Strategic management

1. Strategic management Presented by S. M. Gumbe

2. What is strategic management? • There are many definitions of strategic management including: • David’s (1999) : “the art and science of formulating, implementing, and evaluating cross functional decisions that enable an organization to achieve its objectives. • Wheelen and Hunger’s (1988): “that set of managerial decisions and actions that determines the long-run performance of a corporation”

3. Harvey (1982) : “the process of formulating, implementing and evaluating business strategies to achieve future goals.” • Therefore it can be concluded as a process that concerns itself with the long term survival of a business • Process implies it is continuous i.e. is not an event • Follows a logical pattern i.e. follows set steps

4. Benefits • It provides long-term direction in planning- thus an organisation takes hold of its future through being pro-active • It helps the organisation in adapting to an increasing rate of change- this is because it involves constantly scans the environment • In gaining competitive advantage in a high-risk environment and • Achieving a more effective organisation

5. Provides the organisation members with clear direction as seen through the vision, mission statement and objectives.

6. Characteristics of successful firms • Anticipative and future oriented • Have Strategic Plan • Their culture fits well with the strategy • Have flexible strategies

7. Losers’ characteristics • Reactive and stay with one strategy. • Fail to plan • Have an inappropriate culture • Slow to meet changing conditions

8. Strategists in organisations: • The board of directors- play the role of approving strategies recommended to them by top management. • Top management- plays the role of crafting corporate strategies • SBU managers • Functional heads- craft the functional strategies • Corporate planning staff

9. What is strategy? • It refers toactions by a manager to offset actual or potential moves of competitors. • It is therefore a comprehensive, and integrated plan that relates the strategic advantages of the firm to the challenges of the environment. • It is designed to ensure that the basic objectives of a firm are achieved through proper execution by the organisation.

10. Characteristics of effective strategy • Clear, decisive objectives-ensure the continued viability and vitality of the entire organisation vis-à-vis its opponents. • High encouragement of workers’ initiative-it must preserve freedom of action which subsequently leads to enhanced commitment on the part of the implementing organisational members. • Concentration on strategically vantage points-strategy must define what will make the enterprise superior or “best” in competitive advantage.

11. Flexible- strategy must build-in resource buffers and dimensions for flexibility and maneuver to allow continued viability of the firm keeping opponents at a relative disadvantage. • Coordinated and Committed leadership- specifically ensuring that each divisional or departmental head is aware of the strategy and the guiding policies and procedures.

12. Surprise- makes use of speed, secrecy, and intelligence to attack exposed or unprepared opponents at unexpected times. • Security- should secure resource bases and all vital operating points and links for the enterprise. • must be supported by an effective intelligence/research system.

13. Test for effective strategy • The Goodness of fit Test- a good strategy is well matched to the company’s situation both externally and internally. • The Competitive Advantage Test- a good strategy leads to sustainable competitive advantage. • 3. The Performance Test- a good strategy boosts a company’s performance as seen through profitability.

14. Strategic management process • Strategy formulation process/Crafting strategy- • Establishing a vision • Establishing a mission • Carrying out a firm’s situational analysis • Setting objectives • Selecting strategy to pursue

15. Strategy implementation The 7S Model- • Strategy • Structure • Systems • Style • Staff • Shared values • Skills

16. Strategy Control • Methods applied to assess the extent to which adopted strategy has been effective and taking corrective measures

17. Strategy crafting- the approaches • the process varies from firm to firm due to firm size and managers • In smaller firms it is the responsibility of the owner • In larger firms where it is documented it depends with the management style- • Master strategist(architect) approach-manager acts as chief strategist and exercises great influence in the process

18. Delegate-it-to-others approach-the task is delegated to a special committee • Manager only offers assistance where it is required • Communication is through written reports and oral conversations • Weakness is that management lacks commitment in implementing adopted strategic plans and • Mainly focuses on short-term results rather than long-term

19. Collaborative approach- manager enlists the help of key subordinates in coming up with a consensus plan • Approach involves people hence has buy-in and commitment

20. The champion Approach- is a bottom-up approach. • Manager is not interested in leading the process or the detailed plan, but encourages subordinate managers to develop and implement sound strategies • Approach is more appropriate in diversified firms

21. Strategy crafting- the process • Setting a vision-a statement of hopes, aspirations, and/or wishes of the organisation’s future i.e. where the leadership would like the organisation to be in the future. • It is a clear and challenging statement that serves as a beacon and control of the organisation

22. It prepares for the future while honouring the past. • It empowers organizational members first, and then the clients as they can all see where the organization is going.

23. Vision Setting • What do we want to be in five, ten or twenty years’ time? • What do our capabilities lead us to be? • What does our market want us to be?

24. Effective Vision is: • - Leader Initiated • - Shared and Supported • - Comprehensive and Detailed • - Positive and Inspiring

25. Establishing a mission-an enduring statement of purpose that distinguishes an organisation from other similar organizations in the same industry. • A mission statement identifies the scope of an organisation’s operations in product/service and market terms.

26. What is our business? • What will it be? • What should it be?

27. Benefits of mission statement • Promotes and encourages unanimity within the organization • Provides a basis, or standard, for allocating organizational resources • Establishes a general tone or organizational climate/culture • Serves as a focal point for individuals to identify with the organisation’s purpose and direction

28. Facilitates the translation of objectives into a work structure • Specifies organisation purposes and translation of these purposes into objectives in such a way that cost, time and performance parameters can be assessed and controlled • Provides the general framework for the establishment of organizational policies.

29. Areas covered by mission statement • Products/Services • Markets • Technology • Concern for survival, growth, and fiscal viability • Self-concept • Concern for public image • Concern for people

30. Situational Analysis • External environmental analysis • Pestle analysis • Industry analysis: Competitor analysis • Porter’s five (5) forces model • Internal environmental analysis • SWOT ANALYSIS

31. Importance of analysis • This helps in understanding the conditions under which the business is operating • Also helps to develop effective ways of implementing the project

32. PESTE analysis • Political- refers to the laws and politics of country/globe • Economic- refers to the economic trends in the country/globe • Social- refers to the demographic trends in the country/globe • Technology-refers the technological trends in the country/globe • Ecology- focuses on the environmental issues/non-renewable factors

33. Industry analysis Use Porter’s Five Forces Model to assess the intensity of competition in the industry: • Threat of substitutes-products that can be used as alternatives • Power of buyers-how much bargaining power do they have? • Power of suppliers-how much bargaining power do they have? • Entry/exit barriers

34. Competitor analysis contd. • Intensity of rivalry-how intense is competition in the industry? • Industry competitive structure –the number and size of the distribution of companies. Structure can either be fragmented or consolidated • Demand conditions: • where there is demand, a company can increase revenue without taking market share away from other companies • where demand is declining companies fight to maintain revenue and market share.

35. Fragmented industry • have many small competitors and have structural factors that inhibit concentration. The reasons for the fragmentation may include: • Low barriers to entry • Highly specialized market for goods/services • High transportation costs • Lack of standardization • High need for trust and local firms often inspire more trust in their customers. • Book publishing, barbershops, restaurants

36. Concentrated industry • Where there are a few large firms that control the largest market share • Can collude in pricing, developing new products • May act as oligopolies

37. THE INTERNAL ENVIRONMENT • It includes the following:- • Structure • Resources • Culture- collection of beliefs expectations, and values shared by the corporation’s members and passed on from one generation of employees to another. • create norms (rules of conduct) that define acceptable behavior of people from top management to the low level employees. • Corporate culture shapes the behavior of people in the organization.

38. TYPES OF CULTURE • Power culture- typically found in small businesses. People share a belief in individuality and taking risks. Management should be an informal process with few rules and procedures. Control rests with few powerful figures. • Suitable in rapidly changing situations

39. Role culture- power of individuals rests on positions occupied in the hierarchy. Found in bureaucracies where there is high formalisation • Task culture- people focus on task/job. Brings together right people and resources. Strong belief in teamwork and expertise. Thrives on innovation

40. Person culture- people believe organisations exist to serve their personal interests. Management hierarchies and control mechanisms are by mutual consent and individuals have almost complete autonomy • Relies on motivation and inventiveness of individuals

41. Tough guy/macho culture- take high risks and receive quick feedback. Suitable where financial stakes are high and focus is on speed • Work hard/play hard culture- characterised by fun and action, employees take few risks but work is associated with quick feedback.

42. Organisations are highly dynamic and primary value is on customer satisfaction • Culture encourages games, meetings, promotions, etc. to maintain motivation • Bet- your- company culture- associated with taking high risk decisions but with slow decisions • Focus on future importance of investing in it • Culture results in high quality investments and scientific breakthroughs but moves slowly

43. Process culture- associated with low risk and slow feedback • Employees find it difficult to measure what they do, due to lack of feedback employees tend to focus on how they do something • Defender culture- organisations find change threatening. They become averse to change preferring security and continuity

44. Prospector culture- organisations thrive on change and flexible management styles and innovation • Analyser culture- organisations thrive on growth and market penetration • Organisations also plan their operations intensively

45. ANALYSING CULTURE • Member identity: the extent an individual identifies with the organisation as a whole rather than the job or field of expertise • Group emphasis: extent to which activities are centered around groups rather than individuals • People focus: extent to which management decisions take into account effect on employees • Unit integration:extent to which units are encouraged to work together

46. Control • Risk tolerance • Reward criteria:degree to which compensation is based on performance than seniority,favouratism, etc • Conflict tolerance

47. Means- end orientation • Open systems focus:extent to which an organization monitors and responds to changes in its external environment

48. THEREFORE A STRONG ORGANISATIONAL CULTURE IS ONE IN WHICH KEY VALUES(OF THE ORGANISATION) ARE INTERNALLY HELD AND WIDELY SHARED BY ALL IN THE ORGANISATION

49. Importance of culture • conveys a sense of identity for employees. • helps generate employees` commitment to something greater than themselves. • adds to the stability of the organization as a social system. • serves as a frame of reference for employees to make sense out of organizational activities and to use as a guide for appropriate behavior.

50. Structure • A formal arrangement of roles and relationships of people, so as to facilitate achievement of goals and accomplishing the mission of the corporation • Also referred to as the chain of command • Types of structures- functional, product and matrix vs. organic and mechanistic structures