Ch1 - Intro to Strategic Management Flashcards
What is strategy?
We may define the term ‘strategy’ as a long-range blueprint of an organization’s desired image, direction and destination, i.e., what it wants to be, what it wants to do, how it wants to do things, and where it wants to go.
What is Strategic Management ?
The term ‘strategic management’ refers to the managerial process of developing a strategic vision, setting objectives, crafting a strategy, implementing and evaluating the strategy, and initiating corrective adjustments were deemed appropriate.
The overall objective of strategic management is two-fold:
* To create competitive advantage, so that the company can outperform the competitors in order to have dominance over the market.
* To guide the company successfully through all changes in the environment.
Strategy is partly proactive and partly reactive. Comment.
A company’s strategy is typically a blend of:
♦ Proactive actions on the part of managers to improve the company’s market position and financial performance.
♦ Reactions to unanticipated developments and fresh market conditions in the dynamic business environment.
In other words, a company uses both proactive and reactive strategies to cope up the uncertain business environment. Proactive strategy is planned strategy whereas reactive strategy is adaptive reaction to changing circumstances.
Strategy is partly proactive and partly reactive. In proactive strategy, organizations will analyze possible environmental scenarios and create strategic framework after proper planning and set procedures and work on these strategies in a predetermined manner. However, in reality no company can forecast both internal and external environment exactly. Everything cannot be planned in advance. It is not possible to anticipate moves of rival firms, consumer behaviour, evolving technologies and so on.
There can be significant deviations between what was visualized and what actually happens. Strategies need to be attuned or modified in the light of possible environmental changes. There can be significant or major strategic changes when the environment demands. Reactive strategy is triggered by the changes in the environment and provides ways and means to cope with the negative factors or take advantage of emerging opportunities.
Objectives of strategic management
♦ To create competitive advantage (something unique and valued by the customer), so that the company can outperform the competitors in all aspects of organisational performance.
♦ To guide the company successfully through all changes in the environment.
That is to react in the right manner.
Importance of Strategic Management
or
Benefits
The major benefits of strategic management are:
♦ The strategic management gives a direction to the company to move ahead. It helps define the goals and mission. It helps management to define realistic objectives and goals which are in line with the vision of the company.
♦ Strategic management helps organisations to be proactive instead of reactive in shaping its future. Organisations are able to analyse and take actions instead of being mere spectators.
♦ Strategic management provides frameworks for all major decisions of an enterprise such as decisions on businesses, products, markets, manufacturing facilities, investments and organisational structure. It provides better guidance to entire organisation on the crucial point - what it is trying to achieve.
♦ Strategic management seeks to prepare the organisation to face the future and act as pathfinder to various business opportunities. Organisations are able to identify the available opportunities and identify ways and means to reach them.
♦ Strategic management serves as a corporate defence mechanism against mistakes and pitfalls. It helps organisations to avoid costly mistakes in product market choices or investments.
♦ Strategic management helps to enhance the longevity of the business. With the state of competition and dynamic environment it may be challenging for organisations to survive in the long run.
♦ Strategic management helps the organisation to develop certain core competencies and competitive advantages that would facilitate assist in its fight for survival and growth.
Limitations of Strategic Management
♦ Environment is highly complex and turbulent. It is difficult to understand the complex environment and exactly pinpoint how it will shape-up in future. The organisational estimate about its future shape may awfully go wrong and jeopardise all strategic plans. The environment affects as the organisation has to deal with suppliers, customers, governments and other external factors. Thus, relying on a business strategy blindly could go absolutely wrong if the environment is turbulent.
♦ Strategic management is a time-consuming process. Organisations spend a lot of time in preparing, communicating the strategies that may impede daily operations and negatively impact the routine business. Planning and strategizing are important but putting them in action is where the actual success lies.
♦ Strategic management is a costly process. Strategic management adds a lot of expenses to an organization. Expert strategic planners need to be engaged, efforts are made for analysis of external and internal environments devise strategies and properly implement. These can be really costly for organisations with limited resources particularly when small and medium organisation create strategies to compete. Strategic Management requires experts, and these experts are costly resources. Thus, the process as a whole required good amount of funds to be spent.
♦ In a competitive scenario, where all organisations are trying to move strategically, it is difficult to clearly estimate the competitive responses to a firm’s strategies. It is quite difficult to gauge the strategic planning of competitors because most of these decisions are taken within closed doors by the top management.
Why do businesses opt for strategic management even with its limitation?
Because even though it has its limitations, its importance outweighs its shortcomings. A business cannot operate and succeed without proper strategic management.
What is vision? What are the essentials for a strategic vision?
Vision implies the blueprint of the company’s future position. It describes where the organisation wants to land. It depicts the organisation’s aspirations and provides a glimpse of what the organisation would like to become in future. Every sub system of the organisation is required to follow its vision.
Essentials of a strategic vision
* The entrepreneurial challenge in developing a strategic vision is to think creatively about how to prepare a company for the future.
* Forming a strategic vision is an exercise in intelligent entrepreneurship.
* A well-articulated strategic vision creates enthusiasm among the members of the organisation.
* The best-worded vision statement clearly illuminates the direction in which organisation is headed.
What is a mission? Why should an organization have a mission?
A mission is an answer to the basic question ‘what business are we in and what we do’. It defines the present capabilities, activities, customer focus and role in society.
* To ensure unanimity of purpose within the organisation.
* To develop a basis, or standard, for allocating organisational resources.
* To provide a basis for motivating the use of the organisation’s resources.
* To establish a general tone or organisational climate, to suggest a business-like operation.
* To serve as a focal point for those who can identify with the organisation’s purpose and direction.
* To facilitate the translation of objective and goals into a work structure involving the assignment of tasks to responsible elements within the organisation.
* To specify organisational purposes and the translation of these purposes into goals in such a way that cost, time, and performance parameters can be assessed and controlled.
points are useful while writing a mission of a company:
- One of the roles of a mission statement is to give the organisation its own special identity, business emphasis and path for development – one that typically sets it apart from other similarly positioned companies.
- A company’s business is defined by what needs it is trying to satisfy, which customer groups it is targeting and the technologies and competencies it uses and the activities it performs.
- Good mission statements are – unique to the organisation for which they are
developed.
What are Goals and Objectives. What are the characteristics of objectiveness.
Goals are the end results, that the organisation attempts to achieve. On the other hand, objectives are time-based measurable targets, which help in the accomplishment of goals. These are the end results which are to be attained with the help of an overall plan, over the particular period.
Objectives, to be meaningful to serve the intended role, must possess the following characteristics:
* Objectives should define the organisation’s relationship with its environment.
* They should be facilitative towards achievement of mission and purpose.
* They should provide the basis for strategic decision-making.
* They should provide standards for performance appraisal.
* They should be concrete and specific.
* They should be related to a time frame.
* They should be measurable and controllable.
* They should be challenging.
* Different objectives should correlate with each other.
* Objectives should be set within the constraints of organisational resources
and external environment.
Explain the difference between three levels of strategy formulation.
A typical large organization is a multidivisional organisation that competes in several different businesses. It has separate self-contained divisions to manage each of these. There are three levels of strategy in management of business - corporate, business, and functional.
The corporate level of management consists of the chief executive officer and other top-level executives. These individuals occupy the apex of decision making within the organization. The role of corporate-level managers is to oversee the development of strategies for the whole organization. This role includes defining the mission and goals of the organization, determining what businesses it should be in, allocating resources among the different businesses and so on rests at the Corporate Level.
The development of strategies for individual business areas is the responsibility of the general managers in these different businesses or business level managers. A business unit is a self-contained division with its own functions - For example, finance, production, and marketing. The strategic role of business-level manager, head of the division, is to translate the general statements of direction and intent that come from the corporate level into concrete strategies for individual businesses.
Functional-level managers are responsible for the specific business functions or operations such as human resources, purchasing, product development, customer service, and so on. Thus, a functional manager’s sphere of responsibility is generally confined to one organizational activity, whereas general managers oversee the operation of a whole company or division.
Explain the types of Network of relationship between the three levels. ( corporate, business and functional )
There are 3 major types of networks of relationship between the levels and also amongst the same levels of a business;
Functional and Divisional Relationship: It is an independent relationship, where each function or a division is run independently headed by the function/division head, who is a business level manager, reporting directly to the business head, who is a corporate level manager. Functions maybe like Finance, Human Resources, Marketing, etc. while Divisions may depend on the products like for a toys manufacturer - kids toys, teenager toys, etc. could be divisions.
Horizontal Relationship: All positions, from top management to staff-level employees, are in the same hierarchical position. It is a flat structure where everyone is considered at same level. This leads to openness and transparency in work culture and focused more on idea sharing and innovation. This type of relationship between levels is more suitable for startups where the need to share ideas with speed is more desirable.
Matrix Relationship: It features a grid-like structure of levels in an organisation, with teams formed with people from various departments that are built for temporary task-based projects. This relationship helps manage huge conglomerates with ease where it is nearly impossible to track and manage every single team independently. In Matrix relationship - there are more than one business level managers for each functional level teams. It is complex for smaller organisations, but extremely useful for large organisations.
Scenario Based Questions
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