Ppt slides of Strategic management Subject

1. Strategic Management
Chapter 1

2. Definition of
Strategic Management
Strategic Management
The set of managerial decisions and
actions that determines the long-run
performance of an organization

3. Sequential Phases of
Strategic Planning
1. Basic Financial Planning
2. Forecast-Based Planning
3. Externally-Oriented Planning (Strategic
Planning)
4. Strategic Management

4. Benefits of Strategic
Management
• Clearer sense of strategic vision
• Sharper focus on what is strategically
important
• Improved understanding of rapidly
changing environment

5. Q. Why has strategic management become so
important to today's organizations?
Ans. Research indicates that organizations which engage
in strategic management generally outperform those that
do not
• The attainment of an appropriate match or fit between
an organization's environment and its strategy, structure,
and processes has positive effects on the organization's
performance.
• Bruce Henderson, founder of the Boston Consulting
Group, pointed out that a firm cannot afford to follow
intuitive decisions once it becomes large, has layers of
management, or its environment changes substantially
• As the world's environment becomes increasingly
complex and changing, strategic management is used by
today's organizations as one way to make the
environment more manageable

6. Q. Why are strategic decisions different from
other types of decisions?
• Strategic decisions deal with the long-run future
of the entire organization and have three
characteristics which differentiate them from
other types of decisions
(1)They are rare. Strategic decisions are unusual
and typically have no precedent to follow
(2) They are consequential. Strategic decisions
commit substantial resources and demand a
great deal of commitment;
(3) They are directive. Strategic decisions set
precedents for lesser decisions and future
actions throughout the organization

7. Three Key Strategic
Questions
1. Where is the organization now?
2. If no changes are made, where will the
organization be in one, two, five or ten
years? Are the answers acceptable?
3. If the answers are not acceptable, what
specific actions should management
undertake? What are the risks and payoffs
involved?

8. Challenges to Strategic
Management
• Impact of Electronic Commerce:
1. Internet is forcing companies to transform
themselves. The concept of electronically
networking customers, suppliers, and partners is
now a reality.
2. New channels are changing market access and
branding, causing the disintermediation of
traditional distribution channels.
3. The balance of power is shifting to the
consumer. Now having unlimited access to
information on the internet, customers are much
more demanding.

9. Challenges to Strategic Management
(cont.)
4. Competition is changing. New technology driven firms
as well as the traditional firms are exploiting internet to
become more innovative and efficient
5. The pace of business is increasing drastically.
Planning horizons, information needs,
customer/supplier expectations are reflecting the
immediacy of internet
6. The internet is pushing corporations out of their
traditional boundaries. The traditional separation
between supplier, manufacturer, and customer is
becoming blurred
7. Knowledge is becoming a key asset and source of
competitive advantage

10. Globalization
• Regional & Global Trade Agreements
• European Union (EU)
• North American Free Trade Agreement
(NAFTA)
• WTO
• Association of South East Asian Nations
(ASEAN)

11. Learning Organization
An organization skilled at creating, acquiring, transferring knowledge,
and at modifying its behavior to reflect new knowledge and
insights
Learning organizations are skilled at four main skills
1.
Solving problem systematically
2.
Experimenting with new approaches
3.
Learning from their own experiences and past history as well as
from the experiences of others
4.
Transferring knowledge quickly and efficiently through out the
organization
•
This means that people at all levels, not just top management,
need to be involved in strategic management
- by helping to scan the environment for critical information
- suggesting changes to strategies and programs to take
advantage of environmental shifts,
- and working with others to continuously improve work methods,
procedures, and evaluation techniques.

12. Composition of
Strategic Management
Strategic Management is Composed of
1.Environmental Scanning
2.Strategy Formulation
3.Strategy Implementation
4.Evaluation and Control

13. 1.10 Environmental Variables (Fig. 1.3)
Environmental Variables
Societal Environment
Task Task
Environment
Environment
(Industry)
Sociocultural
Forces
Shareholders
Governments
Economic
Forces
Suppliers
Internal
Environment
Special
Interest
Groups
Structure
Culture
Resources
Employees/
Labor Unions
Competitors
Customers
Trade Associations
Creditors
Political-Legal
Forces
Communities
Technological
Forces
Chapter 1
13

14. Societal Environment
Composed of general forces in environment
1. Socio-cultural forces
2. Economic Forces
3. Technological Forces
4. Political-legal forces

15. Task Environment
Composed of
• Groups in environment that directly affect or are affected
by the organization’s operations
• (Often called industry)
 Competitors
 Customers
 Suppliers
 Creditors
 Share holders
 Trade association
 Employees/ labor unions
 Communities

16. Definition of Strategy Formulation
Strategy Formulation
The process of developing long-range plans to
deal effectively with environmental opportunities
and threats in light of corporate strengths and
weaknesses
Composed of
•
•
•
•
Mission / Vision
Objectives
Strategies
Policies

17. • What Is Strategy and Why
Is It Important?

18. Thinking Strategically: The Three
Big Strategic Questions
1. What is the company’s present situation?
2. Where does the company need to go from here?
– Business(es) to be in and market positions to stake out
– Buyer needs and groups to serve
– Direction to head
3. How should it get there?
– A company’s answer to “how
will we get there?” is its strategy

19. What Do We Mean By
“Strategy”?
• Consists of competitive moves and business
approaches used by managers to run the
company
• Management’s “action plan” to
– Grow the business
– Attract and please customers
– Compete successfully
– Conduct operations
– Achieve target levels of
organizational performance

20. Strategy and the Quest for
Competitive Advantage
• The heart and soul of any strategy are the actions and
moves in the marketplace that a company makes to
strengthen its competitive position and gain a
competitive advantage over rivals
• A creative distinctive strategy that sets a company apart
from rivals and yields a competitive advantage is a
company’s most reliable ticket to above average
profitability
– Competing with a competitive advantage is more profitable
than competing with no advantage
– Competing with a competitive disadvantage nearly always
results in below-average profitability

21. Four “Best” Strategic Approaches to
Building Sustainable Competitive
Advantage
• Being the industry’s low-cost provider (a cost-based
competitive advantage)
• Incorporate differentiating features (a “superior product”
type of competitive advantage keyed to higher quality,
better performance, wider selection, value-added
services, or some other attribute)
• Focusing on a narrow market niche (winning a
competitive edge by doing a better job than rivals
of serving the needs and preferences of
buyers comprising the niche)
• Developing expertise and resource
strengths not easily imitated or matched by rivals
(a capabilities-based competitive advantage)

22. Identifying a Company’s Strategy

23. Why Do Strategies Evolve?
• A company’s strategy is a work in progress
• Changes may be necessary to react to
– Shifting market conditions
– Technological breakthroughs
– Fresh moves of competitors
– Evolving customer preferences
– Emerging market opportunities
– New ideas to improve strategy
– Crisis situations

24. What Is a Business Model?
• A business model addresses the question: “How do we
make money in this business?”
– Is the strategy capable of delivering
good bottom-line results?
• Do the revenue-cost-profit economics
of the strategy make good business sense?
– Look at revenue streams the strategy is expected to
produce
– Look at associated cost structure and potential
profit margins
– Do resulting earnings streams and ROI indicate that
the strategy makes sense and the company has a
viable business model for making money?

25. Relationship Between
Strategy and Business Model
Strategy . . .
Business Model . . .
Deals with a company’s
competitive initiatives
and business
approaches
Concerns whether
revenues and costs
flowing from the
strategy demonstrate a
business can be amply
profitable and viable
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Bu od
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26. Tests of a Winning Strategy
• GOODNESS OF FIT TEST
– How well does strategy fit
the firm’s situation?
• COMPETITIVE ADVANTAGE TEST
– Does strategy lead to sustainable
competitive advantage?
• PERFORMANCE TEST
– Does strategy boost firm’s performance?

27. Why Is Strategy Important?
• A compelling need exists for managers
to proactively shape how a firm’s
business will be conducted
• A strategy-focused firm is more likely
to be a strong bottom-line performer
than one that views strategy as secondary

28. The Strategy-Making, Strategy-Executing
Process

29. Developing a Strategic Vision
Phase 1 of the Strategy-Making Process
• Involves thinking strategically about
– Future direction of company
– Changes in company’s
product/market/customer technology to
improve
• Current market position
A strategic vision describes the route a company
intends to take in developing and strengthening
• Future prospects
its business. It lays out the company’s strategic
course in preparing for the future.

30. Characteristics of well worded
vision statement
1. Graphic: Paints a picture of the kind of
company that management is trying to create
and the market position a company is striving
to stake out
2. Directional: says something about company’s
journey or destination and signals the kinds of
businesses and strategic changes that will be
forthcoming
3. Focused: is specific enough to provide
mangers with guidance in making decisions
and allocating resources

31. Characteristics of a well worded
vision statement
4.
5.
6.
7.
Flexible : is not a once-and-for-all time
pronouncement; vision about a company’s future path
may need to change as events unfold and
circumstances change
Feasible: is within the realm of what the company can
reasonably expect to achieve in due time
Desirable : appeals to the long term interests of stake
holders - particularly shareowners, employees and
customers
Easy to communicate: is explainable in less than 10
minutes and ideally be reduced to a simple memorable
slogan

32. Common shortcomings in company
vision statements
1. Incomplete : short on specifics about where
the company is headed and what kind of
company management is trying to create
2. Vague : doesn’t provide much indication of
whether or how management needs to alter
the company’s current product/ market/
customer/ technology focus
3. Bland ; lacking in motivational power
4. Not distinctive: could apply to almost any
company (or at-least several others in the
same industry)

33. Common shortcomings in company
vision statements
5. Too reliant on such superlatives as best, most
successful, recognized leader, global or
worldwide leader, or first choice of customers
6. Too generic – fails to identify the business, or
industry, to which it is supposed to apply. The
statement could apply to companies in any of
several industries
7. So broad that it really doesn’t rule out any
opportunity that management might opt to
pursue

34. Exelon’s Strategic Vision
• Exelon Strives to build exceptional value by becoming
the best and most consistently profitable electricity and
gas utility company in the United States. To succeed, we
must
1. Live up to our commitments
• Keep the lights on
• Perform safely – especially our nuclear operations
• Consistently improve our environmental performance
• Act honorably and treat everyone with respect, decency,
and integrity
• Continue building a high performance culture that
reflects the diversity of our communities
• Respect our results, opportunities, and problems
honestly and reliably

35. Exelon’s Strategic Vision
2. Perform at world class levels
• Relentlessly pursue greater productivity, quality, and
innovation
• Understand the relationships among our businesses and
optimize the whole
• Promote and implement policies that build effective
markets
• Adapt rapidly to changing markets, politics, economies,
and technology to meet our customer needs
• Maximize the earnings and cash flow from our assets
and businesses and sell those that do not meet our
goals

36. Exelon’s Strategic Vision
3. Invest in our consolidating industry
• Develop strategies based on learning from past
successes and failures
• Implement systems and best practices that can be
applied to future acquisitions
• Prioritize acquisition opportunities based on synergies
from scale, scope, generation and delivery integration,
and our ability to profitably satisfy regulatory obligations
• Makes acquisitions that will best employ our limited
investment resources to produce the most consistent
cash flow and earnings accretion
• Return earnings to share holders when higher returns
are not available from acquisition opportunities

37. Critique on Exelon’s Vision
• The one sentence vision is definitely overly general and
void of directions
• What rescues it and makes overall vision statement
managerially useful are the specifics that follow it
• The three points that management says the company
must do to succeed convey a reasonably clear sense
where management intends to take the company and
what the company is endeavoring to do in order to
deliver exceptional values to stakeholders
• But Exelon’s vision statement is still somewhat vague on
where the management is trying to take the company in
terms of its future product/market-customer technology
focus

38. Strategic Vision vs. Mission
• A strategic vision
concerns a firm’s
future business path
- “where
we are going”
– Markets to be pursued
– Future product/market/
customer/technology focus
– Kind of company
management is
trying to create
• The mission
statement of a firm
focuses on its
present business
purpose - “who we
are and what we do”
– Current product and
service offerings
– Customer needs being
served
– Technological
and business
capabilities

39. Characteristics of a Mission
Statement
• Identifies the boundaries of the current
business and highlights:
– Present products and services
– Types of customers served
– Geographic coverage
• Conveys
– Who we are,
– What we do, and
A well-conceived mission statement distinguishes a company’s
– Why we are here
business makeup from that of other profit-seeking enterprises in
language specific enough to give the company its own identify!

40. Setting Objectives
Phase 2 of the Strategy-Making Process
• Purpose of setting objectives
– Creates yardsticks to track performance
– Converts vision into specific performance targets
• Well-stated objectives are
– Quantifiable
– Measurable
– Contain a deadline for achievement
• Spell-out how much of what kind
of performance by when

41. Types of Objectives Required
Financial Objectives
Outcomes focused
on improving financial
performance
$
Strategic Objectives
Outcomes focused on
improving
competitive vitality
and future business
position

42. Financial Objectives
Strategic Objectives
An x percent increase in annual
revenues
Annual increases in after tax
profits
Annual increases in earnings per
share of x percent
Annual dividend increases of x
percent
Profit margin of x percent
An x percent return on ROE
Strong bond and credit ratings
Stable earnings during periods
of recession
Winning an x percent market share
Achieving lower overall costs than
rivals
Overtaking key competitors on
product performance or quality or
customer service
Deriving x percent of revenues
from sale of new products
introduced within five years
Achieving technological
leadership Strengthening the
company’s brand appeal
Having stronger sales
and distribution capabilities than
rivals

43. A Balanced Scorecard Approach –
Setting Strategic and Financial Objectives
• A balanced scorecard for measuring
company performance is optimal; it entails
– Setting financial and strategic objectives
– Placing balanced emphasis on achieving
both types of objectives
(However, if a company’s financial performance is dismal
or if its very survival is in doubt because of poor financial
results, then stressing the achievement of the financial
objectives and temporarily de-emphasizing the strategic
objectives may have merit)
The tracking to sustained future profitability year after
• Just surest path financial performance overlooks
year is to relentlessly pursue strategic outcomes
the that strengthen of measuring whether a and
importance a company’s business position
company is strengtheningadvantage over rivals!
give it a growing competitive its competitiveness
and market position.

44. Components of a Balanced
Scorecard
• Financial Perspective: Increase Returns;
broaden revenue streams
• Customer Perspective: Increase customer
satisfaction; strengthen customer loyalty
• Internal Perspective : Create innovative
products; improve after-sales service
• Learning Perspective: Develop the
requisite skills; provide incentive based on
customer feedback

45. How the BSC works
• Equip our people to…,
• Build strategic capabilities needed to…,
• Deliver unique set of benefits to customers
to…..,
• Achieve financial performance
_________________________________
• People, knowledge, skills, systems and tools develop
Internal capabilities, leading to Customer benefits,
driving Financial results.

46. Short-Term vs.
Long-Term Objectives
• Short-term objectives
– Targets to be achieved soon
– Milestones or stair steps for reaching long-range
performance
• Long-term objectives
– Targets to be achieved within
3 to 5 years
– Prompt actions now that will
permit reaching targeted
long-range performance later

47. Crafting a Strategy
Phase 3 of the Strategy-Making Process
• Strategy-making involves entrepreneurship
– Actively searching for opportunities to do new things
or
– Actively searching for opportunities to do
existing things in new or better ways
• Strategizing involves
– Developing timely responses to happenings
in the external environment
and
– Steering company activities in new directions dictated
by shifting market conditions

48. A Company’s Strategy-Making Hierarchy

49. Tasks of Corporate Strategy
• Moves to achieve diversification
• Actions to boost performance of
individual businesses
• Capturing valuable cross-business
synergies to provide 1 + 1 = 3 effects!
• Establishing investment
priorities and steering
corporate resources into the
most attractive businesses

50. Tasks of Business Strategy
• Initiating approaches to produce successful
performance in a specific business
• Crafting competitive moves to build
sustainable competitive advantage
• Developing competitively valuable
competencies and capabilities
• Uniting strategic activities of functional areas
• Gaining approval of business strategies by
corporate-level officers and directors

51. Tasks of Functional Strategies
• Game plan for a strategically-relevant
function, activity, or business process
• Detail how key activities
will be managed
• Provide support for
business strategy
• Specify how functional objectives
are to be achieved

52. Tasks of Operating Strategies
• Concern narrow strategic approaches to
manage key operating units and
strategically-relevant operating activities
• Add detail to business
and functional strategies
• Delegation of responsibility
to frontline managers

53. What Is a Strategic Plan?
Its strategic vision
and business mission
A
Company’s
Strategic Plan
Its strategic and
financial objectives
Consists of
Its strategy

54. Implementing and Executing Strategy
• Operations-oriented activity aimed at
Phase 4 of the Strategy-Making Process
performing core business activities in a
strategy-supportive manner
• Tougher and more time-consuming
than crafting strategy
• Key tasks include
– Improving efficiency of strategy being
executed
– Showing measurable progress in achieving
targeted results

55. What Does Strategy
Implementation Involve?
• Building a capable organization
• Allocating resources to strategy-critical activities
• Establishing strategy-supportive policies
• Instituting best practices and programs for
continuous improvement
• Installing information, communication,|
and operating systems
• Motivating people to pursue the target objectives
• Tying rewards to achievement of results
• Creating a strategy-supportive corporate culture
• Exerting the leadership necessary to drive the process
forward and keep improving

56. Evaluating Performance and
Making Corrective Adjustments
Phase 5 of the Strategy-Making Process
• Tasks of crafting and implementing the strategy are not
a one-time exercise
– Customer needs and competitive conditions change
– New opportunities appear; technology
advances; any number of other
outside developments occur
– One or more aspects of executing the
strategy may not be going well
– New managers with different ideas take over
– Organizational learning occurs
• All these trigger a need for corrective actions and
adjustments on an as-needed basis

57. Corporate Governance:
Strategic Role of a Board of
Directors
• Exercise strong oversight to ensure five
tasks of strategic management are
executed to benefit
– Shareholders or
– Stakeholders
• Make sure executive actions are not only
proper but also aligned with interests of
stakeholders

58. Obligations of a Board of
Directors
• Be inquiring critics and overseers
• Evaluate caliber of senior executives’ strategy-making
and strategy-executing skills
• Institute a compensation plan for
top executives rewarding them for
results that serve interests of
– Stakeholders and
– Shareholders
• Oversee a company’s
financial accounting
and reporting practices

59. The Basis for Good
The Basis for Good
Strategic Decisions
Strategic Decisions
Intuition + Analysis
Effective Strategic Decisions
59

60. Actual Vs Planned Strategy
Company
Experience
know-how,
strengths,
weaknesses,
and
Competitive
position
Planned Strategy
Actual
company
strategy
Adaptive reactions
to challenging
circumstances
Reactive strategy