to Strategic Management Process

Introduction to Strategic Management Process

Introduction to Strategic
Introduction to Strategic Management
Management Process

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 Learning Objectives
1. Learn what we mean by a company’s strategy.
2. Grasp the concept of a sustainable competitive advantage.
3. Develop an awareness of the five most basic strategic
approaches for winning a sustainable competitive advantage.
4. Understand that a company’s strategy tends to evolve over
time because of changing circumstances and ongoing
management efforts to improve the company’s strategy.
5. Learn why it is important for a company to have a viable
business model that outlines the company’s customer value
proposition and its profit formula.
6. Learn the three tests of a winning strategy.

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Definitions
 Strategic Management:
Strategic Management is the process of an
organization's resources to achieve its goals
and objectives.

 Strategy:
A company’s strategy is its action plan for
outperforming its competitors and achieving
superior profitability

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WHAT DO WE MEAN BY STRATEGY?
 What is our present situation?
● Business environment and industry conditions
● Firm’s financial and competitive capabilities
 Where do we want to go from here?
● Creating a vision for the firm’s future direction
 How are we going to get there?
● Crafting an action plan for heading the firm in the
intended direction, staking out a market position,
attracting customers, achieving the targeted financial
and market performance, and getting the firm
where it wants to go is its strategy.

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WHAT IS STRATEGY ABOUT?
 Strategy is all about How:
● How to attract and please customers.
● How to compete against rivals.
● How to position the firm in the marketplace.
● How best to respond to changing economic
and market conditions.
● How to capitalize on attractive opportunities
to grow the business.
● How to achieve the firm’s performance targets.

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

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STRATEGIC MANAGEMENT PRINCIPLE

♦ Strategy is about competing differently from

rivals—doing what competitors don’t do or,
even better, doing what they can’t do!

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 Objectives of Strategic Management
It has two main objectives.
1. To gain Competitive advantage, with an aim of
outperforming the competitors, to achieve
dominance over the market.

2. To act as a guide to organization to help in

surviving the changes in business environment.
Here changes refers to changes in internal &
external environment.

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Importance of Strategic Management
 It guides the company to move in a specific
direction.
 It defines organizations goals and fixes realistic
objectives, which are in alignment with the company
vision..
 It assists the firm in becoming proactive rather than
reactive, to make it analyse the actions of
competitors and take necessary steps to compete in
the market, instead of becoming spectator.
 It ensures the long term survival of the firm while
coping with competition and surviving the dynamic
environment.
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WHY BOTHER WITH STRATEGY?
 A firm needs a strategy to specify what
actions are going to be taken:
● To improve its financial performance.
● To strengthen its competitive position.
● To gain a sustainable competitive advantage
over its market rivals.
 A creative, distinctive strategy:
● Helps produce above-average profits.
● Increases competitive pressures on rivals.

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STRATEGY AND COMPETITORS
 Strategy is about competing differently
from rivals—
● Doing what they don’t do or doing it better!
● Doing what they can’t do!
● Doing things in ways that attract customers
and set a firm apart from its rivals.
● Doing things in a manner calculated to
produce a competitive edge over rivals.

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Strategic Management Process

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Steps involved in Strategic Management Process
 Strategic Intent:
 Establishing vision
 Designing Mission
 Setting Objectives
 Formulating of Strategy:
 Performing environmental & organizational appraisal
 Considering strategies
 Carrying out strategic Analysis
 Making strategies
 Selection strategy & preparing strategic plan
 Implementation of Strategy:
 Putting strategy into practice
 Developing structures & system
 Managing behavioural & functional implementation
 Strategic Evaluation & Control:
 Performing evaluation
 Exercising Control
 Reacting strategies

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FIGURE 1.1 Identifying a Company’s Strategy–What to Look For

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 STRATEGY AND THE QUEST FOR
COMPETITIVE ADVANTAGE
 Competitive Advantage
● Require meeting customer needs either more
effectively (with products or services that customers
value more highly) or more efficiently (by providing
products or services at lower cost).
 A firm achieves a competitive advantage when it
provides buyers with superior value compared to rival
sellers or offers the same value at a lower cost to the
firm.

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 STRATEGY AND THE QUEST FOR
COMPETITIVE ADVANTAGE
♦ Sustainable Competitive Advantage
● Requires giving buyers lasting reasons to prefer a
firm’s products or services over those of its
competitors.
● The firm achieves a sustainable competitive
advantage if its advantage persists despite the best
efforts of competitors to match or surpass its
advantage.

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STRATEGIC APPROACH CHOICES

Building Competitive Advantage

Low-cost
Low-cost Differentiation
Differentiation Focus
Focus on
on Best-cost
Best-cost
provider
provider on
on features
features market
market niche
niche provider
provider

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STRATEGIC APPROACHES
 Building a competitive advantage by:
● Striving to become the industry’s low-cost provider
(efficiency).
● Outcompeting rivals on differentiating features
(effectiveness).
● Offering the lowest (best) prices for differentiated
goods (best-cost provider).
● Focusing on better serving a niche market’s needs
(efficiency and\or effectiveness).

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 GAINING SUSTAINABLE
COMPETITIVE ADVANTAGE
 How to create a sustainable competitive
advantage:
● Develop valuable expertise and competitive
capabilities over the long-term that rivals cannot
readily copy, match or best.
● Put the constant quest for sustainable competitive
advantage at center stage in crafting your strategy.

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 WHY A COMPANY’S STRATEGY
EVOLVES OVER TIME
 Managers modify strategy in response to:
● Changing market conditions
● Advancing technology
● Fresh moves of competitors
● Shifting buyer needs
● Emerging market opportunities
● New ideas for improving the strategy

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 THE EVOLVING NATURE
OF A FIRM’S STRATEGY
 Realized (current) strategy is a blend of:
● Proactive (deliberate) strategy elements that
include both continued and new initiatives.
● Reactive (emergent) strategy elements that are
required due to unanticipated competitive
developments and fresh market conditions.

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Difference between Business Model and
Business Strategy
Business Model:
● A business model is the systematic method used
to generate revenue in a profitable company.
● A company’s business model sets forth the logic
for how its strategy will create value for customers,
while at the same time generate revenues sufficient
to cover costs and realize a profit.
Business Strategy:
● A business strategy is a method used to achieve
a company core objective.

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THE RELATIONSHIP BETWEEN
A FIRM’S STRATEGY AND
ITS BUSINESS MODEL

Realized Business
Strategy $$$? Model
Competitive Value
Initiatives Proposition

Business
Profit Formula
Approaches

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 A COMPANY’S STRATEGY
AND ITS BUSINESS MODEL
 How the business will make money :

● By providing customers with value.

 The firm’s customer value proposition

● By generating revenues sufficient to cover

costs and produce attractive profits.
 The firm’s profit formula

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BUSINESS MODEL ELEMENTS
 The Customer Value Proposition
● Satisfying buyer wants and needs at a price
customers will consider a good value.
 The greater the value provided (V) and the lower
the price (P), the more attractive the value
proposition is to customers.

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BUSINESS MODEL ELEMENTS (CONT’D)
 The Profit Formula
● Creating a cost structure that allows for
acceptable profits, given that pricing is tied
to the customer value proposition.
 V—the value provided to customers
 P—the price charged to customers
 C—the firm’s costs
● The lower the costs (C) for a given customer
value proposition (V–P), the greater the ability
of the business model to be a moneymaker.

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 IS OUR STRATEGY A WINNER?

The Strategic
Fit Test

The Competitive Winning The Performance

Advantage Test Test
Strategy

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WHAT MAKES A STRATEGY A WINNER?
 A winning strategy must pass three tests:
● The Fit Test
● A good strategy is well matched to the
company's situation - both internal and
external factors and its own capabilities and
aspirations.
Q: Does the selected strategy exhibit dynamic
fit and is well matched with the external and
internal aspects of the firm’s overall
situation?

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WHAT MAKES A STRATEGY A WINNER?
 A winning strategy must pass three tests:
● The Competitive Advantage Test
A good strategy leads to sustainable
competitive advantage. The bigger the
competitive edge that a strategy helps build,
the more powerful and effective it is.
Q: Does the selected strategy help the firm
achieve a significant and sustainable
competitive advantage?

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WHAT MAKES A STRATEGY A WINNER?

● The Performance Test

● A good strategy boosts company performance.
Two kinds of performance improvements are
the most telling: gains in profitability and gains
in the company's long-term business strength
and competitive position.
Q: Can it produce good performance as
measured by the firm’s profitability, financial
and competitive strengths, and market
standing?

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 WHY STRATEGY IS IMPORTANT

 Strategy provides:
● A prescription for doing business.
● A road map to competitive advantage.
● A game plan for pleasing customers.
● A formula for attaining long-term standout
marketplace performance.

Good Strategy + Good Strategy Execution =

Good Management

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