Strategic Planning and Strategic Management - Copy.pptx

Strategic Planning and Strategic Management in corporate finance

1. Strategic Planning and Strategic Management

2. Strategic planning  is the process of defining an organization's direction and making decisions on allocating its resources to pursue this direction.  Strategic management  involves the formulation and implementation of the major goals and initiatives taken by a company's top management on behalf of owners, based on consideration of resources and an assessment of the internal and external environments in which the organization competes. In brief, strategic planning sets the direction and strategy management implements it. 2

3. Strategic Planning Strategic Management Focuses on setting future goals and objectives Focuses on achieving goals and objectives through implementation and monitoring Determines long-term direction Adapts to changing internal and external factors Involves top-level management Involves all levels of management Emphasizes goal-setting and strategy formulation Emphasizes strategy implementation and control Usually a formal, written plan More informal and dynamic process Done periodically (e.g. annually) Ongoing process End product is a plan End product is a continuously improving organization Output is directional Output is operational 3

4. Key differences between Strategic Planning and Strategic Management Purpose : Strategic planning is a process to determine the direction of an organization, while strategic management is the ongoing process of implementing and revising strategies to achieve the organization's goals. Time Horizon : Strategic planning focuses on long-term goals, while strategic management is concerned with both long-term and short-term objectives. Process : Strategic planning involves creating a plan, while strategic management involves executing the plan and continuously making adjustments. Scope : Strategic planning is typically organization-wide, while strategic management can involve specific business units or departments. Participants : Strategic planning often involves senior leaders, while strategic management may involve a broader group of stakeholders. Focus : Strategic planning is focused on creating a plan, while strategic management is focused on implementing and executing the plan. Output : The output of strategic planning is a written plan, while the output of strategic management is actions taken and results achieved. 20-10-2024 4

5. Strategic Planning Strategic planning is the process of defining an organization's direction and making decisions on allocating its resources to pursue this direction. It involves setting long-term goals, analyzing internal and external factors that may impact those goals, and determining the best course of action to achieve them. The outcome of strategic planning is a strategic plan, which outlines the organization's objectives, strategies, and action plans. Effective strategic planning ensures that an organization remains relevant and competitive in its industry, and is a critical component of its success. 20-10-2024 5

6. Advantages of Strategic Planning Clarifies Goals and Priorities:  Strategic planning helps organizations to clarify their goals and priorities, aligning all efforts towards achieving these objectives. Improved Decision-Making : By considering all relevant factors and alternatives, strategic planning enables organizations to make informed decisions that align with their goals. Increased Effectiveness and Efficiency : By having a clear plan in place, organizations can allocate resources and allocate tasks more effectively, leading to increased efficiency. Enhanced Competitive Advantage : Through strategic planning, organizations can identify and respond to market opportunities, thereby gaining a competitive advantage. Better Resource Allocation : Organizations can allocate resources, including funding and manpower, more effectively and efficiently, leading to better outcomes. Improved Communication and Collaboration : Strategic planning can foster better communication and collaboration among different departments and stakeholders. Increased Flexibility and Adaptability : By continuously reassessing and adjusting their plans, organizations can maintain their relevance and be better equipped to handle changes. Improved Organizational Performance : Effective strategic planning leads to improved organizational performance, as it helps organizations to better align their resources, efforts and goals. 20-10-2024 6

7. Disadvantages of Strategic Planning Time - Consuming : Strategic planning can be a long and complex process, requiring significant time and resources to complete. Limited Flexibility : Once a strategic plan is in place, it can be difficult to make changes, limiting an organization's flexibility and adaptability. Resistance to Change : Some employees may resist change, making it difficult to implement the strategies outlined in the plan. Overreliance on Planning : Organizations can become overly dependent on their plans and may not be able to respond effectively to unexpected events or changing conditions. Lack of Input : If strategic planning is done solely by top management, it can result in a lack of input from other stakeholders, leading to a lack of buy-in and implementation difficulties. Insufficient Resources : Strategic planning may reveal the need for significant investments in personnel, technology, or other resources that the organization may not have. Complexity : The process of strategic planning can be complex, requiring specialized knowledge and skills, which can be a barrier for some organizations. Potential for Conflict : Strategic planning can create conflict, as different stakeholders may have different opinions or interests in the direction of the organization. 20-10-2024 7

8. Meaning of Strategic Management The term ‘strategic management’ includes two words – ‘strategy’ & ‘management’. ‘Strategy’ means a plan of action designed to achieve a long term or overall aim. This is the means by which long-term objectives will be achieved. ‘management ’ means the process of dealing with or controlling things or people. Strategic management can be defined as the art and science of formatting, implementing , and evaluating cross-functional decisions that enable an organization to achieve its objectives . Strategic Management focuses on integrating management, marketing , finance / accounting, production, operations, research and development, and information system to achieve organization success. 20-10-2024 8

9. “ Strategic Management is concerned with making decision about organization’s future direction and implementing those decisions”. - LIOYD L. BYARS . “Strategic Management is a strain of decisions and actions, which leads to the development of an effective strategy or strategies to help achieve corporate objectives .” - GLUECK . Strategic management is the process of formulating and implementing strategies to achieve an organization's goals and objectives. It is important in charting an organization’s future course and ensures its ability to prosper and maintain competitiveness in an ever-shifting business environment. 20-10-2024 9

10. What is Strategy? Strategy refers to a plan or approach designed to achieve a specific goal. It involves making choices and decisions about using resources effectively and overcoming challenges. It helps to determine the best course of action to achieve long-term success and stay ahead of competitors. Amazon is a company known for its strategic excellence. Its success lies in its customer-centric approach and relentless focus on innovation. Strategic initiatives, such as Prime membership and personalized recommendations, have propelled it to become a dominant player in e-Commerce globally.  20-10-2024 10

11. Levels of Strategic Planning/Strategy Corporate Level Strategy Business Level Strategy Functional Level Strategy Operational Level Strategy 20-10-2024 11

12. Strategic Management Strategic management is the process of making decisions and taking actions that shape and guide an organization's direction and objectives, based on considering internal and external factors. It involves setting goals, analyzing the competitive environment, and allocating resources to implement plans and achieve the desired outcomes. 20-10-2024 12

13. Example of Strategic Management : Amazon Strong Market Entry: Amazon entered the Indian market with significant investment and long-term vision, demonstrating its commitment to success. They strategically focused on building a robust logistics infrastructure, expanding product offerings, and offering competitive pricing. Customer-Centric Approach: Amazon prioritized providing exceptional customer experience by offering fast and reliable delivery, easy returns, and a wide range of products. They leveraged their global expertise in e-commerce to create a seamless online shopping experience for Indian customers. Continuous Innovation: Amazon introduced innovative features and services tailored to the Indian market, such as Hindi language support, regional content, and localized payment options. They constantly adapted their offerings based on customer feedback and market trends. Competitive Pricing: Amazon employed a competitive pricing strategy to attract customers, offering discounts and deals on popular products. They leveraged their global scale and supply chain efficiencies to provide cost-effective solutions. Strategic Partnerships: Amazon forged partnerships with local retailers, brands, and small businesses, enabling them to expand their product range and offer exclusive deals. This approach helped them tap into the vast Indian market and build trust among local sellers. Investments in Technology: Amazon significantly invested in technology and data analytics to enhance customer personalization, improve operational efficiency, and drive insights for strategic decision-making. These strategies allowed Amazon to differentiate itself, gain market share, and gradually surpass local players like Snapdeal and Flipkart in terms of customer trust, brand recognition, and market dominance. 20-10-2024 13

14. Characteristics of Strategic Management: I. STRATEGY IS A SYSTEMATIC PHENOMENON: Strategy involves a series of action plans, no way contradictory to each other because a common theme runs across them . It is not merely a good idea; it is making that idea happen too . Strategy is a unified, comprehensive and integrated plan of action. II. IT IS MULTIDISCIPLINARY: Strategy involves marketing, finance, human resource and operations to formulate and implement strategy . Strategy takes a holistic view. It is multidisciplinary as a new strategy influences all the functional areas, i.e. marketing financial human resource and operations. III. IT IS HIERARCHICAL: On the top come corporate strategies, then come business unit strategies, and finally functional strategies . Corporate strategies are decided by the top management, Business Unit level strategies by the top people of individual strategic business units, and the functional strategies are decided by the functional heads. 20-10-2024 14

15. Contd … IV. IT IS DYNAMIC:  Strategy is to create a fit between the environment and the organization’s actions. As environment itself is subject to fast change, the strategy too has to be dynamic to move in accordance to the environment . Success of Microsoft appears to be very simple as far as software for personal computers are concerned, but Microsoft strategy required continuous decisions in a turbulent and dynamic environment to remain leader . V. IT IS MULTIDIMENSIONAL: Strategy not only tells about vision and objectives, but also the way to achieve them . So, it implies that the organization should possess the resources and competencies appropriate for implementation of strategy as well as strong performance culture, with clear accountability and incentives linked to performance 20-10-2024 15

16. Objectives of Strategic Management Setting Direction: This aims to establish a clear direction for the organization by defining its vision, mission, and long-term goals. It helps align the organization's efforts towards a common purpose. Creating Competitive Advantage: It identifies and develops strategies that give the organisation a competitive edge. This includes leveraging strengths, exploiting opportunities, and mitigating risks to outperform competitors. Resource Allocation: Effective SM ensures optimal allocation of resources, including financial, human, and technological assets. It involves allocating resources based on priorities, maximizing efficiency, and achieving the desired outcomes. Adapting to Change: It helps organizations adapt to the dynamic business environment by scanning for external factors, anticipating changes, and formulating proactive strategies. It enables the organization to stay agile and responsive to market shifts and emerging trends. Enhancing Performance: SM's ultimate objective is to enhance overall organizational performance. This includes achieving financial growth, increasing market share, improving operational efficiency, and delivering value to stakeholders. Long-Term Sustainability: It focuses on ensuring the long-term sustainability and viability of the organization. It involves strategically considering the social, environmental, and ethical aspects to foster responsible and sustainable business practices. 20-10-2024 16

17. Advantages of Strategic Management Helps organizations achieve their goals : Strategic management provides a roadmap for organizations to achieve their goals, prioritize resources, and allocate responsibilities. Improves decision-making : Strategic management involves evaluating past performance, analyzing trends, and considering future possibilities, which enables organizations to make informed decisions. Increases competitiveness:  By regularly analyzing the organization's strengths, weaknesses, opportunities, and threats, strategic management helps organizations stay ahead of their competition. Aligns resources with goals : Strategic management helps organizations align their resources, including finances, personnel, and technology, with their goals. Facilitates adaptation : Strategic management helps organizations adapt to changes in the market, technology, or competition, by enabling them to identify and respond to new opportunities and challenges. Enhances accountability : By establishing clear goals, responsibilities, and performance measures, strategic management holds individuals and teams accountable for results. Improves communication : The process of developing and implementing a strategic plan helps organizations improve communication, foster collaboration, and build a shared understanding of their vision, mission, and goals. 20-10-2024 17

18. Disadvantages of Strategic Management Time - consuming : The process of strategic management can be time-consuming, requiring significant investments in planning, research, and analysis. Costly : Implementing a strategic plan often involves significant financial investments, including personnel, technology, and marketing expenses. Risk of obsolescence : The fast pace of change in the business environment means that strategic plans can become quickly outdated, requiring constant monitoring and revision. Resistance to change : The implementation of a new strategic plan can encounter resistance from employees, customers, and other stakeholders, which can slow down or even derail the process. Lack of flexibility : A rigid adherence to a strategic plan can limit an organization's ability to respond to new opportunities and challenges, or to take advantage of unexpected developments. Dependence on inaccurate data : The accuracy of the data and assumptions used in strategic planning is critical, but there is a risk of basing decisions on inaccurate or outdated information. Bias and groupthink : The strategic management process can be influenced by personal bias or group dynamics, leading to flawed decision-making and a lack of objective analysis. 20-10-2024 18

19. Similarities between Strategic Planning and Strategic Management Both focus on long-term goals and objectives. Both involve analyzing the organization's current situation and future potential. Both involve setting priorities and allocating resources. Both involve monitoring and adjusting plans as needed. Both require collaboration and communication between different departments and stakeholders. Both involve considering external factors such as competition, market trends, and technology. Both require evaluation of past performance to inform future decision making. Both aim to create a competitive advantage for the organization. 20-10-2024 19

20. Comparison of different forms of Business organisations 10/20/2024 20

21. What is Business Environment Business Environment can be defined as the aggregate of all those forces, factors and institutions which directly affect the working of a business organization. Some of these constituents may be static, while others may be changing. “Business Environment is the aggregate of all conditions, events and influences that surround and affect the business.” Keith Davis 10/20/2024 21

22. Contd …. “Business Environment encompasses the climate or set of conditions-economic, social, political or institutional in which business operations are conducted.” Prof. Weimer “The term Business Environment of a company is defined as the pattern of all external influences that affect its life and development.” Andrews “The total of all things external to firms and industries that affect the function of the organisation is called business environment.” Wheeler 10/20/2024 22

23. A business environment is a dynamic and ever-changing collection of internal and external factors that affect a company's operations. These factors can influence each other and work together to affect a business. Business Environment is sum or collection of all internal and external factors such as employees, customers needs and expectations, supply and demand, management, clients, suppliers, owners, activities by government, innovation in technology, social trends, market trends, economic changes, etc. 10/20/2024 23

24. Business Environment 10/20/2024 24

25. Characteristics/Nature of Business Environment Complex : Environment comprises of many factors. All these factors are related to each other. Therefore, their individual effect on the business cannot be recognised . This is perhaps the reason which makes it difficult for the business to face them. Dynamic : As is clear that environment is a mixture of many factors and changes in some or the other factors continue to take place. Therefore, it is said that business environment is dynamic. Uncertain : Nothing can be said with any amount of certainty about the factors of the business environment because they continue to change quickly. The professional people who determine the business strategy take into consideration the likely changes beforehand. 10/20/2024 25

26. Contd … Multi-dimensional : Business environment is related to the local conditions and this is the reason as to why the business environment happens to be different in different countries and different even in the same country at different places. Interdependent components : The different factors of business environment are co-related. For example, change in the import-export policy with the coming of a new government. In this case, the coming of new government to power and change in the import-export policy are political and economic changes respectively. Thus, a change in one factor affects the other factor. 10/20/2024 26

27. Thank you 10/20/2024 27