Strategic MGT - 1
Strategic MGT - 1
Assignment No.
Discipline
Term
Submitted By
Examination Roll No.
Strategic Management
01
M.B.A. (Executive)
III
Samiullah Khan
056
optimum
management
practices.
is
The formulation and implementation of the major goals and initiatives taken by a company's top
management on behalf of owners, based on consideration of resources and an assessment of the
internal and external environments in which the organization competes. Strategy is defined as
"the determination of the basic long-term goals of an enterprise, and the adoption of courses of
action and the allocation of resources necessary for carrying out these goals. Strategies are
established to set direction, focus effort, define or clarify the organization, and provide
consistency or guidance in response to the environment.
Strategic management involves the related concepts of strategic planning and strategic thinking.
Strategic planning is analytical in nature and refers to formalized procedures to produce the data
and analyses used as inputs for strategic thinking, which synthesizes the data resulting in the
strategy. Strategic planning may also refer to control mechanisms used to implement the strategy
once it is determined. In other words, strategic planning happens around the strategic thinking or
strategy making activity.
Strategic
management
is
often
described
as
involving
two
major
processes
i.e., formulation and implementation of strategy. While described sequentially below, in practice
the two processes are iterative and each provides input for the other.
Formulation
Formulation of strategy involves analyzing the environment in which the organization operates,
then making a series of strategic decisions about how the organization will compete. Formulation
ends with a series of goals or objectives and measures for the organization to pursue.
Environmental analysis includes the:
1. Remote external environment, including the political, economic, social, technological,
legal and environmental landscape (PESTLE);
2. Industry environment, such as the competitive behavior of rival organizations, the
bargaining power of buyers/customers and suppliers, threats from new entrants to the
industry, and the ability of buyers to substitute products (Porter's 5 forces); and
Who is the target customer for the organization's products and services?
Where are the customers and how do they buy? What is considered "value" to the
customer?
Which businesses, products and services should be included or excluded from the
portfolio of offerings?
What differentiates the company from its competitors in the eyes of customers and
other stakeholders?
What are the important opportunities and risks for the organization?
How can the firm grow, through both its base business and new business?
The answers to these and many other strategic questions result in the organization's strategy and
a series of specific short-term and long-term goals or objectives and related measures.
Implementation
The second major process of strategic management is implementation, which involves decisions
regarding how the organization's resources (i.e., people, process and IT systems) will be aligned
and mobilized towards the objectives. Implementation results in how the organization's resources
are structured (such as by product or service or geography), leadership arrangements,
communication, incentives, and monitoring mechanisms to track progress towards objectives,
among others. Running the day-to-day operations of the business is often referred to as
"operations management" or specific terms for key departments or functions, such as "logistics
management" or "marketing management," which take over once strategic management
Q.2: How are strengths and weaknesses of any company determined? Write in
detail.
Listing of a company's strengths and weaknesses are a normal part of any attempt at strategic
planning for virtually all companies. No shock there! But, why do we perform these analyses,
and what do we expect to learn by doing them? To be sure the company is headed in the right
direction, a competent, thoughtful review and updating of your strengths and weaknesses is a
fundamental element of good strategic planning.
First, we must be sure we are actually doing the analysis of our strengths and weaknesses
properly. Some teams just get together and throw a bunch of ideas on the page or flip chart, then
go on to their next exercise. Little additional thought is given to the importance or impact of
strengths and weaknesses and the reasons for defining them and analyzing them.
To set the stage for analysis of strengths and weaknesses, the team should first discuss why the
team is looking for them, what is being looked for, and what will be done with the results when
they have completed their work.
Why does your team want to determine what your strengths are?
Simply put, your strengths are those things that your company does well which help you perform
your jobs, deliver value to your customers and/or give you an advantage over your competition.
They are some of the cornerstones you use to build your business and to build and maintain
competitive advantages in the market place.
are doing very well, with little consideration of what is happening in the real world. Your leader's
job is to assure that the team's approach is fair, balanced and objective, so each analysis obtains
the best, real world result.
What areas of the company should be addressed?
While this varies within each company depending on what the company does and how it
operates, generally, the team should look at the overall company strengths and weaknesses as
well as the strengths and weaknesses of key areas within the company. It is important to look at
how each area interacts with the customer world, both inside and outside the company, as well as
analyzing the entity as a whole. Recognize that it may well happen that some areas have different
strengths or weaknesses when examined individually, but the company performance may be
totally different when viewed as an integrated unit.
When you have laid the groundwork for your team to begin analyzing your strengths and
weaknesses by setting out expectations and limitations as discussed above, your leader should
throw the floor open for ideas.
(b)
(c)
Diversification Strategy
(a)
Porter five forces analysis is a framework to analyze level of competition within an industry
and strategy development. It draws upon industrial organization (IO) economics to derive five
forces that determine the competitive intensity and therefore attractiveness of an Industry.
Attractiveness in this context refers to the overall industry profitability. An "unattractive"
industry is one in which the combination of these five forces acts to drive down overall
The following factors can have an effect on how much of a threat new entrants may pose:
Potential factors:
1. The existence of barriers to entry (patents, rights, etc.). The most attractive segment is
one in which entry barriers are high and exit barriers are low. Few new firms can enter
and non-performing firms can exit easily.
2. Government policy
3. Capital requirements
4. Absolute cost
5. Cost disadvantages independent of size
6. Economies of scale
7. Economies of product differences
8. Product differentiation
9. Brand equity
10. Switching costs or sunk costs
11. Expected retaliation
12. Access to distribution
13. Customer loyalty to established brands
14. Industry profitability (the more profitable the industry the more attractive it will be to
new competitors)
The existence of products outside of the realm of the common product boundaries increases
the propensity of customers to switch to alternatives. For example, tap water might be considered
a substitute for Coke, whereas Pepsi is a competitor's similar product. Increased marketing for
drinking tap water might "shrink the pie" for both Coke and Pepsi, whereas increased Pepsi
advertising would likely "grow the pie" (increase consumption of all soft drinks), albeit while
giving Pepsi a larger slice at Coke's expense. Another example is the substitute of traditional
phone with a smart phone.
Potential factors:
1. Buyer propensity to substitute
2. Relative price performance of substitute
3. Buyer switching costs
4. Perceived level of product differentiation
5. Number of substitute products available in the market
6. Ease of substitution
7. Substandard product
8. Quality depreciation
9. Availability of close substitute
make prices low the company will have no other choice because of large number of customers
pressure.
Potential factors:
1. Buyer concentration to firm concentration ratio
2. Degree of dependency upon existing channels of distribution
3. Bargaining leverage, particularly in industries with high fixed costs
4. Buyer switching costs relative to firm switching costs
5. Buyer information availability
6. Force down prices
7. Availability of existing substitute products
8. Buyer price sensitivity
9. Differential advantage (uniqueness) of industry products
10. RFM (customer value) Analysis
11. The total amount of trading
Usage
Strategic consultants occasionally use Porter's five forces framework when making a qualitative
evaluation of a firm's strategic position. However, for most consultants, the framework is only a
starting point or "checklist." They might use value chain or another type of analysis in
conjunction.[3] Like all general frameworks, an analysis that uses it to the exclusion of specifics
about a particular situation is considered naive.
According to Porter, the five forces model should be used at the line-of-business industry level; it
is not designed to be used at the industry group or industry sector level. An industry is defined at
a lower, more basic level: a market in which similar or closely related products and/or services
are sold to buyers. (See industry information.) A firm that competes in a single industry should
develop, at a minimum, one five forces analysis for its industry. Porter makes clear that for
diversified companies, the first fundamental issue in corporate strategy is the selection of
industries (lines of business) in which the company should compete; and each line of business
should develop its own, industry-specific, five forces analysis. The average Global 1,000
Company competes in approximately 52 industries (lines of business).
Criticisms
Porters framework has been challenged by other academics and strategists such as Stewart Neill.
Similarly, the likes of ABC, Kevin P. Coyne and Somu Subramaniam have stated that three
dubious assumptions underlie the five forces:
1. That buyers, competitors, and suppliers are unrelated and do not interact and collude.
2. That the source of value is structural advantage (creating barriers to entry).
3. That uncertainty is low, allowing participants in a market to plan for and respond to
competitive behavior.
An important extension to Porter was found in the work of Adam Branden burger and Barry
Nalebuff of Yale School of Management in the mid-1990s. Using game theory, they added the
concept of complementors (also called "the 6th force"), helping to explain the reasoning behind
strategic alliances. Complementors are known as the impact of related products and services
already in the market. The idea that complementors are the sixth force has often been credited
to Andrew Grove, former CEO of Intel Corporation. According to most references, the sixth
force is government or the public. Martyn Richard Jones, whilst consulting at Group Bull,
developed an augmented 5 forces model in Scotland in 1993. It is based on Porter's model and
includes Government (national and regional) as well as Pressure Groups as the notional 6th
force. This model was the result of work carried out as part of Groupe Bull's Knowledge Asset
Management Organization initiative.
Porter indirectly rebutted the assertions of other forces, by referring to innovation, government,
and complementary products and services as "factors" that affect the five forces.
It is also perhaps not feasible to evaluate the attractiveness of an industry independent of the
resources a firm brings to that industry. It is thus argued (Wernerfelt 1984) that this theory be
coupled with the Resource-Based View (RBV) in order for the firm to develop a much more
sound strategy. It provides a simple perspective for accessing and analyzing the competitive
strength and position of a corporation, business or organization.
(b)
Setting goals and objectives for your small business is important to ensure its growth and
sustainability. Defining goals and putting together a comprehensive, employee-focused
management strategy represents an important part of strategic management. This means
analyzing the major initiatives that your company takes and putting translating initiatives into
reasonable and workable goals.
Management by Objectives
In 1954, leadership and management expert Peter Drucker introduced the concept of
"Management by Objectives," sometimes also called "Management by Results." MBO is a
cooperative, business-wide strategy for setting goals and implementing organizational change.
Importantly, MBO compares progress toward meeting goals with the actual performance of the
business and its employees. The idea is that when employees are involved in helping to set their
own goals and those of the business, they'll be more likely to meet the goals because a sense of
buy-in gets created.
Short-Term Objectives
Short-term objectives represent the goals an organization sets that are centered on tasks that can
be achieved within the next six months or, at the outset, within one year. An example of a shortterm goal might be to increase sales by 10 percent. This is an easily measurable goal and
employees can be held directly accountable for ensuring that it is met.
Long-Term Objectives
Long-term objectives define any goal that has a time frame exceeding one year. Business goals
that are normally considered long term include developing a new product, growing annual
revenue and developing a comprehensive marketing and public relations strategy. Importantly,
long-term goals must not go on forever. While they take more time than short-term objectives,
long-term goals must be realistic and time bound.
Strategic Management
A business's long-term and short-term goals can be put together into a comprehensive strategic
management plan for the company. The concept of strategic management says that goals should
conform to the organization's mission and vision statements and that goals ought to reflect the
direction the business owner and general managers wish to take the company. Essentially, goals
that are superfluous or which detract from the company's mission should play second fiddle to
more serious and beneficial objectives.
(c)
Diversification Strategy
Diversification is a corporate strategy to enter into a new market or industry which the business
is not currently in, whilst also creating a new product for that new market. This is most risky
section of the Ansoff Matrix, as the business has no experience in the new market and does not
know if the product is going to be successful.
Diversification is part of the four main growth strategies defined by Igor Ansoff's
Product/Market matrix:
Ansoff pointed out that a diversification strategy stands apart from the other three strategies. The
first three strategies are usually pursued with the same technical, financial, and merchandising
resources used for the original product line, whereas diversification usually requires a company
to acquire new skills, new techniques and new facilities.
Note: The notion of diversification depends on the subjective interpretation of new market and
new product, which should reflect the perceptions of customers rather than managers. Indeed,
products tend to create or stimulate new markets; new markets promote product innovation.
Product diversification involves addition of new products to existing products either being
manufactured or being marketed. Expansion of the existing product line with related products is
one such method adopted by many businesses. Adding tooth brushes to tooth paste or tooth
powders or mouthwash under the same brand or under different brands aimed at different
segments is one way of diversification. These are either brand extensions or product extensions
to increase the volume of sales and the number of customers.
Goals of diversification
According to Calori and Harvatopoulos (1988), there are two dimensions of rationale for
diversification. The first one relates to the nature of the strategic objective: Diversification may
be defensive or offensive.
Defensive reasons may be spreading the risk of market contraction, or being forced to diversify
when current product or current market orientation seems to provide no further opportunities for
growth. Offensive reasons may be conquering new positions, taking opportunities that promise
greater profitability than expansion opportunities, or using retained cash that exceeds total
expansion needs.
The second dimension involves the expected outcomes of diversification: Management may
expect great economic value (growth, profitability) or first and foremost great coherence with
their current activities (exploitation of know-how, more efficient use of available resources and
capacities). In addition, companies may also explore diversification just to get a valuable
comparison between this strategy and expansion.
other hand, implementation of the strategy is carried out by other set of people, which were never
consulted by the management while formulation of the company strategy. Many employees of
the company resist changing. They hardly took any effects to implement the strategy. Addition to
this, management is unaware of the ground realties of the market. As a result they did not
consider the obstacles, which implementation team might face while implementing the company
strategy.All chosen strategies, regardless of the resulting positioning of the company, tend to be
conceptual in nature and associated with a mission and vision that may be only understood at a
high level.
Although
it
is
good
thing
for
breaking
down
of
the
top-level
strategy
into
tangible
work.
For
large
company this can be rather daunting. For example, imagine that you are a CEO
of
company
that
employs
thousands
of
people.
Since
company
is
only
profitable when it is doing work that advances its strategy, each employee must
be advancing the strategy of the company every hour of every day by doing only
those things which contribute to products and services that customers value and
are willing to pay for. How is this done? The process starts with critical success
factors.
Critical
place
success
in
company
order
intends
factors
spell
for
company
to
compete
out
important
to
using
achieve
a
strategic
elements
its
strategy.
For
high-end
product
line,
that
must
example,
then
be
if
in
the
critical
success factor may be marketing a line of full-featured product line within the
next 18 months. If marketing such a product line is critical for the success and
profitability of the company, then it is correct to identify this as a critical success
factor. Although this does break down a top-level strategy into a greater level of
detail, it is still not sufficiently elaborated for an organization to take action. It is
for this reason that objectives are so important. A critical success factor such as
such
as
business plan, or finally, increasing the research and development team by 10%.
Are these objectives significantly detailed to allow for action? You could argue
that yet more detail is needed, and it is for this reason that underneath the level
of objectives is more specific direction in the form of critical business activities.
These are actions that a company must take in order to achieve its objectives.
As an example, if increasing the research and development team by 10% is an
objective, then a critical business activity associated with this objective would be
to place a series of recruiting ads in the top three target markets.
do
lowest
level
something
that
implementation
of
that
project
contributes
management
strategic
initiatives.
to
the
practices
Project
company
support
strategy. It
the
management
is
at
this
management
of
the
spell
out
processes
how to take very large pieces of work, and break them down into units that one
person, or a small team of people, can complete within a timeframe of about two
weeks. The detailed decomposition of the top level work is referred to as the
Work Breakdown Structure. The smallest actionable unit of work is referred to as
the work package. As you can see, a CEO is able to guide a company in the
pursuit of its strategy by successively breaking down a top level strategy into
critical
success
factors,
objectives,
critical
business
activities,
and
finally
work
objectives
strategic
success.
outline
what
the
company
However,
such
objectives
has
dont
to
in
explicitly
order
to
state
how
achieve
things
should be done, or the basic approach the company will take in its execution of
objectives.
Polices
companies
use
provide
guidance
policies.
Some
in
this
companies,
area
and
this
especially
is
typically
traditional
how
manufacturing
companies, use an annual policy system as a means for carrying out strategy.
The policy for the year becomes the strategic activities of focus, to the exclusion
of others. Some companies use the annual policy process as a means for rolling
out
not
only
strategy,
but
the
annual
business
plan
of
the
company.
Conflict
It is one thing to formulate a strategy, and have a framework for its execution. It
is quite another to get all employees to support the stated strategy. Employees
who have been with a company for many years, for example, may seek to work
against a strategy that breaks
with
the past in
new.
Likewise, new employees may see the company as living in the past and may
push
for
new
approach.
These are but two simple examples of a myriad of possible reasons for conflict
to exist in the development and execution of strategy. Regardless of the source
of the conflict, it is essential to recognize that conflict will always exist among
any who have an interest in the strategic direction of the company. This means
that it is not only employees that may have conflictcustomers, investors, and
even
competitors,
or
any
stakeholders
(ie
those
who
have
an
interest
in
the
company) may have a role to play. This infers that the CEO must think about
conflict in the context of strategy, and consider how to deal with it.
Rewards and Culture
When
the
stakeholders
of
the
company
are
progressing
toward
the
strategic
of
employees.
Rewards
incentivize
work
that
progresses
toward
strategic
goals, and are not available to those who work against the company strategy.
Further,
successful
having
culture
an
is
environment
all
about.
conducive
to
Motivated
and
strategic
success
incentivized
is
really
stakeholders
can
what
be
contagious,
and
as
result,
success
has
way
of
spreading
through
the
correctly aligned with the strategic plan. Many times making corrections to strategic operations
will force changes that will cause objections, yet change is an essential element of the controlling
process. You must ensure the company will be able to meet all of its short and long term strategic
goals. Adjusting strategic operations is an essential technique of strategy evaluation.
THE END