Strategic Management

Module – 1

Topics to be covered :
Meaning and Nature of Strategic Management, its importance and relevance,
Characteristics of Strategic Management
The Strategic Management Process, Relationship between a Company’s Strategy and its
Business Model.

Strategic Management
Managers of all types of organizations face the same three central questions:
 What is our present situation?
 Where do we want to go from here?
 How are we going to get there?
The first question, “What is our present situation?” prompts manager to evaluate
industry conditions, the company’s current financial performance, and market standing,
its resources and capabilities, its competitive strengths and weaknesses and changes
taking place in the business environment that might affect the company.
The answer to the question “Where do we want to go from here?“ lies within
management’s vision of the company’s future direction – what new customer groups
and needs to endeavor to satisfy and what new capabilities to build and acquire.
The question “How are we going to get there?” challenges managers to craft and
execute a strategy capable of moving the company in the intended direction.

Strategy : Meaning
A company’s strategy is management’s action plan for competing successfully and
operating profitably, based on an integrated array of considered choices.
A company’s strategy consists of the competitive moves and business approaches that
managers are employing to compete successfully, improve performance and grow the
business.

Strategy

Competitive moves and

business approaches

Compete Improve Grow the

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successfully performance business

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 Strategy is about competing differently from rivals – doing what competitors don’t do,
or even better, doing what they can’t do. Every strategy needs a distinctive element that
attracts customers and produces a competitive edge. Some companies strive to improve
their performance by employing strategies aimed at achieving lower costs than rivals,
while others pursue strategies aimed at achieving product superiority or personalized
customer service or quality dimensions that rivals cannot match. Some companies opt
for wide product lines, while others concentrate their energies on a narrow product line
up.

Definition : Strategic Management

Strategic management can be defined as the art and science of formulating, implementing and
evaluating cross-functional decisions that enable an organization to achieve its objectives.
Strategic management focuses on integrating management, marketing, finance/ accounting,
production / operations, research and development, and information systems to achieve
organizational success.

Competitive Advantage A creative, distinctive strategy that sets a company apart from rivals and
provides a competitive advantage is a company’s most reliable ticket for earning above average profits.
Competitive advantage comes from an ability to meet customer needs more effectively, with products
or services that customers value more highly, or more efficiently at lower cost.
Four of the most frequently used and dependable strategic approaches to setting a company
apart from rivals, building strong customer loyalty, and winning a competitive advantage are :
 Striving to be the industry’s low cost provider, thereby aiming for a cost-based
competitive advantage over rivals : eg. Walmart and Indigo Airlines have earned strong
market positions because of the low cost advantages they have achieved over their
rivals and their consequent ability to underprice competitors.
 Outcompeting rivals on the basis of differentiating features, such as higher quality,
wider product selection, added performance, value added services, more attractive
styling and technological superiority. Successful adopters of differentiation strategies
include Apple (innovative products), Johnson & Johnson in baby products (product
reliability), Rolex (top of the line prestige), and Mercedes (engineering design).
 Focusing on a narrow market niche and winning a competitive edge by doing a better
job than rivals of serving the special needs and tastes of buyers in the niche. : Firms
using a focus strategy can achieve an advantage through either greater efficiency in
serving the niche or greater effectiveness in meeting the special needs. For eg ebay in
online auctions.
 Aiming to offer the lowest (best) prices for differentiated goods that at least match
the features and performance of higher priced rival brands : This is known as a best
cost provider strategy, and it rests on the ability to be the most cost effective provider
of an upscale product or service. For eg. Micromax.

Nature of Strategic Management

 It evolves over time and is dynamic : Managers of every company must be willing and ready to
modify the strategy in response to changing market conditions, advancing technology, the fresh
moves of competitors, shifting buyer needs, emerging market opportunities, and new ideas for
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improving the strategy.

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  A company’s strategy is partly proactive and partly reactive : The typical company strategy is a
blend of 1) proactive actions to improve the company’s financial performance and secure a
competitive edge and 2) adaptive reactions to unanticipated developments and fresh market
conditions. For eg. Launching a new product in the market to increase the sales is a proactive
action and making slight changes in the features of the product looking at customer’s interest is
a reactive action.
 It involves long range planning : Crafting and executing the strategy requires long range
planning. Sometimes it extends for years and years together.
 Strategic Management is about gaining and maintaining competitive advantage : The key to
successful strategy making is to come up with one or more strategy elements that act as a
magnet to draw customers and that produce a lasting competitive edge over rivals.
 Involves adapting the organization to the business environment
 It is complex : As strategic management is done at several levels : overall corporate strategy
and individual business strategy, so it is complex in nature.
 Affects the entire organization by providing direction.

Importance of Strategic Management

Enhanced Communication Deeper/Improved Greater commitment The Result

understanding
a) Dialogue a) To achieve objectives All Managers and
b) Participation a) Of other’s views b) To implement Employees on a mission to
b) Of what the firm strategies help the firm succeed.
is doing/planning c) To work hard
and why

 Strategic Management allows an organization to initiate and influence activities and thus to
exert control over its own destiny.
 Help organizations formulate better strategies through the use of a more systematic , logical
and rational approach to strategic choice.
 A major aim of the process is to achieve the understanding of and commitment from all
managers and employees. When managers and employees understand what the organization is
doing and why, they often feel they are a part of the firm and become committed to assisting it.
 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.
 It encourages forward thinking.
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
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It encourages a favorable attitude towards change.

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  It provides a cooperative, integrated and enthusiastic approach to tackling problems and
opportunities.

The Strategic Management Process

The process of crafting and executing a company’s strategy consists of four interrelated
managerial stages :

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 1. Developing a strategic vision of the company’s long term direction, a mission that
describes the company’s purpose, and a set of values to guide the pursuit of the vision
and mission.
2. Setting objectives and using them as yardsticks for measuring the company’s
performance and progress.
3. Crafting a strategy to achieve the objectives and move the company along the strategic
course that management has charted.
4. Executing the chosen strategy efficiently and effectively.
5. Monitoring developments, evaluating performance and initiating corrective adjustments
in the company’s vision and mission, objectives, strategy or execution in light of actual
experience, changing conditions, new ideas and new opportunities.

Example of Wal-Mart

Walmart Vision Statement : “To be the best retailer in the hearts and minds of consumers and
employees.”

Walmart Mission Statement : “Saving people money so they can live better.”
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Objectives : To offer cost effective products

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To keep operating costs low.

To be courteous towards customers and employees

Strategies : Based on Porter’s Model, Walmart’s generic strategy is cost leadership. In cost leadership,
the firm’s focus is on maintaining low prices of goods and services. Walmart is known for low prices,
which is the main selling point of the business. The company keeps its prices low through cost reduction
in operations. For example, the firm uses information technology to maximize operational efficiency.
Walmart also minimizes employees’ wages for this purpose.
This generic strategy determines the other strategies used in the company. One of the strategic
objectives of Walmart is to keep operating costs low. As mentioned, the firm minimizes wages and
spending in other areas of the business for this objective. Another strategic objective of Walmart is to
achieve economies of scale to support the cost-leadership generic strategy. To minimize prices, the firm
must maintain high sales volume and large-scale operations.

Market Penetration. Walmart uses market penetration as its main intensive strategy for growth.
Market penetration involves selling more goods or services to the current target market. Walmart sells
more goods and services to its current consumers by offering discounts, promotions, and special
packages. For example, the company offers discounted wholesale packages of various goods.
Market Development. Walmart uses market development as its secondary intensive strategy for
growth. This intensive growth strategy involves entering new markets to sell to consumers other than
those that the company currently has. For example, Walmart establishes new stores to achieve market
development. The company opens new stores in overseas locations to tap consumers in those markets.
Product Development. Walmart only minimally uses product development as an intensive strategy
for growth. In this intensive strategy, the focus is on offering new products to the market.
Understandably, Walmart does not invest much in new product development. Instead, the company’s
efforts are on sales and marketing. Thus, product development is not a significant intensive strategy in
the firm’s growth.

 Execution of Strategies : Hub and Spoke Model

EDLP Pricing Strategies
Cross Docking
Procurement directly from the farmers

Business Model

A company’s business model is management’s blueprint for delivering a valuable

product or service to customers in a manner that will generate ample revenues to cover
costs and yield an attractive profit.
The two crucial elements of a company’s business model are 1) its customer value
proposition, and 2) its profit formula. The customer value proposition lays out the
company’s approach to satisfying buyer wants and needs at a price customers will
consider a good value. The greater the value provided and the lower the price, the more
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attractive the value proposition is to customers.

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 A company’s profit formula depends on three basic elements : V – the value provided to
customers , in terms of how effectively the goods or services of the company meet
customer’s wants and needs; P – the price charged to customers; and C – the company’s
costs. The lower the costs, given the customer value proposition, the greater the ability
of the business model to be a money maker.
Value = Benefit (Product, Technical, Utility, Features)
Cost (Monetary , Energy, Time, Psychic)

Magazines and newspapers employ a business model keyed to delivering information

and entertainment they believe readers will find valuable and a profit formula aimed at
securing sufficient revenues from subscriptions and advertising to more than cover the
costs of producing and delivering their products to readers.
Gillette’s business model in razor blades involves selling a master product – the razor at
an attractively low price and then making money on repeat purchases of razor blades
that can be produced very cheaply and sold at high profit margins.
Printer manufacturers like HP pursue the same business model – selling printers at a low
price and making large profit margins on the repeat purchases of printer supplies,
especially ink cartridges.
The relevance of a company’s business model is to clarify how the business will 1)
provide customers with value and 2) generate revenues sufficient to cover costs and
produce attractive profits.

Business Model of Makemytrip.com (Online website for booking outdoor trips right
from booking flights to hotel booking)
Value proposition : Customer is able to get the flight tickets and hotel booking done
sitting at home and thus saving upon the energy cost, time cost and psychic cost.
Customers need not waste their time and energy to get any booking done, although
little extra money is charged as service charges.
Profit formula : Makemytrip.com earns the revenue from the customers as they pay for
the services offered. In addition, revenue is earned as they provide free space to other
vendors on their website to display advertisement and commission paid by hotels and
airlines for mass booking. Cost incurred is the money involved to manage the website
and the salary paid to the staff working to provide the services.

For a successful business model, revenue earned should always be more than the cost
incurred . In addition, customers should always find the product valuable to them
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Business Strategy
The term "business strategy" describes the methods a business uses to achieve its mission and
objectives. A business' mission encompasses its overall purpose, core values and long-term
goals. A grocery store might have the mission of making profit while providing the best food to
customers, minimizing its impact on the environment and promoting strength in the local
economy. The company's strategy might involve buying products from local food producers,
encouraging customers to bring their own grocery bags, advertising in local newspapers and
buying recycled product packaging materials.
Business Model
A company's business model describes the basic means by which it creates value, delivers value
to consumers and collects revenue from customers to make a profit. A local grocery store's
business model might involve buying food at wholesale prices and selling it to end consumers at
a higher price to make profit.

How They Are Related

A company's business model is a part of its business' overall strategy: It is the nuts and bolts
behind how the company plans to achieve its goals, such as making a profit. A company can
change its business model over time as a part of its profit-making strategy. For example, if
website does not make enough revenue from advertisements to make profit, managers might
decide implement a new business model, such as selling T-shirts and other goods though an
online store, as a strategy to boost profit.

Thank you

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