Strategic Management

Session 2

Chapter 1
Basic Concepts of Strategic Management
Learning Objectives (1 of 2)

1.1 Discuss the benefits of strategic management

1.2 Explain how globalization, innovation, and environmental sustainability
influence strategic management
1.3 Discuss the differences between the theories of organizations
1.4 Discuss the activities where learning organizations excel
Learning Objectives (2 of 2)

1.5 Describe the basic model of strategic management and its components
1.6 Identify some common triggering events that act as stimuli for strategic
change
1.7 Explain strategic decision-making modes
1.8 Use the strategic audit as a method of analyzing corporate functions
and activities
Basic Model of Strategic Management (1 of 9)

Strategic management consists of four basic elements:

1. Environmental scanning
2. Strategy formulation
3. Strategy implementation
4. Evaluation and control
Figure 1-1: Basic Elements of the Strategic Management Process
Figure 1-2: Strategic Management Model
Figure 1-2: Strategic Management Model
Figure 1-2: Strategic Management Model
Figure 1-2: Strategic Management Model
Figure 1-2: Strategic Management Model
Basic Model of Strategic Management (2 of 9)

• Environmental Scanning
– the monitoring, evaluating and disseminating of information from the
external and internal environments to key people within the
organization
– SWOT analysis: simple way to conduct environmental scanning
Figure 1-3: Environmental Variables
Environmental Scanning – Let’s Identify the
Variable

Societal Economic

Societal Economic
Political-Legal
Industry-Govt
Basic Model of Strategic Management (3 of 9)
• Strategy formulation
– process of investigation, analysis, and decision-making that provides the company
with the criteria for attaining a competitive advantage
– includes defining the competitive advantages of the business, crafting the corporate
mission, specifying achievable objectives, and setting policy guidelines
Basic Model of Strategic Management (4 of 9)

• Mission
– purpose or reason for the organization’s existence
• Vision
– describes what the organization would like to become
• Objectives
– results of planned activity
Basic Model of Strategic Management (5 of 9)

• Strategy
– forms a comprehensive master approach that states how the corporation
will achieve its mission and objectives
– maximizes competitive advantage and minimizes competitive
disadvantage
– corporate, business, functional
Figure 1-4: Hierarchy of Strategy
Strategic Planning Process

Business
Vision
Strategic Planning: 4 Key Areas, 4 Organization Levels
➔ Overall Corporate Plan –
➔ Finance/ Marketing /HR / Production

➔ Strategic marketing plan

➔ defines the target market / value proposition based on available / accessible opportunities

➔ Tactical marketing plan

➔ Marketing tactics covering 4Ps

➔ Marketing plan
➔ Central instrument for directing / coordinating / coordinating the marketing effort
➔ Developed by inputs from several functions
➔ Set all the control parameters for monitoring
Strategic Planning – 4 Organizational Levels
➔ Corporate
➔ Divisional
➔ Business / SBU
➔ Product
Strategic Planning – 4 Organizational Levels

Corporate Strategy

Division 1 Division 2 Division 3

Business A Business B

Product 1 Product 1

Product 2 Product 2

Product 3 Marketing Plan Operating Plan

Finance Plan HRD Plan

Strategic Planning – 4 Organizational Levels e.g. Siemens

Siemens

Projects, Transmission
Motors, Drives & Aut Switchgear
& Distribution

Drives Motors

A.C. Drives AC Motors

D.C. Drives Special Purpose Motors

UPS Marketing Plan Operating Plan

Finance Plan HRD Plan

Hierarchy of Strategy

Corporate Level

Division Level

Business Level

Product Oriented

Market
Oriented
Basic Model of Strategic Management (6 of 9)

• Policy
– a broad guideline for decision-making that links formulation of a
strategy with its implementation
Basic Model of Strategic Management (7 of 9)

• Strategy implementation
– process by which strategies and policies are put into action through the development
of programs, budgets, and procedures
Basic Model of Strategic Management (8 of 9)

• Evaluation and control

– a process in which corporate activities and performance results are
monitored so that actual performance can be compared with desired
performance
Basic Model of Strategic Management (9 of 9)

• Performance
– result of activities
– includes actual outcomes of the strategic management process
• Feedback/learning process
– revise or correct decisions based on performance
 LET’S REWIND

29
Let’s Rewind – Session 1

• Strategic management includes?

o Environmental scanning (Internal, Task, Societal),
o Strategy formulation (mission, objectives, strategies, policies),
o Strategy implementation (program, budgets, procedures),
o Evaluations & Control (Matrix),
o Feedback
Hierarchy of Strategy
 Initiation of Strategy: Triggering Events
➔ Triggering event
➔ Concept of Punctuated Equilibrium
➔ Short interim challenge/adversity specific tweaks
➔ something that acts as a stimulus for a change in strategy and can include:
➔ new CEO
➔ external intervention
➔ threat of change of ownership
➔ performance gap
➔ strategic inflection point
 Initiation of Strategy: Triggering Events

➔ Triggering event
➔ New CEO - cuts through the veil of complacency and forces people to question the
very reason for the corporation’s existing performance – TATA Motors (Guenter
Butschek)
➔ External intervention – External body/authority - Bank’s amalgamation result of
Government of India’s intervention
➔ Threat of change of ownership – Another firm may initiate a takeover by buying a
company’s common stock - Dunlop take over case (Manu Chabria); L&T-Mindtree
Initiation of Strategy: Triggering Events

➔ Triggering event
➔ Performance gap – Key performance criteria continue to fail reaching set targets –
Revenue, profit, dividend to shareholders, market share
➔ Strategic inflection point - new technologies, a different regulatory environment, a
change in customers’ values, or a change in what customers prefer – 2G to 4G, One
window clearance, Convenience as value, preference for herbal
Strategic Decision-making

➔ Strategic Decisions
➔ deal with the long-term future of an entire organization and have
three characteristics:
1. rare
2. consequential
3. directive
3 Important Characteristics of Strategic Decisions
➔ Rare
➔ Strategic decisions are unusual and typically have no precedent to follow.
➔ Consequential
➔ Strategic decisions commit substantial resources and demand a great deal
of commitment from people at all levels.
➔ Directive
➔ Strategic decisions set precedents for lesser decisions
➔ and future actions throughout an organization.
Mintzberg’s Modes of Strategic Decision-making (1 of 3)

➔ Entrepreneurial Mode
➔ strategy is made by one powerful individual

➔ Adaptive Mode
➔ characterized by reactive solutions to existing problems, rather
than a proactive search for new opportunities
➔ Planning Mode
➔ involves the systematic gathering of appropriate information for
situation analysis, the generation of feasible alternative strategies,
and the rational selection of the most appropriate strategy
Mintzberg’s Modes of Strategic Decision-making (2 of 3)

Entrepreneurial Adaptive Planning

➔ Strategy dominated by ➔ No Clear Goals -
active search for ➔ Planner makes strategy
strategy adapted based ➔ Focus on systematic
opportunities on power groups
➔ Power is Centralised analysis
➔ Strategy formulation is ➔ Integrated Decisions &
➔ Growth is dominant reactive - to emerging
goal Strategies
problems ➔ Useful in organizations
➔ Has periods of ➔ No Proactive search for
dramatic growth and of reasonable size &
opportunities stable markets.
slow progress ➔ Decision making
➔ Normal in startups / incremental
family based ➔ Decisions are disjointed
organizations ➔ Common in large orgs
with huge sunk costs
Mintzberg’s Modes of Strategic Decision-making (3 of 3)

➔ Logical Incrementalism
➔ a synthesis of the planning, adaptive, and, to a lesser extent, the
entrepreneurial modes
Strategic Decision-making Process

1. Evaluate current performance results.

2. Review corporate governance.
3. Scan and assess the external environment.
4. Scan and assess the internal corporate environment.
5. Analyze strategic factors.
6. Generate, evaluate, and select the best alternative strategies.
7. Implement selected strategies.
8. Evaluate implemented strategies.
Figure 1-5: Strategic Decision-Making Process (1 of 2)
Figure 1-5: Strategic Decision-making Process (2 of 2)
The Strategic Audit: Aid to Strategic Decision-making
➔ Strategic Audit
➔ An important part of business strategy is concerned with ensuring that
the resources and competencies required for the business are well
understood and evaluated - a process that is often known as
a "Strategic Audit".
➔ provides a checklist of questions, by area or issue, that enables a
systematic analysis to be made of various corporate functions and
activities
The Strategic Audit: Process
The Strategic Audit process can be summarized as under :

1. Resource Audit:
➔ Identifies the key resources available to a business.
➔ these can either be owned e.g. plant and machinery, trademarks,
retail outlets
➔ OR other can be obtained through partnerships, joint ventures or
simply supplier arrangements with other businesses.
The Strategic Audit: Process
The Strategic Audit process can be summarized as under :

2. Value Chain Analysis:

➔ describes the activities that take place in a business and relates them to an analysis
of the competitive strength of the business. Influential work by Michael Porter
suggested that the activities of a business could be grouped under two headings:
➔ Primary Activities - those that are directly concerned with creating and delivering a
product (e.g. component assembly)
➔ Support Activities, which whilst they are not directly involved in production, may
increase effectiveness or efficiency (e.g. human resource management).
➔ Value Chain Analysis is one way of identifying which activities are best undertaken
by a business and which are best provided by others ("outsourced").
The Strategic Audit: Process
The Strategic Audit process can be summarized as under

3. Core Competence Analysis:

➔ Core competencies are those capabilities that are critical to a business achieving
competitive advantage. The starting point for analyzing core competencies is
recognizing that competition between businesses is as much a race for competence
mastery as it is for market position and market power.
➔ Senior management cannot focus on all activities of a business and the competencies
required to undertake them.
➔ Senior management therefore focuses attention on competencies that significantly
impacts the competitive advantage.
The Strategic Audit: Process
The Strategic Audit process can be summarized as under:

4. Performance Analysis
➔ The resource audit, value chain analysis and core competence analysis help to define the
strategic capabilities of a business.
➔ After completing this analysis, one may need to evaluate the overall performance of the
business. Key questions to analyze this are
➔ How have the resources deployed in the business changed over time? This is historical analysis
➔ How do the resources and capabilities of the business compare with others in the industry?
This is industry norm analysis
➔ How do the resources and capabilities of the business compare with "best-in-class" -
wherever that is to be found? This is benchmarking
➔ How has the financial performance of the business changed over time, and how does it
compare with key competitors and the industry as a whole? This is ratio analysis
The Strategic Audit: Process
The Strategic Audit process can be summarized as under: :

5. Portfolio Analysis:
➔ Portfolio Analysis analyses the overall balance of the strategic business units of a business.
➔ Most large businesses have operations in more than one market segment, and often in
different geographical markets. Larger, diversified groups often have several divisions (each
containing many business units) operating in quite distinct industries.
➔ An important objective of a strategic audit is to ensure that the business portfolio is strong
and that business units requiring investment and management attention are highlighted. This is
important - a business should always consider which markets are most attractive and which
business units have the potential to achieve advantage in the most attractive markets.
➔ Traditionally, two analytical models have been widely used to undertake portfolio analysis:
➔ The Boston Consulting Group Portfolio Matrix
➔ The McKinsey/General Electric Growth Share Matrix
The Strategic Audit: Process
The Strategic Audit process can be summarized as under: :

6. SWOT Analysis:
➔ SWOT is an abbreviation for Strengths, Weaknesses, Opportunities
and Threats.
➔ SWOT analysis is an important tool for auditing the overall strategic
position of a business and its environment.
Strategic Management