Strategic Management Process

Strategic management process in a single SBU firm

Defining organizationalmission

Environmental Analysis

Organizational analysis

Implementation of strategy

IdentifyingAlternative strategies

Strategy evolution & control

Setting long- term objective

Choice of strategy

Feedback

Reset ifrequired

Reformulated if required

Re implement If required

Strategic Management Process

in a Multiple SBUs firm

Organizational long-termobjectives

Environmental Analysis for Present & potential

SBUs

Organizational Mission

Implementation of strategy

Alternative strategies

Evaluation of Organization & SBU results

SBUs’ objective

Choice of strategy

Feedback

Organizational& SBU analysis

Environmental Analysis For SBUs

Analysis of SBUs

Feedback

Implementation Of strategy

Alternative strategies

Choice of strategy

Evaluation of SBU’s results

Corporate level SBUs’ objective

Organizational mission & objectives

• The mission of an organization is the fundamental unique purpose that sets it apart from other organizations and identifies the scope of its operation in product and market terms.

• Choice of the objectives for an organization is a strategic decision because by choosing its objectives, the organization commits itself for these. Objectives are generally the end results which the organization makes an attempt to achieve.

Environmental Analysis

• Organization operates within the environment. An organization has to interact continuously with its environmental factors. Various factors of the environment have dual effect in interaction process with the organization ; they affect the working of the organization & also affected by its working. The interaction process provides opportunities or threats to an organization depending on the situation.

Organizational Analysis

Through organizational analysis, the organization evaluates its strengths and weaknesses so that it can relate itself by emphasizing its strengths and overcoming its weaknesses. Organizational strengths & weaknesses also help in identifying the relevant environmental factors taken for detailed analysis. Strategic opportunities & threats are determined on the basis of both environmental analysis as well as organizational analysis

Identification of Strategic Alternatives

• This process may result into large number of alternatives through which an organization can relate itself to the environment. The strategic alternatives should be identified in the light of strategic opportunities & threats generated through environmental analysis, organizational analysis & organizational mission and objectives.

Choice of strategy

• This is the stage of strategic decision process and all factor relevant for decision making are relevant here. Since the particular strategy attempts to affect the organizational operation in same predetermined manner, the choice process systematically considers how each alternative strategy affects the various critical factors of the organizational functioning. Further, the chosen alternative should be acceptable in the light of organizational objectives.

Implementation of strategy

• To bring the result, the strategy should be put to action because mere choice of even the soundest strategy will not affect organizational activities and achievement of its objectives. In strategy implementation, various activities involved are design of organization structure to suit the chosen strategy, effective leadership, development of functional policies, development & allocation of resources, development of effective information system, etc.

Evaluation and Control

• For effective implementation & consequently achievement of organizational objectives, it is necessary that there is continuous monitoring of the implementation of the strategy so that suitable action is taken whenever something goes wrong. Evaluation & control of strategy and its implementation may result into various actions that the organization will have to take to be successful, depending on the situation.

PROTFOLIO STRATEGY

Portfolio analysis

• Portfolio analysis is a set of techniques that helps an organization, particularly having many businesses/ products, in making strategic decisions with regard to individual businesses or products in its portfolio. It was introduced in strategic management in mid 1960s and since then, many approaches of portfolio analysis have been developed.

Portfolio Techniques

• BCG growth- share matrix

• GE nine- cell planning grid

• Product / market evolution matrix

• Directional policy matrix, and

• Strategic position and action evaluation

BCG Growth-share matrixG

row

th r

ate

Market share

LowHigh

Low

Hig

h

(Business strength/ competitive Position)

Strong Average Weak

low

medium

High

(Industry Attractiveness)

Zone

Green

Yellow

Red

GE nine- cell planning grid

The GE Nine-Cell Planning Grid

Hofer’s Product / Market Evolution Matrix

Development Growth Shakeout Maturity Decline

User/buyers

Competitiveconditions

Few:trial ofearly

adopters

Few:competitors

Growing adopters:trial of

product / service

Entry of competitors

Attempt to achievetrial

Fight for share

Undifferentiatedproducts / services

Growing selectivityof purchase

May be many

Likely price-cuttingfor volume

Shakeout of weakestcompetitors

Saturation of users

Repeat purchasereliance

Fight to maintainshare

Difficulties ingaining / taking share

Emphasis onefficiency / low cost

Drop-offin usage

Exit of somecompetitiors

Selective distribution

The life cycle model

Strong Average Weak

Development

Growth

Shakeout

Maturity

Decline

Competitive position

Stage of product / market evolution

A

B C

D

E

F

Cont…

• Business A would appear to be a developing winner, business B may be classified as a potential winner, business C can be developed into future winner by improving its competitiveness, business D may be labeled as a established winner, business E may be cash cow, business F may be called a loser or dog, and so on.

Shell’s directional policy matrix

Divestment:- A business with weak capability and unattractive business prospects usually incurs losses at the present and the situation is likely to continue in future too.

Gradual withdrawal :- such businesses which fall in quadrant 2 with weak capability and average business prospects, or in quadrant 4 with average capability and average business prospects may be divested in phases as these business are not likely to earn enough as compared to other business in the portfolio.

Take a risk:- The business prospects but weak capability may have two alternatives. Either the business is strengthen by allocating additional resources to take the advantages of the attractive business prospects, or if it is not possible to allocate additional resources, it is advisable to divest.

Maintain or look for growth:- the business falling under average capability and average business prospects has two alternatives. Either the organization may bear with the situation and make good the overall position with the help of other businesses, or it may divest this to concentrate on other businesses.

Try Harder:- the business which has average capability that attractive business prospects needs additional resources to strengthen its capability so as to take the advantage of attractive business prospects.

Cash Generation:- the business which has strong capability but unattractive business prospects may be used for cash generation and no further investment is required because of unattractive business prospects.

Look for growth:- the business with strong capability and average business prospect requires additional investment in the form of product innovation through R&D and creation of additional production capacity so as to fight in the market to increase market share.

Market leadership:- the business with strong capability and attractive business prospects may be used to become market leader by allocating additional resources and, once market leadership is established by innovation, to maintain leadership position.

Strategic Position and Active Evaluation

• Strategic Position and action evolution (SPACE) is an extension of two- dimensional portfolio analysis which helps an organization to hammer out an appropriate strategic posture. SPACE involves a consideration of four dimensions:

SPACE involves a consideration of four

dimensions:

Organization’s competitive advantage,Organization’s financial strength, Industry strength, andEnvironmental stability

Competitive advantages

Market share Product quality PLCProduct replacement cycleCustomer loyaltyCompetitor’s capacity utilizationTechnical know-howVertical integration

Industry strength Profit potential Growth potentialFinancial stability Resource utilization Ease of entry into marketProductivity, capacity utilization

Financial strength

Return on investment Leverage Liquidity Capital required and availableCash flow Ease of exit from market Risk involved in the business

Environmental stability

Technological changes Rate of inflation Price range of competitive productsCompetitive pressure Price elasticity of demand Entry barriers

Conservative Aggressive

Defensive Competitive

Financial strength

CompetitiveAdvantage

Industry Strength

Environmental Stability

GAP ANALYSIS

• In GAP analysis, the central focus is on the examination of whether established norms are likely to be achieved by the existing strategy. If the answer is positive organization continues its present strategy but in case of negative answer, organization has to go for alternative strategy.

Performance gap

Desired performance

Present performance

Performance

Time T 1 T 2

GAP Analysis