Introduction to Strategic Management Course Objectives • Explain What is Strategic Management • Explain What is a Strategy • Describe the Strategy Statement and its Components • Explain the Steps of Strategic Management Process • Describe the Components of Strategic Management Process • Differentiate between Strategy Formulation and Strategy Implementation • Differentiate between Strategic, Administrative and Operational Decisions • Describe the Qualities of a Strategic Leader • Explain What is a Business Policy • Describe the Structure of BCG Matrix • Describe the Factors of SWOT Analysis • Explain Porter’s Five Forces Model of Competition • Explain What is Corporate Governance • Explain What is Business Ethics • Describe the Core Competency Theory of Strategy Introduction • Helium Inc. is a leading manufacturer of electrical safety equipments such as Miniature Circuit Breakers (MCBs), Molded Case Circuit Breaker (MCCBs) etc. for the past six decades. • It has carved a niche for itself in this area and captures the largest market share in its industry and segment. Introduction • However, now Helium wants to venture into the mobile and Smartphone market. • It has decided to launch a range of mobiles and Smartphone that will cater to the various segments of the society. Introduction • What do you think Helium should do to become successful in its venture? • Yes, a careful strategy planning will help Helium recognize its position in the market, its competitors, and challenges etc. to help it become successful in its new venture. What is Strategic Management? Strategic Management can be defined as a bundle of decisions and acts which a manager undertakes and which decides the result of the firm’s performance. Strategic Management is all about identification and description of the strategies that managers can undertake so as to achieve better performance and a competitive advantage for their organization. An organization is said to have competitive advantage if its profitability is higher than the average profitability for all companies in its industry. What is a Strategy? The word “strategy” is derived from the Greek word “stratçgos”; stratus (meaning army) and “ago” (meaning leading/moving). Strategy is an action that managers undertake to attain one or more of the organization’s goals. Strategy can also be defined as “A general direction set for the company and its various components to achieve a desired state in the future. Strategy results from the detailed strategic planning process”. Hence, a strategy is all about integrating organizational activities and utilizing and allocating the scarce resources within the organizational environment so as to meet the present objectives. While planning a strategy it is essential to consider that decisions are not taken in a vacuum and that any act taken by a firm is likely to be met by a reaction from those affected: competitors, customers, employees or suppliers. Strategy Statement and its Components The ‘Strategy Statement’ of a firm sets the firm’s long-term strategic direction and broad policy directions. It gives the firm a clear sense of direction and a blueprint for the firm’s activities for the upcoming years. The main constituents of a strategic statement are as follows: Strategic Intent Mission Vision Statement Let us look at each in detail. Goals and Objectives Mission Goals: A goal is a desired future state or objective that an organization tries to achieve. The following the features wellbe defined Goals specify inare particular whatofmust done ifgoals: an organization is to attain its mission or vision. Goals make mission more prominent and concrete. They co• They are precise and measurable. ordinate and integrate various functional and departmental areas in an • They look after critical and significant issues. organization. • They are realistic and challenging. Objectives: • They must be achieved within specific timewants frame. Objectives are defined as goals thataorganization to achieve over a period of time. These are the foundation of planning. Policies are developed in an • They include both financial as well as non-financial components. organization so as to achieve these objectives. Formulation of objectives is the task of top level management. Real Life Example Vision Vision: “To create exciting new digital entertainment experiences for consumers by bringing together cutting-edge products with latest generation content and services.” Real Life Example Vision Mission Mission: “Sony is committed to developing a wide range of innovative products and multimedia services that challenge the way consumers’ access and enjoy digital entertainment. By ensuring synergy between businesses within the organization, Sony is constantly striving to create exciting new worlds of entertainment that can be experienced on a variety of different products.” Components of Strategic Management Process The image given below shows the components of the Strategic Management Process. Let us look at each component in detail. Real Life Example Strategy Formulation Process Performance Analysis: Performance analysis includes discovering and analyzing the gap between the planned or desired and actual performance. A critical evaluation of the organization’s past performance, present condition and the desired future conditions must be done by the organization. This critical evaluation identifies the degree of gap that persists between the actual reality and the long-term aspirations of the organization. An attempt is made by the organization to estimate its probable future condition if the current trends persist. Did You Know? People learn more from their failures than from their success. Hence, one of the best approaches to avoid copying best practices is to create a process involving frank discussion about worst practices. This will help create very effective strategies because people debate on the merits of different examples of good practice, scout the organizations for promising practices that may already be bubbling up and then develop a view of what next practice should be. Strategic Leadership Policy vs. Strategy The term “policy” should not be considered as synonymous to the term “strategy”. The difference between policy and strategy are as follows: Policy Policy is a blueprint of the organizational activities which are repetitive/routine in nature. Policy formulation is the responsibility of top level management. Policy deals with routine/daily activities essential for effective and efficient running of an organization. Policy is concerned with both thought and actions. A policy is about ‘what is’ or ‘what is not done’. Strategy Strategy is concerned with those organizational decisions which have not been dealt/faced before in same form. Strategy formulation is basically done by middle level management. Strategy deals with strategic decisions. Strategy is concerned mostly with action. A strategy is the methodology used to achieve a target as prescribed by a policy. Structure of BCG Matrix BCG matrix has four cells, with the horizontal axis representing relative market share and the vertical axis denoting market growth rate. The mid-point of relative market share is set at 1.0.; if all the SBUs are in same industry, the average growth rate of the industry is used. While, if all the SBUs are located in different industries, then the mid-point is set at the growth rate for the economy. What is Competitor Analysis? Organizations always operate within a competitive industry environment. They do not exist in vacuum. Analyzing an organization’s competitors helps an organization to discover its weaknesses, to identify opportunities for and threats to the organization from the industrial environment. While formulating an organization’s strategy, managers must also consider the strategies used by the organization’s competitors. Competitor analysis is a driver of an organization’s strategy and affects how firms act or react in their sectors. The organization carries out a competitor analysis to measure/assess its standing amongst its competitors. What is Corporate Governance? Corporate Governance refers to the way a corporation is governed. It is the technique by which companies are directed and managed. It means carrying the business as per the stakeholders’ desires. It is actually conducted by the board of Directors and the concerned committees for the company’s stakeholder’s benefit. It is all about balancing individual and societal goals, as well as, economic and social goals. Building Core Competencies The two key factors to be considered for building the core competencies of an organization are: Resources and Capabilities. Resources and Capabilities are the building blocks upon which an organization creates and executes value-adding strategy so that an organization can earn reasonable returns and achieve strategic competitiveness. 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