introduction to strategic Management

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Management - IIManagement - II
Introduction toIntroduction to
StrategicStrategic
ManagementManagement
• UnitUnit
55

Course ContentsCourse Contents
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1. Management by Objective (MBO)
2. How Strategic and Operational plans
differ
3. The evaluation of concept of Strategy
4. Levels of Strategy: Some key
distinctions
5. The Contents of a corporate Strategy

1–3
StrategyStrategy – The broad program for defining and– The broad program for defining and
achieving an organization’s objective; theachieving an organization’s objective; the
organization’s response to its environment over time.organization’s response to its environment over time.
Strategy is the direction and scope of an organizationStrategy is the direction and scope of an organization
over the long term, which achieves advantage in aover the long term, which achieves advantage in a
changing environment through its configuration ofchanging environment through its configuration of
resources and competencies for fulfilling stakeholders’resources and competencies for fulfilling stakeholders’
expectations.expectations.

Importance of StrategyImportance of Strategy
1–4
Where is the business trying to get to in the long-termWhere is the business trying to get to in the long-term
(direction)(direction)
Which markets should a business compete in and whatWhich markets should a business compete in and what
kind of activities are involved in such markets?kind of activities are involved in such markets?
(markets; scope)(markets; scope)
How can the business perform better than theHow can the business perform better than the
competition in those markets?competition in those markets? (advantage)?(advantage)?
What resources (skills, assets, finance, technicalWhat resources (skills, assets, finance, technical
competence, facilities) are required in order to be able tocompetence, facilities) are required in order to be able to
competecompete? (resources)?? (resources)?
What external, environmental factors affect theWhat external, environmental factors affect the
businesses' ability to compete?businesses' ability to compete? (environment)?(environment)?
What are the expectations of those who have power inWhat are the expectations of those who have power in
and around the business?and around the business? (stakeholders)(stakeholders)

Management by Objectives (MBO)Management by Objectives (MBO)
1–5
A formal set of procedures that establishes andA formal set of procedures that establishes and
reviews progress towards common goals forreviews progress towards common goals for
managers and subordinates.managers and subordinates.
The term "management by objectives" was firstThe term "management by objectives" was first
popularized bypopularized by Peter DruckerPeter Drucker in hisin his 19541954 bookbook 'The'The
Practice of Management’Practice of Management’
Drucker insisted that managers and staff members setDrucker insisted that managers and staff members set
their own objectives or at least be actively involved in thetheir own objectives or at least be actively involved in the
objective-setting process, otherwise people might refuseobjective-setting process, otherwise people might refuse
to cooperate or make only half-hearted efforts toto cooperate or make only half-hearted efforts to
implement “someone else’s” objectivesimplement “someone else’s” objectives

Process of MBOProcess of MBO
1–6

Elements of the MBO SystemElements of the MBO System
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MBO System can vary widely, some are designed forMBO System can vary widely, some are designed for
subunit, some in the organization as a whole, somesubunit, some in the organization as a whole, some
emphasis corporate planning, some stress individualemphasis corporate planning, some stress individual
motivation, But the mainly shared the following sixmotivation, But the mainly shared the following six
elements.elements.
1.1.Commitment to ProgramCommitment to Program
At every organizational level it involves managers’At every organizational level it involves managers’
commitment to achieve personal and organizationalcommitment to achieve personal and organizational
objectivesobjectives
2. Top level goal setting2. Top level goal setting
This gives a clear idea to both managers and staffThis gives a clear idea to both managers and staff
members of what top managements hope to accomplishmembers of what top managements hope to accomplish
and show them how their own work directly relates toand show them how their own work directly relates to
achieving the organization's goalachieving the organization's goal

Elements of the MBO SystemElements of the MBO System
1–8
3. Individual Goals
Each manager and staff members should haveEach manager and staff members should have
clearly defined job responsibilities and objective in order toclearly defined job responsibilities and objective in order to
know the what they are expected to accomplish.know the what they are expected to accomplish.
4. Participation
The participation of both managers and employeesThe participation of both managers and employees
in the setting goal, goals is more likely to be achievedin the setting goal, goals is more likely to be achieved
5. Autonomy in implementation of Plans
An individual should have liberty to choose theAn individual should have liberty to choose the
means for achieving the objectivesmeans for achieving the objectives
6. Performance Review
Managers and Employees periodically meet toManagers and Employees periodically meet to
review progress toward the objectivesreview progress toward the objectives

Advantages of Management by ObjectiveAdvantages of Management by Objective
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 MBO ensuresMBO ensures Goal Clarity.Goal Clarity.
 MBOMBO integrates the effortsintegrates the efforts of everybody.of everybody.
 MBO InvolvesMBO Involves continuous communicationcontinuous communication resulting in toresulting in to
co - ordinated efforts and cohesive environment.co - ordinated efforts and cohesive environment.
 The participative approach in goalThe participative approach in goal setting motivates thesetting motivates the
employeesemployees
 EnhanceEnhance thethe commitmentcommitment towards activities.towards activities.
 MBO practiceMBO practice eliminates the overlapseliminates the overlaps in the efforts andin the efforts and
plugs the gapsplugs the gaps in the assignment.in the assignment.

Disadvantages of Management by ObjectiveDisadvantages of Management by Objective
1–10
 MBOMBO underminesundermines the importance ofthe importance of externalexternal
environmentenvironment on the outcomes.on the outcomes.
 MBOMBO ignoresignores the overallthe overall organization culture.organization culture.
 It compares the actual outcome with the idealIt compares the actual outcome with the ideal
objections. Corporate team tends to chart out higherobjections. Corporate team tends to chart out higher
goals which the average performance tend to be lower.goals which the average performance tend to be lower.
Such situation results in toSuch situation results in to frustration and dissatisfactionfrustration and dissatisfaction
among employees.among employees.
High targets through whatever means necessaryHigh targets through whatever means necessary
including theincluding the sacrifice of quality.sacrifice of quality.

Disadvantages of Management by ObjectiveDisadvantages of Management by Objective
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 despite the participative goal setting, thedespite the participative goal setting, the actualactual
performanceperformance tends to be closure totends to be closure to mediocre level.mediocre level.
 It considers goals as a basis for outcomes butIt considers goals as a basis for outcomes but there isthere is
no limit to outcomesno limit to outcomes of the excellent personnel.of the excellent personnel.

How Strategic and Operational Plans DifferHow Strategic and Operational Plans Differ
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Basis Strategic Plan Operation Plan
Definition Strategic Plan is a
document approved by
higher management about
programmes that the
organization will undertake
along with allocation of
resources over 7 to 8 years.
Operation plan is an
annual budget
formulated by the
operating managers
in line with the
expectations outlined
in the strategic plan.
Time
Horizon
Are long term plan and
prepared for several years
like 8 to 10 years or even
ahead of decades
Are short term and
usually prepared on
yearly basis
Scope Are broad and which
become the basis of all the
activities of the organization
Developed on the
basis of Strategic
Plan.

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Degree of
details
Strategic Plan are
general and generic.
They do not involve more
details.
Operation plan are
more detailed
Analytical
frame work
Are general tendencies of
the expectations of the
higher level management
Are more clear in
terms of output
numbers, cost
standards, close
monitoring etc.
Management
functions
relationship
Focuses on Planning,
Organizing & Directing
More emphasis on
Controlling function
of management.

1–14
Statement of
Plans
Are stated in terms of
long term Mission and
Objectives
Are Stated in terms
of short term budget
targets
Formulation Are formulated by the
corporate Managers
Are prepared by the
operating managers

The Evolution of the Concept of StrategyThe Evolution of the Concept of Strategy
1–15
The term Strategy has been derived from the Greek workThe term Strategy has been derived from the Greek work
““StrategiaStrategia” , which means generalship or art and science” , which means generalship or art and science
of directing military forces.of directing military forces.
The Greeks knew that the strategy was not about onlyThe Greeks knew that the strategy was not about only
fighting battles its beyond that (directing, controlling,fighting battles its beyond that (directing, controlling,
motivating, managing etc. )motivating, managing etc. )
Without strategy the organization is ship without rudder,Without strategy the organization is ship without rudder,
going around in circlesgoing around in circles
A firm without strategy is like a Columbus, when he wentA firm without strategy is like a Columbus, when he went
to discover Americato discover America

Strategic ManagementStrategic Management
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The management process that involves anThe management process that involves an
organization’s engaging in strategic planningorganization’s engaging in strategic planning
and then acting on those planningand then acting on those planning
The Strategic management process mainlyThe Strategic management process mainly
focuses upon two thingsfocuses upon two things
1.1.Strategic planningStrategic planning
2.2.Strategy implementationStrategy implementation

Strategic Management ProcessStrategic Management Process
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Goal Setting
Strategy Formulation
Administration
Strategic Planning
Strategic Control
Strategic
Implementation

Levels of StrategiesLevels of Strategies
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Corporate level StrategyCorporate level Strategy
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 Strategy formulated by top management toStrategy formulated by top management to
oversee the interest and operation of theoversee the interest and operation of the
multiple corporationmultiple corporation
 What kind of business should the companyWhat kind of business should the company
be engaged in ?be engaged in ?
What are the goals and expectations forWhat are the goals and expectations for
each businesses ?each businesses ?
How should resources be allocated to reachHow should resources be allocated to reach
these goals ?these goals ?

1–20
Corporate strategies would guide to theCorporate strategies would guide to the
organization about in what kind of businessorganization about in what kind of business
should it enter or not enter (boundary maker).should it enter or not enter (boundary maker).
 E.g.E.g.
Reliance Group, Tata Group, BGKVReliance Group, Tata Group, BGKV
Corporate level StrategyCorporate level Strategy

1–21
Strategy formulated to meet the goals ofStrategy formulated to meet the goals of
particular business; also called line ofparticular business; also called line of
business strategy.business strategy.
 How would business compete within itsHow would business compete within its
market ?market ?
What product/services should it offer ?What product/services should it offer ?
Which customer does it seek to serve ?Which customer does it seek to serve ?
How will resources be distributed within theHow will resources be distributed within the
business ?business ?
Business unit level StrategyBusiness unit level Strategy

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Types of Business unit level StrategyTypes of Business unit level Strategy

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Strategy formulated by a specific functionalStrategy formulated by a specific functional
area in an effort to carry out business unitarea in an effort to carry out business unit
strategy.strategy.
 What should be the marketing plans ?What should be the marketing plans ?
How many persons should be hired ?How many persons should be hired ?
How much should we spend upon R&DHow much should we spend upon R&D
How much production should we do in theHow much production should we do in the
next quarter ?next quarter ?
Functional level StrategyFunctional level Strategy

The Content of a Corporate StrategyThe Content of a Corporate Strategy
1–24
 Corporate strategy decides organization’s placeCorporate strategy decides organization’s place
in the future.in the future.
 It is also anIt is also an ideaidea about how people at anabout how people at an
organization will interact with people at otherorganization will interact with people at other
organization over time, so it guides people inorganization over time, so it guides people in
their day-to-day work over an extended period oftheir day-to-day work over an extended period of
time.time.

Product Life CycleProduct Life Cycle
Time
Product
Develop-
ment
Introduction
Profits
Sales
Growth Maturity Decline
Losses/
Investments ($)
Sales and
Profits ($)

Introduction Stage of the PLCIntroduction Stage of the PLC
SalesSales
CostsCosts
ProfitsProfits
Marketing ObjectivesMarketing Objectives
ProductProduct
PricePrice
Low salesLow sales
High cost per customerHigh cost per customer
NegativeNegative
Create product awareness
and trial
Create product awareness
and trial
Offer a basic productOffer a basic product
Use cost-plusUse cost-plus
DistributionDistribution Build selective distributionBuild selective distribution
AdvertisingAdvertising Build product awareness among early adopters and dealersBuild product awareness among early adopters and dealers

Growth Stage of the PLCGrowth Stage of the PLC
SalesSales
CostsCosts
ProfitsProfits
ProductProduct
PricePrice
Rapidly rising salesRapidly rising sales
Average cost per customerAverage cost per customer
Rising profitsRising profits
Maximize market shareMaximize market share
Offer product extensions, service, warrantyOffer product extensions, service, warranty
Price to penetrate marketPrice to penetrate market
DistributionDistribution Build intensive distributionBuild intensive distribution
AdvertisingAdvertising Build awareness and interest in the mass marketBuild awareness and interest in the mass market

Maturity Stage of the PLCMaturity Stage of the PLC
SalesSales
CostsCosts
ProfitsProfits
ProductProduct
PricePrice
Peak salesPeak sales
Low cost per customerLow cost per customer
High profitsHigh profits
Maximize profit while defending
market share
Maximize profit while defending
market share
Diversify brand and modelsDiversify brand and models
Price to match or best competitorsPrice to match or best competitors
DistributionDistribution Build more intensive distributionBuild more intensive distribution
AdvertisingAdvertising Stress brand differences and benefitsStress brand differences and benefits

Decline Stage of the PLCDecline Stage of the PLC
SalesSales
CostsCosts
ProfitsProfits
ProductProduct
PricePrice
Declining salesDeclining sales
Low cost per customerLow cost per customer
Declining profitsDeclining profits
Reduce expenditure and milk the brandReduce expenditure and milk the brand
Phase out weak itemsPhase out weak items
Cut priceCut price
DistributionDistribution Go selective: phase out unprofitable outletsGo selective: phase out unprofitable outlets
AdvertisingAdvertising Reduce to level needed to retain
hard-core loyal customers
Reduce to level needed to retain
hard-core loyal customers

The Corporate Portfolio ApproachThe Corporate Portfolio Approach
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 Evaluation of the each business unit of anEvaluation of the each business unit of an
organizationorganization
Appropriate strategic role is developed for eachAppropriate strategic role is developed for each
unit with the goal of improving the overallunit with the goal of improving the overall
performance of the organizationperformance of the organization
One of the best known example of corporateOne of the best known example of corporate
portfolio is theportfolio is the Portfolio frameworkPortfolio framework advocated byadvocated by
Boston Consulting Group (BCG)Boston Consulting Group (BCG) its also know asits also know as
BCG matrixBCG matrix
BCG matrix mainly focuses upon 2 thingBCG matrix mainly focuses upon 2 thing
Market ShareMarket Share andand
Market GrowthMarket Growth

The BCG MatrixThe BCG Matrix
1–31

1–32
Question MarksQuestion Marks
It is a Business unit with aIt is a Business unit with a
small market share but insmall market share but in
rapidly growing market.rapidly growing market.
Could be uncertain andCould be uncertain and
expensive ventureexpensive venture
Require more cash in-flowRequire more cash in-flow
to grab the market shareto grab the market share
 E.g.E.g. Honda BrioHonda Brio

1–33
 StarStar
It’s a business unit with highIt’s a business unit with high
growth & high market sharegrowth & high market share
Need to go on investing inNeed to go on investing in
order to keep up withorder to keep up with
market’s rapid growthmarket’s rapid growth
 E.g. Chevrolet Beat,E.g. Chevrolet Beat,
Maruti Suzuki SwiftMaruti Suzuki Swift

1–34
Cash Cows
It’s a business unit with lowIt’s a business unit with low
growth but with high marketgrowth but with high market
shareshare
It's profitable and doesn'tIt's profitable and doesn't
require much cash inflowrequire much cash inflow
E.gE.g. Maruti Suzuki WagonR. Maruti Suzuki WagonR

1–35
DogDog
Here the business unit isHere the business unit is
having low growth and lowhaving low growth and low
market sharemarket share
It’s slowly growing orIt’s slowly growing or
stagnant market.stagnant market.
 E.g. Maruti Suzuki 800E.g. Maruti Suzuki 800

““Five Forces” Corporate StrategyFive Forces” Corporate Strategy
1–36
 It’s a well known approach to corporate strategyIt’s a well known approach to corporate strategy
is Michael Porter’s “five forces” model.is Michael Porter’s “five forces” model.
According to Porter an organization’s ability toAccording to Porter an organization’s ability to
compete in a given market is determined by thatcompete in a given market is determined by that
organization’s technical and economic resources,organization’s technical and economic resources,
as well as by five environmental “forces”, each ofas well as by five environmental “forces”, each of
which threaten organization’s venture in newwhich threaten organization’s venture in new
market.market.

Threats of New EntrantsThreats of New Entrants
1–38
 Barriers to entry measure how easy or difficult itBarriers to entry measure how easy or difficult it
is for new entrants to enter into the industry. Thisis for new entrants to enter into the industry. This
can involve for example:can involve for example:
Cost advantages (economies of scale,Cost advantages (economies of scale,
economies of scope)economies of scope)
Access to production inputs and financing,Access to production inputs and financing,
Government policies and taxationGovernment policies and taxation
Production cycle and learning curveProduction cycle and learning curve
Capital requirementsCapital requirements
Access to distribution channelsAccess to distribution channels
Patents, branding, and image also fall into thisPatents, branding, and image also fall into this
category.category.

Threat Of SubstitutesThreat Of Substitutes
1–39
 Every top decision maker has to ask: How easyEvery top decision maker has to ask: How easy
can our product or service be substituted? Thecan our product or service be substituted? The
following needs to be analyzed:following needs to be analyzed:
How much does it cost the customer to switch toHow much does it cost the customer to switch to
competing products or services?competing products or services?
How likely are customers to switch?How likely are customers to switch?
What is the price-performance trade-off ofWhat is the price-performance trade-off of
substitutes?substitutes?
If a product can be easily substituted, then it is aIf a product can be easily substituted, then it is a
threat to the company because it can competethreat to the company because it can compete
with price only.with price only.

Bargaining Power Of BuyersBargaining Power Of Buyers
1–40
 Now the question is how strong the position ofNow the question is how strong the position of
buyers is. For example, can customers workbuyers is. For example, can customers work
together to order large volumes to squeeze yourtogether to order large volumes to squeeze your
profit margins? The following is a list of otherprofit margins? The following is a list of other
examples:examples:
Buyer volume and concentrationBuyer volume and concentration
What information buyers haveWhat information buyers have
Competitive priceCompetitive price
How loyal are customers to your brandHow loyal are customers to your brand
Price sensitivityPrice sensitivity
Threat of backward integrationThreat of backward integration
How well differentiated your product isHow well differentiated your product is
Availability of substitutesAvailability of substitutes

Bargaining Power Of SuppliersBargaining Power Of Suppliers
1–41
• This relates to what your suppliers can do inThis relates to what your suppliers can do in
relationship with you.relationship with you.
• How strong is the position of sellers?How strong is the position of sellers?
• Are there many or only few potential suppliers?Are there many or only few potential suppliers?
• Is there a monopoly?Is there a monopoly?
• Do you take inputs from a single supplier or fromDo you take inputs from a single supplier or from
a group? (concentration)a group? (concentration)
• How much do you take from each of yourHow much do you take from each of your
suppliers?suppliers?
• Can you easily switch from one supplier toCan you easily switch from one supplier to
another one? (switching costs)another one? (switching costs)
• If you switch to another supplier, will it affect theIf you switch to another supplier, will it affect the
cost and differentiation of your product?cost and differentiation of your product?

Competitive RivalryCompetitive Rivalry
1–42
 In this, we have to analyze the level ofIn this, we have to analyze the level of
competition between existing players in thecompetition between existing players in the
industry.industry.
Is one player very dominant or all equal inIs one player very dominant or all equal in
strength/size?strength/size?
How fast does the industry grow?How fast does the industry grow?
How is the industry concentrated?How is the industry concentrated?
How do customers identify themselves with yourHow do customers identify themselves with your
brand?brand?
Is the product differentiated?Is the product differentiated?
How well are rivals diversified?How well are rivals diversified?

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