Management - II
• Unit
5
Introduction to
Strategic
Management
1–1
Course Contents
1. Management by Objective (MBO)
2. How Strategic and Operational plans
differ
3. The evaluation of concept of Strategy
4. Levels of Strategy: Some key
distinctions
5. The Contents of a corporate Strategy
1–2
Strategy – The broad program for defining and
achieving an organization’s objective; the
organization’s response to its environment over time.
Strategy is the direction and scope of an organization
over the long term, which achieves advantage in a
changing environment through its configuration of
resources and competencies for fulfilling stakeholders’
expectations.
1–3
Strategy is about:
Where is the business trying to get to in the long-term
(direction)
Which markets should a business compete in and what
kind of activities are involved in such markets?
(markets; scope)
How can the business perform better than the
competition in those markets? (advantage)?
What resources (skills, assets, finance, technical
competence, facilities) are required in order to be able to
compete? (resources)?
What external, environmental factors affect the
businesses' ability to compete? (environment)?
What are the expectations of those who have power in
and around the business? (stakeholders)
1–4
Management by Objectives (MBO)
A formal set of procedures that establishes and
reviews progress towards common goals for
managers and subordinates.
The term "management by objectives" was first
popularized by Peter Drucker in his 1954 book 'The
Practice of Management’
Drucker insisted that managers and staff members set
their own objectives or at least be actively involved in the
objective-setting process, otherwise people might refuse
to cooperate or make only half-hearted efforts to
implement “someone else’s” objectives
1–5
Elements of the MBO System
MBO System can vary widely, some are designed for
subunit, some in the organization as a whole, some
emphasis corporate planning, some stress individual
motivation, But the mainly shared the following six
elements.
1. Commitment to Program
At every organizational level it involves managers’
commitment to achieve personal and organizational
objectives
2. Top level goal setting
This gives a clear idea to both managers and staff
members of what top managements hope to
accomplish and show them how their own work directly
relates to achieving the organization's goal
1–6
Elements of the MBO System
3. Individual Goals
Each manager and staff members should have
clearly defined job responsibilities and objective in order
to know the what they are expected to accomplish.
4. Participation
The participation of both managers and employees
in the setting goal, goals is more likely to be achieved
5. Autonomy in implementation of Plans
An individual should have liberty to choose the
means for achieving the objectives
6. Performance Review
Managers and Employees periodically meet to
review progress toward the objectives
1–7
Advantages of Management by Objective
 MBO ensures Goal Clarity.
 MBO integrates the efforts of everybody.
 MBO Involves continuous communication resulting in to
co - ordinated efforts and cohesive environment.
 The participative approach in goal setting motivates the
employees
 Enhance the commitment towards activities.
 MBO practice eliminates the overlaps in the efforts and
plugs the gaps in the assignment.
1–8
Disadvantages of Management by Objective
 MBO undermines the importance of external
environment on the outcomes.
 MBO ignores the overall organization culture.
 It compares the actual outcome with the ideal
objections. Corporate team tends to chart out higher
goals which the average performance tend to be lower.
Such situation results in to frustration and dissatisfaction
among employees.
High targets through whatever means necessary
including the scarifies of quality.
1–9
Disadvantages of Management by Objective
 despite the participative goal setting, the actual
performance tends to be closure to mediocre level.
 It considers goals as a basis for outcomes but there is
no limit to outcomes of the excellent personnel.
1–10
How Strategic and Operational Plans Differ
Basis
Definition
Time
Horizon
Scope
Strategic Plan
Operation Plan
Strategic Plan is a
Operation plan is an
document approved by
annual budget
higher management about
formulated by the
programmes that the
operating managers
organization will undertake
in line with the
along with allocation of
expectations outlined
resources over 7 to 8 years. in the strategic plan.
Are long term plan and
Are short term and
prepared for several years usually prepared on
like 8 to 10 years or even
yearly basis
ahead of decades
Are broad and which
become the basis of all the
activities of the organization
Developed on the
basis of Strategic
Plan.
1–11
How Strategic and Operational Plans Differ
Basis
Strategic Plan
Operation Plan
Degree of
details
Strategic Plan are
general and generic.
They do not involve more
details.
Are general tendencies
of the expectations of the
higher level management
Operation plan are
more detailed
Analytical
frame work
Management
functions
relationship
Focuses on Planning,
Organizing & Directing
Are more clear in
terms of output
numbers, cost
standards, close
monitoring etc.
More emphasis on
Controlling function
of management.
1–12
How Strategic and Operational Plans Differ
Basis
Strategic Plan
Operation Plan
Statement of
Plans
Are stated in terms of
long term Mission and
Objectives
Are Stated in terms
of short term budget
targets
Formulation
Are formulated by the
corporate Managers
Are prepared by the
operating managers
1–13
The Evolution of the Concept of Strategy
The term Strategy has been derived from the Greek work
“Strategia” , which means generalship or art and science
of directing military forces.
The Greeks knew that the strategy was not about only
fighting battles its beyond that (directing, controlling,
motivating, managing etc. )
Without strategy the organization is ship without rudder,
going around in circles
A firm without strategy is like a Columbus, when he went
to discover America
1–14
Strategic Management
The management process that involves an
organization’s engaging in strategic planning
and then acting on those planning
The Strategic management process mainly
focuses upon two things
1.Strategic planning
2.Strategy implementation
1–15
Strategic Management Process
Goal Setting
Strategic Planning
Strategy Formulation
Administration
Strategic
Implementation
Administration
1–16
Levels of Strategies
Corporate level
Strategy
Business Unit
Strategy
Functional level
Strategy
1–17
Corporate level Strategy
 Strategy formulated by top management to
oversee the interest and operation of the
multiple corporation
 What kind of business should the company
be engaged in ?
What are the goals and expectations for
each businesses ?
How should resources be allocated to reach
these goals ?
1–18
Corporate level Strategy
Corporate strategies would guide to the
organization about in what kind of business
should it enter or not enter (boundary maker).
 E.g.
Reliance Group, Tata Group, BGKV
1–19
Business unit level Strategy
Strategy formulated to meet the goals of
particular business; also called line of
business strategy.
 How would business compete within its
market ?
What product/services should it offer ?
Which customer does it seek to serve ?
How will resources be distributed within the
business ?
1–20
Types of Business unit level Strategy
1–21
Functional level Strategy
Strategy formulated by a specific functional
area in an effort to carry out business unit
strategy.
 What should be the marketing plans ?
How many persons should be hired ?
How much should we spend upon R&D
How much production should we do in the
next quarter ?
1–22
The Content of a Corporate Strategy
 Corporate strategy decides organization’s place
in the future.
 It is also an idea about how people at an
organization will interact with people at other
organization over time, so it guides people in
their day-to-day work over an extended period of
time.
1–23
Product Life Cycle
Sales and
Profits ($)
Sales
Profits
Time
Product
Development
Losses/
Investments ($)
Introduction
Growth
Maturity
Decline
Introduction Stage of the PLC
Sales
Low sales
Costs
High cost per customer
Profits
Negative
Marketing Objectives
Create product awareness
and trial
Product
Offer a basic product
Price
Use cost-plus
Distribution
Build selective distribution
Advertising
Build product awareness among early adopters and dealers
Growth Stage of the PLC
Sales
Rapidly rising sales
Costs
Average cost per customer
Profits
Rising profits
Marketing Objectives
Maximize market share
Product
Offer product extensions, service, warranty
Price
Price to penetrate market
Distribution
Build intensive distribution
Advertising
Build awareness and interest in the mass market
Maturity Stage of the PLC
Sales
Peak sales
Costs
Low cost per customer
Profits
High profits
Marketing Objectives
Maximize profit while defending
market share
Product
Diversify brand and models
Price
Price to match or best competitors
Distribution
Build more intensive distribution
Advertising
Stress brand differences and benefits
Decline Stage of the PLC
Sales
Declining sales
Costs
Low cost per customer
Profits
Declining profits
Marketing Objectives
Reduce expenditure and milk the brand
Product
Phase out weak items
Price
Cut price
Distribution
Go selective: phase out unprofitable outlets
Advertising
Reduce to level needed to retain
hard-core loyal customers
The Corporate Portfolio Approach
 Evaluation of the each business unit of an
organization
Appropriate strategic role is developed for each
unit with the goal of improving the overall
performance of the organization
One of the best known example of corporate
portfolio is the Portfolio framework advocated by
Boston Consulting Group (BCG) its also know as
BCG matrix
BCG matrix mainly focuses upon 2 thing
Market Share and
Market Growth
1–29
The BCG Matrix
1–30
The BCG Matrix
Question Marks
It is a Business unit with a
small market share but in
rapidly growing market.
Could be uncertain and
expensive venture
Require more cash in-flow
to grab the market share

E.g. Honda Brio
1–31
The BCG Matrix
 Star
It’s a business unit with high
growth & high market share
Need to go on investing in
order to keep up with market’s
rapid growth

E.g. Chevrolet Beat,
Maruti Suzuki Swift
1–32
The BCG Matrix
Cash Cows
It’s a business unit with low
growth but with high market
share
It's profitable and doesn't
require much cash inflow
E.g. Maruti Suzuki WagonR
1–33
The BCG Matrix
Dog
Here the business unit is
having low growth and low
market share
It’s slowly growing or
stagnant market.

E.g. Maruti Suzuki 800
1–34
“Five Forces” Corporate Strategy
 It’s a well known approach to corporate strategy
is Michael Porter’s “five forces” model.
According to Porter an organization’s ability to
compete in a given market is determined by that
organization’s technical and economic resources,
as well as by five environmental “forces”, each of
which threaten organization’s venture in new
market.
1–35
1–36
Threats of New Entrants
 Barriers to entry measure how easy or difficult it
is for new entrants to enter into the industry. This
can involve for example:
Cost advantages (economies of scale,
economies of scope)
Access to production inputs and financing,
Government policies and taxation
Production cycle and learning curve
Capital requirements
Access to distribution channels
Patents, branding, and image also fall into this
category.
1–37
Threat Of Substitutes
 Every top decision maker has to ask: How easy
can our product or service be substituted? The
following needs to be analyzed:
How much does it cost the customer to switch to
competing products or services?
How likely are customers to switch?
What is the price-performance trade-off of
substitutes?
If a product can be easily substituted, then it is a
threat to the company because it can compete
with price only.
1–38
Bargaining Power Of Buyers
 Now the question is how strong the position of
buyers is. For example, can customers work
together to order large volumes to squeeze your
profit margins? The following is a list of other
examples:
Buyer volume and concentration
What information buyers have
Competitive price
How loyal are customers to your brand
Price sensitivity
Threat of backward integration
How well differentiated your product is
Availability of substitutes
1–39
Bargaining Power Of Suppliers
• This relates to what your suppliers can do in
relationship with you.
• How strong is the position of sellers?
• Are there many or only few potential suppliers?
• Is there a monopoly?
• Do you take inputs from a single supplier or from
a group? (concentration)
• How much do you take from each of your
suppliers?
• Can you easily switch from one supplier to
another one? (switching costs)
• If you switch to another supplier, will it affect the
cost and differentiation of your product?
1–40
Competitive Rivalry
 In this, we have to analyze the level of
competition between existing players in the
industry.
Is one player very dominant or all equal in
strength/size?
How fast does the industry grow?
How is the industry concentrated?
How do customers identify themselves with your
brand?
Is the product differentiated?
How well are rivals diversified?
1–41
Thank You
1–42