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Part 1: Strategic Analysis

Chapter 1
Strategic Management: Creating Competitive Advantage

Strategic Management: creating


competitive advantages
 Vision
What organization want to become in future.
 Mission
What is the purpose of the existence of the
organization.
 Objectives
Objectives are the targets towards which
management is directed.
 Strategy
The process of determining appropriate courses of
action for achieving organizational objectives
Infosys‘-VISION-MISSION
 Infosys' Vision:
"To be a globally respected corporation that
provides best-of-breed business solutions,
leveraging technology, delivered by best-in-class
people."
Infosys' Mission Statement :
"To achieve our objectives in an environment of
fairness, honesty, and courtesy towards our clients,
employees, vendors and society at large."
Three Components of the
mission statement
 * the needs to be served by the 
company
 * the targeted customer group

 * how the company will provide 

the product/service
Reason for Being

This is the soul-searching activity, where the


organisation tries to answer the critical
questions like `why are we here' and 'where
are we today'?
 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? 
Centers for Disease Control

Mission To promote health and quality of life by


preventing and controlling disease,
injury, and disability
Vision Healthy People in a Healthy World
Centers for Disease Control
Mission To protect, maintain and improve the
health of all Minnesotans
Vision Keeping All Minnesotans Healthy
 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.
VISION, MISSION,VALUES AND
OBJECTIVES- BEL
   VISION
- To be a world-class enterprise in professional
electronics.

   MISSION

 - To be a customer focused, globally competitive


company in defence electronics and in other
chosen areas of professional electronics, through
quality, technology and innovation.
VALUES 

- Putting customers first.


- Working with transparency, honesty & integrity.
- Trusting and respecting individuals.
- Fostering team work.
- Striving to achieve high employee satisfaction.
- Encouraging flexibility & innovation.
- Endeavouring to fulfill social responsibilities.
- Proud of being a part of the organization.
OBJECTIVES 
 - To be a customer focussed company providing
state-of-the-art products & solutions at competitive
prices, meeting the demands of quality, delivery &
service.
- To generate internal resources for profitable
growth.
- To attain technological leadership in defence
electronics through in-house R&D, partnership with
defence/research laboratories &
 academic institutions.
- To give thrust to exports.
- To create a facilitating environment for people to
realise their full potential through continuous
 learning & team work.
- To give value for money to customers & create
wealth for shareholders.
- To constantly benchmark company’s
performance with best-in-class internationally.
- To raise marketing abilities to global standards.
- To strive for self-reliance through indigenisation
BSNL-VISION  
 To become the largest telecom Service Provider
in Asia.  

 MISSION 
 To provide world class State-of-art technology
telecom services to its customers on demand at
competitive prices.

 To Provide world class telecom infrastructure in its


area of operation and to contribute to the growth
of the country's economy.
OBJECTIVES  

 To be the Lead Telecom Services Provider.


 To provide quality and reliable fixed telecom service
to our customer and there by increase customer's
confidence.
 To provide mobile telephone service of high quality
and become no. 1 GSM operator in its area of
operation.
 To provide point of interconnection to other service
provider as per their requirement promptly.
 To facilitate R & D activity in the country.
 Contribute towards:
 National Plan Target of 500 million subscriber base
for India by 2010.
 Broadband customers base of 20 million in India by
2010 as per Broadband Policy 2004.
 Providing telephone connection in villages as per
government policy.
 Implementation of Triple play as a regular
commercial proposition.
 Corporate vision is a short, inspiring
statement of what the organization intends to
become and to achieve at some point in the
future,
 often stated in competitive terms.
 Vision refers to the category of intentions that
are broad, all-inclusive and forward-thinking.
 It is the image that a business must have of
its goals before it sets out to reach them.
 It describes aspirations for the future, without
specifying the means that will be used to
achieve those desired ends.
 The Ford Motor Company vision is 'to
become the world's leading
consumer company for automotive
products and services'.
A five-component approach to
promote successful organizational
performance

 1. Vision formulation which leads to the


statement of the Mission.
 2. The mission is then converted into
performance Objectives
 3. To achieve objectives you develop
Strategies
 4. Strategy Implementation
 5. Evaluation of performance
Mission Statement & its
Purpose
 Sense of Purpose & Aspiration
 Company Image
 Statement of Company Values, Culture and
Ethics
 Role as a Guide for the Strategy Process
Model of Strategic
Management:
 Mission & goals

 Environmental analysis

 Strategic formulation

 Strategy implementation

 Strategy evaluation
Strategic Management
 Strategic management is the study of why
some firms outperform others
 How to compete in order to create competitive
advantages in the marketplace
 How to create competitive advantages in the
market place
 Unique and valuable
 Difficult for competitors to copy or substitute
Strategic Management
 Analysis
 Strategic goals (vision, mission, strategic objectives)
 Internal and external environment of the firm
 Strategic decisions
 What industries should we compete in?
 How should we compete in those industries?
 Actions
 Allocate necessary resources
 Design the organization to bring intended strategies to
reality
Mission Statement

 Business Definition
 Major Goals of the Firm
 Philosophies
 Guiding Principles
 Considerations of stakeholders
1.The vision formulation which leads to
the statement of the Mission

 Mission
 * what is business?
 * what will be the business?
 * it established long-term direction
 * it needs to use simple terminology
 * it needs to be inspirational buy in
 * recognition of threats & opportunities
 * entrepreneurial spirit
2. The mission is then converted into
performance objectives
 * measurable statements
 * specified performance
 * specified time
 * short-range objectives
 * long-range objectives
 * top-down rather than bottom-up
Strategic Management:

 A continuous activity that requires a 
constant adjustment of three major 
interdependent poles:

 the values of senior management,

 the environment,

 the resources available.
Strategic Management
Strategic Management
Concepts
Definition: Strategic management consists of the analysis,
decisions, and actions an organization undertakes in order to
create and sustain competitive advantages.

Key attributes of strategic management
 Directs the organization toward overall goals and objectives.

 Includes multiple stakeholders in decision making

 Needs to incorporate short-term and long-term perspectives

 Recognizes trade-offs between efficiency and effectiveness


Strategy:
A specific pattern of 
decisions and actions 
undertaken by the upper 
echelon of the organization   
in order to accomplish 
performance goals.
CHARACTERISTICS OF STRATEGIC
MANAGEMENT DECISIONS.

 The characteristics of strategic management


strategic management decisions vary with the
level of strategic activity considered.
These levels are:-
 Corporate level

 Business level

 functional level
CORPORATE LEVEL
 These decisions are tend to be value oriented,
conceptual, and less concrete than those at the
business or functional level of strategy formulation and
implementation. Corporate level decisions are also
characterized by greater risk, cost and profit potential
as well as by longer time horizons and greater needs
for flexibility.
 Examples of corporate level decisions include the
choice of business, dividend policies, sources of long
term financing, and priorities for growth.
FUNCTIONAL LEVEL
 These functional decisions principally involve action
oriented operational issues. These decisions are made
periodically and lead directly to implementation of
some part of the overall strategy formulated at the
corporate and business levels. There fore functional-
level decisions are relatively short range and involve
low risk and modest costs because they are dependent
on available resources.
 Some of examples are high inventory versus low
inventory levels, general versus specific purpose
production equipment.
BUSINESS LEVEL
 bridging corporate and functional level decisions are
those made at the business level. Business level
Descriptions of strategic decisions fall between those
two other levels. Business level decisions are less
costly, risky and potentially profitable than corporate
level decisions, but they are more costly, risky and
potentially profitable than functional level decision.
 For example of business level decisions involve plant
location,, marketing segmentation and geographic
coverage and distribution channel.
Level of strategy
Characteristics Corporate Business Functional
Type Conceptual Mixed Operational
Measurability Value Semi Usually
judgments quantifiable quantifiable
dominant
Frequency Periodic or Periodic or Periodic
sporadic sporadic
Adaptability Low Medium High
Relation to Innovative Mixed Supplementary
present activities
Risk Wide range Moderate Low
Profit potential Large Medium Small
Cost Major Medium Modest
Time horizon Long-range Medium range Short range
Flexibility High Medium Low
Cooperation Considerable Moderate Little
Dimensions of Strategic
decisions
 Strategic issues require top management
decisions-anticipating broader perspective
 Strategic issues involve the allocation of
large amounts of company resources-
deployment or commit for longer time
 Strategic issues are likely to have a
significant impact on the long term prosperity
of the firm.(5 yrs)
Dimensions of Strategic
decisions
 Strategic issues are future oriented
(proactive-anticipatory)
 Strategic issues usually have major
multifunctional or multi business
consequences-SBU-customer mix –
competitor-reallocation of resources
 Strategic issues necessitate considering
factors in the firm’s external environment-
(largely impacted by E E beyond their control)
Corporate level Strategy

 Tend to be value oriented, conceptual and 
less concrete than functional & business 
level strategy.
 CLS are also characterized by greater risk, 
cost, and profit potential as well as long 
time horizon
 Ex-choice of business, dividend policies, 
sources of LT financing and priorities of 
growth.
Business level Strategy

 BLS are less costly, risky, and potentially


profitable than CLS.
 Common BLS plant location, market
segmentation, geographic coverage and
distribution channels.
Functional level Strategy

 Principally involve action oriented operational


issues.
 Relatively short range and involve less risk.
 Requires company wide cooperation.
 Relatively concrete & quantifiable
 They receive critical attention
 Brand name labeling, R&D,inventory level
Corporate Strategy:

 Describes  a  corporation’s  overall 


direction  in  terms  of  its  general 
philosophy  towards  growth  and  the 
management of its various business units.

 WHAT BUSINESS ARE WE IN?
Corporate Strategy:

 Establishing  investment  priorities  and 


steering resources into the most attractive 
business units
   Initiating  actions  to  improve  combined 
performance of business units
   Improving  synergy  between  related 
business units to increase performance
  Making decisions re diversification
Business-Level Strategy
Business-Level Strategy
Low-cost leadership:
To increase market-share by having the lowest unit-
cost and price compared with competitors.

Differentiation strategy:

Distinguishing products from competitors by providing 
distinctive levels of service or quality - the customer is 
prepared to pay a premium price.
 The set of decisions and actions that result in
the formulation and implementation of plans
designed to achieve a company’s objectives.
Characteristics of Strategic
Management
Characteristic Level of Strategy
Corporate Business Functional
Type Conceptual Mixed Operational

Measurability Value Semi Usually


judgments quantifiable quantifiable
dominants
Frequency Periodic or Periodic or Periodic
sporadic- sporadic-
irregular irregular
Characteristics of Strategic
Management
Characteristic Level of Strategy
Corporate Business Functional
Adaptability Low Medium High

Relation to Innovative Mixed Supplement


present ary
activities

Risk Wide range Moderate Low


Characteristics of Strategic
Management
Characteristic Level of Strategy
Corporate Business Functional
Profit Large Medium Small
potential
Cost Major Medium Modest

Time Long range Medium Short range


horizon range
Characteristics of Strategic
Management
Characteristic Level of Strategy
Corporate Business Functional
Flexibility High Medium Low

Cooperation Considerable Moderate little


required
Formality in Strategic Management

 Definition
• Degree to which participants, responsibilities, authority, and
discretion in decision making are specified (entrepreneurial)
 Forces affecting degree of formality
• Size of organization
• Predominant management styles
• Complexity of environment
• Production process
• Problems
• Purpose of planning system
• Large-scale, future-oriented plan for
interacting with the competitive environment
to achieve objectives
• Company’s “game plan”
• Framework for managerial decisions
Benefits of Strategic
Management
 Enhances the firm’s ability to prevent problems
 Emphasizes group-based strategic decisions likely
to be based on best available alternatives
 Improves employees’ understanding of the
productivity-reward relationship
 Reduces gaps/overlaps in activities among
employees as their participation clarifies differences
in roles
 Resistance to change is reduced
Risks of Strategic Management

 Time involved may negatively impact


operational responsibilities of managers
 Lack of involvement of strategy makers in
strategy implementation may result in
shirking of responsibility for strategic
decisions
 Potential disappointment of employees over
unattained expectations requires managerial
time and training
Strategic Management
Process
Components of the Strategic
Management Model

 Company Mission
• Specifies unique purpose of company
• Identifies scope of operations
• Describes product, market, and technological
areas of emphasis
• Reflects values and priorities of decision makers
• Expresses approach to social responsibility efforts
 Internal Analysis
• Depicts quantity and quality of company’s
financial, human, and physical resources
• Assesses company’s strengths and weaknesses
• Contrasts past successes and concerns with
current capabilities to identify future capabilities
 External Environment
• Consists of all conditions and forces affecting
firm’s strategic options and define its competitive
situation
• Includes three interactive segments – remote,
industry, and operating environments
 Strategic Analysis and Choice
• Involves simultaneous assessment of external
environment and company profile
• Incorporates screening process based on mission
to generate possible and desired opportunities
• Results in selection of options from which a
strategic choice is made
 Long-term Objectives
 Profitability
 Return on investment
 Competitive position
 Technological leadership
 Productivity
 Employee relations
 Public responsibility
 Employee development
 Generic Strategies
• Low cost
• Differentiation
• Focus
 Grand Strategies
• Comprehensive, general plan of major actions
through which the firm intends to achieve its long-
term objectives in a dynamic environment
 Action Plans and Short-Term Objectives
• Translate generic and grand strategies into
“action”
 Identify specific functional tactics to be taken in the near
term
 Establish a clear time frame for completion
 Creates accountability
 Specify one or more immediate objectives as outcomes
of the action
 Functional Tactics
• Involve identifying activities unique to the function to help
build competitive advantage
• Specify detailed statements of “means” to be used to
achieve short-term objectives
 Policies that Empower Action
• Include broad, precedent-setting decisions that substitute
for repetitive or time-sensitive decision making
• Often increase managerial effectiveness by empowering
discretion of subordinates in implementing strategies
 Restructuring, Reengineering, and
Refocusing the Organization
• Involves an internal focus – getting work done
efficiently and effectively to make the strategy
work
• Downsizing, restructuring and reengineering
reflect the critical stage in strategy implementation
wherein managers attempt to recast their
organization.
 Strategic Control and Continuous
Improvement
• Control
 Tracks a strategy during implementation
 Detects problems
 Involves making necessary adjustments
• Continuous improvement
 Provides another approach to strategic control
 Allows an organization to respond more proactively and
timely to rapid developments
Strategic Analysis
 Starting point in the
strategic management
process
 Precedes effective
formulation and
implementation of
strategies
Strategic Analysis (cont.)
 Clear goals and
objectives permit
effective allocation of
resources
 Hierarchy of goals
 Vision
 Mission
 Strategic objectives
Strategic Analysis (cont.)
 Managers
 Scan the environment
 Analyze competitors
 General environment
 Industry environment
Strategic Analysis (cont.)
 Frameworks for
analyzing a firm’s internal
environment
 Strengths
 Weaknesses
 Analyzing strengths can
uncover potential sources
of competitive advantage
Strategic Analysis (cont.)
 Intellectual assets are
drivers of
 Competitive advantages
 Wealth creation
 Networks and
relationships among
 Employees
 Customers
 Suppliers
 Alliance partners
Strategic Formulation
 Successful firms develop
bases for competitive
advantage
 Cost leadership
 Differentiation
 Focusing on narrow or
industry-wide market
segments
 Sustainability
 Industry life cycle
Strategic Formulation (cont.)
 Firm’s portfolio or group
of businesses
 What business(es) should
we be in?
 How can we create
synergies among the
businesses?
 Diversification
 Related
 Unrelated
Strategic Formulation (cont.)
 Appropriate entry
strategies
 Sustain competitive
advantage in global
markets
Strategic Formulation (cont.)
 Digital technologies
change the way business
is conducted
 Added value
 Impact on performance
 Digital technologies can
enhance
 Cost leadership
 Differentiation
Strategic Implementation
 Informational control
 Monitor and scan the
environment
 Respond effectively to
threats and opportunities
 Behavioral control
 Effective corporate
governance
 Interests of managers and
owners of the firm
Strategic Implementation
(cont.)
 Organizational structure
and design
 Organizational
boundaries
 Flexible
 Permeable
 Strategic Alliances
Strategic Implementation
(cont.)
 Develop organization that
is committed to
 Excellence
 Ethical behavior
 Learning organization
responsive to
 Rapid and unpredictable
change in today’s
competitive environments
Strategic Implementation
(cont.)
 Corporate
entrepreneurship and
innovation
 New opportunities
 Enhance innovative
capacity
 Autonomous
entrepreneurial behavior
 Product champions
Strategic Implementation
(cont.)
 New ventures and small
businesses
 Major engine of economic
growth
 Recognize viable
opportunities
 Entrepreneurial leadership
skills
Corporate Governance and
Stakeholder Management

 Corporate governance: the relationship


among various participants in determining the
direction and performance of corporations
 Shareholders
 Management (led by the CEO)
 Board of directors
Corporate Governance and Stakeholder
Management
 Board of directors The Key Elements of Corporate
Governance
 Elected representatives
of the owners
 Ensure interests and
motives of management
are aligned with those of
the owners
 Effective and engaged
board of directors
 Shareholder activism
 Proper managerial
rewards and incentives
Stakeholder Management

 Two views of stakeholder management


 Zero sum
 Stakeholders compete for attention and resources of the
organization
 Gain of one is a loss to the other
 Symbiosis
 Stakeholders are dependent upon each other
 Mutual benefits
Social Responsibility

 Social responsibility: the expectation that


businesses or individuals will strive to
improve the overall welfare of society
 Managers must take active steps to make society
better
 Socially responsible behavior changes over time
 Triple bottom line
Strategic Management
Perspective
 Integrative view of the organization
 Assess how functional areas and activities “fit
together” to achieve goals and objectives
 All managers and employees must take and
integrative, strategic perspective of issues
facing the organization
Strategic Management
Perspective
 Key driving forces increasing the need for
strategic perspective and involvement
 Globalization
 Technology
 Intellectual capital
 These forces are
 Interrelated
 Accelerating the rate of change and uncertainty
Crafting Strategy Is an
Exercise in Entrepreneurship
 Strategy-making is a market-driven activity that
involves
 Studying market trends and competitors’ actions
 Keen observation of customer needs
 Scrutinizing business possibilities based on new
technologies
 Building firm’s market position via acquisitions or new
product introductions
 Pursuing ways to strengthen firm’s competitive capabilities
 Proactively searching out opportunities to
 Do new things or
 Do existing things in new or better ways
Linking Strategy With Ethics
 Ethical and moral standards go beyond

Prohibitions of law and the language of “thou shalt not”

to issues of
 Duty and “right” vs. “wrong”
 Ethical and moral standards address
“What is the right thing to do?”
 Two criteria of an ethical strategy:
 Does not entail actions and behaviors that cross the line
from “can do” to “should not do’ and “unsavory” or
“shady” and
 Allows management to fulfill its ethical duties to all
stakeholders
A Firm’s Ethical Responsibilities
to Its Stakeholders
Owners/shareholders – Rightfully expect some form of
return on their investment

Employees - Rightfully expect to be treated with dignity


and respect for devoting their energies to the enterprise

Customers - Rightfully expect a seller to provide them


with a reliable, safe product or service

Suppliers - Rightfully expect to have an equitable


relationship with firms they supply and be treated fairly

Community - Rightfully expect businesses to be good


citizens in their community
Enhancing Employee
Involvement
Local Line  Have significant profit and
Leaders
loss responsibility
Enhancing Employee
Involvement
Local Line  Champion and guide ideas
Leaders
 Create a learning
infrastructure
Executive
Leaders  Establish a domain for taking
action
Enhancing Employee
Involvement
Local Line  Have little positional power
Leaders
and formal authority
 Generate their power
Executive
Leaders through the conviction and
clarity of their ideas
Internal
Networkers
Coherence in Strategic
Direction
Company vision
 Massively inspiring
 Overarching Company vision
 Long-term
 Driven by and evokes passion
 Fundamental statement of the
organization’s
 Values

 Aspiration

 Goals Hierarchy of Goals


Coherence in Strategic
Direction
Mission statements
 Purpose of the company Company vision
 Basis of competition and
competitive advantages Mission statements
 More specific than vision
 Focused on the means by
which the firm will compete
Hierarchy of Goals
Coherence in Strategic
Direction
Strategic objectives
 Operationalize the mission
statement Company vision
 Provide guidance on how
the organization can fulfill Mission statements
or move toward the “higher
goals” Strategic objectives
 More specific
Hierarchy of Goals
 Cover a more well-defined
time frame
Coherence in Strategic
Direction
Strategic objectives
 Measurable
 Specific Company vision
 Appropriate
 Realistic Mission statements
 Timely
 Challenging Strategic objectives
 Resolve conflicts that arise
 Yardstick for rewards and incentives Hierarchy of Goals

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