PONDICHERRY UNIVERSITY
(A Central University)
DIRECTORATE OF DISTANCE EDUCATION
MASTER OF BUSINESS ADMINISTRATION
First Year – II Semester
Paper Code: MBAC2005
STRATEGIC MANAGEMENT
(Common to all MBA Programs)
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PONDICHERRY UNIVERSITY
(A Central University)
DIRECTORATE OF DISTANCE EDUCATION
MASTER OF BUSINESS ADMINISTRATION
First Year – II Semester
Paper Code: MBAC
STRATEGIC MANAGEMENT
(Common to all MBA Programs)
Authors Dr. C S K Krishnamacharyalu Director RVS Institute of Management Studies & Computer Applications Karaikal. Dr. R. Lalitha Professor & Head Dept. Of Management Studies- Karaikal Campus Pondicherry University Puducherry. © All Rights are Reserved For Private Circulation only
MBA- II Semester Paper Code: MBAC Strategic Management Objectives Ֆ Integrating the knowledge gained in functional areas of management Ֆ Helping the students to learn about the process of strategic management, and Ֆ Helping the students to learn about strategy formulation and implementation Unit-I Concepts of Strategy - Levels at which strategy operates; Approaches to strategic decision making; Mission and purpose, objectives and goals; Strategic business unit (SBD); Functional level strategies Unit-II Environmental Analysis and Diagnosis - Environment and its components; Environment scanning and appraisal; Organizational appraisal; Strategic advantage analysis and diagnosis; SWOT analysis Unit-III Strategy Formulation and Choice - Modernization, Diversification Integration - Merger, take-over and joint strategies - Turnaround, Divestment and Liquidation strategies - Strategic choice - Industry, competitor and SWOT analysis - Factors affecting strategic choice; Generic competitive strategies - Cost leadership, Differentiation, Focus, Value chain analysis, Bench marking, Service blue printing Unit-Iv Functional Strategies: Marketing, production/operations and R&D plans and polices- Personnel and financial plans and policies.
UNIT- I
Lesson 1 - Concept Of Corporate Strategy Lesson Outline Ֆ Introduction Ֆ What Is Strategy? Ֆ Why Corporate Strategy? Ֆ Levels Of Strategy Ֆ Crafting A Strategy Ֆ An Ongoing Process Ֆ Summary Ֆ Self Assessment Questions Ֆ Activities Ֆ References Learning Objectives After reading this lesson you should be able to Ֆ Define and understand the concept of corporate strategy Ֆ Identify the different levels of corporate strategy Ֆ Examine the reasons for developing strategies Ֆ See corporate strategy as an on going process Organizations are facing exciting and dynamic challenges in the 21st century. In the gloabalized business, companies require strategic thinking and only by evolving good corporate strategies can they become strategically competitive. A sustained or sustainable competitive advan- tage occurs when firm implements a value – creating strategy of which other companies are unable to duplicate the benefits or find it too costly to initiate. Corporate strategy includes the commitments, decisions and actions required for a firm to achieve strategic competitiveness and earn above average returns. The goals of corporate strategy are challenging not only for large firms like Microsoft but also for small local computer retail outlets or even dry cleaners. Table 1.1 lists the top ten strategists in India in 2005.
TABLE 1.1 - INDIA’S TOP TEN STRATEGISTS
Name of the company Position in the industry Infosys Technologies 1 Reliance Industries 2 Wipro 3 Hindustan Lever 4 Maruti Udyog 5 Dr. Reddy’s Laboratories 6 HDFC Bank 7 Jet Airways 8 ICICI Bank 9 Ranbaxy Laboratories 10 Source - Internet What is strategy? Strategy”, narrowly defined, means “the art of the general” (the Greek stratos, meaning ‘field, spread out as in ‘structure’; and agos, meaning ‘leader’). The term first gained currency at the end of the 18th century, and had to do with stratagems by which a general sought to deceive an enemy, with plans the general made for a campaign, and with the way the general moved and disposed his forces in war. Also was the first to focus on the fact that strategy of war was a means to enforce policy and not an end in itself. Strategy is a set of key decisions made to meet objectives. A strategy of a business organization is a comprehensive master plan stating how the organization will achieve its mission and objectives.
provides general guidance for specific actions in pursuit of particular ends. Nations have, in the management of their national policies, found it necessary to evolve strategies that adjust and correlate political, eco- nomic, technological, and psychological factors, along with military ele- ments. Be it management of national polices, international relations, or even of a game on the playfield, it provides us with the preferred path that we should take for the journey that we actually make.
2. Keeping Pace With Changing Environment The present day environment is so dynamic and fast changing thus making it very difficult for any modern business enterprise to oper- ate. Because of uncertainties, threats and constraints, the business cor- porations are under great pressure and are trying to find out the ways and means for their healthy survival. Under such circumstances, the only last resort is to make the best use of strategic management which can help the corporate management to explore the possible opportuni- ties and at the same time to achieve an optimum level of efficiency by minimizing the expected threats. 3. Minimizes Competitive Disadvantage It minimizes competitive disadvantage and adds up to competitive advantage. For example, a company like Hindustan Lever Ltd., realized that merely by merging with companies like Lakme, Milk food, Ponds, Brooke bond, Lipton etc which make fast moving consumer goods alone will not make it market leader but venturing into retailing will help it reap heavy profits. Then emerged its retail giant “Margin Free’ which is the market leader in states like Kerala. Similarly, the R.P. Goenka Group and the Muruguppa group realized that mere takeovers do not help and there is a need to reposition their products and reengineer their brands. The strategy worked. 4. Clear Sense of Strategic Vision and Sharper Focus on Goals and Ob- jectives Every firm competing in an industry has a strategy, because strat- egy refers to how a given objective will be achieved. ‘Strategy’ defines what it is we want to achieve and charts our course in the market place; it is the basis for the establishment of a business firm; and it is a basic requirement for a firm to survive and to sustain itself in today’s changing environment by providing vision and encouraging to define mission.
5.Motivating Employees One should note that the labor efficiency and loyalty towards management can be expected only in an organization that operates under strategic management. Every guidance as to what to do, when and how to do and by whom etc, is given to every employee. This makes them more confident and free to perform their tasks without any hesitation. Labor efficiency and their loyalty which results into industrial peace and good returns are the results of broad-based policies adopted by the strategic management
6. Strengthening Decision-Making Under strategic management, the first step to be taken is to identi- fy the objectives of the business concern. Hence a corporation organized under the basic principles of strategic management will find a smooth sailing due to effective decision-making. This points out the need for strategic management. 7. Efficient And Effective Way Of Implementing Actions For Results Strategy provides a clear understanding of purpose, objectives and standards of performance to employees at all levels and in all func- tional areas. Thereby it makes implementation very smooth allowing for maximum harmony and synchrony. As a result, the expected results are obtained more efficiently and economically. 8. Improved Understanding of Internal and External Environments of Business Strategy formulation requires continuous observation and under- standing of environmental variables and classifying them as opportuni- ties and threats. It also involves knowing whether the threats are serious or casual and opportunities are worthy or marginal. As such strategy provides for a better understanding of environment. Levels of Strategy A typical business firm should consider three types of strategies, which form a hierarchy as shown in Figure 1.
Responsibility of corporate-level managers Responsibility of business – level general managers Responsibility of heads of major functional activities within a business unit or division Responsibility of plant managers, geographic unit managers, and lower-level supervisors Figure 1.1 Hierarchy of strategy There are basically four approaches to crafting a strategy
- The Chief Architect approach: A single person – the owner or CEO –assumes the role of chief strategist and chief entrepreneur, single handedly shaping most or all of the major pieces of strategy. This does not mean that one person is the originator of all the ideas underlying the resulting strategy or does all the background data gathering and analysis: there may be much brainstorming with subordinates and considerable analysis by specific departments. The chief architect approach to strategy formation is characteris- tic of companies that have been founded by the company’s present CEO. Michael Dell at Dell Computer, Steve Case at America Online, Bill Gates at Microsoft, and Howard Schultz at Starbucks are prominent examples of corporate CEOs who exert a heavy hand in shaping their company’s strategy.
- The Delegation Approach: Here the manager in charge delegates big chunks of the strategy-making task to trusted subordinates, down- the-line managers in charge of key business units and departments, a high-level task force of knowledgeable and talented people from many
parts of the company, self-directed work teams with authority over a particular process or function, or, more rarely, a team of consultants brought in specifically to help develop new strategic initiatives.
- The Collaborative or Team Approach: This is a middle approach when by a manager with strategy-making responsibility enlists the as- sistance and advice of key peers and subordinates in hammering out a consensus strategy. Strategy teams often include line and staff manag- ers from different disciplines and departmental units, a few handpicked junior staffers known for their ability to think creatively, and near-re- tirement veterans noted for being keen observers, telling it like it is, and giving sage advice. Electronic Data Systems conducted a year-long strategy review involving 2,500 of its 55,000 employees and coordinated by a core of 150 managers and staffers from all over the world. Nokia Group, a Finland-based global leader in wireless telecom- munications, involved 250 employees in a strategy review of how dif- ferent communications technologies were converging, how this would affect the company’s business, and what strategic responses were needed.
- The Corporate Entrepreneur Approach: In the corporate entre- preneur approach, top management encourages individuals and teams to develop and champion proposals for new product lines and new business ventures. The idea is to unleash the talents and energies of promising corporate entrepreneurs, letting them try out business ideas and pursue new strategic initiatives. Executives serve as judges of which proposals merit support, give company entrepreneurs the needed organizational and budgetary support, and let them run with the ball. W.L. Gore & Associates, a privately owned company famous for its Gore-Tex waterproofing film, is an avid and highly successful practi- tioner of the corporate intrapreneur approach to strategy making. Gore expects all employees to initiate improvements and to display innova- tiveness. As on going process Corporate strategy is a continuous on going process and extends company wide over a diversified company’s business. It is a boundary spanning planning activity considering all the elements of the micro and macro environments of a firm. The following are the key tasks of the process of developing and implementing a corporate strategy.
Corporate strategy (The action plan for managing a diversified company) Whether diversification is based narrowly in a few industries or broadly in many industries Whether the businesses the company has diversified into are related, unrelated, or a mixture of both Approach to allocating investment capital and resources across business units Efforts to capture cross-business strategic fits Whether the scope of company operations is mostly domestic, increasingly multinational, or global Moves to divest weak or unattractive businesses Moves to strengthen positions in existing businesses via new acquisitions. Moves to build positions in new industries via acquisition, merger, internal start-up, or alliances Figure 1.2 Strategy of a diversified company Source : Thompson & Strickland (2003), Strategic Management, Tata McGraw Hill, New Delhi. The process of developing corporate strategy or the overall mana- gerial plan for involves the following processes.
- Making the moves to establish in different businesses and achieve diversification.
- Initiating actions to boost the combined performance of the busi- nesses the firm has diversified into.
- Pursuing ways to capture valuable cross-business strategic fits and turn them into competitive advantage.
- Establishing investment priorities and steering corporate resources into the most attractive business units
Summary In the globalized business, companies require strategic thinking and only by evolving good corporate strategies can they become strategi- cally competitive. A strategy of a business organization is a comprehen- sive master plan stating how the organization will achieve its mission and objectives. Strategy is significant because it is universal. It helps corpo- rate to keep pace with changing environs, provides better understanding of external environment, minimizes competitive disadvantage by forc- ing to think clearly about mission, vision and objectives of enterprise. It improves motivation of employees and strengthens decision-making. It forms the basis for implementing actions. Strategy can be classified based on hierarchy into four levels: corporate level, strategic business level, functional level and operating level. The approaches to strategy making are: the Chief Architect approach, the delegation approach, the collaborator or team approach and the corporate entrepreneur approach. Strategy making is an ongoing process involving activities like defin- ing vision, mission and goals, analyzing organization and environment and matching them to decide suitable actions and objectives, and imple- menting with a review system. Self -Assessment Questions
- Define the concept of strategy
- Write two definitions of strategy and identify the key elements in them.
- Distinguish strategy and plan. Which one is more suitable in a com- petitive environment?
- What are the 5 Ps of a strategy?
- Explain the significance of a strategy.
- What are the different levels of strategy making?
- Identify the people responsible for strategy making at different levels in an organization
- Explain the different approaches to strategy making.
- “Corporate strategy making is an on going process “ –Discuss
- Explain the strategy of a diversified company.
Lesson 2 - Strategic Management Process
Lesson Outline Ֆ Introduction Ֆ Process Of Strategic Management – Basic Model Ֆ Role Of Strategists Ֆ Mintzberg’s Modes Of Strategic Decision Making Ֆ Strategic Management In India Ֆ Summary Ֆ Self Assessment Questions Ֆ Activities Ֆ References Learning Objectives After reading this lesson you should be able to Ֆ Describe the strategic management process Ֆ Know the role of different persons in an organization in strategy making Ֆ Explain Mintzberg’s modes of executive decision making Ֆ Appreciate the initiatives taken by corporate in India for effective strategy management Once there were two company presidents who competed in the same industry. These two presidents decided to go on a camping trip to discuss a possible merger. They hiked deep into the woods. Suddenly, they came upon a grizzly bear that rose up on its hind legs and snarled. Instantly, the first president took off his knapsack and got out a pair of jogging shoes. The second president said, “Hey, you can’t outrun that bear. The first president responded, ” May be I can’t outrun that bear but I surely can outrun you!” (Fred R. David, 2003,p.5) This story captures the notion of strategic management, which is to achieve and maintain competitive advantage. How do business or-
ganizations operate successfully in the changing business environment? Strategic management has evolved as a primary value in helping organi- zation operate successfully in a dynamic, complex environment. Even the most successful Fortune 500 companies would accept that it is defi- nitely not by following traditional ways of doing business. Most successful companies like General Electric have found in- ternet mentors to tutor their managers to world wide web. The company has launched its financial network www.gefn.com in the year 2000 for its consumers. Launch of Apna PC is a strategic decision. The leader in PC busi- ness HCL Info systems has launched one PC below Rs.10, 000 (its sticker price is Rs.9, 990). It has committed to manufacture one million of them every year and expand its dealer network from 800 to 3,000. This strat- egy is to tap the small businesses and lower income classes in urban and rural India. BHEL for example uses strategic management to create or modify its long-range plans, which range from 5 to 20 years. Process of Strategic Management Strategic management consists of four basic elements. Ֆ Environmental scanning Ֆ Strategy formulation Ֆ Strategy implementation Ֆ Evaluation and control Figure 2. 1 shows simply how these elements interact. Figure 2 .2 ex- pands each of these elements and serves as the model Environmental Scanning is the monitoring, evaluating, and dis- seminating of information from the external and internal environments to key people within the corporation. Its purpose is to identity strategic factors – those external and internal elements that will determine the future of the corporation. The external environment consists of variables (Opportunities and Threats) that are outside the organization and not typically within the short-run control of top management. These variables form the con- text within which the corporation exists.