STRATEGIC MANAGEMENT
OSU6501
BMS(Hons.)
Strategic Management- S A
Dharmapriya Senanayake
2
What is Strategic Management
•Why do some firms succeed while others fail?
– A central objective of strategic management is to
learn why this happens.
•What is strategy?
– An action a company takes to attain superior
performance.
•What is the strategic management process?
– The process by which managers choose a set of
strategies for the
enterprise
Strategic
Management- S A to pursue its vision.
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Dharmapriya Senanayake
Phases of Strategic Management
(historical background)
• Basic financial planning
– Use internal information
• Forecast-based planning
– Use internal and some external data
• Externally-oriented (strategic) planning
– Use internal and internal data, top down
approach
• Strategic management
– Shared process/interactive process
Strategic Management- S A
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Strategic Management
• A way of approaching business
opportunities and challenges.
• A comprehensive and ongoing management
process aimed at formulating and
implementing effective strategies which
align the organization with its
environment to achieve major
organizational goals.
Strategic Management- S A
Dharmapriya Senanayake
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• Is a set of managerial decisions and
actions that determines the long run
performance of an organization
Strategic Management- S A
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Benefits of SM
–Adapt organizational activities to satisfy new and
existing markets
–Fit between organizational environment and its
strategy, and processes for performance and
–Clear sense of strategic vision for the firm
–Sharper focus on matters of strategically
important
–Better understanding of dynamic
environment Strategic Management- S A
Dharmapriya Senanayake
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STRATEGIC MANAGEMENT
• PURPOSE
– POSITION THE FIRM FOR THE FUTURE
– SET LONG-TERM GOALS AND OBJECTIVES
– RESPOND TO AND ANTICIPATE CHANGE
– ALLOCATE RESOUIRCES
– ACHIEVE SUSTAINED COMPETITIVE
ADVANTAGE
• COMPONENTS OF A STRATEGIC PLAN
– ENVIRONMENTAL ANALYSIS
– INDUSTRY ANALYSIS
– FIRM ANALYSIS
– COMPETITIVEStrategic
ANALYSIS
Management- S A
Dharmapriya Senanayake
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Success of Strategic Management is through
integration of organizational functions
Management/
administration
Marketing
Operations
Finance
Human
Resource
systems
Research
and design
Information
Systems
STRATEGIC MANAGEMENT TRIANGLE
Strategic Thinking
Crafting
Strategy
Vision
Organizational
Structure &
Culture
Strategy
Implementation
Mission
Objectives
Policies,
Systems &
processes
Strategy
Evaluation
Strategic Planning
If you do not know
where you are going,
any road will take you
there!
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Dharmapriya Senanayake
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"If a man does not know what
port he is steering for, no
wind is favorable.“ (Roman
philosopher Seneca )
The same applies to
organizations and
corporations.
Lucius Annaeus Seneca (4 BC – AD 65), also known as Seneca the Younger,
was a Hispano-Roman Stoic philosopher, statesman, dramatist..
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The Planning Process
Planning is the process used by
managers to identify and select goals
and courses of action for the
organization.
• The organizational plan that results
from the planning process details the
goals to be attained.
• The pattern of decisions managers
take to reach these goals is the
organization’s strategy.
Strategic Management- S A
Dharmapriya Senanayake
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Three Stages of the Planning
Process
Determining the Organization’s
mission and goals
(Define the business)
Strategy formulation
(Analyze current situation &
develop strategies)
Strategy Implementation
(Allocate resources & responsibilities
Strategic
ManagementSA
to
achieve
strategies)
Dharmapriya Senanayake
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Planning Process Stages
• Organizational mission: defined in the mission
statement which is a broad declaration of the
overriding purpose.
–
The mission statement identifies product, customers
and how the firm differs from competitors.
• Formulating strategy: managers analyze current
situation and develop strategies needed to
achieve the mission.
• Implementing strategy: managers must decide
how to allocate resources between groups to
ensure the strategy is achieved.
Strategic Management- S A
Dharmapriya Senanayake
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Corporate Strategic Planning
• Define the Vision &
Mission
• Establish SBUs
– A division, product line in a
division, or other profit center
within a parent company.
• Assign Resources to
each SBU
- Analytical tools such as the
Boston Consulting Group
growth-share matrix are used
to guide.
- Anticipate changes
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Dharmapriya Senanayake
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Strategy Hierarchy
What businesses do
we wish to hold in our
portfolio?
Mergers,
divestitures, vertical
integration
Enterprise
Corporate
Business
How will we compete in a
given business?
How will we gain a
competitive advantage?
Functional
How will the various
functional areas support
achievement of our
goals?
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Financial Analysis often assesses the
firm's:
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Roles that Strategic Leaders Play
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Mission Statement
•A formal commitment to stakeholders
that the firm’s strategy incorporates and
recognizes their claims on the
organization.
•Mission statement elements:
– A declaration of the overall vision, or
mission.
– A summation of managerial philosophical
values about how they do business and
treat employees.
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– An articulation
of key
organizational goals.
Vision or Mission.
•Purpose or reason for the organization’s
existence
•A statement of purpose (strategic intent)
committing the organization to ambitious
(stretch) goals.
➢ Provides a sense of direction and purpose.
➢ Drives strategic decision making
and resource allocations.
➢ Forces the seeking of
significant performance
improvements to
attain goals.
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Dharmapriya Senanayake
Vision or Mission.
• The mission statement provides the
organization with a clear and effective
guide for making decisions
• The vision statement ensures that all the
decision made are properly aligned with
what the organization hopes to achieve.
Vision
Mission
Goals
Strategic Management- S A
Dharmapriya Senanayake
Objectives .
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Mission
•
•
•
•
What business are we in?
What businesses should we be in?
What do we do best?
What are the target markets of the
firm?
• Define business by need rather than
product.
- Lodging vs. hotel
- Quick service restaurants vs. fast food
outlets (McDonald’s McDrive)
• Marketing myopia - Transportation vs.
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railroad
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Now let us see the
mission statement of the
Open University of Sri
Lanka
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As per 2019
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As per 2018 annual report
To be the undisputed leader in the
provision of multy-sensory
connectivity resulting always, in
the empowerment and
enrichment of Sri Lankan lives
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Dharmapriya
Senanayake
and enterprises.
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• All companies are in the same trade
• How have they positioned in the
marketplace ?
• Compare their purpose of existence
• For us, all are competing for the same
market with similar products
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Mission and Goals
•Vision
–– what the organization would like to become
•Mission
– Sets out why the organization
exists and what it should be doing.
•Major goals
– Specify what the organization hopes
to fulfill in the medium to long term.
•Secondary goals
– Are objectives to be attained that lead to
Strategic Management- S A
superior performance.
Dharmapriya Senanayake
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Goals
• Goals are broad, generalized
statements about what is to be
learned. Think of them as a target to
be reached, or “hit.”
– Example: Students will be able to apply proper
grammar to composition papers.
•The overriding organizational goal:
– Maximizing shareholder returns.
Strategic Management- MCU
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Objectives
– An objective is derived from a goal,
has the same intention as a goal, but
it is more specific, quantifiable and
verifiable than the goal.
SMART of objectives
• SMART stands for:
– Specific,
– Measurable,
– Achievable/Agreeable,
– Realistic/Relevant,
– Timely.
Measurable
• Does the object of interest measure up to
the acceptable standard.
– Answer the phone quickly
vs.
– Phone calls will be answered within three rings
Achievable
• Achievable is linked to measurable. Usually, there's
no point in starting a job you know you can't finish, or
one where you can't tell if/when you've finished it.
– Are they achievable?
• - it's measurable
• - others have done it successfully (before you, or
somewhere else)
• - it's theoretically possible (i.e. clearly not ‘unachievable')
• - availability or possibility of getting necessary resources
• - aware of the limitations.
–With a reasonable amount of effort and application
can the objective be achieved?
Realistic/Relevant
• Either the goal or target being set is something they can
actually impact upon or change OR it is also important to the
success of the project.
• Can people with whom the objective is set make an impact
on the situation? Do they have the necessary knowledge,
authority and skills?
• Example: Informing the managers that taxes will be
increased by 5% form the next month is not a decision they
can do anything and – it may not be relevant to them.
However, asking the managers to cut down their monthly
expenditure on consumables by Rs. 2000/- over the next
three months is relevant to them.
Specific
• Who is going to do how
much of what by when?
• - an observable action is linked to a number,
rate, percentage or frequency
• - everyone who's involved knows that it
includes them specifically
• - everyone involved can understand it
• - objective is free from technical jargon
• - defined all terms
• - used only appropriate language.
• E.g., By December 31st the students
registered for BMS research project will
have to finalize their data collection
instruments with the pilot test results
with supervisors’ approval.
–Is there a description of a precise or specific
behavior/outcome which is linked to a rate, number,
percentage or frequency?
Time based
• In the objective somewhere there has to
be a date
• Time frame should be there(Day/Month/Year) for when the task has to
be started (if it's ongoing) and/or
completed (if it's short term or project
related).
Why Are Clear Objectives Needed?
Objectives: end results of planned activity.. Given
in quantifiable terms
To Provide Direction
To Provide Purpose
To Allow Synergy
To Aid in Evaluations
To Establish Priorities
To Reduce Uncertainty
To Minimize Conflicts
To Stimulate Exertion
To Allocate Resources
To Design Jobs
To Motivate Managers
& ManagementEmployees
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SA
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Long-Term Objectives
Represents the results expected from
pursuing certain strategies
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Situation Analysis
Business Level Strategy
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SWOT Analysis
Internal Environment
• Strengths
• Weaknesses
External Environment
• Opportunities
• Threats
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Dharmapriya Senanayake
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External Analysis
•Identify strategic opportunities and threats
in the operating environment.
Immediate (Task
Environment)
Macro environment
National
General Environment
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Dharmapriya Senanayake
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THE EXTERNAL ENVIRONMENT
External environment is difficult to predict. Its nature
can be described as
• Volatile – Change is rapid and unpredictable in
its nature and extent.
• Uncertain – Present and the future is unclear and
difficult to predict .
• Complex – This environment has many different,
interconnected factors come into play, with the
potential to cause chaos and confusion.
• Ambiguous – Lack of clarity or awareness about
situations.
● General Environment
MACRO
Dimensions in the broader society that
influence an industry and the firms within it
● Industry Environment
Set of factors that directly influences a firm
and its competitive actions and response
● Competitor Environment
MICRO
Focuses on each company against which a
firm directly competes
THE EXTERNAL ENVIRONMENT
THE EXTERNAL
ENVIRONMENT
A firm’s external environment creates:
● OPPORTUNITIES
e.g., the opportunity for BP to enter other global markets,
and
● THREATS
e.g., the possibility that additional regulations in its markets
will reduce opportunities for BP to extract oil and gas
Collectively,
opportunities and threats affect a firm’s
strategic actions.
●The General Environment is grouped into several
environmental segments: PEST or PESTEL or as
follows
●To deal with uncertainty in the external environment
and to achieve strategic competitiveness, firms must
be aware of and understand the segments .
1)
2)
3)
4)
Political/Legal
Economic
Sociocultural
1)
Technological
4)
2)
3)
5)
6)
7)
Demographic
Economic
Political/Legal
Sociocultural
Technological
Global
Physical
● Firms cannot directly CONTROL the general
environment’s segments.
● These segments influence the actions that
firms take.
● strategists have to
• learn how to gather required information
• understand all segments and their implications
for selecting and implementing the firm’s
strategies.
Demographic Segment
•
•
•
•
•
•
Population size and characteristics
Age structure
Geographic distribution
Ethnic mix
Income distribution
Lifestyles/Living standards
THE ECONOMIC SEGMENT
This segment refers to the nature and direction of the
economy in which a firm competes or may compete. Firms
generally seek to compete in relatively stable economies with
strong growth potential. With globalization and the
interconnectedness of nations, firms must scan, monitor,
forecast, and assess the health of their host nation and the
health of the economies outside their host nation.
•
•
•
•
Inflation rates
•
Interest rates
•
Trade deficits or surpluses
•
Currency fluctuations and its •
impact on the firms operations •
Budget deficits or surpluses
Personal savings rate
Business savings rates
Gross domestic product
Domestic savings
Political/Legal Segment
•
•
•
•
•
•
Anticorruption laws and implementation
Taxations
Labor laws
Educational philosophies and policies
Political stability
Corruption levels
THE SOCIOCULTURAL SEGMENT
is concerned with a society’s attitudes and cultural
values. They often drive demographic, economic,
political/legal, and technological conditions and
changes.
•
•
•
•
•
Women in the workforce
Workforce
Diversity attitudes about the quality of work life
Shifts in work and career preferences
Shifts in product and service preference characteristics
THE TECHNOLOGICAL SEGMENT
Includes the activities involved in creating new
knowledge and translating that knowledge into new
outputs, products, processes, and materials. Given
the rapid pace of technological change and risk of
disruption, it is vital for firms to study this segment.
• Product innovations
• Adoption level of technologies
• Applications of knowledge
• Encouragement on R&D expenditures
THE GLOBAL SEGMENT
Markets and consumers are becoming or
already global.
Segment includes relevant new global
markets, existing markets that are changing,
important international political events, and
critical cultural and institutional
characteristics of global markets.
•
•
•
•
Important political events, treaties
Newly and emerging industrialized countries
Different cultural and institutional attributes
Approachability and barriers to foreign markets
PHYSICAL ENVIRONMENT SEGMENT
Concerned with trends oriented to sustaining the
world’s physical environment, firms recognize that
ecological, social, and economic systems interactively
influence what happens in this particular segment.
Refers to potential and actual changes in the physical
environment and business practices that are intended
to positively respond to and deal with those changes.
• Energy consumption and firm’s environmental footprint
• Renewable energy efforts, recycling practices
• Level of usage of natural resources
• Producing environmentally friendly products
• Reacting to natural or man-made disaster
External environments
are:
• Turbulent
• Complex
• Global
• Uncertain
• Ambiguous
• Incomplete
SCANNING
MONITORING
Firms engage in external FORECASTING
environmental analysis to
better understand and
cope with their
environments.
This analysis has four
parts:
ASSESSING
Identifying early signals of
environmental changes and
trends.
Detecting meaning through
ongoing observations of
environmental changes and
trends.
Developing projections of
anticipated outcomes based on
monitored changes and trends.
Determining the timing and
importance of environmental
changes and trends for firms’
strategies and management.
EXTERNAL ENVIRONMENTAL ANALYSIS
● Identifying opportunities and threats is an important
objective of studying the general environment.
● OPPORTUNITY: condition in the general
environment that if exploited effectively, helps a
company achieve strategic competitiveness.
● THREAT: condition in the general environment that
may hinder a company’s efforts to achieve strategic
competitiveness.
INDUSTRY ENVIRONMENT ANALYSIS
An INDUSTRY is a group of firms that produce
similar products or offer similar services that
are close substitutes.
Compared with the general environment, the
industry environment has a more direct effect
on the firm’s:
■ Strategic competitiveness
■ Ability to earn above-average
returns
Michael E. Porter's FIVE FORCES
MODEL FOR INDUSTRY ANALYSIS
• Five Forces Framework is a tool for
analyzing competition of a business.
• Historically, firms concentrated only on direct
competitors.
• Today, firms must study many industries, as
competitors are defined more broadly.
• For example, the communications industry
now encompasses media companies,
telecoms, entertainment companies, and
smartphone producers.
INDUSTRY ENVIRONMENT ANALYSIS
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Barriers to Entry
o Economies of Scale: Marginal improvements in
efficiency that a firm experiences as it incrementally
increases its size
•Product differentiation
–Unique products
–Customer loyalty
–Products at competitive prices
•Switching Costs
–One-time costs customers
incur when they buy from a
different supplier
•Capital Requirements
–Physical facilities
–Inventories
–Marketing activities
–Availability of capital
•Access to Distribution Channels
–New equipment
–Stocking or shelf space
–Retraining employees
–Price breaks
–Psychic costs of ending a
relationship
–Cooperative advertising
allowances
Barriers to Entry (cont’d)
•Cost Disadvantages Independent of
Scale
–Proprietary product technology
–Favorable access to raw
materials
–Desirable locations
•Government policy
–Licensing and permit
requirements
–Deregulation of industries
•Expected retaliation
–Responses by existing
competitors may depend on a
firm’s present stake in the
industry (available business
options)
Suppliers
• Suppliers deliver inputs such as
– Labor
– Management
– Technology
– Materials
• Suppliers influence our costs through the
strength of their bargaining power
Bargaining Power of Suppliers
• Supplier power increases when:
– Suppliers are large and few in number
– Suitable substitute products are not available
– Individual buyers are not large customers of suppliers
and there are many of them
– Suppliers’ goods are critical to buyers’ marketplace
success
– Suppliers’ products create high switching costs.
– Suppliers pose a threat to integrate forward into
buyers’ industry
Bargaining Power of Buyers/Customers
• Buyer power increase when:
– Buyers are large and few in number
– Buyers purchase a large portion of an industry’s total
output
– Buyers’ purchases are a significant portion of a
supplier’s annual revenues
– Buyers can switch to another product without
incurring high switching costs
– Buyers pose threat to integrate backward into the
sellers’ industry
Threat of Substitute Products
• Substitutes are defined by product function, not
by product form
• The threat of substitute products increases when:
– Buyers face few switching costs
– The substitute product’s price is lower
– Substitute product’s quality and performance are equal
to or greater than the existing product
– Consumer tastes and preferences
• Differentiated industry products that are valued by
customers reduce this threat
Intensity of Rivalry/Threat of Rivalry
• Rivalry is the threat of established firms
competing away their economic profits
– Price competition
– Frequent introduction of new products
– Intense advertising campaigns
– Rapid competitive response
HIGH PROFIT
POTENTIAL
• High entry barriers
• Suppliers and buyers have weak
bargaining positions
• Low threats from substitute products
• Low/moderate rivalry among
competitors
INTERPRETING INDUSTRY ANALYSES
• Low entry barriers
• Suppliers and buyers have strong
powers
• Strong threats from substitute
products
• Intense rivalry among competitors
Unattractive
Industry
LOW PROFIT
INDUSTRY ENVIRONMENT
ANALYSIS: STRATEGIC GROUPS
STRATEGIC DIMENSIONS
● Extent of technological leadership
● Product quality
● Pricing policies
● Distribution channels
● Customer service
COMPETITOR ANALYSIS: ETHICAL CONSIDERATIONS
BLACKMAIL
TRESPASSING
EAVESDROPPING
STEALING DRAWINGS,
SAMPLES, OR DOCUMENTS
Internal Environment Analysis
•Identify strengths
– Quality and quantity of resources available
– Distinctive competencies
•Identify weaknesses
– Inadequate resources
– Managerial and
organizational deficiencies
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Corporate governance
• A corporation, an organization, is NOT
ONLY responsible for its shareholders, but
also for its employees, customers, and
other stakeholders.
• In other words, corporations are expected
to contribute to economic growth but also
to social well-being, quality of life, or
simply happiness.
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The importance of corporate
governance
• Corporate governance is the system by
which companies are directed and
controlled.
• Good corporate governance is a key
element in improving economic efficiency.
• Conversely, bad corporate governance,
can undermine economic and financial
stability.
• This was demonstrated by …..
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Failure in corporate governance
• public/customer/shareholder confidence
lost by
– Conglomerates, group of companies
– Banks
– Industries
– Political / civil society organizations
in the recent past you would have
experienced national level issues with
certain banks, financial institutions,
manufacturers,
importers and even at
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Dharmapriya
retailer level
in SriSenanayake
Lanka.
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• Core competencies are the resources
and capabilities that comprise the strategic
advantages of a business.
• a business must define, cultivate, and
exploit its core competencies in order to
succeed against the competition.
• "a harmonized combination of multiple
resources and skills that distinguish a firm
in the marketplace"
• Leadership, organizational culture, IT
applications, team work, communication
skills, ….
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• Competitive advantage
--- factors that allow a company to produce goods or
services better or more cheaply than its rivals. These
factors allow the productive entity to generate more
sales or superior margins compared to its market
rivals.
• In business, a competitive advantage is the
attribute that allows an organization to outperform
its competitors.
• Cost, product/service differentiation, and niche
strategies. [Michael Porters Generic and
differentiation strategies…. Discussed at later stages.
• Price, location, quality, selection, speed, turnaround
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and service.
Dharmapriya Senanayake
LEARNING ORGANIZATIONS
• A learning organization is the term given to
a company that facilitates the learning of
its members and continuously transforms
itself. Learning organizations develop as a
result of the pressures facing modern
organizations. Learning organization
enables organizations to remain
competitive in the business environment.
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Learning organization
• An organisation which facilitates the
learning of all its members and
continuously transforms itself as a whole
Pedler, M., Burgoyne. & Boydell, T., (1991), The Learning Company, McGraw Hill
• Organisations where people continually
expand their capacity to create the results
they truly desire, when new and expansive
patterns of thinking are nurtured, where
collective aspiration is set free and where
people are continually learning how to
learn together Strategic Management- S A
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Dharmapriya Senanayake
•
Senge, P., The Fifth Discipline, Centuary
Why the Learning Organisation?
• Learning is essential to provide rapid continuous
change
• Competitive advantage of learning quicker than
competitors
• Essential for organisations to keep up with the
rapid change in their external environment.
• The learning organisation culture is one that
promotes and actively encourages creativity and
new ideas. (Not just the thinking up of new ideas, but
also the implementation and experimentation and the
learning from that)
• Organisation's success depends on engagement
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and learning at allStrategic
levels
of
the
organisation
Dharmapriya Senanayake
Characteristics of Learning Organization:
1. Systems thinking
2. Personal mastery
3. Mental models
4. Shared vision
5. Team learning.
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Benefits of Learning Organization:
Maintaining levels
levels of
of innovation
innovation and
and remaining
remaining
•• Maintaining
competitive.
competitive.
Being better
better placed
placed to
to respond
respond to
to external
external
•• Being
pressures.
pressures.
Having the
the knowledge
knowledge to
to better
better link
link resources
resources to
to
•• Having
customer needs
needs ..
customer
Improving quality
quality of
of outputs
outputs at
at all
all levels.
levels.
•• Improving
Improving Corporate
Corporate image
image by
by becoming
becoming more
more
•• Improving
people oriented.
oriented.
people
Increasing the
the pace
pace of
of change
change within
within the
the
•• Increasing
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organization.. Strategic
organization
Dharmapriya Senanayake
Barriers of becoming a Learning
Organization:
• Lack of a learning culture can be a barrier
to learning.
• Personal mastery can even be seen as a
threat to the organization. Others do not
want to learn
• Organizational size may become the
barrier to internal knowledge sharing.
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SWOT
Analysis
• Strengths
• Weaknesses
• Opportunities
• Threats
Mission
An organization’s fundamental purpose
SWOT Analysis
To formulate strategies that support the mission
Internal Analysis
External Analysis
Strengths
(distinctive
competencies)
Opportunities
Threats
Weaknesses
Good Strategies
Those that support the mission and:
• exploit opportunities and strengths
• neutralize threats
• avoid weaknesses
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