PPT STRATEGIC MANAGEMENT Components of strategy.pptx

business course notes

1. Components of strategy

2. Components of strategy A good strategy must have the following components: Scope of an organizations activities The strategy must indicate the product range i.e. the number of products it intends to sell, and geographic coverage i.e. the number of markets in which the company intends to compete. A firm may have a broad or narrow scope e.g. Microsoft sells operating systems as well as many types of application software e.g. word and excel. Word perfect – has essentially restricted itself to word processing software. Distinctive competence/competencies Refers to what a firm does well relative to competitors or those things that an organization does particularly well relative to competitors. Distinctive competencies occur when an organization‟s strengths can not be easily matched or imitated by a competitor. A company focuses on these distinctive competencies when developing its strategies. Those competencies/capabilities fundamental or key to a firm‟s strategy and performance are referred to as core competencies.

3. Components of strategy Resource deployment Should indicate resource deployment patterns in trying to match the firm to its environment and achieve its objectives. Organizations may invest resources in a number of ways, thus firms endowed with similar resources may perform differently. Competitive advantage This is the ability to do something that competitors cannot do nearly as well, and thus being able to occupy a superior position in an industry and out perform rivals on the primary performance goal – profitability. A company‟s superior competitive position allows it to achieve higher profitability than the industry‟s average. Competitive advantage results by taking advantage of distinctive competence to build strategic superiority.

4. Components of strategy Synergy Synergy refers to the cumulative enhanced effect of performing activities jointly. The basic idea is that an organization‟s resources should be linked so that the combined performance of its subunits is greater than if those units were operating alone or independently. Thus a firm‟s strategy should strive for synergy – combine resources and perform activities jointly for enhanced results. Synergy is also referred to as 2 + 2 = 5 aspect of strategic fit.

5. Value of strategy Provides direction Strategy helps in providing direction to a company. There are numerous activities to be performed by any company. Some are of short term nature, while others are of longer term. It is important that all these activities reinforce each other. Strategy can help achieve this, thereby enabling managers to focus on both short term and long term. Further, many strategic decisions have long lead times. These are key decisions that are resource costly, but yield profits and success in the future. There is a human tendency to shy away from taking such decisions. This can result in managers sacrificing the future for today. Strategy helps to prevent this from happening. The discipline that strategy imposes makes managers be futuristic i.e. focus on both short term and long term. By formulating vision, mission, short term and long term objectives, and strategies, the firm determines where it is headed to and how to reach that destiny.

6. Value of strategy 2. Competitive Advantage Companies operate in industries where there are other players and there is competition in virtually all industries. This competition may be low or intense and one has to succeed in such competition. Just as the focus of a company‟s efforts is the customer, so is that of competitors. It is therefore necessary to serve the customer as or better than competitors for survival and success. Where a company is able to outdo or outperform competitors (able to do something in ways that they can not do or at least cannot do nearly as well) the company has a competitive advantage/edge or superior competitive position which allows the company to achieve higher profits than the industry‟s average. Strategy helps a company develop such advantage. It spells out how a company will alter its strengths/ distinctive competencies in the most effective and efficient way to develop strategic superiority. It is important to emphasize, however, that in trying to match or outsmart competitors, the company‟s focus on customers should not change. A company will earn a sustainable competitive advantage if it can consistently deliver superior value to customers, relative to competitors. At no time should a company compromise its focus on customer needs. Indeed successful company strategy always revolves around the customer.

7. Value of strategy Focus in resources As companies try to achieve their objectives, they only have limited resources to do so. The use of these resources should be focused and strategy helps achieve such focus. During the strategy development process, managers define the strategy agenda for the company. The critical tasks to be performed are identified; resources are then allocated focusing on these critical tasks. Without clearly though out strategy, resource allocation might be random leading to resource misallocation and wastage.

8. Value of strategy Reduces Conflict Harmony in company activities is critical for success. It is thus important that all members of the company and all departments work as one unit and the different departments understand their respective roles in the company. Strategy through the formulation of corporate mission, goals or objectives and strategies helps clarify where the company is going and the contribution of each of the departments and individuals towards this destiny. This helps reduce conflicts within the company . Response to change The major task of managers is to assure continued survival and success of the companies they manage. Such success is attained if the managers marshal the required resources and deploys them effectively and efficiently to ensure a match/fit between the output of the company and the demands of the market.

9. Value of strategy The external environment in which companies operate is dynamic- rapidly changing and sometimes in unpredictable ways. It is necessary that a company adequately responds to these changes for survival and success. Failure to do so will make a company experience a big strategic problem. This is a problem that arises out of the maladjustment of any company to its environment. It is characterized by a mismatch between the output of the company and the demands of the market. Strategy is useful in helping managers tackle the potential strategic problem that faces their companies. Strategy requires that managers have both an internal and external focus. This means that the external environment is continuously monitored and managers are futuristic in their thinking and actions. This external focus and futuristic orientation can enable managers to understand the environment, anticipate possible environmental changes, for example, changes in customer needs and competitors‟ strategies and develop a proactive stance in responding to them.

10. Value of strategy Therefore, a company‟s strategy is an intimation of how the company will interact with the environment and maintain the firm-environment or input-output cycle to achieve a fit/match with its environment. The systems theory underscores the interrelationships and the need for fit between the firm and environment.

11. Benefits Or Value Of Strategic Management It helps the company to identify opportunities for future business or to establish the direction the organization will take in the future. It helps management to focus on both short term and long term goals. Where the concern of management is on short-term goals the focus is on efficiency of various programmes but where the concern of management is on long term goals, their focus in on efficiency and effectiveness of the organization as a whole. It helps the organization to respond to various environmental changes and in particular helps the manager to become proactive and thus futuristic instead of been reactive. It help the company to obtain complete edge in the market so as to survive in its industry in particular. It helps the manager to focus on what the needs of customer of the organization. It helps the management to focus on utilization and placing resources where the impact and profits are greatest. Strategy also helps the management to provide continuation within a form of encouraging the corporation and harmony of everyone within the firm.

12. Risks of Strategic Management The time that managers take or spent on the strategic management process may have negative impact on the operations of the firm. If the formulators of the strategy are not intimately involved in the implementation there may be a gap hence not able to achieve the intended result effectively. Strategic managers must be trained to anticipate disappointments and how to respond effectively to them.