Strategy, Strategic Management Process

Different Strategies

What is Strategy?
TOMORROW NEVER HAPPENS BY CHANCE. IT NEEDS TO BE PLANNED. And those who are prepared for tomorrow, benefit the most. The art of planning action to achieve a specific goal is called strategizing and the action plan is called Strategy. In business, Strategy Management is now accepted as the discipline of managing resources to achieve long term objectives (Sharma & Banga). Richard L. Daft has defined Strategy as The plan of action that prescribes resource allocation and other activities for dealing with the environment and helping the organization attain its goals.

Business strategy
Business Strategy is a method of describing

the future position of the company, its objectives, purposes, goals, policies, and plans that may be required for guiding the company from its existing position to where it desires to be. Kenneth Andrews(1965) developing and communicating the companys unique position, making trade-offs, and forging fit among activities Michael E Porter(1996)

Strategy Summing up all Definitions

A plan or course of action or a set of decisions rules forming pattern or creating a common thread. The pattern or common thread related to the organisations activities which move an organisation from its current position to a desired to a desired future stage Related to pursuing those activities which move an organisation from its current position to a desired future state, Concerned with the resources necessary for implementing a plan or following a course of action and, Connected to the strategic positioning of a firm, making trade-offs between its different activities, and creating a fit among these activities.

Ansoffs four components of strategy

(w.r.t. a soft ware firm)

Product-market scope (knowledge management) Growth vector (branded products & diversification) Competitive advantage (value-added services; end-to-end services) Synergy (Use of firms knowledge capabilities and marketing for better customer value addition)

A strategy may be triggered by:

A new CEO Outside intervention ( ex. stoppage of financial assistance) Impending change in ownership (take over) Falling performance levels

Need for strategy

To have rules to guide the search for new opportunities both inside and outside the firm. To take high quality project decisions To develop measures to judge whether a particular opportunity is a rare one or whether better ones are likely to develop in future To have an assurance that the firms overall resource allocation pattern is efficient. To have and develop internal ability to anticipate change To save time, money and executive talent. To identify , develop and exploit potential opportunities. To utilise the delay principle i.e. delay the commitment until an opportunity is on hand.

The Strategic Management process

consists of

Evaluating Strategies - TOWS Matrix. Formulating Strategies a)Corporate level: i)Ansoffs matrix ii) Boston Consulting Group Matrix BCG matrix b) Business level : Porters 5-Forces Model c) Functional level : Porters Value-Chain Implementing Strategies: a) McKinseys 7-S Framework b) Diversification, Mergers and Acquisitions c) Organizational structure, systems, culture and power

Operational Strategy
The lowest level of strategy is operational strategy . It is very narrow in focus and deals with day-to-day operational activities such as scheduling criteria. It must operate within a budget but is not at liberty to adjust or create that budget. Operational level strategy was encouraged by Peter Drucker in his theory of management by objectives (MBO). Operational level strategies are informed by business level strategies which, in turn, are informed by corporate level strategies.

Functional strategies
Functional strategies include marketing strategies , new product development strategies, human resource strategies, financial strategies, legal strategies, supply-chain strategies, and information technology management strategies. The emphasis is on short and medium term plans and is limited to the domain of each departments functional responsibility. Each functional department attempts to do its part in meeting overall corporate objectives, and hence to some extent their strategies are derived from broader corporate strategies.

Business strategy Business strategy , which refers to the aggregated operational strategies of single business firm or that of an SBU in a diversified corporation refers to the way in which a firm competes in its chosen arenas.

The types of generic strategies that companies must possess to achieve competitive advantage:
Cost Leadership Strategy Focus Strategy: Differentiation Strategy

Cost Leadership Strategy

Cost leadership, in basic words, means the lowest cost of operation in the industry. The cost leadership is often driven by company efficiency, size, scale, scope and cumulative experience (learning curve). It aims to exploit scale of production, well defined scope and other economies (e.g. a good purchasing approach), producing highly standardized products, using high technology. In the last years more and more companies chose a strategic mix to achieve market leadership. This pattern consists in simultaneous cost leadership, superior customer service and product leadership.

 Six Sigma methodology (a systematical process of quality improvement through the disciplined data-analyzing approach, and by improving the organizational process by eliminating the defects(=nonconformity of the product or the service of an organization) or the obstacles which prevents the organizations to reach the perfection.), Kaizen (In Japanese =continuous improvement ), Lean Thinking( getting the right things to the right place, at the right time, in the right quantities, while minimising waste and being flexible), Total Quality Management (TQM), Benchmarking Competitors, Just-in-Time (JIT), Supply Chain Management (SCM), Total Productive Maintenance (TPM) and Enterprise Resource Planning(ERP) solutions.

Successful techniques used by successful organizations worldwide in enhancing quality, productivity, lowering cost:

Focus Strategy:
This dimension is not a separate strategy per se, but describes the scope over which the company should compete based on cost leadership or differentiation. The firm can choose to compete in the mass market (like Wal-Mart) with a broad scope, or in a defined, focused market segment with a narrow scope. In either case, the basis of competition will still be either cost leadership or differentiation. In adopting a narrow focus, the company ideally focuses on a few target markets (also called a segmentation strategy or niche strategy).

 Product differentiation is a competitive business strategy whereby firms attempt to gain a competitive advantage by increasing the perceived value of their products and services relative to the perceived value of other firm's products and services.

Differentiation Strategy

Corporate strategy
Corporate strategy , then, refers to the overarching strategy of the diversified firm. Such corporate strategy answers the questions of "in which businesses should we compete?&quit; and how does being in one business add to the competitive advantage of another portfolio firm, as well as the competitive advantage of the corporation as a whole

KINDS OF GRAND STRATEGIES

Stability strategy Growth Strategies Retrenchment Strategies Internal Growth Turnaround Concentration strategies Captive Mergers Company Takeover/Acquisition Divestment Horizontal integration Liquidation Conglomerate Diversification Vertical Integration Joint Ventures Restructuring strategies Portfolio Restructuring

Maintenance of status quo Sustainable growth

Strategic Management Definitions

Strategic management is the process of systematically analysing various opportunities and threats vis-a vis organisational strengths and weaknesses, formulating, and arriving at strategic choices through critical evaluation of alternatives and implementing them to meet the set objectives of the organisation. - Strategic Management is concerned with making decisions about an organisations future direction and implementing those decisions.- By Lloyd L Byras

Strategic management is the art, science and craft of formulating, implementing and evaluating cross-functional decisions that will enable an organization to achieve its objectives. It is the process of specifying the organization 's mission , vision and objectives, developing policies and plans, often in terms of projects and programs, which are designed to achieve these objectives, and then allocating resources to implement the policies and plans, projects and programs. Strategic management seeks to coordinate and integrate the activities of the various functional areas of a business in order to achieve organizational objectives. A balanced scorecard is often used to evaluate the overall performance of the business and its progress towards objectives

Elements of Strategic Management

Strategic management involves adapting the organization to its business environment. Strategic management is fluid and complex. Change creates novel combinations of circumstances requiring unstructured non-repetitive responses. Strategic management affects the entire organization by providing direction. Strategic management involves both strategy formation (it is called, content) and also strategy implementation (it is called, process). Strategic management is partially planned and partially unplanned. Strategic management is done at several levels: overall corporate strategy, and individual business strategies. Strategic management involves both conceptual and analytical thought processes

Strategic Management Process

Vision Statement Mission Statement indicating methodology for achieving the objectives, purposes and Philosophy of organisation as reflected in vision statement. Company Profile, its internal culture, strengths and capabilities. Critical study of external environmental factors, threats and opportunities. Finding out way and deciding the desirable course of actions for accomplishing the Mission statement. Selecting long term objectives and deciding corresponding strategies. Evolving short term objectives, defining corresponding strategies in tune with Mission and Vision Statements. Implementing chosen strategies in planned way, based on budgets, allocating resources, outlining action plan and tasks. Installation of a continuous review system, creating a control mechanism and Data generation for selecting future course of action.

Advantages of Strategic Planning

Strategic Planning provides the route map for the enterprise. It lends a framework which can ensure that decisions concerning future are taken in a systematic and purposeful way. Strategic Planning provides a hedge against uncertainty, against totally unexpected developments. Strategic Planning helps in understanding trends in a better way and generates a reference frame for investment decisions. Strategic Planning provides the frame work for all major business decisions, decisions on business, products, markets, manufacturing facilities, investments, and organisational structure. It is a path finder for business opportunities and it is also a defence mechanism to avoid costly mistakes in choice of product market or investments.

 The more intense the environmental uncertainty, more critical is the need for strategic planning. The success of the efforts and activities of the enterprise depends heavily on the quality of strategic planning. Considerable thought and effort must go in vision, insight, experience, quality of judgement and the perfection of methods and measures. Strategic Planning is a management task concerned with growth and future of the business enterprise. As a management tool, Strategic Planning utilises both intuition and logic. Logic is through Planning and information process and intuition is through experience, knowledge and vision of top people in Management.

Advantages of Strategic Planning

Advantages of Strategic Planning

All vital aspects of corporate governance are perfected through strategic planning, starting from corporate mission, philosophy and core values, down to choice of businesses and strategies. Through analytical process aspect, involved in Strategic Planning, corporation understands where its core competencies are, identifies the competitive advantages, pinpoints the gaps, formulate steps to bridge them. Main aspects of Strategic Planning are Future, Growth, Environment, basket of businesses of the firm for additions and deletions, Strategy and not day to day routine matters, creation of core competency and competitiveness and finally integration. It views the organisation / business in its totality and not a particular function. Thus Strategic Planning is Corporate Strategy.

Advantages of Strategic Planning

Strategic Planning differs from other operative and administrative functions of management. Strategic Planning provides objective strategy design: A) Growth Objective Performance levels, Profitability target, B) Product Market scope, its penetration, C) Growth Vector Product Market posture, development or diversification, D) Competitive Advantages, E) Synergy, strength obtained from new productmarket selections.

Operational Planning
FocusObjectivesConstraintsRewardsInformationOrganisationLeadershipProblem-solvingOperational Problems Present profit Present Resources, Environment Efficiency, Stability Present business Bureaucratic/ stable Conservative Relies on past experience Low risk

Strategic Planning
Long term survival & Developmental Future profit Future Resources, Environment Development of future potential Future opportunities Entrepreneurial/ Flexible Inspires radical changes Anticipates, finds new approaches High risk

Toyotas 7-wastes strategy

1. 2. SEVEN WASTES TO BE AVOIDED: Waste of time on hand (i.e, waiting time) because men, m/c, raw materials, stocks are waiting, by proper planning and scheduling. Waste in Transportation by planned logistics and material movements. Waste in over-productions by proper production planning and estimations. Waste in stocks-on-hand by effective sales forecasts. Waste in Processing efficient use of technology. Waste in movement by detailed Work-study. Waste in making defective products state of mind

3.
4. 5. 6. 7.