9strategy: Strategic Management Model / Strategic Planning Process
9strategy: Strategic Management Model / Strategic Planning Process
9strategy: Strategic Management Model / Strategic Planning Process
Strategy involves matching a firms capabilities with the opportunities present in the external
environment.
Strategy is managements game plan for strengthening the organizations position, pleasing
customers, and achieving performance targets.
STRATEGIC MANAGEMENT
Strategic management is defined as the art and science of formulating, implementing, and evaluating crossfunctional decisions that enable the organization to achieve its objectives."
STRATEGIC MANAGEMENT MODEL / STRATEGIC PLANNING PROCESS
Plan
Ploy
Pattern
Position
Perspective.
Plan
Strategy is a plan - some sort of consciously intended course of action, a guideline (or set of
guidelines) to deal with a situation. By this definition strategies have two essential characteristics:
they are made in advance of the actions to which they apply, and they are developed consciously
and purposefully.
Eg: A kid has a "strategy" to get over a fence, a corporation has one to capture a market. By this
definition, strategies have two essential characteristics: They are developed consciously and
purposefully
Ploy (threat)
"maneuver" intended to outwit an opponent or competitor. The kid may use the fence as a ploy to
draw a bully into his yard, where his Doberman pincher awaits intruders. Likewise, a corporation
may threaten to expand plant capacity to discourage a competitor from building a new plant. Here
the real strategy (as plan, that is, the real intention) is the threat, not the expansion itself, and as such
is a ploy.
Pattern
Pattern in a stream of actions. The definitions of strategy as plan and pattern can be quite
independent of one another: plans may go unrealised, while patterns may appear without
preconception.
Plans are intended strategy, whereas patterns are realized strategy.
Position
Strategy is also a positionmeans of locating an organization in its "environment." In ecological
terms, strategy becomes a "niche"; in management terms, a product-market "domain." Position is
usefully identified with respect to competitors.
Perspective
While position looks out, seeking to locate the organization in the external environment, perspective
looks inside the organization, indeed inside the heads of the strategists. Here, strategy becomes the
ingrained way of perceiving the world.
CORPORATE STRATEGY
Corporate-level strategies are basically decisions related to:
allocating resources among the different businesses of a firm
Strategic Alliances
B) Stability
(i) Pause/Proceed with Caution
(ii) No Change
(iii) Profit
C) Retrenchment
(i) Turnaround
(ii) Sell-out / Divestment
(iii) Bankruptcy / Liquidation
A) GROWTH STRATEGY
(i)
(ii)
INTEGRATION STRATEGY: Means combining activities related to the present activity of the
firm. It may be done on the basis of value chain where set of linked activities performed right
from procurement of basic raw material to the marketing of finished products and ultimately
selling to consumers.
Vertical Integration means undertaking new activity with the purpose of either supplying inputs or
serving customer for outputs.
2 types
consumers.
Horizontal Integration means when an organization is moving beyond its boundaries into the domain
of rivalry industry (also known as mergers or accusations).
(iii) DIVERSIFCATION STRATEGY: Substantially change in business definition in terms of customer
needs, customer satisfaction, or altering technologies. When new products are made for new market.
Concentric Diversification (Related): When a firm has a strong competitive position but industry
attractiveness is low. The firm enters in a new industry where the firms product knowledge, its
manufacturing capabilities, and the marketing skills can be put to good use.
3 types :
Market Related: Offering similar type of product with the help of unrelated technology.
Technology Related: Offering a new type of product or service with the help of related
technology.
Market & Technology Related: Offering similar type of product or service with the help of
related technology.
Conglomerate Diversification (Unrelated) takes place when management realizes that the current
industry is unattractive and that the firm lacks abilities or skills to transfer related products, or
services in other industries.
Reasons for Diversification
Only way to grow if existing business is blocked due to environmental and regulatory factors.
iv)
COOPERATIVE STRATEGY
A) MERGERS & ACQUISITION
Mergers involve combination of all the assets, liabilities, loans and businesses of two or more
companies such that one of them survives.
Acquisition is an attempt by which a company or an individual or a group of individuals acquires
control over another company called target company.
TYPES
1) Horizontal Merger
Combinations of two or more firms dealing in similar lines of activity combine together.
2) Vertical Merger
Combinations of two or more firms not dealing in similar lines of activity create complementarities
goods or services.
3) Concentric Mergers
Combination of two or more organizations related to each other either in terms of customer functions
or alternative technologies used.
4) Conglomerate Mergers
Combination of two or more organizations unrelated to each other either in terms of customer
functions or alternative technologies used.
REASONS FOR MERGER
1) BUYERS PERPECTIVE
Reduce competition
2) SELLERS PERSPECTIVE
Acquire resources
DANGERS IN M&A
High Leverage
Boardroom split
HR Issues
B) STRATEGIC ALLIANCE
A strategic alliance is a form of collaboration between two or more companies which can take on many
forms such as:
technology transfer
purchasing and distribution agreements
marketing and promotional collaboration
joint product development.
After completion both organization remains independent entities.
FACTORS PROMOTING STRATEGIC ALLIANCES / REASONS FOR STRATEGIC ALLIANCES
(i)
To gain access to foreign markets
(ii)
To reduce financial risks
(iii)
To bring complementary skills
(iv)
(v)
(vi)
(vii)
(viii)
BENEFITS
Sharing the risks
Opportunities for growth
Focus on core strengths
Access resources
Access to target market
DISADVANTAGES
Less Profit
Disputes
High level of commitment
Cultural difficulties
Overwhelmed by partner
TYPES OF STRATEGIC ALLIANCES
a) Mutual Service Consortia: A Mutual Service Consortium is a partnership of similar companies in similar
industries who pool their resources to gain a benefit that is too expensive to develop alone.
Eg: IBM offered Toshiba its expertise in chemical mechanical polishing to develop a new
manufacturing process.
b) Joint Venture: A joint venture is a cooperative business activity, formed by two or more separate
organizations for strategic purposes, that creates an independent business identity and allocates ownership,
operational responsibilities and financial risks and rewards to each member, while preserving their separate
identity or autonomy.
c) Licensing Arrangement: A licensing agreement is an agreement in which the licensing firm grants rights to
another firm in another country or market to produce and/ or sell a product.
d) Value-Chain Partnership: The value- chain partnership is a strong and close alliance in which one
company or unit forms a long- term arrangement with a key supplier or distributor for mutual advantage.
B) STABILITY STRATEGIES
Attempt by an organization at incremental improvement of functional performance.
(i) Pause/Proceed With Caution Strategy It is a very deliberate attempt to make only incremental
improvements until a particular environmental situation changes. It is typically conceived as a
temporary strategy to be used until the environmental becomes more hospitable.
(ii) No Change Strategy Is a decision to do nothing new (a choice to continue current operation
and policies for the foreseeable future).
- No opportunities or threats in external envt.
- No major new strengths or weaknesses within org.
- No new aggressive competitors and no new threat of substitute products.
(iii) Profit Strategy The profit strategy is an attempt to artificially support profits when a
companys sales are declining by reducing investment and short term discretionary expenditures.
Rather than announcing the companys poor position to shareholders and the investment community
at large, top management may be tempted to follow this very seductive strategy.
C) RETRENCHMENT STRATEGIES
A company may pursue retrenchment strategies when it has a weak competitive position resulting in poor
performance in sales and profits are becoming losses.
(i)
Turnaround Strategy Emphasizes the improvement of internal efficiency and is probably most
appropriate when a corporations problems are pervasive but not yet critical.
The two basic phases of a turnaround strategy are CONTRACTION and CONSOLIDATION.
Contraction is the initial effort to quickly stop the bleeding with cutback in size and costs.
Consolidation implements a program to stabilize the now-leaner corporation. To streamline
the company, plans are developed to reduce unnecessary overhead and to make functional
activities cost justified.
(ii) Sell Out / Divestment Strategy If a corporation with a weak competitive position in its industry is
unable either to pull itself by its bootstraps or to find a customer to which it can become a captive company,
it may have no choice to Sell Out.
(iii) Bankruptcy/ Liquidation Strategy When a company finds itself in the worst possible situation with a
poor competitive with few prospects. Because no one is interested in buying a weak company, the firm must
close and sell its assets.
D) COMBINATION STRATEGIES
It is the combination of stability, growth & retrenchment strategies adopted by an organisation, either at the
same time in its different businesses, or at different times in the same business with the aim of improving its
performance.
Reasons for adopting combination strategies are given below
Rapid Environment change
Liquidate one unit, develop another
Involves both divestment & acquisition (take over)
BUILDING AND RE-STRUCTURING THE CORPORATION
Retrenchment: Adopted when the firms performance is poor and its competitive position is weak.
Divestment Strategy: Divestment strategy requires dropping of some of the businesses or part of the
business of the firm, which arises in order to reverse a negative trend.
Spin-off: Selling of a business unit to independent investors is known as spin-off. It is the best way
to recover the initial investment as much as possible. The highest bidder gets the divested unit.
Harvest strategy: A harvest strategy involves halting investment in a unit in order to maximize cash
flow from that unit before liquidating it.
Liquidation: Considered to be an unattractive strategy because the industry is unattractive and the
Volatility of environment
Input supply from environment
Powerful stakeholders
Organizational factors
- Organizations mission
- Strategic intent
- Strengths and weaknesses
(ii) Subjective factors:- Strategies adopted in the previous period;
- Personal preferences of decision- makers;
- Managements attitude toward risk;
- Pressure from stakeholders;
- Pressure from corporate culture; and
- Needs and desires of key managers.
BALANCED SCORE CARD
Balanced Score Card is a performance tool which Provides executives with a comprehensive framework
that translates a companys strategic objectives into a coherent set of performance measures.
The scorecard consists of 4 different perspectives such as:
Financial
Customer
Internal business
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STRATEGY IMPLEMENTATION
Strategy implementation is "the process of allocating resources to support the chosen strategies". This
process includes the various management activities that are necessary to put strategy in motion and
ultimately achieve organizational goals.
Strategic Implementation Process
a) Determining how much the organization will have to change in order to implement the strategy under
consideration.
b) Analyzing the formal and informal structures of the organization.
c) Analyzing the "culture" of the organization.
d) Selecting an appropriate approach to implementing the strategy.
e) Implementing the strategy and evaluating the results.
DESIGNING STRATEGIC CONTROL SYSTEMS
Strategic control systems provide managers with required information to find out whether strategy and
structure move in the same direction. It includes target setting, monitoring, evaluation and feedback system.
The importance of strategic control
Fostering innovation
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