Management- Theories and Practices

Week 5

Strategic Management and Planning

As chairman of Arab’s leading real estate development company, Mohammed Ali Alabbar has a goal of meeting the demand for quality houses and other properties in the region. As the company continues to expand rapidly , the greatest challenge is strategy implementation. One of his top managers says, “we have the vision and the strategy. The question is do we have skills across the organization to execute?” What do you think here?

The discount retail industry is good place to see what strategic management is about

Walmart and Kmart – 1962

What’s the difference?

When it comes to strategic management there are two types of planning included

• Synoptic

• Incremental

What is strategic management?

Encompasses all management functions

Organization strategies– what’s this?

Business model - will customer value what is being offered, will the company make money doing so?

Dell - sell through internet instead of retailers

Why is strategic management important?

Lets see….

Link between performance and SM – remember walmart and kmart

Dealing with uncertainty – how?

Organizations are big and complex – to coordinate

The SM process

Six steps and the diagram

The corporate strategies

Specifies where a business wants to be or businesses

Based on mission and goals

Role each business unit will play

Three main types of corporate strategy

Growth Stability Renewal

Lets see each of these ….

Growth:

Organization expand the number of markers / products offered either through current business or new businesses

Organizations grow by using concentration, vertical integration, horizontal integration, diversification

Concentration: increases markets or products offered Vertical integration: supplier/ seller e.g. ebay / apple retail stores Horizontal integration – taking competitor Diversification – related or unrelated business

Stability:

Corporate strategy in which an organization continues to do what it is currently doing.

Continue to serve same clients same product or service , maintaining market share, sustaining business operations

Org does not grow but does not fall behind either

e.g sales of candy and chocolate go down – cadbury maintaining things as they are (market share)

Renewal Strategies:

Incase of declining performance

Two main types – retrenchment and turn around

Retrenchment - short tem renewal strategy used for minor performance problems – stabilizing operations, revitalizing org resources, and prepare to compete again

Turnaround – more serious problems , more drastic action needed, cutting costs and restructuring org

How corporate strategies are managed?

What is SWOT Analysis?

Careful assessment – external and internal information

External – customers, govt reports, journals, suppliers, bankers, friends in other org, consultants, professional association

Internal – budgets, financial ratios, attitude surveys

Management and Organization

Marketing Human Resource

Management Quality Distribution Channels Employee Experience

Staff Quality Market share Education

Degree of centralization

Advertising efficiency Union Status

Organization charts Customer satisfaction Turnover, absenteeism

Planning information, Product Quality Work satisfaction

Control systems Service reputation Grievances

Sales force turnover

Finance ProductionResearch andDevelopment

Profit margin Plant location Basic applies research

Debt-equity ratio Machinery obsolescence Laboratory capabilities

Inventory ratio Purchasing System Research programs

Return on investment Quality control New-product innovations

Credit rating Productivity efficiency Technology innovations

• When org corporate strategy encompasses a number of businesses, managers can manage this collection or portfolio of businesses using a tool called a corporate portfolio mix.

• The first corporate portfolio mix – BCG matrix - was developed by BCG

• Idea was businesses could be evaluated using 2x2 matrix to identify which ones offered high potential and which were draining org resources

• Business unit is evaluated using SWOT analysis and placed in one of four categories

STARS QUESTION MARKS

CASH COWS DOGS

Anticipated growth rate

Low

High

Low High Market Share

Dogs – should be sold off or liquidated as they have low market share and potential

Milk cash cows – as much as they cab, limit new investment and use cash to invest in stars and questions marks

Stars- heavy investment because of high potential and market share

Question marks - hardest decision, sell or turn into stars

Lets do some class exercise

Class exercise:

Do a personal SWOT analysis. Assess your personal strengths and weaknesses (skills, talents, abilities). What are you good at? What are you not good at? What do you enjoy doing? What you don’t enjoy doing? Then, identify career opportunities and threats by looking at job prospects. Write a clear career action plan. Outline five year goals and what you need to do to achieve these goals

Competitive Strategies

How the organization will compete in its businesses

Small org – one business

Large org – businesses , primary or main market (in case of one business)

For each business , independence and formulation of competitive strategies for SBUs

What is competitive advantage ?

What factors can become CA?

• Examples

Ability to sustain CA

Why?

External environment …..

The porters five forces model

Potential of new entrants : capital requirement, economies of scale (industry differences why?)

Bargaining power of buyers: internet made shopping easy?

Bargaining power of suppliers: access to information

Threat of substitutes: low calorie sugar

Rivalry among competitors:

What to do now?

Differentiation:

Attempt to distinguish the firm’s products or services from others in the industry

The organization may use creative advertising, product features, exceptional service or technology to achieve a product perceived as unique

• It can reduce rivalry with competitors – loyalty • Reduce bargaining power of buyers because other products are

less attractive • Fight off threats of substitute • Create entry barriers

Cost leadership:

The organization aggressively seeks efficiency Pursues cost reductions Uses tight controls

Meaning thereby that company can undercut competitor’s prices and still offer same quality and earn profit too – the hotels

Low price as entry barrier Substitute and competition – better positioned

Focus:

Concentration on specific regional buyer or market

Can use differentiation or cost leadership but for narrow target market only

Use these strategies intelligently

Link to company’s overall mission

Few companies found that shifting to low cost strategy didn’t work out since their buyers loved them

for innovation thus differentiation

Two of them can be managed together too like cocacola did

What type of org characteristics you would see?

Strategy Organizational Characteristics

Differentiation Acts in a flexible, loosely knit way, with strong coordination among departments,Strong capability in basic researchCreative flair, thinks ”out of the box”Strong marketing abilities Rewards employee innovationCorporate reputation for quality or technological leadership

Cost Leadership

Strong central authority; tight cost controlsMaintains standard operating proceduresEasy-to-use manufacturing technologiesHighly efficient procurement and distribution systemsClose supervision, finite employee empowerment

Focus Frequent, detailed control reportsMay use combination of above policies directed at particular strategic targetValues and rewards flexibility and customer intimacyMeasure cost of providing service and maintaining customer loyaltyPushes empowerment to employee with customer contact

Functional Strategies

What is this?

At departmental/ functional level

New trends in Strategy

1. Strategic Flexibility

Why?

How?

2. Strategic Partnerships

What is this ?

Examples?

The Global Strategy

Globalization Strategy

• Treats world as a single global market• Standardizes global product / advertising strategies

Transnational Strategy

• Seeks to balance global efficiencies and local responsiveness• Combines standardization and customization for product / advertising strategies

MultidomesticStrategy

• Handles markets independently for each country• Adapts product/ advertising to local tastes and needs

ExportStrategy

• Domestically focused• Exports a few domestically produced products to selected countries

High

LowLow

High

Nee

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Need for National Responsiveness

Global Strategy: reap efficiencies by standard product design and manufacturing, common suppliers, eliminating overlapping facilities e.g. Gillette razors

Multidomestic: activities tailored to needs of market, reject the ideal of world as single market

Transnational: benefits of standardization, and tailoring to local needs e.g. cocacola version of traditional kvas in Russia has become fastest growing soft drink

Export:

Strategy Execution

Strategy formulation is easy, Execution is difficult

Six Silent Killers

Lets see diagram

Strategy

Top-down or laissez-faire senior management style

Unclear strategy and conflicting

priorities

An ineffective senior management

team

Poor vertical communication

Poor coordination across

functions, business, or borders

Inadequate down-the-line

leadership skills and development

Visible Leadership• Motivate people• Shape culture and values• Model desired behaviors

Candid Communication• Open lines of communication• Encourage debate• Be honest

Clear Roles and Accountability• Delegate authority and responsibility• Create teams• Define roles

Human Resources• Recruit employees• Manage transfers and promotions• Provide training

PerformanceStrategy

Class exercise :

Living large