Nature of Strategic

Management

Unit 1
Concept of Strategy
 A Strategic vision is a road map
of a companys future
providing specifics about
technology and customer focus, the
geographic and product markets to
be pursued, the
capabilities it plans to develop, and
the kind of company that
management is trying to
create.
 The three elements of a
Strategic Vision:

1. Coming up with a mission statement that

defines what business the company is
presently in and conveys the essence of
Who we are and where we are now?
2. Using the mission statement as basis for
deciding on a long-term course making
choices about Where we are going?
3. Communicating the strategic vision in
clear, exciting terms that arouse
organization wide commitment
 Mission
An organizations mission is its purpose, or
the reason for its existence.
It states what it is providing to society .
A well conceived mission statement defines
the fundamental , unique purpose that sets
a company apart from other firms of its
types .
Identifies the scope of the company s
operation in terms of products offered and
markets served .
 Why organization should have Mission?

To ensure unanimity of purpose within the organization

To provide a basis for motivating the use of the organizations resources.
To develop a basis, or standard, for allocating organizational resources.
To establish a general tone or organizational climate, for example, to suggest a
businesslike operation.
To serve as a focal point for those who can identify with the organizations
purpose and direction, and to deter those who cannot form participating further in
the organizations activities.
To facilitate the translation of objective and goals into a work structure involving
the assignment of tasks to responsible elements within the organization.
To specify organizational purposes and the translation of these purposes into
goals in such a way that cost, time, and performance parameters can be assessed
and controlled.
 Objectives
Objectives are the end results of
planned activity;
They state what is to be
accomplished by when and should be
quantified if possible.
The achievement of corporate
objectives should result in fulfillment
of the corporations mission.
 Company can identity a set of
business objectives pursued by a
large cross-section of enterprises.
These relate to
profitability,
productive efficiency,
growth,
technological dynamism,
stability,
Self reliance,
survival,
competitive strength,
customer service,
financial solvency,
product quality,
diversification,
employee satisfaction and welfare, and
so on.
Enterprises seek to balance these
objectives in some appropriate manner
 Survival
Survival is the will and anxiety to perpetuate
into the feature as long as possible.
It is a basic, implicit objective of most organizations.
While survival is an obvious objective, it gains more
value and prominence during the initial stage of the
establishment of the enterprise and during general
economic adversity.
The ability to survive is a function of the nature of
ownership, nature of business competence of
management, general and industry conditions,
financial strength of the enterprise an soon.
However, business and other enterprises are
interested in more than mere survival.
 Stability
One of the most important of objectives of
business enterprises is stability.
It is a cautious, conservative objective. In a
sense, stability is a least expensive and risky
objective in terms of managerial time and talent
and other resources.
A stable and steady enterprise minimizes
managerial tensions and demands less
dynamism from managers.
It is a strategy of least resistance in a hostile
external environment.
 Growth
This is a promising and popular objective which is
equated with dynamism, vigour, promise and
success.
Enterprise growth may take one or more of the
forms like increase in assets, manufacturing
facilities, increase in sales volume in existing or
through new products, improvement in profits and
market share, increase in manpower employment,
acquisition of other enterprises and so on.
Growth may take the enterprise along relatively
unknown and risky paths, full of promises and
pitfalls.
 Efficiency
Business enterprise seek efficiency in
rationally choosing appropriate means to
achieve their goals, doing things in the best
possible manner and utilizing resources in a
most suitable combination to get highest
productivity.
In a sense, efficiency is an economic version of
the technical objective of productivity-
designing and achieving suitable input output
ratios of funds, resources, facilities and efforts.
Efficiency is a very useful operational objective.
 Policies
A policy is a broad guideline for
decision making that links the
formulation of strategy with its
implementation.
Companies use policies to make sure
that the employees throughout the
firm make decisions and take actions
that support the corporations
mission, its objectives and its
strategies.
 Strategies
A strategy of a corporation is a comprehensive
master plan stating how corporation will
achieve its mission and its objectives.
It maximizes competitive advantage and
minimizes competitive disadvantage.
The typical business firm usually considers
three types of strategy:
corporate,
business
functional.
 THE MICRO AND MACRO
ENVIRONMENT
The environment of business can be
categorized into two broad categories
micro-environment and macro-
environment.
Micro-environment is related to small
area or immediate periphery of an
organization. Micro-environment
influences an organization regularly
and directly.
 Micro Environment
Within the micro or the immediate environment
within which the firm operates we need to address
the following issues:
The employees of the firm, their characteristics and
how they are organized.
The customer base on which the firm relies for
business.
The ways in which the firm can raise its finance.
Who are the firms suppliers and how are the links
between the two being developed?
The local community within which the firm operates.
 Macro Environment
Macro environment has broader dimensions. It
mainly consist of economic, technological, political
legal and socio-cultural. The issues concerning an
organization are:
Who are their threats in the competitive world in
which they operate and why?
Which areas of technology might pose a threat to
their current product range and why?
The bargaining power of suppliers and customers?
The type of competition they are facing and their
perceived threats and weaknesses?
 WHY ENVIRONMENTAL
ANALYSIS?
When the company ceases to adjust the environment
to its strategy or does not react to the demands of
the environment by changing its strategy, the result
is lessened achievement of corporate objectives.
From environmental analysis strategists get time to
anticipate opportunities and to plan to take optional
responses to these opportunities.
It also helps strategists to develop an early warning
system to prevent threats or to develop strategies
which can turn a threat to the firm's advantage.
It is clear that because of the difficulty to assessing
the future, not all future events can be anticipated.
 But some can and are. To the extent
that some or most are anticipated by
this analysis and diagnosis, managerial
decisions are likely to be better.
And the process reduces the time
pressures on the few which are not
anticipated.
Thus, the managers can concentrate
on these few instead of having to deal
with all the environmental influences
 In general, environmental analysis
has three basic goals as follows:
The analysis should provide an understanding of
current and potential change staking place in the
environment. It is important that one must be aware of the
existing environment. At the same time one must have a
long term perspective about the future too.
Environmental analysis should provide inputs for
strategic decision making. Mere collection of data is not
enough. The information collected must be useful for and
used in strategic decision making.
Environment analysis should facilitate and foster
strategic thinking in organizations typically a rich
source of ideas and understanding of the context within
which a firm operates. It should challenge the current
wisdom by bringing fresh viewpoints into the organization.
 An opportunity is a favorable condition in
the organization's environment which
enables it to consolidate and strengthen its
position. An example of an opportunity is
growing demand for the products or
services that a company provides.
A threat is an unfavorable condition in the
organization's environment which creates a
risk for, or causes damage to, the
organization. An example of a threat is the
emergence of strong new competitors who
are likely to offer stiff competition to the
existing companies in an industry.
 A strength is an inherent capacity which an
organization can use to gain strategic
advantage over its competitors.
An example of a strength is superior research
and development skills which can be used for
new product development so that the
company gains competitive advantage.
A weakness is an inherent limitation or
constraint which creates a strategic
disadvantage.
An example of a weakness is over dependence
on a single product line, which is potentially
risky for a company in times of crisis.
 A systematic approach to understanding the environment is the
SWOT analysis.
Business firms undertake SWOT analysis to understand the
external and internal environment. SWOT, which is the acronym
for strengths, weaknesses, opportunities and threats.
Through such an analysis, the strengths and weaknesses
existing within an organization can be matched with the
opportunities and threats operating in the environment so that
an effective strategy can be formulated.
An effective organizational strategy, therefore, is one that
capitalizes on the opportunities through the use of strengths and
neutralizes the threats by minimizing the impact of weaknesses.
The process of strategy formulation starts with, and critically
depends on, the appraisal of the external and internal
environment of an organization
Evaluating a Company's Resources
and Competitive Position

How well is the present strategy working?This involves

evaluating the strategy from a qualitative standpoint
(completeness, internal consistency, rationale, and suitability
to the situation) and also from a quantitative standpoint (the
strategic and financial results the strategy is producing).
The stronger a company's current overall performance, the
less likely the need for radical strategy changes.
The weaker a company's performance and/or the faster the
changes in its external situation (which can be gleaned from
industry and competitive analysis), the more its current
strategy must be questioned.
 What are the company's resource strengths and weaknesses,
and its external opportunities and threats?A SWOT analysis
provides an overview of a firm's situation and is an essential
component of crafting a strategy tightly matched to the company's
situation. The two most important parts of SWOT analysis are
(1) drawing conclusions about what story the compilation of strengths,
weaknesses, opportunities, and threats tells about the company's
overall situation, and
(2) acting on those conclusions to better match the company's
strategy, to its resource strengths and market opportunities, to correct
the important weaknesses, and to defend against external threats.
A company's resource strengths, competencies, and competitive
capabilities are strategically relevant because they are the most
logical and appealing building blocks for strategy; resource
weaknesses are important because they may represent vulnerabilities
that need correction.
External opportunities and threats come into play because a good
strategy necessarily aims at capturing a company's most attractive
opportunities and at defending against threats to its well-being.
 Are the company's prices and costs competitive?

One telling sign of whether a company's situation is strong or

precarious is whether its prices and costs are competitive with those
of industry rivals.

Value chain analysis and benchmarking are essential tools in

determining whether the company is performing particular functions
and activities cost-effectively, learning whether its costs are in line
with competitors, and deciding which internal activities and business
processes need to be scrutinized for improvement.

Value chain analysis teaches that how competently a company

manages its value chain activities relative to rivals is a key to
building a competitive advantage based on either better
competencies and competitive capabilities or lower costs than rivals.
 Is the company competitively stronger or weaker than key
rivals?The key appraisals here involve how the company
matches up against key rivals on industry key success factors and
other chief determinants of competitive success and whether and
why the company has a competitive advantage or disadvantage.
Quantitative competitive strength assessments, indicate where a
company is competitively strong and weak, and provide insight
into the company's ability to defend or enhance its market
position. As a rule a company's competitive strategy should be
built around its competitive strengths and should aim at shoring
up areas where it is competitively vulnerable.
When a company has important competitive strengths in areas
where one or more rivals are weak, it makes sense to consider
offensive moves to exploit rivals' competitive weaknesses. When a
company has important competitive weaknesses in areas where
one or more rivals are strong, it makes sense to consider
defensive moves to curtail its vulnerability.
 What strategic issues and problems merit front-
burner managerial attention?This analytical step
zeros in on the strategic issues and problems that
stand in the way of the company's success.
It involves using the results of both industry and
competitive analysis and company situation analysis to
identify a "worry list" of issues to be resolved for the
company to be financially and competitively successful
in the years ahead.
The worry list always centers on such concerns as "how
to . . . ," "what to do about . . . ," and "whether to . . ."
the purpose of the worry list is to identify the specific
issues/problems that management needs to address.
Actual deciding on a strategy and what specific actions
to take is what comes after the list of strategic issues
and problems that merit front-burner management
attention is developed.
 A competently done evaluation of a
company's resource capabilities and
competitive strengths exposes strong
and weak points in the present strategy
and how attractive or unattractive the
company's competitive position is and
why.
Managers need such understanding to
craft a strategy that is well suited to the
company's competitive circumstances.
Mintzberg's 5 Ps of
Strategy
 Many of us brainstorm opportunities, and then
plan how we'll take advantage of them.
There's no point in developing a strategy that
ignores competitors' reactions, or doesn't
consider the culture and capabilities of your
organization.
It would be wasteful not to make full use of your
company's strengths whether these are
obvious or not.
Management expert, Henry Mintzberg, argued
that it's really hard to get strategy right. To help
us think about it in more depth, he developed
his 5 Ps of Strategy five different definitions of
(or approaches to) developing strategy.
 Mintzberg first wrote about the 5 Ps
of Strategy in 1987. Each of the 5 Ps
is a different approach to strategy.
They are:
Plan.
Ploy.
Pattern.
Position.
Perspective.
1. Strategy as a Plan
Planning is something that many managers are happy with, and it's
something that comes naturally to us. As such, this is the default,
automatic approach that we adopt brainstorming options and
planning how to deliver them.
This is fine, and planning is an essential part of the strategy
formulation process.
SWOT AnalysisandBrainstorminghelp you think about and
identify opportunities;
practical business planninglooks at the planning process in
more detail;
change managementandproject managementteach the
skills you need to deliver the strategic plan in detail.
The problem with planning, however, is that it's not enough on its
own. This is where the other four Ps come into play.
 2. Strategy as Ploy

Mintzberg says that getting the better of competitors, by plotting

to disrupt, dissuade, discourage, or otherwise influence them, can
be part of a strategy. This is where strategy can be a ploy, as well
as a plan.
For example, a grocery chain might threaten to expand a store,
so that a competitor doesn't move into the same area; or a
telecommunications company might buy up patents that a
competitor could potentially use to launch a rival product.
Here, techniques and tools such as theFutures Wheel,Impact
AnalysisandScenario Analysiscan help you explore the
possible future scenarios in which competition will occur.
Game Theorythen gives powerful tools for mapping out how
the competitive "game" is likely to unfold, so that you can set
yourself up to win it.
 3. Strategy as Pattern

Strategic plans and ploys are both deliberate exercises. Sometimes,

however, strategy emerges from past organizational behavior. Rather than
being an intentional choice, a consistent and successful way of doing
business can develop into a strategy.
For instance, imagine a manager who makes decisions that further
enhance an already highly responsive customer support process. Despite
not deliberately choosing to build a strategic advantage, his pattern of
actions nevertheless creates one.
To use this element of the 5 Ps, take note of the patterns you see in your
team and organization. Then, ask yourself whether these patterns have
become an implicit part of your strategy; and think about the impact these
patterns should have on how you approach strategic planning.
Tools such asUSP AnalysisandCore Competence Analysiscan help
with this.
A related tool, VRIO Analysis, can help you explore resources and assets
(rather than patterns) that you should focus on when thinking about
strategy.
 4. Strategy as Position

"Position" is another way to define

strategy that is, how you decide to
position yourself in the marketplace.
In this way, strategy helps you
explore the fit between your
organization and your environment,
and it helps you develop a
sustainablecompetitive
advantage.
 For example, your strategy might include developing
a niche product to avoid competition, or choosing to
position yourself amongst a variety of competitors,
while looking for ways to differentiate your services.
When you think about your strategic position, it helps
to understand your organization's "bigger picture" in
relation to external factors. To do this, usePorter's
Five Forcesto analyze your environment these
tools will show where you have a strong position, and
where you may have issues.
As with "Strategy as a Pattern,"Core Competence
Analysis,USP Analysiscan help craft a successful
competitive position.
You can also useSWOT Analysisto identify what
you do well, and to uncover opportunities.
 5. Strategy as Perspective

The choices an organization makes about its strategy

rely heavily on its culture just as patterns of behavior
can emerge as strategy, patterns of thinking will shape
an organization's perspective, and the things that it is
able to do well.
For instance, an organization that encourages risk-
taking and innovation from employees might focus on
coming up with innovative products as the main thrust
behind its strategy.
By contrast, an organization that emphasizes the
reliable processing of data may follow a strategy of
offering these services to other organizations under
outsourcing arrangements.
Strategic Management
Process