CHAPTER 1 INTRODUCTION TO STRATEGIC MANAGEMENT

CHAPTER 1 INTRODUCTION TO STRATEGIC MANAGEMENT

1. STRATEGIC MANAGEMENT:
The strategic management process is the set of activities that firm managers undertake to put their firms in
the best possible position to compete successfully in the marketplace. Strategic management is made up of
several distinct activities: developing the firm’s vision and mission; strategic analysis; developing objectives;
creating, choosing, and implementing strategies; and measuring and evaluating performance.

2. CONCEPT OF STRATEGY
We may define the term ‘strategy’ as a long-range blueprint of an organization’s desired image, direction and
destination, i.e., what it wants to be, what it wants to do, how it wants to do things, and where it wants to go.

Igor H. Ansoff: The common thread among the organization’s activities and product-markets that defines the
essential nature of business that the organization has or planned to be in future.

William F. Glueck: A unified, comprehensive and integrated plan designed to assure that the basic objectives
of the enterprise are achieved.

In large organisations, strategies are formulated at:

 The corporate,
 Divisional, and
 Functional levels

3. TYPES OF STRATEGY:
Strategy is partly Proactive and partly Reactive: A company’s strategy is typically a blend of:

 Proactive actions on the part of managers to improve the company’s market position and financial
performance.
 Reactions to unanticipated developments and fresh market conditions in the dynamic business
environment.

4. THE MAJOR BENEFITS OF STRATEGIC MANAGEMENT ARE:

 It helps define the goals and mission
 Helps organisations to be proactive instead of reactive in shaping its future

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 Provides frameworks for all major decisions of an enterprise

 Seeks to prepare the organisation to face the future
 Serves as a corporate defence mechanism against mistakes and pitfalls
 Enhance the longevity of the business
 Helps the organisation to develop certain core competencies and competitive advantages

5. LIMITATIONS OF STRATEGIC MANAGEMENT:

 Environment is highly complex and turbulent.
 Time-consuming process
 Costly process
 Difficult to clearly estimate the competitive responses

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6. STRATEGIC INTENT
Strategic intent can be understood as the philosophical base of strategic management.

1. Vision:
 Blueprint of the company’s future position.
 Glimpse of what the organisation would like to become in future. Every sub system of the organisation
is required to follow its vision.

2. Mission:
 Mission delineates the firm’s business, its goals and ways to reach the goals
 A mission statement helps to identify, ‘what business the firm undertakes.’

3. Goals and Objectives: These are the end results which are to be attained with the help of an overall plan,
over the particular period.

4. Values/ Value System: Collins and Porras succinctly define core values as being inherent and sacrosanct;
they can never be compromised, either for convenience or short-term economic gain.

7. LONG-TERM OBJECTIVES IN SEVEN AREAS:

 Profitability
 Productivity
 Competitive Position
 Employee Development

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 Employee Relations
 Technological Leadership
 Public Responsibility

Short-range objectives can be identical to long-range objectives

8. MAIN LEVELS OF MANAGEMENT:

 Corporate level
 Business level
 Functional level

9. NETWORK OF RELATIONSHIP BETWEEN THE THREE LEVELS

1. Functional and Divisional Relationship:
 Independent relationship,
 Business level manager, reporting directly to the business head, who is a corporate level manager

2. Horizontal Relationship:
 All positions, from top management to staff-level employees, are in the same hierarchical position
 It is a flat structure where everyone is considered at same level
 More suitable for start-ups

3. Matrix Relationship:
 Grid-like structure
 Built for temporary task-based projects
 Helps manage huge conglomerates with ease
 More than one business level managers for each functional level teams

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 CHAPTER 2 STRATEGIC ANALYSIS: EXTERNAL ENVIRONMENT

CHAPTER 2 STRATEGIC ANALYSIS: EXTERNAL ENVIRONMENT

1. STRATEGIC ANALYSIS:

Judgments about what strategies to pursue need to flow directly from analysis of a firm’s external environment
and its internal resources and capabilities. Environmental scanning is a natural and continuous activity for
every business and some do it on an informal basis, while others have a formal structure to collect meaningful
information.

The two important situational considerations are:

(1) Industry and competitive conditions, and
(2) An organisation’s own capabilities, resources, internal strengths, weaknesses, and market position.

2. ISSUES TO CONSIDER FOR STRATEGIC ANALYSIS:

 Strategy evolves over a period of time

 Balance of external and internal factors

3. BUSINESS ENVIRONMENT:
The term "business environment" refers to all external factors, influences, or situations that in some way affect
business decisions, plans, and operations. Organisational success is determined by its business environment,
and even more from its relationship with it.

4. MICRO ENVIRONMENT:
 Micro-environment is related to small area or immediate periphery
 Affect on a direct and regular basis

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5. ELEMENTS OF MACRO ENVIRONMENT:

“The environment includes factors outside the firm which can lead to opportunities for, or threats to the firm.
Although, there are many factors, the most important of the factors are socio-economic, technological,
supplier, competitors, and government.”
Gluek and Jauch
 Demographic Environment
 Socio-Cultural Environment
 Economic Environment
 Political-Legal Environment
 Technological Environment

6. PESTLE - A TOOL TO ANALYSE MACRO ENVIRONMENT:

7. INTERNATIONAL ENVIRONMENT:
Analysing international environment is important since it allows organisation to discover opportunities in the
global market and evaluate feasibilities of capitalising on these opportunities.

Levels:

 Multinational Environmental Analysis,

 Regional Environmental Analysis, and
 Country Environmental Analysis

8. BUSINESS PRODUCTS HAVE CERTAIN CHARACTERISTICS AS FOLLOWS:

 Products are either tangible or intangible.

 Product has a price.
 Products have certain features that deliver satisfaction
 Product is pivotal for business
 A product has a useful life

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9. PRODUCT LIFE CYCLE (PLC):

 The first stage of PLC is the introduction stage with slow sales growth
 The second phase of PLC is growth stage with rapid market acceptance
 The third phase of PLC is maturity stage where there is slowdown in growth rate
 In the fourth stage of PLC is declines with sharp downward drift in sales

10. VALUE CHAIN ANALYSIS:

Value chain analysis is a method of examining each activity in value chain of a business in order to identify
areas for improvements. When you do a value chain analysis, you must analyse how each stage in the process
adds or subtracts value from the end product or service.

The two basic steps of identifying separate activities and assessing the value added from each were linked to
an analysis of an organization’s competitive advantage by Michael Porter.

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11. PORTER’S FIVE FORCES MODEL:

Step 1: Identify the specific competitive pressures associated with each of the five forces.

Step 2: Evaluate how strong the pressures comprising each of the five forces are (fierce, strong, moderate to
normal, or weak).
Step 3: Determine whether the collective strength of the five competitive forces is conducive to earn attractive
profits.

12. ATTRACTIVENESS OF INDUSTRY:

 Growth potential
 Competition
 Profitability
 Competitive position of an organisation
 The potential to capitalize on the vulnerabilities of weaker rivals.
 Able to defend
 The degrees of risk and uncertainty
 The severity of problems confronting the industry as a whole.
 Whether adds to the firm’s ability to be successful in other industries

13. EXPERIENCE CURVE:

Experience curve has following features:

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 As business organisation grow, they gain experience.

 Experience may provide an advantage over the competition. Experience is a key barrier to entry.
 Large and successful organisation possess stronger “experience effect”.

14. VALUE CREATION:

The concept of value creation was introduced primarily for providing products and services to the customers
with more worth.

Michael Porter argues that a company can generate competitive advantage in two different ways, either
through differentiation or cost advantage. According to Porter’s, differentiation means the capability to
provide customers superior and special value in the form of product’s special features and quality or in the
form of aftersales customer service.

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At the most basic level, how profitable a company becomes depends on three factors:

(1) The value customers place on the company’s products;

(2) The price that a company charges for its products; and
(3) The costs of creating those products.

15. CUSTOMER BEHAVIOUR:

16. COMPETITIVE LANDSCAPE STEPS:

 Identify the competitor: Who are the competitors and how big are they?
 Understand the competitors: What are their product and services?
 Determine the strengths of the competitors:
 Determine the weaknesses of the competitors: Where are they lacking?
 Put all of the information together:

17. KEY SUCCESS FACTORS (KSFs):

Key success factors are the prerequisites for industry success or, to put it another way, KSFs are the factors
that shape whether a company will be financially and competitively successful.

An organisation with perceptive understanding of industry KSFs can gain sustainable competitive advantage
by training its strategy on industry KSFs and devoting its energies to being distinctively better than rivals on
one or more of these factors.

Only rarely does an industry have more than three or four key success factors at any one time.

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CHAPTER 3 STRATEGIC ANALYSIS: INTERNAL INVIRONMENT

CHAPTER 3 STRATEGIC ANALYSIS: INTERNAL INVIRONMENT

1. INTRODUCTION:

Internal environment refers to the sum total of people – individuals and groups, stakeholders, processes-input-
throughput-output, physical infrastructure-space, equipment and physical conditions of work, administrative
apparatus-lines of authority & power, responsibility, accountability and organizational culture intangible aspects
of working-relationships, philosophy, values, ethics- that shape an organization’s identity.

2. KEY STAKEHOLDERS:

Stakeholders can be defined as any person/group of individuals, internal or external, that has an interest in,
or impact on the business or corporate strategy of the organisation. They have the power to influence the
strategy or performance of that organisation.

Generally, stakeholders include management, employees, shareholders, customers and vendors. Additionally,
other individuals and groups, such as governments, labour unions and local groups

3. MENDELOW’S MATRIX:

4. STRATEGIC DRIVERS:
 Industry and markets
 Customers
 Products/services
 Channels

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5. STRATEGIC GROUP MAPPING:

The procedure for constructing a strategic group map and deciding which firms belong in which strategic
group is straightforward:

 Identify the competitive characteristics that differentiate firms

 Plot the firms on a two-variable map
 Assign firms that fall in about the same strategy space to the same strategic group
 Draw circles

6. CUSTOMER VS CONSUMER:

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7. MARKETING STRATEGIES:
 Social Marketing: To bring in a social change
 Augmented Marketing: Additional customer services and benefits
 Direct Marketing: Marketing through various advertising media that interact directly with consumers
 Relationship Marketing: Creating, maintaining, and enhancing strong, value-laden relationships with
customers and other stakeholders
 Services Marketing: Marketing to services
 Person Marketing: To create, maintain or change attitudes and behaviour towards particular person
 Organization Marketing: To create, maintain, or change attitudes and behaviour of target audiences
towards an organization
 Place Marketing: To create, maintain, or change attitudes and behaviour towards particular places
 Enlightened Marketing: Support the best long-run performance of the marketing system
 Differential Marketing: To target several market segments and designs
 Synchro-marketing: When the demand for a product is irregular synchro-marketing can be used to find
ways to alter the pattern of demand through flexible pricing, promotion, and other incentives.
 Concentrated Marketing: It can also take the form of Niche marketing.
 Demarketing: It includes marketing strategies to reduce demand temporarily or permanently

8. TYPES OF CHANNELS:

1. The sales channel: The intermediaries involved in selling the product through each channel
2. The product channel: Intermediaries who physically handle the product on its path from its producer to
the end user
3. The service channel: Entities that provide necessary services to support the product, as it moves through
the sales channel and after purchase by the end user

9. ROLE OF RESOURCES AND CAPABILITIES: BUILDING CORE COMPETENCY:

C.K. Prahalad and Gary Hamel have advocated a concept of core competency, which is a widely used concept
in management theories. They defined core competency as the collective learning in the organization,
especially coordinating diverse production skills and integrating multiple streams of technologies.

According to C.K. Prahalad and Gary Hamel, major core competencies are identified in three areas-

 Competitor differentiation,
 Customer value, and
 Application to other markets

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Core competencies are the knowledge, skills, and facilities necessary to design and produce core products. Core
competencies are created by superior integration of technological, physical and human resources. They
represent distinctive skills as well as intangible, invisible, intellectual assets and cultural capabilities.

10. CRITERIA FOR BUILDING A CORE COMPETENCIES (CC):

 Valuable
 Rare
 Costly to imitate
 Non-substitutable

11. COMBINING EXTERNAL AND INTERNAL ANALYSIS (SWOT ANALYSIS):

SWOT analysis is the analysis of a business’s strengths, weaknesses, opportunities and threats. The primary
objective of a SWOT analysis is to help organizations develop a full awareness of all the factors (external as
well as internal), involved in making a business decision.

12. COMPETITIVE ADVANTAGE: USING MICHAEL PORTER’S GENERIC STRATEGIES:

If a company’s strategies result in superior performance, it is said to have a competitive advantage. ‘It is a set
of unique features of a company and its products that are perceived by the target market as significant and
superior to the competition.’
Sustainability of Competitive Advantage

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 Durability
 Transferability
 Imitability
 Appropriability

13. MICHAEL PORTER’S GENERIC STRATEGIES:

According to Porter, strategies allow organizations to gain competitive advantage from three different
bases: cost leadership, differentiation, and focus. Porter called these base generic strategies.

 Cost leadership emphasizes on producing standardized products at a very low per unit cost for
consumers who are price-sensitive.
 Differentiation is a strategy aimed at producing products and services considered unique industry-wide
and directed at consumers who are relatively price-insensitive.
 Focus means producing products and services that fulfil the needs of small groups of consumers with very
specific taste.

14. ACHIEVING COST LEADERSHIP STRATEGY:

1. Prompt forecasting of demand of a product or service
2. Optimum utilization of the resources to achieve cost advantages
3. Achieving economies of scale
4. Standardisation of products
5. Invest in cost saving technologies
6. Resistance to differentiation till it becomes essential

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15. BASIS OF DIFFERENTIATION:

1. Product: Innovative products
2. Pricing: Offer the lowest price or can attempt to establish superiority through higher prices
3. Organisation: Location advantage, name recognition and customer loyalty

16. ACHIEVING DIFFERENTIATION STRATEGY:

1. Offer utility
2. Elevate/Improve performance of the product
3. Offer the high-quality product/service for buyer satisfaction.
4. Rapid product innovation
5. Taking steps for enhancing brand image and brand value.
6. Fixing product prices based on the unique features

17. ACHIEVING FOCUSED STRATEGY:

1. Selecting specific niches
2. Creating superior skills
3. Generating high efficiencies
4. Developing innovative ways in managing the value chain

18. BEST COST PROVIDER STRATEGY:

It is directed towards giving customers more value for the money by emphasizing on both, low cost and upscale
differences.

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 CHAPTER 4 STRATEGIC CHOICES

CHAPTER 4 STRATEGIC CHOICES

1. TYPES OF CORPORATE STRATEGIES:

 Stability strategy
 Expansion strategy
 Retrenchment strategy
 Combination strategy

2. CHARACTERISTICS OF STABILITY STRATEGY:

 Same business, same product-market posture and functions, maintaining same level of effort
 The endeavour is to enhance functional efficiencies
 Does not involve a redefinition of the business
 It is a safe strategy
 It does not warrant much of fresh investments
 Less risk
 Leading to building of core competencies.
 Modest growth objective

3. MAJOR REASONS FOR STABILITY STRATEGY:

 A product has reached the maturity stage
 The staff feels comfortable with the status quo
 Environment is relatively stable.
 Where it is not advisable to expand
 After rapid expansion

4. CHARACTERISTICS OF GROWTH/EXPANSION STRATEGY:

 Redefinition of the business
 Opposite of stability strategy

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 Leads to business growth.

 Fresh investments and new businesses/products/markets
 Highly versatile strategy
 Intensification and Diversification

5. Major Reasons for Growth/Expansion Strategy:

 When environment demands increase in pace of activity.
 Strategists may feel more satisfied
 Lead to greater control over the market vis-a-vis competitors.
 Advantages from the experience curve and scale of operations
 Expansion also includes intensifying, diversifying, acquiring and merging

6. TYPES OF GROWTH/ EXPANSION STRATEGY:

A. Internal growth strategies

B. External growth strategies

A. INTERNAL GROWTH STRATEGIES CAN BE FURTHER DIVIDED INTO:

I. Expansion through Intensification

II. Expansion through Diversification

I. EXPANSION OR GROWTH THROUGH INTENSIFICATION: Organisation tries to grow internally

 Market Penetration
 Market Development
 Product Development

II. EXPANSION OR GROWTH THROUGH DIVERSIFICATION: Entry into new products or product lines, new
services or new markets, involving substantially different skills, technology and knowledge

Diversification can be classified into two broad categories:

(a) Concentric diversification: Diversification into related business

(b) Conglomerate diversification: Diversification into unrelated business
(c) Expansion through Innovation: Up gradation of existing product lines or processes

Concentric diversification is generally understood in two directions:

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 Vertical integration: The firm remains vertically within the same process sequence moves forward
or backward in the chain
 Horizontal integration: Acquisition of one or more similar businesses operating at the same stage or
integrate with the firms producing complementary products or by-products or by taking over
competitors’ products.

B. EXTERNAL GROWTH STRATEGIES:

I. EXPANSION THROUGH MERGERS AND ACQUISITIONS:

 Merger: is a process when two or more companies come together to expand their business operations.
In such a case the deal gets finalized on friendly terms and both the organizations share profits in the
newly created entity

 In Acquisition: one financially strong organization overpowers the weaker one

TYPES OF MERGERS:

(a) Horizontal Merger: Merger with a direct competitor

(b) Vertical Merger: Same industry but at different stages of production or distribution system

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(c) Co-generic Merger: Merging organizations are associated in some way or the other related to the
production processes, business markets, or basic required technologies.

(d) Conglomerate Merger: Combination of organizations that are unrelated to each other

II. EXPANSION THROUGH STRATEGIC ALLIANCE:

Relationship between two or more businesses that enables each to achieve certain strategic objectives which
neither would be able to achieve on its own

7. STRATEGIC EXITS/RETRENCHMENT:

I. TURNAROUND STRATEGY: For internal retrenchment to take place, emphasis is laid on improving internal
efficiency, known as turnaround strategy.

Action Plan for Turnaround:

 Stage One – Assessment of current problems

 Stage Two – Analyze the situation and develop a strategic plan
 Stage Three – Implementing an emergency action plan
 Stage Four – Restructuring the business
 Stage Five – Returning to normal

II. DIVESTMENT STRATEGY: Divestment strategy involves the sale or liquidation of a portion of business, or a
major division, profit centre or SBU.

Major Reasons for Retrenchment:

 A business that had been acquired proves to be a mismatch and cannot be integrated
 Negative cash flows from a particular business
 Severity of competition and the inability of a firm
 It is not possible for the business to do technological upgradation
 A better alternative may be available for investment

8. ANSOFF’S PRODUCT MARKET GROWTH MATRIX:

 Market Penetration: Selling existing products into existing markets/more sales to present customers

without changing products in any major way.

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