The Strategic Management Process

The Strategic Management Process

JIMS 1-2

Strategic management process– The process by which managers choose a set of

strategies for the enterprise to pursue its vision.

Establishing strategic intent Vision, mission, business definition,

Company profile & objectives

Formulation of strategies/Strategic planningOrganisational appraisal & environmental appraisal; SWOT Analysis; Corporate level

strategies, Business level strategies, Strategic choice among several alternatives, Selection of

best, optimum strategy

Strategy ImplementationProject &Structural implementation, leadership,

resource allocation, functional & operational implementation

Strategic evaluation & control

Strategic management processStage1: Strategic formulation means planning a strategy to execute the business

activities. Strategy formulation includes developing:-• Vision and Mission • Strength and weakness• Opportunities and threats• Strategy formulation is also concerned with generating alternative

strategies to achieve that long term goals and choosing particular strategy to pursue. The considerations for the best strategy formulation should be as follows:

• Allocation of resources• Business to enter or retain i.e. Expansion Strategy• Business to divest or liquidate i.e. Retrenchment strategy• Joint ventures or mergers • Whether to expand or not • Moving into foreign markets, etc.

Stage II: Strategy implementation It requires a firm to establish annual objectives, devise policies, motivating employeesand allocate resources’ developing strategy supportive culture, creating an effective organizational structure, redirecting marketing efforts, preparing budgets, developing and utilizing information system, etc so that formulated strategies

can be executed.Implementation is often called the action stage of strategic management.

Implementing means mobilizing employees and managers in order to put formulated strategies into action. It is often considered to be most difficult stage of strategic management. It requires personal discipline & commitment.

Strategy formulated but not implemented serve no useful purpose

Stage III: Strategy evaluation• Strategy evaluation is the final stage in the

strategic management process. Management desperately needs to know when particular strategies are not working well; strategy evaluation is the primary means for obtaining this information. All strategies are subject to future modification because external and internal forces are constantly changing

Environmental scanning/Appraisal/Analysis/Assessment

Environmental & organisational appraisal help to find out the opportunities & threats operating in the environment & the Strengths, weaknesses of an organisation in order to create a match between them.

• Environmental appraisal refers to External opportunities & threats: It refer to economic, social, cultural, demographic, political, legal, governmental, technological, and competitive trends and events that could significantly benefit or harm an organization in the future. Opportunities and threats are largely beyond the control of a single organization, thus the term “external”. 

• Environmental scanning thus refers to a process by which organisations identify, analyse & monitor their relevant environments to identify opportunities & threats/problems that affect their business. 

Thus a key element in the strategic process is:•  continuous appraisal of d present env;• Prediction of d future state of the env• The formulation of appropriate strategies……

Various techniques of Environmental scanning  are:ETOPPESTELPorter’s 5 Forces model

Need for External Environmental Analysis

• Like when a boat is sailing on a sea of uncertainity, it needs 2 things: a star to steer the ship &a radar to signal d existence of rocks & reefs; Similarly a business firm operating in an uncertain env. Must have a VISION OF THE BUSINESS(a guiding star) & a SYSYTEM OF ENVIRONMENTAL ANALYSIS(the radar).

• 3 imp characteristics of the process of E.A. are:i) E.A. is a holistic exercise i.e. it must comprise a total 360 degree view of

d env rather than viewing trends piecemeal in order to minimise the chance of surprises & maximise its utility as an early warning system.

ii) E.A. must b a continuous process rather than being an intermittent/periodic scanning system in order to keep track of the rapid pace of development & give a reliable indication.

iii) E.A. is an exploratory process i.e. to explore the unknown dimensions of possible futures ….

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Need for External Environmental Analysis• Although to assess d future is a difficult task & all eventualities cannot b

anticipated, but to some extent future events can be predicted by systematic scanning & monitoring of the env.

• It is a continuous process which includes– Scanning/Diagnosing for early signals of potential

changes and trends in the general environment i.e. what env factors present threats & which factors represent opportunities for better accomplishment of objectives. This can be done by market research & information processing.

– Monitoring changes to see if a trend emerges from among those spotted by scanning. Monitoring focuses more closely on the track of previously identified trends which are found to b of particular impance to d firm.

– Forecasting projections of outcomes based on monitored changes and trends is reqd to grow & innovate.

– Assessing the timing and significance of changes and trends on the strategic management of the firm

Thus we can say that environmental analysis & success of firms is highly correlated as with increased input of information in strategic decision making,it leads to more effective financial performance.

Need for Environmental scanning• Companies with futuristic orientation must be sensitive to the general & specific 

environmental factors  so as to b alerted in advance about chnages reqd in the product line. 

• These external  changes are creating a different type of consumer and consequently a need for different types of products, services, and strategies.

Some opportunities and threats that are present in the External env. may include:• the passage of a law, (Eg increase in service tax results in costlier insurance products

makes the ULIP, Policies more costly)• The retail revolution, • biotechnology, • population shifts,• changing work values and attitudes, • recyclable packages, • increased competition from foreign companies• the introduction of a new product by a competitor,

• Thus future of an orgnsn is closely bound up with what is happening in the environment.

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Opportunities and Threats

• Opportunity– A favourable condition in the general environment that if exploited, helps a

company achieve strategic competitiveness.Eg: Because of the population shifts to metros,changing work values and increased role of

women in the workforce, there is a huge opportunity for Food processing Companies making ready-to-eat stuff/instant foods. This is the

reason the food processing industries is one of the sunrise industries in India. Eg: opportunity for introducing new pdct lines in the existing market. Like Honda has

introduced the new product line of HYBRID CARS –Civic Hybrid as a Zero-Emission Vehicle which is really very popular.

• Threat– An unfavourable condition in the general environment that may hinder a

company’s efforts to achieve strategic competitiveness or may create a risk for the organisation.

Eg: The emergence of strong foreign competitors in the Indian retail sector who are likely to offer stiff competition to the existing Indian retail players.

Eg: the rapid obsolescence of music cassettes b’cauz of the market of CD’s & I-pods.

Also, a competitor's strength could be a threat.

thus, we see that the process of strategy formulation starts with SWOT Analysis that involves the external & internal environmental appraisal.

• SWOT Analysis/WOTS-UP Analysis/TOWS Analysis is undertaken by business firms to understand their external & internal environments.

• Through such an analysis, the strengths & weaknesses existing within an organisation can be matched with the O & T’s operating in the environment so that an effective strategy can b formulated.

• An effective organisational strategy, therefore is one that capitalises on the opportunities through the use of strengths & neutralises the threats by minimising the impact of weaknesses.

The general/macro-environmental factors /sectors

The various environmental influences can be classified into 8 sectors:

i) Market environmentii) Technological environmentiii) Supplier environmentiv) Economic environmentv) Regulatory environmentvi) Political environmentvii) Socio-cultural environmentviii) International environment

Market environment/Competitive env.• These r the factors related to d competitor groups & organisations dat

compete with & have an impact on an organisation’s markets & business.

• Market env is thus focused on predicting the dynamics of competitors’ actions, responses and intentions.

The imp. market factors are:1. Customer factors like their needs, preferences, perceptions, attitudes,

values, bargaining power & buying behavior of customers.2. Product factors such as the demand, features, utility, functions,

differentiation, its price, promotion & distribution, availability of its substitutes, etc

3. Marketing intermediary factors such as the reputation of d firm among middlemen, distribution channels, logistics, financial intermediaries, etc.

4. Competitor related factors like entry & exit of major competitors, nature of competition & the relevant strategic position of major competitors.

In monopolies & oligopolies, the concern for market env is comparatively lesser than in perfect/pure competition.

Examples of the influence of market environment on Comapnies

1. Earlier the automobile Companies existed in a seller’s market, hardly concerned about d cust needs & cust had to wait a long time to buy a car. But, with d entering of so many companies in the automobile sector; the cust is considered the king & provided excellent sale & after sale services in order to delight him.

2. After Apple & Samsung came out with its smartphones, Nokia came out with Lumia to compete with them.

3. Conditions in the 2 wheeler industry changed in late 90’s by a shift from scooters to a dd for motorbikes as these met the environmental norms laid down by the Supreme Court. Hero Honda grabbed the early-bird advantage & became No.1 motorcycle manufacturer in the whole World. Later Bajaj Auto(King of scooters for 3 decades) entered into a Price War with HERO HONDA.

Technological Env• These r factors related to d knowledge applied & materials, machines used in prodn of G&S . These

imp factors are:1. Sources & cost of technology acquisition(external/foreign technical collaborations/technology

transfer ), Eg: Maruti Udyog collaborated with Suzuki of Japan; Swaraj Vehicles & Mazda of Japan in collaboration for manufacturing Swaraj Mazda commercial vehicles; collaboration of Kinetic & Honda motor Co )

2. Rapid changes in technological devt/R& D/new Inventions & Innovations/ NPD like MP3 Players, LED’s &hi definition TV’s, computer games, etc are all new markets created by technological advancements.

3. The amount of Govt spending on research

Technology defines the biz of d orgns & hence strategists cannot afford to ignore the technological env. in the hypercompetition env.

Eg: rising petrol prices have forced car Companies to make Car engines which have fuel efficiency & save fuel consumption like in Ford Fiesta & VW Polo or diesel variants.

Eg: technological advancements in the IT Industry has enabled corporates to develop IT tools like Database marketing, Micro marketing, ERP,etc. (ERP is an integrated software solution to streamline & integrate operational processes & information flows within the Co.) (Micro marketing means tailoring products and programs or services to the needs and wants of individuals and groups, eg: insurance policies & complexion make-up)

So, Environmental scanning shd aim at identifying economic sectors susceptible to technological change & forecasting in advance technological changes and the effects of employing it on our business.

Eg: Online shopping, bar coding, QR codes seen in newspaper/magazine advertisements,etc. are all improvements to the way we do business as a result of better technology. Technology can reduce costs, improve quality and lead to innovation. These developments can benefit consumers as well as the organisations providing the products.

Supplier env• This env consists of factors related to d cost, reliability & availability of factors

of pdn. The imp factors are:1. Cost & continuous availability/reliability of supply of raw materials, parts,

components & critical inputs.2. Cost, sources & continuous availability of finance/capital3. Cost & continuous availability of power & energy used in pdn4. Cost & continuous availability& dependability of skilled human resources

specifically in hi-technology industries like electronics, aerospasce, telecommunications, mining etc.(also prob of brain drain)

5. Cost & continuous availability of supply of fixed assets like plant, machinery, spare parts,etc.

6. The bargaining power of suppliers depends on the number of suppliers & existence of substitutes

Eg: power shortage affects industry considerably, so the shift is to generating power from renewable sources or sources which encourage power savings.

The Economic EnvironmentIt includes all the macro level factors related to the means of production & distribution of wealth.

It includes factors like:– Economic stage/eco. growth of the country– Economic system(capitalist or socialist or mixed economy)– Inflation rates– Interest rates– Exchange rates– Economic policies(industrial policy, monetary, fiscal policy)– Economic planning(5yr plans, annual budgets, etc)– Business cycles– National Income trends & its distribution– Money supply– Savings & investments rate– Stock market,– Unemployment – LPG– Disinvestments– Rate & growth of Gross domestic product, GNP, Per capita Income ,etc.– Value of imports & exports– Infrastructural factors like financial institutions, banks, modes of transportation,

communication, etc.

Examples of changes in the Economic env & its effect on the organisations

Eg1. interest rates affect a firm's cost of capital and therefore to what extent a business grows and expands. Higher interest rates may deter investment because it costs more to borrow

2. Exchange rates affect the costs of exporting goods and the supply and price of imported goods in an economy.

3. a strong currency may make exporting more difficult because it may raise the price in terms of foreign currency

4. inflation may provoke higher wage demands from employees and raise costs.5. higher national income growth may boost demand for a firm's products

Regulatory environment• It consists of factors related to planning, promotion & regulation of economic

activities by the Govt that have an impact on the biz of an orgn. Both biz & industry operate within a regulatory env. as the Govt lays down policies & rules acc to which d industry functions.

The imp factors in this are:1. The constitutional framework, directive principles, fundamental rights, division of

legislative powers b/w centre & state govts.2. Policies relating to licensing, regulation of monopolies(MRTP Act), foreign

investments & financing of industries3. Policies related to pricing & their control4. Policies related to regulations of imports & exports5. Industrial policy, Other policies related to the public sector, small scale industries,

sick industries, etc. After LPG, the intensity of Govt regulation & control over the industry has greatly

reduced.

Regulatory environment

Examples:• When foreign multinationals are contemplating entry into the Indian

market, these MNC’S need to abide by 3000 Central laws besides the state laws such as Indian Contract Act, Indian Companies Act,etc.

• Infrastructure sectors like oil, power & telecommunications have benefitted in terms of inv & technology from FDI & deregulation after LPG.

Political environment• Political factors:  These refer to government policy in areas like : the degree of intervention in the economy, monopolies legislation, Environmental protection laws, Taxation policy, Foreign trade regulations, Govt stability, etc.

• What goods and services does a government want to provide? • To what extent does it believe in subsidising firms? • What are its priorities in terms of business support? Political decisions can impact on many vital areas for business such as the

education of the workforce, the health of the nation and the quality of the infrastructure of the economy such as the road and rail system.

Socio-Cultural Environment• Social factors. Changes in social trends can impact on the demand for a firm's

products and the availability and willingness of individuals to work.Imp Socio-Cultural factors are: • Population demographics• Income distribution• Social mobility• Lifestyle changes• Attitude to work & leisure• Consumerism• Levels of education,etc.• In the Japan, for example, the population has been ageing. This has increased

the costs for firms who are committed to pension payments for their employees because their staff are living longer. It also means some firms have started to recruit older employees to tap into this growing labour pool. The ageing population also has impact on demand: for example, demand for sheltered accommodation and medicines has increased whereas demand for toys is falling.

Ecological Environment• Ecological  environmental factors include the weather and climate change. • Changes in temperature can impact on many industries including farming,

tourism and insurance. With major climate changes occurring due to global warming and with greater environmental awareness this external factor is becoming a significant issue for firms to consider.

• Eg . The threat of global warming. For most companies this is not an important strategic issue. However, for the producers of automobiles, global warming is a vital issue. For example, what will be the impact on demand – will consumers switch to more fuel-efficient cars? Will they abandon their cars in favor of public transportation?

• The growing desire to protect the environment is having an impact on many industries such as the travel and transportation industries (for example, more taxes being placed on air travel and the success of hybrid cars/electric cars) and the general move towards more environmentally friendly products and processes is affecting demand patterns and creating business opportunities.

Sources of information inputs of environmental scanning process

environmental scanning is predominantly an information acquisition activity.external information is a key input in strategic decision-making & helps to form

competitive intelligence in organizations aiming to gather, process & disseminate relevant information about different types of environments & competitors, the market success of competing products, etc to stay one step ahead.

but how do companies really manage to collect the relevant input information?

1. ICT 2. verbal information from audio-visual media, conversations b/w customers &

retailers/other channel partners/suppliers3. Infn made available through MIS specifically designed to serve needs of

strategic planners4. written & documentary infn from trade journals, newspapers,annual reports,

etc. 5. Forecasting & reports based on forecasts regarding changes in eco, social &

financial conditions avail from Govt agencies.

&

A no. of publications provide valuable infn & forecasts relating to env conditions:

1. Economic surveys (published annually by Ministry of Finance)2. Guidelines to industries(published by Minstryof Industries)3. 5 year plans & kid term survey reports on planned development (published

by Planning Commission)4. Census reports, GOI5. RBI Bulletins(monthly)& annual reports on currency & finance6. Other trade journals, Economic trends published by FICCI & other

associations, forums, etc.7. Business newspapers, magazines, etc.

WHICH STRATEGY IS SUCCESSFUL?

•Manage present & Create the future.• Eg: RAYMONDS ACQUIRED COLORPLUS•Strengthen Formal + casual segment •Follow multiple brands strategy of Madura Garments of Aditya Birla Group,

one of its major competitor (LP,VH,AS,PE)•Position as complete men’s wear company Park avenue=mid/premium formal wearColorplus-premium smart casualsParx –value for money casualsManzoni-super premium shirts/suits

• HOW COMPANIES REACT TO ENVIRONMENT?

•Analyse the external and internal environment and evolve a strategy for implementation-proactive or reactive.

Approaches/ techniques of the environmental scanning process

• How shd an analyst go about SCANNING/MONITORING the environment & tracking the RELEVANT env changes?

• Given the vast no and range of external influences,how can managers hope to monitor, let alone analyze, environmental conditions?

The various approaches to the Environmental scanning process are:

• STEER analysis• ETOP• PEST/PESTEL analysis• Porter’s 5 Forces model

PEST/PESTEL analysis• PEST analysis has been suggested by Johnson & Scholes.• It can be used as a starting point to enquire which environmental

influences have been particularly important in past & which ones may become more significant in future for the organisation & its competitors.

• PEST Analysis may contribute to environmental analysis in 3 ways:1. It enables identification of a smaller no of IMP. ENVIRONMENTAL

INFLUENCES2. It is helpful in identifying long term drivers of change in env3. It helps to examine the differential impact of external influences on

organisations either historically or in terms of likely future impact.

ETOP a diagnosis tool• It stands for Environmental Threat and Opportunity Profile & was suggested by

Glueck.• ETOP is a commonly used profile related to external business env.• Every organisation must know threat and opportunity before they enter in the

business. If an organization is able to analyse its threats and opportunities, it can enjoy favourable results.

• E.A. cannot b complete without DIAGNOSIS of the results of the analysis. • Effective DIAGNOSIS of the environment actually involves assessment/detailed

analysis of the O & T’s identified in d process of E.A. This means sorting out the more important information from the less important one as the infn collected is very voluminous & diverse.

• The ETOP Profile is a useful device for assessing the environmental information & determining the relative significance of O&T’s .

• ETOP is a summarised depiction of dividing the environment into diff factors /sectors & then analyzing the impact of each sector on the organisation’s future .i.e. WHERE THE ENV OPPORTUNITIES & THREATS LIE.

• This helps to draw attention of the top mgt on the most critical factors in each sector & their potential impact on d strategy of the firm as a whole

ETOP • In ETOP Profile, each env variable is recorded on the left side & their +ve/-

ve /neutral indicators including their statement is recorded in the right side..

ENVIRONMENTALSECTORS

NATURE OF IMPACT

IMPACT OF EACH SECTOR

ECONOMIC Indians standard of living is increasing day by day, with higher level of disposable income making it possible to spend money towards luxury goods in the urban segment of India. Easy availability of capital through public issues.

MARKET Growth rate in Automobiles, FMCG, AGRI Tools, Services are increasing at a fast rate, more and more number of players are entering into these segment of market to gain the profit from the operation.

INTERNATIONAL TATA is well know brand in the global level to compete to global giants in that sectors mentioned above. They have all the capabilities and the technology needed to compete in the international circuit. They have got into the international circuit by acquisition of British JLR;joint ventures with Marcopolo, the Brazil-based maker of bus,ETC.

ENVIRONMENTALSECTORS

NATURE OF IMPACT

IMPACT OF EACH SECTOR

POLITICAL TATA has always been in the political arena with many of its policies regulated by the political parties e.g. Gujarat and West Bengal state regarding TATA Nano plant.

TECHNOLOGICAL Technological upgradation is of utmost importance, it has a leading edge R&D team of around 1,400 scientists and engineers. Among Tata’s firsts are “the first indigenously developed LCV, India's first SUV and, in1998, the Tata Indica, India's first fully indigenous passenger car,” as well as the increasingly famous Tata Nano.

• This ETOP thus shows that TATA group has many opportunities operating in the environment .

• Preparation of this ETOP provides the strategists with a clear picture of which sectors (& the diff factors in each sector) provide an opportunity & which sectors pose a threat to the organisation.

• Mgmt should thus b concerned with designing strategies so as to avail of d opportunities with optimum results.

• By means of an ETOP, the orgn can see where it stands w.r.t. its environment.