Strategic Management

1. Analyze/Describe/Evaluate Strategic Management Process step by step with examples.

a. Developing a Strategic Vision and a Mission
b. Setting objectives
c. Crafting Strategies
d. Implementing Strategies
e. Strategy Evaluation and Corrective Adjustments
2. Importance of managing organizations through Strategic/ Proactive Approach?
a. Long term Survival
b. Competitive Scope
c. Competitive Advantage
d. Sustainable Competitive Advantage
3. What is the significance of a shared vision in an organization? / How shared vision can
be used as a management tool in business organizations?
4. Strategic Planning and its’ Components.
a. Describe what is strategic planning?
b. Describe components of a Strategic plan – Vision, Mission, Goals and Objectives,
Strategies, Action Plan
5. Types of Strategies
a. Corporate, Business, Functional, Operational level strategies
b. Corporate level – Growth strategies;
i. Concentration (Organic growth)
1. Vertical Integration – Forward integration, Backward Integration
2. Horizontal Integration
ii. Diversification (Inorganic growth)
1. Related Diversification (Concentric)
2. Unrelated Diversification (Conglomerate)
iii. What indicators convey that when should a Firm Diversify?
iv. 4 Strategy options to maintain a Portfolio - Combination of Related and Unrelated
Diversification Strategies
1. Dominant-business firms
2. Narrowly diversified firms
3. Broadly diversified firms
4. Multi-business firms
c. Business level – Michel Poter’s 5 generic competitive forces/strategies.
1. Analyze/Describe/Evaluate Strategic Management Process step by step
with examples.
Strategy
- An action managers take to achieve one or more of an organization’s goals.
- Consists of competitive moves and business approaches used by managers to run the
company
- It shows the direction of the organization
Strategic management process
The process by which managers choose a set of strategies that will allow a company to achieve
superior performance

Step 1: Developing a Strategic Vision and Mission

 Vision involves thinking strategically about,

o Future direction of company
o Changes in company’s product/market/customer/ technology to improve
 Current market position
 Future prospects
 Strategic vision delineates management’s aspirations for the business, providing panoramic
view of “Where we are going”
 Strategic vision describes the route a company intends to take in developing and
strengthening its business. It lays out the company’s strategic course in preparing for the
future.
 Strategic vision communicates management aspirations to stakeholders and help steer the
energies of the company personnel in a common direction.
 Strategic vision should be distinctive and specific to a particular organization.
 Characteristics of an effectively worded vision statement.
o Graphic
o Directional
o Focused
o Flexible
o Easy to communicate
Example: Vision of WUSL
“To be a leading higher education institute in Sri Lanka recognized for its outstanding
academic programmes, innovative research, scholarship and outreach with the ultimate target
of serving the mankind”

 Mission: The reason for the existence of an organization

 A well-conceived mission statement distinguishes a company’s business makeup from
that of other profit-seeking enterprises in language specific enough to give the company
its own identity!
 Characteristics of a Mission Statement
o Identifies the boundaries of the current business and highlights
 Present products and services
 Types of customers served
 Geographic coverage
o Conveys
 Who we are,
 What we do, and
 Why we are here
Example: Mission of WUSL
“To develop highly qualified and responsible citizens who contribute to the improvement of
society and sustainable development of the country”
Step 2: Setting Objectives
 Purpose of setting objectives
o Converts vision into specific performance targets
o Creates yardsticks to track performance
 Well-stated objectives should be SMART,
o Specific
o Measurable/ Quantifiable
o Achievable / Attainable
o Realistic
o Time-bound/ Contain a deadline for achievement
 Spell-out how much of what kind of performance by when

 Types of Objectives required;

o Financial Objectives - Outcomes focused on improving financial performance

 An x percent increase in annual revenues
 Annual dividend increases of x percent
 Annual increases in after-tax profits of x percent

o Strategic Objectives - Outcomes focused on improving competitive vitality and

future business position
 Winning an x percent market share
 Achieving lower overall costs than rivals
 Achieving technological leadership

o A Balanced Scorecard Approach for measuring company performance is

optimal; it entails,
 Setting financial and strategic objectives
 Placing balanced emphasis on achieving both types of objectives

o Short-term objectives
 Targets to be achieved soon
 Milestones or stair-steps for reaching long-range performance

o Long-term objectives
 Targets to be achieved within 3 to 5 years
 Prompt actions now that will permit reaching targeted long-range
performance later

Step 3: Crafting Strategies

 Strategy-making involves entrepreneurship

o Actively searching for opportunities to do new things or
o Actively searching for opportunities to do existing things in new or better ways
 Strategizing involves
o Developing timely responses to happenings in the external environment and
o Steering company activities in new directions dictated by shifting market
conditions
Step 4: Implementing Strategy

 Operations-oriented activity aimed at performing core business activities in a strategy-

supportive manner
 Tougher and more time-consuming than crafting strategy
 Key tasks include,
o Improving efficiency of strategy being executed
o Showing measurable progress in achieving targeted results

 Strategy Implementation involve;

o Building a capable organization
o Allocating resources to strategy-critical activities
o Establishing strategy-supportive policies
o Instituting best practices and programs for continuous improvement
o Installing information, communication, and operating systems
o Motivating people to pursue the target objectives
o Tying rewards to achievement of results
o Creating a strategy-supportive corporate culture
o Exerting the leadership necessary to drive the process forward and keep
improving

Step 5: Evaluating Performance and Making Corrective Adjustments

 Tasks of crafting and implementing the strategy are not a one-time exercise
o Customer needs and competitive conditions change
o New opportunities appear; technology advances; any number of other outside
developments occur
o One or more aspects of executing the strategy may not be going well
o New managers with different ideas take over
o Organizational learning occurs
All these trigger a need for corrective actions and adjustments on an as-needed basis

2. Importance of managing organizations through Strategic/Proactive

Approach?

Proactive management means anticipating needs and challenges so that you and your team
are prepared to overcome them. It's impossible to anticipate every circumstance. No leader
or organization can be proactive all the time.
Proactive strategies are focused on reducing the likelihood of problem behavior and
allowing an individual to be as independent and successful as possible. Modifications can
be directed at circumstances that immediately precede behavior (antecedents) or broader setting
events.
A company’s Strategy is partly proactive and partly reactive.
However, by following proactive approach to manage organizations will help in
1. Ensure Long term Survival

There are several factors that need to be considered when formulating strategies. One of the
factors is the changing environment. Strategic management helps the survival of the
organization because the management is able to formulate proactive strategies in which will
result to the success of the organization despite of the various barriers it might experience. In
a business, environment is ever changing; therefore, there is the need to reflect if the
organization will cope with the environmental changes. Because of the changes, it is likely for
the strengths of the organization to also change. With strategic management, it helps the
organization to consider whether the present strengths will continue to being strengths in
different situations in the future survival.
2. Increase Competitive Scope

Competitive scope defines the breadth of a company's target market. A company can have
a broad (mass market) competitive scope or a narrow (niche market) competitive scope. A firm
following the focus strategy concentrates on meeting the specialized needs of its customers.
3. Achieve Competitive Advantage

Competitive advantage accrues to a firm when it does something that the rivals cannot do or
owns something that the rival firms desire. For instance, for some firms, competitive advantage
in these recessionary times can mean a hoard of cash where it can buy out struggling firms and
increase its strategic position. In other cases, competitive advantage can mean that a firm has
lesser-fixed assets when compared to rival firms, which is again a plus in an economic
downturn.
 d. Achieve Sustainable Competitive Advantage

A firm can have a source of competitive advantage for only a certain period because the rival
firms imitate and copy the successful firms’ strategies leading to the original firm losing its
source of competitive advantage over the longer term. Hence, it is imperative for firms to
develop and nurture sustained competitive advantage.
This can be done by:

 Continually adapting to the changing external business landscape and matching internal
strengths and capabilities by channeling resources and competencies in a fluid manner
with a proactive approach.
 By formulating, implementing, and evaluating strategies in an effective manner.

3. What is the significance of a shared vision in an organization? / How

shared vision can be used as a management tool in business
organizations?

 Shared vision refers to a clear and common picture of a desired future state that
members of an organization identify with themselves – essentially a vision that has been
internalized by members of the organization
 A shared vision is intended to generate a clear organizational purpose and promote the
necessary changes in the organization so that it can achieve its desired future outcomes.
It is a response to the question, ‘‘What do we want to create?’’
 The concept of shared vision is an important foundation for proactive learning because
it provides direction and focus for learning. This, in turn, fosters energy, commitment,
and purpose among organizational members. A shared vision helps to clarify an
organization's direction on what to do and what to learn.
 When the vision is communicated equally among employees in all level, everyone put
similar effort of achieving it.
 It also become a challenge for employees, So, company can inject the sense of purpose
through the shared vision.
 It becomes a tool for motivation, tool to protect long-term survival, tool to apply
strategic thinking, a development tool for organizational learning.
4. Strategic Planning and its’ Components.

Strategic planning

 Strategic planning is not strategic thinking.

 Planning us an analysis while strategic thinking is a synthesis
 Planning is about breaking down goals or intentions into steps and formalizing these
steps so that they can be implemented almost automatically.
 Strategic planning includes the first three phases of Strategic Management process.
o Developing a Strategic Vision and Mission
o Setting goals and objectives
o Crafting strategies

Strategic planning is a process in which an organization's leaders define their vision for the
future and identify their organization's goals and objectives. The process includes establishing
the sequence in which those goals should be realized so that the organization can reach its
stated vision.

Strategic planning typically represents mid- to long-term goals with a life span of three to five
years, though it can go longer. This is different than business planning, which typically focuses
on short-term, tactical goals, such as how a budget is divided up. The time covered by a
business plan can range from several months to several years.

The product of strategic planning is a strategic plan. It is often reflected in a plan document or
other media. These plans can be easily shared, understood and followed by various people
including employees, customers, business partners and investors.

Organizations conduct strategic planning periodically to consider the effect of changing

business, industry, legal and regulatory conditions. A strategic plan may be updated and revised
at that time to reflect any strategic changes.

Components of strategic planning

 Vision
 Mission
 Goals and Objectives
 Strategies
 Action Plan
5. Types of Strategies
Corporate level Strategies
 Corporate strategy is the overall managerial game plan for a diversified company.
 It concerns how a diversified company intends to establish business positions in
different industries and the actions and approaches employ to improve the
performance of the group of businesses the company has diversified into initiatives
for crafting corporate strategy.
 Just as every product and Business unit needs separate strategies to improve their
competitive position, every corporation must decide its own strategy by looking at,
Should we
• Expand,
• Cut back, or
• Continue unchanged
 Depending on that there are main three corporate level strategies.
1. Growth Strategies – to expand the company
2. Stability Strategies – to make no change
3. Retrenchment strategies – to reduce the operations

1. Growth strategies;
i. Concentration (Organic growth) - Increasing the volume of existing business.
First and simple option for growth. When opportunities exist in the current
business, expand the volume in the current market to achieve Economies of Scale
1. Vertical Integration - The degree to which a firm operates vertically
in multiple locations on an industry’s value chain from extracting raw
materials to customer services. That is achieving vertical growth by
taking over the functions of previously provided by supplier or
distributer. Expanding the business along industry value chain
(Forward or Backward).
a. Forward integration - Going backward on an industry’s value chain,
assuming functions previously provided by supplier.
b. Backward Integration - Going forward on an industry’s value chain,
assuming functions previously provided by distributer.

Example: Keels Super, MD Lanka Canneries Limited.

 2. Horizontal Integration - The degree to which a firm operates in
multiple geographic locations at the same point at the industry’s value
chain. That is achieving horizontal growth by expanding the firm’s
products into other geographical locations and by increasing the range
of products and services
Example: Coca-Cola Acquiring Juice Brands. As part of their Horizontal
Integration strategy, Coca-Cola acquired del Valle in 2007. This was one of
the main Mexican juice companies, with the objective of expanding its
beverage portfolio mainly in Latin America.
The Walt Disney Company was established in 1923 as an animation studio
that later forayed into live-action film production, television and theme
parks. After a slew of successful ventures till the early 21st century, it began
to experience a stage of stagnation and was looking at ways to reinvent
itself.

ii. Diversification (Inorganic growth)

A company is diversified when it is in two or more lines of business that operate in
diverse market environments. Strategy-making in a diversified company is a bigger
picture exercise than crafting a strategy for a single line-of-business.
 A diversified company needs a multi-industry, multi-business strategy
 A strategic action plan must be developed for several different businesses
competing in diverse industry environments.
 Diversification is capable of building shareholder value if it passes three tests:
1. Industry Attractiveness Test—the industry presents good long-term
profit opportunities
2. Cost of Entry Test—the cost of entering is not so high as to spoil the
profit opportunities
3. Better-Off Test—the company’s different businesses should perform
better together than as stand-alone enterprises, such that company A’s
diversification into business B produces a 1 + 1 = 3 effect for shareholders

Strategies for Entering New Businesses

1. Merges
a. Holcim + Mahaweli marine = Lafarge Holcim / INSEE Cement
 b. Mobitel + SL Telecom = SLT Mobitel
2. Acquire existing company
a. Google’s $50 million acquisition of Android in 2005
b. Facebook purchased WhatsApp in 2014
c. Softlogic aquired ODEL
d. Hutch acquired Etiselat
e. Hemas acquired Atlas
3. Internal Start-up
a. Uber / Pick me
4. Joint venture/strategic partnerships
a. Sri Lanka’s Brandix + Best Pacific of Hong Kong
b. Samsung + Spotify.
c. Ford + Toyota.
d. Maruti + Suzuki

Diversification Strategic Options

1) Related Diversification (Concentric) – A Strategy-driven approach to create

shareholder value
2) Unrelated Diversification (Conglomerate) – A finance-driven approach to create
shareholder value
3) Combination
1. Related Diversification (Concentric)
 Involves diversifying into businesses whose value chains possess competitively
valuable “strategic fits” with the value chain(s) of the present business(es).
 Capturing the “strategic fits” makes related diversification a 1 + 1 = 3 phenomenon.

Strategic Fit

Exists whenever one or more activities in the value chains of different businesses are
sufficiently similar to present opportunities for

- Transferring competitively valuable expertise or technological know-how from one

business to another
- Combining performance of common value chain activities to achieve lower costs
- Exploiting use of a well-known brand name
- Cross-business collaboration to create competitively valuable resource strengths and
capabilities

Value Chain Relationships for Related Businesses

Related Diversification and Competitive Advantage

Competitive advantage can result from related diversification when a company captures
cross-business opportunities to,

- Transfer expertise/capabilities/technology from one business to another

- Reduce costs by combining related activities of different businesses into a single
operation
- Transfer use of firm’s brand name reputation from one business to another
- Create valuable competitive capabilities via cross-business collaboration in
performing related value chain activities

2. Unrelated Diversification (Conglomerate)

 Involves diversifying into businesses with
– No strategic fit
– No meaningful value chain relationships
– No unifying strategic theme
 Basic approach – Diversify into any industry where potential exists to realize good
financial results
 While industry attractiveness and cost-of-entry tests are important, better-off test is
secondary
Value Chain Relationships for Unrelated Businesses
3. Combination of Related-Unrelated Diversification Strategies

i. Dominant-business firms
– One major core business accounting for 50 - 80 percent of revenues, with
several small related or unrelated businesses accounting for remainder
ii. Narrowly diversified firms
– Diversification includes a few (2 - 5) related or unrelated businesses
iii. Broadly diversified firms
– Diversification includes a wide collection of either related or unrelated
businesses or a mixture
iv. Multi-business firms
– Diversification portfolio includes several unrelated groups of related businesses

What indicators convey that when should a Firm Diversify?

1) It is faced with diminishing growth prospects in present business

2) It has opportunities to expand into industries whose technologies and products
complement its present business
3) It can leverage existing competencies and capabilities by expanding into businesses
where these resource strengths are key success factors
4) It can reduce costs by diversifying into closely related businesses
5) It has a powerful brand name it can transfer to products of other businesses to
increase sales and profits of these businesses

Business Level Strategies

 Business strategy is the managerial game plan for a single business.

 It concerns the actions and approaches crafted by management to produce successful
performance in one specific line of business.

Business strategy is concerned with;

 Responding to changes under way in the industry
 Crafting competitive moves and market approaches that can lead sustainable
competitive advantage
 Building competitively valuable competencies and capabilities
 Coordinating the strategic initiatives of departments
 Addressing specific strategic issues faced
 Poter’s Five Generic competitive forces/strategies

Competitive Strategies helps in;

 Building profitable customer relationships

 Gaining competitive advantage
 Analyzing organizational competitors

1. Low-Cost Provider Strategies

 Make achievement of meaningful lower costs than rivals the theme of firm’s strategy
 Include features and services in product offering that buyers consider essential
 Find approaches to achieve a cost advantage in ways difficult for rivals to copy or
match
Low-cost provider/leadership means low overall costs, not just manufacturing or production
costs.
Approaches to Achieve Low-Cost Advantage
a) Controlling the Cost Drivers - Do a better job than rivals of performing value chain
activities efficiently and cost effectively
b) Revamping the Value Chain - Revamp value chain to bypass cost producing activities
that add little value from the buyer’s perspective
 2. Differentiation Strategies

 Incorporate differentiating features that cause buyers to prefer firm’s product or

service over brands of rivals.
 Find ways to differentiate that create value for buyers and are not easily matched or
cheaply copied by rivals.
 Not spending more to achieve differentiation than the price premium that can be
charged.
Benefits of Successful Differentiation

Types of Differentiation Themes

- Quality manufacture -- Honda, Toyota
- Unique taste – Nescafe
- Multiple features - Microsoft Windows and Office
- More for your money -- McDonald’s, Wal-Mart

3. Best-Cost Provider Strategies

 Combine a strategic emphasis on low-cost with a strategic emphasis on

differentiation.
o Make an upscale product at a lower cost
o Give customers more value for the money
 Deliver superior value by meeting or exceeding buyer expectations on product
attributes and beating their price expectations.
 Be the low-cost provider of a product with good-to-excellent product attributes, then
use cost advantage to underprice comparable brands.
 Competitive Strength of a Best-Cost Provider Strategy
 A best-cost provider’s competitive advantage comes from matching close rivals
on key product attributes and beating them on price.
 Success depends on having the skills and capabilities to provide attractive
performance and features at a lower cost than rivals.
 A best-cost producer can often out-compete both a low-cost provider and a
differentiator when,
o Standardized features/attributes won’t meet diverse needs of buyers
o Many buyers are price and value sensitive

4. Focus/Niche Strategies

 Involve concentrated attention on a narrow piece of the total market.

 Objective is to serve niche buyers better than rivals.
 Choose a market niche where buyers have distinctive preferences, special
requirements, or unique needs.
 Develop unique capabilities to serve needs of target buyer segment.

Examples

Focus / Niche Strategies and Competitive Advantage

Approach 1 – A focused low-cost strategy
- Achieve lower costs than rivals in serving the segment
Approach 2 – A focused Differentiation Strategy
- Offer niche buyers something different from rivals
Deciding Which Generic Competitive Strategy to Use
 Each positions a company differently in its market and competitive environment.
 Each establishes a central theme for how a company will endeavor to outcompete rivals.
 Each creates some boundaries for maneuvering as market circumstances unfold.
 Each points to different ways of experimenting with the basics of the strategy.
 Each entails differences in product line, production emphasis, marketing emphasis, and
means to sustain the strategy.