MODULE 1

Chapter 1
Introduction to
Strategic Management
EVOLUTION OF STRATEGIC MANAGEMENT

 The word strategy is derived from the Greek word ‘strategos’,

which means ‘military commander’.
 Wars have to be waged deploying critical resources and putting a
desirable future at stake.
 The histories of strategy-making and warfare have had a long
allied relationship based on these roots.
 Contemporary defense systems have contributed immensely to
management and more specifically to operations research,
strategy, and technology.
 What is Strategy
 Strategy can be defined as the determination of the basic
long term goals and objectives of an enterprise, and the
adoption of courses of action and the allocation of resources
necessary for carrying out these goals.

 Decisions to expand the volume of activities, to set up distant

plants and offices, to move into new economic functions, or to
become diversified along many lines of business involve the defining
of new basic goals.

 New courses of action must be devised and resources

allocated and reallocated in order to achieve these goals and to
maintain and expand the firm’s activities in the new areas in
response to shifting demands, changing sources of supply,
fluctuating economic conditions, new technological developments,
and the actions of competitors.
What is Strategic Management
Ansoff :
“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.”

Glueck :
“A stream of decisions and actions which leads to the development of an
effective strategy or strategies to help achieve corporate objectives”.

“A process consisting of the determination of direction, strategic actions to

achieve objectives, the implementation of desired strategy, and monitoring of
that strategy.”

“The three stages of strategic management are strategy formulation, strategy

implementation, and strategy evaluation”
Characteristics of Strategy
 Long time horizon

 Irreversible

 Involves substantial capital costs, either explicitly or

implicitly
 The Three Levels of Strategy

1.Corporate Level Strategy: deals with aligning the resource deployments across a diverse set of
business areas, related or unrelated. Strategy formulation at this level involves integrating and
managing the diverse businesses and realizing synergy at the corporate level.
For example, your firm may have four distinct lines of business operations, namely, automobiles,
steel, tea, and telecom. The corporate level strategy will outline whether the organization should
compete in or withdraw from each of these lines of businesses, and in which business unit,
investments should be increased, in line with the vision of your firm.

 Defines the business areas in which your firm will operate.

 Involves integrating and managing the diverse businesses and realizing synergy at the
corporate level.
 Top management team is responsible.
2. Business Level Strategy: are formulated for specific strategic business units and relate to a distinct
product-market area. It involves defining the competitive position of a strategic business unit. The business
level strategy formulation is based upon the generic strategies of overall cost leadership, differentiation,
and focus.

For example, your firm may choose overall cost leadership as a strategy to be pursued in its steel business,
differentiation in its tea business, and focus in its automobile business. For e.g. Porsche markets to the
particular segment that likes fast and expensive cars and can afford it.
The business level strategies are decided upon by the heads of strategic business units and their teams in
light of the specific nature of the industry in which they operate.

 Involves defining the competitive position of a strategic business unit.

 Decided upon by the heads of strategic business units and their teams.
3. Functional Level Strategy: Functional level strategies relate to the different functional areas which a
strategic business unit has, such as marketing, production and operations, finance, and human resources.
These strategies are formulated by the functional heads along with their teams and are aligned with the
business level strategies. The strategies at the functional level involve setting up short-term functional
objectives, the attainment of which will lead to the realization of the business level strategy.

For example, the marketing strategy for a tea business which is following the differentiation strategy may
translate into launching and selling a wide variety of tea variants through company-owned retail outlets.
This may result in the distribution objective of opening 25 retail outlets in a city; and producing 15 varieties
of tea may be the objective for the production department. The realization of the functional strategies in
the form of quantifiable and measurable objectives will result in the achievement of business level
strategies as well.

 Formulated by the functional heads along with their teams.

 Involve setting up short-term functional objectives.
 Schools of Thought
Year Author Key concept
1954 Peter Drucker Management By Objectives(MBO)
(clearly defining objectives that are agreed to by both management and
employees)
1957 Philip Selznick Internal and external environment analysis
(SWOT)
1962 Alfred D. Chandler Strategy and Structure (strategy as the determination of long-term goals and
objectives, the adoption of courses of action and associated allocation of
resources required to achieve goals.)
1965 Igor Ansoff Gap analysis tool (compare their current performance with their desired,
expected performance)
1970 Harry Markowitz Portfolio theory
(the resulting risk and return of a combination of individual assets)
1985 Michael Porter Competitive advantage
(factors that allow a company to produce goods or services better or more
cheaply than its rivals)
1990 Gary Hamel & C. K. Prahalad Strategic intent (the aspirational plans - For example, an energy company with a
vision of serving global energy needs with zero environmental impact.)
Contd..
 Japanese 7S Framework: strategy, structure, systems,
skills, staff, style, and superordinate goals (commonly
referred to as shared values)
 Industrial organization approach based on economic
theory — deals with issues like competitive rivalry,
resource allocation, economies of scale
 The sociological approach deals primarily with
assumptions about human interactions, such as bounded
rationality, satisfying behavior, and profit sub optimality.
EX: Google
 Bottom of the pyramid theory(Prahalad): An
enterprise must look at a large volume-driven, low
value, mass production base as the engine of growth.
THE STRATEGIC MANAGEMENT
PROCESS
 Developing A Vision Statement
‘‘when, where, what do we want to become?’

Firms goals in ally with community goals

Clear values
Precise and practical, and contain no ambiguity
Expressing company’s commitment to a deliberate strategic
management process
Made public and must be well communicated to all stakeholders
Vision statements of some leading Indian
companies
DEVELOPING A MISSION STATEMENT

This is a statement that outlines what a company will

become, why it exists, and how its vision can be achieved

 It differentiates the purpose of a company from a similar

organization or a competitor. Ex. Distinctive core
competencies
 It relates the vision to the immediate focus of the firm
 It details functional, market, and product initiatives that
need to be addressed by it
Mission statements of some
leading Indian companies
DEVELOPING CORE VALUES
 These are the principles which an organization would
follow in defining its relationship with internal and
external stakeholders to achieve their vision and
mission
 The purpose of developing core values is to underscore
business ethics and mutual obligations among stake
holders
 It also help in developing strength and resilience in
times of crisis
MODULE 2
Globalization is the process of interaction and integration among people, companies,
and governments worldwide.
Think Out
of the Box
Think Out
of the Box
MODULE 3
 Strategic Formulation
• After the managers involved in the strategic management process have
analyzed the environment and determined organizational direction
through the development of a mission statement and organizational
objective, they are ready to formulate strategy.

• STRATEGY FORMULATION is the process of determining appropriate

courses of action for achieving organizational objectives and thereby
accomplishing organizational purpose.

• Managers formulate strategies that reflect environmental analysis, lead

to fulfillment of organizational mission, and result in reaching
organizational objectives.
Tools for Strategic Formulation

MODULE 3
 SWOT Analysis evolved during the 1960s at Stanford Research Institute, is a very
popular strategic planning technique having applications in many areas of
management.

Organisations perform SWOT to understand their internal and external

environments. Through such an analysis, the strengths and weaknesses existing
within an organisation can be matched with the opportunities and threats operating
in the environment so that an effective strategy can be formulated.

An effective organisational strategy, therefore,

 is one that capitalises on the opportunities through the use of strengths and

 neutralises the threats by minimising the impact of weaknesses,

 to achieve pre-determined objectives.

A simple application of the SWOT analysis technique
involves these steps;
1. Setting the objectives of the organisation or its unit

2. Identifying its strengths, weaknesses, opportunities and

threats

3. Asking four questions

a. How do we maximise our strengths?
b. How do we minimise our weaknesses?
c. How do we capitalise on the opportunities in our
external environment?
d. How do we protect ourselves from threats in our
external environment?
4. Recommending strategies that will optimise the answers
from the four questions.
Tools for Strategic Formulation
Situation Analysis - SWOT
Illustration
 Strengths
 Unique product
 Location of your business
 Patents, know-how, trade secrets
 Worker's unique skill set
 Corporate culture, company image
 Quality of your product
 Access to financing
 Operational efficiency
 Weaknesses
 Location of your business
 Lack of quality and customer service
 Poor marketing and sales
 Access to resources
 Undifferentiated products or services
 Opportunities
A new emerging or developing market (niche product,
place - new country, less competition)
Merger, Joint Venture, Or Strategic Alliance
Market trends
New technologies
Social changes (for example demographics)
 Threats
 New competition in the market, possibly with new
products or services
 Price wars
 Economic conditions
 Political changes
 Competitor oligopoly (a few firms dominate) or monopoly
 Taxation
 Availability of resources
MODULE 4
Tools for Strategic Formulation
 Definition of 'Strategic Business Unit'
• A strategic business unit, popularly known as SBU, is a fully-functional
unit of a business that has its own vision and direction. Typically, a
strategic business unit operates as a separate unit, but it is also an
important part of the company. It reports to the headquarters about
its operational status.
TATA GROUP
 What is the Portfolio Analysis?

• The Portfolio Analysis is an aid that is used by Marketeers to take

decisions over product-market combinations (portfolio).
• It is an essential component of the Internal Analysis where the
strengths and weaknesses of a company are researched.
• The Portfolio Analysis provides answer on the question of how the
current assortment is performing.
• The Portfolio Analysis is a rather simple tool for researching the
effectiveness of a portfolio.
• The outcome from it serves as input for the SWOT Analysis and
therefore plays a considerable role within a strategic marketing plan.
 BCG Model
2*2 Matrix OR Growth Share Matrix

PROBLEM CHILD

On the x - axis
Relative Market Share = SBU Sales this year versus leading competitors sales this year.
(SBU market share / leading competitor’s market share)

On the y - axis
Market Growth Rate = Industry sales this year - Industry Sales last year.
BCG matrix and its strategic focus
 Limitations of BCG Matrix
 BCG matrix orders organizations as low and high, however by and large organizations can be
medium moreover. Along these lines, the genuine idea of business may not be reflected.

 High market share does not generally prompt high benefits. There are high expenses additionally
included high market share.

 Growth rate and relative market share are not by any mean the only markers of benefit. This
model disregards and neglects different markers of profitability.

 The Y axis represents the annual market growth which fails to see the full picture that goes
beyond a one year span

 At times, dogs may enable different organizations in increasingly aggressive to advantage. They
can gain considerably more than cash cows.

 This four-celled approach is considered as to be excessively oversimplified.

GE Multifactor Matrix
 GE/McKinsey Multifactor Portfolio Matrix
• Developed as a more sophisticated version of the BCG Growth-Share
matrix.
• Similar to the BCG matrix, the GE/McKinsey matrix plots "Market
Attractiveness" against "Business Strength" (i.e. the competitiveness of
the business unit or product in the market).
• Whereas the BCG matrix uses growth as a measure of market attractiveness
and market share as a measure of business strength or competitiveness.
• The GE/McKinsey matrix uses multiple criteria to determine these values.
This provides a more realistic measure than the simplistic measures used by
the BCG matrix.
• Matrix is divided into a 3x3 grid to provide a more fine grained view of the
strategic position of a business unit or product than the simple 2x2 BCG
matrix.
GE/McKinsey Multifactor Portfolio Matrix
Also called “STOP-LIGHT MATRIX”
 Weighting Factor
The criteria used for determining market attractiveness and business strength are not all equal.
Therefore, each criterion is given a weighting factor. For e.g.

Market Attractiveness Weighting Business Strength Weighting

• Overall market size 20% • Market share 20%
• Share growth 15%
• Market growth rate 20%
• Product quality 10%
• Historical profit margin 15% • Brand reputation 10%
• Competitive intensity 20% • Pricing 15%
• Knowledge requirements 15% • Distribution network 5%
• Promotional effectiveness 5%
• Barriers to entry 10%
• Productive capacity 10%
• Social/Political/Legal - • R&D performance 10%
 How are SBU’s plotted and read on the
GE matrix
• The sum of the weighted criteria for market attractiveness and business
strength give a set of coordinates which can be used to position the business
unit or product onto the matrix.

• The business unit or product is represented by a circle, the size of which an

indication of the size of the market.

• This is similar to the way that business units or products are displayed on the
BCG matrix. However, the GE/McKinsey matrix also shows the market share
for the business unit or product as a segment of the circle and also indicates
the future trends for market attractiveness and business strength values via
an arrow that shows the future direction of the trend.
This matrix illustrates a product ('A') in a reasonably sized market with a market share of 21%. The market has medium attractiveness and the competitive
strength of the product is slightly below average. The future trends indicate that the market attractiveness will not change over the timescale under
consideration (two years in this case), but that the product will become more competitive in the market over this time frame. (Note that some of this was due to
planned changes in the product, but some of it was due to anticipated changes in other criteria such as brand reputation). As a point of comparison, Product A
would have been positioned in the "Cash Cow" quadrant of the BCG matrix.

The above matrix shows two more products ('B' and 'C') that have been added to the original matrix. Product B is addressing a smaller but rapidly growing
market and one where the company has a competitive edge. Product B would likely be displayed as a 'Star' in the BCG matrix.

Product C, on the other hand, has a negative outlook on its future. Its competitive strength is declining as indicated by the arrow pointing to the right. In reality,
Product C was a legacy product and was losing market share to the next generation of products in the market (one of these being Product A). This explains the
different trajectories in terms of competitiveness in the market (one declining, the other still getting better). They are in the same market segment, to the market
attractiveness scores are identical (as this is independent of the actual product). Note that Product C would have been positioned in the "Dogs" quadrant of the
BCG matrix.
Strategies To Be Adopted As Per The GE 9 Cell Matrix
 •Strategy:  Organization's plan for building and
maintaining a competitive advantage over its
competitors.
•Structure: How your company is organized
(that is, how departments and teams are
structured, including who reports to whom).
•Systems: The daily activities and procedures
that staff use to get the job done.
•Shared values: These are the core values of
the organization, as shown in its corporate
culture and general work ethic. They were
called "superordinate goals" when the model
was first developed.
•Style: The style of leadership adopted.
•Staff: The employees and their general
capabilities.
•Skills: The actual skills and competencies of
The model states that the seven elements need to balance and reinforce the organization's employees.
each other for an organization to perform well.