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PAN African e-Network Project

MFC

STRATEGIC MANAGEMENT

Semester – 3
Session - 1

Suraj Prakash
LECTURE 1 : Strategic Management
Course Contents:
Module I: Introduction
Concept of Planning, Evolution of Strategic Management,
Corporate Strategy, Patterns of Strategy
Development, Levels of Strategy, Competitive scope and
value chain
Module II: Strategic Analysis
Mission, Vision and Business Definition, Environmental
Threat and Opportunity Profile (ETOP), Industry
Analysis, Strategic Advantage Profile (SAP), Competitor
analysis, market analysis, environmental analysis and
dealing with uncertainty, scenario analysis and SWOT
Analysis.
Module III: Strategic Choice
Traditional Approach - Strategic Alternatives, Various models like
BCG, GE Nine Cell Matrix, Hofer’s Model,
Strickland’s Grand Strategy Selection Matrix, Basis of Choice; Michael
Porter’s Approach - Generic
competitive strategies, Cost advantage, differentiation, technology and
competitive advantage, substitution,
competitor, complementary products and competitive advantage,
strategic vision vs. strategic opportunism,
Coevolving and patching.

Module IV: Offensive and Defensive Competitive Strategies


Industry scenarios, advantages and disadvantages of defensive
strategies, advantages and disadvantages of
offensive strategies.
Module V: Strategic Implementation
Operationalizing Strategy, Institutionalizing Strategy,
Strategic Control, Balanced Scorecard – Concepts and
applications in strategy implementation.
Text & References:

Text:
Azhar Kazmi, Business Policy and Strategic Management, Tata McGraw Hill.
Kaplan Robert & Norton David P, Strategic Focused Organization, Harvard
Business School Press.

References:
Pearce John A & Robinson R B, Strategic Management: Strategy Formulation
and Implementation, 3rd Ed.,
A.I.T.B.S. Publishers & Distributors.
Aaker David, Strategic Market Management, 8th Ed., John Wiley and Sons
Regular reading of all latest Business Journals: HBR, Strategist, Business World,
Business India, Business Today.
This presentation is dedicated to
all my students the only capital I
have
Overview
• Why do some firms succeed while others fail?
– A central objective of strategic management is to learn
why this happens.
• What is strategy?
– An action a company takes to attain superior
performance. In this context it means allocations of
resources. Resources may be same but if they are
combined in different ways some get superior
performance; some get ordinary performance. Strategic
Management studies the ways to make superior
performance.
• What is the strategic management process?
– The process by which managers choose a set of strategies
for the enterprise to pursue its vision.
Philosophy

• What's the use of running if you are not


on the right road- German proverb
• If you do not know where you come
from, you do not know where you
stand, if you do not know where you
stand, you do not know where you go-
Chinese Proverb
• To run in a right road to reach your
destination is strategy.
Prespective Quote

• However beautiful the strategy, you


should occasionally look at the results
-Sir Winston Churchill 1874-1965, English
statesman
• Do not repeat the tactics which have
gained you one victory, but let your
methods be regulated by the infinite
variety of circumstances -Sun Tzu c.
490 BC, Chinese military strategist
Definition
“Art & science of formulating, implementing, and evaluating,
cross-functional decisions that enable an organization to

achieve its objectives”.


Nature of strategic management
• Generic
• Emergent
• Timely changes
• Proactive process
• Long Rang planning
• Integrated planning
Phases of strategic management
process..
Establishm
Formulati Implemen Strategic
ent of
on of tations of evaluatio
strategic
strategies strategies n
intent
Establishment the hierarchy of
strategic intent
Identifying Existing
• Vision
• Mission
• Goals
• Objectives
Vision Statement –
What do we want to become?

“The category of intentions that are broad, all inclusive and forward thinking .

Mission Statement –
What is our business?
“Essential purpose of the organization , concerning particularly
why it is in existence the nature of the business and the customers
it seeks to serve & satisfies.”
Goals-
Goals denotes what an organizations hopes to accomplish
in a future period of time.
Objectives-
Objectives are the ends that states specifically how the
goals shall be achieved.
Strategy Formulation

Vision & Mission


External Opportunities & Threats

Internal Strengths & Weaknesses

Long-Term Objectives

Alternative Strategies

Strategy Selection
Strategy Implementation

Annual Objectives

Policies

Employee Motivation

Resource Allocation
Strategy Evaluation

Internal Review

External Review

Performance Metrics

Corrective Actions
What is difference between
Walmart ,Subhiksha and Future
Group?
What are the results of Wal-Mart?

 Sam Walton started it in the year 1962.


 For the fiscal year ending January 31, 2011, Wal-
Mart reported a net income of $15.4 billion on $422
billion of revenue with a 24.7% gross profit margin)
Net profit margin3.78%
 Operating margin6.05%
 EBITD margin-7.87%
 Return on average assets-9.09%R
 Return on average Equity22.09%
 Employees2,100,000
Subhikha

• Rated as the 50 fastest growing business


to be observed in the world
• Started by IIT IIM graduate and
Professionally managed.
• Ajim Premji Invested in the organization
• rama bijapurkar was in the board
• Ultimately left with lots of court cases and
operations are closed across India.
Future Group
• Do you know the from where the CEO of Big Bazar got his idea?
• It is from Saravan Stores in Chennai; Saravana Stores operates on
EDLP Mode and everyone goes there for low prices with high
quality.
• It has on thousand shops across India in 70 cities.
• Its formats are Its formats include;
• 1.Pantaloons
• 2.Big Bazaar-Indian hypermarket chain
• 3. Food Bazaar- which is a supermarket chain 4.Central, which is a
chain of destination malls. 5.Brand Factory
• 6. Blue Sky
• 7. aLL
• 8.Star
• 9.Sitara.
• Read his book ” It happened in India”.
Future Group Vs others
Subhiskha and Future Group
• Subhisha had the same access towards
resources as future group.
• However, Future Group used it differently.
• It brings out the difference between
resources and resourcefulness.
• Coke formula was sold by Pemberton for
2300$ and died as a papuer in Atlanta;
Presently its brand value is 150 billions!
American Airlines South West
Airline Vs US Airways

• 655 VS552 VS 347 Air Craft


• South West Airline Model (Low cost
Model)
• Revenue Management Model ( British
Airways later poineered by American
Airlines )
• Indian Airlines
Strategy (Operationalization)
• Strategy is a set of related actions that
managers take to increase organization’s
performance.
• If it results in superior performance to that
of its rivals it is said to have competitive
advantage.
• Example: Wal Mart, American Airlines,
Airtel
What you will learn?

• What is a strategy?
• How to create strategies that lead to
superior performance?
• How to implement?
• How you have to relate to the
environment?
• Why strategy?
Strategic Leadership

• How to most effectively manage a


organizational strategy making process
to create competitive advantage.
Prespective Quote

• Unless a variety of opinions are laid


before us, we have no opportunity of
selection, but are bound of necessity to
adopt the particular view which may
have been brought forward
• Herodotus, 5th century BC, Greek
historian
Strategy Making Process

• SMP is the process by which managers


select and then implement a set of strategies
that aim to achieve a competitive advantage.
• Strategy formulation is selection of strategies
• Strategy implementation is the task of
putting strategies in to action; it includes
designing; delivering; and supporting
products; improving efficienty and
effectiveness of organiztions; desinging
organizational structure; Control systems and
culture.
Prespective Quote

• Strategy formulation is is
10% implementation is
90%.
Strategic Planning
• Rational planning by top management?
Basic Strategic Planning Model

Defining the Mission and Setting Top-Level Goals

External Analysis of Opportunities and Threats

Internal Analysis of Strengths and Weaknesses

Selection of Appropriate Strategies

Implementation of Chosen Strategies


What are elements of Strategic
Thinking?
Mission and Goals

• Mission
– Sets out why the organization exists and what it
should be doing from point of view of customer.
• Major goals
– Specify what the organization hopes
to fulfill in the medium to long term.
• Objectives
– Are objectives to be attained that lead to superior
performance.
Perspective Quote on Vision

• Perception is strong and sight is weak.


In strategy it is important to see distant
things as if they were close and to take
a distanced view of close
things.Miyamoto Musashi 1584-1645,
legendary Japanese swordsman
External Analysis
• Identify strategic opportunities and
threats in the operating environment.
Internal Analysis

• Identify strengths
– Quality and quantity of resources available
– Distinctive competencies
• Identify weaknesses
– Inadequate resources
– Managerial and
organizational deficiencies
Business-Level Strategies
• Cost leadership
– Attaining, then using the lowest total cost basis as
a competitive advantage; Example of Intel
• Differentiation
– Using product features or services to distinguish
the firm’s offerings from its competitors;Apple
Computers
• Market niche focus
– Concentrating competitively on a specific market
segment; Nala Appakadai
Functional-Level Strategies
• Focus is on improving the effectiveness of
operations within a company.
– Manufacturing
– Marketing
– Materials management
– Research and development
– Human resources
Global-Level Strategies

• Multidomestic
• International
• Global
• Transnational
Corporate-Level Strategies

• Vertical integration
• Diversification
• Strategic alliances
• Acquisitions
• New ventures
• Business portfolio restructuring
What is Competitive Advantage?

• “Competitive advantage is a company’s


ability to perform in one or more ways that
competitors cannot or will not match.”
Philip Kotler
• “If you don’t have a competitive
advantage, don’t compete.”
Jack Welch, GE
Other Characteristics of Competitive
Advantage

• Substantiality
– Is it substantial enough to make a difference?
• Sustainability
– Can it be neutralized by competitors quickly?
• Ability to be leveraged into visible
business attributes that will influence
customers

(Source: Strategic Marketing Management, Aakers)


Seeking Competitive Advantages
• Positions of advantage
– Superior customer value
– Lower relative total cost
• Performance advantages
– Customer satisfaction, Loyalty, Market
Share, Profit
• Sources of advantages
– Superior skills & knowledge, Superior
resources, Superior business process
Key Elements of Marketing Strategy
Formulation
• The strategic 3 Cs
–Customers, Competitors & the Corporation
• Environment analysis – PEST (Political,
Economic ,Social & Technological) .
• Strategic Marketing Decisions
–Where to compete
–How to compete
–When to compete
A Viable Marketing Strategy

• Must have a clearly defined market


• Must have a good match between
corporate strengths and market needs
• Must have significant positive
differentiation in the key success factors
of the business
Situation Analysis

• Internal Analysis—company; capability etc.


• External Analysis—customers, market definition, industry
structure
• SWOT Analysis
– Strengths, Weaknesses, Opportunities & Threats
– Identify & prioritize major problems and opportunities:
selection of key issues
• Based on the firm’s core competencies, decide on future
options
Perspective Quote

• In real life, strategy is actually very


straightforward. You pick a general
direction and implement like hell-Jack
Welch in Winning, 2005
Strategy Implementation

• Designing organizational structure


• Designing control systems
– Market and output controls
– Bureaucratic controls
– Control through organizational culture
– Rewards and incentives
• Matching strategy, structure, and controls
– Congruence (fit) among strategy,
structure, and controls
Managing Strategic Change
• The only constant is change.
• Success requires adapting strategy and
structure to a changing world.
Strategic Managers

• General managers
– Responsible for the overall (strategic)
performance and health of the total
organization.
• Operations managers
– Responsible for specific business
functions or operations.
Strategic Managers for All Levels
Strategic Leadership

• Vision, eloquence, and consistency


• Commitment to the vision
• Being well informed
• Willingness to delegate and empower
• Astute use of power
• Emotional intelligence
Strategy as an Emergent Process
 Strategy making in an unpredictable world
◦ Creates the necessity for flexible strategic approaches.
 Strategy making by lower-level managers
◦ Strategy evolves through autonomous action.
 Serendipity and strategy
◦ Accidental discoveries and happenstances can have
dramatic effects on strategic direction.
 Intended and emergent strategies
◦ Realized strategies are combinations of intended and
emergent strategies.
Intended and Emergent Strategies

FIGUR 1.3
Mintzberg’s Intended Strategy
and Emergent Strategy
Five P’s of Strategy
1. Plan
2. Ploy
3. Pattern
4. Position
5. Prespective
The Strategic Management Process for Intended and
Emergent Strategies

FIGURE 1.4
http://papers.ssrn.com/sol3/paper
s.cfm?abstract_id=1857795

Please read case study on 3M


By-
Dr.K.Prabhakar
Strategic Planning in Practice
 Planning under uncertainty
◦ Scenario planning for dynamic environmental change
 Ivory tower planning
◦ Lack of contact with operational realities
◦ The importance of involving operating managers
◦ Procedural justice in the decision-making process
 Engagement, explanation, and expectations
 Planning for the present: Strategic Intent
◦ Recognition of the static nature of the strategic fit
model
◦ Strategic intent in focusing the organization on winning
by achieving stretch goals
Improving Strategic Decision Making

• Cognitive biases systematically influence the rationality


of decision makers;Psychologists have articulted more
than fifty cognitive biases.

FIGURE 1.5 ( Adopted from Strategic Mangement by Hill and Jones, 2009 e )
Illusion of Control

• I claim not to have controlled events,


but confess plainly that events have
controlled me- Abraham Lincoln 1809-
1865, sixteenth American president
Groupthink and Strategic Decisions

• Pitfalls of groupthink
– Failing to question underlying assumptions.
– Coalescing around a single person or policy.
– Filtering out conflicting information.
– Developing after-the-fact rationalizations.
– Having an emotional (nonobjective)
commitment to an action.
Techniques for Improving Decision Making

 Two decision-
making
processes
that counteract
cognitive biases
and groupthink.

FIGURE 1.6
At the end of the course You will
understand
• How to create strategic alternatives
• How to select alternative that is most
suitable for organization
• Implement the strategies that will help the
stakeholders to maximise their wealth.
MCQ’S
1.The generic types of competitive strategies include
A. Build market share, maintain market share and slowly
surrender market share
B. Offensive strategies and defensive strategies
C. Low-cost provider, broad differentiation, best-cost provider,
focused low-cost and focused differentiation

Answer:c
2.Which one of the following generic types of competitive
strategy is typically the best strategy for a company to
employ?
A. A low-cost leadership strategy
B. A broad differentiation strategy
C. A best-cost provider strategy
D. A focused low-cost provider strategy
E. There is no such thing as a "best" competitive strategy;
a company's "best" strategy is always one that is
customized to fit both industry and competitive conditions
and the company's own resources and competitive
capabilities

Answer:e
3.A low-cost leader's basis for competitive advantage is
A. Lower prices than rival firms
B. Using a low cost/low price approach to gain the biggest
market share
C. High buyer switching costs
D. Meaningfully lower overall costs than competitors

Answer:d
4.How valuable a low-cost leader's cost advantage is
depends on
A. Whether it is easy or inexpensive for rivals to copy the
low-cost leader's methods or otherwise match its low costs
B. How easy it is for the low-cost leader to gain the biggest
market share
C. The aggressiveness with which the low-cost leader
pursues converting the cost advantage into the absolute
lowest possible costs

Answer:a
6.A low-cost leader can translate its low-cost advantage
over rivals into superior profit performance by
A. Cutting its price to levels significantly below the prices
of rivals
B. Either using its low-cost edge to underprice
competitors and attract price sensitive buyers in large
enough numbers to increase total profits or refraining
from price-cutting and using the low-cost advantage to
earn a bigger profit margin on each unit sold
C. Going all out to use its cost advantage to capture a
dominant share of the market

Answer:b
7.The major avenues for achieving a cost advantage over
rivals include
A. Revamping the firm's value chain to eliminate or bypass
some cost-producing activities and/or out-managing rivals in
the efficiency with which value chain activities are
performed
B. Having a management team that is highly skilled in
cutting costs
C. Being a first-mover in adopting the latest state-of-the-art
technologies, especially those relating to low-cost
manufacture

Answer:a
8.A competitive strategy of striving to be the low-cost
provider is particularly attractive when
A. Buyers are not very brand-conscious
B. Most rivals are trying to be best-cost providers
C. There are many ways to achieve product differentiation
that have value to buyers
D. Buyers are large and have significant power to bargain
down prices; buyers use the product in much the same
ways; and buyers have low switching costs

Answer:d
Which of the following is not an action that a company can
take to do a better job than rivals of performing value chain
activities more cost-effectively?
A. Striving to capture all available economies of scale and
learning/experience curve effects
B. Trying to operate facilities at full capacity
C. Adopting labor-saving operating methods
D. Improving supply chain efficiency
E. Outsourcing all production-related activities

Answer:e
To succeed with a low-cost provider strategy, company
managers have to

A. Pursue backward or forward integration to detour suppliers or


buyers with considerable bargaining power and leverage

B. Move the performance of most all value chain activities to low-wage


countries.

C. Sell direct to users of their product or service and eliminate use of


wholesale and retail intermediaries.

D. Do two things: (1) do a better job than rivals of pursuing cost


savings throughout the value chain and (2) be proactive in revamping
the firm's overall value chain to eliminate low value-added activities
and bypass "nonessential" cost-producing activities.

Answer:d
Thank You

Please forward your query

To: surajamity@yahoo.com

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