Strategic Management Introduction

1. Introduction to
STRATEGIC MANAGEMENT

2. Thinking Strategically:
The Three Big Strategic Questions
1. Where are we now?
2. Where do we want to go?
– Business(es) to be in and
market positions to stake out?
– Buyer needs and groups to
serve?
– Outcomes to achieve?
3. How do we get there?
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3. • A company’s strategy consists of the set of competitive
moves and business approaches that management is
employing to run the company
• Strategy is management’s “game plan” to
– Attract and please customers
– Stake out a market position
– Conduct operations
– Compete successfully
– Achieve organizational objectives
What is Strategy?
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4. Why Are Strategies Needed?
To proactively shape
how a company’s
business will be
conducted
To mold the independent
actions and decisions of
managers and employees
into a coordinated,
company-wide game plan
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5. Strategic Management Concept
Competent execution of a well-conceived
strategy is the best test of managerial excellence
and a proven recipe for organizational success!
Good Strategy + Good Strategy Execution =
Good Management
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6. Art & science of formulating,
implementing, and evaluating cross-
functional decisions that enable an
organization to achieve its objectives.
-Fred David
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Strategic Management – Definition

7. The managerial process of developing a
strategic vision, setting objectives,
crafting a strategy, implementing and
evaluating the strategy, and initiating
corrective actions wherever deemed
appropriate
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Strategic Management – Definition

8. Company Vision,
mission
and social
responsibility
External
environment
Internal analysis
Strategic analysis and choice
Long-term
objectives
Generic and grand strategies
Short-term objectives;
reward systems
Functional tactics
Policies that
empower action
Restructuring, reengineering
and refocusing the organization
Strategic control and
continuous improvement
Possible?
Desired?
Feedback
Feedback
Legend
Major impact
Minor impact
Strategic
Management
Process
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9. Figure 1-1: The Five Tasks
of Strategic Management
Craft a
Strategy
to Achieve
Objectives
Set
Objectives
Develop a
Strategic
Vision
and
Mission
Implement
and
Execute
Strategy
Improve/
Change
Revise as
Needed
Revise as
Needed
Improve/
Change
Recycle
as Needed
Task 1 Task 2 Task 3 Task 4 Task 5
Monitor,
Evaluate,
and Take
Corrective
Action
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10. Process of Strategic
Management
Environmental
Scanning
Strategy
Formulation
Strategy
Implementation
Evaluation and
Control
Feedback
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What does Strategic Management Include?
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Determining the mission of the company, including broad statement about its
purpose, philosophy and goals.
Developing a company profile reflecting internal conditions and capabilities.
Assessment of the company’s external environment in terms of both competitive
advantage and general contextual factors.
Analysis of possible options uncovered in matching the company with the
external environment.
Identifying desired options in light of the company mission.
Strategic choice of a particular set of long-term objectives and grand stretegies
needed to achieve the desired options.
Development of annual objectives and short-term strategies compatible with
long-term objectives and grand strategies.
Implementing strategic choice based on budgeted reeource allocations and
matching of tasks, people, structures, technologies and reward system.
Review and evaluation of the success of strategic process that serves as a basis
for control

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Dimensions of Strategic Decisions
• Strategic Issues require Top-management decisions.
• Strategic Issues involve the allocations of large amount of
company resources.
• Strategic Issues are likely to Have a Significant Impact on
the Long-term Prosperity of the firm.
• Strategic Issues are Future Oriented.
• Strategic Issues Usually have Major Multifunctional
or Multibusiness Consequences.
• Strategic Issues Necessitate Considering Factors in the
Firm’s External Environment.

13. Levels of Strategy
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Corporate Level:
– Composed of members of BOD’s, Directors, and CEO’s.
– Responsible for financial/non-financial performance. E.g. corporate
image and social responsibility.
– Generally determine the business in which the company should be
involved.
– Identify distinctive competitiveness or competencies by adopting
portfolio approach.
– Orientations at the corporate level reflect the concern of stockholders
and society at large.
Business Level:
– Composed of business and corporate managers.
– Translate general statements of directions and intent to concrete
functional objectives and strategies.
– Determine the basis of competition on selected market. 12

14. Levels of Strategy (contd..)
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Functional Level:
Composed of managers of product, geographic, and functional
areas
Develop annual objective and short-term strategies in such areas.
Have greatest responsibility in implementing and executing
company’s strategic plans.
Corporate level emphasizes on “doing the right things” whereas
functional level emphasize on “doing things right.”
Addresses ‘efficiency’ and effectiveness of functional tasks.
Directly addresses the efficiency and effectiveness of production
and marketing systems, the quality and extent of customer service,
and the success of particular products and services in increasing the
market share.
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15. Characteristics of Strategic Management
Decisions
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Features at Corporate Level:
Corporate level decisions tend to be value oriented, conceptual and less
concrete than those at business level and functional level.
Are characterized by greater risk, cost and profit potentials.
Longer-time horizons and greater needs for flexibility.
Examples of decisions include choice of business, dividend policies, sources of
long-term financing and priorities for growth.
Features at Functional Level:
Involve action-oriented operational issues.
Are made periodically and leads to the implementation of some part of overall
strategy.
Relatively short-range and involve low risk and modest cost/ dependent on
available resources.
Are concrete and quantifiable and adaptable to ongoing activities.
•
• E.g. brand-name labeling, R&D applications, Inventory levels etc. 14

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Characteristics of Strategic Management
Decisions (contd..)
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Features at Business Level:
Less costly and risky and potentially profitable than corporate level
but more costly and risky than functional level.
Decisions involve plant location, market segmentation, geographic
coverage, distribution channel decisions.

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Formality in Strategic Management
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Formality refers to the degree to which membership, responsibilities,
authority, and discretion in decision making are specified.
An important consideration because degree of formality is usually
positively correlated with cost, comprehensiveness, accuracy and
success of planning.
The size of the organization, its predominant management styles, the
complexity of its environment, its production processes, the nature of
its problems, and the purpose of its planning system all combine in
determining an appropriate degree of formality.
Formality is often associated with two factors: size and stage of
development of the company.
Entrepreneurial Mode – most small firms
Planning Mode – most large firms
Adaptive Mode – most medium size firms

18. Benefits of Strategic Management
Financial Benefits
• Improvement in sales
• Improvement in profitability
• Productivity improvement
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Benefits of Strategic Management
Non-Financial Benefits
• Improved understanding of competitors strategies
• Enhanced awareness of threats
• Reduced resistance to change
• Enhanced problem-prevention capabilities

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The Strategy Makers/Role of Chief Executive in
Strategic Management
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Ideally strategic management process is developed and governed by
a team which comprises of CEO’s, the business/product
managers, and the heads of the functional areas.
Because of the tremendous impact and large commitments of
company resources strategy can only be made by top
managers.
Top management shoulders the responsibility for approving phases
of planning.
Business level particularly have principal responsibilities for
approving environmental analysis and forecasting.
Top management also reviews, evaluates, and counsels on most
major phases of the strategic plan’s preparation.

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Role of CEO
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CEO’s must give long-term direction to the firm.
Personalities of CEO’s often affect in delegating substantive
authority in formulation and execution of strategies.
Autocratic CEO reduces the firms effectiveness on strategic
decisions and planning.
Team-oriented and participative CEO increases the efficiency of
strategic management processes.
CEO’s must provide managers at all levels with an opportunity to
play a role in strategic decision process.
CEO’s fulfillment of promise is parallel to the degree of success
enjoyed by a firm.

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What Makes Strategy a Winner?
1. How well does the strategy fit the company’s situation?
2. Is the strategy helping company achieve a sustainable
competitive advantage?
3. Is strategy resulting in better performance?
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Better performance resulting from financial gains and
strengths and
Better performance by gains in competitive strength and
market standings.

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ENVIRONMENTAL
ANALYSIS

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Environmental Analysis
• Starting point in strategic Management Process
• General environment and Industry environment
analysis is required to scan the environment and
analyze competition in the industry.
• Firm’s internal environment analysis helps to
identify strength and weakness.

25. Firm’s External Environment
THE FIRM
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Operating Environment (Global and Domestic)
•Labor
•Suppliers
•Customers
Industry Environment (Global and Domestic)
•Entry barriers •Buyer power •Competitive
•Supplier power •Substitute availability rivalry
•Competitors
•Creditors
Remote Environment (Global and Domestic)
•Economic
•Social
•Political
•Technological
•Ecological

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Industry and
Competitive
Analysis

27. Industry and Competitive Analysis
Identify
Strategic
Options
for the
Company
Assess Industry & Competitive Conditions
1. Industry’s dominant economic traits
2. Nature of competition & strength of
competitive forces (Five force Model)
3. Drivers of industry change
4. Competitive position of rivals
5. Strategic moves of rivals
6. Key success factors
7. Conclusions about industry attractiveness
Assess Company Situation
1. Assessment of company’s present strategy
2. Resource strengths and weaknesses,
market opportunities, and external threats
3. Company’s costs compared to rivals
4. Strength of company’s competitive position
5. Strategic issues that need to be addressed
Select
the Best
Strategy
for the
Company
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1. Industry’s dominant Economic Traits
• Market Size and Growth
• Scope of competitive rivalry
• Number of rivals
• Production capacity
• Buyer need and requirement
• Product differentiation
• Learning and experience curve effect
• Pace of technological change
• Product innovation

29. 2. Five Forces Model Of Competition
Suppliers
Substitutes
Industry Competitors
Rivalry Among
Existing Firms
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Potential
Entrants
Buyers
Bargaining power
of suppliers
Threat of substitute
products or services
Bargaining power
of buyers
Threat of new entrants

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Threat of new entry
• Seriousness of threat depends on
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Barriers to entry
Reaction of existing firms
• Barriers to entry
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Economies of scale
Product differentiation - USP
Capital requirements
Cost advantages independent of size
Access to distribution channels
Government policy

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Bargaining Power of Suppliers
A supplier group is powerful if:
• It is dominated by a few companies and is more
concentrated than industry it sells to
• Its product is unique, or differentiated, or has built up
switching costs
• It is not obliged to contend with other products for
sale to industry
• It poses a threat of integrating forward into industry’s
business
• Industry is not an important customer of supplier
group

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Bargaining Power of Buyers
A buyer group is powerful if:
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It is concentrated or purchases in large volume
Products purchased from industry are standard or
undifferentiated
Products purchased from industry form a component of its
product, representing a significant fraction of its cost
It earns low profits, creating incentives to lower its costs
Industry’s product is unimportant to quality of buyers’ products or
services
Industry’s product does not save buyer money
Buyer poses credible threat of integrating backward

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Threat of Substitute Products
• Relevance of substitutes
• By placing a ceiling on prices charged, they limit profit
potential of an industry
• Substitutes deserving the most attention are
those
• Subject to trends improving their price-performance
trade-off with the industry’s product
• Produced by industries earning high profit

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Jockeying for Competitive Position
Tactics of competitive rivalry
• Price competition
• Product introduction
• Advertising slugfests
What makes the competition intense?
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Numerous competitors or they are roughly equal in size and power
Slow growth in industry
Product lacks differentiation or switching costs
High fixed costs or perishable product
Capacity normally augmented in large increments
High exit barriers
Rivals are diverse in strategies, origins, and “personalities”

36. 3. Industry’s Driving Force
• Internet and e-commerce opportunities
• Increasing globalization of industry
• Changes in long-term industry
growth rate
• Changes in who buys the product
and how they use it
• Product innovation
• Technological change/process innovation
• Marketing innovation
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4.Competitive Position of Rival Firms
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• One technique for revealing the different competitive
positions of industry rivals is strategic group mapping
A strategic group consists of those rivals with similar
competitive approaches in an industry
Firms in same strategic group have two or more
competitive characteristics in common
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Sell in same price/quality range
Cover same geographic areas
Be vertically integrated to same degree
Have comparable product line breadth
Emphasize same types of distribution channels
Offer buyers similar services
Use identical technological approaches

38. 5. Competitive Moves of Rivals
• A firm’s own best strategic moves are
affected by
– Current strategies of competitors
– Future actions of competitors
• Profiling key rivals involves gathering
competitive intelligence about their
– Current strategies
– Most recent moves
– Resource strengths and weaknesses
– Announced plans
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Operating Environment
The operating environment, also called the competitive
or task environment, comprises factors in the
competitive situation that affect a firm’s success in
acquiring needed resources or in profitably marketing its
goods and services.
Factors in the operating environment
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Firm’s competitive position
The composition of its customers
Its reputation among suppliers and creditors
Its ability to attract capable employees

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Criteria Used in Constructing
Competitor Profiles
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Market share
Breadth of product line
Effectiveness of sales distribution
Proprietary and key-account
advantages
Price competitiveness
Advertising and promotion
effectiveness
Location and age of facility
Capacity and productivity
Experience
Raw material costs
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Financial position
Relative product quality
R&D advantages position
Caliber of personnel
General images
Customer profile
Patents and copyrights
Union relations
Technological position
Community reputation

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Customer Profile
• Improves ability of managers to
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Plan strategic operations
Anticipate changes in size of markets
Reallocate resources to support forecasted shifts in demand
patterns
• Two approaches to market segmentation
• Traditional segmentation approach (for consumer market)
Geographical: County, region, city, density, climate
Psychographic: Life style, personality, social class
Demographic: age, sex, family size, income, occupation,
education, religion etc.
Behavioral: Occasions; Benefits; User status; Usage rate;
Loyalty status; Readiness stage; Attitude toward product

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Industrial market segmentation
Demographic :
Industry; Company size; Location
Operating:
Technology; User-nonuser status; Customer capabilities
Purchasing Approaches:
Purchasing-function organization; Power structure;
Nature of existing relationships; General purchase
policies; Purchasing criteria
Situational Factors:
Urgency; Specific application; Size of order
Perfect Characteristics:
Buyer-seller similarity; Attitudes toward risk; Loyalty

43. Factors Related to Assessing
Relationship With Suppliers
How costly are shipping charges? Are
suppliers competitive in terms of
production standards?
Are suppliers’ prices
competitive? Do they offer
quantity discounts?
In terms of deficiency rates, are
suppliers’ abilities, reputations,
and services competitive?
Are suppliers reciprocally
dependent on the firm?

44. Factors Related to Assessing
Relationship with Creditors
• Do creditors fairly value and willingly accept
firm’s stock as collateral?
• Do creditors perceive firm as having an
acceptable record of past payment?
• A strong working capital position? Little or no
leverage?
• Are creditors’ loan terms compatible with
firm’s profitability objectives?
• Are creditors able to extend necessary lines
of credit?

45. Factors Related to Acquiring Needed
Human Resources
A firm’s access to
needed
personnel is affected by
Reputation as an
employer
Local employment
rates
Availability of people
with needed skills

46. Strategy Options and
strategic analysis
and Choice

47. Generic Strategies
• Low cost provider strategies
• Broad differentiation strategies
• Best-cost provider strategy
• Focused strategy based on lower cost
• Focused strategy based on differentiation.

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Requirement for Generic
Strategies
Generic
Strategy
Commonly Required Skills and
Resources
Common Organizational
Requirements
Overall Cost
Leadership
•Sustained capital investment
and access to capital
•Process engineering skills
•Intense supervision of labor
• Products designed for ease
in manufacture
•Low-cost distribution system
•Tight cost control
• Frequent,
detailed control
reports
• Structured
organization and
responsibilities
•Incentives based on
meeting strict
quantitative targets

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Requirements contd..
Generic Strategy Commonly Required Skills and
resources
Common Organizational
Requirements
Differentiation •Product engineering
•Creative flare
•Strong capability in basic research
• Corporate reputation for quality
or technological leadership
•Unique combination of skills
•Strong cooperation from channels
•Strong marketing abilities
•Strong coordination
among functions in
R&D, product
development, and
marketing
•Subjective measurement and
incentives instead of
quantitative measures
•Amenities to attract highly
skilled labor, scientists, or
creative people
Focus Combination of above policies directed at
the particular strategic target
Combination of above policies
directed at the particular
strategic target

50. Types of Grand Strategies
1. Concentrated growth
2. Market development
3. Product development
4. Innovation
5. Horizontal integration
6. Vertical integration
7. Joint ventures
8. Concentric
diversification
9. Conglomerate
diversification
10.Retrenchment/
Turnaround
11.Divestiture
12.Liquidation
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51. Strategic Analysis and Choice
Input stage:
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Internal Factor Evaluation Matrix (IFE)
External Factor Evaluation Matrix (EFE)
Competitive Profile Matrix (CPM)
Matching stage:
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SWOT Matrix
SPACE Matrix (Strategic Position and Action Evaluation
Matrix)
• GE Matrix
Decision stage:
Quantitative Strategic Planning Matrix (QSPM)

52. Strategic Analysis and Choice
Several Factors influence the strategic
choice decisions. Some of the more
important are:
• Role of past strategy
• Degree of firm’s external dependence
• Attitude towards risk
• Internal political situation and the CEO
• Timing
• Competitive reaction.