Management- Theories and Practices

Week 5

Strategic Management and Planning

As chairman of Arabs leading real estate development company, Mohammed Ali Alabbar has a goal of meeting the demand for quality houses and other properties in the region. As the company continues to expand rapidly , the greatest challenge is strategy implementation. One of his top managers says, we have the vision and the strategy. The question is do we have skills across the organization to execute? What do you think here?

The discount retail industry is good place to see what strategic management is about Walmart and Kmart 1962 Whats the difference?

When it comes to strategic management there are two types of planning included Synoptic Incremental

What is strategic management?

Encompasses all management functions Organization strategies whats this? Business model - will customer value what is being offered, will the company make money doing so? Dell - sell through internet instead of retailers

Why is strategic management important? Lets see.

Link between performance and SM remember walmart and kmart Dealing with uncertainty how? Organizations are big and complex to coordinate

The SM process Six steps and the diagram

The corporate strategies

Specifies where a business wants to be or businesses Based on mission and goals Role each business unit will play

Three main types of corporate strategy Growth Stability Renewal Lets see each of these .

Growth: Organization expand the number of markers / products offered either through current business or new businesses Organizations grow by using concentration, vertical integration, horizontal integration, diversification Concentration: increases markets or products offered Vertical integration: supplier/ seller e.g. ebay / apple retail stores Horizontal integration taking competitor Diversification related or unrelated business

Stability:
Corporate strategy in which an organization continues to do what it is currently doing. Continue to serve same clients same product or service , maintaining market share, sustaining business operations Org does not grow but does not fall behind either e.g sales of candy and chocolate go down cadbury maintaining things as they are (market share)

Renewal Strategies: Incase of declining performance Two main types retrenchment and turn around

Retrenchment - short tem renewal strategy used for minor performance problems stabilizing operations, revitalizing org resources, and prepare to compete again Turnaround more serious problems , more drastic action needed, cutting costs and restructuring org

How corporate strategies are managed?

What is SWOT Analysis? Careful assessment external and internal information External customers, govt reports, journals, suppliers, bankers, friends in other org, consultants, professional association Internal budgets, financial ratios, attitude surveys

Management and Organization

Management Quality Staff Quality Degree of centralization Organization charts Planning information, Control systems

Marketing Distribution Channels Market share Advertising efficiency Customer satisfaction Product Quality Service reputation Sales force turnover

Human Resource Employee Experience Education Union Status Turnover, absenteeism Work satisfaction Grievances

Finance Profit margin Debt-equity ratio

Production Plant location Machinery obsolescence

Research and Development Basic applies research Laboratory capabilities

Inventory ratio
Return on investment Credit rating

Purchasing System
Quality control Productivity efficiency

Research programs
New-product innovations Technology innovations

 When org corporate strategy encompasses a number of businesses, managers can manage this collection or portfolio of businesses using a tool called a corporate portfolio mix. The first corporate portfolio mix BCG matrix - was developed by BCG Idea was businesses could be evaluated using 2x2 matrix to identify which ones offered high potential and which were draining org resources Business unit is evaluated using SWOT analysis and placed in one of four categories

High High STARS

Market Share

Low

QUESTION MARKS

Anticipated growth rate CASH COWS DOGS

Low

Dogs should be sold off or liquidated as they have low market share and potential
Milk cash cows as much as they cab, limit new investment and use cash to invest in stars and questions marks

Stars- heavy investment because of high potential and market share

Question marks - hardest decision, sell or turn into stars

Lets do some class exercise

Class exercise: Do a personal SWOT analysis. Assess your personal strengths and weaknesses (skills, talents, abilities). What are you good at? What are you not good at? What do you enjoy doing? What you dont enjoy doing? Then, identify career opportunities and threats by looking at job prospects. Write a clear career action plan. Outline five year goals and what you need to do to achieve these goals

Competitive Strategies

How the organization will compete in its businesses Small org one business
Large org businesses , primary or main market (in case of one business) For each business , independence and formulation of competitive strategies for SBUs

What is competitive advantage ? What factors can become CA?

Examples

Ability to sustain CA Why?

External environment ..

The porters five forces model

Potential of new entrants : capital requirement, economies of scale (industry differences why?)

Bargaining power of buyers: internet made shopping easy?

Bargaining power of suppliers: access to information Threat of substitutes: low calorie sugar Rivalry among competitors:

What to do now?

Differentiation: Attempt to distinguish the firms products or services from others in the industry The organization may use creative advertising, product features, exceptional service or technology to achieve a product perceived as unique It can reduce rivalry with competitors loyalty Reduce bargaining power of buyers because other products are less attractive Fight off threats of substitute Create entry barriers

Cost leadership: The organization aggressively seeks efficiency Pursues cost reductions Uses tight controls

Meaning thereby that company can undercut competitors prices and still offer same quality and earn profit too the hotels Low price as entry barrier Substitute and competition better positioned

Focus: Concentration on specific regional buyer or market Can use differentiation or cost leadership but for narrow target market only

Use these strategies intelligently

Link to companys overall mission

Few companies found that shifting to low cost strategy didnt work out since their buyers loved them for innovation thus differentiation Two of them can be managed together too like cocacola did

What type of org characteristics you would see?

Strategy Differentiation

Organizational Characteristics Acts in a flexible, loosely knit way, with strong coordination among departments, Strong capability in basic research Creative flair, thinks out of the box Strong marketing abilities Rewards employee innovation Corporate reputation for quality or technological leadership Strong central authority; tight cost controls Maintains standard operating procedures Easy-to-use manufacturing technologies Highly efficient procurement and distribution systems Close supervision, finite employee empowerment Frequent, detailed control reports May use combination of above policies directed at particular strategic target Values and rewards flexibility and customer intimacy Measure cost of providing service and maintaining customer loyalty Pushes empowerment to employee with customer contact

Cost Leadership

Focus

Functional Strategies

What is this? At departmental/ functional level

New trends in Strategy

1. Strategic Flexibility Why? How?

2. Strategic Partnerships What is this ? Examples?

The Global Strategy

High
Transnational Strategy
Seeks to balance global efficiencies and local responsiveness Combines standardization and customization for product / advertising strategies

Need for Global Integration

Globalization Strategy Treats world as a single global market Standardizes global product / advertising strategies

Export Strategy Domestically focused

Exports a few domestically produced products to selected countries

Multidomestic Strategy
Handles markets independently for each country Adapts product/ advertising to local tastes and needs

Low Low

Need for National Responsiveness

High

Global Strategy: reap efficiencies by standard product design and manufacturing, common suppliers, eliminating overlapping facilities e.g. Gillette razors Multidomestic: activities tailored to needs of market, reject the ideal of world as single market Transnational: benefits of standardization, and tailoring to local needs e.g. cocacola version of traditional kvas in Russia has become fastest growing soft drink Export:

Strategy Execution

Strategy formulation is easy, Execution is difficult

Six Silent Killers Lets see diagram

Top-down or laissez-faire senior management style Inadequate down-the-line leadership skills and development Unclear strategy and conflicting priorities

Strategy
Poor coordination across functions, business, or borders

An ineffective senior management team

Poor vertical communication

Visible Leadership Motivate people Shape culture and values Model desired behaviors

Strategy

Candid Communication Open lines of communication Encourage debate Be honest

Clear Roles and Accountability Delegate authority and responsibility Create teams Define roles

Performance

Human Resources Recruit employees Manage transfers and promotions Provide training

Class exercise : Living large