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Strategic Management

The document discusses strategic policies and planning including defining strategy and policy, discussing different levels of strategy, Porter's five forces model, and Porter's three generic competitive strategies. It also covers strategic planning process, types of strategies like growth, stability, and defensive strategies.

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994 views33 pages

Strategic Management

The document discusses strategic policies and planning including defining strategy and policy, discussing different levels of strategy, Porter's five forces model, and Porter's three generic competitive strategies. It also covers strategic planning process, types of strategies like growth, stability, and defensive strategies.

Uploaded by

api-3741610
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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STRATEGIC POLICIES &

PLANNING PREMISES

INTRODUCTION TO
MANAGEMENT
CHAPTER 5
Sessions objective

• To familiarize with the concepts of strategies


and policies
• To discuss various levels of strategies
• for an organization.
• To understand competitive analysis in To
discuss the importance of strategic planning
strategy formulation
• To discuss the various kinds of strategies and
policies
• To analyze Porter's competitive strategies
• To identify the important steps in the strategy
implementation
STRATEGY

• Strategy refers to the


determination of the purpose and
basic long term objectives of an
enterprise
• Involves adoption of different
courses of action, with proper
allocation of resources.
• Strategy is a means to achieve an
organization's missions and
objectives.
Policy

• Policies are general statements


that guide managers' thought
process in decision making.
• In simple terms, policies act as
guidelines; enabling organizations
to achieve their goals
Nature and Purpose of
Strategies and
Policies
• Direction

• Framework for plans

• Need for operational planning

• 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

• Business strategy focuses on a


firm's competitiveness in the
marketplace.
• Developed by the heads of
respective departments, and
approved by the top management;
• These strategies are designed in
response to the changing
environment and competitive
conditions.
Functional level strategy

• Functional strategies are designed to


emphasize functional competencies so
that firms can gain the competitive
advantage.

• These strategies are designed and


developed by the functional heads, and
are approved by the top management.
Question marks

• Question marks, are low-share


business units, in a high-growth
market.
• They require a lot of cash, for
maintaining the market share.
• Any business has to think between
building a question mark into stars
or whether they have to be phased
out.
Stars

• Stars are high-growth, high-share


businesses.
• Very often, they need heavy
investment for financing their rapid
growth.
• Eventually, their growth slows
down and they turn into cash
cows.
Cash cows:

•Such established and successful


SBU's, require less investment to
maintain their market share.
•Cash cows are low-growth and high-
share businesses.
• They generate a lot of surplus that a
company can use to pay its bills, or
invest in other businesses.
Dogs

• Dogs are low-growth and low-share


businesses.
• They may generate enough surplus
to maintain themselves.

• But do not hold out the promise to


be a large source of cash.
Significance of Strategic

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

• Strategic planning provides


consistent guidelines for overall
organizational activities.
• It enables managers to anticipate
problems and handle them
accordingly
• It helps mangers to take
appropriate decisions
• It minimizes the chances of
mistakes and unpleasant surprises.
Limitations of strategic
planning
• It is expensive, as many firms hire in
consultants, and adopt sophisticated
planning models.
• It is based on concepts rather than real
needs of the business.
• It is time-consuming, as a result the ends
(results) are delayed.
• It is long-term activity, and may take
many years to complete the project.
• Managers may avoid alternative
opportunities that involve high degree of
uncertainty
SRATEGIC PLANNING
PROCESS
• Define the mission
• Develop objectives
• Assess opportunities and threats
• Formulate strategy
• Implement strategy
• Monitor and adopt strategic plans
SWOT
• STRENGTHS • WEAKNESS
• Adequate financial • No clear strategy direction
resources
• High overall unit cost
• Technology leader
• relative to competitors
• Better manufacturing
• Obsolete facilities
facilities
• Product innovation • Narrow product line
• Wide distribution network

• 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

• Bargaining power of customers:


• It is the extent to which customers
are successful in forcing prices
down, or securing high quality or
more service at the same price.
• Customers tend to be powerful
when the quantities they purchase
form a large portion of the seller's
total sales
Porter's Five Forces Model

• Threat of new entrants:


• It is the ease with which new
competitors can enter the same product
or service markets. reduced profile.
• Threat of substitutes products or
services:
• It implies the extent to which business in
other industries, offer substitute
products, for an established product line.
• The availability of substitute products or
services thus reduces the profit potential
in the industry
Growth strategy

• Enable the organization to expand,


either through mergers or
acquisitions, or establishing a new
plant.
• McDonald has pursed its growth
strategy through direct expansion.
Major forms of growth
strategies

• 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

• Involves the maintenance of status


quo or , achieve growth in a
methodical, but, slow manner.
•
• organizations, adopt this strategy
are when it wants to take low risk,
choose stability and anticipate the
changes, to recover in the business.

• Kellogg's- stability strategy.


Defensive strategy

• Focuses on the desire or need to


reduce organizational operations,
usually through cost reductions
(cutting on non-essential
expenditure) and asset reduction
• The most common forms of
defensive strategies are harvest,
turnaround, divestiture, and
bankruptcy.
forms of defensive strategies

• 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

Generic strategies Commonly required skills


and resources
Cost leadership • Capital investment
• Technical skills
• Intense supervision of
labor
• Low-cost distribution
system
Differentiation •Strong marketing abilities
• Product engineering
• Strong capability in research
• Technology leadership

Focus Combination of the above


policies, directed at the
particular strategic target 
Effective Implementation of
Strategy

• Develop and communicate planning


premises:.
• Communicate strategies:
• Develop organization culture:
Monitoring:
• Develop contingency strategies and
programs:.
• Emphasize on planning and
implementation:
• Create proper organizational
climate:
Effective Planning Premises

• 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.

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