Strategic MNGT IMT-56

Strategic Planning
- Amit Saxena
Strategic Management Amit Saxena
What is Strategy

Is knowing the business you propose to carry out (Xenophon) Defines what a business is in or is to be and the kind of company it is or is to be (Andrews) Is a rule for making decisions (Ansoff) The way in which a corporation endeavors to differentiate itself positively from its competition (Ohmae) Ideas and actions to conceive and secure the future (Macmillan & Tampoe)
Strategic Management
Definition: Strategic management consists of the analysis, decisions, and actions an organization undertakes in order to create and sustain competitive advantages. Key attributes of strategic management Plan of Actions Directs the organization toward overall goals and objectives. Includes multiple stakeholders in decision making Helps to Overcome Uncertainties Needs to incorporate short-term and long-term perspectives Recognizes trade-offs between efficiency and effectiveness Assurance for a Better Tomorrow Provides a Platform for Balanced Development of the Organization
Strategic Decision
A decision may be identified as strategic if is

Rare : The Decisions are that one of the Many Consequential : The outcome of the decision requires Management Support and Commitment. The resulting actions require high investment in time and emotion Directive : These actions help the organization to meet its Goals and Objectives
The action helps the organization to develop specific Core Competencies which will help the organization to place itself favorably over the competition
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Organizations Env Context

Societal Environment Socio Cultural
Task Environment
Suppliers
Economic Forces
Customers Creditors
Internal
Employees
Structure Culture Resources Shareholders

Communities
Trade Associations
Government
Lolitical legal
Competitors
Technological Forces
Porters Five Forces Model of Industry Competition
Threat of new entrants Bargaining power of suppliers Bargaining power of buyers
Threat of Substitute products and services
Porters Generic Value Chain

FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT
I RG MA N
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
MA R GI N
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Strategic management is the study of why some firms outperform others
How to compete in order to create competitive advantages in the marketplace How to create competitive advantages in the market place

Unique and valuable Difficult for competitors to copy or substitute
What is Strategic Management

Other Definitions The process by which an organization determines its long-run direction and performance by ensuring that careful formulation, effective & efficient implementation, and continuous evaluation of strategy and performance takes place. Strategic Management integrates various organizational functions and processes (that are typically strategic in nature) into a cohesive, broader strategy. The boundaries between these various functions and processes are conceptual only, and it is through their interaction and interdependence that each is able to contribute to organizational improvements. Strategic Management, therefore, is the process that links the various other functions and strategic processes together in a dynamic and interactive manner - responsive to the organization's changing environment.
Strategic Management The Need
In today's highly competitive business environment, budget-oriented planning or forecast-based planning methods are insufficient for a large corporation to survive and prosper. The firm must engage in strategic planning that clearly defines objectives and assesses both the internal and external situation to formulate strategy, implement the strategy, evaluate the progress, and make adjustments as necessary to stay on track.
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Objectives of Firm

Profits Sustained Growth and Evolution Product

Quality Range Innovation Customer Customer Customer Customer
Market Leadership

base loyalty satisfaction service
Market Share Brand Image Values Contribution towards Society
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Stretegic Planning Process

Mission and Objectives Environmental Scanning Strategy Formulation Strategy Implementation Evaluation and Control
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Strategic Management - Concerns

Future The Long term dynamics and concern Growth Direction, extent, pace and timing of growth Environment Portfolios of Business Strategy Integration Creating Core Competencies / Competitive advantages Corporate Strategy
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Why Strategic Planning
It helps to define:

Strategic Planning helps a Firm to

Purpose and Mission of a Firm Corporate Objectives Choice of Business(s) How to achieve these Objectives
Chart a route map Provide a framework for systematic handling of corporate decisions Take decisions about the future Provide direction How growth could be achieved Ensures best utilization of firms resources among product-market opportunities Ensure that the firm remains a prepared organization Hedges the firm against uncertainty arising from environment turbulence Helps the firm to understand trends in advance and provides benefit of lead time for taking crucial decisions and actions
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Strategic Management Participants
Senior Executives and business managers in public sector organizations
They need to seek out opportunities for new ways of working that will help the organization to realize the agenda for change in the public sector They also need to be aware of the implications of realignment if the strategic direction is changed
Senior Management responsible for reviewing and redefining the requirements for delivery of core services, and for acquiring the means to deliver them Staff responsible for developing and reviewing the business strategy in their organizations
They need to appreciate the wider business context partners and other stakeholders affected by the strategy.
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Hierarchical Levels of Strategy
Strategy can be formulated on three different levels:

Corporate level Business unit level Functional or departmental level
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Corporate Level Strategies

Corporate level strategy fundamentally is concerned with the selection of businesses in which the company should compete and with the development and coordination of that portfolio of businesses. Corporate level strategy is concerned with

Reach defining the issues that are corporate responsibilities Competitive Contact defining where in the corporation the competition is to be localized Managing Activities and Business Interrelationships Management Practices how business units are governed i.e. Centralization vs. Decentralization
Corporations are responsible for creating value through their businesses. They do so by managing their portfolio of businesses, ensuring that the businesses are successful over the long-term, developing business units, and sometimes ensuring that each business is compatible with others in the portfolio.
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Business Unit Level Strategy
A strategic business unit may be a division, product line, or other profit center that can be planned independently from the other business units of the firm. At the business unit level, the strategic issues are less about the coordination of operating units and more about developing and sustaining a competitive advantage for the goods and services that are produced. At the business level, the strategy formulation phase deals with:

Michael Porter identified three generic strategies (cost leadership, differentiation, and focus) that can be implemented at the business unit level to create a competitive advantage and defend against the adverse effects of the five forces.
Positioning the business against rivals Anticipating changes in demand and technologies and adjusting the strategy to accommodate them Influencing the nature of competition through strategic actions such as vertical integration and through political actions such as lobbying.
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Functional Level Strategy
The Functional level of the organization is the level of the operating divisions and departments. The strategic issues at the functional level are related to business processes and the value chain. Functional level strategies in marketing, finance, operations, human resources, and R&D involve the development and coordination of resources through which business unit level strategies can be executed efficiently and effectively. Functional units of an organization are involved in higher level strategies by providing input into the business unit level and corporate level strategy, such as providing information on resources and capabilities on which the higher level strategies can be based. Once the higher-level strategy is developed, the functional units translate it into discrete action-plans that each department or division must accomplish for the strategy to succeed.
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Competitive Advantage

When a firm sustains profits that exceed the average for its industry, the firm is said to possess a competitive advantage over its rivals. The goal of much of business strategy is to achieve a sustainable competitive advantage. Michael Porter identified two basic types of competitive advantage:

Cost advantage Differentiation advantage
A competitive advantage exists when the firm is able to deliver the same benefits as competitors but at a lower cost (cost advantage), or deliver benefits that exceed those of competing products (differentiation advantage). Thus, a competitive advantage enables the firm to create superior value for its customers and superior profits for itself. Cost and differentiation advantages are known as positional advantages since they describe the firm's position in the industry as a leader in either cost or differentiation. A resource-based view emphasizes that a firm utilizes its resources and capabilities to create a competitive advantage that ultimately results in superior value creation.
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A Model of Competitive Advantage

Resources
Distinctive Competencies
Cost Advantage or Differentiation Advantage
Value Creation
Capabilities
To achieve a competitive advantage, the firm must perform one or more value creating activities in a way that creates more overall value than do competitors. Superior value is created through lower costs or superior benefits to the consumer (differentiation).
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Resources and Capabilities
According to the resource-based view, in order to develop a competitive advantage the firm must have resources and capabilities that are superior to those of its competitors. Without this superiority, the competitors simply could replicate what the firm was doing and any advantage quickly would disappear.
Resources are the firm-specific assets useful for creating a cost or differentiation advantage and that few competitors can acquire easily. Some examples of such resources

Patents and trademarks Proprietary know-how Installed customer base Reputation of the firm Brand equity
Capabilities refer to the firm's ability to utilize its resources effectively. An example of a capability is the ability to bring a product to market faster than competitors. Such capabilities are embedded in the routines of the organization and are not easily documented as procedures and thus are difficult for competitors to replicate. The firm's resources and capabilities together form its distinctive competencies. These competencies enable innovation, efficiency, quality, and customer responsiveness, all of which can be leveraged to create a cost advantage or a differentiation advantage.
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Cost Advantage and Differentiation Advantage
Competitive advantage is created by using resources and capabilities to achieve either a lower cost structure or a differentiated product. A firm positions itself in its industry through its choice of low cost or differentiation. This decision is a central component of the firm's competitive strategy. Another important decision is how broad or narrow a market segment to target. Porter formed a matrix using cost advantage, differentiation advantage, and a broad or narrow focus to identify a set of generic strategies that the firm can pursue to create and sustain a competitive advantage. The firm creates value by performing a series of activities that Porter identified as the value chain. In addition to the firm's own value-creating activities, the firm operates in a value system of vertical activities including those of upstream Capabilities operates in a value system of vertical activities including those of upstream suppliers and downstream channel members. To achieve a competitive advantage, the firm must perform one or more value creating activities in a way that creates more overall value than do competitors. Superior value is created through lower costs or superior benefits to the consumer (differentiation).
Value Creation
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Organization Analysis
Tools for Organization Analysis

SWOT SAP ETOP OCP
Analysis Strategic Advantage profile Environment Threat & Opportunity profile Organisational Capability profile.
Faculties for Analysis

Finance Marketing Operations Personnel General Management Customer groups who is being satisfied Customer functions what is being satisfied Alternative technologies how the need is being satisfied Defining Business Choice of objectives Strategic Alternatives Functional policy implementation Formulate Organisational Structure
Derek F.Abell : Defined Business along three dimensions

Helps in :

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Competitive advantage factors & sources of Competitive advantage
In Marketing
Marketing standing Market share Innovation in marketing Customer satisfaction level Customer service level New product leadership Price leadership Channel strength Marketing communications strength Advertising effectiveness Strength of personal selling/ sales force productivity Market research capability Marketing organisation Marketing costs Product-mix & product lines Product-wise position in
Profitability Product quality Stage of the product in the life cycle Product design Products sophistication/ technological strength Differentiation Positioning Brand power Quality of the marketing capability in toto
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In Finance
Assets Liquidity Leverage Gearing Cash flow Cost of capital Profitability Costs Quality of financial management Knowledge and dynamism in tax planning
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In Manufacturing / Operations
Size or capability of production Locational advantage Production facilities Capacity utilisation Raw materials- their cost, quality and delivery Maintenance Cost of production Break-even position Productivity Inventory management Value engineering capability Experience curve benefit Flexibility Automation
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In Research and Development

Nature, depth and quality of R&D capability Resource allocation to R&D Quality, expertise and experience of R&D personnel Speed of R&D Engineering capability for pursuing R&D suggestions Record of patents generated Comparisons of R&D investment vs new products launched
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In Human Resources
Quality, knowledge, expertise and experience of personnel Morale and motivation of personnel Personnel turnover Labour costs Industrial relations
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In Corporate Factors and Overall Resources

Company size Corporate image Quality of management in general The CEO Board of Directors: dummies or policy makers? Corporate performance record Innovation record Quality of strategic planning Organisational culture Organisational structure Use of information technology - extent of use and degree of sophistication.
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SWOT Analysis
A scan of the internal and external environment is an important part of the strategic planning process. Environmental factors internal to the firm usually can be classified as strengths (S) or weaknesses (W), and those external to the firm can be classified as opportunities (O) or threats (T). Such an analysis of the strategic environment is referred to as a SWOT analysis. The SWOT analysis provides information that is helpful in matching the firm's resources and capabilities to the competitive environment in which it operates. As such, it is instrumental in strategy formulation and selection
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SWOT Analysis Framework

Environmental Scan / \ Internal Analysis External Analysis / \ / \ Strengths Weaknesses Opportunities Threats | SWOT Matrix
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SWOT Analysis
Strengths
A firm's strengths are its resources and capabilities that can be used as a basis for developing a competitive advantage. Examples of such strengths include

Patents Strong brand names Good reputation among customers Cost advantages from proprietary know-how Exclusive access to high grade natural resources Favorable access to distribution networks
Weaknesses
The absence of certain strengths may be viewed as a weakness. For example, each of the following may be considered weaknesses

Lack of patent protection A weak brand name Poor reputation among customers High cost structure Lack of access to the best natural resources Lack of access to key distribution channels
In some cases, a weakness may be the flip side of a strength. Take the case in which a firm has a large amount of manufacturing capacity. While this capacity may be considered a strength that competitors do not share, it also may be a considered a weakness if the large investment in manufacturing capacity prevents the firm from reacting quickly to changes in the strategic environment increased trade barriers
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SWOT Analysis
Opportunities
The external environmental analysis may reveal certain new opportunities for profit and growth. Some examples of such opportunities include

An unfulfilled customer need Arrival of new technologies Loosening of regulations Removal of international trade barriers
Threats
Changes in the external environmental also may present threats to the firm. Some examples of such threats include

Shifts in consumer tastes away from the firm's products Emergence of substitute products New regulations Increased trade barriers
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SWOT / TOWS Matrix

Strengths Opportunities Threats
Weakness W-O Strategy W-T Strategy
S-O Strategy S-T Strategy
S-O strategies pursue opportunities that are a good fit to the companies strengths. W-O strategies overcome weaknesses to pursue opportunities. S-T strategies identify ways that the firm can use its strengths to reduce its vulnerability to external threats. W-T strategies establish a defensive plan to prevent the firm's weaknesses from making it highly susceptible to external threats
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Strategic Alternatives for a Firm
Strategic alternatives revolve around the question of whether to continue or change business the enterprise is currently in or improve the efficiency and effectiveness with which the firm achieves its corporate objectives in its chosen business sector. Gluecks Grand strategies

Stability Expansion Retrenchment Combination

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Grand Strategies
Stability Strategy : Incremental improvement of functional performance

Special service to a customer like packaging. Copier company gives better after sales service Steel company modernises its plant for efficiency and productivity. Chocolate company - old aged added to children and teenagers. Printing press changes from letter press printing to desktop publishing etc.
Expansion Strategy: Substantially broadens its scope in order to improve its performance

Retrenchment Strategy: Substantially reduce its scope in order to improve its performance

Pharmaceutical firm pulls out retail selling to institutional selling. Hospital focuses on speciality treatment.
Combination Strategy: A combination of Stability, Expansion & Retrenchment either at the same time in different businesses or at different times in the same businesses with a view of improving its performance.
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Other Strategies

Modernisation Strategies Diversification & Integration Strategies Vertical integration

Backward - moving towards raw materials Forward - moving nearer the customer
Horizontal integration : takeover of a competitor or moving to a new geographical region - merger/ acquisition Concentric diversification:

Marketing tech. related : rubber into raincoat/ shoes, gloves etc. Technology : leasing firm offices hire purchase. Market related - sewing machine to kitchen ware (Singer).
Mergers Takeovers Joint Ventures. Turnaround Divestment Liquidation strategies Combination strategies
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Horizontal Integration
The acquisition of additional business activities at the same level of the value chain is referred to as horizontal integration. This form of expansion contrasts with vertical integration by which the firm expands into upstream or downstream activities. Horizontal growth can be achieved by internal expansion or by external expansion through mergers and acquisitions of firms offering similar products and services. A firm may diversify by growing horizontally into unrelated businesses. Some examples of horizontal integration include:

The Standard Oil Company's acquisition of 40 refineries. An automobile manufacturer's acquisition of a sport utility vehicle manufacturer. A media company's ownership of radio, television, newspapers, books, and magazines. HP COMPAQ Merger (25 Billion US$) Microsoft Acquiring Lookout
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Horizontal Integration
Advantages of Horizontal Integration

The following are some benefits sought by firms that horizontally integrate: Economies of scale - achieved by selling more of the same product, for example, by geographic expansion. Economies of scope - achieved by sharing resources common to different products. Commonly referred to as "synergies." Increased market power (over suppliers and downstream channel members) Reduction in the cost of international trade by operating factories in foreign markets Horizontal integration by acquisition of a competitor will increase a firm's market share. However, if the industry concentration increases significantly then anti-trust issues may arise. Aside from legal issues, another concern is whether the anticipated economic gains will materialize. Before expanding the scope of the firm through horizontal integration, management should be sure that the imagined benefits are real. Finally, even when the potential benefits of horizontal integration exist, they do not materialize spontaneously. There must be an explicit horizontal strategy in place. Such strategies generally do not arise from the bottom-up, but rather, must be formulated by corporate management
Disadvantages of Horizontal Integration
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Vertical Integration
The degree to which a firm owns its upstream suppliers and its downstream buyers is referred to as Vertical Integration. Because it can have a significant impact on a business unit's position in its industry with respect to cost, differentiation, and other strategic issues, the vertical scope of the firm is an important consideration in corporate strategy. Expansion of activities downstream is referred to as forward integration, and expansion upstream is referred to as backward integration Two issues that should be considered when deciding whether to vertically integrate is cost and control.
The cost aspect depends on the cost of market transactions between firms versus the cost of administering the same activities internally within a single firm. The second issue is the impact of asset control, which can impact barriers to entry and which can assure cooperation of key valueadding players.
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Vertical IntegrationAdvantages

Reduce transportation costs if common ownership results in closer geographic proximity. Improve supply chain coordination. Provide more opportunities to differentiate by means of increased control over inputs. Capture upstream or downstream profit margins. Increase entry barriers to potential competitors, for example, if the firm can gain sole access to a scarce resource. Gain access to downstream distribution channels that otherwise would be inaccessible. Facilitate investment in highly specialized assets in which upstream or downstream players may be reluctant to invest. Lead to expansion of core competencies.
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Vertical Integration-Disadvantages
Capacity balancing issues. For example, the firm may need to build excess upstream capacity to ensure that its downstream operations have sufficient supply under all demand conditions. Potentially higher costs due to low efficiencies resulting from lack of supplier competition. Decreased flexibility due to previous upstream or downstream investments. (Note however, that flexibility to coordinate vertically-related activities may increase.) Decreased ability to increase product variety if significant in-house development is required. Developing new core competencies may compromise existing competencies. Increased bureaucratic costs.
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BCG Matrix
Companies that are large enough to be organized into strategic business units face the challenge of allocating resources among those units. In the early 1970's the Boston Consulting Group developed a model for managing a portfolio of different business units (or major product lines). The BCG growth-share matrix displays the various business units on a graph of the market growth rate vs. market share relative to competitors
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BCG Matrix

Cash Cow - a business unit that has a large market share in a mature, slow growing industry. Cash cows require little investment and generate cash that can be used to invest in other business units. Star - a business unit that has a large market share in a fast growing industry. Stars may generate cash, but because the market is growing rapidly they require investment to maintain their lead. If successful, a star will become a cash cow when its industry matures. Question Mark (or Problem Child) - a business unit that has a small market share in a high growth market. These business units require resources to grow market share, but whether they will succeed and become stars is unknown. Dog - a business unit that has a small market share in a mature industry. A dog may not require substantial cash, but it ties up capital that could better be deployed elsewhere. Unless a dog has some other strategic purpose, it should be liquidated if there is little prospect for it to gain market share.
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Business Vision and Company Mission
While a business must continually adapt to its competitive environment, there are certain core ideals that remain relatively steady and provide guidance in the process of strategic decisionmaking. These unchanging ideals form the business vision and are expressed in the company mission statement. Essentials of a Mission / Vision

It It It It It It
should should should should should should
be feasible be precise be clear be motivating indicate major components of strategy. indicate how objectives are to be accomplished.
The mission statement communicates the firm's core ideology and visionary goals, generally consisting of the following three components:

Core values to which the firm is committed Core purpose of the firm Visionary goals the firm will pursue to fulfill its mission
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Mission
Core Values
The core values are a few values (no more than five or so) that are central to the firm. Core values reflect the deeply held values of the organization and are independent of the current industry environment and management fads

excellent customer service pioneering technology creativity integrity social responsibility
Core Purpose
The core purpose is the reason that the firm exists.
This core purpose is expressed in a carefully formulated mission statement. Like the core values, the core purpose is relatively unchanging and for many firms endures for decades or even centuries. This purpose sets the firm apart from other firms in its industry and sets the direction in which the firm will proceed
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Vision
The visionary goals are the lofty objectives that the firm's management decides to pursue. This vision describes some milestone that the firm will reach in the future and may require a decade or more to acheive. In contrast to the core ideology that the firm discovers, visionary goals are selected. These visionary goals are longer term and more challenging than strategic or tactical goals. There may be only a 50% chance of realizing the vision, but the firm must believe that it can do so. Most Visionary Goals fall into one of the following

Target - quantitative or qualitative goals such as a sales target or Ford's goal to "democratize the automobile." Common enemy - centered on overtaking a specific firm such as the 1950's goal of Philip-Morris to displace RJR. Role model - to become like another firm in a different industry or market. For example, a cycling accessories firm might strive to become "the Nike of the cycling industry." Internal transformation - especially appropriate for very large corporations. For example, GE set the goal of becoming number one or number two in every market it serves.
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Objectives
Role of Objectives

They help an organisation peruse its mission & purpose They provide the basis for strategic decisions making They provide standards for performance appraisal Understandable Concrete & Specific Related to a time frame. Measurable and controllable Challenging Correlate to each other Set within constraints ROI Shareholder return and value Capital & net profit Increase in sales volume Reduction in costs Improve customer services Output, sales turnover, investment Industrial relations, welfare & development Community service, rural development, family & employee welfare. 49
Characteristics of Objectives

Objectives cover areas like:

Vision, Mission, Goals and Objectives
Vision

Objectives

Expression of growth ambition of a firm Future visualised What a firm wants to become - long term Dream crystallised Grand design of the firms future Common aspiration Represents thrust of a firm Inspires the employees Explains the firms existence & role in society Firms values & beliefs

Specific short-and medium term quantities targets eg. achieve 40% growth, Increase productivity by 7% Qualitative intentions eg. Improve product development capabilities etc.
Goals

Mission

What it stands for Qualities it will cherish What it will give & expect from society
It is abstract It is not time bound It is unique & personal to a firm
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Credo of Johnson and Johnson

We believe our first responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who use our products and services. In meeting their needs everything we do must be of high quality. We must constantly strive to reduce our costs in order to maintain reasonable prices. Customers' orders must be serviced promptly and accurately. Our suppliers and distributors must have an opportunity to make a fair profit. We are responsible to our employees, the men and women who work with us throughout the world. Everyone must be considered as an individual. We must respect their dignity and recognize their merit. They must have a sense of security in their jobs. Compensation must be fair and adequate, and working conditions clean, orderly and safe. We must be mindful of ways to help our employees fulfill their family responsibilities. Employees must feel free to make suggestions and complaints. There must be equal opportunity for employment, development and advancement for those qualified. We must provide competent management, and their actions must be just and ethical. We are responsible to the communities in which we live and work and to the world community as well. We must be good citizens support good works and charities and bear our fair share of taxes. We must encourage civic improvements and better health and education. We must maintain in good order the property we are privileged to use, protecting the environment and natural resources. Our final responsibility is to our stockholders. Business must make a sound profit. We must experiment with new ideas. Research must be carried on, innovative programs developed and mistakes paid for. New equipment must be purchased, new facilities provided and new products launched. Reserves must be created to provide for adverse times. When we operate according to these principles, the stockholders should realize a fair return. Strategic Management Amit Saxena
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Role of Corporate Governance
Shareholders
Corporate governance
Relationship among

Man agem Management (led e by C nt (led by CEO) EO)
The shareholders The management (led by the Chief Executive Officer) The board of directors
Issue is
How corporation s can succeed (or fail) in aligning managerial motives with

Board of Directors
the interests of the shareholders The interests of the board of directors

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Separation of Owners (Shareholders) and Management
Shareholders (investors)

Shareholders
Management (led by CEO)
Limited liability Participate in the profits of the enterprise Limited involvement in the companys affairs
Management
Run the company Does not personally have to provide the funds
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Separation of Owners (Shareholders) and Management
Board of directors

Shareholders
Elected by shareholders Fiduciary obligation to protect shareholder interests
Management (led by CEO)
Board of Directors
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Agency Theory: Two Problems
Goals of principals and agents may conflict
Difficulty or expensive for the principal to verify what the agent is actually doing
Hard for board of directors to confirm that managers are actually acting in shareholders interests Managers may opportunistically pursue their own interests
Principal and agent may have different attitudes and preferences toward risk
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Governance Mechanisms: Aligning the Interests of Owners and Managers
Two primary means of monitoring behavior of managers
Committed and involved board of directors

Active, critical participants in setting strategies Evaluate managers against high performance standards Take control of succession process Director independence Right to sell stock Right to vote the proxy Right to sue for damages if directors or managers fail to meet their obligations Right to information from the company Residual rights following companys liquidation
Shareholder activism

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Governance Mechanisms: Aligning the Interests of Owners and Managers
Managerial incentives (contract-based outcomes)
Reward and compensation agreements (from TIAACREF)
Align rewards of all employees (including rank and file as well as executives) to the long-term performance of the corporation Allow creation of executive wealth that is reasonable in view of the creation of shareholder wealth Measurable and predictable outcomes that are directly linked to the companys performance Market oriented Easy to understand by investors and employees Fully disclosed to investing public and approved by shareholders
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External Governance Control Mechanisms

Market for corporate control Auditors Banks and analysts Regulatory bodies (Sarbanes-Oxley Act in 2002) Media and public activists
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Major Provisions of Sarbanes-Oxley Act
Auditors

Barred from certain types of nonaudit work Not allowed to destroy records for five years Lead partners auditing a firm should be changed at least every five years Must fully reveal off-balance sheet finances Vouch for the accuracy of information revealed Must promptly reveal the sale of shares in firms they manage Are not allowed to sell shares when other employees cannot
CEOs and CFOs

Executives

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Strategic Leadership
The process of providing the direction and inspiration necessary to create and implement a vision, mission, and strategies to achieve and sustain organizational objectives The purpose of strategic leadership is to effectively implement and guide the process of strategic management
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Strategic Leadership
Strategic leadership involves:
The ability to anticipate, envision, maintain flexibility and empower others to create strategic change Multi-functional work that involves working through others Consideration of the entire enterprise rather than just a sub-unit A managerial frame of reference
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Strategic Leadership and the Strategic Management Process

Effective Strategic Leadership
shapes the formulation of
Strategic Intent
Strategic Mission
and influence
Successful Strategic Actions
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Strategic Leadership and the Strategic Management Process

Successful Strategic Actions
Formulation of Strategies yields
Implementation of Strategies
Strategic Competitiveness Above-Average Returns
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Exercise of Effective Strategic Leadership

Establishing balanced organizational controls Determining strategic direction Exploiting and maintaining core competencies
Effective Strategic Leadership Emphasizing ethical practice Developing human capital
Sustaining an effective organizational culture

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Emphasizing Ethical Practices

Ethical practices increase the effectiveness of strategy implementation processes Ethical companies encourage and enable people at all organizational levels to exercise ethical judgment To properly influence employee judgment and behavior, ethical practices must shape the firms decision-making process and be an integral part of an organizations culture Leaders set the tone for creating an environment of mutual respect, honesty and ethical practices among employees
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Developing Human Capital

Human capital refers to the knowledge and skills of the firms entire workforce Employees are viewed as a capital resource that requires investment No strategy can be effective unless the firm is able to develop and retain good people to carry it out The effective development and management of the firms human capital may be the primary determinant of a firms ability to formulate and implement strategies successfully
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Sustaining an Effective Organizational Culture
An organizational culture consists of a complex set of ideologies, symbols, and core values that is shared throughout the firm and influences the way it conducts business Shaping the firms culture is a central task of effective strategic leadership An appropriate organizational culture encourages the development of an entrepreneurial orientation among employees and an ability to change the culture as necessary Reengineering can facilitate this process
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Establishing Balanced Organizational Controls
Organizational controls provide the parameters within which strategies are to be implemented and corrective actions taken Financial controls are often emphasized in large corporations and focus on short-term financial outcomes Strategic control focuses on the content of strategic actions, rather than their outcomes Successful strategic leaders balance strategic control and financial control (they do not eliminate financial control) with the intent of achieving more positive long-term returns
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Strategic and Financial Controls in a Balanced Scorecard Framework Perspectives

Financial
Criteria
Cash flow Return on equity Return on assets Assessment of ability to anticipate customers needs Effectiveness of customer service practices Percentage of repeat business Quality of communications with customers
Customer
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Strategic and Financial Controls in a Balanced Scorecard Framework Perspectives

Internal Business Process
Criteria
Asset utilization improvements Improvements in employee morale Changes in turnover rates Improvements in innovation ability Number of new products compared to competitors Increases in employees skills
Learning and Growth
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Generic Strategies and Industry Forces

Cost
Entry Barriers
Differentiation
Focus
Ability to Cut Prices deters Customer Loyalty can Focusing Develops core potential entrants discourage potential entrants competencies that can act as Entry Barrier Ability to offer lower Large Buyers have less power Large buyers have less power to prices to powerful buyers to negotiate because of few negotiate because of few close alternatives alternatives Better able to pass on Supplier price increases to Customers Supplier have power because of low Volume, but differentiation focused firms have better ability to pass on supplier price increase
Buyers Power
Supplier Power Better Insulated from powerful suppliers
Threat of Substitutes
Can use low price to Customer become attached to Specialized products & core defend against substitutes differentiating attributes, competency protect against reducing threat of substitutes substitutes Better able to compete on Brand Loyalty to keep price Customer from Rivals Rivals cannot meet differentiation focused Customer needs
Rivalry
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Strategic Planning

Strategic Management Amit Saxena

Strategic Management Amit Saxena

A decision may be identified as strategic if is

Strategic Management Amit Saxena

Organizations Env Context

Structure Culture Resources Shareholders

Strategic Management Amit Saxena

Porters Five Forces Model of Industry Competition

Threat of new entrants Bargaining power of suppliers Bargaining power of buyers

Threat of Substitute products and services

Strategic Management Amit Saxena

Porters Generic Value Chain

Marketing & Sales

Strategic Management Amit Saxena

Strategic management is the study of why some firms outperform others

Unique and valuable Difficult for competitors to copy or substitute

Strategic Management Amit Saxena

What is Strategic Management

Strategic Management Amit Saxena

Strategic Management The Need

Profits Sustained Growth and Evolution Product

Quality Range Innovation Customer Customer Customer Customer

base loyalty satisfaction service

Market Share Brand Image Values Contribution towards Society

Strategic Management Amit Saxena

Stretegic Planning Process

Strategic Management - Concerns

Why Strategic Planning

Strategic Planning helps a Firm to

Strategic Management Participants

Senior Executives and business managers in public sector organizations

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Hierarchical Levels of Strategy

Strategy can be formulated on three different levels:

Corporate level Business unit level Functional or departmental level

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Corporate Level Strategies

Strategic Management Amit Saxena

Business Unit Level Strategy

Functional Level Strategy

Strategic Management Amit Saxena

Cost advantage Differentiation advantage

Strategic Management Amit Saxena

A Model of Competitive Advantage

Cost Advantage or Differentiation Advantage

Resources and Capabilities

Strategic Management Amit Saxena

Cost Advantage and Differentiation Advantage

Strategic Management Amit Saxena

Tools for Organization Analysis

SWOT SAP ETOP OCP

Faculties for Analysis

Derek F.Abell : Defined Business along three dimensions

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Competitive advantage factors & sources of Competitive advantage

Strategic Management Amit Saxena

Competitive advantage factors & sources of Competitive advantage

Competitive advantage factors & sources of Competitive advantage

Strategic Management Amit Saxena

Competitive advantage factors & sources of Competitive advantage

In Research and Development