Monday, April 25, 2011

Strategic Management In short

                            Strategic Management in 10 minutes 

Mission: Defines the fundamental purpose of an organization or an enterprise, succinctly describing why it exists and what it does to achieve its Vision.It is sometimes used to set out a 'picture' of the organization in the future. A mission statement provides details of what is done and answers the question: "What do we do?" For example, the charity might provide "job training for the homeless and unemployed"

Developing a Mission Statement

1. Basically, the mission statement describes the overall purpose of the organization.
2. If the organization elects to develop a vision statement before developing the mission statement, ask “Why does the image, the vision exist -- what is it’s purpose?” This purpose is often the same as the mission.
3. Developing a mission statement can be quick culture-specific, i.e., participants may use methods ranging from highly analytical and rational to highly creative and divergent, e.g., focused discussions, divergent experiences around daydreams, sharing stories, etc. Therefore, visit with the participants how they might like to arrive at description of their organizational mission.
4. When wording the mission statement, consider the organization's products, services, markets, values, and concern for public image, and maybe priorities of activities for survival.
5. Consider any changes that may be needed in wording of the mission statement because of any new suggested strategies during a recent strategic planning process.
6. Ensure that wording of the mission is to the extent that management and employees can infer some order of priorities in how products and services are delivered.
7. When refining the mission, a useful exercise is to add or delete a word from the mission to realize the change in scope of the mission statement and assess how concise is its wording.
8. Does the mission statement include sufficient description that the statement clearly separates the mission of the organization from other organizations?

Vision Defines the desired or intended future state of an organization or enterprise in terms of its fundamental objective and/or strategic direction. Vision is a long term view, sometimes describing how the organization would like the world in which it operates to be. For example a charity working with the poor might have a vision statement which read "A world without poverty"

Developing a Vision Statement

1. The vision statement includes vivid description of the organization as it effectively carries out its operations.
2. Developing a vision statement can be quick culture-specific, i.e., participants may use methods ranging from highly analytical and rational to highly creative and divergent, e.g., focused discussions, divergent experiences around daydreams, sharing stories, etc. Therefore, visit with the participants how they might like to arrive at description of their organizational vision.
3. Developing the vision can be the most enjoyable part of planning, but the part where time easily gets away from you.
4. Note that originally, the vision was a compelling description of the state and function of the organization once it had implemented the strategic plan, i.e., a very attractive image toward which the organization was attracted and guided by the strategic plan. Recently, the vision has become more of a motivational tool, too often including highly idealistic phrasing and activities which the organization cannot realistically aspire.

Values:  Beliefs that are shared among the stakeholders of an organization. Values drive an organization's culture and priorities and provide a framework in which decisions are made. For example, "Knowledge and skills are the keys to success" or "give a man bread and feed him for a day, but teach him to farm and feed him for life". These example values may set the priorities of self sufficiency over shelter.

Developing a Values Statement

1. Values represent the core priorities in the organization’s culture, including what drives members’ priorities and how they truly act in the organization, etc. Values are increasingly important in strategic planning. They often drive the intent and direction for “organic” planners.
2. Developing a values statement can be quick culture-specific, i.e., participants may use methods ranging from highly analytical and rational to highly creative and divergent, e.g., focused discussions, divergent experiences around daydreams, sharing stories, etc. Therefore, visit with the participants how they might like to arrive at description of their organizational values.
3. Establish four to six core values from which the organization would like to operate. Consider values of customers, shareholders, employees and the community.
4. Notice any differences between the organization’s preferred values and its true values (the values actually reflected by members’ behaviors in the organization). Record each preferred value on a flash card, then have each member “rank” the values with 1, 2, or 3 in terms of the priority needed by the organization with 3 indicating the value is very important to the organization and 1 is least important. T

Environmental scanning

Environmental scanning is one of four activities comprising external analysis.External analysis is the broader activity of understanding the changing external environment that may impact the organization.Merged with internal analysis of the organization's vision, mission, strengths, and weaknesses, external analysis assists decisionmakers in formulating strategic directions and strategic plans.
The goal of environmental scanning is to alert decisionmakers to potentially significant external changes before they crystallize so that decisionmakers have sufficient lead time to react to the change. Consequently, the scope of environmental scanning is broad.

PEST Analysis

A scan of the external macro-environment in which the firm operates can be expressed in terms of the following factors:
•        Political
•        Economic
•        Social
•        Technological
The acronym PEST (or sometimes rearranged as "STEP") is used to describe a framework for the analysis of these macroenvironmental factors. A PEST analysis fits into an overall environmental scan as shown in the following diagram:

Environmental Scan
/           \
External Analysis     Internal Analysis
/                       \
Macroenvironment        Microenvironment

Political Factors
Political factors include government regulations and legal issues and define both formal and informal rules under which the firm must operate. Some examples include:
•        tax policy
•        employment laws
•        environmental regulations
•        trade restrictions and tariffs
•        political stability

Economic Factors
Economic factors affect the purchasing power of potential customers and the firm's cost of capital. The following are examples of factors in the macroeconomy:
•        economic growth
•        interest rates
•        exchange rates
•        inflation rate

Social Factors
Social factors include the demographic and cultural aspects of the external macroenvironment. These factors affect customer needs and the size of potential markets. Some social factors include:
•        health consciousness
•        population growth rate
•        age distribution
•        career attitudes
•        emphasis on safety

Technological Factors
Technological factors can lower barriers to entry, reduce minimum efficient production levels, and influence outsourcing decisions. Some technological factors include:
•        R&D activity
•        automation
•        technology incentives
•        rate of technological change

External Opportunities and Threats
The PEST factors combined with external microenvironmental factors can be classified as opportunities and threats in a SWOT analysis..

Porter's Generic Strategies

If the primary determinant of a firm's profitability is the attractiveness of the industry in which it operates, an important secondary determinant is its position within that industry. Even though an industry may have below-average profitability, a firm that is optimally positioned can generate superior returns.
A firm positions itself by leveraging its strengths. Michael Porter has argued that a firm's strengths ultimately fall into one of two headings: cost advantage and differentiation. By applying these strengths in either a broad or narrow scope, three generic strategies result: cost leadership, differentiation, and focus. These strategies are applied at the business unit level. They are called generic strategies because they are not firm or industry dependent. The following table illustrates Porter's generic strategies:

Target Scope
Low Cost
Product Uniqueness

(Industry Wide)
Cost Leadership

(Market Segment)

(low cost)


Cost Leadership Strategy

This generic strategy calls for being the low cost producer in an industry for a given level of quality. The firm sells its products either at average industry prices to earn a profit higher than that of rivals, or below the average industry prices to gain market share. In the event of a price war, the firm can maintain some profitability while the competition suffers losses. Even without a price war, as the industry matures and prices decline, the firms that can produce more cheaply will remain profitable for a longer period of time. The cost leadership strategy usually targets a broad market.
Firms that succeed in cost leadership often have the following internal strengths:
•        Access to the capital required to make a significant investment in production assets; this investment represents a barrier to entry that many firms may not overcome.
•        Skill in designing products for efficient manufacturing, for example, having a small component count to shorten the assembly process.
•        High level of expertise in manufacturing process engineering.

Differentiation Strategy

A differentiation strategy calls for the development of a product or service that offers unique attributes that are valued by customers and that customers perceive to be better than or different from the products of the competition. The value added by the uniqueness of the product may allow the firm to charge a premium price for it. The firm hopes that the higher price will more than cover the extra costs incurred in offering the unique product. Because of the product's unique attributes, if suppliers increase their prices the firm may be able to pass along the costs to its customers who cannot find substitute products easily.
Firms that succeed in a differentiation strategy often have the following internal strengths:
•        Access to leading scientific research.
•        Highly skilled and creative product development team.
•        Strong sales team with the ability to successfully communicate the perceived strengths of the product.
•        Corporate reputation for quality and innovation.
The risks associated with a differentiation strategy include imitation by competitors and changes in customer tastes. Additionally, various firms pursuing focus strategies may be able to achieve even greater differentiation in their market segments.

Focus Strategy

The focus strategy concentrates on a narrow segment and within that segment attempts to achieve either a cost advantage or differentiation. The premise is that the needs of the group can be better serviced by focusing entirely on it. A firm using a focus strategy often enjoys a high degree of customer loyalty, and this entrenched loyalty discourages other firms from competing directly.
Because of their narrow market focus, firms pursuing a focus strategy have lower volumes and therefore less bargaining power with their suppliers. However, firms pursuing a differentiation-focused strategy may be able to pass higher costs on to customers since close substitute products do not exist.
Firms that succeed in a focus strategy are able to tailor a broad range of product development strengths to a relatively narrow market segment that they know very well.
Some risks of focus strategies include imitation and changes in the target segments. Furthermore, it may be fairly easy for a broad-market cost leader to adapt its product in order to compete directly. Finally, other focusers may be able to carve out sub-segments that they can serve even better.

A Combination of Generic Strategies
- Stuck in the Middle?
These generic strategies are not necessarily compatible with one another. If a firm attempts to achieve an advantage on all fronts, in this attempt it may achieve no advantage at all. For example, if a firm differentiates itself by supplying very high quality products, it risks undermining that quality if it seeks to become a cost leader. Even if the quality did not suffer, the firm would risk projecting a confusing image. For this reason, Michael Porter argued that to be successful over the long-term, a firm must select only one of these three generic strategies. Otherwise, with more than one single generic strategy the firm will be "stuck in the middle" and will not achieve a competitive advantage.
Porter argued that firms that are able to succeed at multiple strategies often do so by creating separate business units for each strategy. By separating the strategies into different units having different policies and even different cultures, a corporation is less likely to become "stuck in the middle."
However, there exists a viewpoint that a single generic strategy is not always best because within the same product customers often seek multi-dimensional satisfactions such as a combination of quality, style, convenience, and price. There have been cases in which high quality producers faithfully followed a single strategy and then suffered greatly when another firm entered the market with a lower-quality product that better met the overall needs of the customers.

Corporate Strategy

will ask you to answer fundamental questions such as "Why are you in business?" and "Why are you in this particular business?". This may appear to be a strange starting point but unless you can answer these type of questions you cannot produce vision statements and mission statements that have any real meaning. Corporate coaching may produce a business plan as a summary document but that is almost incidental.
You have made a variety of choices during your life and have arrived at where you are now.
•        Are you content with where you are?
•        Do you know where you are?
•        Do you know where to go next?
•        Do you know why you want to go there?
•        Do you know how to get there?
Strategic thinking is not easy with most people reverting to tactical thinking instead. Adopting a micro-management approach will not answer the challenges you face. You will need to take a step back and look at the big picture, notice where you are performing well, notice what your competitors are doing.
Most attempts at strategic planning fail because the strategic planning models used have been developed by academics and are based on what other businesses have done in the past. The strategies adopted by a manufacturing company twenty years previously are of marginal use to a service provider operating in an era of improved technology and communications.
Unfortunately most corporate executives look on corporate strategy as just another task that must be repeated periodically. The result is either an unprofessional strategy or a strategy that is bound to fail because it does not take account of reality. In the end a lot of strategic planning fails because of incompetence or indifference on the part of those responsible for the strategic plan.

Functional strategy
It is important that an organization periodically (at least annually, usually as part of the medium-term planning process) review all functional strategies to assure that they are:

    Consistent with the business strategy
    Supportive of the business strategy
    Consistent with other functional strategies
    Supportive of other functional strategies
    Best utilize the organizations strengths
    Lead to the level of efficiency and effectiveness desired
    Create or maintain functional competitive advantages, if desired
    Are within the organization's resource constraints

Each organization may contain a variety of functional areas, however, the following represent what are usually the most significant functional areas of concern regarding strategy.

      Finance and Accounting: Functional Strategies
    Human Resources: Functional Strategies
    Information Systems: Functional Strategies
    Marketing: Functional Strategies
    Production/Operations: Functional Strategies
    Research & Development: Functional Strategies

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