Strategic Management BBA-IV Sem PDF

Strategic Management BBA- IV Sem. Faculty Name : Dr.Pradeep K. Mishra Associate Professor Smt.S.B.Patel Institute of Business Management, Sankalchand Patel University, VisNagar  MODULE-I Strategic Management...

Strategic Management BBA- IV Sem. Faculty Name : Dr.Pradeep K. Mishra Associate Professor Smt.S.B.Patel Institute of Business Management, Sankalchand Patel University, VisNagar  MODULE-I Strategic Management Dr.Pradeep K. Mishra Introduction Strategy refers to a complex web of thoughts, ideas, insights, experiences, goals, expertise, memories, perceptions, and expectations that provides general guidance for specific actions in pursuit of particular ends. Countries have, in the management of their national policies, found it necessary to evolve strategies that adjust and correlate political, economic, technological, and psychological factors, along with military elements. Be it management of national polices, international relations, or even of a game on the playfield, it provides us with the preferred path that we should take for the journey that we actually make. Strategic management is a set of managerial decisions and actions that determines the long run performance of a corporation. It includes environmental scanning (both external and internal), strategy formulation (strategic or long-range planning), strategy implementation, and evaluation and control. The study of strategic management, therefore, emphasizes the monitoring and evaluating of external opportunities and threats in light of a corporation’s strengths and weaknesses Meaning of Strategy Strategy is the art of so moving or disposing the instrument of warfare as to impose upon enemy, the place time and condition for fighting by oneself. The present-day environment is so dynamic and fast changing coping and keeping pace with changing environment. The business world undergoes lots of uncertainties, threats and constraints, financial pressure and is trying to find out the ways and means for their healthy survival. Under such circumstances, the only last resort is to make the best use of strategic management which can help the corporate management to explore the possible opportunities and at the same time to achieve an optimum level of efficiency by minimizing the expected threats.  Strategic management is the management of an organization’s resources to achieve its goals and objectives. Strategic management involves setting objectives, analysing the competitive environment, analyzing the internal organization, evaluating strategies, and ensuring that management rolls out the strategies across the organization. Strategic management is no longer viewed as a fancy word that leaders use in their job descriptions or roles and responsibilities. It has become the job of every person who is a part of the organization. If you were to undertake a strategic management certificate course, it will share how your role, big or small, has the potential to impact the organization’s overall performance in a strategic manner. Strategic management actually means discovering and then creating new strategies that will define the way the organization looks. These strategies involve people, processes, internal and external stakeholders, programs, policies, vendors and every possible element that forms an organization. Let us see how this concept has some core principles. Definition of Strategic Management 1. “Strategic management is concerned with the determination of the basic long-term goals and the objectives of an enterprise and the adoption of course of action and allocation of resources necessary for carrying out these goals”. – Alfred Chandler, 1962 2. “Strategic management is a stream of decisions and actions which lead to the development of an effective strategy or strategies to help achieve corporate objectives”.– Glueck and Jauch, 1984 3. “Strategic management is a process of formulating, implementing and evaluating cross-functional decisions that enable an organization to achieve its objective”.– Fed R David, 1997 4. “Strategic management is the set of decisions and actions resulting in the formulation and implementation of plans designed to achieve a company’s objectives.” – Pearce and Robinson, 1988 5. Strategic management consists of the analysis, decisions, and actions an organization undertakes in order to create and sustain competitive advantages.” – Dess, Lumpkin & Taylor, 2005 This definition consists of three basic elements: l. Determination of long-term goals 2. Adoption of courses of action 3. Allocation of resources to achieve those goals Nature of Strategic Management Strategic Management can be defined as the art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives. Strategic management is different in nature from other aspects of management. An individual manager is most often required to deal with problems of operational nature. He generally focuses on day-today problems such as the efficient production of goods, the management of a sales force, the monitoring of financial performance or the design of some new system that will improve the level of customer service.! Strategic Management embraces a set of decisions, actions and interactions for accomplishment of goals. It is long term innovative program identifying the “potential for changes”  The level of importance is at the top managerial level  It aims at generating alternative strategies and to choose the best for implementation  It is dynamic and perpetual. It will not cease to exist at a particular period  Strategic management is a forward looking. It may even comprise of contradictory actions if warranted by the environment.  It depends upon the resources both internal and external to the organization Companies should have a clear vision, mission, focus on goals and objectives. Every company should have a strategy, because ‘Strategy’ defines what it is we want to achieve and charts our course in the market place; it is the basis for the establishment of a business firm; and it is a basic requirement for a firm to survive and to sustain itself in today’s changing environment by providing vision and encouraging defining mission. Concept of Strategy The concept of Strategy is central to understand the process of strategic management. The term ‘Strategy’ is derived from Greek word strategos, which means generalship – the actual direction of military force, as distinct from the policy governing its deployment. A strategy is considered as a long-term plan that relates the strategic advantages of an organization to the challenges of the environment. It involves the determination of the long-term objectives of the organization and the adoption of courses of action. It also involves the allocation of resources necessary to achieve the objectives. When defined this way, objectives are considered as part of strategy formulation. According to the definition provided by Thompson and Strickland, the strategy is the means used to achieve the ends. A Strategy could also be the following:  Helps to identify strengths: o The role of strategic management is to help a company identify its strengths and leverage those. The concept involves knowing what makes the company  has its own unique character and depth. It also means using that uniqueness to manage the business strategy to realize its overall goals.  Enables you to discover the purpose. o Every business venture has its own purpose and reason for being in existence. That is what strategic management helps you as the founder or leader, to articulate. It gives better insights even to the employees about what their role is in the bigger scheme of things and how they can contribute. Strategic management helps to make sure that there is an overall alignment of purpose between different teams, individuals, geographies, technologies and so on. To uncover opportunities: Strategies are created for the current operations, as well as a future roadmap. Such a roadmap is what is needed to take the exponential growth strides that an organization plans for itself. That is why strategic management is actually linked to the action of uncovering opportunities. It allows for discussion and brainstorming at the nascent stage so that all possible ideas and opportunities can be shared, and debated upon Tracking effectiveness of defined strategies: The strategic management process also involves tracking the strategies that have been defined, to understand if they are continuing to remain effective or there is some course correction needed. This is key for understanding the overall impact of the strategies and the gap from what was defined or expected, to what was finally achieved.  a plan or course of action or a set of decision rules making a pattern or creating a common thread  The pattern of common thread related to the organisation’s activities which are derived from the policies, objectives and goals.  Related to pursuing those activities which move an organisation from its current position to a position to a desired future state.  Concerned with the resources necessary for implementing a plan or following a course of action; Connected to the strategic positioning of a firm, making trade-offs between its different activities and creating a fit among these activities; and  The planned or actual coordination of the firms’s major goals and actions, in time and space that continuously co-align the firm with its environment. It is the central to understanding the process of strategic management. Strategy simply means to achieve objectives. In complex terms, it may possess all the characteristics of change, mergers, acquisitions, creating vision, mission etc. Employee Motivation is an integral part of Strategic management of an organization. It increases the labour efficiency and loyalty. Every guidance as  to what to do, when and how to do and by whom etc, is given to every employee. This makes them more confident and free to perform their tasks without any hesitation. Labour efficiency and their loyalty which results into industrial peace and good returns are the results of broad-based policies adopted by the strategic management. Strong Decision-Making under strategic management, the first step to be taken is to identify the objectives of the business concern. Hence a corporation organized under the basic principles of strategic management will find a smooth sailing due to effective decision-making. Improved understanding of internal and external environments of business Strategy formulation requires continuous observation and understanding of environmental variables and classifying them as opportunities and threats. It also involves knowing whether the threats are serious or casual and opportunities are worthy or marginal. As such strategy provides for a better understanding of environment. Benefits of Strategic Management  Strategic management is generally thought to have financial and nonfinancial 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 decision to better support established objectives.  It allows more effective allocation and resources to identified opportunities.  It allows fewer resources and less time to be devoted to correcting erroneous or ad hoc decisions.  It creates a framework for communication personnel. It helps 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 favourable attitude toward change. It gives a degree of discipline and formality to the management of a business. It helps an organization and its leadership to think about and plan for its future existence, fulfilling a chief responsibility of a board of directors. It sets a direction for the organization and its employees. Unlike once-and-done strategic plans, effective strategic management continuously plans, monitors and tests an organization's activities, resulting in greater operational efficiency, market share and profitability. Importance of Strategic Management Compulsion due to changing environment Boosting up employee’s efficiency and morale Provides foundation for unified decision making Converting each strategy to action The importance is felt in many occasions. It minimizes competitive disadvantage, E.g. Company like Hindustan Lever Ltd., felt merging companies which manufacture similar product lines shall not make them a market leader. It means, they realized that merely by merging with companies like Lakme, Ponds, Brooke bond, Lipton etc. which make fast moving consumer goods alone will not make it market leader but venturing into retailing will help it reap heavy profits. They emerged its retail giant “Margin Free’ which is the market leader in states like Kerala. Similarly, the R.P. Goenka Group and the Muruguppa group realized that mere takeovers do not help and there is a need to reposition their products and reengineer their brands. The strategy worked. Levels of Strategic Management Strategy can be formulated at three levels, namely, the corporate level, the business level, and the functional level.  At the corporate level, strategy is formulated for your organization as a whole. Corporate strategy deals with decisions related to various business areas in which the firm operates and competes. At the business unit level, strategy is formulated to convert the corporate vision into reality. At the functional level, strategy is formulated to realize the business unit level goals and objectives using the strengths and capabilities of your organization. A typical business firm should consider the following three levels of strategies There is a clear hierarchy in levels of strategy, with corporate level strategy at the top, business level strategy being derived from the corporate level, and the functional level strategy being formulated out of the business level strategy. Corporate strategy Corporate level strategy defines the business areas in which your firm will operate. It deals with aligning the resource deployments across a diverse set of business areas, related or unrelated. Strategy formulation at this level involves integrating and managing the diverse businesses and realizing synergy at the corporate level. The top management team is responsible for formulating the corporate strategy. The corporate strategy reflects the path toward attaining the vision of your organization. For example, your firm may have four distinct lines of business operations, namely, automobiles, steel, tea, and telecom. The corporate level strategy will outline whether the organization should compete in or withdraw from each of these lines of businesses, and in which business unit, investments should be increased, in line with the vision of your firm. Top management’s overall plan for the entire organization and its SBU’s. Corporate level strategy occupies the heights level of decision making. Renewal/Retrenchment strategies are pursued when a company’s product lines are performing poorly as a result of finding itself in a weak competitive position or a general decline in industry or markets. Corporate Strategy describes a company’s overall direction towards growth by managing business and product lines. These include stability, growth and retrenchment. For example, Coco cola, Inc., has followed the growth strategy by acquisition. It has acquired local bottling units to emerge as the market leader Business strategy - Usually occurs at business unit or product level emphasizing the improvement of competitive position of a firm’s products or services in an industry or market segment served by that business unit.  The first level of strategy in the business world is corporate strategy, which sits at the ‘top of the heap’. Before you dive into deeper, more specific strategy, you need to outline a general strategy that is going to oversee everything else that you do.  At a most basic level, corporate strategy will outline exactly what businesses you are going to engage in, and how you plan to enter and win in those markets.  It is easy to overlook this planning stage when getting started with a new business, but you will pay the price in the long run for skipping this step.  It is crucially important that you have an overall corporate strategy in place, as that strategy is going to direct all of the smaller decisions that you make.  For some companies, outlining a corporate strategy will be a quick and easy process. For example, smaller businesses who are only going to enter one or two specific markets with their products or services are going to have an easy time identifying what it is that makes up the overall corporate strategy.  If you are running an organization that bakes and sells cookies, for instance, you already know exactly what the corporate strategy is going to look like – you are going to sell as many cookies as possible.  Entering into the kitchen equipment market is a completely different challenge from selling the cookies themselves, so the complexity of your corporate strategy will need to rapidly increase. Business Level strategy Business level strategies are formulated for specific strategic business units and relate to a distinct product-market area. It involves defining the competitive position of a strategic business unit. The business level strategy formulation is based upon the generic strategies of overall cost leadership, differentiation, and focus. For example, your firm may choose overall cost leadership as a strategy to be pursued in its steel business, differentiation in its tea business, and focus in its automobile business. The business level strategies are decided upon by the heads of strategic business units and their teams in light of the specific nature of the industry in which they operate. A strategy that seeks to determine how an organization should compete in each of its SBUs (Strategic business Units). At business level allocation of re- sources among functional level an coordinate with the corporate level to the achievement of the corporate level objectives. It falls in the in the realm of corporate strategy. For example, Apple Computers uses a differentiation competitive strategy that emphasizes innovative product with creative design. In contrast, ANZ Grindlays merged with Standard Chartered Bank to emerge competitively. Functional strategy – It is the approach taken by a functional area to achieve corporate and business unit objectives and strategies by maximizing resource productivity. It is concerned with developing and nurturing a distinctive competence to provide the firm with a competitive advantage. For example, Procter and Gamble spends huge amounts on advertising to create customer demand. It would be outlining separate strategies for selling cookies and selling cookie- making equipment at this level. You may be going after convenience stores and grocery stores to sell your cookies, while you may be looking at department stores and the internet to sell your equipment. Those are dramatically different strategies, so they will be broken out at this level. Even in smaller businesses, it is a good idea to pay attention to the business strategy level so we can decide on how we are going to handle each various part of your operation. The strategy that you highlighted at the corporate level should be broad in scope, so now is the time to boil it down into smaller parts which will enable you to take action. Functional /Operational strategy Functional level strategies relate to the different functional areas which a strategic business unit has, such as marketing, production and operations, finance, and human resources. These strategies are formulated by the functional heads along with their teams and are aligned with the business level strategies. The strategies at the functional level involve setting up short-term functional objectives, the attainment of which will lead to the realization of the business level strategy. For example, the marketing strategy for a tea business which is following the differentiation strategy may translate into launching and selling a wide variety of tea variants through company-owned retail outlets. This may result in the distribution objective of opening 25 retail outlets in a city; and producing 15 varieties of tea may be the objective for the production department. The realization of the functional strategies in the form of quantifiable and measurable objectives will result in the achievement of business level strategies as well. Focus is on improving the effectiveness of operations within a company in the functional areas of Manufacturing, Marketing, Materials management, Research and development, Human resources, Finance and etc. These are concerned with how the component parts of an organization deliver effectively the corporate, business and functional -level strategies in terms of resources, processes and people. They are at departmental level and set periodic short-term targets for accomplishment.  This is the day-to-day strategy that is going to keep your organization moving in the right direction. Just as some businesses fail to plan from a top-level perspective, other businesses fail to plan at this bottom-level.  This level of strategy is perhaps the most important of all, as without a daily plan you are going to be stuck in neutral while your competition continues to drive forward. As we work on putting together your functional strategies, remember to keep in mind your higher level goals so that everything is coordinated and working toward the same end.  It is at this bottom-level of strategy where you should start to think about the various departments within your business and how they will work together to reach goals.  Marketing, finance, operations, IT and other departments will all have responsibilities to handle, and it is your job as an owner or manager to oversee them all to ensure satisfactory results in the end. Again, the success or failure of the entire organization will likely rest on the ability of your business to hit on its functional strategy goals regularly. Take small steps in strategy on a daily basis and your overall corporate strategy will quickly become successful.  Good strategy alone is not going to automatically lead you to success in business, but it certainly is a good place to start. Once you have sound strategies in place, the focus of the organization will shift toward executing those strategies properly day after day.  The strategies will need to be continually monitored and adjusted as you move forward to ensure you are staying on a path that is consistent with the goals of the business, so one should always keep the three levels of strategy near the front of your mind as your guide your company. Process of Strategic Management The Strategic Management process means defining the organization’s strategy. It also defined as the process by which managers make a choice of set of strategies for the organization that will enable it to achieve better performance. Strategic management is a continuous process that appraises the business and industries in which the organization is involved; appraises its competitors; and fixes goals to meet all the present and future competitors and then reassesses each strategy.  The strategic management process is initiated to enable the organization’s top managers to make those decisions that affect the long term profitability and sustainability of the organizations.  It involves large-scale mobilization of resources across the organization to develop competencies and capabilities for the future while taking care of the risk such long term decisions entail.  It represents the context of long-term decisions, the changing nature of the external context and how organizations respond to the ever-changing external context by adopting strategic management.  Strategic management is the process of strategic analysis of an organization, strategy-focused objective-setting, strategy formulation, strategy implementation,  and strategic evaluation and control.  Strategic analysis is involved with analyzing the industry in which the organization is operating its business and analysis of both the external and internal environmental factors.  Strategy-focused objective setting is concerned with establishing long- range objectives for the organization to achieve the vision and mission.  Strategy formulation entails making decisions about selecting the strategy to achieve the long-range objectives. Strategy implementation is concerned with putting the formulated-strategy into action.  It is materialization or execution of strategy through deployment of necessary resources and aligning the organizational structure, systems (e.g., reward systems, support systems) and processes with the selected strategy.  This element is also involved with making decisions regarding setting short-range objectives, developing budgets and formulating functional/supporting strategies to achieve the ‘main strategy’.  The last element of the strategic management process strategic evaluation and control aims at establishing standards of performance, monitoring progress in the implementation of strategy, and initiating corrective adjustments in the strategy. While we study the process of Strategic Management, there exists three important elements/steps namely Strategy Formulation, Implementation and Evaluation. Strategic Intent: This is a pre phase before Strategy Formulation. The hierarchy of strategic intent lays the foundation for the strategic management of any organization. In this hierarchy, the vision, mission, business definition, business model, and objectives are established This phase establishes the strategic intent for the organization. It also creates the purposes the organization strives for. It is the hierarchy of objectives that an organization sets for itself. Strategic Intent: This is a pre phase before Strategy Formulation. The hierarchy of strategic intent lays the foundation for the strategic management of any organization. In this hierarchy, the vision, mission, business definition, business model, and objectives are established This phase establishes the strategic intent for the organization. It also creates the purposes the organization strives for. It is the hierarchy of objectives that an organization sets for itself.  This phase creates and communicates a Vision Set the goal the company wants to achieve. Designing a mission statement Defining the business Adopting the business model Setting the objectives Vision, Mission, Objectives and Policies A Vision Statement describes the desired future position of the company. It leads to a tangible result. It articulates the position that a firm would like to attain in the distant future. A Vision should be Organizational charter of core values and principles Ultimate source of priorities, plans and goals Elements of Mission and Vision Statements are often combined to provide a statement of the company's purposes, goals and values. Role played by mission, vision: A Mission Statement defines the company's business, its objectives and its approach to reach those objectives. Mission is a statement which defines the role that an organisation plays in the society. It should be Feasible Precise Clear Motivating Distinctive Indicate the major components of strategy. Indicate how objectives are to be accomplished. Business and Model: Every business should have model and would continue to focus on the business model like Walmart – Retailer; Google – search engine; Dell computers – Internet based marketer; Amazon – Virtual book seller; OLA/UBER – Cab Aggregator; Zoom – Virtual Video conferencing. It is a company’s method for making money in the current business environment. It includes the key structural and operational characteristics of a firm – how it earns revenue and makes a profit. A business model is usually composed of five elements:   Who it serves?  What it provides?  How it makes money?  How it differentiates and sustains competitive advantage?  How it provides its product/service? An objective (Goal Setting) In business, an objective refers to the specific steps a company will take to achieve a desired result. In other words, my goal is what I want to become, while my objective is how I plan to get there A business’ goal is more general and may not specify when things will happen. Objectives, on the other hand, are specific and tell you what the company will do to reach its goal. A business’ primary aim is to add value, which in the private sector involves making a profit. Strategic objectives or aims may include brand building, market leadership, expansion, or gaining a specific share of the market. A Policy is set of guiding principles, rules and guidelines formulated or adopted by an organization to reach its long-term goals. They are designed to influence and determine all major decisions and actions, and all activities take place within the boundaries set by them. However, for understanding purpose we could add few more elements. Environmental Scanning is an important element before we do formulation, Implementation and Evaluation. Environmental Scanning Environmental scanning refers to a process of collecting, scrutinizing and providing information for strategic purposes. It helps in analyzing the internal and external factors influencing an organization. After executing the environmental analysis process, management should evaluate it on a continuous basis and strive to improve it.   It identifies the potential environmental changes.  It includes monitoring, evaluating, and disseminating of information from the external and internal environment to the key people within the corporation  Identify the strategic factors – through SWOT Analysis  Develop and implement strategic responses. 1. Top management involvement: Strategic management relates to several areas of a firm’soperations. So, it requires top management’s involvement. Generally, only the top management has the perspective needed to understand the broad implications of its decisions and the power to authorize the necessary resource allocations. 2. Requirement of large amounts of resources: Strategic management requires commitment of the firm to actions over an extended period of time. So they require substantial resources, such as, physical assets, money, manpower etc. 3. Affect the firm’s long-term prosperity: Once a firm has committed itself to a particular strategy, its image and competitive advantage are tied to that strategy; its prosperity is dependent upon such a strategy for a long time. 4. Future-oriented: Strategic management encompasses forecasts, what is anticipated by the managers. In such decisions, emphasis is placed on the development of projections thatwill enable the firm to select the most promising strategic options. In the turbulent environment, a firm will succeed only if it takes a proactive stance towards change. 5. Multi-functional or multi-business consequences: Strategic management has complex implications for most areas of the firm. They impact various strategic business units especially in areas relating to customer-mix, competitive focus, organizational structure etc. All these areas will be affected by allocations or reallocations of responsibilities and resources that result from these decisions. 6. Non-self-generative decisions: While strategic management may involve making decisions relatively infrequently, the organization must have the preparedness to make strategic decisions at any point of time. That is why Ansoffcalls them “non-self-generative decisions.” Need for Strategic Management No business firm can afford to travel in a haphazard manner. It has to travel with the support of some route map. Strategic management provides the route map for the firm. It makes it possible for the firm to take decisions concerning the future with a greater awareness of their implications. It provides direction to the company; it indicates how growth could be achieved. The external environment influences the management practices within any organization. Strategy links the organization to this external world. Changes in these external forces create both opportunities and threats to an organization’s position – but above all, they create uncertainty. Strategic planning offers a systematic means of coping with uncertainty and adapting to change. It enables managers to consider how to grasp opportunities and avoid problems, to establish and coordinate appropriate courses of action and to set targets for achievement. Thirdly, strategic management helps to formulate better strategies through the use of a more systematic, logical and rational approach. Through involvement in the process, managers and employees become committed to supporting the organization. The process is learning, helping, educating and supporting activity. An increasing number of firms are using strategic management for the following reasons: 1. It helps the firm to be more proactive than reactive in shaping itsown future. 2. It provides the roadmap for the firm. It helps the firm utilize its resources in the best possible manner. 3. It allows the firm to anticipate change and be prepared to manage it. 4. It helps the firm to respond to environmental changes in a better way. 5. It minimizes the chances of mistakes and unpleasant surprises. 6. It provides clear objectives and direction for employees. Strategic Management Process Developing an organisational strategy involves four main elements – strategic analysis, strategic choice, strategy implementation and strategy evaluation and control. Each of these contains further steps, corresponding to a series of decisions and actions, that form the basis of strategic management process. 1. Strategic Analysis: The foundation of strategy is a definition of organizational purpose. This defines the business of an organization and what type of organization it wants to be. Many organizations develop broad statements of purpose, in the form of vision and mission statements. These form the spring – boards for the development of more specific objectives and the choice of strategies to achieve them. 2. Strategic Choice: The analysis stage provides the basis for strategic choice. It allows managers to consider what the organization could do given the mission, environment and Capabilities – a choice which also reflects the values of managers and other stakeholders. 3. Strategy Implementation: Implementation depends on ensuring that the organization has a suitable structure, the right resources and competencies (skills, finance, technology etc.), right leadership and culture. Strategy implementation depends on operational factors being put into place. 4. Strategy Evaluation and Control: Organizations set up appropriate monitoring and control systems, develop standards and targets to judge performance.