STRATEGIC MANAGEMENT

BBA 602
What is Strategy?
Definition 1. Strategy is the determination of the long-term goals and
objectives of an enterprise and the adoption of the courses of action
and the allocation of resources necessary for carrying out these goals.

Definition 2. Strategy is management’s game plan for strengthening

the organization’s position, pleasing customers, and achieving
performance targets.
Types of strategy (or Levels of business)
• What are they?

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Types of strategy (or
Levels of business)
Strategy can be
formulated on three
different levels:
Corporate level
Strategic business
unit level (or SBU)
Functional or
departmental level.
Alternative Strategic Management Structures

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Difference between
Strategy & Tactics
• One is Short term & the other one is Long term…
Which is what? Can you tell…

Give examples!!!

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 Strategic Management –Defined
Art & science of formulating, implementing, and evaluating, cross-
functional decisions that enable an organization to achieve its
objectives.

Generally, strategic management is not only related to a single specialization but covers
cross-functional or overall organization. It is an umbrella concept of management that
comprises all such functional areas as marketing, finance & account, human resource, and
production & operation into a top level management discipline.

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Strategic Management –Defined (Contd.)
“The determination of the basic long-term goals & objectives of an
enterprise and the adoption of the course of action and the allocation
of resources necessary for carrying out these goals”.
-Chandler

“A Set of managerial decisions and actions that determines the long-run

performance of a firm.”

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Purpose of Strategic Management

To exploit and create new and different opportunities for tomorrow…

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Strategic Management

In essence, the strategic plan is a company’s game plan

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What is strategic management?
Basic concepts of strategy:
• Competitive advantage — operating with an attribute or set of
attributes that allows an organization to outperform its rivals.
• Sustainable competitive advantage — one that is difficult for
competitors to imitate.

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What is strategic management? (Contd..)
Basic concepts of strategy
• Strategy — a comprehensive action plan that identifies long-term
direction for an organization and guides resource utilization to
accomplish organizational goals with sustainable competitive
advantage.
• Strategic intent — focusing all organizational energies on a
unifying and compelling goal.

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 CHARACTERISTICS OF
STRATEGIC MANAGEMENT
Characteristics of Strategic Management
Long term issues
Competitive advantage
Impact on operations
Complex
Uncertain and future-oriented

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Characteristics of Strategic Management
Decisions: Corporate

• Often carry greater risk, cost, and profit potential

• Greater need for flexibility
• Longer time horizons
• Choice of businesses, dividend policies, sources of long-term
financing, and priorities for growth

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Characteristics of Strategic Management
Decisions: Business

• Help bridge decisions at the corporate and functional levels

• Less costly, risky, and potentially profitable than corporate-level
decisions
• More costly, risky, and potentially profitable than functional-level
decisions
• Include decisions on plant location, marketing segmentation, and
distribution

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Characteristics of Strategic Management
Decisions: Functional

• Implement the overall strategy formulated at the corporate and

business levels
• Involve action-oriented operational issues
• Relatively short range and low risk
• Modest costs: depend upon available resources
• Relatively concrete and quantifiable

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STRATEGY FORMULATION
Stages of strategic planning
• Environmental Scanning/analysis
• Strategy formulation
• Strategy implementation
• Strategy evaluation.
Stages of strategic planning (Contd…)

Basic Elements of the Strategic Management Process:

Strategy Evaluation
Environmental Strategy
Implementatio and
Scanning Formulation
n Control

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Environmental Scanning defined
• Monitoring, evaluation, and disseminating information from external
and internal environments –to key people in the firm
 S-W-O-T(or C) Analysis
• SWOT or SWOC (nowadays) is an acronym used to describe the
particular strengths, weaknesses, opportunities, and
threats/challenges, that are strategic factors for a specific company.
• The external environment consists of variables (OC) that are outside
the organization and not typically within the short run control of top
management. These variables from the context within which the
corporation exists.
 SWOT Analysis
• The internal environment of a corporation consists of variable (SW)
that are within the organization itself and are not usually within the
short run control of top management. These variables from the
context in which work is done. They include the corporation’s
structure, culture, and resources, key strengths from a set of core
competencies that the corporation can use to gain competitive
advantage
Summary of SWOT
Strengths – the internal elements of the business that contribute to
improvement and growth
Weaknesses – the attributes that will hinder a business or make it
vulnerable to failure
Opportunities – the external conditions that could enable future
growth
Threats – the external factors which could negatively affect the
business.

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 Strategy formulation
• Strategy Formulation is the development of long-range plans
for the effective management of environmental
opportunities and threats/challenges, in light of corporate
strengths and weaknesses (SWOT/C). It includes defining the
corporate mission, specifying achievable objectives,
developing strategies, and setting policy guidelines.
 Mission Statement
• An organization’s mission statement is the purpose or reason
for the organization’s existence. It tells what the company is
providing to the society.
 Mission Statement

• Purpose/reason for organization

• Promotes shared expectations
• Communicates public image
• Who we are; what we do; what we aspire to ???
 Objectives & Goals
• Objectives are the end results of planned activity. They should be
stated as action verbs and tell what is to be accomplished by when
and quantified if possible. The achievement of corporate objectives
should result in the fulfillment of corporation’s mission.
• The term goal is often used interchangeably with the term objective. I
would like you to understand the distinction between the two. In
contrast to an objective, we consider a goal as an open ended
statement of what we want to accomplish, with no quantification of
what is to be achieved and no time criteria for completion.
Corporate Goals/Objectives
– Profitability (net profit)
– Efficiency (low costs, etc)
– Growth (increase in total assets, sales, etc)
– Resource utilization (ROE, ROI)
– Reputation (being considered a “top” firm)
– Contributions to employees (employment security, wages, diversity)
– Contributions to society (tax paid, participation in charities)
– Market leadership (market share)
– Technological leadership (innovation, creativity).
– Survival (avoiding bankruptcy).
– Personal need of top management (using the firm for personal purposes, such as
providing jobs for relatives)
 Strategy
• A strategy of a corporation forms a comprehensive master plan that
states how the corporation will achieve its mission and objectives. It
maximizes competitive advantage and minimizes competitive
disadvantage.
Policies
1. Policies include guidelines, rules, and procedures established to
support efforts to achieve stated objectives.
2. Policies are most often stated in terms of management, marketing,
finance/accounting, production/operations, research and
development, and computer information systems activities.
• Examples: Employee appraisal policy, recruitment policy
Strategy Formulation

Vision & Mission

External Opportunities & Threats

Internal Strengths & Weaknesses

Long-Term Goals

Alternative Strategies

Strategy Selection
Issues in Strategy
Formulation

New business
opportunities
Businesses to abandon
Allocation of resources
Expansion or
diversification
International markets
Mergers or joint ventures
Avoidance of hostile
takeover
Stakeholders in business
4
Business and society: An interactive system

Society

Business
Definition of Stakeholders

• An individual or group with an interest in an organization.

• Any individual or group who can affect or are affected by the
achievement of a firms objective.

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Stakeholders in business
Stakeholders
Stakeholders are groups or individuals who have an interest in the
decisions of the company and its business. Stakeholders can be internal
to the business, such as employees, or external, like suppliers,
customers or the public.

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Stakeholders can be classified as:

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The Importance of Stakeholders
• Long-Term Relationships
• When a company has a long-term relationship with its
stakeholders, it runs more efficiently and can have a better
chance of producing profits.
• Feedback and Product Development
• Stakeholders can provide feedback during the entire product
development process, which can positively influence the
product's and/or the company's success. In turn, a company can
earn continued and new stakeholder loyalty.

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• A Sense of Community
• A sense of community among stakeholders can positively
shape the organizational development within a company and
increase consumer sales.
• Considerations
• Acting upon stakeholder criticism can actually give a company a
competitive edge, and help the company determine the
stakeholders who hold the most value for it.

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Supplementary Materials (for Topic #4 of Unit 1)
PDF Presentation:
1. Stakeholders in Business: Rahul Sonawane
stakeholdersinbusiness- 130117062720-phpapp02.pdf

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 5
VISION MISSION AND
PURPOSE
What should be a company’s vision…

“Management’s job is not to see the company as it is….but as it can

become.”

-John W. Teets

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The Business Vision & Mission…
• Value
• Vision Statement
• Mission Statement
• Purpose

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1. Corporate Values
Corporate values are the underlying principles which guide and also
drive the actions and activities of individual companies.
– A set of principles that further clarify what we stand for.
– A compass for individual and collective behavior.
– A clarification of what we are prepared to be judged on by
audiences.

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1. Corporate Values (Contd…)
Each company or organization has their own set of values.
“Heart and Soul” of the organization
– Performance
– Reputation
Endure throughout the life of the organization.

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Developing a set of Corporate Values
Question: What values or beliefs do you want to
represent your company?
• Facilitator selected top managers and key personnel to
complete values form.
• Brainstorming Exercise
• Final agreement by consensus on the best values to
represent company.

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Values Selection Form

Accountability Innovation Social

Responsibility
Commitment Leadership Speed
Creativity Loyalty Teamwork
Customer Service Multi-Cultural Technology
Dependability Partnership Transparency
Equality Privacy Trust
Entrepreneurial Progressive Unique
Excellence Quality Other Values:
Freedom Reliability
Honesty Safety
Source: William Bean, Strategic Planning That Makes Things Happen, p. 101.

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Important values

Customers

Management & Employees

Living Values

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2. Vision statement
Agreement on the basic vision for which the firm strives to
achieve in the long run is critically important to the firm’s
success.

“What do we want to become?”

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Vision & Mission

Clear Business
Vision

Comprehensive
Mission Statement

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Vision & Mission (Contd…)
Many organizations develop both vision & mission statements.

Vision statement--
• Should be established first and foremost
• Short – preferably one sentence
• Broad management involvement

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3. Mission statement
-- 90% of all companies have used a mission statement in the previous
five years.

“What is our business?”

• Enduring statement of purpose

• Distinguishes one firm from another
• Declares the firm’s reason for being

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Mission Statements
Also referred to as:

• Creed statement
• Statement of purpose
• Statement of philosophy
• Statement of business principles

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Mission Statements
• Reveal what an organization wants to be and whom it wants to serve.

• Essential for effectively establishing objectives and formulating

strategies.

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Vision & Mission
• Many organizations develop both vision & mission statements.
• It can be argued that profit, not mission or vision are necessary for survival of
any organization.
• Profit & vision are necessary to effectively motivate a workforce.

Shared Vision --
– Creates commonality of interests
– Reduce daily monotony
– Provides opportunity & challenge

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Developing Vision & Mission

• Clear mission is needed before alternative strategies can be

formulated and implemented
• Participation from diverse managers is important in developing the
mission.

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Developing Vision & Mission (Contd…)

Approach to developing --
– Select several articles about vision or mission
– Read as background information
– Ask to prepare a draft statement
– A facilitator merge into document
– Request for modifications, Additions, and deletions
– Revise the document
• Reach final agreement by consensus on vision or mission of the
company.

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Mission Statement Examples:
Microsoft: “Since its inception in 1975, Microsoft’s mission has been to
create software for the personal computer that empowers and enriches people
in the workplace, at school and at home.”

Coca-Cola: “As the world’s largest beverage company, we refresh the world.
We do this by developing superior soft drinks, both carbonated and non-
carbonated, and profitable non-alcoholic beverage systems that create value
for our company, our bottling partners and our customers.”

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Importance of Mission
Benefits from a strong mission

Unanimity of Purpose

Resource Allocation
Mission
Organizational Climate

Focal Point for Work

Structure
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 6
ENVIRONMENTAL APPRAISAL
What is Environment
• Environment is anything and everything surrounding us. It is external
objects, influences or circumstances under which someone or
something exists.
• The environment of any organization is the aggregate of all
conditions, events and influences that surround and affect it.

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Characteristics of Environment
• It is complex – it consists of interrelated factors
• It is dynamic – Due to its shape and character
• It is multifaceted – The environment developed is perceived
differently by different people
• It has a far reaching impact – The growth and profitability of the
organization critically depends on its environment

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Two Basic Types of Environment…
External Environment
• Includes all the factors outside the organization which provide
opportunities or pose threats to the organization.

Internal Environment
• Refers to all the factors within an organization which impart strengths
or cause weaknesses of a strategic nature.

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Components of External Environment (PESTEL)
• Political
• Economic
• Social/cultural
• Technological
• Environmental
• Legal

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Political Factors
• Specific election results
• Specific politicians voted in or out of office
• Political ideological mood of country or region
• Opportunities for lobbying
• Political/business leaders positions on industry-related issues
• Government spending focus and levels
• Government policies on industry-related issues
• Governmental regulatory vigor
• Government role in meeting societal needs
• Media reports

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Economic Factors
• At global, national and regional levels
• Interest rates
• Stock market prices
• Venture capital deals (IPOs, M&As)
• Government budget deficit or surplus
• Inflation rates
• Consumer income, disposable income, and debt
• Employment and unemployment levels
• Tax rates
• Economic cycle stage (boom vs recession)
• Global economic metrics
• Specific effects of economic trends

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Social and Cultural Factors
• Characteristics – traditions, lifestyles, values, ideals, aspirations,
principles, ethics, attitudes, beliefs, biases, opinions, tastes, political
views, and behavioral patterns
• People – current customers, prospective customers, influencers of
customers, ends users, employees, suppliers, shareholders,
bondholders, lenders, government regulators, politicians, media,
general public.

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Technological Factors
• The technological improvements in products and services that are
provided by science. Relevant factors include, for example, changes in
the rate of new product development, increases in automation, and
advancements in service industry delivery.

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Environmental Factors
• The environmental factors involves the physical conditions within
which organizations operate. It includes factors such as natural
disasters, pollution levels, and weather patterns.

Example: Global warming, believed by most people to be due to carbon dioxide and
other greenhouse gases produced by industrial activity, cars, and other forms of
travel.

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Legal Factors
• Existing laws (long established, how are they interpreted and
enforced)
• New laws (recently enacted, how will they be interpreted and
enforced)
• Proposed legislation (working their way through the legislature, likely
impact on industry and organization)

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Environmental Scanning
• It is the process by which organizations monitor their relevant
environment to identify opportunities and threats affecting their
business.

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Approaches to Environment Scanning
• Systematic approach
• Ad hoc approach
• Processed-form approach

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Systematic Approach
• Under this approach, information for environmental scanning is
collected systematically.
• Information related to markets and customers, changes in legislation
and regulations that have a direct impact on an organization's
activities, govt. policy statements pertaining to the organization's
business and industry, etc. could be collected continuously to monitor
changes and take the relevant factors into account.

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Ad hoc Approach
• Using this approach, an organization may conduct special surveys and
studies to deal with specific environment issues from time to time.
• Such studies may be conducted when an organization has to
undertake special projects, evaluate existing strategies or devise new
strategies.

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Processed-form Approach
• For adopting this approach, the organization uses information in a
processed form available from different sources both inside and
outside the organization.
•

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Sources of Information for Environmental Scanning

• Documentary or secondary sources of information like different types

of publications.
• Mass media
• Internal sources
• External agencies
• Formal studies

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Methods and Techniques Used for Environmental Scanning

• Trend analysis
• Regression analysis
• The Delphi technique
• Benchmarking
• MIS of the firm
• QUEST (Quick environmental scanning technique)

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QUEST
• Proposed by B. Nanus. It is a four-step process which uses scenario-
writing for scanning the environment and identifying strategic
options.
1. Strategists make observations about the major events and trends in the industry.
2. Then, they speculate on a wide range of important issues that might affect the
future of their organizations by scanning the environment.
3. The QUEST director prepares a report summarizing the major issues and their
implications.
4. The report and scenarios are reviewed by the group of strategists who identify
feasible strategic options to deal with the evolving environment. The options are
ranked and teams are designated to develop strategies.

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Environmental Appraisal
• Glueck suggested a technique for environmental appraisal i.e. ETOP
(Environmental Threat and Opportunity Profile).
• It involves dividing the environment into different sectors and then
analyzing the impact of each sector on the organization.
• It requires subdividing each environmental sector into sub-factors and then
the impact of each sub-factor on the organization is described in the form
of a statement.
• A summary ETOP may show the major factors for the sake of simplicity.

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 ETOP for a bicycle company
Environmental sectors Impact of each sector

Social Customer preference for sports cycles which are fashionable, easy
to ride and durable.
Political No significant factor.
Economical Growing affluence among urban consumers; exports potential
high.
Legal Bicycle industry a thrust area for exports.
Technological Technological up gradation of industry in progress; introduction of
mountain bike and commuter folding bikes.
Environmental Environmental factors such as a renewed interest in
healthy lifestyles and the desire to reduce pollution.
Up arrows indicate favourable impact, down arrows (if used) indicate unfavourable impact, while horizontal
arrows indicate a neutral impact. 82
 Assignment #2 ETOP Analysis

• The whole class will be divided into groups of four each (or already made groups of
four students each)….then four groups will combine to form one Sector/ sub-sector,
for example- IT, Telecom (mobile s.p. or manufacturer), Automobiles (Car or Motor
cycles), FMCG, Consumer Durables (Television, Mobile, W/machine, etc.) QSR,
Banking (Internet banking, Bank teller, etc.), Insurance (Life insurance, Health
insurance, etc.)
• Overall one sector or sub-sector will be assigned to each group…your group name
will be your sector’s name, ex. MOTOR CYCLE.
• Each group will have to make one single written assignment (hand written only) of
their respective sub-sector….

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 7
TYPES OF STRATEGIES
Strategy hierarchy
1. Corporate strategy: 1) growth strategy, 2) stability strategy, 3)
retrenchment strategy.
2. Business unit strategy: 1) cost leadership, 2) differentiation, 3)
focus, 4) mixed.
3. Functional strategy.

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 Types of Strategies
Corp
A Large Level

Company
Division Level

Functional Level

Operational Level

86Ch 5 -
 Types of Strategies
company
A small
Company Functional
Level

Operational Level

87Ch 5 -
Corporate strategies
• Top level management formulate for overall organization
• The question at the corporate level we should answer when design
strategies: In what industry should we be operating?
• It depends on the outcome of SWOT analysis.

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Growth strategies
Growth strategies:
They result increase in sales, market share and profit: the types:
• Internal growth: Increase internal capacity of organization without acquiring
other firms.
• Conglomerate Diversification: Acquiring unrelated business.
• Merger: Two roughly similar size firms combine into one. To benefit of synergy.
• Strategic alliance: Temporary partnerships

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Corporate Restructuring
The change in a broad set of actions and decisions, e.g., changing
relationships and organization of work.
• The aim of restructuring is to improve effectiveness.
• Restructuring could be growth, stability or retrenchment. This depends on
why we use it.

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Retrenchment strategies
• Types:
1- Turnaround:
Eliminating unprofitable outputs, pruning/cutting assets, reducing size
of work force, rethinking firm’s products lines and customer groups.
2- Divestment: sell one of business units
3- Liquidation: last resort strategy

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Business Unit Strategies
How should we compete in the chosen industry?
Here we answer the question:
• Cost leadership
• Differentiation (real or perceived).
• Mixed
• Focus

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Porter’s Competitive Strategies

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Porter’s Competitive Strategies

Cost Leadership --

– Low-cost competitive strategy

– Broad mass market
– Efficient-scale facilities
– Cost reductions
– Cost minimization

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Michael Porter’s Generic Strategies

• Cost leadership emphasizes producing standardized products at a very low per-

unit cost for consumers who are price-sensitive.
• There are two types of cost leadership strategies.
a. A low-cost strategy offers products to a wide range of customers at the lowest
price available on the market.
b. A best-value strategy offers products to a wide range of customers at the best
price-value available on the market.
Cost leadership
• Striving to be the low-cost producer in an industry can be especially
effective when the market is composed of many price-sensitive
buyers, when there are few ways to achieve product differentiation,
when buyers do not care much about differences from brand to
brand, or when there are a large number of buyers with significant
bargaining power.
Cost leadership
• The basic idea behind a cost leadership strategy is to underprice
competitors or offer a better value and thereby gain market share and
sales, driving some competitors out of the market entirely.
• To successfully employ a cost leadership strategy, firms must ensure that
total costs across the value chain are lower than that of the competition.
This can be accomplished by:
a. performing value chain activities more efficiently than competition,
and
b. eliminating some cost-producing activities in the value chain.
Porter’s Competitive Strategies

Differentiation --

– Broad mass market

– Unique product/service
– Premiums charged
– Less price sensitivity

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Differentiation
• A successful differentiation strategy allows a firm to charge higher
prices for its products to gain customer loyalty because consumers
may become strongly attached to the differentiation features.
• A risk of pursuing a differentiation strategy is that the unique product
may not be valued highly enough by customers to justify the higher
price.
Differentiation
• Differentiation is aimed at producing products that are considered
unique. This strategy is most powerful with the source of
differentiation is especially relevant to the target market
Differentiation
• Common organizational requirements for a successful differentiation
strategy include strong coordination among the R&D and marketing
functions and substantial amenities to attract scientists and creative
people.
Focus

1. Focus means producing products and services that fulfill the needs of small
groups of consumers.
2. There are two types of focus strategies.
a. A low-cost focus strategy offers products or services to a small range (niche) of
customers at the lowest price available on the market.
b. A best-value focus strategy offers products to a small range of customers at the
best price-value available on the market. This is sometimes called focused
differentiation.
Focus
• Focus strategies are most effective when the niche is profitable and
growing, when industry leaders are uninterested in the niche, when
industry leaders feel pursuing the niche is too costly or difficult, when
the industry offers several niches, and when there is little competition
in the niche segment.
Porter’s Competitive Strategies

Cost Focus --

– Low-cost competitive strategy

– Focus on market segment
– Niche focused
– Cost advantage in market segment

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Porter’s Competitive Strategies

Differentiation Focus --

– Specific group or geographic market focus

– Differentiation in target market
– Special needs of narrow target market

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Functional/operational Strategies
Concern with org. internal resources and processes which effectively
deliver the corporate and business strategic direction.
Functional strategies are interrelated.
Functional strategies e.g.: purchasing & materials management,
production, finance, R&D, HR, IT, and marketing.

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Purchasing & Materials management (as
example)
Buying materials in quantity, quality and cost which correspond with
the corp. generic strategies (Business Unit strategies).

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 8
GUIDELINES for Crafting
Successful Business Strategies
10 Commandments for Crafting Successful Business
Strategies
1. Always put top priority on crafting and executing strategic moves
that enhance a firm’s competitive position for the long-term and
that serve to establish it as an industry leader.
2. Be prompt in adapting and responding to changing market
conditions, unmet customer needs and buyer wishes for something
better, emerging technological alternatives, and new initiatives of
rivals. Responding late or with too little often puts a firm in the
precarious position of playing catch-up.

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3. Invest in creating a sustainable competitive advantage, for it is a
most dependable contributor to above-average profitability.

4. Avoid strategies capable of succeeding only in the best of

circumstances.

5. Don’t underestimate the reactions and the commitment of rival

firms.

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6. Consider that attacking competitive weakness is usually more
profitable than attacking competitive strength.
7. Be judicious in cutting prices without an established cost advantage.
8. Employ bold strategic moves in pursuing differentiation strategies so
as to open up very meaningful gaps in quality or service or
advertising or other product attributes.

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9. Endeavor not to get “stuck back in the pack” with no coherent long-
term strategy or distinctive competitive position, and little prospect of
climbing into the ranks of the industry leaders.

10. Be aware that aggressive strategic moves to wrest crucial market

share away from rivals often provoke aggressive retaliation in the form
of a marketing “arms race” and/or price wars.

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