PowerPoint Presentation

on
Strategic Management

Prepared by: Santosh Mukherjee

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 What is Strategy?
The concept of strategy is ancient. Originally, the word
‘strategy’ is derived from the Greek word ‘Strategeia’
which means ‘the art of the general’.
Chandler(1962)Strategy is the determination of the basic
long-term goals of an enterprise, and the adoption of
courses of action and the allocation of resources necessary
for carrying out these goals.
Igor Ansoff explained the concept of strategy as "the
common thread among the organizations, activities and
product markets that defines the essential nature of
business that the organization was or planned to be in
future".

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 What is Strategy?
A company’s strategy consists of the set of
competitive moves and business approaches that
management is employing to run the company

Strategy is management’s “game plan” to

– Attract and please customers
– Stake out a market position
– Conduct operations
– Compete successfully
– Achieve organizational objectives

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 What is Strategy?
Strategy is a well defined roadmap of an organization. It
defines the overall mission, vision and direction of an
organization. The objective of a strategy is to maximize an
organization’s strengths and to minimize the strengths of
the competitors.

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 5P’s of Strategy
The five P’s of strategy developed from the work of Henry
Mintzberg help to provide an overview of the most
commonly used definitions of strategy.
Strategy is a :
 Plan
 Ploy
 Pattern
 Position
 Perspective

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 Strategic Management
According to Alfred Chandler-
Strategic management is concerned with the determination of
the basic long-term goals and the objectives of an
enterprise, and the adoption of courses of action and
allocation of resources necessary for carrying out these
goals.
According to Ansoff-
Strategic Management is a systematic approach to a major and
increasingly important responsibility of general
management to position and relate the firm to its
environment in a way that will assure its continued success
and make it secure from surprises.

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 Strategic Management
According to Fed R David-
Strategic management is a process of formulating,
implementing and evaluating cross-functional decisions
that enable an organization to achieve its objectives.

Strategic management is the process of identifying,

evaluating and implementing strategies in order to meet
the organizational objectives.
Strategic management can be defined as the art and science
of formulating, implementing, and evaluating cross-
functional decisions that enable an organisation to achieve
its objectives.
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 Components of Strategic Management
Company Mission:
Vision
Goal
Objectives
Policies and procedures

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 Features of Strategic Management
1. It is pervasive, integrated and coordinated management process.
2. It is resources planning.
3. It takes into process the environment, market conditions and
activities of competitors.
4. It is an effective organizational response and initiative system.
5. It is based on long term mission of the organization.
6. The success of strategic management is depending to a large
extent on its effective formulation and implementation.
7. It is a continuous process.
8. It provides overall direction to the enterprise.
9. It involves both conceptual and analytical thought process.

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 Importance of Strategic Management
1. It gives direction to business.
2. It gives sense of identity and unity towards business objectives.
3. It helps an organization in achieving its goals in an efficient and
effective manner.
4. It helps in getting rid of the threats or else neutralizes them.
5. It enables organization to grasp every opportunity that is
available in the market.
6. Strategic management decisions are usually made in a rational
and in a logical manner.
7. It helps in forecasting.
8. It helps in grasping every opportunity that is available in the
market.
9. It helps in increasing performance level.
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Levels of Strategy

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Levels of Strategy

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 Corporate Level Strategy
Corporate level strategy is formulated by top management to
oversee the interest and operations of organization made
up of more than one line of business. It occupies the
highest level of strategic decision-making and cover
actions dealing with the objectives of firm, acquisition and
allocation of resources, and coordination of strategies of
various units. the major questions at this level are as
follows –
i. What kinds of businesses should the company be engaged
in?
ii. What are the goals and expectations for each business?
iii. How should resources be allocated to reach these goals?

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 SBU Level Strategy
A strategic business unit may be a division, product line, or other
profit center that can be planned independently from the other
business units of the firm.
Business level strategy is concerned with managing the interests
and operations of a particular line of business. It refers to the
managerial game plan for a single business. It is mirrored in the
pattern of approaches and moves crafted by management to
produce successful performance in one specific line of business.
It deals with such questions as –
i. How will the business compete does its markets?
ii. What products or services should it offer?
iii. Which customer does it seek to serve?
iv. How will resources be distributes within the business?

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 Functional Level Strategy
It involves decision-making at the operational level with
respect to specific functional areas – production,
marketing, personnel, finance etc. In fact, strategy creates
a framework for managers in each function to carry out
business unit strategies and corporate strategies. Decisions
at this level are often describes as ‘tactical divisions.’

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Strategic Management Process

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 Step- 1: Strategic Intent
Strategic intent is a high-level statement of the means by which your
organization will achieve its vision. It is a statement of design for
creating a desirable future (stated in present terms). Simply put, a
strategic intent is your company's vision of what it wants to achieve in
the long term.

Vision- Vision is the statement that expresses organization’s ultimate

long-run objectives. It is what the firm ultimately like to become.
Vision once formulated is for forever and long lasting for years to
come. Vision is closely related with strategic intent and is a forward
thinking process. Eg- Microsoft- ’A computer software on every desk
and in every home’.

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 Step- 1: Strategic Intent

Mission- It tells who we are and what we do as well as what we’d like to
become. Mission of a business is the fundamental, unique purpose that
sets it apart from other firms of its kind and identifies the scope of its
operations in product and market terms. Eg- Microsoft- ‘Empower
every person and every organization on the planet to achieve more’.

Objectives- These are the end results of planned activity that state what is
to be accomplished by when and should be quantified if possible and
their achievement should result in the fulfillment of a corporation’s
mission. Objectives state specifically how the goals shall be achieved.
Following are the areas for setting objectives- profit objective,
marketing objective, production objective, etc.

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 Step- 2: Strategy Formulation

Strategy formulation refers to the process of choosing the most

appropriate course of action for the realization of organizational
goals and objectives and thereby achieving the organizational vision.
For choosing most appropriate course of action, appraisal of
organization and environmental is done with the help of SWOT
analysis.
• Environmental Appraisal- The environment of any organization is "the
aggregate of all conditions, events and influences that surround and
affect it". It is dynamic and consists of External & Internal
Environment . The external environment includes all the factors
outside the organization which provide opportunities or pose threats to
the organization. The internal environment refers to all the factors
within an organization which impart strengths or cause weaknesses of
a strategic nature.

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 Step- 2: Strategy Formulation

• Organizational Appraisal- It is the process of observing an

organizational internal environment to identify the strengths and
weaknesses that may influence the organization's ability to achieve
goals. The analysis of corporate capabilities and weaknesses becomes
a pre-requisite for successful formulation and reformulation of
corporate strategies. This analysis can be done at various levels:
functional, divisional and corporate.

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 Step- 3: Strategy Implementation

Strategy implementation is the action stage of strategic management. It

refers to decisions that are made to install new strategy or reinforce
existing strategy.
• Designing structure, process & system- Strategy implementation
includes the making of decisions with regard to organizational
structure, developing budgets, programs and procedures in order to
accomplish certain activities.
• Functional Implementation- Functional implementation is carried
out through functional plan and policies in five different areas-
marketing, finance, operation, personnel and Information
management.
• Behavioral Implementation- It denotes mobilizing employees and
managers to put and formulate strategies into action and require
personal discipline, commitment and sacrifice. It depends upon
manager’s ability to motivate employees.
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 Step- 3: Strategy Implementation

• Operationalizing strategy- It includes establishing annual objectives,

devising policies, and allocating resources.

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 Step- 4: Strategy Evaluation & Control

• Strategy evaluation- It is the primary means to know when and why

particular strategies are not working well. It is the process in which
corporate activities and performance results are monitored so that
actual performance can be compared with desired performance. Thus
strategic evaluation activities include reviewing external and internal
factors that are the basis for current strategies.

• Strategic control- In this step, organizations determine what to control

i.e., which objectives the organization hopes to accomplish, set control
standards, measure performance, Compare the actual with the
standard, determine the reasons for the deviations and finally taking
corrective actions and review the policies and activities if needed.

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24
 UNIT-II

ENVIRONMENTAL
ANALYSIS

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 Meaning of Business Environment

“The aggregate of all the forces, factors & institutions which

are external to and beyond the control of an individual
business enterprise but which exercise a significant
influence on the functioning and growth of the individual
enterprise.”

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Types of Business Environment

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Types of Business Environment

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 Meaning of Environmental Analysis

Environmental analysis is a strategic tool. It is a process to

identify all the external and internal elements, which can
affect the organization’s performance.

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 Why Environmental Analysis is
Important?
Environmental analysis serves the following purposes-
It helps in projecting the future position of the firm.
Identifies the favourable and unfavourable factors in the
environment from the standpoint of the firm.
Figures out the opportunities and threats hidden in environmental
events and trends.
Assesses the scope of various opportunities and shortlist which
have the potential of becoming promising businesses.
Draws up the probability-attraction position of these
opportunities.
It helps formulation of strategies in line with the opportunities
emerging afresh in the environment.
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 SWOT Analysis
SWOT is an acronym for Strengths, Weaknesses, Opportunities
and Threats. By definition, Strengths (S) and Weaknesses (W)
are considered to be internal factors over which you have some
measure of control. Also, by definition, Opportunities (O) and
Threats (T) are considered to be external factors over which you
have essentially no control.
Any company undertaking strategic planning will have to carry out
SWOT analysis: establishing its current position in the light of its
strengths, weaknesses, opportunities and threats. Environmental
and industry analyses provide information needed to identify
opportunities and threats, while internal analysis provides
information needed to identify strengths and weaknesses. These
are the fundamental areas of focus in SWOT analysis.

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SWOT Analysis

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 SWOT Analysis
(STRENGTHS)
Strengths can be either tangible or intangible. These are what you are
well-versed in or what you have expertise in, the traits and
qualities your employees possess (individually and as a team) and
the distinct features that give your organization its consistency.

Strengths are the beneficial aspects of the organization or the

capabilities of an organization, which includes human
competencies, process capabilities, financial resources, products
and services, customer goodwill and brand loyalty. Examples of
organizational strengths are- huge financial resources, broad
product line, no debt, committed employees, advanced
technology, etc.

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 SWOT Analysis
(WEAKNESSES)
Weaknesses are the qualities that prevent us from accomplishing our
mission and achieving our full potential. These weaknesses
deteriorate influences on the organizational success and growth.
Weaknesses are the factors which do not meet the standards we
feel they should meet.

Weaknesses in an organization may be depreciating machinery,

insufficient research and development facilities, narrow product
range, poor decision-making, etc. Weaknesses are controllable.
They must be minimized and eliminated. For instance - to
overcome obsolete machinery, new machinery can be purchased.
Other examples of organizational weaknesses are huge debts, high
employee turnover, complex decision making process, narrow
product range, large wastage of raw materials, etc.
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 SWOT Analysis
(OPPORTUNITIES)
Opportunities are presented by the environment within which our
organization operates. These arise when an organization can take
benefit of conditions in its environment to plan and execute
strategies that enable it to become more profitable. Organizations
can gain competitive advantage by making use of opportunities.

Organization should be careful and recognize the opportunities and

grasp them whenever they arise. Selecting the targets that will best
serve the clients while getting desired results is a difficult task.
Opportunities may arise from market, competition,
industry/government and technology. Increasing demand for
telecommunications accompanied by deregulation is a great
opportunity for new firms to enter telecom sector and compete
with existing firms for revenue.
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 SWOT Analysis
(THREATS)
Threats arise when conditions in external environment
jeopardize the reliability and profitability of the
organization’s business. They compound the vulnerability
when they relate to the weaknesses. Threats are
uncontrollable. When a threat comes, the stability and
survival can be at stake.

Examples: unrest among employees, ever changing

technology, price wars and reducing industry profits,
increase in competition; slow market growth, increased
power of buyers or suppliers, changes in regulations etc.

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SWOT/TOWS MATRIX

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 TOWS MATRIX
SO Strategy
This strategy is also name as Maxi-Maxi strategy. SO Strategy
tells about how to utilise your Internal strength to grab
external opportunity. For eg. high brand loyalty & good
quality, helps the company to enter into new market or
launch new product.
WO Strategy
This strategy is also said as mini-maxi strategy. This strategy
tell the company to strengthen their weaknesses to take
benefit of prevailing opportunities. For eg. Product high
price is creating a hindrance to enter in a new market.
Therefore by upgrading production technology can lead to
reduction in price of product.
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 TOWS MATRIX
ST Strategy
This strategy is also name as maxi-mini strategy. In this
company tries to minimise threats by their strength. This
strategy empowers the company, because by this company
knows why they are existing and how they can manage
external threats.
WT Strategy
This strategy is also known as mini-mini strategy. This can be
considered as a defensive strategy, where company tries to
minimise their weakness and avoid external threats. This
could involve closing out poor-selling products,
terminating under-performing employees and developing
more aggressive selling techniques.
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 PESTEL Analysis
A PESTEL analysis or PESTLE analysis (formerly known as
PEST analysis) is a framework or tool used to analyse and
monitor the macro-environmental factors that may have a
profound impact on an organisation’s performance. This
tool is especially useful when starting a new business or
entering a foreign market. It is often used in collaboration
with other analytical business tools such as the SWOT
analysis and Porter’s Five Forces to give a clear
understanding of a situation and related internal and
external factors. PESTEL is an acronym that stand for
Political, Economic, Social, Technological, Environmental
and Legal factors.

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PESTEL Analysis

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 ETOP

ETOP analysis (environmental threat and opportunity

profile) is the process by which organizations monitor their
relevant environment to identify opportunities and threats
affecting their business for the purpose of taking strategic
decisions.

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 Why ETOP?

Helps organization to identify O-T

To consolidate and strengthen organization’s position

Provides the strategists of which sectors have a favourable

impact on the organization.

Organization knows where its stands with respect to its

environment.

Helps in formulating appropriate strategy

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 How to prepare an ETOP?

Dividing the environment into different sectors such as

economical, market, social, international, legal,
technological, political, ecological, etc.

Analyzing the impact of each sector on the organization

Sub-dividing each environmental sector into sub factors

Impact of each sub-sector on organization in form of a

statement

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How to prepare an ETOP?

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How to prepare an ETOP?

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How to prepare an ETOP?

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48
 ETOP: Pros and Cons

Pros
Help to determine the key factor of threats and opportunities.
Good tool to qualify the factors related to company’s strategy.
Can consider many factors for each special case.

Cons
It doesn’t show the interaction between the factors.
It can’t reflect the dynamic environment.
It’s a subjective analysis tool.

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 Strategic Advantage Profile
Every firm has strategic advantages and disadvantages. For
example, large firms have financial strength but they tend
to move slowly, compared to smaller firms, and often
cannot react to changes quickly. No firm is equally strong
in all its functions. In other words, every firm has strengths
as well as weaknesses.
Strategists must be aware of the strategic advantages or
strengths of the firm to be able to choose the best
opportunity for the firm. On the other hand they must
regularly analyse their strategic disadvantages or
weaknesses in order to face environmental threats
effectively.

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 Strategic Advantage Profile
Functional Areas:

 Marketing and Distribution

 R & D and Engineering
 Production and Operations Management
 Corporate Resources and Personnel
 Finance and Accounting

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Strategic Advantage Profile

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Strategic Advantage Profile

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 Porter’s Five Forces Model
Michael Porter, Professor of Harvard University developed the
Five Forces Model in 1980.

Five Forces Model is a powerful competitive analysis tool to

determine the principal competitive influence in a market. It is a
broadly used model in business that refers to the five important
factors which drives firm's competitive position within an
industry.

The model aimed to provide a new way to use effective strategy

to identify, analyse and manage external factors in an
organization's environment.

It is an analysis tool that uses five industry forces to determine

the intensity of competition in an industry and its profitability.
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Porter’s 5 Forces Model

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 Porter’s 5 Forces Model
Threat of new entrants
This force determines the ease of entrance in a particular industry.
If an industry is profitable and there are few barriers to enter,
rivalry soon intensifies. When more organizations compete for the
same market share, profits start to fall. Threat of new entrants is
high when:
● Low amount of capital is required to enter into a market
● Existing companies can do little to retaliate
● There is no government regulation
● Customer switching costs are low (it doesn’t cost a lot of money
for a firm to switch to other industries)
● There is low customer loyalty
● Products are nearly identical
● Economies of scale can be easily achieved
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 Porter’s 5 Forces Model
Bargaining Power of Buyers
Buyers have the power to demand lower price or higher product
quality from industry producers when their bargaining power is
strong. Lower price means lower revenues for the producer, while
higher quality products usually raise production costs. Both
scenarios result in lower profits for producers. Buyers exert strong
bargaining power when:
● Buying in large quantities or control many access points to the
final customer
● Only few buyers exist
● Switching costs to other supplier are low
● They threaten to backward integrate
● There are many substitutes
● Buyers are price sensitive
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 Porter’s 5 Forces Model
Bargaining Power of Suppliers
Strong bargaining power allows suppliers to sell higher priced or
low quality raw materials to their buyers. This directly affects the
buying firms’ profits because it has to pay more for materials.
Suppliers have strong bargaining power when:

● There are few suppliers but many buyers

● Suppliers are large and threaten to forward integrate
● Few substitute raw materials exist
● Suppliers hold scarce resources
● Cost of switching raw materials is especially high.

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 Porter’s 5 Forces Model
Threat of Substitutes
This force is especially threatening when buyers can easily find
substitute products with attractive prices or better quality and when
buyers can switch from one product or service to another with little
cost. For example, to switch from coffee to tea doesn’t cost
anything, unlike switching from car to bicycle.

The following factors cause a higher threat of substitutes for an

industry:

● Customers can easily switch between products.

● Substitute products are readily available to customers.
● Substitute products have better features
● Substitute products have higher quality/reliability
● Substitute products have lower costs

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 Porter’s 5 Forces Model
Rivalry among existing competitors
This force is the major determinant on how competitive and
profitable an industry is. In competitive industry, firms have to
compete aggressively for a market share, which results in low
profits. Rivalry among competitors is intense when:
● There are many competitors
● Exit barriers are high
● Industry of growth is slow or negative
● Products are not differentiated and can be easily substituted
● Competitors are of equal size
● Low customer loyalty

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 Porter’s 5 Forces Model
5 Forces Analysis
Rivalry among the competitor •Reliance Retail, Aditya Birla Group , Vishal
Retail’s, Bharti and Walmart, etc

Threat of entrants • FDI policy not favorable for international players.

• Domestic conglomerates looking to start retail
chains.
•International players looking to foray India.

Bargaining power of supplier •The bargaining power of suppliers varies depending

upon the target segment.
•The unorganised sector has a dominant position.
• There are few players who have a slight edge over
others on account of being established players and
enjoying brand distinction.

Bargaining power of buyers • Consumers are price sensitive..

•Availability of more choice.

Threat of substitutes •Unorganized retail

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 Porters Value Chain Analysis
The idea of a value chain was first suggested by Michael
Porter (1985) to depict how customer value accumulates
along a chain of activities that lead to an end product or
service. Porter describes the value chain as the internal
processes or an activity a company performs “to design,
produce, market, deliver and support its product.”
“Value chain analysis (VCA) is a process where a firm
identifies its primary and support activities that add value
to its final product and then analyse these activities to
reduce costs or increase differentiation.”
“Value chain represents the internal activities a firm
engages in when transforming inputs into outputs.”

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 Porters Value Chain Analysis
The value chain contains two types of activities:

Primary activities : Where most of the value for

customers is created.
Support activities: That facilitate performance of the
primary activities.

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Porters Value Chain Analysis

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 Porters Value Chain Analysis
Primary Activities

• Inbound logistics: Material handling and warehousing,

Inventory control.
• Operations: Transforming inputs into the final product.
• Outbound logistics: Order processing and distribution.
• Marketing and sales: Communication, pricing and channel
management etc.
• Service: Installation, repair and parts.

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 Porters Value Chain Analysis
Support Activities
●Procurement: Purchasing of Inputs e.g raw materials, equipment,
and even labour.
●Technology development: Know-how, procedures and
technological inputs needed in every value chain activity.
●Human resource management: Selection, promotion and
placement, appraisal, rewards management development and
labour or employee relations.
●Firm infrastructure: Firm Infrastructure refers to an
organization’s structure and its management, functions,
planning, accounting, finance, quality-control mechanism.
Firms infrastructure can be a powerful factor for competitive
advantage.

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 Porters Value Chain Analysis
Need for Value Chain Analysis
● Competitive Advantage (Cost Advantage & Differentiation
Advantage )

● Profitability
Value Chain Competitive Advantage Higher Profitability

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 VRIO Analysis
VRIO framework is the tool used to analyze firm’s internal
resources and capabilities to find out if they can be a source of
sustained competitive advantage.
The tool was originally developed by Barney, J. B. (1991).
According to him, the resources must be valuable, rare,
imperfectly imitable and non-substitutable. His original
framework was called VRIN.
In 1995, in his later work ‘Looking Inside for Competitive
Advantage’ Barney has introduced VRIO framework, which was
the improvement of VRIN model.
VRIO analysis stands for four questions that ask if a resource is:
valuable? rare? costly to imitate? And is a firm organized to
capture the value of the resources?

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VRIO Analysis

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 VRIO Analysis
Valuable
A resource is deemed as Valuable if it adds value to the company –
either allowing it to take advantage of opportunities or mitigate
the threats. Within a SWOT Analysis, Valuable resources may
be mentioned under Strengths and relate to the Opportunities
and Threats. It could be a particular feature that differentiates
you, a department that performs well.
Rarity
A resource is judged on the rarity, which is often the easiest and
least subjective part of VRIO. It can come down to simply if this
resource is easily acquired by competitors, by yourself, or if it’s
easy to replace completely.

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 VRIO Analysis
Inimitable
If a resource can be imitated comes down to the how easily an
organisation can substitute or copy out a resource. For example,
you might be able to copy a particular feature in a product, or a
particular marketing approach, but it’d be difficult to copy a
brand or historic database of customer trends.
Organized
This area is around organizing the company to maximise the
potential from the resource – is it generating the most it possibly
can do for the business?

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VRIO Analysis

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 VRIO Analysis
If the resource is not valuable it should be outsourced because it brings
no value to us
If the resource is valuable but not rare the company is in competitive
conformity. It means we are not worse than our competition,
If the resource is valuable and rare but it is not expensive to imitate it,
we have a temporary competitive advantage. Other companies will
try to imitate it in the near future, then we lost our competitive
advantage.
If the resource is valuable, rare and is expensive to imitate it but we
are not able to organizate our company, the resource become
expensive for us (unused incurred costs)
If we can manage the advantage and we are able to organize our company
and temporary competitive advantage, it becomes as sustainable
competitive advantage.

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 McKinsey 7-S Framework
The McKinsey 7-S Framework is a business model developed by Tom
Peters and Robert Waterman of McKinsey & Company. Since its
introduction, the framework has been widely used by academics and
practitioners and remains one of the most popular strategic planning
tools.
The model categorizes the seven elements as either "hard" or "soft"

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 McKinsey 7-S Framework
The three "hard" elements are strategy, structures (such as
organization charts and reporting lines), and systems (such
as formal processes and IT systems.)
These are relatively easy to identify, and management can
influence them directly.
The four "soft" elements, on the other hand, can be harder
to describe, less tangible, and more influenced by your
company culture.
But they're just as important as the hard elements if the
organization is going to be successful.

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McKinsey 7-S Framework

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 McKinsey 7-S Framework

I. Strategy: this is your organization's plan for building and

maintaining a competitive advantage over its competitors.
II. Structure: this how your company is organized (that is, how
departments and teams are structured, including who reports to
whom).
III. Systems: the daily activities and procedures that staff use to get the
job done.
IV. Shared values: these are the core values of the organization, as
shown in its corporate culture and general work ethic.
V. Style: the style of leadership adopted.
VI. Staff: the employees and their general capabilities.
VII. Skills: the actual skills and competencies of the organization's
employees.

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 How to use McKinsey 7-S Framework?
 Start with your shared values: are they consistent with your
structure, strategy, and systems? If not, what needs to change?
 Then look at the hard elements. How well does each one support
the others? Identify where changes need to be made.
 Next, look at the soft elements. Do they support the desired hard
elements? Do they support one another? If not, what needs to
change?
 As you adjust and align the elements, you'll need to use an
iterative (and often time-consuming) process of making
adjustments, and then re-analyzing how that impacts other
elements and their alignment.
 The end result of better performance will be worth it.

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79
 UNIT-III

FORMULATION OF
COMPETITIVE
STRATEGIES

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Levels of Strategy

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Corporate Levels of Strategies

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