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Ch-1:
Strategic Planning and Strategic Management
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Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management
Introduction
Firms often compete with each other to gain their customers attention and business. While doing so, each firm tries to chalk out its unique strategy or gameplan based on its own internal strengths and weaknesses in terms of, which products or services to pursue, which investments to make, which human
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Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management
Strategic Planning
The necessity for planning arises because of the fact that business organisations
have to operate, survive and progress in a highly dynamic environment where change is the rule, not the exception. The change may be sudden and extensive, or it may be slow and almost imperceptible. Planning is the process of deciding in advance what should be accomplished and how it should be realised. It involves selecting objectives and how to achieve them. Strategic planning is a type of planning. But unlike short-term planning,
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Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management
Popular Definitions of Strategic Planning Alfred Chandler: It is concerned with the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and allocation of resources necessary for carrying out these goals. William Glueck: It is a stream of decisions and actions, which lead to the deployment of an effective strategy or strategies to help achieve corporate objectives ....decisions and actions, which determine whether an enterprise excels, survives or dies. Hayes and Wheelwright: Strategic planning is planning that is long-term, wide ranging and critical to organisational success, in terms of the costs of the resources it affects and the outcomes it envisions. Harvey: Strategic planning is long-range planning that focuses on the organisation as a whole. Managers consider the organisation as a total unit and ask themselves what must be done in the long run to attain organisational goals. The most successful managers are those who are able to encourage innovative strategic thinking within their organisations (Pearson).
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Excel Books
Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management
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Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management
Comparison Between Strategic Planning and Operational Planning Strategic (long-range) Plans Plans Intermediate (tactical) Plans Intermediate plan Time-frame: 2-3 years Performed by managers at middle level Concerned with integrating of the organisation departments in the organisation Focus on coordination Covers day-to-day the work of various operations; implements internal goals Focus on control primarily Short-range plan Time-frame: one year Done usually at lower levels Operational (short-range)
responsibility
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Block-1 : Introduction
Ch-1:
i. Strategic Planning and Strategic Management
Excel Books
Block-1 : Introduction
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Strategic Planning and Strategic Management
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Strategic Planning and Strategic Management
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Ch-1:
Strategic Planning and Strategic Management
favourable position and compete successfully against its rivals. Strategy describes a framework for charting a course of action. It explicates an approach for the company that builds on its strengths and is a good fit with the firms external environment. It is basically intended to help firms achieve competitive advantage. Competitive advantage allows a firm to gain an edge over rivals when competing. Competitive advantage comes from a firms unique ability to perform activities more distinctively and more effectively than rivals. A firms distinctive competence or unique ability here implies, those special capabilities, skills, technologies or resources that enable a firm to distinguish itself from its rivals and create competitive advantage (such as superior quality, design skills, low-cost manufacturing, superior distribution etc.).
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Ch-1:
a. Strategic Planning and Strategic Management
Elements of a Strategy
Goals: A strategy invariably indicates the long-term goals toward which all efforts are directed. For example long-term goals might be to dominate the market, to be the technology leader or to be the premium quality firm.
b.
Scope: A strategy defines the scope of the firm that is, the kind of products the firm will offer, the markets (geographies, technologies, processes) it will pursue and the broad areas of activity it will undertake. It will, at the same time, throw light on the activities the firm will not undertake. Competitive Advantage: Competitive advantage arises when a firm is able to perform an activity that is distinct or different from that of its rivals.
Logic: This is the most important element of strategy. For example, a firms strategy is to dominate the market for inexpensive detergents by being the low-cost, mass-market producer. Here the goal is to dominate the detergent market.
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c.
d.
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Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management
Strategies Vs Tactics
To achieve clarity, managers now-a-days talk about four types of strategies: i. Master or grand strategies that cover the entire pattern of an organisations objectives, policies and specific resources deployment. Grand strategies are derived from a careful situational analysis of the organisation and its environment. Programme strategies are more specific and are concerned with the deployment of resources to achieve basic organisational objectives. Sub-strategies are more detailed than programme strategies and focus on the attainment of specific objectives. Tactics are the action plans of specific, step-by-step methods by which strategies are executed. Tactics convert the philosophy of management into practice and force the enterprise to go down to the nuts and bolts of its operations. Tactics are formulated at the supervisory level and their primary Cont. focus is on implementing policy decisions taken at the top level.
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Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management
The differences between strategies and tactics are outlined below:
Strategies Developed by management; these decisions are never delegated below a certain level in management hierarchy. Generally the focus is on long-term. The uncertainty level is quite high; lots of information to be obtained from diverse sources. Affect various parts of an organisation in a significant way. Tactics Employed and related to lower levels of management. The focus is on short-term. Decisions are more certain and are taken within the framework of strategies. The reach is limited to only specific segments of an organisation.
Tactics
Top level activity includes formulation of organisation purposes and long-term objectives. Concerned with how basic organisational objectives will be achieved. Detailed steps to implement programme strategies Short range step-by-step methods to be followed.
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Ch-1:
Strategic Planning and Strategic Management
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Strategic Planning and Strategic Management The Analytical Approach: Igor Ansoff (1965), a leading proponent of the analytical approach, tried to weave a fire garment out of the loose threads developed by Harvard researchers. He tried to examine two things basically: (i) whether strategy had a distinct context of its own (ii) whether it can be described in a structured way. Ansoff felt that strategy can be examined from several angles:
Corporate level Business level Functional level Institutional level (What businesses should we be in?) (How to function in a business once selected) (How to manage internal operations such as manufacturing, marketing, finance, personnel, R&D etc.) (How to manage external relationships in an ever changing dynamic, political world)
Cont.
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Ch-1:
Strategic Planning and Strategic Management The Positioning Approach: During the 1970s, the diversification moves of many large companies have failed to deliver the anticipated synergies. The oil crisis, competition from Japanese and European firms compounded the problem further. In place of diversification and growth, firms started putting more emphasis on achieving competitiveness. Michael Porter around this time proposed that a firms profitability is dependent on five important forces: i.e.
supplier power, buyer power, threat from new entrants, threat from substitutes and intensity of rivalry within an industry. Porter suggested three strategies to gain competitive advantage:
i. Overall Cost Leadership
ii.
Differentiation
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Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management
Excel Books
Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management
Resource Focus
Externally Tuned Covers a Large Territory
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Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management
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Block-1 : Introduction
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Strategic Planning and Strategic Management
its environment.
Types of Policies There are many types of policies - marketing policies, financial policies,
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Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management
Pyramid of Business Policies
Major policies
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Strategy vs Policy
Strategies define the overall character, mission and direction of an enterprise.
They focus on an organisations long-term relationship with its external environment. They specify what an organisation will be doing in future, reflecting the kind of enterprise the managers envision. Strategies are formulated and implemented with a view to achieve specific goals. An appropriate strategy will give managers an advantage over their opponents or competitors; it will enable them to marshall their resources so that they will be more effectively utilised. A policy, on the other hand, tells people what they should and should not do in order to contribute to the achievement of corporate goals. It says something about how goals will be attained. It is a helpful guide that makes the strategy of the business explicit and provides direction to subordinates.
Cont.
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Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management
Policy It offers guidelines for managers to take appropriate decisions
Strategy Deals with strategic decisions that decide the long-term health of an enterprise. It is a comprehensive plan of action designed to meet certain specific goals. It is a means of putting a policy into effect within certain time limits. Deals with those decisions which have not been encountered before in quite the same form, for which no predetermined and explicit set or ordered responses exist in the organisation and which are important in terms of the resources committed or the precedents set. Deals with crucial decisions whose implementation requires constant attention of top management.
It is a general course of action with no defined time limits. It is a guide to action in areas of repetitive activity.
Once policy decisions are formulated, these can be delegated and implemented by others independently.
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Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management
Strategic Management
Evolution Till 1930s most firms were happy focussing attention on their day-to-day, shortterm activities. In an environment characterised by very little competition, a functional orientation supported by budgeting and control systems guided the fortunes of firms. The adhoc policy making yielded ground to planned policy formulation and by 1940 the emphasis shifted to the integration of functional areas in the context of environmental demands. The period between 1960s and 1980s, was chracterised by rapid environmental changes and increased complexity of business functions necessitating long range planning and comprehensive business policies aimed at placing a firm in an advantageous relationship to its environment. Strategic management is the process by which organisations try to determine what needs to be done to achieve corporate objectives and more importantly, how these objectives are to be met. Ideally, it is a process by which senior management examines the organisation and the environment in which it operates and attempts to establish an appropriate and optimal fit between the two to ensure the organisations success. Cont.
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Period Dominant Theme Main Issues
Synergy SBUs Portfolio planning matrices Experience curves Returns to market share
Dynamic sources of competitive advantage Control of standards Knowledge and learning The virtual organisation, The knowledge based firm Alliances and networks, The quest for critical mass
Organisational Implications
Diversification Greater industry Multidivisional and market structures, selectivity Quest for global Industry market share restructuring Active asset management
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Definitions of Strategic Management It is a continuous process of effectively relating the organisations objectives and resources to the opportunities in the environment (Schellen Berger and Boseman) It is a process of formulating, implementing and evaluating cross-functional decisions that enable an organisation to achieve its objectives (F R David) It is a stream of decisions and actions which lead to the development of an effective strategy or strategies to a help achieve corporate objectives (Glueck and Jauch) It is the set of decisions and actions resulting in formulation and implementation of strategies designed to achieve the objectives of an organisation (Pearce and Robinmson, 2001)
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Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management
management:
Entrepreneurial Mode Adaptive Mode Planning Mode Combined Mode
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