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Module-1 - Strategic Management-IV MBA

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    4.1 STRATEGIC MANAGEMENT IV MBA

    MODULE 1 : CONCEPT OF STRATEGY

    A) Defining Strategy

    1. What is strategy?

    Strategy is the art of the general (Greek word Strat Agos)

    Used in end 18th century how a general tries to deceive an enemy.

    Clausewitz (1780 1831), a Prussian

    First great student of strategy.

    Father of modern study of strategy

    Instrument of political act and then social development.

    Strategy is a theoretical discipline practically applied.

    Generally the military principles are:

    The objective The offensive Co-operation (unity of

    command)

    Mass

    (concentration) Economy of

    force Maneuver

    Surprise Security Simplicity

    Strategy is a set of key decisions made to meet objectives.

    They include a complex web of

    Thought Ideas Insights

    Experiences Goals Expertise

    Memories Perceptions Expectations

    That provides general guidance for specific actions in pursuit of particular

    ends.

    Every firm competing in an industry has a strategy.

    Strategy may have been developed explicitly through a planning process.

    Or, it may have evolved implicitly through the operations of the various

    functional departments.

    To be effective the organisation must have answers to the following questions

    What business are we in?

    What products and services will we offer?

    To whom?

    At what prices?

    On what terms?

    Who are the competitors?

    On what basis will we compete?

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    Strategic management, then, can be looked upon as a

    Set of managerial decisions and actions.

    That determines the long term performance of a company.

    It includes an analysis of the environment

    Both internal and external

    Formulation of strategy

    Implementation

    Evaluation and control

    2. Definition of strategy

    a) Chandler (1962)

    Strategy is the:

    Determinator of the basic long-term goals of an enterprise

    And the adoption of courses of action.

    And the allocation of resources necessary

    For carrying out these goals.

    b) Andrews (1971)

    Corporate strategy is the:

    Pattern of decisions in a company.

    That determines and reveals its objectives, purposes or goals.

    Produces the principal policies and plans

    For achieving those goals.

    And defines the range of business the company is to pursue.

    The kind of economic and human organisation it intends to be

    And the nature of economic and non-economic contribution it intends

    to make.

    To its shareholders, customers and communities.

    c) Quinn (1980)

    A strategy is the pattern or plan:

    That integrates an organisations

    Major goals, policies and action sequences

    Into a cohesive whole

    A well formulated strategy.

    Helps to marshal and allocate An organisations resources

    Into a unique and viable posture

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    Based upon its relative internal competencies and shortcomings

    Anticipated changes in the environments.

    And contingent moves by intelligent opponents.

    d) Prahlad (1993)

    Strategy is:

    More than just fit and allocation of resources

    It is a stretch and leveraging of resources.

    e) Porte (1996)

    Strategy is:

    About being different

    It means, deliberately choosing a different set of activities

    To deliver a unique mix of values.

    f) Mahoney (1994)

    Strategy is a search for balance

    B) Types of Strategies/Levels of Strategies/Hierarchy of Strategies

    a) Corporate Strategy :

    Provides the overall direction of the organisation

    In terms of general attitude towards growth and management of business. They fit in three main categories

    Infosgs (PSPD)

    Stability Predictability

    Growth Sustainability

    Retrenchment Profitability

    De-risking

    b) Business Strategy :

    Strategy followed at the business unit or product level

    Aims at improving the competitive position in the market

    Infosys: Differentiation strategy in its global service delivery model

    c) Functional Strategy :

    An approach in a functional area

    To achieve corporate and business unit objectives.

    Concerned with the development of a distinctive competence.

    To provide an organisation or a business unit with competitive advantage.

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    Infosys: desires to be a leader in end-to-end services in the global information

    technology services market

    d) Hierarchy of Strategy :

    C) Strategy & Tactics

    Aspects Strategy Tactics

    1. Scale of the objective Gand Limited

    2. Scope of the action Broad & general Narrowly focused3. Guidance provided General & ongoing Specific & situational

    4. Degree of flexibility Adaptable, but not

    easily changed

    Fluid, quick and adjust &

    adapt in minor or major ways.

    5. Timing in relation to action Before action During action

    6. Focus on resource utilisation Deployment Employment

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    D) Characteristics of Strategy :

    E) Strategic Decision Making :

    Strategic management emphasizes on strategic decision making

    As a company grows bigger and bigger and becomes complex.

    A higher degree of uncertainty creeps in Decision making becomes increasingly complicated and difficult

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    Strategic decision making has to deal with long-term future of an organisation and

    have 3 characteristics.

    Rare : Strategic decisions are not common and have no precedents

    Consequential : Strategic decisions involve committing substantial resources of

    the company. And hence a high degree of commitment from persons at all levels.

    Directive : Strategic decision can serve as precedents for less important

    decisions and future actions of the organisations.

    1) Mintzbergs Model :

    3 models of strategic decision making

    a) Entrepreneurial mode :

    Strategy formulation done by a single person. Focus on opportunities

    Strategies guided by founders vision

    Characterized by bold decisions

    Eg. WIPRO

    b) Adaptive mode :

    Also called as Muddling through

    Characterized by reactive solutions.

    Proactive search for new opportunities not done.

    Eg. Wipro selling personal computers in response to DellComputers entering the Indian market.

    c) Planning mode :

    Involves systematic information gathering for situation analysis

    Generating alternate strategies

    Selection of the appropriate strategy.

    Includes both proactive mode

    And reactive solutions to the current problems.

    d

    ) Sometimes organisations may adopt a fourth mode

    Called Logical Incrementalisation mode

    This is the synthesis of all 3 modes of strategic decision making

    An interactive process organisation probes the future.

    Experiments and learns from a series of partial (incremental)

    commitments

    Rather than through global formulation of total strategies.

    2) Operating & Strategic Decisions - Interrelations :

    Strategic decisions involve an interface between an organisation andits external environment.

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    But operating decisions are more frequent and within the

    organisation.

    Effect of strategic decisions permeates through out the organisation.

    Since it involves committing substantial amount of resources of the

    organisation.

    Sometimes this is referred as non-self-generating decisions.

    This implies that though strategic decisions may be a few in

    numbers.

    The organisation should always be aware of the need to make such

    decision.

    Interrelationships.

    Operating

    decisions

    Strategic decisions

    Clear Unclear

    Effective operatingdecisions Clear strategy and effectiveoperations have contributed

    to success in the past and will

    contribute to success in the

    future

    Unclear strategy but effectiveoperations have contributed

    to success in the past but

    success in the future is

    doubtful

    Ineffective

    operating

    decisions

    Clear strategy but ineffective

    operations have sometimes

    worked in the past in the

    short run, but increasing

    competition makes success

    doubtful in the future

    Unclear strategy and

    ineffective operations have

    meant failure in the past and

    will be so in the future.

    F) Strategic Management Process/Approaches to Strategic Decision Making :

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    Planning mode of strategic management process is indicated above.

    The process takes place in the following stages:

    I The strategic planner has to define

    what is intended to be accomplished (not just desired) Define: objectives,

    strategies and policies.

    II Document the current performance of

    the organisation.

    III The Board of Directors and the top

    management will have to review the current performance of the organisation.

    IV In view of the review, the organisation

    will have to scan the internal environments for strengths and weaknesses and

    the external environment for opportunities and threats.

    V The internal and external scan helps in

    selecting the strategic factors.

    VI At this stage a set of strategic

    alternatives are generated.

    VII The best strategic alternative is

    selected and implemented through program budgets and procedures.

    VIII Monitoring, evaluation and review of

    the strategic alternative chosen is undertaken in this mode. This can also

    provide a feedback on the changes in the implementation if required.

    1) Step & Ladder Approach to Strategic Management Process :

    2) Phases in the Development of Strategic Management :(by: Gluck, Kaufmann and Wallick, 1982)

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    Phase I : Annual Budgeting

    Business strategy is reflected in its budgeting procedures.

    The annual budgeting process reflects companys functions in terms

    of financial problems.

    Procedures forecast revenues, costs, and capital needs.

    This budget identifies limits for expenses on annual basis.

    MIS reports functional performances to budgetary targets.

    Then the feedback and control is exercised.

    MIS could be also on sales, earnings, growth, debts, etc.

    CEO and his teams knowledge of the following are important:

    Companys products and markets.

    Competitors products and markets

    Their own cost structure, distribution systems

    Impact of product/market change.

    Complexities increase when companies become large.

    The number of products and markets grow very wide.

    Degree of technological inputs become complex.

    Explicit documentation and knowledge becomes more important than

    explicit knowledge only.

    Phase II : Long Range Planning

    Provides answers to:

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    Where is the organisation now?

    When is it going?

    Where does it want to go?

    What does it have to do to get to where it wants to go?

    Identifies four key activities monitoring, forecasting, goal setting

    and implementing policies and actions to reach goals.

    The cycle begins by:

    Monitoring selected trends of interest to the organisation

    Forecasting the expected future of those trends.

    Defining the desired future by setting organisational goals in the

    context of the expected future.

    Developing and implementing specific policies and actions to desired

    future/goals. Monitoring the effects of these actions and policies on the selected

    trends.

    Limitations changing external environment is usually not taken into

    account systematically or comprehensively

    Assumptions valid in mature industries or basic industries like

    mining, etc.

    Usefulness of this type of model under dynamic conditions is

    limited.

    Phase III : Environmental Scanning

    As business become more competitive.

    Planners reach for more advanced forecasting tools.

    To handle the complexities of the marketplace.

    Tools include: trend analysis, regression models, computers

    simulation models.

    They add information from the external environment to the long

    range planning process.

    Such information environmental scanning is used to:

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    Identify new and potentially crucial information that should be added

    to those identified and tracked during monitoring.

    Identify possible development that must be used to adjust the

    forecasts of the internal issues derived from forecasting.

    The environmental scanning model was designed with 4 activities:

    Scanning the external environment for threats and opportunities to

    the organisation.

    Each potential issue is then analysed, evaluated and ranked:

    For the likelihood that it will emerge

    The nature and degree of its impact on the organisation

    In case the issue materialises

    Issues and trends are ranked as per their importance to the current

    planned operations.

    Forecasting focuses on developing and understanding of the expected

    future for the most important issues and trends, using forecasting techniques.

    Monitoring is used to track the continued relevance of each issue and

    identify areas for additional and continued scanning.

    This phase require corporate planners to offer a number of

    alternatives to top management, each with a risk/reward profile.

    This provides management the option of prioritizing different

    objectives of the organisation.

    Phase IV : Strategic Planning Phase

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    By merging two models of planning long range planning andenvironmental scanning the strategic model is formed.

    The strategic planning model

    Is a tool that helps an organisation in setting up goals or objectives.

    The analysis of the environment and the resources of the

    organisation.

    The generation of strategic options and their evaluation.

    And the planning, design and implementation of control systems or

    monitoring mechanisms.

    The model consists of six identifiable stages that fulfill the

    requirements of the management thinkers:

    Environmental scanning.

    Evaluation of issues

    Forecasting

    Goal setting

    Implementation

    monitoring

    The word strategic planning has lot of meanings:

    The process is strategic because it involves preparing the best way to

    respond to the circumstances of the organisations environment.

    It is strategic because it is clear about the organisations objectives

    and resources.

    It involves anticipating the future environment of decisions that are

    made at present.

    The process is planning because it involves developing an approach

    to achieving the future.

    The plan is a set of decisions about what to do whey to do it and how

    to do it.

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    Strategic planning and management are joined together in a single process in

    the IV Phase.

    G) Vision, Mission & Objectives :

    Formulating the vision, mission and value statements is the first task of

    strategic management. Statements primarily based on the internal processes of the organisation.

    They have greatest impact on identity and future of organisation.

    They reflect the strategic intent of organisation.

    They have distinct roles and distinct characteristics.

    Hierarchy of vision, mission and objectives:

    Vision, mission & values are three components of focus in an

    organisation.

    They form a hierarchy

    Vision of the organisation leads to its mission and its values.

    Mission in turn leads to the objectives of the organisation.

    1. Vision :

    Is a long turn perspective of what is the final destination of the

    organisation. Vision keeps the organisation moving forward.

    Vision is the motivator in an organisation.

    It should be meaningful with a long term perspective.

    It should motivate people even when the organisation is facing

    discouraging odds.

    Vision is about feelings, beliefs, emotions and pictures

    Vision Statement

    Martin Luther King said: I have a dream

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    That vision changed the nation.

    A vision statement answers the questions: What will success look

    like?

    The pursuit of this image of success is what motivates the people to

    work together.

    When all the employees are committed to firms visions and goals business decisions will be fruitful.

    It is an exercise of communication brings/galvanizes the workforce

    together and to act.

    Vision must be encompassed by beliefs for total success.

    Successful organisations have a vision that is executable.

    Vision projects a similar picture to every member of organisation

    which is essential for high performance.

    Vision statement should reflect the core values of the organisation.

    Beliefs, mission and environment of organisation.

    What you want to see in the future.

    Positive and inspiring.

    System will not have the same framework all days.

    Be open to dramatic modifications in organisation.

    Statements are specific to each organisation.

    2. Mission :

    Is the founders intentions at the outset of the organisation. What they wanted to achieve.

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    It is the striving, building and improving to fulfill the vision

    Some of the questions of purpose are:

    Why does the organisation exist?

    What is its value addition?

    What is its function?

    How does it want to be positioned in the market and minds ofcustomers?

    What business is it in?

    The above form the contest of the organisation.

    Mission Statements

    Draws on the belief statements of the management.

    Must be future oriented and portray the organisation as it will be, as

    if it already exists. Must focus on one common purpose.

    Must be specific to the organisation, not generic

    Sets the organisation apart from others.

    Give meaning to the reason for being, value added.

    Defines the business of the organisation.

    Has direct implications on the diversification strategy of the

    organisation.

    A well crafted mission statement must be narrow enough to specifythe real area of interest.

    To serve as a signal where the top management intends to take the

    firm.

    3. Objectives :

    An organisations ability to prosper despite their diversity in business

    depends upon the following:

    Strong entrepreneurial business units with matched autonomy basedon the quality of business level managers.

    Institutionalized horizontal sharing and integration of knowledge and

    best practices.

    A shared ambition, a set of values and sense of identity.

    The integration is achieved through a set of well defined

    management processes.

    It is reflected in the ability of the management to translate their

    vision, values and goals into a workable plan.

    It also requires a combination of strong entrepreneurial abilities withshared ambition and a sense of identity of the organisation

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    Strategic Objectives

    Often called as corporate objectives.

    Evolve directly from the mission statement of the firm.

    Key questions: where do we wish to reach and when?

    Based on long term benefits to the organisation.

    May not bring in measurable results in the short term.

    Have greater competitiveness and stronger market position of the

    firm.

    A commitment of the organisation to direct efforts and energy on

    what needs to be accomplished.

    A bench mark for judging organisation performance.

    May be specific or measurable in the short run.

    Different objectives may be

    Profit maximization

    Focus on core capabilities

    Innovation

    Market dominance

    Diversification

    Increased market share

    Stability

    Social changes

    Business Process Objectives

    Are specific, measurable objectives, developed at all levels of

    enterprise

    Objectives represent managerial commitment to:

    Achieve specific

    Measurable performance targets

    In a measurable time frame.

    Such objectives are based on a network of events and desired. If the networking is not good, results may be bad.

    When developing specific measurable objectives, six categories have

    to be considered.

    Financial

    Products/service

    Human resources

    Marketing/sales

    Operations

    Community

    The SMART formula

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    SMART formula is a useful method of examining objectives

    Specific : Clearly state what it is we want to do/achieve by way of a factual

    description

    Measurable : Ensure that the success of your business objective can be

    measured against concrete criteria Achievable : Is the objective achievable given your current operational

    resources and/or competence/capacity?

    Realistic : Is the scope of the objective within the bounds of what is

    recognizable as a proper business fit?

    Timely : Include a time scale within which the objectives should be

    achieved

    Role of objectives

    H) Corporate Planning Process :

    Ducker says corporate planning is:

    A continuous process of making entrepreneurial decisions systematically and with

    best knowledge of their futurity; organise systematically the effort needed to carry out

    these decisions and measuring the results against expectations through organised

    systematic framework

    This definition brings out the emphasis of corporate planning strategy.

    In essence, corporate planning is a systematic approach to strategic decision making. Long range planning in most cases, assumes that the current environment with respect

    to the organisation will continue as in the past.

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    It is simply a forward projection of existing operations

    Whereas, strategic planning asks:

    What activities should be company be in?

    What will be the long term goals on the basis of present?

    What are the future environmental factors available?

    What will be long term goals based on the likely new environments?

    Strategic plan is implied in corporate plan

    But the time span for strategic plan is about 3 years and for corporate plan about 5

    years.

    In some organisations corporate planning is called as strategic planning

    The sketch below gives the conceptual model of corporate planning.

    I) Objectives and Goals :

    In management literatures these two terms are used in a variety of ways.

    Many times in conflicting ways.

    Some writers refer Goals to the long run outcomes

    Objectives to the immediate, short run outcomes

    Some other writers refer Objectives to long run

    Goals to short run.

    Others use it interchangeably.

    Others refer Goals for broad organisation wide performances

    Objectives to designate specific targets of operatingdivisions

    Actually, it does not matter any one way.

    Some say: goal as an open-ended statement of what an organisation wants to

    accomplish without qualifications and time criteria

    While objectives can be considered as providing both.

    Goals can be considered as motivators in an organisation

    Some areas where an organisation can set goals and objectives are:

    Efficiency (reduction in costs).

    Profitability (increase in net profits)

    Growth (increase in total assets, sales, etc)

    Wealth for shareholders (dividends, stock market appreciation)

    Resource utilization (ROI, ROE)

    Brand reputation

    Contribution to employees (job security, compensation)

    Societal contribution (taxes, community service, etc.)

    Leadership of market (Market share)

    Leadership in technology (innovation, creativity)

    J) Strategic Business Units (SBU) :

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    Definition:

    An autonomous division or organisational unit

    Small enough to be flexible

    And large enough to exercise control

    Over most of the factors affecting its long term performance.

    Because SBUs are more agile, usually they have independent missions and objectives

    They allow the management to respond quickly to changing economic or market

    situations

    What is a Strategic Business Unit (SBU)?

    A set of products or product lines

    With clear independence from other products or product lines.

    For which a business or marketing strategy should e designed.

    Characteristics of viable SBU

    Unique business mission

    Definable set of competitors

    Integrative planning done independently

    Responsible for resource management in all areas

    Large enough but no so large as to become bureaucratic

    SBU Structure

    An individual CEO cannot manage the entire complex strategic information

    Problems related to functional managers need to be off loaded to them.

    In such cases SBU structure is appropriate.

    SBU structure composed of operating units where each unit represents a separate

    business to which the top corporate officer delegates responsibility for day-to-day

    operations and business unit strategy to its managers.

    Corporate officer is responsible for formulating and implementing overall corporate

    strategy.

    And managers SBU through strategic and financial controls

    More accurate monitoring the performances of SBUs

    Simplification of control problems

    Facilities comparisons between SBUs.

    Improves allocation of resources

    Poorly performing managers get stimulated for better performances.

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