1.

Elements of strategic management

Figure: Elements of Strategic Management

(i) Strategic Analysis

Strategic analysis is concerned with understanding the strategic position of the organisation.
What changes are going on in the environment, and how will they affect the organisation and its
activities? What is the resource strength of the organisation in the context of these changes?
What is it that those people and groups associated with the organisation -- managers,
shareholders or owners, unions and so on -- aspire to, and how do these affect the present
position and what could happen in the future?

The aim of strategic analysis is, then, to form a view of the key influences on the present and
future well-being of the organisation and therefore on the choice of strategy. These influences
are discussed briefly below. Understanding these influences is an important part of the wider
aspects of strategic management.

(a) The environment

The organisation exists in the context of a complex commercial, economic, political,

technological, cultural, and social world. This environment changes and is more complex for
some organisations than for others. Since strategy is concerned with the position a business takes
in relation to its environment, an understanding of the environment’s effects on a business is of
central importance to strategic analysis. The historical and environmental effects on the business
must be considered, as well as the present effects and the expected changes in environmental
variables. This is a major task because the range of environmental variables is so great. Many of
those variables will give rise to opportunities of some sort, and many will exert threats upon the
firm. The two main problems that have to be faced are, first, to distil out of this complexity a
view of the main or overall environmental impacts for the purpose of strategic choice; and
second, the fact that the range of variables is likely to be so great that it may not be possible or
realistic to identify and analyse each one.

(b) The resources of the organisation

Just as there are outside influences on the firm and its choice of strategies, so there are internal
influences. One way of thinking about the strategic capability of an organisation is to consider
its strengths and weaknesses (what it is good or not so good at doing, or where it is at a
competitive advantage or disadvantage, for example). These strengths and weaknesses may be
identified by considering the resource areas of a business such as its physical plant, its
management, its financial structure, and its products. Again, the aim is to form a view of the
internal influences -- and constraints -- on strategic choice.

(c) The expectations of different stakeholders

The expectations are important because they will affect what will be seen as acceptable in terms
of the strategies advanced by management. However, the beliefs and assumptions that make up
the culture of an organisation, though less explicit, will also have an important influence. The
environmental and resource influences on an organisation will be interpreted through these
beliefs and assumptions; so two groups of managers, perhaps working in different divisions of an
organisation, may come to different conclusions about strategy, although they are faced with
similar environmental and resource implications. Which influence prevails is likely to depend on
which group has the greatest power, and understanding this can be of great importance in
recognising why an organisation follows or is likely to follow, the strategy it does.

Together, a consideration of the environment, the resources, the expectations, and

the objectives within the cultural andpolitical framework of the organisation provides the basis of
the strategic analysis of an organisation. However, to understand the strategic position an
organisation is in, it is also necessary to examine the extent to which the direction and
implications of the current strategy and objectives being followed by the organisation are in line
with and can cope with the implications of the strategic analysis. In this sense, such analysis
must take place with the future in mind. Is the current strategy capable of dealing with the
changes taking place in the organisation’s environment or not? If so, in what respects and, if not,
why not?

It is unlikely that there will be a complete match between current strategy and the picture which
emerges from the strategic analysis. The extent to which there is a mismatch here is the extent of
the strategic problem facing the strategist. It may be that the adjustment that is required is
marginal, or it may be that there is a need for a fundamental realignment of strategy.

(ii) Strategic Choice

Strategic analysis provides a basis for strategic choice. This aspect of strategic management can
be conceived of as having three parts.

(a) Generation of strategic options

There may be several possible courses of action. At a given time a company might face a
decision about the extent to which it has to become a multinational firm. But, at a later time, the
international scope of the company's operations might bring up other choices: which areas of the
world are now the most important to concentrate on; is it possible to maintain a common basis of
trading across all the different countries? Is it necessary to introduce variations by market focus?
All of these considerations are important and need careful consideration: indeed, in developing
strategies, a potential danger is that managers do not consider any but the most obvious course of
action -- and the most obvious is not necessarily the best. A helpful step in strategic choice can
be to generate strategic options.

(b) Evaluation of strategic options

Strategic options can be examined in the context of the strategic analysis to assess their relative
merits. In deciding any of the options a company might ask a series of questions. First, which of
these options built upon strengths, overcame weaknesses and took advantage of opportunities,
while minimising or circumventing the threats the business faced? This is called the search
forstrategic fit or suitability of the strategy. However, a second set of questions is important. To
what extent could a chosen strategy be put into effect? Could the required finance be raised,
sufficient stock be made available at the right time and in the right place, staff be recruited and
trained to reflect the sort of image the company wants to project? These are questions
of feasibility. Even if these criteria could be met, would the choice be acceptable to the
stakeholders?

(c) Selection of strategy

This is the process of selecting those options which the organisation will pursue. There could be
just one strategy chosen or several. There is unlikely to be a clear-cut ‘right’ or ‘wrong’ choice
because any strategy must inevitably have some dangers or disadvantages. So in the end, choice
is likely to be a matter of management judgement. It is important to understand that the selection
process cannot always be viewed or understood as a purely objective, logical act. It is strongly
influenced by the values of managers and other groups with interest in the organisation, and
ultimately may very much reflect the power structure in the organisation.

(iii) Strategy Implementation

Strategy implementation is concerned with the translation of strategy into action. Implementation
can be thought of as having several parts.

(a) Planning and allocating resources

Strategy implementation is likely to involve resource planning, including the logistics of

implementation. What are the key tasks needing to be carried out? What changes need to be
made in the resource mix of the organisation? By when? And who is to be responsible for the
change?

(b) Organisation structure and design

It is also likely that changes in organisational structure will be needed to carry through the
strategy. There is also likely to be a need to adapt the systems used to manage the organisation.
What will different departments be held responsible for? What sorts of information system are
needed to monitor the progress of the strategy? Is there a need for retraining of the workforce?

(c) Managing strategic change

The implementation of strategy also requires managing of strategic change and this requires
action on the part of managers in terms of the way they manage change processes, and the
mechanisms they use for it. These mechanisms are likely to be concerned not only with
organisational redesign, but with changing day-to-day routines and cultural aspects of the
organisation, and overcoming political blockages to change.

2. Difference between mission and vision statements

•A mission statement concerns what an organization is all about.

•A vision statement is what the organization wants to become.

A mission statement answers three key questions:

• What do we do?
• For whom do we do it?
• What is the benefit?
A vision statement, on the other hand, describes how the future will look if the organization
achieves its mission. A mission statement gives the overall purpose of an organization, while a
vision statement describes a picture of the "preferred future." A mission statement explains what
the organization does, for whom and the benefit. A vision statement, on the other hand, describes
how the future will look if the organization achieves its mission.

3. Need to analyse the environment

A PEST analysis (also sometimes called STEP, STEEP or PESTLE analysis) looks at the
external business environment.

In fact, it would be better to call this kind of analysis a business environmental analysis but the
acronym PEST is easy to remember and so has stuck. PEST stands for Political, Economic,
Sociocultural and Technological. (Technological factors in this case, include ecological and
environmental aspects - the second E in STEEP and PESTLE, while the L in PESTLE stands for
legal or legislative). The analysis examines the impact of each of these factors (and their
interplay with each other) on the business. The results can then be used to take advantage of
opportunities and to make contingency plans for threats when preparing business and strategic
plans.

You need to consider each PEST factor as they all play a part in determining your overall
business environment. Thus, when looking at political factors you should consider the impact of
any political or legislative changes that could affect your business. If you are operating in more
than one country then you will need to look at each country in turn. Political factors include
aspects such as laws on maternity rights, data protection and even environmental policy: these
three examples alone have an on impact employment terms, information access, product
specification and business processes in many businesses globally.

Obviously politicians don't operate in a vacuum, and many political changes result from changes
in the economy or in social and cultural mores, for example. Thus although tax rates are
generally decided by politicians, tax decisions generally also include economic considerations
such as what is the state of the economy. In Europe, the politicians drove the introduction of the
euro currency but the impacts include economic factors: cross-border pricing, European interest
rates, bank charges, price transparency and so on. Other economic factors include exchange
rates, inflation levels, income growth, debt & saving levels (which impact available money) and
consumer & business confidence. There can also be narrow industry measures that become
important. Issues such as the availability of skilled labour or raw-material costs can impact
industries in different ways.

Advances in technology can have a major impact on business success, with companies that fail to
keep up often going out of business. Technological change also affects political and economic
aspects, and plays a part in how people view their world. Just as one example, the Internet has
had a major influence on the ways consumers and businesses research and purchase products.
Whereas in the early and mid-1990s, it was rare for consumers to consider cross-border
purchases this is now becoming common via services such as eBay, with the result that even
small businesses can now serve a global market. Politicians are still coming to grips with the tax
issues involved. Meanwhile the music industry has still not found an effective solution to the
threat posed by the successors to Napster, and the cinema/movie industry is also being
challenged by the availability of peer-to-peer networks facilitating easy and free downloads of
the latest blockbuster films. Environmental factors to consider here include the impact of climate
change: water and winter fuel costs could change dramatically if the world warms by only a
couple of degrees.

Ultimately, however, the various PEST factors are governed by the socio-cultural factors. These
are the elements that build society. Social factors influence people's choices and include societal
beliefs, values and attitudes. So understanding changes in this area can be crucial, as they lead to
political and societal change. When looking at socio-cultural factors, you need to consider

• demographic changes and also consumer views on your product & industry;
• environmental issues (especially if your product involves hazardous or potentially
damaging production processes);
• lifestyle changes and attitudes to health, wealth age (children, the elderly, etc.), gender,
work and leisure.

Added complications when looking at social and cultural factors are differences in ethnic and
social groups. Not all groups have the same attitudes - and this influences how they view various
products and services.
 4. Internal and external environment analysis

WOT analysis is a strategic planning method used to evaluate

the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in
a business venture. It involves specifying the objective of the business venture or project and
identifying the internal and external factors that are favorable and unfavorable to achieve that
objective. The technique is credited to Albert Humphrey, who led a convention at Stanford
University in the 1960s and 1970s using data from Fortune 500 companies.

A SWOT analysis must first start with defining a desired end state or objective. A SWOT
analysis may be incorporated into the strategic planning model. Strategic Planning, has been the
subject of much research.[citation needed]
  Strengths: attributes of the person or company that are helpful to achieving the
objective(s).
 Weaknesses: attributes of the person or company that are harmful to achieving the
objective(s).
 Opportunities: external conditions that are helpful to achieving the objective(s).
 Threats: external conditions which could do damage to the objective(s).

Identification of SWOTs are essential because subsequent steps in the process of planning
for achievement of the selected objective may be derived from the SWOTs.

First, the decision makers have to determine whether the objective is attainable, given the
SWOTs. If the objective is NOT attainable a different objective must be selected and the
process repeated.

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are
important to achieving the objective. These come from within the company's unique value chain.
SWOT analysis groups key pieces of information into two main categories:

 Internal factors – The strengths and weaknesses internal to the organization.

 External factors – The opportunities and threats presented by the external
environment to the organization. - Use a PEST or PESTLE analysis to help identify
factors

The internal factors may be viewed as strengths or weaknesses depending upon their impact
on the organization's objectives. What may represent strengths with respect to one objective
may be weaknesses for another objective. The factors may include all of the 4P's; as well as
personnel, finance, manufacturing capabilities, and so on. The external factors may include
macroeconomic matters, technological change, legislation, and socio-cultural changes, as
well as changes in the marketplace or competitive position. The results are often presented
in the form of a matrix.

SWOT analysis is just one method of categorization and has its own weaknesses. For
example, it may tend to persuade companies to compile lists rather than think about what is
actually important in achieving objectives. It also presents the resulting lists uncritically and
 without clear prioritization so that, for example, weak opportunities may appear to balance
strong threats.

It is prudent not to eliminate too quickly any candidate SWOT entry. The importance of
individual SWOTs will be revealed by the value of the strategies it generates. A SWOT
item that produces valuable strategies is important. A SWOT item that generates no
strategies is not important.

Use of SWOT Analysis

The usefulness of SWOT analysis is not limited to profit-seeking organizations. SWOT

analysis may be used in any decision-making situation when a desired end-state (objective)
has been defined. Examples include: non-profit organizations, governmental units, and
individuals. SWOT analysis may also be used in pre-crisis planning and preventive crisis
management. SWOT analysis may also be used in creating a recommendation during
a viability study/survey.

5. Entry and exit barriers and how do they influence the process of strategy
formulation

barriers to entry are obstacles in the path of a firm that make it difficult to enter a
given market.[1]

Barriers to entry protect incumbant firms from competition from newcomers.

Barriers to entry are the source of a firm's pricing power - the ability of a firm to raise
prices without losing all its customers.

The term refers to hindrances that an individual may face while trying to gain entrance
into a profession or trade. It also, more commonly, refers to hindrances that a firm (or
even a country) may face while trying to enter a market, industry or trade grouping.
Barriers to entry restrict competition in a market.

Barriers to entry into markets for firms include:

 Advertising - Incumbent firms can seek to make it difficult for new competitors by
spending heavily on advertising that new firms would find more difficult to afford. This is
known as the market power theory of advertising.[5] Here, established firms' use of
advertising creates a consumer perceived difference in its brand from other brands to a
degree that consumers see its brand as a slightly different product.[5] Since the brand is seen
as a slightly different product, products from existing or potential competitors cannot be
perfectly substituted in place of the established firm's brand.[5] This makes it hard for new
competitors to gain consumer acceptance.[5]
 Control of resources - If a single firm has control of a resource essential for a certain
industry, then other firms are unable to compete in the industry.
 Cost advantages independent of scale - Proprietary technology, know-how, favorable
access to raw materials, favorable geographic locations, learning curve cost advantages.
 Customer loyalty - Large incumbent firms may have existing customers loyal to
established products. The presence of established strong brands within a market can be a
barrier to entry in this case.
 Distributor agreements - Exclusive agreements with key distributors or retailers can make
it difficult for other manufacturers to enter the industry.
 Economy of scale - Large, experienced firms can generally produce goods at lower costs
than small, inexperienced firms. Cost advantages can sometimes be quickly reversed by
advances in technology. For example, the development of personal computers has allowed
small companies to make use of database and communications technology which was once
extremely expensive and only available to large corporations.
 Government regulations - It may make entry more difficult or impossible. In the extreme
case, a government may make competition illegal and establish a statutory monopoly.
Requirements for licenses and permits may raise the investment needed to enter a market,
creating an effective barrier to entry.
 Inelastic demand - One strategy to penetrate a market is to sell at a lower price than the
incumbents. This is ineffective with price-insensitive consumers.
 Intellectual property - Potential entrant requires access to equally efficient production
technology as the combatant monopolist in order to freely enter a market. Patents give a firm
the legal right to stop other firms producing a product for a given period of time, and so
restrict entry into a market. Patents are intended to
encourage invention and technological progress by offering this financial incentive.
Similarly, trademarks and servicemarks may represent a kind of entry barrier for a particular
product or service if the market is dominated by one or a few well-known names.
  Investment - That is especially in industries with economies of scale and/or natural
monopolies.
 Network effect - When a good or service has a value that depends on the number of
existing customers, then competing players may have difficulties in entering a market where
an established company has already captured a significant user base.
 Predatory pricing - The practice of a dominant firm selling at a loss to make competition
more difficult for new firms that cannot suffer such losses, as a large dominant firm with
large lines of credit or cash reserves can. It is illegal in most places; however, it is difficult to
prove. See antitrust.
 Restrictive practices, such as air transport agreements that make it difficult for new
airlines to obtain landing slots at some airports.
 Research and development - Some products, such as microprocessors, require a large
upfront investment in technology which will deter potential entrants.
 Supplier agreements - Exclusive agreements with key links in the supply chain can make
it difficult for other manufacturers to enter an industry.
 Sunk costs - Sunk costs cannot be recovered if a firm decides to leave a market. Sunk
costs therefore increase the risk and deter entry.
 Vertical integration - A firm's coverage of more than one level of production, while
pursuing practices which favor its own operations at each level, is often cited as an entry
barrier

BARRIERS TO EXIT are obstacles in the path of a firm which wants to leave a
given market or industrial sector. These obstacles often cost the firm financially to leave the
market and may prohibit it doing so.

If the barriers of exit are significant; a firm may be forced to continue competing in a market, as
the costs of leaving may be higher than those incurred if they continue competing in the market.

The factors that may form a barrier to exit include:

 High investment in non-transferable fixed assets. This is particularly common
for manufacturing companies that invest heavily in capital equipment which is specific to one
task.

 High redundancy costs. If a company has a large number of employees, employees with
high salaries, or contracts with employees which stipulate high redundancy payments, then
the firm may face significant cost if it wishes to leave the market.

 Other closure costs. Contract contingencies with suppliers or buyers and any penalty
costs incurred from cutting short tenancy agreements.

 Potential upturn. Firms may be influenced by the potential of an upturn in their market
that may reverse their current financial situation.