Strategic Management

Strategic Management

• An analysis of SWOT (i.e., strengths and weaknesses of the company and the opportunities and threats in the environment) plays a very important role in the strategic management process or the formulation of business policy.

• A look at the strategic management process would make the importance of the external-internal factors nexus more clear.

Strategy

• Glueck defines strategy as a "unified, comprehensive and integrated plan relating the strategic advantages of the firm to the challenges of the environment.

• It is designed to ensure that the basic objectives of the enterprise are achieved

Strategic Management

• Strategic management is defined as “that set of decisions and actions which leads to the development of an effective strategy or strategies to help achieve corporate objectives.”

• Chandler describes strategic management as the determination of the basic long-term goals and objectives of an enterprise and the adoption of courses of action and allocation of resources necessary to carry out these goals.

• Strategic management or business policy is the means to achieve the objectives.

• Strategic management process involves • ascertaining the objectives, • analysis of the environmental opportunities and

threats • and appraising the strengths and weaknesses of the

firm • to tap the opportunities or to combat the threats, • formulating strategies to achieve the objectives on

the basis of the SWOT analysis, • choosing the most appropriate strategy, • implementation of the strategy and reformulation

of the objectives or strategy, if needed

Formulation of Mission and Objectives• A strategy is, in fact, a means to achieve the ends

or objectives. Objectives should not be static, they should be dynamic.

• To formulate clear objectives, it is essential to get definite answers to certain questions, viz., "what business the company is in?" "What should the company's business be?" "What will the company's business be?"

• Environmental analysis will help find answer to the question what should the company's business be?

• If 'what should be the business' is different from 'what is the business', there is certainly a need for redefining the business, matching the company resources to the environment.

SWOT Analysis• Identification of the threats and

opportunities in the environment and

• the strengths and weaknesses of the firm is the cornerstone of business policy formulation;

• it is these factors which determine the. course/courses of action to ensure the survival and/or growth of the firm.

 

   

STRENGTHS – S WEAKNESSES - W              

OPPORTUNITIES – O

   

SO STRATEGIES 

WO STRATEGIES

 

THREATS - T  

ST STRATEGIES WT STRATEGIES

Internal

External

SWOT analysis & Alternative Strategies

Strategic Alternatives and Choice of Strategy

• A company may be confronted with several alternatives such as:

1. Should the company continue in the same business or get out of it completely or partly?

2. If it should continue in the same business, should it grow by expanding the existing units, establishing new units or by acquiring other units in the industry.

3. If it should diversify, should it diversify into related area or unrelated areas?

4. Should it grow by vertical integration?

• A company which plans to market its products in foreign markets may have the following alternatives:

1. Manufacture the product completely in the home country and export it to the foreign market.

2. Establish manufacturing facility in a free area like an export processing zone and make exports from there.

3. Establish manufacturing facility in the foreign country and undertake the complete manufacturing of the product there.

4. Manufacture the components at home and assemble the product in the foreign market.

5. Contract some foreign firm for manufacturing the product and do only the marketing of it.

6. Enter into licensing agreement with a firm in the foreign market.

7. Establish a joint venture abroad for manufacturing and marketing the product.

• The choice of the strategy should invariably be based on the evaluation of the various alternatives.

Implementation• A good strategy is not a sufficient condition for

success; its effective implementation is equally important.

• Many good strategies fail to achieve the results because of poor implementation.

• It is necessary to formulate a detailed plan to achieve the objectives by means of the chosen strategy.

• The term implementation is used in a broad sense so that it encompasses also the formulation of the plan to implement the strategy.

• In a multi-unit business, formulation of different levels of strategies is an essential and important aspect of implementation.

• There are three levels-of strategies applicable to such a business.

• Corporate Level Strategy: This is the master strategy to achieve the overall corporate objectives.

• The other levels of strategies are designed to implement the corporate strategy and they are, therefore, formulated with reference to the corporate strategy.

• SBU Level Strategy: It is the strategy to achieve the specific objectives of the strategic business unit (SBU) so as to help achieve the overall corporate objectives.

• A SBU is “an operating division of a firm which serves a distinct product/market segment or a well-defined set of customers or a geographic area.

• The SBU is given the authority to make its own strategic decisions within corporate guidelines as long as it meets corporate objectives”.

• The SBU is also known as ‘operating division’.

• Functional Level Strategy:

• The ultimate success of SBU level strategy will depend on the effectiveness with which is translated to the management functions.

• The task of implementation involves mobilization and deployment of resources, including personnel, needed for implementation, organizing and assigning tasks to the various elements of the organization.

• For effective implementation of the strategy it is essential to formulate an implementation strategy.

Evaluation

• “Evaluation of strategy is that phase of the strategic management process in which the top managers determine whether their strategic choice as implemented is meeting the objectives of the enterprise”

• Failure to achieve the results may arise from any one or more of the following:

1. Improper implementation of the strategy.

2. Environmental changes which were not anticipated while formulating the strategy.

3. Inappropriate strategy.

• Improper implementation of the strategy may be due to

a)inappropriateness of the implementation strategy.

b)inefficiency and/or lack of commitment of the personnel in charge of implementation.

c)wrong assignment of the tasks; or d)inadequacy of resources

• Environmental changes such as

• increase in competition,

• changes in consumer preferences or altitudes,

• technological changes

• which could not be anticipated while formulating the strategy etc. may come in the way of achieving the results.

Conclusion• The key to business success is the most effective

utilization of the company's resources (resources here mean not only the existing resources but also the additional resources it can mobilize and augment for any specific task).

• This involves the evaluation of the company's strengths and weaknesses in the light of the environmental threats and opportunities and taking appropriate measures to harness the opportunities or to combat the threats and formulation of strategies accordingly.