Introduction

to Strategic
Management
What is Strategy..???
Why Strategy..???
 Why Strategy…??
• The ultimate goal of the organizations is
to be successful – SUCCESS is:
• Survival (long-term success)
• Achievement of Goals
 Origin of Strategy..!!!
• Strategy comes from the Greek word STRATEGOS, which is
formed from stratos, meaning army, and –ag, meaning to
lead
Strategy Définition
Strategies- ‘‘ Systematically planned course of actions
for achievement of organizational Objectives or Goals’’
What is Strategy..???

Strategy: The unifying theme that gives

logic (reason) and direction to the decisions
of any organization
Strategic Management: Consisting of the
analysis, decisions, and actions an
organization undertakes in order to create
and sustain competitive advantages.
 Strategic Management Process
• The Term Strategic Management refers to the set
of managerial process of forming-
• -a strategic vision,
• -setting objectives,
• -crafting strategy (Strategy Formulation),
• -implementing & executing the strategy,
• & then overtimes initiating whatever corrective
adjustments in the vision, objectives, strategies, &
executions are deemed to be appropriate
 Strategic Management Process

The process of Strategic Management

involves 4 steps:
• Strategic Intent
• Environmental Analysis & Strategy Formulation
• Strategy Implementation
• Strategy Evaluation and Control
 Strategic Management Process

Strategic Intent Strategy Formulation Strategy

Vision, Mission, Internal & External Implem-
Business Appraisal entation
Definition, SWOT Analysis Corporate Project &
Objectives & Business Level Procedural
Strategies Implemen
Strategic Analysis & choice tation

Control
 Let us understand some terms…
• Visions- What Company wants to achieve in future
• Mission- The reason for company’s existence
• Goals- What Company wanted to achieve in general in
constraint to VISION
• Objectives- are specific goals to be achieved in future
• Vision - big picture idea of what you want to achieve.
• Mission - general statement of how you will achieve
your vision
Tesla motors
Vision: To create the most compelling car
company of the 21st century by driving the
world's transition to electric vehicles.

Mission: To accelerate the advent of

sustainable transport by bringing compelling
mass-market electric cars to market as soon as
possible.
 Components of Mission Statement
• Customers: Who are the firm’s customers
• Product/Services: What are firm’s major pdts./Services.
• Markets: Geographically, where does firm competes
• Technology: Which technology firm is using
• Concern for Growth/Survival: Is the firm committed to
growth & Financial soundness
• Self Concept: Firm’s major competitive advantage
• Concern for Public Image: Is the firm responsive to Env.,
Society etc.
• Concern for Employees : We value our Customers
 Characteristics of Good Mission Statement
1. It should be feasible: It should be realistic & achievable on
the basis of available resources
2. It should be clear: It should be clear enough to lead &
understand
3. It should be motivating: Motivating to its employees
4. It should indicate major components of strategy: A growth
or combination strategy adopted by company.
5. It should indicate how objectives are to be
accomplished: provide clues regarding the manner in which the
objectives are to be accomplished
 The strategic management process

The strategic management process means defining the

organization’s strategy. It is also defined as the process
by which managers make a choice of a set of strategies
for the organization that will enable it to achieve better
performance.
 Strategic management process has
following four steps:
• Environmental Scanning– Environmental scanning refers
to a process of collecting, scrutinizing and providing
information for strategic purposes. It helps in analyzing
the internal and external factors influencing an
organization. After executing the environmental analysis
process, management should evaluate it on a continuous
basis and strive to improve it.
• 2. Strategy Formulation– Strategy formulation is the
process of deciding best course of action for
accomplishing organizational objectives and hence
achieving organizational purpose. After conducting
environment scanning, managers formulate corporate,
business and functional strategies.
• 3. Strategy Implementation- Strategy implementation
implies making the strategy work as intended or putting
the organization’s chosen strategy into action. Strategy
implementation includes designing the organization’s
structure, distributing resources, developing decision
making process, and managing human resources.
 Importance of Strategic Management
 Strategic Management is must for all those
organizations, who dreams to grow.
 “Survival of Fittest”, does not mean a Strong or Large
company will survive.
 Business has to follow war rule- “Win or Lose”
 Companies need to have Competitive Advantage
 These all characteristics of a successful business
organizations is possible to have if it follows-
Strategic Management- Strategic Analysis, Strategy
Formulation & Strategy Implementation.
 The Strategy Concept
Levels of Analysis

Corporate
• Where to Compete? Strategy

• How to Compete? Business

Strategy

Functional
• How to Contribute? Strategy • Functional Strategies
• (Mktg. Mix,
Choice of Products Choice Operational, Financial
of Markets Choice of etc.)
Competitors
 Stakeholders in Business
What are Stakeholders?
“ Stakeholders are those individuals or group of
people, who can affect & are affected by the
Strategic Outcomes achieved & who have
enforceable claims on Company’s Performance”
-These people have stakes in Strategic Outcome of the
Company
-These people can be positively or negatively affected by
these outcomes
-These Strategic Outcomes is dependent upon the
support or active participation of certain Stakeholders
 Stakeholders in Business
Capital market Stakeholders:-
Stock Market Investors, Banks
Product Market Stakeholders:-
Customers, Retailers, Suppliers
Organizational Stakeholders:- Owner,
Employees, Managers, Staff
Secondary Stakeholders:-
Competitors, Government
 Stakeholders in Business
Different Type of Stakeholders have different
expectations or demands from the company
If company is making above average profitability, then
the company can satisfy its stakeholders
Ex: Reducing invest in R & D & giving bonus to investors as
short term objectives
 Business Definition
Business Definition-
•A Business definition is a clear statement of the business,
the firm is engaged in or is planning to enter.
•It answers the question: What is our business in a exact
way.
•Examples:
“We are in the beauty-enriching business” – Helen and Curtis
“We are in the business of computer technology” – Intel
“ We are in the transportation business” – TELCO
 Peter Drucker’s Business Definition View
Products may come and go but basic needs and
customer groups continue forever.

According to him business definition should cover three

vital aspects.
1. Product/ Service concept
2. Customer segment
3. Value creation
 Critical Success Factors (CSF)
• The concept of "success factors" was developed by
D. Ronald Daniel of McKinsey & Company in 1961
• What gets measured, gets done..
• A quality improvement tool that many organizations use
is Critical Success Factors (CSF) which are indicators that
measure how well an organization is accomplishing its
strategic plan and objectives i.e.
 Critical Success Factors (CSF)
Lets Understand CSF for a Shoe Manufacturer….
1)High Quality Manufacturing of Shoes
2)Cost Efficiency
3)Proper RetailinA Good Brand Image
Lets Understand CSF for a Courier Service Company….
1) Speed of Delivery
2) Reliability
3) Price of Service
 Key Result Area’s (KRA’s)
• KRA’s are those functions or functional divisions/ Area’s
of Performance in which Organization must continually
improve to be successful
• Definition: "In simple terms it may be defined as the
primary responsibility of an individual, the core area in
which each person is accountable”
 Example of KRA’s for Human Resource
1) Staffing
2) Employee Relations
3) Employee Development
4) Compensation Planning & Administration
5) Policy Designing
6) Career Development
•MODULE 2: COMPETITIVE
ADVANTAGE
Internal Analysis
 External Environmental Analysis
• Environment outside the company in which it is
operating
• This environment may contain various factors, which
may affect the strategic decision making & strategic
outcome of the company.
• These factors can be classified as:
1) Macro Environmental factors (larger impact) &
2) Micro Environmental factors (lesser impact)
It is depending upon the overall impact of these factors
on any company.
 External Environmental Analysis
External Environmental Analysis can be done in three
perspectives:
1) Analysis of General Environment (PESTLE Analysis)
2) Analysis of Industry Environment (Porter’s 5 Force)
3) Analysis of Competitors Environment
 External Environmental Factors
• Macro Factors • Micro Factors
1) Political Factors
2) Economical Factors 1) Suppliers Environment
3) Socio-Cultural Factors 2) Market Environment
4)Technological Factors 3) Intermediates
5) Legal/Regulatory 4)Customer
6)Physical Environmental 5) competitors
 PESTLE Analysis
Market Factors
Technological
Factors

Industry
Environment Political Factors
Supplier’s
Firms
Environment

Economical
Factors
Socio-Cultural
Factors Regulatory
Factors
 PESTLE Analysis
Definitions:

“PESTLE analysis – an analysis of the political, economic,

social and technological factors in the external
environment of an organization, which can affect its
activities and strategic performance.”
 Political Factors
• Factors related to the Politics or Government of that
Nation.
• Different Political Factors will have differential impacts
Political factors like:
- Political Structure & its Goals & Stability
- Government’s Role in Business Development & Policies
 Porter's 5 Force Model
 Porter's 5 Force Model (suggested by Michael E. Porter
of Harvard Business School in 1979) is a framework to
analyze level of competition within an industry
and business strategy development.
Five forces
which determine the competitive intensity and
therefore attractiveness of a market.
• This theoretical framework, based on 5 forces, describes
the attributes of an attractive industry and thus suggests
when opportunities will be greater, and threats less, in
these of industries.
• The model determines the intensity of competition in
any industry is a mix of five competition factors.
 Porter's 5 Forces of Competition
Customer
Bargaining
Power

Threat of New Threat from Threat of

Entrants Competition Substitutes

Supplier
Bargaining
Power
Porter's 5 Forces of Competition
Potential
entrants

Threat of new
entrants

Bargaining power Industry competitors

of suppliers
Suppliers Buyers
Rivalry among Bargain
existing firms ing
power
of
Threat of buyers
substitutes

Substitute
products
 Threat of New Entrant
• An Growing Industry, having a profitable trends,
attracts many new competitors to enter the
industry
• Depending upon the Attractiveness of the industry,
new companies are ready to invest in the industry.
• All those new companies, tries to influence the
customers of available competitor, so as to earn a
respectable market share.
 Threat of New Entrant
• To do so, New Entrants do try to differentiate over
existing company’s products by-
• Adding new production capacity
• Brings in substantial resources in R & D’s
• Technological advancement over competitors
 Threat of New Entrant
• Entry Barrier:
• In this method, the available companies can create a
barrier for a new company to enter in the industry.
• Either the entry procedure is difficult- so that new
company can’t enter in the industry .
• The entry in the industry is costly, & require huge
investment, which the new company just can’t afford
• So that existing companies will enjoy their sales &
Market share
 Threat of New Entrant
Industries with high barriers of entry:
•Car making:
-high upfront capital investment in manufacturing
equipment;
-fulfillment with safety and emission rules and regulation,
-Access to parts suppliers, development of a network of
car dealerships, big marketing campaign to establish a
new car brand with consumers.
 Bargaining Power of Supplier
• It is the situation, which indicates that the market is
consisting of few & potential suppliers & large
customer base (Purchasing Companies).
• Hence the terms & conditions of the suppliers are very
high to be handled by the company.
• The suppliers may bargain individually or collectively
(through associations) or company direct selling is
restricted.
 Bargaining Power of Supplier
• The bargaining may be for purchasing the products by
the suppliers at lower price with high margins
• Selling the products/services at higher prices to the
customers.
• Selling the products of inferior quality to the
customers
 Bargaining Power of Supplier
Following are the conditions , where suppliers
bargaining power can be high:
•When suppliers are few & buyers are in large number
•When the products are unique & not commonly
available
•When the substitutes of the products are not easily
available to the customers
 Bargaining Power of Supplier
Following are the conditions , where suppliers
bargaining power can be high:
•When the buyers buys in limited quantity, which is not
important to the suppliers.
•Where the association of the suppliers is strong &
company is dependent on suppliers to supply their
products & services
 Bargaining Power of Supplier
Examples:
•Industries using diamonds, such as jewelry and
electronics, face the huge power , that takes
advantage of the supply concentration to achieve
dominant market share
•Less Bargaining Power: Suppliers of Food Processing
industries has less BP from farmers.
 Bargaining Power of Buyers
• Bargaining power of buyer means, the buyers
individually or collectively can put conditions/ demands
of purchasing products /services.
• Bargaining power is the ability to influence the setting
of prices.
The bargaining may be for:
• Quality in products / services (Hotel Industry)
• Prices of the products/ Services lower as they desire
• Expecting more value against what they pay
 Bargaining Power of Buyers
The bargaining power of the buyer is more when:
•When the buyers are in limited in number
•Switching cost is low, but can affect the suppliers to a
great extent
 Threat of Substitute Products
• Substitutes are those products which can be
substituted with each others.
• When the products has a large number of substitutes,
the prices of the products doesn’t move high
• Availability of close substitutes produces, negative
competitive impact.
• Any industry, where close substitutes are not available,
the company sales their products at higher prices
 Threat of Substitute Products
Threats of Substitute products is high when:
•When the switching cost is low
•Prices of substitute products are lower
•Quality & performance of the substituted products are either
equal or little or greater than major industry products
•In such cases, companies can offset the effect of substitute
products, by differentiation over competitors i.e. by providing
–
•Higher Quality, Lower Prices,
•Better After Sales Services,
•Location Advantage etc.
 Threat of Substitute Products
• Full substitute products are products from
different manufacturers that fulfill the exact same
purpose.
Ex.-Kellog's corn flakes and generic brand corn
flakes.
• Partial substitutes are products that only partially
substitute each other.
 Protecting against substitution
• Producers may try to protect their products with
strong branding, trade marks.
 Intensity of Rivalry among competitors
• In every industry, a good number of companies are
present, who competes with each other for creating a
competitive position in the industry
• Depending upon the nature of the industry & stage of
industry, the number of competitors in the industry
& intensity of competition is dependent.
STRATEGIC GROUPS
• Strategic groups are sets of firms within an industry that
share the same or highly similar competitive attributes.
These attributes include pricing practices, level of
technology investment and leadership, product scope
and scale capabilities, and product quality. By identifying
strategic groups, analysts and managers are better able
to understand the different types of strategies that
multiple firms are adopting within the same industry.
Strategic Group Maps
• A useful way to analyze strategic groups is through the
creation of strategic group maps. Strategic group maps
present the various competitive positions that similar
firms occupy within an industry.
• a) Identify Key Competitive Attributes. As mentioned
previously, many firms share similar competitive
attributes such as pricing practices and product scope.
The first step in developing a strategic group map is to
identify key competitive attributes that logically
differentiate firms in a competitive set.
• b) Create Map Based Upon Two Key Attribute Variables.
For the variables selected, assign each variable to the X
and Y axis, respectively.
• c) Identify Strategic Groups. Once all of the firms have
been plotted, enclose each group of firms that emerges
in a shape that reflects the positioning on the strategic
group. At this point, assess whether or not the
differences between each group are meaningful or
whether other variables must be selected from which
another set of strategic groups can be drawn.
 GLOBALIZATION AND INDUSTRY
STRUCTURE
• In conventional economic system, national markets are
separate entities separated by trade barriers and barriers
of distance, time and culture. With globalization, markets
are moving towards a huge global market place. The
tastes and preferences of customers of different countries
are converging common global norm.
• Individual companies have spread parts of their
production process to various parts of the world to take
advantage of national advantage with respect to cost and
factors of production such as land, labour, capital and
energy. The end result is low cost and enhanced profits.
 NATIONAL CONTEXT AND COMPETITIVE
ADVANTAGE
In spite of globalization of markets and production
successful companies in certain industries are found in
specific countries:
• Japan has most successful consumer electronics
companies in the world
• Germany has many successful chemical and engineering
companies in the world
• United States has many of the world’s successful
companies in computer and biotechnology
It shows that national context has an important bearing on
the competitive position of the companies in the global
market
 IFE
Matrix
 What is the IFE
Matrix?
• Internal Factor Evaluation Matrix

• A summary step in conducting

internal strategic management
audit.

• Summarizes and evaluates the major

strengths and weaknesses in the
functional areas of a business.
 Componen
ts
• Internal Factors – list of all strengths
and weaknesses
• Weights – Scale of 0 to 1
• Rating – Scale of 1 to 4
– Strengths – 4-major strength; 3- minor
strength
– Weaknesses – 1-major weakness; 2-minor
weakness
• Total Weighted Score
 Construction of IFE
Matrix
• Make a table. In the first column, list
down all the strengths and
weaknesses.
• In the second column, assign weights
to each factor ranging from 0.0 (not
important) to 1 (most important).
• The sum of all weights must be equal
to 1.
 Construction of IFE
Matrix
• In the third column, rate each factor
ranging from 1 to 4 (where: 1 = major
weakness, 2 = minor weakness, 3 =
minor strength, 4 = major strength.)
 Construction of IFE
Matrix
• In the fourth column, calculate
weighted score by multiplying each
factor’s score by its rating.

• Find the total weighted score by adding

the weighted scores for each variable.
WHY DO COMPANIES FAIL?

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 Why do Companies Fail?

• A company can lose its competitive advantage

but still not fail because it can earn average profits
related reasons for failure:

• Inactivity

• Prior Strategic

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 Inertia

inactivity: In changed market conditions, companies find it

difficult to change their strategies and structure
accordingly. The changed competitive conditions put
pressure on the decision makers to introduce suitable
changes in developing capabilities.

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 Prior Strategic Commitments

Prior Strategic Commitments: The

commitments which are already made in terms of
huge investments, direction and facilities prove
to be a setback and result in competitive
disadvantage. IBM’s massive investments were
locked in a shrinking business.

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Avoiding Failure & Sustaining
Competitive Advantage

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 Avoiding Failure & Sustaining
Competitive Advantage
Focus on the Building Blocks of Competitive
Advantage

Institute Continuous Improvement and Learning

Track Best Industrial Practice and Use Benchmarking

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