Strategic Management-unit-6

Chapter-34
Definition
Strategic or institutional management is the conduct of drafting, implementing and evaluating
cross-functional decisions that will enable an organization to achieve its long-term objectives. It
is the process of specifying the organization's mission, vision and objectives, developing policies
and plans, often in terms of projects and programs, which are designed to achieve these
objectives, and then allocating resources to implement the policies and plans, projects and
programs.

What is meant by Corporate Strategy?

Corporate strategy Approach to future that involves

1. examination of the current and anticipated factors associated with customers and

competitors (external environment) and the firm itself (internal environment),

2. envisioning a new or effective role for the firm in a creative manner, and

3. aligning policies, practices, and resources to realize that vision

Five facets of Strategic Management

Strategic management comprises five key facets: goal-setting, analysis, strategy
formation, strategy implementation, and strategy monitoring. These are the integral
elements that, when applied together, distinguish strategic management from less
comprehensive approaches, such as operational management or long-term planning.
Strategic management is an iterative, continuous process that involves important
interactions and feedback among the five key facets
 Strategic management Process
What does a strategic management process look like? The approach described below is
suggested as a guide:
1.Identification and clarification of the organization’s mission, objectives, and current strategies.
2. Identification of the organization’s internal strengths and weaknesses.
3. Assessment of the threats and opportunities from the external environment.
4. Identification of key constituents/ stakeholders and their expectations.
5. Identification of the key strategic issues confronting the organization.
6. Design/analysis/selection of strategy alternatives and options to manage issues identified in
step 6.
7. Implementation of strategy

Benefits of Strategic Management

1. It allows for identification, prioritization, and exploitation of opportunities.
2. It provides an objective view of management problems.
3. It represents a framework for improved coordination and control of activities.
4. It minimizes the effects of adverse conditions and changes.
5. It allows major decisions to better support established objectives.
6. It allows more effective allocation of time and resources to identified opportunities.
7. It allows fewer resources and less time to be devoted to correcting erroneous or ad hoc
decisions.
8. It creates a framework for internal communication among personnel.
9. It helps integrate the behaviour of individuals into a total effort.
10. It provides a basis for clarifying individual responsibilities.
11. It encourages forward thinking.
12. It provides a cooperative, integrated, and enthusiastic approach to tackling problems and
opportunities.
13. It encourages a favourable attitude toward change.
14. It gives a degree of discipline and formality to the management of a business

Strategic analysis (Chapter-35)

SWOT analysis
SWOT Analysis is a strategic planning method used to evaluate the Strengths, Weaknesses,
Opportunities, and Threats involved in a project or in a business venture. It involves specifying
the objective of the business venture or project and identifying the internal and external factors
that are favorable and unfavorable to achieving that objective.
SWOT stands for Strengths, Weaknesses, Opportunities and Threats.

From an organisation point of view SWOT will show the following:

This is another method of helping management to reduce the risk involved in making decisions
in a dynamic industry. It involves analysing the current position of a product, a department or
even the whole organisation, and trying to identify its possible future courses of action, by
looking at its Strengths, Weaknesses, Opportunities and Threats.

A strength is a factor which a business currently possesses and which it performs effectively,
such as having a strong management team, a profitable portfolio of products, or a loyal customer
base.

A weakness is an area in which the business currently performs poorly, such as having a high
level of industrial disputes, falling profitability, or falling productivity levels.

An opportunity is a potentially successful or profitable activity that the business could take
advantage of in the future, such as the take-over of a competitor, the development of new
products, or breaking into new markets.

A threat represents a potential future problem which the business may face in the future, such as
new competitors entering the industry, new legislation restricting the use of certain raw
materials, or the possibility of being taken-over by another company.

Remember, the strengths and weaknesses are internal factors which the company currently
faces. The opportunities and threats are external factors which the company may face in the
future.

The S.W.O.T. analysis is represented in a simple four-box diagram, as illustrated below:

Example of a S.W.O.T analysis for a Chocolate manufacturer.

Strengths:relating to Weaknesses: relating to

HR,Marketing,operation, finance. HR,Marketing,operation, finance
Plenty of R&D, leading to many new product
ideas Several of our products are reaching the end of
their life-cycle
Achieving economies of scales in production
Too many marketing personnel are leaving the
High level of customer loyalty and repeat business
purchasing
Restricted product range
Effective promotion

Opportunities: Threads:
New markets in Far East
Competitors are threatening a price war
A joint venture with a foreign chocolate
Take-over by domestic rival
manufacturer
Product extensions, such as different sizes of New legislation may affect the source of our
bars ingredients

This diagram is simple and easy to follow, and it can provide the basis for discussion of business
strategy at meetings. The results of a S.W.O.T. analysis may often identify possible courses of
action that had not been considered, as well as categorising and prioritising the problems that the
business faces. In most large businesses, the marketing department will carry out a S.W.O.T.
analysis as part of its annual marketing audit - this highlights the products which are performing
effectively, those which are reaching the end of their lifecycle, potential new markets to break
into and the overall effectiveness of its personnel.

Internal factors – The strengths and weaknesses internal to the organization. These may include
factors such as the 4P's; as well as personnel, finance, manufacturing capabilities, and so on.

External factors – The opportunities and threats presented by the external environment to the
organization. The external factors may include macroeconomic matters, technological change,
legislation, and socio-cultural changes, as well as changes in the marketplace or competitive
position. The results are often presented in the form of a matrix

PEST analysis or PESTEL analysis

PEST analysis stands for "Political, Economic, Social, and Technological analysis" and describes
a framework of macro-environmental factors used in the environmental scanning component of
strategic management.It is a useful strategic tool for understanding market growth or decline,
business position, potential and direction for operations.

The Model's Factors

Political factors, or how and to what degree a government intervenes in the economy.
Specifically, political factors include areas such as tax policy, labour law, environmental law,
trade restrictions, tariffs, and political stability. Political factors may also include goods and
services which the government wants to provide or be provided (merit goods) and those that the
government does not want to be provided (demerit goods or merit goods). Furthermore,
governments have great influence on the health, education, and infrastructure of a nation.
Economic factors include economic growth, interest rates, exchange rates and the inflation rate.
These factors have major impacts on how businesses operate and make decisions. For example,
interest rates affect a firm's cost of capital and therefore to what extent a business grows and
expands. Exchange rates affect the costs of exporting goods and the supply and price of imported
goods in an economy.
Social factors include the cultural aspects and include health consciousness, population growth
rate, age distribution, career attitudes and emphasis on safety. Trends in social factors affect the
demand for a company's products and how that company operates. For example, an ageing
population may imply a smaller and less-willing workforce (thus increasing the cost of labor).
Furthermore, companies may change various management strategies to adapt to these social
trends (such as recruiting older workers).
Technological factors include ecological and environmental aspects, such as R&D activity,
automation, technology incentives and the rate of technological change. They can determine
barriers to entry, minimum efficient production level and influence outsourcing decisions.
Furthermore, technological shifts can affect costs, quality, and lead to innovation.
Environmental factors include weather, climate, and climate change, which may especially
affect industries such as tourism, farming, and insurance .Furthermore, growing awareness to
climate change is affecting how companies operate and the products they offer--it is both
creating new markets and diminishing or destroying existing ones.
Legal factors include discrimination law, consumer law, antitrust law, employment law, and
health and safety law. These factors can affect how a company operates, its costs, and the
demand for its products

BCG matrix
The BCG matrix created by Boston Consulting Group (a management consultancy firm) in 1970
to help corporate with analyzing their business units or product lines.
This helps the company to allocate resources and is used as an analytical tool in brand marketing,
product management, strategic management, and portfolio analysis.
To use the chart, analysts plot a scatter graph to rank the business units (or products) on the basis
of their relative market shares and growth rates.

Cash cows
Cash cows are units with high market share in a slow-growing industry.

These units typically generate cash in excess of the amount of cash needed to maintain the
business. They are regarded as staid and boring, in a "mature" market, and every corporation
would be thrilled to own as many as possible. They are to be "milked" continuously with as little
investment as possible, since such investment would be wasted in an industry with low growth.

Dogs
Dogs, are units with low market share in a mature, slow-growing industry.

These units typically "break even", generating barely enough cash to maintain the business's
market share. Though owning a break-even unit provides the social benefit of providing jobs and
possible synergies that assist other business units, from an accounting point of view such a unit is
worthless, not generating cash for the company. They depress a profitable company's return on
assets ratio, used by many investors to judge how well a company is being managed. Dogs, it is
thought, should be sold off.

Question marks ?
Question marks, are units with low market share in a rapidly growing market.

Question marks (also known as problem child) are growing rapidly and thus consume large
amounts of cash, but because they have low market shares they do not generate much cash. The
result is a large net cash consumption. A question mark has the potential to gain market share
and become a star, and eventually a cash cow when the market growth slows. If the question
mark does not succeed in becoming the market leader, then after perhaps years of cash
consumption it will degenerate into a dog when the market growth declines. Question marks
must be analyzed carefully in order to determine whether they are worth the investment required
to grow market share.

Stars
Stars are units with a high market share in a fast-growing industry.

The hope is that stars become the next cash cows. Sustaining the business unit's market
leadership may require extra cash, but this is worthwhile if that's what it takes for the unit to
remain a leader. When growth slows, stars become cash cows and if they are not able to maintian
their growth they become a dog.

There are typically four different strategies to apply

Build Market Share: Make further investments (for example, to maintain Star status, or turn a
Question Mark into a Star)

Hold: Maintain the status (do nothing)

Harvest: Reduce the investment (enjoy positive cash flow and maximize profits from a Star or
Cash Cow)

Divest: For example, get rid of the Dogs, and use the capital to invest in Stars and some
Question Marks.
Porter's five forces analysis
Porter's five forces analysis is a framework for the industry analysis and business strategy
development developed by Michael E. Porter. It derives five forces which determine the
competitive intensity and therefore attractiveness of a market.
Strategy consultants occasionally use Porter's five forces framework when making a qualitative
evaluation of a firm's strategic position.
Porter's five forces include:
three forces from 'horizontal' competition:

1. threat of substitute products,

2. the threat of established rivals,

3. and the threat of new entrants; and

two forces from 'vertical' competition:

1. the bargaining power of suppliers,

2. bargaining power of customers

 What is Core Competency?
Those things that define what is special about an organization, what sets it apart from other
organizations. Competencies are those things the company or organization does well. Core
competencies are those things that are fundamental to the organization. Without those core
competencies the organization would not be the same organization.

Core competencies of organization provide the organization a competitive advantage in the

marketplace. For example, Dell's efficient, just in time manufacturing system is an core
competency that provides Dell a competitive advantage in the marketplace.

It fulfills three key criteria:

● It provides consumer benefits

● It is not easy for competitors to imitate
● It can be leveraged widely to many products and markets.

A core competency can take various forms, including technical/subject matter know-how, a
reliable process and/or close relationships with customers and suppliers. It may also include
product development or culture, such as employee dedication.

Core competency originates from C. K. Prahalad and Gary Hamel in their 1990 paper “The Core
Competence of the Corporation.” Prahalad and Hamel highlight core competency as a source of
uniqueness that a company can do exclusively well, offering a competitive advantage as
competitors can’t quickly copy. A core competency can take various forms: know how, process,
manufacturing, relationship, development methodology, culture, talent management, branding,
marketing, distribution, research & development.

Prahalad and Hamel emphasize 3 conditions to test if a competence is true core competence. It
is possible to have core competency that doesn’t meet all the required criteria, however any
competitive advantaged gained will only be temporary.

1. Must be relevant : Core competence must be uniquely valued by your customers, so that

they will not only choose your product but be willing to pay more for them. If not, it has no

effect on your competitive position.

2. Difficult to imitate: Core competence must be difficult for competitors to imitate, as it

ensures your products are better than your competitors. It also enables you to sustain your

competitive position as you continue to improve your competency.

 3. Leveraged to many products and markets: Core competency must enable entrance into

new markets to sustain growth.

Strategic choice chapter-36

Ansoff Matrix
The Ansoff product/ market matrix is a tool that helps businesses decides their product and
market growth strategy.

It suggests that a business' attempts to grow depend on whether it markets new or existing
products in new or existing markets.

It is used by marketers who have objectives for growth. Ansoff's matrix offers strategic choices
to achieve the objectives. There are four main categories for selection.

The four main categories

Market Penetration (existing markets, existing

products)
Here we market our existing products to our existing customers.
● This means increasing our revenue by, for example, promoting the product, repositioning the
brand, and so on. However, the product is not altered and we do not seek any new customers.
● Market penetration seeks to achieve four main objectives:
● Maintain or increase the market share of current products - this can be achieved by a
combination of competitive pricing strategies, advertising, sales promotion and perhaps more
resources dedicated to personal selling.
● Secure dominance of growth markets.
● Restructure a mature market by driving out competitors; this would require a much more
aggressive promotional campaign, supported by a pricing strategy designed to make the market
unattractive for competitors.
● Increase usage by existing customers. For example by introducing loyalty schemes.
● A market penetration marketing strategy is very much about "business as usual". The business is
focusing on markets and products it knows well. It is likely to have good information on
competitors and on customer needs. It is unlikely, therefore, that this strategy will require much
investment in new market research.

Market Development (new markets, existing

products)
Here we market our existing product range in a new market.
This means that the product remains the same, but it is marketed to a new audience. Exporting
the product, or marketing it in a new region, are examples of market development.
Market development is the name given to a growth strategy where the business seeks to sell its
existing products into new markets.

There are many possible ways of approaching this strategy, including:

● New geographical markets; for example exporting the product to a new country
● New product dimensions or packaging: for example New distribution channels
● Different pricing policies to attract different customers or create new market segments

Product Development (existing markets, new

products)
This is a new product to be marketed to our existing customers.

Here we develop and innovate new product offerings to replace existing ones. Such products are
then marketed to our existing customers. This often happens with the auto markets where
existing models are updated or replaced and then marketed to existing customers.

Business Diversification (new markets, new

products)
 This is where we market completely new products to new customers.
The diversification can be divided again into horizontal, vertical and lateral diversification.
Diversification is an inherently higher risk strategy because the business is moving into markets
in which it has little or no experience.

For a business to adopt a diversification strategy, it must have a clear idea about what it expects
to gain from the strategy and a transparent and honest assessment of the

What is a decision tree?

A decision tree (or tree diagram) is a decision support tool that uses a tree-like graph or model of
decisions and their possible consequences, including chance event outcomes, resource costs, and
utility.

Decision trees are commonly used in operations research, specifically in decision analysis, to
help identify a strategy most likely to reach a goal.

A decision Tree consists of 3 types of nodes:-

1. Decision nodes - commonly represented by squares

2. Chance nodes - represented by circles

3. End nodes - represented by triangles

Decision trees:
● Are simple to understand and interpret.
● Have value even with little hard data. Important insights can be generated based on experts
describing a situation (its alternatives, probabilities, and costs) and their preferences for
outcomes.
● Use a white box model. If a given result is provided by a model, the explanation for the result is
easily replicated by simple math.
● Can be combined with other decision techniques
● For example: Mr. Smith owns a piece of land and he wants to sell it to raise some money
for his ailing business. He has been informed that he has just two options open to
him:
●
● 1. The tree diagram is laid out from left to right.
● 2.Node A is represented as a square and it is called a decision node (i.e. at this node, the
decision-maker can only choose one branch to follow).
● 3.Node B is represented as a circle and is called a chance node (i.e. there are several
possible outcomes from this node, one of which will definitely happen).
 ● 4.Each event stemming from a chance node has a probability attached to it (these
probabilities must always add up to 1).
● 5.The actual values are always listed at the end of each branch.
●
● There are several advantages of using decision trees to analyse a particular
situation:
● 1.They set out problems clearly and logically.
● 2.They show the likely amounts of money involved in the decision, and the probabilities
of their occurrence.
● 3.Constructing a decision tree may show possible courses of action which had not been
previously considered.
● 4.They are tangible and therefore people can easily see the issue that they are faced with,
rather than attempting to visualise somebody's description.
Other benefits of decision tree are:

1. The impact of possible future decisions:

A tree's branching and its spreading chain of events can clarify potential barriers, changes, and
problems. The analyst can probe a variety of effects on his model tree by deliberately imposing faults
and critical conditions to foresee their impact.

2. The impact of uncertainty on confidence:

Layout of the events in a tree structure makes more visible the alternatives that occur. Riskfactor
assignments or probabilities give better insight to and confidence in the future effects of a decision
made in the present.

3. The impact of varying commitments of payoff:

Trying a variety of tentative objectives in a decision tree can reveal comparative advantages and
disadvantages. These can be analysed in a payoff table for criteria such as present or future profits.
This validation procedure can frequently lead to restating the objective or selecting a new one.

4. The sequencing and interrelations of tasks and events:

The schematic display of starting events, secondary and terminating events allow for insights into
input / output relationship and start/stop phasing as branching is extending into the future.
Priorities can be established from the difficulties, complexities, and time requirements suggested by
each path.

5. The measurement of risk:

Each path of the decision tree contains, in addition to the elements of the paths, and assigned risk
factor. This is the estimated likelihood of occurrence of the terminal event in the path.

The decision trees satisfy a more complex need where a series of decisions are to be made
simultaneously.

Barry Shore, has proposed the following procedure to solve a problem by the decision tree method.

(i) The problem is illustrated by developing tree diagram. Each course of action is represented by a
separate emerging branch.
(ii) Each outcome for each course of action is assigned a probability, which is the most likely chance
of that particular outcome occurring.

(iii) Determine the financial results of each outcome.

(iv) The expected value for each outcome is calculated and the alternative which will yield the highest
expected value is chosen.

Decision trees depict future decision points and possible chance events. It adds to the confidence and
accuracy of the decisions. Decision trees can be drawn to meet all sorts of situations.

Decision tree enables a planner: (a) to consider various courses of action; (b) to adding financial
results to them (c) to modify these results by their probability; and (d) then to make comparisons.

Some decisions involve series of steps. Each step is not self-contained, but dependent on the
outcome of the preceding step. For example, second step depending on outcome of second and so on.
Thus with certainty mounting up with each step complexity comes in the problem's solutions.

● However, decision trees are not without their faults:

● 1.The probabilities are only estimates and are, therefore, subject to change.
● 2.They can only show quantitative data - they do not take account of peoples' feelings,
legal constraints, etc.
● 3.The results can be biased, in order to show just one side of an argument.
● 4.There can be significant time delays whilst making the decision, and some of the data
may be out-of-date by the time the decision is finally made
 Contingency Planning and Crisis Management
Chapter-37
What is meant by Corporate Strategy?
Corporate strategy Approach to future that involves

1. examination of the current and anticipated factors associated with customers and competitors

(external environment) and the firm itself (internal environment),

2. envisioning a new or effective role for the firm in a creative manner, and

3. aligning policies, practices, and resources to realize that vision.

What is Corporate Culture?

Corporate culture is the total sum of the values, customs, traditions and meanings that make a company
unique. Corporate culture is often called "the character of an organization" since it embodies the vision of
the company’s founders. The values of a corporate culture influence the ethical standards within a
corporation, as well as managerial behavior.
Senior management may try to determine a corporate culture. They may wish to impose corporate values
and standards of behavior that specifically reflect the objectives of the organization. In addition, there will
also be an extant internal culture within the workforce. Work-groups within the organization have their
own behavioral quirks and interactions which, to an extent, affect the whole system.

Types of Corporate Culture

One way of exploring cultures is to classify them into types.
Role Cultures are highly formalized, bound with regulations and paperwork and authority and
hierarchy dominate relations.
Task Cultures are the opposite, the preserve a strong sense of the basic mission of the
organization and teamwork is the basis on which jobs are designed.
Power Cultures have a single power source, which may be an individual or a corporate group.
Control of rewards is a major source of power.
 Handy points out that these types are usually tied to a particular structure and design of organization. A
role culture has a typical pyramid structure. A task culture has flexible matrix structures. A power culture
has web – like communications structure.

Organizational Culture
An Entrepreneurial Organizational Culture (EOC) is a system of shared values, beliefs and norms of
members of an organization, including valuing creativity and tolerance of creative people, believing that
innovating and seizing market opportunities are appropriate behaviors to deal with problems of survival
and prosperity, environmental uncertainty, and competitors’ threats, and expecting organizational
members to behave accordingly.

Entrepreneurial Culture [ Risk taking]

Elements of Entrepreneurial Culture
● People and enpowerment focused
● Value creation through innovation and change
● Attention to the basics
● Hands-on management
● Doing the right thing
● Freedom to grow and to fail
● Commitment and personal responsibility
● Emphasis on the future

Not all the opportunities and events that a business faces will go to plan, and some may prove
detrimental to the continuity of the business (such as a huge downturn in demand for their
products). Contingency planning means preparing for these unwanted and unlikely possibilities.
A business may produce a contingency plan in case of:

1 . a severe recession.
2 . an environmental disaster;
3. a sudden strike by its workforce.

Contingency plans enable a business to be in a better position to manage a crisis, rather than to
try and simply cope with it when it occurs.

Before contingency planning can take place, a business must consider many possible threats and
crises that it may face, in order to be able to react to them swiftly and efficiently if they do ever
occur. These potential scenarios are often computer-simulated, and they can predict to a high
level of accuracy the likely effects of a crisis on the finances and resources of a business.

Crisis management is the response of an organisation to a crisis (e.g. a fire, terrorist

activity, natural disaster). Many companies will have some sort of contingency plan to cater for
such situations, but it is rare that the actual crisis will go according to plan. It is likely that the
person in charge at the time of the crisis will manage the crisis in a very authoritarian fashion, as
he needs to make quick and effective decisions without the time for discussion and consultation
with others. Effective planning should reduce the impact of a crisis on a business, but
nevertheless to overcome any crisis is likely to cost the business a significant amount of time and
money.

Some crises will be long-lasting and will affect the whole economy (such as a recession, or a
natural disaster), some crises will affect all the businesses in a particular industry (such as the
collapse in demand for UK ship building) and others crises will simply affect a single business
(such as a strike by a workforce).

Any crisis is likely to have implications for the finances of the business, the effectiveness of
personnel and communications and the production patterns. The business must be seen to be
acting swiftly when faced with a crisis, and it must try to ensure that the damage to the business
(especially to its reputation and its image) is minimised by using which ever resources are at its
disposal.

Successful public relations campaigns, adequate finance, strong leadership, rapid action and
effective communication (both internal and external) are the key ingredients for a crisis to be
solved effectively. Crises will always pose a number of unexpected and unforeseen problems and
dilemmas for businesses. However, as long as the business is seen to be limiting the effects of the
crisis upon its various stakeholder groups (especially its customers) then its reputation may well
remain intact

Change Management - Introduction

Change management is an important aspect of management that tries to ensure that a business
responds to the environment in which it operates.

There are four key features of change management:

Change is the result of dissatisfaction with present strategies

It is essential to develop a vision for a better alternative

Management have to develop strategies to implement change

There will be resistance to change

Many factors drive change in a business. Lewin identified

Internal forces

Desire to increase profitability

Reorganisation to increase efficiency

Conflict between departments

To change organisational culture

External forces

Customer demand
Competition
Cost of inputs
Legislation & taxes
Political
Ethics & social values
Technological change

Step change versus incremental change

Change can also be defined in terms of the significance and speed of change. A common distinction is
made between step change and incremental change.

Step change

Dramatic or radical change in one fell swoop

Radical alteration in the business

Gets it over with quickly

May require some coercion

Incremental change

Ongoing piecemeal change which takes place as part of an organisation’s evolution and development

Tends to more inclusive

Resistance to Change Definition

Resistance to change is the act of opposing or struggling with upcoming activities. Managing resistance
to change is challenging.

Some costs of resistance include:

Project delays

Objectives missed

Productivity declines

Absenteeism

Loss of valued employees

❖ Successful organizational change management strategies include:

❖ Agreement on a common vision for change -- no competing initiatives.

❖ Strong executive leadership to communicate the vision and sell the business case for change.

❖ A strategy for educating employees about how their day-to-day work will change.

❖ A concrete plan for how to measure whether or not the change is a success -- and follow-up
plans for both successful and unsuccessful results.

❖ Rewards, both monetary and social, that encourage individuals and groups to take ownership for
their new roles and responsibilities1