Introduction to Strategic Management Session - 01 What is Strategic Management? • Strategic Management is the term applied to describe those activities of an organization that enable it to meet the challenges of a constantly changing environment. • Strategic management as it exists today has evolved over many years and continues to evolve in response to the changes in organizations and their environments. What is Strategic Management? Critical aspect of the management of organization’s today involves ……. Matching organizational competences with the opportunities and threats in their environment in ways that will be both effective and efficient over the time such resources are deployed What is Strategic Management? • The basic characteristics of a match an organization achieves with its environment is called its strategy. • The concept of strategy is used by today’s managers as one of the major tools for coping with the internal and external changes What is Strategic Management? • Long term approach – decisions are made over the long term, often for periods exceeding one year • Focused on organisational objectives – the aim being to ensure that the plan of action achieves the most important objectives for a wide group of key stakeholders • Aligned with internal strengths and weaknesses – the aim should be to capitalize on the business strengths and overcome any key weaknesses. Devising a strategy will often follow a position audit of the business to ascertain the businesses current position. • Adapted to the changing business environment – so that changes in political, economic, social and technology factors are taken account of, while adapting to industry changes, such as competitive threats, supply issues or changing customer needs. What is Strategic Management? The strategic management is the term that collectively describes the four main types of inter connected and intergraded set of activities that constitute the process of managing an organisation from a strategic standpoint. These are: – Strategic Analysis – Strategy Formulation – Strategy Implementation and – Strategic Review and Control What is an Organization? • “Organization is a group of people working together for achieving a common objective.” • According to above definition, three major elements can be identified in an organization, namely – a group of people, – common objectives – interaction among people What is an Organization? • Organisations are open systems • Organisations could influence and are influenced by the environment in which they operate. • Health of an organisation is dependent on being able to match its pace of change in line with the rate of change with its environment. The Concept of Strategy - I • A strategy is a plan of action designed to achieve a goal or objective. The aim of a strategy is to gain some kind of competitive advantage or to help to exploit future opportunities. • In the example of a chess game, a ‘strategy’ provides the over-riding approach that the player will take to win the game, but the exact set of moves they undertake will vary depending on the opponent’s moves. The Concept of Strategy - II According to the CIMA official terminology a business strategy can be defined as: "A course of action, including the specification of resources required, to achieve a specific objective" The Concept of Strategy - III Complete definition is given by Johnson, Scholes and Whittington as: “The direction and scope of an organisation over the long term, which achieves advantage for the organisation through its configuration of resources within a changing environment, to meet the needs of the markets and to fulfil stakeholder expectations” The Concept of Strategy Business strategy therefore is concerned with the overall management of an organisation and includes the management of and taking decisions about: – Products – Markets – Locations (production and sales) – Structure – Personnel – Buildings and machinery – How to compete The Concept of Strategy - IV A company’s strategy is the set of actions that its managers take to outperform the company’s competitors and achieve superior profitability. This include • How to attract and please customers. • How to compete against rivals. • How to position the company in the marketplace and capitalize on attractive opportunities to grow the business. • How to respond to changing economic and market conditions. • How to manage each functional piece of the business (R&D, supply chain activities, production, sales and marketing, distribution, finance, and human resources). • How to achieve the company’s performance targets. Characteristics of Strategic Decisions –Strategic decisions are the long term direction of the organization. –Strategic decisions are normally about trying to achieve some advantage for the organization. –Strategic decisions are likely to be concerned with the scope of an organization’s activities. –Strategic decisions involve matching the activities of an organization to the environment in which it operates. Characteristics of Strategic Decisions –Strategic decision also involves building on or stretching an organizational resources and competencies to create opportunities or to capitalize on them. –Strategic Decisions involve major resource changes for an organization. –Strategic decisions affect operational decisions. –Strategic decisions are affected by the values and expectations of those who have power in and around the organization. The Importance of Strategy • Provides a clear direction, focusing management decision making • Adapts the organisation to the changing environment ensuring it’s continuing survival and success • Ensures competitiveness through understanding and adapting to competition • Focuses in building key competences to meet customer needs • Co-ordinates all elements of the business in a structured planned approach. Levels of Strategy in an Organisation There are three different levels on which strategy can be set –Corporate Level Strategy –Business Level Strategy –Functional Strategies Hierarchy of Strategy Hierarchy of Strategy Hierarchy of Strategy Levels of Strategy in an Organisation Corporate Level Strategy Corporate Strategy can be defined as the management plan formulated by the highest level of organization to direct and operate the entire business organization. It provides the direction for the business as whole, including all parts of the business. Levels of Strategy in an Organisation • Corporate Strategy is the essence of strategic planning process. • It determines the growth objective of the company • It highlights the pattern of business moves • It defines how the firm will remain sustainable in the long run. • Which businesses and markets should the organisation operate in? • How to integrate and structure the business • Example Racal Electronics’ decision to float off Vodafone as a separate company • Uncertainty is inherent in strategy, because nobody can Levels of Strategy in an Organisation Business Level Strategy • Business-level strategy is about how to compete successfully in particular markets • At Business-level ALLOCATION of resources among Functional-level an COORDINATE with the Corporate level to the ACHIEVEMENT of the Corporate level OBJECTIVES. Example: Ford’s Motor Co’s car division – an SBU - launched its Mondeo model, aimed at fleet car buyers, who had not favored the Sierra, its predecessor. Levels of Strategy in an Organisation Business Level Strategy • Business-level strategy, which is about how the various businesses included in the corporate strategy should compete in their particular markets (for this reason, business-level strategy is sometimes called ‘competitive strategy’). • So, whereas corporate-level strategy involves decisions about the organisation as a whole, strategic decisions relate to particular strategic business units (SBUs) within the overall people Levels of Strategy in an Organisation Business Level Strategy A strategic business unit (SBU) is a part of an organisation for which there is a distinct external market for goods or services that is different from another SBU. Yahoo!’s strategic business units include businesses such as Yahoo! Photos and Yahoo! Music. In very simple organisations with only one business, the corporate strategy and the business-level strategy are nearly identical Levels of Strategy in an Organisation Each business unit or subsidiary of the business is likely to have different goals, competitors, suppliers, manufacturing approaches, IT, financial requirements and so on, and so each strategic business unit (SBU) needs its own strategy. This covers: • Which competencies? • Which products? • Which markets? • Tactics to beat competition in this market • Business resources (people, buildings, machinery, processes) • How to compete in this business area? Levels of Strategy in an Organisation Functional Strategies Operational strategies are concerned with how the component parts of an organisation deliver effectively the corporate and business-level strategies in terms of resources, processes and people. Functional strategies deal functions such as Marketing, Operations, Human Resources and Finance. Focus is on improving the effectiveness of operations within a company Levels of Strategy in an Organisation Functional Strategies They are concerned with how the various functions of the organisation contribute to the achievement of strategy. It examines how the different functions of the business (marketing, production, finance etc) support the corporate and business strategies. Example: revising delivery schedules and drivers’ hours to improve customer service or recruiting a German-speaking sales person to assist a UK company’s sales drive in Europe. Strategy in an Organisation Strategy in an Organisation Benefits of Strategic Management Financial Benefits Organizations using strategic-management concepts are more profitable and successful than others. Businesses using strategic-management concepts show significant improvement in sales, profitability, and productivity Benefits of Strategic Management Nonfinancial Benefits Strategic management offers other benefits, such as • an enhanced awareness of external threats, • an improved understanding of competitors’ strategies, • increased employee productivity, • reduced resistance to change, • clearer understanding of performance–reward relationships. Benefits of Strategic Management Generally stated that strategic management offers the following benefits: • It allows for identification, prioritization, and exploitation of opportunities. • It provides an objective view of management problems. • It represents a framework for improved coordination and control of activities. • It minimizes the effects of adverse conditions and changes. • It allows major decisions to better support established objectives. • It allows more effective allocation of time and resources to identified opportunities. Benefits of Strategic Management • It creates a framework for internal communication among personnel. • It helps integrate the behavior of individuals into a total effort. • It provides a basis for clarifying individual responsibilities. • It encourages forward thinking. • It provides a cooperative, integrated, and enthusiastic approach to tackling problems and opportunities. • It encourages a favorable attitude toward change. • It gives a degree of discipline and formality to the management of a business Guidelines for the Strategic-Planning Process to Be Effective It should be a people process more than a paper process. It should be a learning process for all managers and employees. It should be words supported by numbers rather than numbers supported by words. It should be simple and no routine. It should vary assignments, team memberships, meeting formats, and even the planning calendar. It should challenge the assumptions underlying the current corporate strategy. It should welcome bad news. Guidelines for the Strategic-Planning Process to Be Effective • It should welcome open-mindness and a spirit of inquiry and learning. • It should not be a bureaucratic mechanism. • It should not be too formal, predictable, or rigid. • It should not contain jargon or arcane planning language. • It should not be a formal system for control. • It should not disregard qualitative information. • It should not be controlled by “technicians.” • Do not pursue too many strategies at once. • Continually strengthen the “good ethics is good business” policy.