Strtegic management

Prof. DEBASISH DUTTA

BUSINESS PLANNING AND

STRATEGIC Management


Planning is the most basic of all managerial functions. It involves selecting mission and objectives and the actions to achieve them.

Plans provide a rational approach to achieving preselected objectives.

Planning


Corporate Planning gives the high-level, long-horizon plan that identifies financial opportunities and links them directly and tactically to key value-driven business strategies.

It links those financial KPIs with pragmatic operational cause and effect indicators and help tie those opportunities to plan and optimize at a high level over the long term.

Corporate Planning



BUSINESS POLICY


BUSINESS POLICY

Definition

Business policy is the study of the functions and responsibilities of senior management, the crucial problem that affect the success in the total enterprise, and the decision that determine the direction of the organisation and shape its future. The problems of policy in business, like those of policy in public affairs, have to do with the choice of purposes, the moulding of orgaisational identity and character, the continuous definition of what needs to be done, and the mobilisation of resources for the attainment of goals in the face of competition or adverse circumstances.

Christensen and others


The definition covers

1. It is considered as the study and of the functions and responsibilities of the senior management.

2. It relates to those organisational problem that affect the success of the total enterprises.

3. It determines the future course of action that an organisation has to adopt.

4. It involves choosing the purpose.5. It defines what needs to be done in order to

mould the character and identity of organisation.6. It is concerned with mobilisation of resources,

which help the organisation to achieve its goals.


Characteristics of Business Policy

Definite and clear policies help to prevent deviations from accepted course and helps in achieving desired goal and therefore the characteristics are:

SimplicityClarityFlexibilityCertainty

ConsistencyComprehensiveRelevantStability


Traditional Planning Vs.

Strategic Planning


Traditional Planning Vs. Strategic Planning

Traditional Planning Strategic Planning

1. It is concerned with goal derived from established objectives

2. It is concerned with individual objectives

3. May be carried out lower management

4. It is more functional or unit wise or departmental wise approach.

5. It deals with goals that is validated through past experiences

1. It is concerned with new objectives and strategies.

2. It combines activities that form an unique value chain

3. It is performed by top management

4. It is integrated and have corporate level and business level approach

5. It has less procedures and may trade in unchartered path


Strategic Management


The word ‘strategy’, deriving from the Greek noun strategus, meaning ‘commander in chief’, was first used in the English language in 1656. The development and usage of the word suggests that it is composed of stratos (army) and agein (to lead).

In a management context, the word ‘strategy’ has now replaced the more traditional term – ‘long-term planning’ – to denote a specific pattern of decisions and actions

STRATEGY


In the descriptive and prescriptive management texts, strategic management appears as a cycle in which several activities follow and feed upon one another.

The strategic management process is typically broken down into five steps

Strategic Management


Model of Strategic Management

VISION ANDMISSION

STATEMENT

SCANNINGENVIRONMENT

DEVELOPINGSTRATEGIC

CHOICES

IMPLEMENTATION

EVALUATION

Step 1

Step 2

Step 3

Step 4

Step 5


The first step in the strategic management model begins with senior managers evaluating their position in relation to the organization’s current mission and goals.

The mission describes the organization’s values and aspirations; it indicates the direction in which senior management is going.

Goals are the desired ends sought through the actual operating procedures of the organization and typically describe short-term measurable outcomes.

Vision and Mission Statement


Environmental analysis looks at the internal organizational strengths and weak-nesses and the external environment for opportunities and threats.

The factors that are most important to the organization’s future are referred to as strategic factors and can be summarized by the acronym SWOT – Strengths, Weaknesses, Opportunities and Threats.

Scanning Environment


Strategic formulation or developing strategic choices involves senior managers evaluating the interaction between strategic factors and making strategic choices that guide managers to meet the organization’s goals.

Some strategies are formulated at the corporate, business and specific functional levels. The term ‘strategic choice’ raises the question of who makes decisions and why they are made.

Developing Strategic Choices


Strategy implementation is an area of activity that focuses on the techniques used by managers to implement their strategies.

In particular, it refers to activities that deal with leadership style, the structure of the organization, the information and control systems, and the management of human resources.

Leadership is the most important and difficult part of the strategic implementation process.

Implementation


Strategy evaluation is an activity that determines to what extent the actual change and performance match the desired change and performance.

Evaluation


The strategic management model depicts the five major activities as forming a rational and linear process. It is, however, important to note that it is a normative model, that is, it shows how strategic management should be done rather than describing what is actually done by senior managers.

The strategic decision-making implies a potential gap between the theoretical model and reality.

Conclusion


Levels of Strategy

1. Corporate Level Strategies

2. Business Level Strategies

3. Functional Level Strategies


Corporate Level Strategies

Corporate level strategies are basically about decisions related to allocating resources among the different businesses of a firm, transferring resources from one set of business to others and managing and nurturing a portfolio of business in such a way that the overall corporate objectives are achieved. An analysis based on business definition provides a set of strategic alternatives that an organisation can consider.


Business Level Strategies

Business Level Strategies are the courses of action adopted by a firm for each of its businesses separately to serve identified customer groups and provide value to customer by satisfaction of their needs

In the process the firm uses its competencies to gain, sustain, and enhance its strategic or competitive advantage.


Functional Level Strategies

Functional Level Strategies deals with a relatively restricted plan which provides the objectives for a specific function, for the allocation of resources among different operations within that functional area and for enabling a coordination between them for an optimal contribution to the achievement of the business and corporate level objectives.

Functional strategies are implemented through functional and operational implementation.


STRATEGIC ANALYSIS AND

CHOICE


Strategic Choice

Process of strategic choice consists of following four steps:

1. Focusing on alternatives2. Considering the selection factors3. Evaluation of strategic alternatives4. Making the strategic choice


Focusing on alternatives

The aim of focusing on alternative is to narrow down the choice to a manageable number of feasible strategies.

A decision maker would, in practice, limit the choice to a few alternatives, rather focuses on reasonable number of alternatives.


Considering the selection factors

It determines the criteria on which the evaluation of strategic alternatives can be based.

It can be divided into two groups:

1. Objective Factors: Based on analytical techniques.

2. Subjective Factors: Based on personal judgment.


Evaluation of strategic alternatives

It basically involves bringing together the results of the analysis carried out on the basis of the objective and subjective factors.

There is no set procedure and strategists may use any approach which suits the circumstances. Both objective and subjective factors have to be considered together.


Making the strategic choice

This leads to a clear assessment of which alternative is the most suitable under the existing conditions. One or more strategies has to be chosen for implementation.

A blueprint that will describe the strategies and the conditions under which they would operate has to be made.


Strategic Analysis

-- Establishing long-term objectives-- Generating alternative strategies-- Selecting strategies to pursue-- Best alternative - achieve mission & objectives

Nature of Strategy Analysis


Strategic Analysis

Corporate Level

The analysis focuses on the question of what should a corporate entity do regarding the several business that are there in its portfolio.

It can be done through corporate portfolio analysis and various techniques like BCG matrix etc.


Strategic Analysis

Business Level

It refers to industry and competition analysis. The industry and competition are vital for consideration in making strategic choice.

Porter’s five forces model, experience curve analysis, SWOT analysis etc. help in business level analysis.


SWOT ANALYSIS


SWOT Matrix

Strengths-Opportunities (SO)

Weaknesses-Opportunities (WO)

Strengths-Threats (ST)

Weaknesses-Threats (WT)

Four Types of Strategies


SO Strategies

Use a firm’sinternal strengthsto take advantage

of external opportunities

SOStrategies

StrengthsWeaknesses

OpportunitiesThreats

SWOT


WO Strategies

Improving internalweaknesses by

taking advantageof external

opportunities

WOStrategies

StrengthsWeaknesses


SWOT


ST Strategies

Use a firm’s strengthsto avoid or

reduce the impactof external

threats

STStrategies

StrengthsWeaknesses


SWOT


WT Strategies

Defensive tacticsaimed at reducing

internal weaknesses &

avoidingenvironmental

threats

WTStrategies

StrengthsWeaknesses


SWOT


SWOT Matrix

Leave Blank

Strengths – S

List Strengths

Weaknesses – W

List Weaknesses

Opportunities – O

List Opportunities

SO Strategies

Use strengths to take advantage of opportunities

WO Strategies

Overcoming weaknesses by taking advantage of

opportunities

Threats – T

List Threats

ST Strategies

Use strengths to avoid threats

WT Strategies

Minimize weaknesses and avoid threats


GE Nine-Cell Matrix


GE Nine-Cell Matrix

This is based on the pioneering efforts of the General Electric (GE) company of the US and supported by the consulting firm McKinsey & Company of the US.

It is a typical 9 cell Matrix.


GE Nine-Cell Matrix

The vertical axis represents industry attractiveness, which is a weighted composite rating based on eight different factors.These factors are:

1. Market size and growth rate2. Industry profit margin3. Competitive intensity4. Seasonality5. Cyclicality6. Economics of scale7. Technology and social environment8. Legal and human aspects


GE Nine-Cell Matrix

The horizontal axis represents business strength competitive position which a weighted composite rating based on seven factors.These seven factors are:

1. Relative market share2. Profit margins3. Ability to compete on price & quality4. Knowledge of customer and market5. Competitive strength and weaknesses6. Technological capability7. Calibre management


GE Nine-Cell Matrix

The two composite values for industry attractiveness and business strength/competitive position are plotted for each business in a company’s portfolio. The pie chart circles denote the proportional size of the industry and the dark segment represent the company’s market share.


GE Nine-Cell Matrix

The 9 cell matrix are grouped on the basis of low to high industry attractiveness, and weak to strong business strength. The zones of three cells each are made, denoting different combinations represented by green, yellow, and red colours. The green zone indicates expansion strategies, yellow zone suggests stability and consolidation and red zone suggests retrenchment, liquidation, or turnaround.


GE Nine-Cell Matrix

Low

High

Medium

AverageStrong Weak

Ind

ustr

y A

ttra

cti

ven

ess

Rating Scale: 1 = Weak ; 10 = Strong

6.7

3.3

10.0

1.0

1.03.36.7

Business Strength and competitive Position


GE Nine-Cell Matrix

Advantages over BCG Matrix:

It offers an intermediate classification of medium and average ratings.

It incorporates a larger variety of strategic variables like the market share and industry size.

It is a powerful analytical tool to channel corporate resources to business that combine medium to high industry attractiveness with an average to strong business strength/competitive position.


GE Nine-Cell Matrix

Drawback of the 9 cell matrix:

It only provides a broad strategic prescription rather than specifics of business strategy.

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