strategic management. module 1_mba_bangalore university
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Concept of strategy
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DEFINING STRATEGY
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Derived from the Greek word stratgos;stratus (meaning army) and ago(meaning leading/moving).
Bundle of Decisions that affect firms performance. Refers to ideas , plans and support that firms employto compete successfully against their rivals. Primarily to give you a competitive edge.
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Steps in a Strategic Management Process.Analysis: External environment opportunities, threats
Internal environment - strengths, weakness.
Formulation: Mission customers to be servedCapabilities to be developed.Policies Goals, guidelines for major activities.
Implementation: - Organizational structure, culture
Adjustment or evaluation: back to earlier steps.
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BASIC MODEL OF
STRATEGIC MANAGEMENT
Four Basic Elements
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1. ENVIRONMENTAL SCANNING
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2. STRATEGY FORMULATION
Mission Statement Setting Objectives & Goals A statement of purpose (strategic intent)
committing the organization to ambitiousoverarching (stretch) objectives.
Provides a sense of direction and purpose.
Drives strategic decision making and
resource allocations. Forces the seeking of significant performance
improvements to attain objectives
Customer Orientation and Business Definition
Abells Framework for Defining the business
Consumer-oriented
versusProduct-oriented business definition
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2. STRATEGY FORMULATION
Selecting Strategy Corporate strategy (Stability, Growth, Retrenchment)
Business strategy (Competitive, Cooperative)
Functional strategy (Technological Leadership, Technological Followership)
Defining PoliciesGuidelines for decision making that links
formulation to implementation
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3. STRATEGY IMPLEMENTATION
Strategy
Implementation
Programs
Budgets
Procedures
4. Evaluation & Control
-Continuous processS H E E L A R O S A L Y N
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STRATEGIC DECISION MAKING MODEL
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STRATEGIC DECISION MAKING
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Strategic Planning
is the managerial process ofdeveloping and maintaining a
strategic fit between theorganization's objectives andresources and its changing market
opportunities.Org Objectives Resources
Changing Environment
Strategic Fit
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LEVELS OF STRATEGY
Corporate level
Determine overall scope of the organisation
Add value to the different business units
Meet expectations of stakeholders
Business level (SBU)
How to compete successfully in particular markets
Operational
How different parts of organisation deliver strategy
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Three levels of the strategy
1. level: The corporate levelAt this level the fundamental task is to developa balanced portfolio of businesses which willachieve the goals of the corporation and satisfyits stakeholders.
2. level: The strategic business unit level (SBU)At this level the business, or set of activities isgiven and the major task for strategic plannerat this level is for business to succeed againstcompetitors and also satisfy corporate successcriteria.
3. level: The functional level:At this level the major task is to provide anappropriate functional strategies ( finance andaccounting, marketing, R+D, production,personnel) for SBU or corporate level strategy.Sheela Rosalyn
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Corporate Mission
Broad purposes of the organizationGeneral criteria for assessing the
long-term organizationaleffectiveness
Driven by heritage & environment
Mission statements are increasinglybeing developed at the SBU level aswell
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Corporate Objectives & Goals
An objective is a long-range purpose Not quantified and not limited to a time period
E.g. increasing the return on shareholders equityA goal is a measurable objective of the
businessAttainable at some specific future date through
planned actions
E.g. 10% growth in the next two years
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Strategic Business Unit (SBU)
A strategic business unit (SBU) is apart of an organisation for which thereis a distinct external market for goodsor services that is different fromanother SBU
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What is a Strategic
Business Unit? (SBU)
A set of products or product linesWith clear independence from other
products or product lines
for which a business or marketingstrategy should be designed
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Definition of strategic business units
The SBUs are the natural grouping of part of acorporation.
The SBU has a range of related products/serviceswhich has similar technologies and production
processes. The products/services are sold in similar or related
market segments. The production/services are sold against a well-
defined set of competitors.
An SBU is managed by an SBU manager, largely asan independent unit. The SBU has its own set of goals and strategies. Each SBU in a particular organization should be
able to operate independently of any other SBU.Sheela Rosalyn
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Characteristics of a viable SBU
Unique business mission Definable set of competitors
Integrative planning done independently Responsible for resource management in all
areas
Large enough but not so large as to becomebureaucratic
(Source: Subhash Jain, Marketing Planning & Strategy, 6th
Ed.)Sheela Rosalyn
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SBU LevelStrategic Marketing
(as an example)
Strategic Marketing requiresDetailed understanding of market
needs, and
Proactive use of competitiveintelligence at the corporate as well asSBUs levels
Strategic MarketingFocuses on what the firm do best atthe SBU level
To secure and maintain a sustainablecompetitive advantageSheela Rosalyn
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What is Competitive Advantage?
Competitive advantage is acompanys ability to perform in one
or more ways that competitorscannot or will not match.
Philip Kotler
If you dont have a competitiveadvantage, dont compete.
Jack Welch,
GE
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Other Characteristics of Competitive
Advantage
Substantiality Is it substantial enough to make a
difference?
Sustainability Can it be neutralized by competitors
quickly?
Ability to be leveraged into visiblebusiness attributes that will influencecustomers
(Source: Strategic Marketing Management, Aakers)Sheela Rosalyn
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What is the portfolio stratregy?
From viewpoint of strategic management thecorporations are collections of different product-market-consumer-resource packages. These arethe SBUs. We can describe the sum of SBUs, asportfolio.
The portfolio analysis: Combines the assessment of business position with market
attractiveness evaluation, which emerges from externalanalysis in general and market analysis, in particular.
Includes multiple SBUs in the same analysis and addressesthe SBU investment decision - which organizational units
should receive resources, which should have resourcewithheld , and which should be resource generators.
Offers baseline recommendations concerning theinvestment strategies for each SBU based on anassessment of business position and market attractiveness.
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Indicators of SBU Strengthand Market Attractiveness
Sheela Rosalyn
B f t t i h i
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OwnershipMission and strategic intent
Scope and diversityThe global dimension
Corporate purpose and aspirations
Bases of SBU strategy
Enhancing SBU strategy: corporate parentingPortfolio managementFinancial strategyThe role of the corporate parentThe parenting matrix
Achieving competitive advantagePrice-based strategiesDifferentiation strategiesFocus strategies
Bases of strategic choice
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Levels of Planning at GE
CEO
Corporate Office
GE
Aircraft
GE
Fin. Ser.
GE
Lighting
GE
Motors
GE
Plastics
Manufacturing Marketing Accounting RD
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LEVELS OF PLANNING AT GENERAL
ELECTRIC
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Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000
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The Five Forces Model
SubstituteProducts
RivalryAmong
Organizations
Potential
for Entry
Power ofSupplier
Power of
Buyer
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Competitive Forces
Level of Rivalry Increased competition results in lowerprofits.
Potential for Entry Easy entry leads to lower prices and profits.
Power of Suppliers If there are only a few suppliers of importantitems, supply costs rise.
Power of Customers If there are only a few large buyers, they canbargain down prices.
Substitutes More available substitutes tend to drivedown prices and profits.
The FIVE forces that determines your success
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Planning & Strategy Formulation
Corporate-level strategydevelop a plan of action
maximizing long-run value
Business-level strategy
a plan of action to take
advantage of opportunities
and minimize threats
Functional-level strategy
a plan of action improving
departments ability to
create value
SWOT analysis
identifies strengths &weaknesses inside the
firm and opportunities
& threats in the
environment.
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Corporate-Level Strategies
Concentrate in single business:McDonaldsfocuses in the fast food business. Can become very strong, but can be risky.
Diversification:Organization moves into new
businesses and services.Related diversification: firm diversifies in similar areas to
build upon existing divisions.
Synergy: two divisions work together to obtain more than
the sum of each separately.
Unrelated diversification:buy business in new areas.
Build aportfolio of unrelated firms to reduce risk or
trouble in one industry. Very hard to manage.
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International Strategy
To what extent do we customize productsand marketing for different nationalconditions? Global strategy:a single, standard product and
marketing approach is used in all countries. Standardization provides for lower cost.
Ignore national differences that others can address.
Mulitdomestic strategy:products and marketing are
customized for each country of operation.Customization provides for higher costs.
Embraces national differences and depends on themfor success.
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Vertical Integration
When the firm is doing well, managers canadd more value by producing its own inputsor distributing its products.Backward vertical integration:the firm produces its own
inputs.
McDonalds grows its own potatoes.
Can lower the cost of supplies.
Backward vertical integration:the firm distributes itsoutputs or products.
McDonalds owns the final restaurant.
Firm can lower costs and ensure final quality.
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End of Module - I