Strategic Management
Strategic Management
PLANNING PREMISES
INTRODUCTION TO
MANAGEMENT
CHAPTER 5
Sessions objective
• All perspective
Corporate level strategy
• Formulated at the top-level, corporate.
• Ideal for those organizations having more
than one business unit.
• Two approaches in the formulation of
strategy are
• Value-based approach: Value-based
approach takes into account the
individual's beliefs and helps to do
business ethically.
• Corporate portfolio approach: The top
management evaluates business units on
the basis of marketplace and
organizational strategy
Business level strategy
Planning
• Strategic planning is important, because
it provides the framework for
organizational activities
• It provides direction for an organization's
missions and helps in designing clear-cut
objectives
• It enables the organization to deal with
dynamic environments
• It enables to identify and focus resources
on key areas
• Top management takes initiative in
planning process.
Benefits of strategic planning
• OPPORTUNITIES • THREATS
• Enter new markets or • Entry of low-cost foreign
segments competitors
• Diversify into related areas • Changing buyer needs and
• Decline in trade barriers tastes
• Complacency among rival • Slower market growth rate
firms • Adverse shifts in foreign
• Increase in customer base exchange and trade polices
of foreign governments
Porter's Five Forces Model
• Rivalry:
• Rivalry is the means through which
competitors fight for position by
using tactics such as price,
competition, advertisement battles.
• New product introduction, to lower
the profits of competitors in the
industry.
• Coke and Pepsi are the classic
examples of rivalry in soft drink
industry.
Porter's Five Forces Model
• Concentration:
• Concentration focuses on growth through
single product or a small number of
closely related products.
• Vertical integration:
• It is a means through which the firm
produces its own inputs (backward) or
disposes its own outputs (forward).
• Diversification involves entering into a
new business, that is distinct from the
current business.
• :
Major forms of growth strategies
• Diversification:
• If an organization diversifies into
an unrelated business, it is then
known as conglomerated
diversification. But if an
organization diversifies into a
related, but distinct business,it is
concentric diversification
Stability strategy
• Harvest strategy:
• Entails minimum amount of
investment with maximum short-
term profits.
• Turnaround strategy:
• Turnaround strategy is designed to
reverse the negative state of
business.
forms of defensive strategies
• Divestiture strategy:
• If the company is not doing well, it
can sell or divest its business.
• Bankruptcy:
• A situation where the company is
unable to pay its debts, and seeks
legal support. After it regains its
financial position, it can repay its
debts.
Porter's Competitive Strategy
• Cost leadership:
• It involves emphasizing
organizational efficiency, so that
the overall costs of providing
products and services are low.
• It entails developing efficient
production methods, keeping tight
controls on over-head and
administrative costs.
• Wal-mart has always kept its prices
low (.
Porter's Competitive Strategy
• Differentiation:
• It attempts to develop products
that are unique in the industry.
• Focus:
• It relies on low-cost, or
differentiation, or both; in order to
establish a strong position within
the particular market segment or
niche.
•
Porters three generic strategies
• Selection of premises:
• Top management should select the
premise based on the
environmental factors, which
influence their course of action.
• Develop alternative plans:
• As the future is uncertain,
alternative plans must be
developed.
Effective Planning Premises
• Verify premises:
• Verification ensures that the
premises are consistent with each
other.
• Communicate premises:
• A Planning premise can be
effective, if it is communicated to
employees.