What is strategic management?

Strategic Management can be defined as the art and science of formulating, implementing and evaluating cross-functional decisions that enable an organization to achieve its objective.

Definition:
The on-going process of formulating, implementing and controlling broad plans guide the organizational in achieving the strategic goods given its internal and external environment.

Stages of Strategic Management

Strategic management consist of three stages are formulation, implementation and evaluation of strategies. Each stage based upon set of activities performed by the individual working in the organization.

1) Strategic Formulation
Strategy formulation is the process of establishing the organization's mission, objectives, and choosing among alternative strategies. Sometimes strategy formulation is called "strategic planning."

2) Strategic Implementation
Strategy implementation is the action stage of strategic management. It refers to decisions that are made to install new strategy or reinforce existing strategy. The basic strategy - implementation activities are establishing annual objectives, devising policies, and allocated resources. Strategy implementation also includes the making of decisions with regard to matching strategy and organizational structure; developing budgets, and motivational systems.

3) Strategic Evaluation
The final stage in strategic management is strategy evaluation and control. All strategies are subject to future modification because internal and external factors are constantly changing. In the strategy evaluation and control process managers determine whether the chosen strategy is achieving the organization's objectives. The fundamental strategy evaluation and control activities are: reviewing internal and external factors that are the bases for current strategies, measuring performance, and taking corrective actions.

Key Terms of Strategic Management Purpose

The purpose of an organization is its primary role in society, a broadly defined aim (such as manufacturing electronic equipment) that it may share with many other organizations of its type.

Mission
The organization's mission describes why the organization exists and guides what it should be doing. Often, the organization's mission is defined in a formal, written mission statement. Decisions on mission are the most important strategic decisions, because the mission is meant to guide the entire organization. Although the terms "purpose" and "mission" are often used interchangeably, to distinguish between them may help in understanding organizational goals.

Goal
A goal is a desired future state that the organization attempts to realize.

Objective
Objectives refer to the specific kinds of results the organizations seek to achieve through its existence and operations.

Strategy
"A strategy is a unified, comprehensive, and integrated plan that relates the strategic advantages of the firm to the challenges of the environment. It is designed to ensure that the basic objectives of the enterprise are achieved through proper execution by the organization"

Tactics
are specifics actions the organization might undertake in carrying its strategy.

Policies
Policies are guide to action. They include how resources are to be allocated and how tasks assigned to the organization might be accomplished

Strategists
are the individuals who are involved in the strategic management process. Several levels of management may be involved in strategic decision making. However, the people responsible for major strategic decisions are the board of director, president, the chief executive officer, the chief operating officer, and the division managers.

A strategic management model in seven steps: 1.

Analyze the overall goal and the purpose of the project. 2. Asses the objectives, activities and values of the project. 3. Assess current strengths, successes and achievements. Consider quantitative and qualitative results. 4. Analyze what contributed to them (consider internal/external resources and capabilities). 5. Asses challenges and gaps. Analyze what contributed to each. 6. Adjust your current project plan in order to reflect best practices and a strategy to fill gaps. 7. Develop a generative vision.

This strategic management model will help you manage and lead at the same time.

External Forces of Strategic Analysis

Political, governmental & legal forces
Government stability & relations with other countries Government spending and taxation policies Government industrial policies (extent and nature of regulation/deregulation) State and local government policies and regulations Laws and regulations: o Antitrust & mergers

o o o

Employment (equal opportunity and workplace safety) o Environment protection Foreign trade,

duties and tariffs

Patents, trademarks and copyrights

Economic forces

Inflation & unemployment rates

GNP and GNP growth rates Disposable income & consumer spending Business cycles Capital and commodity markets: o Availability of capital o Interest and currency exchange rates o Energy and basic raw materials prices
Import/export conditions

Social, cultural and demographic forces

Age, sex & race distributions Marriage & divorce rates Immigration Distribution of income and wealth Education systems, education levels and attitudes toward education Social class structure and mobility Lifestyle trends: attitudes toward: o Leisure time and retirement o Sex roles o Religion and social responsibility Work place: attitudes toward: o Authority and control o Cooperation and teamwork o Unionization Consumerism: attitudes toward: o Product quality and customer service o Consumption, saving and investing Environmentalism: attitudes toward: o Pollution, ozone depletion & endangered species o Conservation, recycling and waste management New discoveries/developments in own or related industry Speed of technological transfer Obsolescence rates within own or related industry Government policies and spending on research Information & communication technology changes Rivalry among existing competitors: o Industry size, growth & overcapacity o Product differences & brand identity o Switching costs & barriers to exit o Market concentration o Diversity & size of competitors Threat of new entrants into own or related industry: o Economies of scale o Proprietary product features & brand identity o Capital requirements o Cost advantages (proprietary designs/processes & access to inputs)

Population demographics:

Technological forces

Competitive Forces

o Government polices and regulation Threat of substitute products or services: o Switching costs & relative price of substitutes o Buyers propensity to substitute Bargaining power of suppliers: o Differentiation of inputs o Firms versus suppliers switching cost o Availability of substitute products/services o Suppliers versus firms concentration o Importance of purchase volume to suppliers versus firm o Treat of forward versus backward integration Bargaining power of customers:

Key Terms in Strategic Management

Before we further discuss strategic management, we should define eight key terms: strategists, mission statements, external opportunities and threats, internal strengths and weaknesses, longterm objectives, strategies, annual objectives, and policies.

Mission Statement
A mission statement is a statement of the purpose of a company or organization. The mission statement should guide the actions of the organization, spell out its overall goal, provide a path, and guide decision-making. It provides "the framework or context within which the company's strategies are formulated." Effective mission statements commonly clarify the organization's purpose. Commercial mission statements often include the following information:

1) 2) 3)

Purpose and aim(s) of the organization. The organization's primary stakeholders: clients/customers, shareholders, congregation, etc. How the organization provides value to these stakeholders, for example by offering specific types of products and/or services.

A vision statement is sometimes called a picture of your company in the future but its so
much more than that. Your vision statement is your inspiration, the framework for all your strategic planning. A vision statement may apply to an entire company or to a single division of that company. Whether for all or part of an organization, the vision statement answers the question, Where do we want to go?

OR
A Mission statement tells you the fundamental purpose of the organization. It defines the customer and the critical processes. It informs you of the desired level of performance.

A Vision statement outlines what the organization wants to be, or how it wants the world in which it operates to be. It concentrates on the future. It is a source of inspiration. It provides clear decision-making criteria.
1) Task Environment 2) Social Environment

Task Environment:
Task environment includes all those factors which affect the organization and itself affected by the organization. These factor effects the specific related organizations. These factors are shareholders community, labor unions, creditor, customers, competitors, trade associations.

Social Environment:
Social environment is an environment which includes those forces effect does not the short run activities of the organization but it influenced the long run activities or decisions. PEST analysis are taken for social environment PEST analysis stands for political and legal economic socio cultural logical and technological.

Internal Strengths and Weaknesses/Internal assessments Internal strengths and internal weaknesses are an organization's controllable
activities that are performed especially well or poorly. They arise in the management, marketing, finance/accounting, production/operations, research and development, and computer information systems activities of a business.

Competitive Profile Matrix (CPM)

Competitive profile matrix is an essential strategic management toolto compare the firm with the majorplayers of the industry. Competitiveprofile matrix show the clear picture to the firmabout their strong points and weak points relative to their competitors. The CPM score is measured on basis of critical success factors, each factor is measured in same scale mean the weight remain same for every firm only rating varies. The best thing about CPM that it include your firm and also facilitate to add other competitors make easier the comparative analysis. IFE matrix only internal factors are evaluated and in EFE matrix external factors are evaluated but CPM include both internal and external factors to evaluate overall position of the firm with respective to their major competitors.

External Factor Evaluation (EFE) (External Factor Evaluation)

matrix method is a strategicManagement tool often used for assessment of current business conditions. The EFE matrix is a good tool to visualize and prioritize the opportunities and threats that a business is facing. The EFE matrix is very similar to the IFE matrix. The major difference between the EFE matrix and the IFE matrix is the type of factors that are included in the model. While the IFE matrix deals with internal factors, the EFE matrix is concerned solely withexternal factors. External factors assessed in the EFE matrix are the ones that are subjected to the will of social, economic, political, legal, and other external forces.

Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve theeffectiveness of risk management, control, and governance processes. Internal auditing is a catalyst for improving an organizations effectiveness and efficiency by providing insight and recommendations based on analyses and assessments of data and business processes. The scope of internal auditing within an organization is broad and may involve topics such as the efficacy of operations, the reliability of financial reporting, deterring and investigating fraud, safeguarding assets, and compliance with laws and regulations. An external auditor is an audit professional who performs an audit in accordance with specific laws or rules on the financial statements of a company, government entity, other legal entity ororganization, and who is independent of the entity being audited. Users of these entities' financial information, such as investors, government agencies, and the general public, rely on the external auditor to present an unbiased and independent audit report.

IFE matrix means Internal Factor Evaluation Matrix; is a popular strategic management tool for auditing or evaluating major internal strengths and internal weaknesses in functional areas of an organization or a business. IFE matrix also provides a basis for identifying or evaluating relationships among those areas. The IFE matrix is used in strategy formulation. The IFE Matrix together with the EFE matrix is a strategy-formulation tool that can be used to evaluate how an organization or a company is performing in regards to identified internal strengths and weaknesses of an organization or a company. The IFE matrix method conceptually relates to the Balanced Scorecard method in some aspects. The IFE matrix comprises factors (strengths and weaknesses), weight (0.0 to 1.0), rating (0.0 to 4.00) and finally the weighted score after multiplying weight with rating.

Chapter # 05 Not Managing by Objectives

Strategist should avoid:1)
Managing by Extrapolation

2) 3) 4)

Managing by Crisis Managing by Subjective Managing by Hope

Strategists should avoid the following alternative ways to "not managing by objectives."

Managing by Extrapolationadheres to the principle "If it isnt broke, don't fix it." The idea
is to keep on doing about the same things in the same ways because things are going well. Managing by Crisisbased on the belief that the true measure of a really good strategist is the ability to solve problems. Because there are plenty of crises and problems to go around for every person and every organization, strategists ought to bring their time and creative energy to bear on solving the most pressing problems of the day. Managing by crisis is actually a form of reacting rather than acting and of letting events dictate whats and whens of management decisions. Managing by Subjectivebuilt on the idea that there is no general plan for which way to go and what to do; just do the best you can to accomplish what you think should be done. In short, "Do your own thing, the best way you know how" (sometimes referred to as

the

mystery approach to decision making

because subordinates are left to figure out what is happening andwhy). Managing by Hopebased on the fact that the future is laden with great uncertainty, and that if we try and do not succeed, then we hope our second (or third) attempt will succeed. Decisions are predicted on the hope that they will work and the good times are just around the corner, especially if luck and good fortune are on our side!

http://www.zainbooks.com/books/management/strategic-management_18_types-ofstrategies-1.html App Ref # ZTBL 6351_86672

Integration Strategies:
Forward integration, backward integration, and horizontal integration are sometimes collectively referred to as vertical integration strategies. Vertical integration strategies allow a firm to gain control over distributors, suppliers, and/or competitors. Forward integration strategy refers to the transactions between the customers and firm. Similarly, the function for the particular supply which the firm is being intended to involve itself will be called backward integration. When the firm looks that other firm which may be taken over within the area of its own activity is called horizontal integration.

Benefits of vertical integration strategy:

Allow a firm to gain control over: 1) Distributors (Forward integration), 2) Suppliers (Backward Integration) 3) Competitor Integration

Forward integration:
retailers

Gaining ownership or increased control over distributors or

Forward integration

involves gaining ownership or increased control over distributors or retailers. You can gain ownership or control over the distributors, suppliers and Competitors using forward integration.

Backward Integration
Seeking ownership or increased control of a firms suppliers both manufacturers and retailers purchase needed materials from suppliers. Backward integration is a strategy of seeking ownership or increased control of a firm's suppliers. This strategy can be especially appropriate when a firm's current suppliers are unreliable, too costly, or cannot meet the firm's needs.

Guidelines for Backward Integration:

Six guidelines when backward integration may be an especially effective strategy are:

When present suppliers are expensive, unreliable, or incapable of meeting needs

. . . . .

Number of suppliers is small and number of competitors large

High growth in industry sector

Firm has both capital and human resources to manage new business

Advantages of stable prices are important

Present supplies have high profit margins

10