STRATEGIC MANAGEMENT

At the end of this module the learning outcomes are What is Strategic Management? Scope of Strategic Management Why Organizations focus on strategic planning?

STRATEGIC MANAGEMENT
SUGGESTED READINGS 1.Strategic Management by Pearce & Robinson, 3rd Edition Chapter 1 2. Exploring Corporate Strategy by Johnson & Scholes, Chapter 1.

STRATEGIC MANAGEMENT
Bharti Enterprises Telecom market Second largest market of the world Highly competitive Low ARPU Severe competition
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Bharti Enterprises Market leader Started by Sunil Mittal In 1995 Started from Delhi Circle First-generation entrepreneur From Punjab
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STRATEGIC MANAGEMENT
Bharti Enterprises Once got the license Created ambitious plans Make Bharti as globally admired telecommunication company Created a team of professionals Responsible for day to day management Three SBUs

STRATEGIC MANAGEMENT
Bharti Enterprises Each SBU headed by President Functional heads report to President Corporate office Focuses on new initiatives/opportunities Subsequently entered into retailing and financial services
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Bharti Enterprises Where it stands now Leader in mobile services in India Entered African market Collaboration with Zain Collaborated with Wal-Mart for retailing/wholesaling. Aiming to be leader in retailing

STRATEGIC MANAGEMENT
Bharti Enterprises What do we observe An element of planning Long-term How businesses will grow Leadership and vision of Mr Sunil Mittal A process of Strategic Management
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STRATEGIC MANAGEMENT
WHAT DO YOU THINK? Should Bajaj Auto diversify into cars business ITC bidding for Indian Airlines ITC entry into garment retailing HLLs foray into food business Anchor (Switch maker) into toothpaste Nestle into mineral water
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STRATEGIC MANAGEMENT
ORGANIZATION FACE Dynamic Environment Global competition Increasingly discerning customers How should organization cope?

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STRATEGIC MANAGEMENT
NEED FOR PLANNING - Deal with changing environment - Anticipate changes - Long term approach - Forecast - Preempt competition Need for Strategic Planning
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STRATEGIC MANAGEMENT
PROMINENT COMPANIES/GROUPS - INDIA 1970s 2010s - Birlas - Infosys - Tatas - Vedanta - Thapars - Wipro - Singhanias(JK) - Reliance - Shriram group - Ranbaxy - Mafatlal - HCL - HLL - HLL - Bangurs - Adani - Escorts - A.V. Birla - ACC - TCS - Goenkas - Mahindras

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STRATEGIC MANAGEMENT
WHAT DO WE FIND - Decline in traditional groups - Some have strengthened Old Economy AV Birla Ranbaxy Reliance Tatas
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Some have strengthened New Economy Infosys Wipro (reshaped)

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WHAT DO WE FIND - Some are evergreen HLL Nestle

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The Nature and Value of Strategic Management

Strategic management:
The set of decisions and actions that result in formulation and implementation of plans designed to achieve a companys objectives

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Nine Critical Tasks of Strategic Management -- Tasks 1-5:

Formulate the companys mission Conduct an internal analysis Assess the external environment competitive and general contexts Analyze the companys options by matching its resources with the external environment Identify the most desirable options in light of the mission
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Nine Critical Tasks of Strategic Management -- Tasks 6-9:

Select a set of long-term objectives and grand strategies that will achieve the most desirable options Develop annual objectives and short-term strategies that are compatible with long-term objectives and grand strategies Implement the strategic choices Evaluate the success of the strategic process for future decision making
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What is Strategy?
Large-scale, future-oriented plan Used to interact within competitive environment to achieve company goals Provides a framework for managerial decisions Reflects a companys awareness of the main elements of competition
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Dimensions of Strategic Decisions

Strategic issues require top-management decisions Strategic decisions overarch several areas of a firms operations Usually only top management has the perspective needed to understand their broad implications Usually only top managers have the power to authorize necessary resource allocations

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Dimensions of Strategic Decisions

Strategic issues require large amounts of the firms resources They involve substantial allocations of people, physical assets, and money Strategic decisions commit the firm to actions over an extended period In highly competitive firms, achieving and maintaining customer satisfaction frequently involves commitment from every facet of the firm 21

STRATEGIC MANAGEMENT
STRATEGIC DECISIONS DIMENSIONS ITC Ltd - Started as tobacco company - Later diversified into hotels, travel, other FMCG products - Allocation of large amount of resources - Significant long term implications - Future oriented - Major multifunctional / multi-business consequences - Consideration of external environment

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Alternative Strategic Management Structures

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STRATEGIC MANAGEMENT
LEVELS OF STRATEGY Three Levels 1. Corporate 2. Business 3. Functional

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Three Levels of Strategy

Corporate level: board of directors, CEO & administration [Highest] Business level: business and corporate managers [Middle] Functional level: Product, geographic, and functional area managers [Lowest]
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STRATEGIC MANAGEMENT
CORPORATE LEVEL - Board of Directors - CEO - Responsible for Financial performance Nonfinancial goals - What businesses to be in? - Activities of each business

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STRATEGIC MANAGEMENT
CORPORATE LEVEL ITC

Should we be in Hotels? Should we be out of financial services? Should we get into stationery?

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Characteristics of Strategic Management Decisions: Corporate

Often carry greater risk, cost, and profit potential Greater need for flexibility Longer time horizons Choice of businesses, dividend policies, sources of long-term financing, and priorities for growth
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STRATEGIC MANAGEMENT
BUSINESS LEVEL - CEO. Each business - How to compete in each business? - Basis, which segments

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STRATEGIC MANAGEMENT
BUSINESS LEVEL ITC Tobacco Division How do we compete Low price or high price cigarettes Make or buy cigarettes

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Characteristics of Strategic Management Decisions: Business

Help bridge decisions at the corporate and functional levels Less costly, risky, and potentially profitable than corporate-level decisions More costly, risky, and potentially profitable than functional-level decisions Include decisions on plant location, marketing segmentation, and distribution
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STRATEGIC MANAGEMENT
FUNCTIONAL LEVEL - Managers of each functional area Head of Marketing Head of Production - Develop annual objectives - Focus on implementation.

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STRATEGIC MANAGEMENT
FUNCTIONAL LEVEL ITC Tobacco Division Marketing Objectives for 2010-11 Sales : 6000 Crores Market share : 70% Brand Awareness : 90%

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Characteristics of Strategic Management Decisions: Functional

Implement the overall strategy formulated at the corporate and business levels Involve action-oriented and operational issues Relatively short range and low risk Modest costs: depend upon available resources Relatively concrete and quantifiable
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STRATEGIC MANAGEMENT
STRATEGY MAKERS - Depends on Organization Size Structure Formal - Many Organizations Separate department Coordinates entire function
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Strategy Makers
Ideal strategic team includes decision makers from all three levels Top managers must give final approval Strategic decisions coincide with managers responsibilities
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Formality in Strategic Management

Formality is the degree to which participation, responsibility, authority, and discretion in decisionmaking are specified in strategic management

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Strategy Makers: The CEO

A firms CEO plays a dominant role in strategic planning The CEOs principal duty is giving longterm direction to the firm The CEO bears ultimate responsibility for the firms success and strategic success CEOs are typically strong-willed, company-oriented individuals
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STRATEGIC MANAGEMENT
STRATEGIC MANAGEMENT BENEFITS

Problem Prevention Better decisions Collective participation Higher employee motivation Fosters creativity Activates change management
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STRATEGIC MANAGEMENT
STRATEGIC MANAGEMENT BENEFITS Managers at all levels interact in planning and implementing strategy Similar to participative decision making Assessing strategy formulation requires looking at nonfinancial evaluations as well as financial ones Promoting positive behavioral consequences enables achievement of financial goals
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Risks of Strategic Management

Managers time away from other responsibilities Unrealistic expectations promised by strategy formulators Possible disappointment of participating subordinates if goal is not reached
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Strategic Management Process

Businesses vary in formulation and other processes The basic components of the models used to analyze strategic management are similar Strategic management is a processa flow of information through interrelated stages of analysis toward the achievement of some goal
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Strategic Management Model

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Components of Strategic Management Model

Company Mission External Analysis Long-Term Objectives Short-Term Objectives Policies Empowering Action Strategic Control & Continuous Improvement Internal Analysis Strategic Analysis & Choice Generic & Grand Strategies Functional Tactics Restructuring, Reengineering & Refocusing

STRATEGIC MANAGEMENT
COMPANY MISSION

- Purpose of existence - Statement of purpose Example IBM Storage and handling of data.

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INTERNAL ANALYSIS - Quality - Quantity Financial Human Physical Resources

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EXTERNAL ANALYSIS - PEST - Competitive

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STRATEGIC ANALYSIS & CHOICE To achieve mission Various alternatives Choosing alternative Criteria Qualitative quantitative

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STRATEGIC MANAGEMENT
LONG TERM OBJECTIVES - Results over a multiyear period - Following areas E.g. Profitability ROI Productivity Technological Leadership

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STRATEGIC MANAGEMENT
LONG TERM OBJECTIVES INTEL - To produce a chip after every 18 months which has double the processing capability is produced at half of the cost

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GRAND STRATEGY - Indicates how long term objectives will be achieved - Comprehensive general approach that guides major actions

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STRATEGIC MANAGEMENT
GRAND STRATEGY INTEL - Innovation Leadership - Focus on R & D - Commitment to quality

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STRATEGIC MANAGEMENT
GRAND STRATEGY 15 basic approaches - Concentration - Market development - Product development - Innovation - Horizontal integration - Vertical integration - Joint venture - Concentric diversification
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STRATEGIC MANAGEMENT
GRAND STRATEGY 15 basic approaches - Conglomerate diversification - Retrenchment - Divestiture - Liquidation - Consortia - Turnaround - Bankruptcy
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STRATEGIC MANAGEMENT
SHORT-TERM OBJECTIVES - Specific - Less than one year frame - Four quarterly objectives

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STRATEGIC MANAGEMENT
FUNCTIONAL STRATEGIES - Each functional area Marketing Strategy HR Strategy Finance Strategy - In line with business strategy

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POLICIES Standard operating procedures Guidelines GE Not hire people from direct competitors Xerox Every employee signs performance agreement.

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INSTITUTIONALIZING THE STRATEGY - How it should permeate the very day to day life of the company - Fundamental elements Structure Leadership Culture

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CONTROL AND EVALUATION Implementation Monitoring Early signs critical COKE - New formula in 1985 - Failed miserably - Back to old within 6 months. - Effective controls

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Restructuring, reengineering Steps Within organization Make strategy successful Helpful in implementation

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