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Management - II
Introduction to Strategic Management

• Unit5

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Course Contents

1. Management by Objective (MBO)
2. How Strategic and Operational plans differ
3. The evaluation of concept of Strategy
4. Levels of Strategy Some key distinctions
5. The Contents of a corporate Strategy

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• Strategy The broad program for defining and
  achieving an organizations objective the
  organizations response to its environment over
  time.
• Strategy is the direction and scope of an
  organization over the long term, which achieves
  advantage in a changing environment through its
  configuration of resources and competencies for
  fulfilling stakeholders expectations.

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Strategy is about

• Where is the business trying to get to in the
  long-term (direction)
• Which markets should a business compete in and
  what kind of activities are involved in such
  markets? (markets scope)
• How can the business perform better than the
  competition in those markets? (advantage)?
• What resources (skills, assets, finance,
  technical competence, facilities) are required in
  order to be able to compete? (resources)?
• What external, environmental factors affect the
  businesses' ability to compete? (environment)?
• What are the expectations of those who have power
  in and around the business? (stakeholders)

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Management by Objectives (MBO) 

• A formal set of procedures that establishes and
  reviews progress towards common goals for
  managers and subordinates.
• The term "management by objectives" was first
  popularized by Peter Drucker in his 1954 book
  'The Practice of Management
• Drucker insisted that managers and staff members
  set their own objectives or at least be actively
  involved in the objective-setting process,
  otherwise people might refuse to cooperate or
  make only half-hearted efforts to implement
  someone elses objectives

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Elements of the MBO System

• MBO System can vary widely, some are designed for
  subunit, some in the organization as a whole,
  some emphasis corporate planning, some stress
  individual motivation, But the mainly shared the
  following six elements.
• Commitment to Program
• At every organizational level it involves
  managers commitment to achieve personal and
  organizational objectives
• 2. Top level goal setting
• This gives a clear idea to both managers and
  staff members of what top managements hope to
  accomplish and show them how their own work
  directly relates to achieving the organization's
  goal

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Elements of the MBO System

• 3. Individual Goals
• Each manager and staff members should have
  clearly defined job responsibilities and
  objective in order to know the what they are
  expected to accomplish.
• 4. Participation
• The participation of both managers and employees
  in the setting goal, goals is more likely to be
  achieved
• 5. Autonomy in implementation of Plans
• An individual should have liberty to choose the
  means for achieving the objectives
• 6. Performance Review
• Managers and Employees periodically meet to
  review progress toward the objectives

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Advantages of Management by Objective

• MBO ensures Goal Clarity.
• MBO integrates the efforts of everybody.
• MBO Involves continuous communication resulting
  in to co - ordinated efforts and cohesive
  environment.
• The participative approach in goal setting
  motivates the employees
• Enhance the commitment towards activities.
• MBO practice eliminates the overlaps in the
  efforts and plugs the gaps in the assignment.

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Disadvantages of Management by Objective

• MBO undermines the importance of external
  environment on the outcomes.
• MBO ignores the overall organization culture.
• It compares the actual outcome with the ideal
  objections. Corporate team tends to chart out
  higher goals which the average performance tend
  to be lower. Such situation results in to
  frustration and dissatisfaction among employees.
• High targets through whatever means necessary
  including the scarifies of quality.

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Disadvantages of Management by Objective

• despite the participative goal setting, the
  actual performance tends to be closure to
  mediocre level.
• It considers goals as a basis for outcomes but
  there is no limit to outcomes of the excellent
  personnel.

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How Strategic and Operational Plans Differ
Basis Strategic Plan Operation Plan
Definition Strategic Plan is a document approved by higher management about programmes that the organization will undertake along with allocation of resources over 7 to 8 years. Operation plan is an annual budget formulated by the operating managers in line with the expectations outlined in the strategic plan.
Time Horizon Are long term plan and prepared for several years like 8 to 10 years or even ahead of decades Are short term and usually prepared on yearly basis
Scope Are broad and which become the basis of all the activities of the organization Developed on the basis of Strategic Plan.
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How Strategic and Operational Plans Differ
Basis Strategic Plan Operation Plan
Degree of details Strategic Plan are general and generic. They do not involve more details. Operation plan are more detailed
Analytical frame work Are general tendencies of the expectations of the higher level management Are more clear in terms of output numbers, cost standards, close monitoring etc.
Management functions relationship Focuses on Planning, Organizing Directing More emphasis on Controlling function of management.
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How Strategic and Operational Plans Differ
Basis Strategic Plan Operation Plan
Statement of Plans Are stated in terms of long term Mission and Objectives Are Stated in terms of short term budget targets
Formulation Are formulated by the corporate Managers Are prepared by the operating managers
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The Evolution of the Concept of Strategy

• The term Strategy has been derived from the Greek
  work Strategia , which means generalship or art
  and science of directing military forces.
• The Greeks knew that the strategy was not about
  only fighting battles its beyond that (directing,
  controlling, motivating, managing etc. )
• Without strategy the organization is ship without
  rudder, going around in circles
• A firm without strategy is like a Columbus, when
  he went to discover America

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Strategic Management

• The management process that involves an
  organizations engaging in strategic planning and
  then acting on those planning
• The Strategic management process mainly focuses
  upon two things
• Strategic planning
• Strategy implementation

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Strategic Management Process

Goal Setting
Strategic Planning
Strategy Formulation
Administration
Strategic Implementation
Administration
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Levels of Strategies
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Corporate level Strategy

• Strategy formulated by top management to oversee
  the interest and operation of the multiple
  corporation
• What kind of business should the company be
  engaged in ?
• What are the goals and expectations for each
  businesses ?
• How should resources be allocated to reach these
  goals ?

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Corporate level Strategy

• Corporate strategies would guide to the
  organization about in what kind of business
  should it enter or not enter (boundary maker).
• E.g.
• Reliance Group, Tata Group, BGKV

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Business unit level Strategy

• Strategy formulated to meet the goals of
  particular business also called line of business
  strategy.
• How would business compete within its market ?
• What product/services should it offer ?
• Which customer does it seek to serve ?
• How will resources be distributed within the
  business ?

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Types of Business unit level Strategy
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Functional level Strategy

• Strategy formulated by a specific functional area
  in an effort to carry out business unit strategy.
• What should be the marketing plans ?
• How many persons should be hired ?
• How much should we spend upon RD
• How much production should we do in the next
  quarter ?

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The Content of a Corporate Strategy

• Corporate strategy decides organizations place
  in the future.
• It is also an idea about how people at an
  organization will interact with people at other
  organization over time, so it guides people in
  their day-to-day work over an extended period of
  time.

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Product Life Cycle
Sales and Profits ()
Sales
Profits
Time
Product Develop- ment
Introduction
Growth
Maturity
Decline
Losses/ Investments ()
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Introduction Stage of the PLC
Low sales
Sales
Costs
High cost per customer
Profits
Negative
Create product awareness and trial
Marketing Objectives
Product
Offer a basic product
Price
Use cost-plus
Distribution
Build selective distribution
Advertising
Build product awareness among early adopters and
dealers
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Growth Stage of the PLC
Sales
Rapidly rising sales
Costs
Average cost per customer
Profits
Rising profits
Marketing Objectives
Maximize market share
Product
Offer product extensions, service, warranty
Price
Price to penetrate market
Distribution
Build intensive distribution
Advertising
Build awareness and interest in the mass market
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Maturity Stage of the PLC
Sales
Peak sales
Costs
Low cost per customer
Profits
High profits
Marketing Objectives
Maximize profit while defending market share
Product
Diversify brand and models
Price
Price to match or best competitors
Distribution
Build more intensive distribution
Advertising
Stress brand differences and benefits
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Decline Stage of the PLC
Sales
Declining sales
Costs
Low cost per customer
Profits
Declining profits
Marketing Objectives
Reduce expenditure and milk the brand
Product
Phase out weak items
Price
Cut price
Distribution
Go selective phase out unprofitable outlets
Advertising
Reduce to level needed to retain hard-core loyal
customers
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The Corporate Portfolio Approach

• Evaluation of the each business unit of an
  organization
• Appropriate strategic role is developed for each
  unit with the goal of improving the overall
  performance of the organization
• One of the best known example of corporate
  portfolio is the Portfolio framework advocated by
  Boston Consulting Group (BCG) its also know as
  BCG matrix
• BCG matrix mainly focuses upon 2 thing
• Market Share and
• Market Growth

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The BCG Matrix
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The BCG Matrix

• Question Marks
• It is a Business unit with a small market share
  but in rapidly growing market.
• Could be uncertain and expensive venture
• Require more cash in-flow to grab the market
  share
• E.g. Honda Brio

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The BCG Matrix

• Star
• Its a business unit with high growth high
  market share
• Need to go on investing in order to keep up with
  markets rapid growth
• E.g. Chevrolet Beat, Maruti Suzuki Swift

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The BCG Matrix

• Cash Cows
• Its a business unit with low growth but with
  high market share
• It's profitable and doesn't require much cash
  inflow
• E.g. Maruti Suzuki WagonR

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The BCG Matrix

• Dog
• Here the business unit is having low growth and
  low market share
• Its slowly growing or stagnant market.
• E.g. Maruti Suzuki 800

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Five Forces Corporate Strategy

• Its a well known approach to corporate strategy
  is Michael Porters five forces model.
• According to Porter an organizations ability to
  compete in a given market is determined by that
  organizations technical and economic resources,
  as well as by five environmental forces, each
  of which threaten organizations venture in new
  market.

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Threats of New Entrants

• Barriers to entry measure how easy or difficult
  it is for new entrants to enter into the
  industry. This can involve for example
• Cost advantages (economies of scale, economies of
  scope)Access to production inputs and financing,
• Government policies and taxation
• Production cycle and learning curve
• Capital requirements
• Access to distribution channels
• Patents, branding, and image also fall into this
  category.

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Threat Of Substitutes

• Every top decision maker has to ask How easy
  can our product or service be substituted? The
  following needs to be analyzed
• How much does it cost the customer to switch to
  competing products or services?
• How likely are customers to switch?
• What is the price-performance trade-off of
  substitutes?
• If a product can be easily substituted, then it
  is a threat to the company because it can compete
  with price only.

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Bargaining Power Of Buyers

• Now the question is how strong the position of
  buyers is. For example, can customers work
  together to order large volumes to squeeze your
  profit margins? The following is a list of other
  examples
• Buyer volume and concentration
• What information buyers have
• Competitive price
• How loyal are customers to your brand
• Price sensitivity
• Threat of backward integration
• How well differentiated your product is
• Availability of substitutes

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Bargaining Power Of Suppliers

• This relates to what your suppliers can do in
  relationship with you.
• How strong is the position of sellers?
• Are there many or only few potential suppliers?
• Is there a monopoly?
• Do you take inputs from a single supplier or from
  a group? (concentration)
• How much do you take from each of your suppliers?
• Can you easily switch from one supplier to
  another one? (switching costs)
• If you switch to another supplier, will it affect
  the cost and differentiation of your product?

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Competitive Rivalry

• In this, we have to analyze the level of
  competition between existing players in the
  industry.
• Is one player very dominant or all equal in
  strength/size?
• How fast does the industry grow?
• How is the industry concentrated?
• How do customers identify themselves with your
  brand?
• Is the product differentiated?
• How well are rivals diversified?

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Thank You