Strategic Management

What is a strategy?
• A company's strategy consists of the competitive moves and
business approaches that managers employ to attract and
please customers, compete successfully, grow the business,
conduct operations and achieve targeted objectives.
• The emphasis is on product/service, buyer segments,
geographic areas and business approaches the management
intends.
Some of the options for strategies can be:
• Having wide range of products vs narrow product focus e.g.
Unilever vs CavinKare
• Target high end of the market vs target low end e.g.
Kingfisher airlines vs Deccan airlines (before the merger)
• Low cost vs product superiority or personalized customer
service or added convenience e.g. Deccan airlines vs
Kingfisher airlines(before the merger)
• Focus on any one part of the business in the chain of events
from production to distribution vs partially or fully integrated
e.g. Unilever vs Manufacturers for Unilever products
• Focus on local or regional markets vs compete nationally or
globally e.g. Unilever vs CavinKare
• Focus on one industry vs diversified industries e.g. ITC vs
Unilever
• Offensive strategies to gain market share vs sound defense to
defend market share
Sources to know the strategy of a company:
• Actions in market place e.g. company reducing the price to
maintain the lowest price
• Statements of management
• Annual reports
• Press releases
• Company websites

Strategy and quest for competitive advantage

• A company's strategy should be aimed at providing a product
or service that is distinctive from competitors offerings or
developing competitive capabilities that rivals cannot match.
E.g. Toyota
• Winning a sustainable competitive advantage over rivals
hinges on building competitively valuable expertise and
capabilities than a distinctive product. e.g.. Sophisticated
distribution systems and merchandising expertise (Wal-Mart),
Product innovation (3M), defect-free manufacturing (Toyota),
superior e-commerce (Dell)

The four most frequently used strategic approaches are:

• Being the industry's low-cost provider - This strategy provides
cost-based competitive advantage over rivals. E.g.. Wal-Mart,
Go Air
• Out competing rivals based on differentiating features such as
higher quality, wider product selection, added performance,
better service, more attractive styling, technological
superiority or unusually good value for the money. e.g. -
Johnson & Johnson (product reliability), Amazon.com (wide
selection and convenience), Oberoi Hotels (prestige)
• Focusing on a narrow market niche - e.g., eBay (online
auctions), McAfee (virus software protection), Cafe Coffee
Day (Coffee drinks)
• Developing expertise and resource strengths that gives the
company competitive capabilities that rivals cannot easily
imitate or trump with capabilities of their own - e.g.. FedEx
(next-day delivery), Walt Disney (theme park management)
Strategy is partly proactive and partly reactive
• A company strategy is typically a blend of proactive actions to
improve market position and financial performance and as-
needed reactions to unanticipated developments and fresh
market conditions.
• The biggest portion of the strategy is to maintain previously
initiated actions and business approaches that are working
well and launch new initiatives to strengthen the company's
overall position and performance. This is proactive actions
based on management's analysis and thinking about the
company's position and market conditions.
• Some of the portion of the strategy is a seasoned reaction to
the happenings in the market place like competitors moves,
customers requirement change, new technologies or
changing political and economic climate.
• Learning from the implementation of strategies is also very
important.

A company's strategy emerges incrementally and then evolves

over time
• A company's strategy must always be viewed as a work in
progress.
• It evolves with trials and errors, experimentation, deliberate
management design and as response to unfolding events.

Crafting strategy calls for good entrepreneurship

• The constantly evolving nature of a company's situation puts
a premium on management's ability to exhibit astute
entrepreneurship.
• The faster a company's business environment changes the
more critical is making strategic adjustments.
• It means paying attention to early warnings of future change
and being willing to experiment with dare-to-be-different
ways to establish a market position in that future.
• It means proactively searching out opportunities to do new
things or to do things differently.
• It means adapting rapidly and innovatively.
• Good strategy making is therefore inseparable from good
business entrepreneurship. One cannot exist without the
other.
Strategy and ethics: Passing the test of moral scrutiny
• Ethical and moral standards go beyond the prohibitions of law
to the issues of "right" versus "wrong" and duty - what one
should do.
• Ethical lapses damage a company's reputation and business.
• Customers and suppliers are wary of doing business with
company that does not follow ethical behavior.
• Some companies are proactive in linking strategic action and
ethics, ethically questionable business opportunities are
forbidden, insist on all aspects of company strategy reflect
high ethical standards, all company personnel are expected to
act with integrity, checks and balances are put in place to
monitor behavior, enforce ethical codes of conduct and
provide guidance regarding grey areas.
• Employees with character and integrity do not want to work
for a company whose strategies are shady or whose
executives lack character and integrity.

A strategy is ethical only if:

1. It does not entail actions and behaviors that cross the line
from "can do" to "should not do" and “unsavory".
2. It allows management to fulfill its ethical duties to all
stakeholders - owners/shareholders, employees, customers,
suppliers, the communities in which they operate and society
at large.
Examples of questionable ethical actions:
• Advertisement of alcoholic products in media having an
audience as much as 50 percent underage viewers?
• Buying products manufactured by child labors?
• Selling products not acceptable in one country due to
stringent norms to another country which does not have very
stringent norms?
Relationship between a company's strategy and its business
model
• The concept of a company's business model is more narrowly
focused than the concept of a company's business strategy.
• A company's strategy relates broadly to its competitive
initiatives and business approaches (irrespective of the
financial outcomes it produces). A company's business model
deals with whether the revenues and costs flowing from the
strategy demonstrate business viability.
• Companies that have been in business for a while and are
making acceptable profits have a "proven" business model -
there is clear evidence that their strategy is capable of
profitability and that they have a viable business enterprise
• Companies that are in a start-up mode or that are losing
money have a "questionable" business model.
What makes a strategy a winner?
A winning strategy can be distinguished from a losing or
mediocre strategy by the following questions:
• How well does the strategy fit the company's situation?
– A strategy has to match the industry and competitive conditions
– It has to tap a company's best market opportunities
– It has to be tailored to the company's resource strengths and
weaknesses, competencies and competitive capabilities.
– It has to fit with both the external and internal aspects of a company's
overall situation for the best possible business results.
• Is the strategy helping the company achieve a sustainable
competitive advantage?
– The bigger and more durable the competitive edge that a strategy
helps build, the more powerful and appealing it is.
• Is the strategy resulting in better company performance?
– A good strategy boosts company performance in terms of gains in
profitability and financial strength and gains in company's competitive
strength and market standing.

These questions help a company to choose from various

strategic options available. Each of the options can be
checked in terms of their ability to answer the above
questions.
Other criteria for judging the merits a particular strategy include
– Internal consistency and unity among all the pieces of strategy
– The degree of risk the strategy poses as compared to alternative
strategies
– The degree to which it is flexible and adaptable to changing
circumstances.
Why is crafting and executing strategy important?
There are two reasons
1. There is a compelling need for managers to proactively shape,
or craft, how a company's business will be conducted.
– A clear and reasoned strategy is a road map to competitive advantage,
customer satisfaction and achieving performance targets.
– A winning strategy should be well-conceived with offensives to out
innovate and outmaneuver rivals and secure sustainable competitive
advantage, and then using this market edge to achieve superior
financial performance.
– A powerful strategy helps its products/services to become industry
standard.
– High-achieving enterprises are nearly always the product of astute
proactive strategy making.
2. A strategy-focused organization is more likely to be a strong
bottom-line performer.
– Strategy making and execution has a positive impact on revenue
growth, earnings and return on investment.
– Crafting and executing a winning strategy ensures initiatives and
activities of different divisions, departments, managers and work
groups will be unified into a coordinated, cohesive effort.
• Crafting and executing strategy are thus core management
functions.

• The management team should chart the company's direction,

develop competitively effective strategic moves and business
approaches, pursue what needs to be done internally to
produce good everyday strategy execution and operating
excellence.

• The better conceived a company's strategy and the more

competently it is executed, the more likely it is that the
company will be a standout performer in the marketplace.
Strategic Management Process
The stages of Strategic Management Process are as follows:
1. The Strategic Planner has to define what is needed to be
accomplished, which helps in defining the objectives,
strategies and policies of the organization.
2. The results of the current performance of the organization
are documented.
3. The Board of Directors and the top management will have to
review the current performance of the organization.
4. After the review, the organization will have to scan the
internal environment for strengths and weaknesses and the
external environment for opportunities and threats.
5. The internal and external scan helps in selecting the strategic
factors.
6. These selected factors have to be reviewed and redefined in
relation to the mission and objectives.
7. The review will generate a set of alternative strategies.
8. The best strategic alternative is selected and implemented
through programme budgets and procedures.
9. Monitoring, evaluation and review of the implementation
can provide a feedback on the changes in the
implementation required.