Chapter 1

Strategic Management

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 UNIT – 1 Outline
• Introduction,
• Elements of a strategy,
• Sources of business strategies,
• Factors that shape corporate strategies,
• Corporate structure in India,
• Developing corporate Vision, Mission, Goals
and Objectives.

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 HISTORICAL DEVELOPMENT
• A discipline originated in the 1950s and 60s
• Various functions of management were
separate
• Importance of coordinating the various
aspects of management
• matching the organization's internal factors
with external environment
• Marketing and Industrial Revolution

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 INTRODUCTION
• Companies struggle for existence & growth
- Competitive environment
- New products and companies
• Managing the CHANGE
- altering the vision and objectives
• LPG process in India
- Scenario before 1991
- New opportunities and MNC’s

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 STRATEGY?
• The Word ‘Strategy’ is derived from the Greek word
‘Strategia’, which means art & science of directing military
forces.
• Strategy is thus, a systematic plan of action to defend oneself
or defeat rivals.
• Strategy is set of activities which are aimed at achieving
advantage over the competition
• It is prepared by top level management

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Why Strategy. . . ?
Strategy is fundamentally concerned
with the success and failure of an
organization’s
– Survival

– Profitability/Prosperity

– Performance

Strategy begins with a desire to

outperform the market
 STRATEGIC MANAGEMENT - Meaning

Strategy is the determinator of the basic long term

goals of an enterprise, and the adoption of
courses of action and the allocation of resources
necessary for carrying out these goals – Chandler
• Strategic Management is all about analyzing
- Where you are now?
- Where do you want to go?
- How will you get there?

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STRATEGIC MANAGEMENT - Definition

• SM is defined as the “dynamic process of

formulation, implementation, evaluation and control of
strategies to realize the organization's strategic intent”

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Benefits of Strategic
Management

Financial Benefits

• Improvement in sales
• Improvement in profitability
• Productivity improvement
• Greater Return On
Assets (ROA)

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 Benefits of Strategic
Management

Non-Financial Benefits

• Improved understanding of competitors strategies

• Enhanced awareness of future opportunities and threats
• Reduced resistance to change
• Enhanced problem-prevention capabilities
• It allows more effective allocation of time and resources

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 Strategic Management Process
• The strategic management
process is a way for
businesses to find new and
more efficient ways to do
business.

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Elements/Process of SM

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 Developing corporate
Vision, Mission, goals and
objectives

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 Major Components of the
Strategic Plan
Strategic Plan

Action Plans
Mission Why we exist
Evaluate Progress

Vision What we want to be

Goals What we must achieve to be successful

ObjectivesO1 Specific outcomes expressed in

O2
measurable terms (NOT
activities)
Initiatives Planned Actions to
AI1 AI2 AI3 Achieve Objectives

Measures Indicators and

M1 M2 M3 Monitors of success
Targets
T1 T1 T1 Desired level of
performance and
timelines 14
 Formulating Strategy
• The Vision - statement of what the
organization intends to become and to
achieve at some point in the future.
• The Mission
– Outlines why the company exists
– Provides action plan OR direction
– It is directed by the Vision of companies

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 Missions vs. Strategic Visions
• A mission • A strategic vision
statement focuses concerns a firm’s
on current future business path
business activities -- “where we are
-- “who we are and going”
what we do” – Markets to be
– Current product and pursued
service offerings – Future technology-
– Customer needs product-customer
being served focus
– Technological and – Kind of company that
business management is 16
 Why is a Strategic Vision
Important?
• A managerial imperative exists to look beyond today
and think strategically about ?
– Impact of new technologies
– How customer needs and expectations are changing
– What it will take to outrun competitors
– Which promising market opportunities ought to be
aggressively pursued
– External and internal factors driving what a company
needs to do to prepare for the future

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 Vision of Coca Cola

THE VISION
• To refresh the world...
• To inspire moments of optimism and happiness...
• To create value and make a difference.

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 What is a mission
statement?
A mission statement describes….
 Why the organization exists – Who we
are, what we do, Who we serve
 What we strive to achieve
A mission statement communicates…
 Values
 Purpose
 Direction now and in the future
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Why do we need a mission statement?

“Unless the mission is explicitly (Clearly)

expressed, clearly understood, and supported
by every member of the organization, the
enterprise is at the mercy of events”
Peter Drucker

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A Good Mission covers

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 Characteristics of good Mission
Statement
• Clarity
• Broad
• Identity and Image – MTNL ( Lifeline of Delhi & Mumbai)
• Realistic - Air India cannot claim to be “world’s favorite airline”
• Specific – in terms of product, region etc…
• Dynamic – Indian Film Industry
• Values and Beliefs – customers, suppliers, employees

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 Mission of Coca Cola
THE MISSION
• People: Be a great place to work where people are inspired to
be the best they can be.
• Partners: Nurture a winning network of customers and
suppliers, together we create mutual, enduring value.
• Planet: Be a responsible citizen that makes a difference by
helping build and support sustainable communities.
• Profit: Maximize long-term return to shareowners while being
mindful of our overall responsibilities.
• Productivity: Be a highly effective, lean and fast-moving
organization.
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 Mission statement of PEPSICO
"To be the world's premier consumer
products company focused on convenience
food and beverages. We seek to produce
healthy financial rewards to investors as we
provide opportunities for growth and
enrichment to our employees, our business
partners and the communities in which we
operate. And in everything we do, we strive
for honesty, fairness and integrity."

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 Examples – Good and Bad
Mission Statements
NASA
To Explore the Universe
and Search for Life
Does a good job of expressing the core values
and to Inspire the
Next Generation of
of the organization. Also conveys unique
Explorers qualities about the organization.

Walt Disney

Too vague and and unclear. Need more

To Make People Happy
descriptive information about what makes
the organization special.

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 Analyzing the Objectives
– Typical operating objectives:
• Profitability
• Market share
• Human talent
• Financial health
• Cost efficiency
• Product quality
• Innovation
• Social responsibility

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 Setting Goals & Objectives
• GOAL – We want to increase our
sales

• OBJECTIVE - We want to increase our

sales by 10% this month.

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 Goals v/s Objectives
• Goals without objectives can never be
accomplished while objectives without goals
will never get you to where you want to be.
• Goals – are long-term aims that you want to
accomplish.
• Objectives – are specific attainments that can
be achieved by following a certain number of
steps.

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 Goals v/s Objectives
GOAL OBJECTIVE
• Has
Has‘go’
‘object’
in it in it
• Cannot
Can bebe measured
measured easily
easily
• Not
Time
timebased
based
• Unstructured
Structured
• Not
Quantified
quantified

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 Objectives
• When you have something you want to accomplish,
it is important to set both goals and objectives.
– Like a runner in track
• Describes what action has to be taken today to
obtain results tomorrow
• Converts strategic vision and mission into specific
activities
– Nokia achieves recycling through 5000 outlets
• Creates yardsticks to track performance

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 Role of objectives
1. Legitimacy
• Describes the basic purpose of existance
2. Direction
• Directs the activities of the firm
3. Coordination
• Keeps organisation on right track
4. Sets benchmark
• Evaluates the performance
5. Motivation
• Converts efforts into success

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 Financial Goals & Objectives
• Strive for stock price appreciation
• Maintain a positive cash flow every year
• Grow earnings per share 15% annually
• Boost annual return on investment from
15% to 20% within three years

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 Strategic Goals
• Increase firm’s market share
• Attain lower overall costs than rivals
• Boost firm’s reputation with customers
• Attain stronger foothold in international
markets
• Achieve technological superiority
• Become leader in new product
introductions

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SWOT Analysis

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 Develop strategies
• Corporate - game plan for a diversified
company
• Business - game plan for single business
• Functional - strategy initiatives of one part of
a business
• Operating - initiatives of key operating units

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Strategy Implementation

Altering the structure

Altering Policies

Employee Motivation

Resource Allocation

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 Implementation of Strategy
• Most companies fail in effective
implementation
• Managers play Important role
• Conflicting policies must be changed

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 Implementation of Strategy
• Making it happen
• Structuring an organization
• Budgeting
• Motivating
• Creating reward structures
• Creating work environment
• Information & reporting systems

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Strategy Evaluation

Internal Review

External Review

Performance Metrics

Corrective Actions

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 Evaluating the Strategy
• Monitoring the internal and external
Environment
• Regular or periodic Review
• Measure performance
• Foresee problems
• Initiating corrective measures

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 Organisation Structure in India
• An organizational structure is a mainly
hierarchical concept of subordination of
entities that collaborate and contribute to
serve common goals.
• An organization can be structured in many
different ways and styles, depending on their
objectives and ambience.
• The structure of an organization will
determine the modes in which it operates and
performs. 41
 Organisation Structure in India
• Well designed organisation structure
facilitates the smooth functioning of the
organisation.
• Organisation structure may be defined as the
established pattern of relationships among the
components of the organisation.

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Organisation Structure of Airtel

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 Organisation Structure of Airtel
As an outcome of a restructuring exercise conducted
within the company; a new integrated organizational
structure has emerged; with realigned roles,
responsibilities and reporting relationships of Bharti’s
key team players. With this unified management
structure of  'One Airtel' will enable continued
improvement in the delivery of the Group’s strategic
vision.

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 Types of Org. Structure
1. Functional Structure
- Common activities are grouped
- Suitable for small business
- Provides functional clarity
- coordination and communication between
departments can be restricted

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Functional Structure

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 Types of Org. Structure
2. Divisional Structure
- typically is used in larger companies that operate
in a wide geographic area or that have separate
smaller organizations
- divisions can be defined based on the
geographical basis, products / services basis, or
any other measurement.
- needs can be met more rapidly and more
specifically.
- costly because of its size and scope
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Divisional Structure

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 Types of Org. Structure
3. Matrix Structure
– mixture of divisional and functional structure
– used in large multinational companies
– allows for the benefits of functional and
divisional structures
– can create power struggles

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Matrix Structure

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 Significance of Organisation
Structure
• Establishes clear-cut Authority Relationships
• Provides the patterns of communication and
coordination
• Determines the location of centers of decision
• Creates the proper balance by priortising
activities
• Creates opportunities for growth
• Adaptability to change
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 Symptoms of Inappropriate Structure

• Low morale due to:

– unacceptable decisions/decision making process
– unclear performance criteria
– conflicting expectations/pressures
– overload/lack of support
• Delays in decision making
• Conflict/lack of co-ordination
• Failure to innovate
• Escalating administrative costs
 Factors that shape Corporate Strategy

Social,
Competitive
conditions Company
 External Factors
political,
and opportunit
and
industry ies and
regulatory
attractiven threats
factors
ess
Determine
relevan
Identify
ce of
and Craft
interna
Company’s Strategic Situation l and
evaluate the
alternati strategy
extern
al ves
factors
Resource
strengths, Shared values
Influences of
capabilitie and
key
s, and company
weakness
executives
culture  Internal Factors
es
 Social, Political,
and Regulatory Factors
• Pressures from interest groups
• Corporate downsizing and or Restructuring
• Rising/falling interest rates
• Economic conditions (good or bad)
• Trade restrictions, tariffs, and import quotas
• Responding positively to emerging societal
priorities and expectations
 Competitive Conditions and
Industry Attractiveness
• A company’s strategy has to be
responsive to
– Fresh moves of rival competitors
– Changes in industry’s
price-cost-profit economics
– Shifting buyer needs and expectations
– New technological developments
– Pace of market growth
Company Strengths, Competencies, and
Competitive Capabilities

• A company must have or be able to acquire

the resources, competencies, and
competitive capabilities needed to execute
the chosen strategy

• Resource deficiencies, gaps in skills, and

weaknesses in competitive position make
implementation of certain strategies risky or
altogether unwise
 Levels of Strategy-Making in
a Diversified Company

Corporate-Level Corporate
Managers Strategy

Two-Way Influence
Business-Level
Managers Business Strategies

Two-Way Influence

Functional
Managers Functional Strategies

Two-Way Influence

Operating
Managers Operating Strategies
 Tasks of Corporate Strategy
• Moves to achieve diversification
• Actions to boost performance of individual
businesses
• Capturing valuable cross-business strategic
fits
• Establishing investment
priorities and steering
corporate resources into the
most attractive businesses
 Functional Strategies
• Game plan for a strategically-relevant
function, activity, or business process
• Details how key activities will be
managed
• Provide support for business
strategy
• Specify how functional objectives
are to be achieved
 Operating Strategies
• Concern narrower strategies
for managing grassroots
activities and strategically-
relevant operating units

• Add detail to business and

functional strategies
 Networking of Missions,Objectives, and Strategies
Level 1 Corporate-wide Corporate Corporate
Strategic Level Level
Corporate-Level Vision Objectives Strategy
Managers
Two-Way Influence Two-Way Influence Two-Way Influence

Level 2 Business Business Business

Business-Level Level Strategic Level Level
Vision Objectives Strategies
Managers
Two-Way Influence Two-Way Influence Two-Way Influence
Level 3
Functional Functional Functional Functional
Missions Objectives Strategies
Managers
Two-Way Influence Two-Way Influence Two-Way Influence
Level 4
Plant Managers, Operating Operating Operating
Lower-Level Missions Objectives Strategies
Supervisors