Strategic Management

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Strategic Management :Unit II : 

Strategic Management :Unit II Environmental Scanning Industry Analysis Competitive Intelligence ETOP Study, OCP, SAP Scanning, Corporate Analysis, Resource based approach, Value-Chain Approach Scanning Functional Resources, Strategic Budget and Audit

PowerPoint Presentation: 

The role of environment and its components are very important for business firm as all the objectives and goals of the firm lie in the environment. The success and achievements of the firm are the outcomes of its interactions with the environment. Better the interactions better the results and performance of the firm and vice-versa.

PowerPoint Presentation: 

Better interactions needs better understanding of environment so that internal capabilities are perfectly matched with external opportunities and threats. The major challenge of environment to a business firm is its dynamism.

Environmental Scanning : 

Environmental Scanning The study of all components of external environment is termed as environmental scanning. Through scanning a firm can be aware of: Early signals of potential changes. Changes which are already going on. Strategies of Competitors. Counter strategies to be adopted.

Environmental Scanning …Contd. : 

Environmental Scanning …Contd. Strategy is a game plan for action i.e. the way of doing something. It usually includes the formulation of Goal and set of Action plans for achievement of goal under competitive environment and against competitive forces Strategy is the firm’s response and pattern of responses towards outside forces.

Environmental Scanning …Contd. : 

Environmental Scanning …Contd. The organizational goals as stated during planning stage are to be achieved under threats and opportunities conditions created by outside forces.

Environmental Scanning …Contd. : 

Environmental Scanning …Contd. The concept of strategy has its roots in military and armed forces. The action sand reactions of the outside forces are the heart of modern approach of strategy. Under competitive environment wherever the plans are implemented they are countered by these forces. The actions / reactions of the outside forces generate emergent strategies of the organization and followed by counter strategies on a continuous basis like a chain reactions. Planning Goal Emergent Strategies Intended Ways Counter Strategies

Environmental Scanning …Contd. : 

Environmental Scanning …Contd. Competitive and market analysis is also important part of strategy formulation. A successful analysis of competitive and market analysis help organization to develop its own “Sustainable Competitive Advantage” which prove to be a “Distinctive Competence” (DC) or uniqueness over competitors and market .

Environmental Scanning …Contd. : 

Environmental Scanning …Contd. Once the above objectives / steps are completed the role of H.R. began to acquire and develop the personnel of organization to achieve the D.C. through integrative efforts of different departments.

Environmental Scanning …Contd. : 

Environmental Scanning …Contd. Examining and Dealing with Environments for Strategic HRM: Although, the future is not perfectly predictable, but a close watch over the environmental forces and responding well a organization can visualize “most probable” outcomes.

Environmental Scanning …Contd. : 

Environmental Scanning …Contd. Examining and Dealing with Environments for Strategic HRM: A HR manager who fail to visualize the opportunities and threats created by marketing environment is said to be ineffective. Thus , obtaining information, having a close watch over external forces and responding well is the basic purpose of this chapter / topic. Environmental Monitoring Scanning and Analysis are best tools to respond and key success parameters.

Environmental Scanning …Contd. : 

Environmental Scanning …Contd. Environmental Scanning is the process of collecting information about the forces in the marketing environment’s canning involves observation, perusal of secondary source of dates (Business, Trade and Government) and research efforts.

Environmental Scanning …Contd. : 

Environmental Scanning …Contd. Environmental Analysis is the process of assessing and interpreting the information gathered through scanning. This help to predict future and create strategies. The potential threats and potential opportunities can be visualized through Environmental Scanning and Analysis.

Environmental Scanning …Contd. : 

Environmental Scanning …Contd. Responding to Environmental Forces: An Strategic Approach: There are two general approaches to respond environmental forces: 1. View Environmental Forces as totally uncontrollable and difficult to predict: Here, the organization adopts a passive and reactive approach to respond i.e. organization does not try to influence the different forces but try to adjust the affect of forces.

Environmental Scanning …Contd. : 

Environmental Scanning …Contd. View Environmental forces as challenges and taking aggressive stands i.e. reactive and proactive approach: HR manager can use the porter model of 5 forces to evaluate the outside forces which may guide HR department for creating HR strategies.

Environmental Scanning …Contd. : 

Environmental Scanning …Contd. Bargaining Power of Suppliers Threats of Substitute Products / Services Industry Environments Threats of Potential Entrants Bargaining Power of Customers

Industry Analysis: 

Industry Analysis Industry Analysis : A particular industry is said to be a market where various firms are pursuing their strategies to compete with similar offerings and enjoying their own market share, product acceptability, competitive position, brand loyalties, and profitability are the results of their strategies and competitors strategies. A continuous watch over the market is must to grow, sustain, and survive in the dynamic environment.

Industry Analysis …Contd. : 

Industry Analysis …Contd. There are two basic aims behind strategic industry analysis: Analysis of relevant industry, its components, degree and nature of competitiveness i.e. opportunities & threats. Analysis of available internal resources, competencies, strengths and weakness.

Industry Analysis …Contd. : 

Industry Analysis …Contd. Opportunities Weakness Strengths Threats

Industry Analysis …Contd. : 

Industry Analysis …Contd. The environments of industry to industry is quit different. A firm operating in a particular industry generally has following environment components: Firm Micro Environment OR Immediate Environment Mega Environment

Industry Analysis …Contd. : 

Industry Analysis …Contd. The Mega Environment: Consists of following: Demographic Political Legal SocioCultural Economic

Industry Analysis …Contd. : 

Industry Analysis …Contd. The Micro Environment or Immediate Environment: There is a very thin line difference between the firm and its micro environment. Within micro environment there may be different industries consisting of various competitors. For Exp: Within cement industry there are various competing firm, the immediate or micro environment of cement industry may consists of firms’ manufacturing and marketing steel, iron bricks, etc. If a firm of cement industry lower down its prices the iron and steel industry will automatically be affected likewise the micro environment of Tea industry is coffee and sugar industry.

Industry Analysis …Contd. : 

Industry Analysis …Contd. Bargaining Power of Suppliers Threats of Substitute Products / Services Industry Environments Threats of Potential Entrants Bargaining Power of Customers

Industry Analysis …Contd. : 

Industry Analysis …Contd. The Technological Environment: Within any industry or society there are direct and indirect interactions involved in developing new things, new ideology, innovations, research & development, new process, new or substitute products , cheaper substitute of raw materials more ever the Govt. Policies and MNC’s always bring new technology and better concepts to produce and market products/services. The rise of new technologies , new industries emerged which consumes the purchasing power of customers such as Biotech, genomics, voice recognition software, Biodegradable plastics, genetics and internet.

Industry Analysis …Contd. : 

Industry Analysis …Contd. The Competitive Environment of an Industry refers to the various external forces which make a particular Industry – Attractive or Unattractive. Industry Attractiveness refers to Profit Potentials and Growth Potential. The most common tool to analyze the Industry is Porter’s 5 Forces Model.

Strategic Groups and Industry Environment : 

Strategic Groups and Industry Environment Under intense competition a firm must choose unique pattern of its functions related to marketing, pricing, product attributes & positioning, segmentation and other strategies. Under competition firm’s own behavior must be different from its rivals.

Strategic Groups and Industry Environment …Contd.: 

Strategic Groups and Industry Environment …Contd. Within a industry there are various segments of customers by virtue of their purchasing power, preferences, consumption pattern etc. On the basis of aggregate consumer behavior within a particular industry we can group the entire customers into different parts.

Strategic Groups and Industry Environment …Contd. : 

Strategic Groups and Industry Environment …Contd. For Exp. For a car industry 60% customers are price sensitive, 15% are status conscious, 5% choose the most luxury car with multiple comforts. On the basis of above classification firms of the industry design their products and other Ps strategically to suit and match the requirements of a particular customer class.

Implications of Strategic Groups within Industry : 

Implications of Strategic Groups within Industry Analysis of Strategic Group within an industry provides useful information as under: There are different strategic groups within an industry and the firms presuming same strategies are comparatively close and facing intense competition. Members of one strategic group pose high challenges and threats to each other and hence their decisions and strategies are not independent.

Implications of Strategic Groups within Industry …Contd. : 

Implications of Strategic Groups within Industry …Contd. There are chances of price war between members of one strategic group. Members of different strategic groups are not directly affected by each other and hence their decisions and strategies are independent. A very strong brand and customer loyalties of a particular firm creates a very high entry barrier to the members of other strategic group.

Implications of Strategic Groups within Industry …Contd. : 

Implications of Strategic Groups within Industry …Contd. There is a strong impact of environment on different strategic groups and sometime only a few firm or groups are influenced by environmental changes. The position of firms within a group is dynamic and likely to change due to environmental change, or strategies of other firms.

Industry Analysis: SWOT Analysis (Strength, Weakness, Opportunities and Threats Profile) : 

Industry Analysis: SWOT Analysis (Strength, Weakness, Opportunities and Threats Profile) As the firm operates under dynamic environment and strategic fit of internal strengths and weaknesses with external opportunities and threats is a must and a matter of constant and regular exercise of the firm.

Industry Analysis: SWOT Analysis (Strength, Weakness, Opportunities and Threats Profile) …Contd. : 

Industry Analysis: SWOT Analysis (Strength, Weakness, Opportunities and Threats Profile ) …Contd. Without this a firm can not be able to create a perfect match of its capabilities with external demands. The approach to match internal capabilities with environmental opportunities and threats are known as SWOT analysis.

Industry Analysis: SWOT Analysis (Strength, Weakness, Opportunities and Threats Profile) …Contd.: 

Industry Analysis: SWOT Analysis (Strength, Weakness, Opportunities and Threats Profile) …Contd. The basic aim of SWOT is to provide an insight to the managers the abilities of the firm (Strength and Weakness) in terms of handling opportunities and threats. The SWOT provides a framework within which a firm can develop and alter its strategies and shape the actions of functional and other levels of firms .

Industry Analysis: SWOT Analysis (Strength, Weakness, Opportunities and Threats Profile) …Contd.: 

Industry Analysis: SWOT Analysis (Strength, Weakness, Opportunities and Threats Profile) …Contd. Internal analysis reveals the strength and weaknesses of the organization in term of its internal capabilities, competencies, efficiencies, financial position, track record, experience.

Industry Analysis: SWOT Analysis (Strength, Weakness, Opportunities and Threats Profile) …Contd.: 

Industry Analysis: SWOT Analysis (Strength, Weakness, Opportunities and Threats Profile) …Contd. Strengths : are resources, skills or other advantages relative to competitors. Strength is a DC that gives a firm comparative advantage in the market and competition. For Exp. Financial Resources, image, market leadership etc.

Industry Analysis: SWOT Analysis (Strength, Weakness, Opportunities and Threats Profile) …Contd.: 

Industry Analysis: SWOT Analysis (Strength, Weakness, Opportunities and Threats Profile) …Contd. Weaknesses : limitations or deficiencies in resources, skills and capabilities of the firm that seriously affect the firm’s performance under competition i.e. Disadvantages.

Industry Analysis: SWOT Analysis (Strength, Weakness, Opportunities and Threats Profile) …Contd.: 

Industry Analysis: SWOT Analysis (Strength, Weakness, Opportunities and Threats Profile) …Contd. Opportunities : Major favorable situations in the firm’s environments. Opportunities may occur due to poor performance of competitors, consumer demand shift, government policies, unique raw materials, technological changes, better buyer-supplier relationships etc.

Industry Analysis: SWOT Analysis (Strength, Weakness, Opportunities and Threats Profile) …Contd.: 

Industry Analysis: SWOT Analysis (Strength, Weakness, Opportunities and Threats Profile) …Contd. Threats : major unfavorable situations in the firm’s environment which may affect firm’s current and potentials performance. A particular threat may be an opportunity for competitor and vice versa.

Strategic Management Process …Contd.: 

Strategic Management Process …Contd . Effectiveness of HR, level of commitments, loyalties (all quantitative and qualitative) to compete with the rival firms within industry are counted as Strength. Firm’s weaknesses are internal deficiencies in term of above.

Strategic Management Process …Contd.: 

Strategic Management Process …Contd . The deficiencies are regarded as organizational constraints and disadvantages to compete and fight with rival firms. When a firm analyzes its internal capabilities as stated above the process is known as SAP (Strategic Advantage Profile).

Strategic Management Process …Contd.: 

Strategic Management Process …Contd . On the other hand , analysis of external environment to find out opportunities and threats are known as ETOP Analysis (Environmental Threats and Opportunities Profile). Thus we can say SWOT is a function of SAP & ETOP.

Strategic Management Process …Contd.: 

Strategic Management Process …Contd . Implications of SWOT Analysis: SWOT provides the basis for exploiting the opportunities out of its internal strengths and capabilities. These Strategies are called as Exploitative or Developmental Strategies. Environmental– Threats and their impacts can be minimize through minimum exposures of weaknesses – these strategies are called Blocking strategies. If firm is able to recover and repair its weaknesses –these strategies are called as Remedial Strategies

Strategic Management Process …Contd.: 

Strategic Management Process …Contd . FIRM Strengths Clear vision & Mission Better Financial Position Better Track Record State of Art Technology Better Network for Marketing Opportunities Increasing Income Better Education Developed Society Govt. Support Absence of Strong Competitors Un-served Market Segmentation Weaknesses Poor Selling & Marketing Team Poor Strategies Weak Customer Services Poor Understanding with channel members Threats Potential Rivalry High Rate of Tech. in Future MNCs Threats due to Policies of Govt. Fig: SWOT Model

Strategic Management Process …Contd.: 

Strategic Management Process …Contd . Cost Efficiencies Strength of a firm can be used to increase market share through appropriate pricing strategy. Firm’s internal and external situations and its strategic match can put the firm in a unique position in market. As stated above SWOT provides a strategic framework to firm within which it can plan to compete in market. As shown in the figure below, there are 4 cells – representing respective strategies

Strategic Management Process …Contd.: 

Strategic Management Process …Contd. Comparative Internal Weakness Major Environmental Threats Various Opportunities Substantial Strengths Cell – 3 Turnaround Strategy Cell – 1 Aggressive Growth Oriented Strategy i.e. Offensive Strategies Cell – 4 Defensive Strategy Cell – 2 Diversification & Defensive

Strategic Management Process …Contd.: 

Strategic Management Process …Contd . CELL – 1 : Represent most favorable situation with various opportunities and firms internal Strengths. Under these situations a firm can choose aggressive growth oriented strategies. CELL – 2 : Shows the mixed situation with substantial internal strengths to face major environmental threats. Firm’s strength can be used to exploit long term opportunities and to cop with threats.

Strategic Management Process …Contd.: 

Strategic Management Process …Contd . CELL – 3 : Various opportunities are there but the firm is unable to cash due to its internal weaknesses. CELL – 4 : is just opposite to the cell -1 i.e. most unfavorable situation under these condition withdrawal or reduced operations is suggested in product market.

SAP Analysis : 

SAP Analysis Internal assessment of the firm is critical for developing successful business and better strategies. Internal analysis began with the identification of organization’s resources allocations. Resources allocation convert financial resources into organizational, Human and Physical resources and ultimately into the ability to interact and compete in the market.

SAP Analysis …Contd. : 

SAP Analysis …Contd. Successful market interaction generates great financial resources which are again converted into Human and other Physical resources with greater abilities to fight in the market. This is like a chain reaction of firm’s internal resources to generate and re-generates greater amount of financial, physical, Human (tangible resources) and better capabilities to compete in the market with added strength as show in the figure below.

SAP Analysis …Contd. : 

SAP Analysis …Contd. SAP is the process by which firm’s resources and capabilities of key functional areas are examined to determine its strengths and weaknesses. The key functional areas may be: 1. Organization Itself - Culture - Form and Structure - Top Management Skills & Interests - Planning System

SAP Analysis …Contd. : 

SAP Analysis …Contd. 2. Personnel (HR) Or Human Capital - Attitude - Skills - Competencies - Loyalties - Perceptions

SAP Analysis …Contd.: 

SAP Analysis …Contd. Firm’s Financial Resources Organization’s Physical Resources Greater Financial Resources Organization’s H.R. Resources Reallocation and Greater Capabilities to compete i.e. STRENGTH Internal Analysis for SAP and Resources Conversion Process

SAP Analysis …Contd. : 

SAP Analysis …Contd. 3. Marketing - Size of the Sales Force - Product Quality - Image - Product Line - Customer Services

SAP Analysis …Contd. : 

SAP Analysis …Contd. 4. Technical - Production Facilities - Production Techniques - Product Development abilities/skills - R &D 5. Finance - Financial Strength - Potential Financial Strength - Revenue Potentials

SAP Analysis …Contd. : 

SAP Analysis …Contd. By analyzing the above a firm is in a position to decide its “Competitive Advantages” and “Distinctive Competencies (DC or Uniqueness) over competitors in the market. Internal analysis consists of examining “Qualitative and Quantitative” resources viewing all available resources in term of “Tangible Resources” and “Intangible Resources”.

Steps in Developing Firm’s SAP : 

Steps in Developing Firm’s SAP Identification of Strategic internal factors and value activities How do these activities and factors fit with current conditions and firm’s past history of performance Step 1 Step 2 Favorable Unfavorable Strength Weakness How do these Strength & Weakness can be utilize to compete in market How do these Strength & Weakness compare with capabilities and resources of main competitors? Step 3 Provide an edge Over competitors Necessary Skills / other Requirements Necessary Skills and other Requirements are not possible Competitive Advantages Basic Business Requirements Competitive Disadvantages Necessary inputs available for strategy formulation Step 4

The Value Chain Approach : 

The Value Chain Approach The value chain approach to diagnose firm’s key strengths and weakness was developed by Michael Porter. Value chain is an excellent framework by which a firm can determine its strengths and weaknesses through parts of its operations that create value and those do not.

The Value Chain Approach …Contd.: 

The Value Chain Approach …Contd. A firm can earn above-average return only when the value it creates is greater than the costs incurred to create that value. The value chain analysis is a systematic way to analyze the series of activities a firm perform to provide a product to its customers.

The Value Chain Approach …Contd.: 

The Value Chain Approach …Contd . The value chain disaggregates a firm into its activities in order to understand the behavior of the firm cost and its existing or potential source of differentiation (competitive edge over competitors). The disaggregated activities are called as “Key internal factors” – more cheaper or better than its competitors. As shown in the figure the firm value chain is divided into two types of activities.

The Value Chain Approach …Contd.: 

The Value Chain Approach …Contd . Primary Activities: These activities are involved in products physical creation, its sales and distribution to customers, marketing , and after sales support. 2. Support Activities: Which provide inputs, infrastructure and assistance to primary activities to take place.

The Value Chain Approach …Contd.: 

The Value Chain Approach …Contd . The value chain shows how the raw materials are converted into final products and marketed. It is vary apparent that human skills, knowledge and willingness in involved at every part of the chain. Using value chain analysis a firm can identify its strengths in terms of “Core competencies”, Key Result Areas (KRAs), and DCs.

The Value Chain Approach …Contd.: 

The Value Chain Approach …Contd . The term margin which covers both primary activities and supportive activities in the figure denotes how an organization is capable to generate profit margin with the linkage of both the activities.

Resource Based Approach of Internal Analysis (Care: Before Value Chain) : 

Resource Based Approach of Internal Analysis (Care: Before Value Chain) Success of a business firm heavily depend how well firm have a set of DC and resources which are significantly different from those of its competitors. For a successful corporate strategy a firm has to identify resources that systematically distinguished the firm in a way that no other competitor can easily imitate or duplicate (assets, skills, technologies, capabilities etc.).

Resource Based Approach of Internal Analysis (Care: Before Value Chain) …Contd. : 

Resource Based Approach of Internal Analysis (Care: Before Value Chain ) …Contd. The resources based approach to analyze firm’s suggest that the available resources must be unique in term of: Quantity, quality, durability Not easy to imitate or duplicate Highly specialized and durable (such as brand name and patent)

Resource Based Approach of Internal Analysis (Care: Before Value Chain) …Contd. : 

Resource Based Approach of Internal Analysis (Care: Before Value Chain ) …Contd. Such a unique mix of resources provides long term sustainability and competitive edge over its competitors. Following figure shows the Resources Competencies Framework which enables a firm to show its strategic capabilities and competencies over competitors.

Resource Based Approach of Internal Analysis (Care: Before Value Chain) …Contd.: 

Resource Based Approach of Internal Analysis (Care: Before Value Chain ) …Contd. Necessary Resources Threshold Competencies Unique Resources Core Competencies Easy to Imitate Difficult to Imitate Same as Competitor Better than Competitor

ETOP Analysis : 

ETOP Analysis A profile of environmental threats and opportunities is considered to be a very useful device and is a summarized depiction of environmental factors and their impact on future functions of firm under competitive environment. The environment is a significant source of change and is highly dynamic in nature. Some organizations become victim of the change and dynamism of environment.

ETOP Analysis …Contd. : 

ETOP Analysis …Contd. Basic Characteristics of Environment: Uniqueness Dynamic in Nature Variability of Control Environment Carries Risk, Uncertainties and Opportunities

ETOP Analysis …Contd. : 

ETOP Analysis …Contd. On the basis of impact on a business house we can divide the environment into 4 categories: 1. The Mega Environment or Broader Environment: Demographic Factors Political Factors Legal & Regularity Socio-Cultural Economic

ETOP Analysis …Contd. : 

ETOP Analysis …Contd. 2. The Micro or Immediate Environment or Industry Environment: This environment and its components are very close to the firm; in fact the firm operates within this environment. Therefore, the intensity of negative or positive effects are directly hit the firm and its strategies / decision making. Porter Model of 5 Forces is the best tool to evaluate this environment.

ETOP Analysis …Contd. : 

ETOP Analysis …Contd. Porter’s 5 Forces Effects on Industry Profitability and Functioning High Rivalry High Power of Suppliers Low Power of Buyers Threats of Potential Rival- High Threats of Substitutes Low Profitability Low Profitability High Profitability Low Profitability in Future and Unattractive Industry Low Profitability

ETOP Analysis …Contd. : 

ETOP Analysis …Contd. 3. The Technological Environment