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INTRODUCTION

TO

STRATEGIC MANAGEMENT
Dr.P.Prasadarao Ph.D.,

The Nature of Strategic Management


If a man takes no thought about what is distant, he will find sorrow near at hand. He who will not worry about what is far off will soon find something worse than worry.

Confucius

Why do some companies fail while others succeed?

Why Dell computers has been able to do so well against Compaq, Gateway and Apple ? What distinguishes the success of Wal-mart against Sears and K-mart? In Database market how Oracle managed to build and retain strong market position vis--vis Informix and Sybase How Southwest Airlines maintain competitiveness against Delta and US Airways How did Sony come to dominate the market for Video games against Sega ? Success of Reliance

Strategies that organizations pursue have a major impact on its performance relative to its peers

Superior performances give them competitive advantage

Much of Strategic management is about identifying and describing strategies to attain superior performance and competitive advantage

Thinking Strategically
Where are we Now?

Where do we want to go?

How will we get there?

What is Strategic Management?


Strategic management focuses on integrating
management marketing finance/accounting production/operations research and development (R & D) computer information systems.

Strategic Management Defined

Strategic management consists of managerial decisions and actions that help to ensure that the organization formulates and maintains a beneficial fit with its environment.

According to Peter Drucker, the prime


task of strategic management is thinking through the overall mission of a business:
. . . That is, of asking the question, What is our Business? This leads to the setting of objectives, the development of strategies, and the making of todays decisions for tomorrows results. Futurity in present Decisions

The Five Tasks of Strategic Management

1. Deciding what business the company will be in and forming a strategic vision a) Fit a SWOT 2. Converting the strategic vision and mission into measurable objectives 3. Crafting a strategy 4. Implementing and executing 5. Evaluating performance

Strategic Management Process


The strategic management process consists of three stages:
Strategy Formulation (create) Strategy Implementation (do)

Strategy Evaluation (monitor)

External Environmental Opportunities and Threats


Macroenvironment Industry Environment

The Internal Environment


The Firms Resources, Organizational Mission, and Goals

Strategy Formulation

Strategic Management PROCESS


Feedback

Corporate Strategy Formulation Business Unit Strategy Formulation Functional Strategy Formulation

Strategy Implementation
Organizational Structure

Leadership, Power, and Organizational Culture

Strategic Control
Strategic Control Process and Performance

Mission

Technology Scope Role

Goals SWOT

Environment Complexity Munificence Dynamism

Size Complexity

Environment
Fit

Resources

Adaptation Determinism Voluntarism

Legitimacy Ethics Culture Learning Institutionalization

Alternatives

Organization Building Standardization Formalization Centralization Discretion Authority levels Admin. component Specialization Communication

Social Issues

Choice Strategy Formulation

Management Values

Organic vs. Mechanistic

Structure

Components Scope Resources Time

Implementation and Control

The Strategic Management Paradigm

Dimensions of Strategic Management


Requires top management decisions Large amounts of firm resources Affect long-term prosperity Future oriented Multifunctional or multi-business consequences Considers the impact of the external environment

Definition of Strategy
....a general statement of actions an
organization intends to take or is taking that is based on the fit of the organization with its external environment. strategy is the creation of a unique and valuable position, involving a different set of activities (Porter) strategy is best conceived as a combination of planned actions and on-the-spot adaptive reactions to fresh developing industry and competitive events.

The Hows That Define a Firm's Strategy


How to grow the business

How to please customers


How to out compete rivals

How to respond to changing market conditions


How to manage each functional piece of the business and develop needed organizational capabilities How to achieve strategic and financial objectives

The Levels of Strategy


Corporate Business Functional Synergies are sought at each level

Corporate- and Business UnitLevel Strategic Questions


Question at the corporate level: In what businesses should we be operating?

Question at the business unit level: How should we compete in the chosen businesses?

Strategy Is Both Planned and Reactive to Changing Circumstances


Planned (or Intended) Strategy

Actual Strategy

Adaptive Reactions

Why Do Strategies Evolve?


There is always an ongoing need to react to

Shifting market conditions Fresh moves of competitors New technologies Evolving customer preferences Political and regulatory changes New windows of opportunity The crisis of the moment

Build around core competencies Create distinctive competencies

The Purpose of Strategy is to Create a Sustainable Competitive Advantage


Competitive strategy is about being different

Make the distinctive competencies valuable so that they can become competitive advantages Build defenses around your position to make it sustainable Organization effectiveness is different from strategy
If it can be imitated, it is not a sustainable advantage

Stages of Strategic Management


Strategy formulation includes:
Developing a vision and mission. Identifying an organizations external opportunities and threats. Determining internal strengths and weaknesses. Establishing long-term objectives. Generating alternative strategies. Choosing particular strategies to pursue.

Stages of Strategic Management


Strategy formulation includes deciding:
What new businesses to enter. What businesses to abandon. How to allocate resources. Whether to expand operations or diversify. Whether to enter international markets. Whether to merge or form a joint venture. How to avoid a hostile takeover.

Stages of Strategic Management


Strategy implementation includes:
Establishing annual objectives. Devising policies. Motivating employees through leadership. Allocating resources.

Stages of Strategic Management


Strategy implementation is often considered to be the most difficult stage of strategic management, because it requires personal discipline, commitment, and sacrifice. Strategy implementation often is called the action stage of strategic management. Note: Strategies formulated but not implemented serve no useful purpose.

Stages of Strategic Management


Strategy evaluation includes:
Reviewing external and internal factors that are the bases for current strategies. Measuring performance. Taking corrective action, if needed.

The Prime Task of Strategic Management


Strategy evaluation is needed because:
All strategies are subject to future modification. Success today is no guarantee of success tomorrow. Success can lead to complacency. Success leads to new and different problems.

Adapting to Change
The strategic-management process is based on the belief that organizations should continually monitor internal and external events and trends so that timely changes can be made as needed. To survive, all organizations must be capable of astutely identifying and adapting to change.

Key Terms in Strategic Management


Competitive advantage is anything that a firm does especially well compared to rival firms.
Getting and sustaining competitive advantage is essential for long-term success in an organization. Pursuit of competitive advantage leads to organizational success or failure.

Key Terms in Strategic Management

1.

A firm must strive to achieve sustained competitive advantage by


continually adapting to changes in
external trends and events internal capabilities competencies resources.

2.

effectively formulating, implementing, and evaluating strategies that capitalize upon those factors.

Key Terms in Strategic Management


Strategists are the individuals who are most responsible for the success or failure of an organization. Strategists may have various job titles. Strategists help an organization gather, analyze, and organize information.

Key Terms in Strategic Management


Vision statement: answers the question, What do we want to become? Developing a vision statement is often considered the first step in strategic planning. Many vision statements are a single sentence.
BHELs vision statement: A world-class innovative

Key Terms in Strategic Management


Mission statements
are enduring statements of purpose that distinguish one business from other similar firms. identify the scope of a firms operations in product and market terms. answer the question: What is our business? broadly chart the future direction of an organization. describe the values and priorities of an organization.
BHEL :To achieve and maintain a leading position as suppliers of quality equipments, systems and service to serve the national and international markets in the field of energy. The areas of interest would be conversion, transmission,, utilisation and conservation of energy for power, industrial and transportation fields, to strive for technological excellence and market leadership in these areas.

Key Terms in Strategic Management


External opportunities and threats refer to the following trends and events that could significantly benefit or harm an organization in the future:
Economic Social Cultural Demographic Environmental Political Legal Governmental Technological Competitive.

Key Terms in Strategic Management


Opportunities and threats are largely beyond the control of a single organization. A basic tenet of strategic management is that firms need to
formulate strategies to take advantage of external opportunities avoid or reduce the impact of external threats.

The process of conducting research and gathering and assimilating external information is called environmental scanning.

Key Terms in Strategic Management


Internal strengths and internal weaknesses are an organizations controllable activities that are performed especially well (strengths) or poorly (weaknesses). Internal strengths and weaknesses arise in the functional areas within an organization: management, marketing, finance/accounting, production/operations, research and development (R&D), and management information systems. Strengths and weaknesses are determined relative to competitors.

Key Terms in Strategic Management


Long-term objectives are specific results that an organization seeks to achieve in pursuing its basic mission. Long-term means more than one year. Long-term objectives should be
challenging measurable consistent reasonable clear.

Key Terms in Strategic Management


Strategies are
potential actions that require top management decisions and large amounts of the firms resources. the means by which long-term objectives will be achieved. the combination of competitive moves and business approaches that managers employ to please customers, compete successfully, and achieve organizational objectives.

Key Terms in Strategic Management


For example, strategies may include
Geographic expansions Diversification Acquisition Product development Market penetration Retrenchment Divestiture Liquidation Joint ventures.

Key Terms in Strategic Management


Annual objectives
Short-term (less than one year) milestones that organizations must achieve to reach long-term objectives. Should be stated in terms of management, marketing, finance/accounting, production/operations, research and development, and management information systems accomplishments. A set of annual objectives should be developed for each long-term objective. Are especially important in strategy implementation. Represent the basis for allocating resources.

Key Terms in Strategic Management


Policies
are the means by which annual objectives will be achieved. are most often stated in terms of management, marketing, finance/accounting, production/operations, research and development, and management information systems accomplishments. include guidelines, rules, and procedures established to support efforts to achieve stated objectives. are especially important in strategy implementation because they outline an organizations expectations of its employees and managers. allow consistency and coordination within and between organizational departments. are guides to decision making and address repetitive or recurring situations.

Benefits of Strategic Management


Strategic management
Allows an organization to be more proactive than reactive in shaping its own future. Allows an organization to initiate and influence (rather than just respond to) activities. Allows an organization to exert control over its own destiny. Helps an organization formulate better strategies through the use of a more systematic, logical, and rational approach to strategic choice.

Benefits of Strategic Management


Communication is a key to successful strategic management. Dialogue and participation are essential ingredients. A major aim of the process is to achieve the understanding of and commitment from all managers and employees.