Strategic Management of Business-1

Strategic Management of Business

Source : Chapter 3 from MIS by waman S Jawadekar

The concept of corporate planning …..(1) What is a plan?

A plan is a predetermined course of action to be taken in the future

It is a document containing the details of how the action will be executed

Made against a time scale What are the pre requisites?

Goals and objectives that are to be achieved by the plan should have been decided

What is the relevance of planning to top management? Primary task of management is to set the goals and

objectives

The concept of corporate planning …..(2) Planning

Looking into future and asses likely events in the total business environment and taking suitable actions to meet any eventuality

Generating the courses of actions to meet the most likely eventuality

A dynamic process Future becomes present, might force changes in

course of action Continuous assessment of predetermined course

of action Vs the current requirements of the environment

In essence, eliminating threats and converting opportunities into business

The concept of corporate planning …..(3) Planning is a course of actions

Chain of decisions One after other Successful implementation of a plan means the

execution of each decision in the chain went correct one after other

Planning can be Long range Short range

The concept of corporate planning …..(4) Long range planning

5 Years or more More concerned about the business as a whole Focus on Goals Deals with subjects like growth, rate of growth,

direction of business, establishing some position in the corporate world, market share etc.

Deals with Resource selection, its acquisition and allocation Technology (No emphasis on methods and procedures

Talks about Strategy Right strategy improves the chances of success

The concept of corporate planning …..(5) Short range planning

Concerned with attainment of business results of the year

More in terms of business tasks like Launch of a new product Starting a manufacturing facility Completion of a project Achieving intermediate milestones

Focus on Objectives Hierarchy of objectives which together take the

company towards attaining the goals

The concept of corporate planning …..(6) Corporate Business Planning

Deals with corporate business goals and objectives

Apart from the company considers World trends in business The industry Technology International markets National priorities Competitors‘ Business plans Corporate strengths and weaknesses

Complex exercise

The concept of corporate planning …..(7) Dimensions of planning

Time Execution of plan is year after year Plan is made on a rolling basis where every year it is

extended by one year Rolling plan provides an opportunity to correct or revise the

plan in light of any new information the planner may receive

Entity Entity is the thing on which planning is focused Entity could ne production, finance, marketing, capacity,

manpower , or research and development Goals and objectives will be stated in terms of these

entities A corporate plan may have several entities


Organization Plan for the company has to be taken down to subsidiaries,

functional groups, divisions, product groups or projects Corporate plan is a master plan The master plan is broken down into smaller

organizational units helps to fix the responsibility for execution

Elements Corporate plan is made out of several elements Begins with mission and the goal Policy statements Strategies in various business functions Business objectives and targets budgets


Characteristics No defined characteristics Typical characteristics are the goals, resources,

important milestones, investment details and variety of schedules

Plan is confidential and known only to few Long term plans are flexible where as short term plans

are not flexible

Essentiality of strategic planning…(1) The following reasons make planning an

essential management process to keep the business in god shape and condition1) Market forces2) Technological change3) Complex diversity of business4) Competition5) Environment

Essentiality of strategic planning…(2) Market forces

Difficult to predict Ability of organization to predict these forces is limited These forces affect sales, growth, profitability Need to reorient organization quickly to meet

eventualities Reorientation is possible only by having a business

plan Technological change

Technological breakthroughs are a threat and at the same time open new business opportunities

Managerial and operational styles get affected Can pose questions on survival of a company Need preplanned investment in business plan for

recovery management

Essentiality of strategic planning…(3) Complex diversity of business

Different products Different market segments Multiple locations Dependence on external factors So many uncontrollable factors & Increased complexity Need plans for diversification, expansion etc

Competition Direct or indirect competition Multiple issues such as knowhow. Quality, delivery,

service etc Need to evolve new strategies to deal with competition

which calls for forward thinking and planning

Essentiality of strategic planning…(4) Environment

Management cannot control Social, business, economic, industrial, technological

environments A mix of environment changes affect business Forecasting environment changes is a major task under

corporate planning Evolving strategies to meet these changes is also a major

task Peter drucker

Defines planning as the process of making the present managerial decisions systematically and with the best possible knowledge of futurity, organizing systemically the efforts and measuring the results against feedback

Planning does not eliminate risk but provides an effective tool to face it

Development of business strategies Definite process and methodology involved Top management responsibility Starts with deciding the social responsibility

proceeds to spell out the business mission and goals and the strategies to achieve them

Mission statement relates the organization’s existence, sets direction of the organization and decides scope and boundaries of the business

After setting mission, set goals Goals are specific and have a limited time frame

(3-5 Yrs) After goals set objectives Objectives have further less time may be a year or

two

What is strategy ? The manner in which the resources, such as men,

material, money and the know-how will be put over a period of time to achieve the goals

Resources of the organization are deployed based on its goals and objectives but also based on the competition being faced by it

How hard it is to formulate a strategy? Strategy development considers environmental factors

such as technology, markets, the life cycle, work culture, attitudes, government policies

Needs to consider the strength of the organization while deploying resources and at the same time has to cover for organization weakness

Unstructured exercise

Strategy formulation Model

Types of strategies A strategy means specific decision(s) usually, but not

always, regarding the development of the resources to achieve the mission and goals of the organization

Pure strategy : If a strategy considers a single point of attack by a specific method

Mixed strategy : If a strategy acts on many fronts by many fronts

A business strategy can be a series of pure strategies handling several external forces simultaneously

Whether pure or mix, strategy can be classified as any one of the below

Overall company strategy, growth strategy, product strategy, marketing strategy

Overall company strategy Long term business perspective Overall strength of the entire company and evolves

policies of business which will dominate the course of the business movement. E.g. Wal-Mart strategy of Mass merchandising

Growth strategy Growth can be from existing business or through

expansion and diversification Growth is possible in the organic way also

By acquiring companies Growth strategies are adapted to establish, consolidate

and maintain a leadership and acquire a competitive edge in the business and industry

Product strategy A growth strategy, where the company chooses a

certain product with particular characteristics becomes a product strategy

Potential to expand as a family of products Market strategy

Closely related to product strategy Deals with distribution, services, market research,

pricing, advertising, packing and the choice of market itself

Act as expediting and activating force for the product and growth strategy

Creates consumer loyalty, market share, communicating consumer needs and explains how they are fulfilled

Short range planning Deals with targets & objectives of the

organization Normally for 1 year with specified targets

accompanied by specific budgets The organization translates long range planning

into target covering all the critical areas f business

Budgets are resources required to achieved targets Physical terms to financial terms E.g. budgets for sales, production, expenses, capital

expenditure, etc Control mechanism Self motivating tool

Relationships of Budgets to Financial Budgets

Advantage of short range planning with budgets Gives the manager a clear target of achievement Specifies to the manager the resource allocation for a

given task and freedom to use it Provides the manager with information on the

performance Helps the management assess the overall performance of

the business in light of the short terms targets and long term goals

Provides an efficient tool to coordinate all the efforts within the organization

Provides the management with selective information on shortfalls and over runs for immediate action

Provides information in monetary terms to compare between any two business entities in the organization

Tools of planning They are decision making tools Business plans have a number of alternatives

upon being planned Optimum resource allocation and profit

maximization Achieving the common goals Tools are influenced by the below factors

Creativity Systems approach Sensitivity analysis Modelling

Creativity Comes out of an experience, a judgment, an

intuition of an individual or a group of individuals Only tool when judgment is required for a

situation where no precedent is available Conceptual skills of individuals

Ability to generate ideas rapidly Change quickly from on frame of reference to another Originality in interpreting an event and generating

different views on the situation Ability to handle with clarity and ease a complex

relationship of various factors in a given situation More no of creative people at key positions might

create new ideas and new strategies of business development

Systems approach Systems approach to planning considers all

the factors and their inter relationship relevant to the subject

Analytical study of the total system, generate alternative courses of action and select the nest in given circumstances

Used in situation of risk / uncertainty Testing the solutions for technical, operation

and economic feasibility Tools like GANT, PERT / CPM are used

Sensitivity analysis Test the validity of the solution under variable

conditions Problem situation is handled with certain

assumptions and conditions and based on these assumptions a rational solution is found

Will the solution remain valid if assumptions changed

Finds out the impact of change on the solution in economic terms when certain conditions change

Validate optimal solutions Test solutions on the principles of utility

Modeling Meaningful representation of a real situation in

mini scale Only significant factors are highlighted Purpose is to understand the complex situation

based on only the significant factors Can be physical or logical Mathematical models use variables, constraints

and parameters Model is based on the relationship between variables

Dynamic or static Long range dynamic, short range static

E.g. break even analysis model, statistical regression models

Strategic analysis of business Kindly remember the earlier class in which we

talked about Porter’s five forces model Moving up the value chain can be a option in

terms of gaining competitive advantage using information technology

Value chain and six dimensions of improvement

Strategic Analysis Model

04/07/23ASQ Vermont Section32

What is the Balanced Scorecard (BSC)? Developed in early 90s

Robert Kaplan (Renaissance Group) David Norton (Harvard Business School)

“Translating Strategy Into Action”

Traditional financial measures were Too narrow – no connection to strategy Too focused on the past – not predictive Encouraged tendency to manage qtr to qtr

Too much “what” – Too little “why”


BSC: Four Perspectives Financial perspective

Customer perspective

Internal Business perspective

Learning & Growth perspective


BSC strategic focus

Sanger, Mark, Supporting the Balanced Scorecard. Work Study, V 47, No 6


Example of a Balanced Scorecard


Financial perspective

Uses traditional tools and reports

Considers EVA© and ROCE Economic Value Added

NOPAT- (capital x cost-of-capital) Return on Capital Employed

Emphasizes growth and improvement

Links financial performance to strategy


BSC encourages use of ABC

Traditional accountingSalaries $375,000Benefits 92,000Supplies 47,000Phone 8,500Travel 13,000Total $535,000

Activity Based CostingSelect suppliers $82,000Procure mat’ls 175,000Certify vendors 92,000Resolve problems 103,500Expedite shortages 83,000Total $535,000

Johnson, Christian C., Introduction to the Balanced Scorecard and Performance Measurement Systems,

Linking Finance to Strategy



Customer Satisfaction

CustomerProfitability

MarketShare

CustomerRetention

CustomerAcquisition

CustomerSatisfaction


Customer perspective Market share (various criteria) Customer retention (absolute or relative) Customer acquisition (absolute or relative) Customer satisfaction

Specific performance criteria Defined value proposition

Customer profitability Profitability by account Net of any special account-specific expenses


Customer perspective Value proposition typically includes elements

of Time Quality Price


Internal Business perspective Focus on process improvement Chose processes aligned with strategy Identify customer need

Identify the market Create the product/service offering Build the products/services Deliver the products/services After-sale customer service

Customer need satisfied


Learning & Growth perspective Core measurements

Employee productivity Employee satisfaction Employee retention

Enablers Staff competencies Technology infrastructure Climate for action/change


Balancing the BSC

Heaviest emphasis is on business processes

MIS : Strategic business planning Business environment is prone to change Factors like market forces, technological

changes and competition have significant impact MIS design is supposed to provide insight into

these factors enabling the management to evolve strategies

MIS supplies information to top management for strategy formulation

Current information on business status Vs goals is given by MIS

Continuous assessment of business progress in terms of sales, market, quality, profit by MIS

Feedback mechanism

To summarize MIS helps top management in

Deciding goals and objectives To determine the correct status of the further

business and projects Provide correct focus Evolve decide and determine mix of strategies Evaluate performance and give critical feedback Provide cost benefit evaluation to decide on

choice, mobilization and mix of resources Generate standards, norms, ratios and the

yardsticks for measurement and control

Strategic Management of Business-1

Documents

asq vermont

short range

systems approach

customer perspective

strategic

market forces

corporate

balanced scorecard