition Motivating force Voluntary coordination Performance Standard Decentralization Integration
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Specificity Multiplicity Periodicity Reality Quality
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Growth Profit Marketing Employees Social
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VISION
To seize future of tomorrow & create a future that will make economic value added co. To continue to improve quality of life of our employee & communities we serve.
Venture into new businesses that will own a share of our future
MISSION & GOALS

Move from commodities to Brand. Continue to lowest cost producer of steel. Value creating partnership. Enthused & happy employees. Sustainable Growth.
STRATEGY
Manage knowledge. Outsource strategically. Invest in attractive new businesses. Ensure safety & environmental sustainability
UNIT III INTERNAL & RESOURCE ANALYSIS
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Strategic Planning tool extremely useful for
Decision making. Internal strength & Weakness of firm. External Opportunities & Threats facing that firm. Effective strategy Maximizes Strengths & Opportunities, Minimizes Weaknesses & Threats. SWOT analysis is used for business planning, strategic planning, competitor evaluation, marketing, business and product development and research reports.
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Arises from Resources & Competencies Experience, knowledge, data? Marketing - reach, distribution, awareness? Innovative aspects? Location and geographical? Price, value, quality? Right products, quality and reliability. Superior product performance vs competitors. Better product life and durability. Spare manufacturing capacity.
Limitation or Deficiency
Lack of competitive strength. Reputation, presence and reach.
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Major Favorable situation in firms environment. Improved buyer or supplier relations. New technologies Market developments Could develop new products. Local competitors have poor products. Profit margins will be good. End-users respond to new ideas. Could extend to overseas. New specialist applications.
Major Unfavorable situation in firms
environment. Entrance of new competitors, Slow Market Growth, New revised regulations, Increased bargaining power
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Strengths (internal) strengths/opportunities obvious natural priorities Opportunities greatest ROI (external) Quickest and easiest to implement. Immediate action-planning. strengths/threats easy to defend and counter Only basic awareness, planning, and implementation required to meet these challenges. Investment in these issues is generally safe and necessary.
Weaknesses (internal) weaknesses/opportunities potentially attractive options Potentially more exciting and stimulating and rewarding due to change, challenge, surprise tactics, and benefits from addressing and achieving improvements. weaknesses/threats potentially high risk Assessment of risk crucial. Where risk is low then we must ignore these issues and not be distracted by them. Defend/avert in very specific controlled ways.
Threats (external)
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Value Chain Analysis describes the activities
that take place in a business and relates them to an analysis of the competitive strength of the business. Two types of activities A)- PRIMARY ACTIVITIES B)- SUPPORT ACTIVITIES
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Inbound Logistics
Operations Outbound Logistics
Marketing & Sales

Service
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Administration/ Infrastructure
Human Resource Management Research, Technology & system Development.
Procurement
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Economies of Scale Product Differentiation Capital Requirements Cost Disadvantages Independent of Size Access to Distribution Channels Government Policy
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A supplier group is powerful if: It is dominated by a few companies and is more concentrated than the industry it sells to Its product is unique or at least differentiated, or if it has built-up switching costs It is not obliged to contend with other products for sale to the industry It poses a credible threat of integrating forward into the industrys business The industry is not an important customer of the supplier group
A buyer group is powerful if: It is concentrated or purchases in large volumes The products it purchases from the industry are standard The products it purchases from the industry form a component of its product and represent a significant fraction of its cost It earns low profits The industrys product is unimportant to the quality of the buyers products or services The industrys product does not save the buyer money The buyers pose a credible threat of integrating backward
By placing a ceiling on the prices it can charge, substitute products or services limit the potential of an industry Substitutes not only limit profits in normal times but also reduce the bonanza an industry can reap in boom times Substitute products that deserve the most attention strategically are those that are subject to trends improving their priceperformance trade-off with the industrys product or produced by industries earning high profits
Intense rivalry occurs when: Tactics like price competition, advt., product diff. Industry growth is slow, precipitating fights for market share that involve expansion The product or service lacks differentiation or switching costs Fixed costs are high or the product is perishable, creating strong temptation to cut prices Capacity normally is augmented in large increments Exit barriers are high Rivals are diverse in strategy, origin, and personality
UNIT IV EXTERNAL ANALYSISENVIRONMENT ANALYSIS
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Three tiers of environmental factors that affect firms performance. Five factors in the remote environment The five forces model of industry analysis The five factors in the operating environment
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Comprised of following Components: Remote environment Industry environment Operating environment
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Economic Factors Social Factors Political Factors Technological Factors Ecological Factors
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Prime interest rates Inflation rates Trends in the growth of the gross national product Unemployment rates Globalization of the economy Outsourcing
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Present in the external environment:

Developed from:
Beliefs & Values Attitudes & Opinions Lifestyles Cultural conditioning Ecological conditioning Demographic makeup Religion Education Ethnic conditioning.
Political constraints on firms:

Fair-trade Decisions Antitrust Laws Tax Programs Minimum Wage Legislation Pollution and Pricing Policies Administrative jawboning
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Technological forecasting helps protect and improve the profitability of firms in growing industries. It alerts strategic managers to impending challenges and promising opportunities. The key to beneficial forecasting of technological advancement lies in accurately predicting future technological capabilities and their probable impacts.
Ecology refers to the relationships among human beings and other living things and the air, soil, and water that supports them. Threats to our life-supporting ecology caused principally by human activities in an industrial society are commonly referred to as pollution Loss of habitat and biodiversity Environmental legislation Eco-efficiency
Harvard professor Michael E. Porter propelled the concept of industry environment into the foreground of strategic thought and business planning. The cornerstone of Porters work first appeared in the Harvard Business Review, in which he explains the five forces that shape competition in an industry. Porters well-defined analytic framework helps strategic managers to link remote factors to their effects on a firms operating environment.
The essence of strategy formulation is coping with competition. Intense competition in an industry is neither coincidence nor bad luck. Competition in an industry is rooted in its underlying economics, and competitive forces exist that go well beyond the established combatants in a particular industry. The corporate strategists goal is to find a position in the industry where his or her company can best defend itself against these forces or can influence them in its favor.
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An industry is a collection of firms that offer similar products or services. Structural attributes are the enduring characteristics that give an industry its distinctive character. Concentration refers to the extent to which industry sales are dominated by only a few firms. Barriers to entry are the obstacles that a firm must overcome to enter an industry.
How do other firms define the scope of their market? How similar are the benefits the customers derive from the products and services that other firms offer? The more similar the benefits of products or services, the higher the level of substitutability between them. How committed are other firms to the industry?
Also called competitive or task environment Includes competitor positions and customer profiling based on the following factors:
Geographic
Demographic Psychographic
Buyer Behavior
Also includes suppliers & creditors and HRM

Access to personnel is affected by 4 factors: Firms reputation as an employer Local employment rates Availability of people with the needed skills Its relationship with labor unions.
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Differing external elements affect different strategies at different times and with varying strengths Only certainty is that the effect of the remote and operating environments will be uncertain until a strategy is implemented Many managers, particularly in less powerful firms, minimize long-term planning Instead, they allow managers to adapt to new pressures from the environment Absence of strong resources and psychological commitment to a proactive strategy effectively bars a firm from assuming a leadership role in its environment
What is environmental scanning? Environmental scanning refers to possession and utilization of information about occasions, patterns, trends, and relationships within an organizations internal and external environment.
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External Environmental Scanning

Internal Environmental Scanning
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Preliminary Assessment
Crossfunctional Discussion
Consensus of Discussion
Identification of strategic option
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Employee interaction with Employees Management Management interaction with shareholders Access to natural resources, Brand awareness, Organizational structure, main staff, operational potential
UNIT V
STRATEGY FORMULATION
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Types of Strategies 1. Expansion 2. Stability 3. Retrenchment 4. Combination
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Expansion strategies is distributed as1. Concentration 2. Integration 3. Diversification
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Ansoff Product-Market Matrix

Minimal organisational changes Specialise in one business Less problems to managers as known situation Decision making due to past experience makes valuable
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Heavily dependent on industry Product obsolescence Less challenging Cash flow problems
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Combining activities related to the present activity of firm.

Horizontal Integration Strategies
Vertical Integration Strategies
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The process of acquiring or merging with industry competitors

Acquisition and merger
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Benefits of Horizontal Integration Reducing costs Increasing value

Product bundling
Cross selling
Managing industry rivalry Increasing bargaining power

Market power (monopoly power)
Expanding operations backward into an industry that produces inputs for the company or forward into an industry that distributes the companys products Two types

Forward Integration Backward Integration
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Building barriers to entry Facilitating investments in specialized assets Protecting product quality Improved scheduling
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Cost disadvantages
Company-owned suppliers that have higher costs
than external suppliers
Rapid technological change

Tying a company to an obsolescent technology
Demand unpredictability
Difficulty of achieving close coordination among
vertically integrated activities
Bureaucratic costs
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The process of adding new businesses to the company that are distinct from its established operations
Types
Concentric Diversification Strategies
Conglomerate Diversification Strategies
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When a company runs out of growth opportunities in the core business and not before! When diversification results in creation of value
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Entry into a new business activity in a different industry that is related to a companys existing business activity, or activities, by commonalities between one or more components of each activitys value chain
It may be of three types1. Marketing-Related Concentric Diversification 2. Technology-Related Concentric Diversification 3. Marketing & Technology-Related Concentric Diversification
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Entry into industries that have no obvious connection to any of a companys value chain activities in its present industry or industries
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C) COOPERATIVE STRATEGIES
Merger & Acquisition Strategies Joint Venture Strategies
Strategic Alliance
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MERGER
Combination of two or more organisation in which one acquire the Assets & Liabilities of the other in exchange for shares or cash or both the org. dissolved and assets & liabilities are combined and new stock is issued.
Acquisition
The attempt of one firm to acquire the ownership or control over the other firm.
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1.
2. 3.
4.
Horizontal Merger Vertical Merger Concentric Merger Conglomerate Merger
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An entity resulting from a long term contractual agreement between two or more parties to undertake mutually beneficial economic activities.
Types of JV:
1. 2. 3.
Within Industries Across Industries Across Countries
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Technology Geography Regulation Sharing of risk & control Intellectual exchange
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When two or more firms unite to pursue a set of agreed upon goals, but remain independent subsequent to the formation of alliance. Cooperation between two or more independent firms involving shared control & continuing contributions by all partners for mutual benefit.
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Entering New market Reducing manufacturing cost Developing & Diffusing technology
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Based on organisational Interaction & Conflict potential between alliance partners.
Procompetitive alliances(LI /LC) Noncompetitive alliances(HI/LC) Competetive alliance(HI/HC) Precompetitive alliance(LI/HC)
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No-Change Strategy
Profit Strategy
Pause/Proceed Strategy
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Turnaround Strategies
Divestment Strategies
Liquidation Strategies
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Turnaround strategy means backing out, withdrawing or retreating from a decision wrongly taken earlier in order to reverse the process of decline.
a) Persistent negative cash flow
b) Continuous losses c) Declining market share d) Deterioration in physical facilities e) Over-manpower, high turnover of employees, and low
morale f) Uncompetitive products or services g) Mismanagement

Divestment strategy involves the sale or liquidation of a portion of business, or a major division, profit centre or SBU. Divestment is usually a restructuring plan and is adopted when a turnaround has been attempted but has proved to be unsuccessful or it was ignored.
a) A business cannot be integrated within the company. b) Persistent negative cash flows from a particular business create
financial problems for the whole company. c) Firm is unable to face competition d) Technological up gradation is required if the business is to survive which company cannot afford. e) A better alternative may be available for investment
Liquidation strategy means closing down the entire firm and selling its assets. It is considered the most extreme and the last resort because it leads to serious consequences such as loss of employment for employees, termination of opportunities where a firm could pursue any future activities, and the stigma of failure.
Reasons for Liquidation include: (i) Business becoming unprofitable (ii) Obsolescence of product/process (iii) High competition (iv) Industry overcapacity (v) Failure of strategy
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Paper-III STRATEGIC MANAGEMENT Section - A

Mr. Rajesh Shende

Datta Meghe Institute of Management Studies Atrey Layout, Nagpur

Rajesh Shende- DMIMS

Rajesh Shende- DMIMS

UNIT - I STRATEGIC MANAGEMENT

Rajesh Shende- DMIMS

Rajesh Shende- DMIMS

Four aspects that set strategic management is important

Rajesh Shende- DMIMS

Rajesh Shende- DMIMS

STRATEGIC DECISION MAKING

Rajesh Shende- DMIMS

Strategic Decision Making

Rajesh Shende- DMIMS

Rajesh Shende- DMIMS

Rajesh Shende- DMIMS

Rajesh Shende- DMIMS

Establishing Hierarchy of strategic Intent 1. Creating & Communicating a Vision

Rajesh Shende- DMIMS

Formulation of strategies 1. Performing external analysis

Performing Strategic Evaluation & Control 1. Performing strategic Evaluation

Rajesh Shende- DMIMS

Rajesh Shende- DMIMS

UNIT II STRATEGIC INTENT

Rajesh Shende- DMIMS

Rajesh Shende- DMIMS

Strategic Intent has a hierarchy Vision, Mission, Goals & Objectives.

Rajesh Shende- DMIMS

Rajesh Shende- DMIMS

Realistic Credible Attractive Future

Rajesh Shende- DMIMS

Rajesh Shende- DMIMS

Rajesh Shende- DMIMS

Rajesh Shende- DMIMS

Rajesh Shende- DMIMS

Direction Aspirations Integration Positive attitudes

Rajesh Shende- DMIMS

Rajesh Shende- DMIMS

SMART S Specific M Measurable A Attainable R Relevant T Time-bound

DUMB D Doable U Understandable M Manageable B Beneficial

Rajesh Shende- DMIMS

Rajesh Shende- DMIMS

Specificity Multiplicity Periodicity Reality Quality

Rajesh Shende- DMIMS

Growth Profit Marketing Employees Social

Rajesh Shende- DMIMS

MISSION & GOALS

UNIT III INTERNAL & RESOURCE ANALYSIS

Rajesh Shende- DMIMS

Strategic Planning tool extremely useful for

Rajesh Shende- DMIMS

Rajesh Shende- DMIMS

Major Unfavorable situation in firms

Rajesh Shende- DMIMS

Value Chain Analysis describes the activities

Rajesh Shende- DMIMS

Rajesh Shende- DMIMS

Marketing & Sales

Rajesh Shende- DMIMS

Rajesh Shende- DMIMS

Rajesh Shende- DMIMS

Rajesh Shende- DMIMS