Introduction

Unit I
 Why Strategic Management ?

It gives a broader perspective to the

employees of an organization and they can
better understand how their job fits into the
entire organizational plan and how it is co-
related to other organizational members.
 The term strategic planning originated in the 1950s and was very
popular between the mid-1960s and the mid-1970s.

During these years, strategic planning was widely believed to be the

answer for all problems. At the time, much of corporate America
was obsessed with strategic planning.

Following that boom, however, strategic planning was cast aside

during the 1980s as various planning models did not yield higher
returns.

The 1990s, however, brought the revival of strategic planning, and

the process is widely practiced today in the business world.
Concept of Strategic Management
Introduction

The word strategy is derived from the Greek

word stratgos; stratus (meaning army) and
ago (meaning leading/moving).
 Strategy
Is an action that managers take to attain one or more
of the organizations goals.

Strategy can also be defined as A general direction

set for the company and its various components to
achieve a desired state in the future. Strategy results
from the detailed strategic planning process.
 Strategic Management

It is a process of formulating, implementing, and

evaluating, strategies to accomplish long-term
goals and sustain competitive advantage.
 Definition
The Art and Science of Formulating, Implementing,
and Evaluating Cross-Functional Decisions That
Enable an Organization to Achieve Its Objectives
 Definitions
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 - D.Chandler

A plan or course of action which is of vital pervasive, or

continuing importance to the organizations as whole

-Arthur Sharplin
Strategic Management Process
 Vision

A vision is a clear, comprehensive photograph of an organization at some point in

the future.

It provides direction because it describes what the organization needs to be like, to

be successful within the future.

Vision has been defined in several different ways, Kotter (1990) defines it as a
description of something ( an organization, a corporate culture, a business, a
technology, an activity) in the future
 Mission
While the essence of vision is a forward-looking view of what
an organization wishes to become, mission is what an
organization is and why it exists.

Peter F. Drucker raised important philosophical questions

related to business: what is our business? What will it be?
And what it should be? These three questions though,
simply worded are, in reality, the most fundamental
question that any organization can put to itself.
 Goals

Goals denote what an organization hopes to

accomplish in a future period of time. They
represent the future sate or outcome of effort
put in now. A broad category of financial and
non-financial issues are addressed by the
goals that a firm sets.
 Objectives
Objectives are the ends that state specifically
how the goals shall be achieved.

While goals may be qualitative, objectives

tend to quantitative in the specification.
 Policy

Business policy includes guidelines, rules and procedures established to

support efforts to achieve stated objectives.

Polices re guides to decision making and address repetitive or recurring

situations. Police defines the area in which decisions are to be made, but
it does not give the decision.

A policy is a verbal, written, or implied overall guide, setting up

boundaries that supply the general limits and direction in which
managerial action will take place.
 FACTORS THAT SHAPE A COMPANYS
STRATEGY
In general terms, environment can be broken down into three areas:

The macro environment, or general environment (remote environment) - that is, economic,
social, political and legal systems in the country;

Operating environment - that is, competitors, markets, customers, regulatory agencies, and
stakeholders; and

The internal environment - that is, employees, managers, union, and board directors.
 Analysis of the Macro environment

Political and Regulatory Forces

Economic Forces
Technological Forces
Social Forces
 Drafting a Strategy
Contemplate your organization's vision
Write a mission statement
Evaluate your organization's current standing
Determine what your strengths and weaknesses are
Identify opportunities for growth.
List factors necessary to success.
financial goals,
customer relations,
operational methods and
organization members.
Develop a strategy for accomplishing each success
factor.
Prioritize your strategies according to viability and
growth goals.
INDUSTRY AND COMPETITIVE
ANALYSIS
 What is Industry Analysis?
Industry
An industry is a group of firms producing a similar
product or service, such as airlines, fitness drinks,
furniture, or electronic games.
Industry Analysis
Is business research that focuses on the potential
of an industry.
 Why is Industry Analysis Important?
Once it is determined that a new venture is feasible in
regard to the industry and market in which it will compete,
a more in-depth analysis is needed to learn the ins and outs
of the industry.

The analysis helps a firm determine if the niche market it

identified during feasibility analysis is favorable for a new
firm.
 Techniques Available to Assess
Industry Attractiveness

Study Environmental and Business Trends

The Five Competitive Forces Model Assessing

 Studying Industry Trends
Environmental Trends
Include economic trends, social trends, technological
advances, and political and regulatory changes. For
example, industries that sell products to seniors are
benefiting by the aging of the population.
Business Trends
Other trends that impact an industry. For example, are
profit margins in the industry increasing or falling? Is
innovation accelerating or waning? Are input costs
going up or down?
 Forces Driving Industry Competition

New
Entrants
Threat of new entrants

Bargaining power Bargaining power

of suppliers of buyers
Industry Competitors

Suppliers Buyers

Rivalry Among
Existing Firms
Threat of substitute
products or services

Substitutes
 Threat of Substitutes
The price that consumers are willing to pay for
a product depends in part on the availability
of substitute products.
For example, there are few if any substitutes for
prescription medicines, which is one of the
reasons the pharmaceutical industry is so
profitable.
In contrast, when close substitutes for a product
exist, industry profitability is suppressed, because
consumers will opt out if the price gets too high.
 Threat of New Entrants
Threat of New Entrants
Economies of the scale
Product differentiation
Capital requirement
Cost advantage
Access to distribution channel
Government and legal barriers
 Threat of New Entrants
Threat of New Entrants (Non-Traditional)
Strength of management team
First mover advantage
Passion of the management team and employees
Unique business model
Internet domain name
Inventing new approach to an industry
 Rivalry Among Existing Firms
In most industries, the major determinant of industry profitability is the
level of competition among existing firms.

Some industries are fiercely competitive, to the point where prices are
pushed below the level of costs, and industry- wide losses occur.

In other industries, competition is much less intense and price

competition is subdued.
 Bargaining Power of Suppliers
Suppliers can suppress the profitability of the industries to which they sell
by raising prices or reducing the quality of the components they provide.

If a supplier reduces the quality of the components it supplies, the quality

of the finished product will suffer, and the manufacturer will eventually
have to lower its price.

If the suppliers are powerful relative to the firms in the industry to which
they sell, industry profitability can suffer.
 Bargaining Power of Buyers
Buyers can suppress the profitability of the industries from
which they purchase by demanding price concessions or
increases in quality.
For example, the automobile industry is dominated by a handful
of large companies that buy products from thousands of
suppliers in different industries. This allows the automakers to
suppress the profitability of the industries from which they buy
by demanding price reductions
 The Firms External Environment

Economic Remote Environment (Global and Domestic) Technological

Social Ecological
Political
Industry Environment (Global and Domestic)
Entry barriers Buyer power Competitive
Supplier power Substitute availability rivalry

Operating Environment (Global and Domestic)

Competitors Labor
Creditors Suppliers
THE FIRM Customers