Strategic Management
Module 1 - Introduction to Strategic Management
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Introduction to Strategic
Management
• Introduction to the course
• Learning Outcomes
• Details of the course outline
• Session 1
• Meaning: Strategy
• Levels of Strategies
2
What is a Strategy?
• What is the crisis brewing in the Telecom industry in India?
• What do car making companies have to do to sustain in long term?
• How can food outlets/restaurants survive during lockdown?
• What is the future of Fin-Tech companies?
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4
Philosophy
• What's the use of running if you are not on the right road- German
proverb
• If you do not know where you come from, you do not know where
you stand, if you do not know where you stand, you do not know
where you go- Chinese Proverb
• To run in a right road to reach your destination is strategy.
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What is a Strategy?
• Greek word – strategos (generalship, the actual direction of military force)
• Strategy – the art of general
• In business Strategy can be:
• a plan or course of action or a set of decision rules making a pattern or creating a common
thread;
• the pattern or common thread related to the organisation’s activities which are derived from
the policies, objectives, and goals;
• related to pursuing those activities which move an organisation from its current position to a
desired future state;
• concerned with the resources necessary for implementing a plan or following a course of
action; and
• connected to the strategic positioning of a firm, making trade-offs between its different
activities, and creating a fit among these activities;
• the planned or actual coordination of the firm’s major goals and actions, in time and space that
continuously co-align the firm with its environment. 6
Definitions of strategy
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What is a Strategy?
• Strategy is the direction and scope of an organisation over the long
term, which achieves advantage in a changing environment through its
configuration of resources and competences with the aim of fulfilling
stakeholder expectations.
• Strategy as a paradox
• Competition versus Cooperation
• Co-opetition strategy’ that refers to simultaneous competing and cooperation
• Globalisation versus Localisation
• Transnational strategy where the organisation attempts to combine global scale of
production with local responsiveness to national markets thereby creating a winning
situation
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Levels of Strategy
• Corporate Level
• Business Level
• Operational Strategies
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Levels of Strategy
• Balmer Lawrie and Co. Ltd.
• [Link]
• Havells
• Consumer - Electricals, home appliances, cables,
pumps,
• Industrial solutions – lighting, cables, motors,
switchgears
• TVS Group (40)
• [Link]
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Levels of strategy
Diversifying from the organisation’s
original activities into other activities
e.g. Tesla selling batteries for home use.
Corporate-
level
strategy
Marketing and product
improvement strategies
Business-level e.g. Developing a lower cost, volume car for Tesla.
strategy
Tesla’s functional strategies are
geared to meeting its
Functional strategies investment needs and raising
finance.
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Levels of strategy
• Corporate-level strategy is concerned with the overall scope of an
organisation and how value is added to the constituent business units.
• Allocation of resources and coordination of the SBU for optimal performance
• Business-level strategy is concerned with the way a business seeks
to compete successfully in its particular market.
• Providing objectives for SBUs, allocating resources among functional areas,
and coordinating between them for maximising optimal contributions to the
achievement of the corporate level objectives
• Functional strategy is concerned with how different parts of the
organisation deliver the strategy effectively in terms of managing
resources, processes and people.
• Providing objectives for the specific function, allocating resources among
different operations within that functional area and coordinating between them
for optimal contribution to the achievement of SBU and corporate-level 13
objectives
Panacea Biotec
• 1984 - Panacea Drug (P) Ltd. was formed, Vaccine production
• Research, manufacturing, marketing of pharmaceuticals,
biopharmaceuticals etc.
• Rearranged into Oncotrust (Cancer), Critical Care (Nephrology), Diacar
(Diabetic), Procare (therapeutic products) and Growcare (Clinicians).
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Other levels of strategy
• Societal strategy
• A company decides to provide alternative source of energy for the society
• Alternatives – manufacturer of nuclear reactors, a maker of equipment used
for tapping solar energy, a builder of windmills
• Operational strategies (one step down to functional level)
• A functional strategy at the marketing level can be divided into sales,
distribution, pricing, product and advertising strategies.
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Characteristics of strategic decision
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Evolution of strategic management and
business policy
• The genesis of strategic management and business policy
• 1911 HBS introduced course on Business Policy
• 1959 The Gordon and Howell Report & The Pierson Report – Students learning from separate
business fields to be utilized in the analysis of complex business problems
• 1969 – mandatory course
• Business policy, Strategic management, Corporate strategy, Competitive strategy etc.
• Evolution based on management practices
• From the use of planning techniques used by managers: Capital budgeting, MBO (Short term and
long term planning)
• Family owned businesses – Command and control (Planning, organizing, leading and controlling).
Wars, Oil crisis, globalization, structural market changes
• Historical perspective
• Ad hoc policy making (due to expansion), planned policy formulation (integration of functional areas
in rapidly changing environment), strategy paradigm, strategic management now a days.
• Pointers to the future
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Meaning: Strategic Management
• The art and science of formulating, implementing, and evaluating
cross-functional decisions that enable an organization to achieve its
objectives.
• Sometimes the term strategic management is used to refer to strategy
formulation, implementation, and evaluation, with strategic planning
referring only to strategy formulation
• “The dynamic process of formulation, implementation, evaluation and
control of strategies to realize the organization’s strategic intent”
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Stages of Strategic Management
Strategy Strategy Strategy
formulatio implementati evaluatio Control
n on n
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Approaches to Strategic
Management
• Competitive advantage
• An advantage over competitors gained by offering consumers greater value than
competitors offer
• When a firm earns higher economic profit than the average in its industry
• Profitability depends on
-market level economics (the 5-forces)
-firm’s value creation relative to competitors
• Value creation depends on
-cost position relative to competitors
-benefit position relative to competitors
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Sources
Sources of
of Competitive
CompetitiveAdvantage
Advantage
COST
COST
u ct ADVANTAGE
pro d ADVANTAGE
i la r
c ost
Sim r
l o we
COMPETITIVE at
COMPETITIVE
ADVANTAGE
ADVANTAGE P ri
fro ce
m pre
un mi
iqu um
ep
rod DIFFERENTIATION
DIFFERENTIATION
uc
t ADVANTAGE
ADVANTAGE
Porter’s
Porter’s Generic
Generic Strategies
Strategies
SOURCE OF COMPETITIVE
ADVANTAGE
Low cost Differentiation
Industry-wide COST
DIFFERENTIATION
COMPETITIVE LEADERSHIP
SCOPE
Single Segment FOCUS
Features
Features ofof Cost
Cost Leadership
Leadership and
and
Differentiation
Differentiation Strategies
Strategies
Generic strategy Key strategy elements Resource & organizational
requirements
COST Scale-efficient plants. Access to capital. Process
LEADERSHIP Design for manufacture. engineering skills. Frequent
Control of overheads & reports. Tight cost control.
R&D. Avoidance of Specialization of jobs and
marginal customer functions. Incentives for
accounts. quantitative targets.
DIFFERENTIATION Emphasis on branding Marketing. Product
and brand advertising, engineering. Creativity.
design, service, and Product R&D
quality. Qualitative measurement
and incentives. Strong
cross-functional
coordination.
Benefits of Strategic Management
• Identification, prioritization, and exploration of opportunities
• Objective view of the activities being done by the company and do a
cost benefit analysis as to whether the firm is profitable.
• Evaluating whether the business is strategically aligned to its goals
and priorities.
• Financial Benefits
• Non-Financial Benefits
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Benefits of Strategic Management
• Historically, the principal benefit of strategic management has
been to help organizations formulate better strategies through
the use of a more systematic, logical, and rational approach to
strategic choice
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Benefits of Strategic Management
• Communication is a key to successful strategic management
• Through dialogue and participation, managers and employees
become committed to supporting the organization
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Benefits to a Firm That Does
Strategic Planning
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Financial Benefits
• Businesses using strategic-management concepts show
significant improvement in sales, profitability, and
productivity compared to firms without systematic planning
activities
• High-performing firms seem to make more informed
decisions with good anticipation of both short- and long-
term consequences
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Nonfinancial Benefits
• It allows for identification, prioritization, and exploitation of
opportunities.
• It provides an objective view of management problems.
• It represents a framework for improved coordination and control of
activities.
• It minimizes the effects of adverse conditions and changes.
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Nonfinancial Benefits
• It allows major decisions to better support established
objectives.
• It allows more effective allocation of time and resources to
identified opportunities.
• It allows fewer resources and less time to be devoted to
correcting erroneous or ad hoc decisions.
• It creates a framework for internal communication among
personnel.
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Acc. to Greenley, strategic
management benefits:
• It allocates for identification, prioritization, and exploitation of opportunities.
• It provides an objective outlook of management problems.
• It characterizes a framework for improved synchronization and control of activities.
• It reduces the effects of adverse conditions and changes.
• It allows major decisions to better support established objectives.
• It allows more effective distribution of time and resources to identified opportunities.
• It permits fewer resources and less time to be devoted to correcting erroneous or ad hoc decisions.
• It generates a framework for internal communication among personnel.
• It helps integrate the behaviour of individuals into a total effort.
• It provides a foundation to clarify individual responsibilities.
• It promotes forward thinking.
• It provides a cooperative, integrated, and enthusiastic approach to tackling problems and opportunities.
• It encourages a positive attitude toward change.
• It gives a degree of discipline and formality to the management of a business.
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Limitations of Strategic
Management
• SM is based on certain premises and if the premises do not hold valid the strategy or plans based
on them would not be realistic or effective.
• SWOT analysis is an important exercise in SM, which requires lot of exercise and information.
When these two are lacking the utility of the SWOT analysis is questionable and it could even
lead to formulation of wrong or effective strategies.
• In SM effective implementation is vital that demands many things – resource allocation,
leadership implementation, right structure and effective evaluation and control. The reason for
the failure of many strategies is the implementation failure.
• A serious problem generally rising in a company if there is lack of involvement of the internal
people in the strategy formulation and when they are not equally taken into confidence.
• Strategic Planning is a complex and difficult task which requires people with vision, expertise and
commitment and an appropriate system
• SM is a costly exercise
• One of the most important criticisms against Strategic Management is that it sometimes makes
the organization over ambitious and resultant failure to reach the goals cause frustration.
Unrealistic strategies may land companies in severe problems 32
The Strategic-Management Model
Where are we now?
Where do we want to go?
How are we going to get there?
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Hambrick and Fredrickson model of
strategic management
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Five major elements of strategy
• Arenas – “Where will we be active and with • Staging – “What will be our speed
how much emphasis?”,
• Which core technologies?
and sequence of moves?”
• Which geographic areas? • Speed of expansion?
• Which market segments? • Speed of initiatives?
• Which product categories?
• Which value-creation stages? • Economic Logic :“How will we
• Vehicles – “How will we get there?” obtain our returns?”
• Acquisitions? • Lowest costs through scale
• Joint ventures? advantages?
• Internal development?
• Licensing/franchising?
• Lowest costs through scope and
• Differentiation – “How will we win?”
replication advantages?
• Customization? • Premium prices due to
• Image? unmatchable service?
• Price? • Premium prices due to proprietary
• Product reliability? product features? 35
Establishment of Strategic Intent
Four
Phases
in
Strategic Control
Formulation of Strategy
Strateg
ic
Mgmt. Implementation of Strategy
Process
:
Strategic Evaluation
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Process of Strategic
Management - Elements
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Process of Strategic
Management - Elements
• Establishing the hierarchy of strategic intent:
• Creating and communicating a vision
• Designing a mission statement
• Defining the business
• Adopting the business model
• Setting objectives
• Formulation of strategies
• Performing environmental appraisals
• Doing organizational appraisals
• Formulating corporate-level strategies
• Formulating business-level strategies
• Undertaking strategic analysis
• Exercising strategic choice
• Preparing strategic plan 38
Process of Strategic
Management - Elements
• Implementation of strategies:
• Activating strategies
• Designing structure, systems, and processes
• Managing Behavioural implementations
• Managing Functional implementations
• Putting strategies into operation
• Performing strategic evaluation and control
• Performing strategic evaluation
• Exercising strategic control
• Reformulating strategies
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End of Module 1
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