Process of strategic Management

1) Vision, Mission & objectives Deciding vision (long-term direction), Mission (Mission denotes values, the business rationale for existing), Objectives (performance utcomes) 2) Environmental analysis Identifies opportunities & Threats E.g.: for tools used: PEST & Five Forces Analysis 3) Position Audit or Situation Analysis Identify Strengths & Weaknesses. Firms current resources, products, customers, systems structure, results, efficiency, effectiveness E.g.: for tools used: Resource Audit, Distinctive Competence, Value Chain, Product Life Cycle, BCG Matrix, General Electric business Screen, Shell Directional policy matrix, Marketing Audit 4) Corporate Appraisals Environmental Analysis & Position Audit are combined in here E.g.: SWOT Analysis After SWOT analysis, it will be compared with expected results by Using GAP Analysis 5) Corporate Strategic Choice Come up with new ideas how to compete (Competitive advantage), Where to compete, Method of growth E.g. for tools used: Porters generic strategies, ansoffs growth matrix, Acquisition or vertical growth After identifying the strategies it should be evaluated on the basis of Acceptability, Suitability & Feasibility E.g. for tools used: stake holder Analysis, Risk Analysis, Decision making tools such as decision trees, matrices, ranking & scoring methods. Financial measures (e.g.: ROCE) 6) Strategy Implementation Finally strategy should be implemented. Following decisions has to be taken * Resource Planning: Deploying resources to achieve the strategy E.g. for tools used: Critical Success Factors (CSFs) : Outsourcing * Operational Plans: Details Operational plans have to be prepared E.g. for tools used: Budgets, Activity Schedules, and Project Management * Organization structure and culture: Designing the organization to implement the strategy E.g. for tools uses: Mintezbergs five element model, 7s, Cultural Web * Change: Implement Changes E.g. for tools uses: Change Management models (e.g.: Unfreeze-change-refreeze) * Functional Strategies:

HRM (Man power planning, motivation, Performance Appraisals) Finance (Finance Sources, Investing Sources) Production (Scheduling, TQM) Marketing (4ps, MIS, Segmentation, Production Life Cycle) 7) Control Review current performance & introduce required changes E.g. for tools uses: Critical Success Factors, Budgets, Balance Scorecard

Vision
Developing a strategic vision
Very early in the strategy-making process, company managers need to pose a set of questions what is our vision for the company-where should be the company be headed, what should its future-technology- product customer focus be, what kind of enterprise do we want to become. A strategic vision thus reflects managements aspirations for the organization & its business, providing a wide view of where we are going and giving specifies about its future business plans

The three elements of a strategic vision

Managers have three discernible tasks in forming a strategic vision & making it a useful direction-setting tool. Coming up with a mission statement that defines what business the company is presently in & conveys the essence of who we are, what we do, and where we are now. Using the mission statement as a basis for deciding on a long-term course, making choices about where we are going & charting a strategic path for the company to pursue Communicating the strategic vision in clear ,exciting terms that arouse organization wide commitment

Vision
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? What you are doing when creating a vision statement is articulating your dreams and hopes for your business. It reminds you of what you are trying to build. While a vision statement doesnt tell you how youre going to get there, it does set the direction for your business planning. Thats why its important when crafting a vision statement to let your imagination go and dare to dream and why its important that a vision statement captures your passion. Unlike the mission statement, a vision statement is for you and the other members of your company, not for your customers or clients. When writing a vision statement, your mission statement and your core competencies can be a valuable starting point for articulating your values. Be sure when youre creating one not to fall into the trap of only thinking ahead a year or two. Once you have one, your vision statement will have a huge influence on decision making and the way you allocate resources. Definition

1. The desired or intended future state of an organization. 2. Ultimate goal of an organization can be defined as vision Features of vision Foresight or power of seeing Focus on future ( see the future & prepare for it ) Serve as a concrete foundation for the organization Never change but it can be improved E.g.: Microsoft organization For years, one vision drove what Microsoft did A computer on every desk & in every home using great software as an empowering tool But the emergence of the internet & non-Pc devices like handheld Computers & TV-set top boxes as increasingly integral parts of everyday its vision to empower people through great software anytime, anyplace ,and on any device Bill gate observes we see a world where people can use any computing device to do whatever they want to anytime, anywhere. The PC will continue to have a central role. But it will be joined by an incredibly rich variety of digital devices accessing the power of internet.

Benefits of vision
A vision promote change Become the drive the change ( If no vision, nobody interest to innovate new thing) Serves as a road map for companies Energizing people & departments for the purpose. Motivate individuals & facilitate the recruitment of talents Many young people like to work in visionary organization E.g.: Sony Corporation An employee innovated new types of computer game & he became the head of the company at that time it contribute 40 % of profits of the Sony company & also 11 % of total revenue. Vision does not fluctuate from year to year but serves as enduring promise. In practice, some companies change their vision time to time. But it is not right thing to do. * It gives answers for future questions (Ambiguity & surprises) Which comes first? The mission statement or the vision statement? That depends. If you have a new start up business, new program or plan to re engineer your current services, then the vision will guide the mission statement and the rest of the strategic plan. If you have an established business where the mission is established, then many times, the mission guides the vision statement and the rest of the strategic plan. Either way, you need to know your fundamental purpose - the mission, your current situation in terms of internal resources and capabilities (strengths and/or weaknesses) and external conditions (opportunities and/or threats), and where you want to go - the vision for the future. It's important that you keep the end or desired result in sight from the start

Example : Commercial bank

Vision

To be the most technologically advanced, innovative and customer friendly financial services organization in Sri Lanka, poised for further expansion in South Asia

Mission
Coming up with a mission is not as simple as it might seem. Is coca cola in the soft-drink business ( in which case managements strategic attention can be concentrated on outselling & out competing pepsi,7ups,Creamsoda,Necto..) or is it in the beverage business ( In which case, management also needs to think strategically about positioning coca-cola products to compete against fruit juices, ready to drink teas, bottled water, sports drink, milk & coffee )

The mission is not to make a profit

One of the roles of a mission statement is to give the organization its own special identity. Business emphasis and path for development-one that typically sets it apart from other similarly situated companies. Sometimes companies express their business mission in terms of making a profit. This is misguided. Profit is more correctly an objective and result of what the company does. The desire to make a profit says nothing about the business arena in which profits are to be sought. Missions based on making a profit do not allow us to distinguish one type of profit-seeking enterprise from another-the business of amazon.com is plainly different from the business of Toyota, even though both endeavor to earn a profit. A company that says its mission is to make a profit begs the question what will we do to make a profit?. To understand a companys business purpose, we must know managements real answer to that question.

Mission Definitions
1) Reason for existence 2) Describes the organizations basic function in society, in terms of the products & services it produces for its clients 3) A companys mission statement is typically focused on its present business scope-who we are and what we do. Mission statements broadly describe an organizations present capabilities, customer focus, activities, and business make up.

Characteristics of a mission statement

Defines current business activities Highlights boundaries of current business Conveys -Who we are -What we do -Where we are now

* Company specific, not genetic So as to give a company its own identity Values & culture Boundaries may be set in terms of geography, market, business method, product or any other parameter that defines the nature of the organization Values are the basic, perhaps unstated; beliefs of the people who work in the organization. The values of the business as a collective entity are in tune with the personal values of the individuals working for it. In conflicts of ethics, clashes between organizational & personal values are hard to resolve if someones principles disagree with what the organization wants.

The importance of mission

a) Values and feelings are integral elements of consumers buying decisions, as evidenced by advertising, branding and market research. Customers not only ask what do you sell? But what do you stand for? b) A respect for quantifiable information is part of the professional culture and training of the accountant. Other people have different values & priorities. c) Studies in to organizational behavior suggest that employees are motivated by more than money. A sense of mission and values can help to motivate employees d) Many firms take mission seriously in strategic management.

A broad or narrow mission statement

Good mission statements are highly personalized unique to the organization for which they are developed. A mission statement can be defined in narrative form or broad form. e.g: Narrow definition Show film Broad definition Entertainment Customers Following are some other examples for this. Board definition * Furniture business * Telecommunication business * Beverage business * Global mail delivery business Narrow definition Wrought-Iron lawn furniture business Lon-distance telephone service business Soft drink business Overnight package delivery business

The risks of making an overly broad mission statement are lack of business focus and dilution of effort. Few businesses fail because they are focused on sharply targeted market opportunities but many fail or do badly because managements attention is divided and resources are scattered across too many areas.

Mission statements for functional departments

There is also a place for mission statements for key functions & departments within a business-R & D, marketing, finance, human resources, Customer service, and information systems. Every department can help focus the efforts of its personnel by developing a mission statement that sets forth its principal role and activities, the direction it is headed and its contribution to the overall company mission. Examples: The mission of the human resources department is to contribute to organizational success by developing effective leaders, creating high-performance teams and maximizing the potential of individuals

Problems with mission

Ignored in practice The inherent danger of mission is that it will not be implemented. Their official goals often do not correspond with the end they actually seem to pursue. Public relations Sometimes, of course, mission is merely for public consumption, not for internal decision making post hoc Missions are sometime produced to rationalize its existence to particular audiences. In other words, mission does not drive the organization, but what the organization actually does is assumed to be a mission Full of generalizations Best, Quality, major is just a wish list

Example : Commercial Bank- Mission

Providing reliable, innovative, customer friendly financial services, utilising cutting edge technology and focusing continuously on productivity improvement whilst developing our staff and acquiring necessary expertise to expand locally and regionally"

Establishing Objectives
Setting Objectives converts the strategic Vision into specific performance targets Unless an organizations long-term direction is translated into specific performance targets and managers are pressured to show progress in reaching these targets, Vision and Mission statements are likely to end up as nice words, window dressing, and unrealized dreams For objectives to function as yardsticks of organizational performance and progress they must be stated in quantifiable, or measurable, terms and they must contain a deadline for achievement. They have to spell out how much of what kind of performance by when. This means avoiding generalities like maximize profits , Reduce cost

Types of objectives They are two types of objectives. which are 1) Financial Objectives 2) Strategic Objectives Financial Objectives Those related to financial Performance E.g.: Growth in revenue Growth in earnings Higher dividends Bigger profits margin Higher returns on invested capital Attractive economic value added performance Bigger cash flows A rising stock price Strategic objectives Those related to strategic performance Need to be competitor-focused, often aiming at unseating a competitor considered being industrys best in a particular category

the

E.g.: A bigger market share Innovations quickly than rivalry Higher product quality than rivals Lower cost costs relatives to key competitors A stronger brand name than rivals

Difference between goals and Objectives Goals and objectives are often used interchangeably. However some writers identify some differences between goals & objectives. Goals are relatively long-term & less specific targets that you want to accomplish. Objectives are relatively short-term & more specific targets that you want to accomplish E.g.: Goals-Customer Satisfaction Objectives-1.Establish Customer Care Center in 2011 in order to increase Customer Satisfaction 2. Train ten Customer Care officers in 2011 in order to increase Customer Satisfaction Good objectives need to conform to the commonly used SMART criteria. The SMART criteria (an important concept which you should try to remember and apply in exams) are summarized below: Specific - the objective should state exactly what is to be achieved.

Measurable - an objective should be capable of measurement so that it is possible to determine whether (or how far) it has been achieved Achievable - the objective should be realistic given the circumstances in which it is set and the resources available to the business. Relevant - objectives should be relevant to the people responsible for achieving them Time Bound - objectives should be set with a time-frame in mind. These deadlines also need to be realistic. The need for Long-Range and short-Range Objectives Organizations need to establish both long-range and short-range objectives. A strong commitment to achieving long-range objectives forces managers to begin taking actions now to reach desired performance levels later. A company that has an objective of doubling its sales within five years cannot wait until the third or fourth year of its five-year strategic plan to begin growing its sales and customer base. Objectives are needed at all organizational levels Objective setting does not stop when company performance targets agreed on. company objectives must be broken down in to performance targets for each of the organizations separate businesses, product lines, functional areas, and departments Need for top-down objective setting A top-down process of setting companywide performance targets first and then insisting that the financial and strategic performance targets established for business units, divisions, functional departments and operating units.

STAKEHOLDERS ANALYSIS
Stakeholders KEY TERM
Stakeholders: Definitions 1.groups or individuals whose interests are directly affected by the activities of a firm or organisation 2.Parties who are interested about business activities

Stakeholders can be divided in to two main group 1. Internal Stakeholders-People who are staying inside of an organisation and interest about organisational activities E.g: Employees, Share holders 2. External Stakeholders- People who are staying outside of an organisation and interest about organisational activities E.g: Government organisations, Media, community, Customers, suppliers, Banks & Financial institutions

Stakeholder groups can exert influence on strategy. The greater the power of a stakeholder group, the greater its influence will be. Each stakeholder group has different expectations about what it wants, and the expectations of the various groups will conflict. To some extent, the expectations of stakeholders will influence the organizations mission.

Stakeholders' objectives
Here is a checklist of stakeholders' objectives. It is not comprehensive. (a) Employees and managers -Higher Salary & other fringe benefits -Job Security -Job Satisfaction

(b) Customers * Products of a certain quality at a reasonable price Products that should last a certain number of years A product or service that meets customer needs.

(c) Suppliers: regular orders in return for reliable delivery and good service (d) Shareholders: Reasonable return on invested capital , Survival of business (e) Bank & Other Financial Institution: reliable payment of interest due and maintenance of the value of any security. (f) Society as a whole (community)

* Control pollution * Financial assistance to charities, sports and community activities * Co-operate with government in identifying and preventing health hazards * Job opportunities (g) Government Organisation Compliance of rules and regulations Development of Country

(h)

(I)

Media - Use as an advertising source - To know about companies business information Competitors -to know sensitive information about the business activities

Conflict between Stakeholders

The objectives of the stakeholders group will inevitably be different and may be in direct Conflict E.g: The staffs desire for better pay and work conditions may conflict with the shareholders desire for higher profits and the customers desire for lower prices Additionally there will be differences between the objectives of members of the same stakeholder group. Two examples are particularly important 1. Differences between shareholders Some needs more dividends and another is happy for profits to be retained to promote capital growth 2. Differences between managers Objectives of managers and the departments they lead may conflict. It is worth emphasising that individuals may be members of more than one stakeholder group at any point in time. For instance, workers in a factory may well be members of the local community or even government members. As such there may be conflict between their interests and objectives in respect of a particular decision that the company is about to make.

Criteria to assess power of stakeholders

1.Status of the stakeholders E.g: Their place in the organizational hierarchy Their reputation in the firm Their Social status 2.Claim on Resources E.g: Size of their budget Number and level of staff employed Number of workers theey speak for (e.g.a trade union) Volume and value of business transacted with them (e.g: Customers & Suppliers) 3. Formal representation in decision making process E.g: Level of management where they are represented Committees they have representation on Legal rights (e.g.shareeholders)

Resolving competing objectives

There are various techniques available 1. Prioritization-Management can specify that any strategy considered must as a minimum satisfy one or more specific objectives before they are prepared to consider it

e.g: Management may set a minimum profitability threshold for any strategy ( say 15 percent return on investment) .Once this is assured they turn their attention to achieving it in a more socially responsible way 2. Weighting and scoring-Each objective is weighted according to its relative Importance to the organization ( a high weight denoting high performance) .Each Strategic option is scored according to how well it satisfies the objective ( a high Score showing high attainment) a weighted score is calculated for each objective, They are totaled and the strategic option with the highest overall score is Accepted. Above two are rational, mathematical ones. Following methods are less rational Ones. 3. Satisfying-Here the strategy selected is the one that keeps all, or at least the most Powerful, stakeholders happy.It usually emerges as a result of negotiation between The competing stakeholders 4. Sequential attention-Stakeholders are kept happy by taking turns to get their Objectives realized. E.g: staff may get a large pay rise every three years but, in between pay remains Static while dividends are paid 5. Side Payment-where particular stakeholders objectives can not be addressed. They are compensated in another way.for example, a shareholder may be Compensated for a low profit by a higher dividend, or a local community may Have a new leisure center built by a company whose new superstore will Inevitably increase noise and traffic congestion in the area. 6.Exercise of power-Where management are deadlocked due to competing Objectives. This is often resolved by one or more powerful figures using their power to force through their preferred option.

Corporate Social Responsibility (CSR)

Definitions 1. Taking more than just the immediate interest of the shareholders into account when making a business decision 2. Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large Corporate Social Responsibility refers specifically to relationships with external stakeholders such as representatives of the community and environment and often relates to businesses role in society

Difference between Business Ethics & Corporate Social Responsibility (CSR)

Definition-Business Ethics Business Ethics is concerned with issues of moral rightness & wrongness of decisions & actions.

They have distinct meaning although the two are often used interchangeably. Business ethics comprises principles and standards that govern behavior in the world of business. Actions can be judged to be right or wrong, ethical or unethical, individual inside or outside organization. These judgments will influence societys acceptance or rejection of the action taken. Issues commonly associated with Ethics Honesty in advertising of jobs or products Fairness in setting pay & working conditions Non-Exploitation of countries or peoples Effects of customers of consuming products Dealing with oppressive governments Management of Closures of redundancies CSR, however refers to a firms obligation to maximize its positive impacts upon stakeholders while the negative effects (fulfilling the needs of all stakeholders) As such, ethics is just one dimension of social responsibility. The extent to which stakeholders judge that businesses meet, legal, ethical, economic & philanthropic responsibilities placed on them by their various stakeholders will determine the degree of corporate citizenship exhibited by the firm.

Dimensions of CSR
CSR has been defined as having four dimensions: Economic, legal, ethical & philanthropic.

Archie B Carroll has identified four types of social responsibilities 1. Economic Responsibilities Financial stability, Effective utilization of limited resources are few examples for economic responsibilities. However profitability becomes the key in here. 2. Legal responsibilities Compliances to the rules & regulations imposed by the governments, local bodies and professional institutions etc. E.g. EPF. ETF, Shop & Office Ordinance, Gratuity Act

3.Ethical Responsibilities Ethics are written or unwritten rules about right and wrong or good and bad perceived by particular society or group of people. e.g.: Honesty in advertising of jobs or products, Fairness in setting pay & working conditions 4. Philanthropic Responsibilities Philanthropy encompasses those corporate actions that are in response to society's expectation that businesses be good corporate citizens. This includes actively engaging in acts or programs to promote human welfare or goodwill. Examples of philanthropy include business contributions of financial resources or executive time, such as contributions to the arts, health, education, or the community. As the CSR Pyramid illustrates, businesses have a primary economic responsibility to be profitable. Resting on this foundational responsibility are three additional responsibilities: the legal responsibility to obey the law, the ethical responsibility to do whats right and avoid harm, and the philanthropic responsibility to improve welfare of the society.

Approaches to Corporate Social Responsibility (CSR)

There are many approaches under CSR and three of them are regularly used by many people 1. American Approach-In America there is more emphasis on the philanthropic approach to CSR, where companies will make charitable donations to society or its representatives 2. European Approach-They consider the expectations of all stakeholders and they specially concentrate on wealth creation process which should enhance the competitiveness of the business and maximize the wealth created from both the business and society

Must Social Responsibility conflict with benefiting shareholders?

It may conflict with shareholders interest in several ways (Against CSR) 1.Firm may incur additional costs.Examples of these extra costs * paying staff more than the minimum wages set by market forces or legislation to avoid accusation of exploitation * Treating emissions & ways to reduce environmental pollution 2.May reduce revenue.Examples include * Charging lower prices for products to avoid being accuses of exploiting the consumer (e.g. Pharmaceutical products) * Not promoting a socially undesirable good to particular consumer groups (e.g. cigarettes or alcohol to the young) 3.Shareholders funds may be diverted to socially worthwhile projects This realtes to charitable donations by firms to the arts,relief of social need or sponsorship of national projects ( e.g: Dialog contribution to Api wenuwen Api fund).This money Could othervise be dividend perhaps 4.Management & Staff time may be wasted on social projects The management and staff are paid to run the business not to allocate time for social activities.

There are counter-arguments to suggest that social responsibility in business will improve shareholder returns (Favorable to CSR) 1. Essential to being a sustainable enterprise A sustainable enterprise is one whose competitive strategy does not fundamentally conflict with the long-term needs & values of society. Put simply, a non-sustainable enterprise is living on borrowed time & has no long-term future. It is in the interests of the shareholders that firms become sustainable if earning are to continue into the future. E.g: 1.Some writers questioned whether oil companies can be sustainable enterprise because their core business seems inevitably to lead to damage to the natural environment. These practices may be tolerated at present, the argument runs but must eventually be brought to an end by legislation and financial penalties prompted by the rising tide of public concern about environmental degradation. Oil companies are aware of this criticism & have responded by developing processes to clean up their act. Other industries which may need to address the issues of sustainability include: * Tobacco industry (cigarettes harm quality of life & may be lethal) E.g. in Srilanka they have plantations * Car industry (Pollution, accidents, Road Traffic) * Armaments industry (e.g. landmines are now close to being outlawed world wide) * Mining and quarrying industry (finite resources, destroys habitat, poor safety records) * Brewing & distilling industry (promote anti-social behavior & alcoholism) 2. Attracts socially conscious investors Ethical investment funds will be attracted to firms with a good social responsibility score. This will cause their shares to trade at a premium price. this represents direct price in shareholder wealth. 3. Attracts socially conscious consumers The consumer will pay a premium price for products thy regards as sound.Examples include ethical cosmetics,organic foods,recycled paper products & fair trade coffee 4. Improves relations with governments & other regulatory bodies Many firms depend on the goodwill of government bodies for the granting of product licencez,planning permission or convivial legislation. A good record in social responsibility may help convince decision-maker to use desecration in the firms favor 5. Reduce stress on management & staff & permits improve moral This arguments points to the management & staff of the firm are members of society too & have similar values. If business decisions force managers & staff to contradict their private ethics on the daily basis,impact will be to reduce moral & increase staff turnover.this will harm financial performance.A socially responsible firm,on the other hand, maybe able to attract these staff.