1-1

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

1-2
 1-5
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
 Strategy
 An overall plan of a firm displaying its
resources to achieve favorable position
and compete successfully against its
rivals.
 As per BCG ‘Strategy is a deliberate
search for a plan of action that will
develop a firm’s competitive advantage
and compound it over the time.
Strategic, Tactical/Intermediate and Operational
Planning
Strategic Management/Strategic Planning is the process of
determining the major objectives of an organization and the
policies and strategies that will govern the acquisition, use and
disposition of resources to achieve those objectives
 Strategic plans are designed with the entire organization in mind
and begin with an organization's Vision and mission.
 Top-level managers, such as CEOs or presidents, designs and
execute strategic plans to paint a picture of the desired future and
long-term goals of the organization.
 Essentially, strategic plans look ahead to where the organization
wants to be in three, five, even ten years. Strategic plans, provided
by top-level managers, serve as the framework for lower-level
planning.
 Contd.

 Tactical plans support strategic plans by

translating them into specific plans
relevant to a distinct area of the
organization.
 Tactical plans are concerned with the
responsibility and functionality of lower-
level departments to fulfill their parts of
the strategic plan.
 Contd.

 Operational Plans are the plans that are

made by frontline, or low-level, managers.
All operational plans are focused on the
specific procedures and processes that
occur within the lowest levels of the
organization.
 Managers must plan the routine tasks of
the department using a high level of
detail.
 Levels of Strategic Planning
 Corporate Level Strategic Planning: Planning at this level should
provide overall strategic direction for an organization, sometimes referred
to as the “grand strategy.”
 This is a concise statement of the general direction which senior
leadership intends to undertake to accomplish their stated mission or
vision. Corporate level strategy is usually decided by the CEO and the
Board of Directors although other senior leaders will often contribute to the
strategy formulation.
 Strategic options at the corporate level will likely require a commitment of
a significant portion of the firm’s resources over an extended period, and
the results will have a significant impact on the future health of the
organization.
 Strategic planning at this level will usually include a robust analysis and
identification of several strategic options based on the assumed future
operating environment. In a multi-business firm, careful consideration will
be given to the overall core competencies of the firm and where the
boundaries lie between corporate and business level responsibilities.
 Contd..
 Business Level Strategic Planning: Each
business within an organization will develop a
strategy to support the overall business within
its specific industry.
Business level strategy reflects the current
position of the firm within its industry, and
identifies how the available resources can be
applied to improve the position of the firm in
relation to its competitors.
 Contd.
 Functional Level Strategic Planning: Functional level describes
support functions of a business: Finance, Marketing,
Manufacturing, and Human Resources are a few examples of the
functional level. Strategies at this level should be defined to
support the overall business and corporate level strategies.
 If the functional level leaders can describe their activities and goals
in relation to the business or corporate levels, then everyone in the
organization will be aligned and as such contribute to the overall
goals and objectives for the organization.
 So for example, functional leaders for IT or HR must ask if the
strategies for their functions match and support the overall
strategic direction of the businesses they support or of the overall
firm itself.
Main Models of Developing Strategies

 Industrial Organization (I/O) Model

 Resource Based View Model
 Approaches to Strategy
 Design Approach: In 1960s, Alfred
Chandler proposed that structure follows
strategy.
 The strategy chosen by the manager is
the primary explanatory variable for
organizational structure in all the cases.
 Approaches to Strategy
 Analytical Approach: Igor Ansoff (1965)
proposed that strategy can be divided into
certain inter related, complementary
components aimed at managing growth
through diversification.
Ansoff believed that strategy can be
examined from the following angles:
 Corporate Level
 Business Level
 Functional Level
 Institutional Level: How to manage relationships in an ever changing
dynamic world.
 Approaches to Strategy
 Positioning Approach: This approach was
identified by Michael Porter in 1970s.
 Porter proposed that a firm’s profitability is
dependent on 5 important forces; Supplier
power, buyer power threat from new entrants,
threat from substitutes and intensity of rivalry
among within an industry.
 He stated that goal of an organization must be
to find a position in the industry from which it
can best defend itself against the competitors
or can influence them to its advantage.
 Porter’s Generic strategies

 Porter Suggested 3 strategies to gain

competitive advantage:
 Overall Cost Leadership
 Differentiation
 Focus
Strategic Management
 Defining Strategic Management

 Strategic management
 the art and science of formulating,
implementing, and evaluating cross-
functional decisions that enable an
organization to achieve its objectives
 Defining Strategic Management

 Strategic management is used

synonymously with the term strategic
planning.
 Sometimes the term strategic
management is used to refer to strategy
formulation, implementation, and
evaluation, with strategic planning
referring only to strategy formulation.
 Defining Strategic Management

 A strategic plan is a company’s game

plan.
 A strategic plan results from tough
managerial choices among numerous
good alternatives, and it signals
commitment to specific markets, policies,
procedures, and operations.
Stages of Strategic Management

Establish Strategy
ment of Strategy
Analysis Strategy
Strategic and Choice/ Implementa Evaluation
Formulation tion
Intent
 Strategic Intent
 Strategic Intent is a management notion that is elucidated by
theorists Hamel and Parahalad as: an ambitious and compelling
dream that energizes; which provides the emotional and
intellectual energy for the journey to the future.
 Strategic intent gives direction, focus and motivation for the whole
organization. Additionally, it has imperative role as an organizing
concept in the firm's architectural and organizational progress.
 If strategic intent is the organizational and motivational power in
the organization, core competencies are the foundation.
 Though instant success is the result of market recognition of
current product or service offerings, future success depends upon
the capability to foresee market possibilities, customer needs and
the skills necessary to develop the organizational capabilities and
future successful products.
Stages of Strategic Management
There are three major attributes of Strategic
Intent:
 Sense of Direction,
 Sense of Discovery
 Sense of Destiny.
Stages of Strategic Management

 Strategy Analysis and Choice

 Includes identifying an organization’s
external opportunities and threats,
determining internal strengths and
weaknesses, establishing long-term
objectives, generating alternative strategies,
and choosing particular strategies to pursue.
 Six Selection Criteria

 Consistency
 Suitability
 Validity
 Feasibility
 Business Risk
 Stakeholder Attractiveness
 Strategy Formulation

 Deciding what new businesses to enter,

 What businesses to abandon,
 How to allocate resources,
 Whether to expand operations or
diversify,
 Whether to enter international markets,
 Whether to merge or form a joint venture,
 How to avoid a hostile takeover.
Stages of Strategic Management

 Strategy implementation
 Requires a firm to establish annual
objectives, devise policies, motivate
employees, and allocate resources so that
formulated strategies can be executed
 Often called the action stage
 Stages of Strategic Management
 Strategy evaluation
 Reviewing external and internal factors that
are the bases for current strategies,
measuring performance, and taking
corrective actions
Stages of Strategic Management

 Strategy formulation, implementation, and

evaluation activities occur at three
hierarchical levels in a large organization:
corporate, divisional or strategic business
unit (SBU), and functional.
 Strategic management helps a firm
function as a competitive team
 Integrating Intuition and Analysis

 Most organizations can benefit from

strategic management, which is based
upon integrating intuition and analysis in
decision making
 Intuition is particularly useful for making
decisions in situations of great uncertainty
or little precedent
Key Terms in Strategic Management

 Competitive  Strategists
advantage  The individuals
 Anything that a who are most
firm does responsible for the
especially well success or failure
compared to rival of an organization
firms
Key Terms in Strategic Management

 Vision statement
 Answers the question “What does the
company want to become?”
 Often considered the first step in strategic
planning
Key Terms in Strategic Management

 Mission statements
 Enduring statements of purpose that
distinguish one business from other similar
firms
 Identifies the scope of a firm’s operations in
product and market terms
 Addresses the basic question that faces all
strategists: “What is our business?”
Key Terms in Strategic Management

 External opportunities and external

threats
 Refers to economic, social, cultural,
demographic, environmental, political, legal,
governmental, technological, and competitive
trends and events that could significantly
benefit or harm an organization in the future
Key Terms in Strategic Management

 Internal strengths and internal

weaknesses
 An organization’s controllable activities that
are performed especially well or poorly
 Determined relative to competitors
Key Terms in Strategic Management

 Objectives
 Specific results that an organization seeks to
achieve in pursuing its mission
 Should be challenging, measurable,
consistent, reasonable, and clear.
Key Terms in Strategic Management

 Strategies
 The means by which long-term objectives will
be achieved
 May include geographic expansion,
diversification, acquisition, product
development, market pénétration,
retrenchment, disinvestment, liquidation, and
joint venture etc.
Key Terms in Strategic Management

 Annual objectives
 Short-term milestones that organizations
must achieve to reach long-term objectives
 Should be SMART: Specific, Measurable,
Achievable, Realistic, Time based
 Should be established at the corporate,
divisional, and functional levels in a large
organization
Key Terms in Strategic Management

 Policies
 The means by which annual objectives will
be achieved
 Include guidelines, rules, and procedures
established to support efforts to achieve
stated objectives
 Guides to decision making and address
repetitive or recurring situations
 Strategic Management Model

 Purposes of Strategic Management

Model:
 Core Competencies
 Synergy
 Value Creation
 The Strategic-Management Model

Where are we now?

Where do we want to go?

How are we going to get there?

A Comprehensive Strategic-Management Model
Strategic Management Process
Benefits of Strategic Management

 Historically, the principal benefit of

strategic management has been to help
organizations formulate better strategies
through the use of a more systematic,
logical, and rational approach to strategic
choice
 Financial Benefits
 Businesses using strategic-management
concepts show significant improvement in
sales, profitability, and productivity
compared to firms without systematic
planning activities
 High-performing firms seem to make more
informed decisions with good anticipation of
both short- and long-term consequences
 Non-financial Benefits

 It allows for identification, prioritization,

and exploitation of opportunities.
 It provides an objective view of
management problems.
 It represents a framework for improved
coordination and control of activities.
 It minimizes the effects of adverse
conditions and changes.
 Non-financial Benefits

 It allows major decisions to better support

established objectives.
 It allows more effective allocation of time
and resources to identified opportunities.
 It allows fewer resources and less time to be
devoted to correcting erroneous or ad hoc
decisions.
 It creates a framework for internal
communication among personnel.
 Why Some Firms Do No Strategic Planning

 Lack of knowledge in strategic planning

 Poor reward structures
 Firefighting
 Waste of time
 Too expensive
 Laziness
 Content with success
 Why Some Firms Do No Strategic Planning

 Fear of failure
 Overconfidence
 Prior bad experience
 Self-interest
 Fear of the unknown
 Honest difference of opinion
 Suspicion
 Pitfalls in Strategic Planning
 Using strategic planning to gain control over
decisions and resources
 Doing strategic planning only to satisfy
accreditation or regulatory requirements
 Too hastily moving from mission development
to strategy formulation
 Failing to communicate the plan to employees,
who continue working in the dark
 Top managers making many intuitive decisions
that conflict with the formal plan
 Pitfalls in Strategic Planning

 Top managers not actively supporting the

strategic-planning process
 Failing to use plans as a standard for
measuring performance
 Delegating planning to a “planner” rather than
involving all managers
 Failing to involve key employees in all phases
of planning
 Failing to create a collaborative climate
supportive of change
Guidelines for Effective Strategic Management
 Sources

2013 Pearson Education, Inc. publishing as Prentice Hall

Strategic Management; VSP Rao