The PPTs presented in the class are to

understand the subject conceptually and build an idea on the topic. The PPTs are only guidelines and base for your preparation of notes Further reading by students from prescribed books and other material is necessary DO NOT FOLLOW THE PPTs AS A STUDY MATERIAL!!!!
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WARNING!!!!!

Study and text books

1. SM & BUSINESS POLICY by AZHAR KAZHMI
2. SM- Concepts and cases by FRED DAVID 3. SM by FRANCIS CHERUNILAM

4. SM by RAVI KISHORE
5. COMPETITIVE STRATEGY by MICHEAL PORTER

6. COMPETITIVE ADVANTAGE by MICHEAL PORTER

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Napoleon Hill: Quote:

The strongest oak tree of the forest

is not the one that is protected from the storm and hidden from the sun. It's the one that stands in the open where it is compelled to struggle for its existence against the winds and rains and the scorching sun
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WHAT IS THE DIFFERENCE BETWEEN : MILITARY STARTEGY & BUSINESS STRATEGY CONFLICT AND COMPETITION
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THE NATURE AND VALUE OF STRATEGIC MANAGEMENT

- The most significant improvement in

management process came in the 1970s, when long-range planning, new venture management, planning, programming, budgeting, and business policy were blended.
- Increased emphasis was placed on environmental forecasting and external considerations in formulating and implementing plans.

- This all- encompassing approach is known as strategic management. Strategic management, is defined as the set of decisions and actions that result in the

formulation and implementation of plans designed to achieve a companys objectives. It comprises nine critical tasks: (1). Formulate the companys mission, including broad statements about its purpose, philosophy, and goals. (2). Conduct an analysis that reflects the companys internal conditions and capabilities.
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(3). Assess the companys external environment including both the competitive and the general contextual factors. (4). Analyze the companys options by matching its resources with the external environment. (5). Identify the most desirable options by evaluating each option in light of the companys mission. (6). Select a set of long-term objectives and grand strategies that will achieve the most desirable options.

(7).

Develop annual objectives and short-term strategies that are compatible with the selected set of long-term objectives and grand strategies. (8). Implement the strategy choices by means of budgeting resource allocations in which the matching of tasks, people, structures, technologies, and reward systems is emphasized. (9). Evaluate the success of the strategic process as an input for future decision making.
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Dimensions of Strategic Decisions

Strategic Issues Require Top-Management

Decisions Strategic Issues Require Large Amounts of the firms Resources. Strategic Issues often affect the Firms LongTerm Prosperity. Strategic issues are future oriented Strategic issues usually have multifunctional or multibusiness consequences. Strategic issues require considering the Firms External Environment.
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Levels of Strategy
3 Levels can be identified - The decision-making hierarchy of a firm typically contains three levels.
- LEVEL 1: At the top is the corporate level
Composed principally of a board of directors and

the chief executive and administrative officers. - Here the emphasis is on stockholders interests and the society at large.

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- They determine what business a firm should be involved. - They also set objectives and formulate that span the activities and functional areas of the business.
- LEVEL 2: In the middle of the decisionmaking hierarchy is the business level. Composed principally of business and corporate managers - These managers must translate the statements of direction and intent generated at the corporate level into concrete objectives and strategies for individual business divisions or SBUs.
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-LEVEL 3: At the bottom of the decision-

making hierarchy is the functional level Composed principally of managers of product, geographic and functional areas - They develop annual objectives and shortterm strategies in such areas as production, operations research and development, procurement, finance and accounting, marketing, and human resources.

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Benefits of Strategic Management

Enhance the firms ability to prevent problems Group-based strategic decisions are likely to be

drawn from the best available alternatives - The strategic management process results in better decisions because group interaction generates a greater variety of strategies. Creates a framework for internal communication among personnel and provides a basis for clarifying individual responsibilities Resistance to change is reduced

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Benefits contd.
It provides a cooperative, integrated and enthusiastic approach to tackling problems and opportunities
It encourages a favorable attitude towards change It encourages forward thinking It gives a degree of discipline and formality to the management of a business

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THE STRATEGIC MANAGEMENT PROCESS

Perform External Audit

Develop Mission Statement

Establish LongTerm Objectives

Generate Evaluate And Select Strategies

Establish Policies And Annual Objectives

Allocate Resources

Measure And Evaluate Performance

Perform Internal Audit

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 This model is widely accepted and comprehensive Significant improvement in sales, profits and

productivity Allows for identification, prioritization and exploitation of opportunities Provides an objective view of management problems Creates a framework for internal and external communication It gives encouragement to forward thinking. It gives a degree of discipline and formality to the management of a business.
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 Identification on organizations existing mission, objectives, and strategies is the logical starting point for strategic management Every organization has a mission, objectives, and strategy, even if these elements are not consciously designed, written or communicated.
The strategic- management process is dynamic and continuous.
A change in any one of the major

components in the model can necessitate a change in any or all of the other components
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 Strategists do not go through the process in lock step fashion. Many organizations conduct formal meetings semiannually to discuss and update the firms mission, opportunities/threats, strengths/weaknesses, strategies, objectives, policies, and performance. These meetings are commonly held offpremises and called retreats. The rationale for periodically conducting strategic-management meetings away from the work site is to encourage more creativity and condor among participants

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 Good communication and feedback are needed throughout the strategic management process. A number of different forces affect the

formality of strategic management in organizations such as: Size of an organization is a key factor; Smaller firms are less formal in performing strategic-management tasks. Management styles Complexity of production process Nature of problems Purpose of planning system
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STRATEGY FORMULATION
Guides executives in defining the business their firm is in, the end it seeks, and the means it will use to accomplish.

The strategy formulation process begins with definition of the company mission.
This is a declaration of an organization's

reason for being. It answers the pivotal question, what is our business

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STRATEGY FORMULATION cont

Sometimes called

A creed statement A statement of purpose A statement of philosophy A statement of beliefs A statement of business principals A vision statement

Characteristically, it is a statement, not of measurable targets but of attitude, outlook and orientation
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STRATEGY FORMULATION cont

In general terms, the mission statement addresses the following questions: Why is this firm in business? What are our economic goals What is our operating philosophy in terms of

quality, company image, and self-concept?

What are our core competencies and

competitive advantages?

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STRATEGY FORMULATION cont

What customers do and can we serve? How do we view our responsibilities to

stockholders, employees, communities, environment, social issues, and competitors

A good mission statement describes an

organisations purpose, customers, products or services, markets, philosophy, and basic technology

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Mission statements

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IMPORTANCE OF A CLEAR MISSION

High performing companies have got a more comprehensive mission statement than low performers Organisations carefully develop a written mission statement for the following reasons To ensure unanimity of purpose within the organisation To provide a basis, or standard, for allocating organisational resources

To establish a general tone or organisational climate

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IMPORTANCE OF A CLEAR MISSION

To serve as a focal point for individuals to

identify with the organisations purpose and direction; and to deter those who cannot from participating further in the organisations activities

To facilitate the translation of objectives into a

work structure involving the assignment of tasks to responsible elements within the organisation

To specify organisational purposes and

translation of those purposes into objectives in such a way that cost ,time, and performance parameters can be assessed and controlled
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VISION VERSUS MISSION

Some organisations develop both a mission statement

and a vision statement.

Wherereas the mission statement answers the

question, what is our business

The vision statement answers the question, what do

we want to become

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The process of developing a mission statement

A clear mission statement is needed before alternative strategies can be formulated and implemented

It is important to involve as many managers as possible in the process of developing a mission statement, because through involvement, people become committed to an organisation.
A widely used approach is to select several articles about mission statements and ask managers to read these as background information

Then ask managers to personally prepare a mission statement for the organisation

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The process of developing a mission statement A facilitator, or a committee of top managers, should merge those statements into a single document and distribute this draft mission statement to all managers
A request for modifications, additions, and deletions

is needed next, along with a meeting to revise the document

The process of developing a mission statement

represents a great opportunity for strategists to obtain needed support from all managers in the firm

During the process of developing a mission

statement, some organisations use discussion groups of managers to develop and modify the mission statement
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The process of developing a mission statement

Some organisations hire an outside

consultant or facilitator to manage the process and help draft the language.

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Fundamental factors to be incorporated in a mission statement

Basic product or service, primary market;

principal technology Company goals: Survival, Growth, Profitability Company philosophy (beliefs, values, aspirations etc.) Public image Company self-concept (how it relates to its external environment) Customers Quality

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The External Environment

This is determined by conducting an external strategic management audit (sometimes called environmental scanning or industry analysis). This audit focuses on identifying and evaluating trends and events beyond the control of a single firm. An external audit reveals key opportunities and threats confronting an organisation so that

managers can formulate strategies to take advantage of the opportunities and avoid or reduce the impact of threats.
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Key external forces

External forces can be divided into five broad categories:

Economic forces
Social demographic, and environmental

forces; political, governmental, and legal forces; technical forces; competitive forces.

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Relationships Between Key External Forces and an Organisation

Competitors Suppliers Distributors Social, cultural, demographic, and Creditors environmental forces Customers Employees AN ORGANIZATION Communities OPPORTUNITIES Political, legal and governmental forces Managers AND THREATS Stockholders Competitive forces Labour unions Governments Trade associations Special interest groups Products Services Markets Natural environment

Economic forces

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 External trends and events affect all products, services, markets, and organizations in the world

How to conduct an external audit Managers and employees must be involved

This will lead to understanding and commitment from organizational members-so as to avoid

resistance to change
Intelligence Information about social, cultural, demographic, environmental, economic, political, legal, governmental, and technological trends is critical upfront.
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How to conduct an external audit

Sources of information Key magazines Trade journals Newspapers Collection of primary data through questionnaires Suppliers Distributors Customers Competitors Universities Libraries

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How to conduct an external audit

Periodic scanning reports can be submitted to the

department concerned, normally strategic planning department or the relevant department

Once the information is gathered, it should be

assimilated and evaluated for decision making

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Technological forces
This is very rapid Includes the internet Help to identify opportunities as well as threats in

business Competition, products, market, customers, pricing etc Facilitates efficiency and effectiveness in business transaction The organisation must effectively utilize the opportunities availed by the technological forces and minimize the threats The organisation must change with the changing technology to remain competitive

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Key questions to ask in assessing the Technological environment

What are the technologies within the organization Which technologies are utilized in the firms business?

products and parts? How critical is each technology to each of these products and businesses? What have been the firms investments in critical technologies over time? What is the cost and value added structure of these parts, components, products, and businesses? What are the applications of the firms technologies? What technological resources are required for the firm to achieve its current business objectives?
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Economic Forces
Key economic variables to be monitored

Inflation Unemployment Availability of Credit Level of disposable income Propensity of people to spend Interest rates Economies of scale Foreign countries economic conditions

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SOCIAL,CULTURAL,DEMOGRAPHIC,AND ENVIRONMENTAL FORCES

Social cultural, demographic, and

environmental changes have a major impact upon virtually all products, services, markets, and customers
Small, large, for-profit and non profit

companies are affected by threats and opportunities created by the above factors
Managers must understand the dynamics of

this environment and make decisions which will enable the organisations attain their goals and objectives
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SOCIAL,CULTURAL,DEMOGRAPHIC,AND ENVIRONMENTAL FORCES

Cultural practices in certain communities must be eliminated Population explosion needs to be curbed Poverty levels should be monitored Shelter Literacy levels/Education institutions should be improved and quality education

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SOCIAL,CULTURAL,DEMOGRAPHIC,AND ENVIRONMENTAL FORCES

Infrastructure Health facilities should be improved Social security programmes Life expectancy rates Per-capita income attitudes towards business Lifestyles

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SOCIAL,CULTURAL,DEMOGRAPHIC,AND ENVIRONMENTAL FORCES

Trust in government Attitudes toward government Attitudes toward work Ethical concern (corruption) Sex role Attitudes towards investing Government regulation Attitudes toward leisure time Attitudes toward product quality Attitudes toward customer service Social responsibility Etc.
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POLITICAL, GOVERNMENTAL, AND LEGAL FORCES

Central government, local and foreign

governments are major regulators, deregulators, subsidizers, employers, and customers of organizations
Political, governmental, and legal factors

can therefore represent key opportunities or threats for both small and large organizations
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Observable variables
Government regulations and deregulations Change in tax laws Voters participation rates Level of defense expenditures Legislation on equal employment Size of government budgets Location and severity of terrorist activities General election impact on the people, policy and economy.

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COMPETITIVE FORCES
An important part of an external audit is to identify

rival firms and to determine their strength, weaknesses, capabilities, opportunities, threats, objectives, and strategies
Collecting and evaluating information on competitors

is essential for successful strategy formulation

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COMPETITIVE FORCES
Market share Understanding the business you are in Whether its broke or not, fix it - make it better, not just products, but the whole company if necessary; 4) Innovate or evaporate; particularly in technologydriven business, nothing quite recedes like success; 5) Acquisition is essential to growth 6) People make a difference; tired of hearing it? too bad; 7) There is no substitute for quality and no greater threat than failing to be cost competitive on a global basis
1) 2) 3)

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Key questions about competitors

1) What are the major competitors strengths? 2) What are the major competitors weaknesses? 3) What are the major competitors objectives and 4)

5) 6) 7)

strategies? How will the major competitors most likely respond to current economic, social, cultural, demographic, geographic, political, governmental, technological, and competitive trends affecting our industry? How are our products or services positioned relative to major competitors? What key factors have resulted in our present competitive position in this industry? How have the sales and profit rankings of major competitors in the industry changed over recent years? why have these rankings changed that way?
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COMPETITIVE ANALYSIS
The most common model and widely used is the PORTERS FIVE-FORCES MODEL

Questions to ponder:
Will new technologies or market demands enable competitors to minimize the impact of traditional economies of scale in the industry? Will consumers accept our claims of product or service differentiation? Will potential new entrants be able to match the

capital requirements that currently exist? How permanent are the cost disadvantages (independent of size) in our industry?
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Questions to ponder
Will potential new entrants be able to match the capital requirements that currently exist How permanent are the cost disadvantages (independent of size) in our industry? Will conditions change so that competitors have equal access to marketing channels?

Is government policy toward competition in our industry likely to change?

According to Porter, the nature of competitiveness in a given industry can be viewed as a composite of five forces:
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 Rivalry among competitive firms

Potential entry of new competitors

Potential development of substitute

products Bargaining power of suppliers Bargaining power of consumers

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Threat of New Entrants

New entrants to an industry can raise the level of

competition, thereby reducing its attractiveness. The threat of new entrants largely depends on the barriers to entry. High entry barriers exist in some industries (e.g. shipbuilding) whereas other industries are very easy to enter (e.g. estate agency, restaurants). Key barriers to entry include - Economies of scale - Capital / investment requirements - Customer switching costs - Access to industry distribution channels - The likelihood of retaliation from existing industry players.
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Threat of Substitutes
The presence of substitute products can

lower industry attractiveness and profitability because they limit price levels. The threat of substitute products depends on: - Buyers' willingness to substitute - The relative price and performance of substitutes - The costs of switching to substitutes
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Bargaining Power of Suppliers

Suppliers are the businesses that supply materials &

other products into the industry. The cost of items bought from suppliers (e.g. raw materials, components) can have a significant impact on a company's profitability. If suppliers have high bargaining power over a company, then in theory the company's industry is less attractive.

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 The bargaining power of suppliers will be high when:

- There are many buyers and few dominant suppliers - There are undifferentiated, highly valued products - Suppliers threaten to integrate forward into the industry (e.g. brand manufacturers threatening to set up their own retail outlets) - Buyers do not threaten to integrate backwards into supply - The industry is not a key customer group to the suppliers
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Intensity of Rivalry
The intensity of rivalry between competitors in an

industry will depend on: - The structure of competition - for example, rivalry is more intense where there are many small or equally sized competitors; rivalry is less when an industry has a clear market leader - The structure of industry costs - for example, industries with high fixed costs encourage competitors to fill unused capacity by price cutting

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 - Degree of differentiation - industries where

products are commodities (e.g. steel, coal) have greater rivalry; industries where competitors can differentiate their products have less rivalry - Switching costs - rivalry is reduced where buyers have high switching costs - i.e. there is a significant cost associated with the decision to buy a product from an alternative supplier

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 - Strategic objectives - when competitors are

pursuing aggressive growth strategies, rivalry is more intense. Where competitors are "milking" profits in a mature industry, the degree of rivalry is less - Exit barriers - when barriers to leaving an industry are high (e.g. the cost of closing down factories) - then competitors tend to exhibit greater rivalry.

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