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See all Premium member Presentation Transcript STRATEGIC POLICIES & PLANNING PREMISES : STRATEGIC POLICIES & PLANNING PREMISES INTRODUCTION TO MANAGEMENT CHAPTER 5 Sessions objective : Sessions objective To familiarize with the concepts of strategies and policies To discuss various levels of strategies for an organization. To understand competitive analysis in To discuss the importance of strategic planning strategy formulation To discuss the various kinds of strategies and policies To analyze Porter's competitive strategies To identify the important steps in the strategy implementation STRATEGY : STRATEGY Strategy refers to the determination of the purpose and basic long term objectives of an enterprise Involves adoption of different courses of action, with proper allocation of resources. Strategy is a means to achieve an organization's missions and objectives. Policy : Policy Policies are general statements that guide managers' thought process in decision making. In simple terms, policies act as guidelines; enabling organizations to achieve their goals Nature and Purpose of Strategies and Policies : Nature and Purpose of Strategies and Policies Direction Framework for plans Need for operational planning All perspective Corporate level strategy : Corporate level strategy Formulated at the top-level, corporate. Ideal for those organizations having more than one business unit. Two approaches in the formulation of strategy are Value-based approach: Value-based approach takes into account the individual's beliefs and helps to do business ethically. Corporate portfolio approach: The top management evaluates business units on the basis of marketplace and organizational strategy Business level strategy : Business level strategy Business strategy focuses on a firm's competitiveness in the marketplace. Developed by the heads of respective departments, and approved by the top management; These strategies are designed in response to the changing environment and competitive conditions. Functional level strategy : Functional level strategy Functional strategies are designed to emphasize functional competencies so that firms can gain the competitive advantage. These strategies are designed and developed by the functional heads, and are approved by the top management. Question marks : Question marks Question marks, are low-share business units, in a high-growth market. They require a lot of cash, for maintaining the market share. Any business has to think between building a question mark into stars or whether they have to be phased out. Stars : Stars Stars are high-growth, high-share businesses. Very often, they need heavy investment for financing their rapid growth. Eventually, their growth slows down and they turn into cash cows. Cash cows: : Cash cows: Such established and successful SBU's, require less investment to maintain their market share. Cash cows are low-growth and high-share businesses. They generate a lot of surplus that a company can use to pay its bills, or invest in other businesses. Dogs : Dogs Dogs are low-growth and low-share businesses. They may generate enough surplus to maintain themselves. But do not hold out the promise to be a large source of cash. Significance of Strategic Planning : Significance of Strategic Planning Strategic planning is important, because it provides the framework for organizational activities It provides direction for an organization's missions and helps in designing clear-cut objectives It enables the organization to deal with dynamic environments It enables to identify and focus resources on key areas Top management takes initiative in planning process. Benefits of strategic planning : Benefits of strategic planning Strategic planning provides consistent guidelines for overall organizational activities. It enables managers to anticipate problems and handle them accordingly It helps mangers to take appropriate decisions It minimizes the chances of mistakes and unpleasant surprises. Limitations of strategic planning : Limitations of strategic planning It is expensive, as many firms hire in consultants, and adopt sophisticated planning models. It is based on concepts rather than real needs of the business. It is time-consuming, as a result the ends (results) are delayed. It is long-term activity, and may take many years to complete the project. Managers may avoid alternative opportunities that involve high degree of uncertainty SRATEGIC PLANNING PROCESS : SRATEGIC PLANNING PROCESS Define the mission Develop objectives Assess opportunities and threats Formulate strategy Implement strategy Monitor and adopt strategic plans SWOT : SWOT STRENGTHS Adequate financial resources Technology leader Better manufacturing facilities Product innovation Wide distribution network WEAKNESS No clear strategy direction High overall unit cost relative to competitors Obsolete facilities Narrow product line OPPORTUNITIES Enter new markets or segments Diversify into related areas Decline in trade barriers Complacency among rival firms Increase in customer base THREATS Entry of low-cost foreign competitors Changing buyer needs and tastes Slower market growth rate Adverse shifts in foreign exchange and trade polices of foreign governments Porter's Five Forces Model : Porter's Five Forces Model Rivalry: Rivalry is the means through which competitors fight for position by using tactics such as price, competition, advertisement battles. New product introduction, to lower the profits of competitors in the industry. Coke and Pepsi are the classic examples of rivalry in soft drink industry. Porter's Five Forces Model : Porter's Five Forces Model Bargaining power of customers: It is the extent to which customers are successful in forcing prices down, or securing high quality or more service at the same price. Customers tend to be powerful when the quantities they purchase form a large portion of the seller's total sales Porter's Five Forces Model : Porter's Five Forces Model Threat of new entrants: It is the ease with which new competitors can enter the same product or service markets. reduced profile. Threat of substitutes products or services: It implies the extent to which business in other industries, offer substitute products, for an established product line. The availability of substitute products or services thus reduces the profit potential in the industry Growth strategy : Growth strategy Enable the organization to expand, either through mergers or acquisitions, or establishing a new plant. McDonald has pursed its growth strategy through direct expansion. Major forms of growth strategies : Major forms of growth strategies Concentration: Concentration focuses on growth through single product or a small number of closely related products. Vertical integration: It is a means through which the firm produces its own inputs (backward) or disposes its own outputs (forward). Diversification involves entering into a new business, that is distinct from the current business. : Major forms of growth strategies : Major forms of growth strategies Diversification: If an organization diversifies into an unrelated business, it is then known as conglomerated diversification. But if an organization diversifies into a related, but distinct business,it is concentric diversification Stability strategy : Stability strategy Involves the maintenance of status quo or , achieve growth in a methodical, but, slow manner. organizations, adopt this strategy are when it wants to take low risk, choose stability and anticipate the changes, to recover in the business. Kellogg's- stability strategy. Defensive strategy : Defensive strategy Focuses on the desire or need to reduce organizational operations, usually through cost reductions (cutting on non-essential expenditure) and asset reduction The most common forms of defensive strategies are harvest, turnaround, divestiture, and bankruptcy. forms of defensive strategies : forms of defensive strategies Harvest strategy: Entails minimum amount of investment with maximum short-term profits. Turnaround strategy: Turnaround strategy is designed to reverse the negative state of business. forms of defensive strategies : forms of defensive strategies Divestiture strategy: If the company is not doing well, it can sell or divest its business. Bankruptcy: A situation where the company is unable to pay its debts, and seeks legal support. After it regains its financial position, it can repay its debts. Porter's Competitive Strategy : Porter's Competitive Strategy Cost leadership: It involves emphasizing organizational efficiency, so that the overall costs of providing products and services are low. It entails developing efficient production methods, keeping tight controls on over-head and administrative costs. Wal-mart has always kept its prices low (. Porter's Competitive Strategy : Porter's Competitive Strategy Differentiation: It attempts to develop products that are unique in the industry. Focus: It relies on low-cost, or differentiation, or both; in order to establish a strong position within the particular market segment or niche. Porters three generic strategies : Porters three generic strategies Capital investment Technical skills Intense supervision of labor Low-cost distribution system Effective Implementation of Strategy : Effective Implementation of Strategy Develop and communicate planning premises:. Communicate strategies: Develop organization culture: Monitoring: Develop contingency strategies and programs:. Emphasize on planning and implementation: Create proper organizational climate: Effective Planning Premises : Effective Planning Premises Selection of premises: Top management should select the premise based on the environmental factors, which influence their course of action. Develop alternative plans: As the future is uncertain, alternative plans must be developed. Effective Planning Premises : Effective Planning Premises Verify premises: Verification ensures that the premises are consistent with each other. Communicate premises: A Planning premise can be effective, if it is communicated to employees. You do not have the permission to view this presentation. In order to view it, please contact the author of the presentation.