Strategic_Management

Topics Covered…  Evolution  Why Strategic Planning  Nature & Scope  Difference between Strategic Decision, Administrative Decision, Operational Decision The Evolution of Strategic Planning  Planning had all along been a part and parcel of the business activity  Irrespective of size of business – planning is essential. E.g. To achieve a Common objective of “Profit”  Over a time, the planning task was becoming increasingly complex  Every time new factors entered and pose new challenge Evolution of S.P. a) Contd… Strategic planning and modern industrial system evolve hand in hand  Each milestone in the growth of the industrial system has constituted a distinct step in the evolution of the strategic planning discipline  Modern industrial history commenced with the beginning of the nineteenth century.  The first three decades of the twentieth century constituted the mass production era in the history of modern business  During this stage, planning centred around maximizing production (Mass Production) and sales and reaping the benefits of high volumes made possible by automation. Big volumes, low price and standardized products assuring good profits Evolution of S.P. b) Phase of major environmental change Contd…  From 1930’s, there was intense environmental trouble  Change in technology, political environment and government policies  Mass production had lost their merit  Slogan of low price replaced by novelty at high price, production differentiation, market segmentation, pramotion, etc. Evolution of S.P.  Firm had large choice for investment Contd…  Investment decisions were becoming increasingly difficult  Profits were no longer assured  Assessing attractiveness and risk of different industries became crucial requirement  Shift from internal orientation to external orientation  Firms had to anticipate environmental trends  Top management left all production, sales, purchase decisions for lower management and spent time on studying environment. Evolution of S.P. c) Contd… Still faster changes in environment amounting to ‘discontinuity’  Managing the environment becomes the crucial function Evolution of S.P. d) Contd… It was environmental changes that compelled firms to approach the management task with a strategic perspective  Changes in technology  Proliferation of new products  Faster commercialization of new product ideas and patents  Business boundaries getting blurred due to the overarching technologies  Socio-political changes  Governments becoming bargainers in the conduct of business  Emergence of global markets  Emergence of global firms  Emergence of global brands  The new affluence of the consumer  The changing tastes and preferences of the consumer. New demands the firms had to face, consequent to the environmental changes  To be strategically alert  To be future-oriented  To be able to take risks in tapping opportunities  To be insulated against environmental threats  To develop the competence for assimilating changes faster  To respond effectively and more economically  To grow big  To be able to generate large resources  To gain expertise in technology, marketing and decision support systems. Strategic planning takes shape as a Vital Management Function  Business firms needs to develop a body of knowledge, by using which it could exploit environmental opportunities and limit adverse effects of environmental threats.  But there was inadequate knowledge base and organizational capabilities  Capital investment / Capital Budgeting Decisions were now insufficient to take care of business planning.  So, knowledge base and organizational capabilities had to be improve to take product-market decisions in right way. Strategic planning takes shape as a Vital Management Function  This challenging task was taken differently by different countries.  Cumulative efforts of mgt. schools, consultancy organizations & Mgt. authors gave rise to “Strategic Planning”  The Subject has acquired different nomenclature like business policy, corporate strategy, strategic management, strategic business planning, etc.  But all of them denote one same subject, which deals with Top Management function of formulating growth strategy. How experts view the subject  Peter Drucker, the well known management guru says in his well known book The Practice of Management, …… we cannot be content with plans for a future that we can foresee. We must prepare for all possible and good many impossible contingencies. We must have a workable solution for anything that may come up….  Alfred Chandler, the author of Strategy and Structure says……. ….business planning is concerned with the determination of the basic long term goals and objectives of an enterprise, and the adoption of course of action and allocation of resources necessary for carrying out these goals…. How experts view the subject  George Steiner in his book Strategic Planning,Text and Cases says, …. business planning refers to the formulation of basic organizational missions, purposes and objectives; policies and programmes to achieve them; and the methods needed to achieve organizational ends…one framework for formulating and implementing strategies in the formal strategic planning process….  The Consensus of Views of all above expert covers:  Purposes and missions  Corporate objectives  Choice of business  Courses of action for achieving the objectives WHY STRATEGIC PLANNING '''  Strategic planning provides the route map for the firm  It makes it possible for the firm to take decisions concerning     the future with a greater awareness of their implications Strategic planning also serves as a hedge against uncertainty Strategic planning also helps the firm understand trends better, thereby making available the benefit of a lead time for taking crucial decision and actions Strategic planning ensures optimum utilization of scare resources Strategic planning offers a methodology for future projection. Importance of Strategic Planning  Strategic planning provides the framework for all the major     business decisions of an enterprise- like business, productmarkets, manufacturing facilities, investment & organizational structure. Strategic planning also works as Path finder & Corporate Defense Mechanism Strategic planning provides corporation with certain core competencies and competitive advantage for its survival & growth. It’s not only forecasting future but ensures good future of the firm. The success of the efforts and activities of the enterprise depends heavily on quality of Strategic Planning Nature and Scope of strategic planning  Serves as a route map for the corporation  Lends a framework for systematic handling of corporate     decisions Lays down growth objectives of the firm and also provides strategies needed for achieving them Ensures that the firm’s business, products and markets are chosen wisely Ensures best utilization of the firm’s resources among the product-market opportunities Serves as a hedge against uncertainty arising from environmental turbulence Nature and Scope of strategic planning  Helps the firm understand trends in advance and provides the       benefit of a lead time for taking crucial decisions and actions Helps avoid haphazard response to environment Provides the best possible fit between the firm and the external environment Helps build competitive advantages and core competencies Draws from both intuition and logic Prepares the firm to not only face the future but even shape the future in its favour Seeks to influence the firm’s mega environs in its favour, working into the environs and shaping it. Strategic Planning is concerned with…  Future - long-term dynamics is its concern; not day-to-day tasks  Growth - direction, extent, pace and timing of growth  Environment - the fit between the business and its environment  Portfolios of business - product-market scope and postures Strategic Planning is concerned with…  Strategy - strategy is its concern; not the operational activities  Integration - integration is its concern; not a particular function  Creating core competencies/competitive advantages - creating long-term, sustainable organizational capability is its concern  Corporate strategy - in one word, corporate strategy is its concern Strategic decisions, Administrative decisions and operational decisions Strategic decisions are a class apart from administrative and operational decisions in their nature and implications and are also most difficult to handle. The major differences between strategic decisions and other types of decisions are listed below:  Strategic decisions do not surface on their own; strategic planners/top managers have to discern what strategic decisions are needed; other decisions normally surface on their own.  Strategic decisions deal with the growth of the corporation. Accordingly, they have a long-range focus. Other decisions do not handle corporate growth as such. Operational decisions are routine ones. Administrative decisions, though not routine, are by and large patterned after existing practices in the corporation.  Administrative and operational decisions are concerned with issues that are essentially internal. Matters which are purely internal to the firm form the subject matter of operational decisions; administrative decisions, too, generally tackle internal issues relating to structure, systems and staffing. As a total contract, strategic decisions pertain to the relation between the firm and its environment and, therefore, are concerned more with external issues.  Administrative and the operational decisions do not touch the basic characteristics of the business of the firm. The decisions at these levels accept the business, the products, markets, production facilities, etc., as they are. The endeavour is to use them as effectively as possible in tackling problems. Strategic decisions on the other hand seek to alter, as found necessary, the basic characteristics of the business.  Strategic decisions involve intricate processed, external studies and analysis as they tackle long-term issues. Strategic decisions always need the support of external data / original information. Administrative and operational decisions generally need only internal information.  Operational and administrative decisions can be altered when necessary at minimal cost and without causing much damage to the corporation. But in the case of strategic decisions, change has major implications. Since strategic decisions have far-reaching consequences to the well-being of the firm, errors in these decisions turn out to be very costly to the firm.  The impact of operational / administrative decisions is measurable and to some extent known in advance to those who take these decisions. But the consequences of strategic decisions are neither measurable not discernible in advance.  In the matter of frequency, too, strategic decisions differ from other categories. While operational / administrative decisions are taken frequently, the occasions for strategic decisions are few and far between. Again, while the former are repetitive, the latter are non-repetitive. The same issue and context normally does not recur in the case of strategic decisions.  Strategic decision-making is the responsibility of the top management. By their very nature, these decision are centralized, whereas the others are decentralized decisions. Thank You…