Strategic Management[Importance,Characteristics,Process]

Strategic Management[Importance,Characteristics,Process]

What do we mean by strategy?

•Action plan for running business and conducting operations

•Strategy is all ‘HOW’s:

Ø how mgt intends to grow the business?

Ø how to build a loyal clientele and outcompete rivals

Ø how each function  will be operated? ( R & D , SC. P, S. Mktg, D , F  and HR)

Ø how performance will be boosted?

Strategy - Core Concept

•Company’s Strategy consists of :

    Competitive moves and business Approaches that a manager operates to

–Grow business

–Attract and please customers

–Compete successfully

–Conduct operations

–Achieve targeted levels of Organizational performance

                                                      Definitions

q  Goal directed decisions and actions,  in which capabilities and resources are matched  with opportunities and in threats in the environment.

                                                

q Strategy is a commitment  to undertake a set of actions rather than others.

                                                                Sharon Oster                          

q The process of developing superior strategies is ‘partly planning  & partly trial and error’, until you hit upon something that works.

                                                                                  - Costas Markides

q Without a strategy the Organization is like a ship with out a rudder.

                                                                                     - Michael Kami

Corporate Strategy Vs Business Strategy:

q Michael Porter  emphasized “Strategy is not about , doing things better but doing differently.

q Strategy is making Choice:  Basic Questions  are-

Ø Where to compete?

Ø How to compete?

Answer is Corporate Strategy and Business Strategy

v Corporate Strategy:  Decisions include  investment in ‘ Diversification, Vertical Integration, acquisition and new Ventures  allocation of resources  & Divestment.

v Business Strategy: is concerned  with how the firm competes with a particular industry or market. Firm to establish ‘ a competitive advantage’ over its rivals . This  area is referred as competitive strategy.

Business and Strategy Model.

Business model:

q  1.   Gives the logic of how the a ‘Strategy’ can deliver value to customers  at a ‘price and cost’ that yields ‘ Profitability’

q 2.    Relates to whether the ‘Revenue-Cost – Profit’

economics of its ‘S’  demonstrates the viability of business as a whole

q3. Revenue- Cost – Profit’    flows from ‘Strategy’-, shows viability

 Strategy:

q 1. ‘Competitive Initiatives/ approaches’-  irrespective of financial out come

q 2. Is capable of Profit making, Co  becomes a viable ‘Business Enterprise’

q 3. Co with Lack of Strategy,  fails to produce to meet even  “bottom  line requirement”

What  Is  a  Business  Model?

•A business model addresses “How do we make money in this business?”

–Is the strategy capable of delivering

good bottom-line results?

•Do the revenue-cost-profit economics

of the strategy make good business sense?

–Look at revenue streams the strategy is expected to produce

–Look at associated cost structure and potential profit margins

–Do resulting earnings streams and ROI indicate the strategy makes sense and the company has a viable business model for making money?

Business model

ØStoryline : How and Why company’s ‘Offering’ and
Ø

   competitive approaches will generate revenue stream ?

Ø

ØDoes the Cost structure,  produces attractive earnings

Ø

   and ‘ Return on Investment’?

ØBusiness model forms an ‘Economic logic’ for making

 

   money in a particular business

Describing a Firm’s strategy:

•Strategy exists in the minds of ‘Top Management’

q Entrepreneurial-startup….Founder

qStart -up enterprises… written down Business Plan

q Established Companies…in many ways

q Vision – Asprational View

q Mission – Statement of purpose

q Business Model – A statement, basing on which firm generates ‘revenue and profit’

q Strategic Plan –Performance goals, Approaches, Resource commitments 

Four Strategic approaches:

v 1. Strive to be Industry’s low cost provider ( Wal-mart, and South east Airlines won low-cost advantages over their rivals)

v 2. Competing Rivals on ‘ differential features’ (quality, product selection, added performance, value added service, attractive style, technological superiority)

v3. Focus on narrow market niche and winning a competitive edge (eBay – Online auction, Jiffy lube International –quick oil change, Starbucks – Premium coffee and coffee drinks

v4. Develop expertise and resource strength s, that cannot be easily imitated by rivals ( FedEx – Next day delivery, Walt Disney – Theme Park, Toyota – defect free vehicles  at  low cost)

Three Levels of Strategy:

•1. Corporate level: board of directors, CEO & administration [Highest]

•2.Business level: business and corporate managers [Middle]

•3. Functional level: Product, geographic, and functional area managers [Lowest]

Characteristics of Strategic Management Decisions: Corporate:

•Often carry greater risk, cost, and profit potential

•Greater need for flexibility

•Longer time horizons

•Choice of businesses, dividend policies, sources of long-term financing, and priorities for growth

Characteristics of Strategic Management Decisions: Functional:

•Implement the overall strategy formulated at the corporate and business levels

•Involve action-oriented and operational issues

•Relatively short range and low risk

•Modest costs: depend upon available resources

•Relatively concrete and quantifiable

Characteristics of Strategic Management Decisions: Business:

•Help bridge decisions at the corporate and functional levels

•Less costly, risky, and potentially profitable than corporate-level decisions

•More costly, risky, and potentially profitable than functional-level decisions

•Include decisions on plant location, marketing segmentation, and distribution.