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Premium member Presentation Transcript Issues Of Strategic Management : Issues Of Strategic Management Strategic Management: History & Background : Strategic Management: History & Background Strategic management as a discipline originated in the 1950s and 60s. Alfred Chandler - recognized the importance of coordinating the various aspects of management under one all-encompassing strategy. Stressed the importance of taking a long term perspective when looking to the future. Long-term coordinated strategy was necessary to give a company structure, direction, and focus. Concisely, “structure follows strategy’. In 1957, Philip Selznick introduced the idea of matching the organization's internal factors with external environmental circumstances. This core idea was developed into what we now call SWOT analysis Strengths and weaknesses of the firm are assessed in light of the opportunities and threats from the business environment. Strategic Management: History & Background : Strategic Management: History & Background In 1985, Ellen-Earle Chaffee Involves adapting the organization to its business environment. Fluid and complex. Change creates novel combinations of circumstances requiring unstructured non-repetitive responses. Affects the entire organization by providing direction. Involves both strategy formation (content) and also strategy implementation (process). Partially planned and partially unplanned. Done at several levels: overall corporate strategy, and individual business strategies. Both conceptual and analytical thought processes. Strategic Management: Concept : Strategic Management: Concept Ongoing process , evaluates and controls the business and the industries in which the company is involved. Assesses its competitors and sets goals and strategies to meet all existing and potential competitors. Reassesses each strategy regularly. Strategy: Mission and Objectives : Strategy: Mission and Objectives Describes the company's business vision: unchanging values and purpose of the firm, forward-looking visionary goals that guide the pursuit of future opportunities. Define measurable financial and strategic objectives: Financial objectives involve measures such as sales targets and earnings growth. Strategic objectives are related to the firm's business position, and may include measures such as market share and reputation. Strategic Management Process: Environmental Scan : Strategic Management Process: Environmental Scan The environmental scan includes the following components: Internal analysis of the firm SWOT Analysis Analysis of the firm's industry Porter's five forces External macro-environment PEST Analysis Strategic Management: Model : Strategic Management: Model Slide 8: A scan of the internal and external environment is an important part of the strategic planning process. Environmental factors internal to the firm usually can be classified as strengths (S) or weaknesses (W), and those external to the firm can be classified as opportunities (O) or threats (T). The SWOT analysis provides information that is helpful in matching the firm's resources and capabilities to the competitive environment in which it operates Strategic Management: SWOT Analysis Strategic Management: SWOT Analysis : Strategic Management: SWOT Analysis Strengths Patents Strong brand names Good reputation among customers Cost advantages from proprietary know-how Exclusive access to high grade natural resources Favorable access to distribution networks Weaknesses Lack of patent protection A weak brand name Poor reputation among customers High cost structure Lack of access to the best natural resources Lack of access to key distribution channels In some cases, a weakness may be the flip side of a strength. Strategic Management: SWOT Analysis : Strategic Management: SWOT Analysis Opportunities An unfulfilled customer need Arrival of new technologies Loosening of regulations Removal of international trade barriers Threats Shifts in consumer tastes away from the firm's products Emergence of substitute products New regulations Increased trade barriers Strategic Management: SWOT Matrix : Strategic Management: SWOT Matrix To develop strategies that take into account the SWOT profile, a matrix of these factors can be constructed. S-O strategies pursue opportunities that are a good fit to the company's strengths. W-O strategies overcome weaknesses to pursue opportunities. S-T strategies identify ways that the firm can use its strengths to reduce its vulnerability to external threats. W-T strategies establish a defensive plan to prevent the firm's weaknesses from making it highly susceptible to external threats. Strategic Management: Porter’s Five Forces : Strategic Management: Porter’s Five Forces Potential new entrants Bargaining power of buyers Bargaining power of suppliers Threat of substitute products Rivalry among competitors Beware Strategic Management: PEST Analysis : Strategic Management: PEST Analysis A scan of the external macro-environment in which the firm operates can be expressed in terms of the following factors: Political Economic Social Technological Strategic Management: PEST Analysis : Strategic Management: PEST Analysis Political Factors Tax policy Employment laws Environmental regulations Trade restrictions and tariffs Political stability Economic Factors Economic growth Interest rates Exchange rates Inflation rate Social Factors Health consciousness Population growth rate Age distribution Career attitudes Emphasis on safety Technological Factors R&D activity Automation Technology incentives Rate of technological change Strategy Formulation : Strategy Formulation Strategy formulation is vital to the well-being of a company or organization. A leadership skill A process that leaders use to focus for positioning the firm Iterative Assess, decide, act, and review Leaders determine how much to stretch How to create the benefits for customers Strategy Formulation: Hierarchical Levels : Strategy Formulation: Hierarchical Levels Strategy can be formulated on three different levels: Corporate level: Company's overall direction in terms of its general attitude towards growth and management of its various business and product lines. Directional strategy Portfolio analysis Parenting strategy Business unit level: It usually occurs at the business unit or product level and it emphasizes improvement of the competitive position of a corporation's products or services in the specific industry or marketing segment served by that business unit. Continued.. : Continued.. Functional or departmental level It is the approach taken by a functional area to achieve corporate and business unit objectives and strategies by maximizing resource productivity. Strategy Implementation: Six Supporting Factors : Strategy Implementation: Six Supporting Factors Action Planning Organization Structure Human Resources The Annual Business Plan Monitoring and Control Linkage. Strategy Evaluation : Strategy Evaluation The implementation of the strategy must be monitored and adjustments made as needed. Evaluation and control consists of the following steps: Define parameters to be measured Define target values for those parameters Perform measurements Compare measured results to the pre-defined standard Make necessary changes Evaluation Criteria: Suitability Feasibility Acceptability Strategy Evaluation: Suitability : Suitability deals with the overall rationale of the strategy. The key point to consider is whether the strategy would address the key strategic issues underlined by the organization's strategic position. Does it make economic sense? Would the organization obtain economies of scale, economies of scope or experience economy? Would it be suitable in terms of environment and capabilities? Tools that can be used to evaluate suitability include: Ranking strategic options Decision trees What-if analysis Strategy Evaluation: Suitability Strategy Evaluation: Feasibility : Feasibility is concerned with the resources required to implement the strategy are available, can be developed or obtained. Resources include funding, people, time and information. Tools that can be used to evaluate feasibility include: Break-even analysis Resource deployment analysis Cash flow analysis and forecasting Strategy Evaluation: Feasibility Strategy Evaluation: Acceptability : Acceptability is concerned with the expectations of the identified stakeholders (mainly shareholders, employees and customers) with the expected performance outcomes. Return deals with the benefits expected by the stakeholders (financial and non-financial). Risk deals with the probability and consequences of failure of a strategy (financial and non-financial). Stakeholder reactions deals with anticipating the likely reaction of stakeholders. Tools that can be used to evaluate acceptability include: what-if analysis stakeholder mapping Strategy Evaluation: Acceptability Strategic Management: General Approaches : Strategic Management: General Approaches In general terms, there are two main approaches, which are opposite but complement each other in some ways, to strategic management: The Industrial Organizational Approach Based on economic theory — deals with issues like competitive rivalry, resource allocation, economies of scale Assumptions — rationality, self disciplined behavior, profit maximization The sociological approach Deals primarily with human interactions Assumptions — bounded rationality, satisfying behavior, profit sub-optimality. An example of a company that currently operates this way is Google Strategic management techniques can be viewed as bottom-up, top-down, or collaborative processes. Strategic Management: Limitations : Strategic Management: Limitations Stifle creativity, especially if it is rigidly enforced. When a strategy becomes internalized into a corporate culture, it can lead to group think. Can cause an organization to define itself too narrowly. In 2000, Gary Hamel coined the term strategic convergence – Explain the limited scope of the strategies being used by rivals in greatly differing circumstances. Strategies converge more than they should, because the more successful ones are imitated by firms that do not understand that the strategic process involves designing a custom strategy for the specifics of each situation. Strategic Management Process: An Example : Strategic Management Process: An Example Life Insurance Corporation of India Life Insurance Corporation of India : Life Insurance Corporation of India Problem of LIC: The changes sweeping the Indian insurance industry after the entry of private players. Company’s market share is decreasing fast. It needs a proper strategy for its further growth. Steps taken by LIC to combat the competition…. SWOT ANALYSIS : SWOT ANALYSIS Strengths : 1) Brand Image 2)Govt. Guarantee 3)Claims settlement 4)Large product portfolio Weakness :1) Lethargic Staff2) Mediocre Top Bosses3) Large scale Corruption in Main Office4) Ultra-Slow decision making process5) Internal problems between Top Management and lower cadre Employees CONT’D… : CONT’D… Opportunities :1) Pension Market2) Health Insurance3) Large Real Estate portfolio Threats :1) Internal discord2) New players3) Red- tapism PEST Analysis : PEST Analysis 1)Political Factors Increased service tax on premium discount on corporate premium Hike in FDI limit Pricing control in general insurance Favorable regulation for rural insurance 2)Economic Factors Increase in Gross Domestic Savings Cont’d… : Cont’d… 3)Social Factors Low insurance coverage Rise in elderly population Changing Indian perception Increase in lifestyle diseases 4)Technological Factors Automation of processes Increase in CRM solutions Internet driven information era Business Process Monitoring (BPM) Growth Strategy : Growth Strategy 1)Improvement in Product and Service Offerings 2)Use of information technology servicing large numbers of customers efficiently cutting down overheads To complement or supplement distribution channels cost-effectively Improve customer service levels considerably Understanding Customer needs Thank You : Thank You You do not have the permission to view this presentation. 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