Unit 1

STRATEGIC MANAGEMENT
IFETCE/MBA/IIYR/IIISEM/201213/BA9210/SM/UNIT1/PPT/VER1.1
STRATEGY
The word strategy comes from the Greek word, Strategos which means a General or Military Commander. Chandler defined strategy as, The determination of the basic long-term goals and objectives of an enterprise and the adoption of the courses of action and the allocation of resources necessary for carrying out these goals. Igor Ansoff define strategy as, The common thread among the organization's activities and product-markets as above that defines the essential nature of business that the organization was or planned to be in future. Sharplin defines strategy as, A plan or course of action which is of vital, pervasive, or continuing importance to the organization as a whole.
LEVELS AT WHICH STRATEGY OPERATES

Corporate level strategy It is overarching plan of action covering the various action covering the various functions performed by different SBU Business level strategy
It involves making decisions about the competitive position of a Single Business Unit.
Functional level strategy

It deals with the restricted plan providing objectives for a specific function, allocation of resources among different operations within that functional area and coordination between them for optimal contribution to the achievement of the SBU and Corporate level strategies.
LEVELS
STRATEGY Corporate office
Corporate
Corporate level strategy
SBU
SBU A
SBU B
SBU C
SBU (or Business) level strategy
Finance Functional
Marketing Functional level strategy Personnel
Operations
STRATEGIC PLANNING Strategic planning is a process which, through an examination of external and internal factors for an organization, results in a set of mission, purpose, objectives, policies, plans and programmes for implementation.
Strategic Decision Making

Strategic decision making forms the core of strategic management. It is defined as the set of decisions and actions that result in the formulation and implementation of plans designed to achieve a companys objectives. Characteristics of Strategic Decisions: Strategic Management integrates various functions SM considers a broad range of stakeholders SM entails multiple time horizons SM is concerned with both efficiency and effectiveness
ISSUES IN STRATEGIC DECISION- MAKING Criteria for decision making Maximization Satisfying Incrementalism Rationality in decision making Creativity in decision making Variability in decision making Person-related factors in decision making Individual versus group in decision making
STRATEGIC MANAGEMENT
Gleuk defines Strategic management as a stream of decisions and actions which leads to the development of an effective strategy or strategies to help corporate objectives Sharplin defines Strategic Management as the formulation and implementation of plans and the carrying out of activities relating to the matters which are of vital ,pervasive, or continuing importance to the total organization
Phases in Strategic Management

Defining business mission, purpose, and objectives Formulation of strategies Implementation of strategies and Evaluation of strategies
Formulation of strategies
Defining business, mission, purpose and objectives
Implementatio n of strategies
Evaluation of strategies
Feedback
Strategic Management process

Business definition, Mission, Purpose and Objectives
Strategy Formulation
Feedback
Environmental Appraisal Organizational Appraisal
Strategic Alternatives and choice

Implementation of strategy -Project Implementation -Procedural implementation -Structural Implementation -Functional Implementation Behavioural Implementation Evaluation of Strategy
Strategy Implementation
Feed back
Strategy Evaluation
VISION The Companys Vision is a description of what the organisation is trying to do and to become. Vision is a powerful motivator and keeps an organisation moving forward in the intended direction.
Visioning vs. Planning

Visioning proactive plan for the future.
It is a view of the future that everyone can believe in.
Planning process that provides specific direction and meaning to the dayto-day activities. strategic planning places the strategic vision into motion.
MISSION AND PURPOSE

Mission is a statement which defines the role that an organisation plays in the society. The term mission is defined as the fundamental and enduring purpose of an organisation that sets it apart from other organizations of a similar nature. Purpose is anything which an organisation strives for.
Characteristics of a Mission Statement

Feasible Precise Clear Motivating Distinctive Indicate major components of strategy Indicate how objectives are to be accomplished
Formulating a Mission Statement
View of the future Competitive Arenas Source of Competition Advantage

Fundamental Intentions
Business Definition
Business (company, enterprise or firm) is a legally recognized organization designed to provide goods and/or services to consumers, businesses and governmental entities Derek F. Abell defines business along the three dimensions - Customer groups [Who] - Customer functions [What] - Alternative technologies [How]
OBJECTIVES
Objectives are open-ended attributes that denotes the future states or outcomes. Role of Objectives: It define the organizations relationship with its environment It helps an organisation pursue its mission and purpose It provide the basis for strategic decision-making It provide the standards for performance appraisal
Characteristics of Objectives
Understandable Concrete and specific Related to time frame Measurable and controllable Challenging Correlate with each other Set within constraints
Issues in Objective-setting:
Specificity Multiplicity Periodicity Verifiability Reality Quality
How are objectives formulated

According to Glueck the major factors are, The forces in the environment Realities of enterprises resources and internal power relationships The Value system of the top executives Awareness by the management.
Critical Success Factor: Critical Success factor (CSF), sometimes referred to as strategic factors or key factors of success, are those which are crucial for organizational success. A set of CSF is the result of asking the question: What do we need to do in order to be successful in a particular context. CSF are the results of long years of managerial experience which leads to the development of intuition, judgment and hunch for use in strategic decision making.
An analysis of what relevant CSF operate in a particular context could be based on the managers statement, expert opinion and organizational success stories. CSF could also be generated internally through creative techniques such as brainstorming. The use of CSF in objective-setting and strategic choice distinguishes the successful organizations from the unsuccessful ones. CSFs are used to pinpoint the key result areas, determine objectives in those areas and devising measures of performance for judging the objective-achieving capability of any organization.
GOALS Goals are close-ended attributes which are precise and expressed in specific terms. Characteristics of goals: Precise and measurable Address important issues Specify time period Features of Strategic goals: They address both financial and non-financial issues They facilitate reasonable trade-offs They can be reached through stretch
STAKEHOLDERS IN BUSINESS
Shareholders Generate profits and pay dividends Customers provide good quality products at reasonable prices. Safety, honesty, decency and truthfulness Employees health and safety at work, security, fair pay Suppliers pay on time, pay fair rates for the work done, provide element of security
Local Community provide employment, safe working environment, minimise pollution and negative externalities provide external benefits. Government abide by the law, pay taxes, abide by regulations Management their aims versus those of the organisation as a whole Environment limit pollution, congestion, environmental degradation, development, etc.
Employees: Employees should all see where the business is heading towards otherwise they might see little point in changes that have been made and may become suspicious. It is very important that the changes are explained clearly to employees and that any fear they may have are properly addressed. Investors: Investors are important because the business relies on their investment to finance the decisions that it takes.
Shareholders: They will be very interested in any decision that effects the dividends that they receive is their share of profits If shareholders are unhappy with the decisions made, they can voice their concerns at the Annual General Meeting, and even take a vote to replace members of the Board of Directors or the Chief Executive. This is something that the managers of the business would want to avoid, so they would have to consider how shareholders will feel about the decisions made.
Customers: Customers will be concerned if the decisions affect the price, quality, or service of the product they may change their buying habits if the product does not meet their requirements.
Suppliers
Suppliers want to get regular orders with prompt payment these may be effected by the decisions made by the business. For example, if there is a decision to increase production then more materials will be ordered from the supplier. He suppliers may then have to vary the period of credit and/or the level of discount offered to the firm. If the supplier finds it difficult to provide the extra materials, then the decision may have to be changed. Community: The community could be effected in many ways by the decisions made by the business.
Government: The government passes legislation which affects business, and so this will have to be taken into account when decisions are made. It is also important for the business that any decisions it takes are legal, otherwise they could be prosecuted. The government can introduce legislation at any time to prevent what they see as undesirable actions by businesses, e.g. a firm gaining a monopoly position in a particular industry. Therefore it is important that businesses take into account what the government will approve or disapprove of when making decisions.
Corporate Governance
The relationship among the board of directors, top management, and shareholders determining the direction and performance of the corporation Principles of Corporate governance: Protecting shareholders wealth Enhancing the wealth through proper utilization of assets Maintenance of that wealth and not frittering away in unconnected and non profitable ventures or through expropriation. Safeguarding the interests of the shareholders
Principles of governance:
Rights and equitable treatment of shareholders Interest of other stakeholders Role and Responsibilities of the board Integrity and ethical behaviour Disclosure and transparency
Essentials of Corporate governance:

Transparency Disclosure Fairness Independent Supervision
Role of Board of Directors Monitor Evaluate and influence Initiate and determine Sec. 291 of Indian companies Act 1956, -- Subject to be provisions of the Act, the BoD of company shall entitled to exercise all such powers and to do all such acts and things, as the company is authorized to exercise and do. -- No regulation made by the company in general meeting shall invalidate any prior act of the board which would have been valid if the regulation has not been made.
Sec. 292 defines the exclusive powers of BoDs. Issuing debentures Borrowing money other than through debentures Investing the funds of the company Taking loans Sec 293 is the restrictions placed on the power of BoD in respect of selling, leasing or disposing of the companys property remittance of debt due by any director; borrowing money to an extent which can exceed the net worth of the company, etc.
Setting Corporate strategy, overall direction Hiring and firing CEO and top management Controlling, monitoring or supervising the top management Reviewing and approving the use of resources Caring for shareholders interests Indian context: The enterprise remains effective on technical parameters The enterprise continues to achieve healthy market growth Diversification and divestment are done on sound lines Productivity and quality are not sacrificed for short term profit Building a sound system of human values and corporate culture IFETCE/MBA/IIYR/IIISEM/201213/BA9210/SM/UNIT1/PPT/VER1.1
Size and composition of BoD

According to Sec 252, a public ltd company should have atleast 3 Directors
Worker- Director Nominee Director Constituency based Directors Government Director
AGENCY THEORY
Agency Problem Objectives of owners & agents in conflict Difficult for owners to verify agent performance Risk Sharing Problem IFETCE/MBA/IIYR/IIISEM/2012 Owners & agents 13/BA9210/SM/UNIT1/PPT/VER1.1 risk assessment in conflict
Nominations & Elections Traditional Approach CEO invitation to membership Shareholders approval in annual proxy statement All nominees usually elected
Successful CEOs Strategic vision Passion for the company Strong communication
Benefits of good Governance

Good governance leads to good performance It creates transparent system Decision making and reduces risk Promotes good accounting practices Create the brand and comfort for stakeholders and society Compete the international business environment Improves communication and breaks the systematic barriers to flow of information..
Corporate Social Responsibility

CSR is how companies manage the business processes to produce an overall positive impact on society Meaning of CSR Conducting business in an ethical way and in theinterest of the wider community Responding positively to emerging to emerging societal priorities and expectations A willingness to act ahead of regulatory confrontation Balancing shareholder interests against the interests of the wider community
Benefits: It aids the attraction and retention of staff It attracts green and ethical investment It attracts ethically conscious customers it can lead to a reduction in costs through re-cycling It differentiates the firm from its competitor and can be a source of competitive advantage It can lead to increased profitability in the long run
Corporate Social Responsibility

A Company has responsibility to society that extends beyond making a profit. Economic responsibilities - Produce goods and services of value to society so that the firm may repay its creditors and shareholders Legal responsibilities - Laid by govt. They are set out as laws that org has to obey
Ethical responsibilities - It involve the widely held beliefs about behaviour in a society Discretionary responsibilities - Purely voluntary obligations that a corporation assumes, such as philanthropic contributors and training the unemployed

Unit 1

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Unit 1

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STRATEGIC MANAGEMENT

LEVELS AT WHICH STRATEGY OPERATES

Functional level strategy

STRATEGY Corporate office

Corporate level strategy

SBU (or Business) level strategy

Marketing Functional level strategy Personnel

Strategic Decision Making

Phases in Strategic Management

Defining business, mission, purpose and objectives

Strategic Management process

Environmental Appraisal Organizational Appraisal

Strategic Alternatives and choice

Visioning vs. Planning

MISSION AND PURPOSE

Characteristics of a Mission Statement

Formulating a Mission Statement

View of the future Competitive Arenas Source of Competition Advantage

How are objectives formulated

Essentials of Corporate governance:

Size and composition of BoD

Benefits of good Governance

Corporate Social Responsibility

Corporate Social Responsibility

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