Strategic management

Module-1

- Team Exterminators

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Definitions of strategic management:

According to Llyod L. Byars, “Strategic management is concerned with making decisions about organizations future direction and implementing those decisions.”

According to Glueck, “Strategic management is a stream of decisions and actions, which leads to the development of an effective strategy or strategies to help achieve corporate objectives.”

Strategy

A plan of action or policy designed to achieve a major or overall aim.

Strategy is all about How:

How to outcompete rivals.

How to respond to economic and market conditions and growth opportunities.

How to manage functional pieces of the business.

How to improve the firm’s financial and market performance.

A firm does strategy:

To improve its financial performance.

To strengthen its competitive position.

To gain a sustainable competitive advantage over its market rivals.

A creative, distinctive strategy:

Can yield above-average profits.

Makes competition difficult for rivals.

Nature of strategy:

Strategy links firm to its environment. Strategy combines factors. (instrument to integrate organization) It is dynamic in nature. Strategy is forward looking. It is complex in nature.

Importance/relevance of strategic management:

1. Give directions to organization2. Helps in forecasting3. Helps in growth of organizations4. Helps in profit generation5. Neutralizes threats6. Influence organizations performance7. Analyzing the external environment.

Characteristics of strategic management

Long term issue Long term implication Competitive advantage Effect on operations Uncertain Complex Organization wide Fundamental

1. Long term issuesIt deals primarily with long term issues that may or may not have an immediate effect.

2. Long term implicationsStrategic management is not concerned with day to day operations. It has long term implications. It deals with vision mission and objective. It ensures that strategic is put into action and implementation is done through action plan.

3. Competitive advantageHelp managers to find new resources of sustainable Competitive advantage. Executives that apply the principles of strategic management in their work continuously try to deliver products or services cheap. Produce customer satisfaction and make employee more satisfied with their jobs.

4. Effect on operationsIt always has an effect on operational issue. Operational decisions include decisions that deal with questions such as how to sell to certain customers or whether to open a credit line to them. Operational decisions are made in the organizational hierachy.

5. UncertainStrategic management deals with future oriented non –routine situation. They create uncertainly. Managers face environment which is difficult to comprehend. External and internal environment is analysed.

6. Complex

Uncertainly brings complexity for strategic management. Managers face environment which is difficult to comprehend. External and internal environment is analysed.

7. Organization wideStrategic management has organization wide implications. It is not operation specific. It is a systems approach. It involves strategic choice.

8. FundamentalStrategic management is fundamental for improving the long term performance of the organisation.

The Nine Task of Strategic Management :

1. Determining the vision & mission of the Company, about its purpose, philosophy & goals.

2. Developing a Company Profile that reflects internal conditions & capabilities.

3. Assessment of the Company’s external environment in terms of both competitive & general contextual factors.

4. Analysis of possible opportunity uncovered in the matching of the company profile with the external environment.

5. Identifying the desired options uncovered when possibilities are considered in the light of the company mission.

6. Strategic choice of a particular set of long-term objectives and grand strategies.

7. Development of annual objectives and short term strategies compatible with long term objectives and grand strategies.

8. Implementing strategic choice decisions based on budgeted resource allocations and emphasizing the matching of tasks, people, structures, technologies, and reward systems.

9. Review and evaluation of the success of the strategic process to serve as a basis for control.

Strategic management process

The process of strategy making is depicted through a model which consists of different phases; each phase having a number of elements. Most authors agree on dividing the strategic management process into four phases consisting of about twenty elements. The model of strategic management is provided.

1. Strategic intent The hierarchy of strategic intent lays the foundation for strategic management of any organization. In this hierarchy, the vision, mission, business definition, business model and objective are established. The vision hierarchy of strategic intent serves the purpose of stating what the organisation wishes to achieve in the long run. The mission relates the organisation to the society. The business definition explains the business of the organisation of the organisation in terms of customer needs, customer groups and alternative technologies. The business model clarifies how the organisation creates revenue. These objectives serve as bench mark for measuring the organisation performance.

2. Strategic formulation

Environmental and organisational appraisal deal with identifying the opportunities and threats operating in the environment and the strength and weaknesses of the organisation.

Formulation of strategy takes place at 4 levels- corporate business, functional, and operational. Corporate level strategies relate to the strategic decisions regarding the management of the portfolio of the business. Business level strategy aim at developing a competitive advantage in the individual businesses that a company has in its portfolio. The process used for choosing strategies involves strategic analysis and choice. The end result of the set of elements is the strategic plan to be implemented.

3. Strategy implementationIt is the translation of chosen strategy into organisational action so as to achieve strategic goals and objectives. Strategy implementation is also defined as the manner in which an organisation should develop, and culture to follow strategies that lead to competitive advantage and a better performance. Organisational structure allocates special value developing tasks and roles to the employees and states how these tasks and roles can be correlated so as maximise efficiency, quality and customer satisfaction- the pillars of competitive advantage.

4. Strategic evaluation and controlThe last phase of strategic evaluation appraises the implementation of strategies and measures organisational performance. The feedback from strategic evaluation is meant to exercise strategic control over the strategic management process. Strategies may be reformulated if necessary.

Strategy . . .

Deals with a company’s competitive initiatives and business approaches.

Business Model . . . Concerns whether revenues and costs flowing from the strategy demonstrate a business can be adequately profitable and viable.

A business model addresses “How do we make money in this business?”

Company Strategy:

It is a long and short term plan that Deals with a company’s competitive initiatives and business approaches.

Business Model:

It is a plan for the successful operation of a business, identifying sources of revenue, the intended customer base, products, and details of financing.

Business Model Canvas

Relationship between a company’s Strategy and Its business model.

Basis Company’ s Strategy Business ModelPerspective: It relates to its competitive

initiatives and business approach.

It is narrowly focused than company’s business strategy.

Focus It is mainly concerned with competition.

It start by seeking and creating value for the customer.

Rationale It is the paln of how to put that business model into action

It forms the underlying rationale for being in business .

Assumption It assumes careful,analytical calculation and choice,which assumes that there is a great deal of reliable information available.

It assumes that knowledge of customer.

Competitive advantage:

A competitive advantage is essentially a position of superiority on the part of the firm in some function relation to its competition.

Strategy and competitive advantage:

Cost Leadership Strategy :

The goal of Cost Leadership Strategy is to offer products or services at the lowest cost in the industry. The challenge of this strategy is to earn a suitable profit for the company, rather than operating at a loss and draining profitability from all market players. Companies such as Walmart succeed with this strategy by featuring low prices on key items on which customers are price-aware, while selling other merchandise at less aggressive discounts. Products are to be created at the lowest cost in the industry.

An example is to use space in stores for sales and not for storing excess product.

Differentiation Strategy

The goal of Differentiation Strategy is to provide a variety of products, services, or features to consumers that competitors are not yet offering or are unable to offer. This gives a direct advantage to the company which is able to provide a unique product or service that none of its competitors is able to offer.

An example is Dell which launched mass-customizations on computers to fit consumers' needs. This allows the company to make its first product to be the star of its sales.

Innovation Strategy

The goal of Innovation Strategy is to leapfrog other market players by the introduction of completely new or notably better products or services. This strategy is typical of technology start-up companies which often intend to "disrupt" the existing marketplace, obsoleting the current market entries with a breakthrough product offering. It is harder for more established companies to pursue this strategy because their product offering has achieved market acceptance.

Apple has been a notable example of using this strategy with its introduction of iPod personal music players, and IPad tablets. Many companies invest heavily in their research and development department to achieve such statuses with their innovations.

Operational Effectiveness Strategy

The goal of Operational Effectiveness as a strategy is to perform internal business activities better than competitors, making the company easier or more pleasurable to do business with than other market choices. It improves the characteristics of the company while lowering the time it takes to get the products on the market with a great start.

State Farm Insurance pursues this strategy by promoting their agents as "good neighbors" who actively help customers.

Levels of strategy:

Corporate strategy—this strategy seeks to determine what businesses a company should be in or wants to be in. Corporate strategy determines the direction that the organization is going and the roles that each business unit in the organization will plan in pursuing that direction.

 Business strategy—this strategy seeks to determine how an organization should compete in each of its businesses. For a small organization in only one line of business or the large organization that has not diversified into different products or markets, the business strategy typically overlaps with the organization’s corporate strategy.

Functional strategy—this strategy seeks to determine how to support the business strategy. For organizations that have traditional functional departments such as manufacturing, marketing, human resources, research and development, and finance, these strategies need to support the business strategy.

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