Strategic management_MBA VTU_module_1

8/14/2019 Strategic management_MBA VTU_module_1

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Strategic Management

What is a strategy?• A company's strategy consists of the competitive

moves and business approaches that managersemploy to attract and please customers, compete

successfully, grow the business, conductoperations and achieve targeted objectives.

• The emphasis is on product/service, buyersegments, geographic areas and businessapproaches the management intends.



Some of the options for strategies can be:

• Having wide range of products vs narrow productfocus e.g. Unilever vs CavinKare

• Target high end of the market vs target low end e.g.Kingfisher airlines vs Deccan airlines (before themerger)

• Low cost vs product superiority or personalized

customer service or added convenience e.g. Deccanairlines vs Kingfisher airlines(before the merger)

• Focus on any one part of the business in the chain of events from production to distribution vs partially orfully integrated e.g. Unilever vs Manufacturers for

Unilever products• Focus on local or regional markets vs compete

nationally or globally e.g. Unilever vs CavinKare



• Focus on one industry vs diversified industriese.g. ITC vs Unilever

• Offensive strategies to gain market share vs

sound defense to defend market share





Sources to know the strategy of a company:

• Actions in market place e.g. company reducingthe price to maintain the lowest price

• Statements of management

• Annual reports

• Press releases

•

Company websites

Strategy and quest for competitive advantage

• A company's strategy should be aimed at

providing a product or service that is distinctivefrom competitors offerings or developingcompetitive capabilities that rivals cannot match.E.g. Toyota



• Winning a sustainable competitive advantageover rivals hinges on building competitivelyvaluable expertise and capabilities than a

distinctive product. e.g.. Sophisticateddistribution systems and merchandising expertise(Wal-Mart), Product innovation (3M), defect-freemanufacturing (Toyota), superior e-commerce

(Dell)

The four most frequently used strategic approachesare:

•Being the industry's low-cost provider - Thisstrategy provides cost-based competitiveadvantage over rivals. E.g.. Wal-Mart, Go Air



• Out competing rivals based on differentiating features suchas higher quality, wider product selection, addedperformance, better service, more attractive styling,technological superiority or unusually good value for the

money. e.g. - Johnson & Johnson (product reliability),Amazon.com (wide selection and convenience), Oberoi Hotels(prestige)

• Focusing on a narrow market niche - e.g., eBay (onlineauctions), McAfee (virus software protection), Cafe Coffee

Day (Coffee drinks)

• Developing expertise and resource strengths that gives thecompany competitive capabilities that rivals cannot easilyimitate or trump with capabilities of their own - e.g.. FedEx(next-day delivery), Walt Disney (theme park management)



Strategy is partly proactive and partly reactive

• A company strategy is typically a blend of proactive actions toimprove market position and financial performance and as-needed reactions to unanticipated developments and freshmarket conditions.

• The biggest portion of the strategy is to maintain previouslyinitiated actions and business approaches that are working welland launch new initiatives to strengthen the company's overallposition and performance. This is proactive actions based on

management's analysis and thinking about the company'sposition and market conditions.

• Some of the portion of the strategy is a seasoned reaction tothe happenings in the market place like competitors moves,customers requirement change, new technologies or changing

political and economic climate.



• Learning from the implementation of strategies is alsovery important.

A company's strategy emerges incrementally and thenevolves over time

• A company's strategy must always be viewed as a workin progress.

• It evolves with trials and errors, experimentation,deliberate management design and as response tounfolding events.

Crafting strategy calls for good entrepreneurship

• The constantly evolving nature of a company's situationputs a premium on management's ability to exhibitastute entrepreneurship.



• The faster a company's business environmentchanges the more critical is making strategicadjustments.

• It means paying attention to early warnings of future change and being willing to experimentwith dare-to-be-different ways to establish amarket position in that future.

• It means proactively searching out opportunitiesto do new things or to do things differently.

• It means adapting rapidly and innovatively.

• Good strategy making is therefore inseparable

from good business entrepreneurship. One cannotexist without the other.



Strategy and ethics: Passing the test of moral scrutiny

• Ethical and moral standards go beyond the prohibitions of law tothe issues of "right" versus "wrong" and duty - what one should do.

• Ethical lapses damage a company's reputation and business.

• Customers and suppliers are wary of doing business with companythat does not follow ethical behavior.

• Some companies are proactive in linking strategic action andethics, ethically questionable business opportunities are forbidden,insist on all aspects of company strategy reflect high ethical

standards, all company personnel are expected to act withintegrity, checks and balances are put in place to monitor behavior,enforce ethical codes of conduct and provide guidance regardinggrey areas.



• Employees with character and integrity do not want towork for a company whose strategies are shady orwhose executives lack character and integrity.

A strategy is ethical only if:

1. It does not entail actions and behaviors that cross theline from "can do" to "should not do" and “unsavory".

2. It allows management to fulfill its ethical duties to allstakeholders - owners/shareholders, employees,customers, suppliers, the communities in which theyoperate and society at large.



Examples of questionable ethical actions:

• Advertisement of alcoholic products in mediahaving an audience as much as 50 percent

underage viewers?

• Buying products manufactured by child labors?

• Selling products not acceptable in one countrydue to stringent norms to another country which

does not have very stringent norms?



Relationship between a company's strategy and its businessmodel

• The concept of a company's business model is more narrowlyfocused than the concept of a company's business strategy.

• A company's strategy relates broadly to its competitiveinitiatives and business approaches (irrespective of thefinancial outcomes it produces). A company's business modeldeals with whether the revenues and costs flowing from thestrategy demonstrate business viability.

• Companies that have been in business for a while and aremaking acceptable profits have a "proven" business model -there is clear evidence that their strategy is capable of profitability and that they have a viable business enterprise

• Companies that are in a start-up mode or that are losing

money have a "questionable" business model.



What makes a strategy a winner?

A winning strategy can be distinguished from a losing ormediocre strategy by the following questions:

•

How well does the strategy fit the company's situation? – A strategy has to match the industry and competitive conditions

– It has to tap a company's best market opportunities

– It has to be tailored to the company's resource strengths andweaknesses, competencies and competitive capabilities.

– It has to fit with both the external and internal aspects of a company's

overall situation for the best possible business results.• Is the strategy helping the company achieve a sustainable

competitive advantage?

– The bigger and more durable the competitive edge that a strategy helpsbuild, the more powerful and appealing it is.



• Is the strategy resulting in better company performance?

– A good strategy boosts company performance in terms of gains inprofitability and financial strength and gains in company'scompetitive strength and market standing.

These questions help a company to choose from variousstrategic options available. Each of the options can bechecked in terms of their ability to answer the abovequestions.

Other criteria for judging the merits a particular strategyinclude

– Internal consistency and unity among all the pieces of strategy

– The degree of risk the strategy poses as compared to alternativestrategies

– The degree to which it is flexible and adaptable to changingcircumstances.



Why is crafting and executing strategy important?

There are two reasons

1. There is a compelling need for managers toproactively shape, or craft, how a company'sbusiness will be conducted.

– A clear and reasoned strategy is a road map tocompetitive advantage, customer satisfaction andachieving performance targets.

– A winning strategy should be well-conceived withoffensives to out innovate and outmaneuver rivals andsecure sustainable competitive advantage, and then usingthis market edge to achieve superior financialperformance.

– A powerful strategy helps its products/services to becomeindustry standard.

– High-achieving enterprises are nearly always the productof astute proactive strategy making.



2. A strategy-focused organization is more likely tobe a strong bottom-line performer. – Strategy making and execution has a positive impact on

revenue growth, earnings and return on investment. – Crafting and executing a winning strategy ensures

initiatives and activities of different divisions,departments, managers and work groups will be unifiedinto a coordinated, cohesive effort.



• Crafting and executing strategy are thus coremanagement functions.

• The management team should chart thecompany's direction, develop competitivelyeffective strategic moves and businessapproaches, pursue what needs to be done

internally to produce good everyday strategyexecution and operating excellence.

• The better conceived a company's strategy and

the more competently it is executed, the morelikely it is that the company will be a standoutperformer in the marketplace.



Strategic Management Process

The stages of Strategic Management Process are as follows:

1. The Strategic Planner has to define what is needed to beaccomplished, which helps in defining the objectives,strategies and policies of the organization.

2. The results of the current performance of the organizationare documented.

3. The Board of Directors and the top management will have toreview the current performance of the organization.

4. After the review, the organization will have to scan theinternal environment for strengths and weaknesses and theexternal environment for opportunities and threats.

5. The internal and external scan helps in selecting thestrategic factors.



6. These selected factors have to be reviewed andredefined in relation to the mission andobjectives.

7. The review will generate a set of alternativestrategies.

8. The best strategic alternative is selected andimplemented through programme budgets and

procedures.9. Monitoring, evaluation and review of the

implementation can provide a feedback on thechanges in the implementation required.



Strategic management_MBA VTU_module_1

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