SM

STRATEGIC MANAGEMENT
STRATEGIC MANAGEMENT (6.1)
STUDY MATERIAL DESIGNED FOR TY B.COM (B&I)
MODULE I RAM
1
STRATEGY FORMULATION
Whatever action is performed by a great man, common men
following his footsteps and whatever standards he sets by exemplary acts, all the world pursues. - Bhagwad Gita
Perform External Au it Implement Strategies% &ar'eting$ Finance$ Accounting $ ()D$ &IS Issues
Develop vision an mission statements
Esta!lish long term o!"ectives
#enerate$ Evaluate an Select Strategies
Implement Strategies% management issues
&easur Evaluat Perform
Perform Internal Au it
Strategy Formulation
Strategy Implementation
Strategy Evaluation
Full length questions which can be used for 7 marks or 8 marks A ( Total weightage for this part is 8/ !" 1. Define strategic management? Explain the relevance of strategic management for an organization.
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STRATEGIC MANAGEMENT *. +hat are the various levels of strategic management in an organization. #ive suita!le example. ,. +hat is strategic management? Illustrate an explain the strategic management process -ith the example of a lea ing nationalize !an'. .. Descri!e the various steps involve in the strategic management process. Illustrate ) explain -ith suita!le examples. /. Explain the term 0environment1 -ith reference to !usiness an environmental analysis is necessary in strategic management. iscuss -hy
2. I entify various components of environment that affect the management of an organisation. 3. +hat is strategy formulation. Explain the factors to !e ta'en into consi eration -hile formulating the strategy. #$ (Total weightage for this part is %&/ !" 4. 56usiness must !e run in a socially responsi!le manner7. 8omment on the statement in the context of In ian !usiness. 9. +hat are the social responsi!ilities of !usiness? 1:. +hat are the critical components of the social environment of !usiness? Explain each element -ith examples. 11. Evaluate the historic role an emerging role of government on the !usiness. 1*. Descri!e the impact of technology on !usiness. 1,. 5Economic environment impacts !usiness7 8ritically analyse. 1.. +hat factors have ma e the management of the technology at enterprise level important? Explain. 1/. ;o- oes the economic environment impinge upon !usiness management? Explain -ith suita!le examples. 12. ;o- o social factors play a role in strategy formulation? Explain -ith examples. ' ( Total weightage for this part is %(/ !" ' (%" 13. Distinguish !et-een mission$ vision an goals.
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STRATEGIC MANAGEMENT 14. 6ring out the importance of organizational assessment an environmental information in strategic management. 19. +hat is S+<= analysis? ;o- it is useful in strategy formulation? *:. ;o- o mission$ vision an goals rive an organization? Design mission$ vision an goal for any foreign insurance company operating in In ia.
)*TR+,-'T)+* T+ .TRAT/0)' MA*A0/M/*T

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RAM
STRATEGIC MANAGEMENT Strategic management or !usiness policy or corporate strategy refers to those set of perspective management measures ta'en -ith a vie- to ensuring the survival an success of enterprise in a competitive environment. =he -or 5strategy7 is erive from the ancient #ree' -or strategia$ -hich connote the art an science of irecting military forces. Strategy is thus$ a -ell thought out systematic plan of action to efen one self or to efeat rivals. Strategy is formulate in anticipation of the possi!le positions$ moves$ actions an reactions of the rivals. It is very relevant to point out in this context that in !usiness the term rivalry is commonly use to refer competition. #oing !y the origin of the -or strategy$ !usiness strategy is a -ell thought out systematic plan of action for survival an success$ formulate !y ue consi eration of the possi!le positions an efensive an offensive moves$ an the relative strengths an -ea'ness of the rival vis%?%vis those of the company. ,/F)*)T)+* +F .TRAT/0)' MA*A0/M/*T .trategic management can be defined as 1the art and science of formulating2 implementing2 and e3aluating cross4functional decisions that enable an organi5ation to achie3e its ob6ecti3es$7 As this efinition implies$ Strategic management focuses on integrating management$ mar'eting$ finance$ pro uctions$ research an evelopment$ an computer information systems to achieve organizational process. =he term Strategic management is use synonymously -ith the term strategic planning. =he latter term is more often use in the !usiness -orl $ -hereas the former is often use in aca emia. Sometimes the term Strategic management is use to refer to Strategic planning referring only to strategy formulation. =he purpose of Strategic management is to exploit an create ne- an ifferent opportunities for tomorro-$ long range planning$ in contrast$ tries to optimize for tomorro- the tren s of to ay. =he term Strategic planning originate in the 19/:s an -as very popular !et-een the mi %192:s to mi %193:s. During these years$ Strategic planning -as -i ely !elieve to !e the ans-er of all pro!lems. At the time$ much of corporate America -as 5o!sesse 7 -ith strategic planning. Follo-ing that !oom ho-ever strategic planning -as cast asi e uring 194:s an various planning mo els i not yiel higher returns. =he 199:s ho-ever !rought the revival of Strategic planning an the process is -i ely practice in !usiness -orl . 8/9/8. +F .TRAT/0: In a multi !usiness enterprise$ having several S6@s$ there -oul !e three levels of strategy$ viz$ corporate strategy$ S6@ strategy an functional strategy. In enterprise that oes not have S6@s$ there -ill !e only t-o levels of strategy.
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'orporate .trateg;
8orporate strategy is the long%term strategy encompassing the entire organization. 8orporate strategy a resses fun amental Auestions such as -hat is the purpose of the enterprise$ -hat !usiness it -ants to !e in an ho- to expan . In other -or s$ 1corporate level strategic management is the management of activities -hich efine the overall character an mission of the organization$ the pro uctBsegments it -ill enter an leave$ an the allocation of resources an management of synergy among its S6@s. 8orporate strategy is formulate !y the top%level corporate management C!oar of irectors$ 8E<$ an chiefs of functional areasD.
SBU Strategy
S6@%level strategy$ sometimes calle !usiness strategy is concerne -ith ecision pertaining to the pro uct mix$ mar'et segments an maneuvering competitive a vantages for the S6@. +hile corporate strategy eci es the !usiness profile the competitive strategy eci es the strategy to succee in the chosen !usiness. S6@ strategy has to confirm o!viously to the corporate philosophy an strategy. In short$ 5the S6@ level strategic management of a S6@s effort to compete effectively in a particular line of !usiness an to contri!ute to the overall organizational purposes.7 =he responsi!ility of the S6@ strategy is -ith the top executives of the S6@ -ho are normally secon %tier executives in the corporate hierarchy. In single S6@ organizations senior executives have !oth corporate an S6@ level responsi!ilities.
Functional .trateg;
Functional level strategies are strategies for ifferent functional areas li'e pro uction$ finance$ personnel$ mar'eting etc. in other -or s$ 5functional level strategic management is the management of relatively narro- areas of activity$ -hich are of vital$ pervasive$ or continuing importance to the total organization.7
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8orporate
Strategic 6usiness @nit
Functional
RAM
8haracteristics
8orporate Strategy
6usiness Strategy S6@ or single !usiness company
Functional Strategy
.cope
/ntire organi5ation 6oar of irectorsB8E<
Functional area
Source an motivation
'orporate strateg; =op level S6@ managers or top level single !usiness company managers &e ium to long%term
S6@ strategy or single !usiness company strategy
Responsibilit;
=op level !usiness managers
Functional level managers
Time hori5on
8ong4term
.hort to long4 term Action an implementation oriente .
.pecificit;
#eneral statements of overall irection an intent
8oncrete an operationally oriente
The strategic management model or process

=he strategic management process is ynamic an continuous. A change in any one of the ma"or components in the mo el can necessitate a change in any or all of the other components. For instance$ a shift in the economy coul represent a ma"or opportunity an reAuire a ma"or change in the long%term o!"ectives an strategiesE a failure to accomplish annual o!"ectives coul reAuire a change in strategy coul reAuire a change in the firm1s mission. =herefore$ strategy formulation$ implementation$ an evaluation activities shoul !e performe on a continual !asis$ not "ust at the en of the year or semi%annually. =he strategic management process never really en s.
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STRATEGIC MANAGEMENT =he strategic management process is not as cleanly ivi e an nearly performe in practice as the strategic management mo el suggests. Application of the strategic management process is typically more formal in larger an -ell%esta!lishe organizations.
&easure an Evaluate Performance
Strategy Evaluation
T</ =R+'/.. +F ,/9/8+=)*0 A M)..)+* .TAT/M/*T +hat is mission? 5A mission statement is an en uring statement of purpose that istinguishes one !usiness from other similar firm. A mission statement i entifies the scope of firms operations in pro uct an mar'et terms.F Accor ing to &c #innis a mission statement
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STRATEGIC MANAGEMENT Shoul efine -hat the organization is an -hat the organization aspires to !e. Shoul !e limite enough to exclu e some ventures an !roa enough to allofor creative gro-th. Shoul istinguish a given organization from all others.
#oals an <!"ectives <!"ectives may !e efine as 5the en s -hich the organization see's to achieve !y its existence an operations.7 A goal is efine as 5an interme iate result to !e gran plan. A plan can$ therefore have many goals.7 <!"ectives are particularly important in strategy formulation. Accor ing to the strategic management mo el$ a clear mission statement is nee e !efore alternative strategies can !e formulate an implemente . It is important to involve as many managers as possi!le in the process of eveloping a mission statement$ !ecause though involvement$ people !ecome committe to an organization. For eveloping a mission statement first -e select several articles a!out mission statements an as' all managers to rea these as !ac'groun information. =hen as' managers themselves to prepare mission statement for the organization. A facilitator$ or committee of top managers$ shoul then merge these statements into a single ocument an istri!ute this raft mission statement to all managers. A reAuest for mo ification$ a itions an eletions is nee e next$ along -ith the meeting to revise the ocument. =o the extent that all managers have input an support the final mission statement ocument$ organizations can more easily o!tain managers support from other strategy formulation$ implementation$ an evaluation activities. =hus$ a process of eveloping a mission statement represents a greater opportunity for strategies to o!tain nee e support from all managers in the firm. During the process of eveloping a mission statement$ some organization use iscussion group of managers to evelop an mo ify the mission statement. Some organization hires an outsi e consultant to manage the process an help raft the language. Sometimes an outsi e person -ith expertise in eveloping mission statements an un!iase vie-s can manage the process more effectively then an internal group or committee of managers.
=;E P(<8ESS <F PE(F<(&IG# AG EH=E(GAI A@DI=
RAM
1:
STRATEGIC MANAGEMENT =o perform an external au it$ a company first must gather competitive intelligence an information a!out economic$ social$ cultural$ emographic$ environmental$ political$ governmental$ legal an technological tren s. In ivi uals can !e as'e to monitor various sources of information$ such as 'ey magazines$ tra e "ournals$ an ne-spapers. =hese persons can su!mit perio ic scanning reports to a committee of managers charge -ith performing the external au it. =his approach provi es a continuous stream of timely strategic information an involves many in ivi uals external%au it process. =he Internet provi es another source of gathering strategic information$ as o corporate$ university$ an pu!lic li!raries. Suppliers$ istri!utors$ customers$ salesperson an competitors represent another source of vital information. <nce information is gathere it shoul !e assimilate an evaluate . A meeting of managers is nee e to collectively i entify the most important opportunities an threats facing the firm. =;E P(<8ESS <F PE(F<(&IG# AG IG=E(GAI A@DI= =he process of performing an Internal Au it closely parallels the process of performing an external Au it. (epresentative &anagers en employees from through out the firm1s strength an -ea'nesses. =he internal au it reAuires gathering an assimilating information a!out the firm1s management$ mar'eting$ finance$ pro uction$ research an evelopment an management information systems. Jey factors shoul !e prioritize as escri!e so that the firm most important strengths an -ea'ness can !e etermine collectively. 8ompare to the external au it$ the process of performing an internal au it provi es more opportunity for participants to un erstan ho- their "o!s$ epartments$ an ivisions fit into the -hole organizations. =his is a great !enefit !ecause managers an employees perform !etter -hen they un erstan ho- their -or' affects other areas an activities of the firm. For example$ -hen mar'eting an manufacturing managers "ointly iscuss issues relate to internal strengths an -ea'ness$ they gain a !etter appreciation of the issues$ pro!lems$ concerns$ an nee s of all functional areas. In organizations that o not use strategic management$ mar'eting$ finance$ manufacturing managers often o not interact -ith each other in significant -ays. Performing an internal au it is thus is an excellent vehicle for improving the process of communication in the organization. 8ommunication may !e the most important -or in management. Performing an internal au it reAuires gathering$ assimilating an evaluating information a!out the firms operations. ESTABLISH LONG-TERM OBJECTIVES Iong%term o!"ectives represent the result expecte from pursuing certain strategies. Strategies represent the actions to !e ta'en to accomplish long%term o!"ectives. =he time frame for o!"ectives an strategies shoul !e consistent$ usually for t-o to five years.
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=;E GA=@(E <F I<G#%=E(& <6KE8=I>ES <!"ectives shoul !e Auantitative$ realistic$ un erstan a!le$ challenging$ hierarchical$ o!taina!le an congruent among organizational units. Each o!"ective shoul also !e associate -ith a time line. <!"ectives are commonly state in terms such as gro-th in assets$ gro-th in sales$ profita!ility$ mar'et share$ egree an nature of iversification$ egree an nature of vertical integration$ earnings per share an social responsi!ility. 8learly esta!lishe o!"ectives offer many !enefits. =hey provi e irection$ allo- synergy$ ai in evaluation$ esta!lish priorities$ re uce uncertainty$ minimize conflicts$ an stimulate exertion an ai in !oth the allocation of resources an the esign of "o!s. Iong%term o!"ectives are nee e at corporate$ ivisional an functional levels of an organization. =hey are an important measure of managerial performance. V. THE PROCESS OF GENERATING AND SELECTING STRATEGIES I entifying an evaluating alternative strategies shoul involve many of the managers an employees -ho earlier assem!le the organizational vision an mission statements$ performe the external au it an con ucte the internal au it. (epresentatives from each epartment an ivision of the firm shoul !e inclu e in the process. All participants in the strategy analysis an choice activity shoul have the firm1s external an internal au it information !y their si es. =his information$ couple -ith the firm1s mission statement$ -ill help participants crystallize in their o-n min s particular strategies that they !elieve coul !enefit the firm most. 8reativity shoul !e encourage in this thought process. Alternative strategies propose !y participants shoul !e consi ere an iscusse in the meeting. Propose strategies shoul !e liste in -riting. +hen all feasi!le strategies i entifie !y participants are given an un erstoo $ the strategies shoul !e ran'e in or er of attractiveness !y all participants$ -ith 1L shoul not !ee implemente $ *L possi!ly implemente $ ,L pro!a!ly shoul !e implemente an .L efinitely shoul !e implemente . =he process -ill result in a prioritize list of !est strategies an reflect the collective -is om of the group. >I. I&PIE&EG= S=(A=E#IESM &AGA#E&EG= ISS@ES =he strategic management process oes not en -hen the firm eci es -hat strategy or strategies to pursue. =here must !e a translation of strategic thought in to strategic action. =his translation is much easier if managers an employees of the firm un erstan the !usiness$ feel a part of the company$ an through involvement in strategy formulation activities have !ecome committe to helping the organisation succee . +ithout un erstan ing an commitment$ strategy%implementation efforts face ma"or pro!lems. Implementing strategy affects an organization from top to !ottomE it affects all the functional an ivisional areas of a !usiness. It is !eyon the purpose an scope of
RAM
1*
STRATEGIC MANAGEMENT this text to examine all of the !usiness a ministration concepts an tools important in strategy implementation. &anagement issues central to strategy implementation inclu e esta!lishing annual o!"ectives$ evising policies$ allocating resources$ altering an existing organizational structure$ restructuring an reengineering$ revising re-ar an incentive plans$ minimizing resistance to change$ matching managers -ith strategy$ eveloping a strategy%supportive culture$ a apting pro uction B operations processes$ eveloping an effective human resource function an $ if necessary$ o-nsizing. &anagement changes are necessarily more extensive -hen strategies to !e implemente move a firm in a ma"or ne- irection. >II. I&PIE&EG= S=(A=E#IES% &A(JE=IG#$ FIGAG8E$ A88<@G=IG#$ ()D$ &IS ISS@ES Strategy implementation irectly affects the lives of plant managers$ ivision managers$ epartment managers$ sales managers$ supervisors$ an all employees. In some situations$ in ivi uals may not have participate in the strategy%formulation process at all an may not appreciate$ un erstan $ or even accept the -or' an thought that -ent in to strategy formulation. =here may !e foot ragging or resistance on their part. &anagers an employees -ho o not un erstan the !usiness an are not committe to the !usiness may attempt to sa!otage strategy%implementation efforts in hopes that the organization -ill return to its ol -ays. >III. P(<8ESS <F E>AI@A=IG# =;E S=(A=E#IES
Strategy evaluation is necessary for all sizes an 'in s of organizations. Strategy evaluation shoul initiate managerial Auestioning of expectations an assumptions$ shoul trigger a revie- of o!"ectives an values$ an shoul stimulate creativity in generating alternatives an formulating criteria of evaluation. Evaluating strategies on a continuous rather then on a perio ic !asis allo-s !enchmar's of progress to !e esta!lishe an more effectively monitore . Some strategies ta'e years to implementE conseAuently$ associative result may not !ecome apparent for years.
+R0A*)>AT)+*A8 .TRAT/0)/. <rganizational strategies are classifie in to four types of strategies an they are as follo-sM Integration Strategies For-ar integration 6ac'-ar integration ;orizontal integration

Intensive Strategies
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1,
STRATEGIC MANAGEMENT &ar'et penetration &ar'et evelopment Pro uct evelopment Diversification Strategies 8oncentric iversification ;orizontal iversification
Defensive Strategies (etrenchment Divestiture IiAui ation
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Integration strategiesM
1. For-ar integrationM It involves gaining o-nership or increase control over istri!ution or retailers. Increasing num!ers of manufacturers to ay are pursuing a for-ar integration strategy !y esta!lishing -e! sites to sell pro ucts irectly to consumers. =his strategy is causing turmoil in some in ustries. *. 6ac'-ar integrationM It is a strategy of see'ing o-nership or increase control of a firm1s suppliers. =his strategy can !e especially appropriate -hen a firm1s current suppliers are unrelia!le$ too costly$ or cannot meet the firm1s nee s. ,. ;orizontal integrationM It refers to a strategy of see'ing o-nership of or increase control over a firm1s competitors. <ne of the most significant tren s in strategic management to ay is the increase use of the horizontal integration as a gro-th strategy.
Intensive StrategiesM
1. &ar'et penetrationM It see's to increase mar'et share for present pro ucts or services in present mar'ets through greater mar'eting efforts. =his strategy is -i ely use alone an in com!ination -ith other strategies. *. &ar'et evelopmentM It involves intro ucing present pro ucts or services in to ne- geographic areas. =he climate for international mar'et evelopment is !ecoming more favora!le. ,. Pro uct evelopmentM It is a strategy that see's increase sales !y improving or mo ifying present pro ucts or services. Pro uct evelopment usually entails large research an evelopment expen itures.
Diversification strategiesM
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1.
1. *.
8oncentric DiversificationM It a s ne- !ut relative pro ucts or services.
;orizontal iversificationM It a s ne- unrelate pro ucts an services for present customers. Defensive strategiesM
1. (etrenchmentM It occurs -hen an organization regroups through cost an asset re uction to reverse eclining sales an profits. *. DivestitureM Selling a ivestiture. ivision or part of an organization is calle
,. IiAui ationM Selling a company1s entire asset in parts for there tangi!le -orth is calle liAui ation. S=(A=E#I8 I&PIE&EG=A=I<G =he activation or implementation steps in the strategic management encompass the operational etails to translate the strategy in to effective practice. A goo strategy !y itself oes not ensure success. =he success epen s$ to a very large extent$ on ho- it is implemente . &any strategies fail to pro uce the expecte results !ecause of the failure in properly implementing the strategy. Features of Strategic Implementation Strategy implementation is more operational in character. Strategy implementation reAuires special s'ills in motivating ) managing others. Strategy implementation permeates all hierarchical levels. Another very important fact to !e note is that 5in all !ut the smallest organization$ the transition from strategy formulation to strategy implementation reAuires a shift in responsi!ility from strategists to ivisional ) functional managers. Strategy implementation$ often escri!e as the action phase of the strategic management process$ covers strategy activation ) evaluation ) control. Some -riters !rea' the Strategy implementation phase in to three components$ viz. 1. <perationalising the strategy Ncommunicating strategy$ setting annual o!"ectives$ eveloping ivisional strategies$ ) policies$ ) resource allocationO. *. Institutionalizing the strategy Norganizational structuring ) lea ership implementationO. ,. Evaluation ) control of the strategy.
RAM
1/
STRATEGIC MANAGEMENT .trateg; Formulation 1 * , . / It is positioning forces !efore the action. It focuses on effectiveness. It is primarily an intellectual process. It reAuires goo analytical s'ills. intuitive an .trateg; )mplementation It is managing forces !efore the action. It focuses on efficiency. It is primarily an operational process. It reAuires goo motivation s'ills. lea ership an
It reAuires coor ination among a fe- in ivi uals.
It reAuires coor ination among many in ivi uals.
Successful Strategy Formulation Does Got #uarantee Successful Strategy Implementation
#-.)*/.. /*9)R+*M/*T A num!er of factors outsi e the firm influence a firm1s choice of irection an action. =his in turn$ affects organization1s structure an internal process. =hese factors or forces can !e !roa ly ivi e into t-o categories See the follo-ing figure.
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=echnological Factors Socio% cultural Factors
&acro Environment
=roduct
=rice
Political Factors
=romotion
'o$
=lace
Iegal Factors
Economic Factors &icro Environment
Micro en3ironment or +perating en3ironment Macro en3ironment or Remote en3ironment 6usiness environment has ecisive influence on opportunities as -ell as threats to the organization. In eveloping alternative strategies an choosing the !est strategy$ an in% epth analysis of environmental scanning. &icro environment consists of the follo-ing % 8re itors$ customers$ ven or1s competitors$ mar'et an general pu!lic. &acro environment consists of a num!er of forces li'e political$ economical$ social an cultural$ emographic an geographic$ technological$ an ecological$ regulatory an international. &icro environment is popularly 'no-n as 5<perating environment7 !ecause this provi es the imme iate environment in -hich the firm operates. Some authors prefer to refer this as 58ompetitive environment7 or 5=as' Environment7 <perating environment has much more interaction -ith !usiness than remote environment. =here are many forcesE prominent they are liste o-nM 8ompetition &ar'et forces >en orsBSuppliers an 8re itors Pu!lic
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STRATEGIC MANAGEMENT 8ustomersBconsumers Proper assessment of competitive position -ill ena!le !usiness firm to evelop realistic strategy. In oing so$ Jey result areas CJ(AD can !e prefixe !ase on nature of !usiness. A ne-comer faces stiff competition -hile entering mar'et$ from existing competitors. In or er to overcome the same extra efforts are nee e . It is a fact$ that none can hol s-ay over a given mar'et for a long time. =here re num!er of !arriers to nepro uctsBfirms. =hese are iscusse here !rieflyM Economies of scaleM Economies of scale may occur in many fiel s li'e pro uction$ () D$ or mar'eting efforts li'e promotionB a vertisement$ etc. 8ustomer loyaltyM Ge- pro ucts !rea' the customer loyalty of ol pro ucts an reinforce esire for the ne- one. =his is an involve process !ase on !ehavior% mo ification theory. Another -ay to overcome this pro!lem is !y pro uct ifferentiation an using a vertising techniAues. 8apital reAuirementM ;eavy capital reAuirement is nee e to esta!lish ne- capacity$ set%up ne- istri!utional channels$ a vertisements$ -are housing$ inventory hol ing$ transportation an other promotional steps. Distri!utional 8hannelsM Existing channels of istri!ution of existing pro ucts are not accessi!le to ne- ones. =his may results in the creation of ne- channels -hich may increase cost an ma'e nepro ucts. =-o other important aspects of are the follo-ingM &ar'eting efforts vis%?%vis compPtitions$ price$ pro ucts$ etc. Su!stitution possi!ility of pro ucts. Firms epen on ven ors on cre itors for the supply of ramaterials$ eAuipment an other input Q services. Firm epen s on cre itors for their financial support for easy cre its. Vend r!M In regar s to ven ors$ follo-ing are important aspectsM Price a vantage Ruality iscounts Shipping expenses Ruality stan ar s (e"ection rates Ruality of services A!ilities an reputation Depen a!ility$ especially in emergency situation Cred"t r!M In regar s to cre itors follo-ing are the important aspects giving competitive A vantageM RAM 14
STRATEGIC MANAGEMENT +illingness to value stoc's fairly (ea ily accepting stoc's as collateral security for cre its =he Favora!le cre its rating of the firms !y cre itors Favora!le recor of leverages an -or'ing capital management !y the firm Favora!le current loan terms =imely availa!ility of loan at sufficient level
(%"
/conomic /n3ironment
=he economic environment is !y far the most significant an pervasive component of the external environment. It is therefore very necessary for the firm to appreciate hothe economy -or's currently an ho- it -ill !ehave in future. For the purpose of the iscussion -e have classifie the economic environment into three main groups$ namely$ 1. #eneral Economic 8on itions *. In ustrial 8on ition ,. State of Supply of (esources for Pro uction. =he corporate planner shoul also pay attention to the pattern of income istri!ution in the country !ecause that etermines the type of pro ucts nee e !y people of ifferent income groups. Deman of pro ucts is also influence !y savings an )ndustrial condition@ A perceptive assessment of the ynamic environment of the in ustry the enterprise serves an of the in ustry it plans to enter also provi es a strong !asis from -hich strategy can !e evelope . Among the various aspects -hich must receive ue attention from a corporate planner for stu ying the in ustrial environment$ ma"or ones are long term gro-th or ecline of in ustry$ sta!ility of eman for pro ucts an stage in pro uct life cycle. =he nee s of customers un ergo a change over a perio of time not only !ecause of shifts on economic an social con itions !ut also ue to evelopment of technology. An in% epth analysis of these changes provi es useful clues a!out the expansionary ten ency of the in ustry. =he life cycle of in ustrial pro ucts also helps in pre icting eman . =he pro uct life cycle in icates istinct stages in the sales history of the pro uct. Specific opportunities an pro!lems are entaile in these stages. Scanning of the natural environment also influences managerial ecision regar ing location of the firm. It -ill al-ays !e esira!le for an organisation$ -hich epen s e!t patterns.
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19
STRATEGIC MANAGEMENT heavily on natural resources$ to !e set up in the region -here the resources are availa!le in plenty. 'apital@ Availa!ility of a eAuate fun s to satisfy fixe capital as -ell as -or'ing capital nee s is since Auo%non for a !usiness organisation. Ge- organisation has to epen on capital ) money mar'et institutions for their financial nee s. ;o-ever$ existing organizations finance a portion of their reAuirements out of their o-n fun s -hich they have !uilt !y ploughing !ac' their earnings. =he management must analyze the existing structure of financial mar'et ) financial policies of ifferent institutions operating in these mar'ets ) assess its impact on the cost o!taining capital. =his -ill prove to !e a very helpful exercise in ta'ing capital expen iture ecisions. Emergence of !roa !ase institutional structure of money ) capital mar'ets ) pursuance1s of su!si ize lan ing policies of various financial institutions in In ia offer a great scope for In ian !usinessman to set up or expan their organizations to seize opportunities. 8abour@ A eAuate supply of la!our force -ith the a!ility ) s'ills reAuire to perform the tas' involve in translating strategy in to action is vital for the success of an organisation. +ithout people !eing a!le to use them effectively sophisticate technology$ capital ) materials are of little value. =he price of la!our is also an extremely important economic unit for an enterprise. ;igh -ages create cost pro!lems for pro ucers. =hus$ -hile eci ing a!out the type of pro uct to !e manufacture $ the corporate planner must consi er the availa!ility$ Auality ) price of la!our. Managers@ Availa!ility of highly Aualifie managers is also a critical economic input for an organisation. It is s'ille management that ma'es optimum utilization of resources ) ensures successful functions of the organizations. Entrepreneurs$ -hile contemplating to choose a !usiness fiel $ must see if Aualifie managers are availa!le. &" Technological /n3ironment 8orporate planners must scan the technology environment ) the nuances of technology !ecause ne- technological evelopments affect the efficiency -ith -hich pro ucts can !e manufacture ) sol . =hey must !e a!le to perceive hotechnological change -ill affect customer1s eman of pro uct. =he pace of technological change in ifferent parts of the -orl has !een astoun ing. In In ia too there has !een rapi technological evelopment$ particularly in the fiel of electronics$ automo!iles$ electricity$ machine !uil ing$ an information technology an there is every possi!ility of this ten ency to persist in the follo-ing years. =hese evelopments have !rought a!out !rea'throughs in operating proce ures$ pro uct line$ customer1s taste an fashion. =he management must$ therefore$ !e on the loo' out for -hat is ne- in the technological environment that offers opportunity or entails
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*:
STRATEGIC MANAGEMENT ris' to the organisation. =he management -hich possesses an active imagination an analytical faculties can foresee long%term conseAuences of ne- technology. =here are many sophisticate techniAues of technological forecasting such as 0Delphi1. &any of the techniAues of economic forecasting can also !e use for forecasting technological changes. #enerally$ (esearch an Development C(DD epartment is assigne the responsi!ility of un erta'ing the tas' of forecasting evelopments on the future state of technology an assessing their impact on the company1s pro ucts$ processes or mar'ets. ;o-ever$ only large organisation can affor to set up separate (D epartment. Even small esta!lishments -ith a fe- scientists or engineers can ma'e such a forecast. Furthermore$ small organisation can sometimes get information pertaining to results of research an engineering i eas from lea ing concerns particularly ma"or customers or suppliers A" =olitical /n3ironment =he political atmosphere of a country is significantly is relevant to !usiness organisation. Go organisation can thin' of expan ing or ecertifying its activity of the political atmosphere is charge -ith turmoil an insta!ility. +here the ruling party is strong an sta!le an relations !et-een central an state governments are cor ial role of opposition party is constructive$ ecisions%ma'ing po-ers are reasons a!ly istri!ute among ifferent social groups an government has clear%cut fiscal$ financial an tra e policies$ the !usiness organisation -ill fin it con ucive to expan their operations. =he climate in our country presents a mixe picture. <n the one han $ -e have the emocratic an fe eral system of government in -hich there is a strong an sta!le central government -ith eAually strong state governments -or'ing in harmony -ith each other an !usinessmen have free om to operate -ithin the prescri!e limits. =hese aspects are Auite encouraging for the gro-th of private sector !usiness enterprises. ;o-ever$ emerging regionalism at the political level$ occasional communal istur!ances$ linguistic pro!lem an politicalisation of tra e unions present threats to !usiness enterprises. =hrough the regulatory role the government enacts various la-s. In In ia as -ell as other emocratic countries$ until recently !oth consumers an !usiness firms ha great free om to pursue their course of action. ;o-ever$ o-ing to social an political pressures an gro-ing complexity of technology an !usiness practices$ the government has enacte a -e! of la-s an regulations to constrain an regulate !usiness activities. Some of these la-s currently in vogue in In ia are the In ustries CDevelopment an (egulationD Act$ &onopolies an (estrictive =ra e Practices Act$ 8ontract Act$ =he 8ompanies Act$ Imports an Exports CcontrolD Act$ Foreign Exchange an (egulations Act$ an Essential 8ommo ity Act$ !esi es$ there are innumera!le Ia!our la-s$ taxation la-s an state an local la-s. B" ,emographic /n3ironment
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*1
STRATEGIC MANAGEMENT 8orporate planner shoul also stu y the emographic environment an i entify the !roa characteristics of the population that effect the organisation. An alter management -ill have plenty of a vance notice of potential changes in emographic factors an can start searching for nepro uct lines an more attractive mar'ets. &a"or factors in the emographic environment relevant to !usiness organisation are tren s in size$ ageing$ geographical shifts an literacy of population. #ro-th in population has significance for the government as -ell as for !usiness organisation. A gro-ing population means increasing human nee -hich$ in turn$ results in the expansion of pro uct mar'ets if there is sufficient purchasing po-er. +here gro-th size of population excee s the availa!ility of foo supply an resources there -ill !e rise in costs -hich -ill$ in turn epress profit margins of !usinessmen. =he ageing pattern of the population shoul also !e analyze !ecause that affects pro uct eman . For instance$ an increase in the population of the age of 14 to *. -ill result in surging sales for motor cycles. Sports pro ucts$ clothes an accessories$ cosmetics$ magazines etc. Shrin'ing population of ol persons is li'ely to result in ecline in the eman of certain me ical goo s an services$ certain magazines rea exclusively !y ol er people etc. #eographical shifts of population also affect !usiness enterprises. &igration of people from rural areas to ur!an areas -ill result in the rise in eman of consuma!le pro ucts in ur!an areas. <rganisation engage in pro uction of such goo s after estimating such evelopment -ill a opt the expansion strategy so as to exploit the opportunities. <-ing to the evelopment of Auic' mo es of transportation$ sizea!le sections of the -or'ing population may move from their places of -or' to the su!ur!s. =his -ill certainly increase the eman station -agons$ home -or'shops eAuipment$ gar en furniture$ la-n an gar ening tools an supplies an out oor coo'ing eAuipment in a ition to consumer goo s of aily use. (" .ocial4'ultural en3ironment A !usiness organisation can survive in the long run only -hen it is responsive to the socio%cultural environment of the society in -hich it operates an aims at promoting social -elfare. =he management must$ therefore$ un erstan the existing environment of the society an visualize future changes therein !efore long%range plans are formulate to accomplish corporate o!"ectives. = h e socio%cultural environment is concerne -ith analysis of the attitu es$ values$ esires$ expectations$ egrees of intelligence an e ucation$ !eliefs an customs of people in a society$ tra itions an social institutions$ class structure an social group pressure an ynamics. Some of the !eliefs an values are much more important to people.
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**
STRATEGIC MANAGEMENT For example$ most In ians !elieve in -or'$ getting marrie an living a simple life. =hese !eliefs shape an colour more specific attitu es an !ehaviors foun in every ay life. People also hol secon ary !eliefs an values that are lia!le to change in the% -a'e of ne- social forces. For exampleE !elief in. early marriage is a secon ary one. &anagement must note that it -oul !e un-ise to change core !eliefs an values an shoul avoi formulating a !usiness strategy that violates these !eliefs. Socio%cultural factors also influence the pro ucts to !e manufacture !y an organisation. An organisation has to pro uce that type of pro uct -hich meets the reAuirements of the people. A eman for high Auality rea yma e garments -ill lea to mo ification of pro uct strategy !y those in the !usiness. Increasing a-areness of !etter stan ar s of living an goo nutrition have !rought a!out a proliferation of pro ucts an services such as high Auality pro ucts$ vitamin..%E supplements$ efficient automo!iles$ ecent housing an !etter e ucational facilities. In or er to survive successfully in the long run$ the management must consi er the socio%cultural factors -hile formulating o!"ectives an pro uct%mar'et strategy. .)0*)F)'A*'/ +F /*9)R+*M/*TA8 .'A**)*0 aD Environmental scanning also referre to as the !asic monitoring system is the process of monitoring economic$ competitive$ technological$ socio%cultural$ emographic an political setting to etermine opportunities for threats to the firms. !D Firms can set its future irection an targets of performance an formulate the most suita!le strategy only -hen it has !een a!le to visualize an perceive the opportunities an constraints in store for it. cD =he environment may offer ma"or profit opportunities ue to anticipate economic$ socio%political an in ustrial tren s an ne- opportunities in the mar'etB pro uct B customer segment -hich the company can rea ily exploit particularly in the case of technological a vances. D =he entire environmental frame-or' an its component parts as note a!ove are ynamic an the pace of changes is tumultuous an such a change affects the mar'ets for firm1s present pro ucts$ the prospects for future pro ucts$ success of pro ucts an &ar'ey choices. =he environmental changes may threat on the esta!lish strategies an call upon the management to !e alert to the possi!ility that the opportunity they have seize -ill soon expire. eD Environmental appraisal ena!les the firm to get clear i ea a!out the existing competitors$ their current operation$ an future plan. fD Environmental appraisal ena!les the management to pre ict future evelopment to ma'e the invisi!le more visi!le an thus$ lessen the uncertainty a!out the future in the face of spectacular$ po-erful an rapi environmental changes.
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STRATEGIC MANAGEMENT gD Input%output relationship !et-een a firm an environment also necessitates environmental scanning. A firm$ in or er to function$ must procure various inputs such as human$ capital$ managerial$ an technical from the environment. hD =he management must also scan the environment so as to fin out -hat are the iverse claims an expectations of opportunities of ifferent section of the society -hich the firm has to fulfill in or er to !e socially accepta!le. iD +hile scanning environment the management shoul remem!er that such an appraisal facilitates spotting of opportunities at the level of an in ustry rather than at firm1s or pro uct1s level. As a result of this aggregation$ management ecisions lose the sharpness nee e for choosing a particular pro uct%mar'et. END OF STRATEGY FORMULATION MODULE(I)
MODULE II STRATEGY IM LEMENTATION If the 198 !s were about "uality and the 199 #s were about re$engineering, then the % !s will be about velocity. &bout how "uic'ly the nature of business will change. (usiness is
RAM
*.
going to change more in next ten years than, it has in the last fifty) $ (ill *ates, +hairman ,icrosoft +orporation
Strategy Evaluation
' (&" *1. +hat is 68# matrix? In -hat context it is use !y an organization? **. Illustrate an explain 68# matrix. Explain its utility. *,. +hat is #E planning gri ? ;o- can you use #E gri in a !usiness organization? Illustrate an explain. *.. +hat is &c Jinsey 3% S frame-or'? ;o- can you use &c Jinsey frame-or' -hen a ne- !an' is !eing launche . */. Explain the Pro uct Iife 8ycle concept -ith illustration. ;o- oes it affect the Strategy? *2. 8ompare 68# matrix -ith pro uct life cycle matrix
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, (Total weightage for this part is &(/ !" , (%" *3. 5Structure follo-s strategy7 Explain -ith suita!le examples. *4. Do you thin' strategy rives structure? Ela!orate. ,A *9. Explain the role of lea ership in strategic management? ,:. 5Iea ership an motivation are 'ey rivers of strategy7. Su!stantiate -ith examples. ,B ,1. Explain the role of creativity an innovation in strategic management SA.
NOTE! SOME OF T"E TOOLS OF STRATEGIC MANAGEMENT ARE IN T"E ATTAC"MENT FILE
T++8. +F '+R=+RAT/ 8/9/8 .TRAT/0)' MA*A0/M/*T #'0 MATR)? =he 6oston 8onsulting #roup C68#D matrix provi es a graphical representation for an organization to examine the ifferent !usiness in its portfolio on the !asis of their relative mar'et shares an in ustry gro-th rate.
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*2
6usiness coul !e classifie on the 68# matrix as either lo- or high accor ing to their in ustry gro-th rate an relative mar'et share. =he vertical axis enotes the gro-th rate in sales in percentage for a particular in ustry. =he horizontal axis represents the relative mar'et share$ -hich is the ratio of a company1s sales to sales of the in ustry1s largest competitor or mar'et lea er. =he result of com!ining the in ustry gro-th rate an relative mar'et share$ each along a high an lo- imension$ is a four%cell matrix. Each cell of this matrix has !een given an interesting an appropriate name !y the 6oston 8onsulting #roup. =he four cell of 68# matrix has !een terme as stars$ cash co-s$ Auestion mar'sCor pro!lem chil renD$ an ogs. Each of these cells represents a particular type of !usinesses. S=A(SM Stars are high%gro-th%high%mar'et !usiness -hich may or may not !e self% sufficient in terms of cash flo-. =he cell correspon s closely to the gro-th phase of the Pro uct Iife 8ycle CPI8D. A co. generally pursues an expansion strategy to esta!lish a strong competitive position -ith regar to a 0star1 !usiness. E.g. Petrochemicals$ fast foo $ electronics an communications. 8AS; 8<+SM As the term in icates$ cash co-s are !usiness -hich generates large amounts of cash !ut their rate of gro-th is slo-. =hese !usinesses can a opt mainly sta!ility strategies. =he cash generate !y 0cash co-s1 is reinveste in 0stars1 an 0Auestion mar's1. E.g.M toothpaste for 8olgate$ ecorative paints for Asian Paints. R@ES=I<G &A(JSM 6usinesses -ith high in ustry gro-th rate !ut lo- mar'et share for a co. are 0Auestion mar's1 or 0pro!lem chil ren1. =hey reAuire large amounts of cash to maintain or gain mar'et share. 0Ruestion mar's are usually nepro ucts or services -hich have a goo commercial potential. Go single set of strategies can !e recommen e here. 0Ruestion mar's1 $ therefore$ may !ecome 0stars1 if enough investment is ma e$ or !ecome 0 ogs1 if ignore . E.g.M holi ay resorts$ light commercial vehicles. D<#SM =hose in ustries -hich are relate to slo-%gro-th in ustries an -here a company has a lo- relative mar'et share are terme as 0 ogs1. =hey neither generate nor reAuire large amount of cash. ;er$ retrenchment strategies are normally suggeste . E.g.M cotton textiles$ "ute$ shipping. 0/ C 0R), A==R+A'<@ REFER TO PPT #ATTACHMENT$ =R+,-'T 8)F/ ':'8/(=8'"@ Iife cycle is a conceptual mo el that suggests that pro ucts$ mar'ets$ !usinesses$ an in ustries evolve through seAuential stages of intro uction$ gro-th$ maturity an ecline. From the vie-point of strategic analyses it is important to note that as life cycles moves from one stage to the next$ the strategic con itions too change. PI8 is a S%shape curve -hich exhi!its the relationship of sales -ith respect to the time it ta'es for a pro uct to pass through the four successive stages ofM intro uction
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STRATEGIC MANAGEMENT Cslo- sales gro-thD$ gro-th Crapi mar'et acceptanceD$ maturity Cslo- o-n in gro-th rateD$ an ecline Csharp o-n-ar riftD. If mar'ets$ !usiness or in ustries are su!stitute for a pro uct$ the concepts of PI8 coul -or' "ust as -ell. =he main a vantage of the life cycle concept is that it can !e use to iagnose a portfolio of pro ucts Cor mar'ets$ !usinesses$ or in ustriesD in or er to esta!lish the stage at -hich each of them exists. =he life cycle concept provi es a useful frame-or' for carrying out an analysis to formulate !usiness level strategies. Essentially the !enefit of the life cycle concept lies in its a!ility to provi e strategists -ith a convenient metho of evising a !roa approach to !usiness strategy formulation$ on the !asis an un erstan ing of the stage of the life cycle a !usiness is in at a particular perio of time. ;ere it is significant to note that the life cycle concept is not to !e use as a gui e to -hen a change -ill occur in the life cycle. (ather it is a useful gui e to -hat changes might occur over a perio of time$ -ith regar to the mar'et or in ustry con itions. Further$ it is also important to remem!er that the life cycle can sometime !e reversi!le$ as seen in the case of pro ucts that are revive after a eclining tren . Pro ucts$ mar'ets$ !usinesses$ an in ustries sometimes experience reverse tren s as often happens in the case of fashion -hen iscar e clothing fashion come into vogue again. Strategists nee to !e a-are of the possi!ility of such reverse tren s in the life cycle. =he PI8 is one of the !est 'no-n mo els of mar'eting. It is useful !ecause it illustrates clearly that change is inevita!le as an offering moves through its life in the mar'et. Each of the stages of the cycle is characterize !y ifferent con itions of eman an supply. =o get the !est returns from a pro uct at all times the manager must !e a!le to change the mar'eting mix$ at the ifferent stages. For example$ a high price may !e appropriate for a ne-ly launche innovative pro uct -ith fecompetitors. =he 0s'imming1 strategy -ill generate high profits early in the pro uct1s life$ !ut once challenge !y competitors in the gro-th stage$ prices nee to fall if mar'et share is to !e -on. Similarly$ promotional activities must change from a-areness generating$ through persuasion to remin er as the pro uct matures. <ne reason for portfolio analysis is to ensure that managers have locate each pro uct on its life cycle !efore strategies are evelope for them. =roduct life c;cle
)ntroduction .ales 9olume
0rowth
Maturit;
,ecline
Re3enue ,uring Maturit;2 =rofit 0rowth slows down and 8e3els off 8oss
=rofit Time
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GoteM +hilst there are various classic PI8 shapes covering$ for example$ fashion goo s$ the principal Stages apply$ an the value of the mo el is to encourage managers to see ho- ynamic !usiness is.
=here are a num!er of practical limitations to the use of the pro uct life cycle an some pitfalls to !e avoi e $ !ut it oes emonstrate the reason for eveloping a !alance portfolio an sho-s managers -hy pro ucts at the height of their revenue Q generating life are not popular -ith the o-ners$ !ecause profit gro-th has levelle off. &ost o-ners expect to see profit gro-th. =o achieve that the !usiness nee s gro-ing pro ucts or must fin strategies for exten ing the life of alrea y mature pro ucts Q for example$ !oosting sales !y opening up ne- mar'ets$ ne- istri!ution channels or mo ifying the existing pro uct to encourage repeat purchases. M'D)*./: 7E. FRAM/F+RD Accor ing to &cJinsey an successful !usiness practice. company$ strategy is only one seven elements in
=he first three elements% strategy$ structure$ an systems% are consi ere 5har % -are7 of success. =he next four Q style$ s'ills$ staff$ an share values% are the 5soft% -are7. =he first 5soft7 element$ style$ means that company employees share a common -ay of thin'ing an !ehaving. =he secon $ s'ills$ means that the employees have the s'ills to carry out the company1s strategy. =he thir $ staffing$ means that the company has hire a!le people$ traine them -ell an assigne them to the right "o!s. =he fourth$ share values$ means that the employees share the same gui ing values. +hen these elements are present$ companies are usually more successful at strategy implementation.
+R0A*).AT)+*A8 .TR-'T-R/ An organization structure is the -ays in -hich the tas's an su!tas's are reAuire to implement a strategy are arrange . .TR-'T-R/. F+R .TRAT/0)/.
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STRATEGIC MANAGEMENT Entrepreneurial Structure =he entrepreneurial structure as sho-n in Exhi!it 1$ is the most elementary form of structure an is appropriate for an organization that is o-ne an manage !y one person.
Owner-Manager
Exhi!it 1
E !"#$ee%
=he a vantages that an entrepreneurial structure offers areM Ruic' ecision%ma'ing$ as po-er is centralize =imely response to environmental changes Informal an simple organizational systems
=he isa vantages of the entrepreneurial structure areM Excessive reliance on the o-ner%manager an so proves to !e eman ing for the o-ner%manager &ay ivert the attention of the o-ner%manager to ay%to% ay operational matters an ignore strategic ecision Increasingly ina eAuate for future reAuirements if volume of !usiness expan s Functional Structure As the volume of !usiness expan s$ the entrepreneurial structure outlives its usefulness. =he nee arises for specialize s'ills an elegation of authority to managers -ho can loo' after ifferent functional areas. A typical functional structure is sho-n in Exhi!it *. Exhi!it *
8E< P( Finance &ar'eting Iegal Personnel Pro uction
Gote that specialization of s'ills is !oth accor ing to the line an staff functions. =he functional structure see's to istri!ute ecision%ma'ing an operational authority along functional lines.
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=he a vantages that a functional organization offers areM Efficient istri!ution of -or' through specialization Effective elegation of ay%to% ay -or' Provi ing time for the top management to focus on strategic ecisions
=he isa vantages of a functional structure areM 8reates ifficulty in coor ination among ifferent functional areas 8reates specialists$ -hich results in narro- specialization$ often at the cost of the overall !enefits of the organization. Iea s to functional an line an staff conflicts Despite the isa vantages$ the functional structure is Auiet common an exists in its original or mo ifie form as the organization evolves from the initial to the mature stages of evelopment. Divisional Structure =he structural nee s of expansion an gro-th are satisfie !y the functional structure !ut only up to a limit. =here comes a time in the life of organization -hen gro-th an increasing complexity in terms of geographic expansion$ mar'et segmentation$ an iversification ma'e the functional structure ina eAuate. Some form of ivisional structure is necessary to eal -ith such situations. 6asically$ -or' is ivi e on the !asis of pro uct lines$ type of customers serve $ or geographical area covere $ an then separate ivisions or groups are create an place un er the ivisional%level management. +ithin ivisions$ the functional structure may still operate.
8E< 8orporate Finance #eneral &anager &ar'eting <perations Personnel 8orporate Iegal B P( #eneral &anager &ar'eting <perations Personnel
Exhi!it , =he a vantages that a ivisional structure offers areM
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STRATEGIC MANAGEMENT Ena!les grouping of functions reAuire for the performance of activities relate to a ivision. #enerates Auic' response to environmental changes affecting the !usinesses of ifferent ivisions. Ena!les the top management to focus on strategic matters. =he isa vantages of the ivisional structure areM Pro!lems in the allocation of resources an corporate overhea costsE particularly if the !usiness an corporate o!"ectives are ill% efine . Inconsistency arising from the sharing of authority !et-een the corporate an ivisional levels. Policy inconsistencies !et-een ifferent levels. Strategic 6usiness @nit Strategic 6usiness @nit CS6@D has !een efine !y Sharplin as 5any part of !usiness organization -hich is treate separately for strategic management purposes7. +hen organizations face ifficulty in managing ivisional operations ue to an increase in iversity$ size$ an num!er of ivisions$ it !ecomes ifficult for the top management to exercise strategic control. ;ere$ the culture of S6@ is helpful in creating an S6@% organizational structure. 8onceptually$ an S6@ is 5a iscrete element of the !usiness serving specific pro ucts% mar'ets -ith rea ily i entifia!le competitors an for -hich strategic planning can !e constructe .7 Essentially$ S6@s can !e create !y a ing another level of management in a ivisional structure after the ivisions have !een groupe un er a ivisional top management authority on the !asis of common strategic interests. Exhi!it . S6@ <rganization Structure
8E<
#roup ;ea S6@ 1
#roup ;ea S6@ *
#roup ;ea S6@ ,
Divisions A68
Divisions DEF
Divisions #;I
=he a vantages that the S6@%organization structure offers areM Esta!lishes coor ination !et-een ivisions having common strategic interests. Facilitates strategic management an control of large$ iverse organizations. Fixes accounta!ility at a level of istinct !usiness units.
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=he isa vantages of the S6@%organization structure areM =here are too many ifferent S6@s to han le effectively in a large$ iverse organization. Difficulty in assigning responsi!ility an efining autonomy for S6@ hea s. A itional of another level of management !et-een corporate an ivisional management. &atrix Structure In large organizations$ there is often a nee to -or' on ma"or pro ucts or pro"ects$ each of -hich is strategically significant. =he result is the reAuirement of matrix type of organizational structure. Essentially$ such a type of structure is create !y assigning functional specialists to -or' on a special pro"ect or a nepro uct or service. For the uration of the pro"ect$ specialists from ifferent areas form a group or team an report to the team lea er. Simultaneously$ they may also -or' in their respective parent epartments. <nce the pro"ect is complete $ the team mem!ers revert to their respective epartments. Exhi!it2 &atrix
8E<
Finance
&ar'eting
Personnel
<perations
Pro"ect &anager A
Functional Specialists
Pro"ect &anager 6
<rganizational Structure
Pro"ect &anager 8
=he a vantages that the &atrix structure offers areM Allo-s in ivi ual specialists to !e assigne -here their talent is most nee e . Fosters creativity !ecause of pooling of iverse talents. Provi es goo exposure to specialists in general management.
=he isa vantages of the &atrix structure areM Dual accounta!ility creates confusion an ifficulty for in ivi ual team mem!ers. (eAuires a high level of vertical an horizontal com!ination. Share authority may create communication pro!lems.
Get-or' Structure =he increasing volatility of the environment$ couple -ith the emergence of 'no-le ge !ase in ustries$ has lea to the creation of a net-or' structure. Also 'no-n as the 5spi er1s -e! structure7 or the 5virtual organization7$ the net-or' structure is
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STRATEGIC MANAGEMENT 5compose of a series of pro"ect groups or colla!orations lin'e !y constantly changing non%hierarchical co!-e! net-or's7. =his structure is highly ecentralize an organize aroun customer groups or geographical regions. (ather than !eing locate in one place$ the !usiness functions are scattere far an -i e. =he core organization is only a shell -ith a small hea Auarters acting as a 5!ro'er7 connecte to the suppliers an the specialize functions performe !y autonomous teams ) -or'force. =he net-or' structure is most suite to organizations that face a continually changing environment reAuiring Auic' response$ high level of a apta!ility$ an strong innovations s'ills. =his structure ma'es extensive use of the outsourcing of support services reAuire to pro uce an mar'et pro ucts or services. =here are fe- internal resources an a net-or' structure firm relies heavily on outsi ers -ho are specialize in their respective areas.
Pro"ect A Pro"ect #roup & 8<(P<(A=E ;EADR@A=E(S Pro"ect 6 Pro"ect #roup G Function S Function H
Exhi!it 3 Get-or' <rganization Structure =he a vantages that the net-or' structure offers areM ;igh level of flexi!ility to change structural arrangements in line -ith !usiness reAuirements Permits concentration on core competencies of the firm A apta!ility to cope -ith rapi environment change =he isa vantages of a net-or' structure areM Ioss of control an lac' of coor ination as there are several partners (is's of overspecialization as most tas's are performe !y others ;igh costs as a uplication of resources coul !e there .TR-'T-R/ F+88+F. .TRAT/0:G R. Do you thin' Strategy rives structure? Ela!orate.
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AnsM% 5Structure is static$ Strategy is ynamic7 seems to !e more applie statement in the present ay scenario$ -here organizations are striving for excellence in everything they o. 8ompetition is 0getting1 intense$ an organizations have no other choice$ !ut either to P(<SPE( or PE(IS;T <rganisational structures have also un ergone tremen ous ma'eovers in the recent years. =all structures have given -ay to FIA= S=(@8=@(ES. Decision ma'ing is spee ier in flat than tall structures. ;&= -atches lost to =I=AG -atches in this aspect. Strategy is usually evelope at three levels Q 8orporate level$ S6@ level ) Departmental level. Every !ig organization has a Strategic &anagement #roup CS&#D -hich evelops the Strategies for the organization to achieve in the years to come. =his team -or's on the changes in the Environment -hich can impact an affect the !usiness. Ge- >entures$ expansion$ turnaroun $ nepro uct evelopment$ iversifications$ ivestures$ etc. Strategies are prepare !y organizations to fight competition. +ith the &alhotra 8ommittee (eforms recommen ations to privatize Insurance !usiness in In ia in 1991 in place$ the #overnment opene up Insurance Sector for private participation. I(DA CInsurance (egulatory Development AuthorityD -as set up as an apex !o y to loo' into the ethical !usiness practices of the Insurance Sector. Aroun 14 private players entere the Insurance Sector in In ia li'e I8I8I$ ;DF8$ =A=AS$ 6I(IAS$ 6AKAK$ (EIIAG8E$ etc. II8$ the #overnment player -hich en"oye a virtual monopoly ha to -a'e up to !eat the competition. All the players ha !ig Q money an great mar'eting s'ills. II8 -as a mammoth player in the Insurance Sector an -as literally an un ispute player. II8 came to 'no- that$ if it oesn1t revamp its strategy$ it cannot protect its lea ership status. It too' a series of steps$ to com!at competition from the private players. II8 !elieve that !eing a #overnment !o y$ ecision ma'ing -as literally slo- an this -oul hamper the fighting spirit. So$ II8 overhaule its entire <rganisation Structure. A lot of changes -ere initiate to !ring in more transparency an faster ecision ma'ing. From a tall hierarchical structure$ II8 -or'e on various epartments of the organization an trie to !ring flat structures$ -here flexi!ility is there an -oul ultimately lea to faster ecision ma'ing. II8 also initiate massive promotional plans. =hey create ne- a vertisements mostly through out oors. =hey also Q unveile their ne- punchline 5Keevan 'e sath !hi$ "eevan 'e !aa !hi7. If II8 i not -a'e up to the increasing competition$ it -oul have ie a natural eath. =o rive the Strategy$ II8 i ma'e slight structural a "ustments in their organizational structure to ma'e the smooth flo- of their strategy. A recor 1: million policies -ere sol !y II8 in &arch *::2$ earning a premium income of (s. 2$::: crore. II81s first premium from ne- policies rose .4./ percent to (s. 14$:4/ crore$ from (s. 1*$13: crore last year$ thus proclaiming its mar'et lea ership.
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STRATEGIC MANAGEMENT =he a!ove example$ signifies that Strategy shoul al-ays try to fit into the Structure. An organization cannot change its structure$ "ust to meet its strategy reAuirements. ;o-ever$ if the nee arises$ a slight change in the structure can also po-er the strategy. 6ut$ in many instances$ Structures follo- the Strategy. 8/A,/R.<)= )* .TRAT/0)' MA*A0/M/*T +ho is the lea er? A lea er is someone -ho has the authority to tell a group of people -hat to o. A lea er can also represent a group of people. #oo lea ers are made not !orn. If you have the esire an -illpo-er$ you can !ecome an effective lea er. #oo lea ers evelop through a never en ing process of self%stu y$ e ucation$ training$ an experience. Define lea ershipM Iea ership is a process !y -hich a person influences others to accomplish an o!"ective an irects the organization in a -ay that ma'es it more cohesive an coherent. Iea ers carry out this process !y applying their lea ership attri!utes$ such as !eliefs$ values$ ethics$ character$ 'no-le ge$ an s'ills. Although your position as a manager$ supervisor$ lea $ etc. gives you the authority to accomplish certain tas's an o!"ectives in the organization$ this % &er oes not ma'e you a lea er...it simply ma'es you the ' !!. Iea ership iffers in that it ma'es the follo-ers want to achieve high goals$ rather than simply ' !!"ng %e %(e ar )nd. ;o- it influences a strategy? Influential lea ers are a ept at !uil ing teams an partnerships that rise a!ove personal interests an cultural ifferences -ithin organizations an !et-een countries. Develop critical lea ing an influencing s'ills necessary to sustain long% term organizational success through a com!ination of lecture$ iscussion$ simulation an self%assessment. @n erstan regulatory an cultural challenges an see hocommercialization has !een accomplishe glo!ally. @n erstan ho- ne- technology can revolutionize esta!lishe in ustries$ presenting challenges for participants an opportunities for ne- entrants. Strengthen your position in the glo!al mar'etplace !y un erstan ing ho'no-le ge is generate Iea ership Implementation Iea ership implementation refers to ensuring the right people in positions responsi!le for implementation of the strategy. It encompasses the chief executive officer C8E<D an the 'ey manager. =he first imension of Iea ership implementation is to ma'e sure that the right strategists are in the right position for the strategy chosen for the
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STRATEGIC MANAGEMENT S6@ or firm. =he a!ility$ integrity an commitment of the 8E< an other top executives are very critical to the successful implementation of the strategy. =he critical role of the lea er in strategic management is clear from the fact that ma"or changes in strategy are often prece e !y or Auic'ly follo-e !y a change in the 8E<. It is aptly sai that in strategic management the nature of the 8E<1s role is !oth sym!olic an su!stantive. =he sym!olic role is very important to instill confi ence an to inspire. =he su!stantive nature of the 8E< role -ill !e reflecte in the amount of interest the 8E< has in the strategy an the amount of time he investe in implementing the strategy. 6esi es the 8E<$ other top executives have a critical role in the strategy implementation. It is$ therefore$ essential to ensure that such 'ey position are hel !y the right people. CREATI#ITY $ INNO#ATION IN STRATEGY! ;uman !eings are relentlessly creative ) crucial issues that creativity must have some tangi!le outcome in pro ucts$ in services$ in a ne- structure or strategy or more iffusely in a pervasive shift in corporate culture. An invention is the solution to a pro!lem$ often a technical one$ -here as innovations is the commercially successful use of the solution. Innovation starts after examining mar'et nee s$ technical pro uction an mar'eting reAuirements. Successful innovations result from a conscious$ purposeful search for innovation opportunities. Innovations arise out ofM @nexpecte occurrences Incongruities Precise nee s In ustry an mar'et changes Demographic changes 8hanges in perception Ge- 'no-le ge. Innovation means change. Such changes can !e incremental or ra ical$ evolutionary or revolutionary. =hey can have ifferent effects upon proce ures an users. Innovation is not a technical term. Innovation creates ne- -ealth or ne- potential of action rather than ne- 'no-le ge. <rganisations 'no- that it is not something that ta'es place -ithin an organization !ut a change outsi e. =he measure of innovation is the impact on the environment. Innovation in a !usiness enterprise therefore al-ays !e mar'et focuse . =he most mar'et focuse innovator succee s li'e !usiness strategies$ an innovative strategy starts out -ith the Auestion 5+hat is our !usiness an -hat shoul it !e?7 =he ruling assumption of an innovative strategy is that -hat ever exists is aging. Existing pro ucts lines an services$ existing mar'ets an istillation channels go
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STRATEGIC MANAGEMENT o-n rather than up. =he foun ations of innovative strategy is planne systematic sloughing of the ol $ the ying an the o!solete. an
Innovation is perhaps the single most important !uil ing !loc' of competitive a vantage. Successful innovations gives a company something uniAue Q something that the competitors lac'. =his uniAueness may allo- a company to ifferentiate itself from its rivals an change a premium price for its pro ucts. Alternatively$ it may allo- a company to re uce its unit costs for !elo- those of competitors. END OF STRATEGIC IM LEMENTATION MODULE (II)
MODULE III STRATEGY CONTROLLING

Induce your competitors not to invest in those products, mar'ets and services where you expect to invest the most. -hat is the most fundamental rule of strategy) . (ruce /. 0enderson
Strategy Evaluation
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,( ,*. Explain the meaning$ nature an importance of controlling function. ,,. Explain the meaning an various steps involve in the process of control -ith reference to strategic management. ,.. Explain the process of evaluation an control of strategy. ,/. +hat are the various tools that can !e use for controlling a strategy? /9A8-AT)+* A*, '+*TR+8 +F .TRAT/0)/. <nce the Strategy is implemente $ there is no guarantee that the Strategy generates the results as aime at. =herefore$ the Strategist has to evaluate the strategy to assess -hether the implementation of the Strategy is as per the Strategic plan. Further$ a num!er of eviations -ither in the external environment or in organizational environment$ may ta'e place. =hese eviations may necessitate a change in the Strategy. =hese changes may reAuire a Strategic evaluation an control. De*"n"t" n+ C ntr (("ng "! t,e %r -e!! * reg)(at"ng rgan".at" na( a-t"/"t"e! ! t,at a-t)a( %er* r0an-e - n* r0! t e1% !ed rgan".at" na( !tandard!. It "! t,e %r -e!! * 0 n"t r"ng and ad2)!t"ng rgan".at" na( a-t"/"t"e! "n !)-, a &ay a! t *a-"("tate a-- 0%("!,0ent * rgan".at" na( '2e-t"/e!. =here are t-o !roa types of controlM 1D Strategic control *D <perational control 1. Strategic 8ontrolM
Strategic control focuses on monitoring an evaluating the strategic management process to ensure that it functions in process to ensure that it functions in the right irection. =he !asic purpose of strategic control is to help top management to achieve Strategic goals as planne . =here are . !asic types of Strategic controls viz CaD premises control C!D implementation control CcD Strategic surveillance C D spee alert control. aD Premises controlM Strategies are often !ase on premises$ i.e. assumptions are pre icte con itions. A strategy may !e rate only as long as the planning premises remain vali . A strategy may !e !ase on certain premises relate to the in ustry an environmental factors li'e government policies an regulations. 8hanges in the vital premises may necessitate changes on strategy.
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STRATEGIC MANAGEMENT !D Implementation controlM In several cases$ the implementation of a strategy may not progress as planne $ or the cost$ sales volume$ revenue$ etc. may !e at consi era!le variance -ith the planne ones. =he lessons of the first phase of the implementations coul !e helpful in the implementation of the su!seAuent phases. In short$ implementations control is esigne to asses -hether overall strategy shoul !e change in the light of unfol ing events an results associate -ith incremental steps an actions that implement the overall strategy. Strategic surveillanceM Strategic Surveillance is esigne to monitor a !roa range of events insi e an outsi e the company that are li'ely to threaten the course of the firm1s strategy. =he strategy of a company coul !e efeate !y certain such events. It is therefore$ necessary that the company exercise surveillance for timely etections of such evelopments an corrective actions. Special alert controlM Su en an unexpecte evelopments li'e alliance !et-een competitors$ ta'eover B mergers$ a ma"or competition move !y a competitor$ etc. coul have serious impact on a firm1s strategy. Eg.M In the -a'e of the consoli ation of the mar'et !y ;in ustan Iever !y ta'ing over =omco$ #o re" Soaps felt insecure an forge an alliance -ith Proctor an #am!le. <perational 8ontrolM <perational control systems gui e$ monitor an evaluate progress in meeting annual o!"ectives. +ith strategic control attempts to steer the company over an exten e time perio $ operational controls provi e post%action evaluation an control over short time perio s.
cD
eD
The operational control s;stem in3ol3es the following steps@ a" /stablishing criteria and standards b" Measuring and comparing performance c" =erformance gap anal;sis d" Taking correcti3e measures aD Esta!lishing criteria an stan ar sM 8riteria an stan ar s provi e the !asis for evaluation. Selection of the criteria for evaluation epen s on a num!er of factors. For example$ the evaluation criteria appropriate for sta!ility. Strategy may not !e appropriate for gro-th strategy or retrenchment strategy. !D &easuring an comparing performanceM <ne actual performance is measure an is compare -ith the stan ar s to i entify the shortfalls if any. cD Performance gap analysisM Performance gap is the ifference !et-een the actual performance of a given organizational unit an the planne performances of that unit. If there is any performance gap it is necessary to i entify the reasons for the gap to etermine the appropriate corrective measure. In other -or s$ performance gap analysis is a iagnostic step. D 8orrective measuresM Performance gap analysis -ill reveal the reasons for the gap an -ill help eci e the corrective measures. Strategy evaluation an control process may !e graphicalluy presente as un erM
De&'('ng &r')er'a an( %)an(ar(% *#r e+a",a)'#n Mea%,r'ng an( &# !ar'ng !er*#r an&e% -er*#r an&e ga! ana"$%'% C#rre&)'+e ea%,re%
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T++8. F+R '+*TR+88)*0 .TRAT/0)/. =here are various evaluation an control tools li'eM a" .tandards b" #ench marking c" 'ost benefit anal;sis d" =erformance gap anal;sis e" Responsibilit; centres f" Return on )n3estments g" #udgeting (a" .tandards@ Stan ar s are the !asis for evaluation of performance an are relate to the goals of an enterprise. =hey are the specific criteria -hich are reAuire to !e fulfille !y the -or'ers. A stan ar is a esire outcome or expecte event -ith -hich managers can compare su!seAuent activities$ performance or change. Setting of stan ar s is useful for an enterprise for the follo-ing reasonsM CiD CiiD =hey ena!le the employees to 'no- their limitations of -or' an the expectations that the managers have from them. =hey ena!le the employees to 'no- as to -hether or not they posses the necessary a!ility to perform the -or'$ accor ing to stan ar s. If not$ necessary training can increase the employee potential. =hey co%or inate the in ivi ual goals -ith the organizational goals.
CiiiD
A company may set the follo-ing stan ar sM =ime Stan ar M these relate to the time that an employee shoul ta'e to perform a particular activity. It may !e a pro uct pro uce or service ren ere . Pro uction Stan ar M Pro uction stan ar specify the num!er of units of a pro uct that shoul !e pro uce -ithin the time specifie in the time stan ar s. For example$ the company can set pro uction stan ar that each employee shoul pro uce 1: units of Pro uct A in one hour. 8ost stan ar sM =he pro ucts pro uce or services ren ere must !e cost effective so as to generate maximum profits for the firm. =he cost stan ar s specify the cost per unit of the pro ucts pro uce . Ruality stan ar sM =he Auality stan ar s aim at maintaining the Auality of pro ucts. Got only shoul the goo s !e cost effective$ they must also !e Aualitative in nature.
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STRATEGIC MANAGEMENT <nce the stan ar s have !een set$ the -or'ers perform their activities accor ing to these stan ar s. =he activities having !een performe $ ho- many units have actually !een pro uce $ at -hat cost$ -ithin -hat time perio is monitore !y the managers. C!D #ench marking@ A ma"or focus in etermining a firm1s resources an competitiveness is comparison -ith existing an potential competitor1s firms in the same in ustry often have ifferent mar'eting s'ills$ financial resources$ operating facilities an locations$ technical 'no-%ho-$ !ran images$ levels of integration an so on. =hese ifferent internal resources can !ecome relative strengths or -ea'nesses epen ing on the strategy the firm chooses. In choosing a strategy$ managers shoul compare the firm1s 'ey internal capa!ilities -ith those of its rivals$ there!y isolating its 'ey strengths an -ea'nesses. 6ench mar'ing$ comparing the -ay 0our1 company performs a specific activity -ith a competitor or other company oing the same thing has !ecome a central concern of mergers in Auality commercial companies -orl -i e. In structuring the internal analysis$ managers see' to systematically !enchmar' the costs an results of the smaller value activities against relevant competitors on other useful stan ar s !ecause it has proven to !e an effective -ay to continuously improve that activity. =he ultimate o!"ective in !ench mar'ing is to i entify the 5!est practices7 in performing an activity$ to learn ho- to lo-er costs$ fe-er efects$ or excellence are achieve . 8ompanies committe to !ench mar'ing attempt to isolate an i entify -here their costs or outcomes are out of line -ith -hat the !est practitioners of a particular activity experience an then attempt to change their activities to achieve the ne- !est practices stan ar . CcD 'ost H benefit anal;sis@ 6usiness is one -ith an ultimate o!"ective of profits. =herefore$ the strategist shoul analyze the costs associate -ith a profit centre an the !enefits accruing therefrom. 6oth irect an in irect costs are ta'en into consi eration to arrive at the costs. =otal income out of the pro uct line is ta'en into consi eration to arrive at the profits or !enefits. =he policy of transfer pricing is follo-e to arrive at in irect !enefits. <n the !asis of costs an !enefits arrive !y such analysis strategy for a !usiness line or pro uct is pursue . C D =erformance 0ap Anal;sis@ <ver all plan of a !usiness is arrive at !ase on ivisional plans. =he unit hea s of each epartment1s !ranches in case of multi%locational !usiness units are gui e !y the corporate goal. 6usiness units contri!ute for achievement of corporate goals. Such goals are compare -ith the achievements perio ically. If there is a gap in achievement !y ifferent units$ such eficit of !usiness is calle as performance gap. It gives incite into pro"ections an performance. Strategic manager ta'es corrective steps to improve the performance gap is re uce . I entification of performance gap is a valua!le strategic control measure. &i -ay$ corrective measures can !e suggeste !y i entifying the performance gap. CeD Responsibilit; 'entres@
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STRATEGIC MANAGEMENT =he organization is usually ivi e into smaller units -here each unit is hea e !y a manager -ho is responsi!le for achieving the targets of the unit. =hese units are calle responsi!ility centres an the hea of each responsi!ility centre is responsi!le for controlling the activities of his centre. =here are four ma"or types of responsi!ility centresM CiD 8ost centreM these centres aim at achieving their goals -ithin the given cost constraints. =he various irect costs Cra- material$ la!our$ etc. an in irect costs Cresearch an evelopmentD are etermine in monitoring terms an the centre hea strives to limit the expenses -ithin the constraints of the !u gete expenses or costs. CiiD (evenue centresM =he revenue to !e carrie out of sales is estimate an expresse in monetary terms an the actual sales figures are compare -ith the !u gete figures. =his etermines the efficiency of the revenue centre. 8orrective action is ta'en if the estimate figures of revenue are not achieve . CiiiD Profit centreM =his centre is cre ite -ith the responsi!ility of earning esire level of profits$ compute !y fin ing out the ifference !et-een revenues an costs. =hese centres can !e ivisions$ epartments$ or the organization as a -hole. CivD Investment centreM =he profits that ifferent centres earn epen upon the efficient use of assets. =he investment centres ta'e care to invest money in assets -hich -ill generate maximum revenue an profits for the enterprise as a -hole. =he efficiency of the investment centre is "u ge through the returns that these centres earn on their investments. CfD Return on in3estments (R+)"@ (eturn on investment is a measure of control that measures financial performance of a firm in relative terms. (ather than measuring company1s performance on the !asis of a!solute figure of profit$ (<I measures a rate of return that firms are a!le to earn on their capital employe . =his techniAue of control -as a opte !y Du Pont company of @SA in 1919. (<I is use to measure the efficiency of capital. ;igher the efficiency of capital other factors remaining the same$ higher -ill !e the (<I an higher the financial performance of the firm. =he (<I measure can !e use to compare the firm on ifferent pro ucts of the same epartment or ifferent firms -ithin the in ustry. A company$ !esi es comparing its performance -ith other companies$ can also compare its overall performance in the current year -ith reference to earlier years. A tren of (<I can help company in assessing the sta!ility of earnings that it has !een a!le to maintain over a perio of time. A irecting tren $ for instance$ calls for a corrective action or control. =he (<I can !e calculate !y the application of the follo-ing formulaM .ales earnings IIIII J IIIIIII capital sales Precisely$ (<I measures the earnings of the firm as a percentage of its capital. CgD #udgeting@
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STRATEGIC MANAGEMENT A !u get is a statement -hich reflects the future incomes$ expen itures an profits that can pro!a!ly !e earne !y a firm. It is a future pro"ection of the firm1s financial position. Gon%financial aspects li'e num!er of units pro uce $ num!er of units sol $ material an la!our reAuire per unit of output$ etc. can also !e important components of a !u get. 6u geting control refers to comparison of actual performance -ith the planne or !u gete performance. It is a !asic techniAue of control an is use at every level of organization. Purpose of !u getsM =he !u get inten s to serve the follo-ing purposesM CiD It provi es a yar %stic' for measuring an comparing the Auantitative performance of ifferent epartments$ at ifferent levels an at ifferent time perio s. CiiD It facilitates co%or ination of various resources vis%?%vis pro"ects un erta'en !y the !usiness organizations. CiiiD It provi es gui elines a!out the resources an expectations of an organization. CivD It facilitates intra an inter%management an ivisional performance of an organization. 6u get as controlling eviceM 6u get is a single use plan -hich provi es a stan ar for measurement of performance. Framing stan ar s is an important feature of plans an a !u get$ therefore$ can !e rightly construe to mean a plan. It specifies anticipate results in financial terms -hich serves as a !asis for controlling the future revenues$ an expenses. As a controlling evice$ it provi es a !asis for fee !ac'$ evaluation an follo-%up. It facilitates comparison of actual performance -ith planne performance an helps to etect an correct eviations in the actual performance vis%?%vis the planne performance. =his comparison of performance an rectification of errors is the essence of control. A !u get can$ therefore$ !e vie-e as !oth a plan an a evice for control. /*, +F /9A8-AT)+* A*, '+*TR+8 +F .TRAT/0: M+,-8/()))"
'+*'/=T K-/.T)+*. F+R .TRAT/0)' MA*A0/*T 8oncept Auestions -hich can !e as'e for short note for / mar's 1. *. ,. .. /. 2. 3. Define Strategy Define Strategic management Integration Diversification an types of iversification Divestment. +hat is Disinvestment? Is In ia successful in isinvestment? Do-nsizing Ievels of strategic management
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STRATEGIC MANAGEMENT 4. #eneric strategies 9. Ruestion mar's 1:. 8ash co-s 11. Performance gap analysis 1*. (esponsi!ility centres 1,. (eturn on investmentC(<ID 1.. 6enchmar'ing 1/. Stan ar s 12. 8ost%!enefit analysis 13. 6u geting 14. 8reativity an innovation 19. Political environment *:. Social responsi!ility of !usiness *1. Future of strategic management **. (ole of lea ership in strategic management *,. (ole of &otivation in Strategic &anagement. *.. ;o- can you mo!ilize the resources for Strategy? Explain them. */. (ole of 8reativity an Innovation in Strategy formulation. *+T/@ M+.T +F T</ '+*'/=T. AR/ F/AT-R)*0 )* T</ A#+9/ A M+,-8/.2 T</ 8/FT +9/R. AR/ F/AT-R/, </R/ R/.+-R'/ M+#)8)>AT)+* F+R .TRAT/0: &anagement can !e vie-e as a process -here human resources are integrate an irecte to-ar s the achievement of the organizational goals. Any economic activity epen s upon the availa!ility an effective utilization of various resources li'e men$ material$ capital an technology. &ar'et plays an important role in provi ing the resources an also for sale of the outputs of any enterprise. 1. Mone;@ 8apital is the !asic resource for starting any !usiness. &oney means capital in economic sense. 8apital provi es the a!ility to !orro- to the firm. 8apital can !uy other resources reAuire for any !usiness. 8apital is generally !rought !y the entrepreneur in the form of eAuity. In a reasona!le ratio e!t is provi e !y the financial institutions li'e !an's. 8apital can !e source !y various mo es. #enerally initial capital is !rought !y the entrepreneur. Depen ing on the o-nership pattern$ capital can !e source !y offer of shares to the pu!lic$ international investors$ mutual fun s$ venture capitalists$ high net-orth$ in ivi uals$ etc. 8apital mar'et helps in mo!ilizing capital for a firm. De!t can !e source as -or'ing capital from !an'$ external commercial !orro-ings from a!roa $ eferre payment$ factoring$ !ill iscounting$ !uyer1s cre it$ hire purchase$ leasing an so on. Divi en is the cost of eAuity an interest is the cost for the e!t. =here are various e!t instruments through -hich e!t can !e evi ence . =he !orro-ing ratio in icates the component of eAuity an e!t. ;igher this ratio$ ris'ier the form is a capital as acting as ris'%a!sor!ing mechanism.
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STRATEGIC MANAGEMENT *. Markets@ &ar'et provi es the physical infrastructure for exchange of goo s an services. &ar'et plays an important role in provi ing the necessary inputs for pro uction. It also helps to sell the outputs of goo s an services provi e !y the !usiness enterprise. &ar'et !ehaviour is eci e !y the consumers. 8onsumers have nee s an specific !ehaviour. &ar'et provi es competition$ sustains some firms$ allo-s isintegration of others. &ar'et helps to iscover price$ level of consumptions an eman for goo s an services. =he art of un erstan ing the customer !ehaviour an selling the goo s an services is collectively calle as mar'eting. =his is one of the important management function in competitive mar'et. ,. Machine@ &achine represents technology use in any !usiness. In a competitive environment the Auality of the pro uct eci es the fact of the !usiness. Ruality epen s on the technology use . =herefore$ technology is an important eci ing factor. &achine or technology can pro uce i entical pro ucts in large num!ers at reasona!le spee . &achines are untiring an can -or' continuously stan ar ization of pro ucts B components is possi!le in goo s an services pro uce !y machines. &achines re uce the cost an improve Auality giving an e ge to the !usiness. Innovation helps to refine the pro ucts an machines help innovation. &achines are the outcomes of technological innovations. &achines reAuire revie-ers outputs i.e. po-er an fuel. &achines have to !e maintaine an nee s'ille persons to -or' on. &achines isplace la!our. &achines are ma e for mass pro uction. .. Material@ All physical inputs -hich go into pro uction can collectively terme as 0material1. &aterial forms the inventory in the !alance sheet of the firm. Inventory is an i le asset an therefore involves cost in the form of interest on -or'ing capital reAuire to hol such inventory. <ptional hol ing of inventory is calle material management. Excessive hol ing of material can lea to increase in cost of the ultimate pro uct. Effective materials management involves maximizing materials pro uctivity. &o ern material management attempts for zero inventory. Excessive material varieties an unpre icta!ility of eman for materials an spares frustrate the attempt to minimize material on han . Proper planning of stores$ issuing policies$ avoi ance of pilferage can help re uce inventory hol ing. Stan ar ization an co ification are variety re uction metho ologies for improving materials pro uctivity. &inimisation of -astage is another aspect of improving efficiency. /. Merit@ ;uman resources forms only living input in resources. ;uman resources are characterize !y emotions$ s'ill levels$ psychological aspect. =herefore$ management of human resources is important in any organization. @nli'e other resources$ human resources can !e motivate for improve performance.
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STRATEGIC MANAGEMENT Depen ing on the "o!$ human resources shoul provi e the s'ill sets reAuire . ;uman resource management involves recruitment$ selection$ in uctions an orientation$ training an evelopment an also perio ic performance appraisals -hich helps to revie- the contri!ution of each employee. ;uman resources are costly inputs an therefore it is necessary to inta'e "ust sufficient manpo-er. &anpo-er can !ring success or failure in an organization !y their contri!ution or other-ise. <ne art of han ling manpo-er is most important in to ay1s !usinesses. '+.T4#/*/F)T A*A8:.). ('#A" =o ensure efficiency in resources allocation an to achieve maximum gains in social -elfare$ it may !e necessary to use evaluation proce ures that are !ase on systematic an careful assessment of all options un er consi eration. <ne such proce ure is cost%!enefit analysis C86AD. 86A is a metho istinctively evelope for the evaluation of pu!lic policy issues. @n er the 86A metho ology all potential gains an losses from proposal are i entifie $ converte into monetary units an compare on the !asis of ecision rules to etermine if the proposal is esira!le from society1s stan point. 86A is particularly esigne from the evaluation on the !asis of pu!lic interest. 8osts an !enefits in 86A are measure in terms of -elfare losses an gains rather than cash or revenue flo-s. 86A procee s in four essential stepsM aD i entification of relevant costs an !enefits !D measurement of costs an !enefits. cD 8omparison of cost an !enefit streams accruing uring the lifetime of a pro"ect an D Pro"ect selection. 86A has !een -i ely applie in un er% evelope electric an transport investments. 8reativity ) Innovation in StrategyM ;uman !eings are relentlessly creative ) crucial issues that creativity must have some tangi!le outcome in pro ucts$ in services$ in a ne- structure or strategy or more iffusely in a pervasive shift in corporate culture. An invention is the solution to a pro!lem$ often a technical one$ -here as innovations is the commercially successful use of the solution. Innovation starts after examining mar'et nee s$ technical pro uction an mar'eting reAuirements. Successful innovations result from a conscious$ purposeful search for innovation opportunities. Innovations arise out ofM @nexpecte occurrences RAM .3 countries to irrigators$ hy ro
STRATEGIC MANAGEMENT Incongruities Precise nee s In ustry an mar'et changes Demographic changes 8hanges in perception Ge- 'no-le ge.
Innovation means change. Such changes can !e incremental or ra ical$ evolutionary or revolutionary. =hey can have ifferent effects upon proce ures an users. Innovation is not a technical term. Innovation creates ne- -ealth or ne- potential of action rather than ne- 'no-le ge. <rganisations 'no- that it is not something that ta'es place -ithin an organization !ut a change outsi e. =he measure of innovation is the impact on the environment. Innovation in a !usiness enterprise therefore al-ays !e mar'et focuse . =he most mar'et focuse innovator succee s li'e !usiness strategies$ an innovative strategy starts out -ith the Auestion 5+hat is our !usiness an -hat shoul it !e?7 =he ruling assumption of an innovative strategy is that -hat ever exists is aging. Existing pro ucts lines an services$ existing mar'ets an istillation channels go o-n rather than up. =he foun ations of innovative strategy is planne an systematic sloughing of the ol $ the ying an the o!solete. Innovation is perhaps the single most important !uil ing !loc' of competitive a vantage. Successful innovations gives a company something uniAue Q something that the competitors lac'. =his uniAueness may allo- a company to ifferentiate itself from its rivals an change a premium price for its pro ucts. Alternatively$ it may allo- a company to re uce its unit costs for !elo- those of competitors. #/*'< MARD)*0 @ =he process of measuring a firm1s performance against that of the top performers in its in ustry. After etermining the appropriate !ench mar's a firm1s managers then set goals to meet or excee the performance of the firm1s top competitors. =a'en to its logical conclusions$ competitive !ench mar'ing if practice !y all the firms in an in ustry Q -oul result in increase in ustry%-i e performance. Increasingly$ companies may !e !ench%mar'ing against the !est on the -orl . Fortune magazine annually pu!lishes the most an !est a mire @.S. corporations. 8orporate imensions are evaluate along the follo-ing linesM Ruantity of pro ucts an services Ruality of investment Innovations Iong term investment value Firm soun ers 8ommunity an environmental responsi!ility
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STRATEGIC MANAGEMENT @se of corporate assets. A!ility to allocate$ evelop ) 'eep initial pro uctivity.
=hese can !e use as !ench mar's or stan ar s. 0/*/R)' .TRAT/0)/. &ichael Porter has propose three generic strategies that provi e a goo starting point for strategic thin'ingM overall cost lea ership$ ifferentiation$ an focus. Overall cost leadership: =he !usiness -or's har to achieve the lo-est pro uction an istri!ution costs so that it can price lo-er than its competitors an -in a large mar'et share. Firms pursuing this strategy must !e goo at engineering$ purchasing$ manufacturing$ an physical istri!ution. =hey nee less s'ill in mar'eting. =exas Instruments is a lea ing practitioner of this strategy. =he pro!lem -ith this strategy is that other firms -ill usually compete -ith still lo-er costs an hurt the firm that reste its -hole future on cost. Differentiation: =he !usiness concentrates on achieving superior performance in an important customer !enefit area value !y a large part of the mar'et. =he firm cultivates those strengths that -ill contri!ute to the inten e ifferentiation. =hus the firm see'ing Auality lea ership$ for example$ must ma'e pro ucts -ith the !est components$ put them together expertly$ inspect them carefully$ an effectively communicate their Auality. Intel has esta!lishe itself as a technology lea er !y intro ucing ne- microprocessors at !rea'nec' spee . Focus: =he !usiness focuses on one or more narro- mar'et segments. =he firm gets to 'no- these segments intimately an pursues either cost lea ership or ifferentiation -ithin the target segment. Air-al' shoes came to fame !y focusing on the very narro- extreme%sports segment.
,+F*.)>)*0@ +here there is surplus -or'force$ trimming of la!our force -ill !e necessary. =he trimming or o-nsizing plan shall in icateE 1. +ho is to !e ma e re un ant an -here an -henE *. Plans for re% evelopment or re%training$ -here this has not !een covere in the re% evelopment planE ,. Steps to !e ta'en to help re un ant employees fin ne- "o!sE .. Policy for eclaring re un ancies an ma'ing re un ancy paymentsE an /. Programme for consulting -ith unions or staff associations an informing those affecte . Another metho of ealing -ith surplus la!our is to retain all employees !ut re uce the -or' hours Cthus realize payrolls savingsD perhaps to a four ay$ ,*% hour -or' -ee'. In this -ay a company can sprea a *: percent ecrease in eman Can in payD
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STRATEGIC MANAGEMENT eAuita!ly across the -hole -or'force$ rather than 'eep 4:percent of the employees full%time an lay%off *: percent of them. Depen ing on the nature of the surplus$ a firm may !e a!le to transfer or reassign employees to "o!s in parts of the organization that are still experiencing eman . <r if the firm expects the surplus to !e short%live an can affor to 'eep excess -or'force on payroll$ the company can use the slac' time to provi e cross training in relate "o!s to enhance -or'force s'ills an flexi!ility. Alternatively$ the surplus -or'ers can perform eAuipment maintenance an overhaul or engage themselves in other activities that -ere postpone -hen eman -as high. <ffering high incentives for early retirement I another -ay of han ling surplus la!our. Euphemistically calle as >oluntary (etirement Scheme C>(SD$ this metho is -i ely practice . 6ut hr planners an trainers may !e force to scram!le to eal -ith a su en short fall of experience staff$ particularly -hen >(S is selecte !y a large num!er of employees. Iaying%off is another strategy for ealing -ith surplus staff. =his action is eterminal to !oth employees an employers. For employers$ lay%off means "o!lessness an for employees it means loss of reputation. Got-ithstan ing this$ several firms are laying off their surplus employees. ,).)*9/.TM/*T 1. =he action of an organization or government selling or liAui ating an asset or su!si iary. Also 'no-n as F ivestitureF. *. A re uction in capital expen iture$ or the ecision of a company not to replenish eplete capital goo s. Investope ia SaysM 1. A company or government organization -ill ivest an asset or su!si iary as a strategic move for the company$ planning to put the procee s from the ivestiture to !etter use that garners a higher return on investment. *. A company -ill li'ely not replace capital goo s or continue to invest in certain assets unless it feels it is receiving a return that "ustifies the investment. If there is a !etter place to invest$ they may eplete certain capital goo s an invest in other more profita!le assets.
,)9/R.)F)'AT)+* &ain o!"ectives of iversificationEM 1. (aising resourcesM
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STRATEGIC MANAGEMENT =he first main o!"ective of isinvestment of pu!lic sector units is to raise resources from -ithin pu!lic sector units to meet three categories of cost associate -ith transformation of pu!lic sector enterprises. =hey are as follo-sM A part of the resources -ill !e utilize to !ear expenses relate -ith >oluntary (etirement Scheme -hen sic' pu!lic sector enterprises -hich cannot !e revive -ill !e close o-n !y the govt. A part of the resources -ill !e utilize to provi e a itional capital to pu!lic sector units -hich can !e revive . A part of the resources -ill !e utilize to retrain the -or'ers isplace from the closure of pu!lic sector enterprises. *. Autonomy to managementM
=he secon important o!"ective of isinvestment of pu!lic sector units is to provi e autonomy to its management. =he autonomy to the management in pu!lic sector enterprises -ill give free om to management to ta'e in epen ent ecisions an operate pu!lic sector enterprises on commercial lines. ,. (e uce political interferenceM
=he thir important o!"ective of isinvestment is to re uce political interference in ay%to% ay functioning of pu!lic sector enterprises. =he isinvestment of pu!lic sector enterprises -oul ma'e pu!lic sector units more accounta!le to sharehol ers. =he govt. officials are thus expecte to ta'e more in epen ent ecisions rather than "ust serving the selfish interest of politicians. .. #eneration of employmentM
=he fourth important o!"ective of isinvestment of pu!lic sector enterprises is to increase employment opportunities1 in the country. =he restructuring of the pu!lic sector enterprise through procee s of isinvestment -oul improve efficiency an profita!ility of pu!lic sector enterprises. =he increase in level of profita!ility -oul help pu!lic sector to expan an iversify its pro uction activities. =his -oul further generate employment opportunities in the country. /. (etiring of pu!lic e!tM
=he fifth important o!"ective of isinvestment is to utilize the procee s of isinvestment to retire the pu!lic e!t. =he retiring of pu!lic e!t -oul help to re uce the !ur en of !oth massive pu!lic e!t an huge interest payments on it. =he ecline in !ur en of e!t servicing charges -oul also help the govt. to control the fiscal eficit. 2. 6uil ing up of competitive environmentM
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STRATEGIC MANAGEMENT Finally the ma"or o!"ective of isinvestment -as to !uil up healthy competitive environment in the economy. =he govt. -oul ensure that the isinvestment oes not result in creation of pvt. &onopolies .it -oul also evelop suita!le frame-or' for regulation of companies !eyon a particular size !y in acting a competition act. )*T/0RAT)+* .TRAT/0)/.@4 1D For-ar Integration Q For-ar integration an horizontal integration are some time collectively referre to as vertical integration strategies. >ertical integration strategies allo- a firm to control over istri!utors$ suppliers$ an competitors. Six gui elines for -hen for-ar integration may !e an especially effective strategy areM +hen an organizations present istri!utors are specially expensive$ or unrelia!le$ or incapa!le of meeting the firms istri!ution nee s. +hen the availa!ility of Auality istri!utors is so limite as to offer a competitive a vantage to those firms that integrate for-ar . +hen an organization competes in an in ustry that is gro-ing an expecte to continue to gro- mar'e lyE this is a factor !ecause for-ar integration re uces an organizations a!ility to iversify if its !asic in ustry falters. +hen an organization has !oth the capital an human resources nee e to manage the ne- !usiness of istri!uting its o-n pro ucts. +hen the a vantages of sta!le pro uction are particularly highE this is a consi eration !ecause an organization can increase the pre icta!ility of the eman for its output through for-ar integration. +hen present istri!utors or retailers have high profit marginsE this situation suggests that a company profita!ly coul istri!ute its o-n pro ucts an price them more competitively !y integrating for-ar . *D 6ac'-ar Integration Q
6oth manufacturers an retailers purchase nee e materials from suppliers. 6ac'-ar integration is a strategy of see'ing o-nership or increase control of a firm1s suppliers. =his strategy can !e especially appropriate -hen a firm1s current suppliers are unrelia!le$ too costly$ or cannot meet the firm1s nee s. Seven gui elines for -hen !ac'-ar strategy areM integration may !e an especially effective
+hen an organization present suppliers are especially expensive$ or unrelia!le$ or incapa!le of meeting a firms nee s for parts$ components$ assem!lies$ or ramaterials. +hen the num!ers of supplier1s are small an the num!er of competitors is large. +hen an organization competes an in ustry that is gro-ing rapi lyE this is a factor !ecause integrative type strategies re uce an organizations a!ility to iversify in a eclining in ustry.
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STRATEGIC MANAGEMENT +hen an organization has !oth capital an human resources to manage the ne!usiness of supplying its o-n ramaterials. +hen the a vantages of sta!le prices are particularly importantE this is a factor !ecause an organization can sta!ilize the cost of its ramaterials an the associate price of its pro ucts through !ac'-ar integration. +hen present suppliers have high profit margins$ -hich suggest that the !usiness of supplying pro ucts or services in the given in ustry is a -orth-hile venture. +hen an organization nee s to acAuire a nee e resource Auic'ly. ,D ;orizontal Integration Q
;orizontal integration refers to a strategy of see'ing o-nership of or increase control over a firm1s competitors. <ne of the most significant tren s in strategic management to ay is the increase use of horizontal integration as a gro-th strategy. &ergers$ acAuisition$ ta'eovers among competitors allofor increase economies of scale an enhance transfer of resources an competencies. Five gui elines -hen horizontal integration may !e an especially effective strategy areM +hen an organization can gain monopolistic characteristics in a particular area or region -ithout !eing challenge !y a fe eral government for 5ten ing su!stantially7 to re uce competition. +hen an organization competes in a gro-ing in ustry. +hen increase economies of scale provi e ma"or competitive a vantages. +hen an organization has !oth the capital an human talent nee e to successfully manage an expan e organization. +hen competitors are faltering ue to a lac' of managerial expertise or a nee for particular resources that an organization possessesE note that horizontal integration -oul not !e appropriate if competitors are oing poorly$ !ecause in that case overall in ustry sales are eclining. ,)9/R.)F)'AT)+* .TRAT/0)/.@4 =here are three general types of iversification strategiesM 8oncentric$ ;orizontal an 8onglomerate. <verall$ iversification strategies are !ecoming less popular as organizations are fin ing it ifficult to manage iverse !usiness activities. In the 192:1s an 193:1s$ the tren -as to iversify so as not to !e epen ent on any single in ustry$ !ut the 194:1s sa- a general reverse of that thin'ing. Diversification is noon the retreat. 1D 8oncentric Diversification Q as concentric
A ing ne-$ !ut relate $ pro ucts or services is -i ely calle iversification.
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STRATEGIC MANAGEMENT Six gui elines for -hen concentric iversification may !e an effective strategy are provi e !elo-M in ustry. +hen a ing ne-$ !ut relate $ pro ucts -oul significantly enhance the sales of current pro ucts. +hen ne-$ !ut relate $ pro ucts coul !e offere at highly competitive prices. +hen ne-$ !ut relate $ pro ucts have seasonal sales levels that counter!alance an organization1s existing pea's an valleys. +hen an organization1s pro ucts are currently in the eclining stage of the pro uct1s lifecycle. +hen an organization has a strong management team. *D ;orizontal DiversificationM +hen an organization competes in a no gro-th or a slo- gro-th
A ing ne-$ unrelate pro ucts or services for present customers is calle horizontal iversification. =his strategy is not as ris'y as conglomerate iversification !ecause a firm alrea y shoul !e familiar -ith its present customers. Four gui elines for -hen horizontal iversification may !e an effective strategy are provi e !elo-M +hen revenues erive from an organization1s current pro ucts or services -oul increase significantly !y a ing the ne-$ unrelate pro ucts. +hen an organization competes in a highly competitive an Bor a no gro-th in ustry$ as in icate !y lo- in ustry profit margin an returns. +hen an organization1s present channels of istri!ution can !e use to mar'et the nepro ucts to current customers. +hen the nepro ucts have counter%cyclical sales patterns compare to an organization1s present pro ucts. ,D 8onglomerate DiversificationM A calle conglomerate iversification. ing ne-$ unrelate pro ucts or services is
Six gui elines for -hen conglomerate iversification may !e an especially effective strategy to pursue are liste !elo-M +hen an organization1s !asic in ustry is experiencing eclining annual sales an profits. +hen an organization has the capital an managerial talent nee e to compete successfully in the ne- in ustry. +hen the organization has the opportunity to purchase an unrelate !usiness that is an attractive investment opportunity. +hen there exists financial synergy !et-een the acAuire an acAuiring firm.
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STRATEGIC MANAGEMENT saturate . +hen anti%trusts actions coul !e charge against an organization that historically has concentrate on a single in ustry. 0ap anal;sis =he concept@ Another important step in strategic management is the gap analysis. #ap analysis is also a means for motivating top management to initiate steps for strategic management. #ap is the eviation !et-een events -hich is perceive $ planne or forecaste an that of actual. 6ase on the system analysis$ the outcome is !ase on the o!"ectives$ -hich is con itione !y the criteria an constraints. ;ence$ !roa ly$ gap analysis is classifie un er the follo-ing categoriesM #ap analysis on outcome #ap analysis on the o!"ective #ap analysis on the constraints li'e environment #ap analysis on the criteria li'e planning promises an assumptions. +hen the existing mar'ets for an organization1s present pro ucts are
6ase on existing strategy$ organisation has evolve a particular -ay of planning to accomplish a given set of o!"ectives. A formal evaluation must !e ma e as to the -ay the existing strategy is -or'ing. 6ase on analysis of environment$ ane- set of opportunities is opene up. In or er to ta'e a vantage of the ne- opportunities$ a set of ne- strategies are contemplate . =herefore at a future ate there are t-o sets of outcome$ -hich are to !e achieve . <ne set of outcome is those !ase on existing strategy$ -hich is consi ere as 5expecte outcome.7 Another set of outcome is that -hich comes out of the contemplate ne- strategy$ consi ere as 5 esire outcome.7 =he analysis !et-een the t-o outcomes is calle gap analysis of the outcome. #ap analysis is an important techniAue in motivating top management to initiate strategic management process. =he capa!ility of gap analysis to o so epen s upon three con itions they are as follo-sM 1. SignificanceM =he gap itself can provi e the 5catalytic effect7 of top management. =his epen s on the significance of the gap. Suppose the 5expecte outcome7$ at a future ate is the same or nearly the same as that of the 5 esire outcome7$ there is no nee to change the existing strategy. In other -or s$ the gap acts as a 5triggering agent7 for initiating a ne- strategy$ provi e the gap is significant. *. ImportanceM #ap analysis$ can act as a motivation provi e the gap is important. Suppose$ the company fin s that there is a scope for improving the mar'et share from the present level of 1:U to */U in the next year. At the same time expecte increase of share -ith existing strategy for the next year is only 1/U then
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STRATEGIC MANAGEMENT there -ill !e a genuine motivation is generate !ecause there is a gap !et-een the expecte an esire outcome in one of its o!"ectives$ viz$ mar'et share. ,. (e uci!ilityM =his is ma"or important criterion of success. =his is the !elief of top management that the pro"ecte gap is re uci!le. In other -or s$ this is the confi ence level of top management in the capacity of the propose strategy to re uce the gap. =here are certain constraints$ -hich are !eyon the capacity of the organisation to correct. .. (esponsi!ility centers 8ontrol systems can !e esta!lishe to monitor specific functions$ pro"ects$ or ivisions. 6u gets are one type of control system that is typically use to control the financial in icators of performance. (esponsi!ility centers are use to isolate a unit so that it can !e evaluate separately from the rest of the corporation. Each responsi!ility center$ therefore$ has its o-n !u get an is evaluate on its use of !u gete resources. =he manager responsi!le for the center1s performance hea s it. =he center uses resources to pro uce a service or a pro uct. =here are five ma"or types of responsi!ility centers. =he type is etermine !y the -ay the corporation1s control system measures these resources an services or pro ucts. /. Stan ar cost centersM Primarily use in manufacturing facilities$ stan ar costs are compute for each operation on the !asis of historical ata. In evaluating the center1s performance$ its total stan ar costs are multiplie !y the units pro uce . =he result is the expecte cost of pro uction$ -hich is then compare to the actual cost of pro uction. 2. (evenue centersM Pro uction$ usually in terms of unit or ollar sales$ is measure -ithout consi eration of resource costs. =he center is thus "u ge in terms of effectiveness rather than efficiency. =he effectiveness of a sales region$ for example$ is etermine !y comparing its actual sales epartments have very limite influence over the cost of the pro ucts they sell. 3. Expense centersM (esources are measure in ollars -ithout consi eration for service or pro uct costs. =hus !u gets -ill have !een prepare for engineere expenses an for iscretionary expenses. =ypical expense centers are a ministrative$ service$ an research epartments. =hey cost organisation money !ut they only in irectly contri!ute to revenues. 4. Profit centersM Performance is measure in terms of the ifference !et-een revenues. A profit center is typically esta!lishe -henever an organizational unit has control over !oth its resources an its pro ucts or services. 6y having such centers$ a company can !e organize in to ivisions of separate pro uct lines. =he manager of each ivision is given autonomy to the extent that she or he is a!le to 'eep profits at a satisfactory level. 9. Investment centersM 6ecause many ivisions in large manufacturing corporations use significant assets to ma'e their pro ucts$ their asset !ase shoul !e
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STRATEGIC MANAGEMENT factore in to their performance evaluation. =hus it is insufficient to focus only on profits$ as in the case of profit centers. =hus it is insufficient to focus only on profits$ as in the case of profit centers. An investment center1s performance is measure in terms of the ifference !et-een its resources an its services or pro ucts. 1:. (<I !u geting =he most commonly use measure of corporate performance is return on investments C(<ID. It is simply the result of ivi ing net income !efore taxes !y total assets. Although (<I has several a vantages$ it also has several istinct limitations. A vantagesM 1D (<I is a single comprehensive figure influence !y every thing that happens. *D It measures ho- -ell the ivision manager uses the property of the company to generate profits. It is also a goo -ay to chec' on the accuracy of capital investment proposals. ,D It is a common enominator that can !e compare -ith many entities. .D It provi es an incentive to use existing assets efficiently. /D It provi es an incentive to acAuire ne- assets only -hen oing so -oul increase the return. IimitationsM 1D (<I is very sensitive to epreciation policy. Depreciation -rite%off variances !et-een ivisions affect (<I performance. Accelerate epreciation techniAues increase (<I$ conflicting -ith capital !u geting iscounte cash%flo- analysis. *D (<I is sensitive to !oo' value. <l er plants -ith more epreciate assets have relatively lo-er investment !ases than ne-er plants$ thus increasing (<I. ,D In many firms that use (<I$ one ivision sells to another. As a result$ transfer pricing must occur. Expenses incurre affect profit. Since$ in theory$ the transfer price shoul !e !ase on the total impact on firm profit$ some investment center managers are !oun to suffer. EAuita!le transfer prices are ifficult to etermine. .D If one ivision operates in an in ustry that has favora!le con itions an another ivision operates in an in ustry that has unfavora!le con itions$ the former ivision -ill automatically 5loo'7 !etter than the other. /D =he time span of concern here is short range. =he performance of ivision managers shoul !e measure in the long run. =his is top management1s time span capacity. 2D =he !usiness cycle strongly affects (<I performance$ often espite managerial performance. ADDI=I<GAI IGP@=S F(<& &(. J.#.6;A==
V=;E EGDV
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STRATEGIC MANAGEMENT

STRATEGIC MANAGEMENT (6.1)

STUDY MATERIAL DESIGNED FOR TY B.COM (B&I)

Whatever action is performed by a great man, common men

Develop vision an mission statements

Esta!lish long term o!"ectives

#enerate$ Evaluate an Select Strategies

Implement Strategies% management issues

&easur Evaluat Perform

)*TR+,-'T)+* T+ .TRAT/0)' MA*A0/M/*T

Strategic 6usiness @nit

6usiness Strategy S6@ or single !usiness company

/ntire organi5ation 6oar of irectorsB8E<

S6@ strategy or single !usiness company strategy

=op level !usiness managers

Functional level managers

.hort to long4 term Action an implementation oriente .

#eneral statements of overall irection an intent

8oncrete an operationally oriente

The strategic management model or process

Develop vision an mission statements

Esta!lish long term o!"ectives

#enerate$ Evaluate an Select Strategies

Implement Strategies% management issues

&easure an Evaluate Performance

=;E P(<8ESS <F PE(F<(&IG# AG EH=E(GAI A@DI=

Defensive Strategies (etrenchment Divestiture IiAui ation

8oncentric DiversificationM It a s ne- !ut relative pro ucts or services.

It reAuires coor ination among a fe- in ivi uals.

It reAuires coor ination among many in ivi uals.

Successful Strategy Formulation Does Got #uarantee Successful Strategy Implementation

=echnological Factors Socio% cultural Factors

Economic Factors &icro Environment

Develop vision an mission statements

Esta!lish long term o!"ectives

#enerate$ Evaluate an Select Strategies

Implement Strategies% management issues

&easur Evaluat Perform

)ntroduction .ales 9olume

8E< P( Finance &ar'eting Iegal Personnel Pro uction

Exhi!it , =he a vantages that a ivisional structure offers areM

#roup ;ea S6@ 1

#roup ;ea S6@ *

#roup ;ea S6@ ,

MODULE III STRATEGY CONTROLLING

Develop vision an mission statements

Esta!lish long term o!"ectives

#enerate$ Evaluate an Select Strategies

Implement Strategies% management issues

&easur Evaluat Perform

,)9/R.)F)'AT)+* &ain o!"ectives of iversificationEM 1. (aising resourcesM

S-ar putea să vă placă și

)TR+,-'T)+ T+ .TRAT/0)' MAA0/M/T